Economics is the science of Making Choices.
Have you ever wondered why people make decisions when buying goods and services? Or how governments make choices about policies and regulations that affect the economy? The study of economics can help answer these questions and more.
Economics is a social science that focuses on how people allocate scarce resources to meet their unlimited wants and needs. It is the science of choice-making, where individuals, businesses, and governments decide to use resources to satisfy their needs and wants.
Introduction of Marshall
Alfred Marshall was one of the most influential economists of the late 19th and early 20th centuries. He was born in London, England, in 1842 and is widely regarded as one of the founders of modern economics. Marshall made significant contributions to developing microeconomics, macroeconomics, and economic theory. He published his most famous work, Principles of Economics, in 1890. His definition is regarded as more comprehensive and scientific than Chanakya’s and Adam Smith’s definitions of Economics.
Explanation of Alfred Marshall’s Definition of Economics – Material Welfare Definition
Marshall’s definition of economics is that it is “a study of mankind in the ordinary business of life.” This definition emphasizes the importance of studying how people make choices about using resources in their everyday lives. Marshall’s definition explains that economics concerns how individuals and societies allocate resources to produce goods and services that can satisfy their wants and needs.
Marshall’s definition also includes the concept of wealth. He believed that wealth was a crucial factor in the study of economics. Marshall defined wealth as anything that has value and can be exchanged for goods and services. This definition includes tangible and intangible assets, such as money, stocks, and intellectual property.
Marshall’s definition of economics also encompasses both microeconomics and macroeconomics. Microeconomics studies individual behaviour, such as how consumers make decisions, firms operate, and markets. On the other hand, macroeconomics focuses on the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Also, Read the Similarities and Differences between Marshall’s and Robbin’s definitions of Economics.
Characteristics or Features of Marshall’s Definition of Economics
Marshall’s definition of economics, also known as the material welfare definition of economics, is one of the most widely accepted definitions of economics. This definition emphasizes the study of how people allocate scarce resources to produce goods and services that can satisfy their wants and needs. Here are some of the characteristics of Marshall’s definition:
- Focus on human behaviour: Marshall’s definition of economics is based on studying human behaviour in the context of economic activities. It recognizes that individuals, businesses, and governments choose based on their preferences and constraints.
- Allocation of scarce resources: The definition highlights the importance of allocating scarce resources efficiently to meet unlimited wants and needs. It recognizes that resources are limited and cannot satisfy all of our desires.
- Wealth as a critical concept: Marshall’s definition includes the concept of wealth, which he defined as anything that has value and can be exchanged for goods and services. This definition comprises tangible and intangible assets, such as money, stocks, and intellectual property. However, he pointed out that Wealth is not the end but only the means. Man is not for wealth, but Wealth is for man.
- Multidimensional nature: The definition encompasses both microeconomics and macroeconomics, recognizing that the study of economics involves both individual behaviour and the broader economic system. It acknowledges that financial decisions made by individuals and businesses can significantly impact the overall economy.
- Emphasis on cost-benefit analysis: Marshall’s definition emphasizes the importance of cost-benefit analysis in decision-making. It recognizes that individuals, businesses, and governments must weigh the costs and benefits of their choices to use resources efficiently.
- Greater Emphasis on Human Aspect: One of the key features of Marshall’s definition of economics is its greater emphasis on the human aspect of economic activities. Marshall believed that economic analysis should consider not only the material welfare of individuals but also their social, psychological, and ethical well-being. This view was a departure from the classical economists who focused primarily on the material aspects of economic activity. Marshall argued that economic analysis should be distinct from the social and cultural context in which it occurs.
- Material Welfare: Another characteristic of Marshall’s definition is its focus on material welfare. Marshall believed economics should be concerned with producing and distributing goods and services to improve people’s material well-being. He emphasized the importance of increasing productivity and efficiency to raise all individuals’ living standards. However, he also recognized that material welfare alone is insufficient for human happiness and well-being.
- Study of the Ordinary Business Activities of Life: Marshall’s definition emphasizes the study of the ordinary business activities of life, such as buying and selling goods and services, earning a living, and managing resources. He believed that economic analysis should not be limited to the study of the economy as a whole but should also focus on the individual and their economic decision-making.
- Practical Point of View: Marshall’s definition of economics is characterized by its practical point of view. He believed that economic analysis should have practical relevance and be useful for solving real-world economic problems. This approach to economics contrasted with classical economists’ more abstract and theoretical approach.
Supporters of Marshall’s Material Welfare Definition:
Marshall’s material welfare definition of economics had many supporters in his time and continues to have relevance today. Some prominent supporters of this definition include John Maynard Keynes, who developed his economic theory based on Marshall’s ideas, and Joseph Schumpeter, who emphasized the importance of entrepreneurship and innovation in economic growth. Marshall’s definition also influenced the development of welfare economics, which studies how economic activities can improve human welfare.
Criticisms of Marshall’s Material Welfare definition of Economics
Although Marshall’s material welfare definition of economics has been widely accepted and influential, it has also been subject to criticism. Here are major criticisms of Marshall’s material welfare definition of economics:
- Neglect of Distributional Issues: One criticism of Marshall’s definition is that it neglects distributional issues. While Marshall recognized the importance of the distribution of wealth and income, his focus on material welfare prioritised efficiency and productivity over equity and social justice.
- Limited Scope: Another criticism of Marshall’s definition is its limited scope. Marshall’s focus on producing and distributing material goods and services may not fully capture the complexity of economic activities, particularly those related to non-material aspects of well-being.
- Neglect of Non-Market Activities: A related criticism is that Marshall’s definition neglects non-market activities, such as household work, volunteering, and caring for family members. These activities are not typically valued in market transactions but can have significant economic and social impacts.
- Ethnocentric Bias: Marshall’s definition has been criticized for its ethnocentric bias. Marshall’s focus on material welfare and his emphasis on the Western industrialized economies may not apply to non-Western societies or economies not based on market transactions.
- Inadequate Treatment of Time and Uncertainty: Marshall’s definition has been criticized for its inadequate treatment of time and uncertainty. Marshall’s definition assumes that individuals can make rational decisions based on complete information, but individuals often face incomplete information and uncertainty about future outcomes.
- Suggested Readings:
- Robbins’ Definition of Economics
- P.A. Samuelson’s Definition of Economics