INTRODUCTION TO ECONOMICS: EVOLUTION OF DEFINITIONS

The word economics comes from the ancient Greek word “oikonomia” which means management
of a household. Previously Economics was known as Political Economy. At present Economics is a
social science that deals with human wants and their satisfaction. It is mainly concerned with the
allocation of resources for the maximization of welfare of the people. In other words, Economics is a
social science that studies about production, distribution and consumption of goods and services.
The existence of human wants is the starting point of all economic activity. We cannot get all we
want by sitting idle. We have to work hard for getting goods and services to satisfy our wants. Hence,
due to the existence of human wants, people engage in economic activities or they make efforts to
satisfy their wants. Hence, wants, efforts, satisfaction constitute the circle of economics. Definition
of Economics Defining economics precisely is a difficult task. Different writers defined economics
differently and hence we do not have a generally accepted definition of economics. However,
generally definitions of economics are grouped in to four and they are (i) Wealth Definition (ii)
Welfare Definition (iii) Scarcity Definition and (iv) Growth Definition. We may explain these
definitions in a little detail.

Wealth Definition (Adam Smith’s Definition)

The classical economist Adam Smith (1723-90) has defined economics in his well-known book
―An Enquiry into the Nature and Causes of Wealth of Nations (Wealth of Nations, 1776) as the
Science of Wealth. He is regarded as the Father of Political Economy. According to Smith, Economics
was regarded as the Science which studies about production and consumption of wealth. Wealth in
Economics generally means those things that are necessary to satisfy human wants. However, only
those goods that are relatively scarce and have money value are generally considered wealth. In
other words, according to Smith, economics is concerned with the problems arising from wealth-
getting and wealth using activities of men.

Criticism of Wealth Definition: The Wealth Definition of Adam Smith has been criticized by writers
in Social Sciences. Social Scientists like Carlyle and Ruskin have called economics as ―dismal science,
―dark science, because of its emphasis on wealth. The term wealth was mistaken to be a substitute
for money hence; economics was criticized as the “bread and butter” science. Economics was
interpreted as a science that taught selfishness and love of money.

1. This definition has given emphasis to the material wealth. The classical economists had taken a
narrow view of wealth confining to earning and spending of money. The economic activity of a man
need not be selfish.

2. The wealth definition is unscientific and incomplete. The definition is incomplete in the sense that
it gives an impression that human wants are satisfied only through earning and spending money. A
man gets satisfaction not only from earning and spending of wealth but also through other activities
like singing, dancing, painting etc. These activities have economic aspects involving choice and
satisfaction of human wants which are outside economics according to Classical economics.

3. The definition gives an impression that wealth is the end of all human activities. Wealth is only a
means to an end and not an end itself. On account of the above criticisms, the wealth definition was
discarded at the close of the 19th century. While evaluating the wealth definition of Smith, we
should remember that Adam Smith was writing his book at a time when wealth was produced on a
large scale in England. This was the reason behind Smith‘s emphasis on wealth in his definition of
economics. In fact, he was interested in increasing the total volume of production in the economy
and even today it is an important aspect of the economic policies all over the world. Hence, there is
an element of truth in Smith‘s definition.

Welfare Definition (Alfred Marshall):

Alfred Marshall (1842-1924) was the first economist who saved economics from the vehement
criticisms from social scientists during 19th century owing to the classical definition of economics. He
shifted the emphasis from wealth to welfare. Wealth, according to him, was not the end but only a
means to an end, the end being human welfare. He defined economics in accordance with his ideas
of human welfare. He defined economics in his book, Principles of Economics (1890), thus:
―Political Economy or Economics is the study of mankind 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 the material requisites of well-being”. Hence, Marshall emphasized
that economics is a social science that studies social problems. Marshall accepts the view that
economics studies about wealth. However, according to him the more important aspect of
economics is that it studies about man. Marshall thus makes man the centre of his study. He
considers the study of man as more important than the study of wealth. According to him,
economics studies about mankind in the ordinary business of life meaning that earning activities.
Marshall‘s definition is not concerned with social actions which do not bring material welfare.
Besides Marhsall, Pigou, and Cannan defined economics in welfare terms. There are certain
implications of Marshall‘s definition. Firstly, it is a study of human beings. Secondly, it studies the
economic aspects of the life of human beings. An individual has several aspects of his life- social,
religious, political and economic. Economics, it is evident has no concern with the social, religious,
and political aspects of human life. Economics is concerned purely with the economic aspect of
human life. In other words, it studies about material welfare – how one earns income and how one
spends income. Thirdly, economics studies about human welfare - economic or material welfare.
While classical writers emphasized only wealth, Marshall has given importance to man and wealth. It
is thus clear that Marshall laid emphasis on material welfare as the primary concern of economics.

Criticisms of Marshall’s Definition :

It should be noted that the welfare definition of economics has been criticized on several grounds.

1. Welfare Definition excludes non-material things from the scope of economics. Welfare definition
includes only materials things as economic activity and hence it is unsatisfactory and unscientific
according to Lionel Robbins.

2. According to Lionel Robbins, the inclusion of the concept of welfare makes economics normative.
According to Robbins, economics has nothing to do with welfare. Welfare is subjective and is
immeasurable. In our practical life, we undertake many activities which do not promote welfare. For
example, liquor and cigarettes are not conducive for human welfare and yet, in economics, we are
concerned with the production and consumption of these items.

3. Marshall‘s definition is contradictory. He regards the services of singers and dancers as productive
so long as they are demanded by the people. But since they are non-material, they do not promote
human welfare and hence their services are not subject matter of economics.
4. Welfare definition is classificatory and not analytical. In spite of the criticisms mentioned above, it
should be remembered that the definition of Marshall has widened the scope of economics by
taking into account wealth as a part of the study of economics in relation with the welfare of
mankind.

Scarcity Definition (Lionel Robbins)

Lionel Robbins (London School of Economics) defined economics in his book, An Essay on the Nature
and Significance of Economic Science (1932), as "the science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses." The three fundamental
ideas included in this definition are ends, scarce means and their alternative uses. Ends here means
human wants. Scarcity is the fundamental economic problem as humans wants are unlimited
whereas resources by which we can satisfy our wants are limited. It states that society has
insufficient productive resources to fulfil all our wants. Goods (and services) that are scarce are
called economic goods. According to Robbins economics is entirely neutral between ends as he
considers economics as a pure science free from value judgments. Robbins‘ definition has certain
implications and they are:

1. Human wants (ends) are unlimited. If a particular want is satisfied, some other wants will crop up
in its place and there would be no end to our wants. Multiplicity of wants makes it very important
for people to work continuously for its satisfaction.

2. The means to satisfy our wants are scarce. For example, time is limited, money is limited, and
resources are limited. In short, means are scarce (limited) in relation to our wants.

3. The scarce means can be used for alternative uses which increases the scarcity. For example, a
piece of land can be used for growing rice or wheat. However, use of resources for one use prevents
its use for any other use.

4. Since wants are unlimited and we do not have resources to satisfy all our wants, we have to make
a choice between more urgent and less urgent wants. In other words, man has to make a choice
about the wants to be satisfied and the way the resources are to be utilized in the process of
satisfying human wants.

Superiority of Robbins’ Definition Robbins definition is superior to the earlier definitions.

1. Universal application: Robbins definition has universal applicability because scarcity is felt by
everybody at every time and place. Hence, it is applicable to the economies of all countries whether
capitalistic, socialistic or a mixed economy.

2. Wider Scope: Robbins definition has widened the scope of economics. According to this definition,
economics studies about all activities of man whether they are concerned with material or non-
material welfare.

3. Analytical and Scientific: The definition of Robbins is considered to be more scientific and more
analytical as this definition examines the economic aspect of all activities. This definition is neutral
between ends. It does not take into account the ethical aspects of economic problems. According to
him, an economist has no business to judge whether a particular economic action is morally right or
not.
 4. The scarcity definition has given rise to the concept of scale of preferences which has great
importance in economic analysis.

Criticisms of Scarcity Definition

Although Robbins‘ definition is superior to earlier definitions of economics, this definition is also
criticised on the following grounds:

1. No Human Touch: Robbins‘ definition reduces economics to the theory of value without any
human touch. He considered economics merely a science of the pricing process.

2. Does not cover Economic Growth: In recent times, economic growth (development)has become
an important branch of economics. Robbins‘ definition does not pay attention to factors which
increase national income and productive capacity of the economy.

3. Economic Problems may arise due to plenty: It is possible that economic problems arise not only
due to scarcity but also due to plenty. According to Robbins‘, economic problems arise only due to
scarcity and neglected the chances of economic problems due to plenty. During the period of the
Great Depression of 1930‘s, the problem was not scarcity but abundance of goods.

4. The definition is static, narrow as the macro economic aspect was ignored from his definition.
Keynesian economics, which studies how the levels of national income and employment are
determined, has now become an integral part of economics.

Growth Definition (Samuelson)

Paul A. Samuelson has defined economics and his definition is known as growth definition of
economics. According to him, ―Economics is the study of how men and society end up choosing,
with or without the use of money, to employ scarce productive resources that could have alternative
uses to produce various commodities, over time, and distribute them for consumption, now or in the
future, among various people or groups in society. It analyses the costs and the benefits of
improving patterns of resource allocation.

Features of Samuelson’s Definition

In Samuelson‘s definition, we find most of the points found in Robbins‘definition. The important
characteristics of growth definition are as follows:

1. Samuelson has emphasized the problem of scarcity of resources in relation to unlimited wants. He
has also accepted the alternative uses of resources.

2. This definition has incorporated the time element which makes the scope of economics dynamic.
This is an improvement of Samuelson over Robbins‘ definition.

3. His definition has stressed the importance of the problem of distribution and consumption along
with that of production. The definition also emphasizes the consumption of various commodities
produced overtime and on their distribution and for future economic growth. In short, Samuelson‘s
definition is growth oriented with universal appeal with dynamism. Hence, Samuelson‘s definition
may be considered as a modern and general definition of economics. We have examined the popular
definitions of economics. The classical economists emphasised wealth; the neoclassicals welfare,
while Robbins‘ scarcity of resources. It is really difficult to delimit boundaries of economics by means
of a definition. Generally economics is a social science that studies about human wants and their
satisfactions with an aim to increase the production of goods and services over time.