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Macroeconomics in Economics

Macroeconomics in Economics
The macroeconimics conists of two words 'macro' and 'economics'. The word 'macro' is derived from the Greek word 'macro' meaning 'large; and therefore macroeconomics analysis the behaviour of the large aggregate such as total employment, national income and genral price level of the economy. Therefore, macroeconomics is also known as aggregated economics. Prof. K.E. Boulding says,"Macroeconomics deals not with individual quantity, aggregates of these quantities; not with individual incomes as such but with the national income; not with individual prices but with national output."

Macroeconomics, in general sense is Policy Science. On the round, it is more normative than positive. On the aggregared demand side its major tools are fiscal policy is exercised by the government in terms of taxes, transfer and expenditure policies. The central basic in terms of money supplu, interst rate and credit policies conduct monetary policy. These macroeconomics tools are used to solve the present day economic problems such as unemployment, inflation, business cycles and balance of payment disequilibrium.

The history of the present day macroeconomics started with the publication of J.M. Keynes "The general Theory of Employment, Interest and Money" in 1936. Before the pulication of Keynes,"General Theory" there was no implict macroeconomics.

Microeconomics in Economics

Microeconomics in EconomicsThe word 'microeconomics' consists of two words 'micro' and 'economics'. The word 'micro' is derived from the Greek word 'mikros', meaning 'small'. Thus, microeconomics deals with the analysis of small individual units of an economy such as economic activities of individual consumers, firms and small aggregates or groups of individual unit such as various industries and markets.The fundametal issues of microeconomics are based on individual level of income, expenditure, price, production, consumption, wage, rent, interest, profit and so on. Since, these issues are directly or indirectly related to prices of goods and services; microeconomics is often known as Price Theory in economics. According to K.E. Boulding,"Microeconomics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities."
In other words, in microeconomics we make a microscopic study of the economy. But, it should be remembered that microeconomics doesn't study the economy in its totality. Thus, microeconimics of looking at the economy through a microscope, as it were to see low millions of cells in the economy, the individual as customers and firms producers are functioning in the whole economic organization. Microeconomic theory and seeks to determine the mechanism by which the different economics units attain the position of equilibrium proceeding from the individual units too narrowly defined group.

Normative Economics

Normative Economics
Normative economics is an approach to economics that anises outcomes of economic behaviour, evaluates them as good or bad. In other words, normative economics is the branch of economics that incorporates value judgements about what the economy should be like or what particular policy actions should be recomended to achieve a desirable goal. Normative economics looks at the desirability of certain aspects of the economy. It undertakes expressions of support for particular economics of support for particular economic policies. Normative statements are subjective based on opinion only often without a basis in fact or theory. They are value laden, emotional statements that focus on "what economics to

Examples:
  • The decision to grant independence for the central bank is unwise and should be reversed.
  • A national minimum wage is totally undesirable as it does not help poor and causes higher unemployment and inflation.
  • The agriculture sector should be developed to alliviate poverty.
  • Protectionism is the only proper way to improve the living standard of workers whose jobs are threntened by cheap imports.

Positive Economics

Positive Economics
Positive economics is an approach to economics that seeks to understand behaviour and the operation of systems without making judgements. Positive economics is sometime known as 'value free economics'. It describes what exists and how it works. Positive economics is a social science and as such is subject to the same checks on the basis of evidence as any science. Positive statements are objective statements dealing with matters of fact or they question about how things actually are. Positive statements are made without obhivious value judgements and emotions. They may suggest an economy relationship that can be tested by resources to the available evidence. Positive economics can be described as "what is, what was and what probably will be" economics. Statements are based on economic theory rather than raw emotion. Often these statements will be expressed in the form of a hypothesis that can be analyzed and evaluated. The concept of positive economics is broadely classified under two aspect.
  • Positive Microeconomics: It analysis the issues of individual price, income, expenditure, savings, investment, rent, wages, profit in a positive way.
  • Positive Macroeconomics: It analysis the issues of aggregate income, savings, investments and output in a positive way.

Superiority of the Definition of Economics by Robbins

RObbin's definition of economics as the science of scarcity and choice is regarded as the superior over Marshallian definition of economics on the following grounds:
  • Scientific Definition
Robbins definition of economics is considered as more scientific and analytical definition than that of Marshall's definition because it is far from classificatory. Marshall's definition is classificatory into material and non-material welfare, economic and non-economic activities.
  • Universal Application
The concept of scarcity and choice is widely applicable in any form of economy. It is applicable to planned and unplanned economics, capitalist and socialist economics or mixed economics. Therefore, they are of universal application.
  • Science of Choice
Choice of resources among unlimited needs or desires of civil society as well as government is the basis of Robbins' definition. It guides a government to utilize limited resources to meet infinite needs of the people. Similarly, Robbins' definition guides enterprenuers to achieve maximum profit by utilizing limited capital and human resources in the line of production.
  • Wider Scope
Robbin's definition of economics has wider scope than that of Marshall. Robbins explained that human wants, wheather material or non-material, come under the study of economics. But, Marshall's definition has clearly limited the scope of economics to material welfare and social life.




Scarcity and Choice Definition in Economics

Scarcity and Choice Definition in Economics
Lionea Robbins (1898-1984), a British citizen and a professor of economics at London School of Economics (1929-1961), is one of the modern economists who gave the most scientific and logical definition of economics. He published his book,"An Essay on the Nature of Significance of Economic Science", 1932. In which, he gives a new definition of economics. On the 20th page of his book, he says,"Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."

Robbins has defined economics as a human science dealing with alternative use or selection of scarce means and ends concernd with human behaviour. This definition is take as an analytical definition, which is supported by modern economists like:Alec Macfic, Eric Roll, etc.

Main Ideas:

Robbins definition has been accepted as a standard definition of the scope of economics. It has the following aspects:
  • Human wants or ends are unlimited.
  • Means or resources that are used to meet the unlimited wants, ends are scarce or limited in supply.
  • A choice has to be made from among the multiple wants.
  • Such scarce resources can be used altenatively.
Logical Explaination
The definition of economics given by L. Robbins can be explained with the following points:
  • Unlimited Ends of Wants:
According to Prof. Robbins, human wants are unlimited which can never be fulfilled. Once the first and most important want is fulfilled, new wants crop up or arise in our mind immediately. When we fulfil the second need, new wants are of the third need would come up for notice. Therefore, human wants in its entirely can never be fulfilled during one's lifetime. This human characteristics can be experienced not only by poor people but also by rich people.

  • Scarce Means of Resources:
Some human wants are possible to be fulfilled with the consumption of different goods or means. Here, the word 'means' refers to natural resources, human resources, capital resources, physical resources, consumer goods, luxuary goods and unit of time and amount of money availabel to mankind. The quantity supplied of these resources is very scarce or limited in comparison to human demand in society. If then there would not arise any economic problem in human society.

  • Alternative Choice

Welfare Definition of Economics

Welfare Definition of Economics
In 1890 A.D., Alfred Marshall punlished his book entitled,"Principles of Economics". It protected the existance of economics with the help of this book. Marshall showed that human welfare is more important than wealth. According to him, wealth is for man but man is not for wealth. By the definition of Marshall,"Economics is the study of mankind in the ordinary business of life. It inquires how a man earns income and how he uses it. Thus, it is on the one side the study of wealth and on the other, the most important part is the study of mankind."

It is a quite clear that, although economics still studies wealth. Wealth is not considered of primary importance. In other words it has been secondary place, the first place being given to man. Thus, economics could no longer to be considered to a science of selfishness of a 'dismal science'. Rather, it required a great social important because the promotion of human welfare become its chief aim.

Main Ideas:
  • Economics doesnot regard wealth as the be-all and end-all of economic activities. Wealth is sought only for promotion of human welfare.
  • Economics is a social science as it deals with the behaviour of ordinary people in the society.
  • Economics deals with human activities related to material welfare. In this way, Marshall laid the foundation of welfare economics.
Logical Explaination

Marshall shifted the focus of economics from wealth to welfare at the end of the 19th century. No doubt, he considered wealth as an important aspect of economic studies. But, he assigned secondary importance to wealth the primary importance to individual and social welfare. His definition of economics as a science of material welfare are explained below:

Wealth Definition of Economics

wealth definition
In 1776 A.D., Adam Smith published a book entitled "An Inquiry into the Nature and Causes of Wealth of Nation". In short, this book is also called "Wealth of Nation". The name of book itself defined what economics is and the study area or subject matter of economics that it covers. This is also considered as the Bible of the science of economics. The meaning of wealth as used by A. Smith refers to abundance of money. Smith was among the first to describe how a free, competitive economy can function without central planning or government intervention to allocate resources efficiently. He recognizes that the virtues of the 'invisible hand' that leads the people's private interest of firm and he was popularly suspicious of firms that are sheltered from competition. Since, he recognized the potentially undesirable effects on resources allocation.

Logical Explanation:

  • Significance of Wealth:
A.Smith assumed that wealth is the only important factor in human society. It can fulfill all the desires of human being in society. He also assumed that the entire efforts of human society is found to be directed towards earning more and more wealth.
  • Role of Economic Man:
Smith claims that economics studies behavior of those human beings who have only one objective. That objective is the earning of more and more wealth at any cost by any means. Human being of such nature in the words of Smith is an "Economic Man".

  • Priority Given in Definition:
In the definition of economics first priority is given to wealth and the second priority to mankind. He assumes that mankind is for wealth but wealth is not for mankind. He also believed and argued that wealth and only wealth can give higher satisfaction to all mankind. Therefore, wealth is of a primary importance in his definition.

  • Sources of Wealth:
A. Smith in his definition of economics assumed that, wages earned by active human resources is to be the only one and most important source of income of a nation. He also suggested that the active labors can earn high amount of wages only through the division of labor in production and distribution of goods and services.He conclude that apart from wages, there is nothing else which can be regarded as sources of wealth of a nation.

Criticisms


The wealth definition of economics given by Adam Smith has been criticized on several grounds. It is strongly criticized by eminent scholars like Carlyle Ruskin, Alfred Marshall, etc. In short, the critics dubbed economics as the "Bread and Butter Science", "the Gospel of Mammon" and " a Dismal Science". The major points of criticisms of wealth definition are discussed below:

  • Narrow Definition
A.Smith considered that economics is the science that deals only with wealth and material goods. Contrary, to this definitions concept the critics pointed out that economics studies not only material goods and wealth but also some non-material such as services of doctor, teacher, lecturer also fulfill the human wants. Therefore, services provided by professional human resources also constitute aspects of wealth. Therefore, services regarded by people should also be regarded as a part of wealth.

  • Unnecessary Emphasis on Wealth
A. Smith highly emphasized the importance of wealth in economic life rather than human beings. He assigned primary role to wealth and only secondary place to mankind. On the contrary, the critics pointed out that human life cannot be sacrificed for wealth rather wealth should be used for the betterment of mankind.

  • Single Source of Wealth
In the view of A. Smith, the amount of wages that is earned by employed labors could be the only one source of wealth of nation. The critics of the definition are however of the view that natural resources, human resources, physical resources and capital resources also as sources of wealth. All these resources put together can be utilized to earn maximum wealth by a nation.

  • Assumption of Economic Man is Wrong
Smith assumed that every human being who wants to earn money by hook or crook is known as economic man. The critics of the definition instead pointed out that almost all human beings also own the qualities of human life such as feelings of love, respect, self-esteem, sympathy, c0-operation, friendship, trust which might provide greater satisfaction rather than wealth in their lives.

Conclusion

In conclusion, A. Smith considered human wants as unlimited. It is important that these wants be fulfilled and wealth is the only thing that can fulfill human needs or wants.
The definition of economics as the 'science of wealth' has been supported by classical economists such as: F.A. Walker, J. B. Say, J.S. Mill and David Ricardo. According to F.A. Walker, "Economics is that body of knowledge which relates to wealth." Similarly, J.B. Say defines,"Economics is that science which treats of wealth."
In conclusion, each and every classical economists defines economics in similar view as Adam Smith that economics is the body of knowledge which relates to wealth.

Definition of Economics

As time changes new things are included in the science and the old things are replaced. Therefore, it is not possible to give any fixed definition about any science and even it is defined, it becomes only temporary. According to Jacob Viner,"Economics is what economists do." Also, according to Barbara Wooten,"Whenever six economists are garthered together, there are seven opinion." Even then the definition of economics can be study under the following headings:
  • Economics as a science of wealth,
  • Economics as a science of material welfare,
  • Economics as a science of scarcity and choice.
The above three headings are based on the period of classification of econimics. In this way, the deep and detail study of the origin of economics as a science of wealth, science of material welfare and science of scarcity and choice. These three headings deals with the definition of economics given by classical economist, neo-classical econimists and modern economists. The study of these three headings help us to know the origin of economics, it's time period, definitions given by different economists and their definition of economics.

Nature of Economics

Scarcity and Choice Definition in Economics

Origin of Economics
An ancient times oriental philosopher Kautilya regards economics as a science of state government. The word 'Economics' is derived from the Greek word 'Oeikonomicus'. In Greek word 'Oeiko' means 'households' and 'Nomicus' means 'study'. The word oeikonomics refers to the science of household management. Occidental Greek philosopher Aristotal divided economy into two parts:
  • Economy Proper
  • science of Supply
As time passed, economics was developed by several economists with different vision. Generally, the development of economics is divided into:
  • Classical Period (1776-1890)
  • Neo-Classical Period (1890-1932)
  • Modern Period (1932-onwards)
Classical Period (1776-1890)

The famous economists of this period were Adam Smith, T.R. Malthus, J.B. Say, David Ricardo, etc. These economists are pillar of the classical economics. The study of economics in and around wealth and its significance.

Neo-Classical Period (1890-1932)

The famous economists of this period were Alfred Marshall, A.C. Pigou, Carl Marx, etc. The study of economics as the satisfaction or welfare derived from the consumption of material goods.

Modern Period (1932-onwards)

The famous economists of this period were Leonel Robbins, J.M. Keynes, etc. The study of economics for changing the focus of the study are 'wealth and aspect' and 'material welfare' to 'scarcity and choice' and 'human development'.