ME/U1 Topic 2 Scope of Economics
Economists differ in their views regarding the scope of economics. The scope of economics’ is a broad subject and encompasses not only its subject matter but also various other things, such as its scientific nature, its ability to pass value judgments, and to suggest solutions to practical problems.
By making economics a human science, Robbins has unnecessarily widened the scope of the subject. Thus, in accordance with the view of Robbins, economics would also study the problem faced by Robinson Crusoe, who lives in an isolated island with no contact with the rest of the world.
He has to face the problem of choice between work and leisure. He has to spend some time for his survival — for collecting fruits and roots. He utilises the rest of his time in sleeping or enjoying leisure. Thus, he has also to face the problem of distributing his time between various ends. Thus, Robinson Crusoe has also to face the problem of choice and would surely come within the purview of Robbins’ definition.
However, most modern economists, like R. G. Lipsey, Paul Samuelson Milton Friedman, etc., held the view that, economics is not a human but a social science. Thus, economics should not study the problem of choice faced by a single individual like Robinson Crusoe.
It should instead study the choice problem where it has a social impact, because man lives in society and an individual often interacts with other members of society.
For example, price controls on Kerosine oil have the desired effect of reducing cooking expenditures for some consumers, but they also reduce both conservation of Kerosene by those consumers and the incentive of producers to bring more Kerosene to the market.
Other consumers will therefore be forced to rely more heavily on other more expensive sources of energy pushing the prices of these energy sources upward. Thus, the controls also generate an unintended result an increase in the energy costs for some consumers.
- Subject Matter
If we take a broad view of the subject matter of economics we may say that, Economics is the study of all phenomena relating to wealth and value. It is one of the social sciences that deal with economic goods, the creation of wealth through the satisfaction of human wants, the explanation of wealth, value and price, the distribution of income and the mechanism of exchange and markets of an economy.
According to Robbins, economics is the study of the problem of using available factors of production as efficiently as possible so as to attain the maximum fulfillment of society’s demands for goods and services. The ultimate purpose of economic endeavour is to satisfy human wants for goods and services.
The problem is that, whereas wants are virtually without limit, the resources—land, labour, capital and organisation—available at any one time to produce goods and services, are limited in supply, i.e., resources are scarce relative to the demands for them.
The fact of scarcity means that we must always be making choices. If, to take a simple example, more resources are devoted to producing motor cars fewer resources are then available for constructing roads or bridges or setting up schools and hospitals. Thus, economics is a science of scarcity or is a study of the problems of scarcity.
However, economics does not study the behaviour of human beings in the way other subjects like Physiology or Psychology study it. Economics is no doubt a Science, but it is not a pure (exact) science like Physics, Chemistry.
- Science or Art
For quite a long time there was controversy among economists as to whether it is a science or an art. The members of the English classical school, such as Adam Smith, T. R. Mathus and David Ricardo, held the view that it was a pure science whose task was just to explain the cause of economic phenomena such as unemployment, inflation, slow growth or even trade deficit.
According to classical writers, economics is simply the study of cause and effect relationship.
However, neo-classical and modern economists have pointed out that economics is both a science and an art. Just to treat economics as a science is to rob it of its practical value. As Keynes has commented, “Practical men……. are usually the slaves of some defunct economist.” So, economics has both a theoretical side and a practical or applied side. In other words, economics is no doubt a science, but it is both ‘light-bearing and fruit bearing’.
Inflation, unemployment, monopoly, economic growth, pollution, free markets versus central planning, poverty, productivity and other current issues are all covered in the study of economics. Economics is a problem- based social science, and the problems with which it is especially concerned are among the central issues of our times.
Economics is relevant not only to the big problems of society, but also to the personal problems, such as one’s job, wages, unemployment, the cost of living, taxes and voting.
- Positive or Normative
Another controversial aspect of economics is whether it should be neutral or pass value judgments. The members of the English classical school were of the opinion that economists were not supposed to make any normative statement or pass any value judgment on the desirability or otherwise of the economic decisions.
Some later members of the classical school even went to the extent of suggesting that economists should not give any advice on any issue.
This means that economics should stand neutral as regards ends. However, the same view has been reaffirmed by Robbins, who commented that the function of the economist is to explore and explain, not to uphold or to condemn. This simply means that economists should take ends as given. Their task is just to discover ways and means of achieving these ends (i.e., to find out ways of accomplishing objectives).
No doubt, by restricting himself to positive aspect of economic science (with its focus on resource allocation and valuation of commodities and factors) Robbins has narrowed (restricted) the scope of economics. He denied economics the right to study welfare.
As he has commented, “Whatever economics is concerned with it is not concerned with the causes of material welfare as such.” He has also ignored macroeconomics altogether as also the problems of developing countries like India.
So, Robbins’ view of economic science is not only one-sided but misleading, too. The task of economists is not just to explain why certain things happen (i.e., why there is so much of unemployment in India in spite of her planned economic development or why there is so inequality in the distribution of income and wealth notwithstanding the prevalence of the progressive income tax system).
It is equally vital to pass judgment as to whether certain things are good or bad from society’s welfare point of view. For example, it is not enough for an economist to explain the present problem of unequal distribution of income and wealth in India.
- Problem-solving Nature
The classical economists believed that economics could not solve practical problems, because there were non-economic (social, political, ethical, religious and other) aspects of people’s lives.
As J.M. Keynes commented in 1923
“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.”