Economics, a Science or an Art?
Broadly different subjects can be classified as science
subjects and Arts subjects, Science subjects groups includes physics, Chemistry, Biology etc
while Arts group includes History, civics, sociology Languages etc. Whether Economics is a
science or an art? Let us first understand what is terms ‘science’ and ‘arts’ really means.
A science is a systematized body of knowledge. A branch of knowledge becomes
systematized when relevant facts hove been collected and analyzed in a manner that we
can trace the effects back to their and project cases forward to their effects. In other words
laws have been discovered explaining facts, it becomes a science, In Economics also many
laws and principles have been discovered and hence it is treated as a science. An art lays
down formulae to guide people who want to achieve a certain aim. In this angle also
Economics guides the people to achieve aims, e.g. aim like removal poverty, more
production etc. Thus Economics is an art also. In short Economics is both science as well as
art also.
Economics whether positive or normative science: A positive science explains ''why"
and "wherefore" of things. i.e. causes and effects and normative science on the other hand
rightness or wrongness of the things. In view of this, Economics is both a positive and.
normative science. It not only tells us why certain things happen, it also says whether it is
right or wrong the thing to happen. For example, in the world few people are very rich while
the masses are very poor. Economics should and can explain not only the causes of this
unequal distribution of wealth, but it should also say whether this is good or bad. It might
well say that wealth ought to be fairly distributed. Further it should suggest the methods of
doing it.
Relationship to Law and Economics and approaches
. The economic analysis of law (also known as law and economics) is an analysis of law applying
methods of economics. Economic concepts are used to explain the effects of laws, to assess
which legal rules are economically efficient, and to predict which legal rules will be promulgated.
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The Economic Analysis of Law or Use of Economics in LAW has been dramatically expanded in spheres of
property, contracts,torts,criminal law, determination of monetary damages ,determination of tax.
The law and economics movement applies economic theory and method to the practice of law. It
asserts that the tools of economic reasoning offer the best possibility for justified and consistent legal
practice. It is arguably one of the dominant theories of jurisprudence. The law and economics
movement offers a general theory of law as well as conceptual tools for the clarification and
improvement of its practices. The general theory is that law is best viewed as a social tool that
promotes economic efficiency, that economic analysis and efficiency as an ideal can guide legal
practice. It also considers how legislation should be used to improve market conditions in return.
Law and economics offers a framework with which to model legal outcomes, and common objectives
with which to unify disparate areas of legal activity. The bringing together of legal theory and
economic reasoning has also created new research agendas in the fields of behavioral economics:
how rationality affects people’s behavior within legal scenarios; public choice theory and how
collective behavior should have an effect on legislation; and game theory: understanding strategic
action in a legal context.
Importance of Economics in Law.
Economics provides fundamental organizing principles for the whole body of
law
a) It helps in simplifying the law (i.e., avoiding the evils of current legal
formalism);
b) It focuses on the real-life effects of the law, including possible adverse effects
such as, rent control, protection of weak contract parties.
c) Economic theory does not operate in an institutional vacuum; and,b) Study of
law allows economists to model real life situations.
d) to understand the damages that may result from the use of their products or
services .
e) Improving skills in IPRs may provide material awards and recognition to the
inventors and contributors for their investment.
f) Study of Economics may provide an opportunity to the professionals to
enhance skills in establishment of contracts among the stakeholders of
resources and users of goods or services, handling of liability, etc.
How Law Can Encourage Economic Efficiency?
The law and economics movement claims that law is best understood as a tool to promote economic
efficiency. But how can the institution of law help encourage efficient transactions? One way is to
help avoid situations that lead to market failure. One example of market failure is the existence of
monopolies: a situation where one party is able to extract more profit from a good than a healthy
market would allow. Law can be used as a tool to ensure that monopoly situations are hard to bring
about and maintain. Another way legal systems can be used to ensure economically efficient
transactions is through the enforcement of valid contracts. By ensuring compliance with contractual
terms courts can give parties to a contract confidence that the other party will fulfill the agreed-to
obligations. This becomes especially important in situations where the parties must complete their
obligations at different times.
But some types of market failure are less obvious, and the legal means toward remedying them
subtler. One problem in market transactions is that of externalities. An externality is a cost not
reflected in the market price of a good. For instance, a factory may not have to internalize the costs it
imposes upon the environment into the selling price of its goods. In this case the market price of the
good will not reflect its real cost – and therefore some of the costs are imposed upon parties in an
involuntary manner. Pigou argues in regard to this that legal means should be used to impose a
marginal tax upon the offending party, to internalize any externalities. The economist Coase argued
that this conclusion, while warranted in specific cases, was too global. Coase argued that in a market
where transactions are costless and people do not act strategically, rights assignments are irrelevant
because from any starting point the results will be economically efficient. In other words, the Coase
Theorem states that if there are no transaction costs the assignment of entitlements will be irrelevant
to the goal of allocative efficiency. In such a situation there will be no need for law to internalize costs
because people will bargain to the most efficient possible allocation of goods. But outside of
conceptually ideal markets there are always transaction costs such as information costs, opportunity
costs and administrative costs. If transaction costs are somewhat high, then it does matter how
property rights are assigned. Therefore the enforcement and allocation of legal entitlements will be
an important factor in ensuring economically efficient exchanges. So law can be used to encourage
economic efficiency.
