The term Economics comes from the Ancient Greek word (oikonomia, "management of a household, administration") hence "rules of the house (hold. Economics is of two perspectives one is Microeconomics and other is Macroeconomics. Microeconomics is a branch of economics that studies
The term Economics comes from the Ancient Greek word (oikonomia, "management of a household, administration") hence "rules of the house (hold. Economics is of two perspectives one is Microeconomics and other is Macroeconomics.
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources.
Macroeconomics is a branch of economics dealing with the study and decision-making of the entire economy. This includes a national, regional, or global economy.
Definitions of Economics:
Overall the definitions of Economics can be well explained in three perspectives presented by three different School of Thoughts.
- Classical School of Thoughts
- Neo Classical School of Thoughts
- Modern School of Thoughts
Classical School of Thoughts:
Classical School of Thoughts includes all those Economists who followed Adam Smith’s concept of Economics till Alfred Marshal came in 1890.
Adam Smith’s Concept:
Adam Smith was the founder of Classical School of Thoughts. He was a Professor of Economics in Glass co University. He is also known as the The Father of Economics. In the year 1776 he wrote a book “An Inquiry into Nature and Causes of Wealth of Nations”. In his book he explained his own perspective of Economics.
Economics is a Science of Wealth.
He divided his definition into four parts:
- Production of Wealth: Production is done with four factors of production i.e. Land, Labor, Capital and Organization Distribution of Wealth:
- Distribution is done among the four factors of production as their reward i.e. Rent, Wages, Interest and Profit.
- Consumption of Wealth: Use of wealth/profit to fulfill needs.
- Exchange of Wealth: Transactions are done when wealth is used for fulfilling the needs.
According to John Ruskin and Thomas Carlyle---Adam Smith has made Economics a Dismal Science & Pigs Philosophy in which only wealth is discussed. They criticized that Adam Smith’s concept of Economics provokes Greed & he has made it a Science of Bread and Butter.
Answers to Objections:
Adam Smith’s followers replied to Ruskin & Carlyle’s objection that they couldn’t understand the True Meaning of Adam Smith’s concept. They couldn’t understand the meaning of wealth and how it is discussed in Economics.
Although Adam Smith’s concept of Economics has been criticized and objected a lot but still it has provided a foundation to Economics. And yes, Wealth is not the only thing that should be discussed in Economics but it is the main thing in Economics.
Neo Classical School of Thoughts:
Neoclassical economists dominate microeconomics together with Keynesian economists. Most important economists in Neoclassical economics are Alfred Marshall and John Maynard Keynes. Keynesian economics approach is being used widely even in today's world.
Alfred Marshall's Concept:
Alfred Marshall was the Founder of Neoclassical School of Thoughts. He wrote a book in 1890 with the title "Principles of Economics". After the criticism on Adam Smith's definition of economics, Alfred Marshall gave his concept in his book. He gave the concept of Material welfare along with Welfare. Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social actions that are closely connected with the attainment and with the use of material requisites of well being.
- Study of Mankind (Useful Science): He made economics a useful science by discussing mankind
- Study of efforts for Material Requisites: All activities related to the attainment of Material Requisites of well being.
- Social Science: He made economics a Social Science by discussing the people in the Society.
- Wealth used for Welfare: He gave/introduced the concept of use of Wealth for Welfare for the first time.
Merits (Positive Points):
Widened the Scope of Economics: We can say that Marshall's definition has widened the scope of economics by discussing more than just Wealth. He discussed Wealth along with Welfare through Material Requisits of Well Being.
Related with Modern Economics:
Marshall's concept is related to the Modern Economic Concept of " Planning and Development " He discussed about Welfare which is linked with Planning.
As compared to the former economist Adam Smith, Marshall's definition has a more comprehensive definition and covers more aspects.
According to Marshall's definition, economics is a social science. This makes economics more important as it discusses the society in which people are involved. So technically we are discussing people.
Demerits (Criticism/Negative Points):
Restricted the Scope of Economics: Although we say that Alfred Marshall's definition is more wide and comprehensive than the previous economist Adam Smith but generally Marshall's definition is very limited. It only discusses Wealth and Welfare whereas economics is not just about Wealth and Welfare. There are many things which he missed in his definition to mention such as inflation & deflation.
Vague Concept of Welfare: The concept of Welfare has not been explained properly. He didn't explained what is Welfare? Because as we all know economic concept changes from people to people, time to time and place to place so does welfare. For example for an Addict of Drugs, welfare would be Drugs but is that really welfare? Immeasurable Concept: Marshall's concept is not measurable. One cannot measure welfare and take future steps to use his wealth for his required welfare. So the concept of Welfare is immeasurable.
Only Material Requisits Discussed: Marshall only discussed Material Requisits of Well Being whereas there are some Non Material prospects that can be referred as requisits of well being. He totally neglected the fact that there are some Non Material things that are necessary for some people for their well being.Limited Consumption of Wealth: He limited the consumption of Wealth. According to him wealth is used for acquisition of Material Requisits of Well Being. So he only mentioned wealth use for goods, not services.
Although Alfred Marshall widened the scope of economics but he didn't introduce anything new. In fact he redefined Adam Smith's Definition in a proper and more appropriate manner.