Blogs & Comment

Ethics & Economics, Part 1

Far from being 'the dismal science,' economics is fascinating, and essential to the study of ethics.

(Photo: Sabine Scheckel/Getty)

This is the first of an occasional series on the relationship between ethics and economics.

Although I’m not an economist, I do find economics both important and interesting. It is far from its reputation as “the dismal science.” Its reputation as dismal likely comes from the fact that the stuff it studies is often dismal, for it studies things like scarcity and competition, things that are most often experienced as negatives. But those things are unavoidable facts of the human condition. In this regard, economics is no more ‘dismal’ than physics. It’s a bummer that I cannot fly unaided or teleport or be in two places at one time, but those facts don’t make the study of physics particularly dismal.

So we shouldn’t avoid economics. And understanding at least a bit of economics is crucial to a deep understanding of many issues in business ethics. You can’t effectively critique the market, or the institutions that populate it, without understanding at least a bit of the theory behind how they’re supposed to work. That’s why I often start my own Business Ethics course by having students read a bit of Adam Smith’s Wealth of Nations, as well as commentaries on Smith by Nobel Prize-winning economists Ronald Coase and Amartya Sen. A bit of economic literacy goes a long way.

The definition of “Economics” that I typically use in my own teaching is this one, cobbled together from various sources, is this:

Economics is the social science that deals with the production and distribution and consumption of goods and services and their management.

In particular, I usually add, economics tends to involve the study the ways in which behaviour within systems of production, distribution, and consumption is driven by incentives. The other things that I take to be typical of the work of economists, if not part of the definition of the discipline:

  • Economists tend to be particularly interested in the way people respond to incentives of various kinds;
  • Economists care a lot about actual data. They care in particular about the actual consequences of various policy decisions, rather than just the intentions behind them.
  • While economics is nominally a descriptive discipline, its descriptive theories (about, e.g., the conditions under which markets operate efficiently) tend pretty quickly to generate policy prescriptions (for what governments can & should do to foster such efficient operation).

Here is another definition of economics, which Thomas Sowell, in his textbook Basic Economics, attributes to the late British economist Lionel Robbins:

Economics is the study of the use of scarce resources which have alternative uses.

I like that definition quite a lot, since it highlights the intersection with ethics: justice, one of the central topics within ethics, is primarily about the fair distribution of scarce resources.

I’ll end there for now. But watch here for other entries in this series, on how ethics and economics overlap and/or conflict. In the interest of promoting economic literacy, here are a few books about economics that I recommend. All of them are aimed at non-economist audiences.