Essay on Economics: Nature and Scope of Economics

Subject-matter of Economics:

Economics has a subject-matter of its own. We can know something about the subject-matter of Economics from its definitions given above.

The student already knows about Mathematics, History and Geography. But Economics is new to him and he cannot say what it is about.

We can say that Economics studies man’s life and work, not the whole of it, but only one aspect of it. It does not study how a person is born, how he grows up and dies. This is the work of another science named Biology.

Economics does not study how human body is made up and how it functions. That is the subject of Physiology. Economics does not tell us how a man thinks. It is Psychology which studies man’s mind. Economics does not study the human organization like the State. This is the subject of Political Science. Economics only tells us how a man utilizes his limited resources for the satisfaction of his unlimited wants. A man has a limited amount of money and time; but his wants are unlimited. He must so spend the money and time he has that he derives maximum satisfaction. This is the subject-matter of Economics.

Economic Activities:

If we look around, we see the farmer tilling his field, the workman working in the factory, the clerk at his desk, the doctor attending to his pleats, the teacher teaching his students, and so on. They are all engaged in what is called economic activity. They earn money to satisfy their wants. It is with this part of man’s life that Economics deals.

We may say that when a man is engaged in an economic activity he is busy earning money. But he does not want money for its own sake. He needs it to buy things which satisfy his wants. The purpose of all economic activity is the desire to purchase goods to satisfy human wants. Neither good nor money is an end in itself. They are needed for the satisfaction of human wants and to promote human welfare.

A man wants food, clothes and shelter. To get these things he must have money. For getting money, lie must work or make an effort. Effort leads to satisfaction. Thus, Wants—Efforts—Satisfaction, sums up the subject-matter of Economics. This circle of economic activity is shown in the adjoining diagram.

In a primitive society, the connection between wants, efforts and satisfaction is close and direct. A primitive man feels hungry; he picks up some fruit, eats it, and is satisfied. But in a modern society things are not so simple and straight. Here a man produces what he does not consume and consumes that he does not produce. The shoe-maker produces shoes, but he cannot use them all by himself. He sells them for money with which he buys the things he needs. This work of selling what you do not want and buying what you want is called exchange. Today the process of exchange comes in between wants, efforts and satisfaction.

Nowadays most of the things we need are made in factories. To make them the worker gives his labour, the landlord his land, the capitalist his capital, while the businessman organizes the work of all these. They all get a reward in money. The laborer earns wages, the landlord gets rent, the capitalist gets interest, while the entrepreneur’s reward is profit. Economics studies how these incomes—wages, rent, interest, and profits—are determined. The process is called Distribution. Like Exchange, Distribution also comes in between effort and satisfaction in a modern society.

Thus, we can say that the subject-matter of Economics is Consumption (i.e., the satisfaction of wants), Production (i.e., producing things or creating utilities or making an effort to satisfy our wants), Exchange and its mechanism (i.e., money, credit and banking, etc.) and finally Distribution (i.e., sharing of all that is produced in the country among workers, landlords, capitalists and organizers). In addition, Economics also studies Public Finance. Thus it is indeed a very wide subject.

Modern View:

The above view of the subject-matter of Economics is the traditional view. The view that is widely accepted today is far more comprehensive. The traditional subject-matter explained above is now regarded as constituting only one part of Economics, viz., Price Theory or also called Micro-Economics. According to modern approach, the scope or the subject-matter of Economics is not only the price theory but also the study of the economy as a whole. We study, for instance, how the income of an Economy is generated and how the level of a country’s income and employment is determined.

In other words, we also study the factors that determine a country’s national income, savings, investment, output, employment, general price level, etc. Such a study of the economy as a whole is called Macro-Economics. Hence we study both micro-economics and macro-economics.

More recently, economists have begun to pay special attention to how an economy grows, i.e., how the under-developed countries grow into developed economies and the developed economies grow still further. Economics thus also includes study of economic growth.

Conclusion:

In sum, the subject-matter of Economics, according to the view held today, includes price theory (or micro-economics), income and employment theory (or macro-economic) and growth theory. Thus, broadly speaking Economics may be described as a study of the economic system under which men live and work. It deals with decisions regarding the commodities and services to be produced in the Economy, how to produce them most economical­ly and how to provide for the growth of the economy.

Divisions of Economics:

Traditional Approach:

According to the old view, the study of Economics is divided into four main departments or divisions, viz., Consumption, Production, Exchange, and Distribution. In Consumption, we study the nature of human wants as well as the principles governing their satisfaction. The law of diminishing marginal utility, law of Substitution, the law of family expenditure and consumer’s surplus are of special importance. We also study the nature of demand, whether it is elastic or inelastic, as well as the law of demand.

In Production, we study how man makes efforts to satisfy his wants by producing wealth. In particular, we see how the four agents of production, viz., land, labour, capital and organisation, co-operate and combine in the work of production. We study each of these agents, their importance and the conditions of their efficiency.

In the third department of Economics, viz., Exchange, we discuss how in the various market forms buying and selling are done and how prices are determined. This happens through the interaction of the forces of demand and supply.

The fourth department, Distribution, is devoted to the study of the respective shares that go to the four agents—land, labour, capital and organization. These shares take the form respectively of rent, wages, interest and profit. In Distribution, we study how the share of each agent of production is determined.

It is usual to divide Economics into these four departments only. But in addition to these, we have to study also the problems of Public Finance. Here we discuss how governments get money and how they spend it. Thus, it involves a consideration of taxation and allied questions.

Modern Approach:

It is only an old approach to divide Economics into these four divisions. The modern approach is different. The study of Economics is now usually divided into two parts: (a) Income Theory or Macro-economic; and (b) Price Theory or Micro-economics.

In Income Theory or Macro-economics, we study the working of the economic system as a whole. That is, we study what determines the level of income in a country, its total expenditure, total employment and the general price level (not the prices of individual commodities or services). We also study what causes fluctuations in these total quantities. In Macro-economics, we also study how the economy as a whole grows or develops. This is the aggregative approach.

In Micro-Economics, we study the determination of prices. We no longer divide the study of Economics into Consumption, Production, Exchange and Distribution. They are all covered by price theory. We shall see that prices are determined by the interaction of demand and supply. The theory of demand covers consumption and supply covers production.

According to the old arrangement, in exchange we studied commodity prices and in distribution we studied factor prices, i.e., rent, wages, interest and profit. But in price theory we study both product prices (i.e., exchange) and factor prices (i.e., distribution). Thus, all the old four divisions of Economics are covered in what we now call Micro-economics or Price Theory.

In Micro-economics, we study small individual parts of the economy. For instance, we study the individual consumer’s behaviour or that of an individual, firm or what happens in any particular industry. In the price analysis, we study the determination of the price of an individual commodity or of a particular factor of production, i.e., its reward. In the case of demand and supply, we study the demand and supply of an individual commodity or a factor. We study the income of an individual or of a firm in an industry, and not the national income.

We ‘assume in micro-approach full employment in the economy and on that assumption, the economic problem is mainly of resource allocation or the theory of price. That is why till recently Economics concerned itself mainly with the theory of value and distribution and it ignored the study of the economic system as a whole.

In recent years, thanks to the late Lord Keynes, increasing attention has been given to the analysis of the economic system as a whole. This is Macro-economics. It studies aggregates or average of the entire economy, such as national income, output and employment, total consumption, total savings and investment, aggregate demand and aggregate supply, and so on. In this approach full employment is not assumed. We study the determinants of full employment and see how the fullest possible employment can be attained.

The macro-approach is essential, for what is true of the parts may not be true of the whole. After all, the problem of the aggregate is not merely a matter of adding or multiplying what happens in respect of the various individual parts of the economy. As has been pointed out already, of late great attention has also begun to be paid to the analysis of how an economy grows. Growth Economics has thus become a very important part of macro-economics today.

It may, however, be understood clearly that neither of these two ap­proaches, viz., micro and macro, alone is adequate for the analysis of .the economy. It is essential to integrate the two approaches to arrive at a correct solution of the economic problems.

Inter-relation of the Departments of Economics:

The four departments of Economics—Consumption, Production, Exchange and Distribution—do not stand apart in watertight compartments. This division of the, subject into four parts is for the convenience of study only. Actually, the subject is one complete whole and these departments are closely related to one another. Let us see how.

Consumption and Production:

The close relation between the two is quite obvious. It is the consumer’s desire to consume which leads to production. Consumption too, in its turn, depends on the volume and nature of production. Unless there is production, there cannot be any consumption. The two are thus mutually dependent.

Consumption and Exchange:

These are the days of specialization. People produce what they do not consume—at any rate not the whole of it—and they consume what they do not produce. Exchange is thus essential if consumers are to satisfy their wants. Consumption thus depends on Exchange. But unless there are consumers, no exchange is called for. Hence exchange and consumption depend on each other.

Consumption and Distribution:

Consumption is also closely related to Distribution. In Distribution, we discuss the share that goes to each of the agents of production out of the national income. Now, it is clear that if consumers are well supplied with the necessaries of life, they will be able to work better, produce more and be entitled to a greater share of the created wealth. Consumption thus influences Distribution.

In its turn, the nature of Consumption depends on the Distribution of wealth in a community. What a person consumes depends on the income he gets. If his wages are low, his consumption of goods and services too will be low and his standard of living will be low.

Now days the problems of Distribution are regarded as important as those of Production, perhaps even more so. The real welfare of the people depends not so much on the aggregate production of wealth in the country, but on how wealth is distributed in the community. Hence economic welfare depends on the respective shares accruing to the different sections of the community.

Production and Exchange:

Production is incomplete without Exchange. Articles produced must reach the hands of the consumers and this is impossible without Exchange. The system of buying and selling and the existence of markets stimulate production. But Exchange also depends on Production. Unless goods are produced, the question of exchanging them does not arise. There is thus inter-dependence between Production and Exchange.

Production and Distribution:

The greater the volume of production in a country, the greater would be the share of each agent of production. The nature of Distribution, therefore, depends on the total volume of Production. Goods must be produced before they can be distributed. In its turn, Production, too, depends on Distribution.

The methods and character of Distribution determine the income of a group. An individual’s income affects his efficiency, which, in its turn, determines the volume of production. If workers are paid better wages, the productive efficiency of the community will certainly improve. Production will consequently be larger. Hence one department depends on the other.

Exchange and Distribution:

Exchange assists Distribution. A man gets his share of the national income in the form of money. But he does not want money for its own sake. He has to buy things he needs. He is able to secure these things only through exchange.

Conclusion:

It is clear, then, that the various departments of Economics are closely inter-related. Each one of them depends on the other, and they act and react upon one another. We may repeat that we have split Economics into these divisions only for the sake of convenience of study. They are not water-tight compartments. They are closely inter-related. We may also repeal, however, that dividing Economics into Consumption, Production, Exchange and Distribution is only the traditional approach.

The divisions and their inter-relation- ship according to the modern approach have already been indicated above. That is, the study of Economics is split into two parts, viz., micro-economics (i.e., Price Theory) and Macros economics (i.e., Theory of Income and Employ­ment).

Scope of Economics:

While discussing the subject-matter and definition of Economics, we have said something about the scope of Economics too. But there are a few more things which we have to discuss in considering the scope of Economics. ‘Scope’ means the sphere of study. We have to consider what Economics studies and what lies beyond it.

The scope of Economics will be brought out by discussing the following:

(a) The subject-matter of Economics.

(b) Economics is a Social Science.

(c) Whether Economics is a Science or an Art?

(d) If Economics is a science, whether it is a positive science or a normative science?

Economics—a Social Science:

We have seen that Economics studies human beings. But it does not study them as isolated individuals living aloof in jungles or in mountain caves. Rather, it studies man living in organized society, exchanging his goods for those of others, influencing them by his actions and being influenced by them in turn. He depends on them, and they on him. Economics is thus a social science and not one dealing with individual isolated human beings. Interest has now almost completely shifted to the economy as a whole, how it grows and develops, the factors that hinder its growth and the measures that would help or accelerate it.

Positive Science or Normative Science?

A positive science explains the ‘why’ and ‘wherefore’ of things, i.e., their causes and effects. A normative science, on the other hand, discusses the Tightness or wrongness of things. Economists hold different views on this point. Some economists think that Economics is only a positive science and as such explains why things are as they are. It is neutral as regards ends. Others think that it is a normative science and tells us as the things ought to be.

Our view is that Economics is both a positive and a normative science. It not only tells us why certain things happen, it also says whether it is the right thing to happen. For example, we know that a few people in the world are very rich while the masses are very poor.. Economics should explain not only the causes of this unequal distribution of wealth, but it should also say whether this is good or bad. It might well say that wealth ought to be fairly distributed. Further, it should suggest the methods of doing it.

A Science or an Art?

When a student joins a college, he has to choose between two groups of subjects—Science subjects and Arts subjects. In the former group are included Physics, Chemistry, and Biology, and in the latter History, Civics, Economics, Philosophy, Sanskrit, etc. According to this classification, Economics falls in the Arts group. But this is not a sound classification, and does not help us in deciding whether Economics is a science or an art.

Let us first understand what the terms “science” and “art” really mean. A science is a systematized body of knowledge. A branch of knowledge becomes systematized when relevant facts have been collected and analyzed in a manner that we can “trace the effects back to their causes and project causes forward to their effects.” Then it is called a science.

In other words, when laws have been discovered explaining facts, it becomes a science. Facts are like beads. But mere beads do not make a necklace. When a thread runs through the beads, it becomes a necklace. The laws or general principles are like this thread and govern the facts of that science. A science lays down general principles which help to explain things and guide us.

The knowledge of Economics has advanced a great deal. It has reached a stage when its facts have been collected and carefully analysed, and ‘laws’ or general principles explaining facts have been laid down. Thus, the study of Economics has become so thoroughly systematized that it is entitled to be called a science. But Economics is also an art. An ‘art’ lays down precepts or formulae to guide people who want to achieve a certain aim. The aim might be the removal of poverty from a country, or the production of more wheat from an acre of land.

Many English economists consider that Economics is a pure science and not an art. They claim that its function is merely to explore and explain and not to help in the solution of practical problems. Yet many others are of the opinion that Economics is also an art. Economics does undoubtedly help us in solving many practical problems of the day. It is not a mere theory; it has great practical use. It is both light-giving and fruit-bearing. Hence, Economics is both a science and an art.

Conclusion:

We may, then, sum up the scope of Economics by saying that it studies ran’s actions in relation to wealth from the social point of view. It does not merely explore and explain but it also advocates and condemns. It not only investigates facts and discovers truths, but it also prescribes rules of life and passes judgment as to what is right and what is wrong. It is also both an art and a science. The scope of Economics is very wide indeed.

Relation of Economics with Other Sciences:

Economics has relation with almost all other sciences. All sciences have been developed by man for the benefit of mankind. As a science, which is primarily concerned with man’s welfare, Economics freely makes use of the other sciences in its study. It uses, in its own reasoning, the conclusions at which the other sciences may have reached. But its relation with social sciences like Politics, History and Ethics is the closest. Let us consider this relationship.

Economics and Politics:

Economics and Politics are very closely mixed up these days. All political events have their roots in economic causes. All political problems are economic in nature. If you follow discussions in the legislature, you will find that most of the time of the legislature is taken up by economic matters.

Political institutions also affect economic conditions, and vice versa. Dictatorship moulds economic conditions in a different manner from a democracy. Foreign rule in India was largely responsible for Indian poverty. Thus, there is a very close connection between Economics and Politics.

Economics and History:

Economics makes use of History in understanding the background of the present-day economic problems. History is also useful in establishing or verifying economic theories and laws. But History is incomplete unless it discusses the economic condition of man. History must devote its attention to the discussion of the economic condition of the people. It does not merely tell a tale of kings. Thus,

Economics without History has no root;

History without Economics has no fruit.

Economics and Ethics

Ethics is a science of what ought to be. It tells us whether a thing is right or wrong. Now ethical or moral considerations govern all economic activity. The economist cannot justify immoral activities. Some modern, economists (e.g., Robbins), however, think that Economics is a pure science arid as such it is not concerned with right or wrong. It is said to concern itself merely with means, and ends lie outside its scope. It is regarded as neutral as regards ends. The ends may be good or the ends may be bad, Economics is not concerned.

But our view is that Economics cannot be dissociated from Ethics. Ethics is indeed a handmaid of Economics. The economists are being called upon more and more to give their advice in economic affairs, and they should not shirk this task. That is why it is said that Economics is both a positive science and a normative science.

Economic Laws:

Definition of an Economic Law:

Like every other science, Economics, too, has drawn its own set of generalizations, which are called the laws of Economics. These laws are supposed to govern and explain all economic activity.

In the words of Marshall, economic laws may be defined thus:

“Economic laws, or statements of economic tendencies, are those social laws, which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by money price.” In terms of Robbins’s definition of economic activity, we might say that economic laws are statements of uniformities which govern human behaviour concerning the utilization of limited resources for the achievement of unlimited ends. These, in short, are the principles according to which we act when engaged in our ordinary business of life or in an economic activity.

Comparison of Economic Laws with Other Laws:

Let us compare economic laws with the laws of the government, with the laws of morality and with the natural laws.

Economic Laws and Government Laws:

The laws of the government are coercive; there is a penalty attached to their breach, but there is no penalty for breaking an economic law. For instance, there is no punishment it a consumer or a producer does not try to derive maximum benefit from his resources, economic laws are not binding or compulsory. They just tell us what will happen under certain conditions.

Economic Laws and Moral Laws:

The laws of morality merely indicate how we should act in order to satisfy public opinion or our own conscience. Economic laws and laws of ethics or morality belong to two different planes. Economic laws explain the business behaviour of a person, whereas moral laws govern his moral behaviour. Telling a lie is bad morally but many businessmen tell lies and make money. But by and large economic behaviour must conform to the dictates of morality.

Economic Laws and Laws of Natural Sciences:

The laws of natural sciences can be stated with precision and they have a universal validity. Economic laws are not exact or definite. In short, the nature of economic laws is not indicated by the word “must” as in the case of government laws, or by “ought”, as in the case of moral laws, but their nature is indicated by the phrase, “other things being equal” (ceteris paribus).

Economic Laws and Laws of the Social Sciences:

Economic laws may not be as definite and exact as the laws of physical sciences but as compared with other social sciences, Economics is in a very happy position. Other social sciences like History and Political Science have really no Laws worth the name; they may have some generalizations. Although it is generally said that history repeats itself, yet he will be a bold historian indeed who can even remotely guess the course of future events. Political Science is in no better position.

But economic laws are more exact and definite than laws of other social sciences. We shall look in vain in other social sciences for laws like the law of diminishing marginal utility or the law of diminishing marginal return or the law of equi-marginal returns and the theory of comparative costs or for the tools of measurement of elasticity of demand or consumers’ surplus.

The superiority of Economics lies in the fact that economic phenomena are capable of being measured in money price. This measuring rod of money is altogether missing in other social sciences. Hence, economic laws compare very favorably with laws of other social sciences,

Nature of Economic Laws:

From the above discussion, we can understand something about the nature of economic laws. Some economic laws are axiomatic in character, e.g., greater gain is preferred to smaller gain. Also, there are other economic laws which are of the nature of physical laws, e.g., the law of diminishing return. But most of the economic laws are hypothetical. They hold good under certain conditions.

Given certain conditions certain results will follow. They will hold good only if certain conditions are fulfilled. If the conditions are not fulfilled, they will not hold good. For instance, we say that when demand increases, price will rise. But price will rise only if supply has remained unchanged. If supply has increased in the meantime, price may even fall or at any rate, it will not rise. That is why the phrase ”other things being equal” is attached to all economic laws. This means that an Economic law holds good if the relevant conditions remain the same.

It follows from the above that economic laws are not certain or definite. The material of Economics is complex and ever-shifting. There is a great deal of economic friction arising out of custom and law. Social disabilities and legal restrictions obstruct the operation of an economic law. There is also a preponderance of the human element. All these factors impart an element of uncertainty to economic laws. They lack the definiteness and exactitude found in laws of sciences like Physics.

Marshall has compared economic laws to the laws of tides rather than to the simple laws of gravitation. The law of gravitation tells us something that is definite and certain. For example, a ball thrown upwards must fall back on earth. The earth’s gravity pulls everything towards it. There is no exception. On the other hand, one can never be sure about the time of the tide or the level to which it will rise.

It depends on so many factors, e.g., the relative position of the earth and the moon. Uncertainty surrounds laws of economics too like the laws of tides since they too relate to a complex phenomenon. That is why economic laws have been compared with laws of tides rather than with the simple laws of gravitation.

It may, however, be repeated that the laws of economics are more exact than those of any other social science, because the economic phenomena are capable of being measured in money price. This measuring rod of money is not available to any other social science like History and Political Science. Hence, economic phenomena are more predictable than those of History or Political Science.

We can also say that economic laws are statements of tendencies. That is, they only indicate what is likely to happen and not what must happen. Economic laws are inevitable and inescapable if the necessary assumptions are fulfilled. But these assumptions are not always fulfilled. Hence economic laws lack predictability.

“There is no convenient yard-stick by which to measure the currents in business affairs, for these are subject to gusts of fear or perhaps of fantastic optimism as unpredictable as earthquakes.” We cannot, therefore, say what will happen next, because it depends on the fulfillment of so many conditions. We can only say what is likely to happen. Economic laws are, therefore, merely statements of tendencies or of statistical probabilities.

Their Applicability:

One controversial point about economic laws is about their applicability. The Classical Economists were of the opinion that economic laws were immutable, eternal, inexorable and so universally applicable, without any qualification whatsoever. The Historical School, on the other hand, emphasized their relativity and insisted that they had only a limited application to a given environment. Bagehot, for example, declared that the laws of Economics propounded in England were applicable to “a grown-up society of competitive commerce.

Modern economic opinion inclines to the view that inasmuch as economic laws are based on essentials of human nature, they hold good of almost all communities. But, in the formulation of actual economic policies, allowance must be made for varying local condition… Who can doubt that Gresham’s law, the quantity theory of money, the law of diminishing utility, the law of choice and host of other economic laws are independent of sociological and political conditions? Given the conditions under which they are true, the conclusions to which they point are inescapable. “If the data they postulate are given, then the consequences they predict necessarily follow.”

To say that economic laws are historic-relative and that they have no relevance outside certain historical conditions is wrong. The fact is that they are based t>n very wide human experience and have almost a universal applicability.

Methods of Economics:

Two methods are generally used in formulating economic generalisations or laws, viz., the Deductive Method and the Inductive Method.

Deductive Method:

In the deductive method, we start with a few indisputable facts about human nature or general principles and draw inferences about individual or particular cases. For instance, we assume that self-interest alone governs human behaviour and we explain or predict about the behaviour of a particular individual on this assumption.

Merits of Deductive Method:

Several advantages are claimed for the deductive method:

(a) It is a simple method and helps in explaining complex economic phenomena.

(b) It is certain. If the assumptions are correct, the result must follow.

(c) It is easy to apply this method. Elaborate Statistical information is not required for its application.

(d) Since observation and experimentation are not possible where human behaviour is concerned, we have to rely on the deductive method.

Limitations:

(a) The underlying assumptions may turn out to be untrue thus vitiating the inference drawn.

(b) The deductive method makes Economies dogmatic, because there is a tendency to regard assumptions as always valid.

(c) This method is dangerous when practical policies are formulated on imperfect assumptions.

Inductive Method:

In the inductive method, we first collect relevant facts and on their basis draw conclusions. That is, we go up from ‘particulars’ to ‘general?’, whereas in the deductive method, we come down from generals to particulars. In the inductive method, we rely on observation and experimentation for collecting facts.

Hence this method has a sound basis. But the danger is that hurried conclusions may be drawn from insufficient, incorrect or partially correct facts. History provides experiments in the form of measures adopted. Large number of statistical publications is brought out in every country. These and other materials facilitate the application of the inductive method in modern terms.

Conclusion: Integration of the Two Methods:

We find that both deductive and inductive methods suffer from certain shortcomings. Hence the solution lies in the application of both so that one supplements the other. It is remarked; that both methods are needed in economic theorising as right and left foot is both-needed for walking.

Thus, “true solution of the contest about method is not to be found in the selection of deduction or induction but in the acceptance of deduction and induction.” (Wagner). Which of the two methods is to be used in particular situation depends on the nature of the inquiry, the material in hand and the stage which the inquiry has reached.

In short, the true scientific method thus consists of three different stages, viz.,

(i) Construction of theories.

(ii) The deduction of conclusions or predictions from the theories.

(iii) The testing of theories.

Importance of Economics:

Economics is considered these days as one of the most important branches of knowledge. Every educated person is keen to know something about Economics, if he has not studied it already. The number of persons eager to study the subject is increasing from year to year. It at once shows the popularity and the importance of Economics. Study of Economics is useful in several ways. Economics has got theoretical as well as practical importance.

Theoretical Importance:

Informative:

Economics teaches us many interesting and instructive facts about man’s behaviour when he is engaged in economic activity. The inner working of his mind in economic matters is revealed to us. We come to understand the various motives which guide men in economic affairs. It is both a fascinating and a fruitful study.

Mental Training:

Economic reasoning trains our mind as reasoning does in other sciences: It enables us to think clearly and judge correctly and thus affords useful mental exercise. A careful student of Economics can easily see through the game of politicians who want to deceive the general public. He will not be misled by cheap newspaper propaganda. No doubt, “Economics is no philo­sopher’s stone to turn everything it touches into gold, but it will help at least to distinguish gold from baser metals.”

Understanding Functioning of the Economic System:

The study of Econo­mics helps us to understand how the complicated economic system of today functions almost automatically without any central control. Every economic disturbance somehow tends to smoothen itself out. For example, if there is a shortage of a commodity, its price will rise. This will cut down unnecessary demand so that the demand will be brought down to the level of supply. This is how economic system adjusts itself in all spheres.

Teaches Mutual Dependence:

Economics teaches us the important lesson of the mutual dependence of man on man. We come to realize how we depend on others for the satisfaction of our wants, and how others depend on us. It clearly brings home to us the bond that binds worker to worker, industry to industry and country to country. This knowledge adds to our sense of responsibility and understanding, and thus leads to better work and a happier society.

Useful Citizenship:

The study of Economics makes us useful and intelligent citizens. Most of the problems today are fundamentally economic in character. It is only Economics that can give us a correct understanding of the problems of agriculture, industry, trade, transport, etc.

Economics enables us to shape and mould the State policies for solving these problems. A student of Economics can easily understand questions relating to taxation, currency, exchange, etc. Thus, it is clear that the study of Economics goes to build up a body of keen, intelligent and useful citizens. The knowledge of Economics enables everyone to perform one’s duties more intelligently and, therefore, more efficiently.

Practical Importance:

Besides the knowledge that Economics gives us, it has a great practical value in life. Economics is a science which is closely related to life. In most government departments, knowledge of Economics is found useful and is sometimes considered indispensable.

Professional Value:

The study of Economics is very useful in several professions. It is useful to the banker, to the businessman, to the agriculturist, and to the industrialist. As a matter of fact, it is useful to all.

Useful for Householders:

A householder will arrange his expenditure much better if he has studied Economics. He can prepare a family budget and put his household expenditure on a rational basis.

Useful for Labour Leaders:

A labour leader who knows Economics is able to fight for the rights of labour more effectively. He can understand clearly the conditions of industry. He will, thus, know when to yield a point gracefully and when to stand firm in the matter of workers’ demands.

Solving Problem of Poverty:

Finally, it is Economics that we look up to for solving the problem of poverty. ‘Economics alone will not build a millennium; but in that building—(and in whatever preliminary pulling down may be necessary), it is an essential tool.’ In view of what has been said above, it is clear that the study of Economics is not only useful in ordinary life, but also serves as an excellent mental discipline.

Importance of Economics for Under-developed Economies:

The study of Economics has a special significance for an under-developed economy. In the backward and under-developed countries, the major problem is how to remove poverty and unemployment and to raise living standards. These problems can be solved by accelerating economic development.

The economists have evolved a theory of economic development. From the study of this theory, we can know the causes which have retarded economic growth and how the process of development can be initiated and growth accelerated. The theory of economic growth and planning, which is now an important branch of Economics, furnishes an invaluable guide to the economically backward countries.

Economists all the world over are now taking keen interest in the problems facing the poverty-stricken and under-developed countries. The result is that the literature on economic growth has enormously increased. This literature is of immense benefit for the people and the governments of the backward countries.

Most of them have adopted planning techniques to bring about rapid economic development and raise living standards of their people so as to catch up with the advanced and affluent nations of the world. A great deal has already been achieved in this direction.