Is Economics The Science Of Common Sense?
Economics is often described as the science of common sense. At first glance, this characterization seems apt – after all, economics aims to explain many aspects of daily life, including decisions about spending, saving, and working that may seem like ‘common sense’.
However, upon closer examination, the relationship between economics and common sense proves more complex. This article will examine the origins of economics’ reputation as the science of common sense, arguments for and against this view, and the ways in which economic analysis requires concepts beyond common sense.
If you’re short on time, here’s a quick answer: While economics relies on some basic assumptions about human behavior that align with common sense, such as people responding to incentives, it also utilizes advanced theoretical models and mathematical techniques that go far beyond common intuition.
Overall, referring to economics as solely the ‘science of common sense’ is an oversimplification.
The Origins of Economics as the ‘Science of Common Sense’
Economics, often referred to as the “science of common sense,” has its roots in a rich history of thinkers and theorists who sought to understand and explain the workings of the economy. The concept of economics as common sense emerged from several key factors that shaped the early development of the field.
Classical Economists’ Reliance on Deduction from Self-Evident Principles
Classical economists, such as Adam Smith and David Ricardo, believed that economic principles could be deduced from self-evident truths and logical reasoning. They argued that economic behavior could be understood by applying common sense to observe patterns and relationships in the economy.
For example, Smith’s famous metaphor of the “invisible hand” illustrates the idea that individuals pursuing their own self-interest can unintentionally benefit society as a whole. This reliance on deduction from self-evident principles laid the foundation for economics as a science rooted in common sense.
Belief in Universality of Basic Economic Incentives
Another aspect that contributed to economics being considered the “science of common sense” is the belief in the universality of basic economic incentives. Economists have long recognized that individuals are motivated by self-interest and respond to incentives.
This understanding aligns with the intuitive notion that people generally make decisions based on what they perceive to be in their own best interest. The principle of supply and demand, for instance, is a common-sense concept that explains how prices are determined in a market economy by the interaction of buyers and sellers.
Appeal of Simple Theories to Explain Complex Phenomena
Economics as the “science of common sense” also owes its reputation to the appeal of simple theories that can explain complex economic phenomena. The field of economics strives to simplify and distill complex real-world situations into manageable models and theories.
This reductionist approach, while criticized for oversimplification at times, has the advantage of making economic concepts more accessible and relatable to the average person. For example, the law of supply and demand, with its straightforward explanation of how market prices are determined, resonates with common sense and allows individuals to make sense of the economic world around them.
Aspects of Economics That Align with Common Sense
Economics is often referred to as the “dismal science,” but many aspects of this discipline actually align quite well with common sense. Let’s explore three key areas where economics and common sense intersect.
Laws of Supply and Demand
The laws of supply and demand are at the core of economics and are also deeply rooted in common sense. According to these laws, when the demand for a product or service increases, its price tends to rise. Conversely, when the supply of a product or service increases, its price tends to fall.
This principle can be observed in our daily lives – if there is a sudden surge in demand for a particular item, such as the latest smartphone, its price is likely to increase due to limited supply. On the other hand, if there is an oversupply of a certain product, such as a seasonal fruit, its price is likely to decrease.
These basic principles of economics align with our intuitive understanding of how prices fluctuate based on supply and demand.
Response to Incentives
Economics recognizes that people respond to incentives, and this aligns perfectly with common sense. When individuals are offered rewards or benefits for certain behaviors, they are more likely to engage in those behaviors.
For example, if a company offers a cash bonus for meeting sales targets, employees are motivated to work harder to achieve those targets. Similarly, if the government offers tax incentives for investing in renewable energy, individuals and businesses are more likely to pursue clean energy options.
This understanding of how incentives drive human behavior is a fundamental principle of economics that resonates with our everyday experiences.
Role of Self-Interest and Competition
Economics recognizes that individuals and businesses act in their own self-interest, seeking to maximize their own well-being or profits. This aligns with common sense – we all make decisions based on what we believe will benefit us the most.
Additionally, economics acknowledges that competition is a driving force in markets. When businesses compete for customers, they are incentivized to improve quality, lower prices, and innovate. This concept of self-interest and competition aligns with our natural understanding of how individuals and businesses operate in the real world.
Complexities and Limitations of Common Sense in Economics
While economics is often described as the science of common sense, it is important to recognize that this field of study is far from simple. In fact, economics delves into complex theories, models, and behaviors that go beyond what our common sense may suggest.
This article explores the various complexities and limitations of common sense in economics.
Assumptions of Rationality and Perfect Information
One major complexity in economics is the reliance on assumptions of rationality and perfect information. Traditional economic theory assumes that individuals make rational decisions based on all available information.
However, in reality, people often make decisions based on limited information or are influenced by emotions and biases. This disparity between rational behavior and actual human behavior challenges the notion of common sense in economics.
Mathematical Modeling and Advanced Theory
Another complexity arises from the use of mathematical modeling and advanced economic theory. Economists employ mathematical equations and complex models to analyze economic phenomena. These models can be difficult to understand for individuals without a strong background in mathematics or economics.
Thus, relying solely on common sense may not be sufficient to fully grasp the intricacies of economic theory and analysis.
Accounting for Irrational Behaviors
Economics also recognizes that individuals do not always act rationally. Behavioral economics, a branch of economics that incorporates psychology into economic analysis, studies irrational behaviors such as biases, heuristics, and cognitive limitations.
These findings challenge the assumption of rationality and further complicate the application of common sense in economic decision-making.
Need for Empirical Testing
Lastly, economics relies on empirical testing to validate theories and hypotheses. While common sense may provide intuitive explanations, it is crucial to subject economic theories to rigorous empirical testing to ensure their validity.
Empirical data allows economists to examine real-world outcomes and determine if they align with common sense or if there are factors that were not initially considered.
Conclusion
In conclusion, referring to economics as the ‘science of common sense’ captures certain core elements of the field, especially its focus on the incentives, choices and behaviors that shape everyday decision-making about managing resources.
However, this characterization risks oversimplifying the sophisticated models, advanced mathematics and empirical research required to represent the complexities of economic systems. While relying partly on common sense assumptions about human behavior, modern economics utilizes a much richer toolkit of analysis.
Overall, economics weaves together both common sense and more rigorous, technical investigation to shed light on the production, distribution and consumption of goods and services.
