Nature and Definitions of Economics

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Economics is a vibrant social science. With the passes of time and dynamisms of socio-economic activities of human being the definitions of economics have also been changed. Therefore, different economists define economics in different ways and on a different basis. There are different thoughts and ideas regarding the nature and definitions of economics from different economists and thinkers. Here major concern on the nature and definitions of economics is briefly discussed;

Scottish economist Adam Smith was the first who had separated economics from other social sciences with its separate identity and separate discipline. He published his famous book “An Enquiry into the Nature and Causes of Wealth of Nations” in 1776 AD and with such publication economics become a separate social science.

After Adam Smith, other economists define economics concerning different time-based issues of economics. For simplicity, the various definitions of economics can be studied under the following four categories;

  • Wealth or Classical definition: Adam Smith’s definition
  • Welfare or neo-classical definition: Alfred Marshal’s definition
  • Scarcity or modern definition: Robbins’ definition
  • Growth or recent definition:  Paul Samuelson’s definition 

For the detailed discussion on the initial three nature and definitions of economics please click here.

Growth-oriented definition of economics

After having a long discussion on the nature and definition of economics by different economists at different times from classical to modern period the modern perspective of economics was chiefly given by Paul Samuelson in 1948. He pioneered the growth oriented definition of economics.

According to him, “Economics is a study of how men and society choose with or without the use of money, to employ scarce productive uses resource which could have alternative uses, to produce various commodities over time and distribute them for consumption, now and in the future among the various people and groups of society.”

This definition of economics focuses on mainly three aspects as human behavior as present and future wants of human beings, allocation of resources, and alternative uses of resources. Growth is the central point of this definition.

According to this definition of economics, economics tells how scarce means or resources should be used to satisfy increasing demands and to attain higher living standards in terms of primary needs, etc.

It means economics looks or seeks the techniques to fulfill the present as well as future wants. So this definition advocate for good and efficient allocation of scarce resources in the productive sector and puts an effort so that people can fulfill more and more demands and can grow the resources. 

Features of the growth-oriented definition of economics

Thus this definition also focuses on the sustainable development of the country as it deals with the efficient efforts of individuals who can use limited resources to create various commodities for the present as well as future use which provides security to a future generation too. This definition has the following four major concerns;

  • There should be a selection of the most efficient use of resources among the alternative uses so that one can satisfy his more and more desires and also kept or grow the resources for the fulfillment of future wants.
  • The growth or the economy will depend on the consumption and production in the economy with the efficient utilization of scarce productive resources.
  • The growth of the nation is measured by calculating the national income and national output of the country and which can be increased by increasing employment, by reducing the poverty, inequality, etc over time. So this definition is dynamic and highlights the solution to the macroeconomic problems of the nation.

Therefore the growth-oriented definition of economics looked at the extent and scope of growth under the scarcity with help of efficient allocation of scarce resources, selection of efficient choice or efficient use of resources, solution of macroeconomic problems of the society, optimal distribution of resources for present consumption and future consumption.  

Nature of economics

There is no common idea regarding the nature of economics. Some economists argue that economics is art or others argue that economics is science. Again that who accepts the subject of economics as science argues it is as positive science and normative science. So, the nature of economics means talking about its identity whether it is a science or art or both. Here we can discuss each very briefly;

Economics is an art

Art is the field of knowledge, skill, efficiency, method, way, and mode of doing work. Art simply deals with a body of knowledge that guides am an action and make the practical implementation of skill and ability that one has.

Economics is also a subject that studies or defines the economic problems of individuals, societies, and nations and gives techniques and modalities to solve these problems and imagine a better life for the individuals.

So economics directly gives measures to the solution of problems and itself involved in the solution of national economic constraints. It provides possible solutions to reduce unemployment, poverty, inequality, disparity, inflation, recession, and so on. Thus, economics is an art.

However, if we look at the intuitive mechanism and working of economic laws and theories it can be considered as both sciences as well as art. It deals with policy effect or stimulus effect or shock effect on different economic variables and at the same time, it also deals with the solution to problematic effects resulted from different causes or injections or leakages in the economy.   

Economics as a science

The subject which explains about relationship between cause and effect is named science. So, science explains the effect of any specific cause or reason at a particular time or overtime.

In economics, we have various theories or principles like the law of demand, the law of supply, theory of consumer behavior, theories of production and so on which explain causes and effects relationships.

All these principles deal with possible effects on different economic variables and economic behaviors of the economic agents due to some specific reasons. For example, we can see the principle of demand. It shows that with an increase in the price of the commodity (reason) quantity demanded will be decreased (effect) and vice versa with other things being constant. So on such a basis, many economists prefer that economics is science.

Economic as a positive science

If we talk about the scope and nature of economics, we think of whether economics is a positive or normative science.

A positive science describes ‘what is’. Thus a positive science shows a condition as it is. For example, inequality in a country is increasing as a positive statement. The concept of positive economics was coined by classical economists such as Adam Smith, JB Say, and David Ricardo and Modern economists like Lionel Robbins.

Positive economics is based on a factual statement. It only describes what was, what is, and what will be or what was happened, what is happening and what will be happing and it does not state what ought to be. It does not offer any value judgment and only discovers a particular situation of the variable and factors.

So positive economics only studies the causal relationship between different economic variables like the law of demand states due to the fall in price quantity demand will be increased but does not state why it has happened. 

Suppose, the government of a nation imposes a quota on imports of agricultural output from foreign countries then positive economics only can say what will happen to the prices, output, and sales of domestic agricultural products but does not say what should be and what should not be.

Similarly, it only states the merit and demerits of any policy or variable but it will not say which one is the best policy for the country. Positive economics never made any hard and fast decisions regarding policies and variables.

Economics as a normative science

The normative science always uses the value judgment and decides what out to be. Thus, normative science studies things that ought to be. According to Marshall, Pigou, Fisher, etc. economics cannot be separated from normative aspects.

The main target of normative economics is to give moral or value judgment in any issue. For example, an 18% population of a nation is living under the poverty line is a positive statement and it is too high and it should be decreased or it ought to be decreased is a normative statement.

Normative economics never tries to make a detailed study of the causes and effects of any economic issue or problem. The analysis technique of normative economics may be influenced by personal bias in some cases. It does not analyze economic issues scientifically. It does not hold any assumptions and its result are obtained without analysis.

The result obtained from normative economics may not be applied all the time. What should be the price level in the market or what measures to be employed to reduce inequality involve in normative economics and which requires a careful study?

Concluding remarks on nature and definitions of economics

Classical economists considered the nature and definitions of economics as a positive science and science of wealth. They denied any remark about the wrongness or rightness of an economic state of affairs. Robbins also supported the classical view and assured that economics is not concerned with desirability. They believe that the major job of an economist is not to advocate but to explore and explain.

We can conclude that economics should not be considered only as a positive science. It should be approved to do moral judgments of an economic situation or economic policy. It is, therefore, measured both positive as well as a normative science.

So, economics is the social science that studies the techniques of the mechanism of the allocation of scarce resources to please infinite needs. This requires analyzing the production, distribution, trade, and consumption of goods and services. Economics is known as positive when it tries to describe the cost of different choices at a set of assumptions or a set of observations and normative when it prescribes or suggests that a particular stroke ought to be taken.

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