A Preliminary Idea:

It looks strange that one should be required to say what Economics is before one has studied the subject.

For one can have a clear idea about the subject only after he has studied it.

But the first question that a beginner of a new subject asks is what it is and what it is about.


However, at this stage, we can only give him a working definition, because it is not easy to define Economics fully in the very beginning. One can define it fully only when one has read it. Only then can one have a clear and complete picture of the subject in one’s mind. All the same, it is necessary to have some rough idea about the subject when one starts its study. Presently, we shall explain the definition more fully.

Limited Means and Unlimited Ends:

To give the student a rough idea about Economics, we give an example. Mohan has just joined a college. Suppose his father has agreed to give him Rs. 400 per month to enable him to carry on his studies in the college. With this limited sum at his disposal, he has to meet all his needs. He has to pay tuition fee, hostel fee, mess charges and other dues of the college; he has also to meet other bills like the bill of the college canteen and the washer-man’s bill.

He may like to go to a picture house or entertain friends at a restaurant, buy books, stationery, etc. In fact, he wants to do or to buy so many things. But the amount of money that he has is limited whereas his wants, as we have seen, are unlimited. Economics helps him in such a situation. It will help him to derive maximum satisfaction from the limited amount of money he has.


Choosing between Ends:

Economics tells us how a person tries to satisfy his unlimited wants with his limited means; in other words, how to use scarce goods that he has to his best advantage or how to economies. A man has only a limited amount of cash and housing accommodation and other things. But he wants to put them to so many uses. With the limited amount of cash he has, he wants to buy so many things, but he cannot buy them all. He must, therefore, choose what to buy and what not to buy. This is Economics. Economics, is a science of choice when faced with scarce means and unlimited ends.

Deriving Maximum Satisfaction:

In short, Economics teaches, us to make the best use of our limited resources. It tells us’ how the scarce means at our disposal can be put to several alternative uses so as to derive the maximum benefit out of them. It thus merely means prudence or wisdom in the use of things we should use them in such a manner as to get the greatest amount of satisfaction possible. Economic tells us how to do it.


Income and Employment:

Recent thinking in Economics is that besides studying the behaviour of an individual consumer or producer deriving maximum benefit from the use of his limited resources, Economics is also concerned with the levels of income and employment in a country as well as causes of their fluctuation. Its study is thus intended to promote economic stability.

Economic Development:

In respect of under-developed economies, Econ­omics concerns itself with the study of economic growth. The theory of economic growth and the theory of income and employment are the two recent additions to the study of Economics. Thus, Economics is a very wide subject. It concerns itself not only with the behaviour of individual consumers and individual producers or firms, but also with industries, national income and economic growth.

Various Definitions:

With this preliminary idea about Economics, we can now proceed to consider some well-known definitions of Economics. Economics has been defined in different ways by different writers. We discuss below some of these definitions.

Economics: A Science of Wealth:


Adam Smith in his boot ‘Wealth of Nations’ (1776) defined Economics as “An Enquiry into the Nature and Causes of the Wealth of Nations”. Many other earlier economists also gave similar definitions. Among them may be mentioned the French economist J.B. Say and the American economist F. A. Walker. According to say, “Economics is the science which treats of wealth”. Walker said much the same thing, though the words are slightly different. In his words, “Economics is that body of knowledge which relates to wealth.”



But the definition of Economics as a science of wealth cannot be regarded as being a correct one. In this definition, attention was exclusively paid to wealth as if wealth was everything. Little attention was paid to man for whom wealth is really meant. Writers like Carlyle and Ruskin condemned this worship of Mammon (the god of wealth). They accused Economics of selfishness and meanness and, therefore, called it a ‘dismal’ science. This definition was, therefore, rejected.

Later economists held a different view. They regarded Economics as a science of man rather than of wealth. No doubt, wealth is still there, because that is the centre of all economic activity. But they emphasized that wealth is only a means to an end, the end being human welfare. Man is primary and wealth occupies only a secondary place. Emphasis was, therefore, shifted from the study of wealth to that of man.

This point is clearly brought out in the following well-known definition of Economics:


“Economic is the science which treats of those social phenomena that are due to the wealth-getting and wealth-using activities of man.”-(Ely).

Marshall’s Definition: Science of Material Welfare:

The next definition which came to be generally accepted for a long time was by Dr. Alfred Marshall.



According to him, “Economics is-a study of man’s actions in the ordinary business of life; it enquires how he gets his income and how he uses it. Thus it is on one side a study of wealth and on the other, and more important’ side, a Dart of the study of man.”


From this definition, it is quite clear that although Economics still studies wealth, wealth is not considered of primary importance. In other words, it has been given a secondary place, the first place being given to man. It is for man’s sake and for the sake of his welfare that wealth is studied. Thus Economics could no longer be considered a science of selfishness or a ‘dismal science’. Rather, it acquired a great social importance because the promotion of human welfare became its chief aim.

Why Material Welfare?

The economists concern themselves with material welfare as distinguished from general welfare because general welfare is something abstract and immeasurable, whereas material welfare is something concrete and tangible, and it is made definite by the measuring rod of money. Wealth is a very convenient measure of human motives which underlie all economic activity. Wealth represents the material means of satisfying human wants and consequently of promoting human welfare. In so as Economics studies wealth, it can be legitimately regarded as studying “causes of material welfare”.

Marshall’s definition emphasizes the following points:


(a) Economics does not regard wealth as the be-all and the end-all of economic activities. Wealth is sought only for promoting human welfare. Hence wealth is given a secondary position.

(b) Economics is not concerned with what in Economics is called ‘econo­mic man’, i.e., a man whose only motive is to acquire wealth for its own sake and who is not influenced by human considerations in the pursuit of wealth. Rather, Economics deals with ordinary men and women who are swayed by ordinary motives like love, affection and fellow-feelings and not merely by the desire to get maximum monetary advantage.

(c) Economics is a social science and not one which studies isolated individuals or Robinson Crusoe’s. We study persons living in society, influencing other people, and being influenced by them.

(d) Economics studies ‘material requisites of well,-being or causes of material welfare. In this way, Marshall laid the foundations of Welfare Economics.

Eminent economists of the time followed Marshall and defined Economics as a science of material welfare. For instance, Cannon said: “Economics is the study of causes of material welfare”. In the words of Beveridge, “Economics is the study of the general methods by which men cooperate to meet their material needs”. According to Pigou, Economics deals with “that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money”.



This definition by Marshall remained current for a long time, but early in the 1930’s, a distinguished economist Lionel Robbins challenged this definition.

The main points of his criticism of Marshall’s definition are given as under:

(i) It is classificatory. It classifies economic phenomena into material and non-material.

(ii) It confined itself only to material welfare and thus unnecessarily narrowed the field of the study of Economics by ignoring non-material aspect thereof.

(iii) This definition ignores the non-maternal services like these of teachers, doctors, etc., which also make an important contribution to economic welfare.

(iv) The distinction made in this definition between ordinary business of life and extraordinary life is not clear.


(v) According to this definition, Economics deals with persons living only in society. It ignores others who also may have an economic problem.

(vi) The objection is not merely to the word ‘material’ but also to ‘welfare’. If Economics is made to study welfare rather than wealth, it gives rise to anomalies. For example, intoxicants come under wealth as defined in Economics, but their use is not conducive to human welfare. There are, on the other hand, many things like love and affection, which are highly conducive to welfare but which are not regarded as wealth. Moreover, there is no unanimity about the conception of welfare. Ideas about welfare vary from time to time, person to person and from place to place.

(vii) There is a further objection to ‘welfare’ forming the subject-matter of Economics. In assessing welfare, we shall be called upon to say what is conducive to welfare and what is not so conducive. We shall have to pass a judgment, and we shall thus be transported to the world of Ethics from that of Economics, which according to Robbins, is neutral as regards ends.

In Robbins’s words, “Whatever Economics is concerned with; it is not concerned with the causes of material welfare as such.”

Robbins’s main quarrel with the Marshallian definition is that whereas actually Economics deals with both material goods and non-material services, the definition points only to the material aspect. Hence although the contents are correct, the label is wrong.

Robbins’ Definition: Science of Scarcity or Science of Choice:


Robbins offered a definition which he thought was free from the defects he had pointed out in Marshall’s definition.

He defined Economics thus:


“Economics studies human behaviour as a relationship between ends and scarce means which have alternative uses.”


This definition is based on the following fundamental propo­sitions:

(a) Unlimited Ends:

Our “ends” or wants are unlimited. We possibly cannot satisfy them all. If one want is satisfied, another crops up. If our wants had been limited, no economic problem would have arisen. Like other animals, we would have been completely satisfied as soon as our elementary needs had been met. But man is different from animals. Mere filling of the stomach does not satisfy him. He hankers after what he has not. Besides filling his stomach, he wants to own things of beauty and culture. He seeks variety and plenty.

This applies to his wants for food, clothing and housing etc. In all these, human vanity plays its part. One can never be completely satisfied when one runs after comfort and show. In addition to food, clothing and shelter, man wants so many other things. He wants books, furniture, radio or T.V set, motor car, camera, tape recorder, watch and what not. Really there is no end to what a man may want.

Hence our wants are numberless and we cannot satisfy them all. We must pick and choose between more urgent and less urgent wants. Here Economics comes in. Multiplicity of human wants is thus one foundation-stone of Economics.

(b) Limited Means:

Although our wants are unlimited, yet the means at disposal to satisfy these wants are scarce or limited. If these means, like our wants, had been unlimited, then also no economic problem would have arisen. We could have anything in any quantity whenever and wherever we liked, because all goods would be free goods. Actually, however, most of the things that we want are not free goods, and we have to work or pay for them to obtain them. That is how economic .problem arises.

Scarcity of means is the second foundation-stone (the first being multiplici­ty of wants) on which the structure of Economics rests. Scarcity, however, does not mean absolute scarcity. This scarcity is relative; it is relative to our needs. Poison, for instance, may be found in a small quantity. But if nobody wants it, it cannot be called scarce. Coal, on the other hand, is found in large quantity, but the demand is still greater. Hence coal is scarce in relation to the demand for it.

(c) Alternative Uses of Means:

Also, the scarce means at our disposal have alternative uses. Not only are our means scarce, but they are also such as can be put to a number of uses, this makes them all the more scarce. If a commodity or a service could be put to one or a few uses only, no economic problem would have arisen. As soon as that use had been made of it, the commodity would have become a free good.

Since our scarce means can be put to so many uses, we must choose between these uses. We must decide what to buy and what not-to buy. This will show our scale of preferences. This again is a problem of Economics.

How Economic Problems Arise:

Unless all the three conditions mentioned above are present, economic problem cannot arise. Multiplicity of wants alone or the scarcity of means alone cannot create an economic problem or merely the alternative applicability of scarce means. “But”, says Robbins, “when time and means for achieving ends are limited and are capable of alternative application, and the ends are capable of being distinguished in order of importance, then behaviour necessarily assumes the form of choice”, i.e., it has an economic aspect.

Hence, economic problems arise because of:

(a) Multiplicity of wants,

(b) Scarcity of means and

(c) The means are capable of being put to alternative uses.

Science of Choice:

According to Robbins, Economics tells us how a man makes use of his scarce means, having alternative uses for the satisfaction of his unlimited ends. Since this involves choice-making, Economics has also been called a science of choice.

Superiority of Robbins’s Definition:

Robbins’s definition given above came to be preferred to that given by Marshall and it gained wide acceptance.

This definition is regarded as superior on the following grounds:

(a) In the first instance, it is a scientific definition. Marshall’s definition is based on a classification of human wants and goods (as between material and non-material). But Robbins’s definition is independent of any such classification. That is, it is not classificatory.

(b) According to Robbins, all types of human wants, whether material or non-material, and those of any individual, i.e., not necessarily living in a society, come within the purview of Economics.

(c) Robbins’s definition has greatly widened the scope of Economics. Marshall had restricted it only to wealth and activities relating to the material welfare of man.

(d) Another implication of Robbins’s definition is that Economics is a science only. Marshall, Pigou and other economists of their way of thinking regard Economics as being both a science and an art.

According to Robbins, Economics is neutral as regards ends. It is not for economists to pronounce their judgment on ends or objectives. This makes economics a positive science. On the other hand, to economists like Marshall, it is a normative science.


But Robbins is not without his critics. His definition has been criticized on several grounds:


It ignores normative or ethical aspect of economic phenomena. It has been pointed out that Robbins’s definition, though admittedly more scientific, is colorless, impersonal and neutral as regards ends. If economics is to serve as an engine of social betterment, it cannot altogether do away with normative or ethical significance. The function of the economists is not only to explain and explore but also to advocate and condemn.


Robbins, it is alleged, has reduced economics merely to valuation theory. But actually economics is more than a study of value theory or resource allocation. In Economics, we do not merely study how resources are allocated and how prices are determined. Robbins’s definition merely assigns to econo­mics an “allocative role.”


Robbins’s definition does not cover Keynesian Economics. As such, it does not tell us how the level of income and employment in a country is determined. In other words, it does not explain fluctuations in the levels of national income and employment in an economy. This is a very serious omission, because today macro-economic forms a very important part of the study of economics.


The theory of economics growth or development has recently become a very important branch of economics. But Robbins’s definition does not cover it. The theory of economic growth explains how an economy grows and the factors which bring about increase in national income and productive capacity of the economy. But Robbins takes the resources as given and discusses only their allocation.


Robbins’s definition cannot account for the existence of the problem of unemployment of people. The problem of unemployment is the problem of abundance of man-power rather than scarcity of it, whereas Economics, according to Robbins, studies the problem of scarcity.


Robbins’s definition lacks human touch. It is well to emphasize with Ely that “Economics is something more than a science, a science shot through with the infinite .variety of human life, calling not only for systematic thinking but for human sympathy, imagination and in an unusual degree for the saving grace of commonsense.”


There is no doubt that Robbins has made Economics more abstract and complex and hence difficult. This takes away its utility for the common man. Utility of Economics lies, in a large measure, in its being a concrete and realistic study.

Thus, we see that Robbins’s idea of Economics is not the last word on Economics. In order to have a clear idea about the nature of Economics, we must take note of some recent developments in economic theory.

Recent View:

During the last 40 years or so, economic thinking has moved further from Robbins’s view. According to Robbins, Economics is concerned with the best possible use of the limited resources. But it is now considered that Economics is much more than merely a theory of value or of resource allocation.

The credit, for bringing about a revolution in economic thinking goes to Keynes. In terms of Keynesian Economics, Economics can be defined as “the study of the administration of scarce resources and of the determinants of employment and income.” Thus, besides studying the theory of value or of resource allocation, Economics studies how the levels of income and employment in an economy are determined.’ In other words, it also studies the causes of economic fluctuations to see how economic stability could be promoted.

In Benham’s words, Economics is a “study of the factors affecting the size, distribution and stability of a country’s national income.” More recently, the theory of economic growth has also come to occupy an important place in the study of economics, particularly with reference to under-developed economies. Thus a satisfactory definition of Economics must include theory of income, employment and growth, besides theory of value or resource allocation.


We have seen that no short definition of a growing science like Economics would serve the purpose. To define it as a science of wealth is too narrow and uncharitable. To define it as a ‘study of mankind in the ordinary business of life’ is too broad and to define it as the study of material welfare is too narrow. To define it as a science of scarcity or of choice or of human valuation is again too wide and to define it “as that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money” is too narrow.

Thus, every time we face a dilemma. One may, therefore, agree with Prof. Viner that “Economics is what the economists do”. We know that economists study resource allocation or resource utilization. They also study the size, distribution and fluctuations in national income, and more recently they study the theory of economic growth.

A proper definition of Economics must cover this wide field of the study of Economics. Hence, we can define Economics as “a social science concerned with the proper uses and allocation of resources with a view to achieving and maintaining growth with stability”.

Nature of an Economic Problem:

From Robbins’s definition of Economics discussed above, we can under­stand the nature of an economic problem.

What is an Economic Problem?

In view of the scarcity of means at our disposal and the multiplicity of ends we have to achieve, the economic problem lies in making the best use of our resources. With the limited amount of money that a consumer has, he must try to get the maximum satisfaction. That is his problem. Similarly, a producer must try to maximise his profit from the limited resources at his disposal. Hence, economic problem lies in making decisions regarding the ends to be pursued or the wants to be satisfied and the goods to be produced and as regards the means to be used for the achievement of those ends.

How an Economic Problem Arises:

Economic problems arise because of multiplicity of the ends to be pursued, the scarcity of means at our disposal and the alternative uses to which these means can be put. It follows from Robbins’s definition of Economics that wherever the ends are many and the means are scarce and the means are capable of alternative uses, economic problems must arise.

Thus, economic problems arise because:

(a) The ends are many or unlimited,

(b) The ends are of varying importance or the wants are of different urgency,

(c) The means or resources are scarce or limited in quantity, and

(d) The scarce means are capable of alternative uses or can be put to any of a number of uses.

These are the four conditions all of which must be there before an economic problem can arise. That is, there can be no economic problem if either the wants are limited and/or the resources are unlimited. Similarly, no economic problem can arise if the wants are of uniform intensity and/or if the means are specific and cannot be put to any other use.

Economic and Non-economic Activities:

A look at the definition of Economics will tell us what are economic activities and what are not. According to Marshall, “Economics is a study of man’s actions in the ordinary business of life: it inquires how he gets his income and how he uses it”. In Ely’s words, “Economics is the science which treats of those social phenomena that are due to the wealth-getting and wealth-using activities of man”. Ely’s definition clearly marks out what are economic activities or what are not. Anything that a man does by way of getting wealth or using wealth is an economic activity. In other words, man’s actions connected with consumption, production, exchange and distribution are economic activi­ties.

According to Robbins’s definition, a person trying to make the best use of his scarce resources in men, money and other assets is engaged in an economic activity. In case his resources are unlimited but a particular want is limited, the activity will be non-economic.

Take the case of a farmer. His economic activities can be:

(I) Allocating land for sowing different crops;

(ii) Sinking a well;

(iii) Borrowing money for buying seeds, implements, etc.;

(iv) Marketing his produce in a neighboring market; and

(v) Hiring labor for agricultural operations.

His non-economic activities will be:

(i) Carrying on litigation;

(ii) Borrowing money for his daughter’s marriage;

(iii) Playing Kabaddi or some other rural sports;

(iv) Entertaining his friends at a liquor party; and

(v) Working on a relative’s farm who is ill.

Mother preparing sweets at home is a non-economic activity, because it is not done for money reward. An amateur playing hockey is a non-economic activity because it is not aimed at getting money. A doctor treating a patient is no doubt engaged in economic activity because it is his profession and hence it is money-getting activity. A teacher teaching the class is also an economic activity because that is his job from which he earns income.