The third or modern definition of economics was given by Lionel Robbins in the decade of 1930s. Robbins was the citizen of British and professor at London School of Economics. He is one of the modern economists who shifted the focus of economics from welfare aspect to scarcity and choice. In 1932 A.D. he wrote a book entitled "An Essay on the Nature and Significance of Economic Science" and defined economics in terms of scarcity and choices.
According to the Lionel Robbins, "Economics is the science which studies human behavior as a relationship between unlimited ends and scarce means which have alternative uses"ÂÂÂ. This definition was supported by various famous economists like Stigler, Peter, etc.
According to Stigler, "Economics is the study of principles governing the allocation of scarce means among competing ends where the objective of allocation is to maximize the attainment of ends"ÂÂÂ.
This definition is logically explained with the help of following points:
According to Alfred Marshall, human wants are unlimited which can never be fulfilled. Once the first and the most important desire is fulfilled, new wants crop up or arise immediately. When we fulfill the second want, another want arise. So, human wants are unlimited and never fulfilled.
Human wants are unlimited but the resources to fulfill them are limited i.e. there is a scarcity of resource to fulfill human wants in the society. Hence, the word "means" refers to the natural resource, human resource, capital resource and physical resource which are available to mankind. As the size of population increases, the demand for goods and services also increases. As a result, the scarcity problem is growing more seriously day by day in all kinds of economy.
Robbins said that the resources available to satisfy unlimited human wants are available in a limited amount or quantity. These scarce means have alternative uses i.e. use here for a purpose or there for another purpose. Robbins suggested that a lot of alternative goods and service might be available in the market to meet our needs.
When the characteristics of human life; namely, unlimited wants, scarce means, alternative use of means are kept together, there arises the problem of choice. One has to make a choice as which want to be satisfied first and by which means. However, at any given period, one of these wants, one of this wants may be more urgent and more important than other wants. As such wants differs in urgency. So, while choosing among the wants, everybody chooses the most urgent need at first and less urgent need get second priority.
Lionel Robbins said that human wants are unlimited and resources are limited in the economy. It explains the real situation without any value judgment. So, for economics is positive science.
Robbins definition of economics as the science of scarcity and choice is still popular definition. Despite wider acceptability and application in modern society, it has been criticized by various economists like Barbara Wotton, Fraser etc. Some major criticisms made by them are described below:
The critics said that Robbins was unable to address the burning issue of a modern economy such as unemployment, poverty, inequality, economic growth, economic development, national income, trade cycle, etc. They argued that the modern definition of economics must analyze these macroeconomics issues in the better way.
The critics of this definition pointed out that Robbins definition of economics has given unnecessary emphasis to scarcity problem. They criticized that economic problems arise not only from a scarcity of resources but also from plenty of resources and overproduction. They concluded that overproduction of goods and services in any economy towards disinvestment, unemployment, decreases in other economic activities and serious economic problems.
As pointed out by critics Robbins definition of economic is not totally different from that of Marshalls. Robbins definition concludes that scarce means or resources should be allocated to fulfill unlimited wants of mankind. Similarly, Marshall explained that wealth should be utilized to secure maximum material satisfaction or material welfare from a limited quantity of wealth. Therefore, both definitions have common conclusion about resource or wealth utilization for material welfare or satisfaction of mankind.
The modern definition of economics is entirely based on an allocation of currently available resources in the economy. But critics said that economics should study not only about the allocation of resources but also production, distribution, exchange, consumption and utilization of the resources.
The critics of Robbins definition of economics are of the view that economics is not only the positive science but also a normative science. It is a responsibility of economists to provide any suggestion to solve a particular economic problem.
The second definition of economics was given by a 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.
The third or modern definition of economics was given by Lionel Robbins in the decade of 1930s". Robbins was the citizen of British and professor at London School of Economics. He is one of the modern economists who shifted the focus of economics from welfare aspect to scarcity and choice. In 1932 A.D he wrote a book entitled "An Essay on the Nature and Significance of Economic Sciences" and defined economics in terms of scarcity and choices. According to the Lionel Robbins, "Economics is the science which studies human behavior as a relationship between unlimited ends and scarce means which have alternative uses". This definition was supported by various famous economists like Stigler, Peter, etc.
Lionel Robbins defined economics as the science of scarcity and choice whereas Alfred Marshall defined it in terms of material welfare. So, Robbins definition of economics is regarded as superior to Marshalls definition because of the following reasons:
Robbins definition of economics is considered as more scientific and analytical than Marshall's definition because it is far from classificatory. Marshall's definition is classificatory into material and non-material, economic and non-economic activities. But, Robbins definition is related to real world problem which is applicable everywhere.
The scarcity and choice definition of Robbins has a wider scope because it is applicable to all types of economy. It is applicable in capitalist, socialist and mixed economies. Therefore, this definition has universal application.
Alternative use of the scarce resource to fulfill unlimited needs or desires of society and a government is the main theme of Robbins definition. This definition provides the best way for an individual to get maximum satisfaction subject to budget constraints. It guides a government to utilize limited resources to meet infinite needs of people. Similarly, it guides entrepreneurs to achieve maximum profit by utilizing limited capital and other resources.
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
Main features of the definition
Criticisms of Scarcity Definition