Philosophy and economics

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Philosophy and economics, also philosophy of economics, studies topics such as rational choice, the appraisal of economic outcomes, institutions and processes, and the ontology of economic phenomena and the possibilities of acquiring knowledge of them.

Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that aggregate social behavior results from the behavior of individual actors, each of whom is making their individual decisions. The theory also focuses on the determinants of the individual choices.

Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the other. Its name and core elements trace back to a 1919 American Economic Review article by Walton H. Hamilton. Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions. The earlier tradition continues today as a leading heterodox approach to economics.

Ontology study of the nature of being, becoming, existence or reality, as well as the basic categories of being and their relations

Ontology is the philosophical study of being. More broadly, it studies concepts that directly relate to being, in particular becoming, existence, reality, as well as the basic categories of being and their relations. Traditionally listed as a part of the major branch of philosophy known as metaphysics, ontology often deals with questions concerning what entities exist or may be said to exist and how such entities may be grouped, related within a hierarchy, and subdivided according to similarities and differences.


It is useful to divide philosophy of economics in this way into three subject matters which can be regarded respectively as branches of action theory, ethics (or normative social and political philosophy), and philosophy of science. Economic theories of rationality, welfare, and social choice defend substantive philosophical theses often informed by relevant philosophical literature and of evident interest to those interested in action theory, philosophical psychology, and social and political philosophy.

Action theory is an area in philosophy concerned with theories about the processes causing willful human bodily movements of a more or less complex kind. This area of thought involves epistemology, ethics, metaphysics, jurisprudence, and philosophy of mind, and has attracted the strong interest of philosophers ever since Aristotle's Nicomachean Ethics. With the advent of psychology and later neuroscience, many theories of action are now subject to empirical testing.

Ethics branch of philosophy that systematizes, defends, and recommends concepts of right and wrong conduct

Ethics or moral philosophy is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct. The field of ethics, along with aesthetics, concerns matters of value, and thus comprises the branch of philosophy called axiology.

Philosophy of science is a sub-field of philosophy concerned with the foundations, methods, and implications of science. The central questions of this study concern what qualifies as science, the reliability of scientific theories, and the ultimate purpose of science. This discipline overlaps with metaphysics, ontology, and epistemology, for example, when it explores the relationship between science and truth.

Economics is of special interest to those interested in epistemology and philosophy of science both because of its detailed peculiarities and because it has many of the overt features of the natural sciences, while its object consists of social phenomena. [1]

Economics Social science that analyzes the production, distribution, and consumption of goods and services

Economics is the social science that studies the production, distribution, and consumption of goods and services.

Epistemology A branch of philosophy concerned with the nature and scope of knowledge

Epistemology is the branch of philosophy concerned with the theory of knowledge.

Natural science Branch of science about the natural world

Natural science is a branch of science concerned with the description, prediction, and understanding of natural phenomena, based on empirical evidence from observation and experimentation. Mechanisms such as peer review and repeatability of findings are used to try to ensure the validity of scientific advances.


Definition and ontology of economics

The question usually addressed in any subfield of philosophy (the philosophy of X) is "what is X?" A philosophical approach to the question "what is economics?" is less likely to produce an answer than it is to produce a survey of the definitional and territorial difficulties and controversies. Similar considerations apply as a prologue to further discussion of methodology in a subject. Definitions of economics have varied over time from the modern origins of the subject, reflecting programmatic concerns and distinctions of expositors. [2]

Methodology is the systematic, theoretical analysis of the methods applied to a field of study. It comprises the theoretical analysis of the body of methods and principles associated with a branch of knowledge. Typically, it encompasses concepts such as paradigm, theoretical model, phases and quantitative or qualitative techniques.

Various definitions of economics have been proposed, including the definition of 'economics' as "what economists do".

Ontological questions continue with further "what is..." questions addressed at fundamental economic phenomena, such as "what is (economic) value?" or "what is a market?". While it is possible to respond to such questions with real verbal definitions, the philosophical value of posing such questions actually aims at shifting entire perspectives as to the nature of the foundations of economics. In the rare cases that attempts at ontological shifts gain wide acceptance, their ripple effects can spread throughout the entire field of economics. [3]

Methodology and epistemology of economics

An epistemology deals with how we know things. In the philosophy of economics this means asking questions such as: what kind of a "truth claim" is made by economic theories – for example, are we claiming that the theories relate to reality or perceptions? How can or should we prove economic theories – for example, must every economic theory be empirically verifiable? How exact are economic theories and can they lay claim to the status of an exact science – for example, are economic predictions as reliable as predictions in the natural sciences, and why or why not? Another way of expressing this issue is to ask whether economic theories can state "laws". Philosophers of science and economists have explored these issues intensively since the work of Alexander Rosenberg and Daniel Hausman dating to 3 decades ago. [4]

Truth philosophical concept

Truth is most often used to mean being in accord with fact or reality, or fidelity to an original or standard. Truth is also sometimes defined in modern contexts as an idea of "truth to self", or authenticity.

In metaphysics, realism about a given object is the view that this object exists in reality independently of our conceptual scheme. In philosophical terms, these objects are ontologically independent of someone's conceptual scheme, perceptions, linguistic practices, beliefs, etc.

Alexander Rosenberg is an American philosopher, and the R. Taylor Cole Professor of Philosophy at Duke University who now publishes as Alex Rosenberg.

Rational choice, decision theory and game theory

Philosophical approaches in decision theory focus on foundational concepts in decision theory – for example, on the natures of choice or preference, rationality, risk and uncertainty, and economic agents. [5] Game theory is shared between a number of disciplines, but especially mathematics, economics and philosophy. Game theory is still extensively discussed within the field of the philosophy of economics. Game theory is closely related to and builds on decision theory and is likewise very strongly interdisciplinary. [6]

Ethics and justice

The ethics of economic systems deals with the issues such as how it is right (just, fair) to keep or distribute economic goods. Economic systems as a product of collective activity allow examination of their ethical consequences for all of their participants. Ethics and economics relates ethical studies to welfare economics. [7] It has been argued that a closer relation between welfare economics and modern ethical studies may enrich both areas, even including predictive and descriptive economics as to rationality of behavior, given social interdependence. [8]

Ethics and justice overlap disciplines in different ways. Approaches are regarded as more philosophical when they study the fundamentals – for example, John Rawls' A Theory of Justice (1971) [9] and Robert Nozick's Anarchy, State and Utopia (1974). 'Justice' in economics is a subcategory of welfare economics [10] with models frequently representing the ethical-social requirements of a given theory. "Practical" matters include such subjects as law [11] and cost–benefit analysis [12]

Utilitarianism, one of the ethical methodologies, has its origins inextricably interwoven with the emergence of modern economic thought. Today utilitarianism has spread throughout applied ethics as one of a number of approaches. Non-utilitarian approaches in applied ethics are also now used when questioning the ethics of economic systems – e.g. rights-based (deontological) approaches. [13]

Many political ideologies have been an immediate outgrowth of reflection on the ethics of economic systems. Marx, for example, is generally regarded primarily as a philosopher, his most notable work being on the philosophy of economics. However, Marx's economic critique of capitalism did not depend on ethics, justice, or any form of morality, instead focusing on the inherent contradictions of capitalism through the lens of a process which is today called dialectical materialism.

Non-mainstream economic thinking

The philosophy of economics defines itself as including the questioning of foundations or assumptions of economics. The foundations and assumption of economics have been questioned from the perspective of noteworthy but typically under-represented groups. These areas are therefore to be included within the philosophy of economics.

Scholars cited in the literature

The ethics of economic systems is an area of overlap between business ethics and the philosophy of economics. People who write on the ethics of economic systems are more likely to call themselves political philosophers than business ethicists or economic philosophers. There is significant overlap between theoretical issues in economics and the philosophy of economics. As economics is generally accepted to have its origins in philosophy, the history of economics overlaps with the philosophy of economics.


Some universities offer joint degrees that combine philosophy, politics and economics. These degrees cover many of the problems that are discussed in Philosophy and Economics, but are more broadly construed. A small number of universities, notably the LSE, the Erasmus University Rotterdam, Copenhagen Business School and the University of Bayreuth offer master's degree programs specialized in philosophy and Economics.


  1. "Philosophy of Economics, Stanford Encyclopedia of Philosophy".
  2. Roger E. Backhouse and Steven Medema (2008). "economics, definition of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • _____. 2009. "Retrospectives: On the Definition of Economics," Journal of Economic Perspectives, 23(1), pp. 221–33. Abstract.
      Adam Smith ([1776] 1976). An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford University Press. p. 428.
      John Stuart Mill (1844). "On the Definition of Political Economy; and on the Method of Investigation Proper to It", Essay V, in
    Essays on Some Unsettled Questions of Political Economy.
      Lionel Robbins (1932).
    An Essay on the Nature and Significance of Economic Science , Macmillan, p. 16.
  3. • Roger E. Backhouse and Steven Medema (2008). "economics, definition of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • Uskali Mäki (2008). "scientific realism and ontology," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  4. • D. Wade Hands (2008). "philosophy and economics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
      Roger E. Backhouse (2008). "methodology of economics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • Alexander Rosenberg (1976). Microeconomic Laws: A Philosophical Analysis, University of Pittsburgh Press. Description and preview.
       • _____ (1983). "If Economics Isn't Science, What Is It?" Philosophical Forum, 14, pp. 296-314.
       • _____ (1986). "What Rosenberg's Philosophy of Economics Is Not," Philosophy of Science, 53(1), pp. 127-132.
       • Douglas W. Hands (1984). "What Economics Is Not: An Economist's Response to Rosenberg," Philosophy of Science, 51(3), p p. 495-503.
      Bruce J. Caldwell ([1982] 1994). Beyond Positivism: Economic Methodology in the Twentieth Century, 2nd ed. Routledge. Preview.
      Daniel M. Hausman (1980). "How to Do Philosophy of Economics," PSA: Proceedings of the Biennial Meeting of the Philosophy of Science Association, 1, pp. 353-362.
       • _____ (1983). "The Limits of Economic Science," in The Limits of Lawfulness: Studies on the Scope and Nature of Scientific Knowledge, N. Rescher, ed. Reprinted in D.M. Hausman (1992 Essays on Philosophy and Economic Methodology, pp. 99-108.
      Daniel M. Hausman (1989). "Economic Methodology in a Nutshell," Journal of Economic Perspectives, 3(2), pp. 115-127.
       • _____ (1992). The Inexact and Separate Science of Economics. Description, to ch. 1 link, preview, and reviews, 1st pages: .
       • Kevin D. Hoover (1995). "Review Article: Why Does Methodology Matter for Economics?" Economic Journal, 105(430), pp.
      Vernon L. Smith (2003). "Constructivist and Ecological Rationality in Economics," American Economic Review, 93(3), pp. 465-508. Archived 2012-01-11 at the Wayback Machine .
       • _____ (2008). "experimental economics," The New Palgrave Dictionary of Economics, 2nd Edition, Abstract.
       • Francesco Guala (2005). The Methodology of Experimental Economics, Cambridge. Description/contents links and ch. 1 excerpt. Archived 2012-09-17 at the Wayback Machine .
  5. Paul Anand (1993,1995). "Foundations of Rational Choice Under Risk". Oxford. Oxford University Press.
  6. Cristina Bicchieri (1993). Rationality and Coordination. Cambridge. Description and chapter-preview links, pp. v-vi. Game-theory links.
  7. Amartya K. Sen (1970 [1984]). Collective Choice and Social Welfare. Elsevier. Description.
      Daniel M. Hausman and Michael S. McPherson (1993). "Taking Ethics Seriously: Economics and Contemporary Moral Philosophy," Journal of Economic Literature, 31(2), pp. 671-731.
      • _____ and _____ ([1994] 2005), 2nd Ed. Economic Analysis and Moral Philosophy. Description and preview links.
      Hal R. Varian (1975). "Distributive Justice, Welfare Economics, and the Theory of Fairness," Philosophy & Public Affairs 4(3), pp. 223-247.
  8. Amartya Sen (1987). On Ethics and Economics, Blackwell, back cover. Description and chapter-preview links.
  9. Amartya Sen (1990). "Justice: Means versus Freedoms," Philosophy & Public Affairs, 19(2), pp. 111-121.
  10. In the Journal of Economic Literature classification codes at JEL: D63, wedged on the same line between 'Equity' and 'Inequality'.
  11. Richard Posner (1981). The Economics of Justice. Description and chapter links, pp. xi-xiii.
       • David A. Hoffman and Michael P. O'Shea (2002). "Can Law and Economics Be Both Practical and Principled?" Alabama Law Review, 53(2), pp. 335-420.
  12. Sven Ove Hansson (2010). "cost–benefit analysis: philosophical issues," The New Palgrave Dictionary of Economics, Online Edition. Abstract.
  13. Marc Fleurbaey (2008). "ethics and economics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  14. Amartya Sen (2008). "Culture and Development."

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Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economic theories. An earlier term was value-free economics.

Normative economics is a part of economics that expresses value or normative judgments about economic fairness or what the outcome of the economy or goals of public policy ought to be.

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Justice in economics is a subcategory of welfare economics with models frequently representing the ethical-social requirements of a given theory, whether "in the large", as of a just social order, or "in the small", as in the equity of "how institutions distribute specific benefits and burdens". That theory may or may not elicit acceptance. In the Journal of Economic Literature classification codes 'justice' is scrolled to at JEL: D63, wedged on the same line between 'Equity' and 'Inequality' along with 'Other Normative Criteria and Measurement'. Categories above and below the line are Externalities and Altruism.

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