UNIT I

MEANING AND DEFINITIONS OF ECONOMICS

1.1 The meaning and definitions of Economics:

Economics is a study of 'Choices' or 'Choice making. Choice making is relevant for
every individuals, families, societies, institution, area, state and nations and for the
whole world. It also analyses how a society allocate the limited resources to achieve
growth. The word' Economics' originates from a Greek word 'Oikonomikos'. This Greek
word has 2 parts "Oikos' means ' household ' and 'Nomos' means Management. Hence
Economics means household management.
Economics has emerged as high level of application due to its basic principle of
'Choice making for optimization with the given resources of scarcity and surplus'.
Evolution in the definition of Economics
1. Wealth definition (1776) by Adam Smith
2. Welfare definition (1890) by Alfred Marshall
3. Scarcity definition (1932) by Lionel Robbins
4. Growth Definition (1948) by P.A. Samuelson
5. Modern definition (2011) by A.C. Dhas
1. Wealth Definition (1776) by Adam Smith
Definition:
Adam Smith, often called the "father of economics," defined economics as the study
of wealth. In his seminal work An Inquiry into the Nature and Causes of the Wealth of
Nations, he described economics as the science of wealth, focusing on the production,
accumulation, and distribution of wealth.
Major Features:
 Wealth-Centric: Economics was viewed primarily as the study of how nations
accumulate wealth.
 Laissez-Faire: Advocated for minimal government intervention in markets,
emphasizing free trade and competition.
 Division of Labor: Emphasized the importance of the division of labor in
increasing productivity and, hence, wealth.
Criticisms:
  Neglect of Human Well-being: Critics argue that Smith's definition is too narrow,
focusing only on material wealth and ignoring other aspects of human welfare.
 Overemphasis on Self-Interest: Smith’s idea of the "invisible hand" suggests
that self-interest leads to societal benefits, which some criticize for neglecting
ethical considerations and social welfare.
 Inequality: The focus on wealth could lead to economic inequalities, as it does
not address how wealth is distributed among the population.
2. Welfare definition (1890) by Alfred Marshall
In 1890, Alfred Marshall stated that "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 material requisites of well- being."
Characteristics
 It is primarily the study of mankind One side it is the study of wealth on the other
side study of man
 It considers only ordinary business of life.
 It is not concerned with other aspects of man's life like social, religious and
political
 It studies the cause of material welfare.
 It limits the scope welfare which is related to wealth.
Criticism
 It considers economics as social science rather than a human science
 Welfare has wide meant and in the definition, it is not clear
 The definition only link about wealth and welfare which is strongly criticized.
 Definition is classificatory and not analytical.
 It considers production of material goods alone. But services of teacher, judge
do not produce material goods are not considered as economic activity which
is a wrong view.

3. Scarcity definition (1932) by Lionel Robbins

According to Lionel Robbins: "Economics is the science which studies human behavior
as a relationship between ends and scarce means which have alternative uses." He
emphasizes on 'choice under scarcity. In other words "Economics is concerned with
that aspect of behavior which arises from the scarcity of means to achieve given ends"
Characteristics
 Economics is a positive science.
 It brings into consideration new concept unlimited ends, scarce means and
alternate use of means.
 Human wants are unlimited. When one wants is satisfied then several other
wants grows up.
 Human wants are unlimited, but resources are limited.
 All scarce means are used for several purposes. eg land is scarce but are used
for buildings, cultivation, etc.
 It emphases on choice of making of an economic activity
Criticism
 The definition is not dynamic in nature.
 It discusses the problem of present but not future generation.
 It does not take into consideration, the possibility of increase in resources
overtime Not fit for rich counties.
 It focuses only on limited resources, but resources are plenty in rich countries
 It does not focus on many other economic issue of unemployment, income
determination, economic growth and development

4. Growth Definition (1948) by P.A. Samuelson

According to Prof. Paul A Samuelson, "Economics is 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 amongst various people and
groups of society"
Characteristic
 It is more dynamic approach
 It is not only concerned with allocation of resources but also expansion of
resources
 It analyses how growth of resources can be used to satisfy the increasing wants
of human It is comprehensive in nature both growth oriented as well as future
oriented
 It has all the features of earlier definition
 It focuses both on production and consumption activities.
Criticism
It ignored surplus resource condition

5. Modern definition (2011) by A.C. Dhas

Prof. A.C.Dhas defines economics as "The study of choice making by individuals,
institutions, societies, nations and globe under conditions of scarcity and surplus
towards maximizing benefits and satisfying the unlimited present and future needs."
Modern definition of economics
Prof. A.C. Dhas defines economics as "The study of choice making by individuals,
institutions, societies, nations and globe under conditions of scarcity and surplus
towards maximizing benefits and satisfying the unlimited present and future needs."

In short, the subject Economics is defined as the "Study of choices by all in maximizing
production and consumption benefits with the given resources of scarce and surplus,
for present and future needs."

Characteristics

 It considers all the earlier definition of economics

 It covers both macro and micro aspects of economics
 It considers both production and consumption activities.
 It emphasizes Choice Making dimension of economics.
 It aims at obtaining maximum benefits with given resources
 It is suitable in conditions of both scarcity and surplus.
CONCLUSION
The definitions of economics have evolved from Adam Smith's Wealth Definition
(1776), which focused on the production and accumulation of wealth, to Alfred
Marshall's Welfare Definition (1890), emphasizing human well-being. Lionel Robbins'
Scarcity Definition (1932) introduced the concept of limited resources and choice-
making. Paul Samuelson's Growth Definition (1948) incorporated economic growth
and resource expansion over time. Finally, A.C. Dhas' Modern Definition (2011) blends
these perspectives, focusing on choice-making under scarcity and surplus to maximize
benefits and satisfy needs. This progression reflects the broadening scope and
complexity of economic thought.
Economics as a Science and Economics as a Art, and they
complementary to each other:

Economics as a Science

Economics as a Science involves the systematic study of economic behavior using

empirical data and theoretical models. This approach emphasizes:

1. Objective Analysis: Economics employs quantitative methods, statistical tools, and

mathematical models to analyze data and predict outcomes.
2. Scientific Method: Hypotheses are formed based on observations, tested through
experiments or data analysis, and refined accordingly.
3. Predictability and Generalization: Economic principles and laws aim to predict
economic behavior and outcomes, generalizing findings to apply across different
contexts.
4. Positive Economics: Focuses on describing and explaining economic phenomena
without making value judgments, aiming to understand how economies function.

Criticisms of Economics as a Science:

- Complexity and Uncertainty: Human behavior and economic systems are complex
and often unpredictable.
- Assumptions: Economic models often rely on assumptions that may not hold true in
real-life scenarios.
- Ethical and Social Dimensions: Economic analysis can sometimes overlook the
ethical, social, and psychological aspects of economic behavior.

Economics as an Art
Economics as an Art involves the application of economic principles to solve real-world
problems and guide decision-making. This approach emphasizes:
1. Practical Application: Economics as an art focuses on the application of economic
theories and principles to address practical issues and policy-making.
2. Normative Economics: Involves making value judgments about what ought to be,
addressing questions of fairness, equity, and welfare.
3. Creative Problem-Solving: Economists use creativity and judgment to design
policies, strategies, and solutions tailored to specific economic contexts.
4. Interdisciplinary Approach: Economics as an art often integrates insights from other
disciplines like politics, sociology, and ethics to address complex issues.
Criticisms of Economics as an Art:
- Subjectivity: The normative nature of economics as an art can introduce biases and
value judgments.
- Lack of Precision: Solutions and policies may not always be precise or universally
applicable due to varying contexts and conditions.
- Dependency on Judgment: Economic decisions often rely on the judgment and
experience of policymakers, which can be fallible.
Complementarity of Economics as Science and Art
Complementarity: Economics as both a science and an art are complementary, each
enriching the other:

1. Balanced Perspective: The scientific approach provides a rigorous, empirical

foundation, while the artistic approach ensures relevance and applicability to real-
world problems.
2. Informed Decision-Making: Scientific analysis helps identify patterns and predict
outcomes, while artistic judgment applies this knowledge to design effective policies
and solutions.
3. Holistic Understanding: Combining both approaches allows economists to address
the complexity of economic phenomena, considering both quantitative data and
qualitative insights.
4. Adaptability and Innovation: The scientific method encourages systematic inquiry,
while the artistic approach fosters creativity and adaptability in addressing new and
unforeseen economic challenges.

Conclusion
Economics as a science and as an art are not mutually exclusive but are instead
interdependent. The scientific aspect of economics provides the theoretical and
empirical basis needed to understand economic phenomena, while the artistic aspect
ensures that this knowledge is applied effectively to solve practical problems and guide
decision-making. Together, they form a comprehensive approach to studying and
managing economic activities, balancing objective analysis with creative problem-
solving.