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The Scarcity Assumption, Economic Problem and the Definition of Economics: Revisited

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The Scarcity Assumption, Economic Problem and the Definition of Economics: Revisited ResearchIslamic E Centerconomics for Islamicand Finance Economics Research and FinanceGroup, UniversitiUniversiti KebangsaaKebangsaann Malaysia,Malaysia Bangi 43600, Selangor, Malaysia Fax:Fax: +603603-89215789-89215789 http://www.ukm.my/ekonishttp://www.ekonis-ukm.my E-mail:E- mail:[email protected] [email protected] Working Paper in Islamic Economics and Finance No. 1225 The Scarcity Assumption, Economic Problem and the Definition of Economics: Revisited Bayu Taufiq Possumah Institut Islam Hadhari, Universiti Kebangsaan Malaysia, 43000 Bangi, Selangor, Malaysia Universiti Muslim Indonesia, Makassar, Indonesia Tel: +6016-2412950 E-mail: [email protected] Abdul Ghafar Ismail School of Economic, Universiti Kebangsaan Malaysia, 43000 Bangi, Selangor, Malaysia Tel: +601-36214133 E-mail: [email protected] Abstract The problem of scarcity resources is one of the most important topics in economics, even one reason for the emergence of economics itself. Al Qur'an as a source of economic science in Islam, of course, also talks about the Resources. The study finds that the concept of economic resources related to scarcity in al Qur'an different from what is understood by economic mainstream, and that is the foundation for the Muslim economists to build the consumer behavior theory in Islam. Keywords: Scarcity; Economic problem; Economic science definition Introduction The problems of human economy have actually grown together with human life on earth, so are efforts to solve. What is consumed, how to produce, and how to distribute it? These issues remain a major issue for the human struggle throughout his life, whether or not recorded by history. Initially, the scarcity is important to be explored due to several reasons, such as economic resources and human economic choice.1 If we use the same framework, i.e., Starting from the definition of Islamic 1 Scarcity is the concept of finite resources in a world of infinite needs and wants. Economics assumes people are greedy and always have needs and wants. However, there is only a certain amount of most 2 economics, we would go nowhere. In line with other views, such as Zubair Hasan (2011), we use the deductive methods in deriving the subjects from the original sources. Because, the existing studies on scarcity in Islamic economics just quoted the Quran without trying to analyze it. The significance of this study is basically led towards: the relevancy of the current definition of economy, utility theory, distribution theory, market theory, and consumer behavior theory. The aim of this paper is an attempt to revisit the problem of scarcity theory in economics, then analyze that theory of Qur‟anic dimension as a resource principle in Islamic economics. The remaining discussion of this paper is, the paper organized into five sections. Section two explaining scarcity and economic theory in mainstream economics. Section three, Economic problem in Qur‟anic view , Section four analyzing the scarcity, the economic problem and Islamic economic theory, and the last section is concluded. Scarcity and Economics Theory In medieval origin, word of scarcity derived from the Old Northern French escarate, and was used to mean an insufficient supply of resources. In the fifteenth century the word took on a more specific meaning as an insufficient of supply of necessities, or dearth, and at the same time acquired a temporal characteristic implying a period of insufficiency, or a dearth. This was still the usage by the late eighteenth and early nineteenth century.2 Thomas Robert Malthus used the word in this sense in An Essay on The principle of Population of 1978, where he contrasted “years of plenty” to “years of scarcity”.3 By looking for various conventional economic definitions cited by economist, we can simply conclude that what they explain about the economy not far from regarding the relationship between human needs as living things that must maintain its existence, the resources as objects that can meet those needs and how the manner and process of fulfilling these needs, even though of course with a different view point. Samuelsen (1961) for example, defining economy as all activities related to production and distribution among human. This definition was further extended by Samuelson (1976), Nordhaus (1991) and Temin (1976) who defines economic science as the study of human behavior in relation to using scarce productive resources to provide their wants4. The same line of definition was offered by McConnell (1969) and Mankiw (2006). The former offers a definition that the economy is the social science concerned with the problem of using or administering scarce resources (the means of producing) so as to attain the greatest or maximum satisfaction of society‟s unlimited wants (the goal goods. Therefore, people are forced to choose among their needs and wants, because Mother Nature does not satisfy our needs and wants infinitely. Scarcity encompasses these choices. 2 Nicholas Xenos, 1984, Out of Paradise an Essay on Scarcity, Doctoral Dessertation, Princeton University, p.18 3 Thomas Robert Malthus, 1960, On Population, ed. Gertrude Himmelfarb, New York:Modern Library, p.16 4 Samuelson, P. A.and P. Temin. 1976. Economics, 10th Ed. New York: McGraw Hill,p.3 3 of producing)5. While the latter, Mankiw (2006) defines economic science as the study of how people manage limited and scarce resources.6 However, the definition given by Lord Robbins is among those most accepted by western economics. He said that economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.7 This definition has a wide scope and consequently economics has approached a wide range of issues. Here, the notion of scarcity holds a crucial position, separating the economic dimension from other dimensions of purposeful human behavior involving the utilization of means to achieve ends. So, basically the science of economics is the study of the efforts both as individuals and communities in order to make a choice use of finite resources to meet the infinite demand for goods and services. This definition has led Assad Zaman (2009) to conclude that economics are also referred to as a normative science because science is considered to involve themselves and solve the problems of human weakness and limitations 8. Nearly all modern conventional textbooks use scarcity as the fundamental defining problem of economics. For instance, the opening paragraph of a microeconomics textbook by Perloff (2001) states that: “If each of us could get all of the food, clothing and toys we wanted without working, no one would study economics. Unfortunately, most of the good things in life are scarce – we can‟t all have as much as we want.” Thus, Most of the current economic theory is derived from the law of (relative) scarcity which “states that goods are scarce because there are not enough resources to produce all the goods that people want to consume” (Samuelson and Nordhaus, 1989).9 Furthermore, scarcity “exists simply because it is human nature for people to want more than they have” (see Ruffin and Gregory, 1993). 10 The dimension of the economic problem is accentuated through Robbin‟s definition of economics. Robbin defines economics as the science which studies human behavior as a relationship between giving ends and scarce means which have alternative uses11 and based on four conditions; the first two are related to ends, one is posed toward multiplicity and the second towards diversity in importance and priority order. The second two relates to means, one asserts its limitation, while the second provides its various uses. Economics is the science of purposeful human action--that is, our choices. Without scarcity, economics is impossible. If things were not scarce and people did not have to make choices because everything was freely available, 5 McConnell, C. R. 1969,Economics: Principles, Problems and policies, McGraw-Hill, New York,p.23 6 Heinz Kohler, Scarcity Challenged An Introduction to Economics, 1968 ,Holt, Rinehar and Winston Inc.USA, p.3,see also Mankiw, G,2006, Principles of Economics 4th ed. South-Western College Pub, Ohio 7Roger E. Backhouse & Steve G. Medema, 2007,Defining Economics: Robbins’ Essay In Theory And Practice, , Unpublised Paper, UK, see also simon James, A Dictionary of Economic Quotations, compilation 8 www.wikipedia.org/wiki/ilmuekonomi.(1March 2009 ) see also Asad zaman, Normative foundation Of Scarcity, 2009,IIUI, Islamabad 9 Samuelson, P.A. and Nordhaus, W.D.,(1989), Economics, 13th ed., McGraw-Hill, New York, p.26 10. Ruffin, R.J. and Gregory, P.R. (1993), Principles of Microeconomics, 5th ed., Harper Collins, New York,p.3, See also Perloff, Jeffrey M. (2008), Microeconomics, 5th Edition, Addison-Wesley, New York, see Asad zaman, Normative foundation Of Scarcity, 2009,IIUI, Islamabad 11 Lionel Robbins, An Essay on the Nature and Significance of Economic Science , London: MacMillan, 1932 4 then people would not force to make any tradeoffs among their needs and wants--and thus, no economy. Economics assumes people are greedy and always have needs and wants. However, there is only a certain amount of most goods. Therefore, people are forced to choose between their needs and wants. An individual must economize. Every decision to produce or consume something means that people forego producing or consuming something else. If you want to earn more money, you must work longer and harder, which means less leisure time. If you want to drive a nice car, you must spend more money. Spending more for a car may mean less money for the vacation you were planning. This existence of scarcity problems, makes economists review how people make decisions about how much they work, what they buy, how much they save, and how much they will invest. In this approach, the human, who always fear of what to eat and clothes on tomorrow.
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