Economics is a complicated subject. On the one hand, since it deals with empirical data like facts, figures, and statistics, along with quantifiable metrics like GDP and inflation rates, it appears to fall firmly into the realm of science. However, on the other hand, economics relies on consumer/human behaviour and emotions, cultural considerations, personal judgments and ethics, and creativity, making it more like an art or social science.
So, which realm does economics fall into? Let’s find out what the experts say!
Economics in the Scientific Community
It’s been heavily debated whether or not economics can actually be considered a science. Although this argument has been around for a long time, tensions appeared to reach their peak in 2013 when three economists were awarded the Nobel Prize in Economics. Although that news does not sound particularly polarising, the issue many had with the award was the fact that two of the economists (Shiller and Fama) in receipt of that award seemed to have views that directly contradicted each other.
Credentials: American economist specialising in behavioural finance, macroeconomics, and the study of asset prices. He is a Sterling Professor of Economics at Yale and a co-founder of the Case-Shiller Index.
Beliefs: Psychological factors influence economic decisions and market outcomes; investor psychology creates asset bubbles; social and psychological influences strongly affect stock market trends. Markets are not efficient and are influenced heavily by human behaviour.
Credentials: American economist known as the ‘father of modern finance.’ Known for groundbreaking work on the Efficient Market Hypothesis (EMH). He is a professor at the University of Chicago Booth School of Business.
Beliefs: Financial markets are ‘informationally efficient,’ meaning asset prices are always as good as possible and investors act rationally given all the available information. Irrational behaviour is random and an outlier and does not persistently affect market prices.
Given that the aim of a science such as physics or chemistry is often considered to be the search for a single principle or truth, it appeared that such rules did not apply to the realm of economics and that one economist could freely disagree with another.
In the twelve years since that particular Nobel Prize, has this debate been settled? Sadly, the short answer is no.
Although arguments are rife on both sides, the jury appears to be out as to whether economics should be classed as a science, a social science, or whether it is no science at all.
We look below at the fundamental issues that determine why economics is so difficult to consider as a science. What’s more, we also outline why these arguments should not fundamentally change how we look at economics as a subject, as it still remains a crucial field that can help us to better understand why it is that we act the way we do.
Economics is the study of how economic players (individuals, businesses, societies, governments, etc) allocate resources (both financial and other) to satisfy wants and needs.
Is Economics A Science?
The majority of experts say yes. The bigger question is: What kind of science is economics?
Natural science is defined in the Merriam-Webster dictionary as: “any of the sciences (such as physics, chemistry, or biology) that deal with matter, energy, and their interrelations and transformations or with objectively measurable phenomena.”
When it comes to the social sciences, such as law or politics, the Merriam-Webster dictionary defines social science as: “a branch of science that deals with the institutions and functioning of human society and with the interpersonal relationships of individuals as members of society.”
Clearly, the dictionary definitions seem to support the assumption that economics would be much more at home within the realm of the social sciences than the natural sciences. Despite this, the full title for the Nobel Prize in Economics is, in fact, the Nobel Memorial Prize in Economic Sciences.
What elements of economics make it seem like a hard (natural) science, versus a social science?
Use of Quantitative Methods & Empirical Research
Economics relies heavily on mathematical modelling, statistical analysis, and data-driven research. These methods are typically used in other data-driven sciences and are not applied in the same way for social sciences.
Use of Models
The data associated with economics can be entered into models to simplify complex systems and understand relationships between different factors. This is the same as how natural sciences can use physical models to simulate natural phenomena. However, models are not as reliable for economics due to the human factor.
Predictions & Hypotheses Testing
Economists can form hypotheses and theories to explain the parts of economics we can see and measure. They can use these theories to create predictions about outcomes and behaviours. However, the predictions are far less certain than in natural sciences.
While economics shares some qualities with natural sciences, and economists like Fama tend to treat it more like a natural science, many consider the discipline to be a social science instead.
Is Economics A Social Science?
As noted above, many people would be more likely to argue that economics as a science fits more within the social sciences sector than amongst the sciences of chemistry and its companions.
However, is it fair to apply this general conclusion across all areas of economics? There are many schools of economics, and economics as a subject is made up of many individual niches, including:
- International economics
- Environmental economics
- Financial economics
What’s more, economics as a field can almost be divided into two areas.
On one side you have the field of macroeconomics, which looks at economies as a whole.
On the other hand, there’s microeconomics, which seeks to study human behaviour at the level of the individual and its impact on the wider economy.
Microeconomics focuses on individual actors, such as households and firms. Their behaviour is analysed in specific markets regarding how they make decisions about resource allocation, pricing, and consumption.
Macroeconomics examines the economy as a whole, studying aggregate indicators like GDP, inflation, and unemployment to understand broader economic trends and policies.
Interestingly, many of the theoretical arguments levied against economics being a science tend to focus on the realm of macroeconomics, rather than microeconomics. This is because macroeconomics is, by its very nature, much more difficult to gain a deep level of insight into.
This is because there are difficulties observing, testing and commenting on developments in the aggregate and their implications. Indeed, many macroeconomic theories, from Keynesianism to monetarism offer contradicting theories on what an economy needs for stability or wealth creation, as an undergraduate student at a university will often hear in a lecture.
On the other hand, microeconomics is much easier to test in a way that produces repeatable and observable economic trends and results.
There are a few reasons why people seem to feel more at ease calling economics a social science.
Objectivity/Subjectivity and Politics
Unlike in the natural sciences, there are many places in economics where subjectivity can skew data and interpretations. It can be difficult to be objective when examining economic data.
In stark contrast to the “hard” sciences, in an economic model, there is often no control test on which you base your economic analysis. Further, the results produced by an economic model or economic experiment can be subject to individual interpretation, depending on:
- what aspect of the results the economist focuses their attention on
- the methodology an economist uses to reach a conclusion
- how an economist applies economic analysis when they examine their data.
Closely tied in with objectivity is the fact that many economists’ ideas, models, and approaches can be heavily shaped by their political beliefs, or by the political administration of the time and their approach to the economy and current economic problems.
Given this inherent bias within economic models and systems, some argue that economics cannot, and will not ever be, a science in the truest sense.
Limitations of Experiments
Another argument levied against economics being classed as a natural science is the fact that, although physicists, biologists, and the like can set up controlled experiments to test a hypothesis, which produces concrete results from which a conclusion can be drawn, the same cannot be said of economics experiments.
At its core, economics is the study of human behaviour and how that impacts the economy. Human behaviour is not as concrete as the behaviour or properties of, say, an atom, and the fact is that human behaviour can be unpredictable, as individuals can change their minds in a dynamic way at a moment’s notice. Many human behaviours appear random and unpredictable, even to the people displaying the behaviour.
Due to this, economic experiments are difficult, if not impossible, to carry out in a controlled environment. They almost certainly cannot produce a conclusion that applies a rule across human behaviour and decision-making.
As such, economic studies produce a “best guess” result that may give an indication of how individuals, or an economy, will perform under a certain set of circumstances.
However, that’s not to say that economics experiments are not without their worth, or that any numerical element of an economic theory is simply for show. There are many economists today whose research on economic issues uses a combination of mathematics and statistics to help understand the inner workings of economics. This field is known as econometrics, and it can often feature as part of an economics degree at university, or in an economics position post-graduation.
Is Economics a Science At All?
Because economics inherently contains many facets that cannot be tested in a lab, for example, some argue that because economic hypotheses cannot be tested in a lab, perhaps it shouldn’t be considered a science at all.
However, many (if not most or all) social sciences also fall into this same problem. How can an anthropologist conduct an experiment in a lab? Furthermore, even physics operates on many hypotheses that cannot be proven in a lab setting, and perhaps have never been proven at all, and yet it is still considered a natural science.
For these reasons, it feels safe to say that economics is a social science.
Economics uses scientific principles like research using empirical figures, hypotheses and theories, and models. However, because economics is entangled with human behaviour, it is considered a social science (like psychology, sociology, and law) versus a natural science (like physics, biology, or astronomy).
Understanding Economic Science
Although the definitive classification of economics has been debated for decades, the bottom lines about the topic are:
- It fits more clearly into the social science category than the natural science category
- Some argue that it may not be a science at all
- Does it matter which category it’s assigned to?
The importance of studying economics is in no way diminished by its classification as a science, social science, even no science at all. At its core, economics studies how individuals behave and interact with one another, and how our behavioural quirks can inform how we decide to share our resources.
Being able to understand the human condition and how rational we truly are is a core part of economics, and it may well be that, due to the very unpredictable nature of humans, economics will never be able to call itself a natural science.
Economics is a social science, but it does have some artistic qualities. Personal interpretation, creative thinking, subjective judgment about societal values and issues, cultural and contextual understandings, and communicating via storytelling are all artistic aspects of economics.
That does not mean, however, that economic models, theories, and studies, mathematical, statistical, or otherwise, are not useful. Although such studies are unlikely to produce results that can act as a crystal ball, or that can predict a financial crisis such as that in 2008, economics can let us know:
- how well our local or global economy is performing;
- whether economies do benefit from levying higher taxes, or by implementing increased regulation;
- whether an economy is set to face a period of inflation or deflation; and
- how we could increase economic growth, or at least try to maintain it.
Economists can take different approaches to the subject, just like Shiller and Fama, and all different interpretations can lead to valuable insights and information. This aspect of sciences is why arts and sciences are often grouped together, even though from a certain point of view they appear to be opposites.
Looking for Help Studying Economics?
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- microeconomics or macroeconomics;
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