The extent to which economics bears on and may be influenced by normative concerns raises methodological questions about the relationships between a positive science concerning “facts” and a normative inquiry into what ought to be. Most economists and methodologists believe that there is a reasonably clear distinction between facts and values, between what is and what ought to be, and they believe that most of economics should be regarded as a positive science that helps policy makers choose means to accomplish their ends, though it does not bear on the choice of ends itself.
Feudalism was the medieval model of government predating the birth of the modern nation-state. Feudal society is a military hierarchy in which a ruler or lord offers mounted fighters a fief (medieval beneficium), a unit of land to control in exchange for a military service. The individual who accepted this land became a vassal, and the man who granted the land become known as his liege or his lord.
Between 1600 and 1800 most of the states of western Europe were heavily influenced by a policy usually known as mercantilism. This was essentially an effort to achieve economic unity and political control.
Economics is of philosophical interest in three main regards. It raises moral questions concerning welfare, justice and freedom. It raises foundational questions concerning the nature of rationality. And it raises methodological or epistemological questions concerning the character and possibility of knowledge of social phenomena.
Economics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain, that physical organ inside one’s head, really works – is beginning to change the way we think about how people make decisions. These findings will inevitably change the way we think about how economies function. In short, we are at the dawn of “neuroeconomics.”
Adam Smith’s thesis two centuries ago was that the presence of many buyers and many sellers competing with one another in the marketplace would cause wasteful resource allocations to be weeded out “as if by an invisible hand.”
Orthodox theoretical microeconomics is as much a theory of rational choices as it a theory that explains and predicts economic outcomes. Since virtually all economic theories that discuss individual choices take individuals as acting for reasons, and thus in some way rational, questions about the role that views of rationality and reasons should play in economics are of general importance. Economists are typically concerned with the aggregate results of individual choices rather than with particular individuals, but their theories in fact offer both causal explanations for why individuals choose as they do and accounts of the reasons for their choices.
Of all the social sciences, economics most closely resembles the natural sciences. Economic theories have been axiomatized, and articles and books of economics are full of theorems. Of all the social sciences, only economics boasts a Nobel Prize.
Marx's economic analysis of capitalism is based on his version of the labour theory of value, and includes the analysis of capitalist profit as the extraction of surplus value from the exploited proletariat. The analysis of history and economics come together in Marx's prediction of the inevitable economic breakdown of capitalism, to be replaced by communism.
Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their “utility.”