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Nature and Methodology of Economics

By: Abbas Ali

“Economics is the name of the particular part of human knowledge, the theme of which is wealth. Moreover, it aims at finding out the principles, the causes, and the methodology of production, distribution, exchange, and the uses of wealth. Therefore, the economics student ought not to mix his research and investigation with the research of other branches of knowledge because the development of any branch of knowledge depends upon the fact that it should be independent of the series of other branches of knowledge. Some scholars think economics is a part of the vast knowledge of civilization and because common aspects of civilizational life are interconnected; hence, studying one branch in isolation shall not yield any significant result. However, this opinion does not seem befitting to reason and rhyme. Because the circle of human activities is so vast that practically it cannot be viewed entirely and perfectly. In addition to it, as I have stated above, it must be unique to attain knowledge.

Does the study of economics develop the love for wealth? Some people insist that its study is not favorable ethically because it gives birth to the love for wealth, which makes a man unworthy of all the ethical virtues and converts a man into a hardened worldly creature. As an answer to this absurd objection, the first argument is: although the aim of man is not wealth only, it is one among the fundamental aims. Hence, it necessitates its study and to find out the causes and methods of its production and distribution, etcetera. In addition to it, it is also valid to say this objection is absurd ab initio.

The study of economics does not give birth to the love for wealth because the only aim is to know how the desire to obtain wealth, which is inbuilt in human nature, affects human activities. Some natural tendencies may be so strong that they keep the desire for wealth suppressed. However, economics is not concerned with them; its task is not to comment on the human character or decide which factors are good or bad according to ethical activities. This knowledge focuses on part of the vast circle of human activities related to acquiring wealth. Additionally, if we ponder, it shall come to our knowledge that economics does not teach greed. However, enlightening the correct and accepted principles of acquiring wealth teaches how this strong desire is kept under the control of those principles and abstain from wars, controversies, and looting, which are the necessary result of the intense desire to live peacefully.

I have used the word “Wealth” in several places. However, till now have not stated what its nature and definition are. Wealth includes, those attainable goods that directly or indirectly fulfill human necessities and can be desired legally and appropriately. However, all attainable goods which can be desired legally and appropriately are not wealth. Therefore, to know the components of wealth, we must know the required goods in the first instance. Required goods or all those goods which all humans can desire legally and appropriately are of two types:

  1. All those attainable material goods include those valuable goods and their right to use, such as land, water, environment, agricultural produce, mineral produce, products, constructions, tools, mortgage deeds, lease deeds, etc.
  2. Attainable immaterial and personal goods are of two types:

Firstly, those benefits that a man has the right to get from others, such as getting service from employees.

Second, his personal qualities and abilities because of which he performs his tasks. The former goods include indigenous immaterial goods like light, air, or the right to be citizens of a particular country.

Required goods can be categorized in another way also: independent goods and exchangeable goods. By independent goods, we mean those goods provided by nature, and a man does not need to struggle for those.

Exchangeable goods include all those transferable goods which are scarce, but practically this distinction is not much valuable.

Now the meaning of the term “wealth” shall be elaborated. When we apply the word wealth concerning a person, two required goods are incorporated in its meaning.

First, all those attainable material and endogenous goods that are legally or traditionally his property are transferable and exchangeable.

Second, those attainable immaterial and endogenous goods are his property and through which material goods can be attained. For example, a person has business relations, etc., obviously within the abovementioned meaning of “wealth,” natural faculties of a man cannot be incorporated because these are not excluded from his person but inbuilt in his person. Alternatively, in other words, these are indigenous immaterial goods. Which, according to the introduced phrase, is not included in wealth. Therefore, by wealth, we mean endogenous goods that can be desired legally and appropriately and are a person’s property.

Moreover, during the exchange, their value can be established with the scale of money. On the one hand, this scale reveals the effort and endeavor required to produce these goods, and on the other hand, human needs are fulfilled by these goods. In brief, we can say that “wealth” includes all those legally and appropriately attainable resources transferable by action or force. According to this definition, only the following goods can be called wealth:

  1. Which are a particular good, whether endogenous material or endogenous immaterial.

2.Which can be desired legally and appropriately to fulfill human needs. An African savage can desire to get his enemy’s head, but this desire is not ethical, legal, and appropriate.

  1. Which is attainable.
  2. Which is a rightful property of a person.
  3. Which is transferable. In other words, the value of which can be established with the scale of money.

In the abovementioned definition of “wealth,” we have used the word “value,” an essential term in economics. In order to comprehend the definition of wealth perfectly, it is essential to understand this term’s meaning explicitly. For example, I have a watch; I have the authority to sell it in order to fulfill my needs or take others’ services. Wherefrom I got this authority? Therefore, “value” is the name of authority or power which the possessor of that good receives through that good. Moreover, by exchanging it, the person can get others’ produce and labor without force or compulsion. In short, we can say that value is the name of the power of exchange.

Ponder on the words of this definition. We have mentioned without force and compulsion or personal impressions. An autocratic king can send his subjects to fight and die, wherever he wishes. However, these services shall not be included in economics because the king uses force and compulsion.

On the contrary, the services of English soldier are within the sphere of economics. He accepts the employment with his free will and on a particular salary. Similarly, the services of a mother are excluded from the sphere of economics. She, at times, losses her life while protecting her indisposed child because it is based upon her impressions of love.

Putting this definition in a nutshell, I have stated that “value” is the name of the power of exchange. It implies that establishing value exchange is necessary. However, for exchange, it is necessary to have another person with whom things can be exchanged. Now ponder in light of this definition, whether wisdom, skill, and natural faculties, which can be named as the personal qualities of a person; obviously, these goods are nontransferable. In other words, they cannot be exchanged because they cannot be separated from an individual’s personality. Some scholars say that because the value is subservient to the ability to exchange, personal qualities are devoid of value, hence not included in wealth. However, although an individual’s personal qualities and natural faculties lack transferability, even then this ability is contained in their utilization.

We can utilize our natural faculties for the sake of another person and can receive the reward for our service. The skill of a carpenter not only fulfills the needs of others but is also necessary to indirectly satisfy his own needs, just like his tools of the trade, etcetera; this is why some researchers, according to the introduced phrase, have applied the word “wealth” to endogenous goods. Even then, they name an individual’s natural faculties as his wealth. According to this opinion, the skill, honesty, etc., of the people of a nation are also included in that nation’s wealth. However, some other scholars have, without any distinction, included personal wealth in the definition. According to them three types of goods are included in wealth:

  1. Those attainable exogenous material goods which can be desired legally and appropriately and claimed legally or traditionally by an individual.
  2. Those attainable immaterial exogenous goods that can be legally and appropriately desired and which are his property and through which material goods can be attained, for example, the reward for the service of employees and business relations.
  3. Those attainable indigenous immaterial goods which can be desired legally and appropriately—for example, an individual’s natural faculties. In my view, the former opinion is closer to rhyme and reason, although there is just a verbal difference and no difference in their meaning. While dealing with the meaning of value, it must be understood that wealth and welfare are not synonyms. Most of the goods are necessary for our welfare, yet not included in the meaning of wealth, for example, if independent artisans are taken as slaves, it will undoubtedly increase the quantity of our wealth, but it will be detrimental to the welfare of humanity. The issue of quantity of wealth is akin to the forerunning situation. At times for a certain period, some resources are discovered which are helpful for the development of a country. For example, with the invention of machinery, small tools go out of use. The development of a nation depends mainly on these inventions. Therefore, we understand that the quantity of wealth tends to diminish day after day along with the progress of culture and civilization. Had the population not been increasing and human wants and needs had a diminishing tendency day by day, and had the population not been increasing and had the human needs not been expanding day by day, the domain of economics too would have contracted, so that there would have been no need of this knowledge.

In this context, it is pertinent to clear that wealth and property are not synonyms because this distinction will be helpful in the discussion of income tax. Suppose a piece of land is wealth for an individual, who receives tax for it and could sell it in case of his inability to pay debts, but for a nation, it is not wealth because if the lease is abolished, it will not change the wealth of nation. This distinction can be explained more clearly that the said land is wealth because it carries a fixed value but not a wealth mortgage. However, it retains the right to acquire or utilize a certain quantity of property or wealth available to the mortgagee. Implying that the quantity of the proprietary land, the value of the land minus the mortgagee’s right, is equal. In this example, there is single wealth but two properties—first, the property of the original owner and second, the property of mortgagee. Proprietary land, be it one or divisible in many proprieties, will not change the nation’s wealth. In reality, economics is not concerned with the word property because this word has no economic meaning but a legal meaning.

It was pertinent to explain the meaning of the terms “wealth” and “value” to understand the nature of economics. Therefore, we had to write the abovementioned lines. Let us return to the main topic and try to know what the fundamental principles of economics are? Many questions arise in this context. For example, what are the basic principles and events upon which an economist bases his argument? During this argument, is it essential to take note of events that influence wealth, or do we have to be contented with a few important facts? Is it necessary to study the fundamental nature of an individual to reach the ultimate result? Or have we to imagine an individual whose every action is a model for others? Is it mandatory to know about the situations of different nations, land, environment, agricultural ability, habits of people, knowledge of their condition? Or is it sufficient to know only those qualities and conditions found in every nation without communion?

The nature and methodology of economics depend upon the answer to these questions. However, there is a vast difference of opinion among the scholars in this regard. Some economists believe that the principles of economics are a few facts related to human nature, human civilization, and the physical structure of the land. Other economists think that it is the duty of an economist not to ignore any aspect of human nature related to wealth or distribution and production of wealth. Therefore, in the opinion of these scholars, as far as the knowledge of human nature expands, so does the knowledge of economics. A researcher who belongs to the latter group of scholars says that the duties of economists are:

  1. To know those essential principles which influence the acquisition of wealth.
  2. To know the important facts of human mental structure which are related to human nature.
  3. To know the natural properties of critical natural and causes of the production of wealth.
  4. To research other causes which influence human activities aiming at the acquisition of wealth. For example, national and civilizational rituals, arising modern needs or law related to land, etc.

However, in our opinion, both groups are on the right path. For economics, it is essential to first establish some certain principles as the foundation and then try to know how these basic principles practically change the present situations and events of human life. Anyway, among other things, economists must base the knowledge upon the true principles of human nature. Otherwise, they should not expect the right and ultimate results. Suppose we accept that man by nature is selfish and bereft of compassion. Furthermore, if this basic principle is considered the foundation of economic reasoning, all those arguments based upon this principle would be wrong. Because, in reality, human nature is not such but an amalgam of both selfishness and compassion. If such principles of economics get prevalent among any nation based upon such types of wrong observations, the nation shall experience a dangerous moral degradation within a century or two. Consequently, all the activities of that nation shall emit the foul smell of unnecessary selfishness and money-worship, which shall throw her in the abyss of disgrace someday. Therefore, keeping in view human nature and other physical conditions, some writers have established a few basic assumptions or psychological principles upon which all economic arguments are based. Following are the essential principles among those:

  1. Generally, every individual has a desire for wealth, more or less.
  2. The Capitalists and the labor class deliberately avoid those activities which provide less profit or less wages and are inclined to those activities which provide more profit or more wages. However, we must remember that these basic principles are valid only when peace is prevalent in the nation, slavery is not the norm, and all those causes are non-existent, which do not allow the capitalist and the labor class to migrate across different business branches. You can imagine, a century ago, it was challenging in India that an individual could go from one city to another city and initiate a business activity there.
  3. The land is scarce in quantity. However, generally, one nation’s land is different from another nation’s land in terms of qualities and properties.
  4. Generally, the world’s land is so fertile that a farmer’s rudimentary knowledge and skill yield him more than enough for subsistence.

Fore running discussion clarifies that economics studies unique facts and establishes general rules and forms its basic accepted principles to produces results. Their validity or invalidity can be ascertained by comparing them with the facts. Alternatively, in the terminological sense, we can say that economics, like other branches of knowledge, takes advantage of both inductive and deductive methods. It is pertinent to remember that all general rules are based upon facts; therefore, their action is limited. However, the general rules of economics are particularly limited because the economic, civilizational conditions, and facts of different countries or nations differ in certain situations. For example, some laws of economics are valid for western countries but untrue for India due to differences in the situations; this is why some scholars do not consider economics equivalent to mathematics and consider it subjective to countries or nations. An author has recently written a book; he has named it “Indian Economics.” However, in our opinion, this fallacy has occurred because he has not distinguished between science and art. The task of science is to know the causes and reasons of facts. It is not judgmental about the good or bad of an action.

On the contrary, art must keep in view the particular facts, achieve an objective, devise particular rules and modus operandi, or judge the validity of a method. Therefore, we consider it as a branch of knowledge like other ideological branches of knowledge. Although there is no harm accepting that its general rules may change according to new facts, this will provide expansion in general rules, and they shall overpower new facts.

Translated from Illm-ul-Iqtisad Part I“Illm-e-Iqtisaad Ki Mahiyat Aur Iss Ka Tareek-e-Tehqeeq” ([email protected])

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