Wealth Definition/Adam Smith’s Definition/ Classical Definition: (1776-1890) (Economics as a science of wealth)
Adam Smith was the leader of the classical school of thought. There were many economists before the emergence of classical school of economic thought. However, the first definition is given by Adam Smith in his famous book “An Enquiry into the Nature and Causes of the Wealth of Nations” published in 1776 A.D. After the publication of Adam Smith’s book, economics got its independent identity as a separate science. For this great contribution of Adam Smith, he is known as “father of economics”
In his book, he defined economics is the science which studies about the nature and causes of wealth of nations. In his view, economics is concerned with the knowledge of earning money. Every individual of the society has a desire to earn wealth.
The main points of wealth definitions are as follows:
1. Study of wealth of nation:
Economics is the study of wealth of nation only. It deals with consumption, production, exchange and distribution only.
2. Causes of wealth:
Economics seeks to investigate the causes that lead to increase of wealth. There are two ways of increasing wealth: (i) by increasing the supply of goods through large scale of production made possible increasing labour productivity through division of labour. And (ii) by increasing the demand for goods through extension of market.
3. Study of economic activities:
Economics is only concerned with the activities of economic man who involved in earning more wealth. But it is not a study of non-economic man who is not involved in earning wealth. The main objective of economic man is to earn wealth because wealth is only the means to satisfy human wants.
4. First place to wealth:
In the study of economics, Adam Smith gave first place to wealth and second place to the mankind. He argued that man is made for wealth.
5. Only material goods constitute wealth:
Adam Smith’s definition has emphasized that only material goods constitute wealth in society and economics is not concerned with non-material services.
Criticisms/ Limitations of Wealth definition:
Adam Smith’s definition of economics has been bitterly criticized because it assumed wealth as an end of human activities.
1. Narrow meaning of wealth:
Adam Smith considered that economics is the science of wealth and wealth includes only material goods such as vehicles, industries, raw materials, houses, gold, silver etc. It does not include non-material goods like services of doctor, lawyer, teacher, nurses etc. this is the narrow sense of defining the wealth. In practice, human wants can be fulfilled by using non-material goods or services also. Thus, wealth includes both material and non- material goods.2. Too much importance to wealth:
Adam Smith gave more importance to wealth than man. He had given first place to wealth and second place for human being. But according to Marshall, wealth is only a means to satisfy human wants. Thus, economics must emphasize the study of man much more than the study of wealth.
3. No mention of human welfare:
Wealth definition gave no importance to the welfare of the society. But according to Marshall, the main aim of economics is to increase material welfare of the society.
4. Wrong assumption of economic man:
According to Adam Smith, economic man is one who has single objective of earning wealth. i.e., he earns only for his self-interest and social interest is completely ignored. This economic man is only the subject matter of economics. But Marshall and his followers pointed out that no man can be limited only with earning wealth because man is equally influenced by moral and spiritual thoughts like love, respect, self-esteem, sympathy, friendship etc.
5. Labour is not only the source of wealth:
In the view of Adam Smith, main source of wealth is employed labour. Labour is essential to produce anything. But we also need other factors of production like land, capital and organization to produce goods and services. Adam Smith definition had ignored this aspect.
6. Narrow subject matter:
This definition has restricted the scope and subject matters of economics. This is only concerned about nature and causes of wealth of nation. But economics should also study many other aspects of human beings.