The Nature of the Economy

This introductory chapter explains the purpose of this book—i.e., to investigate the nature of the economy and its “constituents” in order to adjust economics to them. This aim assumes that every science should be epistemologically and methodologically adapted to the nature of its subject matter. The chapter notes that there is a mismatch between economic reality and standard economics rationality, which shows, for example, in laboratory and natural experiments. The cause of this mismatch, the chapter argues, hinges on the “first principles” of economic science, and its source is philosophical. Consequently, overcoming it requires a philosophical metaphysical analysis of the nature of the economy.

As this book intends to establish the nature of the economy and of the fundamental elements in the economic realm, its first goal is to determine what the economic entities are and to discover what their nature is. This is a philosophical task—more specifically, a metaphysical or ontological job. Then, this book sets out to draw conclusions from the previous analysis on the appropriate way of learning about these entities and doing science with them—a task that falls within the purview of the branches of philosophy called epistemology and philosophy of science. Thus, the purpose of this chapter is to establish the meaning of metaphysics and ontology, as well as to introduce the Aristotelian metaphysical approach that will be adopted in the book, explaining why it has been chosen.

The metaphysical analysis of the economy and economic entities calls for a definition of the metaphysical “categories” of being that will be used in this analysis. This chapter will first introduce the Aristotelian categories, but it will also explore the metaphysical categories posited by Nancy Cartwright, Tony Lawson, and Uskali Mäki (in alphabetical order). The aim of this chapter is not to present all the ontological insights of these proposals, but to glean the categories that they employ to consider their potential use in this book. These authors take a critical look at contemporary standard economics. It is not the purpose of this chapter to focus on their criticisms, but only to pick up the concepts that might help to build an ontological analysis.

This chapter sets out to answer two questions: first, what is the nature of the economy as a general reality? and, second, what are its constituents? The chapter specifically delves into the nature of the economy and only enumerates the components that will be analyzed in subsequent chapters. It takes into account the explorations into the nature of the economy undertaken by Aristotle, Cartwright, Lawson, and Mäki, finding some general coincidences among them. The conclusion is that the economic realm consists of accidental entities or properties that cannot be separated from underlying variable structures, capacities, and institutions, or from the agents that have diverse motivations influencing economic actions. This contingent realm calls for local analyses.

This chapter deals with the nature or identity of the individual economic agent. The notion of identity is relevant to economics in that it provides a necessary philosophical framework underlying the descriptions of individual economic agents. The literature on identity and economics upholds that agents’ descriptions fail to identify real people. Standard economics endorses an atomistic conception of individuals. However, an individual’s multiple social commitments and culture shape his/her sense of identity. Therefore, the atomistic individual conception proves inadequate for economics. Moreover, behavioral economics has shown that individuals often make choices that are influenced by their contexts. Yet, while contexts change, individuals remain the same, and individual identity is forged from choices, experiences, culture, and circumstances. Thus, it is relevant to know a person’s identity in order to know how he/she will act. The chapter first explores the conditions economics requires for a concept of identity, and, then, proposes a notion of human personal identity. Finally, it applies this notion of human identity to economics, looking for an adequate description of the identity of the economic agent.

The last chapter presented the identity of the economic agent as a real human person with all the pertaining characteristics. The implicit approach to the economic agent in that chapter was as a consumer or an investor, trying to broaden the view of the motivations of her decisions, actions, and reactions. This chapter deals with the economic agent as a worker. A more complete notion of the identity of the economic agent than the standard economics view of it also bears consequences on the economic agent’s desirable characteristics and motivations as a worker. The chapter first explains classical analyses of human action and their consequences for labor. Then, it introduces new psychological notions about the desirable treatment of work. In particular, there are different ways of “living” work, the best being to consider work as a “calling.” Thus, people have a purpose; they feel called upon to perform a task that bears an impact on others and that is part of an enterprise with a greater reach than their individual possibilities. The chapter concludes that economics should re-think its views on work.

Once established the metaphysic nature of the economy and of the economic agent as deciding and acting subject, and also as worker, we need to elaborate on the metaphysical nature of the economic system—i.e., the macroeconomy. This chapter will serve as a prelude to this discussion, noting that the macroeconomy refers to the economic dimension of a whole composed of a great number of people interacting between them—a social collective. Thus, before delving into the topic of the nature of the macroeconomy or macroeconomic entities, we have to establish the nature of social collectives. First, the chapter surveys dictionary definitions of social collectives in order to identify their shared characteristics, using this basic notion as a starting point to ascertain the ontology of social collectives. Next, the chapter describes and analyzes Aristotle’s seminal views on social collectives. The last section introduces some views that have some similarities with Aristotle’s and that will benefit from Aristotelian notions.

Based on the probe into the nature of social collectives, this chapter tackles the nature of macroeconomic entities. The first section introduces the definitions and differences between micro- and macroeconomics. The second section presents the microfoundations program and its core tool, the “Representative Agent.” The third section tackles the ontological nature of macroeconomic entities, considering the notions of supervenience and emergence, and John Maynard Keynes’s position before applying Aristotle’s theory of wholes to the chapter’s topic. Finally, a short conclusion wraps up the previous arguments.

The topic of the nature or essence of money has produced an abundant literature that has failed to come to a uniform conclusion. Regardless of the evolution of money, some passages by Aristotle shed light on the meaning and nature of it. This chapter looks into them. The first section presents Aristotle’s thoughts on money, while the second section analyzes money as a unit of measurement, and the third section deals with its conventional nature. The fourth section draws on two theories of signs to explain the nature of money as a sign, before offering a conclusion in the end. Building on Aristotle’s ideas, the chapter distinguishes three levels of understanding money: (1) universal money or moneyness; (2) money as instantiated in particular currencies with nominal face values (money of account) that measure this potential purchasing value; and (3) currency in exercise that actualizes money/currency potentialities through specific prices, signs of exchange values, and needs/wants. The fact that the nominal face value of money means potential purchasing value shows that this value can actually change when exercised. Currencies are performative signs, in the sense that they have a potentiality or purchasing power.

The Introduction of this book announced its intention to analyze the nature and method of economic sciences based on the conclusions on the nature of the constituents of the economy. Chapter 4, focusing on the economy “in general,” actually dealt with economic actions, while Chapter 5 set out to explore the identity of the economic agent, pointing out the reductive character of this notion in standard economics. Chapter 6 examined the economic agent as worker, highlighting the subjective dimension of work, and Chapter 8 underscored the metaphysical accidental character of macroeconomic entities. Finally, looking at fiduciary money, Chapter 9 highlighted also the contingent character of its value, which largely depends on people’s trust in it. All these characteristics of the subject matter of economics tie it closely to the social, political, cultural, historical, and geographical dimensions where it—micro- and macroeconomy—unfolds. This nature of economics and its method appears in the rest of this chapter, which starts by summarizing the author’s previous ideas. Next, it introduces Aristotle’s, Cartwright’s, Lawson’s, and Mäki’s views on economic science before integrating them all to show how they meet the requirements of the constituents of the subject matter of economics.

All the characteristics of the subject matter of economics discussed in the previous chapters of this book unveil its close connection with the social, political, cultural, institutional, historical, and geographical dimensions where the micro- and macroeconomy unfold. The economic structures are part of the social, institutional, cultural, and political structures and cannot be dealt with without considering this imbrication. This conclusion stems from the “economic ontologists’” ideas that have been described in the book. It also derives from the analysis of the economic agent’s identity, macroeconomic entities, and money. The contingent character of the subject matter—i.e., the economy—enforces this way of doing economics. It should not be viewed as a limitation, but as a condition of good science, for, as Aristotle explains referring to practical science, “for among statements about conduct those which are general apply more widely, but those which are particular are more true” (Nicomachean Ethics, II, 7, 1107a 31–3).