The textbook definition of Economics is long and monotonous. It says that it concerns with the knowledge of production, distribution and welfare. But when you ask people about Economics, Economics students primarily, (as I did), they say Economics is the study of human behavior and human welfare and uplifting the poor and growth and development. No one talks about managing money or anything material. Then, when Economics, literally translated to Hindi and Marathi, is called Arthavyavastha and Arthashastra respectively. I find it paradoxical.
The Economics I was taught in class IX went no more beyond explaining the advantages and disadvantages of the Public Distribution System and certain social and non-social indicators that show how well a country is doing. My first lessons in Economic Principles and Theory, particularly utility and its maximization in totality, only talked about how people behave when they are consuming under a fixed budget. The money or artha was kept constant! Rather, what was studied was how quickly one person got bored by consuming one commodity over and over (that’s what we economists call satiety!). Utility was further connected to demand and supply and you know the rest. Prices, at best, were allowed to change a certain economic phenomenon. Income, or money that an individual, be it consumer or producer of goods, was always assumed to be held constant at a particular level beyond which it was not allowed to cross. Well, given that people are managing this given wealth, it is never because of changing characteristics of money, it is always because individual behavior is subjective. Because different people react to the same circumstance differently, holding everything else constant, literally.
This is basically how theories are taken forward. Whenever we see consumption theories or investment theories, Nobel Prize winners who have suggested them have simply shown how different people would react in the same situation, and surprisingly, each of the theory makes perfect sense. They never speak about how money behaved.
Let me elucidate by a very recent example. Dr. Raghuram Rajan beautifully explained how incumbent corrupt politicians are able to hold on to their seats election after election, whereas young professionals who dive into politics with a good intentions and pure hard work do not survive at a micro level. The have not’s or the economically underprivileged are generally at the mercy of these politicians. When they go begging to their doorsteps, with their misery, they are given a home, which they further rent out, or a job, or hard cash. This way the politician secures his votes from the most underprivileged class of the economy and they keep on extending charitable favours to needy people, rather than giving them constructive opportunities to escape from poverty. This example in political economy explains very well why economics is about managing people. Another example would be central banks constantly gauging expected inflations of households and business rather than current inflation. It is all about human behavior!
So what I write to suggest is, though material wealth is a big part of economic theory, it is seldom allowed to fluctuate. With its stubborn nature whole learning the theory, Economics should not be called Arthashastra or Arthavyavastha. It should be rechristened Lokashastra as central bankers and politicians are managing humans and their behavior and not money. Money is just one among the several mediums to do so!