Economic Thought vs. Business Thought and the Shortcomings of Both

Cristian Mitreanu submits this question via email:

I would like to hear your thoughts on the subject of “economic thought vs. business thought.” Is there such thing? If yes, should this distinction be made?

He raises the question in concert with an initiative he is proposing, intended to start a discussion about the current state of business, called, “A Wake-Up Call for the Business Nation.” It ties in very nicely with the focus of economics.

What, if any, is the interrelation between economic and business thought?

In its most basic form, economics can generally be reduced to the study of choices among the uses of limited or scarce resources with unlimited demands.

On the other hand, there is a plethora of definitions for “business.” Broadly, business is generally discussed as people joining together to achieve greater productivity focused on one or more goals, either on a profit or non-profit basis from the American standpoint.

Simply doing something, such as photography or writing, that does not result in a sale is considered as a hobby by the IRS and, thus, does not constitute a “business.”

Dr. Peter Drucker suggests that a business has as its “purpose to create a customer (so that) any business enterprise has two – and only two – basic functions: marketing and innovation.”

Less academic but well-known and regrettably too often misquoted is President Calvin Coolidge’s comment that “the business of America is business.” What the president actually said in 1925 is, “After all, the chief business of the American people is business. …Of course, the accumulation of wealth cannot be justified as the chief end of existence.”

Just as western economics still largely acts on the assumption of the concept of Homo economicus, so does business seem defined and propelled around the economic principle of “maximization.” In most western – and, increasingly, Asian – businesses, that translates to maximization of profits, whether denominated in dollars, yen, rupees, rial, renminbi, or countless others.

“Business” may be thus be considered as carrying out some of the major functions of economics. However, the shortcomings of one translate to the shortcomings of the other.

Is religion or the pure pursuit of science, for example, part of economics? Certainly, since both need to make decisions regarding the use of scarce resources.

Of course, both have been turned into “businesses.” Witness the growth of the Catholic Church and its fueling of empire-building and wealth control over the centuries, or the churches in the United States that can command billions of dollars on television advertising or political campaigns.

Too often, science has been turned from a mere exploration of mankind’s cerebral potential to a dollars-and-cents business. Witness international drug companies, to mention but one example.

The financial fallout from the Wall Street panic of September 15 will, no doubt, have massive worldwide repercussions far from the financial sector. Blame is already cast by politicians and pundits alike.

Unfortunately, few seem to address that the basic fault lies not within specific individuals or institutions or political parties.

The basic fault lies in the fact that neither the teaching of economics nor of business places much emphasis on the nature of man. It focuses entirely too much on the generation and maximizing of profits and how to achieve them rather than on the human application of the benefits or disadvantages that can be achieved through business.

Both the private or governmental sector need to address those very basic questions that are currently largely ignored in favor of ultimate “maximization.”

What do we really need and how do we best achieve and distribute a “satisfycing” amount of the essentials that all human beings require?

The time is ripe for a new theory that effectively integrates natural and human values with mankind’s behavior without the myopic pursuit and maximization of profit.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.