Law can be stated as “a repeated action which holds good at every time and at every place or if an action is repeated again and again and we get the same result and the result holds good at every time and at every place it is called a law”. Like other laws e.g. state laws, physical laws, moral laws there are also laws of economies.
Economic law is the same behaviour of people which they adopt during struggle. It means the conditions when the wants are limited but the resources to satisfy them are limited. If the conditions are the same this behaviour always remain the same therefore that behaviour becomes an economic law.
So, in economics laws that human behaviour is studied which is adopted by a social person during economic activities. Therefore, by economic laws we mean human behaviour which is adopted during economic activity. Or if we study behaviour of individuals during consumption, production, distribution, exchange allocation of scarce means to unlimited wants we shall notice they behave in a common manner. The generalization about human behaviour is called economic laws.
According to Prof. Dr. Alfred Marshall
“Economic laws or statements of economic tendencies are those social laws, which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by money price.”
According to Prof. Douglas Greenwald:
“Economic law is a generalization concerning the relationship between various economic phenomena, such as that between price and total sales.
According to Prof. Nevin:
“Economics laws are statements of tendencies that are unlikely to result from certain causes.”
According to Prof. Lionel Robbins
“Economic laws are statements of uniformities which govern human behaviour concerning the utilization of limited resources for the achievement of unlimited ends.”
It can be inferred from these definitions that economic laws are:
(a) Statements of economic tendencies,
(b) Social laws,
(c) Concerned with human behaviour, and
(d) Human behaviour can be measured in money.
Characteristics of Economic Laws:
Following are the characteristics or features of economic laws:
Conditional or Hypothetical:
The economic laws are applicable only under some given assumptions. They are not indicated by the word ‘must’- as in cases of statute laws, or by ‘ought’ – as in cases of moral laws. They are indicated by the phrase ‘other things being equal.
Statement of Tendencies:
The economic laws are the statements of general tendencies of behaviours of the people. Therefore, they may be called the statements of statistical probabilities. These laws are inevitable and inescapable if necessary, conditions are fulfilled. But these conditions are not always fulfilled.
They Lack Exactitude and Definiteness:
Economics laws are not exact and definite, because they are related with human behaviour and human behaviour usually keeps on changing. Economic laws are not certain and not always proved true, because they just explain the relationship between the facts and results, which are always changing.
There is a great deal of economic friction arising out of custom and law, and preponderance of human elements, etc. All these factors impart an element of uncertainty to the economic laws. While physical law related with lifeless matter therefore, the result of any repeating action applied on these will always be the same.
Economic laws are more reliable and exact as compare to that of other social sciences. This is due to the factor that economic transactions can be measured in terms of money price.
They Lack Predictability:
It is impossible to predict prospective changes on the basis of economic laws. Because it is difficult to make an exact prediction about human behaviour as there is no instrument to measure the mental state of human beings.
Economic laws explain general tendencies of the people. Therefore, they depict human behaviour, which is not constant. Thus, economic laws are not predictable and predictions concerning human behaviour are liable to error.
Economic laws cannot be tested in any laboratory because these are qualitative in nature. These are not quantitative or of material status.
They are Optional:
Economic laws are optional. It is up to the people’s will whether they follow the laws or not. It is not necessary or compulsory to act upon these laws. It is entirely one’s choice to follow economic law or not. They cannot be compelled to follow them. Therefore, there is no punishment or fine or challan, if one disobeys them.
Statements of General Tendencies:
Economic laws represent general tendencies or behaviours of the people. Which are ever changing. People do not live constantly or in constant circumstances.
Economic laws are not immediately applicable because every economic problem is attached with so many social and political problems. Therefore, their applicability takes time. Similarly, economic laws are not applicable everywhere.
A Kind of Scientific Laws:
Economic laws are kind of scientific laws because economic laws also explain the relationship between facts and their results like other sciences.
Economic laws are the use of introspective and psychological method. Economists by knowing their reactions to a certain economic phenomenon also think that other too would behave in the same way, human nature being the same. Thus, by their own psychological reactions they derive generalizations about economic behaviour of the people.
They are Qualitative but not Quantitative:
As economic laws express the general tendencies of people so they cannot be described in quantitative terms. For example, we can say that an increase in the price commodity results in a decrease in the demand for it. But we cannot say how 1 increase in price will result in how much decrease in demand.
No Punishment or Fine:
No punishment or fine is prescribed in case of going against economic law. Violate them is neither the disobedience of statutory laws nor it causes any harm to society. But it is possible that their violation can cause any personal financial loss.
More Valid than Laws of other Social Sciences:
Although economic laws are not valid as in the case with physical sciences, they are more valid than the laws of other social sciences such as history, sociology psychology etc. Because, in economics money is an instrument which can measure social changes occurring in the society while other social sciences have not such an instrument.
Limitation of Economic Laws:
One major drawback of economic laws is they lack generality. For example, the laws developed to explain the nature and functioning of capitalist economies do not have any relevance for socialist countries. For example, Alfred Marshall developed the laws of demand and supply which apply in a free market in the absence of government intervention. Such laws do not apply in the erstwhile countries like the former Soviet Union where the price (market) system yielded place to the planning system.
In a planned economy, the market mechanism is replaced by government allocation or rationing. So, the question of applying the laws of demand and supply does not arise. Thus, economic laws lack generality and are not universally applicable. Furthermore, some laws of economics which have been developed in the context of advanced industrial countries may not find application in developing countries.
As the multiplier principle, enunciated by Keynes in the context of the advanced countries of the world, does not work in developing countries. This is attributable to the structure of such economies. Similarly, the Quantity Theory of Money has been developed in the context of industrially advanced countries. It seeks to establish an exact, proportional relationship between money and prices.
But it cannot explain the present price situation many developing countries. These two examples make one thing clear at least — the laws and theories of economics developed in the context of advanced countries cannot be applied in developing countries. In fact, there is a feeling among some group of economists that, people in developing countries behave and respond differently from those of advanced countries.