Discuss the definitions of economics.
Discuss the definitions of economics.
Or
“Economics is the science of choice.” In the light of this statement discuss the implications of choice.
Or
Critically analyses the Definitions of Economics.
Ans.
Definitions of Economics
Several definitions of economics have been given by different writers. For the sake of convenience, these definitions have been grouped into four categories:
1. Economics as ‘Science of Wealth’: These definitions of economics were given by Adam Smith and J.B. Say. Adam Smith, in his book, “The Nature and Causes of Wealth of Nations” (1776), defines economics as, “an inquiry into the nature and causes of wealth of nations”. Adam Smith, also known as ‘Father of Economics’, insisted that Economics deals with the acquisition, accumulation and expenditure of wealth. Since his definition gives prominence to the wealth aspect, therefore it is also referred to as ‘wealth definition’. Many other classical economists also defined Economics in terms of wealth. For example, according to J.B. Say, Economics as a, “science which deals with wealth”. The distinct features of Economics, as a science of wealth are :
(a) Significance of Wealth: Adam Smith assumed that wealth is the only important factor in human society and it can fulfill all the desires of human beings. He also assumed that the entire efforts of human society is found to be directed towards earning more wealth.
(b) Role of Economic Man: Adam Smith envisioned that economics studies behaviour of those human beings who have only one objective, that of earning more and more wealth at any cost and by any means. Adam Smith reffered to him as an ‘economic man’.
(c) Priority given to Wealth: In his definition, Adam Smith gives priority to wealth over mankind. He believed that only wealth can give higher satisfaction to all mankind.
The merits of this definition are:
(a) Stress on wealth: It highlighted an important problem faced by each and every nation of the world, namely creation of wealth.
(b) Addressing the problems of Economic Growth: Since the problem of poverty, unemployment etc. can be solved to a greater extent when wealth is produced, it goes to the credit of Adam Smith and his followers to have addressed to the problems of economic growth and increase in the production of wealth.
(c) Attention to important economic issues: By considering the problems of production, distribution and exchange of wealth, classical economists focused attention on the important issues with which Economics is concerned.
However, the study of economics as a ‘science of wealth’ has been criticised on several grounds, the important among them are:
(i) It is too materialistic: Adam Smith concentrated only on material wealth. He totally ignored creation of immaterial wealth like services of teachers, doctors etc.
(ii) Neglect of Welfare: Adam Smith concentrated too much on the production of wealth and ignored social welfare. This makes his definition incomplete and inadequate.
(iii) Narrow Definition: Adam Smith considered that economics is the science that deals only with wealth and material goods. This makes the scope of economics very narrow.
(d) Assumption of Economic Man is Wrong: Smith assumed that every human being wants to earn more money, even with the use of immoral ways. The critics of this definition pointed out that all human beings also own the qualities of love, respect, self-esteem, sympathy, trust etc. which might provide greater satisfaction as compared to wealth.
So, to improve on these definitions, the second category of definitions involved.
2. Economics as a ‘Science of material well-being’: Alfred Marshall wrote a book “Principles of Economics” in 1890 in which he defined economics as, “Economics is the study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and with the material requisites of well-being. Thus, it is on the one side a study of wealth and on the other and more important side a part of study of man”. Alfred Marshall shifted the emphasis from wealth to welfare. Another important definition of this group was given by Pigou, who defined economics as, “The range of our inquiry become restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money”.
The definition given by these neo-classical economists possess the following distinct features :
(a) According to Marshall, economics is a study of mankind in the ordinary business of life, i.e. economic aspect of human life.
(b) According to these economists, economics studies both individual and social actions aimed at promoting economic welfare of people.
(c) Marshall makes a distinction between material and immaterial goods. According to him, only material goods are capable of promoting welfare of people.
The merits of these definitions are:
(a) Precedence to Man: According to Marshall, economics is the study of wealth, but more importantly, it is the study of man. Thus, man gets precedence over wealth.
(b) Emphasis of Material Requisites: Marshall advocates that material things like food, clothing and shelter are important economic objectives, which is quite true.
(c) Wider and Comprehensive Definitions : Marshall’s and Pigou’s definitions of Economics are wider and more comprehensive as they take into account the concept of social welfare.
However, these definitions are also criticised on the following grounds:
(a) Neglect of Immaterial things: Economics is concerned with not only material things but also with immaterial things like services of doctors, teachers etc. Marshall and Pigou chose to ignore them.
(b) The concept of welfare is very vague: Robbins criticised the welfare definition on the ground that it is very difficult to state which things will lead to welfare and which will not. It is a subjective concept which varies from person.
(c) Impractical : Marshall’s definitions is theoretical in nature. It is not possible in practice to divide man’s activities as ordinary or extra ordinary, material or immaterial etc.
The criticisms of these definitions gave birth to the third category of definitions, as explained below.
3. Economics as a ‘Science of Choice Making’: Prof. Lionel Robbins of the London School of Economics gave a new definition of Economics in his famous book, “Nature and Significance of Economics” which was released in 1931. According to Robbins, Economics studies the problems which have arisen because of the scarcity of resources. His definition is as follows, “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
This definition possesses the following distinct features :
(a) Economics is a Science: Economics studies economic human behaviour scientifically. It studies how humans try to optimise certain objectives under given constraints.
(b) Unlimited ends: Ends refer to wants. Human wants are unlimited. When one want is satisfied, another crops up. According to Robbins, if human wants were limited, then there would be no economic problem.
(c) Scarce Means: Means refer to resources. Since resources (natural productive resources, man-made capital goods, consumer goods, money, etc.) are limited, the economic problem arises. If the resources were unlimited, people would be able to satisfy all their wants and there would be no problem.
(d) Alternative Uses: Not only the resources are scarce, they have alternative uses. Therefore, man and society has to choose the uses for which the resources would be used. The merits of this definition are:
(i) Not distinguishing : An important merit of this definition is that it does not distinguishes between material and non-material and between welfare and non-welfare.
(ii) Widens the scope of economics: According to Robbins, anything which satisfies the wants of people would be studied in economics. This widens the scope of economics.
No doubt, Robbins has made Economics a scientific study, but his definition has also been criticised on the following grounds:
(a) Impersonal and colourless: Robbins has made Economics quite impersonal and colourless. By making is a completely positive science, he has narrowed down its scope.
(b) Ignored Macro-Economic Concepts: Robbins definition is totally silent about certain macro-economic aspects, such as determination of national income and employment.
(c) No focus on economic growth and development : His definition does not cover the theory of economic growth and development. While Robbins takes resources as given and talks about their allocation, it is totally silent about the measures to be taken to raise these resources.
(d) Problem of abundance: Some critics are of the view that economic problems can also arise due to abundance. For example, abundance of human resource is a major problem for many economies.
Because of the criticisms of this definition, the fourth category of definition evolved.
4. Economics as a science of dynamic growth and development – Although the fundamental economic problem of scarcity in relation to needs is undisputed, it would not be proper to think that economic resources are fixed and cannot be increased by human endeavours. So, a modern and comprehensive definition of Economics is given by Paul A. Samuelson which is as follows:
“Economics is a study of how men and society choose, with or without the use of money to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption, now and in the future, amongst various people and groups of society”.
The above definition is very comprehensive and it does not restrict to material well-being or money measure as a limiting factor, but it considers economic growth over time.
Samuelson’s definition is a combination of wealth, welfare and scarcity definitions. It stresses about sustainable development and intergenerational equality. It includes choice making in the present and in future. This definition takes into account, production, consumption, exchange and distribution of goods. Hence, this definition is most satisfactory and has a universal appeal.
Other definitions of this category are:
Jacob Viner has given a rational definition of economics. According to him, “Economics is what economists do”. Prof. Henry Smith also gave an all-inclusive definition of economics. According to him, “Economics is the study of how in a civilized society one obtains the share of what others people have produced and of how the total product of society changes and is determined”.
