The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Introduction to the Second Edition
• Author’s Preface
• Acknowledgments
• 1: On Defining the Economic Point of View
• The Economic Point of View and the Scope of Economics
• The Multitude of Economic Points of View
• The Controversy Over the Utility of Definition
• An Interpretation of the Controversy
• The Economists and Their Definitions: the Classical Economists
• The Economic Point of View: the Background of the “methodenstreit”
• Twentieth–century Economic Points of View
• 2: The Science of Wealth and Welfare
• The Emergence of Political Economy As the Science of Wealth
• The Science of Material Wealth
• The Science of Subsistence
• The Science of Wealth Retained
• Man Against Nature
• From Wealth to Welfare
• The Science of the Lower Side of Human Nature
• 3: The Science of Avarice; Getting the Most For the Least
• The Science of Avarice
• The Economic Principle
• The “economic Impulse”
• Selfishness and “non-tuism”
• Economics and Mechanics
• 4: Economics, the Market, and Society
• Economics and Catallactics
• Exchange and the Propensity to Truck
• Exchange and the Division of Labor
• The “purely Formal” Concept of Exchange
• Exchange and the Economic System
• Economics, the Economy, and the “volkswirtschaft”
• Economy and Society
• 5: Economic Affairs, Money, and Measurement
• Money, Wealth, and Exchanges
• Money As the Measuring Rod
• Money As a Universal Measuring Rod
• Measurement and Economics
• Money and Price-economics
• Money As an Economic Institution
• 6: Economics and Economizing
• The Economics of Professor Robbins
• Scarcity and Economics
• Economizing and Maximization
• The Character of Robbins' Definition
• A. the “breadth” of Robbins' Definition
• B. the “formalism” of Robbins' Definition
• The Nature of Ends and Means
• “given” Ends and Means
• Single End and Multiple Ends
• Economics and Ethics: the Positive and the Normative
• The Nature of Economic Science and the Significance of Macroeconomics
• 7: Economics As a Science of Human Action
• I
• The Sciences of Human Action
• The Emergence of the Praxeological View of Economics
• Max Weber and Human Action
• Acting Man and Economizing Man: Mises and Robbins
• Ii
• Praxeology and Purpose
• Praxeology and Rationality
• The Assumption of Constant Wants—the Praxeological Context
• Praxeology, Apriorism, and Operationalism
• The Economic Point of View and Praxeology

The Science of Material Wealth

Our account of the history of the point of view that sees economic affairs as essentially concerned with a special class of objects, i.e., with wealth, finds a convenient point of departure in an early and long–lived form of this idea, which confined economics to the consideration of material wealth.

From the beginning alternative suggestions were made by the economists themselves about what should and what should not be included under the heading of wealth even when the latter was universally regarded as the subject matter of economics. Indeed, many writers, in their definition of political economy, expressly included in its scope the exposition of “the nature” of wealth. Smith, Lauderdale, Malthus, and Senior all felt the elucidation of this question to be part of their task. As has been the lot of other problems taken up by economists, this question was treated in a variety of ways. As early as 1810 the French economist Ganilh cited eight distinct definitions of “wealth” by economists; Senior, writing on terms “peculiarly liable to be used ambiguously” in economics, somewhat despairingly quotes seven different definitions, besides his own contribution.

Of these controversies over the meaning of the term “wealth” probably the best known was that concerning its restriction exclusively to material goods. It must be remembered that the issue was not between a “materialistic” economics and one that embraced the catallactic consequences of man’s “higher” interests and desires. The fact is that the classical economists were little concerned about why an item of wealth was desired. To invest an object with the quality of wealth (apart from other specific conditions, such as scarcity, that may have been required), it sufficed that it was desired. The issue between definitions of “wealth” formulated in material terms and those that extended the concept to include the immaterial was purely one of convenience in analysis. Both sides of the controversy had the same objectivistic outlook on wealth; neither side laid stress on the character of economic behavior. Malthus clearly states his reason for recognizing only material goods as wealth:

If we wish to attain anything like precision in our inquiries, when we treat of wealth, we must narrow the field of inquiry, and draw some line, which will leave us only those objects, the increase or decrease of which is capable of being estimated with more accuracy.16

The discussion concerning material vs. immaterial wealth began with Adam Smith’s distinction between productive and unproductive labor. While not as limiting as the physiocrats’ concept of the “sterile” classes, Smith’s dichotomy put material wealth, the production of which was his criterion of productive labor, on a different level from immaterial wealth.17 On the Continent, the French writers after Smith, following Say’s leadership, generally rejected this artificial line of demarcation. In England Lauderdale defined individual wealth as consisting in “all that man desires as useful or delightful to him; which exists in scarcity.”18 This definition was quoted again and again by later writers and was in most cases criticized as too vague.19 Such a criticism is illuminating in its revelation of classical economic conceptions. Thus Malthus:

This definition obviously includes everything, whether material or intellectual, whether tangible or otherwise, which contributes to the advantage or pleasure of mankind, and of course, includes the benefits and gratifications derived from religion, from music, dancing, acting, and similar sources. But an inquiry into the nature and causes of these kinds of wealth would evidently extend beyond the bounds of any single science....20

For Malthus there was evidently no single bond in logic that could place these benefits and gratifications in a single discipline. McCulloch’s comments are even more revealing:

...if political economy were to embrace a discussion of the production and distribution of all that is useful and agreeable, it would include within itself every other science...Good health is useful and delightful, and therefore, on this hypothesis, the science of wealth ought to comprehend the science of medicine; civil and religious liberty are highly useful, and therefore the science of wealth must comprehend the science of politics...”21

It would be difficult to discover a more damaging statement indicative of the kind of thinking exemplified by the less enlightened classical economists. Ricardo, to whom political economy meant only the distribution, not the production, of wealth, would never have excluded good health from economics on the ground that it involved the science of medicine. If the production of health involves medical science, the production of cement just as much involves chemistry, and the production of wheat, biology. According to McCulloch, wealth was clearly a distinct objective entity, the production of which involved the science of political economy. To draw the line so as to exclude from its purview such inconvenient studies as medicine and politics, McCulloch included only material goods in his technical definition of wealth. Apparently it was believed that certain general laws governing the physical production of material commodities could be abstracted from the several sciences concretely concerned with the production of each specific good. These laws, however, did not admit of further generalization so as to comprise the production of such immaterial goods as health or good government. The only sciences that were relevant to the latter were those of medicine and politics.

The striking feature of this discussion concerning Lauderdale’s definition is that the criticisms levelled against it could easily have led to a less limited view of economic phenomena. It was clearly seen that the extension of the concept of wealth to include everything that is desired would mean the abandonment of the effort to arrive at any scientific laws involving objective wealth. But what was overlooked was that the very broadest conceptions of wealth involved an essential unity, from which a less limited political economy might take its point of departure.

However, the exclusive stress on material wealth was motivated by other considerations, besides those expressed by McCulloch. There appears to be a significant degree of correlation between the restriction of wealth to commodities and the restriction of the scope of political economy to the distribution of wealth, leaving out its production, exchange, and consumption. Ricardo and Read provide excellent examples of this. Both conceived of wealth exclusively as material goods.22 And both emphatically limited political economy to the treatment of the distribution of wealth. Alike in his Principles and in his correspondence with Malthus, Ricardo had stressed this limitation of the scope of economics.23 Read (“an acute but neglected writer,”24 and one of the economists rediscovered by Seligman) treated economics as “an investigation concerning the right to wealth,” teaching what the rights and duties of men in society are with regard to property.25 Read may be considered to have invested with normative and ethical significance Ricardo’s conception of a science of the distribution of wealth. According to Ricardo, economics shows how wealth is distributed among the factors of production; according to Read, economics, in so doing, is at the same time laying down the law of the natural rights of the factors of production to their several shares.

There is every reason why economists concerned purely with the distributive aspects of economics should tend to concentrate on the tangible “pie” from which each of the factors of production is to receive a slice proportioned according to the laws of political economy. Students of “production” may find it difficult to exclude the production of any “utility,” whether or not embodied in a material good. But the laws of distribution can clearly afford to be confined (and with so much more elegant definiteness) to the long–run tendencies in the division of tangible wealth. Where, as with Read, the laws of distribution are the handmaidens of the laws of private property, the convenience and reasonableness of a restriction of wealth to material, alienable goods must have appeared irresistible.

[[16]]R. T. Malthus, Principles of Political Economy (1820), p. 27. Ricardo in his Notes on Malthus (ibid.) seems to agree with Malthus.

[[17]]For a discussion of the significance of this distinction in Smith's work and of the later controversies over it, see, e.g., E. Cannan, A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848 (3rd ed.), pp. 14 f.

[[18]]Earl of Lauderdale, Inquiry into the Nature and Origin of Public Wealth (Edinburgh, 1804), p. 57.

[[19]]It is not quite clear whether Lauderdale really intended his definition to be interpreted as broadly as it was. It is noteworthy that in his reply to the scathing review of his book in the Edinburgh Review, Lauderdale speaks of himself as having defined wealth as consisting “of the objects of man's desire.” Lauderdale, Observations on the Review of his Inquiry into the Nature and Origin of Public Wealth, published in the VIIIth number of the Edinburgh Review (Edinburgh, 1804).

[[20]]R. T. Malthus, Principles of Political Economy (1820), p. 27.

[[21]]J. R. McCulloch in the Supplement to the Encyclopaedia Britannica, quoted in Malthus, Definitions in Political Economy (London, 1827), pp. 70 f.

[[22]]See n. 16 above; Read, Political Economy (Edinburgh, 1829,), p. 1.

[[23]]D. Ricardo, Principles of Political Economy and Taxation (1817). Original Preface, (Everyman's ed., p. 1); P. Sraffa, ed., The Works and Correspondence of David Ricardo, Vol. VIII, Letter No. 392, Ricardo to Malthus, 9th October, 1820. Ricardo's stress on distribution was noticed by, among others, G. Ramsay, Essay on the Distribution of Wealth (Edinburgh, 1836), p. v. There is perhaps room for conjecture concerning Ricardo's position in 1817. Early in 1817 Malthus had written to Ricardo referring to “the causes of the wealth and poverty of nations” as the “grand object” of economic enquiries (Sraffa ed., Volume VII, Letter 200), and we have no record of any adverse reaction from Ricardo. Although in his Principles (1817) Ricardo had referred to distribution as the “principal problem” in political economy, this is not quite the same as his declaration to Malthus in 1820 that the laws of distribution are “the only true objects” of the subject. To Malthus in 1820 Ricardo was writing that he was “every day ... more satisfied” of the correctness of his view. This might support the conjecture that Ricardo's 1817 statement was meant to be less emphatic than his later views. There is some support for the view that the scope of Ricardo's Principles (which treated distribution as the “principal problem”) was not meant to cover the whole science. On this see Ricardo's letter to Mill (Sraffa ed., Vol. VII, Letter No. 196); see also T. De Quincy's remarks to this effect in Dialogues of Three Templars on Political Economy, in Vol. X of De Quincy's Works, 1877, p. 205. For a contrary view see Trower's letter to Ricardo (Sraffa ed., Vol. VII, Letter No. 214).

[[24]]M. Bowley, Nassau Senior and Classical Political Economy (London, 1937), p. 303 n., and see above n. 8.

[[25]]Read, Political Economy, Preface, p. ix.