Introduction to Economics

 




Introduction

The word “Economics” derived from two Greek words, “Eco” which means home and “nomos” which means accounts. So it means how to manage the accounts of house in those matters which are relating to the income and expense of the family. But there is no one definition of Economics which has a general acceptance. The authentic source of the scientific framework of Economics can be traced back to classical economists.

Classical View of Economics

Adam Smith: Adam Smith is the founder of classical school thought of Economics. Adam Smith wrote a book “an inquiry into the Nature and Causes of Wealth of Nation in 1776”. He defined Economics is the science of wealth.

J.B Say: A French Economist J.B Say defines Economics is branch of Science which treats of wealth.

J.S Mill: J.S Mill defines Economics as the science of production of wealth and distribution of wealth.

F.A Walker: American Economist define Economics is the body of knowledge which relates to wealth.

Chapman: Economics treats all the actions of humans in relation to wealth.

Malthus: According to Malthus man is motivated by self-interest.

Professor Elly: According to Professor Elly Economics is a science which treats those social phenomena due to wealth getting and wealth using activates of man.

Thus in these definitions, a key position was assigned to wealth in the study of Economics. The main points of all the classical economists are Production, Exchange, Distribution and Consumption of wealth.

Criticism

1) Dismal Science: These definitions are criticized by the social reformers and men of letters of that time Ruskin and Carlyle. They supposed Economics teach selfishness in the society and came to be called a “dismal science”.

2) Materialism: In 18th century the religious minded people criticized the Economics on the ground that it will take them away from spiritual values like love and brotherhood it will people make the people Materialistic.

3) Ignorance of Welfare: The wealth definition ignores the importance of human welfare. Wealth is not the all activities of humans.

4) Narrow meaning of wealth: In the view of Classical Economists the word “Wealth” means only material good such as book, table, cup etc. They do not include services of teacher and police etc. while in modern Economics both the material and non-material goods are included.

Neo-Classical View of Economics

Marshall's Definition: Dr. Alfred Marshall is the founder of Neo-classical school of thought. He gave Economics a respectable place among social sciences. He wrote a book "Principles of Economics" in 1878 and defined Economics as a "study of man’s action in the ordinary business life; it examines how he gets his income and how he uses it. It also examines that part of social actions which is closely connected with the attainment and with the use of material requisites of well-being". This definition express that Economics is on the one side the analysis of wealth and on the other and further important side a part of the analysis of man. Marshall’s followers like Pigou, Cannon and Beveridge the Neo-classical Economists defined Economics as study of causes of material welfare.

Pigou: According to him 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.

Cannon: According to Cannon the aim of Political Economy is the general causes in which the material welfare of the human being depends.

Beveridge: According to Beveridge Economics is the study of general methods by which men cooperate to meet their material needs.

Characteristics of Marshall’s Definitions

The definitions given by Welfare School of thought have the following main attributes:

1) The definition of Marshall’s is better and comprehensive as compare to Adam Smith’s definition.

2) Economics is interested in human welfare not in Wealth.

3) Economics is a study of an ordinary man who lives in society. The study of economics do not concern with  an individual person who is isolated from the society and is not the subject of study of Economics.

4) Economics does not study all the activities of man. It is concerned only with those activates which can be brought directly or indirectly with the measuring rod of money.

5) Economics is concerned with the ways in which man applies his knowledge, skills to the gifts of Nature for the satisfaction of his material welfare.

The definition of Economics given by Alfred Marshall was generally accepted for a long time. It expand the scope of economics by taking stress that its studies wealth and man comparatively than wealth alone. However, Lionel Robbins wrote a book, "Essay on the Nature and Significance of Economic Science" in 1932. He criticized Marshall’s definition on the following grounds.

Criticism on Marshall’s definition

1) According to Robbins, the use of the word "Material" in the definition of Economics considerably narrows down the scope of Economics. There are numerous things in the globe which are not material but they are very beneficial for encourage human welfare. The services of teachers, lawyers, and sportsman these services have economic significance they are scare and have value to satisfy our wants. If we reject these services and only include the material goods, after that the area of economics study will be very much restricted.

2) The difference made in this definition between ordinary business of life and extra ordinary business of life is not clear.

3) Man spends his income on two kinds of necessities materialistic and non-materialistic, but according to this definition non-materialistic necessities are out of subject.

4) The definition of welfare is of theoretical nature. It is not practicable to divide man's activities into material and non-material.

5) The word welfare in the definition involves value judgment and the economists according to Robbins, are forbidden to pass any verdict.

6) The definition creates the question of like and dislikes and we are bound to do only those actions which are helpful in the material welfare.

Due to these weakness a British Economist Lionel Robbins wrote a book “Nature and Significance of Economic Science” in 1932 and gave his own definition of Economics.

Robbins Definition: Economics is the science which study human behavior as a relationship between ends and scarce means which have alternate uses. The definition of Economics given by him is superior to that of others because it does not contain any reference of the term material or welfare. It makes Economics a practical science which relate only with facts. It grow the value of Economics to that of Science. It applies as much to the case of an isolated individual as to the complicated not working of society.

Major Points of Robbins Definition

1) Human wants are unlimited. They appear in quantity and quality over a specific interval of time. It is not possible to find a person who may say that his wants have been completely satisfied.

2) Our resources are limited to satisfy unlimited wants. A man generally satisfies his urgent wants first and less urgent afterwards in order to their importance. He will choose one desire to fulfill then he will have to sacrifice the other one. If all the things are freely available then there would be no Economic problems.

3) The scare resources have alternate uses. A piece of land can be used for the cultivation or for the factory but man has to choose the best way.

Merits of Robbins definition

1) Robbins tries to make Economics a more exact science. Economics does not concern with material or non-material, noble or ignoble things.

2) Robbins definition makes the study of economics analytical. It studies the particular aspect of human behavior which imposed by the influence of scarcity.

3) The definition is universal and applicable everywhere. It concerned with unlimited wants and limited resources which the problem facing every economy socialistic or capitalistic.

4) Robbins definition has wider content. It takes into the account of all types of human wants which is material and non-material, a person who live in the society or not all are include in it.

5) According to Robbins definition valuation is the central problem of economics. Wherever the ends are unlimited and the resources scarce, they give rise to an economic problem Marshall's definition does not identify this valuation process.

Criticism on Robbins Definition

The definition has been bitterly criticized by famous writers like Hicks, Conge, Durbin, Frazer, etc., on the following grounds:

1) Robbin's definition restricts the scope of economics by treating it as a positive science only while in reality it is both a positive and a normative science.

2) Robbin's definition has widened the scope of economics by covering the whole of economic life, while it is concerned with that part of human life which is connected with the market price.

3) Robbin's definition has made economics colorless, impersonal and abstract. It is in fact a definition of economics for economists only.

4) The study of economic growth process remains outside the scope of economics while it is through economic growth that living standards improve.

Modern Definition of Economics

The modern world has gone much ahead of the times of Marshall and Robbins. Modern economists do not feel it necessary to use a rigid definition of few words. They prefer to describe economics by discussing the nature of economics problems faced by the people. Now there is a complete agreement on scarcity of resources and the people deal with it by making choice are the central topics of economics.

After various definitions of Economics, we can easily conclude that none of them is satisfactory. If we eliminate human and the welfare from the study of Economics, the study of economics will be useless. If we define Economics as a science of administration of limited resources, then its scope becomes too wide and includes the whole of economics life and not merely that part of it which is connected with the market price.

J.M Keynes: According to J.M Keynes Economics studies how the levels of income and employment in a community are determined. Therefore within the words of Keynesian, Economics is the study of the administration of scarce resources and of the determinants of income and employment.

Benham: According to him Economics is the study of factors affecting the size, distribution and stability of a country’s national income.

C.R McConnell: According to him Economics can be defined as a science of efficiency in the use of resources so as to attain the greatest or maximum fulfillment of society’s unlimited wants.

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