The Economics Book

171

See also: Demographics and economics 68–69 ■ Opportunity cost 133 ■

Markets and social outcomes 210–13 ■ Shortages in planned economies 232–33

I

n 1932, the British economist

Lionel Robbins provoked

controversy by publishing

his Essay on the Nature and

Significance of Economic Science,

which contained a new definition

of economics. Robbins defined it

as the science of human actions

in the face of limited resources

with multiple uses. He based his

definition on the fact that human

needs are infinite, yet there are

only a finite amount of resources.

As one need is fulfilled, another

one takes its place. However, there

are only limited resources (land,

labor, entrepreneurship, and

capital) available to fulfill these

desires. Scarcity means that

every desire can never be satisfied.

Needs versus resources

The tension between unlimited

needs and limited resources is

the basis of economics. Every

resource has an alternative use—

for example, if a field is used for

grazing livestock, it cannot produce

a crop at the same time. This

means that we have to decide

the best way of using resources.

Robbins believed that this is the

key problem facing every society—

deciding which goods to produce,

and in what quantity, in order to

best satisfy consumers. It is the

very scarcity of resources that

gives them their value.

Today, Robbins’s definition is

widely accepted, but some argue

that economics should be seen in

broader terms—as an investigation

of how societies generate more

resources over time. ■

WAR AND DEPRESSIONS

ECONOMICS IS THE

SCIENCE OF SCARCE

RESOURCES

DEFINITIONS OF ECONOMICS

Lionel Robbins’s definition focuses

on the fact that scarcity forces an

economic choice—such as whether to

use a field to feed cattle or grow wheat.

IN CONTEXT

FOCUS
Economic methods

KEY THINKER
Lionel Robbins (1898–1984)

BEFORE
1890 UK economist Alfred
Marshall publishes Principles
of Economics, which defines
economics as “... that part
of individual and social
action which is most closely
connected with the attainment
and use of material requisites
for well-being.”

AFTER
1962 US economist Milton
Friedman endorses Robbins’s
definition, yet expands the
boundaries of what Robbins
has defined as economics.

1971 US economist Gary
Becker publishes Economic
Theory, in which he defines
economics as “the study of the
allocation of scarce means to
satisfy competing ends.”