“Economics is the science of wealth”
The founder of the Modern Economics and Classical School of Thought, Scottish Economist Prof. Adam Smith has described economics as “a science of wealth” in his book “And Inquiry into the nature and Causes of Wealth of Nations” in 1776.
According to Adam Smith
“Economics is a subject which studies the nature of wealth and laws which governs its production, consumption, distribution and exchange.”
Hence, Adam Smith has described the following four aspects of wealth in his definition.
1) Production of Wealth:
This means how and in what proportion the four factors land, labour, capital and organization be combined to produce goods and services which is called wealth. Or we can say how wealth is produced? What are the difficulties in production of wealth?
2) Consumption of Wealth:
The part of the wealth used to fulfill basic needs of human life is called consumption. How we spent our income on consumer goods, capital goods, and services. So that we can derive maximum utility from our given income by using goods and services.
3) Distribution of Wealth:
Wealth is produced by the factors of production and distributed among them. This means how the four factors are paid according to their contribution in the form of rent, wages, interest and profit. How the reward of the factors of production are determined according to their contribution to the process of production.
4) 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. How wealth shift from one hand to another or from one country to another? How international trade takes place-i.e., how different countries export and import goods and services? How the currency of a country exchanged with the currency of another country etc.
The other contemporary classical economists, who followed Adam Smith’s explanation of Economics were J.S. Mill, N.W. Senior, Malthus, Chapman, J B. Say, David Ricardo and American economist F.A. Walker. They also called Economics as a science of wealth and man uses it to fulfill his basic needs.
In the words of Prof. Walrus and F.A. Welker:
“Economics is a science which deals with wealth”.
In the words of Chapman:
“Economics studies all human activities which are concerned with wealth”.
According to J.B. Say:
“Economics discusses the activities which deal with wealth”.
J.S. Mill Describes:
“Economics is the science of production of wealth and distribution of wealth”
In the words of N.W. Senior:
“Economics deals with the nature of wealth ie, production of wealth a distribution of wealth”.
Following are the main points, which are described in the definitions of economics given by the Classical School of Thought.
Economics treats only material goods like furniture, electronics, house etc. Whereas, immaterial goods like sunlight, moonlight, air, rain and unpaid services are not included in it.
2) Science of Wealth:
Economics is the science of wealth. The term wealth in economics means all the goods and services, which directly or indirectly satisfy man’s want. Thus, wealth does not mean money.
3) Aspects of Wealth:
Economics treats the four main aspects of wealth-i.e., production, distribution, consumption, and exchange.
People work only for their self-interest. They adopt such ways to collect wealth so that they their standard of living.
The social reformers or moralists belongs to the last decades of eighteenth century like Carlyle and Ruskin have named it as the science “mammon worship”, “Pig Philosophy” and “dismal science” claiming that 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. Similarly, Bailey regarded economics as “degrading sordid inquiry”. The following objections have been raised against the definitions of classic economists.
1) Too much importance to wealth.
Economics teaches materialism. That is, “it is the science of bread and butter.” The definitions of economics given by classical economists give primary importance to wealth and secondary importance to man. The fact is that the study of man is more important than the study of wealth
2) Narrow the scope.
The word wealth’ in the classical economists’ definitions of economics means only material goods such as chair, bock, pen etc. Classical economists have limited the scope of economies they do not include nonmaterial goods or human services such as services of doctors, nurses, soldiers etc.
3) Concept of economic man.
According to wealth definitions, man works only for his self-interest while Social interest is relegated in the background. Economics degrades man. That is, “it ignores spiritual and moral values like brotherhood, love, friendship, etc”. Dr. Marshall and his followers were of the view that economics does not study a selfish man but a common man.
4) No mention of man’s welfare.
The “Wealth” definitions ignore the importance of man’s welfare. Wealth is not the be all and the end all of all human activities,
5) It does not study means.
The definitions of economics lay emphasis on the earning of wealth as an end in itself. They ignore the means or resources which are scarce for the earning of wealth.
6) Objective of Human Activity
Classical economists called it a science of wealth, but they could not explain what is the objective of the study of wealth and they not pointed out what is the purpose of human activities.
Clarification of Misconception
The definitions of economics given by classical economists were unduly criticized by the literary writers of that time. Criticism made by the Carlyle, Ruskin and Bailey is quite unjustified, because, they do not come to understand the concept of wealth. They were just taking money and gold as a wealth. Whereas anything which carry utility, scarcity, and transferability is called wealth. Wealth by itself is not bad or good but it’s use make it so.
The fact is that what Adam Smith wrote in his book ‘Wealth of Nations” in 1776 even now is widely accepted. The central argument of the book that market economy enables every individual to contribute his maximum to the production of wealth of nation still not only holds good but is also being practiced and advocated throughout the capitalistic world.
Since the word “wealth” did not have a clear meaning, therefore the definition of economics became controversial. While in the sense of economics all the goods and services are considered as a wealth. It can either be spent on necessities or luxuries, on welfare projects or on wasteful projects.
In this way, the concept of wealth in economics is very wide. In economics, wealth is:
- A resource to remove poverty.
- A resource to increase the standard of living.
- A mean to acquire goods and services.
- A resource to increase the human welfare
- A resource to increase economic activities.
- Not a bad means. Its use could be good or bad. etc.
- Hence, there is no harm to say Economics as a science of wealth.
Paper Question for above material:
“Economics is a study wealth”. (OR)
Explain the definition of Economics given by Adam Smith. Also explain its merits and demerits.