DEFINITIONS OF ECONOMICS

 Many economists have provided various definitions of economics, considering different factors. The term 'Economics' comes from two Greek words: oikos (meaning a house) and nemein (meaning to manage). This means 'managing a household' effectively with the limited resources one has.

Wealth Definition

In his book “An Inquiry into the Nature and Causes of the Wealth of Nations” published in 1776, Adam Smith (1723 - 1790) described economics as the study of wealth. He discussed how nations create wealth, suggesting that individuals are primarily motivated by their own interests. Interestingly, he mentioned that the "invisible hand" guides them to benefit society, even though they do not intend to do so.

Criticism:

Smith’s view focused solely on wealth and overlooked human welfare. Thinkers like Ruskin and Carlyle criticized economics as a ‘dismal science’ for promoting selfishness, which they saw as unethical. Today, however, wealth is viewed merely as a means to achieve the ultimate goal of human welfare, leading to a shift away from the wealth definition towards a focus on welfare.

Welfare Definition

In his book “Principles of Economics,” published in 1890, Alfred Marshall (1842 - 1924) described "Political Economy," defining it as the study of people in their everyday lives. He explained that it focuses on both individual and social behaviors related to achieving and utilizing the material resources necessary for well-being. Key points from Marshall’s definition include:

a) Marshall views economics as an inquiry into the everyday lives of individuals, highlighting the economic dimensions of human existence.

 b) The field examines actions, both personal and social, aimed at enhancing people's economic welfare.

 c) Marshall differentiates between two categories: material items, which can be sensed physically (like books or rice), and immaterial items, which cannot be physically sensed (such as skills in operating machinery or methods of cultivating certain crops). His focus in defining welfare was primarily on the material items that help improve people’s well-being.

Criticism:

a) While he only considered material items, services provided by professionals like doctors or teachers also contribute to people’s welfare.

b) Marshall differentiated between things that can and cannot promote welfare. However, items like alcohol, which do not necessarily enhance well-being yet have a market value, still fall within the economics domain.

c) Marshall's definition relies on the notion of welfare, which lacks a precise explanation. The understanding of welfare can differ widely among individuals, nations, and across different times. Generally, it represents happiness or a good standard of living for a person or group. An individual’s or nation’s welfare is influenced not just by wealth but also by its political, social, and cultural activities.

 Welfare Definition 

In 1932, Lionel Robbins released a book titled "An Essay on the Nature and Significance of Economic Science." He described economics as a discipline that examines human behavior in relation to objectives and the limited resources that can be used in various ways. The main points of Robbins' definition include:

a) Objectives are essentially human desires. People have an endless list of wants.

b) Conversely, resources or means are available in limited quantities. A commodity is considered scarce when its demand exceeds its supply. Thus, the scarcity of any item should be evaluated based on its demand.

c) Limited resources can be employed in different ways. Therefore, individuals tend to select the resource that best meets their specific needs. For Robbins, economics is fundamentally about making choices.

Criticism:

a) Robbins fails to differentiate between goods that benefit human welfare and those that do not. For instance, producing rice uses scarce resources and promotes welfare, whereas producing alcoholic beverages also uses scarce resources but does not enhance welfare. Nonetheless, Robbins asserts that economics is neutral regarding objectives.

b) Economics encompasses not only microeconomic issues, like resource allocation and price determination, but also macroeconomic factors such as national income generation. However, Robbins simplifies economics to only address resource allocation theories.

c) The scope of Robbins' definition overlooks aspects related to economic growth and development.

Growth Definition

Professor Paul Samuelson described economics as ''the study of how individuals and societies make choices about utilizing limited productive resources, which can serve various purposes, to create different goods over time and distribute them for current and future consumption among diverse people and social groups.''

This definition highlights several key points:

a) By incorporating the concept of time, Samuelson’s definition becomes dynamic, thus encompassing the theory of economic growth.

b) He emphasizes the issue of limited resources in relation to infinite desires, indicating that not only are resources scarce, but they also have potential alternative applications.

c) The definition addresses multiple components, such as production, distribution, and consumption.

Among the various definitions mentioned, Samuelson’s perspective on ‘growth’ stands out as particularly effective. Yet, in contemporary economics, the field is typically categorized into two main branches: i) Microeconomics and ii) Macroeconomics.

Consequently, economics is appropriately identified as the study of how scarce resources are allocated (in relation to limitless goals) and the factors influencing income, output, employment, and economic growth.