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Adam Smith’s Definition of Economics – Management Class 11

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Adam SmithReference Notes | Commerce
Adam Smith’s Definition of Economics and Criticism
For: Management Class 11

Adam Smith’s Definition
Classical economists like Adam smith and his distinguished followers J.S. Mill, F.A. Walker, David Ricardo, etc. define economics as a science of wealth. Adam smith is the leader of classical school of economic thought. There were many economists before the emergence of classical school of economic thought. However, the first definition was given by Adam smith. He categorized economics as a separate science which was link with other subjects. For this great contribution of smith in economic science, he is respected with the honor of father of economics.

After the publication of Adam smith’s book (An enquiry into nature and cause of wealth of nation) in 1776 A.D, economics got its independent identity. He defined economics as the science which studies about the nature and causes of wealth of nation.

According to him economics maintain the relationship between consumption and production of wealth. It is concerned with the knowledge of earning money. Every individual of the society has a desire to earn wealth. So, economics provides guidelines to the individual in earning more wealth. The main points or ideas in the definition of Adam smith are:

  1. Study of wealth of nation: Economics is the study of wealth of nation. It deals with consumption, production, exchange and distribution of wealth.
  2. Study of economic activities: Economics is only concerned with the activities of economic man, who is involved in earning more wealth. But it is not a study of non-economic man, who is not involved in earning wealth.
  3. Main goal is to earn wealth: The main goal of human beings is to earn wealth because wealth is only the means for satisfying human wants.
  4. First place to wealth: Adam smith gave the first place to wealth and secondary place for man in the study of economics. In other words, the subject matter of economics is wealth. He advocated that man is made for wealth.
  5. Only material goods constitute wealth: The definition has given emphasize only material goods constitute wealth in society and there is no concern of economics with non-material goods or like free goods: – air, water, sunlight, water, etc. which do not play any role in creation of wealth in society.
  6. Employed labour is the source of wealth: The source of wealth of nation is employed labour whose productivity would be increased through the division of labour in production and distribution of goods and services.

Criticism of of Adam Smith’s Definition
Adam smith’s definition of economics as a science of wealth has been criticized bitterly because it assumed wealth as an end of human activities. If it is accepted in life, there will be no place for love, sympathy, and patriotism and it had made the man selfish. Economists like Ruskin, Carlyle, Maris, Marshall, etc. have criticized Adam smith’s definition as a science of bread and butter, a science of getting rich, a dismal science, a science of devil, etc. The major weakness or criticism points of this definition are as follows:

  1. Narrow meaning of wealth: Adam smith considered that economics is the science of wealth and wealth includes only material goods. This is the narrow sense of defining wealth. In practice, wealth includes both material and non- material goods. The human wants can be fulfilled by using non material goods of services also.
  2. Too much importance to wealth: Adam smith gave more importance to wealth than man. He had given first place for wealth and secondary place for human beings. But according to Marshall, wealth is only a means of satisfying human needs. Thus, economics must emphasize the study of man much more than the study of wealth.
  3. No meaning of human welfare: This definition gave no importance to the welfare of society. According to Marshall, the main aim of economics is to increase the welfare of human beings not to obtain wealth only.
  4. Wrong assumption of economic man: According to Adam smith, Economic man is one who is involved in earning wealth and this economic man is only the subject matter of economics. But no man can be limited only with earning wealth. Because man is equally influenced by moral and spiritual thoughts like love, self-esteem, sympathy, friendship, etc.
  5. Labour is not only the source of wealth: According to Adam smith, main source of wealth is employed labour. In real, labour alone cannot produce anything. In production process, there are other factors of production like land, capital, and organization including labour. Adam smith has ignored these aspects.

Thus, his definition provided an independent identity to the economics and separated economics which was linked with other subjects. Hence, he is known as the father of economics.

Posted By : Hari Prasad Chaudhary | Comment RSS | Category : Class XI, HSEB Notes
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