Economics: Encyclopedia II - Economics - Definitions of economics

Economics - Definitions of economics

Broadly speaking, economics is a social science, and its area of study is human activity involved in meeting needs and wants. However, beyond this there are a range of definitions, past and present which have been applied, first to the term political economy and then to the modern term economics. John Maynard Keynes once remarked that "Economics is the science of thinking." Broadly the history of the study moved from the study of "wealth" to "welfare" to the idea studying trade-offs.

Economics - Wealth definition

The earliest definitions of political economy were simple, elegant statements defining it as the study of wealth. Adam Smith, generally regarded as the father of economics, author of An Inquiry into the Nature and Causes of the Wealth of Nations (generally known as The Wealth of Nations) defines economics simply as "The science of wealth." Smith offered another definition, "The Science relating to the laws of production, distribution and exchange." Wealth was defined as the specialization of labor which allowed a nation to produce more with its supply of labor and resources. This definition divided Smith and Hume from previous definitions which defined wealth as gold. Hume argued that gold without increased activity simply serves to raise prices.

John Stuart Mill defined economics as "The practical science of production and distribution of wealth"; this definition was adopted by the Concise Oxford Dictionary. For Mill wealth is defined as the stock of useful things.

Definitions in terms of wealth emphasize production and consumption, and do not deal with the economic activities of those not significantly involved in these two processes (for example, retired people, beggars). For economists of this period, non-productive activity is a cost on society. This interpretation gave economics a narrow focus that was rejected by many as placing wealth in the forefront and man in the background; John Ruskin referred to political economy as a "Bastard science, the science of getting riches."

Economics - Welfare definition

Later definitions evolved to include human activity, advocating a shift toward the modern view of economics as primarily a study of man and of human welfare, not of money. Alfred Marshall in his 1890 book Principles of Economics wrote, "Political Economy or Economics is a study of mankind in the ordinary business of Life; it examines the part of the individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being."

The welfare definition was still criticized as too narrowly materialistic. It ignores, for example, the non-material aspects of the services of a doctor or a dancer. A theory of wages which ignored all those sums paid for immaterial services was incomplete. Welfare could not be quantitatively measured, because the marginal significance of money differs from rich to the poor (i.e. $100 is relatively more important to the well-being of a poor person than to that of a wealthy person). Moreover, the activities of production and distribution of goods such as alcohol and tobacco may not be conducive to human welfare, but these scarce goods do satisfy human wants.

Marxist economics still focuses on a welfare definition. In addition several critiques of mainstream economics begin from the argument that current economic theory does not adequately measure welfare, but only monetized activity.

Economics - Scarcity definition

This definition allowed a potentially broader field of study, but it, too, has its critics. It is most amenable to those who consider economics a pure science, but others object that it reduces economics merely to a valuation theory. It ignores how values are fixed, prices are determined and national income is generated. It also ignores unemployment and other problems arising due to abundance. This definition cannot apply to such Keynesian concerns as cyclical instability, full employment, and economic growth.

The focus on scarcity continues to dominate neoclassical economics, which, in turn, predominates in most academic economics departments. It has been criticized in recent years from a variety of quarters, including institutional economics and evolutionary economics).

Adapted from the Wikipedia article "Definitions of economics", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki