The nature of economics is reflected in its definition. Hence, the definition of economics is our starting point.
Economics has been defined variously by several authors and the definitions can be broadly divided into two:
Wealth Based: it is related to wealth and material-based needs
Scarcity Based: it is related to scarcity of means i.e. RESOURCES.
Wealth/welfare based is comprised of 5 definitions:
Economics is an enquiry into the nature and causes of wealth of nations. He used this definition as a title of a book published in 1776. According to Adams Smith, Economics is a field of study that is concerned with the factors that determines the wealth of a country. The factors responsible for the expansion of wealth is the second focus of Adams Smith definition. In this he emphasis production and expansion of wealth of a country. Adams Smith’s focuses are:
Adams Smith emphasized production and expansion of a country. The wealth we speak of is in the terms of material wealth. His third focus is on the constituents of wealth which deals with the output of products (i.e. production of goods and services)
This definition assumes efficient use of production resources (aka factors of production, for without it there is no expansion of wealth. The efficient use will take the form of:
Adams Smith did not consider the sharing or distribution of resources. He basically emphasized on production.
Ricardo shifted the emphasis on production and expansion of wealth to the distribution of wealth. He gave the definition in the preface of his book titled “Principle of Political Economy”. He wrote, the produce of the earth, all that is derived from the surface by the united application of the labor machineries and capital is divided among three classes of the community namely:
He concluded that to determine the laws which regulate this distribution is the principal problem of political economy. He likened Agricultural production to Agricultural products and the produce is the output. He said there are capitalist who are the owner of capitals or stocks. United application is a combination of factors of production. Also, the 3 classes of community are measured in the money. These classes came from the ‘Total Value’ which is shared into
David Ricardo’s contribution is to fill in the gap that Adams Smith left. Adams Smith does not talk about distribution and sharing. Ricardo came and fill in the option of three groups that will share the national output. We need to take note that, how this production is shared will determine the nature of the society. The capitalists are usually fewer than the laborer’s and they get the largest share but the laborer normally get the minimum share. The sharing has a lot of consequences on the nature of the society we have. The political class are the rent class, they received gains where they do not sow. He said economics is concerned with the law that govern distribution of national output.
David Ricardo said, “Economics can be defined as the field of study concerned with the distribution of wealth produced by the united application of the factors of production”
Wealth based definition ignored the promotion of human and social welfare which according to some scholars are the ultimate objective in production. Hence, wealth-based definition ignored the behavior of man with respect to wealth. Wealth should not be regarded as the ultimate aim of production, in reality the ultimate aim is the welfare of man in the society. Wealth is just a means to achieving this objective.
The wealth-based definition by Adams Smith and others could eventually gave way to a welfare-based definition given by Alfred Marshall. It should be noted that the wealth-based definition was given by classical economist. However, Alfred Marshall belong to the group of Neoclassical economists. Alfred Marshall contributions to the definition of economics was to lay emphasis on man and his welfare. His definition goes thus:
“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 the use of the material necessity of well-being”
Note that this definition sees economics as the study of wealth and human behavior. It regards wealth as the source of human welfare, though wealth is not an end to itself.
Alfred Marshall separated economics from politics unlike David Ricardo by using the term economics rather than political economics to the definition. In this way, Marshall elevated the study of economics to the realm of science by removing political influences from the analysis of economic issues.
This is evident in the phrase “ordinary business of life” which means how man gets and spend his wealth in the society.
The definition of economics by Alfred Marshall was widely accepted but suffered two criticisms put forward by Lionel Robbins.
Economics is not limited to material things, she pointed out that Marshall’s definition like the others before him viewed economics has been concerned with the possession of physical properties like house, ships, machineries, vehicles, estate, etc. for the well-being of the people. Robbins however pointed out that economics is concerned with immaterial things like services. Hence, services like dancing, singing, teaching, marketing, banking etc. are also studied in economics since they command a price. Thus, economics is concerned with all goods and services provided it commands a price whether they are material (tangible) or immaterial (intangible) goods.
Economics is concerned with scarcity and not welfare. Robins pointed out that economics is the study of choice under the condition of scarcity. Hence any welfare-based definition of economics is inappropriate. This idea is accepted by the fact that welfare is subjective varying from person to person and from place to place because an objective assessment of welfare promoting activities cannot be agreed upon.
For instance, pricing problem of goods like liquor and cigarettes thought to be harmful to social welfare according to economics. Because of this criticism, Robbins scarcity definition of economics was put forward in her book titled “an ESSAY on the nature and significance of economic science”.
Accordingly, economics was defined as “a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”. The following concepts came out from the above definition:
NOTE: scarcity is the reason for the study of economics, without scarcity the field of economics will not exist.
