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Free Term
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Economics
in Business Management
When we look at business
administration and some of its important elements economics has
a significant value. Business Administration from the management
side is something onto which a company relies on and
administrating a business is no wonder a very tough and tricky
job. But for them who are smart enough, it is not a very uphill
job. Smart people make their ways out of problem using logical
ways. In business administration when we are talking about
economics, it is like every where. If it accounts or finance,
marketing economics is every where. The only thing is how to
understand economics and how to mold it according to your ways.
The only thing to understand from all this is when managers
underestimate the role of economics in different areas of
business administration, that is the part where most of the
businesses and managers fails. Businesses often use economics as
their prime weapons in various areas for the formulating of
strategies and objectives as economics is used in business
planning as well. For Example: If a company is making a business
plan then it has to come up with the correct figures of how much
money it is going to make and how much expenses it is going to
take and what will be the methods to achieve that. Here
economics comes in with its different tools and helps out
managers to come up with the thorough information needed for a
business plan. As we move forward we will find out more
significance of economics.
This is the dichotomy that economists recognize when approaching
their field of study. The social scientist must recognize both
positive and normative distinctions, means and ends, as
important factors of fruitful research. Secondly, they must
clearly express the conditions and assumption which theories
holds in order for economics to be useful for society. Positive
science is that which is a fact of nature or a fact by
definition. In mathematics this is the difference between the
knowledge that the angles of a triangle sum to 180 degrees, and
the definition of a triangle as a two dimensional polygon with 3
sides. In economics, such facts of knowledge include that money
is a store of value, or facts of definition that the UN’s Human
Development Index ranks Canada above Mexico. These are all
positive facts. Whether they rely or are associated with values
does not reduce their factualness to a normative realm. One
cannot refute positive statements by claiming they are arrived
at due to values. It is up to normative science to judge the
value of the HDI, a positive fact, and not mistake this action
as denying the existence of the HDI. This is probably better
stated with a topic from macroeconomics. Suppose that some
economists agree that inflation produces the social cost of
having to adjust prices to new levels. This is a completely
positive statement.
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Yes, the definitions have been chosen based on specific values,
but this does not disaffirm the statement as a true reflection
of reality. Suppose we make a true statement which denies that
inflation produces this social cost, by defining inflation or
the cost differently. The old positive fact of reality that the
first statement asserted has not changed. By changing
definitions, we have merely created a new positive statement. A
statement is a true positive fact, according to Weston, when it
“is consistent with definitions and axioms that define the
system. We are not necessarily saying anything about what is
true outside of that system.” The values we have based each
statement on does not induce them into the sphere of normative
science. Neither makes any statement concerning the values of
inflation or costs, nor is that one statement preferable over
the other. Here lies the duty of the economist: to make a
normative decision on which positive statements are most
applicable to the needs of society. Do we want to evaluate
policy based on inflation definition number one or two? Do we
care about social cost one more than social cost two? These are
in the scope of normative science. Effectual positive facts are
the means in reality to achieve ends.
In this manner, economics is not
value-free, and for good reason. There must be some utility
gained from knowledge for research to be beneficial to mankind.
Positive facts are not study for the sake of learning positive
facts, but as a possible means to an end. Normative economics
are those value statements which guide our use and development
of positive science. Positive facts are not limited by our
values, but we can use our values to determine which positive
statements are of most interest to society. Positive statements
are the basis for any science, but do little good for mankind if
we do not evaluate and distinguish some statements as more
useful than others. Thus positive science is made fruitful
through normative values, and reciprocally, normative judgments
are based on objective positive science. It is best to
demonstrate this with an example from a less controversial
science, physics. If a physicist decides that we need to further
study thermodynamics in a specific way because of the needs of
applications in space, his approach is a normative decision
based on the normative desires of some group of people.
However, the results which he arrives at will remain true for
the conditions and viewpoint specified, despite the value to the
space industry, which may actually need some other way of
understanding thermodynamics after all. This demonstrates that
the influence of values does not alter our perception of
reality, but allows us to discover increasingly more of it. If
one positive fact is found fruitless, this prompts more study
which may be of use as a means to our end. Additionally, most
scientist will agree that once a positive fact is delineated,
this does not hinder further research into the area, for the
sake of bettering understanding and bettering the means already
achieved. Scientific tradition is a self-regulating system,
where unfounded biases are eliminated by intercourse with the
rest of the scientific community.
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Heilbroner admits that “economists perform few experiments that
can be rerun in a laboratory, their results cannot be so easily
falsified as those of the natural scientists, but they can be
equally subject to scrutiny and criticism in the forum of expert
opinion.” The point here is that the physicist does not claim
that his new facts of thermodynamics are all encompassing,
representing all the knowledge necessary for human use of
thermodynamics. There may be other more beneficial aspects of
thermodynamic theory which are outside of the framework he has
developed. This is the problem with non clarified value-laden
economics. If we implicitly use a definition of inflation or
unemployment to make a positive statement, it can mislead people
to believe the statement applies to other (typically common use)
definitions. One positive statement about a specific type of
unemployment will not be sufficient to make all normative
decisions. Thus some normative decisions reached would be based
on misinformation. When one makes the claim, without any
clarification, that unemployment increases wages, this is a
positive statement. It is true for some framework, but not
necessarily for the conditions that exist in reality at the time
which we would like to make a normative decision based on this
“fact”. It is at this point which the positive statement,
because not clearly articulated, becomes value-loaded.
We cannot tell what assumptions the economist made. This creates
a statement most likely in support of his or her view of what
ought to be, trying to pass it off as less than such. If he or
she left out wage stickiness, it may be completely useless in
our application to reality, despite the truth of the statement
in the right conditions
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