Definitions of Economics

Table of Contents

John Stuart Mill’s Definition of Economics (1844)

Introduction

Definition

Lionel Robbins’ Scarcity Definition of Economics (1932)

Rejection of a Materialist Definition of Economics

Wage Theory

The Political Economy of War

Robbins’ Scarcity Definition of Economics

Summary

Roger Backhouse & Steven Medema: Unlikely There is a Simple Definition (2009)

Ha-Joon Chang: Define Economics by Its Subject Matter (2014)

John Stuart Mill’s Definition of Economics

Mill’s Definition of Political Economy

Mill suggests that political economy should concern itself, not with the whole of human nature, but rather with humans as individuals who are narrowly concerned with acquiring wealth and are rational in the pursuit of this wealth. 

“Political Economy” …. does not treat the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means of obtaining that end. (pg. 67)

He calls for the exclusion from consideration of all other facets of human motivation except those that impede them in their pursuit of wealth. 

[Political Economy] makes entire abstraction of every other human passion or motive; except those which may be regarded as perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costly indulgences. These it takes, to a certain extent, into its calculations, because these do not merely, like other desires, occasionally conflict with the pursuit of wealth, but accompany it always as a drag, or impediment, and are therefore inseparably mixed up in the consideration of it. (pg. 67)

Political Economy considers mankind as occupied solely in acquiring and consuming wealth; and aims at showing what is the course of action into which mankind, living in a state of society, would be impelled, if that motive, except in the degree in which it is checked by the two perpetual countermoves above adverted to, were the absolute ruler of all their actions. (pg. 67)

The science then proceeds …. under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specified. (p. 68)

With respect to those parts of human conduct of which wealth is not even the principal object, to these Political Economy does not pretend that its conclusions are applicable. But there are also certain departments of human affairs, in which the acquisition of wealth is the main and acknowledged end. It is only of these that Political Economy takes notice. (p. 68)

The manner in which [Political Economy] necessarily proceeds is that of treating the main and acknowledged end as if it were the sole end; which, of all hypotheses equally simply, is the nearest to the truth. (p. 68)

The political economist inquires, what are the actions which would be produced by this desire [to accumulate wealth], if, within the departments in question, it were unimpeded by any other. (p. 68)

Mill argues that political economy should treat phenomena such as the establishment of property law and the creation of money and credit as outgrowths of this desire to accumulate wealth. 

Under the influence of this desire, [political economy] shows mankind accumulating wealth, and employing that wealth in the production of other wealth; sanctioning by mutual agreement the institution of property; establishing laws to prevent individuals from encroaching upon the property of others by force or fraud; adopting various contrivances for increasing the productiveness of their labour; settling the division of the produce by agreement, under the influence of competition (competition itself being governed by certain laws, which laws are therefore the ultimate regulators of the division of the produce); and employing certain expedients (as money, credit, &c.) to facilitate the distribution. (pg. 68)

Mill makes clear that he defines political economy in this way, not because he believes humans are actually solely motivated by a desire to accumulate wealth.

Rather, he calls for political economists to focus narrowly on the desire to accumulate wealth (and those motivations which are directly antagonistic to it) because social outcomes are determined by multiple causes and, in order to predict or control these outcomes, we must peel apart and study each of these multiple causes individually. 

Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed. When an effect depends upon a concurrence of causes, those causes must be studied one at a time, and their laws separately investigated, if we wish, through the causes, to obtain the power of either predicting or controlling the effect; since the law of the effect is compounded of the laws of all the causes which determine it. (pg. 68)

The method of the practical philosopher consists, therefore, of two processes; the one analytical, the other synthetical. He must analyze the existing state of society into its elements, not dropping and losing any of them by the way. After referring to the experience of individual man to learn the law of each of these elements, that is, to learn what are its natural effects, and how much of the effect follows from so much of the cause when not counteracted by any other cause, there remains an operation of synthesis; to put all these effects together, and, from what they are separately, to collect what would be the effect of all the causes acting at once. If these various operations could be correctly performed, the result would be prophecy; but as they can be performed only with a certain approximation of correctness, mankind can never predict with absolute certainty, but only with a less or greater degree of probability[.] (pg. 77)

Likewise, he does not actually believe that phenomena like the creation of property law, money, and credit all owe solely to the desire to accumulate wealth.

All these operations, though many of them are really the result of a plurality of motives, are considered by Political Economy as flowing solely from the desire of wealth. (pg. 68) [emphasis added]

Mill likens the approach of considering how man would behave if he were under the influence of a single motivation (i.e. the desire the accumulate wealth) to that of the physical sciences.

The law of the centripetal and that of the tangential force must have been known before the motions of the earth and planets could be explained, or many of them predicted. The same is the case with the conduct of man in society. In order to judge how he will act under the variety of desires and aversions which are concurrently operating upon him, we must know how he would act under the exclusive influence of each one in particular. (pg. 68)

Mill then suggests that, after the political economist has considered humans as motivated solely by the desire to acquire wealth, corrections can be made for other motivations.

The political economist inquires, what are the actions which would be produced by this desire [to accumulate wealth], if, within the departments in question, it were unimpeded by any other. In this way a nearer approximation is obtained than would otherwise be practicable, to the real order of human affairs in those departments. This approximation is then to be corrected by making proper allowance for the effects of any impulses of a different description, which can be shown to interfere with the result in any particular case. (pg. 68)

Mill argues that not correcting for such other factors in cases where they are known to affect human behavior will impede the ability of political economy to produce explanations and make predictions.

So far as it is known, or may be presumed, that the conduct of mankind in the pursuit of wealth is under the collateral influence of any other of the properties of our nature than the desire of obtaining the greatest quantity of wealth with the least labour and self-denial, the conclusions of Political Economy will so far fail of being applicable to the explanation or prediction of real events, until they are modified by a correct allowance for the degree of influence exercised by the other cause. (pg. 68-69)

Mill argues that these factors which need to be corrected for should only be incorporated directly in the study of political economy in rare cases.

Only in a few of the most striking cases (such as the important one of the principle of population) are these corrections interpolated into the expositions of Political Economy itself; the strictness of purely scientific arrangement being thereby somewhat departed from, for the sake of practical utility. (pg. 68)

Mill then proceeds to offer his complete definition of political economy.

Political Economy, then, may be defined as follows; and the definition seems to be complete: “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.” (pg. 69)

In short, for Mill economics is the study of the social phenomena which occur in the course of human efforts to produce wealth, isolated from other social phenomena.

(Learn more about the views Mill articulated on economic methodology in this 1844 essay here.)

Lionel Robbins’ Scarcity Definition of Economics

In his influential 1932 An Essay on the Nature and Significance of Economic Science, Lionel Robbins articulated what is referred to as the scarcity definition of economics.

According to this definition, economics is the study of how humans navigate tradeoffs in deploying the limited means available to them (e.g. time) toward acquiring their multiplicity of desired ends (e.g. income, leisure).

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. (pg. 15)

Robbins challenges this definition.

The definition of Economics which would probably command most adherents, at any rate in Anglo-Saxon countries, is that which relates it to the study of the causes of material welfare. This element is common to the definitions of Cannan and Marshall, and even Pareto, whose approach in so many ways was so different from that of the two English economists, gives it the sanction of his usage. It is implied, too, in the definition of J.B. Clark. (pg. 4)

And, at first sight, it must be admitted, it certainly does appear as if we have here a definition which for practical purposes describes the object of our interest. In ordinary speech there is unquestionably a sense in which the word "economic" is used as equivalent to "material". (pg. 4)

Robbins claims that this materialist definition of economics is flawed because it does not cover the entirety of the subject matter of economics; it leaves out issues which rightfully fall under the purview of economists.

But the final test of the validity of any such definition is not its apparent harmony with certain usages of everyday speech, but its capacity to describe exactly the ultimate subject-matter of the main generalisations of the science. And when we submit the definition in question to this test, it is seen to possess deficiencies which, so far from being marginal and subsidiary, amount to nothing less than a complete failure to exhibit either the scope or the significance of the most central generalisations of all. (pg. 4 – 5)

Robbins thus rejects the materialist definition of economics.

Whatever Economics is concerned with, it is not concerned with the causes of material welfare as such. (pg. 9)

Wage Theory

To support his claim, he begins by discussing wage theory.

We should all agree, for instance, that a Theory of Wages was an integral part of any system of economic analysis. Can we be content with the assumption that the phenomena with which such a theory has to deal are adequately described as pertaining to the more material side of human welfare? (pg. 5)

Robbins argues that not all work which earns a wage generates material welfare.

He suggests as an example that the work of an orchestra does not produce material welfare.

And yet, the members of an orchestra earn wages. And this is a valid subject of economic inquiry.

But if we were to adopt a materialist definition of economics, it would be left out of economic analysis.

Wages, in the strict sense of the term, are sums earned by the performance of work at stipulated rates under the supervision of an employer. …. Now it is perfectly true that some wages are the price of work which may be described as conducive to material welfare—the wages of a sewage collector, for instance. But it is equally true that some wages, the wages of the members of an orchestra, for instance, are paid for work which has not the remotest bearing on material welfare. Yet the one set of services, equally with the other, commands a price and enters into the circle of exchange. The Theory of Wages is as applicable to the explanation of the latter as it is to the explanation of the former. Its elucidations are not limited to wages which are paid for work ministering to the "more material" side of human well-being—whatever that may be. (pg. 5 – 6)

And, Robbins argues, the materialist definition cannot be saved by focusing on what wage-earners spend their wages on, rather than on how they earn those wages.

That is, it would not be saved by suggesting that although the members of the orchestra earn wages for work which does not produce material welfare for others, the wages they earn for their work do provide for their own material welfare and are therefore captured by a materialist definition.

Nor is the situation saved if we turn from the work for which wages are paid to the things on which wages are spent. It might be urged that it is not because what the wage-earner produces is conducive to other people's material welfare that the Theory of Wages may be subsumed under the description, but because what he gets is conducive to his own. But this does not bear examination for an instant. (pg. 6)

This is because some of what is bought with a wage-earner’s wages may not satisfy material ends.

For example, a wage-earner may use a portion of his earnings to buy bread, which improves his material condition.

But he may also use a portion of it to buy tickets to the theatre, which do not.

And we cannot accept a definition of economics which would exclude the analysis of that portion of a wage-earner’s spending which does not improve his material condition.

The wage-earner may buy bread with his earnings. But he may buy a seat at the theatre. A theory of wages which ignored all those sums which were paid for "immaterial" services or spent on "immaterial" ends would be intolerable. The circle of exchange would be hopelessly ruptured. The whole process of static analysis could never be employed. It is impossible to conceive significant generalisations about a field thus arbitrarily delimited. (pg. 6)

Thus, Robbins claims that the adoption of a materialist definition would excise from economics subjects which should rightfully be considered part of the discipline.

The Political Economy of War

After suggesting that the adoption of a materialist definition would render wage theory unworkable, he turns to the “political economy of war.”

In particular, he challenges a claim by Edwin Cannan that the phrase “political economy of war” is an oxymoron.

Cannan, a proponent of a materialist definition, claims that war cannot rightfully be viewed as falling under the scope of economics because it does not improve humanity’s material conditions (indeed it diminishes them).

But Robbins argues it is unlikely modern warfare could be successfully waged without economics.

No less an economist than Professor Cannan has urged that the Political Economy of War is "a contradiction in terms”, apparently on the ground that, since Economics is concerned with the causes of material welfare, and since war is not a cause of material welfare, war cannot be part of the subject-matter of Economics. …. But it is abundantly clear …. that, so far from Economics having no light to throw on the successful prosecution of modern warfare, it is highly doubtful whether the organisers of war can possibly do without it. (pg. 7)

War is therefore another subject that, for Robbins, falls under the proper scope of economics but would be excluded by a materialist definition.

It is, for Robbins, this feature of human existence which holds together the varied subject matter of economics.

Here, then, is the unity of subject of Economic Science, the forms assumed by human behavior in disposing of scare means. (pg. 15)

Thus, Robbins argues, the job of an economist is to study how humans deploy the scarce means available to them.

The economist studies the disposal of scarce means. He is interested in the way different degrees of scarcity of different goods give rise to different ratios of valuation between them, and he is interested in the way in which changes in conditions of scarcity, whether coming from changes in ends or changes in means – from the demand side or the supply side – affect these ratios. (pg. 15)

And he proceeds to articulate his scarcity definition of economics.

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. (pg. 15)

And this definition, Robbins argues, captures those topics which should fall under the scope of economics, but which a materialist definition wrongly excludes.

The examples we have discussed already harmonise perfectly with this conception. …. The theory of wages in its entirety is covered by our present definition. So, too, is the political economy of war. The waging of war necessarily involves the withdrawal of scarce goods and services from other uses, if it is to be satisfactorily achieved. It has therefore an economic aspect. (pg. 15)

Summary

Lionel Robbins (1932) rejected a materialist definition of economics. That is, he rejected defining economics as the discipline concerned with the question: what are the causes of wealth?

He argues that this definition would exclude from economic analysis matters which rightfully fall under the purview of economists.

For example, he argues that this definition excludes war from the consideration of economists because war destroys rather than creates wealth (i.e. it harms rather than enhances humanity’s “material condition.”)

Yet, Robbins argues, war should fall under the purview of economists: it is unlikely modern wars can be won without taking economic considerations into account.

Robbins then proposes an alternative definition of economics which has come to be known as the “scarcity definition of economics.”

According to this definition, economics is a discipline which studies how humans navigate tradeoffs in deploying the limited means available to them (e.g. time) toward acquiring their multiplicity of desired ends (e.g. income, leisure). It is concerned with the behaviors that humans exhibit in navigating this tradeoff.

In Robbins’ words, economics “studies human behavior as a relationship between ends and scarce means which have alternative uses.” (pg. 15)

And this definition would capture those topics which the materialist definition wrongly leaves out.

For example, war falls within the scope of economics under this definition because war necessitates tradeoffs in how the resources of a nation (i.e. its means) are deployed in an effort to achieve its various ends (e.g. reducing poverty, winning the war, etc.).  

Put another way, when a country goes to war, winning it becomes another of the nation’s ends to be met with its limited means.

Therefore, far from being outside the purview of economists, the war effort is just another factor for the economist to include in his analysis when considering how humans navigate tradeoffs in deploying the limited means available to them.

Backhouse & Medema: Unlikely There is a Simple Definition (2009)

Roger Backhouse & Steven Medema (2009) argue that is is unlikely a few words could properly capture the subject matter of economics.

Economics is potentially very broad; indeed, it has become increasingly broad over the past 200 years. Attempts to pin down the subject in a few words are thus almost certainly doomed to failure. (pg. 222)

[A]ny concise definition [of economics] is likely to be inadequate. (pg. 231)

However, they suggest that the definitions economists do articulate are important because they can indicate the questions and methodologies economists consider appropriate for economic analysis.

And they write that, as the questions and methodologies economists consider have changed, so have the definitions they have articulated.

However, we also believe that definitions of economics are important. Definitions of economics have often helped to convey what economists see as legitimate problems for economic analysis, as well as the methods of analysis, approach, and techniques they consider appropriate for doing economics. As these have evolved over time, it is not surprising that the definition of economics has also changed. (pg. 222)

[T]he way the definition of economics has evolved is more than a historical curiosity. At times, definitions are used to justify what economists are doing. …. However, definitions can also reflect the direction is which their authors want to see the subject move and can even influence practice. (pg. 231)

Backhouse & Medema cite Robbins’ articulation of his scarcity definition of economics as an example of a case in which an economist’s definition was really advocacy for a particular way of doing economics.

Robbins (1935, p. xv, italics added) claimed that his essay was based on “the actual practice of the best modern works” on economics. This is a statement with which the Marshallians and the Institutionalists, the dominant forces in the profession at the time, would not have agreed. In other words, Robbins’s definition reflected the way he believed economics should be done. (pg. 231)

Ha-Joon Chang: Define Economics by Its Subject Matter (2014)

Ha-Joon Chang (2014) pushes back on defining economics as a particular methodological approach to studying the world.

 He argues that, just as biologists define biology as the study of life and chemistry is defined as the study of chemicals, so should economists define their discipline by its subject matter.

Chang specifically challenges Robbins’ scarcity definition of economics.

 And he critiques “economic imperialism”: the application of the methodology of (orthodox) economics to the study of subjects that were traditionally considered the domain of other disciplines.

What is economics? A reader who is not familiar with the subject might reckon that it is the study of the economy. After all, chemistry is the study of chemicals, biology is the study of living things, and sociology is the study of society, so economics must be the study of the economy. (pg. 16)

But according to some of the most popular economics books of our time, economics is much more than that. According to them, economics is about the Ultimate Question – of ‘Life, the Universe and Everything’[.] (pg. 16)

The standard Neoclassical definition of economics, the variants of which are still used, is given in the 1932 book by Lionel Robbins, An Essay on the Nature and Significance of Economic Science. In the book Robbins defined economics as ‘the science which studies human behavior as a relationship between ends and scarce means which have alternative uses’. (pg. 18)

In this view, economics is defined by its theoretical approach, rather than its subject matter. Economics is the study of rational choice, that is, choice made on the basis of deliberate, systematic calculation of the maximum extent to which the ends can be met by using the inevitable scarce means. The subject matter of the calculation can be anything – marriage, having children, crime or drug addiction, as Gary Becker, the famous Chicago economist and the winner of 1992 Nobel Prize in Economics, has written about – and not just ‘economic’ issues, as non-economists would define them, such as jobs, money or international trade. When Becker titled his 1976 book The Economic Approach to Human Behaviour, he was really declaring without the hype that economics is about everything. (pg. 18)

This trend of applying the so-called economic approach to everything, called by its critics ‘economics imperialism’, has reached its apex recently in books like Freakonomics. Little of Freakonomics is actually about economic issues as most people would define them. It talks about Japanese sumo wrestlers, American schoolteachers, Chicago drug gangs, participants in the TV quiz show The Weakest Link, real estate agents and the Ku Klux Klan. (pg. 18-19)

Most people would think (and the authors also admit) that none of these people, except real estate agents and drug gangs, have anything to do with economics. But, from the point of view of most economists today, how Japanese sumo wrestlers collude to help each other out or how American schoolteachers fabricate their pupils’ marks to get better job assessments are as legitimate subjects of economics as whether Greece should stay in the Eurozone, how Samsung and Apple fight it out in the smartphone market or how we can reduce youth unemployment in Spain (which is over 55 per cent at the time of writing). To those economists, those ‘economic’ issues do not have privileged status in economics, they are just some of many things (oh, I forgot, some of everything) that economics can explain, because they define their subject in terms of its theoretical approach, rather than its subject matter. (pg. 19)

Chang provides an alternative definition whereby economics is defined by its subject matter: the economy.

An obvious alternative definition of economics, which I have been implying, is that it is the study of the economy. But what is the economy? (pg. 19)

The most intuitive answer to most readers may be that the economy is anything to do with money – not having it, earning it, spending it, running out of it, saving it, borrowing it and repaying it. This is not quite right, but it is a good starting point for thinking about the economy – and economics. (pg. 20)

My belief is that economics should be defined not in terms of its methodology, or theoretical approach, but in terms of its subject matter, as is the case with all other disciplines. The subject matter of economics should be the economy – which involves money, work, technology, international trade, taxes and other things that have to do with the ways in which we produce goods and services, distribute the incomes generated in the process and consume the things thus produced – rather than ‘Life, the Universe and Everything’ (or ‘almost everything’), as many economists think. (pg. 23)

Footnotes

[1]  The essay was published in 1844 as Essay V in Mill’s Essays On Some Unsettled Questions Of Political Economy.

Written By: Aiden Singh Published: November 2, 2020

Sources

Edwin Cannan. Wealth: A Brief Explanation of the Causes of Economic Wealth. Jazzybee Verlag. Kindle Edition. 2018. (First Edition Published in 1914). Chapter I.

Ha-Joon Chang. Economics: The User’s Guide. Bloomsbury Press. 2014. 1st edition. Chapter I.

Lionel Robbins. An Essay on the Nature and Significance of Economic Science. MacMillian & Co., Limited. 1932. First Edition. Chapter I.  

Roger Backhouse & Steven Medema. On the Definition of Economics. Journal of Economic Perspectives. Vol. 23, No. 1. Winter 2009. pg. 221-233.