header_without_login

Four Important Definitions of Economics

54

1

2018-03-30

In the first blog, we talked about What is Economics! Now, here we will discuss four definitions of economics which will give us more understanding of the subject. The definitions are differentiated based on their nature of understanding economics. So, without making thing more complicated, let’s start discussing it.

The four definitions of economics are:

1.      Wealth Definition by Adam Smith

2.      Welfare Definition by Alfred Marshall

3.      Scarcity Definition by Lionel Robbins

4.      Growth Definition by Paul Samuelson

 

1.      Wealth Definition of Economics by Adam Smith.

“Economics an inquiry into the nature and causes of wealth of nation.”

This definition focuses mainly on the money or anything which can be valued in terms of money. Smith considers wealth as the most vital element in the study of economics. The human behavior is given second priority in this definition. Smith was the believer of free-market economy which would function without any external interventions from the government or planning authorities. This narrows down the definition even further because it considers salaries and wages as the only important source of wealth generation for wealth. According to this definition, all efforts of mankind are directed to the only goal i.e. earning wealth. And that is the only reason why this definition of economics received tough criticism from many.

Even if wealth generation is one of the most important goals of efforts of mankind, it can never be the sole goal. People earn money to live a peaceful and happy life which. Earning more is not the objective of a person beyond a point. This definition is completely silent over social good and evil, human rights, governance, etc. It also ignores those services (such as education, healthcare, administration, security, etc.) which are provided by government or other people or organizations for the purpose of social welfare.

2.      Welfare Definition of Economics by Alfred Marshall.

“Economics is a study of mankind in the ordinary business of life. It examines that part of the individual and social action which is most closely connected with the attainment and use of material requisites of well-being”.

This definition gives priority to the study of mankind, unlike Smith’s definition. This was the first definition to give importance to human behavior in economics. Marshall believed that economics is a study of individual and his conduct in the society which is connected with the willingness to earn wealth. Basically, Marshall accepted that earning money cannot be the sole objective of human life. His definition gives room for common men of the society and it talks about his daily endeavor to satisfy his material needs. Marshall not only emphasized on earning the money but he gave equal importance to people’s behavior while spending the money. The biggest point that this definition made was that it talked about the benefits and loses to the society. It suggested that any mean of earning wealth which is unethical and anti-social is not of society’s benefit at large.

However, despite being a progressive definition of economics, Marshall’s definition was criticized on several points. Marshall’s definition has remained silent on non-material services like teaching, medical, administration, defense, etc. Marshall did not specify what exactly he meant by “the ordinary business of life”. This definition speaks of welfare but it doesn’t guide on how the welfare can be measured. The meaning of welfare can be different from person to person and time to time.

3.      Scarcity Definition by Lionel Robbins

"Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."

This definition, for the first time, given importance to limited resources and unlimited wants of the human. Robbins’ definition addressed the core issue of economic studies which is establishing the relationship between scarce resources (like land, labor, natural resources, etc.) and never-ending wants of people. It makes us think of which wants need to be fulfilled first and which wants are of lesser importance. For the first time, efficient allocation and utilization of resources is being discussed in this definition. The human cannot afford to waste any resource if it wants to fulfill maximum wants.

Robbins’ definition was criticized for two particular reasons. This definition completely ignores the idea of social welfare as it only concentrates on meeting maximum wants of people. It is silent on how these wants can be met with keeping social good in mind. Secondly, Robbins considers that all resources are scarce whereas it is not true in few cases. Few countries have excessive labor force while few have an excess of oil, gases, minerals, etc. Technology upgradation, which has no limit, is also neglected in this definition.

4.      Growth Definition by Paul Samuelson

“Economics is the study of how people 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 persons and groups of society.”

This definition not only the longest one of the four but it also covers almost all aspects of the study of economics. Paul Samuelson recognized that economics is a dynamic subject and its definition should give flexibility rather than rigidity. The definition gives the highest importance to people. It defines economics as a study of how human wants to utilize the available resources. Samuelson also takes a step ahead and discusses the needs of future along with the present. He has also focused on the satisfaction of individuals and society at the same time. He tried to cover all aspects of economic welfare when individuals and society can attain the greatest fulfillment while keeping needs of future generations in mind. He also talks about the efficiency with which the resources are used in order to meet the needs of human.

These four definitions can be considered as most important definitions of all time in economics. It also shows how the meaning and understanding of economics study changed from time to time. The attempt is made to keep the topic as simple as possible but still, if you have any query, suggestion, feedback then you are welcome to post that in the comment section below or get in touch with me using details available in ABOUT section.

footer_try