What Is Economics: Definition & What It Is All About?

 

What Is Economics: Definition & What It Is All About?

After the entry of Adam Smith, economics as a subject, was developing rapidly. Now many people were staring at that newly emerged subject having questions about its main theme. Need for a proper definition of economics was felt for the specification of its nature and scope. For beginners, it is crucial to know about their subject’s main theme and scope. It shows them the first ever roadmap for their journey with the discipline. This is why we are attempting to know about what economics is and what it is all about?

Economics is broad and it now has so many branches. The literature is huge and the speed with which it is growing is already on top. For such a vast discipline the unanimity of scholars in defining it, is extremely difficult. That is why we have three different economic schools of thoughts:

1. 1.      The Classical School of Thought Pioneered by Adam Smith

2. 1.      The Neo-Classical School of Thought Pioneered by Alfred Marshal

3. 1.      The Modern School of Thought Pioneered by Lionel Robbins

      The Classical School of Thought Pioneered by Adam Smith

ak The comprehensive book, “The Wealth of Nations” by Adam Smith in 1776 made the future of economics bright. He defined economics as the science of wealth. This definition earned Adam Smith the favour of many other economists who agreed with him. He wrote extensively about the four aspects of wealth, production, consumption, distribution and exchange of wealth. This classical view of economics, on the one hand brought economics to the mainstream but on the other created a big misunderstanding among people.

The repetition of the word wealth caused a serious problem. To people, wealth meant richness, having a lot money, precious metals and assets. This created a huge misunderstanding in people about economics. Even religious reformers of that period started to speak about it. Ruskin and Carlyle are the two who called economics the dismal science and argued that economics teaches nothing but only promotes selfishness and greediness. During that time, some economists presented some pessimistic theories like law of diminishing returns and Malthus population theory. This made the situation even worse.

In actuality, economics needed a more justified and to the point definition. Adam Smith’s definition of economics in terms of wealth, was wide enough that it created misunderstanding. Wealth means not only money and gold. It also includes many other goods and services which human beings in their daily life, heavily rely on.

The Neo-Classical School of Thought Pioneeered by Aflred Marshal

During the on-going controversial discussions about economics, Prof. Alfred Marshal appeared in the picture to bring these doubts to an end. He wrote a book “Principles of Economics” in 1890. Here are his words on economics: “Study of mankind in the ordinary business of life. It enquires how he gets his income and how uses it. It examines that part of individual and social life action which is most closely connected with the attainment and with the use of material requisites of well-being. It is on the one side a study of wealth and on the other and more important side is a part of the study of men”.

By presenting this view, Marshal cleaned the image of economics from all the negative and dirty dots. A large number of people agreed with this view and it resulted in a new school of economic thought called welfare school of economics.

Basically, what Marshal added was that wealth is not the main theme of economics nor economics is an attempt to study richness of few people. Rather it studies the ordinary business of life of individuals collectively. It is not concerned with the study of an isolated man. Second, economics is not a waste of time and effort to study wealth only. It is most closely related with material prosperity of human beings. Thirdly, Marshal clarified the fact, that studying human actions is given most importance in economics. That is to know about the economic behaviour of people.

However, Marshal’s point of view is meaningful and precise, still it has some drawbacks in it. Professor Lionel Robbins criticized him on some points. First, he mentioned material welfare while economics does not deal only with material needs of humans. The non-material side of human life is important also. We buy so many services like medical, educational, infrastructural and many more. These services are crucial for our life. Second, he used the word welfare which is an unmeasurable and unclear idea. Everyone has his own perspective on welfare. Welfare cannot be precisely defined. Moreover, economics also analyses the markets for certain goods and services which may be harmful for people. Such goods and services imply no welfare at all. Third, welfare makes economics an unscientific discipline where the questions of good and bad, need be to answered.

The Modern School of Thought Pioneered by Lionel Robbins

Lionel Robbins is the person who rejected the Marshal’s definition of economics with a new view called the modern view of economics. Robbins argued that Marshal is viewing economics in an unscientific way. Robbins treated economics like a science and told that personal moral judgements are not compulsory in the study of economics (questions of what is good and what is bad?).

He defined economics as: “Economics is the science, which studies human behaviour as a relationship between ends and scarce means, which have alternative uses”.

Robbins’ definition is in fact, more scientific and is accepted by a large number people. He clarified the economic problem that study of economics is all about scarce resources and unlimited human wants. Human wants are unlimited, permanent and repeatable and no one is exception to it. While the means (resources) are limited. The unlimited wants and scarce means together tell another fact that these scarce means have alternative uses. One asset can be used only for one purpose at one time. For example, a building can only be used to start a steel factory or a furniture house. These two objectives cannot be achieved at the same time by using the same building.

Disciplines having broad scopes cannot be defined in few exact words with unanimity. Same is true for economics, as we saw earlier in this article, different economists have defined economics in their own way. Some economists do not like the course of defining economics. They say let the subject speak of itself. Knowing about the nature and scope is knowing the discipline. It is difficult to fully understand such a vast subject in few words. However, for absolute beginners, studying definitions is very helpful. It tells them what that particular discipline studies and what they are going to learn.