This is a review of economics and its relationships with other social sciences and subjects, such as philosophy, politics, maths, physics, anthropology, psychology and sociology. Also, to what extent does economics benefit from expanding into other subjects?
What is economics?
Economics a social science that studies the production, consumption and distribution of goods and services. Economics develops models and theories to try and understand decision making by firms, consumers and governments. For example, how an individual chooses to spend their income.
- Microeconomics is a branch of economics that focuses on individual markets and individual decisions, for example, factors that determine the price of oil and how changes in price affect consumers and firms.
- Macroeconomics is a branch of economics concerned with the whole economy. For example, macroeconomics is concerned with economic growth, unemployment and the rate of inflation (how fast general prices are increasing.)
However, whilst economics has a clear subject matter, it frequently overlaps with other subjects and in recent years, there has been a trend to expand the horizons of economics and take on board insights from other disciplines from psychology to anthropology and sociology. J.M. Keynes wrote in an essay on Alfred Marshall.
“The study of economics does not seem to require specialized gifts of an unusually high order. Is it intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science?
Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master economist must possess a rare combination of gifts… He must be mathematician, historian, statesman, philosopher in some degree.” “Essay on Alfred Marshall”, J.M.Keynes: ‘Essays in Biography.’
Economics and Psychology
In recent decades, economics has seen more overlap with the subject of psychology. Traditional economics was dismissive of psychology assuming that individual agents were rational and sought to maximise utility/profit. Classical economics of Alfred Marshall assumed the average consumer would make choices to maximise their utility.
However, from the 1970s, more economists became interested in the effect of psychology in decision making. Termed behavioural economics, these new economists challenged the assumption individuals were always rational, but actually could be heavily influenced by psychological factors. For example
- Irrational exuberance – people get caught up in bubbles and rising asset prices
- The power of nudges and framing – people respond to stimuli and make easy decisions
- Endowment effects – in classical economics we should value £100 the same, but behavioural economics noticed that we are much more attached to the £100 asset we already have. There is a greater sense of loss losing what we have, rather than not getting it in the first place.
- In 2002, American psychologist Daniel Kahneman was awarded the Nobel Prize in economics for his work on cognitive bias, loss aversion and prospect theory.
Economics and sociology
Sociology is a social science concerned with understanding social structures and the interaction of people in society. One aspect of sociology is the economic perspective of how differences in income affect life chances.
Economist William Stanley Jevons coined the term ‘economic sociology’ in 1879 to describe the work on class and social norms on economic decisions and outcomes. The famous sociologist Max Weber made an important contribution to economics through his classic. “The Protestant Ethic and the Spirit of Capitalism” (1905). Weber suggested that the prevailing Protestant belief in hard work, virtue and frugality have an important effect in shaping western European economies. It broadened the scope of economics – to examine how cultural and social factors can shape economies in the long-run.
Economics and Mathematics
Mathematics has been an important element of economics since the introduction of marginal utility theory in the late nineteenth century. In 1871, W.S Jevons published “The Principles of Political Economy” He stated an important element of economics “must be mathematical simply because it deals with quantities.” Over the years, mathematics has been incorporated into many aspects of economic from statistical analysis to equilibrium models and explaining decision making.
Some economists have become wary of the influence mathematics has on economics. They argue that the innumerable variables affecting the economy can make modelling the economy on a mathematical basis prone to missing the bigger picture.
1988 Nobel Laureate Maurice Allais was critical of the state of maths in economics
“For almost fifty years contemporary economic literature had developed too often in a totally erroneous direction with the construction of completely artificial mathematical models detached from reality; and too often it is dominated more and more by a mathematical formalism which fundamentally represents and immense regression.” 
Economics and Philosophy
There is a strong link between philosophy and economics. Economists may try and be neutral about the study of economics. Some economists say ‘economics is not a morality play’ but at the same time, economic choices are influence by philosophy. For example, the extent to which governments intervene is influenced by philosophic beliefs over which is most important – equality of individual freedom. Adam Smith noted how individual self-interest could lead to the common good – despite selfish interest rather than because of. However, Smith was also a moral philosopher and felt that principles of justice and fairness were intrinsic to civil society.
‘own interest is connected to the prosperity of society […] justice […] is the main pillar that upholds the whole edifice. If it is removed […] the immense fabric of human society […] must in a moment crumble into atoms.” (Adam Smith. link)
Economics and Politics
The nature of economics is that many decisions are inherently political. To what extent should the government intervene in the economy? Should taxes be cut or increased? Free markets schools of economics are closely related to centre-right political parties. Whilst schools which are supportive of government intervention and greater income distribution are closely allied to centre-left political parties.
In theory, there are elements of economics which should be non-political, the production of data, evaluating the state of the economy and economic theories. Whilst economists may disagree on the extent of government intervention there is more consensus on issues such as the effects of tariffs and free-trade. However, even the presentation of data can become political. For example, the controversial paper on optimal debt levels Reinhart, C M and Rogoff, K S (2010) “Growth in a time of debt” was seized on by politicians who wished to push austerity. The link between economics and politics can be seen in issues such as making the Central Bank independent. – taking policy decisions from politicians and giving to economists.
Economics and Anthropology
A classical view in economics is that before money, economic interactions were often part of the barter economy. However, insights from anthropology and history suggest there is little if any examples of a real barter economy in history. Anthropologists, such as Karl Polanyi and Chris Gregory suggest a better explanation is the idea of a gift economy. In other words, social ties and community peer pressure encourages people to offer goods and services without expectation of immediate payback. This kind of cultural sharing of resources doesn’t fit into a limited economic model, but therefore does expand economics beyond the traditional western view of the market interchange.
Economics and Biology
The link between biology and economics may seem quite tenuous, but there is a subject of biological economics. This examines issues such as the average height of chief executives, and whether biological differences such as height, weight and metabolism have an impact on economic outcomes. Some economists have suggested that differences in sex should be studied for explaining different decisions and behaviours of people. (Cox Biology)
Biology and economics also share an interest in game theory for explaining different potential outcomes.
Economics and Demography
Demography is the study of populations and population change. The most influential economic study on demographics was Thomas Malthus whose dire warnings about the problems of population growth could cause the demand for food to outstrip supply. Though Malthus’s gloomy predictions have so far proved overly pessimistic, the subject is still relevant for economic modelling.
In the 1960s, Gary Becker studied the economics of families, crime and relationships. Becker argued that family ties were important for explaining many economic decisions about work, saving, how many children to have.
Economics and Ecology
Economics is traditionally concerned with human decisions and maximising human welfare. Ecological economics is interested in widening the study of economics to make the welfare of the environment – intrinsic to economic decisions. This brings in issued of long term sustainability. Economics and environment.
Economics and physics
This is a field of study that uses theories and methods originally developed in physics to the study of economics. For example, an earlier proponent of utility theory, Daniel Bernoulli was a mathematician and physicists who applied maths to economic theories, such as risk aversion. In modern terms, econophysics uses tools developed in physics, such as uncertainty and nonlinear dynamics to investigate economic issues, especially related to the performance of markets.