Lionel Robbins’ Scarcity Definition of Economics

Introduction

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)

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.

Robbins’ Scarcity Definition of Economics

Having rejected a materialist definition of economics, Robbins articulates his scarcity definition.

He writes that human existence is characterized by a desire for various ends (e.g. income, leisure) which is constrained by having only limited resources (e.g. time) with which to pursue these ends.

He further writes that humans assign different importance to different ends, with some ends being valued more and others less.

And our limited resources can be deployed in different configurations, depending on the importance we assign to the various desired ends.

Thus, humans face a constant tradeoff which requires them to choose how to deploy their limited resources toward achieving their various desired ends.

From the point of view of the economist, the conditions of human existence exhibit four fundamental characteristics. The ends are various. The time and the means for achieving these ends are limited and capable of alternative application. At the same time the ends have different importance. (pg. 12 – 13)

Scarcity of means to satisfy ends of varying importance is an almost ubiquitous condition of human behavior. (pg. 15)

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.

Written By: Aiden Singh Published: September 8, 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.

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