Introduction to Economics

Society is inhabited by people engaged in various professions and businesses, such as farmers, laborers, teachers, lawyers, carpenters, masons, etc. Everyone supports their families through their respective labor. Carpenters use their skills to make chairs, tables, cupboards, beds, etc., and earn income from their sales. Masons earn income by constructing houses, sheds, buildings, etc. 

To run a household, homemakers make various arrangements, participate in income-generating activities, and manage resources to meet the family's needs. Thus, people living in society earn income through various economic activities. The discipline that studies these types of economic activities in society is called economics.

Regarding economics, various economists have presented different definitions at different times. In this context, the definitions of major economists are discussed here.

In addition, this unit includes the scope, importance, terminologies of economics, as well as the definitions and differences between microeconomics and macroeconomics.

Definition of Economics

A definition is a brief description that presents a subject matter or its principles in a simple manner. Economics has been defined by economists in various ways. 

The major economists who defined it in this way include Adam Smith, Alfred Marshall, and Lionel Robbins. 

Their definitions regarding economics are mentioned below:

(a) Adam Smith's Definition of Economics (The Wealth Definition)

Adam Smith was the first person to present economics as a separate subject. In 1776, he published his famous book 'An Inquiry into the Nature and Causes of the Wealth of Nations'. 

This is also known as 'The Wealth of Nations' in short. In this book, he defined economics as follows: "Economics is a science of wealth."

Adam Smith is also known as the 'Father of Economics' because he first systematically and scientifically presented and defined economics. His definition is focused on the idea that human needs can only be fulfilled through wealth.

Therefore, Adam Smith's definition considers wealth as the central point of the study of economics. According to this definition, wealth is the only means of fulfilling human needs. Adam Smith divided humans into economic and non-economic humans. 

The sole purpose of an economic human's life is to earn wealth, and they believe that wealth is the only means of fulfilling all resources. Non-economic humans consider wealth as secondary. 

According to Adam Smith, the amount of a nation's wealth depends on the productivity of labor and the amount of labor employed. According to him, the division of labor plays a major role in increasing labor productivity.

Adam Smith's definition related to wealth was supported by scholars like J.S. Mill, J.B. Say, T.R. Malthus, who emphasized that economics studies wealth. 

According to economist J.S. Mill, "Economics is the science of wealth related to humans." 

According to J.B. Say, "Economics is the body of knowledge which relates to wealth." 

The main features of Adam Smith's definition of economics related to wealth are presented as follows:

1. Study of Wealth: According to Adam Smith's definition, economics mainly studies wealth. It studies how wealth can be earned, used, exchanged, and distributed.
2. Earning Wealth is the Primary Objective of Humans: According to Adam Smith's definition, the primary objective of humans is to earn wealth. This clearly shows that Adam Smith placed the study of wealth in the first priority and the study of humans in the second priority.
3. Study of Economic Man: The position of economic man is important in Smith's definition. According to him, economics only studies humans involved in economic activities.
4. Employment-Oriented Labor is the Main Source of Wealth: According to this definition, employment-oriented labor is the main source of wealth. The division of labor leads to the specialization of labor, which increases productivity, and this increases the nation's wealth.

Criticisms of Adam Smith's Definition of Economics 

Adam Smith's definition of economics, which excessively emphasized wealth, was harshly criticized by prominent 19th-century scholars like Carlyle, Ruskin, Morris, who gave it names like the 'science of bread and butter' and 'dismal science'. 

The main criticisms of Adam Smith's definition of economics can be mentioned as follows:

1. Excessive Emphasis on Wealth: Giving more emphasis to wealth than to humans is Smith's weakness. Wealth can never be greater than humans because humans are the ones who earn and use it. Wealth is for human happiness and satisfaction, not humans for wealth.
2. Emphasis on Economic Man: Another weakness of his definition is the emphasis on economic man. Humans do not always run after wealth; they also have feelings like sympathy, compassion, love, and benevolence towards others.
3. Narrow Scope of Economics: Adam Smith narrowed the scope of economics by limiting its subject matter only to wealth and wealth acquisition. However, according to critics, the scope of economics should include human welfare, limited resources, unlimited needs, production, exchange, distribution, economic development and growth, poverty, inequality, etc.
4. Narrow Meaning of Wealth: Adam Smith considered only material goods as wealth in his definition. However, in addition to material goods, non-material goods are also wealth because they also fulfill human needs.
5. Wrong Concept of the Sole Source of Wealth: Adam Smith considered employment-oriented labor as the only source of earning wealth. However, according to critics, wealth is also obtained from natural resources, capital, technology, etc. Therefore, Adam Smith's concept of labor being the only source of wealth is wrong.

(b) Alfred Marshall's Definition (The Material Welfare Definition)

Towards the end of the nineteenth century, after Adam Smith's definition of economics related to wealth was widely criticized, in 1890, the neo-classical British economist Alfred Marshall published the book 'Principles of Economics' and explained economics as material welfare. 

His idea was supported by A.C. Pigou, Edwin Cannan, etc. As a result, the wealth-centered definition of economics came to be focused on material welfare.

According to Marshall, wealth is only a means to fulfill needs, while the end is human welfare.

Marshall gave the definition of economics in his book as follows: "Political Economy or 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 the material requisites of well-being." 

According to A.C. Pigou, "Economics deals with that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money."

The main features of Alfred Marshall's definition of economics related to material welfare are as follows:  

1. Humans as the Primary Subject Matter of Economics: According to Marshall's definition, the primary subject matter of economics is humans. Wealth is only for human comfort.
2. Study of Material Welfare: Marshall's definition includes the concept of material welfare. According to him, humans can derive satisfaction from material goods.
3. Study of Ordinary and Social Humans: According to Marshall's definition, economics studies only ordinary or social humans living in society. It does not study monks or saints who are separate from society.
4. Social Science: Since economics studies the economic activities of people living in society, Marshall considered it as a social science.
5. Normative Science: Normative science distinguishes between what is right and what is wrong, i.e., it helps in problem-solving. Similarly, Marshall's definition studies what should and should not be done to increase material welfare, so it can be considered a normative science.

Criticisms of Marshall's Definition of Economics: 

Although Marshall's definition was better than the one given by Adam Smith, it is not free from criticism. It has been criticized on the following grounds:

1. Difficulty in Distinguishing Between Material and Non-Material Welfare: Marshall divided human activities into economic and non-economic, and welfare into material and non-material. However, it is difficult to distinguish between these. For example, if Manushi selflessly takes a helpless person to the hospital in her taxi for free, her action is non-economic and non-material welfare. But if the same work is done for money, it becomes economic and material welfare.
2. Relationship Between Economics and Welfare: Marshall unnecessarily limited the scope of economics. According to him, economics studies the means of increasing welfare and their use. Therefore, there is a difference between economics and welfare.
3. Narrow Definition: According to Marshall, economics is indispensable for human life. He stated that economics imagines material welfare. Humans do not always seek only material comforts; they also have emotions organized around things like religion, culture, love, affection, benevolence, and cooperation.
4. Welfare Cannot be Measured Quantitatively: Marshall stated in his definition that welfare can be measured quantitatively, but welfare is related to human feelings, experiences, and psychology, which cannot be measured quantitatively. Therefore, welfare varies according to the individual, time, and place.

(c) Robbins' Definition of Economics (The Scarcity and Choice Definition)

Pointing out the flaws in Marshall's definition of economics, Lionel Robbins published the book 'Nature and Significance of Economic Science' in 1932. 

In that book, Robbins defined economics as follows: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." 

Human needs are unlimited, the resources and means to fulfill those needs are scarce, and those needs must be fulfilled through the alternative uses of such means. 

By nature, people want to obtain more and better goods than they have. They want to obtain delicious and balanced food, good clothes, motorcycles, cars, and good housing to live in. Needs begin with human birth, and gradually, as age increases, these few needs turn into unlimited needs. On one hand, human needs are unlimited, and on the other hand, resources and means are scarce, so people may not get what they think and want. 

Needs can also vary according to time and place. In the world, sunlight and air are generally considered resources that are available in unlimited quantities. Raw materials, machinery, labor, and land are considered scarce resources. 

Thus, economics is the science that studies the relationship between the scarcity of means and the unlimitedness of needs.

The main features of Robbins' definition of economics can be presented as follows:

1. Human Needs are Unlimited: Human needs are unlimited. As soon as one need is fulfilled, another need arises. All needs cannot be fulfilled at once. Humans first fulfill the essential needs that are in the first priority. Then, gradually, they fulfill other needs.
2. Resources are Limited or Scarce: The reason why unlimited human needs cannot be fulfilled is that resources are limited. The resources to fulfill human needs are scarce. Due to the scarcity of resources, humans are forced to prioritize and fulfill important needs first. Scarcity of resources refers to a resource where supply is less than demand. The limitation of resources is due to the fact that the production of goods that are in high demand is low.
3. Resources Can Have Alternative Uses: Alternative use means multiple uses. Limited economic resources are used in various opportunities. For example, a student has Rs. 500, which they can use to buy books, eat snacks, watch a movie, or spend on some other work.
4. All Needs are Not of Equal Importance: Human needs are unlimited, but all needs are not of equal importance. Humans use resources based on the priority of needs. Therefore, economics is also a science of choice.

Criticisms of Robbins's definition of Economics:

Although Robbins' definition of economics is comparatively excellent to the definition given by Marshall, this definition is also not free from criticism. It has been criticized on the following grounds:

1. Neglect of Ideal and Moral Concepts: Although Robbins' definition is scientific, it appears to be unenthusiastic, impersonal, and neutral in study. If economics were to work for human welfare like a machine, it could not function as a matter of moral or ideal importance.
2. Economic Problems are Not Created Only by Scarcity: The argument that economic problems arise from the inadequacy of resources and unemployment, etc., is not sufficient, because the Great Depression of the 1930s was created even when goods were overproduced in the economy.
3. Similar to the Concept of Material Welfare: Humans are obtaining maximum satisfaction by using limited resources. Here, maximum satisfaction and welfare mean the same thing. Therefore, although Robbins criticized Marshall's definition, he indirectly included Marshall's ideas in his own definition.
4. Self-Contradictory Definition: This definition, on the one hand, considers economics to be neutral towards goals, and on the other hand, argues that maximum satisfaction can be obtained from the proper choice of scarce resources. Thus, Robbins' definition appears to be self-contradictory.
5. Incomplete Definition: Important and contemporary topics of modern economics, such as economic development, national income, price level, etc., are not clearly mentioned in this definition. Therefore, Robbins' definition is incomplete.