Economics is not a business science, although it has applications to business. Rather, it is part of the liberal arts and is a science of human action. Economics studies the actions that most people take in response to circumstances in their lives, but especially those actions that are visible to us. This is why economists are interested in what people buy, sell, and produce, as these things are available to them to observe and measure, as opposed to those actions people may take in private.
Humans share a common nature and possess common ways of acting. This comes about because our minds function according to a similar mechanism, and because we have comparable needs. The mechanism is this: Where we have discretion, we make choices based on our values. This is called subjective valuation.
If I had a nickel for every time a person argued that this means that economics does not accept the idea of objective values, I could buy a candy bar (since the currency is so inflated). While it may be true that some economists do not believe in objective values, the existence of objective values has little bearing on the analysis of choices. People make choices based on the values that they subjectivize, whether they are objectively better or not.
Take the case of Michelangelo’s statue of Moses. Very few people would deny that this statue is, objectively speaking, a powerful and impressive sculpture. Yet some tourists in Rome have no understanding of art, and if asked would not want to spend their time admiring that statue; based on their subjective valuation of art, it isn’t on their list of priorities. This in no way undercuts the objective power of Michelangelo’s work.
And this is just one of countless possible examples. When you eat cereal for breakfast and are confronted with a number of different brands, you choose the one you like best, based on what you value. If you are trying to live a healthful life, you might choose the box whose contents look like rabbit pellets. If taste is more important to you, that will be the basis of your choice, and you may opt for the sugary, chocolate cereal.
Economics is a science about persons and their actions, not about whether they should or should not make certain specific choices — that task belongs to ethics or moral theology. Nor does economics focus on the interior workings of the mind; that is for psychology. As individual persons, and as believers, economists are concerned about all of these things, of course. But as economists, the study of moral theology, ethics, and psychology falls outside their discipline.
So what is the job of economists qua economists? It is this: Economists explain peoples’ actions under different circumstances. The economist does not try to explain everyone’s actions — that would be impossible. But given the values of the person and the circumstances in which he finds himself, the economist can give a good explanation of the choices made by that person. In other words, the economist tries to put on the shoes of a more or less typical person and analyze his actions in that particular situation.
Take, for example, the dire situation of the budget deficit. People in the thinking professions generally admit that this gigantic government debt cannot be sustained. Many folks, however, are not willing to give up their government goodies to stem the borrowing and spending. Economists can analyze what consequences will obtain for the country if nothing is done, and they can tell us what will happen if the situation is addressed. But they can also explain why so many people refuse to do anything about the situation. While in general people will admit that the situation is dire, their value system does not want them to lose that which is dear to them, be it their government salary, their welfare check, or a program they think is valuable.
Of course, the values that individuals hold are not only different among different people, but also change in the same person, depending on what the subject of the value is. Before lunch, one might be hungry and value a meal; after lunch, not so much. One day a person feels like having a hamburger, another day a cheese sandwich. A person may love Beethoven’s Ninth Symphony, but he can listen to it only so often before he tires of it and its value falls below another piece of music.
Does all of this mean that economics lacks predictive value? No, though its predictions require precisely stated conditions. One example will suffice to explain the idea. There is an expression common among economists: “If you tax something, you get less of it.” If a government puts a tax on something, it raises the price of that thing. The law of demand states that if the price goes up, the marginal buyers will buy less of it, or even give it up and turn to a substitute. Therefore, if the government raises the taxes on the proceeds of savings accounts, people will be discouraged from saving. If the capital gains tax goes up significantly, people will freeze their assets, looking forward to the day the tax will go down and they can use more of their proceeds.
Economics can predict what will happen given certain preconditions, but it cannot evaluate the moral weight of the result.