Is Economics a Science?

Economics is widely recognized as an independent branch of knowledge, but this was not the case before Adam Smith’s The Wealth of Nations publication in 1776. Since the Sixteenth Century, Mercantilism had been the dominant school of thought among economists. The mercantilistic perspective views economy, which is already under governmental control, as a means at the disposal of the political power for the territorial unification of the State (Heckscher, 1936). At that time, thus, economics was perceived as a set of proposals aimed at guiding the Sovereigns in the daily administration of their State to prevent them from abusing their power. Smith challenges this idea by addressing several economic issues without taking into account the government involvement in their resolution. For instance, Smith argues that economic prosperity can be achieved by freeing trade from governmental control (Sen, 2016). What is revolutionary about the Scottish philosopher’s thought is that he detaches from politics and ethics, thus enhancing the independency of economics as a science.

Economics is indeed a peculiar science, as it differs from the others for several reasons. The first problem that emerges by comparing economics to natural — hard — sciences is that it can rely exclusively on direct observations of phenomena under real-world circumstances to formulate its theories, whereas natural scientists can carry out an indefinite number of experiments (Mill, 1836). The kind of observations to which economists are bounded necessarily implies the fact that, while studying certain phenomena, an economist cannot get rid of all those disturbing variables that could affect phenomena themselves. Another problem is given by the changing nature of economic phenomena. Whenever an economist succeeds in shaping a reliable model and, based on that, in making a prediction; there is always the possibility that, even after a short period, the conditions that have made that model acceptable change and, thus, the prediction turns out to be false (Hausman, 1992). Hence, the difference between economics and natural sciences is of degree and not of kind. Consequently, being a science, economics aims at providing a set of theories capable of explaining how economic phenomena work, in particular when the surrounding circumstances change — according to the viewpoint of Friedman (1953).

Criticizing this thesis, which gives economics a science status, and, therefore, entitled to make predictions, is the first step for those who, on the one hand, refuse the scientific nature of the discipline and, on the other, see economics as an Ideology rather than a science. The predictive power of economic theories is undermined by the very character of the predictions they make. Economics makes generic predictions (Rosenberg, 1999) which, contrary to specific predictions, lack precision. When an economist makes a prediction he is only foreseeing that something will happen, but he is not specifying when, where, and to what extent a certain phenomenon will affect the economy. Furthermore, often economic predictions are contrasting. Consider, for instance, the dichotomy between Keynes’ and Hayek’s thoughts on the role played by monetary policy. To Keynes, low interest rates boost consumption and investment, thus increasing the aggregate demand. To Hayek, instead, low interest rates cause an excessive credit creation by banks that imply unsustainable investments which, eventually, turn into a loss rather than a profit. Such a disagreement causes disorientation, as it seems that economists, from the moment they choose how to approach a certain issue to the moment in which they interpret evidence, can’t help giving their opinions (Matthews, 1985). An economic prediction, then, may contain a political message independently from whether its author means it or not (McCloskey, 1983).

The Two Theses in Practice

Therefore, the debate is about the real goal of economics. For those who believe economics is a science, the goal is to describe and predict economic phenomena. For those who believe economics is an Ideology, as it fails as a predictive science, its goal is to propose political ideas by hiding them beneath economic theories. However, both agree on the existence of some real-world phenomena that belong to the economic sphere. In other words, regardless of its purpose, economics is indeed about something. The question is whether scholars of this discipline do study such phenomena in a standardized and scientific way or whether they pretend to provide functional theories while, indeed, they are advocating some policies.

At this point, it might be useful, at least for the sake of clarity, to examine the two theses in practice; that is, to analyze which are the two possible goals of a certain economic theory. Akerlof’s “Market for Lemons”, a subfield of the broader Theory of Markets, will be the subject of this analysis. The Market for Lemons is used by Akerlof as a model in which an economic phenomenon, namely information asymmetry, takes place.

The Market for Lemons is a market for second-hand cars, where the quality of cars ranges from very bad, the lemons, to very good. Sellers know the quality of their cars, whereas buyers don’t. Still, buyers know that the cars are not all alike. Both parties are aware of the different economic value of cars. Consider, for instance, a value X for low-quality cars, a value Y for medium-quality cars, and a value Z for high-quality cars (such that X