Let us make an in-depth study of the definitions, criticisms, scope and problems of economics.
Definitions of Economics:
Three main definitions of economics are presented below:
Wealth Definition of Adam Smith:
Economics was defined by Adam Smith, the ‘father of economics’ as ‘the Science of Wealth’. According to Adam Smith, the acquisition of wealth is the main objective of human activity. Therefore it is necessary to study how wealth is produced. This is the subject matter of Economics.
This definition is much too materialistic. Apparently it makes wealth more important than man for whose use wealth is produced.
Welfare Definition of Alfred Marshall:
In 1890, Alfred Marshall suggested a new definition which shifted the emphasis from wealth to man. “Economics is a study of man’s, actions in the ordinary business of life. It enquires how he gets his income and how he spends it.”
Thus, according to Marshall, Economics is a study of a part of man’s actions. It is concerned with only those activities which relate to the earning and spending of income. By such activities men acquire “the material requisites of well-being”. Economics is, therefore, “on the one side, a study of wealth and on the other and more important side, a part of the study of man”.
Marshall’s definition made the scope of Economics too elastic. But, it did not show why ‘ economic activities are undertaken. However, from 1920s it was discovered that scarcity was the major cause of all economic problems.
Scarcity Definition of Robbins:
In 1932, Lionel Robbins suggested a more precise definition of Economics. According to Robbins “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”. This definition makes economics a study of ‘means’ and ‘ends’. The ‘means’ or resources, available for the attainment of the objectives “of human life, are scarce i.e., in short supply relative to the demand.
Scarcity, of a commodity or service, means insufficiency of supply compared to its demand. In other words, scarcity occurs when the supply of anything is short of its demand. This definition is rather inexact.
Therefore Samuelson defines it as follows: “Economic scarcity” refers to the basic fact of life that there exists only a finite amount of human and nonhuman resource, which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. How men use the scarce means to fulfill their desires is the subject matter of economics.
The definition of Robbins can be analysed as follows:
1. The ‘ends’:
Human activity comes from the desire to secure certain ‘ends’ (or objectives) like food, clothing, shelter, etc. The ends provide the motives for human activity. There are many possible ends. All the ends are not of equal importance. Some are desired with greater intensity than others.
2. The ‘means’:
The ‘means’, available to human beings for the achievement of the ‘ends’, are scarce. Desirable goods and services do not exist in sufficient quantities to satisfy everybody. The time available for pursuing the ends is also limited.
3. Alternative uses:
The ‘means’ have alternative uses, i.e., they can be used for different purposes. A man can use his labour for producing foodstuffs or for painting a picture. The scarcity of ‘means’ forces men to choose between different means with a view to adjusting the available means to the desired ends.
According to Robbins, scarcity of means to satisfy ends of varying importance is the characteristic feature of human life. Scarcity creates certain problems. Economics is the science which deals with these problems. It is concerned with the forms assumed by human behaviour in the disposing of scarce means or the allocation of scarce resources. Economics should, therefore, be defined in terms of scarcity and not in terms of wealth or in terms of welfare.
Critics have pointed out that the definition of Robbins is inadequate in certain respects.
Some of the criticisms are mentioned below:
1. Social Character:
The definition of Robbins ignores the social character of economics. The economist is not concerned with individual behaviour or with individual ends unless and until the individual’s acts have consequences on other people’s behaviour or ends.
And in order to emphasise the social character of economics, the definition of Robbins may be modified as follows: Economics is a social science studying how people attempt to accommodate scarcity to their wants and how these attempts interact through exchange.
2. Narrow Scope:
Secondly, Robbins’ definition makes the jurisdiction of Economics too narrow. According to him, Economics is not merely a study of scarce means but also of human welfare, for welfare is an end in itself.
3. Lack of Accuracy:
The definition of Robbins is “too narrow and too wide” at the same time. It is too narrow because it excludes from Economics the study of organisational and managerial defects. Such defects lead to under-employment of resources but they are not caused by scarcity of means.
On the other hand the problem of allocation of scarce resources is one which may arise in fields not generally included within the scope of Economics. If Economics is defined in terms of scarcity alone then topics like the above will come within the jurisdiction of Economics and its scope will become too wide.
In spite of its inadequacies, the definition of Economics, as given by Robbins, is very popular. It studies how people are struggling with the problem of scarcity to make a living.
To determine the scope of Economics we must refer to the objectives of studying the subject. In truth Economics is concerned not simply with a theoretical analysis of economic phenomena but also with the practical applications of such analysis. Economics is not only “light-bearing” but also “fruit-bearing”.
The Scope of Economics:
According to Robbins, Economics studies that aspect of human behaviour which arises from the scarcity of means to achieve given ends. From this it seems that the economist is not concerned with the ends as such. His function is only to analyse how the given ends are to be achieved with the available scarce means. In other words, economics should be neutral between ends. Robbins argues strongly in favour of limiting the scope of Economics in this fashion.
The view of Robbins is true for the purely analytical part of Economics. For example, when discussing the theory of consumer behaviour the economist is not concerned with the morality or legality of the consumer’s desires. He is only concerned with the question how the consumer spends his income on his various purchases.
But there is no reason why the boundaries of economic science should be rigidly limited to pure theory. Economics is a social science. Therefore, economists should be allowed to make value judgments about the ends of human activity. When discussing a particular problem the ends may be taken as given. But economists should also discuss the welfare implications of the given ends. How to increase welfare (of the individual and of the group) is also a subject matter of economic studies.
The scope of economic studies can be stated in more specific terms:
1. What are the problems relating to consumption, production, exchange and distribution of goods and services?
2. What goods and services are being produced and in what quantities?
3. How the efficiency of production can be increased?
4. Are the country’s resources being utilised fully or partially only?
5. What are the causes of low productivity, depression, unemployment and poverty? What steps can be taken for the removal of these evils from the economic system?
6. How the distribution of national product takes place in the society?
7. How economic development and growth can be expedited?
8. Does the economy’s capacity to produce goods and services change over time or remain static?
9. How the value of commodities and the volume of employment are determined?
10. How to avoid food-scarcity (or an ecological disaster)?