What is Economics? Explain the main features of Adam Smith’s definition of Economics.
Economics is the social science that studies the production, distribution and consumption of goods and services. The term economics comes from the Greek for “oikos” means house and “nomos” means custom or law, hence the term economics means “rules or laws o household”.
A definition that captures much of modern economics is that of Lionel Robbins in 1932 essay which states as “the science which studies human behaviour as a relationship between ends and scare means which have alternative uses.”
According to Alfred Marshall “Economics is the study of people in the ordinary business of life”. In short economics includes the study of labour, land and investment of money, income and production and taxes and government expenditures. Economist seeks to measure well-being to learn how well-being may increase overtime and to evaluate the well-being of the rich and the poor.
Adam Smith’s Definition of Economics:
Adam Smith wrote a book in 1776 whose title was “Wealth of Nations”. In his book he discussed the word ‘wealth’ through its four aspects: production of wealth, exchange of wealth, distribution of wealth and consumption of wealth. Therefore it can be said according to Adam Smith: “Economics is a science of wealth”. Wealth means goods and services transacted with the help of money. Let’s discuss four aspects of wealth; first one is production of wealth it shows as to how goods and services are produced. Goods and services are produced by the combination of four factors of production i.e. land, labour, capital and organization. Second aspect is exchange of wealth there are many procedures of goods and services in a society. Every procedure produces goods and services more than his personal requirement. The exchange of wealth enables everyone in the society to satisfy his multiple wants. Third aspect is distribution of wealth, which means the distribution of goods and services among different sections or individuals of a society. As known by explanation of exchange of wealth that procedures of goods and services exchange the surplus wealth with each other through out the year. The last and forth aspect is consumption of wealth that is using up the utility of goods and services for the satisfaction of wants is called the consumption of wealth.
According to Adam Smith “Economics was concerned with, An Enquiry into the Nature and Causes of Wealth of Nations.” As per definition of Adam Smith a key position was assigned to wealth in the study of Economics. The first person who introduced “Economics” as a subject was Adam Smith (1723-1790). He wrote the first book in economics entitled the “wealth of nation” in 1976. In this book he considered economics as a subject in which we study production of wealth, distribution of wealth, consumption of wealth and exchange of wealth. Production of wealth means the production of goods and services by combining four factors of production 1) Land: It is the natural resources such as Sea, Minerals, Live Stock and forest. 2) Labour: It is the mental or physical work, which is done for the sake of reward. 3) Capital: It means man made resources which help to produce goods and services. 4) Organization: It is the act of combing four factors of production to produce goods and services for the sake of profit. The production of wealth means production of goods and services. After the completion of production process this wealth is distributed among the four factors of production for their performance. Rent is given to land, wages to labour, and interest to capital and profit to organization. When people get their share from the production, they use it to satisfy their wants. They spent their income to purchase of goods and services. The surplus goods and services are exchanged with other surplus goods and services for the satisfaction of wants.