The term “Economics” is derived from the Ancient Greek word “Oikinomikos”. The Oikinomikos is made with two words, first “Oikos” means “household” and second Nemein means “Management”, “Custom” or “Law”. Thus the term Economics means management of the household. Economics was known as Political Economics before it was renamed as Economics by Alfred Marshall in the late 19th century.
WHY STUDY ECONOMICS?
Studying Economics may be beneficial for you not in a single manner but several ways. Economics can be useful in your daily life aspect along with your professional life.
The most important reason to study economics is to prepare you for a good career. There are plenty of job opportunities in the public and private sectors around the world. They are always looking for people who are capable of numerical, analytical thinking, and complex problem-solving skills. These skills can be obtained by studying economics only. Studying economics prepares us to think strategically and gives us the capability to make decisions to optimize the outcome.
If you want to understand more deeply what is the reason behind reports on inflation and unemployment. In which direction the country’s economy is moving, then you should have adequate knowledge of economics.
Studying economics not only teaches you how to manage the expenditure of an organization but also helps you in managing personal expenditure.
In short, economics is the only subject in the world that is important not only in your professional life but also in every aspect of your daily life. Thus the study of economics makes you a special personality in society and a successful human in your professional life.
“Economics is everywhere, and understanding economics can help you make better decisions and lead a happier life”
Definition of Economics:
Economics is an ancient subject whose subject matter and importance developed over time. At every stage of development, a new definition emerges and a specific emphasis is placed on a concept associated with it. This is the reason why there is so much diversity in the definitions of economics.
At present, economics has become a broad subject, every country in the world and every aspect of the day-to-day life of those countries people is connected with economics. Many great economists have given many definitions of economics till now, but all of them remain incomplete in one way or the other in terms of economics, subject matter, concept, and importance.
The four most important definitions of economics are as follows
Four definitions of economics, each referring to a particular stage of the growth of the subject matter and concept of Economics. They are:-
- Smith’s Wealth Definition represents the Classical era;
- Marshall’s Welfare Definition represents the Neo-Classical era;
- Robbins’s Scarcity Definition represents the New Age; and,
- Samuelson’s Growth Definition, representing the Modern Age.
Wealth Definition(Classical Era):
Father of Economics Adam Smith (1723-1790), in his book “An Inquiry into Nature and Causes of Wealth of Nations” (1776) defines
“Economics as the science of wealth”. He has told in his book how the wealth of the nation is created and as well as has also told how that wealth is increased.
Further, He believes that every person in society wants to promote his own profit because he is motivated by the feeling of self-interest. That means, each person acts for his own profit and in this process, he is guided and led by an “invisible hand”.
Adam Smith favors that “division of labor” should be introduced to increase the quantum of output. If the quality of the product is to be better then it is necessary to have severe competition in factories and society. The supply force must be very active to make a commodity available to the consumer at the lowest price.
After the publication of Adam Smith’s book “The Wealth of the Nation” in 1776, the concept and subject matter of economics got a form, so the publication of the book is considered “the effective birth of economics as a separate discipline” and therefore, Adam Smith is called the father of economics.
Adam Smith in his definition of economics has confined the study of economics to the ‘wealth-spending’ and wealth-getting activities. An undue emphasis has been given to material pleasures and material wealth. Wealth is considered to be an end in itself, whereas wealth is a means only.
This approach of Adam Smith leads to the neglect of human welfare as an essential subject matter of Economics. Smith gives his definition of when religious and spiritual values are held high.
For all these above reasons, Ruskin and Carlyleregard criticize Smith, that economics is a ‘dismal science because it teaches selfishness which is against moral values and ethics.
Welfare Definition(The Neo- classical era): Alfred Marshall
Alfred Marshall (1842-1924) in his book “Principles of Economics” (1890) defines Economics: as “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. Thus, it is on one side a study of wealth; and on the other, and more important side, a part of the study of man.”
The Main features of Marshall’s definition are as follows:
- In Marshall’s definition of economics, the promotion of human welfare is the primary thing and not wealth. wealth is considered only a means of human welfare. In this definition, economics does not consider wealth as economics as the be-all and end-all of economic activities.
- Marshall thinks that the concern of the common people should be contained in the science of economics, who are moved by the feeling of love and not by the desire to get maximum monetary benefits.
- Economics is a social science. It studies the society and people living in that society who influence one another in some way.
Despite the above-mentioned features in Marshall’s definition of economics, his definition has been criticized by many economists on many points. They are: –
- Marshall’s definition of economics includes only the study of material things. He did not consider immaterial things, such as the services of doctors, teachers, etc. However, their services also promote people’s welfare.
- Marshall, in his theory of wages, neglected to calculate the amount of money that is given as a reward for non-material services.
- Marshall considered the concept of welfare as the basis of his definition but he failed to define it clearly. Because the meaning of welfare varies from person to person, from country to country, and from one period to another.
Marshall also failed to differentiate between what things are capable of promoting welfare for people in society and what things are not. For example, a thing like liquor is harmful to society but commands a price that helps in increasing the public exchequer and comes under the purview of economics.
Scarcity Definition(The New Age): Lionel Robbins
Lionel Robbins in his book “An Essay on the Nature and Significance of Economic Science” (Published in 1932). Defined Economics as “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”.
The main features of Robbins’ definition are:
- The word “end” used in Robbins’s definition refers to human wants. Further, he has also emphasized that human beings have unlimited numbers of wants.
- Where Robbins says on the one hand that the wants of human beings are infinite, on the other hand, he also accepts the fact that the means and resources are present in limited amounts to fulfill those unlimited wants. It can also be said that fulfilling all wants is scarce. The scarcity of a commodity is to be considered only with its demand.
- Supply is also possible through scarce means, as scarce means are capable of having alternative uses. hence a person grades his wants with his priority. He first fulfills his most important want of all. Thus, Economics, according to Robbins, is a science of choice or preference.
- Robbins’ critics think that he failed to distinguish in his definition between those goods which are conducive to human welfare and those which are not. For example, scarce resources are used in the production of rice and alcoholic beverages. But rice production promotes human welfare, while alcoholic beverage production does not. However, Robbins concludes that Economics is neutral between ends.
- In Robbins’ definition, economics deals only with the microeconomic aspects of a resource and the determination of the price of a commodity. Therefore, Robbins’ definition limits economics merely to resource allocation theory. Whereas economics also deals with macro-economic aspects, such as how National Income is formed.
- Robbins’ critics think that his definition of economics does not cover the theory of economic growth and development.
Growth Definition(The Modern Age): Samuelson
Paul Samuelson in his book “An Introductory Analysis” in 1948. defined Economics as “the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption, now and in the future among various people and groups of society”.
The major implications of this definition are as follows:
- Samuelson in his definition admitted like Robbins, that resources are scarce concerning unlimited ends. Hence, fulfillment of ends is possible based on the preference for the most important wants, and such means can be put to an alternative use.
- The most important feature of Samuelson’s definition is that he has made it dynamic by including the time element in his definition. Through this time element, he has also included present and future economic development, which makes his definition different from others.
- It is one of the main features of Samuelson’s definition is that this definition can be applied also in a barter economy, where money is not used.
- Samuelson in his definition of economics has attempted to cover a wide range of topics, such as present and future economic development, production, distribution, and consumption.
- Samuelson treats economics as a social science which seems to be more appropriate than Robbins as he regards it as a science of individual behavior.
In the above four definitions, the subject matter, concepts, and development of the subject that had taken place till their time are visible in the definitions. Because the development of any subject is not in the day but over the period. If considering all four definitions above, the ‘growth’ definition stated by Samuelson appears to be the most satisfactory.