From ancient times, we have been consuming rice, bread, vegetables, milk, fruits, etc. We have been using clothes and houses. We have been using the services of doctors, engineers, electricians, drivers, etc.
As a student, you are getting the services of teachers and you have to use books, paper, pens, and pencils. In other words, we are all consumers, as a matter of fact; each one of us is a consumer.
Consumption or the use of goods and services is an economic activity. Goods or commodities are to be produced before they are consumed. Production of anything requires effort and skill. All those who help in the creation of goods and services are producers.
For example, Farmers grow rice, wheat, pulses, etc. goldsmith makes jewels, cobbler makes shoes and slippers, and so on. The services are created by drivers, tailors, teachers, doctors, etc.
The activities of people are divided into two categories viz.,
- economic and
- non-economic activities.
Economic activities are those activities that man does to earn money. The farmers work on their land to grow food grains, vegetables, cotton, etc. Part of these may be kept for self-consumption and the rest he may sell in the market.
We can say that the farmer is engaged in economic activity. The farmer who works in the agricultural field, the nurse who attends to patients in a hospital, the teacher who teaches in an educational institution – in fact, everyone who works anywhere and at any time for getting income is considered an economic activity.
If a man performs any activity which is not done for money is a non-economic activity. For example, a musician singing for his own pleasure, a teacher teaching his own son, a nurse giving treatment to her own parents, etc.
Hence, human activities like
- production,
- consumption, and
- exchange
are considered as Economic activities which are done for earning income. The activities of humans which are not done for the purpose of earning income are called non-economic activities. The non-economic activities include
- social activities,
- political activities,
- religious activities,
- charitable activities, etc.
MEANING OF ECONOMICS
The term “Economics” is taken from the Greek words “Oikos” and “Nomos”. ‘Oikos’ means household and ‘Nomos’ means management.
So, Economics means household management, i.e. managing a household, using the limited funds available in the most economical manner possible. In other words, it means managing the desires and aspirations of the family through the wise allocation of resources (money) in order to achieve maximum satisfaction in life.
It is important to note that the famous Greek Philosopher Aristotle considered Economics as the art of household management. During the early days, Economics was called Political Economy as it was applied by famous kings to govern the state or city. Prof. Alfred Marshall, a famous economist, first used the term Economics instead of Political Economy.
The use of the term /Economics/ results in two advantages according to Sir Dennis Robertson –
- (i) the termination –/ics/ indicates that our study is or aspires to be a science, like Physics, Dynamics, and so forth, and
- (ii) the dropping of the word ‘/Political/’ emphasizes that our ultimate concern is with individual human beings, not with states.
At present, the art of household management is applied by every person i.e. both by Government and individuals to get maximum satisfaction. Both are trying to solve many economic problems in day-to-day life. From the above discussion, it is clear that the term Economics refers to all economic activities of human beings.
The Economic activities include
- production,
- consumption,
- distribution,
- exchange,
- public finance,
- public debt,
- preparation of a budget, etc.
DEFINITIONS OF ECONOMICS
At present, there are four definitions of economics. Broadly speaking, the various definitions can be lumped together under four heads viz.,
1. Wealth Definition
2. Welfare Definition
3. Scarcity Definition
4. Growth Oriented or Modern Definition of Economics
WEALTH DEFINITION OF ECONOMICS
The Wealth Definition is the earliest definition of Economics. This
definition was developed by the Economists who belong to Classical
School of Economics. The main contributors are
Adam Smith,
John Stuart Mill,
JB Say,
Prof. FA Walker,
NW Senior, etc.
Adam Smith is the first Economist who defined Economics and hence is regarded as Father of
Economics.
According to Adam Smith “Economics is a science of Wealth”.
Economics was regarded as the science which studied the production and
consumption of wealth.
He has written a book “an enquiry into the nature
and causes of wealth of nations” popularly known as “Wealth of Nations”
published in 1776.
The other classical thinkers have supported the views of Adam Smith. As per
JS Mill, Economics is “the practical science of the production and distribution of
wealth.”
According to J.B. Say Economics is “the science
which treats wealth.”
Prof. FA Walker defines Economics as a body of knowledge which relates to wealth.
From the above definitions we can say that Economics is a study of how
wealth is produced, distributed and exchanged for consumption.
So, the classical definition of Economics points out the following:
*The main objective of human beings is acquisition of wealth for
their comfortable life.
*Economics is the science of wealth. It deals with production,
distribution and exchange of wealth.
*The term wealth means richness or abundance of money.
*Ways and means of increasing the wealth of society.
As opposed to the other two most famous theories of Marshall
and Robbins, he regarded the economic balance and distribution
of wealth as a material thing rather than Marshall’s welfare
concept or Robbin’s definition of Scarcity.
The definition later helped European nations erect the
Capitalism system of Economy and Gross Domestic Product
instead of gold and silver reserve accumulation for economic
balance.
Adam Smith strongly opposed the accumulation of material
wealth i.e. gold and silver reserves as a standard of the
wealth of nations; he proposed a whole new idea for the
wealth generation and distribution for the wealth of nations.
The two complementary tools for the production and
distribution of wealth were the Invisible hand and price
system; he outdated the longing gold and silver reserve
system in the pre-industrialization era of Europe that was
being followed for centuries.
Adam Smith proposed the concept of Gross Domestic Process of
GDP for nations and developed a free exchange economic system
for exports in his book “Wealth of Nations”.
GDP is a scale of wealth and prosperity of a nation based on its production and
distribution capacity instead of how much gold and silver reserves are in its capacity.
Drawbacks of Adam Smith’s Definition
While acclaimed by many, the theory and classical definition of Economics by
Adam Smith was and is still disapproved and criticized by economists around the world.
The main disapproval of Adam Smith’s theory is by those acclaiming Marshall’s theory
of welfare. Both definitions are in contrast with each other. The former implies
wealth and terms Economics as purely a science of wealth, while the latter says it is
the study of mankind and then of wealth.
Adam Smith’s definition of economics focused on consumption and investment of wealth,
he does not explain its effects on mankind or its main beneficiary i.e. humans.
The capitalists’ approach to the economy by Smith and his followers led to the
horrible age of slavery for laborers in early 1800s.
Smith seldom paid any head to welfare and scarcity aspects of a nation’s economy and
wealth. Smith’s theories grew stronger and are still followed in one form or the other.
The materialist’s approach towards wealth deviating from the cultural and religious
norms of European society was a strong point against Adam Smith’s definition.
The church thought that it would create materialism and desire for more wealth and
aberration from the religion. The main opponents were Carlyle and Ruskin, both termed
Smith’s definition of Economics as a ‘Dismal Science’ and ‘the Gospel of Mammon’.
Smith’s definition of economics is also referred to as ‘Butter and Bread Science’ in
general. Robbins was of the view that the present definition does not justify the
presence of immaterial things that fall in daily economics. It included things other
than plain wealth distributed in trade. The immaterial services were of teachers and
doctors; they help grow the society without trading for money. Services were unclear
in Smith’s definition.
Smith was criticized in view of his wage and labor distribution formulas for
large-scale industrial production. For industrialists following Smith’s definition of
wealth, there was nothing about human welfare; the definition looked like a selfish
money-making proposal to generate wealth. Smith defined the economic man as the
accumulation of wealth who has no concern for his workers or human welfare.
Adam Smith’s definition of economics focused on consumption and investment of wealth,
he does not explain its effects on mankind or its main beneficiary i.e. humans.
The capitalists’ approach to the economy by Smith and his followers led to the
horrible age of slavery for laborers in early 1800s. Smith seldom paid any head to
welfare and scarcity aspects of a nation’s economy and wealth. Smith’s theories grew
stronger and are still followed in one form or the other.
As opposed to the other two most famous theories of Marshall and Robbins, he regarded
the economic balance and distribution of wealth as a material thing rather than
Marshall’s welfare concept or Robbin’s definition of Scarcity.
The definition later helped European nations erect the Capitalism system of Economy
and Gross Domestic Product instead of gold and silver reserve accumulation for
economic balance.
The two complementary tools for the production and distribution of wealth were the
Invisible hand and price system; he outdated the longing gold and silver reserve
system in the pre-industrialization era of Europe that was being followed for
centuries.
Adam Smith’s Concept of GDP
Adam Smith proposed the concept of Gross Domestic Process of GDP for nations and
developed a free exchange economic system for exports in his book “Wealth of Nations”.
GDP is a scale of wealth and prosperity of a nation based on its production and
distribution capacity instead of how much gold and silver reserves are in its capacity.
His definition helped create a freeway for governments doing imports and exports
without imposing taxes and based on the country’s production capacity and quality of
products being exported and vice versa.
Invisible Hand Adam Smith profoundly discussed the need for an “invisible hand” in
the economic prosperity and disparity in the politico-economic scope of a nation.
The supply and demand must be under the influence of the invisible hand in Smith’s
definition of economics. He emphasized the minimal role of government in free trade
and discouraged the process of taxation in free markets.
The invisible hand is definitely the purchase and production power of people.
Invisible hand helps produce raw materials for the consumer market, refine & deliver
retail to end-user. The chain completes creating financial equity in the economy.
A meal comprises meat, bread, and wine; a baker, butcher, and brewer provided
indirectly for the meal to be served at the table.
Limitations of Wealth Definition
The wealth definition of Economics came under a severe criticism from
many economists like
Rukin, Carlyle, and
Matthew Arnold.
According to them, Economics was dubbed as the ‘bread-and-butter science‘.
The classical definition of economics is also criticized as a science that
taught selfishness and love of money; a dark and a dismal science.
According to critics, the acceptance of Economics as the science of
wealth also tended to restrict or narrow down the scope of the subject
unnecessarily.
If Economics is defined as the science of wealth, then a
necessary corollary follows that Economics studies the activities of
those men and women who are engaged in the production and consumption of
wealth. The people who are not engaged in the production of material
things did not and could not fall within the purview of Economics as
such.
Hence the Wealth Definition of Economics is not a complete
Definition of Economics. To sum up, the Classical thinkers have failed
to give satisfactory definition which can be highlighted as follows:
*Too much importance is given to acquisition and accumulation of
wealth and neglected human welfare.
*Human welfare depends not only on wealth but also on love and
affection, social service, service towards the nation, etc.
*It has made the scope of Economics as narrow, by not considering
non-material things, i.e. services of doctors, teachers, lawyers,
singers, etc.
Conclusion
No doubt, Wealth definition of Economics has certain defects. But it is wrong to
discard the basic idea of this definition.
Earning wealth-money
is the main motto of every individual to lead a comfortable and happy life. Ultimately wealth
leads to welfare.
So we can conclude that Definitions of Classical Economists is just incomplete and cannot be
treated as incorrect.
WELFARE OR NEO-CLASSICAL DEFINITION OF ECONOMICS
The important economists of Neo-Classical School of Economics are
Prof. Alfred Marshall,
AC Pigou,
E Cannan,
Prof. Ely.
Alfred Marshall was the first economist who lifted the science of Economics from
the morass into which it has fallen towards the close of the 19th century.
He wrote a book “Principles of Economics”, which was published in the year 1890.
He shifted the emphasis from ‘Wealth’ to ‘Welfare‘.
According to him wealth is not end but only a means to an end, the end being human
welfare. (End-human wants, means-resources to satisfy human wants.)
As Marshall puts it, Economics is “on the one side a study of wealth; and on the
other and more important side, a part of the study of man”. He formulated his
definition of economics strictly in accordance with his ideas of human welfare.
Economics is a 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 use of the material requisites of well being”
—Alfred Marshall
The following implications can be arrived after careful examination of
Marshall's definition:
*Economics is a study of human beings and not of animals or plants.
*It studies the economic aspects of the life of human beings. Economics is
concerned purely with the economic aspect of human life. It relates to how
he earns his income and how he spends it.
*
It studies human welfare. That doesn't mean that it studies the
entire human welfare but only a part of it, i.e. material welfare.
Apart from Marshall's definition, there are other prominent Economists
who have tried to define Economics in Welfare terms.
According to Edwin Cannan, “The aim of Political Economy is the
explanation of the general causes on which the material welfare of human
beings depends.”
Prof. AC Pigou remarks, “The range of our enquiry becomes restricted to
that part of social welfare that can be brought directly or indirectly
into relation with the measuring rod of money.”
In the words of Asimakopulas, “Economics is the subject concerned with
the material welfare of individuals and groups in society.”
Main Features of Welfare Definition
*Economics is a social science, i.e. a science which considers all
those economic activities of only those people who live in the society.
*It gives importance to human welfare rather than wealth. It
considers wealth as a means or an instrument to improve the conditions of
human life.
*Economics studies how people work and live, i.e. how man earns and
spends his income to increase welfare.
*It includes those activities of human beings which result in
material things and excludes political activities, religious
activities, social activities and the services of doctors, nurses,
lawyers, teachers, etc.
*It considers those which relate to promotion of human welfare and
ignore the production of narcotic drugs, alcoholic drinks, weapons,
etc. which do not promote human welfare.
Drawbacks or Criticisms of Welfare Definition
The Welfare definition is criticized by Prof. Lionel Robbins an eminent
Economist. The Welfare definition, though it is superior when compared
to Wealth Definition, objected on following reasons:
1. According to Prof. Lionel Robbins, the Welfare Definition of
Economics includes only material things. It ignores non-material
things from its scope. In fact, the demarcation is not as clear-cut
as is assumed by the economists who advocated Welfare Definition.
There are several products in our life which satisfy our wants
though they are in scarce. But these items are not material in any
sense of the term. The services of doctors, lawyers, and teachers
are very essential for human welfare. They do not fall under
material things, yet they are in scarce and have highest value.
2.
The science of Economics studies several activities which are hardly
conducive to welfare. The activities of the producers of intoxicants
like alcoholic drinks and opium, etc. are certainly economic
activities and they are studied by the economists as they satisfy
human wants and are concerned with the production and distribution
of scarce commodities.
Prof. Cannan, tells in “Political Economy of War” as a sheer
contradiction in terms. The argument seems to be that since war is
not conducive to material welfare and Economics is solely concerned
with material welfare, therefore war cannot be a subject matter of
the science of Economics.
Hence, the contribution made by the welfare economists in respect of
Welfare basis of Economics is self-contradictory. L Robbins said
“Whatever Economics is concerned with, it is not concerned with the
causes of material welfare.”
3.
The Welfare definition of Economics is also criticized on the ground
that Welfare cannot be measured in quantities. Prof. AC Pigou, an
eminent welfare economist, opines that the Welfare can be measured
in terms of money. But the question is, ‘Is money a satisfactory
measure of welfare?’ Certainly money is not a satisfactory measure
of welfare. Does it imply that two persons paying the same price for
a commodity derive an equal amount of utility or welfare from its
purchase? It is possible that one person may be very rich while the
other very poor. Obviously, the utilities or satisfactions which the
two persons derive from their purchase cannot be equal. The utility
derived by the poor person shall be much greater than that derived
by the rich person. Hence money cannot represent an equal utility or
welfare for all persons.
4.
The Welfare Economists have treated the Economics as a pure social
science. That means, Economics study man as a social 8being–as a
part and parcel of society. Economics would have nothing to do with
the problems of those individuals who were isolated from the rest of
the society. The law of substitution is a fundamental law to which
everyone is subject whether he is a member of a community or not.
Hence, Economics should be treated more of a human than of a pure
social science.
5.
Prof. Lionel Robbins objects the Welfare definition of economics as
it is just classificatory and not analytical. The Welfare economists
say that the Economics concerns itself with a certain group of
activities rather than with a certain aspect of every activity.
Economics deals only with the production and consumption of wealth.
Prof. Robbins opines that the division of human activities into
‘economic’ and ‘non-economic’ is completely unscientific and
illogical. Even an economic activity may have a non-economic aspect.
Hence, the Welfare Definition of Economics is rejected on the ground
that it does not cover all aspects of human activities. But certainly
this definition has become foundation stone for new definitions of
economics.
SCARCITY DEFINITION OF ECONOMICS
The Scarcity Definition of Economics has been advocated by Prof. Lionel
Robbins. He is an English Economist from London School of Economics. In
his book – “An Essay on the Nature and Significance of Economic Science”
published in 1932, initiated an altogether fresh controversy regarding
the definition of Economics. Till then, Marshall definition had been
accepted as a final definition of Economics. The book published by Prof.
Robbins made some economists to change their faith in the old,
traditional definitions of Economics.
According to Prof. Lionel Robbins, “Economics is the Science which
studies human behavior as a relationship between Ends and Scarce means
which have alternative uses.”
The scarcity definition of Robbins was supported by many Economists.
They are George Stigler, Cassel, JR Hicks, Eric Roll, and others.9
According to George Stigler, “Economics is the study of the principles
governing the allocation of scarce means among competing ends, when the
objective of allocation is to maximize the attainment of ends.”
Prof. Cassel defines Economics as “the science of scarcity.” According
to JR Hicks, “Economics is the logic of choice.”
After careful analysis of various definitions, we can arrive at three
basic propositions which might be said to comprise the main structure of
Economics. The three fundamental propositions are as follows:
1.
Ends: Ends are nothing but human wants. As we know from our routine
life, our wants are unlimited in nature. The satisfaction of one
want immediately gives rise to another. In view of the multiplicity
of wants, that stage perhaps never reaches when all the wants of a
person are fully satisfied except after death. Since they are
unlimited, we have to choose between most necessity and least necessity.
2.
Scarce means: Scarce refers to limited or shortage. Means refer to
the resources available to satisfy human wants. The wants may be
unlimited, but the means which are available to satisfy these wants
are strictly limited. The economic problem arises because most of
the goods are scarce in relation to their demand.
The word scarcity is to be interpreted in relative sense. The mere
existence of short supply does not make a commodity scarce, if there
is no demand for it. As Prof. Robbins says that the bad eggs, though
much smaller in number than good ones, are not scarce in the
economic sense, since there is no demand whatsoever for bad eggs.
The bad eggs, then, are not at all scarce in relation to their
demand. On the other hand, wheat is the order of hundreds of
millions of tons may be available in the world markets and yet wheat
may be ‘scarce’ because their demand is much greater than the
supply. The scarcity or otherwise of a commodity is to be considered
only in relation to its demand.
3.
Alternative applications of scarce means: Prof. Robbins' definition
says that though the resources are in scarce but they could be put
to alternative uses. If a commodity can be put to one single use
alone and to none else, no economic problem 10would arise in its
use. After the commodity had been put to that use, the remainder of
it shall become a free commodity with little economic significance.
In actual life, however, we find that a commodity can be put to
several alternative uses. Its aggregate demand becomes so large that
its existing supply is insufficient to meet it and the commodity
concerned acquires an economic significance.
It is understood that neither the multiplicity of ends, nor the scarcity
of means nor even the alternative applicability of the scarce means
taken alone can create an economic problem. An economic problem arises
only when these conditions are fulfilled simultaneously. Prof. Robbins,
has provided us with a reliable test to distinguish an economic from a
non-economic problem. A country preparing for war has to make choice
between ‘gun’ and ‘butter‘.
Why the Question of Choice Does Arise?
The problem of choice arises because the ‘means’ are scarce in relation
to the unlimited ends. The greatest amount of choice occurs, however, in
the expenditure of one's income. One has to decide how much to spend and
how much to save and then how much to spend on necessities. Businessmen,
too, are constantly confronted with choices. They have to decide what
method of production to adopt, whether to employ more or less labour,
less or more capital.
Prof. Robbins’ definition raises a fundamental issue, namely, the
scarcity of means in relation to ends and the consequent problem of
choice. The problem of choice is universal. As Eric Roll says, “It
exists in the one-man community of Robinson Crusoe, in the patriarchal
tribe of Central Africa, in medieval and feudalist Europe, in modern
capitalist America and in Communist Russia”.
The brute fact of scarcity confronts all types of economic systems –
capitalist, socialist and mixed. In a capitalist economy, the problem
may be and is actually solved through the free working of the
price-mechanism. In a communist economy, the task of the adjustment of
scarce means to ends is handled by the National Planning Commission. In
a mixed economy, it is solved through wise allocation of resources
through liberalization and Privatization policies.11
With the above discussion we can say that the definition of Prof. Lionel
Robbins has demolished the old structure of Economics based upon
“material welfare”. In its place, it has erected an altogether new
structure with two foundation-stones viz., the scarcity of means and the
multiplicity of ends. The definition has universal application. It is
true not only in American Economy but also true in Communist China. The
definition is true of all places and perhaps of all times. Further, this
definition has defined the scope of Economics. It has delimited the
field of Economics by building a boundary wall around it.
According to Scarcity definition, Economics is not at all concerned with
ends; they may be noble or ignoble, good or bad. The economists would
study all such situations where the ends are multiple and means scarce.
But the economists have nothing to do with the selection of ends. Prof.
Robbins has been successful in influencing the present-day economists in
such a way that several of them have been tempted to define Economics on
Robbisian lines.
We can sum up the entire definition of economics as follows:
*
Ends are unlimited, i.e. the human wants are unlimited. That means
there will be multiplicity of human wants.
*
Means, i.e. resources to satisfy human wants are limited in supply.
*
Means can be put to alternative uses. For example, Land can be used
for cultivation, human settlement, construction of roads, railways, etc.
*
Multiplicity of wants, scarcity of resources and alternative
applicability of scarce resources leads to creation of Economic
problems.
*
Choosing the best alternative use will solve Economic problem.
*
Economics explains causes and effects of Economic problem. Hence it
is regarded as a Positive Science and not a normative science.
Criticisms of Scarcity Definition of Prof. Robbins
The Scarcity definition of Economics is also not free from defects. The
weaknesses of this definition are identified by 12Mrs Barabara Wootton,
Thomas Robertson, and other modern economists. The main criticisms are
as follows:
1.
The Marshallian economists like Mrs. Barabara Wootton, Beveridge,
Durban, and Fraser consider the scarcity definition as too narrow
and restricted in scope for a social study like Economics. They are
under no circumstances prepared to divest Economics, as Robbins
does, of ethical considerations.
2.
In the words of Prof. Ely, “in Robbins definition of Economics, the
human touch is entirely missing”. According to Prof. Boulding,
“Economics is not mere a study of scarce resources but also of human
welfare because welfare is an end in itself.” Thus, the scarcity
definition has made Economics just as a theory of choice.
3.
It is pointed out that although Robbins says that the Economics is
not related to welfare concept, yet the concept of welfare is
implicit even in his own definition. The idea of maximum
satisfaction is implicit in the scarcity definition itself. The
scarce means are to be adjusted to the multiple ends in such a
manner as to get maximum utility or welfare. The concept of welfare
enters his definition implicity.
4.
The definition given by Prof. Robbins converts Economics into a
“pure” science—a science that is concerned with the formulation of
economic laws having little or nothing to do with practice. Majority
of the economists today have opined that the economist must not only
be a tool-maker but also a tool user. As Mrs Barbara Wootton in her
“Lament for Economics” complaints, “we spend too much time on
forging theoretical tools and too little time in trying to make
practical use of them”. Further, the justification of any social
science depends on its ability to contribute to the solution of
practical problems and from this point of view, the Scarcity
definition is lagging behind.
5.
According to critics, an economic problem does not always arise from
scarcity as suggested by Prof. Robbins. It can arise from abundance
also. During 1930s, the USA faced Great Economic Depression not
because of scarcity of resources or goods and services but because
of abundance of goods (over production of goods and services on over
anticipation of profits resulting 13in over investment activities)
which created economic problem for governments in various capitalist
countries of the entire world. During floods, abundance of water
destroys agricultural crops, human settlement, etc. Sometimes
farmers face deflation and incur losses due to overproduction.
6.
The major defect of Scarcity definition is that it suffers from
inadequateness. As Critics opines that the definition of Robbins has
taken an entirely static view of the scarcity problem. This
definition deals with the adjustment of given scarce means with
given ends or wants. It admits no possibility of a change taking
place either in the means or in the ends. This is highly static and
rigid view of a dynamic problem. In the present dynamic economy, the
ends and the means are subject to change. There is possibility of
ends changing or means undergoing a process of growth and
development in course of time. But these aspects are ignored by
Prof. Robbins in his definition.
GROWTH DEFINITION OF ECONOMICS
As discussed above, Scarcity definition of economics excludes from its
scope the problem of economic growth and takes an entirely static view
of an essentially dynamic problem. This defect has been sought to be
removed in recent years by Prof. Samuelson's definition of economics.
The definition developed by Prof. Samuelson takes cognizance of the
dynamic changes taking place both in the ‘means’ as well as the ‘ends’
with the lapse of time. It has, therefore, been rightly termed as the
“growth-oriented definition” of Economics.
After deep study of scarcity definition many economists including Paul A
Samuelson, developed new version of Economics that came to be termed as
“Growth Definition or Modern Definition” of Economics. The main
contributors are JM Keynes, Benham, and Paul A Samuelson.
According to Paul A Samuelson, “Economics is the 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 among various people and groups of society.”14
In the words of JM Keynes, “Economics studies how the levels of national
income and employment in the community are determined and how the
national income grows over years.”
Prof. Benham says, “Economics is the study of the factors affecting the
size, distribution, and stability of a country's national income.”
The above quotations of modern economists have following implications:
1.
There is similarity between Scarcity Definition and Growth-oriented
definition of economics. Like Prof. Lionnel Robbins, Prof. Sameulson
has also stressed the problem of scarcity of means in relation to
unlimited ends. According to both, not only are the means in scarce
but they could also be put to alternative uses.
2.
The Growth definition of economics has been made dynamic by
including the element of time in it. This is evident from the
various phrases which constitute inseparable parts of the definition
of Prof. Samuelson. Such phrases as “to produce various commodities
over time” and “distribute them for consumption now and in the
future” were intended to stress the dynamic nature of his
definition. This definition includes within its scope the problem of
growth.
It is important to note that Prof. Sameulson built up his definition on
the basis of Scarcity definition. All the elements of Scarcity
definition are present in the Growth-oriented definition of Economics
advocated by Prof. Paul A Samuelson.
SCOPE OF ECONOMICS
The Scope of Economics means boundary of study of Economics. That is,
what concepts, theories, ideas include in the subject matter of
Economics. According to JM Keynes, “It is true of almost every science
that, the longer one studies it, the larger its scope seems to be;
though in fact its scope may have remained almost unchanged. But the
subject matter of Economics grows apace.” 15The discussion about the
scope of Economics includes the various dimensions of Economics, i.e.
subject matter of Economics, whether Economics is a science or an art,
or it is a positive or normative science.
Subject Matter of Economics
According to the majority of Economic thinkers (from Adam Smith to AC
Pigou) the subject matter of economics can be stated as the study of
causes of material welfare or as the science of wealth. Prof. Marshall,
in particular, confined it to the consumption, production, exchange and
distribution of wealth by men engaged in the ordinary business of life.
Prof. Leonnel Robbins says that, certain human activities possess a
definite economic significance but have little or no connection with
material welfare. The same good or service may promote material welfare
at one time and under one set of circumstances and not at another time
under different circumstances.
The subject matter of economics includes the study of the problems of
consumption, production, exchange and distribution of wealth. It also
include determination of the values of goods and services, the volume of
employment and determinants of economic growth. Besides, the Economics
also study the causes of poverty, unemployment, underdevelopment,
inflation, etc.
Economics as a Science
It is very difficult to decide whether Economics is a Science or not. A
science is a systematized body of knowledge ascertainable by observation
and experimentation. It is a body of generalizations, principles,
theories or laws which traces out a causal relationship between cause
and effect. For any discipline considered to be a science, it should
fulfill certain conditions:
*
It must be a systematic body of knowledge.
*
It should have its own laws or theories.
*
Can be tested by observation and experimentation.
*
It should be of self corrective.
*
Should have universal validity.
16
If the above features are present in any discipline we can easily say
that it is a science. So Economics can be treated as science. Economics
is a systematized body of knowledge in which economic facts are studied
and analyzed in a systematic manner. For instance, economics is divided
into consumption, production, exchange, distribution and public finance
which have their laws and theories on whose basis these departments are
studied and analyzed in a systematic manner.
Like natural sciences, Economics has its own Laws. The Economic laws are
the generalizations which are carved out of causal relation between two
or more phenomena. A definite result is expected to follow from a
particular cause in economics like all other sciences. An important
example in chemistry is that, all other things being equal, a
combination of hydrogen and oxygen in the proportion of 2:1 will form
water. In Physics, the law of gravitation states that things coming from
above must fall to the ground at a specific rate, other things being
equal. Similarly, the law of demand tells us that other things remaining
the same, a fall in price leads to extension in demand and a rise in
price to contraction in demand. Hence, Economics is a science like any
other science which has its own theories and laws which establish a
relation between causes and effect.
Economics is also a science as its laws have universal applicability and
validity. The concepts like Law of diminishing returns, the law of
diminishing marginal utility, the law of demand, etc. are applied in
every sector whether economic or non-economic. Further, economics is a
science because of its self-corrective nature. It goes on revising its
conclusions in the light of new facts based on observations. Economic
theories or principles are being revised in the fields of latest
economic concepts like Macroeconomics, Monetary Economics, International
Economics, Public Finance, Labor Economics, Health Economics, Hotel
Economics, and so on.
Conclusion
But, according to some Economists, Economics cannot be given a status of
Science as it does not possess the other features of a science. Economic
phenomena are very complex as they relate to man whose 17activities are
bound by his tastes, habits, and social and legal institutions of the
society in which he lives. Economics is thus concerned with human beings
who act irrationally and there is no scope for experimentation in
economics. Even though, economics possess statistical, mathematical and
econometric methods of testing its phenomena but these are not so
accurate as to judge the true validity of economic laws and theories. As
a result, exact quantitative prediction is not possible in economics.
But we cannot conclude that economics is not a science. It is definitely
a science like any other science. Biology and Meteorology are those
sciences where predictability is less. The law of tides explains why the
tide is strong at a new and full moon and weak at the moon's first
quarter. But we can predict the exact hour when the tide will rise.
Therefore, Prof. Marshall, compared the laws of economics with the laws
of tides ‘rather than with the simple and exact law of gravitation’ for
the actions of men are so voracious and uncertain, that the best
statement of tendencies, which we can make in a science of human
behavior, may be inexact and faulty.
Economics as an Art
Art is nothing but, a practical application of principles, concepts and
theories in various situations of productive and nonproductive
activities. Science lays down certain principles while art puts these
principles into practical use. To analyze, the causes and effects of
poverty falls within the purview, of science and to lay down principles
for the removal of poverty, is art. Economics is both a science and an art.
Economics – Positive or Normative Science
According to JN Keynes, “ a positive science my be defined as a body of
systematized knowledge concerning what is, normative science as a body
of systematized knowledge relating to criteria of what ought to be, and
concerned with the ideal as distinguished from the actual.” Thus,
positive economics is concerned with “What is” and normative economics
with “What ought to be”.18
Economics as a Positive Science
Prof. L Robbins in his book, “An Essay on the Nature and Significance of
Economic Science”, regards economics as a pure science of “what is”,
which is not concerned with moral or eithical questions. Economics is
neutral between ends (wants). The economist has no right to pass
judgment on the wisdom of ends itself. He is simply concerned with the
problem of scarce resources in relation to the ends desired.
Prof. Friedman, another economist, also considers economics as a
positive science. According to him, “the ultimate goal of a positive
science is the development of a ‘theory’ or ‘hypothesis’ that yields
valid and meaningful predictions about phenomena not yet observes.” In
this context, economics provides systematic generalization which can be
used for making correct predictions. Since the predictions of economics
can be tested, economics is a positive science like physics which should
be free from value judgements.
Thus economics is a positive science. It seeks to explain what actually
happens and not what is going to happen.
Economics as a Normative Science
Economics may also be treated as a Normative Science of ‘what ought to
be‘. As a normative science, economics is concerned with the evaluation
of economic events from the ethical viewpoint. Prof. Marshall, AC Pigou,
Prof. Frazer and many other economists do not agree that economics is
only a positive science. They argue that economics is a social science
which involves value judgments and value judgments cannot be verified to
be true or false. This can be proved on following grounds:
*
The assumptions on which economic laws, theories or principles are
based relate to man and his problem.
*
Economics being a social science, economic theories are influenced
by social and political factors. In testing them, economists are
likely to use subjective value judgments.
*
In natural sciences experiments are conducted which lead to the
formulation of laws, but in economics, the experimentation is not
possible.
19
To conclude, Economics as a science, is concerned with human welfare and
involves ethical considerations. Therefore, economics is also a positive
science. According to M Friedman, “the conclusions of positive economics
seem to be, and are, immediately relevant to important normative
problems, to questions of what ought to be done and how many given goal
can be attained.” It is important to note that Normative economics
cannot be independent of positive economics, though positive economics
is free from value judgments. Therefore, Economics is not only a
positive science but also a normative science.
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