Difference between Problems of Scarcity and Problems of Affluence

This article will help you to learn about the difference between problems of scarcity and problems of affluence.

Difference between Problems of Scarcity and Problems of Affluence

Some economists in the industrially developed countries, especially USA, have pointed out that the important problem now confronting them is the problem of affluence rather than scarcity.

During the past century or two there has been a rapid economic growth in these countries which has brought about unprecedented riches and prosperity to their citizens.

As a result, the standards of living of their people have gone up very high. It is said, they have won over the problem of scarcity and poverty and are now facing the problems created by affluence and growth, such as problems of mental tension, optimum use of leisure, environment pollution etc.

Thus having achieved growth and affluence they are now thinking with reference to what might be called “beyond economic growth”. The economist who has put forward this point of view is a noted American economist Professor J. K. Galbraith, the former United States Ambassador to India. He presented this viewpoint in his revolutionary book “The Affluent Society”.

The use of the term “The Affluent Society” looks strange, since economists have always been laying a great stress on the point that the basic economic problem a society has to encounter is the problem of scarcity, which is the mother of all economic problems that arise in the society. Economists have remained so much preoccupied with scarcity and poverty that it is now difficult for them to believe that economics is concerned with problems of affluence.

It is precisely because of economists’ preoccupation with the problems of scarcity even today in Western Europe and the USA that Professor Galbraith has pointed out that their concern with problems of scarcity and poverty has become outdated. According to him, the conventional economic ideas and wisdom are inadequate because the problem has changed from scarcity to affluence, from poverty to prosperity.

Emphasizing the affluence of Western European countries and the United States of America he remarks, “the experience of nations with well-being is exceedingly brief. Nearly all throughout all history have been poor… in the last few generations in the comparatively small corner of the world populated by Europeans…. and especially in the United States, there has been great and quite unprecedented affluence.’

And urging the economists to change their traditional ideas about the economic world since it has fundamentally changed, he says, “The ideas by which the people of this favoured part of the world interpret their existence, and in a measure guide their behaviour, were not forged in a world of wealth. These ideas were the product of a world in which poverty had always been man’s normal lot.”

Speaking about that old ideas about economic behaviour and conventional prescriptions about rational behaviour formed in the world of poverty have become irrelevant and obsolete in today’s world of affluence, he asserts, “No one would wish to argue that the ideas which interpreted the world of grim scarcity would serve equally well for the contemporary United States. Poverty was an all pervasive fact of that world.

Obviously, it is not of ours. One would not expect that preoccupations of a poverty-ridden world be relevant in one where the ordinary individual has access to amenities- food, entertainment, personal transportation and plumbing- in which not even the rich rejoiced a century ago. So great has been the change that many of the desires of the individual are no longer even evident to him. They become so only as they synthesized, elaborated and nurtured by advertising and salesmanship.”

It is true that United States and Western European countries have eliminated general mass poverty from their people and, with the phenomenal progress of science and technology, have achieved unprecedented affluence and enormous production of goods with which they have been able to satisfy their wants to a greater extent. But from this it should not be construed that the economic problem of scarcity has ceased to exist in the so-called affluent world of Western Europe and the USA.

The term scarcity in economics is used in a relative sense, that is, in the sense of scarcity of resources relative to the wants of the people. With technological advancement, it is no doubt that developed and rich countries have greatly increased their resources and production but with growth and development new wants and desires have also been created. In view of this, it cannot be said that resources have become abundant in relation to wants in these affluent countries.

Of course, it is true that mass poverty as a general phenomenon has disappeared in the affluent societies. But scarcity in the economic sense and poverty are two different things. Therefore, the affluent countries still confront the economic problem of scarcity—the problem of using resources in such a fashion as to attain the maximum possible satisfaction of wants.

The problem of economic scarcity would have been won only if the resources would have become abundant in relation to wants which have been multiplying during the process of growth. Besides, the basic economic problems which arise due to the scarcity of resources in relation to wants still confront the affluent societies and they have to solve them in one way or the other.

These basic economic problems are: what goods to be produced and in what quantities (that is, how the resources are to be allocated to the production of various goods), what methods or techniques of production to be employed for the production of various goods, how the total national product to be distributed and how much investment or capital accumulation should take place so as to achieve further growth.

All these problems arise because of the fundamental scarcity of resources in relation to wants and therefore still require rational and optimum solutions by the affluent societies so that the maximum possible satisfaction of wants of the people is achieved.

How the prices are determined in a market is still a subject of economic enquiry in these affluent societies. This phenomenon of pricing is enquired into because goods and services that are priced are scarce in relation to wants for them. Further, it is scarcity again that causes conflict between parties to exchange, popularly known as classes such as, industrialists, workers, landlords, traders. Given the national cake, that is, total national output of goods and services, when one class gets more share, the other has less of it.

This causes conflict and clashes. The fact that, wages to labour are paid and capital earns interest further goes to show that the problem of scarcity has been quite there. Thus, the problem of scarcity still dominates the economic scene in the so-called affluent societies. Of course, the unprecedented affluence and prosperity enjoyed by the people has given rise to several problems such as depletion of valuable resources, pollution of environment and consequently worsening the quality of life.

We, of course, admit that because of the achievement of prosperity the affluent and developed countries can now afford some waste in the use of resources, which the poor world cannot. Some loss in economic efficiency (that is to say, inefficiency in the use of resources) will not make much difference in their production or standards of living which have risen very high.

We further admit that the affluent societies have reduced their problem of scarcity in the sense that they have been able to reduce the gap between resources and basic wants by expanding their production potential enormously. But the fundamental problem of scarcity has not been completely overcome by these affluent societies and probably it will never be since wants will always remain ahead of resources and production.

When the problem of scarcity ceases to exist, there will be no need for the science of economics which will then disappear. Thus, economics will disappear only in a world so rich that wants were unfulfilled for lack of resources. Such a world is not imminent and may be impossible.

It is important to note that the two-thirds of the world is still living in poverty. This two- thirds part of the world includes the developing countries of Asia, Africa and Latin America. The per capita income of these countries is so low that a large chunk of their population is living at the subsistence or near subsistence level.

The abysmal poverty, hunger, disease, squalor and unemployment rule the land there. The problem of scarcity is present there in its full strength and affluence for them is still a far cry. In view of the scarcity of resources and unlimited wants for more and more production, these countries must utilise their resources so as to get more out of them. Thus they encounter the economic problem of allocation of the scarce resources so as to achieve the maximum satisfaction of their people.