Scarcity Definition of Economics
Marshall’s materialist definition of economics was unable to convince Lionel Robbins. Therefore, Robbins attempted to define economics in a better sense in his book “The Nature and Significance of Economic Science”. His efforts provided us with the most considered ‘scarcity definition of economics’.
According to Lionel Robbins, “Economics is the science, which studies human behavior as a relationship between ends and scarce means, which have alternative uses.” If you decipher the definition, you will be able to understand that Robbins’ definition is based on four fundamental characteristics of human existence. They are unlimited wants, scarce means (resources), alternative uses of scarce means and the economic problem.
In the scarcity definition, “Ends” refers to human wants. As you know, human wants are unlimited. This basic characteristic is the cause of all economic activities. Also human wants can never be satisfied. If one want is fulfilled, another will emerge eventually. This ensures that there is continuity in the economic activities.
In the definition, “Means” refers to available resources. Resources could be anything such as raw materials, time, money and labor that help to satisfy human wants. While the human wants are unlimited, the resources available to satisfy them are limited. The world does not offer everything in abundance. If resources are available in abundance, they will become free goods such as air and water, and there will be no need of studying economics.
In economics, we never bother about absolute scarcity but relative scarcity. Absolute scarcity means that goods are not available at all. However, relative scarcity measures scarcity in relation to demand. For example, there is a huge demand for green tea in the market. If the green tea stock available in market is unable to meet the existing demand, then we can say that there is a scarcity of green tea. Hence, in economics, demand determines everything. If there is no demand, there will not be the question of scarcity of a good.
Alternative Uses of Scarce Means
As stated above available resources are scarce. However, human wants are unlimited. Though economic resources can be used to produce various things, if we choose one thing, we must give up others. For example, you can use your land either to cultivate or to build buildings. If you choose to cultivate, you are in a position to give up buildings. This peculiar economic problem arises because of alternative uses and scarcity of resources.
The Economic Problem
The demand for scarce resources is very high due to unlimited human wants. At the same time, the scarce resources have alternative uses. Now we have to decide what to produce, how to produce and for whom to produce. This is called the economic problem. Almost all pricing and valuation theories in economics are developed to answer these questions. For example, suppose you have $1,000. Also you need to buy various things to keep your life comfortable. But you cannot buy everything you want with the $1,000. Now economics is all about spending your $1,000 optimally to keep yourself satisfied at the maximum level possible. If you do not choose carefully what to buy and what not to buy, the available resources, i.e. $1,000 in our example, will not be utilized properly.
Economic Problem and Technical Problem
It is imperative that you understand the difference between an economic problem and a technical problem. A technical problem has something to do with accomplishing a task. In simple words, technical problem arises when you try to complete a project with the limited resources. In this case, you need to find out the best possible way to carry out the project so that you utilize the scarce resources optimally. But an economic problem has something to do with decision making.
An economic problem arises when you decide on a project whether you should carry out with the scarce resources. Because you have many choices, as you can use the same resources to carry out all projects. But the problem is that the resources available are not enough to carry out all projects. Now you have to decide in which project you should invest the scarce resources. But remember that if you choose one you must give up others. Hence choosing the best project is known as an economic problem. Therefore, we can conclude that economics is a science, which helps a society to solve its economic problems.
Merits of Robbins’ Definition
Robbins’ definition undoubtedly gives us a complete sense of what is economics. In particular, his conceptions of scarce resources and unlimited human wants are very realistic, and are applicable at all time and situations. In this manner, Robbins’ scarcity definition demolished the old structure of economics and made us look at economics in a new dimension.
- First of all, Robbins’ explanation of economic problem is very clear and precise. According to Robbins, three important factors that cause economic problems are unlimited wants, scarce resources and multiple uses of resources. Indeed, economics revolves around these three factors.
- Another important aspect of Robbins’ definition is that it tries to analyze human behavior. When there are many choices in front of you, you need to make a rational decision as which one is more important. Thus, human behavior plays a vital role in an economic decision-making.
- Robbins’ definition is universal in application. All nations and economic systems face the problems of unlimited human wants and scarce resources. That is why Robbins’ definition becomes more realistic.
- There were definitions for economics before Lionel Robbins’. However, those definitions were based on many assumptions and conditions. For example, neo-classical economists said that for a human activity to be included in the subject of economics, it must satisfy an important condition: the human activity must create material goods that contribute to human welfare. When we say material goods, it ignores services rendered by a teacher, advocate and doctor. However, those services are also economic activities. Robbins’ definition is a positive study. It explains economics just based on ‘what it is’ and not based on ‘what ought to be’.
- Robbins’s definition undoubtedly widened the scope of economics, as it included activities of producing immaterial goods in the subject matter of economics. According to Robbins, economic activities include both the production of machines and production of ‘philosophy’.
- We can ascertain that the concept of opportunity cost is the gift of scarcity definition. Because Robbins’ definition explains, how and why economic choices arise. And when you have choices and limited resources, you have the option to select one or few of the them. Here, you are in the position to give up others. In this way, opportunity cost gets significance in this definition.
- The scarcity definition of Robbins touches the concept of scale of preference implicitly. When you have many wants and scarce resources, you list out all of your wants. Obviously, the top one in the list gives you the maximum satisfaction. This is called scale of preference. Scale of preference is an important concept in economics, which is implied this definition.
Criticism of Robbins’ Definition
1. Robbins’ scarcity definition appears final and complete. However, important critics such as Lindley Fraser, R.W.Souter, T.Parson and Barbara Wootton criticized the definition vehemently. According to them, the scarcity definition ignored the normative aspect of human behavior. While studying ‘what it is’, it will become incomplete if we ignore ‘what ought to be’. Critics said that ignorance of the normative aspect of human behavior made economics an ‘obscure science’.
2. D.H.Robertson feels that Robbins could have considered idle resources as well. According to Robbins’ definition, the scarce resources are fully employed due to unlimited human wants. But in real world, this is not the case. Always there are idle resources. Unemployed people are an example for idle resources. Idle resources arise basically due to defects in the economic system. But there is no perfect economic system that ensures full employment of resources. In addition, D.H. Robertson says that the definition widened the scope of economics too much as it included services by a cricket captain and cinema actor. In this way, the definition includes non-economic activity. Hence, Robertson feels that the definition is ‘at once too narrow and too wide’.
3. According to critics, the concept of scarcity had been in the pride place of economics for a long time before Robbins explained. For example, physiocrats and classical writers have already discussed the concept of scarcity. However, this criticism is impertinent because Robbins handled the concept of scarcity in a different way and beautifully explained what economics is.
4. Boulding has criticized Robbins for not including welfare aspect in his definition. However, this argument does not hold true. Because Robbins in his definition has stated scarce resources are allocated optimally to produce goods that give maximum satisfaction. Hence, the concept of welfare has entered into Robbins definition implicitly.
5. Robbins’ definition works well at micro level. It means that the definition has something to do with individuals facing unlimited wants and scarce resources. But when we take a nation as a whole into consideration, Robbins definition is rather vague to address the aggregate economic problems. However, this argument also does not hold true, as Robbins definition is universal in application. A nation’s economic problems are more or less similar to an individual’s except for the size.
6. Robins’ scarcity definition limits the scope. Robins confined the scope of economics within satisfying unlimited wants and allocating scarce resources. But economics in reality is a growing science. New branches and concepts are included in the subject matter of economics day by day. However, this growth aspect of economics was completely ignored by Robbins.
7. Another important criticism against scarcity definition is economics of abundance. According to Lionel Robbins, scarcity is the main cause of economic problem. But Prof. Kenneth Galbraith, a noted American economics in his book “The Affluent Society” has denied this statement. Because in 1930s, economic problem emerged due to abundance. There were too many goods but nobody was there to buy due to lack of purchasing power. Hence, Prof. Kenneth doubts about the universal application of scarcity definition.
© 2013 Sundaram Ponnusamy