The welfare
definition of economics is an attempt by Alfred Marshall, a pioneer neoclassical economist, to redefine his field of study. This
definition expands the field of economic science to a larger study of humanity.
Specifically, Marshall's view is that economics studies all the actions that
people take in order to achieve economic welfare. In the words
of Marshall, "man earns money to get material welfare." This is why
economists since Marshall have described his definition as the welfare
definition of economics. This definition enlarged the scope
of economic science by emphasizing the study of wealth and humanity together,
rather than wealth alone.
In his widely
read textbook, Principles of Economics, published in
1890, Marshall defines economics as follows: "Political Economy or
Economics is a study of men as they think and move and life in the ordinary
business of life. It examines that part of individual & social action which
is most closely connected with the attainment & with the use of material
requisites of well-being”
Economics has been called “the science of how people get a living.” We
all have to make a living! And our daily lives are beset with economic
questions! Why is it so hard to buy a home? Why does the cost of college rise
so fast? Why are willing, able workers unable to find jobs? What about us, the
voting citizens — is basic economic literacy out of our reach?
Economics is a “given
pie”; it is not a pie that every economist can make at will or for which he can
prescribe his own recipe. Economic theory has a “nature of its own” that must
be respected; certainly it must be recognized if its distinctive contribution
is to be made at all. But the pie that is the economic aspect of affairs is
bigger than that traditionally treated by economists; it embraces all human
action. The slice that makes up economic theory may—so long as it is cut from
the correct pie—be cut in any arbitrary way. “It is impossible to draw a
clear-cut boundary around the sphere or domain of human action to be included
in economic science.” “The scope
of praxeology, the general theory of human action, can be precisely defined and
circumscribed. The specifically economic problems ... can only by and large be
disengaged from the comprehensive body of praxeological theory.”
But if it is urged
that economics is primarily concerned with man, and then there is an obvious
need to make clear precisely which aspect of the study of man economic theory
is concerned with. Different approaches have been made toward the solution of
this problem. The conception of economics as a science of wealth, attention
must be drawn to one of the most popular of these approaches, viz., and the
view that sees economics as dealing with the phenomena connected with economic welfare.
Wealth promotes the
economic welfare of man. If exclusive attention to the objects of wealth was to
be declared scientifically inexpedient, then the problem could be avoided by
shifting attention from the goods themselves to the welfare to which they
minister. Instead of studying the effects of various measures on the wealth of
a nation, economic analysis may be viewed as going a step further and studying
the welfare of the nation as affected by these measures.
Such a conception of economics provided a framework into which
the received body of doctrine could be fitted without excessive strain, while
at the same time it reflected the new recognition of the subjective basis of
market phenomena. The shift to this fresh conception seemed merely a broadening
of the scope of the subject from one narrowly concerned with goods to one
concerned with happiness. Cannan,
writing at the beginning of this century on developments since the appearance
of Mill’s Principles, saw this broadening as the work of the
theory of marginal utility:
Whatever definition of economics may be adopted, it is clear
that the conception of its subject has become wider than it was. The economist
of today recognizes that he has to do with man in relation to one particular
kind of human welfare...It would be impossible for any economist of the present
day to repeat Malthus’ remark that Adam Smith mixes the nature and causes of
the wealth of nations with the causes which affect the happiness and comfort of
the lower orders of society.
From the point of view of the long–run developments in the
definition of economic phenomena, this broadening of the economics of wealth
into the economics of welfare does not mark so radical a change as that marked
by the appearance of any of a number of later conceptions to be taken up in
subsequent chapters. In fact, as against the other definitions of economics,
both the wealth and the welfare formulations contain much in common; many of
the features found to be objectionable in the wealth criterion appear unchanged
in its welfare counterpart. Both formulations are “classificatory” and
“departmental” rather than “analytical.” Both
see economics as studying something that is produced, whether goods or
happiness, rather than a certain type of activity. Especially where economic welfare is
understood as meaning material welfare, the concept of welfare
evinced a strong bond of continuity with that of material wealth.
Nevertheless, as the neoclassical expression of the classical
wealth–oriented definition of economics, the welfare and utility criterion did
call for a conscious alteration of focus in the contemplation of economic
phenomena. This point of view, while it became popular only after the
introduction of marginal utility economics, had its forerunners as far back as
the classical economists. One of Adam Smith’s successors, Dugald Stewart,
considered political economy as dealing with “the happiness and improvement of
political society.” The position
of Henri who broadened economics so as to deal, not with the wealth of nations,
but with the “prosperity” of nations—a concept that included “civilization” as
well as wealth. John Stuart Mill, when he came to consider the question of
defining economics, criticized Say for having a similarly wide conception of
political economy. Sismondi’s emphasis on happiness and consumption in
economics and Lauderdale’s
all–embracing definitions of wealth place their conception of economics in the
same group.
The Love of Money, Leslie attacked the notion that the
pursuit of wealth represented a self–contained human motive. The love of money
means completely different things to different people. Unique category of
wealth through reference to the heterogeneity of the demand side of economics
undoubtedly contributed toward a better grasp of the nature of economic theory.
For example, it was the increased attention to the demand factor that made it
possible for Jevons to “take utility...as the subject matter of economics,” or
for an American writer to declare that all definitions of economics reduce to
“the science of enjoyment or . the science of the means of enjoyment.”
Welfare, utility, ophelimity—these were
the terms around which expositions of economic doctrines revolved. Economics is
essentially concerned with welfare, or at least with material well–being, was
probably the view most generally accepted among the English economists.. Cannan,
however, held the criterion of material welfare to be the real distinguishing
feature of economics..
Of course, the identification of economics with the study of
economic welfare raised fundamental questions about the justifiability and
validity of propositions concerning changes in social welfare. Sir Dennis
Robertson cites the contention that the implications of envy make it uncertain
that welfare would be increased even if everyone had more of every commodity.
Robertson’s characteristic reply to this possibility would certainly have won
Cannon’s concurrence:
The maximization of want-satisfaction
invites a brief digression on the idea of a specifically economic motive or
impulse. It is clear that the meaning, if any, that is to be attached to such
an expression depends on the view taken of economic activity generally. Economic
activity is concerned with the sustenance of human life, and then the urge for
self-preservation may fairly be understood as the economic impulse.
What makes the
question of the meaning of the economic motive especially relevant is that the
developments that have been discussed in the conception of economic activity
point for the first time to the possibility that no such economic drive may in
fact exist. So long as an objective entity—viz., wealth or economic welfare—is
singled out as the phenomenon of interest to the economist, then, of course,
the concept of an economic motive is meaningful in terms of a drive towards
this objective entity. And when economics is understood, as it has been in
definitions considered in the present chapter, as examining the phenomena that
are attendant upon the activities of man in so far as he is in pursuit of a
definite end, viz., wealth, then the economic impulse emerges as the very focus
of the economists’ interest. But when the pattern of human activity aimed at
maximizing want-satisfaction is made central to economics and the idea of
wealth is quietly discarded, then the nature of any economic motive becomes
highly problematical.
To be sure, the praxeological perspective embraces a range of
human action far wider than that usually treated in economic theory. All human
actions, motivated though they may be by the entire range of the purposes that
have inspired and fired men to act, come within the sway of the ideal
praxeological discipline. The constraint that men feel to fulfil their purposes
in spite of obstacles pervades all aspects of life. It is the position of
praxeology that the common category that embraces the entire range of human
efforts is the key to economic science. We have seen at various points in this
book that economists have again and again searched for something in economics
that should differentiate it from the rest of human action.
These thinkers were deterred from expounding the praxeological character of
economics for the very reason that this character is common to other aspects of
social life. The praxeological view sees
economic science as the branch of praxeology that has been most highly
developed. Perhaps other branches
will one day attain a similar stage of development.
Even Adam Smith conceived
economics which according to ‘Wealth of Nations’ written 350 years ago, visualized
sharing of wealth, eouspousing the theory of wealth and not greed of the
persons amongst whom the wealth was shared. In 1936, Keynes communicated a new
idea- duty of the state to intervene to raise the level of activity of the
country. He conceived the idea of charity by force. His conclusion was to rob
the rich through taxes to bring in inclusive growth among the poor. Government
of India, with economist of the ilk like P Chidambaram and Jairam Ramesh, who have invented the theory of
inclusiveness among the have nots, preach one side morality beside Adam Smith
and Keynes. They believe, that in an egalitarian society, there is nothing
wrong in passing on the pain to the tax payer to conceive populist schemes of inclusiveness
that would enable the state to dispose large sums of money to the hopeless and
hapless needy. MNREGA is a flag ship scheme of the united progressive Alliance,
which is aimed to create financial inclusiveness among the unemployed rural
people, or assure a minimum amount during 200 days of the year, by contracting
them for work, or assign work. But, the spent money did it create any rural
asset, of a fixed nature so that it automatically cycled further economic good
to the community? If in an economic activity, money spent should create visible
asset, which would in turn create more activity, only if it created a permanent
asset which had its own economic ability to create wealth. Here, the funds were
deployed to create a dead end. There was no visibility for the return or making
of further assets. Is it financial inclusion? Now, the creation of Food
Security Bill where crores of crores is sought to be invested. Would, at the
end of the tunnel, would it solve the food scarcity, so that the end
beneficiaries can depend upon some plank of economic activity that would enable
them to earn for their own food. It is a duplicate Keynesian thought that never
aims or even pretend to create fixed assets on which economic activity would evolve.
Today’s Food Security would become a legal right tomorrow. Have the planners
who devised this strange plan aware of its implication. Or is it a gamble to portray
their amour to the people on the eve of elections, a sort of politicking to
score points over the rivals. In democracy, you have only partners and not
rivals. The absurdity of spending precious money for projects which does not realize
or create fixed assets which in turn is automatically able to create further
wealth is fraught with serious economic consequences. Do we leave it to the people
to prepare military strategy? Is it done democratically? Good idea is not compulsorily
taken nor is it a legal right that every good idea should be part of
democratically tested?
After a lot of
dithering or procasting, Central Government has come to veer around the
compulsion that Goods and Services Tax have to be rolled out by Feb 28,2014
(the date of the budget)(whether interim or not). Proposed GST will have a dual
tax structure, one will be levy of the Central Government (Central GST) and
another by State (State GST). The prices will not depict the levy nor will it
be disclosed to the consumer. The central government wants to hike the tax
levied while it is not bound to revel the break up, for the same reason it does
not want to invite wider criticism. State and Central component may add up to
20%. In the matter of taxes, centre and state have concurrent jurisdiction, and
each will tax a product 10% each through Goods and Services Tax. While the
basic features of GST would be uniform, the dual model would be implemented
through multiple statutes. All political parties are board, and this is
national consensus. A unique economic model of Indian Polity, of the polity for
the suffering public!
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