Economics has been defined in a variety of ways. In the nineteenth century it was typically defined as the science of wealth or of exchangeable wealth. In the twentieth century, it has typically been defined as the science that studies the allocation of scarce means among competing ends.

The importance of economics derives from the specific importance of wealth – of material goods – to human life and well-being. Obviously, human life depends on food, clothing, and shelter. Moreover, experience shows that there is no limit to the amount of wealth that practically all civilized men and women desire, and that the greatest part of their waking hours is actually spent in efforts to acquire it – namely, in efforts to earn a living.

Yet the importance of wealth, by itself, is not sufficient to establish the importance of economics. Robinson Crusoe on a desert island would need wealth, and his ability to produce it would be helped if he somehow managed to salvage from his ship books on various techniques of production. But it would not be helped by books on economics. All that books on economics could do for Crusoe would be to describe abstractly the essential nature of the activities he carries on without any knowledge of economics, and, beyond that, merely to provide the possible intellectual stimulation he might feel as the result of increasing his knowledge of the society from which he was cut off. Something more than the importance of wealth is required to establish the importance of economics.

Despite its vital importance, the division of labor, as a country's dominant form of productive organization – that is, a division-of-labor society – is a relatively recent phenomenon in history. It goes back no further than eighteenth-century Britain. Even today it is limited to little more than the United States, the former British dominions, the countries of Western Europe, and Japan. The dominant form of productive organization in most of the world – in the vast interiors of Asia, Africa, and most of Latin America – and everywhere for most of history, has been the largely self-sufficient production of farm families and, before that, of tribes of nomads or hunters.

What makes the science of economics necessary and important is the fact that while human life and well-being depend on the production of wealth, and the production of wealth depends on the division of labor, the division of labor does not exist or function automatically. Its functioning crucially depends on the laws and institutions countries adopt. A country can adopt laws and institutions that make it possible for the division of labor to grow and flourish, as the United States did in the late eighteenth century. Or it can adopt laws and institutions that prevent the division of labor from growing and flourishing, as is the case in most of the world today, and as was the case everywhere for most of history. Indeed, a country can adopt laws and institutions that cause the division of labor to decline and practically cease to exist. The leading historical example of this occurred under the Roman Empire in the third and fourth centuries of the Christian era. The result was that the relatively advanced economic system of the ancient world, which had achieved a significant degree of division of labor, was replaced by feudalism, an economic system characterized by the self-sufficiency of small territories.