Updated date:

Definitions of 'Economics'

Definition of Economics

The term ‘Economics’ has been derived from the Greek word ‘Oeconomicus’, which means management of the household. Thus, economics means; ‘household management’ or ‘management of household affairs’. Household management refers to managing the unlimited wants of the family members within the limited income of the family.

The beginning of the study of Economics in a systematic way was made by the Greek phosphor Aristotle during 400 B.C. and confined the study of economics up to household management, acquiring and making proper use of wealth.

Economics in the middle age came as part of moral science/philosophy. It was the time of mercantilism when economics was the belief that the money was wealth and for such, accumulation of gold and silver was the key to prosperity. It means, if one country had more gold than others, it necessarily better off. Thus, according to them, accumulating gold and silver was the key to success.

The Economists of the 18th century developed economics as a new social science. With the publication of the famous book “An Inquiry into the Nature and Causes of Wealth of Nations” by Adam Smith (1723-1790), economics got its space as an independent and developed discipline. Therefore, as an honor, Adam Smith is known as the Father of Economics. Before him, economics was considered as the part of other social sciences, part of ethics, part of political science. The following diagram presents the brief development of economics:

Classical Period (1776 A.D. – 1890 A.D.)

It is the first modern school of economic thought. The leader of this school of thought is Adam Smith and other important followers are J.B. Say, J.S. Mill, Malthus, David Ricardo, F.A. Walker, etc. The classical school of economic thought considered economics as the science of wealth.

Neo-classical Period (1890 A.D. – 1932 A.D.)

This period is the most fertile period of economics as many new theories were developed, redefined and reformulated during this period. The leader of this school of thought is Afraid Marshal and other followers are A.C. Pigou, Fisher, Carl Menger, Edwin Cannan, etc. The extended the matter of economics from wealth accumulation to welfare and satisfaction.

Modern Period (1932 A.D. - onward)

The era of the 20th century in the history of economics is known as the modern period. This is the time period in which many economic theories have been contributing in a scientific way. The famous economists of this school of thought are Lionel Robbins, John Maynard Keynes, Paul Samuelson, etc. This school of thought changes the focus of the study of economics from the welfare approach to the study of scarcity and choice.

Economics is a dynamic social science and its definition has been changing with reference to time and era of thoughts of economists. Economists differ in their definitions of economics from each other. Thus, there is no singular widely accepted definition of economics. Jacob Viner says that “what an economist does is economics”. Economists at different times have emphasized different aspects of economic activities and have arrived at different definitions of economics. The overall definitions of economics can be viewed through the following three perspectives;

Economic School of Thoughts and Lead Economists

Economic School of ThoughtsLead EconomistTime PeriodName of the Definition of Economics

Classical

Adam Smith

1776 A.D.- 1890 A.D.

Wealth Definition

Neoclassical

Alfred Marsahl

1890 A.D.-1932 A.D.

Welfare Definition

Modern

Lionel Robbins

1932 A.D.- Onwards

Scarcity Definition

Adam Smith (1723-1790)

Adam Smith (1723-1790)

Wealth definition of economics , definition of economics by Adam Smith

Wealth /Classical/Adam Smith’s Definition of Economics

The definition of economics in terms of wealth was given by Adam Smith (1723-1790) a citizen of Scotland, in 1776 A.D. in his famous book “An Enquiry into the Nature and Causes of Wealth of Nations”. By publishing this book, Smith has separated economics from other social sciences and defined economics for the first time. So, he is popularly known as the Father of Economics as well as the leader of the Classical Economic School of Thought.

According to Adam Smith, “Economics is the science of wealth”. The meaning of wealth as used by Adam Smith refers to an abundance of money. Economics then becomes a subject that teaches about ways and means of increasing the wealth of nations. Thus, according to this definition, economics is the study of people's activities related to the accumulation of more and more wealth.

Some other economists like J.B Say, F.A Walker, J.S Mills and others also declared economics as a science of wealth. According to J.B Say Economics is the science which treats wealth. F. A Walker made it clear that economics is that body of knowledge which relates to wealth.

Characteristics of Classical Definition

Study of wealth

The definition of economics given by Adam Smith assumed that Economics deals only with the study of wealth. Therefore, it is related to wealth earning economic activities of a man like production, consumption, exchange, and distribution.

The secondary place to mankind

The wealth definition of Adam Smith has given the first priority to wealth and the second to mankind. He assumed that mankind is for wealth but wealth cannot be for mankind. Classical economists believe that the economic prosperity of any nation depends only on the accumulation of wealth.

Study of economic man

Adam Smith claimed that economics studies the behavior of only those people who have the only objective of earning more and more wealth at any cost and by any means. A human being of such nature is called ‘Economic Man’ and his main objective is to accumulate more and more wealth.

Source of wealth

This definition assumed that wages earned by labors are the only source of income or wealth of the nation. Adam Smith has suggested that active labors can earn a high amount of wages through the division of labor. It increases the productivity and distribution of goods and services and thereby wealth of the nation could be increased.

Meaning of wealth

According to this definition, wealth includes only material goods. Material goods are those goods, which are tangible goods, which are visible such as pen, book, pencil, gold, etc. the non-material goods like teachers' services, doctor’s services, etc. have been excluded from the wealth definition of economics.

Criticisms of Classical Definition

This view of economics as a science of wealth was criticized by Carlyle, Ruskin, Marshal and other economists of the 19th Century. They criticized the wealth definition in following grounds;

Too much importance on wealth

The wealth definition has given primary concern to the wealth by undermining the value of human beings. This idea was found irrational and now the emphasis has turned into human welfare. Thus, the real fact is that the human being is more important than wealth and in this definition human welfare is missing.

Meaning of wealth

According to this definition, wealth includes only material goods. Material goods are those goods, which are tangible goods, which are visible such as pen, book, pencil, gold, etc. the non-material goods like teachers' services, doctor’s services, etc. have been excluded from the wealth definition of economics.

The narrow meaning of wealth

Wealth definition limits the definition of the word ‘wealth’ only up to material goods like vehicles, industries, raw materials, etc. It didn’t include the contribution of services of teachers, doctors, lawyers, etc. in modern economics the word ‘wealth’ includes both services and material goods.

Single source of wealth

Wages earned by labors are only one source of wealth of the nation as per the wealth definition. But the critics pointed out that the natural resources, human resources, capital resources, and physical resources are the source of wealth of the nation.

Unrealistic concept of economic man

Wealth definition is based on the assumption of economic man and which is almost rare to found in real life. People may get more satisfaction from the feeling like love, respect, self-esteem, sympathy, cooperation, friendship, trust, etc. which might provide greater satisfaction than wealth in life. So, the pure economic man cannot be found in real life.

The limited subject matter of economics

The subject matter of economics is not only limited up to wealth. Its subject matter is nowadays covering the study of human welfare and the betterment of societies.

Alfred Marshal (1842-1924)

Alfred Marshal (1842-1924)

Welfare definition of economics, definition of economics by Alfred Marshal

Welfare/Neo-classical/Marshallian Definition of Economics

The welfare definition of economics was given by the leader of the Neo-classical school of economic thought, Alfred Marshall (1842-1924). He was a renowned British scholar and Professor of Economics at Cambridge University. He published the book “Principle of Economics” in 1890 A.D. and defined economics in terms of material welfare. He gave, ‘Man’ the first place and ‘Wealth’ as secondary and clarified that wealth is for man and man is not for wealth. Wealth is not the ‘End’, it is only a ‘Means’ to attain welfare.

Economics is the study of human activities in the ordinary course of business. It studies how man attains his income and how he utilizes it. In this way, economics studies wealth, on one hand, and on the other hand, it is a part of the study of man which is more important. According to this definition, it becomes the science of human activities instead of the science of wealth

In his second book, ‘Principles of Economics’, Dr. Marshall defined it in these words, "Economics is the study of humans, in relation to the ordinary business of life. It studies that portion of the personal and social activities, which are closely related to the attainment of material resources, related to welfare and its utilization.” The Marshallian definition has supported by his follower economists like A.C. Pigou, Cannon, Beveridge, etc.

Characteristics of Neoclassical Definition

Greater Emphasis on Human Aspect

Marshall has given balanced importance to Means and Ends, through his definition. He has stated in clear words, that it is, on one hand, is the study of wealth and on the other hand, more important to this is the study of the human aspect. In this way, he removed the defect of ignorance of the human aspect, in the old views of Adam Smith’s time, and gave more emphasis to the human aspect in clear words.

Material Welfare

Marshall in his definition gave more importance to the means of material gains or material welfare. According to him, economics studies, those material resources, on which welfare depends. It means the welfare or satisfaction is obtained from the consumption of physical goods or material goods and excludes the satisfaction obtained from non-material goods or services.

Study of Social, Normal and Real Persons

According to Marshall, economics studies only social, normal and real persons. The study of persons living outside the society or in forests, who-are unusual, alone and abnormal, is not done in it. The activities of unusual persons like – an insane, a miser, a saint or Mahatma, etc. are said to be outside the area of the Subject Matter of economics. According to Marshall, it studies the economic activities of only the social, normal and real persons.

Study of the Ordinary Business Activities of Life

In his definition, Marshall paid emphasis to the Ordinary Business Activities. These ‘ordinary business activities’ refers to those economic activities, which are related to the attainment and utilization of wealth in the living of human beings. In this manner, Marshall gave a clear place, to human economic activities.

Social Science

According to Alfred Marshall, economics studies those human beings who lives in society. It does not include isolated persons not belonging to a society such as beggars, saints, monks, etc. As economics studies the economic behavior of the people living in a society, it is thus called social science.

Normative science

According to Marshall, economics is a normative science. Economics teaches or deals on how to have greater material welfare of man. It gives the idea of making higher human welfare and studies how material welfare could be achieved for well-being.

Criticisms of Neoclassical Definition

Professor Lionel Robbins criticized Marshall’s definition of economics and introduced the modern definition of economics in 1932 A.D. The major criticisms made by Robbins in the following ground:

Undue influence on immaterial things

Marshall considered only material things. But immaterial things, such as the services of a doctor, a teacher and so on, also promote the welfare of the people. So, Robbins rejected Marshall’s definition as being classificatory and illogical in itself.

Narrow definition

According to Robbins, the use of the term material and discussion of material welfare is the only a part of economics. To define economics in terms of these classifications is a narrow concept.

The weak connection between economics and welfare

The Marshallian definition tried to establish the connection between economics and welfare. However, economics does study different activities not ensuring welfare like production of wine, cigarettes, etc. as their income is included in national income.

Welfare cannot be measured

Welfare is a subjective concept and it varies from man to man, place to place and time to time. It cannot be precisely measured. Welfare is generally measured in terms of money and money itself is not an accurate measuring rod of satisfaction as poor and rich persons derive the different levels of satisfaction from the same amount of money.

Exclude human science

According to Alfred Marshall, economics studies the behavior of those human beings who are living in society. But the critics of this definition argued that economics should study total human beings whether they have actively participated in social functions or they are isolated from society.

Lionel Robins (1889-1984)

Lionel Robins (1889-1984)

Scarcity definition of economic, definition of economics by Lionel Robbins

Modern/Scarcity/Robbins Definition of Economics

The scarcity and choice definition of economics was given by Lionel Robbins (1898-1984), a British citizen and a Professor of Economics at the London School of Economics (1929-1961). He is also regarded as the leader of the modern school of economic thought. He provided new concern to the economics when the Marshallian concept of economics could not address the reality and ever-changing phenomenon of economics. Lionel Robbins redefined economics in a logical way through his book "An Essay on the Nature and Significance of Economics” in 1932.

Robbins said that economics is concerned with the problem arising from the scarcity of resources. According to him, “Economics is the science which studies human behavior as a relationship between unlimited ends and scarce means which have alternative uses”. This definition has been supported by many economists like Stigler, Peter, etc.

Characteristics of Modern Definition

Unlimited ends(wants)

This definition believes that human wants are unlimited and never be fulfilled. People are said to have a bundle of wants. When one wants is satisfied another want emerged immediately. When the elementary wants like food, clothing, and shelter are satisfied, wants for comfort and luxuries harvest. Thus, the cycle of human wants can never be fulfilled during one’s lifetime.

Scarce means

Means refers to resources. The resources available to satisfy unlimited human wants are always in a limited amount or scarce. Scarcity refers to the situation of not being able to fulfill unlimited demand because of having limited resources. If the resources or things are available in abundance like free goods, the economic problems will not emerge. Thus economics helps to manage the scarcity skillfully.

Alternative use of resources

Resources are available in the limited quantity and yet human wants have no limits. The scarcity of goods available needs to be matched with unlimited wants. This is a big challenge for economic science. Since scarce resources are limited in supply, according to this definition, such scarce might be put for alternative uses. It means available resources can be used in different alternatives or put into different ways. Setting the right priorities can be used for uses of scarce means. For example, a liter of milk is a means. It can be used for preparing 10 cups of tea or butter or curd or cheese or to feed a baby, etc., but not all at a time.

Wants differ in urgency

Human wants are not equally important and they get importance with reference to time. It means human wants to differ in urgency. Some wants are more urgent than the other ones and people satisfied them accordingly. For example, medicines are more important than cosmetics for a sick girl.

Science of choice

When the features of human life, namely unlimited wants, scarce means, and alternative uses of are kept together, there arises the problem of choice. One has to make a choice as to which wants to be satisfied first and by what means. So, according to Robbins, the problem of choice is the economic problem which forms the subject matter of economics. Choosing the best alternative or project or intervention at the cost of others is known as an economic problem. Therefore it can be said that economics is science, which helps us solve such economic problems.

Criticisms of Scarcity Definition

Robbin's definition of economics as the science of scarcity and choice is still a popular definition. It has a wider application in modern society. However, it has been criticized by various economists like Durbin, Wootton, and so on with the following points.

Neglects burning issues of the modern economy

The modern definition was not able to address the burning problems or issues of the modern economy such as unemployment, poverty, inequality, economic growth, economic development, trade cycle, etc. Critics said that the modern definition should analyze these macroeconomic problems.

Hidden concept of welfare

According to critics, Robbins criticized the welfare concept of Marshall but he also put forward his view in the same sense but little differently. According to him, wants are unlimited but resources are limited to satisfy unlimited wants. As a result, human beings make alternative use of such means till maximum satisfaction is achieved. Here this refers to the concept of welfare introduced by Marshall.

Abundance may create a problem

According to Robbins, many economic problems arise due to scarcity. But it is not the same case forever. For example, the problem of unemployment arises due to having an abundance of labor in the market.

Self-contradictory

According to Robbins, economics is, on the one hand, a positive science hence neutral between ends and on the other hand economics is regarded as the science of choice and choice is to be made for optimal utilization of scarce resources. These two concepts are opposite to each other.

Economics is not only a positive science

According to Robbins economics is a pure and positive science not social and normative science. But economics studies about society and human life and it provides suggestions to solve problems of an economy.

Conclusion

In the history of economic thoughts, before Adm Smith economics did not have a separate identity in the world and with the wealth definition, economics got a unique place to study and base for another school of thought. So, wealth definition has its own value and importance as it is the first modern definition of economics provided in history. It was only when Adm Smith had published his famous work “The Wealth of Nation” in 1776. Marshal’s definition of economics expanded the area of economics thereby making it wider and more acceptable. Unlike Smith, he linked between wealth and human welfare. He treated wealth as a means and human welfare as an end. Robbins has added remarkable status in economic literature and he is far logical in some regards that address modern issues in many ways. These definitions of economics made economic literature more analytical and comprehensive.

References

Agrawal, H.S. (1998). Microeconomic Theory. New Delhi: Konark Punishers Pvt. Ltd

Gould, J.P. & Lazear E.P. (2003). Microeconomic Theory. New Delhi: All India Travelers Booksellers.

Comments

Tilak Mahara (author) from Kathmandu Nepal on April 09, 2020:

I will do sir. Thank you so much. And stay safe.

Umesh Chandra Bhatt from Kharghar, Navi Mumbai, India on April 09, 2020:

Tilak, very nice. You have great potential to write. Hope you submit more and more. Keep in touch. God bless you.

Related Articles