Ronald Coase, an American economist of British origin, won a Nobel prize for inventing the idea of transaction costs in his famous paper "The nature of the firm" (1937). He is now 102 years old and has just announced his desire, with a young Chinese associate, to found a new journal called "Man and the economy" (well he was born in 1910).
A century ago, Alfred Marshall, author of Principles of Economics (1890) and Keynes' teacher at Cambridge defined economics as “both a study of wealth and a branch of the study of man”. But, in a manifesto published in the Harvard Business Review last month, "saving economics from the economists", Coase argues that "The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate."
"In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative...This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions".
"Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates. But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task."
"At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy. It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists."
There is also an article on all this in Businessweek last November, "urging economists to step away from the blackboard".