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Wealth, Welfare and Scarcity (2)

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6 views2 pages

Wealth, Welfare and Scarcity (2)

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mrinmayisahani
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© © All Rights Reserved
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Defination of Wealth – Adam Smith (1776)

The formal definition of economics can be traced back to the days of Adam Smith (1723-90) —
the great Scottish economist. Following the mercantilist tradition, Adam Smith and his followers
regarded economics as a science of wealth which studies the process of production, consumption
and accumulation of wealth.

His emphasis on wealth as a subject-matter of economics is implicit in his great book— ‘An
Inquiry into the Nature and Causes of the Wealth of Nations or, more popularly known as
‘Wealth of Nations’—published in 1776.

According to Smith:

“The great object of the Political Economy of every country is to increase the riches and power of
that country.” Like the mercantilists, he did not believe that the wealth of a nation lies in the
accumulation of precious metals like gold and silver.

To him, wealth may be defined as those goods and services which command value-in- exchange.
Economics is concerned with the generation of the wealth of nations. Economics is not to be
concerned only with the production of wealth but also the distribution of wealth. The manner in
which production and distribution of wealth will take place in a market economy is the Smithian
‘invisible hand’ mechanism or the ‘price system’. Anyway, economics is regarded by Smith as the
‘science of wealth.’

Definition of Welfare – Alfred Marshall

Alfred Marshall in his book ‘Principles of Economics published in 1890 placed emphasis on
human activities or human welfare rather than on wealth. Marshall defines economics as “a
study of men as they live and move and think in the ordinary business of life.” He argued that
economics, on one side, is a study of wealth and, on the other, is a study of man.

Emphasis on human welfare is evident in Marshall’s own words: “Political Economy or


Economics is a study of mankind in the ordinary business of life; it examines that part of
individual and social action which is most closely connected with the attainment and with the
use of the material requisites of well-being.”

Thus, “Economics is on the one side a study of wealth; and on the other and more important
side, a part of the study of man.” According to Marshall, wealth is not an end in itself as was
thought by classical authors; it is a means to an end—the end of human welfare.

Scarcity Definition – Lionel Robbins

According to this definition of economics, the appropriate allocation of scarce resources is the
main objective of economics. This definition studies the relation between human behaviour and
use of resources that are scarce to meet the requirements.
Scarcity forces individuals and societies to make choices about resource allocation, leading to
the need for prioritization and trade-offs. This is a core concept in economics, as it affects
supply, demand, and pricing.

Interconnections

 Wealth and Welfare: There’s a relationship between wealth and welfare; higher levels of
wealth can enhance welfare, but distribution matters. Inequality can lead to poorer
welfare outcomes even in wealthy societies.
 Scarcity and Wealth: Scarcity drives the creation and accumulation of wealth. Limited
resources encourage innovation and efficient use of available assets, while also
contributing to competition and potential inequalities in wealth distribution.

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