Question

How did John Maynard Keynes define economics?

Short answer

John Maynard Keynes defined economics as a "moral science," focusing on the study of human behavior to solve the problem of scarcity by optimizing choices made in allocating limited resources to meet unlimited wants and needs. He believed that economics involves making decisions with moral implications, aiming to promote overall societal welfare.

Step-by-step solution

Presenting Keynes's definition of economics

John Maynard Keynes defined economics as a "moral science," stating that economics is the study of human behavior aimed at finding solutions to the problem of scarcity. It focuses on how individuals, institutions, and societies make choices while allocating their limited resources to meet their unlimited wants and needs. Economics aims to optimize these choices and to promote overall societal welfare.

Understanding the term "moral science"

To better understand Keynes's definition, we need to grasp the concept of "moral science." Keynes believed economics to be a branch of moral science as he thought that it involved making decisions that have moral implications. For example, choices about which goods to produce, how resources should be distributed, and how to alleviate income disparity, impact human well-being and thus have ethical consequences.

Examining the problem of scarcity

The fundamental problem that economics tries to solve is scarcity. Scarcity arises when we face a situation where the available resources are not sufficient to satisfy all human wants and needs. Since resources are limited (like land, labor, and capital), society has to decide how to best allocate these resources to ensure maximum possible satisfaction of human wants and needs.

Understanding the role of choices in economics

Choices play a vital role in economics, as individuals, institutions, and societies must make decisions about how to allocate their limited resources. These choices involve making trade-offs, as choosing one option often involves giving up another option. In economics, the cost of a decision is not just the monetary value but also the next best alternative that was forgone, known as opportunity cost.

The objective of economics

The primary objective of economics, as defined by Keynes, is to optimize the choices made in allocating resources, promoting overall societal welfare. Economists study different economic systems, behaviors, policies, and institutions to identify ways to maximize overall well-being. They analyze the consequences of various decisions to provide valuable insights that can help individuals, governments, and organizations make informed choices that contribute to better economic outcomes for all.