Economics Definition History and Evolution

Definition of Economics: A Historical Perspective

• Modern economics is traced back to 1776 with Adam Smith's "An Enquiry into the Nature and Causes of the Wealth of Nations."
• Early economists, including Adam Smith, defined economics as the "science of wealth." This perspective focused on the production and consumption of goods, including not just gold and silver, but houses, furniture, etc.
• Critics argued that this definition was too limited, focusing solely on material wealth and neglecting human welfare.

Shifting Focus: Economics as a Science of Material Welfare

• Alfred Marshall, a prominent British neo-classical economist, defined economics as "a study of mankind in the ordinary business of life."
• He emphasized the importance of social action and the material requisites of well-being, recognizing that economics impacts people's daily lives and their access to resources.
• Marshall understood that money is a tool for measuring human motives and that economics should study real people in their social context, not abstract "economic man."

Robbins' Scarcity Definition

• Lionel Robbins proposed defining economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."
• This definition emphasized the central problem of scarcity: unlimited wants and limited resources, requiring rational choices and allocation of resources.
• Robbins' definition was criticized for its abstract nature, ignoring the ethical and value-laden aspects of economic decisions.

Critiques of Robbins' Definition

• The definition ignores the normative aspect of economics, focusing solely on "what is" rather than "what ought to be."
• Robbins' concept of "ends" is considered artificial by some critics, lacking a clear explanation of its complexity.
• The separation of ends from means becomes difficult, as immediate ends can be considered means for achieving further ends.
• Robbins' assertion of ethical neutrality is challenged, as economists study human behavior, inherently connected to ethical considerations.
• The definition reduces economics to a theory of valuation, neglecting other significant aspects of economic study.

Other Definitions

• Baxter and Rees define economics as a science that examines the use of scarce resources to produce and distribute goods and services to meet human wants.
• Benham describes economics as the study of factors influencing a country's national income.
• J.M. Keynes defines economics as the study of resource allocation, income, and employment, including economic fluctuations and stability.
• Milton H. Spencer defines economics as a societal choice process for utilizing limited resources with alternative uses to produce goods and services.
• Henry Smith defines economics as the study of how individuals obtain a share of societal production and how the total output of society changes.

The Growth-Oriented Definition: Samuelson

• Paul Samuelson's definition emphasizes that "economics is the study of how men and society choose...to employ scarce productive resources...to produce various commodities overtime...and distribute them for consumption...amongst various people."
• This definition encompasses both scarcity and choice, production and consumption, as well as the time element of economic growth.

Features of Samuelson's Definition

• Samuelson recognizes scarcity and alternative uses of resources, like Robbins.
• He emphasizes economics as a social science, studying collective societal decisions and the use of resources.
• Samuelson incorporates the time element, making economics dynamic and acknowledging the importance of economic growth.
• His definition applies to both money-based and barter economies.
• The definition highlights the importance of consumption and distribution alongside production.
• Samuelson emphasizes the use of cost-benefit analysis for evaluating development programs.

Limitations of Samuelson's Definition

• Samuelson's definition, despite its comprehensiveness, is still criticized for focusing solely on material welfare and not fully accounting for broader social, political, and environmental factors.
• Modern economics has moved beyond simple material welfare and incorporates broader concepts like the Physical Quality of Life Index (PQLI) and Human Development Index (HDI) to measure economic development.