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Definition of economics

Economics has been defined by several groups of economists. The following are the classification of various definitions:
  • Wealth definition by Adam Smith or Classical Economists
  • Welfare definition by Alfred Marshall or Neo-classical Economists
  • Scarcity definition by Lionel Robbins
  • Growth-oriented/Modern definition by Paul A. Samuelson

Wealth/Classical definition

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Adam Smith defined economics as the ‘Science of Wealth’. Adam Smith, the father of economics, published his master piece in 1776 and according to him, the main objective of any human activity is the acquisition and attainment of wealth and economics deals with the acquisition, accumulation and expenditure of wealth. Economists like J.B. Say, J.S. Mill, Malthus, Ricardo and many others advocated the same. Hence they are called as classical economists or those belonging to the Classical school of thought.
According to J. B. Say, “economics is a science which deals with wealth”. J. S. Mill, defines economics as – “The practical science of production and distribution of wealth”. From 1776 to 1890, this was a well accepted definition of economics.
Main points of wealth definition:
  • Economics is a “Science of Wealth”
  • The main objective of human life is acquisition and attainment of Wealth
  • Economics is a science which finds the causes for the wealth of nations
  • Material things lead to the prosperity of the nation
  • It highlighted an important problem of various economies, i.e. creation of wealth
  • It focused on various important issues of economies by considering problems of Poverty, Unemployment which might be solved to a greater extent when wealth is produced and distributed equitably
Demerits - Some of the criticisms levelled against this definition are:
  • Narrow Approach:
    This wealth definition has tended to restrict or narrowed down the subject matter of economics only to wealth. There are so many other important concepts in economics which are not been discussed by the classical school of economists.
  • Undue importance to Wealth:
    This wealth definition has given undue importance to wealth and neglected man, after all for whom this wealth has been made and who requires and who desires wealth.
  • Carlyle criticizes this wealth definition as “Gospel of Mammon” and various other criticisms made against this wealth definition are “Bread and Butter Science” “Dismal Science” “Science of getting rich” etc.,
  • Selfish Motive:
    Wealth definition considers acquisition of wealth as the main objective of human activity. In reality, human activity is also influenced by other considerations like Love, Affection, Friendship, Human Sentiments, Patriotism, Charity, etc., Human beings are not selfish always.

Welfare/Neoclassical definition

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This definition was propounded by Prof. Alfred Marshall in his book “Principles of Economics”, published in 1890. This definition lays emphasis on welfare as compared to wealth.
Prof. Marshall clearly points that economics is first, a study of human welfare and only then is the emphasis given on wealth. According to Prof. Alfred Marshall, wealth is a “mean” and welfare is an “end”. From 1890 to 1930, for almost four decades, welfare definition was considered the best definition. He divided human activity into two parts i.e.
  • Economic activities: which result in material things. Example - Production of goods
  • Non economic activities: which willn’t result in material things. All kinds of services like teachers, lawyers, doctors are included in this category
Few other economists supported Prof. Marshall’s definition of economics. Some of them are: Prof. A. C. Pigou defines “The range of our inquiry becomes restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money”. Prof. Edwin Cannon defines “Economics as a study of the causes of material welfare”. This group is known as “Neo-Classical School of Economists”.
  • This definition is more wide and comprehensive as it covers not only wealth in the scope of economics, but also the welfare of human beings. Man and his welfare gets precedence over wealth
  • According to this definition, economics is both a social and a normative science
  • It lays emphasis on the material requisites of well-being. So material things such as food, clothing and shelter are important economic objectives
This welfare definition was considered as the best possible definition of economics till 1930. But in the year 1931, Prof. Lionel Robbins from London School of Economics has criticized this welfare definition. In Robbins words “Whatever economics is concerned with, it is not concerned with the causes of material welfare as such”. The main criticisms made against this particular welfare definition are:
  • It is just a classificatory:
    According to this criticism Alfred Marshall has simply divided the human activities into two parts [a] economic activities and [b] Non-economic activities. But there was no need for such classification.
  • A Narrow Approach:
    According to Marshall, economics studies only the ‘Economic Activities’ of man and excludes ‘Non-economic activities’ like the services of the teachers, doctors, lawyers, engineers, etc., But these non-economic services are as important as economic activities. Hence this welfare definition has narrowed down the scope of economics.
  • A vague concept of welfare:
    Neo-classical economists have not explained what is welfare? The concept of welfare is a subjective entity and it resides in the minds of the people. It differs from person to person.
  • All material things will not leads to welfare:
    According to Marshall, economics studies only the economic activities, which results or contributes for the material things. Production is an economic activity and the production of so many goods like poison, bombs, narcotic drugs, wine will definitely not leads to welfare. But Prof. Marshall considered the production of these kinds of goods as ‘Economic Activity’.
  • Neglected the concept of scarcity:
    All economic problems arise because of unlimited human wants, scarce means and those scarce resources having alternative uses. This very information has been ignored by Alfred Marshall.

Note: It was Alfred Marshall who used the term Economics for the first time.

Scarcity definiti

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Prof. Lionel Robbins, professor of London School of Economics gave this new definition to economics in his famous book “An Essay on the Nature and Significance of Economic Science”, written in 1931. He said, “Economics is a study of problems arising out of scarcity of resources and choice making.” Whenever ends, means and alternative uses do not meet, it creates economic problems. This definition has got universal applicability. Robbins says an economic problem can be solved by choice making by arranging unlimited wants in the order of priority. He says economics must be neutral between ends. The term “ends” mean “wants”.
  • Economics is a science:
    Economics studies human behaviour scientifically. It studies how human beings use the scarce resources optimally under given constraints.
  • Unlimited ends:
    Ends refer to wants. It is a general human tendency that when one want is satisfied, another want crops up. Thus, a choice has to be made between more important and less important wants.
  • Scarce means:
    Means refer to resources. Resources may be natural (oil, mineral ore) or man-made (capital goods, consumer goods). Wants are unlimited, but the resources (means) to satisfy these wants are limited. To quote Prof. Oscar Lange’s words here: “Economics is a science of Administration of Scarce resources in human society”.

A steel producing firm wants to produce steel, iron and cement. It also wants to diversify geographically, but the amount of capital it has is limited. The labour force is also limited. Availability of steel and iron is also scarce. Hence, it has to restrict itself to the scarce means.

  • Alternative uses:
    Resources are not only scarce, but they can also be put to many uses. Thus, a choice has to be made between the most urgent and the less urgent needs.

Arun, a student, has exams on the next day. However, he wants to watch cricket match. His friends want him to attend a birthday party. Given the many alternatives, Arun has to choose the best way of utilizing the scarce resource (time).


  • The definition was reduced to a science of choice making.
  • It lacked human touch because, according to Robbins, it is only a positive science which fails to deal with what is good or bad for the society’s welfare.
  • It neglected the aspects of economic growth and development.
  • An economic problem will arise only when there is scarcity, but it may arise during times of abundance as well. For example, the Great Depression of 1930s was caused not so much by scarcity, but by plenty.
In spite of the above criticisms, we have to note that most of the economists have accepted the definition of Robbins because it emphasizes on scarcity and choice which are two important facts of life.


Note: Even now, Scarcity definition is considered to be the best possible definition for economics.

Growth-oriented/Modern definition

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Samuelson’s definition is known as a modern definition of economics. It is a combination of wealth, welfare and scarcity definitions. This talks about sustainable development and “inter-generational equality”. It includes choice making in the present and in the future. Although the fundamental economic problem of scarcity remains undisputed, Samuelson goes a step further and discusses how a society uses limited resources for producing goods and services for present and future consumption of various people or groups. This definition takes into account, production, consumption, exchange, and distribution of goods. Hence, this definition is most satisfactory and acceptable. It has a universal appeal.

Jacob Viner has given a rational definition of economics. According to him, “Economics is what economists do”.

Prof. Henry Smith also gave an all-inclusive definition of economics. According to him, “Economics is the study of how in a civilized society one obtains the share of what others people have produced and of how the total product of society changes and is determined”.

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