by R. Passov
“In … economics we are faced with … a need for accurate forecasts, yet our ability to predict the future has been found wanting”
—Systems Economics: D. Orrell and P. McSharry, International Journal of Forecasting, Vol 25 (2009)
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The Stanford Encyclopedia of the Philosophy of Economics (2018) stabs at a definition of the science:
… At first glance, the difficulties in defining economics may not appear serious. Economics is, after all, concerned with aspects of the production, exchange, distribution, and consumption of commodities and services. But this claim and the terms it contains are vague…
Stanford [] portrays economics as a new science only coming into its own under Adam Smith, whose work “… offers a systematic Inquiry into the Nature and Causes of the Wealth of Nations.
In Smith’s economics, an actor led by an “…Invisible Hand…intending only his own gain … gives rise to regularities …”
These “…regularities…” – the unintended consequences of individual choices – “…give rise to an object of scientific investigation.”
The individual choices, it can be argued, are the domain of contemporary Microeconomics while the regularities to which they give rise, might in some sense be our Macroeconomics.
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Smith, a jocular, bulbous-nosed Scotsman, after graduating from Oxford in 1748 parlayed a penchant for soap-box speeches into a professor-ship at the University of Glasgow. There he rose to Chair of Philosophy. Economics would wait until 1903 when, finally, Cambridge set it apart from the moral sciences.
In 1759 Smith produced a work entitled “A Theory of Moral Sentiments” in which he mused on “… how a man who is interested chiefly in himself [can] make moral judgements that satisfy other people.”
His answer: “When people confront moral choices they imagine an Impartial Spectator who … advises them…Instead of following their self-interest, they take the imaginary observer’s advice,” and in so doing, “…decide on the basis of sympathy, not selfishness.”
After publishing Moral Sentiments, Smith followed the money. For two years, he wandered through France tutoring the son of a gentlemen who, as the Chancellor of the Exchequer, devised the tax policies that sparked the Boston Tea Party.
During his wanderings Smith sought, among others, Hume, Voltaire and Benjamin Franklin. After exhausting his stipend, he spent a decade socializing at the Literary Club of London, turning his notebooks into The Wealth of Nations. The Impartial Spectator morphed into the Invisible Hand. Empathy turned into self-interest. Read more »