Economics 101 & Public Square

Why Understanding Economics Means Understanding People

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What comes to your mind when you think of economics? Do you think of charts, graphs, and mathematical models, or general principles of human behavior? Can our understanding of the Bible inform our economic thinking?

How we answer these questions can tell us how the discipline of economics can help us: whether we can use its mathematical models to predict the future, whether its axioms can teach us how to spend our money, and whether it can help us understand what happens as a result of human action.

Ultimately, an incorrect understanding of what economics is could contribute to human misery, as it did in the former Soviet Union. In contrast, a proper understanding of what the discipline of economics can do serves as an integral way to inform individuals and institutions about how to best promote human flourishing, as it has in much of Western Europe, the United States, and dozens of developing countries.

Economics Is a Science

What is science? Francis Wayland in Elements of Political Economy defines it as,

A systematic arrangement of the laws which God has established, so far as they have been discovered, of any department of human knowledge.

Economics, under this definition, is a science because it involves laws that govern how the discipline works. People did not create these laws; they discovered them by observing money, trade, and human behavior.

This means that individuals and societies choose to ignore economic laws, but those laws won’t go away. Working in accordance with the laws is the best way to increase wealth and well-being for all parts of society.

But if economic laws exist, why is it so hard to predict trends and outcomes – like what the job market will look like in 2016 or how much we will be able to do to end global poverty in the next ten years?

Economics Is a Social Science

The reason we can’t test economics in the lab or predict the future using its models is because it is a social science – it deals with people.

Economics is fundamentally about the purposeful, conscious actions of individual humans who come together to make societies. It answers questions about what happens as a result of human action. John Bolt in the book, Economic Shalom, writes,

…economics as a discipline is not in the first place a highly specialized and even mathematically quantifiable science but a practical and moral science. As Aristotle noted in Nicomachean Ethics, practical sciences apply reason to praxis, to human action.

The implication here is that if we want to understand what economics can and can’t do as a science, we need to know something about people.

Biblical Implications

Here is where the Bible can help. While the Bible is not an economics textbook, it says a great deal about the human condition and provides two principles that can help us build our economic understanding.

1. Man is a rational actor.

As the story of God’s creation of the entire earth in Genesis 1 indicates, God thinks, plans, and acts as the creator and ruler of the universe.

The Bible clearly states that each person is made in the image of God and creates on a smaller scale. As Brian Baugus points out,

To create something truly useful we must create like God did, for others…In Genesis 1:27-30 God tells Adam and Eve he has given them creation for sustenance and cultivation. God reiterates this to Noah in Genesis 9:1-3.

In order for human beings to think, plan, and act as the image-bearers of God, they must be capable of rational decision-making and action.

In economics, this means that individuals are capable of choosing what they want for themselves. For example, some people will choose to pursue a graduate degree while others are content with a bachelor’s degree. Or, one person might go for the expensive latte while another might choose the cheaper cup of coffee. These are good, rational decisions, but they depend on each person’s preferences and they are hard to predict.

2. Man is capable of mistakes.

Though man is rational, people make mistakes.

  • According to Genesis 3, people are sinful and this often clouds their good judgment.
  • Unlike God, no one person knows everything. Often people make bad decisions based on bad or incomplete information.

As a result, we can’t always predict what people are going to do. And if human action is unpredictable, economics can be, too.

So What Is Economics Good For?

This means that we can’t predict the future with economic models. Nor can we test economics in the lab.

But economics is useful in other ways. It can’t tell us what everyone will do but it can help us understand what will happen as a result. When we know this, we can find tangible solutions to world hunger, homelessness, and unemployment.

To understand economics, we need to understand people. And once we know how humans act and what happens as a result, we can leverage our economic knowledge to restore God’s creation and bring about greater human flourishing for everyone on both an individual and a global scale.

Leave your comments here.

Image courtesy of Witthaya Phonsawat / FreeDigitalPhotos.net.

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  • Jeffrey Wagler

    Definitely one of my favourite posts so far…and I might add, understanding people helps anybody understanding future trends in the economy.

  • wareaglemom

    Excellent article! Common sense that is unfortunately absent in most high school and college economics courses.

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