Alex Peek blog

Saturday, June 17, 2017

What is economics?

Photo source: Wikimedia Commons, AndrewHorne

What is economics? Here is my definition:

Economics is the study of the production, distribution and consumption of goods and services.

In other words, economics is the study of the economy.

This post is a collection definitions for 'economics' from famous economists. I have divided the definitions into four categories: scarcity, wealth, decision-making and open-ended. This post was inspired by Roger Backhouse and Steven Medema's paper 'On the Definition of Economics'.

For each definition, I have provided a short analysis. There are 17 definitions below.

Wealth based definitions

Adam Smith (1723-1790)

"[Economics is] the nature and causes of the wealth of nations." (The Wealth of Nations, 1776)

I think Smith's definition in agreement with the definition I stated above. 'Wealth' is a good substitute word for 'goods and services'. 'Nature and causes' is a good substitute for the word 'study'.

Jean-Baptiste Say (1767-1832)

"[Political economy is] the science of production, distribution and consumption of wealth." (A Treatise on Political Economy, 1803)

This definition is basically the same as the one I provided above. 'Wealth' isn't as descriptive as 'goods and services' but means the same thing. My only problem with this definition is that the word 'wealth' could be misinterpreted for 'abundance', therefore I prefer the phrase 'goods and services'.

John Stuart Mill (1806-1873)

"[Political economy] is the science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth in so far as those phenomena are not modified by the pursuit of any other object." (On the definition of Political Economy, 1867)

Although this definition is confusing, I agree that economics revolves around the 'wealth'. That's really all this definition is saying.

Thomas Adams (1873-1933), Richard Ely (1854-1943), Max Lorenz (1876-1959) and Allyn Young (1876-1929)

"[Economics is] the wealth-getting and wealth-using activities of man." (Outlines of Economics 4th edition, 1926)

I agree that economics has to do with 'wealth-getting' (production) and 'wealth-using' (consumption) but I think this definition would be better if it mentioned 'wealth-distribution'.

Scarcity based definitions

Lionel Robbins (1898-1984)

"[Economics is] the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." (Essay on the Nature and Significance of Economic Science, 1932)

This is currently the most influential and popular definition of economics. I'm generally against 'scarce' definitions of economics because I don't think 'scarce' is an accurate mindset for a world with unlimited opportunity.

George Stigler (1911-1991)

"[Economics is] the study of the principles governing the allocation of scarce resources among competing ends when the objective of the allocation is to maximize the attainment of the ends." (The Theory of Competitive Price, 1942)

Once again, I don't think economics should be about 'scarce resources'.

Milton Friedman (1912-2006)

"[Economics is] the science of how a particular society solves its economic problems... an economic problem exists whenever scarce means are used to satisfy alternative ends." (Price Theory: A Provisional Text, 1962)

I don't think economics should revolve around 'problems'.

Paul Samuelson (1915-2009)

"Economics is the study of how people and society end up choosing with or without the use of money to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various persons and groups in society. It analyzes the costs and benefits of improving patterns of resource allocation." (Economics 10th edition, 1976)

I agree with this definition except that I would replace the word 'scarce' for 'limited'. But even the word 'limited' is kinda wrong. There are some economic resources I would describe as 'abundant'. Maybe it would be best to just remove the word 'scarce'.

Gary Becker (1930-2014)

"[Economics is] the study of allocation of scarce means to satisfy competing ends." (Economic Theory, 1971)

I think this definition is too focused on the 'distribution' and 'consumption' part of economics with not enough emphasis of 'production'.

Robin Bade and Michael Parkin

"[Economics is the] social science that studies the choices that individual, business, government and entire societies make as they cope with scarcity." (Foundations of Microeconomics, 2002)

This definition revolves around scarcity. It's as if society is given a pie that must be divided up with no potential to create more pie. This definition doesn't talk about the 'production' part of economics.

Decision-making based definitions

Carl Menger (1840-1921)

"[Economics] is related to the practical activities of economizing men." (Principles of Economics, 1871)

What does it mean to economize? According to Google, "to spend less; to reduce one's expenses". Although this definition kinda works, I think its too broad and doesn't properly define the boundaries of what economics is.

Alfred Marshall (1842-1924)

"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 wellbeing... thus it is on the one side a study of wealth and on the other, and more important side, a part of the study of man." (Principles of Political Economy, 1890)

For the most part I agree with this definition. I agree that 'ordinary business of life' revolves around economics. I like how this definition focuses on what is 'most closely connected with the attainment and use of the material requisites of wellbeing'.

Summer Slichter (1892-1959)

"The subject matter of economics is industry; the process by which men get a living... economics studies industry, not as a technological process, but as a complex of human practices and relationships." (Modern Economic Society, 1931)

This definition is very similar to Marshall's definition. I agree that economics is all about 'industry' (goods and services) and the 'process by which men get a living' (production, consumption).

James M. Buchanan (1919-2013)

"[Economics is] the study of the whole system of exchange relationships."

This definition has too much emphasis on the 'distribution' part of economics while ignoring 'production' and 'consumption'.

David Colander (1947-now)

"Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs and political realities of the society." (Microeconomics 6th edition, 2006)

Although I think this definition is valid for economics, I think its better suited for sociology.

Greg Mankiw (1958-now)

"Economics is the study of how society manages its resources." (Principles of Economics 2nd edition, 2001)

This is a broad definition but I think it works. Ultimately, this definition has to do with the production, distribution and consumption of 'resources'.

James Gwartney, David MacPherson, Russell Sobel and Richard Stroup

"Economics is the study of human behavior with a particular focus on human decision-making." (Microeconomics: Private and Public Choice 11th edtion, 2006)

This definition seems better suited for psychology.

Open-ended

Jacob Viner (1892-1970)

"Economics is what economists do." (Quoted by Kenneth Boulding in Economic Analysis, 1941)

This definition is completely inadequate. What's the point of definitions and words in the first place? Without words and concepts we are lost children in the woods.