The science of economics was born with the publication in 1776 of Adam Smith’s magnum opus, “An Enquiry into the Nature and Causes of Wealth of Nations.” At its birth, it was baptized as Political Economy- an appellation that remained in use for nearly a century after its birth. No doubt, sporadic attempts were made in the early part of the 19th century to bestow new names upon it. Whately suggested Catallactics or the science of exchanges; Hearn called it Plutology or the science of wealth, and Ingram insisted on meaning it as Chrematistics or the science of money-making. Despite these attempts, the original appellation of Political Economy continued to survive the early and the middle part of the 19th century. Towards the close of the century, however, there was a definite change from Political Economy to Economics.
At present, there is a plethora of definitions of Economics available in the field. Perhaps none of them is free from defects or drawbacks. Broadly speaking, the various definitions of Economics can be lumped together under four heads:
- Definition related to Growth (Modern Definition).
The early economists defined Economics as the Science of Wealth. Economics was regarded as the science which studied the production and consumption of wealth. If the term “wealth” is interpreted in a broad sense to mean scarce goods and services used to satisfy wants, then, perhaps there could not be much opposition to this definition. But, unfortunately, the term “wealth” was interpreted in a very narrow sense to mean riches or an abundance of money, and the economist as such was expected to suggest ways and means of increasing the wealth of society. Interpreted in its narrow sense, the definition rightly became the subject of scathing criticism at the hands of some literary figures of the 19th century like Ruskin, Carlyle, and Matthew Arnold. Economics was dubbed as the “bread-and-butter science“, as the “Gospel of Mammon” or a science that taught selfishness and love of money; a dark and dismal science. Perhaps the use of these condemnatory epithets in relation to Economics was not unjustified in those days when religious sentiments were supreme and spiritualism held sway over men’s minds. For quite a long time, the science of Economics remained under a cloud for its so-called association with the meaner and baser things of life.
Besides, 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. Men and women who were not engaged in the production of material things did not and could not fall within the purview of economics as such. For example, an old man leading a retired life could not fall within the orbit of an economist’s study because he was not engaged actively in the task of wealth production. But can we leave out such a person from the orbit of our study? Undoubtedly such a person is not engaged in wealth production; nevertheless, he is subject to some of the most important laws of Economics like the law of substitution. Can we, as economists, afford to exclude him from our purview? Certainly not.
The “wealth” definition, on these grounds, was considered unsatisfactory and as such discarded towards the close of the 19th century.
Marshall was the first economist who lifted the science of Economics from the morass into which it had fallen towards the close of the 19th century. He shifted the emphasis from “Wealth” to “Welfare”. Wealth, according to him, was not the end but only a means to an end, the end being human welfare. 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.” And he formulated his definition of Economics strictly in accordance with his ideas of human welfare. His definition runs as follows:
“Political Economy, or 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.”
Certain implications follow from this definition, which need to be examined carefully. Firstly, it is a study of human beings, not of beasts or animals or plants. Secondly, it studies the economic aspect of the life of human beings. An individual has several aspects of his life, viz., social, religious, political, and economic. Economics, it is evident, has no concern with the social, religious, and political aspects of human life. Economics is concerned purely with the economic aspect of human life. What does the economic aspect of an individual’s life consist of? Obviously, it relates to how he earns his income and how he spends it. Thirdly, it studies human welfare- not the whole of human welfare but only a part of it, namely, economic or material welfare. Hence the definition is dubbed as “welfare definition”.
Besides Marshall, there are other prominent economists too who have attempted to define Economics in welfare terms. According to Edwin Canna, “The aim of Political Economy is the explanation of the general causes on which the material welfare of human beings depends.”
Professor A. C. Pigou remarks, “The range of our inquiry becomes restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money.”
The part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money is, of course, economic welfare. It is this economic welfare that, according to Pigou, forms the subject matter of the science of Economics.
The “welfare” definition, although it carries the weight of authority of such outstanding economists as Marshall and Pigou, is yet not free from criticism. The “welfare” definition has in recent years been objected to on several grounds:
(1) Prof. Lionel Robbins has objected to the “Welfare” definition on the ground that it includes within its purview only material things. It ignores or excludes the consideration of non-material things from its orbit. As such, it is a highly unsatisfactory definition. In actual life, the borderland between the material and the non-material things is not so clear-cut as is assumed by the advocates of this definition. The two are so inextricably mixed up with each other that it is difficult, if not impossible, to segregate them. Several things in our daily life satisfy our urgent wants and are also scarce in supply. But these things are not material in any sense of the term. Then, there are the services of the doctors, lawyers, teachers, etc., which are highly conducive to human welfare, and yet they have nothing material in them, although they are scarce and have value in them. As Robbins points out, “A theory of wages which ignored all those sums which were paid for “immaterial” services or spent on “immaterial” ends would be intolerable.”
Robbins has pointed out another hole in the argument of the “welfare” economists. Though they regard Economics as being concerned with the causes of material welfare yet it is curious bow they have almost unanimously adopted a non-material definition of productivity. These economists have rejected Adam Smith’s distinction between productive and unproductive labor as not being realistic and have proceeded to formulate a new distinction between the two types of labor. According to this distinction, the labor of certain members of the community like teachers, lawyers, doctors, and even opera-singers is considered productive, and, as such, a part and parcel of the science of Economics. It is obvious these services are non-material in character and yet they are considered as being part and parcel of Economics. Does it not, therefore, amount to a paradox? While defining Economics, they rigidly rule out the consideration of non-material objects, but when it comes to consideration of the actual subject matter, they include them (I.e., non-material things) as being part and parcel of Economics.
(2) Prof. Lionel Robbins has also criticized the connection that is sought to be established by the welfare economists between “Economics” and “Welfare”. Robbins would have nothing to do with welfare at all. According to him, the science of Economics studies several activities which are hardly conducive to welfare. The activities of the manufacturers of intoxicants, such as alcoholic drinks and opium, etc., are certainly economic activities. But they are not conducive to human welfare. Yet they are studied by economists because they satisfy human wants and are concerned with the production and distribution of scarce goods. How do welfare economists explain this anomalous position?
Some economists are so deeply attached to the “welfare” idea that they do not simply realize the illogicalness of their position. Prof. Cannan, for example, speaks of the “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. The argument may appear perfect at first sight. But if the “welfare” basis of Economics is questioned, then “Political Economy of War’ no longer appears as a contradiction in terms. The fact of the matter is that “Political Economy of War” is the latest addition to the theoretical apparatus of Economics and tells us a lot of things as to how a modern war can be successfully prosecuted financially.
It would, thus, appear that the ‘stand’ taken by the “welfare” economists regarding the “welfare ’ basis of Economics is self-contradictory and shaky in the extreme. In sheer disgust, Robbins asks them, “Why talk of welfare at all? Why not throw away the mask altogether?” He further remarks emphatically, “Whatever Economies is concerned with, it is not concerned with the causes of material welfare.”
(3) Pigou regards money as an instrument for the measurement of material welfare. But money is not a satisfactory measure of material welfare. Does it imply that two persons pay the same price for a commodity derive an equal amount of “utility” or “material welfare” from its purchase? The utilities or satisfaction that 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.
(4) Marshall’s definition is also criticized on the ground that it makes Economics a purely social science. According to Robbins, Economics is not a social science but it is a human science. The fundamental laws of economics apply to all whether he is a member of a community or not. It, therefore suggested that Economics should be treated more as a human than as a purely social science.
(5) Lastly, Professor Lionel Robbins criticizes the “Welfare” definition on the ground that it is classificatory rather than analytical. According to the ‘Welfare” definition, economics concerns itself with a certam group of activities rather than with a certain aspect of every activity. Economics deals only with the production and consumption of wealth. To Professor Robbins, 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. Does it mean, then, that Economics should consider the whole of that activity? Professor Robbins makes it clear that Economics focuses its attention only on a particular aspect of activities, i.e., activities which are undertaken under the influence of scarcity.
On account of these objections. Professor Robbins rejects the “Welfare” definition and proceeds to construct a new definition which, he claims, is singularly free from all these defects Since his definition lays so much stress on the “scarcity” of means in relation to ends, it is generally referred to in economic literature as the “Scarcity” definition.
Robbins not only criticized the welfare definition of Marshall and other neo-classical economists but defined Economics based on scarcity. He considered his definitions more scientific and correct than Marshall’s definition. In his famous book “Nature and Significance of Economic Science” (1931), he argues that Economics studies the problems which have arisen due to the law of scarcity, i.e., the scarcity of resources. In his opinion, economic resources are scarce. So it is not possible to satisfy all the needs and wants of the members of society with limited resources. People have to rank their wants in order of importance and priority, i.e., people have to choose from among the unlimited requirements due to limited resources. Thus he suggested the following definition of Economics:
“Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
The definition of Robbins is based on the following basic assumptions:
- Ends are various. The term “ends” mean wants. Human wants are unlimited.
- Means are limited. Means like time, money, and resources are limited.
- We can put time and money into alternative uses. For example, though time is limited, we can use it for different purposes. We can use time for earning money or we may enjoy it as leisure, and
- All wants are not of equal importance.
We have to note certain things here. The fact that we have many wants is not of interest to an economist by itself. For example, if you want to do two things and you have enough time and means with which to do them, and you do not want the time or means for anything else, then you need not economize anything. Though your means are limited, if they do not have alternative uses, you cannot economize anything. Further, if all wants are of equal importance, you cannot economize anything. We know time is limited. There are only 24 hours in a day. If a worker wants only money he has to work for long hours and forgo leisure. If he wants leisure, he has to forgo his income. He cannot have both at the same time.
We may, however, note that all means which satisfy human wants are not limited. For example, air and sunshine are available in abundance. They are free goods. But many things we want are scarce in relation to our wants. So economics studies human behavior as a relationship between unlimited wants and scarce means. As means are limited, we have to pay a price for them. We study in economics how the prices of scarce goods are determined. We have to choose among different wants. That is why we say that scarcity and choice are central problems in economics. Economics is the science of choice.
A choice between alternatives is the basic principle underlying all economic activity. This applies to all economic systems – capitalism, socialism, and mixed economy.
The capitalist economy is also known as the market economy. There, the consumer will have a wider choice than in a socialist economy which is also known as a command economy. A socialist economy is a planned economy. As all basic decisions are taken by the government, the consumer will have limited choice. And a mixed economy is where the public sector and private sector play important roles in different economic fields. In some fields, the consumer has more choice and in other areas where the State has greater control, he has limited choice. But under all these systems, there is some kind of planning, it is a question of degree. And all economic life involves planning. As Robbins puts it. “To plan is to act with a purpose, to choose, and choice is the essence of economic activity”. Lionel Robbins’ definition is also known as the scarcity definition of economics.
Criticism: The definition of Marshall classified human behavior into economic activity and non-economic activity. It considered only those activities which promoted material welfare as economic activity. But Robbins’ definition covers the whole field. If there is a scarcity of a thing in relation to the demand for it, it becomes the subject – matter of economics. That way, even the labor of those who provide services (eg. lawyers, doctors, actors) is taken for study in economics.
Another merit of Robbins’ definition is it makes economics a scientific study. Ethical aspects of economic problems are not taken into account in discussions. In other words, the moral aspects are not considered. And it does not try to establish a link between economics and welfare. But some economists criticize this view. They say that as economics is a social science, its aim should be the promotion of human welfare. That is why some economists say Robbins’ definition has no human touch about it. It looks at economics only as the science of the pricing process. But economics is more than a theory of value or resource allocation.
According to Robbins, an economic problem will arise only when there is scarcity, but it may arise during times of abundance as well. For example, the great depression of the 1930s was caused not so much by scarcity but by plenty. That is why the world depression was described as poverty in the midst of plenty.
Despite the above criticisms, we have to note that most economists have accepted the definition of Robbins because it emphasizes scarcity and choice which are two important facts of life under all economic, political, and legal systems.
There have indeed been improvements in the methods of production because of technological advancements. But scarcities are always with us. That is why we say economics is the science of scarcity.
Definition Related to Growth:
Samuelson built up his definition on the basis provided by Robbins’ definition. All the elements in Robbins’ definition are inherent in Samuelson’s definition. Professor Samuelson has given a fine and popular definition of Economics which has been rightly treated as the growth-oriented definition of Economics. The definition runs as follows:
“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.”
Samuelson’s definition is not only dynamic in content; it is also wider in scope; it applies even to a barter economy where money is conspicuous by its absence. It is not true to say that the problem of choice or economizing arises only in a money economy. A barter economy is also confronted with the same problem, namely, scarcity or means in relation to ends. Samuelson made his definition dynamical by including the element of time in it. The definition furnished by Samuelson appears to be the most satisfactory. It presents the problem of choice in its dynamic setting and also widens the scope of the subject by including the important problem of growth. This appears to be the most acceptable definition of Economics at the moment.