Scope of Economics:

Like its nature, the scope of economics is a vexed question and economists differ widely in their
views. The reason is aptly put by Marshall in one of his letters to Lord Keynes: “It is true of
almost every science that, the longer one studies it, the larger its scope seems to be: though in
fact its scope may have remained almost unchanged. But the subject matter of economics grows
apace.” The continuous growth in the subject matter of economics has led to divergent views
about the scope of economics.

A discussion about the true scope of economics includes the subject matter of economics,
whether economics is a science or an art, or is it a positive or a normative science.

Subject Matter of Economics:

Broadly speaking, the formulation of a definition is a succinct procedure of elucidating the

subject matter. As discussed in detail above, the majority of economic thinkers from Adam
Smith to Pigou have defined the subject matter of economics as the study of the causes of
material welfare or as the science of wealth.

Marshall, in particular, confined it to the consumption, production, exchange and distribution of

wealth by men engaged in the ordinary business of life. Men who are rational beings and act
under the existing social, legal and institutional set up. It excludes the behaviour and activities of
socially undesirable and abnormal persons like drunkards, misers, thieves, etc.

Professor Robbins, however, finds this subject matter as too restricted in scope to embrace all the
facts. He cites numerous examples to show that certain human activities possess a definite
economic significance but have little or no connection with material welfare. The same good or
service may promote material welfare at one time and under one set of circumstances and not at
another time under different circumstances.

Robbins is, therefore, of the view that for a good or service to have economic significance it
must command a price. And for a good or service to command a price, it is not essential that it
must promote material welfare, rather it must be scarce and capable of being put to alternative
uses. Thus economics is not concerned so much with the analysis of the consumption,
production, exchange and distribution of wealth as with a special aspect of human behaviour that
of allocating scarce means among competing ends.

This fundamental problem is ever present in all times and places and in all sets of circumstances.
Thus the subject matter of economics includes the daily activities of the household, of the
competitive business world and the administration of public resources in order to solve the
problem of scarcity of resources.

The subject matter of economics includes the study of the problems of consumption, production,
exchange and distribution of wealth, as well as the determination of the values of goods and
services, the volume of employment and the determinants of economic growth. Besides, it
includes the study of the causes of poverty, unemployment, underdevelopment, inflation, etc. and
steps for their removal.

Economics as a Science:

There is considerable disagreement among economists whether economics is a science and if it is

so, is it a positive or a normative science?

In order to answer these questions, it is essential to know what science is and to what extent the
characteristics of science are applicable to economics.

A science is a systematised body of knowledge ascertainable by observation and

experimentation. It is a body of generalisations, principles, theories or laws which traces out a
causal relationship between cause and effect. For any discipline to be a science; (i) it must be a
systematised body of knowledge; (ii) have its own laws or theories; (iii) which can be tested by
observation and experimentation; (iv) can make predictions; (v) be self-corrective; and (vi) have
universal validity. If these features of a science are applied to economics, it can be said that
economics is a science.

Economics is a systematised body of knowledge in which economic facts are studied and
analysed in a systematic manner. For instance, economics is divided into consumption,
production, exchange, distribution and public finance which have their laws and theories on
whose basis these departments are studied and analysed in a systematic manner.

Like any other science, the generalisations, theories or laws of economics trace out a causal
relationship between two or more phenomena. A definite result is expected to follow from a
particular cause in economics like all other sciences. An example of a principle in chemistry is
that, all other things being equal, a combination of hydrogen and oxygen in the proportion of 2: 1
will form water. In physics, the law of gravitation states that things coming from above must fall
to the ground at a specific rate, other things being equal.

Similarly, in economics, the law of demand tells us that other things remaining the same, a fall in
price leads to extension in demand and a rise in price to contraction in demand. Here rise or fall
in price is the cause and, contraction or extension is its effect. Hence economics is a science like
any other science which has its own theories and laws which establish a relation between cause
and effect.

Economics is also a science because its laws possess universal validity such as the law of
diminishing returns, the law of diminishing marginal utility, the law of demand, Gresham’s law,
etc.

Again, economics is a science because of its self-corrective nature.

It goes on revising its conclusions in the light of new facts based on observations. Economic
theories or principles are being revised in the fields of macroeconomics, monetary economics,
international economics, public finance and economic development.
But certain economists do not accord economics the status of a science because it does not
possess the other features of a science. Science is not merely a collection of facts by observation.
It also involves testing of facts by experimentation. Unlike natural sciences, there is no scope for
experimentation in economics because economics is related to man, his problems and activities.

Economic phenomena are very complex as they relate to man whose activities are bound by his
tastes, habits, and social and legal institutions of the society in which he lives. Economics is thus
concerned with human beings who act irrationally and there is no scope for experimentation in
economics.

Even though economics possesses statistical, mathematical and econometric methods of testing
its phenomena but these are not so accurate as to judge the true validity of economic laws and
theories. As a result, exact quantitative prediction is not possible in economics.

For instance, a rise in price may not lead to contraction in demand rather it may expand it if
people fear a shortage in anticipation of war. Even if demand contracts as a result of the rise in
price, it is not possible to predict accurately how much the demand will contract. Thus, as opined
by Marshall: “In sciences that relate to man exactness is less attainable.”

But this does not mean that economics is not a science. It is definitely a science like any other
science. Biology and Meteorology are those sciences in which the scope for predictability is less.
The law of tides explains why the tide is strong at a new and full moon and weak at the moon’s
first quarter.

At the same time, it is possible to predict the exact hour when the tide will rise. But it may not
happen so. The tide may rise earlier or later than the predicted time due to some unforeseen
circumstances. Marshall, therefore, compared the laws of economics with the laws of tides
‘rather than with the simple and exact law of gravitation. For the actions of men are so various
and uncertain, that the best statement of tendencies, which we can make in a science of human
conduct, must needs be inexact and faulty.”

Economics as an Art:

Art is the practical application of scientific principles. Science lays down certain principles while
art puts these principles into practical use. To analyse the causes and effects of poverty falls
within the purview of science and to lay down principles for the removal of poverty is art.
Economics is thus both a science and an art in this sense.

However, certain economists do not consider it advisable to treat economics as both a science
and an art. For the pressure of practical problems will hinder the development of economics as a
science. This will, in turn, react on the effectiveness of the corresponding art. Therefore, any
attempt to solve a particular economic problem in full will so complicate the problem that the
work may become hopeless.

For this reason, Marshall regarded economics as “a science pure and applied, rather than a
science and an art.”
Economists today are realising more and more the need for practical application of the
conclusions reached on important economic problems.

Therefore, “Economics should not be considered as a tyrannical oracle whose word is final. But
when the preliminary work has been truly done, Applied Economics will at certain times on
certain subjects speak with the authority to which it is entitled.” Economics is thus regarded both
a science and an art, though economists prefer to use the term applied economics in place of the
latter.

Economics Positive or Normative Science:

Before we discuss whether economics is a positive or normative science, let us understand their
meanings which are best described by J.N. Keynes (father of Lord Keynes) in these words: “A
positive science may be defined as a body of systematised knowledge concerning what is, a
normative science as a body of systematised knowledge relating to criteria of what ought to be,
and concerned with the ideal as distinguished from the actual.” Thus positive economics is
concerned with “what is” and normative economics with “ought to be.”

Economics as a Positive Science:

It was Robbins who in his An Essay on the Nature and Significance of Economic Science
brought into sharp focus the controversy as to whether economics is a positive or normative
science.

Robbins regards economics as a pure science of what is, which is not concerned with moral or
ethical questions. Economics is neutral between ends. The economist has no right to pass
judgment on the wisdom or folly of the ends itself. He is simply concerned with the problem of
scarce resources in relation to the ends desired.

The manufacture and sale of cigarettes and wine may be injurious to health and therefore morally
unjustifiable, but the economist has no right to pass judgment on this, since both satisfy human
wants and involve economic activity.

Following the classical economists, Robbins regards the propositions involving the verb ought as
different in kind from the proposition involving the verb is. He finds a ‘logical gulf between the
positive and normative fields of enquiry as they “are not on the same plane of discourse.”

Since “Economics deals with ascertainable facts” and “ethics with valuations and obligations,”
he finds no reason for “not keeping them separate, or failing to recognise their essential
difference.” He, therefore, opines that “the function of economists consists in exploring and not
advocating and condemning.” Thus an economist should not select an end, but remain neutral,
and simply point out the means by which the ends can be achieved.

Like Robbins, Friedman also considers economics as a positive science. According to him, “the
ultimate goal of a positive science is the development of a ‘theory’ or ‘hypothesis’ that yields
valid and meaningful (not truistic) predictions about phenomena not yet observed.” In this
context, economics provides systematic generalisations which can be used for making correct
predictions. Since the predictions of economics can be tested, economics is a positive science
like physics which should be free from value judgements.

According to Friedman, the aim of an economist is like that of a true scientist who formulates
new hypotheses. Hypotheses permit us to predict about future events or to explain only what
happened in the past. But predictions of such hypotheses may or may not be limited by events.
Thus economics claims to be a positive science like any other natural science.

Thus economics is a positive science. It seeks to explain what actually happens and not what
ought to happen. This view was held even by the nineteenth century economists. Almost all
leading economists from Nassau Senior and J.S. Mill onwards had declared that the science of
economics should be concerned with what is and not with what ought to be.

Economics as a Normative Science:

Economics is a normative science of “what ought to be.” As a normative science, economics is

concerned with the evaluation of economic events from the ethical viewpoint. Marshall, Pigou,
Hawtrey, Frazer and other economists do not agree that economics is only a positive science.
They argue that economics is a social science which involves value judgements and value
judgements cannot be verified to be true or false. It is not an objective science like natural
sciences. This is due to the following reasons.

First, the assumptions on which economic laws, theories or principles are based relate to man
and his problems. When we try to test and predict economic events on their basis, the
subjectivity element always enters.

Second, economics being a social science, economic theories are influenced by social and
political factors. In testing them, economists are likely to use subjective value judgements.

Third, in natural sciences experiments are conducted which lead to the formulation of laws. But
in economics experimentation is not possible. Therefore, the laws of economics are at best
tendencies.

Conclusion:

Thus the view that economics is only a positive science is divorced from reality. The science of
economics cannot be separated from the normative aspect. Economics as a science is concerned
with human welfare and involves ethical considerations. Therefore, economics is also a positive
science.

As pointed out by Pigou, Marshall believed that “economic science is chiefly valuable neither as
an intellectual gymnastics nor even as a means of winning truth for its own sake, but as a
handmaid of ethics and a servant of practice.” On these considerations, economics is not only
“light-bearing,” but also “fruit- bearing.” Economists cannot afford to be mere spectators and
arm-chair academicians. “An economist who is only an economist,” said Fraser “is a poor pretty
fish.” In this age of planning when all nations aspire to be welfare states, it is only the economist
who is in a position to advocate, condemn and remedy the economic ills of the modern world.
“When we elect to watch the play of human motives that are ordinary that are something mean
and dismal and ignoble,” wrote Prof. Pigou, “our impulse is not the philosopher’s impulse,
knowledge for the sake of knowledge but rather the physiologist’s, knowledge for the healing
that knowledge may help to bring.” It is not enough for the economist to explain and analyse the
problems of unequal distribution of wealth, industrial peace, social security, etc.

Rather his work is to offer suggestions for the solution of such problems. Had he remained a
mere theoretician, poverty and misery and class-conflicts would have been the lot of mankind.
The fact that economists are called upon to pronounce judgements and tender advice on
economic problems shows that the normative aspect of the economic science has been gaining
ground ever since the laissez-faire spirit became dead.

Wotton is right when she says, “It is very difficult for economists to divest their discussions
completely of all normative significance.” Myrdal is more forthright when he says that
economics is necessarily value-loaded and “a ‘disinterested social science’ has never existed and,
for logical reasons, cannot exist.”

About the relation between normative and positive economics, Friedman observes: “The
conclusions of positive economics seem to be, and are, immediately relevant to important
normative problems, to questions of what ought to be done and how any given goal can be
attained.” Normative economics cannot be independent of positive economics, though positive
economics is free from value judgements. Economics is, therefore, not only a positive science of
“what is” but also a normative science of “what ought to be.”