Definitions of Economics given by Adam Smith, Alfrad Marshall and Robbins

 

Definitions of Economics given by Adam Smith, Alfrad Marshall and Robbins

The word ‘Economics’ was derived from the Greek words ‘Oikos’ (a house) and ‘Nemein’(To manage), which meant managing a household, using the limited money or resources a household has.

Economics as a subject came into being with the publication of very popular book in 1776, “An Enquiry into the Nature and Causes of Wealth of Nations”, written by Prof. Adam Smith. At that time, it was called Political economy and regarded as a branch of statecraft. The great Indian statesman, Kautilya, named his book on statecraft as Arthashastra, the Hindi equivalent of ‘Economics’.

Various definitions were given by various economists’ time to time. L.M.Fraser has classified definition of economics into Type A and Type B. Type A definitions are related to wealth and material welfare and Type B is related to the scarcity of means.

 

Type A definitions

 Adam Smith's Definition of Economics, it's features and criticism

The classical view: Wealth Definition: The early economists like J.E. Cairnes, J.B.Say, and F.A.Walker have defined economics as a science of wealth. Adam Smith, the father of economics, in his book in 1776, “An Enquiry into the Nature and Causes of Wealth of Nations”, stated that “Economics is the science of wealth.” He defined economics as “A science which enquires into the nature and causes of wealth of nations.”

According to him, wealth may be defined as those goods and services which command value-in- exchange [Value-In-Exchange means the amount of money or goods that is actually paid for a product or service.] and economics is concerned with the problems arising from wealth-getting and wealth-using activities of people. Thus, we study, in economics, about consumption, production, exchange and distribution of wealth.  His focus was mainly in studying the ways by which the wealth of all nations could be increased.

He considered that the individual in the society wants to promote only his own gain and in this, he is led by an “invisible hand” to promote the interests of the society though he has no real intention to promote the society’s interests. [The invisible hand is a metaphor which is used to describes the unseen forces of self-interest that impact the free market. People act in their own interest, which ultimately gives benefits to the economy as a whole.  It favors a free market without government intervention. The prices of goods and services are self-adjusted and the market forces of supply and demand stabilize the economic system.]

J.S.Mill opinioned, “Economics is the practical science dealing with the production and distribution of wealth.”

The American economist F.A.Walker says, “Economics is that body of knowledge, which relates to wealth.”

Features of the Wealth Definition of Economics: 

This definition gives too much importance to the creation of wealth in an economy. As per this definition, the motive of Economics is only increasing the amount of wealth in a nation and it can be increased by raising the level of production and distribution.

Wealth includes only material goods which can be seen or touched only such as manufactured items. It does not include non-material goods or services such as service of a doctor or a lawyer or a teacher etc.

This definition imagines the economic man who is self-centered and self-interested in nature. His focus is all the time on his own well-being and has only one motive how to earn money.

Criticism: This conception of economics as a science of wealth laid exclusive stress on material wealth, that’s why these definitions were criticized badly. Ruskin and Carlyle condemned economics as a ‘dismal science’ [the science of bread and butter] as it taught selfishness which was against ethics. According to them, making economics as a science of wealth would make the people worshipers and greedy for wealth.

• The main drawback in the wealth definition of economics had been its excessive emphasis on wealth-producing activities. Wealth was regarded to be the end in itself. But we should remember that wealth should only be considered as the mean to satisfy human wants. It means that wealth is not end as it cannot satisfy any human needs directly. Goods and services are purchased with the help of wealth.

• This definition has an imaginary outlook of the economic man whose motive is to acquire wealth only and other motives of a man like love, affection, feelings and emotions are neglected. Thus, it neglects human welfare.

• This definition only studies about wealth and does not study the concept of welfare. That’s why, it is considered as incomplete and narrow definition.

• Classical economists gave more stress on the word ‘material wealth’ and thus narrowed the scope of economics by excluding all economic activities which are related to the production of non-material goods and services.

• This definition ignores scarcity and choice, which are the fundamental concepts of Economics. In reality, economic activities occur because of unlimited human wants and limited resources that have alternative uses.

Alfred Marshall’s definition of economics, its features, and criticism

The neo-classical view: Welfare Definitions-Neo-classical economists focused more on welfare and the emphasis was shifted from ‘wealth’ to ‘welfare’. According to Cannan, “The aim of political economy is the explanation of the general causes on which the material welfare of human beings depends.”
According to A.C. Pigou,” Economics studies that part of social welfare which can be brought directly or indirectly in relation with measuring rod of money.”

Alfred Marshall in his book, “Principles of Economics”, published in 1890, describes economics as, “It is the study of mankind in the ordinary business of life; it examines that part of the individual and social action which is most closely connected with the attainment and with the use of the material requisites of well- being. Thus, it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man”.

The important features of Marshall’s definition are as follows:

Economics is the study of human beings-  Economics explores how an individual gets his income and how he uses it through which the human welfare can be promoted.

Economics not only studies wealth-achieving activities but also studies wealth-consumption activities.

Economics deals with ordinary men who are rational. It studies the activities of normal man who are living in the society and influenced by all natural instincts such as love, and affection.


Activities of abnormal man like drunkards, gamblers, drug addicted and isolated person’s activities are not included in the scope of economics.


Economics studies only a part of those activities which is related to material welfare: Marshall makes a distinction between material and immaterial things. Material things are those that can be seen, felt and touched, such as books, chair, etc. Immaterial things are those that cannot be seen, felt and touched such as services of a doctor, teacher, etc. according to him, Economics does not study all types of human activities but only a part of those activities related to material welfare.

Economics is a Social Science, which attempts to study the ordinary business of life of the persons living in society and influencing each other. ordinary business of life of a person refers to the activities of earning and spending the income for the welfare of human beings.


It emphasizes more on human welfare and considered wealth simply as a mean for human welfare.

Economics is a normative science according to Marshall. It deals with what should be and what ought to be.


Criticism: This definition has also been criticized by Lionel Robbins.

According to him, it only confines its study to the material welfare and ignores non-material aspects of human life. It was difficult to separate material and non-material aspects of welfare. For example, the services of lawyers, dancers, teachers, doctors, engineers and professors satisfy human wants and are scarce in supply. 


The activities relating to the ordinary business of life is unclear and vague because Marshall didn’t clear properly what activities of man come under ordinary business of life and which activities are outside its area. According to Prof. Robbins, there are several such activities that don’t fall under an ordinary business of life, yet are studied in Economics, like – the study of the economy at the time of war.

Robbins said the science of economics studies several activities, that hardly promotes welfare but are looked at as economic activities. For instance,Production and consumption of alcohol and other intoxicants as drugs, cigarette are not beneficial for human welfare, but it might generate wealth.

Marshall has divided human activities into two parts, Economic and Non-economic, which is not fair because a similar activity of a man can be economic and non-economic also at different times. For example, cooking in his own house by a cook is a non-economic activity while cooking in the hotel by the same cook. becomes an economic activity.

Marshall’s definitions have restricted the scope of Economics by confining it only material, ordinary and economic activities


According to Robbins, economics should be regarded as a human science instead of social science because it studies human behavior as a relationship between ends and scarce means which have alternative uses.

Type B definitions

Lionel Robbins provided a new definition of economics in his book, “Nature and Significance of Economic Science”, published in 1932.

According to him, “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”

Robbin's definition is based on the following aspects:

• Ends or wants are unlimited and as one wants gets satisfied another arises that’s why we have to make a choice between the most urgent want and less urgent wants. Thus, the problem of choice arises. That is why economics is also called a science of choice.

• ‘Means ’or resources to satisfy human wants are limited. The means refer to goods and services which are used to satisfy human wants. These resources are scarce and to be used optimally to get maximum satisfaction. For example, money is an important means to satisfy many of our wants. We use it optimally and make choice among the vast array of wants that are to be satisfied.

• Robbins also said that the scarce means have alternative uses. All the scarce means can be used for more than one purpose. For example, land is scarce in nature but it can be used for construction of buildings, cultivation, parks etc. The use and allocation of scarce resources to produce goods and services have to be such as would maximise satisfaction. This applies both to the behaviour of the individual and of the society as a whole.

• Economics is related to all kinds of behaviour that involves the problem of choice. For example, if I have a land then I have to choose the best option to utilize the land so that it gives maximum benefits. Thus, according to Robbins, economics is the valuation process which is concerned with unlimited wants and scarce means being put to alternative uses in order of their importance.

Why Robbins’ definition is superior to the earlier definitions

 It is more scientific since it is not based on the artificial classification of wants. Adam Smith divided man into economic and non-economic and Marshall classified human activities into two parts; material and non-material. Thus, Robbin's definition is more scientific and analytical.

There is universality in Robbin's definition. It is applicable to small and large societies and also applicable to both planned and unplanned economies. 

Robbins’ definition has widened the scope of Economics. Marshall had restricted it to wealth and activities which related to the material welfare of man only while according to Robbins, all types of human wants, material or non-material as well as of all types of persons whether living in society or outside the society, come under the scope of Economics.

According to Robbins, economics is the science of choice. The choice of resources among the unlimited wants of society as well as government is the basis of Robbins’ definition. An individual has to make a choice between unlimited wants to get the maximum satisfaction from a limited income. The government has to utilize limited resources intellectually to achieve a high rate of economic growth.

Criticism Of Robbins Definition

Robbins’ definition of economics is not free from criticism. The main points of criticism are given below-

• Robbin criticized Marshall’s definition on the grounds of welfare but his definition is also related to welfare. As limited means are used to fulfil unlimited wants for maximizing satisfaction and it will lead to more welfare.

• Robbins’s definition has unnecessarily widened the scope of economics by including all the activities of mankind that are related to the problem of choice. Example – If a student has to choose between studies or watching a movie, this activity of decision-making will also come under the scope of economics. However, critics said that uneconomic activities should not be included in economics.

• According to Robbins’ definition scarcity is the cause of economic problems. But the fact is that even the abundance may cause an economic problem. The Great Depression of the 1930s in the USA was due to an abundance of goods, but not because of the scarcity of resources.

• Robbins’ definition is based on this unrealistic assumption that each individual does only those activities from which he gets maximum satisfaction. But practically, an individual does not always compare the satisfaction he gains from different activities. Usually, he acts without thinking so rationally.

• Robbin’s definition of economics does not have any solution to the problem of underdeveloped countries as it is concerned with the development of unused resources.

• Prof Samuelson pointed out that Robbins’ definition is static in nature because. It is only related to the problems of the present and is not concerned with anything about the future. Hence, this definition emphasizes scarcity and neglects economic growth and development.

Later, modern economists have defined economics in Robbins’ sense with slight modifications. According to Prof. Scitovsky ,”Economics is a social science concerned with the administration of scarce resources.” Similarly, Prof. Fergusan defines it as “ a study of the economical allocation of scarce physical and human means [resources] among competing ends-an allocation that achieves a stipulated optimizing or maximizing objective.” both these definitions treat economics as a social science unlike Robbins who regards it as a science of individual behaviour.

Growth oriented definition: Prof. Samuelson’s scarcity definition is more comprehensive as he writes, “Economics is the study of how men and society choose, with or without the use of money, to employ scarce productive resources to produce various commodities over time and distribute them for consumption, now and in the future, among various people and groups in society.”

Samuelson’s definition emphasizes on economic problem of scarcity of resources in perspective of present as well in future and it includes economic growth also as a part of study of economics.

Among these two types of definitions [type A and type B] it is difficult to say which is better than the other. However, keeping in view, the present day trend of establishing welfare states in the world, the welfare definitions are more practicable whereas the scarcity definitions are more scientific. We may define economics as a social science related with the proper use and allocation of resources for achieving and maintaining the growth with stability.

Dr. Swati Gupta

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