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DEFINITION OF ECONOMICS

ECONOMICS IS A SCIENCE OF WEALTH


Adam Smith wrote first book on economics name Wealth of Nations". That is
why he is known as the Father of Economics".
Adam Smith says that:
"Economics is a science which discusses the production of wealth,
consumption of wealth, distribution of wealth and exchange of
wealth".
He explained economics in following fours components
(i) Production of Wealth: Production of wealth means how wealth is
produced. There are four factors which produce wealth i.e., land, labour,
capital and organization. The combination of these four factors produces
goods and services which are called wealth.
(ii) Consumption of Wealth: Consumption of wealth means how wealth is
spent or consumed. The part of wealth which we spend on the necessities of
life is called consumption of wealth.
(iii) Distribution of Wealth: Wealth is produced by the combination of four
factors of production and it is distributed among them. The factors are given
rewards as rent to land, wages to labour, interest to capital and profit to
entrepreneur.
(iv) Exchange of Wealth: It means how wealth is exchanged. In other words,
how wealth passes from one person to another person or how it shifts from
one country to another country through international trade.
Objections/criticism on the definition of Adam Smith:
The moralists like Carlyle and Ruskin have named it as the science of
"mammon worship" and "dismal science" claiming that it allures to worldly
desires. They declared its study the wastage of time stating that it is science
of bread and butter and others it as "a pig philosophy" and they declared its
teaching and learning "illegal".
Answers to Objections:
The critics on the economics could not understand the actual sense and
meanings of wealth. They took the word wealth only as 'money'. So they
Compiled by
M. Saleemullah

ACMA, ACPA, ACS, APFA, MS, MSC, ACCA (p), CIPFA (UK), B Ed

criticized the people who learnt the science of economics. But in real, all the
necessities of life are "wealth" and their attainment is not unfair. Wealth itself
is not a bad thing. Its use may be good or bad and it depends upon its user.

ECONOMICS IS A SCIENCE OF MATERIAL WELFARE:


Dr. Marshall gave a new definition of economics
"Economics is a science which studies human behavior in the
ordinary business of life; it examines that part of individual and
social action which is most closely connected with the attainment
and with the use of material requisites of well being. Thus
economics is on one side a study of wealth and on the other and
more important side, a part of study of man".
Important Points of the Definition:
Useful Science: Economics is related with the daily life of man; therefore, it
is an important and useful science.
The Study of People Living in Society: In economics, the efforts of the
people who take part in economic activities living in the society are studied.
Therefore, economics is not concerned with the activities of saints, hermits
and mad.
The Study of Efforts Concerned with Material Requisites: In
economics, the individual and collective efforts, which are concerned- with
material welfare, are discussed.
Not the Study of Wealth for the Sake of Wealth: Economics studies
wealth so that the basic necessities which increase human welfare may be
purchased.
Merits of Marshal Definition
Better than the Former Definitions: Marshall's definition is better and
comprehensive than those of classical economists. In this definition, the word
"wealth" is not used just as wealth rather it is used as a mean "to achieve
human welfare.
Compiled by
M. Saleemullah

ACMA, ACPA, ACS, APFA, MS, MSC, ACCA (p), CIPFA (UK), B Ed

Comprehensive and Clear: Marshall's definition is very simple, clear and


comprehensive. It has no doubt or ambiguity. The study of the definition
clarifies the subject matter of economics. Man wants to lead a prosperous
life. To attain this objective he needs material requisites and he struggles to
attain and use them. This struggle of man for the attainment of material
requisites is discussed in economics.
Social Science: According to Marshall's definition, economics is a social
science in which man's economic problems occupy distinct position. This
science stresses on man's welfare and man's welfare is the main objective of
this science.
Study of Individual and Collective Efforts: According to Marshall's
definition, economics studies both the individual and collective efforts to
make human life prosperous provided that these efforts are made living in
the society.
Importance of Wealth: Marshall's definition explains the importance of
wealth. Man struggles to get wealth because wealth helps to attain material
welfare and prosperity.
Closer to Practical Life: Marshall's definition is closer to practical life. The
focus of this definition is on the man living in the society and it is very
necessary to study the efforts of man living in the society.
Modern Economic Concepts: This definition explains the concept of
economic development and planning which are basic topics of economics.
Drawbacks of Marshal Definition:
It does not cover all Economic Problems: In his definition of economics
only those efforts which attain material requisites are included. He excludes
the efforts of those people who work and serve for the satisfaction of nonmaterial needs.
Material welfare may not be measured: The concept of material welfare
which Prof. Marshall presented is related with mental state of man. The inner
satisfaction gained by one person may be different from other person. So,
this immeasurable concept cannot be considered the basis of any science.
Limited Concept of Consumption of Wealth: The some part of wealth is
spent on non-material needs such as education, recreation and visiting. But
Prof. Marshall's definition covers only those problems which take place
because of fulfilling material requisites.
Compiled by
M. Saleemullah

ACMA, ACPA, ACS, APFA, MS, MSC, ACCA (p), CIPFA (UK), B Ed

The Problem of Likes and Dislikes: Marshall's definition has created the
problem of likes and dislikes because this definition indicates that purpose of
economics is to increase material welfare so wealth should be spent only
where material welfare is gained.

Compiled by
M. Saleemullah

ACMA, ACPA, ACS, APFA, MS, MSC, ACCA (p), CIPFA (UK), B Ed

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