11 Samples Of The Knowledge Economy
By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it” (1776, Book IV, Ch. 2). The existence of regularities, which are the unintended consequences of individual choices gives rise to an object of scientific investigation. Trade also seemed advantageous, at least if the terms were good enough.
These problems arise generally, and Popper proposes that they be solved by a methodological decision to regard a failure of the deduced testable implication to be a failure of the theory. But in economics the subsidiary assumptions are dubious and in many cases known to be false. Making the methodological decision that Popper requires is unreasonable and would lead one to reject all economic theories. For example , the law of demand asserts that a price increase will diminish the quantity demanded. Since concerns about the consequences of alternative policies are so central to economics, causal inquiry is unavoidable. Philosophers and economists have argued that in addition to or instead of the predictive and explanatory goals of the natural sciences, the social sciences should aim at providing us with understanding. Weber and others have argued that the social sciences should provide us with an understanding “from the inside”, that we should be able to empathize with the reactions of the agents and to find what happens “understandable”.
This implies that they distribute their expenditures so that a dollar’s worth of water or porridge or upholstery makes the same contribution to their happiness. Crucial to the possibility of a social object of scientific inquiry is the idea of tracing out the unintended consequences of the intentional actions of individuals. Thus, for example , Hume traces the rise in prices and the temporary increase in economic activity that follow an increase in currency to the perceptions and actions of individuals who first spend the additional currency. In spending their additional gold imported from abroad, traders do not intend to increase the price level. Adam Smith expands and perfects this insight and offers a systematicInquiry into the Nature and Causes of the Wealth of Nations. From his account of the demise of feudalism (1776, Book II, Ch. 4) to his famous discussion of the invisible hand, Smith emphasizes unintended consequences. “e intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Some mainstream economics is highly theoretical, though most of it is applied and relies on rudimentary theory. Theoretical and applied work can be distinguished as microeconomics or macroeconomics. There is also a third branch, econometrics which is devoted to the empirical estimation, elaboration, and to some extent testing of microeconomic and macroeconomic models. These gaps were gradually filled during the so-called neoclassical or marginalist revolution, which linked choice of some object of consumption not to its total utility but to its marginal utility. For example, water is obviously extremely useful, but in much of the world it is plentiful enough that another glass more or less matters little to an agent. Early “neoclassical” economists such as William Stanley Jevons held that agents make consumption choices so as to maximize their own happiness.
They emphasize the importance of generalizations concerning norms and behavior within particular institutions. Applied work in institutional economics is sometimes very similar to applied orthodox economics. Although mainstream economics is dominant and demands the most attention, there are many other schools. Austrian economistsaccept orthodox views of choices and constraints, but they emphasize uncertainty and question whether one should regard outcomes as equilibria, and they are skeptical about the value of mathematical modeling.
It took no conceptual leap to recognize that manufacturing and farming could be improved and that some taxes and tariffs might be less harmful to productive activities than others. But to formulate the idea that there is such a thing as “the economy” with regularities that can be investigated requires a bold further step.
In order for there to be an object of inquiry, there must be regularities in production and exchange; and for the inquiry to be non-trivial, these regularities must go beyond what is obvious to the producers, consumers, and exchangers themselves. Philosophical reflection on economics is ancient, but the conception of the economy as a distinct object of study dates back only to the 18th century. Aristotle addresses some problems that most would recognize as pertaining to economics, mainly as problems concerning how to manage a household. Scholastic philosophers addressed ethical questions concerning economic behavior, and they condemned usury — that is, the taking of interest on money. With the increasing importance of trade and of nation-states in the early modern period, ‘mercantilist’ philosophers and pamphleteers were largely concerned with the balance of trade and the regulation of the currency.
This seems to introduce an element of subjectivity into the social sciences that is not found in the natural sciences. Traditional institutionalist economists question the value of abstract general theorizing and emphasize evolutionary concepts.