Economics is one of the most well known subjects among the social sciences. It has found application in nearly each and every domain present in today’s time. It is not uncommon to come across some economic concept while listening to news or browsing through newspaper articles. Economics is everywhere, in industries, in the government policies, everywhere. In fact, our household finances too come under the scope of economics. So, the first question that comes to our mind is “What is Economics all about?”
Well, unlike regular physical sciences, economics has no single fixed definition. The meaning, scope and subject matter of economics has evolved throughout the centuries. Over the years, various economists have proposed various definitions based on the situations and factors affecting the society during their time. However, in general, the definition of economics has been divided into two categories, namely, related to wealth and material welfare and related to scarcity of means.
In the early years of this subject, it was defined as the science of wealth and material welfare. Adam Smith, Nassau Senior, F.A. Walker and J.S. Mill all agreed that economics was a body of knowledge which related to wealth. It was defined as the study of nature and causes of wealth of nations, whereby it proposed to enrich both people and the sovereign. This definition came to be known as Classical Economics. However, by stressing upon ‘material wealth’, the scope of economics become narrow and its absolute emphasis on ‘wealth’ made it one of the most mean and degrading subjects of that time. This drawback was removed in the Neo-Classical theory proposed by Alfred Marshall. He laid emphasis on man and his welfare. He defined it as a “science that examined the part of individual and social action which was closely connected to the attainment and use of materials for the welfare of mankind”.
The Classical and Neo-Classical approaches to economics were apt during the industrial revolution, when the manufacturing sector dominated the economy. However, as the society progressed, the service sector replaced manufacturing as the dominant sector in the economy. This posed a direct conflict to the prevailing scope of economics. Both these theories laid stress on the wealth and material welfare being the only criteria for defining economics. The services of teachers, lawyers, accountants etc. were excluded from it even though they commanded price. Also, the idea of material welfare was vague as the production and sale of certain items (like alcohol, cigarettes, tobacco etc.) were far from being conducive to human welfare. These problem led to the need to change the primary idea behind defining economics. Instead of focusing on wealth and material welfare, a new criteria for defining the subject was given by Lord Robbins. Robbins was of the opinion that all good and services, irrespective of being material or non-material, which demanded payment were under the jurisdiction of economics. He proposed defining economics based on the concept of Scarcity of Resources. According to him, “Economics was the science which studied human behavior as a relationship between the ends and scarce resources that have alternate uses”. Thus, this definition focused more on being analytical than being classificatory in dealing with the scope of economics.
The focus on scarce means in place of material wealth increased the scope of economics drastically. Now, all the human activities dealing with the utilization of the limited (scarce) resources for the fulfillment of individual or social needs came under the field of economics. The statement that scarce resources might have alternative uses further simplified the subject. A negative aspect of this theory was the fact that it made economics neutral to the thought of human welfare. The methods or ends to fulfill human needs could be both noble or ignoble in nature. The theory totally neglected the welfare of the society and individuals. This became a problem in the modern age, where the promotion of social welfare and improvement in the standard of living became the primary objective of the society. Economic growth with social welfare became the central point of all economic policies. This objective couldn’t be covered within the objectives of Robbin’s definition. Thus, a modern definition of economics, based on growth aspects of the society, was given by Samuelson. It is as follows:
Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce resources that could have alternate uses to produce various commodities overtime and distributing them for consumption and is based on the cost & benefit analysis of the methods of resource use.