Sunday, 1 May 2011

Explain the word Economics and Critically examine the Adam Smith Definition

The word Economics is derived from the Greek word "Oikonomos" which means to manage the house . So it means the management of a household especially in those matters which are relating to the income and expenses of the family. After sometime, political economy term was also used for this topic and slowly political economy adopted the shape of Economics.
There are numerous definitions of Economics offered from time to time but there is no clear and concise definition. Keeping in view this situation.

J.M Keynes has rightly , stated that political economy is said to have strangled itself with definitions.

He was the founder of classical school of thought . Adam smith wrote the book "An Enquiry into the Nature and Causes of Wealth of Nation in 1776" and became the father of political economy. He divided his book into four departments i.e. consumption, production, exchange and distribution of wealth. His followers also agreed with him and called Economics is a science of wealth. The stressed that all human activities clusters round the wealth.

J.B.Say :-
A french economist Mr. J.B Says "Economics is the science which treats of wealth.

The American economist Mr. Walker says that "Economics is that body of knowledge which relates to the wealth."

"Economics treats of all actions of human-beings in relation of wealth."

Economics is a science that treats of those social phenomena that are due to wealth - getting and wealth using activities of man."

Thus, in these definitions key position was assigned to wealth, in the study of economics. Adam Smith has called "Economics " the science of of wealth in his book. Now to analysis this definition we will discuss the word wealth means goods and services transacted with the help of money. Now the problem is that how this transaction takes place. For this purpose we will look into the following four aspects of wealth.

This explain as to how goods and services are produced by combining the four factors of production. For example Mr. Kim wants to produce sugar , he will combine the four factors of production. First of all , he purchases land, then he purchases machinery and raw material. Then he employees workers and organizes the business. After combining these factors he will produce sugar.

Every producer exchange his surplus goods and services with the surplus goods produced by others in a barter economy. This process of wealth exchange countries and it enables every one to satisfy his multiple wants.

All the goods and services which are produced in a country during a year are called National income. Every one individual or class gets his share from the national income during a one year. This is called distribution of wealth. If every one gets his share equally from national product, it will be called equal distribution of wealth. If one class get more than other it will be called unequal distribution of wealth.

When we use goods and services to satisfy our wants, it is called consumption. All the goods and services which we get are the result of distribution of wealth is the ultimate objective of production, exchange and distribution.

Keeping in view the above discussion we may find that according to Adam Smith, " Economics is a science of wealth in which we study wealth through its four aspects : production , exchange, distribution and consumption of wealth."

This, economics is a science of wealth because as and individual or as a society all our activities are directed to wealth.


British society was a religious society during 18th century. Religious minded people criticized the subject of economics on the ground that it will take them away from spiritual values like love and brotherhood. It will make the people selfish and materialistic.S

Carlyle and Ruskin, two literary figures called economics the " dismal science " , which teaches mamon worship. Carlyle even called economics the " pig philosophy ". Some other said that it is science of bread and butter and teaches selfishness.


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