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

Economizing and Maximization

Besides the sources for Robbins' formulation to be found in earlier references to scarcity and the approaches to the fundamental notion of economizing, yet another line of thought that was historically relevant to the emergence of the new definition must be recognized. This was the stress on the maximization principle, the getting of the most out of the least, as the distinctive mark of economic activity. The appearance and development of this line of thought has been outlined in an earlier chapter; at this point the relationship between the two concepts—maximization and economizing—must be briefly pointed out.

Maximization as a possible criterion for distinguishing economic phenomena had been clearly suggested towards the last quarter of the past century and even earlier. In its earlier expressions the so-called economic principle usually referred to the maximization of some tangible entity such as wealth and thus bore little resemblance to economizing. However, when maximization is understood to refer to something less objective, such as pleasure or satisfaction, then its similarity to the act of economizing becomes fairly close. After all, the economizing of scarce means in the face of competing arrays of ends is undertaken with the purpose of squeezing as much “satisfaction” out of available resources as their shrewd management will permit. Just as the bare concept of economizing abstracts from the concrete ends at which activity is aimed and the specific means utilized to attain them, so does the idea of getting the greatest return at the least cost. It was seen in an earlier chapter, in fact, that the shift in emphasis to the maximization principle was closely associated with the denial of any specifically economic impulse.

But while the allocation of scarce means among competing ends can be subsumed under the concept of maximization, the converse is not true. And the differences between the two classifications of action, maximization and economizing, are perhaps even more significant than their similarities. Robbins himself pointed out in a footnote that the “maximization of satisfaction” simply replaces the array of “ends” of action by an ultimate goal, viz., satisfaction, to the achievement of which our “ends” are to be regarded as proximate.15 The scarcity of means then enforces the relinquishment of some of our “ends,” at the same time that the task of maximizing satisfaction determines the way in which the available means are disposed among the various “ends” chosen. Maximization, with one ultimate end in view, is thus the source of economizing limited resources among alternative subordinate “ends.” This description of the relationship between maximizing satisfaction and economizing reveals several features of the former category of action that restrict its usefulness as a characterization of the nature of economic activity and perhaps helps to explain the limited part played by the concept of maximization in the line of thought that led to the allocation view of economics.

In substituting an ultimate end such as satisfaction for the intermediate “ends” chosen as conducive to it, the conception of economic activity as maximizing behavior suffers from two weaknesses. On the one hand, it involves setting up such an ultimate end, with the presumption that it can be meaningfully “maximized”; on the other hand, it ignores the multiplicity of intermediary “ends” and the effects that their very number has on the allocation of resources. The first weakness, the postulation of an ultimate “satisfaction” that can be maximized, is brought into relief by the way in which the alternative notion of economizing scarce resources among competing ends avoids altogether this awkward idea of “quantities” of satisfaction. The concept of economizing dispenses with the necessity of assuming that men act as if they were constantly scanning a potential “store” of satisfaction and striving to accumulate the largest possible stock. Instead, this concept recognizes that men act to change their situation until no further action promises to lead to a condition preferred to the present one. The advance in economics from the stress on maximizing satisfaction to that on economizing thus parallels the advance from the older utility analysis (especially where it involved cardinal utility) to the more recent indifference techniques.

The second weakness of the concept of maximization, that it ignores the multiplicity of intermediate “ends,” is a consequence of the fact that it abstracts too drastically from actual economic activity. It may be true to say that the economizing of resources is merely the maximization of a more ultimate satisfaction, but to speak in such terms is to miss one of the really significant features of economic activity, the allocation of these resources among the different uses clamoring for these limited means. The whole idea of the allocation of limited resources and their economic distribution among the competing demands for them is hidden under the facile phrase, “the maximization of satisfaction.” The constraint to administer resources, to apportion them judiciously among alternative uses by the careful comparison and weighing of relative degrees of importance—a necessity imposed by the fact that the intermediate “ends” are numerous—is overlooked in the maximization formula. By its stress on allocation as the characteristic feature of economic activity, the concept of economizing, on the other hand, leads directly to the appreciation of the significance for economics of the idea of price and exchange at the margin. Hence, this formulation is eminently suitable for characterizing the subject matter of economics.

These considerations thus clearly set Robbins' definition apart from the earlier definitions of economic activity in terms of maximization, despite the undoubtedly important part that the latter conception, in conjunction with the literature on scarcity, played in the emergence of Robbins' view of economics. Robbins' formulation of this view, which sees the essence of the subject matter of economics in the peculiar quality of economizing behavior, attracted the critical attention of economists to an extent achieved by no previous attempt at definition. Several waves of debate were set in motion concerning various aspects of the freshly expounded view. These must now be examined more closely, and their investigation will provide an opportunity to glance at the most important of the opinions inspired by Robbins' work.

[[15]]L. Robbins, Nature and Significance, p. 15 n.; for examples of writers who seem to view the act of economizing as being essentially identical with that of maximizing, see F. H. Knight, “The Nature of Economic Science in Some Recent Discussion,” American Economic Review, June, 1934, p. 228; F. Machlup, “Marginal Analysis and Empirical Research,” American Economic Review, September, 1946, p. 519.