Because economists spend so much time analyzing markets, prices, and related phenomena, it is easy to get the impression that economics is a science of wealth. That is, economics is defined by its subject matter: the production and distribution of commodities. But as I previously argued, this conception of economics is needlessly limited. Economics has many valuable things to say about markets and market-supporting institutions. But it is not confined to these topics. Rather, economics is the way of thinking that generates those insights. It is the science not of action in markets, but action as such.
The universalization of economics is the theme of Professor Israel Kirzner’s sagacious essay on the history of economic thought, The Economic Point of View. Kirzner acknowledges that the activities of merchants “are of specific interest for the economic perspective on social phenomena” but economists have often disagreed about why mercantile activity was so important. “For some [economists], the merchant is engaged in economic activity because he deals in material goods; for others, because his operations involve the use of money; for others, because these operations hinge on acts of exchange. Some writers see the merchant as an economic agent because his activities are allegedly motivated by selfishness or marked by a peculiar shrewdness in calculating the pros and cons of his dealings. Others see his relevance for economics in that his wares are to some extent related to the maintenance of human life; others, in that they pertain to human ‘welfare.’ Still others classify mercantile pursuits as economic because they involve the judicious disposition of scarce means, while others again find their economic character in their reflection of human motives that permit of measurement.”
Whew! This is quite a list. Each of these conceptions represents a way to categorize economics. Each has been affirmed by great minds within the discipline. At the risk of oversimplifying, Kirzner tells a story of the development (and in his view, progression) of economics away from a narrow focus on wealth, towards rational behavior in all aspects of life. In the early years of the discipline, “[t]he criterion used by the student of economic phenomena to mark out the scope of his subject is the fact that it is concerned with a special class of objects or a special type of human condition. The botanist studies the phenomena of plant life, the astronomer studies celestial phenomena, the philologist studies a specific ‘object,’ viz., languages—and the economist quite analogously occupies himself with the study of wealth or welfare. The conditions governing the production of wealth or the enhancement of economic welfare, the effects of given events on the exchange and the distribution of wealth—all these are economic phenomena because they have to do with wealth or welfare.”
Defining economics according to the subjects of wealth or welfare resulted in the widespread perception of its meanness or illiberality. “From the start an economics centered around wealth had to contend with a climate of opinion in which the so-called ‘economic virtues’ had long been held in moral disrepute…The unworthiness of political economy in public opinion stemmed directly from its explicit preoccupation with so degrading a subject matter as wealth. All the depravities that moralists throughout the centuries have ascribed to wealth naturally attached to the science of wealth.”
But sooner than you might expect, economists came to find this circumscription of their science unsatisfying. Even among the classical economists of the mid- and late-19th century, “it was becoming increasingly evident that what they were investigating was not so much a set of objective phenomena whose common denominator was wealth as the phenomena resulting from wealth-oriented actions of men” (emphasis in original). From a science of wealth, economics morphed into a science of maximizing impulses; then into a science of market exchange; then into a science of monetary exchange; and then into a science of economizing behavior.
The “most outstanding development in the history of the problem” of the nature of economics, Kirzner continues, “is the switch from the search for a department of human affairs to which the adjective ‘economic’ applies, to the search for the appropriate aspect of affairs in which economic concepts are of relevance” (emphasis in original). The final development of economics into a science of human action, according to Kirzner, had to wait until the 20th century. The key figure is Ludwig von Mises, the great Austrian economist and Kirzner’s most influential teacher.
“In its completest form this definition of economics...by virtue of which the discipline emerges as one of the group of sciences of human action, embraces an entire and unique epistemology of the branches of knowledge commonly subsumed under the cultural and social sciences.” Kirzner continues, “The concept of human action depends…on the introspectively valid fact that there is a form of conduct that is specifically human, i.e., conduct that is accompanied by the consciousness of volition, of something more than a bundle of reflexes responding to specific stimuli.” Kirzner is referring to purposiveness, which is what sets action apart from mere conditioned responses.
Kirzner also takes care to differentiate this definition of economics from that of Lionel Robbins, which is focused on economizing behavior: “Economizing consists in the allocation of scarce resources among competing ends. Acting…consists in selecting a pattern of behavior designed to further the actor’s purposes.” Economizing action is a subset of action suis generis: “The allocation of scarce means among alternative ends simply signifies the consistent pursuit of ends, the consistent pursuit of the more highly valued ends taking precedence over the fulfilment of the less highly esteemed ends. It means, in fact, the exercise of the human faculty for purposeful action.”
Furthermore, all action, by necessity, is rational: “Rationality in human behavior consists, after all, in the consistent pursuit of one's own purposes; in selecting the means that appear best adapted to the achievement of one's goals; in refraining from courses of action that might frustrate their achievement or promise only the attainment of less valued, at the expense of more highly prized, objectives.” This approach to human behavior “constitutes a proposition that is, in fact, incapable of being falsified by any experience, yet does, nevertheless, convey highly valuable information. Action is necessarily rational because, as we have seen, the notion of purpose carries with it invariably the implication of requiring the selection of the most reasonable means for its successful fulfilment.”
If economics is the science of rational choice, then its domain is massive. Anything analyzed using rational choice becomes economics. On this conception, economics “embraces a range of human action far wider than that usually treated in economic theory. All human actions, motivated though they may be by the entire range of the purposes that have inspired and fired men to act, come within the sway of the ideal praxeological discipline. The constraint that men feel to fulfil their purposes in spite of obstacles pervades all aspects of life. It is the position of praxeology that the common category that embraces the entire range of human efforts is the key to economic science.”
We have arrived at a universal conception of economic theory. This universality is the key to its liberality, as well as its ability to construct compelling narratives about human behavior in a wide variety of circumstances. Any discipline that aspires to liberality must embrace universality. It follows that the more limited conceptions of economics, focused solely on e.g. wealth, cannot be liberal. Artificially narrow economics fails to live up to its potential. If economics only applied to circumstances favoring avaricious behavior, it would be wholly proper for scholars of the humane disciplines to hold economics in contempt. Fortunately for economists, the antecedent is false.
This may all seem a little abstract. I will make it clearer with a couple of demonstrations. The best way to do this is to conduct a “conventional” economic analysis of some work from the classical tradition—that is, one focused on commerce, commercial institutions, etc.—and show how unsatisfying is the resulting picture. I plan to use Hesiod’s Works and Days and Xenophon’s Household Management. To be clear, I am not in any way claiming these works are illiberal. I am claiming that the stereotypical economic approach to these texts is illiberal (and, for that matter, uninteresting). Starting with Hesiod—why not proceed chronologically?—we will see that a wealth-focused reading of these texts trivializes them. Since these are clearly not trivial texts, we have our proof by contradiction. Onward!