Nature And Scope Of Economics
Economics is science which studies the life of people living
in a country or in the world as a whole. What is the economic life of the
people or in other worlds, what is economics?
To answer this question we have
to analyze the definition of economics which is given below
DEFINITIONS
OF ECONOMICS:
There are three
well-known definitions of economics
(i)
Definition of economics given by the classical School of thought led by
Adam smith.
(ii)
Definition of economics presented by the Neo-Classical school of thought
led by Alfred Marshal.
(iii) Robbin’s
definition of economics.
We now explain. One
by One, the definitions referred above
ADAM SMITH ‘S DEFINITION OF ECONOMICS:
Adam smith wrote a book in 1776 entitle
“The wealth of Nation” in this book he discussed the word “WEALTH” through its
four aspects i.e. production of wealth.exchange of wealth,
distribution of and consumption of
wealth. This clearly means that, according to Adam smith, Economics is a
science of wealth.
To analyze
this definition we will diacuss the word “Wealth” and its four aspects. Wealth
means goods and services transacted with the help of money, it is a matter of
common observation that the transaction of goods and services (wealth) takes place in our day-to-day life.
But the question is : Why and how is the transaction of goods and services
taking place? To know the answer of this
question we are require d to look into four aspect of wealth.
(1) PRODUCTION OF WEALTH: This
means the production of goods and services by combining four factors of
production i.e. land, labour, capital,
organization or entrepreneurship. Land is the natural resource such as soil,
sea, minerals, livestock, forests etc
labour is a mental or physical work which is done for the sake of reward . capital means manmade
resources which help to produce goods and services. Whereas organization is the
act of combining four factors of production to producing and marketing of the
goods and services for the sake of
profit hence. Production of wealth means production of goods and services.
(2) EXCHANGE OF WEALTH: Entrepreneurs
usually produce more goods and services than their own requirement s. Why do
they do so? Simply to get their surplus produce exchanged in the market
with the surplus goods and services produced by others. The process of
exchanging of wealth continues throughout the year and as a result people get
the goods and services produced for each
other. This enables everyone in the society to satisfy his multiple wants.
(3) DISTRIBUTION OF WEALTH: As a result of exchange of wealth in a country whatever
falls to the lot of each individual or a section of society is called his or
its share in the national wealth produced in a year. If the share of certain
section of a society in the national wealth is bigger than that of other this
will be the unequal distribution of wealth in a country. If all section of the
society are enjoying all goods and
services being produced in the country
it will be fair and equal distribution of wealth.
(4)CONSUMPTION OF WEALTH: The ultimate objective of production, exchange and distribution is the consumption of wealth. When people get their share from the national product they use it to satisfy their wants hence , the using up of the utility of goods and services for the satisfaction of wants is known as the consumption of wealth .
Thus, from the
above explanation of wealth and its four aspect, it becomes clear that services
available to the society. Beside this he also explain as to why and how wealth
is produced, exchanged, distributed and consumed.
CRITISM ON THE DEFINITION:
During the late 18th century religious sentiments of the people
were very strong and spiritual values held sway over man’s mind therefore. It
was difficult for them to accept economies as a science which teaches
materialism. They raised hue and cry against it. Especially the two men of
letter. Carlyle and Ruskin , condemned it. They said that economics as a
science of materialism is just “a science of bread and butter”. They
also termed economics as a” dismal science” as, according to them it promotes
selfishness and greed. They thought that if economics was thought. The science
of materialism will take mankind away from spiritualism. Hence, Carlyle even
went to the extent of saying that economics is “a pig philosophy “ the two literary figures therefore held that
spiritual values as love. Sincerity , sacrifice, friendship, brotherhood,
etc, be promoted through religious in
place of materialism being taught in economics.
Regardless
of what critics had been saying about Economics, the criticism was not
justifiable at all. The reason is that they saw only the negative side of the
picture, since everything has its pro’s and con’s and economics is no exception
to it. However, gradually people discovered through observation and experiments
that economics helps them to eliminate poverty. Raises their standard of living
and turns them human beings. Hence , they soon realized material that wealth
plays a vital role in their life.
ALFRED MARSHALL’S DEFINITION OF
ECONOMICS
Marshall is a well-known economist. He was behind Smith and for him all
the way, approximantely hundred twenty years after Smith’s book on Economics.
Alfred Marshall wrote a book in Cambridge which was entitled “PRINCIPALES OF
ECONOMICS”.
In this book, Marshall defined Economics as an instrument to
remove the doubts of the people regarding the subject.
Marshall
stated , “Economics is the study of
mankind in the ordinary business of life; it examines that part of individual
and social Action which is most is closely connected with the attainment and
use of the material requisites of well-being”
From the definition,
we able to achieve three main points:
(i) Ordinary business
of life or Economics as a social science.
(ii) Attainment and
use of material requisites or production and consumption of wealth.
(iii) Well-being or
welfare of the society.
(i) ORDINARY
BUSINESS OF LIFE OR ECONOMICS AS A SOCIAL SCIENCE:
According to Marshall, Economics is
studies the economic behavior of the people living in the society. Economic
activities of the people outside the society are not, therefore, considered in
the study of economics. Hence Economics does not study the isolated individuals
or any “Robinson Crusoe”. By thie he show that economics is asocial science.
(ii) ATTAINMENT AND USE OF MATERIAL REQUISITES OR PRODUCTION
AND CONSUMPTION OF WEALTH:
In the ordinary business of life,
human beings perform different types of activities such as political activities
, sports, economic activities , moral and religious activities, of all these
activities of ordinary life, Economics Studies only those activities which are
related with the attainment and use of material
requisites or in other words, the production and consumption of wealth.
So far he is of the same view as that of Adam smith that Economics is a science
of wealth.
(iii) WELL BEING OR WELFARE OF THE SOCIETY:
According to Marshall, the objective of the
study of Economics is to promote the material welfare of the people, to
Marshall. Economics focusses on only material aspects of life and therefore
studies material requisites well-being. Hence, according to him economics does
not regard wealth to be the goal of all human activities. Instead, it is only a
mean to achieve an end and that end is the economic welfare of the people or
the raising up of the standard of living of the people, Particularly of the
poor, So that they may lead a better economic life.
CRITICISM ON MARSHALL’S DDFINITION:
In 1931,
another economists, Loinel Robbins, wrote a book entitled “NATURE AND SIGNIFICANCE OF ECONOMIC SCIENCE” In this book he
criticized Marshall on the following grounds,
(1) THE
DEFINITION NAROWS THE SCOPE OF ECONOMICS: The
use of the word “Material” by Marshall narrows the scope of economics as well
need both the material and non-material requisites of life i.e. goods and
services.
The need for non-material requisites
is certainly over-whelming , Examples of the nonmaterial requisites are the
service of lawyers , teachers and doctors etc, these non-material requisites
satisfy our wants in the same way as material requisites (or goods) and if we
exclude them from the study of economics, the scope of economics would
certainly be restricted.
(2)
WELL BEING IS A NONMEASURABLE CONCEPT: True enough in its meaning one cannot measure “wellbeing”. It is something that cannot be estimated to figures ,
although it can be stated in theories. Thus, according to Robbins, well-being
cannot be measured as stated by Marshall.
(3) ECONOMICS SHOULD NOT PASS VALUE
JUDGEMENT: According to Robbins, Economics
should emphasize only on human and their satisfaction and, therefore it is not
concerned with whether these wants are being satisfied buy good things or bad
things. For example, human beings needs food clothing and shelter and they are
essentially required to be provided, but as far as wants for alcoholic drinks,
cigarettes and gambling are concerned, they are also required to be satisfied
according to Robbins as people are ready to pay for them disregarding the welfare aspect of these
things, thus what Robbins is trying, is “just
satisfy wants and don’t bother whether they are for the better or the worse”
(4) IT CREATES PROBLEMS FOR POLICY
MAKING: According to
Marshal, the study of economics should be directed to pursue the concept of
welfare, but Robbins objects to this point of view on the ground that the
concept of welfare would place the government in a vulnerable position in the
making of economic policies, For example , some people may object to the
production of alcohol and cigarettes on the ground that these things retard
welfare, but other might say that they want these things for the satisfaction
of their wants and are ready to pay for them. Thus the question of liking of
some production on the basis of welfare will create problem for the government
in the farming of economics policies.
ROBBINS DEFINITION OF ECONOMICS
Robbins says, “economics is the science which studies human
behavior as a relationship between ( multiple ) ends and scare means which have
alternative uses”. this definition points out the problem of scarcity and
choice in the economic life of the people. Three main points of the definitions
are…..
(i) Multiple
ends.
(ii) Scare means.
(iii) Alternative uses.
(i)
MULTIPLE ENDS: Multiple ends means
“no limit to wants”. Human wants or ends are unlimited. They keep on rising
or they rise again and again. This means that they do not come again in the
evening. Same is the case of wants for radio, t.v, and furniture etc. we always
want to replace them with the new and better ones. Since human wants are
unlimited , one is compelled to choose between more urgent and less urgent
wants which makes economics a science of choice. Hence multiplicity of ends
calls for ceaseless efforts for their satisfaction. therefore, never ending cycle
of economic activities moves on.
(ii) SCARCE
MEANS: There may be no
limit to human wants, but the means to satisfy them are definite. The means of
resources can be divided into two parts. Firstly the resources in the
production sector of the economy i.e. land, labour, capital, entrepreneurship
are quite limited because the price of these four factors of production are
determined in the market. Secondly, the consumer goods and service produced as
a result of the combination of the four factors of production are also limited
because they are also priced in the market. This means that resources are
limited in the sense that one cannot have goods and services as he wishes for
the satisfaction of wants. There is definitely a limit to it.
Money income represent command on the
real resources available in the form of goods and services. Higher the income.
Higher will be the available of real resources and vice versa. Since income are
always limited, money resources are also limited.
(iii)
ALTERNATIVE USES: The
third point gathered from Robbins definition is the “alternative” use of
resources. What Robbins meant to say is that there are many ways of using the
resources. It is always up to the person concerned to give priority to his/her
basic wants. For example, a person has got Rs. 1000. With this amount of money
he is able to do anything within this limit. He can buy clothes, entertain
friend or dine outside with his family, but being a rational human being. He
will chose the most optimum use of his limited resources. Supposing, he buys
clothes only and postpones the fulfillment of all other wants. This would mean
that he has satisfied his want for clothes as an alternative to all other wants
which could have been satisfied by an expenditure of Rs. 1000/.
This is exactly the way all human
being pass their life. It gives a clear image of the economic life of the
people who are always faced with the problem of scarcity of resources and
choice between ands and are forced to make the alternative use of resources.
MERITS OF DEFINITION
(1) COMPREHENSIVENESS: Robbins definition reflects the realities of life. We all
know that human wants are unlimited and the available resources are limited and
all use are making the alternative use of resources. This means that all human
being are faced with the problem of scarcity and choice. Thus Robbins’
definition clearly identifies the existence of the economic problem in a most
comprehensive manner.
(2) EXTENSION OF THE SCOPE OF ECONOMICS: Unlike Marshall, Robbins brings into
focus not only goods but also services required to satisfy human wants. Not
only this, Robbins also establishes that Economics as a science is natural
between good wants and bad wants. According to him, “Economics can no longer be
regarded as a “dismal science” because it takes no responsibility on selecting
the end”. In this way, he extended the scope of economics
(3) ANALYTICAL IN NATURE: Robbins definition of economics
helps to analyze the economic problems of people and therefore paves a way for
their solution. Keep in view different sectors of the economy so that a larger
number of goods and services are produced. This analytical approach can solve
the economic problem of the people as far as possible
DEMERITS OF THE DEFINITION
(1) ROBBINS HAS TRIED TO MAKE ECONOMICS A PURE / POSITIVE
SCIENCE: Whereas it is social science because it deals with the behavior of the
human being In pure science. Whatever is stated today will definition be true
two centuries later. For example, two molecules of hydrogen and one of oxygen
will always make water and two plus two will always be four etc. but, as for as
human behavior is concerned it keeps on changing from time to time. Moreover,
there is no laboratory to test the human behavior as in the case of matter in
the physical science like physics and chemistry. Thus, it is undesirable to
define to economics in line with pure science.
(2) Marshall defined economics as an engine of social
betterment. In this way, Marshall was more concerned with the welfare of the
people. Robbins on the other hand, deals with ends, means their alternative
uses. Thus, Robbins gave secondary importance to the crux of the subject i.e.
The human being, in other words, Robbins has made economics a theory of value
whereas it is something more than that.
(3) There is no touch of morality in Robbins definition of
economics, for example, according to Robbins a society can produce anything
which required to satisfy human wants. But, there is no justification for the
production of drugs, alcohol drink and the services of prostitutes because the
use of these goods and services disrupt the whole social set-up. Thus, Robbins
has separated Economics from its moral basis.
(4) Robbins says that resources of all kind are limited. But,
in the production sector of the third world countries we fine that human
resources in he from of labor are not limited. This is so because laborers are
available free of any reward in these countries due to their problem of massive
unemployment.
(5) Robbins says that resources are limited and, therefore,
he overlooks the fact that the limited resources can be increased. The
economics of growth and development has shown the ways by which limited
resources can be increased.
CONCLUSION
Economics is
a social science which deals with the economic thinking of human beings. Human
being are imperfect and so is their thinking, thus, there cannot be any exact
and perfect definition of economics. One has got to accept the definition even
though they have demerits.
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