Adam Smith is often credited to have ‘founded’ economics as a discipline – he was a moral philosopher himself and discovered working principles of division labour and trade as a mechanism for the delivery of goods and services to people. And the efficiency of the ‘market’ became an important part of his explanation for the wealth of nations. Whilst the market is an important component of the foundation of the discipline, economics is much more than that.
At the heart of economics is the power of incentives, even small ones when amplified many times over across different sectors, activities, markets. They get stitched up across the world and underlies the global economy. But that’s not necessarily the biggest deal. Because the collective incentive power delivered both good and bad, and while we understood a lot of the good, there’s still a lot of opportunities to articulate the bad and try to introduce mechanisms or ways to deal with them.
The mechanisms can leverage on the power of incentives, not necessarily in the form of markets. Subsidies and taxes are powerful incentives or disincentives. How and where to get the resources to fund public initiative is the matter of public economics which is not entirely about the market. We need to understand better the way other non-market elements amplify the power of markets – and this is the world of institutional economics.
Today, the financial markets and financial economics is in vogue because of the sheer amount of money and wealth in it. But if we start seeing economics as a discipline not for the money but for making lives better, we ought to look elsewhere, and far beyond the markets.
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