Philosophy of Economics

Philosophy of Economics

The philosophy of economics concerns itself with conceptual, methodological, and

ethical issues that arise within the scientific discipline of economics.1 The primary focus is on issues of methodology and epistemologyÐ'--the methods, concepts, and theories through which economists attempt to arrive at knowledge about economic processes. Philosophy of economics is also concerned with the ways in which ethical values are involved in economic reasoningÐ'--the values of human welfare, social justice, and the tradeoffs among priorities that economic choices require. Economic reasoning has implications for justice and human welfare; more importantly, economic reasoning often makes inexplicit but significant ethical assumptions that philosophers of economics have found it worthwhile to scrutinize. Finally, the philosophy of economics is

concerned with the concrete social assumptions that are made by economists. Philosophers have given attention to the institutions and structures through which economic activity and change take place. What is a "market"? Are there alternative institutions through which modern economic activity can proceed? What are some of the institutional variants that exist within the general framework of a market economy? What are some of the roles that the state can play within economic development so as to promote efficiency, equity, human well-being, productivity, or growth?

The dimension of the philosophy of economics that falls within the philosophy of science

has to do with the status of economic analysis as a body of empirical knowledge. Primary

questions include: What is economic knowledge about? What kind of knowledge is provided by the discipline of economics? How does it relate to other social sciences and the bodies of knowledge contained in those disciplines? How is economic knowledge justified or evaluated? Does economic theory purport to offer abstract theories of real social processesÐ'--their mechanisms, dynamics, and institutions? What is the nature of economic explanation? What is the relationship between abstract mathematical models and theorems, on the one hand, and the empirical reality of economic behavior and institutions, on the other? What is the nature of the concepts and theories in terms of which economic beliefs are formulated? Are there laws like regularities among economic phenomena? What is the status of predictions in economics?

The intellectual role of the philosophy of economics

Philosophers are not empirical researchers, and on the whole they are not formal theory builders. So what constructive role does philosophy have to play in economics? There are several.

Ð'* First, philosophers are well prepared to examine the logical and rational features of an empirical discipline. How do theoretical claims in the discipline relate to empirical evidence? How do pragmatic features of theories such as simplicity, ease of computation, and the like, playa role in the rational appraisal of a theory? How do presuppositions and traditions of research serve to structure the forward development of the theories and hypotheses of the discipline?

Ð'* Second, philosophers are well equipped to consider topics having to do with the concepts and theories that economists employÐ'--for example, economic rationality, Nash equilibrium, perfect competition, transaction costs, or asymmetric information. Philosophers can offer useful analysis of the strengths and weaknesses of such concepts and theoriesÐ'--thereby helping practicing economists to further refine the theoretical foundations of their discipline. In this role the philosopher serves as a conceptual clarifier for the discipline, working in partnership with the practitioners to bring about more successful economic theories and explanations.

So far we have described the position of the philosopher as the "under laborer" of the

economist. But in fact, the line between criticism and theory formation is not a sharp one.

Economists such as Amartya Sen and philosophers such as Daniel Hausman have demonstrated that there is a very constructive crossing of the frontier that is possible between philosophy and economics; and that philosophical expertise can result in significant substantive progress with regard to important theoretical or empirical problems within the discipline of economics. The cumulative contents of the journal Economics and Philosophy provide clear evidence of the productive engagements that are possible when philosophy meets economics. In order to accomplish these goals, the philosopher of economics has a responsibility parallel to that of the philosopher of biology or philosopher of physics: he or she must attain a professional and rigorous understanding of the discipline as it currently exists. The most valuable work in the philosophy of any science proceeds from the basis of significant expertise on the part of the philosopher about the "best practice," contemporary debates, and future challenges of the discipline. Only through such acquaintance will the philosopher succeed in raising topics that genuinely engage with important issues in the profession.

Important questions in the philosophy of economics

Let us now consider a sampling of philosophical questions about economics as an organized body of knowledge. These questions by no means exhaust the content of the philosophy of economics, but they serve to give the reader of the types of questions that philosophers have posed to the discipline of economics.

Are there laws in economics?

The concept of a "law of nature" has been central to our understanding of the natural

sciences. The intellectual power of classical physics derived from the fact that it was capable of advancing statements of physical laws that were simple and universalÐ'--laws of gravitation and planetary motion, optics, electricity and magnetism, etc. Is this an essential feature of a successful empirical science? And does economics possess such laws? Several authors are affirmative on both points (Kincaid 1996), (Rosenberg 1976). However, several points have emerged in recent discussions of the social sciences that lead to doubt about the centrality of laws in the social sciencesÐ'--including economics. First, there are significant differences between natural and social phenomena that should make us dubious about the availability of strong "laws of nature" describing