econcrit: What economics is

Friday, June 17, 2022

What economics is

The economics of the individual agent's decisions about resources is referred to as microeconomics, while macroeconomics studies the interactions in the economy as a whole.
- SOAS

Every so often a sentence sticks in my mind. This is one of them:

Indeed, E. Khalil [1996] is right in arguing that Robbins’s conception of economics has won out over that presented by Alfred Marshall or Karl Polanyi, yet the issue has not yet been entirely settled.
Jérôme Maucourant. "The ambiguous birth of political economy: Montchrestien
vs. Cantillon". 2011. HAL Id: halshs-01016945
https://halshs.archives-ouvertes.fr/halshs-01016945/document

The topic is the definition of economics, or what econ "is". That's important. The issue has not yet been entirely settled. That's important. Definitions are attributed to Lionel Robbins, Alfred Marshall, and Karl Polanyi. That's important. And, E. Khalil said it and Jérôme Maucourant repeated it. That's important, too. But somehow, I don't get any information from that sentence. So it litters my mind like an empty beer can on the side of the road.

It litters in my mind until I do something about it. I did something about it before, but with no success: There are presently nine posts on my offline development blog containing the name Maucourant. Only one of them made it to EconCrit, and it doesn't mention Lionel Robbins.

I have to be finished with that important sentence. I need my brainspace for other things. So I went looking. The reference, from the Maucourant paper, is:

Khalil E. L. [1996], “What is economic action? From Marshall and Robbins to Polanyi and Becker”

I found the Khalil paper, but I refuse to pay to access it. All I want is a paragraph or two, for context. But, eh, I don't need it.

I know of Robbins and find him sometimes interesting^[1] but I have no idea what his "conception of economics" was. Google's featured snippet, from the National Library of Medicine (of all places!) says

In his landmark essay on the nature of economics, Lionel Robbins defined economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses" (Robbins, 1935, p. 16).

To me that sounds like the standard version I was taught in Econ 101 back in '77:

Recalling that wants are unlimited and resources are scarce, economics can be defined as the social science concerned with the problem of using or administering scarce resources (the means of producing) so as to attain the greatest or maximum fulfillment of society's unlimited wants (the goal of producing).
Campbell R. McConnell. Economics: Principles, Problems, and Policies, sixth edition, p.25.

McConnell is more cautious and wordy than Robbins, but little different otherwise. The key ingredient for both of them is the relative scarcity of resources.

The scarcity of resources? How does that stack up to problem of insufficient aggregate demand? You can't have it both ways.

I checked Marshall. The featured snippet leads to a page at Vancouver Island University that attributes this sentence to Alfred Marshall:

Economics is the study of mankind in the ordinary business of life.

The understatement doesn't interest me. A page at Exam Notes says Marshall was

the first Economist who denied the wealth-related definitions of Adam Smith, which was in vogue for a long time...

Now that's interesting.

I checked Polanyi. Google's featured snippet turned up a paper by Daniel Ankarloo: "Some Notes on The Economic Theories of Karl Polanyi". Ankarloo's paper presents Polanyi's view in a way that stands in strong contrast to the "scarcity" focus of Robbins and McConnell:

To orthodoxy the economy is the choice between scarce means in relation to preferred ends. Economizing means allocation of these scarce resources. This according to orthodoxy is ”the economic problem”. Polanyi calls this a formalist definition of the economy. Its validity is relative to the historical development - and fact - of a market society (a specific form of economic organization) but, in essence, the substance of the economy is to provide a physical environment to sustain human life.

The substance of the economy is to provide a physical environment to sustain human life. It doesn't get any more clear than that.

That clear thought, by the way, reminds me of Vladimir Simkhovitch's summary of the "fundamental trouble" and cause of Rome's decline: "labor could not support life". Reminds me, too, of the toast Keynes made to "economists, who are the trustees not of civilization, but of the possibility of civilization." If economists fail in their job, labor does not support life and civilization does not survive.

That is the crux of the matter, right there.

I don't deny that scarcity plays an important role in economics. But I point out that scarcity only exists in relation to wants and needs: If there is no demand for buggywhips, then buggywhips are not scarce.

What's worse, and what is seriously wrong with Robbins's definition of economics, is that it describes only microeconomics -- "the individual agent's decisions", as SOAS says. For the consumer, scarcity reduces employment and increases costs, with the result that improvements in the standard of living are "scarce". For the producer, the scarcity of resources increases costs and reduces profits. The real concern for the producer is not scarce resources but scarce profits.

Worst of all, Robbins's statement justifies unnecessary costs that magnify the problem of scarcity, costs like those generated by excessive finance, and excessive debt, mostly in the private sector.

When Lionel Robbins described economics as the study of the "relationship between ends and scarce means", between scarce supply and limitless demand, he was describing only micro-economics. To be fair to Robbins, I should say that his definition dates from the early 1930s, and macro-economics wasn't even invented until Keynes published his General Theory in 1936.

However, Campbell McConnell cannot rely on the excuse that he didn't know about macro-economics. Nor can the economic "orthodoxy" that Ankarloo mentions.

The problem of scarcity is the problem of individuals in our economy. It is not the problem of our economy.

The economic problem today is often said to be the insufficiency of aggregate demand. That thought is unduly oversimplified, but I basically agree with it. And from this perspective, the perspective that aggregate demand is insufficient, one has to ask: Resources are scarce, you say? Your thinking is outdated, and your focus is wrong. The economy changes, brother.

Microeconomics is the science of making more profit. It is the science of business.

Macroeconomics is the science of making the economy work better. It is the science of promoting the general welfare.

What we need, in these troubled days, is a science and study of monetary imbalance -- the imbalance that leads to extreme economic inequality, for example; the imbalance between the quantity of money and the quantity of debt; and the imbalance created for example when some types of income are taxed and others are not. We need a science of monetary balances.

NOTE 1: For example, Robbins said: