Philosophy of Economics

What it asks

Economics rests on assumptions about how people choose - that preferences are consistent, that agents pursue what they prefer, that more of what is preferred is better. Those assumptions are known to be false as descriptions and are retained because models built on them are tractable and often predict well.

That raises the question the field turns on. If a model's assumptions are false, what makes its conclusions worth anything? One influential answer is that assumptions need not be realistic provided predictions hold. That answer is widely quoted and philosophically very hard to defend.

The second question is about value. Economics presents itself as positive rather than normative, and its central notion of welfare - the satisfaction of preferences - is a substantial moral position that has never been argued for within the discipline.

The recurring problems

Are unrealistic assumptions acceptable? Every science idealises. Whether economics idealises in the way physics does, or in a way that immunises it against evidence, is genuinely disputed.

Interpersonal comparison. Policy requires weighing one person's gain against another's loss, and the theoretical framework provides no basis for doing so. The workarounds are technical and each smuggles in a value judgement.

Preference as welfare. Getting what you want is not obviously the same as being better off. Preferences are adaptive, manipulable and sometimes formed under conditions that make them unreliable guides.

Whether economics can be value-free. The choice of what to measure, what counts as a cost and whose preferences enter the calculation are all normative choices made before any analysis begins.

How it developed

The classical economists were moral philosophers - Smith held a chair in moral philosophy and Mill wrote on both - and the separation of the disciplines is recent enough to be an event with a date rather than a natural division.

The marginal revolution and the mathematisation that followed made economics look like a natural science, and the ambition to be one shaped its self-understanding.

Robbins in 1932 defined economics as the study of allocating scarce means among competing ends, which deliberately made it a science of choice rather than of wealth and sealed off questions about which ends are worth pursuing.

Friedman's methodological essay in 1953 licensed unrealistic assumptions on the grounds that only predictive success matters. It became the discipline's working philosophy and has been criticised ever since without being displaced.

Sen's work from the 1970s reopened the normative half, arguing that welfare should be understood in terms of what people are actually able to do and be rather than in terms of preference satisfaction or income.

The positions within it

Instrumentalism about models, following Friedman; realism about economic mechanisms; behavioural approaches that replace the rationality assumptions rather than defend them; welfarism and capability approaches to wellbeing. All are in the Schools section.

Where it stands now

The credibility revolution changed economics more than any philosophical argument did, by shifting weight from theoretical modelling to identifying causal effects from data - which has replaced old methodological questions with new ones about what a local causal estimate generalises to.

The normative side is more active than it has been in a century, driven by climate policy, where discounting future welfare against present cost is unavoidably a moral judgement dressed as a parameter.