School of thoughts

Adam Smith’s Definition of Economics

(The classical view)
 According to Adam Smith
“Economics is a subject which studies the nature of wealth and laws
which governs its production, consumption, distribution and exchange.”
Hence, Adam Smith has described the following four aspects of wealth in
his definition.
 1) Production of Wealth:
This means how and in what proportion the four factors land, labor,
capital and organization be combined to produce goods and services
which is called wealth. Or we can say how wealth is produced? What are
the difficulties in production of wealth?
 2) Consumption of Wealth:
The part of the wealth used to fulfill basic needs of human life is called
consumption. How we spent our income on consumer goods, capital
goods, and services. So that we can derive maximum utility from our
given income by using goods and services.
 3) Distribution of Wealth:
Wealth is produced by the factors of production and distributed among
them. This means how the four factors are paid according to their
contribution in the form of rent, wages, interest and profit. How the
reward of the factors of production are determined according to their
contribution to the process of production.
 4) Exchange of Wealth:
This means how the wealth is exchanged from one hand to another
similarly, how wealth is exchanged between the two countries in the
form of trade. How wealth shift from one hand to another or from one
country to another? How international trade takes place-i.e., how
different countries export and import goods and services? How the
currency of a country exchanged with the currency of another country
etc.
The other contemporary classical economists, who followed Adam
Smith’s explanation of Economics were J.S. Mill, N.W. Senior, Malthus,
Chapman, J B. Say, David Ricardo and American economist F.A. Walker.
They also called Economics as a science of wealth and man uses it to
fulfill his basic needs.
 In the words of Prof. Walrus and F.A. Welker:
“Economics is a science which deals with wealth”.
 In the words of Chapman:
“Economics studies all human activities which are
concerned with wealth”.
 According to J.B. Say:
“Economics discusses the activities which deal
with wealth”.
 J.S. Mill Describes:
“Economics is the science of production of wealth
and distribution of wealth”
Main Points
 Following are the main points, which are described in the definitions of
economics given by the Classical School of Thought.
 1) Nature:
Economics treats only material goods like furniture, electronics, house etc.
Whereas, immaterial goods like sunlight, moonlight, air, rain and unpaid
services are not included in it.
 2) Science of Wealth:
Economics is the science of wealth. The term wealth in economics means
all the goods and services, which directly or indirectly satisfy man’s want.
Thus, wealth does not mean money.
 3) Aspects of Wealth:
Economics treats the four main aspects of wealth-i.e., production,
distribution, consumption, and exchange.
 4) Self-Interest:
People work only for their self-interest. They adopt such ways to collect
wealth so that they their standard of living.
Criticism
The social reformers or moralists belongs to the last decades of
eighteenth century like Carlyle and Ruskin have named it as the science
“mammon worship”, “Pig Philosophy” and “dismal science” claiming that
the study of Economics is going to generate a very selfish society in
which everyone is busy in producing and consuming wealth, so what
about human values. Similarly, Bailey regarded economics as
“degrading sordid inquiry”. The following objections have been raised
against the definitions of classic economists.
 1) Too much importance to wealth.
Economics teaches materialism. That is, “it is the science of bread and
butter.” The definitions of economics given by classical economists give
primary importance to wealth and secondary importance to man. The
fact is that the study of man is more important than the study of wealth
 2) Narrow the scope.
The word wealth’ in the classical economists’ definitions of economics
means only material goods such as chair, bock, pen etc. Classical
economists have limited the scope of economies they do not include
nonmaterial goods or human services such as services of doctors,
 3) Concept of economic man.
According to wealth definitions, man works only for his self-interest while
Social interest is relegated in the background. Economics degrades man.
That is, “it ignores spiritual and moral values like brotherhood, love,
friendship, etc”. Dr. Marshall and his followers were of the view that
economics does not study a selfish man but a common man.
 4) No mention of man’s welfare.
The “Wealth” definitions ignore the importance of man’s welfare. Wealth
is not the be all and the end all of all human activities,
 5) It does not study means.
The definitions of economics lay emphasis on the earning of wealth as
an end in itself. They ignore the means or resources which are scarce for
the earning of wealth.
 6) Objective of Human Activity
Classical economists called it a science of wealth, but they could not
explain what is the objective of the study of wealth and they not pointed
out what is the purpose of human activities.
Alfred Marshall’s Definition of Economics
(The Neo-classical view)
 “Economics is the Science of Material welfare”
The neo-classical school led by Dr. Alfred Marshall gave economics a
respectable place among social sciences. Marshall was the first
economist who lifted economics from the bad repute it had fallen. Dr.
Alfred Marshall (1842-1924) defined Economics as “a science of material
welfare” in his book “Principles of Economics” in 1890.
 According to Prof. Dr. Alfred Marshall
“Economics is the study of mankind in the ordinary business of life. It
inquires how he gets his income and how he uses it. 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. It is
on the one side, a study of wealth and on the other and more important
side is a part of the study of man.”
 Marshall’s followers like A.C. Pigou, Pareto, Clark, Canon, and
Beveridge (the Neo-classical writers) have also defined Economics as
“a study of causes of material welfare”. For example,
 According to Pigou:
“Economics is the study of economic welfare
and economic welfare is that part of material
welfare that can be brought directly or
indirectly into relation with the measuring rod
of money”.
 According to Cannon
“The aim of Political Economy is the
explanation of the general causes on which
the material welfare of the human being
depends”.
Important Points of the Definition:
 1. Useful Science:
Economics is related with the daily life of man, therefore, it is an
important and useful science.
 2. The Study of People Living in Society:
In economics, the efforts of the people who take part in economic
activities living in the society are studied. Therefore, economics is not
concerned with the activities of saints, hermits and mads.
 3. The Study of Efforts Concerned with Material Requisites:
In economics, the individual and collective efforts, which are
concerned with material welfare, are discussed.
 4. Not the Study of Wealth for the Sake of Wealth:
Economics does not study wealth for the sake of wealth rather it
studies wealth so that the basic necessities which increase human
welfare, may be purchased.
Merits of Marshall’s Definition:
 1. Better than the Former Definitions:
Marshall’s definition is better and comprehensive than those of classical
economists. In this definition, the word wealth” is not used just as wealth
rather it is used as a mean to achieve human welfare.
 2. Comprehensive and Clear:
Marshall’s definition is very simple, clear and comprehensive. It has no doubt
or ambiguity. The study of the definition clarifies the subject matter of
economics. Man wants to lead a prosperous life. To attain this objective, he
needs material requisites and he struggles to attain and use them. This
struggle of man for the attainment of material requisites is discussed in
economics.
 3. Social Science:
According to Marshall’s definition, economics is a social science in which man’s
Economic problems occupy distinct position. This science stresses on man’s
welfare and man’s welfare is the main objective of this science. In economics,
actions of those people are being taken into the study who live in the society
and cooperate with one another in various activities, thus it is a social science.
 4. Ordinary Business of Life:
Marshall’s definition is not related with the tendencies of a particular community only. In fact, it
discusses the general behavior of ordinary people, this thing makes the subject important for a
common man.
 5. Study of Individual and Collective Efforts:
According to Marshall’s definition, economics studies both the individual and collective efforts to make
human life prosperous provided that these efforts are made living in the society. Because Marshall does
not include in economics the efforts of the people who do not lead a normal life living in the society.
 6. Importance of Human Being:
According to Dr. Alfred Marshall, “man occupies a primary place and wealth only secondary one. That
is, man is important while wealth is just a resource to get necessities comforts and luxuries of life.
Therefore, wealth is not as important as man.”
 7. Importance of Wealth:
Marshall’s definition explains the importance of wealth. Man struggles to get wealth because wealth
helps to attain material welfare and prosperity. So we can say that man desires to get wealth to make
his life prosperous.
 8. No Charge of Selfishness:
As Marshall has given primary importance to human wellbeing and secondary to wealth, therefore, the
charge of selfishness cannot be leveled against his definition.
 9. Science of Material Welfare:
Economics is the science of society’s material welfare. Which explains the wealth is the only resource
that fulfils bitterly our material requisites.
 10. Science of Ordinary Business of Life:
In economics, those actions of people are being studied which are related to ordinary or day-to-day life
matters. It means that economics is not the study of those who are living far away in jungles or
deserts.
Demerits of Marshall’s Definition:

 1. It does not cover all Economic Problems:

Dr. Marshall includes in his definition of economics only those efforts which attain
material requisites. For example, efforts of farmer, carpenter and laborer etc. He
excludes the efforts of those people who work and serve for the satisfaction of non-
material needs. These efforts are made by teachers, doctors and lawyers etc. It is not
right. Every effort, which is made for reward, must be included in economics whether it
is material or non-material. So, Marshall’s definition covers some problems and ignores
the others.
 2. Immeasurable Concept of Material Welfare:
The concept of material welfare which Prof. Marshall presented is related with mental
state of man and its measurement is impossible. We cannot say anything definitely
about this, how much benefit a person got from one apple and how much benefit some
other person got with the same thing. welfare varies from person to person, time to
time and place to place. So, this immeasurable concept cannot be considered the basis
of any science.
 3. Limited Concept of Consumption of Wealth:
Some part of the income craned by man is spent on material requisites such as food,
dress and residence and some part is spent on non-material needs such as education,
recreation and visiting. But Prof. Marshall’s definition covers only those problems which
take place because of fulfilling material requisites. The reality is that economics covers
all those problems which are faced to meet material as well as non-material requisites.
 4. The Problem of Likes and Dislikes:
According to Robbins, Marshall’s definition has created the problem of likes
and dislikes because this definition indicates that purpose of economics is to
increase material welfare. That is why, it becomes necessary for every
individual to take those steps which cause an increase in material welfare and
avoid taking those steps which cause decrease in material welfare.
 5. Narrow Down the Scope of Economics:
Robbins criticized Marshall’s view that economics is the science of material
welfare only. While in the actual study of economic principles, both material
welfare only. While in the actual study of economic principles, both material
and immaterial are taken into account.
Services of lawyers, teacher, doctors, bankers, etc. are immaterial economic
activities that result into the welfare of the other people. Hence, Marshall has
narrowed down the scope of economics.
 6. Theoretical Nature of Definition:
Alfred Marshall’s definition about economics is theoretical in nature. In
practical life it is not possible to divide human activities into material and
immaterial parts because are interdependent and also cause creation of one
another.
Lionel Robbins Definition of Economics (Modern
School of Thought)

 “Economics is the Science of Scarcity and Choice”

 Prof. Lionel Robbins has strongly criticized Alfred Marshall’s definition
about economics in 1932 in his book “Nature and Significance of Economic
Science.” He said that the concept of material welfare does not explain the
subject economics on wide and scientific grounds. The word “material”
imposed unnecessary limitation.
 According to Prof. Lionel Robbins:
 “Economics is the science which studies human behavior as a relationship
between multiple ends and scarce means which have alternative uses”.
 Prof. Lionel Robbins thus defined economics in the following four
fundamental propositions that constitute the basis of the structure of
economic science.
 Human wants or ends are unlimited.
 Human wants are different in importance.
 Resources to fulfill human wants are limited.
 Resources have alternative uses.
 1. Wants or Ends are Unlimited:
Human beings have wants which are unlimited
in number. If one want is satisfied another
crops up. If wants had been limited, they
would have not and all incentives to economic
effort would have ceased.
 2. Wants or Ends vary in Importance:
Human wants are not of equal importance
because these are uncountable. Therefore,
they compel us to choose between more
urgent and less urgent ones.
 3. Resources are Scarce:
To satisfy unlimited wants people have limited economic
resource. These resources are various types of labor Capital, land
and entrepreneurship used in producing goods services. Since
these resources are limited, the ability of the community to
produce goods and services is also limited.
 4. Resources have Alternative Uses:
The limited resources are capable of alternative uses. As wants
are varying in importance, some are more urgent and others less
urgent. There, resources should be used selectively to the most
urgent wants firstly, so choice comes again.
Keeping all the above points in view, Robbins’ idea can simply be
stated in the following words of Prof. Wicksteed.
“Economics is a science which is the study of those principles on
which the resources of a community should be so regulated and
administrated as to secure the communal ends without waste.”
Superiority of Robbins’ Definition/ Merits of the
Definition:

 1. Scientific View:
Prof Lionel Robbins’ definition about economics is more scientific
because it is not based on the Marshall’s artificial classification of
material and non-material desires, rather it is based on realistic
view of multiple ends and scarce means.
 2. Neutral:
Prof. Lionel Robbins, “economics is a neutral science”. It is not
concerned with normative aspects. Thus, economics is free from
the responsibility of making value judgments. It is no longer its
function to examine the right or wrong of an economic activity.
 3. Universal in Nature:
Prof. Lionel Robbins’ definition about economics is universal in
nature. It takes into account all types of human wants, material or
non-material, as well as of all types of persons whether living in
society or not.
 4. Comprehensive and Clear:
Prof. Robbins’ definition about economics is comprehensive and clear
because it is based on realities of life. no one can deny the fact of
unlimited wants and limited resources of the people. Therefore, his
statement proves comprehensive and clear everywhere and every
time.
 5. Free of Animadversions:
In the light of Robbins’ definition about economics, “economics
cannot be called a dismal science, pig philosophy, science of bread
and butter, science of selfishness and greediness or degrading sordid
inquiry because it takes no responsibility of selecting the ends”. They
may be good or bad. Economics is directly concerned with the
multiple ends and scarce means, cannot be animadversion.
 6. Analytical Study:
Prof. Robbins’ definition about economics is an analytical study which
has widened the scope of economic science. Because it does not
deal with particular place or time, rather it applies on all places, all
times and all the people.
Demerits / Drawbacks:
 1. Economics is not Only a Science but also an Art:
Prof. Robbins has completely ignored the reality that basic objective of all
the social science is to increase the human welfare. Thus, Economics as a
queen of social sciences should be with basic objective of human welfare
because economics is not only a science but by acting upon its principles,
human life can be developed.
 2. Economics cannot be Neutral:
Economics is not a neutral science but in practical life people expect
advices for the solutions of economic problems from economic experts.
 3. It Ignores Economic Planning and Economic Development:
Prof. Robbins’ definition economics does not explain the concept of
economic planning and economic development. While in modern
economics both of these concepts are very important branches of
economics. Through which a nation can increase its income and
prosperity, while Robbins just explain the concept of means and the
consumption only which is not sufficient.
 4. It Ignores Human Touch:
In the Robbins’ definition about economics the importance of human
being is completely ignored, while economics is something more
than a science. In its study there is a n important aspect of human
values also.
 5. Scope of Economics Made Too Wide:
According to Prof. Lionel Robbins, “Economics takes into account all
types of human wants in response to the scarce resources”. Since
search for wants has been abandoned, the scope of economics has
been widened to include phenomena, which are not strictly
economic.
 6. It Ignores Macroeconomics:
Prof. Robbins emphasized only on how resources are allocated and
how prices are determined while economics is much than this. In
economics we study how national income is generated, how
employment level is determined, how economic fluctuations occur,
what is inflation, what is over population, and how can these be
controlled, etc.
 7. It Lacks Social Implications:
Robbins’ definition about economics emphasizes on choice of
individual only which has no particular significance because
individual choice having no social implications cannot form the
subject matter of economics.
 8. Economics Is Not A Positive Science:
Prof. Robbins made economics a positive science while
economics depicts human behavior, which are not constant.
Therefore, its laws state that given certain conditions certain
results will follow. Thus, economics is not like physical sciences.
 Conclusion:
Although there are a few drawbacks in the definition of
economics given by Prof. Lionel Robbins, even then so many
modern economists explain the scope and nature of economics in
the light of Robbins’ idea of multiple ends and scarce means.