In popular perception economics is about demand and supply. Nothing can be farther from the truth. The origin of the word economics can be traced to an ancient Greek word ‘oikonomikos’ which literally meant managing the household. The French mercantilist thinkers at their peak expanded the definition into one of managing public administration laying the foundations of political economy. Mercantilists like James Stewart conceptualised economics as an art of providing for all wants of the family. In fact, the concept of reciprocal altruism can be traced in its anchors to mercantilist definitions of economics. The objectives of funding a subsistence level of livelihood, providing employment to inhabitants, providing all necessities for secure livelihood by the state was essentially to create a set of related dependencies thus a motive for reciprocal altruism.
Adam Smith conceptualized economics in terms of national wealth. Therefore his understanding of economics was captured in the phrase “an inquiry into the nature and causes of wealth of nations”. To Smith, the scope of economics revolved around the centricity of wealth at national level. It thus a definitional level in the words of few analysts precluded the analysis of scarcity of resources and non-material and non-monetary elements of human behaviour. However, Smith’s definition at the deeper level necessitated the analysis to be rooted in human actions in conditions of scarcity as one delved deeper into the causes and nature of wealth of nations. To Smith, the political economy objectives anchored on securing sufficient revenues for subsistence of people and in turn collection of revenues (taxes) so that the state provides public services to its inhabitants. Incidentally, Smith never used the word capitalism, nor brought in the concepts of demand and supply as popularly assumed.
JB Say went a step further and termed economics as the science of production, distribution and consumption of wealth. This liberated the economics from pure public policy perspective. Say’s law ‘Supply creates its own demand’ became and remained the fulcrum of economic theories for more than century before the Great Depression of 1929 exposed its severe limitations. John Stuart Mill too defined economics within the wealth creation perspective when he talked about it as laws tracing to phenomena which were linked human production of wealth.
For Karl Marx, the emphasis was on the flaws which he argued were intrinsic to capitalism. Increased specialisation of work accompanied by higher population led to downward spiral in wages. The value placed on goods and services did not reflect the true cost of labour. To Marx, the classical economic theories ignored the role of labour favouring the capital instead. Marx did not create new definitions of economics but introduced determinism in economic analysis.
With the arrival of Menger and Jevons etc. it was not long before economics moved from macro national or societal level to individual analysis. The marginal revolutionists as these were called framed economics as the conditions in which men engage in provident activity directed to satisfaction of their needs. Jevons contribution was development of hedonic and quantitative dimensions of economics towards developing well-being of humans. This concept of wellbeing was picked up in detail by Alfred Marshall.
It was Marshall, who first demarcated economics in terms of human mankind. To Marshall, economics was the study of man in the ordinary business of life. While Marshall might have confined the definition to the materialistic possession of life, it remained at the root of analysis as economists and social thinkers expanded the analysis to non-materialistic elements of human behaviour. Marshall developed the concept of the forces of demand and supply which in popular language came to be known as Marshallian scissor- representation of demand and supply curves to create equilibrium. For Marshall, economics dealt with those parts of human action that was linked with attainment and use of materialist pursuits of human wellbeing. This developed into background for utility maximization theories. Theorists before marginal revolution embedded their tools and analysis moored in production and perhaps distribution. Marginalises pioneered the analysis of demand side patterns, that was made the fulcrum by Marshall. Economics moved from the prism of production to a prism of markets entailing the linkages between the forces of production and consumption.
In a 1932 essay, titled ‘ An Essay on the Nature and Significance of Economic Science’ Lionel Robbins expanded the definition to expand science of economics that studies human behaviour as a relationship between ends and scarce means that have alternative uses. For the first time, economics expanded formally into a study of scarce resources and subsequent human actions under conditions of such scarcity. From analysing nature and causes of wealth creation to understanding man as economic animal to actions under scarcity, economics underwent definitional expansions. In the context, demand and supply merely were manifestations of human actions rather than being the beginning of study of human actions.
For Keynes, it was a distressing point to see attempts to convert economics into what he called pseudo natural science. For Keynes, economics became a science of thinking. Given the multiplicity of models, it was an exercise of choice in selecting the model relevant for the contemporary world. Unlike natural sciences which universally follow the laws of science, economics linked to actions and behaviour is not homogenous with reference to time. Economic pursuits suffer from inter-temporal inconsistencies. Therefore the primary objective of economic models emerge in segregation into transient, constant, temporarily constant, continuously fluctuation factors in case of evolution of logical model of thinking. Moreover he emphasized the understanding the time sequences to which they give rise in particular cases
To followers of Hayek, Von Mises and Austrians, economics is about the ideas that motivate human beings. Economics expands into a study of human actions from their birth till their death. Therefore rather than an analysis of aggregates, it posits economics as study of individuals. Individual actions over period of time though independent and heterogeneous lead to aggregate actions which might be very different than a simple additive causation of individual behaviours. Ludwig Von Mises built economics on the strength of two words ‘Men Act’.
To Paul Samuelson, economics was framed in the realm of individual and societal choices. To him, the choice was a function of employment of scarce productive resources either through monetary or non-monetary mechanisms under conditions of prospective alternative uses. He goes beyond to understand economics as entailing production of various commodities with reference to time and consequent engagement of the produced goods in distributing the same to individuals and groups of individuals in the society. Economics thus began morphing into an approach in specific towards choice process and social interactions such analysis came to be embedded with
For behavioural economists, rationality of human actions gave way to bounded rationality. Herbert Simon reframed maximising behaviour in terms of satisficing within the boundaries of available information and cognitive constraints. To economists like Thaler, Kahneman and others, economics rather than being natural science was a product of actions undertaken under conditions of uncertainty. They sought to integrate principles of psychology into human decision making. From emphasis on output of actions, behavioralists shifted the emphasis to processes that underlined the final actions.
Integrating assumptions of maximising behaviour, stable preferences and market equilibrium, Gary Becker expanded economics into new areas, yet to him rather that a subject matter it was more of an approach of analysis and interpretation. In recent years, the scope for economics analysis has expanded into several dimensions. Similarly the diagnostic tools have underwent a change. So from definitional perspective, economics today has transformed into an approach towards human actions. Alternatively, emerging models like evolutionary economics seek to give different theoretical approaches for understanding human behaviour. Meanwhile, economics has encroached other social sciences like psychology, political science, sociology etc. Certain problems that were viewed as subject matter of psychology, sociology etc. have now become matters of topical interest for economists.
In the two hundred and fifty years since the birth of modern origins of economics, the scope and nature has underwent numerous changes. As the universe morphed into digital domain, the economics of digitalization brings to the fore new challenges. There would be an emphasis on economics abundance and different forms of materialization of economic behaviour would perhaps happen. Human actions will not change just that their manifestations would. Humans gather neat the village square for centuries, the primary objective being gossip (sharing economy for information!). In the digital economy, the new village square for gossip is Facebook! Therefore economic frameworks will be adapted to the changing tunes of the society.
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