NATURE AND SCOPE OF ECONOMICS

 NATURE AND SCOPE OF ECONOMICS

1. Introduction of Economics:

                                                 Since the inception of life on this earth, wants and needs have been having the mind of man. Man till death cannot get rid of these wants and necessities. Man have been struggling and endeavoring to fulfill his basic needs and necessities like housing, food, clothing, since Hazrat Adam stepped on this earth. Initially, man lived in caves, hunted animals and used leaves of bushes and trees to cover his body. Then he started living near fertile valleys on river sides. He started raring cattle and animals to receive milk, meat and skins from these animals. This laid down the foundations of villages and division of professions into different categories. With the scientific innovation and inventions man entered in the car of mechanization He then started perusing comforts in life and Luxuries afterwards. This infinite race between the wants and man is still continuing and will continue till the existence of a single person on this earth If, we look around us, we can hear the voice of tractor working in the fields, firstly running buses and cars on the roads, day and night functioning factories, pouring lot of smoke out of their chimneys, people running fastly to their offices and educational institutions early in the morning, what’s the secrets in all this hustle and bustle? Let’s divulge this secret. All these efforts are being made to make the best and efficient use of these scarce resources in order to fulfill maximum needs and necessities of human beings. These efforts of men are known as economic activities and this is the subject matter of economics.

 2. Definition of Economics: 

                                                 The word Economics has been derived from the Latin words "Oiko Nomos" which means household budget. This explains how the persons of a house manage to earn money and spend it. Later on this word was used on state called "Polos". This explains that how the people of a state use to spend their lives and earn means of living. For this reasons it was better called as "political economy". However these two words were separated and became separate disciplines. The first one became political science and later one the subject of economics The evolution of the definition of Economics has passed through various stages. However it can be broadly classified into three schools of thought.

 i. Classical school of thought (1723 - 90)

 ii. Neo-classical school of thought (1842 - 1924)

 iii. London School of Economics

 3. Classical School of Thought:

                                                     This was led by Adam Smith of Scotland who in 1776 wrote a research treatise. "An inquiry into the nature and causes of wealth of National's" briefly known as "Wealth of Nations" He for the first time introduced economics as a separate discipline different from political economy. According to his views, Economics is a social science which deals with the production, consumption, distribution and exchange of wealth. So these views declared four pillars of the definition of Economics as under:

 I. Production of Wealth: 

                                             This means how and in what proportion the four factors land, labor, capital and organization are combined to produce goods and services which is called wealth. 

II. Consumption of Wealth:

                                            The part of the wealth used to fulfill basic needs of human life is called consumption. We spent our income in that direction from where we can derive maximum utility.

 III. Distribution of Wealth:

 This means how the four factors are paid according to their contribution in the form of rent, wages, interest and profit

 IV. 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 The other contemporary classical economists, who followed Adam Smith's explanation of Economics, were J.S. Mill, N.W. Senior, Malthus, Ricardo, and American Economist FA. Walker. They also called Economics as a science of wealth and man uses it to fulfill his basic needs.

 Misconception: 

                            This explanation of Economics by Adam Smith created many misconceptions among people. They started calling this science as “Pig Philosophy” and "Dismal Science”. According to them 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. Among those critics were “Ruskin” and “Carlyle”, 

Clarification of Misconception:

                                                    Actually the critics would have not fully comprehended the meaning of wealth and it's explanation as given by Adam Smith. They mistakenly believed wealth money alone as wealth whereas, anything which carries utility, scarcity, and transferability is called wealth. Wealth by itself is not bad or good but its use makes it so. It can either be spent on necessities or luxuries, on welfare projects or on wasteful projects. Hence, there is no harm to say Economics as a science of wealth.

 4. Neo-Classical School of thought (1842-1924)

 This was led by Alfred Marshall of Cambridge University who defined economics in a new way with the concept of welfare. His followers were Pigou, Canon, Pareto and J.B. Clark. For this reason they are called “Welfare Economists”. According to Pigou. “Economics relates to that part of social welfare which can directly or indirectly be measured by money”. Alfred Marshall in 1890 wrote a book "Principles of Economics" in which he defined economics as “Economics is a science which studies human behavior which is related with the ordinary business of life. It deals with that part of individual and collective human efforts which is closely related with the attainment or with the use of material requisites of wellbeing. So, we can say that economics on one hand is science of wealth while on the other hand it is the study of an aspect of human life.”

 Important Points:

 i. Economics includes the economic activities of those people living in societies and not of those living in far flung area like Robinson Cruse, saint etc.

ii. It includes only “material welfare” of human beings not non-material welfare It includes both individual and collective efforts of man.

iii. The purpose of every economic effort of the human being should be the material welfare. So Economics relates to that part of wealth which is concerned with the “material welfare”.

5. London School of Economics:

                                                       It was led by Prof. Robbins who in 1932 wrote his book "an Essay on the nature and significance of economic science". He defined Economics as under- "Economics is a science which studies human behavior as a relationship between multiple ends and scarce means which have alternative uses" This definition has following key words.

 i. Multiple Ends:

                              Human wants are unlimited and to fulfill these wants man makes continuous efforts these wants reoccur and human beings have to generate sources for their fulfillment such as food, housing, clothing, education, health etc. Besides these, some comforts and luxuries are also pursued which are hardly attained in the presence of limited resources.

 ii. Scare Resources: 

                                     If we look at our resources those are scarce in relation to our wants e.g. wheat is produced in billions of tons all over the world but if look at it's demand it becomes scarce. Whereas, rotten eggs though little in quantity are not scarce, because no one wants to buy them. So resources against wants are always scarce.

 iii. Alternative uses of Resources: 

                                                            Resources can be used alternatively i.e. land can be used either way to cultivate crops or construct houses. Money can be used to purchase food, houses, cloth or for service of education, health etc. So main objective of the consumer or producer is to make the best and efficient use of resources because resources are scarce. So man sets priorities of wants to be fulfilled first. Thus he uses resources alternatively to make their best use.

 iv. Ends Differ in Importance:

                                                     Human wants are not equally important. Some are more important than others e.g. Treatment to a patient or food for a hungry person is more important than the want of new furniture or new air conditioner less important can be postponed while, most important are to be fulfilled immediately

 J.M Keynes's Definition (1883-1945)

 Keynes in his book “General theory of employment, interest and money” published in 1936 gave a modern definition of Economics. “Economics is a science which creates employment opportunities and form ways to increase GNP by making efficient utilization of the scarce resources”.