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Wealth Definition (Classical Definition): Adam Smith

Book of Adam Smith (www.goodreads.com)
Fig: Book of Adam Smith (www.goodreads.com)

The first definition of economics was given by Adam Smith, in 1776 A.D. a citizenship of Scotland. Adam smith has separated economics from other social science and defined economics for the first time. So, he is known as the father of economics.

Adam Smith has published his famous book entitled as "An Inquiry into the Nature and Causes of Wealth of Nations" in 1776 A.D. This book is popularly known as "Wealth of Nations". In the view of Adam, economics is the study of activities of people in the production of wealth. The definition of economics given by Adam Smith was supported by various classical economists like J.B Say, F.A Walker, J.S Mill, etc.

According to J.B Say, "Economics is the science that treats of Wealth".

The wealth definition of economics has been further explained using following properties (i.e. it has following features):

1. Study of Wealth

According to the definition of Adam Smith, economics is only concerned with wealth earning activities. Every human living in the society needs wealth to fulfill their basic requirements. All the human beings living in the society are concerned to earn more and more wealth. It means economic deals with production, distribution, exchange and consumption of wealth.

2. Secondary Place to Mankind

The wealth centered definition of economic has given first priority to wealth and secondary priority to mankind. Adam Smith assumed that mankind is for wealth but wealth cannot be for mankind.

3. Source of Wealth

According to the definition of Adam Smith, salary or wages earned by labourers is only the source to earn the wealth. Adam Smith has suggested that the active labourers can earn high amount of wages through the division of labour. It increases the productivity and distribution of the goods. In this way, a wealth of Nation can be increased.

4. Study of Economic-Man

Adam Smith claimed that economic studies the behavior of that person whose main objective is to earn more and more money by hook or crook. Human of such nature, in the word of Adam Smith, is "Economic-man".

Criticisms of Wealth Definition

The wealth definition of economics given by Adam Smith was strongly criticized on several grounds by a famous economist like Carlyle, Ruskin, and Marshall. They criticized this definition by saying "Science of bread and butter". However, the major criticisms of Adam Smiths definition are briefly explained below:

1. Narrow Definition

The wealth centered definition of economic has given stress on only those activities which are related to wealth earning activities. This definition excludes those human beings who are not related to wealth earning activities. So, this definition could not study the activity of those people who are engaged in social service. It justifies that wealth definition has a narrow definition.

2. Over emphasis on Wealth

The wealth definition has over emphasized on wealth rather than human beings. Adam Smith extremely emphasized wealth by giving primary importance to wealth and secondary importance to mankind. The critics pointed out that wealth is for human beings but human beings are not for wealth. Therefore, human life cannot be sacrificed for wealth rather wealth should be used for the betterment of mankind.

3. Single Source of wealth

Adam Smith said that wages earned by laborer are only one source of wealth of nation. But, the critics pointed out that the natural resources, human resources, capital resources and physical resources are also the sources of wealth of nations. All these resources together can be utilized to earn maximum wealth by the nation.

4. Unrealistic Concept of Economic-Man

Adam Smith assumed that every human being who wants to earn money by hook or crook is known as Economic-man. The critics pointed out that almost all human beings have their own qualities of human life such as a feeling of life, experience, self-esteem, respect, trust, etc. which provide greater satisfaction rather than wealth in their life. So, the pure economic man does not exist in real life.

Welfare Definition (Neo-classical definition): Alfred Marshall

Alfred Marshall (prezi.com)
Fig: Alfred Marshall (Source: www.prezi.com)

The second definition of economics was given by the leader of Neo-classical economists, Alfred Marshall (1842 A.D -1924 A.D). He was renowned British scholar and Professor of economics at Cambridge University. Alfred Marshall has published the book "Principles of Economics" in 1890 A.D and defined economics in term of material welfare.

According to Alfred Marshall, "Economics is a study of mankind in an ordinary business of life." It inquires how a man earns income and how he uses it. Thus, it is on the one side the study of wealth and on the other, the most important part is the study of mankind. Thus, Marshall shifted the focus of economics from wealth aspect of Adam Smith to welfare aspect. No doubt, he considered as an important part of a human. But, he has given primary importance to mankind and secondary importance to wealth justifying wealth should be used for the welfare of mankind. The Marshallian definition has been supported by A.C Pigou and Edwin Cannan.

According to Pigou, "Economics studies the part of social welfare that can be brought directly or indirectly into relation to the measuring rod of money". The Marshallian definition as a science of material welfare has been further explained below:

1. Primary importance to Mankind

According to Alfred Marshall, economics is the study of wealth in relation to wealth. He explains how a man in the ordinary business earns wealth and utilizes to achieve maximum satisfaction. He further added that wealth is for the betterment of mankind but mankind is not for wealth. He also suggested that primary importance should be given to mankind and the secondary importance to wealth.

2. Study of Ordinary human beings

The welfare definition given by Alfred Marshall has given highly stress on ordinary human beings rather than economic man of Adam Smith. In the view of Alfred Marshall, ordinary human beings are those who get involved not only in accumulating more and more wealth but also try to experience love, sympathy, goodwill, respect, honor, prestige and co-operation.

3. Study of Material Welfare

Alfred Marshall has highly focused on material welfare i.e. satisfaction or utility obtained from physical goods or materials goods rather than human welfare. The satisfaction derived by a consumer by consumption of basic goods (food, cloth, shelter, etc) or luxury goods (T.V, Mobile, Laptops, Computers, etc) or habitual goods (Alcohol, Cigarette, etc) is called material welfare.

4. Social Science

According to Alfred Marshall, economics studies those human lives in the society. It does not study the isolated person not belonging to the society such as beggars, sages, hermits, monks, saints, etc. As economics studies the economic behavior of people living in the society; it is called social science.

5. Normative science

According to Alfred Marshall, economics is a normative science. Marshall said that wealth should be utilized for human welfare.

Criticisms of Welfare definition

Professor Lionel Robbins has criticized the Marshalls definition of economics and introduced the modern definition economics in 1932 A.D. The major criticisms made by Robbins are as follows:

1. Classificatory in Nature

Alfred Marshall classified human activities into material and non-material welfare, ordinary and other business. However, he could not clarify the differences between these terms. Therefore, in the view of Robbins, this definition is classificatory in nature rather than analytical in nature.

2. Narrow or Limited Scope

Alfred Marshall stressed that economics studies just about material welfare obtained from materials activities carried out by human beings. On the other hand, critics pointed out that there is some other non-material welfare which fulfills human desires and needs that come under the subject matters of economics.

3. Lack of Clear Concept about Welfare

Marshall has highly focused on material welfare rather than human welfare in his definition. Lionel Robbins pointed out that the concept of welfare differs according to time, place and circumstances. A smoker and alcohol lover considers smoking and alcohol and promotes his welfare. On the other hand, same commodities such as harmful drugs, tobacco and alcohol are harmful to other non-smokers because they cannot promote their welfare in any form.

4. Excludes Human Science

According to Alfred Marshall, economics studies about those people who are living in society. But the critics of this definition argued that economics should study total human beings whether they are actively participating in social functions or they are isolated from society.

5. It involves value judgments

The word "welfare" in Marshall Definition involves value judgments and relates "Economics" to the branch of ethics. But economics should be neutral regarding moral judgments and about what is good and what is bad.

Reference:

Adhikari, Ramesh Prasad, Economics-XI, Asmita Pustak Prakashan, Kathmandu

Kanel, Navaraj et.al., Principles of Economics-XI, Buddha Prakashan, Kathmandu

Kharel, Khom Raj et.al., Economics In English Medium-XI, Sukunda Pustak Bhawan, Kathmandu

  1. Adam Smith has published his famous book entitled  ‘An Inquiry into the Nature and Causes of Wealth of Nation’ in 1776 A.D.
  2. The wealth definition of economics has been further explained using: Source of Wealth and Study of Economic-man
  3. The wealth definition of economics given by Adam Smith was strongly criticized on several grounds by famous economists by famous economists like Carlyle, Ruskin and Marshall.

The criticisms of Adam Smith’s definition are:

  1. Narrow definition
  2. Over emphasis on Wealth
  3. Single Source of wealth
  4. Unrealistic Concept of Economic-Man

The criticism of Welfare definition are:

  1. Classificatory in Nature
  2. Narrow or Limited Scope
  3.  Lack of Clear Concept about Welfare
  4. Excludes Human Science
  5. It involves value judgment

 

 

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Very Short Questions

0%
  • The first definition of economics was given by

    Adam Smith
    Alfred Marshall
    A.C Pigou
    Lionel Robbins
  • Who published the book  Principles of Economics ?

    Edwin Cannan
    Adam Smith
    J.B Say
    Alfred Marshall
  • Which of the following is the characteristics of wealth definition?

    ?Study of Wealth
    Study of Ordinary human beings
    ??Social Science
    ?Alternative use of Resource
  • Who wrote a book entitled  An Essay on the Nature and Significance of Economic Sciences ?

    ?F.A Walker
    Lionel Robbins
    Adam Smith
    Stigler
  • Which one of the following is a criticism of scarcity definition?

    Classificatory in Nature
    ?Unrealistic Concept of Economic-Man
    Economics is not only the Positive Science
    It involves value judgments
  • When did Adam Smith has published his famous book entitled  An Inquiry into the Nature and Causes of Wealth of Nation ?

    in 1776 A.D.
    1767 A.D.
    in 1996 A.D.
    1886 A.D.
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DISCUSSIONS ABOUT THIS NOTE

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Forum Time Replies Report
Keziah Wahura

according to Adam Smith and Alfred Marshall is economic a science and an art


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Karan pun

Please expain critically wealth definition in a easy and simple language.It's difficult to understand thank you


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Similarities between both defination?umm


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Niraj Binadi

According to pigou means whatIn our course we don't know about itAs we all know its too lengthy then why we use it???


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