PRINCIPLES OF ECONOMICS
1
, 1 NATURE AND SCOPE OF ECONOMICS
Basically man is involved in at least four identifiable relationships: a) man
with himself, the general topic of psychology b) man with the universe, the study
of the biological and physical sciences; c) man with unknown, covered in part by
theology and philosophy d) man in relation to other men, the general realm of
the social sciences, of which economics is a part. It is hazardous to delineate
these areas of inquiry explicitly. However, the social sciences are generally
defined to include economics, sociology, political science, anthropology and
portions of history and psychology, Economists use history, sociology and other
fields such as statistics and mathematics as valuable adjuncts to the ir study.
As a body of knowledge, economics is a relatively new subject, having been
around formally a scant two centuries, but subsistence, wealth and the ordinary
business of life are, as we all know, as old as mankind. Economics deals with
many socioeconomic issues, most of which are of immediate concern to us.
Although it is tempting to continue to discuss important economic problems,
such a discussion would be premature. To form a reasoned opinion, it is
necessary to analyse the issues carefully, a pro cess which requires a meaningful,
sequential exposure to economics.
Nature has blessed the humans with abundant natural wealth to live on this
earth. Humans would have been contended with what nature provided, had they
been able to peg their wants (requi rements) at a given level. But it is not so, man
being born in this world is influenced by biological, physical and social needs,
which keep him always busy in searching out the means to keep him satisfied. To
fulfill his requirements arising out of variou s needs, he involves in an activity
called economic activity. Conversely, man would have freed himself from
economic activity, had there been no resource scarcity and also what humans
want can be satisfied without limit. But neither of the possibilities be ing found
because of the scarcity of resources imposed by the nature, humans always
deeply engage in arriving at an equation, which balances their unlimited wants
and limited means. By engaging themselves in the economic activity people aim
at maximizing their satisfaction from their scarce resources. Thus, scarcity is the
pivot for the economic activity of the people representing consuming and
producing segments leading to the origination of a field of study called
economics. The field of economics keeps on going as long as the human race
exists on the earth with their toiling to satisfy their ever -new and ever-emerging
2
,wants and satisfying the same through their efforts. Thus, the field of economics
constitutes wants, efforts and satisfaction.
Two major factors are responsible for the emergence of economic problems.
They are: i) the existence of unlimited human wants and ii) the scarcity of
available resources. The numerous human wants are to be satisfied through the
scarce resources available in nat ure. Economics deals with how the numerous
human wants are to be satisfied with limited resources. Thus, the science of
economics centres on want - effort - satisfaction.
WANT
SATISFACTION EFFORT
Economics not only covers the decision making behaviour of individua ls but
also the macro variables of economies like national income, public finance,
international trade and so on.
A. DEFINITIONS OF ECONOMICS
Several economists have defined economics taking different aspects into
account. The word ‘Economics’ was derived from two Greek words, oikos (a
house) and nemein (to manage) which would mean ‘managing an household’
using the limited funds available, in the most satisfactory manner possible.
i) Wealth Definition
Adam smith (1723 - 1790), in his book “An Inquiry into Nature and Causes
of Wealth of Nations” (1776) defined economics as the science of wealth. He
explained how a nation’s wealth is created. He considered that the individual in
the society wants to promote only his own gain and in this, he is led by an
“invisible hand” to promote the interests of the society though he has no real
intention to promote the society’s interests.
Criticism: Smith defined economics only in terms of wealth and not in terms of
human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’,
as it taught selfishness which was against ethics. However, now, wealth is
considered only to be a mean to end, the end being the human welfare. Hence,
wealth definition was rejected and the emphasis was shifted from ‘wealth’ to
‘welfare’.
3
, ii) Welfare Definition
Alfred Marshall (1842 - 1924) wrote a book “Principles of Economics”
(1890) in which he defined “Political Economy” or Economics is a study of
mankind in the ordinary business of life; it examines that part of individual and
social action which is most closely connected with the attainment and with the
use of the material requisites of well being”. The important features of
Marshall’s definition are as follows:
a) According to Marshall, economics is a study of mankind in the ordinary
business of life, i.e., economic aspect of human life.
b) Economics studies both individual and social actions aimed at promoting
economic welfare of people.
c) Marshall makes a distinction between two types of things, viz. material
things and immaterial things. Material things are those that can be seen, felt and
touched, (E.g.) book, rice etc. Immaterial things are those that cannot be seen,
felt and touched. (E.g.) skill in the operation of a thrasher, a tractor etc.,
cultivation of hybrid cotton variety and so on. In his definition, Marshall
considered only the material things that are capable of promoting welfare of
people.
Criticism: a) Marshall considered only material things. But immaterial things,
such as the services of a doctor, a teacher and so on, also promote welfare of the
people.
b) Marshall makes a distinction between (i) those things that are capable of
promoting welfare of people and (ii) those things that are not capable of
promoting welfare of people. But anything, ( E.g.) liquor, that is not capable of
promoting welfare but commands a price, comes under the purview of
economics.
c) Marshall’s definition is based on the concept of welfare. But there is no
clear-cut definition of welfare. The meaning of welfare varies f rom person to
person, country to country and one period to another. However, generally,
welfare means happiness or comfortable living conditions of an individual or
group of people. The welfare of an individual or nation is dependent not only on
the stock of wealth possessed but also on political, social and cultural activities
of the nation.
4
1
, 1 NATURE AND SCOPE OF ECONOMICS
Basically man is involved in at least four identifiable relationships: a) man
with himself, the general topic of psychology b) man with the universe, the study
of the biological and physical sciences; c) man with unknown, covered in part by
theology and philosophy d) man in relation to other men, the general realm of
the social sciences, of which economics is a part. It is hazardous to delineate
these areas of inquiry explicitly. However, the social sciences are generally
defined to include economics, sociology, political science, anthropology and
portions of history and psychology, Economists use history, sociology and other
fields such as statistics and mathematics as valuable adjuncts to the ir study.
As a body of knowledge, economics is a relatively new subject, having been
around formally a scant two centuries, but subsistence, wealth and the ordinary
business of life are, as we all know, as old as mankind. Economics deals with
many socioeconomic issues, most of which are of immediate concern to us.
Although it is tempting to continue to discuss important economic problems,
such a discussion would be premature. To form a reasoned opinion, it is
necessary to analyse the issues carefully, a pro cess which requires a meaningful,
sequential exposure to economics.
Nature has blessed the humans with abundant natural wealth to live on this
earth. Humans would have been contended with what nature provided, had they
been able to peg their wants (requi rements) at a given level. But it is not so, man
being born in this world is influenced by biological, physical and social needs,
which keep him always busy in searching out the means to keep him satisfied. To
fulfill his requirements arising out of variou s needs, he involves in an activity
called economic activity. Conversely, man would have freed himself from
economic activity, had there been no resource scarcity and also what humans
want can be satisfied without limit. But neither of the possibilities be ing found
because of the scarcity of resources imposed by the nature, humans always
deeply engage in arriving at an equation, which balances their unlimited wants
and limited means. By engaging themselves in the economic activity people aim
at maximizing their satisfaction from their scarce resources. Thus, scarcity is the
pivot for the economic activity of the people representing consuming and
producing segments leading to the origination of a field of study called
economics. The field of economics keeps on going as long as the human race
exists on the earth with their toiling to satisfy their ever -new and ever-emerging
2
,wants and satisfying the same through their efforts. Thus, the field of economics
constitutes wants, efforts and satisfaction.
Two major factors are responsible for the emergence of economic problems.
They are: i) the existence of unlimited human wants and ii) the scarcity of
available resources. The numerous human wants are to be satisfied through the
scarce resources available in nat ure. Economics deals with how the numerous
human wants are to be satisfied with limited resources. Thus, the science of
economics centres on want - effort - satisfaction.
WANT
SATISFACTION EFFORT
Economics not only covers the decision making behaviour of individua ls but
also the macro variables of economies like national income, public finance,
international trade and so on.
A. DEFINITIONS OF ECONOMICS
Several economists have defined economics taking different aspects into
account. The word ‘Economics’ was derived from two Greek words, oikos (a
house) and nemein (to manage) which would mean ‘managing an household’
using the limited funds available, in the most satisfactory manner possible.
i) Wealth Definition
Adam smith (1723 - 1790), in his book “An Inquiry into Nature and Causes
of Wealth of Nations” (1776) defined economics as the science of wealth. He
explained how a nation’s wealth is created. He considered that the individual in
the society wants to promote only his own gain and in this, he is led by an
“invisible hand” to promote the interests of the society though he has no real
intention to promote the society’s interests.
Criticism: Smith defined economics only in terms of wealth and not in terms of
human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’,
as it taught selfishness which was against ethics. However, now, wealth is
considered only to be a mean to end, the end being the human welfare. Hence,
wealth definition was rejected and the emphasis was shifted from ‘wealth’ to
‘welfare’.
3
, ii) Welfare Definition
Alfred Marshall (1842 - 1924) wrote a book “Principles of Economics”
(1890) in which he defined “Political Economy” or Economics is a study of
mankind in the ordinary business of life; it examines that part of individual and
social action which is most closely connected with the attainment and with the
use of the material requisites of well being”. The important features of
Marshall’s definition are as follows:
a) According to Marshall, economics is a study of mankind in the ordinary
business of life, i.e., economic aspect of human life.
b) Economics studies both individual and social actions aimed at promoting
economic welfare of people.
c) Marshall makes a distinction between two types of things, viz. material
things and immaterial things. Material things are those that can be seen, felt and
touched, (E.g.) book, rice etc. Immaterial things are those that cannot be seen,
felt and touched. (E.g.) skill in the operation of a thrasher, a tractor etc.,
cultivation of hybrid cotton variety and so on. In his definition, Marshall
considered only the material things that are capable of promoting welfare of
people.
Criticism: a) Marshall considered only material things. But immaterial things,
such as the services of a doctor, a teacher and so on, also promote welfare of the
people.
b) Marshall makes a distinction between (i) those things that are capable of
promoting welfare of people and (ii) those things that are not capable of
promoting welfare of people. But anything, ( E.g.) liquor, that is not capable of
promoting welfare but commands a price, comes under the purview of
economics.
c) Marshall’s definition is based on the concept of welfare. But there is no
clear-cut definition of welfare. The meaning of welfare varies f rom person to
person, country to country and one period to another. However, generally,
welfare means happiness or comfortable living conditions of an individual or
group of people. The welfare of an individual or nation is dependent not only on
the stock of wealth possessed but also on political, social and cultural activities
of the nation.
4
