Alfred Marshall's Definition (Welfare Definition)
Alfred Marshall (1842-1924) wrote a book Principles of Economics in 1890. In it, he defined economics as 'a study of mankind in the ordinary business of life'. An altered form of this definition is : 'Economics is a study of man's actions in the ordinary business of life'.
Marshall agrees that economics studies about wealth. But he does not accept the view that economics studies about wealth alone. In the words of Marshall, 'Economics is on the one side a study of wealth, and on the other and more important side, a part of the study of man. Man is the centre of his study. According to him, the study of man is more important than the study of wealth.
In economics, we do not study about all aspects of humankind. As Cairncross puts it, economics studies about man as 'buyer and seller, producer and consumer, saver and investor, employer and worker'. It studies about how people get their income, how they use it and how they make best use of their resources.
Economics studies how people try 'to increase the material means of well-being'.
According to this definition, we may say that economics is the study of the causes of material welfare.
Marshall's definition is known as material welfare definition of economics because of its emphasis on welfare.
There is no doubt that Marshall's definition is a great improvement over the definition of Adam Smith. For its emphasis is on social problems. And economics is a social science. Moreover, it tells us about the link between wealth and welfare. But the main idea of Marshall that economics is a science that deals with material welfare has been strongly criticized. Lionel Robbins is a great critic of this definition. He says that Marshall's definition misrepresents the science of economics.
First, if we go by the definition of Marshall, in economics we should consider only those activities which promote material welfare. But many activities do not promote welfare but are rightly considered as economic activity. For example, we know that alcoholic drinks and cigarettes are bad for our health. But these commodities are produced and sold. There is a market for them. And there are buyers and sellers. So the production and distribution of these goods is economic activity. Let us take another example. War does not promote material welfare. But we have 'economics of war'. And it is an important branch of economics. There are many economic problems with regard to war. Sometimes, the economic causes of war are more important than the political and social causes. So it is not right to say that economics studies material welfare.
Second, some activities promote welfare but not material welfare. For example, the activities of doctors, lawyers, actors, musicians promote our welfare. But their labour does not result in the production of material goods. If we follow the material welfare definition of economics, we cannot consider the activities of the above categories of labour as economic activity as they do not promote material welfare. But we make use of their services. We pay a price, sometimes very high price, for their services. Their services have economic value. It is misleading to describe economics as the study of the causes of material welfare. In the words of Lionel Robbins, 'whatever economics is concerned with, it is not concerned with the causes of material welfare as such'.
Third, Marshall's definition is classificatory. It is not analytical. It considers the production of material goods (e.g. chairs, tables, cycles and cars, bread) alone as economic activity. As the services of a teacher or a judge do not produce material goods, they are not considered as economic activity. This is a wrong view. As Lionel Robbins says, 'we do not say the production of potatoes is economic activity and the production of philosophy is not'.
Lastly, by introducing ethical concepts like welfare, economics will become an inexact science. For it is rather difficult to measure welfare. And some economic policies which promote the welfare of some people may affect the welfare of others.
In spite of the above criticism against Marshall's definition, we should not forget that Marshall has widened the scope of economics by establishing a link between wealth and man and his welfare.
Modern definitions of economics are based on a theory of scarcity and choice.
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