DEFINITION OF

ECONOMICS
CLASS - XI
BY BIKASH AGARWAL

SSP TUTORIALS
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What Economics is about
In our daily life, we see that all members of society are
engaged in various activities in agriculture, trade, business and
industry. The basic idea is to earn money to satisfy human
wants. These activities are concerned with production,
distribution and exchange of goods and services.
Thus, in simple words, Economics deals with (i) unlimited
wants (ii) Scarce Means (iii) Means with alternative uses.
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CONCEPT OF ECONOMICS
The word “Economics” is originally derived from the ancient Greek
word “Oiks”. It means household and “Nemein” which means
management. Thus, it refers to managing of a household using limited
funds. The Greeks then applied this term to the city-state, which they
called polis.
Economics is the social science that studies economics activities. In
other words, Economics is that branch of knowledge which studies
those human activities which deal with consumption, production,
exchange and distribution of scarce means of wealth.
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WEALTH DEFINITION ---- ADAM SMITH

Adam Smith, the founder of the classical school of economics,

in his famous book ‘An Enquiry into the Nature and Causes of
Wealth of Nations’ defined economics as “the science of
wealth.”
Economics is concerned with “an inquiry into the nature and
causes of wealth of nations” and it is related to the laws to the
laws of production, exchange, distribution and consumption
of wealth.
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FEATURES OF WEALTH DEFINITION OF ECONOMICS
1. Study of Wealth:
According to wealth definitions given by the various economists, economics
is the study of wealth only. Therefore, it deals with the activities of man
related to production, consumption, exchange and distribution.
2. Only Material Commodities:
This definition conveys the feeling that economics constitutes only material
commodities while it ignores non-material goods such as air and water.
3. Causes of Wealth:
Economics is considered as study of causes of wealth accumulation which
brings economic development. In order to increase wealth, production of
material goods will have to be increased.
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FEATURES OF WEALTH DEFINITION OF ECONOMICS
4. Much Stress on Wealth:
The main aim of the political economy is to increase the riches of the
economy. Thus, it gives more stress on wealth than on other factors.

5. Economic Man:

These definitions are basically based on the man who is always aware of his
‘Self-interest’. Self-interest leads to material gains. Therefore, such a
creature is called Economic Man.
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CRITICISMS OF WEALTH DEFINITION OF ECONOMICS

The wealth definition is not free from defects. The

economists like Thomas Carlyle, John Ruskin and William
Morris called it a bastard and dismal science. Some others
called it as a dismal science.

Thus, this definition has been criticised on the following

grounds:
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CRITICISMS OF WEALTH DEFINITION OF ECONOMICS
1. Totally Materialistic Definition.
This definition explains that wealth is the sole end of all human beings. This
preaches the worship of Mammon, the God of wealth, at the cost of all
spiritual values. Ruskin and Carlyle condemned the worship of Mammon
(God of wealth). Thus, it was rejected.

2. Only a Mean Science.

The definition makes wealth as the only subject matter of Economics. It
would become a sordid and mean science. That is why Ruskin and Carlyle
criticised Economics as “a dark and dismal science.”
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CRITICISMS OF WEALTH DEFINITION OF ECONOMICS
3. Ambiguous.
The term wealth which forms the subject matter of economics is ambiguous and
meaningless. In old days wealth meant only material goods like money, gold, silver, land,
cattle etc., which were visible. It ignores non-material goods such as services of doctors,
teachers and artists in the category of wealth. The immaterial goods are as good a
wealth as material goods.
4. Narrow view of the Scope.
The definition places wealth in the forefront and means in the background ignoring the
most fundamental aspect of economics viz. welfare. The definition is, therefore,
incomplete as it takes into account wealth for study and omits man and welfare from
the purview of economics.
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CRITICISMS OF WEALTH DEFINITION OF ECONOMICS
5. Concept of Economic Man.
Adam Smith’s wealth definition is based on the concept of economic man. But Marshall
and Pigou believed that economic man who works for selfish ends alone is not found in
real life. In real practice, man’s activities are not only influenced by selfish motives but
also by moral, social and religious factors. Thus, economics studies a common man and
not an economic man.
6. Secondary Place to Man.
This gives undue stress on wealth while secondary place has been given to human
beings. Wealth is a mean to human welfare. Thus, its subject matter does not remain a
social science.
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WELFARE DEFINITION --- ALFRED MARSHALL
Economics is a 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 material requisites of well-being. Thus, it is on one side a study of wealth; on
the other and more important side, a part of the study of man”.

“The aim of political economy is the explanation of the causes on which the material
welfare of human beings depends.”
This definition implies three important aspects
(a) Economics is a study of man and his ordinary business of life,
(b) It examines the economic aspect of an individual and his social actions.
(c) The attainment of material welfare as the end of economics.
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WELFARE DEFINITION --- ALFRED MARSHALL
(a) Study of Ordinary Business of Life:

Ordinary business of life means earning of living. It consists of earning

material means and using it for the satisfaction of the most common human
wants of food, clothing and shelter. This ordinary business of life is
something fundamental and common to mankind. In other words, it is
fundamental and the primary concern of everybody. Even the seers and
saints and philosophers who stand for noble ideals care first for their bread
and butter before the pursuit of their philosophy. Thus, it includes the
income earning and income spending activities of all human beings.
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WELFARE DEFINITION --- ALFRED MARSHALL
(b) Study of Individual and Social Action:

Economics examines the individual and social actions of the people that are
conducive to material welfare only. This means that Economics will study
only those actions that promote welfare and it will study other actions that
do not promote welfare. There may be other activities such as political,
religious, social and cultural, which do not come under its purview. In this
way, Marshall restricts the scope to those economic activities which are
measurable with monetary standards.
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WELFARE DEFINITION --- ALFRED MARSHALL
(c) Only Welfare Aspect:

In explaining the subject matter of Economics, Marshall has shifted the

emphasis from wealth to the welfare. Wealth, as he says, is only a mean for
the attainment of material welfare. So, he gave primary importance to man
and welfare and secondary place to wealth. Thus, the study is confined to
acquisition of wealth as well as to promote human welfare.
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FEATURE OF WELFARE DEFINITION OF ECONOMICS
1. Study of Mankind:
Economics is the study of mankind than wealth. Wealth is only a mean of
satisfying human wants.
2. Study of Ordinary Man:

It studies the activities of a man who earns wealth and spends it to get the
maximum satisfaction. Thus, it studies an ordinary and not extra ordinary
man like sadhus.
3. Study of Individual Man:
Economics studies the individual and social man who is always concerned
with material gains.
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FEATURE OF WELFARE DEFINITION OF ECONOMICS
4. Study of Real Man:
Economics does not study a man who is selfish but studies a real man who
possesses several qualities and is influenced by economic and non-economic
factors in society.
5. Promotion of Welfare:
It studies the material means which promote human welfare.
6. Study of Science and Art:
Material definition deals with economics, both as a science as well as an art.
7. Use of Money:
This definition considers material or economic welfare as a part of social
welfare which can be easily measured with the measuring rod of money.
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MERITS OF WELFARE DEFINITION OF ECONOMICS
1. It means with Welfare:
Welfare definition completes Adam Smith’s wealth definition by adding man
and welfare to wealth as the subject matter of economics.
2. Study of Social Science:
This definition has clearly mentioned economics as a social science. It is not
a pure science but one among the social sciences.
3. Proper Relationship of Welfare and Wealth:
Marshall defines economics as a noble science. In the hands of Adam Smith,
economics (as science of wealth) remained only a dismal science. But
Marshall explained the proper relation between wealth and welfare.
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MERITS OF WELFARE DEFINITION OF ECONOMICS
4. Classification of Activities:
The definition makes economics not only a science but also a Social as well
as Normative Science. This definition clearly classifies economic activities.
5. More Scientific:
This definition clearly classifies economic activities into two parts as material
welfare and non-material welfare. Thus, it is more scientific.
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CRITICISM OF WELFARE DEFINITION OF ECONOMICS
1. Impracticable.
In his discussion, Marshall classifies the actions into those which are not
conducive to material welfare. In other words, he divides activities into
economic and non-economic. But such a classification is not sound because
all activities in one way or the other are economic. Prof. Robbins considers
the distinction in economic and non-economic as invalid.
2. Unscientific.
According to Prof. Robbins, this definition is unscientific. Marshall explains
one kind of behaviour as distinct from another in a haphazard manner. This
makes the subject matter highly variable, indefinite and uncertain. Further
the lack of analytical study renders the definition thoroughly unscientific.
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CRITICISM OF WELFARE DEFINITION OF ECONOMICS
3. Term ‘Welfare’ is very Vague.
Generally, by welfare, people refer to the material happiness. But in reality,
welfare is a mental makeup of a person which depends much upon his
psychological feelings. Thus, it is highly subjective. It cannot be defined,
measured and compared at all.
4. Only Materialistic Aspect.

According to Marshall, welfare is attainable only by material means. But

Robbins observes that it is not proper to say that material means alone
promote welfare because the services of doctors, teachers, lawyers,
domestic servants etc., also do promote welfare. These services have no
material in them. So, these may be called immaterial we are.
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CRITICISM OF WELFARE DEFINITION OF ECONOMICS
5. Uncertain Concept of Welfare.
According to some critics, all material means do not always promote
welfare. For example, poison, poison goods, intoxicants etc., are definite
material means, but they do not promote welfare. They, on the other hand,
are positively harmful to human welfare.
6. Limited Scope.

Marshall narrows down the scope of economics by making it a mere study of

material means of welfare. If economists were to study the material means
of welfare to the exclusion of non-material means, economics would
definitely become narrow in its scope.
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SCARCITY DEFINITION --- LIONEL ROBBINS

According to Prof. Robbins, “Economics is a

science which studies human behaviour as a
relationship between ends and scarce
means which have alternative uses.”
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FEATURES OF SCARCITY DEFINITION OF ECONOMICS
1. Multiplicity of Ends or Unlimited Wants.

By ends, Prof. Robbins means human wants. These human

wants are various and numerous. When one wants in
satisfied, another want crops up in its place and so on in
endless succession. They grow in number with an
advancement of civilisation and material progress. Since
human wants are unlimited, man is compelled to select the
most urgent wants for immediate satisfaction
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FEATURES OF SCARCITY DEFINITION OF ECONOMICS
2 Scarcity of Means.
Human wants are unlimited and means to satisfy them are limited. The
means refer to goods and services which we use to satisfy our wants. They
are the material and non-material goods like time, money, services,
resources, etc., that are at our disposal. These means are scarce. If these
means are abundant like free goods, there would be then no economic
problem. But they are scarce and one is forced to postpone some of one’s
wants. Here we must remember the term scarcity is used not in the
absolute sense but in the relative sense i.e., in relation to demand. A
commodity may be available in small quantity but if nobody demands, then
it is not scarce. It is therefore, the scarcity of the means which is the basis
for all economic problems.
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FEATURES OF SCARCITY DEFINITION OF ECONOMICS
3 Alternative use of Means.
The scarce means are capable of alternative uses. They can be used for
several purposes. For example, land which is scarce can be used for
cultivation, house construction, playground etc. Similarly, all the economic
means and resources may be put to alternative uses. Therefore, in practical
life the goods can be put to alternative uses of varying importance. In other
words, Robbins explains any human behaviour that is concerned with
utilisation of scarce means with alternative uses for the satisfaction of given
ends.
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FEATURES OF SCARCITY DEFINITION OF ECONOMICS
4 Economic Problem.

The multiplicity of wants, the scarcity of means and the application of scarce
means for the alternative uses impose an economic problem. The problem
is how to satisfy the unlimited wants with limited means which have
alternative uses. Robbins describes this problem as the problem of
economising scarce resources. In other words, it is the choice of making of
an economic activity.
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