About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.

Fair use statement:

This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section of the individual titles, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.

Front Page > Reading Lists > Ian Dunois’ Free Market foundations

Ian Dunois’ Free Market foundations

This List Is By:

Ian Dunois

George Mason University

Economics student at GMU

Print this List

Print List (titles and citations)

Print Anthology (full texts)

Israel M. Kirzner, The Economic Point of View [1960]
Ludwig von Mises, Liberalism: The Classical Tradition (LF ed.) [1962]
Ludwig von Mises, Bureaucracy [1944]
H.B. Acton, The Illusion of the Epoch: Marxism-Leninism as a Philosophical Creed [1955]
Friedrich August von Hayek, “The Use of Knowledge in Society” [1945]

Back to Top
1: Israel M. Kirzner, The Economic Point of View [1960]

Israel M. Kirzner, The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).

Accessed from oll.libertyfund.org/title/304 on 2008-03-05

This work is copyrighted by the Institute for Humane Studies, George Mason University, Fairfax, Virginia, and is put online with their permission.

B'EZRAS HASHEM TO OUR PARENTS

Foreword

The inauguration of a systematic science of economics, an achievement of the social philosophy of the Enlightenment that also begot the doctrine of popular sovereignty, was a challenge to the powers that be. Economics shows that there prevails in the succession and interdependence of the market phenomena an inescapable regularity that man must take into full account if he wants to attain ends aimed at. Even the most mighty government, operating with the utmost severity, cannot succeed in endeavors that are contrary to what has been called “economic law.” It is obvious why despotic rulers as well as leaders of revolutionary masses disliked such doctrines. For them economics was the “dismal science” and they fought it indefatigably.

However, it was not the hostility of governments and powerful political parties that fomented the protracted discussions about the epistemological character and the logical method of economics in which the very existence and significance of this branch of knowledge were again and again questioned. What generated these debates was the vagueness that the early economists evinced in defining the field of their studies. It would be absurd to blame them for this want of clearness. They had sufficient reasons for concentrating upon those problems which they were trying to deal with and for neglecting others. What had stimulated their inquiry was definite issues of contemporary political controversies. Their great accomplishment was the discovery of the uniform order prevailing in the emergence of events previously considered chaotic. Only the later generations of economists were puzzled with the epistemological problems involved.

Doctor Kirzner’s book provides a historical account of all the solutions suggested in this debate. It is a very valuable contribution to the history of ideas, describing the march of economics from a science of wealth to a science of human action. The author does not, in the fashion adopted by some recent histories of economic doctrines, indulge in value judgments and paradoxical observations. He prefers to follow the sober methods of the best historians of economic theories, Böhm-Bawerk and Edwin Cannan. Every economist—and for that matter everybody interested in problems of general epistemology—will read with great profit Doctor Kirzner’s analyses, especially his treatment of the famous discussion between Benedetto Croce and Vilfredo Pareto or the critical examination of the ideas of Max Weber and Lionel Robbins.

Essays on the history of economic thought are to be appreciated not only purely as history. No less important is the fact that they enable us to re-examine the present state of economic theory in the light of all attempts earlier generations made for their solution. In comparing our point of view with past achievements and errors we may either detect flaws in our own theories or find new and better reasons for their confirmation. Doctor Kirzner’s thoughtful essay is a real aid in such a re-examination and in this consists its great value.

LUDWIG VON MISES

Introduction to the Second Edition

The first edition of Israel M. Kirzner’s The Economic Point of View was published in 1960. In the meantime, the dogmatic brand of positivism that advocated the banishment of all references to mental states from scientific explanations and their replacement by the “data of the senses” has been discredited. In addition, many contemporary philosophers concede the inherent rationality of human action, that is, man’s capability of freely choosing among alternatives (as well as creatively discovering what these alternatives are); and further the indeterminateness of individual behavior on the basis of what has gone before. Yet despite these important concessions to the subjectivist position regarding methodological precepts consistent with sound scientific investigation, the full import of the teachings of Ludwig von Mises in Human Action and of Frank H. Knight in On the History and Method of Economics about the subjective character of economic phenomena either has not been fully digested by practicing economists or else has been received with great hostility by those anxious to submit their models to statistical testing.

As Kirzner’s study makes clear, the subject matter of economics is human action, and a concern with the abstract character of action is what defines the economic point of view. Human action in contrast to, say, reflexive action is action directed toward goals and purposes. Furthermore, while such action often results in the measurable displacement of real world objects, the significance of such displacements cannot be adequately understood by merely correlating (or regressing) one displacement with (on) another. Economic explanations must either explicitly or implicitly make reference to individual purposes and plans; otherwise they ignore a realm of experience as real as the world of things. While modem philosophers of science often insist that to explain an event is to show that it is an instance of a scientific law, Kirzner would add this proviso: the general law must itself be explicable in terms of the purposes and plans of acting individuals. According to Kirzner, the entire science of economics is a subset of the broader (but less developed) discipline that Mises termed “praxeology,” or the science of human action.

It took two hundred years for economists to discover that the subject matter of their discipline was none other than the structure of human action itself. Much of Kirzner’s study is a historical survey of the various attempts economists have made to define the scope of their discipline. According to Kirzner, significant progress in this area began only in the second quarter of this century when Lionel Robbins, Mises, and Knight instituted a shift from a “search for a department of human affairs to which the adjective ‘economic’ applies, to a search for the appropriate aspect of affairs to which economic concepts are of relevance.” Kirzner’s study is controversial when he declares that, by insisting on the subjectivity of their discipline, Mises and Knight produced an advanced and more perfect understanding of what in fact constitutes economic knowledge.

Modern economists are generally quite comfortable with some variant of Robbins’s definition of economics as a discipline concerned with the allocation of scarce means among alternative ends where the means themselves are capable of a variety of applications. What they are apparently less willing to do is go beyond Robbins and insist, after Mises, that the science must be founded on an analysis of the subjective categories of human action because these categories provide the only firm grounding for economic laws. Modern economists tend to consider economic laws useful, not because they are consistent with our understanding of human action, but because they help organize large bodies of business and government data. Often economists act as if the only importance of economic theory is the ease and elegance with which it helps shuffle and reshuffle large bodies of statistical data (an unfortunate consequence of the novelty and increased availability of high-speed computers).

In recent years the problem or ‘grounding aggregate relationships on microeconomic foundations has attracted some attention among economists. This concern is certainly in the spirit of the program Mises and other members of the subjective school advocated many years ago. But it is also important to realize that aggregate relationships are themselves worthless if the statistical data on which they are based distort the underlying reality they are supposed to represent.

Consider, for example, the notion of “cost” and how it is often misnamed by economists. The cost of a specific action to a decision maker is the next best opportunity he gives up when he chooses that course of action over all others. The cost of a certain action is always related to another course of action that has not been taken. But if the other course of action has not been taken, then there is no record of it in the market. Thus, at best, what economists call the “cost of production,” or the money outlay of a firm in producing an object, may represent the value of the next best application of these resources to the other market participants; but whether or not these expenses also measure the opportunity cost forgone by the firm’s decision maker is another question. A firm may be making a money rate of return of 20 percent on its financial investment at one point in time and be quite satisfied. At another point in time a money return of 22 percent may not be enough to keep that firm in the industry if it discovers an opportunity for making greater profits still. Clearly the connection between recorded, or accounting, costs and those costs that influence human choice may be so tenuous that statistical laws founded on the former will reveal very little about human action itself.

In the last decade or so applied economics has become synonymous with trying to change the behavior or specific values of statistical aggregates. The important question of how these statistics are at all related to the qualitative choices made by acting individuals is treated as if it were unworthy of serious scholarly investigation or as if it were something better left to government accountants. Thus, where once the goal of a sound monetary policy was to guarantee a stable and secure currency, the modern concern is that of “stabilizing prices,” which frequently means no more than keeping the consumer price index constant at some base-period value or else permitting departures from that base value according to some definite and predictable rule. Often a government policy designed to contribute to the fullest utilization of resources becomes bogged down to the point of an obsession with the behavior of the Bureau of Labor Statistics’ estimate of unemployment. The fact that time spent unemployed may be used for an entirely different purpose in 1975 from that used in 1933 does not seem to bother many economists.

If, however, one considers the most important task of applied economics to be the discovery of the type of institutional structure that provides for the greatest coordination of individual plans and efforts, then the subjective character of the discipline is brought to the forefront. Here the goal of science is to aid men not in maximizing or minimizing some statistical average, but in eliminating or lessening the frustrations that occur when the plans of one individual come into conflict with those of another: For example, it is not the physical existence of capital on which the prosperity of society’s members depends but rather the position these goods play in the plans of acting individuals. One need not go so far as some members of the subjectivist school and argue that statistical investigations are of absolutely no value in the derivation of economic laws. It is sufficient to insist that the meaning of such measurements be constantly checked against the underlying human plans and purposes that they allegedly represent.

Thus at the very heart of the science of economics is the idea that capital goods, consumer goads, costs of production, and the like take on economic significance, not because of their physical characteristics or the procedures of tax accounting, but because of the meaning their individual owners attach to them in the course of pursuing their ends. It is my hope that this new edition of Kirzner’s study of The Economic Point of View will reacquaint economists with the subjective basis of their science and help to engender a more critical attitude toward modern-day research methods.

LAURENCE S. MOSS
- Charlottesville, Virginia
October 1975

Author’s Preface

The present essay is an attempt to explore with some thoroughness an extremely narrow area within the field of the history of economic thought. Although this area is narrow, it merits a scrutiny quite out of proportion to its extension, relating as it does to fundamental ideas around which the entire corpus of economic thought has revolved for some two centuries. It remains as true today as ever before that the direction taken by economic theory is in large measure determined by the “point of view” adopted by the economist as his special perspective. It is in this connection that the present study seeks to make its contribution, by setting up the problem in its proper context as a chapter in the history of ideas.

The nature of the subject matter, in this instance, has made thoroughness in its exploration a matter of extreme difficulty, exhaustiveness a sheer impossibility. In general my aim has been to provide a careful survey of the literature relevant to each of the ideas treated, while resolutely refusing to succumb to those imperious temptations which would have turned my book into an annotated bibliography. This has frequently moved me to refrain from mentioning works of considerable importance in order to avoid fruitless repetition of ideas already cited from other sources. Despite the self-restraint exercised in this regard, I have felt it wise to relegate all notes and references to the end of the book, in order to make for a smoother account in the body of the work.

My exploration of the subject dealt with in this book began several years ago while writing my doctoral dissertation under Professor Mises. Much of the material gathered in my work on that project has provided a useful foundation for the broader investigation undertaken in preparation for the present volume. Grateful appreciation is here accorded for the assistance which enabled me to pursue my researches at that time, first as Volker Fellow, and then as an Earhart Fellow, at New York University.

My intellectual debt to the unique contributions made by Professor Mises to the epistemological problems discussed in my book is, I believe, sufficiently evident throughout the work itself. Here I take particular pleasure in recording the friendly patience and warm encouragement which he has shown me unstintingly throughout the project, as well as the inspiration which I have derived from his own enthusiasm and penetrating integrity of thought, as unfolded in countless discussions, both privately and in seminar.

I have benefited on numerous occasions from highly valuable discussions on various aspects of the study with my colleagues in the Department of Economics, School of Commerce, New York University. I am, in addition, particularly grateful to Dean T. L. Norton and Professor T. J. Anderson, Chairman of the Department, for making special arrangements to lighten my teaching duties during a part of the time spent in research on this project, as well as for their constant encouragement during its completion. Valuable assistance in connection with questions of style and clarity of expression has been gratefully received from Dr. Arthur Goddard. Responsibility for the shortcomings of the work is, of course, undividedly my own.

I have, finally, the pleasant if somewhat difficult task of acknowledging my wife’s contribution, both tangible and intangible, to the emergence of the volume. My indebtedness in this regard (as well as the difficulty of its expression) is the deeper for the peculiar circumstance that the altogether indispensable nature of this contribution is itself in large measure to be ascribed to conditions rendering it at the same time exceptionally meritorious.

ISRAEL M. KIRZNER
- New York, N. Y.
March, 1960

Acknowledgments

The author gratefully acknowledges his indebtedness to the courtesy of the following institutions, associations, and publishers:

The American Economic Association (for permission to quote from their publications, including the Survey of Contemporary Economics, 1949); George Allen and Unwin Ltd. (for permission to quote from N. Senior, Outline of Political Economy, and J. Bentham, Economic Writings, edited by Stark); Jonathan Cape Limited (for permission to quote from L. Mises, Socialism, and L. Robbins, The Economic Causes of War); Columbia University Press (for permission to quote from E.R.A. Seligman, Economic Interpretation of History, 1902, and from Political Science Quarterly, 1901); the editorial Board of Economica (for permission to quote from Economics, 1933, 1941); the editor of the Economic Record and the Melbourne University Press (for permission to quote from the Economic Record, No. 61, November, 1955); The Free Press (for permission to quote from Max Weber on the Methodology of the Social Sciences); Harper and Brothers (for permission to quote from F. H. Knight, The Ethics of Competition); Harvard University Press (for permission to quote from the Quarterly Journal of Economics and from H. Myint, Theories of Welfare Economics, 1948); William Hodge and Co. Ltd. (for permission to quote from Max Weber, Theories of Social and Economic Organization); Howard Allen, Inc. (for permission to quote from K. Boulding, The Skills of the Economist); Richard D. Irwin, Inc. (for permission to quote from T. Scitovsky, Welfare and Competition); Kelley and Millman, Inc. (for permission to quote from W. Mitchell, The Backward Art of Spending Money); Alfred A. Knopf, Inc. (for permission to quote from S. Patten, Essays in Economic Theory, edited by R Tug well); Longmans, Green and Co., Ltd. (for permission to quote from R Hawtrey, The Economic Problem); The Macmillan Company, New York (for permission to quote from L. Haney, History of Economic Thought, 1949, F.S.C. Northrop, Logic of the Sciences andHumanities, 1949, A. Marshall, Principles of Economics, 1920); Macmillan and Co. Ltd., London (for permission to quote from Economic Journal, International Economic Papers, and works by Croce, Hutchinson, Jevons, Macfie, Marshall, Robbins, and Pigou; for the Pigou works acknowledgment is gratefully extended also to the St. Martin’s Press, Inc., New York); Oxford University Press and the Clarendon Press, Oxford (for permission to quote from the Proceedings of the British Academy, and from 1. Little, Critique of Welfare Economics); Routledge and Kegan Paul Ltd. (for permission to quote from P. Wicksteed, The Common Sense of Political Economy, F. A. Hayek, Road to Serfdom, and G. Myrdal, Value in Social Theory); Staples Press (for permission to quote from E. Cannan, Wealth, E. Cannan, Theories of Production and Distribution, D. H. Robertson, Economic Commentaries); University of Chicago Press (for permission to quote from F. A. Hayek, Road to Serfdom, F. H. Knight, History and Method of Economics, and from the Journal of Political Economy); The Viking Press, Inc. (for permission to quote from T. Veblen, The Theory of the Leisure Class, The Place of Science in Modern Civilization, Essays in Our Changing Order, and W. Mitchell [editor], What Veblen Taught); Yale University Press (for permission to quote from L. Mises, Human Action).

1

On Defining the Economic Point of View

...What does the economist economize? “‘Tis love, ‘tis love,” said the Duchess, “that makes the world go round.” “Somebody said,” whispered Alice, “that it’s done by everybody minding their own business.” “Ah well,” replied the Duchess, “it means much the same thing.” Not perhaps quite so nearly the same thing as Alice’s contemporaries thought. But if we economists mind our own business, and do that business well, we can, I believe, contribute mightily to the economizing, that is, to the full but thrifty utilization of that scarce resource Love—which we know, just as well as anybody else, to be the most precious thing in the world.
Sir Dennis H. Robertson

It is impossible to draw a clear–cut boundary around the sphere or domain of human action to be included in economic science.
Frank H. Knight

Social phenomena, like other matters of interest to be found in the real world, lend themselves to analysis by a number of disciplines. The same raw data may be capable of classification and explanation in a variety of ways, each of which complements the others and so contributes to the full grasp of the phenomena under consideration. In the interests of reaping the advantages attendant upon the division of labor, a sequence of events may be seen as reflecting the simultaneous operation of several distinct chains of cause and effect. Each of these chains may then become the focus of inquiry, and it may enhance the advantages to be derived from the division of labor to be able to set forth in precisely what ways any one such causal chain constitutes a potentially fruitful theme for separate investigation.

Such a classification of the factors in the observed phenomena that require explanation will, of course, reflect the different points of view with which the observer approaches the data. In the final analysis, the definition of a particular field of investigation is tantamount to the exposition of the point of view chosen by the investigator.

With regard to economics and to the “economic point of view,” many attempts, under a variety of guises, have been made to describe this peculiar field of investigation. Writers have defined the noun “economy”; they have expatiated on the precise demarcation of the scope of economics; they have indulged in lengthy disquisitions on the character of economic activity and on the nature of economic interpretation. They have discussed at length the relationship of the economist to the sociologist, the psychologist, the moralist, the technologist, and the jurist. And they have, in addition, engaged in heated and protracted controversies about the utility of these same definitions, disquisitions, and discussions.

They have, in short, made a large number of attempts to determine precisely the particular point of view of the economist, to dispute existing expositions of it, or to deny altogether to the economist the joy of having a distinct point of view. The sum total of this activity over the better part of two centuries is a vast and fascinating literature. The contemplation and subsequent digestion of this literature yields a series of formulations of the economic point of view that are astounding in their variety. The present essay attempts to survey the literature and to review in historical perspective this wide range of formulations. As a chapter in the history of ideas, this account of the constant search for the precise expression of the point of view of the economist focuses on the particular avenues by which it has been approached and on their remarkable heterogeneity.

Although the present account is historically oriented, we shall adopt the topical, rather than the chronological, approach. We shall not present the various formulations in the order in which they were successively proposed in the history of economic thought. Instead, we shall take up one by one the principal groups of definitions to be found in the literature and shall treat each of them separately as fully as possible. The part played by each group in the history of the problem will become apparent from the discussion of the definitions themselves. We shall discover, in fact, that at any one time a number of widely differing formulations have usually been current. It will be convenient, therefore, to devote to each of these groups of formulations a discussion of its development that will be complete in itself, without the distraction of noticing the simultaneous parallel developments of other definitions.

In this introductory chapter we shall attempt to bring our problem into perspective. It will be helpful in this connection to discuss the significance to be attached to the task of making explicit the nature of the economic point of view; to make clear which operation is, and which related operations are not, the objects of our interest; and to survey briefly the place that has been occupied in economic thought by the attempts to elucidate this economic point of view.

The Economic Point of View and the Scope of Economics

The formulation of the nature of the economic point of view is, of course, intimately related to discussions concerning the scope of economics. The problem of the scope of economics, however, has frequently involved questions with which this essay has nothing to do, and it is perhaps worthwhile to make this clear at the outset. Marshall once wrote to John Maynard Keynes: “It is true of almost every science that, the longer one studies it, the larger its scope seems to be: though in fact its scope may have remained almost unchanged. But the subject matter of economics grows apace...”1

This growth in the subject matter of economics of which Marshall writes is typical of those aspects of the question with which we are not concerned. A perusal of a list of courses offered in the economics department of any university or a cursory examination of the catalogue of the economics room in a large library will easily convince one of the luxuriance of this growth. It is clear that “economics” covers a body of facts, figures, theories and opinions embracing a vast range of phenomena related to one another only in the most tenuous way—often merely by historical accident. At least one outside observer of the controversies concerning the scope of economics has hinted darkly that they represent simply a way of claiming the exclusive right to teach certain subject matter in the universities.2 Dealing, over half a century ago, with the “economic” interpretation of history, Benedetto Croce wrote:

When it is asserted, that in interpreting history we must look chiefly at the economic factors, we think at once of technical conditions, of the distribution of wealth, of classes and subclasses bound together by definite common interests, and so on. It is true these different representations cannot be reduced to a single concept, but no matter, there is no question of that; here we are in an entirely different sphere from that in which abstract questions are discussed.3

Discussions concerning the scope of economics frequently involve these “different representations” that cannot be reduced to a single concept. Our own inquiry, on the other hand, concerns that entirely different sphere in which abstract questions are discussed. And in this sphere it does indeed matter whether or not the term “economic” is understood as being reducible to a single concept; whether, in other words, it is understood as connoting a distinct “point of view.”4

Our problem, then, relates not to the scope of the subject “economics,” but to “economic theory.” When we speak of the point of view of the economist, we shall have him specifically in mind, either as a theorist or as the applier of theory. For ordinary purposes, as Cannan remarked,5 it may well be true that economic things can best be described as economic. The emergence of a voluminous literature attempting to define the economic point of view is not, however, to be dismissed as unfruitful pedantry; it is rather the expression of concern with the epistemological character of economic theory to an extent that goes far beyond that sufficient for ordinary purposes.6

The point can perhaps be expressed somewhat more succinctly by the use of the terminology of the logician. Definitions in general lend themselves fundamentally to classification as either nominal definitions or real definitions.7 The former relate to “names” and attempt to interpret given symbols, verbal or otherwise. Real definitions, on the other hand, try to define “things,” to expose in some way the “essence” and “nature” of the thing defined. The formulations of the economic point of view that are of interest to us in this essay do not content themselves with providing a translation of the word “economic”; they seek to reveal to us the “nature” of the definiendum—which in this case is a concept, a “point of view.” The fascinating variety of these formulations reflects, as we shall see, the numerous, quite distinct operations that logicians have discovered to have been actually performed when men have set out to seek real definitions.

The Multitude of Economic Points of View

Certainly the most outstanding result of the urge to expound the nature of the economic point of view has been the number and the range of the definitions to which it has given rise. This startling multiplicity and variety of formulations was noticed long ago—at a time when their number was modest in comparison with the subsequent accumulations. And for over three–quarters of a century the depressing lack of unanimity among these formulations has led writers to doubt seriously whether they have any value at all.8

Economists have, for example, been well agreed among themselves that the operations of the merchant are of specific interest for the economic perspective on social phenomena; but at this point their unanimity abruptly breaks down. For some, the merchant is engaged in economic activity because he deals in material goods; for others, because his operations involve the use of money; for still others, because these operations hinge on acts of exchange. Some writers see the merchant as an economic agent be- cause his activities are allegedly motivated by selfishness or marked by a peculiar shrewdness in calculating the pros and cons of his dealings. Others see his relevance for economics in that his wares are to some extent related to the maintenance of human life; others, in that they pertain to human “welfare.” Still others classify mercantile pursuits as economic because they involve the judicious disposition of scarce means, while others again find their economic character in their reflection of human motives that permit of measurement. And the list could be still further extended.

The disquietude to which the contemplation of such an array of criteria gives rise is deepened by the realization that in most cases each of them represents a completely different opinion concerning the function of economic analysis. Nor is our equanimity restored by observing the diversity of ways in which the problem of definition is approached. Probably the most significant differences are not those among the specific definitions arrived at, but the disagreements among writers concerning the kind of entity that they are seeking to define and the very direction in which they are to begin their search. Definitions of economic science have time and again required preliminary discussions revolving around the question whether the discipline concerned a kind of object, a kind of activity, a kind of man, or a kind of satisfaction or welfare.

The natural consequence of this state of affairs has been to stimulate frequent soul–searching among economists about the fundamental purpose of defining the economic point of view, as well as a salutary awareness of the real complexity of the problem. The fact that so many different starting points to a territory of knowledge are conceivable is a sign of the intricacy with which the purely economic must be intertwined with other phenomena. And it raises serious questions regarding the very concept of a specifically economic point of view and the usefulness of its precise formulation through rigorous definition.

The Controversy Over the Utility of Definition

As we shall discover, a number of sharply contradictory opinions have been expressed on the usefulness of undertaking the careful definition of the economic point of view or of the nature of the subject matter of economic theory. To those who have considered such a task as significant, its fulfilment represents in itself a distinct scientific achievement. On the other hand, many writers have been at pains to disassociate themselves from an undertaking whose accomplishment seems, in their opinion, to possess no scientific value in itself nor to promise any fruitful results for further work. This book will deal in some detail with many more or less careful attempts at such a definition; and it is only proper to pause to consider the question whether these attempts were potentially fruitful or were by their very character necessarily doomed to be wordy disquisitions, fertile in nothing but the stimulation of sterile controversies.

Among those considering any search for a precise definition of the economic point of view to be a barren enterprise, we find Pareto, Myrdal, and Hutchison.9 Pareto denied that there is objectively an economic phenomenon and considered it therefore “a waste of time to investigate what it may be,” since only a manmade distinction is in question. Myrdal, writing some thirty years later, voiced a closely similar view. A definition of economics can only be a search for arbitrarily drawn boundary lines. “Economics,” in Myrdal’s view, is the only term regarding the precise definition of which the economist need not be concerned; nothing in economic science depends upon it. Hutchison has flatly declared that “the actual assignment of a definition to the word ‘Economics’ does not appear to solve, or even help in the solution of, any useful scientific problem whatsoever.” These pronouncements seem typical of what one writer has noticed as a widespread impression that the discussions concerning the nature and scope of economics “are merely an endless and useless logomachy.”10

But the contrary opinion has been repeatedly expounded. The very voluminous literature on defining economic theory, including the works of the most illustrious masters of the science, constitutes in itself a formidable monument to this position.11 Robbins especially has several times vigorously denied that it is a waste of time to attempt a precise delimitation of the field. It is, on the contrary, a “waste of time not to do so.”12 The science has developed to the point where further progress can take place only if the objective is clearly indicated; where problems are suggested only by “gaps in the unity of theory.” Knight has referred to the delimitation of the nature and content of value theory as “perhaps the ultimate conceptual problem in economics.”13 Macfie, among others, has pointed out the harm that can be done by a lack of a clear–cut definition; more especially he has stressed the distortion that a faulty definition could introduce into the character of the science.14

For the appreciation of the historical trend to the investigation of which this essay is devoted, it is important to understand the nature of this sharp divergence of views concerning the usefulness of a precise definition of the economic point of view. It is possible to interpret the disagreement as merely the expression of different attitudes towards the utility of expending energy in discussing the nature of economics, as compared with that of the effort devoted to the actual increase of our stock of economic knowledge. Numerous justifications for merely perfunctory attempts to provide a definition of the economic point of view do, in fact, stress the great difficulty of the undertaking, in conjunction with its alleged lack of importance for the work of the economist.15 The disagreement might thus be understood as simply reflecting differing estimates of the worthwhileness of the alternatives costs involved in achieving intellectual tidiness in the systematic exposition of the science. But such an interpretation would be a superficial one and would ignore the most significant aspect of the controversy.

An Interpretation of the Controversy

The writers who have denied the fruitfulness of the precise delimitation of the scope of economic theory must be considered as constituting a group whose views, in effect, make up yet another “definition” of the economic point of view—one that altogether denies any such concept. The notion of a peculiarly economic point of view has been variously defined in terms of a large number of different criteria. The subsequent chapters of this essay set forth the more important of these formulations. Certainly it is of moment that there is place found for yet a further attitude towards the notion of a uniquely economic perspective—an attitude that completely fails to recognize any such unique point of view. The disagreement concerning the usefulness of defining economics is thus reducible to a far more interesting controversy: one that deals with what, in fact, is meant at all by defining economics; a controversy concerning the very existence of that economic point of view which we are asked to define.

The issue may be seen most clearly in the question with which one writer found himself faced before embarking on the search for a definition of the economic principle. He asked himself whether economics is “a pie which every economist can...make up with his own ‘recipe,’ or is it a given pie...which is basically made up of well–defined and hardly changeable ingredients? In other words, is economics what the economist is prepared to let it be, or does economics have a ‘nature’ of its own...?”16 Once it is denied that economics has a “nature” of its own, once it is declared that no recipe for a uniquely economic pie, in fact, exists, then, of course, any lengthy search for such a recipe must seem a waste of time. And, similarly, the determination of the particular recipe that may, quite arbitrarily, have been used by some or many economists to make up their own pie then becomes a quite uninteresting undertaking.

If, however, it is maintained that economics has a nature of its own, then it may clearly seem of the highest interest to bring to light the precise character of this economic point of view. Moreover, once the existence of a given recipe has been discovered, and the conviction has been acquired that economics is not a pie to be made up at will, then definition becomes important for yet another reason. It becomes of the first moment to expose the specific character of economics, if only to convince the doubtful of the existence of this uniquely economic point of view that they are so much inclined to deny. The search for the precise nature of economic theory becomes of importance simply because it offers proof that economics has a “nature of its own.”

Definitions, as we have seen, may be either real definitions or nominal definitions. Now, a nominal definition may be given to a term even though one is convinced that no real “thing” in the world in fact corresponds to what the term signifies. But one can embark on a search for a real definition only if it is recognized that the term to be defined actually represents a thing or a concept the essence or nature of which can be set forth. If it is denied that the subject of economic theory displays any essential unity that might be worthy of precise characterization in a definition, then it is clear that any definition of the discipline must remain merely nominal. And if it is believed that economists have been arbitrary in their selection of their problems, then there can be little value in the formulation of the nominal definition of economics.

On the other hand, the discovery in economics of an entity of which a real definition may be advanced promises an interesting range of investigation. It has been demonstrated that when men have attempted to obtain real definitions, they have in many cases proceeded to engage in a wide variety of operations.17 In some cases a search for a real definition of X has meant the search for the key to X, for a single fact from which all the facts of X can be deduced. In other cases the search for real definitions has meant the search for “abstractions,” i.e., the “becoming aware for the first time of a new general element in one’s experience and giving it a name.” In still other cases real definition has concealed the attempt to analyze an abstraction. (A school child in learning that the circle is the locus of all points in a plane equidistant from a given point has learned the analysis of a previously known abstraction, the circle.)

It is not difficult to understand that when writers concerning the scope of economic theory believe themselves to have discovered the “key” with which to explain all departments of economic life, they may feel pardonably complacent about the usefulness of the “definition” in which their discovery is crystallized. It is still more understandable that economists should stress the usefulness of definition when their own formulation of the nature of economics reveals to the world their awareness of a new general element in their experience. Croce provides perhaps the best example of this situation. He was aware of a new general element in his experience of human affairs. This element was not moral, it was not technical, nor did it coincide with any other already–named abstractions. In his formulations, Croce made a vigorous attempt to present this abstraction to the attention of the world by ascribing to it the word “economic.”

When definition entails, in addition, the task of analyzing this newly presented abstraction, that operation becomes more than ever meritorious. If in the effort to provide an adequate definition of economics, an attempt is made to analyze the concept of economy, for example, one necessarily becomes involved in a problem of economic science itself. It was here that Croce could most effectively criticize Pareto’s view that the cutting off of that slice of phenomena which is to constitute the field of economics is a quite simple and arbitrary affair.

You talk of cutting away a slice from a concrete phenomenon, and examining this by itself, but I enquire how you manage to cut away that slice? For it is no question here of a piece of bread or cheese into which we can actually put the knife, but a series of representations which we have in our consciousness, and into which we can insert nothing except the light of our mental analysis. In order to cut off your slice you would thus have to carry out a logical analysis...18

When the nature of economics is defined in this way, by the analysis of a unique general element in our consciousness to which only the term “economy” corresponds, then it must seem very obvious indeed that faulty definitions can seriously distort the character of the science. And when the analysis of this element has been made possible only by virtue of familiarity with the substantive content of the science itself, then its formulation into a definition can clearly take on the character of a positive scientific contribution. It is in this sense that Hayek, in a somewhat different context, was able to write:

It is one of the causes of the unique position of economics that the existence of a definite object of its investigation can be realized only after a prolonged study, and it is, therefore, not surprising that people who have never really studied economic theory will necessarily be doubtful of the legitimacy of its existence...19

From this perspective it will be useful to survey rapidly in the next few pages the historical trend in the attention that economists have paid to the definition of their subject. This will make clear what they have, at various times, looked for in such a definition. Our survey will thus provide a useful introduction to the more detailed discussions in the subsequent body of the essay.

The Economists and Their Definitions: the Classical Economists

Modern investigations into classical economic thought are gradually providing us with a more coherent picture of the intellectual scenery in early nineteenth–century political economy. Among the more important contributions in this direction is the final interment of the idea that there was ever a happy unanimity of opinion, a generally accepted body of theory in the propagation of which the classical economists were a united band of enthusiastic missionaries. Similarly the notion, once widespread, that the classical economists were as a body unconcerned with the methodological foundations of their work is rapidly disappearing from discussions of the subject.20

It seems worthwhile to dispel the rather common impression that the classical economists were generally unconcerned with attaining and enunciating a precise definition of the subject of their inquries.21 This is by no means the case. It is true that J. S. Mill, writing in 1836,22 felt obliged to apologize for the lack of a definition of political economy “framed on strictly logical principles,” by explaining that the definition of any science “has almost invariably not preceded, but followed, the creation of the science itself.” But many economists had already felt the need to delineate the boundaries of their inquiries. And while it is true that the classical economists were generally in broad agreement concerning what it was that they were talking about, they were by no means agreed about how to demarcate this area of their in- vestigations or even how to conceive the unity and logical nature of their field.

The early economists, in fact, when offering definitions of their science, were often far more earnestly concerned with expressing its true essence and nature than were many of their successors. Although the latter, as Mill asserted, may have been better equipped for this task, they had far less occasion to engage in it. For the thinkers of the late eighteenth and early nineteenth centuries, there was a real need for a mode of definition that could justify the conception of a new and separate science. While their definitions might only imperfectly indicate the actual character of their inquiries, they still had to demonstrate the peculiarity in subject matter or method of investigation that prevented economics from being subsumed under some wider, extant discipline.

Classical writers could express themselves about the nature of the economic in two distinct ways. They could define the subject known as political economy. Or, having defined political economy as the science of wealth, they could proceed to set forth the nature of that wealth with which it was maintained that economics is concerned. Each of these approaches was freely used both before and after Mill’s own elaborate attempt to define political economy.

Yet it is true that after 1830 a trend toward more sophistication in definition is undeniably visible. Methodological self–examination became a fairly fashionable undertaking. It was in this period that many of the assumptions hitherto implicitly accepted by economists were first brought to light, and most of the important issues that were to be the subject of methodological controversy over the succeeding century were first given explicit statement. As far as the question of the scope of economics was concerned, discussions treated it as a problem in its own right rather than as one merely introductory to a more important topic. Senior, J. S. Mill, and later Cairnes all devoted careful attention to definition, and so also did many lesser–known economists. At a meeting of the Political Economy Club of London in 1835 the question of the scope of the discipline was put up for discussion. (In 1861 Senior proposed a similar question for debate at the club.)23

Moreover this period reflected a significant advance in the actual approach taken to the task of setting forth the nature of the economic. As will be seen in the subsequent chapters of this essay, writers after 1830 began to rebel against the more extremely objective view of it as the science of wealth that the earlier classical economists had generally held. To several writers after 1830 it was becoming increasingly evident that what they were investigating was not so much a set of objective phenomena whose common denominator was wealth as the phenomena resulting from the wealth–oriented actions of men. What the fundamental characteristic of such actions was, and what the precise balance to be maintained in political economy between the facts of human nature and those of the external world should be, were the subjects of lively discussion. But the first step had been taken along the road toward emancipating economics from its ties to wealth and material welfare.24

The Economic Point of View: the Background of the “Methodenstreit”

After 1870, attempts to define the nature of the economic were definitely colored by the intellectual background of the period. In Germany, Austria, and England economists were paying a good deal of attention indeed to the necessity for reconstructing economics “from the ground up.” This necessity was proclaimed by both groups that were in reaction against the hitherto dominant classical economics. Those following Roscher, Hildebrand, and Knies in their revolt against the abstract reasoning of Ricardian–type economics, as well as those who with Menger and Jevons were dissatisfied with the objectivism of the classical economists—all were imbued with the desire to make over the entire discipline. Inevitably this desire was accompanied by a flourishing self–consciousness on the part of economists in regard to the status of their discipline as a science, its relation to kindred branches of learning, and, in general, its objectives and the kind of knowledge it might be expected to furnish. Together with their researches into economic problems proper, the leaders of both new schools of economic thought felt called upon to still both their own misgivings and those of the public at large concerning the nature and significance of a subject whose methods of approach, after a century of study, its own students were branding as unsound.

It is true, of course, that these discussions came to hinge on the narrower problem of method rather than on that of scope. Even definitions of economics were required, during this period, to embrace statements concerning the purpose and the method of the discipline as well as the character of its subject matter.25 But the methodological points that were at issue in the Methodenstreit did have a direct bearing on the conceptions that were formed of the character of economic phenomena. At the risk of some excusable simplification, the controversy over method could, indeed, be described quite clearly in terms of the different conceptions of the phenomena purportedly investigated by economics. According to the Historical School, economics seeks to describe the phenomena of the real, empirical economic world as it unfolds in its setting of time and space. According to the “theoretical,” “abstract” school of thought, on the other hand, the task of economics is not—or, rather, cannot be—to explain “individual” (or particular) economic phenomena, but only to discover the regularities, the “general” chains of cause and effect, that underlie the innumerably various forms that present themselves in economic history.26

Although this statement of the disagreement does not, of course, point to any simple parallel disagreement concerning the nature of the economic, it does throw light on the background against which discussions about the character of economic phenomena were carried on in the last quarter of the nineteenth century. During this period we find, especially in the German literature, a concern with the correct characterization of economic phenomena that went far beyond previous investigations. It may safely be said that almost all the numerous criteria that have, during the history of economics, been used to define the economic aspect of affairs were in some way mentioned already in the formidable German literature of these decades. Even some definitions that were clearly discussed only in the twentieth century were at least vaguely envisaged during these years. Dietzel and Neumann in particular demonstrated considerable insight in their work in this area. Under the influence of Menger and his followers, writers of this period devoted careful attention to the scarcity criterion and to the operation of the “economic principle.” On the other hand, economists of the Historical School tended to stress the social character of economic phenomena. Both groups still clung to the idea that wealth stands at the core of economic affairs, but frequently the retention of conventional phraseology merely concealed a far more advanced and sensitive grasp of the real nature of economic phenomena.

In England at this time, despite its own form of the Methodenstreit, far less advance was to be seen in formulations of the scope of the discipline. Jevons had kept his economics closely tied to hedonism, and he was followed in this by Edgeworth. Marshall devoted part of his inaugural Cambridge lecture in 1885 to the problem, with interesting results. Several of the methodological rebels were intent on denying economics a separate status apart from sociology. There was even a proposal put forward in the British Association for the Advancement of Science during the late seventies to abolish the very existence of a separate economic section of the association. J. N. Keynes contributed to the judicious resolution of the methodological issues, but did little to advance the conception of the character of the economic point of view. It was not until the appearance of Wicksteed’s brilliant work in this field in 1910 that we find a contribution comparable in exhaustiveness and refinement to several of the German discussions.

Meanwhile in other countries economists were giving the problem careful attention. In the United States literature a number of useful pronouncements are to be found concerning the importance of a correct definition, as well as several highly refined and well–reasoned substantive formulations.27 In France28 and Italy too, parallel advances are to be found in the literature. In 1883 Supino published the first book devoted to an account of the existing definitions of economics.29 Pantaleoni, Pareto, and Croce devoted considerable space to the question of definition, and the famous correspondence at the turn of the century between the two last–named writers contains considerable material that is of particular value for any history of this question.

Twentieth–Century Economic Points of View

Fraser has classified definitions of economics into Type A definitions and Type B definitions.30 Type A definitions consider economics as investigating a particular department of affairs, while Type B definitions see it as concerned with a particular aspect of affairs in general. The specific department singled out by Type A definitions has usually been wealth or material welfare. The aspect referred to in Type B definitions is the constraint that social phenomena uniformly reveal in the necessity to reconcile numerous conflicting ends under the shadow of an inescapable scarcity of means.

During the twentieth century two distinct trends are visible in the definitions of the economic point of view. On the one hand, a transition from Type A to Type B definitions has been vigorously carried forward. On the other hand, there has been a pronounced movement toward the denial of any distinctly economic point of view whatsoever, and the consequent conviction that all attempts to present such a point of view with clarity must be a waste of time.

It will be seen in subsequent chapters that the classification of definitions of the economic point of view into Types A and B is far from an exhaustive one. The voluminous literature since the turn of the century dealing with the problem of definition reveals, indeed, the entire range of formulations that are discussed in this essay. Nevertheless, it remains true that the most outstanding development in the history of the problem is the switch from the search for a department of human affairs to which the adjective “economic” applies, to the search for the appropriate aspect of affairs in which economic concepts are of relevance. (It should be noticed that almost all the numerous formulations of the specific point of view of economic science are considered by their authors, not as describing a new science, but as offering a more consistent characterization of the existing discipline.)31 The emergence of the Type B definitions is reflected in a considerable body of literature on the continent as well as in the English–speaking countries. Type A definitions are treated in the second chapter of this essay, and the transition to Type B definitions is traced in the sixth chapter. Type B definitions are associated especially with the name of Professor Robbins, whose work of 1930 has had an outstandingly stimulating effect on all subsequent discussions.

The final chapter of this essay traces the further development, in recent decades, of this trend away from the association of economics with specific “ends” or a specific department of human affairs. In this development the work of Robbins has been consistently pursued to what appears to the writer to be the most adequate solution of the problem. The developments described in this final chapter are made up of the contributions of several eminent economists, including Mises and Knight. These writers in no way constitute a “school,” and although in this essay the developments of the final chapter are described as “praxeological” (following Mises’ terminology), it is not to be understood that all the writers cited in that chapter fully subscribe to what is here called the praxeological outlook. It is maintained, however, that the consistent and refined development of the ideas first brought to a focus in the Type B definition constitutes a distinct contribution to the history of the problem. The path–breaking work of Mises in this regard has a significance that, in the writer’s opinion, has not been sufficiently recognized because it has not yet been brought into historical perspective.

The movement from Type A definitions toward Type B definitions and finally to the praxeological position runs, of course, in a direction diametrically opposed to that taken by writers who disparage painstaking definitions of economics altogether. What is common to all these writers is, as was noticed earlier in this chapter, that they deny the existence of any given “pie” that could constitute economics. There is no specifically economic point of view, and economic science does not investigate any uniquely separate group of phenomena, or phenomena in general from any uniquely economic aspect. The consistent development of the Type B definition and of praxeological ideas represents the completest denial of this view. Both these conceptions of economics have been able to focus attention, with a clarity never hitherto attained, on an element in our experience that corresponds to nothing else in our consciousness. This element in our experience conforms precisely to the foundation that is discovered to be rigorously necessary and sufficient for the construction of economic theory as it has developed during the past two centuries.

The body of this essay consists of the study of the many alternative formulations of this economic point of view, which make up the trend culminating in the insights of the final chapters.

2

The Science of Wealth and Welfare

This fatal word “material” is probably more responsible for the ignorant slanders on the “dismal science” than any other economic description...
Alec L. Macfie

Political Economy is a science in the same sense in which Astronomy, Dynamics, Chemistry, Physiology are sciences. Its subject–matter is different; it deals with the phenomena of wealth, while they deal with the phenomena of the physical universe.
J. E. Cairnes

...In becoming consciously a science of human behavior economics will lay less stress upon wealth and more stress upon welfare.
Wesley C. Mitchell

It is almost as difficult to define the boundaries of welfare economics as it is to define economics itself.
Kenneth E. Boulding

We take up first of all the class of writers for whom the specifically economic point of view is in some way necessarily associated with wealth or with welfare. It seems fair to consider this view before examining the many other opinions extant in the literature, simply because its supporters (those espousing what Fraser calls the Type A viewpoint)1 were for a long time the ones most frequently to be found in discussions on the subject. And it is a matter of no little significance that it was one form of this view, viz., the description of the economic side of affairs exclusively in terms of wealth, that the earliest classical economists almost invariably adopted. In the course of our discussion it will become apparent that a number of quite different conceptions of economic phenomena at various times found expression in the definitions that simply spoke of wealth or welfare as being the central focus of economic interest. Yet despite the variety of these conceptions they all admit of being broadly grouped together. Those writers who speak of the production of wealth and the distribution of wealth or of some special type of human welfare as being the peculiar interest of the economist share a common outlook on the subject. No matter how widely their opinions on the nature of wealth or welfare may diverge, what is common to all these writers is that they see the distinctive peculiarity of economic phenomena in the class of objects around which they especially revolve or in the specific human condition that they are thought especially to affect. The criterion used by the student of economic phenomena to mark out the scope of his subject is the fact that it is concerned with a special class of objects or a special type of human condition. The botanist studies the phenomena of plant life, the astronomer studies celestial phenomena, the philologist studies a specific “object,” viz., languages—and the economist quite analogously occupies himself with the study of wealth or welfare. The conditions governing the production of wealth or the enhancement of economic welfare, the effects of given events on the exchange and the distribution of wealth—all these are “economic” phenomena because they have to do with wealth or welfare.

We shall see that many writers of this opinion still further narrowed down the concept of wealth to the idea of material wealth, and many of those stressing welfare qualified the term by singling out the material welfare of mankind. These developments meant that more than ever economics has to do with a particular class of objects as its special province of study. And we shall be concerned in this chapter to explain the emergence of this general outlook on the nature of economics simultaneously with the emergence of the science of economics itself. We shall also be concerned to trace the various forms that this general outlook has taken in response to developments within the science of economics and to discover some of the implications of this outlook.

The Emergence of Political Economy as the Science of Wealth

The writers on economics at the time of the emergence of the subject as a serious discipline in its own right, where they made any attempt at all to outline the scope of their inquiries, did so quite as a matter of course by reference to “wealth” as its subject matter. By the latter half of the eighteenth century, thinkers in England, France, and Italy were coming to recognize that the subject of the mass of writings and speculations dealing with commerce, industry, foreign trade, money, interest, taxation, and the like constitutes a distinct theme of inquiry. Hitherto these speculations (such as those of the mercantilist writers and of those whom Schumpeter has called the consultant administrators and pamphleteers) had been isolated inquiries seeking to explain specific phenomena of the real world. Where inquiries on these and kindred subjects had been incorporated into more general systems, they appeared as unmistakably subsidiary material introduced to round out treatises whose subjects were juristic, political, or moral.

With the recognition of the fundamental unity of the principles underlying these scattered inquiries and of their analytical independence of juristic, political, and moral systems, economics, or political economy, emerged as a distinct discipline. Works appeared attempting to deal with economic phenomena in general, and these works typically identified their subject matter as being “wealth.”

It is worthy of notice that the existence in “wealth” of a subject matter ripe for independent investigation seems to have been assumed with little discussion. The conception of wealth as being a distinct phenomenon with its own peculiar scholarly interest was not a creation of the classical economists.2 Adam Smith, who defines political economy as treating of the “nature and causes of the wealth of nations,”3 freely applies the term to denote the area of concern of mercantile policy–makers of a century earlier.4 What converted scattered scraps of knowledge on the subject of “wealth” into an integrated system of ideas was simply the discovery of the regularity of the phenomena of wealth as determined in the market. Newly discovered, seemingly inexorable “laws” governing the wealth of nations turned this “wealth,” already the center of many isolated investigations, into the subject matter of a new science.

That this new science was considered, not as explaining the operation of a specific type of social organization or the results of a certain kind of human behavior or any of the various other matters that economists have at times believed it to be their principal concern to explain, but as primarily explaining the phenomena of wealth, is a circumstance that deserves some closer attention. It seems appropriate to glance briefly at the background against which economic thought developed, in order to throw some light on this interesting circumstance before we trace the later history of this idea on economic affairs.

In later chapters there will come under discussion a number of possibly more sophisticated conceptions of that economic point of view from which the economist scrutinizes the world. In the course of these discussions, the failure of the classical economists to perceive the unity of their subject to be implied in such conceptions will be more fully understood as stemming at least in part from their freedom from those influences that were operative in the emergence of the later views. At this point four positive elements in the background of early economic thought and its surrounding Zeitgeist may be distinguished as possible catalysts in the precipitation of wealth as the recognized subject matter of a distinct discipline.

1) Later methodologists were to devote considerable effort to the problem whether to treat political economy as a positive science or as an art, whether to cast its teachings in the indicative or the imperative moods. There can be little doubt that the founders of economics felt themselves to be expounding an art. According to Adam Smith, political economy “proposes to enrich both the people and the sovereign.”5 A recent writer has characterized the classical economists as a school of economic and social reform.6 The roots of this attitude toward their teachings are not hard to find. Economics, as we have seen, developed, in part at least, from the work of mercantilist writers, the “consultant administrators and pamphleteers.” This class of writers was quite simply interested in practical results. Any scientific work that came from their hands must quite naturally be considered the by–product, rather than the attained goal, of their endeavors. The growing application, in the eighteenth century, of sober and sound analysis to the questions that these earlier writers had discussed did not involve any change in this attitude. Hence, the conception that Smith, the economist, had of his subject was not much removed from that of Steuart, the mercantilist, to whom “oeconomy...is the art of providing for all the wants...” and to whom the “principal object” of his inquiry was “to secure a certain fund of subsistence for all the inhabitants.”7

It is not difficult to see that this attitude toward the utility of economic inquiries necessarily carried with it the elevation of wealth into an object of scientific study. An investigation that sets out to find the means of enriching the people and the sovereign, if it discovers laws governing the attainment of this objective, may not unnaturally presume to have discovered the laws of wealth. If we grant the assumption that the goal of economics is to make the nation wealthy, a goal to which a fairly well–understood meaning was attached, then it follows that economists must be considered, both by themselves and by the public, as expounding the principles of wealth—understood in the same sense—and its acquisition by the nation. How a nation wrests wealth from niggardly nature, how this wealth is distributed and exchanged within the nation—all these inquiries focus the attention on that which now becomes an object of scientific scrutiny. The general objectivism of the classical school in its substantive economic doc- trines here finds its counterpart in that school’s very conception of its task: an economist investigates the phenomena of a special class of objects that together comprise wealth.

2) Another force in the eighteenth–century environment that must have helped to set up wealth as the subject matter of a separate discipline seems to have been the intellectual interest in private property. Despite the variety of meanings that we shall find to have been attached to the term “wealth” by classical economists, almost all these meanings find some common ground with a definition of wealth as consisting in the objects of ownership. Throughout the seventeenth and eighteenth centuries a peculiar attraction seems to have resided in inquiries into the legal and moral bases of the institution of private property. Grotius had discussed the matter from a juristic standpoint. With Hobbes the inquiry into the nature and origins of private property became merged with his theories on the origins of the organization of society under the sovereignty of the state. Locke saw the origin of and justification for private property in natural law. These speculations and theories affected much of the thought of the leading writers throughout the eighteenth century. Discussions of civil justice must turn on the acceptance and justification of property rights; discussions of the legitimacy of slavery must involve the question of the admissible extent of property rights; the movements in France and America towards democracy were generally accompanied by specific attention to private property. For many years democracy was to mean democracy for the property owners. Godwin’s call for the abolition of private property once again drew attention to the foundation of the entire institution.8

Myrdal has attempted to show that it was the heritage of the ideas of the natural–law philosophers regarding property rights that accounts for the classical, and especially the Ricardian, theories of value.9 For the purposes of the present study the relevance of this observation seems sufficiently obvious. The isolation from the other ends of human action of that end represented by property on the one hand reflected, and on the other hand itself strengthened, the artificial line drawn between the study of the phenomena connected with property and the study of human action in general. The focusing of the attention of jurists, philosophers, and moralists on the institution of property cannot but have helped in keeping wealth in a compartment all its own. Moreover, the fundamental defect of classical economics, its lack of appreciation of the subjective nature of its phenomena, may perhaps be partly due to the fact that serious thought had for a long time been devoted to property and wealth in inquiries to which, indeed, this subjective element bore little direct relevance.

3) Yet another element in the environment of early scientific economics must be briefly alluded to in connection with the emergence of wealth as an object of intellectual interest. This is the approach of the moral philosophers of the period to the problems of the relation of the individual to society, and especially of the egoistic and altruistic motives. The birth of political economy may be regarded as a reflection of the confluence at this time of two streams of thought, ethics and politics. Ethics discussed the meaning of good and bad, the source of the sense of moral obligation. Politics explored the origins of society, the most desirable form of its organization, and the rights of the individual in relation to the state. In a society whose economy was becoming more and more dependent on the division of labor, it was natural for the ethics of the individual to become increasingly involved with his relation to society as a whole. The discovery of market regularities, predicated on individual avarice, in the phenomena of the wealth of nations meant in itself a unified application of ethical and political doctrines.10

The controversy stirred up during the eighteenth century by Mandeville’s Fable of the Bees was typical of the problem to which the thinkers of the time sought the solution. Mandeville’s provocative conclusion was “that what we call evil in this world,...is the grand principle that makes us sociable creatures, the solid basis, the life and support of all trades and employments...”11 His critics, including both Hume and Smith, used all manners of approach to dispute his conclusions. Closely allied to this problem was that recognized by Mandeville’s paradox, the venerable feud in human nature between the forces of self–interest and the forces of altruism. Whether or not the urge in a human being to benefit others than himself is a real one or merely the illusory reflection of a selfish desire to relieve one’s own pain incurred by another’s misery was a question well to the fore during this period. Hobbes had been the first of modern philosophers to expound his theory of egoism. Eighteenth–century philosophers, including Butler, Hume, and Smith generally rejected Hobbes’ egoism and postulated a real distinction between selfishness and altruism.

This reaction against extreme egoism and especially against the effect on the nation’s welfare ascribed to egoism seems to be at least partly responsible for the division of the field of human action into two independent classes, the one class of acts being induced by purely egoistic motives, the other class being constituted of acts in which the motivating forces are the altruistic and “higher” impulses. And it is not difficult to see how the acts induced by selfishness could be easily confused with acts aimed at fulfilling material desires. Careful thinking had demonstrated the existence of regularities in the phenomena of wealth. The identification of the study of these regularities with the study of material or other wealth thus obviously provided the new science with an appropriate and distinct niche within the structure of knowledge as conceived by the eighteenth–century thinkers.

4) One final strand in the web of eighteenth–century thought onto which a science of wealth was to be woven must be noticed. This is the position occupied by the natural sciences, and their relation to and influence upon the social sciences. In general the eighteenth–century view has been characterized as “anthropological and subjectivist,” in contrast to the “cosmological and objectivist view which the nineteenth century had of the world.”12 Nevertheless, the position of the nineteenth century had its roots in ideas that go back well into the eighteenth century and earlier.

The tremendous advances in the natural sciences, especially mathematics and astronomy, associated with such names as New- ton, Clairault, Euler, and d’Alembert, were radically transforming the intellectual atmosphere in which the eighteenth–century philosophers thought and taught. The reaction against airy metaphysical speculation set in motion by Hume and the other British empiricists, and the quasi–positivist philosophy of the French Encyclopedists, with its anathematization of all forms of anthropomorphism and animism, were all part of the environment in which economic science emerged.

It is not to be wondered at, then, that the enthusiasm engendered by the signal successes of the objective and impersonal methods of the physical sciences should have left its mark on the earliest researches of the classical economists. It has been well remarked that some of the founders of abstract economic theory in the eighteenth century were at the same time the founders of the positivism that was later to be deployed against that abstract economics.13

Differences of opinion may legitimately exist concerning the weight to be assigned to utterances by the moral philosophers that seem to illustrate the all–pervasive Newtonian influence.14 But these references are persistent. Hutcheson and Hume, Helvetius and Beccaria expressed the desire to treat the data of ethics analogously to the data of experimental physics, or they made analogies between the force of self–interest and the force of gravity.15 The simplification in the conception of the cosmos to which the physical sciences owed their characteristic fascination—i.e., the reduction of seemingly heterogeneous phenomena to a system governed by a few fundamental laws—seems to have perceptibly colored the thinking of the founders of economics. The extent of the gap between the conception of a science embracing the totality of action, on the one hand, and the conception of a science of wealth, on the other, owes something, it would appear, to the ease with which the latter could be incorporated into a structure of universal knowledge in which the physical sciences occupied so conspicuous a position. According to the English individualists, social phenomena spring, not from the interaction of individual subjective preference systems, but from the inter- action of individuals under an impersonal pervasive force of self–interest in relation to objective, material wealth.

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.

The Science of Subsistence

Thus far the account of what the economic point of view has meant to economists has treated of the classical conception of it as a science of wealth, with special reference to the restriction of the latter concept to that of material goods. The account of the gradual advance of economics from a science of wealth to one of welfare will be resumed later in the chapter, with special attention to those elements of the earlier “material” conception of wealth that continued to be retained. At this point a discussion is in order of a special case of this “material” approach to economics, which seems to have held a fascination for a number of economists over an extended period of time, viz., the view that saw economics as essentially concerned with the goods necessary to ensure the physical subsistence of mankind.

This view seems to be the most extreme form of the materialistic outlook on economic affairs. The distinctive feature of all conceptions of economics as a science of wealth or of material goods, as against alternative conceptions of the discipline, consists in their identification of economics with some special end of human action. Not all action is subject to economic law, but only such action as is directed towards a more or less well–defined class of objects, viz., wealth or material goods. Most of the definitions advanced during the greater part of the nineteenth century can be considered as variants of this view. The earlier ones saw economics as concerned with the results achieved with regard to these ends themselves, its enquiries being directed at describing the phenomena of this desired wealth. The later, less objectivistic definitions looked at economics, as will be seen in subsequent chapters, as a description of man in one department of his activities—that directed towards, or pertaining to, the desired wealth.

When economics is narrowed down still further by restricting it to the study of the goods necessary for human survival, the relevant range of human ends is contracted to the point where the term “end” begins to lose its meaning. No matter how objective a view one had of the wealth around which political economy was supposed to revolve, it was extremely difficult to close one’s eyes to the fact that wealth is wealth only because it is desired by human beings, i.e., that it is an end of human endeavor. But when the only parts of wealth permitted to come into consideration are biological necessities, then it is dangerously tempting to consider these necessities as not being the ends of human desire at all. Instead of being goods brought under the play of market forces by being the goals of human aspirations, these necessities gain their economic relevance purely objectively, by being the physiologically determined causes of quasi–biological tropisms. And this, indeed, is the direction towards which a number of “subsistence” definitions of economic phenomena have tended.

There had been discussions for a long time concerning the question whether wealth should properly include luxuries as well as “necessaries.”26 Steuart had seen the goal of his subject as being “to secure a certain fund of subsistence for all the inhabitants.27 It is noteworthy that during the period of the classical economists most writers did not embrace this “subsistence” approach. As a matter of fact several writers explicitly took a view diametrically opposed to the “subsistence” criterion. So far from confining wealth to necessities, these writers defined wealth as excluding necessaries.28 Wealth was the surplus, often the surplus after all expenditures. Political economy was exclusively the science of great riches, of luxury phenomena. (Both Bentham and Malthus found it necessary to reject this view of economics and attempted to make it absolutely clear that their political economy was concerned with the poverty of nations quite as much as with their wealth.)29

Despite the general absence of the subsistence view in classical economics, there appears to be at least one sturdy offspring of the classical school to which this view is central. This is to be seen in the work of the Marxist writers in developing the thesis of the economic, or materialist, interpretation of history. The significance of the materialist interpretation in Marxist thought lies, of course, in its consequences for the “noneconomic” aspects of history. For the purposes of the present account, however, the Marx–Engels approach to history yields a fresh view of the scope of economic affairs. Superficially one might be content to explain the fact that Marx and his followers equated the “economic” with the “materialist” interpretation of history as deriving merely from the classical economists’ stress on material wealth. An examination of Marx’s writings, however, reveals his conception of political economy to have been even narrower. Professor Knight seems to have put his finger on the essential point when he writes: “The socialistic popularisers of [the economic interpretation of history] have leaned toward the narrower and more definite...conception of downright necessities.”30

This view of the economic interpretation of history seems to be expressed in Marx’s own writings. In a note in which he compares his conception of history to the doctrines of Darwin, Marx writes: “Technology discloses man’s mode of dealing with Nature—the process of production by which he sustains his life, and thereby lays bare the mode of formation of his social relations, and of the mental conceptions that flow from them.”31 In the passage that Kautsky considered the classic formulation of the economic interpretation, Marx explains:

In the social production which men carry on they enter into definite relations; these relations of production correspond to a definite stage of development of their material powers of production...The mode of production in material life determines the general character of the social, political, and spiritual processes of life.32

It is of interest to note that the words which in this extract (from Stone’s translation of Marx’s preface to his Critique of Political Economy) are rendered “...in the social production which men carry on...” are in the German original:...in in der gesellschaftlichen Produktion ihres Lebens...Other translators of Marx have rendered this phrase: “...in the social production of their every–day existence”33 and “...in the social production of their subsistence...”34

Engels too made this subsistence approach very clear. “According to the materialist conception,” he wrote, “the decisive factor in history, is, in the last resort, the production and reproduction of immediate life.”35 And again, “We understand by the economic relations, which we regard as the determining basis of the history of society, the methods by which the members of a given society produce their means of support...”36

Clearly, then, there emerges from the various formulations of the materialist interpretation of history a conception of economic affairs that centers about biological survival. Not the provision of wealth, but the provision of bare life is the realm of economics. Nor is it that life referred to in Ruskin’s phrase, “There is no wealth but life” (in which life includes “all its powers of love, of joy, and of admiration”), but the elemental existence that is the subject of biology. Not “wants,” in the sense of the reflections of standards of ultimate values, but rather the inexorable, objective requisites of survival—“needs”—are the data of economics.

In such a scheme, in which the relationship between ends and means as arranged by rational action is completely obliterated, economics and economic affairs clearly take their place as part of biology. Kautsky is easily understood when he insists that the materialist conception of history does not postulate the dominance of economic motives. We must, we are told, sharply distinguish between economic motives and economic conditions. It is only the latter that are assigned the decisive role in the Marxist scheme of history.37

It is not clear whether economists in general were greatly influenced by this idea. The literature yields very scanty traces of any school of economic thought that placed human survival at the center of their subject.38 Yet it is of interest to notice passages in American economic and sociological literature at the turn of the century that do have a pronounced relevance to this general conception of the economic domain. It is, perhaps, not a complete surprise to find that it is Veblen who seems to approach most closely to the “biological” outlook on economics. Veblen explicitly points out that in the earlier stages of industry the “struggle for wealth” meant “a struggle for subsistence.”39 He considered the essence of the physiocratic system to consist in the fact that it saw “economic reality” in “the increase of nutritive material.”40 Again and again in his writings the phrase “the material means of life” is used as the criterion for distinguishing economic activity. “In economics, the subject of inquiry is the conduct of man in his dealings with the material means of life.” This is a typical Veblenian sentence in this respect.41

We must probably see in this Veblenian tendency to identify economics with the maintenance of life a reflection of a fashionable pastime of applying biological analogies to the phenomena of the social sciences. The terminology of biologists seems to have strengthened this tendency. Franklin Giddings drew attention to the different meanings that the word “economy” had for economists and for biologists. Inherent in the economists’ use of the term is the presumption of “a conscious being, endowed with the capacity for pain and for pleasure, to plan and direct the economy and to profit by it.” The biologists, on the other hand, use “the highly general notion of economy as any system of activities and relations which furthered the well–being of any class or species of living things.” It is this concept that produces such phrases as “the economy of the animal kingdom” and the “economy of nature.” “In these notions there is no implication of consciousness, of pleasure or of pain, and no presumption of intelligent planning or management on the part of the organisms that are benefited by their economy. The thought is altogether objective.”42

The same explicit warning against the biological view of economic affairs was sounded by Sherwood.

In applying the physical formulae of evolution to psychical phenomena, sociologists are guilty of unscientific procedure...The physical formulae of evolution are statements of unexplained fortuitous change. The “fitness” which survives is an unforeseen fitness, an adjustment wrought out in consequence of the struggle. Psychical activities, on the contrary, are essentially teleological. They are directed to ends. The “fitness” in social adjustments is foreseeable, prearranged. Further than that, this fitness is nothing other than “utility” to the individual.43

This statement formulates the issue precisely. The imposition of “subsistence” as the goal of economic activity sets up a value involving among all others the least troublesome subjective differences between individuals. The only area of choice left to human intelligence is in the means objectively best suited to attain this one end. Once man’s power to select his own ends is prescinded from economics, the subject is at once reduced to an only slightly more involved version of biology.

The Science of Wealth Retained

Meanwhile, side by side with this subsistence approach to economics, which it had fostered, the concept of wealth—and even of material wealth—continued to provide a convenient, if facile, criterion for defining the domain of the economic long after the close of the classical period. Mill, Senior, and Cairnes debated whether economics was a physical or a mental science. But Cairnes, famous as the last of the economists of stature to adhere to the general classical tradition, could write in 1875: “...neither mental nor physical nature forms the subject matter of the investigation of the political economist...The subject matter...is wealth.”44 And again, even more clearly: “Political Economy is a science in the same sense in which Astronomy, Dynamics, Chemistry, Physiology are sciences. Its subject matter is different; it deals with the phenomena of wealth, while they deal with the phenomena of the physical universe.”45

Bonamy Price, even while describing the confusion regarding the definition of economics, was still able to declare: “All are agreed that it is concerned with wealth.”46 It is true that many of the pronouncements referring to wealth as the key concept were modified so as to conform more or less closely with more sophisticated views. Especially in a number of German definitions after 1870, the vital role played by acting, choosing man in all the phenomena connected with wealth was well recognized, and yet this did not prevent these definitions from assigning the key position to Güter (often Sachgüter).47

From both of the opposing sides in the Methodenstreit came statements tying the economic world to material goods. In so far as this criterion appeared in the works of economists of the Historical School, the matter admits of some explanation. In later chapters it will be seen that the earliest rebellion against the conception of economics as a science of wealth came as a result of the analysis of actual human behavior and the hypothetical isolation of a specific pattern of behavior in economic affairs. This diverted attention from the wealth itself towards the activity of the wealth- seeker. Such a way out from the limited conception of economics as a science of wealth was obviously closed to the Historical School. It was, after all, the very postulation of such hypothetical patterns of behavior on the part of “economic man” that had initially aroused the protests of the adherents of the Historical School and later became the butt of the ridicule expressed by those of their successors who went to the greatest extremes. The urge to restrict economics arbitrarily to material goods and to see the essential character of economic phenomena in their relationship to these objects may therefore well have been stronger for the adherents of the Historical School. So long as action is to be considered only in its empirical totality, any attempt at an analytical separation of economic phenomena from the rest is ruled out from the start.

In England a similar tendency is noticeable in the writings of proponents of the historical method during the small–scale British counterpart of the Methodenstreit. Such prominent writers as Cliffe Leslie and John K. Ingram found themselves embracing definitions of economics that were closer to those of the earlier classical writers than to those, say, of Mill, against whose then dominant type of economics they were now in rebellion. These writers, insisting on the scientific excommunication of homo oeconomicus and pouring scorn on the abstract constructions of earlier economists, were advocating the new science of sociology. While not going so far as Comte, who had flatly denied the existence of a separate field for economic inquiry, they stressed the futility of seeking laws in economics apart from the laws of society as a whole. “The study of wealth cannot be isolated...from the other social phenomena. There is, in fact, properly speaking, but one great science of sociology...” The laws of economics “must be sought in the great science of Society.”48

All this meant only one thing. If any separate field is to be recognized for economics, it must be the result of viewing a class of objects constituting wealth as forming a distinct category whose conditions represent a legitimately separate area of knowledge. This knowledge, of course, can only be tapped from the larger Science of Society. “Political Economy is thus a department of the science of society which selects a special class of social phenomena for special investigation.” By this “special class of social phenomena” there is no doubt that Leslie means the phenomena of wealth.49

What gives unusual interest to the German literature on “material goods” is the fact that goods and material goods are stressed even by the writers who gave the most careful and explicit attention to the problems of defining economics and economic activity. Writing in the eighties and nineties of the last century, Dietzel dealt exhaustively with the various criteria offered for use in definitions of economics. Most of the ideas to be incorporated in the more careful attempts at definition in recent decades seem to have been anticipated either directly in Dietzel’s own writings or by the writers whom he cites. Dietzel came close to recognizing the universality of the category of human action and yet clung tenaciously to the objectivistic outlook on economics throughout his writings.50 Characteristic is his remark that it is not method, but rather the object, that provides the criterion for distinguishing the activities that are the subject matter of economics.51

A similar situation to that in Britain and Germany prevailed in the United States and France during the same period. Again we find the traditional retention of the wealth formula often merely as a cover for a less limited conception of the scope and character of the science. And yet economists seem to have felt that it was their preoccupation with wealth that made their discipline in any way a development from, or a successor to, classical political economy. In one of Ely’s earlier writings, in which he subjected classical political economy to severe criticism, he could yet find some merit in the older economics. “It separated the phenomena of wealth from other social phenomena for special and separate study.”52 For the eminent Belgian economist, de Laveleye, and for many French writers, the définition habituelle of their subject was unquestionably that which ran in terms of richesses, often with explicit limitation to material goods.53

The decades after 1870 were full of change for economics in many directions. The numerous alternative definitions to be con- sidered in subsequent chapters may almost all be traced to the ferment of economic ideas that were revolutionizing economic theory at this time. Again and again it will be found that the application of methodological self–consciousness and precision to fundamental questions of economic epistemology began in earnest during the Methodenstreit of the eighties. The discussion in the foregoing pages demonstrates the persistence, in the face of these developments, of the older conception of economic affairs. Side by side with the newer views to be noticed later, definitions of economics as a science of wealth or of material wealth continued to occupy a central place in economic thought.

Man Against Nature

It is convenient here to notice a point of view that enjoyed the endorsement of a number of writers. They see economics and economic activities as consisting in the constant struggle on the part of man to subdue nature to his own ends. This creates a line of cleavage between two categories of resources. On the one hand, we have the human agent with all his powers of brain and brawn, emotions and skills. These resources he marshals to attack those of the external physical world which he turns to his own purposes. The interaction between man and his physical environment is the area of economic activity.

The earliest writer to have explicitly applied such a distinction to economic phenomena at all seems to have been the German economist (who wrote his book in French while at the Russian court in St. Petersburg) Storch.54 Writing in 1815, Storch emphatically rejected the prevalent viewpoint, which confined political economy to wealth. Not the wealth of nations, but the “prosperity” of nations, should be the subject of political economy. By prosperity Storch included all “civilization,” and in this connection he spoke of “inner goods” such as health, strength, reason, knowledge. These inner goods stand in contradistinction to wealth, which is comprised of “outer goods.” Storch includes both inner and outer goods in his political economy, but his divi- sion between the two categories of goods shows what he understood to be meant by an exclusive science of wealth.55

The eminent British historian Lecky appears to have considered this distinction between “inner” and “outer” resources as of great importance. Writing in one of his earlier works, Lecky seems to feel the arbitrary nature of the conception of a science dealing with the phenomena of wealth. He considers political economy as an expression of what he calls the “industrial” philosophy, which he contrasts with the “ascetic” point of view. The latter philosophy acknowledges happiness as a condition of the mind and seeks to attain it by acting directly on the mind through diminishing the desires. The industrial philosophy seeks happiness, not by diminishing desires, but by acting on surrounding circumstances in order to fulfil the desires. This conception of economics clearly shifts the emphasis from material wealth as such and sees economic activity as the attempt to fulfil desires by altering the configuration of the external world.56

Among economists such a view seems to have found especial favor in Germany. Albert Schäffle, one of the earliest to stress the fundamental role of man in economic phenomena, appears to have consistently gone out of his way to avoid characterizing economics as concerned with “goods.” The key word in Schäffle’s many writings on the nature of the economy is the Aussenwelt—i.e., the external physical world.57 Schäffle’s avoidance of the criterion of goods in favor of a definition formulated in terms of the “external world” is best interpreted as a conscious attempt to draw attention to human activity directed at want–satisfaction. Not goods, but man’s struggle and conquest of the external world is the subject matter of economics.

Other and later German writers referred to the “external world” in their writings, but often merely as an alternative expression for “goods.” Mangoldt, Cohn, Sax, and several other writers may be mentioned in this connection.58

A fundamentally similar attitude to that of Lecky and Schäffle is evidenced about the turn of the century by the American Tuttle. Tuttle speaks of the “fundamental and universal economic principle“—a phrase that he uses in a sense quite different from the usual one. “Three primary facts,” he writes,

lie at the basis of all economic phenomena: namely, man, man’s environment—the outside world, nature–and the dependence of man upon nature. Man has...an economic relation to his material environment...a relation which may very properly be called the weal–relation. This weal–relation...is the fundamental and universal economic principle...59

Here again the economic relationship is conceived as one involving man and his surroundings. This view of the matter bears the clear imprint of the definition of economic phenomena in terms of material wealth. From the external world man creates the goods with which to satisfy his wants. To effect the production of these goods, man applies his own human resources to the external world. The changes that acting man imposes on the outer world both affect and are affected by the changes that are constantly taking place “within” man himself. Envisaging economic activity in this light, as the interaction of man—with all his shifting desires and human resources—and external nature, Tuttle offers a definition in consonance with the more popular conceptions, formulated in terms of wealth, and at the same time suggestive of the place of acting man in the phenomena of economic life.

From Wealth to Welfare

The period in which economic affairs were chiefly considered as being concerned with a class of objects known as wealth coincided roughly with the nineteenth century. Only since the turn of the century have economists been increasingly inclined to consider the scope of their subject in less objective terms. Yet most of the newer views on the question of definition had already found some expression in the writings of the more thoughtful students of economic methodology well before the present century. These murmurings of dissatisfaction with the traditional wealth–bound conception of economics may most illuminatingly be interpreted as the reflection of the more general revolt against the classical system that came to a head in the last quarter of the century.

This general revolt found expression in various ways. In the domain of formal reasoning, the development of the theory of marginal utility in the seventies by Jevons, Menger, and Walras marked the shift of attention from objective cost to subjective utility. In discussions concerning the nature and scope of economics, the change showed itself in the increasing awareness that this subject has as much to do with man as it has with wealth. Well before 1870 there were already many signs in England of the recognition of the humanistic character of economics.60 Schaffle in Germany and Droz in France had insisted on placing the role of man in economics higher than that of goods.61 Ely described the development of economics as occurring in three steps:

Writers of the first class regard political economy as a science which has to do with external valuable things or economic goods—that is, with wealth...; writers of the second class, as the science which has to do with economic goods in their relation to man; writers of the third class, as the science which has to do with man in his relations to economic goods.62

All this made necessary a search for some new criterion for determining the scope of economics. If economics has to do with goods, then its scope is as clear as is permitted by the definition of the word “goods.” But if it is urged that economics is primarily concerned with man, then there is an obvious need to make clear precisely which aspect of the study of man economic theory is concerned with. The subsequent chapters of this book deal with some of the different approaches that have been made toward the solution of this problem. At this point in the chapter describing the conception of economics as a science of wealth, attention must be drawn to one of the most popular of these approaches, viz., the view that sees economics as dealing with the phenomena connected with economic welfare.

This view of economics had, in fact, the most persuasive claim to qualify as the natural successor to the earlier definition of it as a science of wealth. Wealth promotes the economic welfare of man. If exclusive attention to the objects of wealth was to be declared scientifically inexpedient, then the problem could be avoided by shifting attention from the goods themselves to the welfare to which they minister. Instead of studying the effects of various measures on the wealth of a nation, economic analysis may be viewed as going a step further and studying the welfare of the nation as affected by these measures.

Such a conception of economics provided a framework into which the received body of doctrine could be fitted without excessive strain, while at the same time it reflected the new recognition of the subjective basis of market phenomena. The shift to this fresh conception seemed merely a broadening of the scope of the subject from one narrowly concerned with goods to one concerned with happiness.63 Cannan, writing at the beginning of this century on developments since the appearance of Mill’s Principles, saw this broadening as the work of the theory of marginal utility:

Whatever definition of economics may be adopted, it is clear that the conception of its subject has become wider than it was...The economist of today recognizes that he has to do with man in relation to one particular kind of human welfare...Ever since Jevons...it would be impossible for any economist of the present day to repeat Malthus’ remark that Adam Smith mixes the nature and causes of the wealth of nations with the causes which affect the happiness and comfort of the lower orders of society.64

From the point of view of the long–run developments in the definition of economic phenomena, this broadening of the economics of wealth into the economics of welfare does not mark so radical a change as that marked by the appearance of any of a number of later conceptions to be taken up in subsequent chapters. In fact, as against the other definitions of economics, both the wealth and the welfare formulations contain much in common; many of the features found to be objectionable in the wealth criterion appear unchanged in its welfare counterpart. Both formulations are “classificatory” and “departmental” rather than “analytical.”65 Both see economics as studying something that is produced, whether goods or happiness, rather than a certain type of activity.66 Especially where economic welfare is understood as meaning material welfare, the concept of welfare evinced a strong bond of continuity with that of material wealth.

Nevertheless, as the neoclassical expression of the classical wealth–oriented definition of economics, the welfare and utility criterion did call for a conscious alteration of focus in the contemplation of economic phenomena. This point of view, while it became popular only after the introduction of marginal utility economics, had its forerunners as far back as the classical economists. One of Adam Smith’s successors, Dugald Stewart, considered political economy as dealing with “the happiness and improvement of political society.”67 The position of Henri Storch has already been noticed in this chapter. He broadened economics so as to deal, not with the wealth of nations, but with the “prosperity” of nations—a concept that included “civilization” as well as wealth. John Stuart Mill, when he came to consider the question of defining economics, criticized Say for having a similarly wide conception of political economy. Sismondi’s emphasis on happiness and consumption in economics68 and Lauderdale’s all–embracing definitions of wealth place their conception of economics in the same group.

The more general movement towards the idea of economics as a science of welfare rather than of wealth that accompanied the reaction against the classical school is evidenced in the literature in a number of directions. Cliffe Leslie, who was to become the vigorous proponent of historical consciousness in British economics, had a hand in this development. Writing as early as 1862 in a frequently cited essay, The Love of Money, Leslie attacked the notion that the pursuit of wealth represented a self–contained human motive. The love of money means completely different things to different people. To the scholar it may mean the love of books; to the toper it may mean love of liquor. There is nothing unique in the motives that lead men to seek monetary gain; they are as heterogeneous as are human tastes themselves. Later arguments like these were to lead Leslie and others to denounce the classical economists for their postulation of the possibility of valid laws of wealth apart from the “laws of society.” Yet the impact of these ideas undermining the concept of a unique category of wealth through reference to the heterogeneity of the demand side of economics undoubtedly contributed toward a better grasp of the nature of economic theory. For example, it was the increased attention to the demand factor that made it possible for Jevons to “take utility...as the subject matter of economics,” or for an American writer to declare that all definitions of economics reduce to “the science of enjoyment or ...the science of the means of enjoyment.”69

In France a long tradition of stress on utility lent force to the growing dissatisfaction with the definitions of economics formulated in terms of wealth.70 Welfare, utility, ophelimity—these were the terms around which expositions of economic doctrines revolved. The “ethical neutrality” with which these terms were explicitly invested even further removed the newer views from the wealth–bound conception of the subject, while it at the same time provided the bridge across which economics could, if desired, pass in order to become a science of conduct or a logic of pure choice.

By the early years of the present century, the idea that economics is essentially concerned with welfare, or at least with material well–being, was probably the view most generally accepted among the English economists. Both Marshall and Cannan introduced widely used textbooks, running to many editions, with definitions formulated in terms of material welfare.71 Marshall, it is true, had made it clear that it is only an accident that economics is concerned with material wealth and that its “true philosophic raison d’etre must be sought elsewhere.72 Cannan, however, held the criterion of material welfare to be the real distinguishing feature of economics. When Robbins, in attacking this proposition, took Cannan’s enunciations of it as his principal target, Cannan gladly took up the cudgels in its defense.73 In America economists representing such different outlooks as Fetter and Mitchell both called for a shift in interest away from wealth itself towards the human welfare with which it is related; both saw a need for such a shift in the very conception of the nature of economic science.74

Of course, the identification of economics with the study of economic welfare raised fundamental questions about the justifiability and validity of propositions concerning changes in social welfare. It is under the shadow of this thorny problem, involving the admissibility of interpersonal comparisons of welfare and the legitimacy of possible ethical assumptions, that welfare economists in recent decades have been consciously working.75 Sir Dennis Robertson cites the contention that the implications of envy make it uncertain that welfare would be increased even if everyone had more of every commodity. Robertson’s characteristic reply to this possibility would certainly have won Cannan’s concurrence:

How much better, surely, to assert as a plain matter of fact that economic welfare undoubtedly will be increased in this event; and then to call in the Archbishop of Canterbury to smack people over the head if they are stupid enough to allow the increased happiness which might be derived from this plain fact to be eroded by the gnawings of the green–eyed monster; and I cannot at present persuade myself that such a common–sense distinction between the economic and the not is fatally undermined by the fact that the Archbishop draws a salary and that his gaiters embody scarce resources which might have been devoted to an alternative use.76

Robertson’s words gives added salience to the difficulty that the advance from wealth to welfare brought in its train. If economics is concerned with a part of welfare, how is this part to be identified? The “material wealth” criterion embraced by Cannan provided an answer to this question by retaining a direct bond to the discarded conception of economics as a science of wealth. The objections which might be raised against such a criterion, and which Robertson here brushes aside, are clearly in large measure those that can be levelled at the type of definition treated generally in the present chapter.

The Science of the Lower Side of Human Nature

This chapter on the definitions of economics as a science of wealth cannot close without taking account of the stigma which has persistently clung to economics, and for which these definitions of the subject in terms of wealth must bear a major share of responsibility. Well over a century ago, Bailey discussed the popular view that economics is “a mean, degrading, sordid inquiry.”77 Economists have shrugged off somewhat uneasily Carlyle’s contemptuous description of their subject as a “pig–science.” But economists themselves, especially by conceiving of their subject as a science of wealth, have clearly laid themselves open to such criticisms. From the start an economics centered around wealth had to contend with a climate of opinion in which the so–called “economic virtues” had long been held in moral disrepute.78

By the close of the main period of classical economics, leading writers on the subject found it necessary again and again to defend the ethical standing of their discipline against its detractors.79 Economists of the 1830’s and 1840’s refuted the criticisms levelled against their moral status with indignation, with ridicule, or with disdain. The unworthiness of political economy in public opinion stemmed directly from its explicit preoccupation with so degrading a subject matter as wealth. All the depravities that moralists throughout the centuries have ascribed to wealth became naturally attached to the science of wealth.

The defenses raised by some of the economic apologists against those strictures are revealing. A popular argument that was used did not attempt to deny the possible immoral associations of wealth. But then, the argument ran, political economy must be studied all the more diligently in order to know how to avoid wealth!80

Nevertheless, despite rather extensive apologetics on the part of these writers, the observer may be excused if he gains the impression that many economists themselves were not altogether convinced by these discussions. If they did not consider their subject as actually a degraded one, they very certainly did consider it as concerned chiefly with the lower and seamier side of human nature. R. Jennings, one of the “precursors” of subjectivism in economics, painted a highly repulsive picture of the motives with which economics is concerned. Writing in 1855, he announced that “Political Economy treats only of those human susceptibilities and appetences which are similar or analogous to those...in the brute creation;...it never attempts to enter those higher paths of human conduct which are guided by morality, or by religion.”81

Among later writers, especially those who favored the hedonistic view of economics, a similar opinion prevailed. Economists displayed a sense of moral inferiority towards the votaries of the “higher,” less mundane branches of knowledge. Bagehot speaks of other studies “which are much higher, for they are concerned with things much nobler than wealth or money.”82 Jevons wrote: “My present purpose is accomplished in...assigning a proper place to the pleasures and pains with which the Economist deals. It is the lowest rank of feelings which we treat...” Edgeworth considered economics as “dealing with the lower elements of human nature.”83 It comes as no surprise to find Jevons hopefully writing that he does “not despair” of “tracing the action of the postulates of political economy” among dogs and other more intelligent animals.84

The whole literature on the “lower” side of human nature with which economics was held to be concerned provides a commentary on the wealth-bound conception of the subject.85 The foremost characteristic of this type of definition is that it associates economic activity with a specific type of ends. Of the many goals of human endeavor, one, that known as wealth, is singled out as the subject of economics. Grant that wealth ministers, or at least ministers chiefly, to physical wants, and the sordidness of economic phenomena is well established. It was only in the twentieth century that the need for the ethical insulation of economics became widely recognized, so that the identification of the subject with any one type of end has receded from fashion.

3

The Science of Avarice; Getting the Most for the Least

In the past economists have often been attacked on the grounds that their theories only applied to selfish people; such attacks were brushed aside as absurd. But they were not absurd...
I. M. D. Little

The bottle of medicine for a dying child, or of wine for himself; the tools for his trade; the supplies for a home for the aged, bought as a contribution to the home from a future inmate—all are bought with the same end of getting the most for the least, whatever the motive for the purchase may be.
J. Viner

In the present chapter a number of types of definitions are grouped together by virtue of their possession of either of two special characteristics. These definitions either see economic activity as being essentially motivated by pecuniary self-interest or they see it as conforming to a pattern of behavior prescribed by the so-called “economic principle.” These two points of view and the postulation of a common starting point for both require some elaboration.

The Science of Avarice

As is well known, for a long time it was widely held that economists were able to study human action solely by subjecting themselves to the self-imposed limitation of considering only selfishly inspired behavior. On the strength of this popular opinion, economists came to be pilloried as viciously unrealistic or as having gotten themselves into “an entirely damned state of soul.”1 In a well-known passage the historian Buckle accounts for the difference in tone between Adam Smith’s Theory of Moral Sentiments and his Wealth of Nations by the hypothesis that in the latter Smith assumes only selfish motives, while altruistic motives find a place in the earlier work.2

For many years now, economists have been at pains to disassociate themselves from this view of economic activity. The latter is seen as reflecting all motives, altruistic as well as selfish. This contention, together with the broadening effect it possessed on the scope of economic analysis, is one of the basic undercurrents guiding the development of definitions of economics. At this point it is sufficient to observe that the connection between economics and selfishness was for a long time widely assumed. This assumption served as the foundation for a separate conception of the nature of economics, viz., as the science of the operation of self-interest in human activity.

Of course, much of the stress on selfishness which was ascribed to economists, or which was admitted by economists, did not involve the explicit definition of the subject in these terms. Selfishness was often merely a convenient assumption by means of which the analysis of the data could extract rather definite results. The essential character of economics may have been seen, for example, to concern material goods, and the postulation of selfishness was in such a case only an incidental simplification, made to assist the theorist, of the real economic phenomena. The discussion in the previous chapter, as a case in point, revealed the conception of economic affairs held by the classical economists to have been predominantly bound to a class of objects called “wealth.” How far the classical economists did, in fact, exclude from their consideration all human motives other than self-interest is a matter of controversy that need not detain us here. But to the degree that selfishness was assumed by Smith, Ricardo and their followers, it certainly did not constitute the essence of the phenomena that they undertook to investigate.

Indeed, the possibility of carving out a segment of activity governed by self-interest as a distinct subject of study could offer itself only to economists who recognized the hypothetical character of such an assumption. If a homo oeconomicus endowed with only one aspect of human nature, viz., that of greed, is postulated, then it is possible to see the whole body of economic theory as the extended exposition of the consequences of this greed. The knowledge that real men are actuated by other motives besides greed makes feasible the conceptual isolation of that aspect of human activity from which these other motives have been prescinded. But it is precisely this possibility that was not open to the earlier classical economists. In so far as these writers assumed the impulse to economic activity to arise from selfishness, they considered their assumptions to conform closely to the facts of the real world. “It is,” Ricardo wrote in a well-known passage, “self-interest which regulates all the speculations of trade...” Because they believed the pursuit of wealth to be characterized by self-interest, and because they conceived of economics as studying the phenomena of wealth, the classical writers made use of the concept of selfishness in their analysis. But this selfishness was only incidental to the real object of study. In no way did economics, as they conceived it, revolve exclusively around that aspect of man’s nature inspired by selfishness.

In fact it may fairly be argued that the stress that came to be laid on the hypothetical isolation of self-regarding activity provided the earliest major advance in the conception of the essence of economic affairs over that of the classical economists. The earlier classical writers had set up an objective subject matter for study, viz., wealth. The writers of the 1830’s, outstanding among whom were J. S. Mill and S. Bailey, found themselves rebelling against this position. It was becoming increasingly evident that what economists were investigating was not the objective phenomena of wealth, but rather the wealth-oriented actions of man. This step forward was taken most clearly and influentially in Mill’s essay On the Definition of Political Economy; and on the Method of Investigation Proper to It.3

The popular definition of the subject in terms of the production, distribution, and consumption of wealth provided Mill with a convenient point of departure. But the production of wealth, it is evident, involves a complete range of the sciences, including agriculture, physiology, chemistry, geology, etc., all of which cannot possibly be meant to be included under political economy.4 Nor is Mill satisfied to consider the subject as consisting of the general laws common to the production of all kinds of wealth. “The real distinction between Political Economy and physical science must be sought in something deeper than the nature of the subject matter....” It is to be found in the distinction between “physical and moral science.”

The laws of the production of...wealth are the subject matter both of Political Economy and of almost all the physical sciences. Such, however, of these laws as are purely laws of matter, belong to physical science, and to that exclusively. Such of them as are laws of the human mind and no other, belong to Political Economy, which finally sums up the result of both combined.5

For “the purposes of the philosopher,” Mill presses on with still further refinement and rigor of definition. Political economy does not treat of the whole of man’s nature;

...it is concerned with him solely as a being who desires to possess wealth...It makes entire abstraction of every other human passion or motive; except...aversion to labor, and desire of the present enjoyment of costly indulgences...6

In his final and most carefully formulated definition, the “laws of society” rather than those of wealth are set aside for investigation. Political economy is the science

which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.7

This conception of the nature of economics is thus closely bound up with the appearance on the literary horizon of that ill-fated creature, the notorious “economic man.”8 Mill sets up a being from whom he abstracts every human passion other than that for the pursuit of wealth. The laws of economics express the consequences of the interplay in society of the activities of economic men. In his Logic, Mill seems even more insistent on defining political economy as the study of the operation of human wealth-seeking activities rather than of the phenomena of wealth itself.9

The construction of a model of a human agent endowed solely with the passion for wealth carried with it, of course, the implication of the paramountcy of self-interest. Not all economists, to be sure, were prepared to exclude altruistic motives. Both Whately and Senior, for example, pointed out that wealth may be sought in order to be used for charitable purposes.10 But the tradition that was initiated by the emergence of homo oeconomicus was certainly responsible for the economists’ continued retention of explicit assumptions concerning the selfish motivation of the activities they investigated. Writers such as Bagehot, Lowe, Cunningham, and Edgeworth, who more or less openly held self-interest to be “the first principle of pure economics,” were simply carrying on the received tradition.11

The elevation of pecuniary self-interest into the carefully selected criterion for distinguishing activity capable of economic analysis marked a significant advance over the earlier classical position. Even granting that economic man was a monstrous caricature, he was yet a being who acted, and it was his actions that were the object of study. The earlier writers had taken wealth as their subject matter; to the economists after the 1830’s wealth was important merely as the object that aroused the particular kind of human behavior in which the economist was interested. Considerable effort has been devoted to the finding of traces of subjectivistic thinking in economics prior to 1870. A fair body of literature during this period has been brought to light in which may be seen the beginning of the reaction against the objective value theories of the classical school.12 It is tempting to see a significant parallel to this reaction against classical objectivism in the shift in outlook on the nature of economics from the conception of it as a science of wealth to the view that regarded it as the study of the man in quest of wealth. To Ricardo, who “stopped at the valuations of the market and did not press through to the valuations of the individual,” political economy was perfectly acceptable when conceived as an investigation into an aspect of the phenomena of wealth, with the relevant factors of human nature relegated completely to the background. To a Bailey or a Senior, whose outlook on value was further advanced, such a view must necessarily seem inadequate.

Yet in spite of the progress represented by the conception of economic activity as motivated essentially by pecuniary self-interest, this view still, of course, bears obvious signs of its close relationship to the earlier definitions of economics as the science of wealth. In fact, economics as the science of avarice is most illuminatingly understood as the link between economics as the science of wealth and the more sophisticated conceptions of the subject that have emerged in recent decades. The concept of wealth involved the postulation of some common quality in the objects constituting wealth—a quality that was generally identified as “material” or as catering to the “lower” needs of man. These objects themselves were the focus of economic attention. By shifting this focus of attention away from wealth itself and towards acting man in his quest for wealth, Mill and Bailey were still obliged to assign a significant role to wealth. And the qualities common to the objects constituting wealth became perhaps even more pivotal to economic analysis, since it was attraction towards these qualities that kindled and conditioned the avarice of economic man.

But the break with the earlier definitions formulated in terms of wealth, however slight it may seem, was enough to point the way to the complete extrusion of that clumsy and misleading concept from economics. Once economics was conceived as involving a certain pattern of behavior, or even a uniquely motivated kind of behavior, then the bonds that attached it to the class of objects constituting wealth could easily be broken. Although it was wealth that was the initial structural unit in the formation of the pattern of behavior of wealth-seeking man, this goal could soon be discarded as scaffolding unnecessary to the completed structure. The behavior of wealth-seeking man was found to be sufficiently distinctive, but at the same time sufficiently universal, in pattern to warrant a separate treatment in its own right. Economics could then be identified, not in terms of wealth, nor even in terms of men-in-quest-of-wealth, but in terms of a unique pattern of human behavior: the getting of the most for the least.

The Economic Principle

This pattern of behavior came to be variously known as conforming to the “economic principle,” as obeying the “law of least means,” the “maximization principle,” and the like. One of the earliest formulations of the principle, which displays its close kinship with the classical science of wealth, is that of Senior, when he asserts, as the first of the four elementary propositions of political economy, that “every man desires to obtain additional wealth with as little sacrifice as possible.”13 In this early form, the economic principle is hardly distinguishable, indeed, from pecuniary self-interest. It is this type of proposition that Henry George had in mind when he complained many years later that “for the principle that men always satisfy their desires with the least exertion, there has been substituted, from the time that political economy began to claim the attention of thoughtful men, the principle of human selfishness.”14

The conception of economics in terms of the principle of maximization, whether expressed in terms of selfishness or not, was, in fact, in the direct line of development that was initiated by the explicit delineation of the character of economic man. Its relationship to the view of economic activity that sees it as motivated by pecuniary self-interest parallels that which the concept of welfare bore to the early formulations of economics, discussed in the previous chapter, as the science of wealth. Just as welfare had come to be regarded as the central point of economic interest instead of the objects (i.e., the wealth) considered as necessary for the enjoyment of welfare; so, quite analogously, the idea of behavior patterned on the principle of maximization—i.e., the abstract urge to get more for less—replaced the conception of selfish wealth-oriented activity as central to economic affairs, even though it was greed for wealth that was at first thought to be the sole stimulant to this pattern of conduct.

Although a number of early expressions of the importance of the so-called economic principle appear in the literature, it was not until the last quarter of the nineteenth century that there was any extensive discussion of its significance for the conception of the nature of economic inquiry. Besides Senior, the German economist Hermann had seen the maximization of want-satisfaction as the key concept in economic activity.15 Much of the later discussion in Germany seems to have taken Hermann’s idea as a starting point.

Curiously enough, although it was in England that the pecuniary self-interest conception of economics came into prominence, the maximization criterion did not gain much popularity in British economic literature after the 1870’s. One finds few statements of the principle and no real debate as to its significance until Wicksteed’s masterly work in 1910. Perhaps the clearest expression, in decidedly hedonistic terms, was that of Jevons, who described the “object” of economics as being “to maximize happiness by purchasing pleasure, as it were, at the lowest cost of pain.”16

But in Germany and in the United States the fundamental economic principle was accorded quite extensive and sensitive treatment. The debate in Germany over the status to be assigned to the economic principle is the clearest evidence of the advance in the conception of economics in the last quarter of the century. Regardless of the opinions expressed on both sides, the fact that such a controversy did occur is a sign of the sophistication with which economists were now examining their subject matter. Whether to consider the principle as the defining criterion of economic phenomena or as merely a convenient tool in the analysis of an independently recognized economic activity was a problem that the classical economists were precluded from considering. It was necessary for the economist first to recognize that he is concerned with a species of activity rather than with a species of object before he could begin to debate the role of the economic principle in understanding such activity—whether as an explanatory aid or as a defining characteristic.

The debate in Germany was largely confined to economists who were not afraid of “abstractions” or of theory. Economists of the Historical School, who were pouring scorn on the abstractions of the theorists employing the economic principle as a fundamental hypothesis, could, of course, hardly consider the use of this principle as a possible means of definition. Among the economists who did find a place in these discussions were such prominent figures as Schäffle,17 Wagner, Neumann, and Dietzel. Wagner seems to have undergone a change of outlook on the problem during the thirteen years between the publication of the second and the third editions of his basic textbook. In 1879 he had carefully defined Wirtschaft in terms of the economic principle, which he characterized clearly as prescribing the maximization of want-satisfaction with a minimum of sacrifice. In the 1892 edition this passage is replaced by a conventional definition of Wirtschaft in terms of the production of goods.18

In the interval between the two editions of Wagner’s book Dietzel and Neumann had objected strongly to the use of the economic principle as the defining characteristic of economic activity. Fully aware of the crucial importance of the principle for economic theory, and displaying a sensitive understanding of its meaning, both these writers rejected the use of the principle as the criterion of the economic on similar grounds. Both pointed out that the economic principle describes the pattern of human activity in general and appears in areas of behavior with which the economist has never been concerned.19 Both failed to consider the possibility that this very fact might signify the real homogeneity of all human action, including the “economic,” and might thus render artificial any rigid demarcation of the domain of economics.20

In the United States too the use of the maximization formula as a definition for economics met with the objection that the principle had wide application far beyond the boundaries of that science. Hadley had described the material out of which the science of economics is built as being, not material goods, but a few simple laws of human nature, “the chief of which is that men strive to obtain the maximum of satisfaction with the minimum of sacrifice.”21 But Hawley pointed out that if economics is defined in terms of actions involving the balancing of pros and cons, then it becomes “the Science of Motive in general, which it certainly is not.”22 It is of some interest to notice that Davenport, on the other hand, when declaring that the “economic problem can...be stated as the minimizing of sacrifice,” was rather pleased to find this formula “equally well-adapted to the non-economic facts of life...”23

The “Economic Impulse”

These discussions of the significance, for the understanding of economic phenomena, of such concepts as the pursuit of wealth or the maximization of want-satisfaction invite a brief digression on the idea of a specifically economic motive or impulse. It is clear that the meaning, if any, that is to be attached to such an expression depends on the view taken of economic activity generally. For example, if the view mentioned in the previous chapter is accepted, according to which economic activity is concerned with the sustenance of human life, then the urge for self-preservation may fairly be understood as the economic impulse.24

What makes the question of the meaning of the economic motive especially relevant to the present chapter is that the developments that have been discussed in the conception of economic activity point for the first time to the possibility that no such economic drive may in fact exist. So long as an objective entity—viz., wealth or economic welfare—is singled out as the phenomenon of interest to the economist, as it was in the definitions considered in the previous chapter, then, of course, the concept of an economic motive is meaningful in terms of a drive towards this objective entity. And when economics is understood, as it has been in definitions considered in the present chapter, as examining the phenomena that are attendant upon the activities of man in so far as he is in pursuit of a definite end, viz., wealth, then the economic impulse emerges as the very focus of the economists’ interest. But when the pattern of human activity aimed at maximizing want-satisfaction is made central to economics and the idea of wealth is quietly discarded, then the nature of any economic motive becomes highly problematical.25

The specificity of any one human drive depends on the uniqueness of the end that stimulates and activates it. The most conspicuous feature of the earlier definitions of economics was their identification of the subject with an allegedly unique category of ends, viz., wealth. And it was this association that gave plausibility to the concept of an economic motive. With the recognition that the ends embodied in wealth are as heterogeneous as human wants themselves, the significance of the concept of wealth as a criterion for defining the nature of economic activity declined. Thus, with the progress seen in the present chapter from an economics analyzing human avarice towards an economics analyzing the maximization pattern of human behavior, the notion of a specifically economic impulse fell under a shadow.

In a later chapter it will be seen that a large group of economists who, with Robbins, see the essence of economic activity in the economizing of scarce means consider a major contribution of this conception of economics to be its explosion of the notion of specifically “economic” ends and motives. The idea of an economic motive still has, to be sure, considerable popularity. One recent writer has seen in “acquisitive drives” one of the really significant aspects of behavior in modern economy.26 But the difficulties surrounding the singling out of wealth as a distinct end of human activity were exposed already in the middle of the last century. We have noticed in the previous chapter that Cliffe Leslie, in an influential essay, vigorously attacked the idea of wealth as a unique end. Leslie’s criticisms were aimed at the classical conception of the character of economic activity, especially as embodied in the construction of an economic man. Leslie’s recognition of the multiplicity of motives actuating the quest for wealth impelled him to urge upon economists a more historically oriented and less abstract and deductive methodology. A similar impulse lies behind a remark of Roscher, one of the leaders of the “older” German Historical School in economics. Roscher describes the change in economics since the era of the classical economists as consisting in the investigation of man in the economic sphere of life, instead of the earlier analysis of economic man.27

Thus, the attack on the isolation of any specifically economic motive came from both directions. On the one hand, the theorists were finding it unnecessary to invest wealth with any special role; it was sufficient for analysis to introduce a specific type of human behavior aiming at maximization. On the other hand, the historically-minded economists, interested in the “full reality” of economic phenomena, were finding that it was a misleading over-simplification to see the motive of economic activity in the desire for wealth and were probing into the many and diverse impulses that together constitute the pursuit of wealth.

The most decisive rejection of the notion of any economic motive was contained in Wicksteed’s writings. He terms the concept “a false category” and “one of the most dangerous and indeed disastrous confusions that obstruct the progress of Economics.” The desire for wealth reflects “all the motives and passions that actuate the human breast”; and if, by way of precaution, altruistic motives are excluded by the economist in his study, only self-regarding activity being recognized, then clearly the desire to possess wealth is no longer being treated as the “motive” at all.28

There is one possibility of salvaging the economic motive that remains to be considered. Even when the essence of economic activity is seen in the special maximization pattern of behavior, i.e., in the activity of securing “the most for the least,” it remains a question whether such behavior may not still be regarded as an end in itself in spite of the multiplicity of ends that this type of activity may promote. The rejection of the idea of a specifically economic motive, once the paramount position is given to a “most-for-the-least” pattern of behavior, stems primarily from the fact that this pattern of behavior occurs in areas in which radically different types of motives are at work. It is for this reason that, as we have seen, many writers have sought some other criterion for the delimitation of the economic domain.29 The very fact that the distinctive feature of behavior characterized by maximization consists in its neutrality in regard to motives prevented its wide acceptance as a criterion for economics. The possibility now to be considered is that, despite its neutrality in regard to the motives actuating it, the very activity of maximization carves out a separate niche for itself in human affairs because it satisfies a self-sufficient human urge.

This possibility does not seem to have occurred to any of the nineteenth-century writers who discussed the maximization principle. But several more recent writers have laid stress on this newly isolated “end,” especially in connection with the means-ends conception of economics that, as will be seen in a later chapter, was developed from the “most-for-the-least” approach. Viner seems to have this idea in view when he declares the ends of economic man to be simple enough for inductive investigation:

The bottle of medicine for a dying child, or of wine for himself; the tools for his trade; the supplies for a home for the aged, bought as a contribution to the home from a future inmate—all are bought with the same end of getting the most for the least, whatever the motive for the purchase may be.30

More recently a passage from Boulding typifies the use of this idea as a means of contrasting “the cold, calculating type of behavior” of economic man with the warmth and impulsiveness of romantic, heroic, and visionary natures.31 Clearly this type of contrast tends to run counter to the opinion, previously cited, that the calculation-conscious behavior characteristic of maximization is relevant to all departments of human affairs. This, however, involves the entire problem of the place of the assumption of rationality in economic theory, which belongs in a different chapter. At this point the relevant concept is not the plausibility of that assumption, but rather the recognition, in the activity of getting the most for the least, of an element that makes activity tend to be worthwhile for its own sake, regardless of the further ends that it may serve.

This recognition has been most vigorously accorded in the writings of Macfie. In a book devoted to the isolation and scrutiny of this element in economic activity, Macfie has elevated “economy” into a value with intrinsic appeal to the human capacity for reverence.32 Such a position, if accepted, would clear the way for the retention of the maximization principle in the definition of economic activity. As Macfie himself stresses, any such recognition of the value-laden qualities of economy would, by attaching a specific end to economic activity, convert economics once again into an “ethical” discipline, which it had escaped being when previously defined in terms of the maximization principle. In any survey of what has been understood by the term “economic impulse,” Macfie’s contribution has earned a distinguished place.

Selfishness and “Non-Tuism”

In a chapter which has dealt with the view that economic activity is essentially self-centered and egoistically motivated, space must be found for the novel idea of the economic relationship that Wicksteed substituted in place of the controversial concept of egoism. We have noticed Wicksteed’s vigorous rejection of the notion that economic activity is exclusively self-regarding. Robbins has commented:

Before Wicksteed wrote, it was still possible for intelligent men to give countenance to the belief that the whole structure of Economics depends upon the assumption of a world of economic men, each actuated by egocentric or hedonistic motives. For anyone who has read the Common Sense, the expression of such a view is no longer consistent with intellectual honesty. Wicksteed shattered this mis-conception once and for all.33

In its place Wicksteed defined the economic relationship in terms of “non-tuism.” This innovation seems to have attracted far less attention than Wicksteed’s other contributions to the definition of economics.34 “Non-tuism” is closely connected with the concept of exchange as the core of the economic relationship, but it is itself the actual criterion. The economic relationship is entered into by two parties each of whom is intent on the furtherance of his own (not necessarily selfish) purposes, not those of the other. Wicksteed illustrates this from the case of trustees.

Trustees who have no personal interest whatever in the administration of the estates to which they give time and thought will often drive harder bargains—that is to say, will more rigidly exclude all thought or consideration of the advantage of the person with whom they are dealing—in their capacity as trustees than they would do in their private capacity...the reason why...there is no room for “you” in my consideration is just because “I” am myself already excluded from my own consideration.35

Wicksteed’s major contribution to the characterization of the scope of economics lies in his thorough and exhaustive analysis of the process of economizing. He realizes, however, that the principles of this process are not peculiar to economics but “are laws of life itself.” He seeks to isolate within the realm governed by these laws an area in which a peculiarly “economic” relationship is at work. This area is characterized by “non-tuism”:

...in our industrial relations the thing we are doing is indeed an end, but it is some one else’s end, not ours; and as far as the relation is really economic, the significance to us of what we are doing is measured not by its importance to the man for whom it is done, but by the degree to which it furthers our own ends.36

The existence of such a separate area is made possible by specialization, the division of labor and exchange, but its essence is seen in the lack of regard for the interest of the man with whom one is dealing.

Of course, to postulate such a lack of regard for the interest of others in economic activity involved Wicksteed in the question of the morality of such activity. Egoism is morally reprehensible, but has economics really escaped the castigation of the moralists by throwing in its lot with the “non-tuists” rather than with the egoists? Wicksteed’s answer is that immorality is not necessarily present in “non-tuistic” behavior, as the person with whom we have entered into economic relations “may be one of the last whom we are bound to consider.”37

Few writers have followed Wicksteed in viewing “non-tuistic” behavior as a separate category.38 The case for Wicksteed’s boundary line seems to be built mainly on the conventions of demand-supply analysis. In conventional theory it is convenient and customary to group together all the factors affecting the demand side of the market separately from those underlying supply. While the earlier writers had thought this practice to be justified only on the assumption of self-regarding behavior on the part of both buyers and sellers, Wicksteed has shown that this is not the case. All motives, including the most idealistic and altruistic, could underlie either the demand or the profit-seeking motivating the production of the supply. But if the distinction between buyer and seller is to be preserved at all, Wicksteed felt it necessary to assume purely “non-tuistic” behavior on the part of each. Departure from such “non-tuism” was to be regarded as a well-recognized empirical fact, but one causing a divergence between the results of economic theory and the facts of the real world. The core of the economic relationship, for Wicksteed as well as for the economists who considered egoism as the mainspring of economic activity, lies in the pursuit of one’s own purposes. Wicksteed’s rejection of egoism allowed him to include under “one’s own purposes” every conceivable interest except the interest in the person with whom one is dealing.

There is undoubtedly an element of artificiality, albeit ingenious artificiality, in this exception. If “one’s own purposes” are wide enough to include concern for the support of charitable institutions, they are surely able to include an interest in the welfare of the person with whom one is dealing. Despite the skillfulness and persuasive beauty of Wicksteed’s prose, it remains difficult to see the boundary line as other than the result of a quite arbitrary piece of surgery on the whole of commercial activity. While theorists have been both openly and tacitly employing such surgery on business behavior in order to simplify their analysis, few have followed Wicksteed in elevating what survives their excision into a separate category of economic behavior or in treating it as the sign of a separate economic relationship.

Economics and Mechanics

One further aspect of the class of definitions of economics dealt with in this chapter remains to be discussed. Both the conception of economic activity as the pecuniary operations of self-centered economic man and its conception as the process of getting the most for the least facilitate the analysis of such activity by (the same) mathematical methods. In the previous chapter mention was made of a number of passages in the writings of eighteenth-century thinkers in which the force of self-interest in human affairs was likened to the force of gravitation in the physical world. Economists of the nineteenth century who stressed self-interest or the maximization principle in economic affairs were in a position to pursue this analogy far more thoroughly. Thus, Senior, who, as we have seen, stressed the maximization of wealth as an essential element in economic activity, describes this element, like “gravitation...in Physics,” as “the ultimate fact beyond which reasoning cannot go, and of which almost every other proposition is merely an illustration.”39

For the earlier classical economists, who thought of economics as concerned with wealth understood in a more or less material sense, self-interest was an impersonal force that extracted this wealth from the factors of production and propelled it through the distributive channels of the economy. The greater stress laid by later writers on the force of self-interest itself as the core of economics and the consequent emphasis on maximization-patterns of behavior tended to enhance the attraction of the analogy to mechanics. Jevons’ “mechanics of utility and self-interest” and the “Economic Calculus” of Edgeworth, which investigates the equilibrium of a system of hedonic forces each tending to maximum individual utility, are typical examples. It seems no accident that both Jevons and Edgeworth were early users of mathematical methods in economics. The emphasis that both writers laid on self-interest goes hand in hand with a desire to turn economics into a “science” like mechanics. This required the postulation of a pervading force manipulating “wealth” into various configurations susceptible of analysis through the use of maximization formulae from the calculus. Self-interest was seized upon with avidity from the classical system as providing just such a plausible “force.”

In Italy Pantaleoni (who has been compared to Edgeworth in a number of respects) stressed both the maximization principle in economic activity and the mathematical exposition of the theorems of economics. “Economic problems, in a broad sense, are, e.g., those which constitute the mathematical doctrine known by the generic term: de maximis et minimis...”40 “Economics,” in its broadest sense, meant for Pantaleoni making the most of limited means in any and every connection. In order to delineate the scope of “economic science,” Pantaleoni finds it necessary to limit himself to the consideration of “wealth,” hedonism, and egoism.41 Pantaleoni’s countryman, Benedetto Croce, was later to criticize him for this,42 vigorously asserting the freedom of the economic act from hedonistic or egoistic elements. But according to Pantaleoni, just as to Edgeworth, economic science described the maximization of pleasure, and the phenomena of the market adjust themselves, as it were automatically, under the play of the force tending in that direction.

This mechanical conception of economic phenomena clearly relegated man, the source of economic activity, to the background. It is somewhat ironical that the construction of the concept of a self-centered economic man, a development that led to an increase in the attention paid to the role of the human agent, should have tended to lead to a position in which the objective phenomena of economic life can be viewed as if they occurred automatically. Certainly the most extreme result of the mechanical view of economics in this respect is to be seen in Schumpeter’s early conception of economic science. In his first book, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (1908), Schumpeter made an attempt to place economics on a definitive scientific basis, to rear an edifice of impregnable logic grounded on foundations free of the shifting sands of metaphysical speculation. This he was able to do only by directing attention to “goods,” which were to be viewed as if undergoing operations that are not the results of human action.43

Schumpeter’s position seems in many respects like something of a return to classical ideas. Whereas his immediate predecessors had been gradually advancing towards the conception of economics as precisely an aspect of human behavior, Schumpeter found it necessary to carefully exclude human activity from economic investigation. Schumpeter’s view of economics was a conscious effort to see economic affairs from the point of view of mechanics. In mechanics we start with given masses located in a given spatial configuration and attempt to determine the changes in mass and in configuration at future points in time. In economics, Schumpeter explains, we have “economic quantities” of goods undergoing mutually determined changes that admit of being expressed by means of mathematical functions. It is these objective, measurable things possessed by men that make up the Schumpeterian economic system. It is the existence of these functional relationships between all these quantities that makes economic science possible. Indeed, it is these relationships themselves that constitute the whole of the subject matter of that science.44

Although Schumpeter’s lack of interest in the behavior of men and his stress on the impersonal changes in “quantities of goods” are reminiscent of the classical approach, his economics is far from identical with their science of wealth. Schumpeter does not recognize “wealth” as constituting in itself a subject of investigation by virtue of its character as wealth, but simply postulates the presence of mathematical interdependence between the quantities of various “goods” possessed by members of the Volkswirtschaft. It is the exposition of this mutual dependence of goods, rather than the investigation of goods or wealth as such, that constitutes the sum and substance of Schumpeter’s economics.

Yet the absence of man from Schumpeter’s economics remains a classical feature. This effort to exempt, or rather interdict, the economist, qua economist, from investigating the behavior of man as an economic agent stems from, or at least runs parallel to, Schumpeter’s dream of replacing the concept of causality or pur- pose in economics by the type of relationship expressed by the mathematical function.45 Here Schumpeter’s enthusiasm for the mathematical method in economics and for the physical sciences generally46 is undoubtedly responsible for his explicit rejection of teleology as in any way essential to the conception of economic phenomena. The category of purpose has no place in a positivist system from which all but functional relationships have been carefully exorcised.

A criticism that Croce addressed to Pareto (whose position bears a number of points of resemblance to that of Schumpeter)47 would probably have been applicable to Schumpeter as well. While recognizing the service that mathematicians have rendered economics by “reviving in it the dignity of abstract analysis, darkened...by the mass of anecdotes of the Historical School,” Croce complains that they have introduced their own professional prejudices into economics. They take up with regard to economics “which is the science of man, of a form of the conscious activity of man,” the same attitude that they “rightly take up in relation to the empirical natural sciences.”48 The roots of the mechanical conception of economics against which Croce was crusading go back as far as the ascendency of self-interest in economics and its translation into the maximization-pattern of behavior in a form amenable to mathematical treatment. The mechanical conception of economics may thus fairly be regarded as an outgrowth of the conceptions of economics dealt with in this chapter.

4

Economics, the Market, and Society

The definition to which economic writers have yielded a more general assent than to any other...is “the science of exchanges.”
A. S. Bolles (1878)

...that definition of Political Economy which calls it the science of exchanges, is absurd.
Franklin H. Giddings (1887)

The present chapter groups together definitions that see economic affairs as in one way or another necessarily connected with the act of exchange as a social phenomenon. Two groups of these definitions may be distinguished. The one explicitly raises exchange to the first place in economics, regarding the very notion of a distinct economic sphere as revolving around a more or less carefully defined concept of exchange. The other definitions do not stress the phenomenon of exchange itself, but focus attention on such ideas as the market, the economic system, and the “economy” as an aspect of the larger concept of society. These ideas, too, depend in the last analysis on a fusion of individual activities into a social “system” through some form of the exchange relationship. Both groups of definitions provide a fresh and distinctive outlook on economic phenomena, which at the same time reveals a number of points of contact with many of the alternative conceptions.

Economics and Catallactics

The importance of exchange to economics was recognized very early in the development of the science. In France the physiocrats had stressed exchange and had required ability to be exchanged as a condition for the wealth with which political economy is concerned. Among the classical economists there was some debate as to whether the possibility of exchange was either a sufficient or a necessary condition for wealth. James Mill and McCulloch were among those requiring exchangeability as a condition. But Malthus pointed out that many things outside the scope of political economy may be the objects of exchange. “It has been said...that the liberties of England were chiefly obtained by successive purchases from the crown.”1 A number of the classical defination of economics in term of wealth included the exchange of wealth as a department of the subject together with its production, distribution, and consumption. One French writer had even written: “Society is purely and solely a continual series of exchanges...commerce is the whole of society.“2

But during the early classical period there was no attempt to take this phenomenon of exchange and make it the very core of economics. Political economy was the science of wealth. The fact that wealth is exchanged may have been recognized as of the first importance for a science of wealth, but this recognition did not of itself convert political economy into the science of exchanges.

The first attempt to reconsider the scope of political economy in favor of the exchange criterion was the basis for Archbishop Whately’s suggestion in 1831 to rename the entire subject. “The name I should have preferred as the most descriptive...is that of CATALLACTICS, or the ‘Science of Exchanges.’” Whatley’s outlook is perhaps best seen in his definition of man as “an animal that makes exchanges.”3 Whately joined Senior in denying the applicability of political economy to the activities of isolated man. “Robinson Crusoe is in a position of which Political Economy takes no cognizance.”4 It was no longer sufficient to characterize political economy as concerned with the phenomena of wealth or even with the wealth that is involved in exchanges. The catallactic view of economic affairs saw their unity solely in the act of exchange and conceived of political economy as expounding the principles governing these interpersonal exchanges.

Whately’s opinions on the scope of the subject seem to have aroused some interest at the time. At Dublin Whately had endowed a chair in political economy.5 At least two of the holders of the Whately professorship followed the catallactic view of their subject. But besides the enthusiasm of these followers and acceptance by several minor writers,6 Whately’s proposal, where noticed, was rejected as unjustifiably narrowing the scope of the subject.7 It was not until several decades after the publication of Whately’s book that Macleod seized on the view of economics as the science of exchanges and enthusiastically launched the idea in his crusade to revolutionize the entire subject.8 However, Macleod’s unfortunate propensity for expressing his often good ideas in an apparently bombastic fashion prevented his work from making any appreciable impression on the general economic thought of his time.

The substitution, in definitions of political economy, of a verbal noun (“exchange”) instead of the classical noun (“wealth”) was, of course, of considerable significance. The subject matter of the science was now uniquely characterized, not by the objective nature of the goods-phenomena that it investigates, but by the character of the operations involved in the appearance of these phenomena. Nevertheless, the break from the classical conception of economics as a science of wealth that was involved in Whately’s proposal was not so complete as might at first glance be imagined. That which is exchanged in Whately’s Catallactics is still the same “wealth” with which the political economy of a McCulloch is concerned. The views of those who held that economics is a science of exchanges, in fact, provide another interesting example of definitions that, while themselves closely related to the older wealth-bound formulations, point to a complete emancipation from these bonds. An arresting illustration of this is furnished in the writings of Lawson.

Lawson, one of the Dublin professors, devoted his first lecture in 1844 to problems of the scope and methodology of his subject. The object of political economy is “to investigate and trace to general laws the different phenomena of the commercial or exchanging system...” This is clearly in the Whately tradition. But even more noteworthy is Lawson’s declaration that political economy is a science that has man as its subject matter and “views him in connexion with his fellow-man, having reference solely to those relations which are the consequences of a particular act, to which his nature leads him, namely, the act of making exchange.”9 What Lawson has put before us is no less than a completely original “economic man,” fully capable of bearing comparison with his more familiar cousin, the economic man created by J. S. Mill. Mill’s creature was a being bereft of all passions other than avarice. Mill’s economics was a body of principles governing the consequences of avaricious behavior. Lawson’s economic man, on the other hand, is a far less repulsive caricature. His obsession is merely to engage in the act of exchange “to which his nature leads him,” and the task of Lawson’s political economy is to investigate the consequences of this human urge—an impulse that Adam Smith had long ago made famous as the “propensity to truck, barter, and exchange one thing for another.”10

The separation of acts of exchange and their identification with a distinct human urge made the division between economic and other human affairs a far less painful operation for Lawson than it had been for Mill. The consequences of the propensity to truck may be isolated simply by considering only the results of acts of exchange. There is no need to call upon controversial operations of “abstraction” and “hypothesis” as is necessary when one attempts to segregate the consequences of human pecuniary self-interest. Clearly the catallactic view could facilitate the conversion of political economy from a science of wealth into a science of man.

And yet Lawson himself in his second lecture gave a definition of his subject almost identical with the earlier formulations in terms of wealth.11 The contradiction between the first and the second lectures seems capable of resolution only on the assumption that Lawson himself was willing enough to follow Whately in terminology but was not prepared to admit that this difference meant any substantive alteration in outlook.

Several decades later the American Perry warmly endorsed the catallactic view of Whately and Macleod precisely because it offered an escape from the idea of wealth. In order to avoid the difficulty involved in giving an adequate definition of the concept of wealth as the core of political economy, Perry turned to the conception of that discipline as a science of exchanges.12 We have already noticed a trend in economic thought, towards the latter part of the nineteenth century, that favored the abandonment of wealth as the focus of economics and its replacement by such ideas as welfare and the maximization-pattern of behavior. This trend was now reinforced by Perry’s proposal to reject the concept of wealth altogether in favor of the idea of exchange, thus taking the catallactic idea a step beyond Lawson. It may be remarked that Perry’s suggestion was not generally accepted by American economists of his time. Walker pointed out that until one knows precisely what is being exchanged, little meaning is conveyed by defining economics as the science of exchanges. If, on the other hand, one admits that it is wealth that is being exchanged, then, of course, one immediately renounces any claim to the excision of that troublesome concept.13 The definition of economics in terms of exchange has not gotten rid of the notion of wealth; it has simply swept it under the rug. Henry George wrote of Perry’s discarding the noun wealth: “Without the clog of an object-noun political economy...has plunged out of existence...” It is true that one American writer asserted that economists yielded the definition of economics as the science of exchanges “a more general assent than to any other.”14 But more typical of general opinion was probably the blunt declaration made to the American Economic Association in 1887 that “that definition of Political Economy which calls it the science of exchanges, is absurd.”15

Despite the alleged absurdity of this definition, it has always retained some measure of popularity. Several twentieth-century economists who devoted careful attention to the problem of defin- ing their subject and weighed the merits of several more sophisticated formulations still preferred the exchange criterion.16 But the selection of exchange to serve as the core of economics may yet reflect any one of a number of points of view. This is so because the exchange concept itself reflects several related, but distinct, aspects of economic activity, each of which deserves to be kept in clear focus.

Exchange and the Propensity to Truck

The first aspect of the exchange phenomenon that deserves attention is the status of the act of exchange as an element in the activity of an individual. Adam Smith saw exchange as the result of a human propensity to barter. Whately defined man as an animal that exchanges. Now, human beings engage in barter because they hope to improve their positions by exchanging. The act of exchange is thus no different in this respect from all human actions that are undertaken in the hope of improving one’s position. Of course, the act of exchange involves the cooperation of another person, but some further property is needed to distinguish exchange from other forms of cooperation or from the act of bestowing a gift upon one’s fellow man. It is here that the concept of exchange becomes entangled with ideas of sacrifice, of the mutual coincidence of interests, and the like.

In a number of the definitions of the economic that are couched in terms of exchange, the aspect that is stressed is the fact that exchange involves a quid pro quo. In an atmosphere in which economics and self-interest were linked together, the most characteristic feature of exchange is that it provides a new means of getting something for oneself. It is this aspect of commercial behavior that aroused the ire and moral indignation of Ruskin against the “cash-payment relation” between man and man. Exchange suggests the habit of helping one’s neighbor only on the condition that one will be more than repaid in return.

If this aspect of exchange is implicit in the notion of a science of exchanges, then there appears good reason to reject Walker’s contention that in the absence of a clear conception of what is being exchanged a science of exchanges has no meaning. Perry, against whom Walker was arguing, did, in fact, in one connection define economics as concerned with actions done by one person to another for the sake of receiving something in return.17 Clearly this points to the real meaning behind Perry’s exchange formulation. There is no urgent need to introduce any concept of wealth to make precise the definition of economic activity as that which is directed to another person for the sake of obtaining something in return.

In this form, the conception of economic activity as exchange is closely parallel to the “non-tuism” that was noticed in the previous chapter. Wicksteed’s definition of the economic relationship in terms of a lack of regard for the interests of the person with whom one is dealing was given alternative expression as the “relationship into which men spontaneously enter, when they find that they can best further their own purposes by approaching them indirectly”; and as involving man in the search for “some one else to whose purposes he can directly devote his powers or lend his resources...” “The industrial world is a spontaneous organization for transmuting what every man has into what he desires...”18 Exchange in this context is the device whereby a man can get the things he wants by giving up to another the things he has. The entire realm of economic affairs, in this form of the catallactic view, is a vast net of relationships in which this device is being put to work. Several other American writers at the turn of the century seem to have in mind this aspect of exchange as a means of enticing one’s fellow man to provide one with the goods one desires.19 The “propensity to truck” must be understood as the faculty that men possess of recognizing situations in which the device of exchange, understood in this sense, would prove profitable.

Exchange and the Division of Labor

However, the significance of an economics defined as a science of exchanges may be seen, not in the nature of the act of exchange itself, but in its wide consequences. The market may be viewed, not as an institution facilitating the indirect fulfilment of individual desires (in Wicksteed’s sense of disregarding the competitive interests of other people), but on the contrary, as an institution through which individuals may cooperate to satisfy their wants at higher general levels of satisfaction. As Smith pointed out, each individual, by indulging his propensity to truck, unconsciously helps society as a whole to benefit through the increased division of labor. The “general opulence” associated with specialization is a consequence of this propensity to truck and may arise without any knowledge on the part of the barterers of the “extensive utility” that they promote.

This idea is, of course, related to Smith’s “invisible hand,” which directs each member of the economic community to produce that which is most urgently required by the consumers. Looking at the market, the observer recognizes that the benefits of the division of labor in increasing the nation’s output would, at least in principle, be obtained if the producers and consumers could be induced to specialize by any means whatsoever. A system in which productive effort was inspired by the hope of being accorded public honor, such as Marshall has imagined,20 or by the communistic ideal, in which the sole incentive is the desire to promote social welfare, or by a system of police compulsion, can be imagined as directing individual effort into channels sufficiently specialized to increase the total product far beyond what could be achieved by a primitive autarky. The exchange system embodied in the market is only one of several conceivably efficient mechanisms to attain this end; and its distinctive feature in Smith’s view is that this “end” need never be consciously aimed at by any participant in the market.

This remarkable property of the exchange system may thus well be seen as the central thread uniting all economic endeavor. Since of all the possible devices capable of attaining economic specialization only the market system can evolve spontaneously, and it alone is compatible with conventional notions regarding private property rights, the act of exchange emerges as the key to all social cooperation. There seem grounds for suggesting that the early proponents of catallactics did, in fact, have this aspect of exchange in mind. Whately was not thinking of the act of exchange as merely an expression of a more sophisticated avarice. The unwillingness to accord Crusoe the edification of being made the subject of economic analysis was simply the expression of the belief that political economy was primarily interested in the exciting new vistas of social cooperation made possible by the division of labor that was being encouraged by the rise of modern capitalism. Whately’s interest in man as an exchanging animal arises from the tendency of individuals to become associated through acts of exchange and thus to pool their human and acquired resources for the ultimate benefit of all. It is of some interest to note that two eminent sociologists, Gabriel Tarde and Max Weber, saw this aspect of exchange as the central feature of economic life.21 The charge raised against the catallactic definitions that they have failed to eliminate the concept of wealth from their subject undoubtedly has some validity on such an interpretation. The recognition, in the existence of a system of exchange, of a factor favorable to the expansion of total production does presuppose concepts of measurements that, again, imply some form of the idea of wealth.

The “Purely Formal” Concept of Exchange

The catallactic view of economic affairs may be interpreted to refer to yet another aspect of exchange. Like that discussed in the preceeding paragraphs, this view ignores exchange as a peculiarly motivated human act and focuses attention on the consequences of the act. But instead of gaining its significance from the advantages arising from the social cooperation involved in exchange, the idea of exchange is now to be assigned importance as the means whereby “economic quantities” are changed. An exchange of goods alters the configuration of goods in the economy. An exchange of productive resources alters the arrangement of those factors of production. If the exclusive object of interest is the transfer of the goods themselves, then exchange is significant merely as involving the simultaneous variation of several sets of “economic quantities.” A purchase of a consumer good has re- sulted in a reduction both in the inventory of the seller and the cash holdings of the purchaser. The act of exchange is the event that has altered these economic quantities and has generated the ratio of their variations, viz., the phenomenon of price.

The most ambitious attempt to expound this conception of exchange is contained in Schumpeter’s 1908 definition of the scope of economics in terms of the exchange relationship.22 His concept of economy is coincident with this concept of exchange. Perhaps the most arresting and widely discussed implication of Schumpeter’s concept of exchange is its application to the Crusoe economy. If an act of exchange is significant only as the simultaneous alteration in stocks of goods, then the idea of exchange may easily be extended to the activity of a single individual. When Crusoe shoots game, in Schumpeter’s example, he is merely exchanging shot and energy for food. This use of the idea of exchange has been considered by critics as an arbitrary and unfruitful piece of mental gymnastics, but has, at the same time, earned grudging respect as “never to be forgotten subtlety.”23

Schumpeter’s outlook is, of course, consistent with his wish to ignore human behavior as a factor in economics. Leaving human behavior to the psychologists, the economist is merely to examine the results of behavior in terms of related variations in the quantities of goods and prices. From a less positivistic point of view, Schumpeter’s extension of exchange to the isolated economy may, in fact, be seen, not as an extension, but as a restriction, of the interpersonal concept of exchange. With the recognition of the purposive element in human action, exchange is simply the sacrifice of the satisfaction of lesser, for the sake of satisfying more urgent, needs. Interpersonal exchange is significant as reflecting the possibility of simultaneous actions on the part of two purposeful human beings, each intent on attaining that position which he prefers among all the alternatives open to him. And, of course, this element of exchange can be pointed out in the isolated economy as well. It requires neither special subtlety nor mental gymnastics to see that Crusoe is exchanging one satisfaction for another whenever he forgoes the first in order to secure the second. In the words of Seligman, “Crusoe exchanges in his mind apples and nuts in estimating their value to him.”24 But when Schumpeter considers Crusoe to exchange, not by forgoing one pleasure for the sake of another, but because the quantities of the various resources at his command undergo simultaneous variation, then he has effectively robbed the concept of exchange of all but its barest externals. There is little real difference, on this view, between the case where A exchanges his horse for B’s cow and the case where A’s horse and B’s cow have exchanged places and refuse to budge. Nothing is added to the exposition of related variations of economic quantities by explaining that these variations constitute Tausch. Something of this seems to have been felt by Schumpeter himself in writing that his conception of all activity as exchange is “purely formal.”25 The Schumpeterian exchange relationship is best understood when it is denoted by the alternative term that Schumpeter uses for it, “price.”26 Price to Schumpeter meant simply a parameter governing the simultaneous variations in the quantities of goods. The Tausch-relation meant nothing more. The definition of economics in terms of Schumpeter’s exchange relationship merely conveyed in different terms his “mechanical” definition of the subject noticed in an earlier chapter, centering around changes in “economic quantities.”

Exchange and the Economic System

The final aspect of exchange that may make it of significance for defining the scope of economics is its importance in the visualization of an economic system. It is primarily this aspect that is concerned in the second group of definitions mentioned at the beginning of the chapter, which use the idea of an economic system or organization as their criterion. The recognition that, expressed in the anarchy of numberless, seemingly haphazard transactions of economic life, there is a system that relates apparently disconnected actions and organizes them to achieve social “ends” is an achievement of economic science. But the discovery of the existence of such a system clears the way for a fresh conception of the nature of economic science itself. The existence of a system offers a new object for investigation, viz., the system itself. The system may concern wealth, the selfish behavior, or the propensity to truck, of a variety of economic men; but it does provide an independently unique phenomenon in its organization, its structure, and its operation.

The system has been described variously as the exchange system, the price system, the market, and so on. These terms reflect possibly varying outlooks on the character of the system, but all of them imply the phenomenon of exchange. The description of the subject matter of economics as exchanges may thus imply the entire system of exchanges. In the words of one writer: “Economics studies the market as political science studies the state. Appreciation of this analysis seems to me to be fundamental to the catallactic point of view.”27 Undoubtedly this aspect of exchange is akin to that described in a previous section, in which exchanges secure the advantages of specialization and the division of labor, but the two are quite distinct. There the act of exchange was seen as bringing to a focus the possibilities for mutual benefit that are opened up for men by the division of labor, and the aggregate of all such acts of exchange measured the maximum of specialization and effective social cooperation attained. Here the relevant aspect is the relationship between all the acts of exchange themselves, the structural pattern of these acts, and the way in which they all together succeed in “delivering the goods.”28

When the success of the system in achieving generally prized results is not considered, then a description of the system reduces to a positive statement of the functional relationships among the sets of variables within it. And the totality of these relationships may have no special interest independently of the various sets of relationships themselves. This is the standpoint of Schumpeter’s definition in terms of exchange and the other “mechanical” formulations discussed in this and the previous chapter. But if the whole body of interrelationships is considered in its unity, and the existence of such a unity is considered significant in itself, then the idea of a system may assume a prominent place in economics.

Bastiat is an example of an economist who, stressing the exchange point of view, did see the prime interest of his subject as existing in the exposition of such a system. And it seems likely that at least part of the criticism aimed at his work arises from a misunderstanding of Bastiat’s self-assigned scope of investigation. Bastiat is often characterized as a shallow optimist content to bestow lyric praise on the laissez-faire economy. Cairnes attacked Bastiat as unscientific. Bastiat, Cairnes complained, considers it his task as an economist, not only to discuss the phenomena of wealth in a laissez-faire economy, but also to demonstrate that this system is the optimum one.29 This, Cairnes declares, is to assert that the results of political economy are a foregone conclusion, and if this is the case, then it is not a science at all, because “science has no foregone conclusions.” By attempting to justify rather than explain the facts of wealth, Bastiat is departing from the impartiality of science.

Cairnes’ insistence on the disinterested character of scientific inquiry in general, and of economics in particular, is a classic statement of a jealously guarded tenet of scientific economics. Bastiat’s enthusiasm for the innate harmonies of a free economy did produce passages in his writings that are vulnerable to the type of criticism levelled by Cairnes. Nevertheless, it seems that Bastiat’s conception of his subject was sufficiently different from that of Cairnes to exculpate him from at least part of the blame imputed to him in the latter’s reproaches. Bastiat was impressed by the comparative smoothness with which the tremendously complicated machinery of economic endeavor succeeded in fulfilling the wants of consumers. His classic passages in the opening chapter of Harmonies économiques,30 in which he describes how a humble carpenter is served, in exchange for his skilled labor, with commodities brought from the four corners of the earth and how each day the great city of Paris is provided with colossal quantities of food and other articles, have been echoed in subsequent economics textbooks again and again. One would be closing one’s eyes to the light, Bastiat observes, if one failed to recognize that all this is the product of a “prodigiously ingenious mechanism.” “This mechanism is the object of study of political economy.”

Clearly, then, Bastiat felt some justification for assuming beforehand that the system to be studied by political economy was one that worked. After all, it was this successful operation of the system—a success that Bastiat felt to be grounded on observation—that was the object of the study. For Cairnes, who considered economics a dispassionate study of the phenomena of wealth, any predilections towards one system in particular must be unscientific. For Bastiat, what invited explanation was precisely the large degree of efficiency empirically evinced by the system, a phenomenon of which the recognition hardly deserves the suspect position of a “foregone conclusion.”

Be this as it may, Bastiat is typical of a fairly numerous group of writers stressing the organization of the economy as the focus of economic attention and seeing the significance of exchange primarily in this connection. Two eminent twentieth-century economists may be cited as examples of the popularity of this view.Hawtrey writes:

...when the perfect cooperation which would be the ideal of reason is denied us, we turn back to...the whole apparatus of human motives, instinctive, habitual, or other. If each member of society can be induced or impelled to do his allotted task by associating it with some motive that appears to him adequate, then he need never know how he is contributing to the real end, and need not even be aware of the end at all. It is this problem of organization that we shall call the Economic Problem. It is in fact the real subject matter of political economy.31

And Hayek writes:

...the spontaneous interplay of the actions of individuals may produce...an organism in which every part performs a necessary function for the continuance of the whole, without any human mind having devised it....The recognition of the existence of this organism is the recognition that there is a subject matter for economics. It is one of the causes of the unique position of economics that the existence of a definite object of its investigation can be realized only after a prolonged study...32

Economics, the Economy, and the “Volkswirtschaft”

This line of thought leads directly to the role played in discussions of the scope of economic inquiry by the idea of the Volkswirtschaft. The word seems almost by philological accident to have given rise to features in German-language definitions that are absent in English-language discussions of the subject. Numerous disquisitions on the Wesen of the Volkswirtschaft evince conceptions ranging from the more holistic views of some of the economists of the Historical School and advocates of Sozialpolitik, in which the Volkswirtschaft is considered as an organic whole, to views that see it merely as an agglomeration of separately operating individual “economies.”33

It is significant that the existence in the German language of a single word to represent compactly so complex a conception has had considerable bearing on the direction taken by definitions of economic affairs. Many writers defined their subject directly in terms of the study of the Volkswirtschaft (hence Volkswirtschaftslehre). Thus, such a definition immediately places the accent on the social character of economic activity. The absence for a long time in English of a word corresponding to Volkswirtschaft meant that English definitions of the subject were not prone to be thus influenced.34 The current use of the term “the economy,” itself a reflection of the interest in macroeconomic “aggregates,” is too recent and too specialized to have had much influence on English definitions. When Schmoller used the term “political economy” as the equivalent of Volkswirtschaft, the grossen gesellschaftlichen Käorper, he was coining what must at that time have been a new meaning for “political economy.”35

Moreover the use of the term Volkswirtschaft seems to have had more than coincidental connection with a conception of economic phenomena in which temporal relationships, and historical significance generally, were stressed. The term carried with it, especially to the writers who stressed the organic unity of the whole, the same implications of continued identity over time as are asso- ciated with terms such as the State or the Nation (terms cited by Schmoller, for example, as analogous to the Volkswirtschaft).36 To the endowment of the economy with an only arbitrarily divisible extension along the time dimension is certainly in some degree to be ascribed the well-known description of economics by Mangoldt as the “philosophy of economic history” and the similar view of Roscher37 and other economists of the Historical School. Conceived as possessing in this way a kind of fluid unity in its extension over both space and time, the idea of the Volkswirtschaft could lay claim to a distinct entity (distinct, e.g., from the “body politic”) only by virtue of its more conspicuous and enduring function of providing for the material needs of the nation.

It was noticed in the previous chapter that German economists paid considerable attention to the maximization principle. This interest sometimes ran into sharp conflict with the notion of economics as the study of the Volkswirtschaft. One writer typically dismissed these discussions of the “economic principle” by declaring that the task of economics is not to investigate the effects of Wirtschaftlichkeit, but to understand the workings of the Volkswirtschaft.38 In the twentieth century Amonn, who stresses the social character of economic phenomena probably more than any other writer, has sharply criticized attempts to define the scope of economic science in terms of such concepts as individual acts of economizing. Attempts to build up the notion of a Volkswirtschaft from the elements of individual economic behavior are foredoomed to failure.39 It is from the social relationships involved in economic activity that such activity derives its distinctive character. This point gave rise to vigorous disagreement from those who attempted to construct the Volkswirtschaft out of the Wirtschaft.40

Also associated with the idea of the Volkswirtschaft are those definitions of economics that are couched exclusively in terms of national aggregates. To this class belong, for example, the views of economists from the time of the classical school who saw their subject as concerned with national, not individual, wealth.41 Discussion of “social goals” as something apart from individual motives, to which the economy as a whole is conceived as striving, are also related to the idea of the Volkswirtschaft. Both the writings of R. Stolzmann and Othmar Spann are relevant in this regard.42

Economy and Society

Many of the ideas mentioned in the preceding sections of this chapter have a bearing on the relationships that have at various times been held to exist between economics and the social sciences generally. The structures of interpersonal patterns of contact that the economist studies in his analysis of the market may, of course, be of interest to the sociologist or the social psychologist from a totally different aspect. And writers who identified the specifically economic aspect of phenomena with the social quality inherent in exchange, the market, and the like, found themselves influenced more or less deeply by their ideas on the nature and methodology of the social sciences as a group.

The social character of the phenomena studied by the economist was recognized early in the history of the discipline. In his definition of political economy J. S. Mill had stressed this aspect to a degree that seems to have escaped later writers.43 Nevertheless, it is true that the emergence of sociological thought in the second half of the nineteenth century brought with it a vastly increased awareness of the contribution that economics can make to the systematic study of society. This in turn made for a “sociological” attitude towards the study of economics itself, which manifested itself in a variety of forms.

At the extreme was the opinion first propounded by Comte, and taken up by later writers, that it was futile to seek for laws in economics apart from the laws of society as a whole. To Comte the recognition of economic affairs as part of the phenomena of society meant that an economic analysis of society that leaves out intellectual, moral, and political factors must be a “metaphysical” subject, created by an “irrational” separation.44 Later writers, especially those of the Historical School, held essentially similar views. In England Ingram and Leslie were stressing the need for turning to the “great science of society” for any valid economic knowledge.45

Carried to the extreme position held by Comte, these ideas meant, not that the social character of economic affairs made possible a fresh means of definition, but that the awareness of this social character led to the denial that there are any specifically economic affairs whatsoever. Phenomena of wealth might indeed be distinguished. But once it is insisted that the derivation of the laws of wealth requires analysis of intellectual, moral, and political factors, then it is at once contended that no specifically economic point of view can be scientifically illuminating at all.

However, awareness of the sociological importance of economics did not, of course, always involve its submersion in a broadly understood sociology.46 Any number of writers at the turn of the century could be cited who diligently pursued the study of economics, but who were fully conscious of its status among the social sciences. Confining our attention strictly to that aspect of the sociological outlook on economics which affected the conception of the nature of the economic point of view, we notice several strands of thought that run through the literature during the present century.

At one level, we observe again Amonn’s insistence on the futility of the search for the nature of economic science in any concepts built on individual activity. There does exist a given pie that the economist studies, but its essence is the structure of the societal relationships that make up economic affairs as we know them in the world and as they have been traditionally studied by the economists from Ricardo on. To attempt to analyze economic affairs by referring them back to the individual is to abstract from their very essence.47 From the point of view of the scope of this essay, this view is primarily of importance as constituting a rejection of the formulations of the economic point of view that we take up in the final chapters. The emphasis on the social aspect has, however, been used by one or two writers to distinguish economics from technology.48

In a somewhat different context, the recognition that economic affairs refer to the actions of men, not in isolation from one another, but within a societal framework, has affected the conception of the economic point of view in respect of the goals of economic activity. Anderson, Haney, Parsons, and Macfie may be taken as examples of the many writers during the past half century who show this influence.49 The stress, at this level of discourse, is not on the social patterns of relationships that emerge during the course of economic activity. Rather, these writers tend to emphasize the fact that the values and motives that affect and inspire economic activity are overwhelmingly conditioned by society as a whole. Whatever the role of individual activity, it is pointed out that values are socially determined and are the product of forces whose explanation must be sought in sociology or social psychology. This trend of thought, too, seems to be significant to our own problem chiefly in its implied rejection of the “atomistically individualistic” conceptions of the economic point of view treated in later chapters.

Finally, in this necessarily brief and fragmentary survey of the sociologically conditioned conception of the economic point of view, we must notice the attempts to “locate” economics within the more general expanse of sociological theory. These attempts have generally been made by writers who were primarily interested in the study of society and intent on defining precisely the nature of the economic point of view, not for its own sake, but in order to have more clearly in focus the separate facets that together make up the complete sociological perspective. Thus, Pareto conceived of economics as an integral part of sociology and believed that the distinctively economic point of view is obtained by a conscious restriction of attention to certain “variables.”50 A complete sociological theory would entail consideration of all the variables that affect action in society. Economics obtains its separate status by deliberate “abstraction” from the “noneconomic” variables and thus becomes a hypothetical subdiscipline within the all-embracing theory of society. The particular criteria that are to determine the “economic” or “noneconomic” nature of any one variable are not here of chief interest. (In fact they reflect the points of view discussed in several of the chapters in this book.) What is of moment is the idea that an economic point of view is possible only as a first and crude abstraction from a more comprehensive and complex theoretical system, viz., the theory of society.

Professor Parsons, who in his earlier writings had embraced this conceptual framework for the “location” of economics, has more recently espoused a somewhat different idea.51 The new view sees the “economy” as a subsystem of society. The theory of social systems in general will apply to the economy as a special case. The basic variables operative in the economy, (as well as in all special-case subsystems of society) are the same variables as govern the theory of social systems generally. The economy is that subsystem of society which is distinguished by its adaptive function, i.e., that function of any social system which relates to its control of the environment for the purpose of attaining goals.

This view of the matter places the economic point of view even more firmly in a position subordinate to general sociological theory. Economic theory becomes a special case of sociological theory and is conceived, indeed, as providing a mirror that reflects, mutatis mutandis, the propositions of such a theory. The more interesting and important implications of this approach for economics reach beyond the scope of this enquiry. For us it is sufficient to have noticed yet another conception of the economic point of view, one that shares with those noticed in this section the characteristic of leaning heavily on the social aspect of economic affairs, and thus indirectly on the ideas of exchange discussed at length at the beginning of this chapter.

5

Economic Affairs, Money, and Measurement

In love or war or politics, or religion, or morals it is impossible to foretell how mankind will act,...But once place a man’s ear within the ring of pounds, shillings, and pence, and his conduct can be counted on to the greatest nicety.
Robert Lowe

Money may not be the root of all evil, but it is the root of economic science.
Wesley C. Mitchell

The first comprehensive system of economic theory...drew implicitly the borderline between what is to be considered economic and what extra-economic along the line which separates action calculated in monetary terms from other action.
Ludwig Mises

Running through the literature dealing with the problem of uniquely identifying economic affairs there has been a recurrent tendency to introduce the phenomenon of money as the distinctive feature. The present chapter outlines the different views that have at various times seen the use of money as the criterion of the economic.

Money, Wealth, and Exchanges

The most obvious form in which money presents itself as relevant to a definition of economics is in its relationship to wealth. For the most general and powerful form in which wealth appears is in that of ready cash. Money, as the medium of exchange possessing the property of being able to command goods when and where they are needed, is, in general, one of the most desirable forms in which to store wealth. And, of course, the emergence of certain metals as popularly accepted media of exchange was in part the consequence of their suitability for being stored over periods of time without loss of general appeal.

Adam Smith, in his exposition of the nature and causes of the wealth of nations, had found it necessary to point out that the accumulation of a national stock of gold does not, of itself, secure national prosperity. There has, of course, been controversy about whether or not Smith was unjust to the mercantilists in ascribing to them this identification of national wealth with gold.1 it is, in any event true that the early definitions of political economy in terms of wealth were not confined to, and did not even particularly stress, the monetary form of wealth. On the contrary, writers tended rather to emphasize that money in itself lacks many of the characteristics of wealth. The problems of production and distribution in which the classical writers were interested pertained to the goods that directly satisfied human wants or to the productive factors for such goods. The pronounced disregard for the purely monetary effects on the economy, which is a characteristic of classical economics, helped to keep interest from focusing on the medium of exchange.

Nevertheless, there were soon several economists who wrote in terms that made wealth tantamount to money. “Political Economy,” wrote the French Dupuit in 1844, “being concerned only with wealth, can take account of the intensity of a wish only through its monetary expression.”2 Bagehot, who defined political economy as the “science of business,” wrote that “as far as people are what we now always call ‘men of business,’ money, the thing they look for and the thing they want, is their sole object...”3 The passage by Robert Lowe (Viscount Sherbrooke) in which he justifies the possibility of a science of economics is famous: “In love or war or politics, or religion, or morals it is impossible to foretell how mankind will act...But once place a man’s ear within the ring of pounds, shillings, and pence, and his conduct can be counted on to the greatest nicety.”4 When Cliffe Leslie wished to attack the notion of a single wealth-seeking motive in human beings, he did so, as we have seen, in an essay entitled The Love of Money (1862) and quite obviously assumes that by exposing the nonexistence of such a homogeneous love of money he is demolishing the economic man, in whose breast nothing is implanted but the desire for wealth.

In itself there is perhaps not much significance to be attached to this identification of wealth with money. In the earlier formulations in which an objective wealth was the focus of attention, we have seen this identification to have been lacking. The stress on the monetary form of wealth appears in the writings of those who give paramount importance to an economic man, intent on the accumulation of wealth. Since in a market economy the drive for wealth is most easily fulfilled by translation into a drive for money, there is little difference whether one describes economic man by reference to a passion for wealth or to a passion for money.

What these citations do suggest, however, is a tacit assumption that exchange is essential to actual economic affairs. And this circumstance suggests a fresh link between definitions of economics in terms of exchange and the endowment of economic man with an exclusively pecuniary self-interest. Bagehot’s definition of economics as the “science of business” shows the connection quite clearly.5 Bagehot had been impressed by the criticisms of classical political economy made by the historically-minded economists. He acknowledged the “relativity” of economics with respect to time and place and wished to salvage economic theory by restricting its scope to the “business world,” where its assumptions of self-interest, rationality, and the like were reasonably fulfilled. The degree to which the self-interest assumed by the economist is actually at work in the business world, and certainly the treating of this assumption as the unifying thread of economic theory, postulated the introduction of a sharp division into the whole of human action separating the activities of men in their capacity as consumers, on the one hand, from their activities in the capacity of business-type producers, on the other. Of course, what motivates the earning of income is hope of the pleasures to be purchased by spending it, but it was believed that only in their capacity as “men of business,” as income-earners, does the behavior of men admit of economic “laws.” Only in this sphere of activity could it be seriously maintained that pecuniary self-interest is the exclusive passion. In this context the desire for wealth becomes crystallized very definitely into a desire for money, the form in which men of business earn income.

This obviously arbitrary and artificial division is made possible only by the existence of indirect exchange. The fact that the division of labor in a modern economy is made feasible solely by the intervention of a medium of exchange between producer and consumer is responsible for the conception of a distinct area of activity in which men do act as businessmen. From this point of view, exchange, or even more accurately exchange for money, becomes a criterion of economic activity in an entirely novel sense. Economic analysis must be confined to activity revolving around monetary exchange, because only in such activity can an exclusively pecuniary self-interest be reasonably postulated. When men act in spending their income, economic analysis is admittedly baffled by the multiplicity of motives actuating their spending habits. But in so far as men do engage in a separate kind of activity in securing a money income, their actions are susceptible of analysis. Because men do not directly secure the innumerable and heterogeneous goods they desire, but first channel their demand for these goods into a demand for a single good, money, economics can proceed to analyze man’s business behavior in terms of a single motive, viz., the desire for money, or in terms of the maximization of this single good.6

No doubt this conception of economic activity involves some circularity. We must confine economic analysis to human action only in so far as it has a single object in view, the maximization of money income, and we proceed to postulate an “economic” area of “business” defined in terms of such a single object of desire. The justification for such a procedure is the sharp distinction made possible, as we have seen, by the existence of a monetary bridge that both accentuates and spans the gulf between earning income and buying goods. There is, in fact, a twofold aspect to men’s lives. Men do mark off part of their time for the earning of income and part for the enjoyment of income, however hazy the line of demarcation may be. And it is a fact that economic analysis has historically dealt predominantly with the first of these areas. Definitions of economics in terms of money are thus different from definitions of it in terms of wealth. The criterion of money fences off the area of income-earning and makes it a field fruitful for economic analysis.

The long-range trend in the conception of economic activity has consistently been to broaden its scope to cover all human action. Not a part of human activity, but an aspect of its entire range is selected as relevant to economics. The definition in terms of money in the sense here outlined is a special case of the older type of definition that marked off a part of the activity of men for economic analysis, postulating in the area so circumscribed a homogeneous mass of phenomena that did not occur elsewhere. It is of interest that even with the more recent “broad” definitions of economics, which recognize the essential homogeneity of all human action, the applicability of economic analysis is still over-whelmingly to be seen in the “business” or “money” sector of action. For this reason it is apparently still tempting to suppose that there is a clear-cut division between man’s money-making activities and the rest.7

Money as the Measuring Rod

A definition of economic activity in terms of money that involves more sophisticated (and perhaps more controversial) considerations is that which sees money as a measuring rod. Economic analysis is concerned with that part of human activity, with that area of human welfare, which can be measured by the yardstick of money. The literature citing this definition reveals some confusion as to its origin. Usually this formulation of economics is ascribed to Pigou. In fact, Pigou seems to have simply taken over this definition from Marshall without much ado. It was Marshall who first most thoroughly expounded the conception of economics in terms of the money measure, and this despite the fact that his conception of economics is almost always presented by exclusive citation of the opening references in his Principles to “the ordinary business of life” and the “material requisites of well-being.”8

Marshall developed his thesis in extenso in his inaugural lecture at Cambridge in 1885.9 It must be emphasized that Marshall did not consider that he was in fundamental disagreement with his fellow economists, but only that he was presenting a more appropriate characterization of the commonly recognized scope of the subject. In the practical world Marshall is content to consider economics as examining

that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being. Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man.10

But Marshall was well aware of the misleading character of such a definition, in so far as the essence of economic activity is concerned. In his inaugural lecture he said:

The outward form of economic theory has been shaped by its connection with material wealth. But it is becoming clear that the true philosophic raison d’être of the theory is that it supplies a machinery to aid us in reasoning about those motives of human action which are measurable. In the world in which we live, money as representing general purchasing power, is so much the best measure of motives that no other can compete with it. But this is, so to speak, an accident...11

Marshall is at pains to explain that it is in the measurability of motives that the homogeneity of economic activity is to be found. That it is money which in real life lends itself to such measurement is merely a convenient accident. In the course of developing this point, Marshall uses the arguments of Cliffe Leslie.

If with Cliffe Leslie we analyse all the infinite variety of motives that are commonly grouped together under the term “love of money,” we see that they are of all kinds. They include many of the highest, the most refined, and the most unselfish elements of our nature. The common link that binds them together is that they can be more or less measured; and in this world they are measured by money.12

Marshall envisages the possibility of an economy in which incentives are in the form, not of money, but of a graduated system of decorations of honor. All this attributes “high and transcendent universality to the central scheme of economic reasoning.”13 Nevertheless, “for practical purposes...” it will be best to go on treating it as chiefly concerned with those motives to “which a money price can be...assigned.”14 In brief, economics deals with the play of measurable motives reinforcing and counteracting one another, “but it also sets out that most complex play of human motives that changes the purchasing power of money, and thus alters the measure of all motives.”15

In his Principles Marshall expresses himself quite frequently in similar terms. “The raison d’être of economics as a separate science is that it deals chiefly with that part of man’s action which is most under the control of measurable motives.” This is a characteristic statement of Marshall’s position.16 It will be noticed that Marshall does not consider this definition to be a watertight one, since he is constantly employing qualifying phrases such as “chiefly,” “more or less,” and the like. This was, indeed, frankly acknowledged by Pigou. In 1912 Pigou had stated that economic welfare arises from that part of the community’s income that enters “easily into relation with the measuring rod of money,”17 and had asserted that the “methodological principle at the basis of economic science, and that which separates it from the other social sciences, is the reference it makes to a measure, namely, money.”18 Later, in his Economics of Welfare, Pigou admits the haziness of such definitions:

It is not, indeed, possible to separate [the economic part of welfare] in any rigid way from other parts, for the part which can be brought into relation with a money measure will be different according as we mean by can, “can easily” or “can with mild straining” or “can with violent straining.” The outline of our territory is, therefore, necessarily vague.19

Money as a Universal Measuring Rod

Before we discuss this fresh conception of economic affairs, it will be of interest to draw attention to a view that has the doubtful distinction of running precisely counter to that of Marshall while yet being built on the very same foundation. The French sociologist Gabriel Tarde, in the course of a campaign to prove that most of the “economic” categories are really common to all the social sciences, attempted to show that money too is not a strictly economic phenomenon. It is true, Tarde wrote, that money is a measure of wealth, but it is not a measure of wealth alone. Money, besides measuring wealth, measures desires and beliefs; it is a universal measure of all social “quantities,” of which wealth is only one.20 Tarde believed that he had thus broken the link that chained money exclusively to economics, whose subject matter, despite some fairly advanced statements in his writings, he still identified solely with richesses.

Both Marshall and Tarde, it will be observed, look upon money as significant primarily on account of its suitability to serve as a measuring rod of human motives. But in postulating the suitability of money as a measure of human motives, Marshall had by the same token held these motives to be economically relevant. Tarde, on the other hand, working unwaveringly on the assumption that only the phenomena of wealth are economic, and confronted with his own conception of money as measuring human desires, is forced to the triumphant conclusion that money itself pertains to noneconomic phenomena.

Clearly the conception of money as a measuring rod is something also of a two-edged sword, capable, perhaps, of replacing wealth as the criterion of the economic, but capable too of forcing itself outside the scope of economics altogether if the latter is defined as the science of wealth.

Measurement and Economics

Several points of criticism present themselves in the consideration of the Marshall-Pigou view of economics. The description of the subject in terms of the possibility of measuring human motives could conceivably be interpreted as stressing the comparison of motives with one another. Economic activities would be those in which the relative strength of human desires would be expressed, through the allocation of resources, in the visible phenomena of the market. But this is not the sense in which Marshall wrote that money measures human motives.

What Marshall had in mind is a means of escape from the dim, hazy realm of desires and feelings into a sharply defined world of quantities brought into clear focus, free of the fuzziness of merely qualitative differences. There is a groping towards the “quantification” and the endowment with “objective measurability” of the numberless subjectively felt urges and drives. Economic phenomena, we are to understand, are in the unique and apparently highly-prized position of being able to reflect in measurable (and hence presumably “scientific”) terms, at least some part of the uncharted wilderness of the human mind. Now there is, no doubt, some satisfaction in feeling that not all human desires remain submerged within individual consciousness; that some of them at least register delicate, but measurable, changes on some external scale for all to see. But it is not clear that the inherence of such a fortunate property in certain motives and feelings offers a valid criterion for a common scientific treatment. As Croce asked Pareto on a slightly different point: “What intrinsic connection is there between this merely accidental attribute, measurability, of the objects which enter into an economic action, and the economic action itself?”21 At least Marshall himself shows appreciation of the good fortune that the motives measured by money all admit of analysis by similar types of reasoning. “The problems which are grouped together as economics,” he wrote, “because they relate specially to man’s conduct under the influence of motives that are measurable by a money price, are found to make a fairly homogeneous group.”22 But surely this homogeneity, under Marshall’s definition, is no more than a happy accident.

Moreover, the whole idea of the measurement of subjective desires by means of money is one that involves serious and controversial problems. It may be readily conceded that human motives, acting in the market place, exert definite effects on money prices. It is by no means clear that the resultant prices offer in any valid sense a means of measuring such motives. Discussions on the possible conception of a cardinal utility may invite ingenious suggestions purporting to measure such a utility. Money has never in any but the crudest of senses been able to serve as such a measure. Undoubtedly Marshall’s idea of money as a measuring rod is related to his frequent use of the hypothesis that money is exempt from the “law” of diminishing marginal utility, but this was never more than a simplifying analytical technique. Prices are not measured in money; they are simply amounts of money given in exchange for goods. Prices are expressed in terms of money, not because money represents any sort of “measuring rod,” but simply because it is money that is commonly used as the quid pro quo for goods.23 One need not draw attention (as Marshall himself did) to the violent fluctuations in the purchasing power of money in order to feel the force of a characteristic sentence of Professor Knight: “If we accept the aphorism, ‘science is measurement,’ as a definition of science, which is its only intelligible meaning, then there is no such thing as ‘economic’ science...”24

Marshall’s was not the only attempt to see economic science as essentially a consequence of measurability. An interesting point of view in this regard was presented in an essay in 1893 by an eminent American contemporary of Marshall, Simon Patten. In the classical economic system, Patten explained, economics was unfortunately divorced from utilitarianism.

Utilitarianism was abstract, and treated of pleasures and pains as purely subjective phenomena. Economics was concrete and treated of utilities as material wealth conditioned by the laws of the objective world...25

The achievement of subjective economics and the development of the theory of consumption makes possible their unification.

When the basis of economics is broadened by making the unit of measurement subjective, and the basis of utilitarianism narrowed by separating it from ethics, the unity of the two, both in the method they use, and in the field they occupy, becomes apparent... There is only one science for measuring the welfare of society and its progress through the gains or losses of those positive utilities which men create or destroy.26

The term “positive utility” is used by Patten in contradistinction to “absolute utility.” By “absolute utilities” Patten understands those which cannot be measured and hence cannot enter into the utilitarian calculus. As instances of such absolute utilities, Patten cites “water in a desert,” “honesty,” and the like. “Positive utilities” are those which, by their susceptibility to measurement, enter into the utilitarian calculus.

Economics is the science of positive utilities—the realm where no other motives are recognized except those resulting from changes in the amount of our measurable pleasures and pains.27

It is true that Patten’s stress on the measurability of economic motives refers to their comparison with one another. Honesty is not directly relevant to economics because it is immeasurable, in the sense that no finite utilities can reach up to it. It is an absolute good.28 But Patten’s position reflects also the felt need for a conception of “quantities” of utility. Of course, in a scheme in which a label bearing for each individual a definite number of “units” of utility is mentally attached to every good, it is difficult to treat in terms of such units those values to whose utility the individual can imagine no limit to be assigned. This difficulty led to the postulation of a difference in kind between “positive” and “absolute” utilities. Economics became neatly identified with the first of these; and measurement, for Patten as for Marshall, constituted the decisive criterion.

But in the absence of a demand to know the “quantity” of a utility, the distinction between “positive” and “absolute” utilities disappears of itself. The modern idea of the role of preference in human action offers a completely adequate view of the matter. When forced to choose between two alternatives, the individual exercises his preference in a way that remains essentially the same regardless whether the alternatives represent “positive” or “absolute” utilities. In the process of preferring, all possible values are placed in an ordered array. “If honor cannot be eaten, eating can be forgone for honor.”29 Measurability becomes a criterion of doubtful worth simply because any results that it brings for comparing utilities with one another can be obtained even more easily without it. A considerable number of writers who cite the Marshall-Pigou view of economics have drawn attention to these weak points in the whole idea of measurement.30

Money and Price-Economics

In a chapter on the role of money in definitions of economics, mention should be made of the part that it has played in the emergence of so-called “price-economics.” In the literature of the second and third decades of this century there was a lively discussion of whether economics should deal with subjective utilities, with welfare itself, or whether it should deal only with the external manifestation of those utilities, with objective prices. The “price-economists” attempted to avoid reference to the underlying motives, desires, and satisfactions that are reflected in market prices. They rejected “explanations” of prices that invoked these subjective concepts. They conceived of economics as concerned, not with the causes of human behavior, but with its consequences as seen in the patterns of prices. Pareto, Cassel, Davenport, and Mitchell are representative of this line of thought. Writers such as Fetter and Viner in the United States, on the other hand, were among those who saw price-economics as an inadequate means of understanding the operations of the market and insisted on the need to dig below the surface phenomena of prices for their explanation.31 It is not necessary for present purposes to go further into the origin and causes of the emergence of a price-economics. In so far as it represents a distinct outlook on the nature of economic phenomena, price-economics can be largely subsumed under the catallactic view of the subject, especially under that conception of the latter that stresses the purely functional relationship between different prices.32

What is of relevance to the present chapter is the degree to which the presence of a general medium of exchange and the identification of economic activities with those involving such a medium may have contributed to the price-economics line of thought. Prices are the corollaries of acts of exchange. Every act of exchange, by definition, is associated with a definite ratio according to which the goods are exchanged against each other. The phenomenon of price is one with a peculiar fascination of its own, especially when the whole structure of prices—the interrelationships between different prices in the same market and between prices at different times—is grasped. It is not difficult to understand the temptation to treat these ratios as “things” in themselves, moving in accordance with their own “laws of motion,” rather than as the manifestations of acts of human choice. The part played by money in the market has only heightened this temptation.

Money prices make possible a system of rational calculation in which any economic decision is influenced by all the relevant factors. The producer and the consumer are alike guided by money prices to adjust their actions in the most advantageous way to the real conditions of the market. In the discussion over the possibility of rational economic calculation of gain and cost in a socialist economy, one fact has emerged with overwhelming unanimity. It is almost universally conceded that in an economy without prices, real or “quasi,” there is no means of judging the economic wisdom or folly of any action. Every prospective buyer or seller, if he is to act in a rational way, must be able to compare his prospective situation at the completion of the transaction with his present situation. This involves the comparison of innumerable “economic quantities” with one another: those actually under his control initially, those to be brought under his control through the transaction, and those possibilities of control which his initial position enables him to command through alternative transactions. The expression of market prices in terms of money is an inestimable boon to the solution of this complex problem. As a common medium of exchange for all marketable goods, money fuses all the alternatives confronting the marketer into an immeasurably simpler chain of decisions. The money price paid for one good expresses succinctly, and more convincingly than is ever conceivable in a barter transaction, a preference for this good over a definite set of alternative goods.

The implications of these well-recognized considerations for the construction of a theoretical “price system” in which the relative movements of different prices are to be reduced to all-embracing “laws” are obvious enough. A conception of a price structure ultimately depends on the sensitivity of each part of the structure to changes in other parts. When changes in prices in one area do not generate related price movements throughout the economy because of undefined “frictional” forces clogging the system, then the concept of “laws” of price movements becomes less and less realistic. The introduction of a monetary numeraire to describe the relationships among the prices in such a system is more than a matter of convenience. The assumption of rational behavior, guided by prices, which the concept of a system of prices postulates would be almost wholly untrue in a barter economy. Besides the extraordinary difficulty that would be entailed in the exposition of a system of barter prices, there would be the more serious objection that the loosely knit relationships that would perforce exist between barter “prices” would make the recognition of any “system” of such prices of negligible significance.

To present the matter briefly: in a market without money prices exchange ratios are of a type almost completely analogous to the transformation functions under which a Crusoe economy operates. In a Crusoe economy no analysis is possible without explicit assumptions regarding subjective categories that price-economics is anxious to avoid. The attempt to see economics as a system of laws governing the movements of prices that are the consequences of human behavior must depend on a common monetary denominator.33 The possibility, of course, exists that improved means of calculation could enable rational comparison of alternatives to take place without guidance by external market prices. But this possibility would destroy the entire field investigated by price-economics. From a point of view that sees economics as essentially concerned with prices, it has been asserted, for example, that if linear programming could set up a system of shadow prices to guide managers, the borderline of economics might need to be reviewed.34 In so far as the signals of shadow prices are not available and guidance must be sought in money prices, it is the preoccupation of economic activity with money that made possible the idea of an economics that could be “positive,” disregarding the realm of dim mysteries of feelings and dealing with definite, observable market prices.

Money as an Economic Institution

Closely associated with the considerations of the previous section is the stress that has been laid on the essentiality of money for economic activity because of its unique role as an institution. Economic affairs, on this view, are monetary affairs, not because money is a passive sign of the presence of economic activity, but because it plays an active role in shaping the character of such activity. According to Marshall, as has been seen, money characterized economic activity by serving as a measure of certain motives. The presence of money was not seen in any way as influencing these motives themselves, or at least it was not because of any such influence that money was taken to be the criterion of the economic. Money was seen as merely expressing the real motives operative in the phenomena of the market. The fact that it served at the same time as a measuring rod was the reason why economics came to be defined in monetary terms.

But it is clear that the use of money is a real factor that has profoundly affected the entire pattern of economic activity. And in the literature on this subject attempts have been made to treat money as the definitive criterion of the economic by virtue of the peculiar influence it exercises on human action. Economic activity becomes such through its reflection of this influence. Professor Mises has pointed out that rational economic activity became possible only with the widespread adoption of a medium of exchange.35 As we have seen in the previous section, the recognition of this fact led to the emergence of the concept of price.

It was Wesley Mitchell who stressed the role of money as an active institution that has shaped human activity in a definite pattern. Of the writers on this subject Mitchell was perhaps the most insistent on the necessity of confining economics to monetary affairs. “Money may not be the root of all evil, but it is the root of economic science.”36 Most of all, Mitchell wanted to avoid discussions on subjective concepts. “When the definite and objective interrelations among money prices have been analyzed it is time enough to penetrate into the dim mysteries of our feelings about utilities...37 But Mitchell paid considerable attention to the positive influence that money has exerted.

Writing within the framework established by Veblen, Mitchell contrasts his “institutional” view of the economic significance of money with Marshall’s concept. The latter sees money as “an indispensable tool for measuring the force of opposing motives; but it remains merely a tool... “ To predict what men will do “one needs to know the motive force of the satisfactions and sacrifices promised by alternative lines of action. That force can best be expressed in terms of money; but the use of money does not alter the substantial character of economic behavior.” But, Mitchell continues, on Veblen’s view of the matter, the whole picture changes.

Money becomes a most significant thing in the economy of society, because it shapes the habits of thought into which our native pro- pensities grow. Instead of being a machine for doing quickly and commodiously what would be done, though less quickly and commodiously, without it, the use of money “exerts a distinct and independent influence of its own” upon our wants as consumers, upon our skill as planners, and upon our ideals as citizens.38

Because of the manner in which the monetary calculus promotes rational behavior, the student of economics cannot picture economic logic without money and without prices.39

Now, while the positive influence on economic activity that money exerts has been rather widely recognized,40 this does not of itself provide a valid criterion of economic 41 The influence that money and monetary calculation has exerted is not so much a matter of innovating as of accelerating and facilitating a pattern of activity that, at least in principle, could exist without it. Nevertheless, the role that money has played in the conception of economic phenomena has been broadened by the “institutional” concept. Money has, in fact, played a role in economic activity, not merely as a passive tool, but also as an active force. The superposition of the ideas on the money criterion presented in this section contributes to fuller appreciation of what has been meant by the statement that money is an essential element in economic affairs.

6

Economics and Economizing

Before Wicksteed wrote, it was still possible for intelligent men to give countenance to the belief that the whole structure of Economics depends upon the assumption of a world of economic men, each actuated by egocentric or hedonistic motives. For anyone who has read the Common Sense, the expression of such a view is no longer consistent with intellectual honesty.
Lionel C. Robbins

Before Robbins explained the “nature” of economic science, it was still possible for the economist to hold to the so-called “materialist” definition of economics, or to similar ones ...
... Similarly, before Robbins' definition, criticism of economics on the ground of its being “too wide” or “too narrow” was still understandable. Now, however, such discussions have become meaningless: economics is a given pie, which the economist is only allowed to dress a bit, to cut as deeply and into as many parts as he wishes, and to eat according to his need.
G. Tagliacozzo

Something of a turning point in discussions on the nature of economic science and of economic affairs came in 1930 with the appearance of Robbins' Nature and Significance of Economic Science. Professor Robbins brought to the problem a method of attack that clearly revealed the logical inadequacies of earlier conceptions of the economic sector of affairs. At the same time he set forth his own positive definition of economics with effective simplicity and persuasive literary charm. The problem of definition was treated by Robbins as an integral part of the exposition of his general views on the appropriate tasks and methodology of economics. As such, the book as a whole and Robbins' definition of economics attracted widespread attention. Although Robbins claimed no originality for his definition, he effectively presented to the English-speaking world a group of earlier views with a clarity and a vigor that made them the focus of a newly awakened interest and unmistakably left his own stamp on the formulation he espoused. Since the publication of his book, discussions of the problem of definition have invariably tended to revolve around Robbins' definition, or at least to take it as a starting point.

The Economics of Professor Robbins

“Economics,” wrote Professor Robbins, “is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”1

From the point of view of the economist, the conditions of human existence exhibit four fundamental characteristics. The ends are various. The time and the means for achieving these ends are limited and capable of alternative application. At the same time the ends have different importance. Here we are, sentient creatures with bundles of desires and aspirations, with masses of instinctive tendencies all urging us in different ways to action. But the time in which these tendencies can be expresed is limited. The external world does not offer full opportunities for their complete achievement. Life is short. Nature is niggardly. Our fellows have other objectives. Yet we can use our lives for doing different things, our materials and the services of others for achieving different objectives.
Now by itself the multiplicity of ends has no necessary interest for the economist. If I want to do two things, and I have ample time and ample means with which to do them, and I do not want the time or the means for anything else, then my conduct assumes none of those forms which are the subject of economic science ...
Nor is the mere limitation of means by itself sufficient to give rise to economic phenomena. If means of satisfaction have no alternative use, then they may be scarce, but they cannot be economised ...
Nor again is the alternative applicability of scarce means a complete condition of the existence of the kind of phenomena we are analysing. If the economic subject has two ends and one means of satisfying them, and the two ends are of equal importance, his position will be like the position of the ass in the fable, paralysed halfway between the two equally attractive bundles of hay.
But when time and the means for achieving ends are limited and capable of alternative application, and the ends are capable of being distinguished in order of importance, then behavior necessarily assumes the form of choice. Every act which involves time and scarce means for the achievement of one end involves the relinquishment of their use for the achievement of another. It has an economic aspect.2

Several highlights stand out in Robbins' conception of the nature of economic affairs. Central to the whole idea is the concept of scarcity. The limitations that prevent the attainment of the desired ends fundamentally affect the character of all activity directed towards these ends. The importance of the role assigned to scarcity as a governing condition of realizing ends makes possible the rejection of the idea that economics is concerned with specific kinds of ends. Robbins' definition rejects the identification of economics with certain kinds of behavior; it attempts, on the other hand, to bring out the economic aspect of behavior of all kinds. All kinds of behavior that occurs under the shadow of inadequate means present such an economic aspect to the observer.

In fact, the recognition that there can be distinguished in human actions a pattern of behavior that depends for its uniqueness, not on any one type of end pursued, but on the economizing aspect of actions directed at ends in general, led Robbins several years later to take yet a further step. Having emancipated economics from the bonds that tied it to particular ends, Robbins was led to suggest that the “economic” motive refers precisely to actions that are not directed to any particular ends. By saying

that a man's motive in doing a certain thing is wholly economic, what we really mean is simply that he regards it only as a way of securing means for satisfying his ends in general. If he does it with only one end in mind, we do not regard his motive as economic; we regard it as having the character of the end to which it is specific. But if he does it with the desire to increase his power to satisfy ends in general, then we regard it as economic ... 3

The core of Robbins' conception is thus the act of economizing scarce means with regard to numerous, differently valued ends. A considerable body of literature has grown up in the past few decades in which this central concept has been subjected to careful scrutiny by economists generally, and economic methodologists in particular. The implications of these ideas for the substantive content of economic science have been thoroughly investigated; and the minute dissection of Robbins' definition has provided several distinct topics for debate. In this chapter we shall proceed to survey the area covered by this literature, after briefly glancing at some earlier ideas to which Robbins' definition owes its source.

Scarcity and Economics

Economists had long recognized, at least to some extent, the role played in economic phenomena by the factor of scarcity. The physiocrats had excluded from their subject matter “free goods” (such as air) because, being abundant, they were not objects of exchange. Among classical writers, Lauderdale explicitly required a degree of scarcity for individual (but not public) wealth;4 most of the classical economists succeeded, in one way or another, in excluding from the scope of the science of “wealth” those goods whose supply was unrestricted. In the classical use of the “law of supply and demand,” what was relevant was the scarcity of the supply.5

With the movement away from the objectivism of the classical science of wealth and with the increasing interest, during the second half of the last century, in man and his behavior, the idea of scarcity as a factor conditioning human action assumed ever greater importance. Economists who recognized the uniqueness of the maximization-pattern of behavior and the paramount position of the so-called economic principle could hardly fail to be aware of the fact that the basic source of both is to be found in the phenomenon of scarcity. A clear understanding of the fundamental character of scarcity as a condition of human action began with the work of Carl Menger.6 Menger still considered economics as concerned essentially with goods, but his definition of “economic goods” and of “economizing” placed the condition of scarcity in the forefront. The four components of the activity of economizing, Menger explained in 1872, are called into play only when “the requirements of men for many goods are greater than the quantities available to them.”7

It is of some importance that writers such as Menger used the criterion of scarcity as a refinement of the definition of economics couched in terms of goods. This circumstance throws light on the relation of the idea of scarcity to the emergence of a clearly recognized “economic principle.” Such a relationship was perceived very soon. Dietzel, in attacking the notion that the economic principle provides a valid means of describing the scope of economic science, remarked that the criterion of scarcity suffers from the same inadequacies as the economic principle, to which it is, indeed, equivalent.8 It is obvious that conformity to the economic principle is called forth by scarcity. In fact, what the economic principle is to economics, considered as the analysis of behavior, scarcity is to economics, viewed as the analysis of goods.

Although several German writers, including Schäffle and Cohn,9 had laid stress on the phenomenon of scarcity and its importance for economics, there is reason to believe that this did not imply the recognition of the role of “economizing” in Menger's sense. Scarcity can be associated with economic affairs, not necessarily as a means of genuine demarcation, but merely as a simplifying device for the theorist. Anything appertaining to the satisfaction of material wants, let us say, may be considered as economic, but in order to facilitate analysis it may be necessary to confine attention to scarce goods. Determinate solutions of economic problems, it is found, are yielded only when scarce goods are involved. And this property of scarce goods may be employed in marking out the scope of economic science without seeing scarcity as affording any real means of distinguishing the economic from other phenomena. The accident that makes scarce goods particularly amenable to theoretical manipulation may not lead to the discovery of any uniqueness in the act of economizing at all.

Something of this seems to underlie Neumann's treatment of the definition of economics in terms of scarcity. In his survey, made in the eighties of the last century, of attempts to define economics, Neumann rejected the criterion of scarcity on rather surprising grounds, which reveal his limited appreciation of the real nature of this criterion. Scarce goods, Neumann asserted, are sometimes used for noneconomic purposes, e.g., for artistic ends. Moreover, Neumann added, there are cases of economic activity that involve only nonscarce goods. Thus, when an entrepreneur acquires sea-water, a nonscarce commodity, for the purpose of renting out sea-water baths, he is surely engaged in economic activity, even though he is dealing in what, according to Menger's definition, is a “noneconomic” good.10 It is fairly obvious that an understanding of the nature of the act of economizing would have prevented Neumann from offering these objections. In so far as sea-water baths are scarce, their provision surely entails economizing and is hence an economic activity, no matter how plentifully one of the materials may be obtainable in some other situation. And in so far as the materials for the expression of artistic impulses are scarce, their provision is also governed quite as powerfully by the economic principle.

Outside Germany there were, before the turn of the century, far fewer references to scarcity as a possible criterion for defining the nature of economic activity. Walras was one of the few writers who stressed this criterion. He required that what he called richesse sociale be both useful and scarce. It is not an accident that “Walras' term for marginal utility is rareté. One writer has remarked that “Walras' rareté appears to be a truer concept than the common notion of marginal utility, for ... he gives clear recognition to the fact that supply limitations are included and expressed in it.”11 For the rest, the focusing of attention by mathematical economists generally on the role of maximization must be accompanied by a lively awareness, even if not explicitly expressed, of the restriction of such behavior to cases admitting of a finite maximandum.

During the present century scarcity definitions of economics have become decidedly popular. Precursors of Robbins' formulation in terms of the act of economizing scarce means for the attainment of competing ends include a number of prominent figures. Besides Menger (in the last century), Robbins himself cites such writers as Wicksteed, Mises, Fetter, Strigl, Schönfeld and Mayer in this regard. Moreover, Robbins' formulation has been described as in some degree akin to ideas expressed by Spann and Oppenheimer. Both Voigt and Max Weber paid explicit attention to this point of view.12 Any number of writers could be mentioned who, without endorsing Robbins' definition of economics, yet ascribe the central economic role to scarcity. In fact, one or two writers have felt bound, in reaction to this trend, to moderate the general enthusiasm for the conception of scarcity by asserting the possibility of an economics of “abundance.”13 It must be admitted that these writers do not demonstrate any partiality to the notion of “economizing,” from the standpoint of which abundance is meaningless in any other than a relative sense.

There was thus a long tradition in economic literature in which the importance of the limitation of resources was recognized, and there were, moreover, many indications pointing to the possibility of using the administration of scarce means as the distinguishing criterion of the economic.14 In pressing the scarcity of means into service as the very core of everything economic, and by discovering in the effects of coping with such scarcity an economic aspect to activity in general, Robbins was crystallizing ideas that had already been in ferment for some time. Perhaps the most useful service afforded by the fresh formulation lay in the clarity with which the conception of economic activity as consisting in “economizing” was contrasted with the older definitions. Perhaps never before had the notion of the allocation of scarce means among competing ends been so consciously and vigorously presented as independent of the particular nature of the ends and means that may be involved.

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.

The Character of Robbins' Definition

Robbins was at some pains to point out that the conception of economics that he expounded had an entirely different character from that of the previously accepted conceptions of the subject. The earlier definitions had almost invariably been classificatory, marking off certain kinds of behavior, i.e., behavior directed to certain types of ends, as the subject matter of economics. Robbins' own formulation, on the other hand, is analytical. It “does not attempt to pick out certain kinds of behavior, but focuses attention on a particular aspect of behavior, the form imposed by the influence of scarcity.”16 Hitherto it had been believed possible to describe certain acts and activities as being “economic”; Robbins' definition, however, does not consider the adjective “economic” as at all appropriate for the description of any act as such, but sees it as singling out a point of view from which actions may be examined. Whereas the earlier definitions of economic affairs had searched for criteria sufficiently comprehensive, and yet sufficiently exclusive, to describe accurately a given class of acts, Robbins' definition sets forth the particular interests that actuate the singling out of the economic aspect of an act. An act pertains to economic science in so far as it reveals the consequences of a compulsion to allocate scarce resources among conflicting ends. Robbins' formulation thus differs from others perhaps less in its choice of a criterion for definition than in its radically different conception of the kind of idea that is to be defined.

The critics subjected this feature of Robbins' contribution to close attention and expressed a wide range of opinions concerning its validity and significance. Writers who hailed Robbins' book as an auspicious turning point in the conception of economic science and who viewed his definition as a final and definitive pronouncement on the particular problem with which it grappled saw one of its principal merits in this concern with an aspect of action rather than with a particular kind of action.17 Writers assessing the difference between Robbins' definition and earlier attempts recognized this approach as one of the most significant features of his contribution.18 Those who have described (and deplored) Robbins' definition as the “dominant academic doctrine” have had especially in mind its lack of concern with the particular ends involved and its concentration on viewing action from a given “aspect.”19

As the essential component of Robbins' definition, this disregard for the kinds of ends pursued in action had certain further consequences that aroused lively discussion. Perhaps the foremost of these is the ethical neutrality of the economic point of view as set forth by Robbins. If the economist is, as such, exempted or interdicted from choosing particular ends of action as his special concern, then the results of his researches will be achieved with ethical indifference towards the data with which he deals. This consequence of the definition of economics in terms of a particular aspect of action is reserved for separate discussion later in this chapter.

Two implications of this ethical neutrality have led to sharp criticism of the definition as a whole. On the one hand, the abandonment of the search for particular ends of action meant that the range of economic interest is widened to cover the “economic aspect” of actions that had not been able to qualify for inclusion in the class of “economic” acts on the basis of any of the previous definitions. On the other hand, the lack of concern for the nature of ends facilitated an academic detachment from the full reality of actions and the cultivation of a “purely formal” view of the economist's interest in the relationship between ends and means.

A. the “breadth” of robbins' definition

The former of these two implications led to immediate attacks on Robbins' definition condemning it as being far too wide, i.e., as bringing within the scope of economics phenomena in regard to which the economist has no professional competence and to which economists have historically paid no attention whatsoever. Some writers have tended to see in this alleged shortcoming an opportunity to indulge their wit in describing the problems—whether literary controversies, games of chess, or even affairs of the heart—with which Professor Robbins, on the basis of his own definition of economics, should, as an economist, be equipped to deal.20

Ultimately these attacks and the consequent pronouncements rejecting the concept of economizing as a criterion for defining the nature of economic phenomena provide yet another instance of the similarities between the conception of economics as a science concerned with economizing and the conception of it as a science concerned with maximization. Writers in the eighties of the last century who had considered the essence of economic behavior to consist in the impulse toward maximization had found themselves vulnerable to the objection that this propensity characterizes all human activities. The fact that economizing, like maximization, is an operation capable of being performed in widely differing situations means that the use of such a concept as a criterion for defining the nature of the economic cuts across many traditional boundaries. But clearly if a definition is to be rejected as too wide, some area must be accepted as the standard of reference. The stress that economists in the past have laid on the phenomena of the market as the area to which their researches applied makes suspect a definition that sees an essential economic unity existing in activities ranging far beyond this area.

Nevertheless, there is an important sense in which the definition of the economic in terms of economizing is less suspect in this regard than that couched in terms of maximization had been. The latter had been used in the form of the so-called economic principle, which was seen as essentially a principle of explanation. Market phenomena were explained on the hypothesis of the existence of such an economic principle. The concept of a form of behavior characterized by maximization was found to yield the results required to understand the real economic world. From this point of view, the definition of economics as the science concerned with the maximization pattern of behavior drew the boundaries of the subject in such a way as to include all phenomena that admitted of explanation on the hypothesis of the existence of such a principle. Any activity that involved maximization was thus prima facie economically relevant. And here the objection was immediately raised that such a criterion embraced all human behavior, including areas in which maximization did not lead to “explanations” such as economists had successfully provided in what was then accepted as the domain of economics.

Robbins' definition of economics in terms of economizing was in a somewhat different case. The concept of economizing was not being used as an explanatory device at all, but only as a means of characterizing certain behavior. The fact that such behavior proved more amenable to economic analysis in regard to market phenomena than in other cases does not necessarily void the use of this definition, since the latter is not predicated on its suitability for this kind of economic analysis. At most, the criticisms aimed at Robbins' definition could cast doubt on its suitability for readily characterizing the day-to-day problems to which economic theory is most frequently applied. Professor Robbins himself has presented the case for his exemption from this type of criticism.21

B. the “formalism” of robbins' definition

The other implication of the ethical neutrality inherent in Robbins' definition has occasioned perhaps even warmer debate. If economic theory is seen as focusing interest, not on the actual ends of action, but merely on the bare relationship that scarce resources have to these ends, then the theory becomes very formal, very pure indeed. Robbins stressed this feature of his conception of economics as finally detaching the essentially economic structure of action from the clutter of concrete data necessarily enveloping it in the real world. But several critics saw this “formalism” as an arid scholastic exercise that succeeded only in leaving out the important features of an economic problem.

This view found its most forthright expression in Souter's bitter essay in 1933 fiercely defending the “Living Classical Faith,” reverently associated with the name of Marshall, against the “Austrian” position as set forth by Robbins. Apparently Professor Robbins came to be identified as a “juggler with a static verbal logic” and a “profane sunderer of ‘form’ from ‘substance.’” Perhaps the principal target for Souter's scathing denunciation was the attempt to define economics as distinct from other disciplines in terms of its attitude towards a subject matter that it shared in common with these other disciplines. Souter's attack on Robbins' “formalism” arises from his burning belief in the status of eco- nomics as a member in a “society” of sciences, each of which can be sealed in an airtight receptacle only on the penalty of death.22 The issue raised by the “formalistic” approach to economics is whether the science “is to enter upon the fatal path of fastidious withdrawal from organic intercourse with its fellows; or whether it will have the courage and honesty to assume its rightful place in the society of sciences.”23 As a member of such a society, economics is “necessarily and inevitably dependent upon sociology, upon psychology, upon technology,”24 and progress in economics must derive from “organic” relationships with the other disciplines.

All this leads to the almost emotional rejection of Robbins' conception of ends that the economist treats from the outset merely as data. Economics may legitimately take over from ethics or psychology the finished results of their study of the determination of the concrete means and ends involved in human action. But any attempt to consider economic analysis or the conception of an economic aspect of a problem as possible without taking into account such factual information concerning the content of action is “mere hocus-pocus.”25 To treat the concrete ends of action as “given,” in the “perverted” sense of not affecting economic analysis, is a display of instincts that are “corruptly sophisticated”26 and involves the bartering of the Mecca of “economic biology” for the mess of pottage of an illusory “static precision.”27

Professor Parsons, in a paper following shortly after that of Souter, provided a calmly reasoned appraisal of the issues involved in the Robbins-Souter controversy. Parsons pointed out that the “formalism” that Souter denounces is not quite the same formalism that Robbins is rather pleased to find in his conception of economics. According to Robbins, economics is formal in the sense that it is abstract, making use of “logic,” which is not confined to specific historical situations. Souter, on the other hand, attacks Robbins' definition on the grounds that it makes economics a “purely formal science of implications” in the sense of “having no reference whatever to empirical facts.” If exception is taken to Robbins' view of economics as necessarily abstract because it involves the use of logical reasoning, then the road is open to a complete “empiricism” and Historismus.28 The only room left for debate on Robbins' formalism is the fruitfulness of the particular abstractions that Robbins requires for his conception of economics.

Such criticisms of Robbins' view of economics, objecting to the degree to which it makes abstraction from reality, have, of course, been made. One writer has recently deplored the fact that by “eliminating economic ends per se, the concept of ‘economizing’ has diverted attention from the really significant aspects of behavior in modern economy (for example, pecuniary thinking and acquisitive drives) ... ”29 But there is some difference between this kind of criticism and that of Souter. In the type of complaint that is voiced here there is room for recognition of the validity of an independent category of economizing. There is even room for recognition of the fundamental and possibly universal character of the category in its significance for economic problems. It is only objected that too-exclusive concentration by the economic theorist on this aspect of action may hinder adequate recognition of the particular, empirical content of a concrete economic problem. When the economist comes to apply his professional skills to the understanding of actual economic phenomena, it is argued, his attempt may be handicapped by the attitude with which he approaches the task. His conception of the nature and role of economic theory may prevent recognition of the actual facts of the situation the understanding of which could explain matters, whereas treating it purely as a case of economizing does not lead to an immediate solution. In other words, this objection does not necessarily question the validity of the concept of economizing as a criterion, but merely condemns it as inadequate in its application to the problems of the real world because of the “misleading” or “unfruitful” abstraction that it may make from significant elements of these problems. Souter, on the other hand, is objecting to theory, not in this way, as unsuitable for practical application, but altogether. He is opposed to the conception of a theory that has no reference to the phenomena of the real world. Yet, as Parsons pointed out, the alternative to the “aspect” type of definition propounded by Robbins must consistently lead all the way in an empiricist direction to the ultimate repudiation of the legitimacy of analytical abstraction to any degree and for any purpose.

In the last analysis, the attempts to condemn Robbins' definition of economics on account of its “formal” character fall into the same class as attempts to discredit economic theory as such and to construct an “economics” altogether free of theoretical propositions. The search for the definition of economic science in a particular “aspect” of the phenomena with which it deals simply brings to the task of definition the analytical attitude with which economic theorists have always expounded the substantive content of the discipline.

The Nature of Ends and Means

Apart from the more general considerations surrounding the “formal” character of Robbins' definition, couched as it is in terms of abstract ends and means, there has been some discussion of a narrower and perhaps more technical character concerning the nature and validity of the concepts of ends and means.30

Several writers have seen the relationship of ends and means in terms of which Professor Robbins defines economic science as an artificial schema that does violence to the true nature of human action. In a book in which the concept of an end of action is used many, many times, Robbins devoted very little space to explaining the nature of an “end” and to elucidating the difficulties that the notion involves. Robbins had described human ends as associated with “tendencies to conduct which can be defined and understood.” This description was seized upon as typical of a certain “positivism” that critics believed themselves to have detected in Robbins' position. Robbins is eager, it is contended, to invest a study of economizing—which is a subjective notion—with the objectivity of science. He has sought to achieve this by pressing human action into a mould involving ends and means that can be defined and understood. Ends are in this respect conceived of as quite analogous to the definite “external” resources of nature that constitute means. Ends, that is, are considered as “external” to the actor. The relationship between the definite means, on the one hand, and equally definite ends, on the other, defines the scope of economic science. This view of Robbins on the nature of ends has been severely criticized by several writers.

The critics, among whom may be named Souter, Parsons, and Macfie, pointed to a number of inadequacies in Robbins' schema.31 The concept of purpose as fundamental to human action seems to be wholly excluded. Ends are simply correlates of “tendencies to conduct”; this draws attention completely away from the conscious aiming that pervades economic activity. By squeezing the element of purpose out of action, Robbins' structure of ends and means is “timeless” in the sense that it ignores the fact that ends are never presented to the actor coincidentally with the means. If an economic act apportions resources among desired ends in much the same way as a pie is shared among a hungry family, then the economic act does not exist. Ends can be conceived as observable states of affairs only after their achievement. At the time of the contemplation of action, ends are to the actor only anticipations of future hoped-for states of affairs. After an action has been completed, it can be described as having achieved a certain allocation of resources among ends, but to characterize an action on these grounds as having involved the subjective notion of economizing is to consider the action from a merely behavioristic standpoint.32 This indictment of Robbins on the charge of “behaviorism” and “positivism” gains in interest in the light of the contribution of the praxeological conception of economics, to be taken up in the following chapter.

In addition to the criticisms of Robbins' concretization of ends, some debate has developed on the very obvious relativity of the ends-means schema. It has been pointed out that ends may be considered as means to further ends, and that means may be equally well considered as the ends of earlier actions. Consciousness of this flimsiness in the ends-means dichotomy must necessarily raise doubts about the validity of a category such as economizing whose claim to a definite status is based exclusively on the relationship between ends and means.

It may be observed that the facile manner in which Robbins assumes the existence of definite ends, without careful discussion of the fact that ends are, as a rule, set up merely as intermediate to the achievement of further chains of ends, is to some extent to be expected from his unconcern with the purposive element in action.33 We have noticed criticism of Robbins' formulation on this score, and there appears to be a direct link between this attitude and the postulation of absolute categories of ends and means. Felix Kaufmann has drawn attention to the fact that it is because of the element of purpose in human conduct that immediate ends are only the means to further ends.34 Kaufmann sees the lack of agreement concerning the definition of the subject matter of economics as arising out of the three possible “levels” of ends that may be considered relevant: the end of acquisition of goods, the further end of consuming them, and the supposed ultimate end of increasing one's happiness. But what is of moment in appraising Robbins' definition is not so much the particular “levels” into which ends may more or less arbitrarily be classified; it is rather the fact that ends, in so far as economic activity is described as directed towards ends, are such only relatively to the particular and immediate context of the action.35

This consideration of itself would not, of course, seriously threaten Robbins' conceptualization of action in terms of means and ends. Parsons,36 following up a classification of the chains of means-end relationships into “ultimate ends” of action, “ultimate means,” and an intermediate sector (in which actions involve both the means to more nearly ultimate ends and the ends of previous preliminary actions), has shown how economic action finds its place in the intermediate sector.

But while the concept of economy and the operation of economizing does not depend on the “absolute” status of an “end” of action, at least one writer has shown the weakness of the ends-means dichotomy as a method of separating the science of economics from technology. It had been one of the principal merits of Robbins' formulation that it provided an elegant and conceptually neat device for distinguishing between problems of economics, on the one hand, and problems of technology, on the other. Where alternative definitions of economics, being classifi- catory in character, failed to provide a satisfactory means of excluding technology, the analytical definition advanced by Robbins enabled him to use Mayer's distinction: “The problem of technique arises when there is one end and a multiplicity of means, the problem of economy when both the ends and the means are multiple.”37

There will be occasion later in this chapter to review some criticisms of the validity of this distinction; at this point the objection must be noticed that the very nature of the concepts, ends and means, makes the distinction inadequate. In a recent paper Rivett38 has contended that while Mayer's distinction is valid in itself, “it cannot be used to separate the science of economics from the science of technology, pushing some relationships into the first field and others into the second.” This is ultimately due to the fact that any course of action undertaken to achieve a desired end thereby becomes itself an end intermediate to the achievement of the originally conceived end. In Rivett's example, if a pencil is picked up in order to accomplish the end of writing, there has been introduced an additional, subordinate end of picking up the pencil. Pursuing this line of thinking, Rivett has no difficulty in demonstrating that the attempt to attain the single end—which, according to the Mayer-Robbins view is the problem of technology—may involve the intermediate pursuit of various subordinate ends that may well conflict with one another. The same problem of securing the single end, a problem of technology from the point of view in which the subordinate ends are seen merely as means, thus becomes a problem of economy from the point of view of a more minute scrutiny in which the harnessing of any of these means is recognized as itself possessing all the qualities of an end.

Once again Robbins' disregard of these considerations seems in consonance with his lack of concern for the element of purpose in human action. Once an end has been postulated as the goal of action, then all the actions undertaken with this end in view can, ex post facto, be grouped in a separate class from that of the end. All the chains of subordinate ends and means leading up to the final goal can be telescoped together to form a homogeneous pool of “resources” and “means” for the final goal. But from the point of view of the actor, such a dichotomy is in no sense unique or even especially significant. To him these resources, means, and subordinate courses of action are all arrays pointing purposefully to the final end, but at the same time and for the same reason containing subpatterns of purposefully ordered arrays, within each of which the ex post facto dichotomy betweens ends and means could be distinguished with equal validity.

These criticisms of Robbins' formulation in terms of ends and means may perhaps be most illuminatingly summed up by reference to the very interesting discussion by Tagliacozzo.39 In the course of an exhaustive analysis of the nature of economic “error,” i.e., of “uneconomic” behavior in failing to resist the temptation of the moment, Tagliacozzo points out that in full reality action necessarily involves the complete identity of ends and means. Tagliacozzo's work has especial relevance for the praxeological view of economics and will be discussed more thoroughly in the succeeding chapter. At this point we note Tagliacozzo's contention that when the economic agent succumbs to a fleeting temptation (e.g., the purchase of wine) at variance with a prearranged economic program, his “error” exists only as relative to the arbitrarily postulated goal of the program. To judge his action as “uneconomic,” because it involves an inappropriate disposition of “means,” is to impose from the outside an ends-means schema that does not conform to the real situation. Seen from the standpoint of full reality, the purchase of wine, as an autonomous act, involves the full identity of the end and the means. Without becoming involved at this point in the significance of these ideas for the concept of economic “rationality,” this discussion focuses attention very clearly on the weakness of Robbins' ends-means formulation. Ends and means are clearly imposed categories artificially dissecting the elements of action; recognition of the relativity of these categories leads to the demand for their far more careful use in attempts to define the nature of economic activity and the scope of economic science.

“Given” Ends and Means

Implicit in the formulation of the nature of economic activity in terms of the allocation of scarce resources with regard to alternative ends is the assumption that the ends of action are merely “data” for the economist investigating economic activity. This property of Professor Robbins' definition, that is, its treatment of wants as given (and, for the purpose of a given economic problem, constant), has been accorded considerable attention. It has, of course, already been noticed in this chapter that an important and widely discussed characteristic of Robbins' definition was its identification of the economic by singling out an aspect of phenomena. This, too, is closely related to his treatment of ends and wants as data. Where earlier definitions had identified economic activity with action directed toward certain more or less well-defined ends, Robbins cultivated an unconcern for the nature of the ends involved in action. Necessarily this meant the removal of these ends from the range of phenomena to be studied and their relegation to the realm of given information upon which the problem to be investigated is based. All this, of course, gave rise to criticism on the part of those wishing to see the economists, in close collaboration with students of the neighboring disciplines, pay more attention to the realities of concrete action.40

But apart from the complaint that the treatment of ends as mere data is an unholy attempt to extrude from economics the contributions of the psychologist and the sociologist, this notion of ends implies a profoundly important outlook on the very nature of human action and the possibility of its scientific explanation. In the full reality of human action the values of men and the ends to which they direct their energies are continually changing, continually becoming modified under the impact of outside changes as well as through the effect of changes wrought by the very action aimed at the original ends and by the very effort of pursuing those ends. The attempt to introduce scientific explanatory analysis into the study of human action has involved the isolation, from the tangled intricacies of the web of action, of an element in it that we call its economic aspect. According to Robbins' conception of the precise nature of this element, its isolation involves the analysis of action in terms of its relation to the array of ends as they are esteemed at a given moment in time. Any proposition deduced from the fundamental concept of the economic act will thus have relevance only within the particular frame of reference relatively to which the economic aspect of action has meaning—i.e., the ends whose respective values were the data of the problem.

This view of the nature of the assumptions implicit in economic theory involves two important corollaries. First, economic theory can only analyze the implications of given wants; it cannot as such explain or determine changes in wants themselves (although, of course, its explanations can throw enormous light on these questions). Second, economic theory has validity only on the assumptions of the constancy of wants throughout the duration of the problem under consideration.

The danger in the conception of ends as data has already been commented on in this chapter. To construct a model of action in terms of ends so conceived may well lead one unwittingly to disregard the fact that to the actor himself ends are not data at all, but have been purposefully chosen and are constantly in danger of being supplanted by newly prized ends.41 In viewing economics as concerned with preselected ends that are the ultimate frame of reference for a particular economic problem, one must exercise constant care not to transform these chosen ends into objective “pulls” similar to physiologically conditioned “needs,” for this would turn economic activity into a series of reflexes responsive to quasi-biological tropisms.

Several writers have pointed out that from the economic point of view it is not only the ends that are data, but also the means. The economic element is the coordination of given ends and means whose substance economic analysis does not and cannot attempt to explore. Professor Knight especially has deplored the unfortunate habit of describing economics as concerned with means, but not with ends. In any sense in which ends are data for economics and are thus not the concern of the economist, means are no less “given” and beyond the range of the economic problem.42

In this respect it is interesting to examine the formula with which Max Weber attempted to distinguish between economics and technology. The problem of expressing such a distinction seems to have exerted some fascination, as attested by the recurrence of passages in Weber's writings discussing this question. Weber brought the distinction into clear relief by asserting that “economic action is primarily oriented to the problem of choosing the end to which a thing shall be applied; technology, to the problem, given the end, of choosing the appropriate means.” A genuinely economic character is that which “takes account of alternative ends and not only of means for a given end.”43 This way of expressing the distinction may at first give the impression that in economic action the means are given, and the ends are still to be selected, whereas in technology the ends are given, and the means are to be selected.44 It would be an error, however, to draw the conclusion that Weber in any way disagrees with the writers who stress that in economics the ends as well as the means are given. Weber too recognized that the economic view of action takes the actor's valuation of ends as a datum. After all, it is this idea that is the cornerstone of the concept of Wertfreiheit that Weber championed as the proper setting for the analysis of economic activity. Weber too is thinking of a given array of ends ordered by the (not-to-be-studied) valuations of the actor. What he has in mind, of course, in describing economic action as the choice of ends to which given means are to be applied is simply the fact that a given ordering of ends will necessitate the allocation of means among these ends in a manner peculiarly consistent with this given order of estimation. Ends are to be “chosen,” not in the sense of being arranged in order of relative esteem, but in the sense of their receiving allocations of resources. With alternative ends competing for given means, these means must be allocated by “choosing” for each resource an end such that its allocation is in harmony with the (already) adopted ordering of ends.

The conception of the ends of economic action as data involves, we have noticed, two corollaries. It is implicit in this conception that the selection and ordering of ends do not constitute an economic problem; and it follows that for the duration of any economic problem its analysis must assume constancy in the relative urgency of the wants that economic action seeks to satisfy. Both these implications of Robbins' formulation are revealing. It requires no great insight into the affairs of the world with which economists largely deal to realize that if the economist is to work under the restraints imposed by these implications, he must, in his capacity as an economist, renounce interest in perhaps the most fascinating and important aspects of the data with which he works. The economist qua economist (and this phrase of Robbins has been used by critics with characteristic, but hardly deserved, sarcasm) must ignore the fact that tastes and values are swiftly changing variables and must avert his eyes from the intensely interesting and important processes whereby men arrive at their judgments of value.

These limitations on the scope of the economist's area of competence have, of course, been condemned again and again by historically-minded and institutionally-conscious critics of economic theory. The fact that the validity of these limitations follows rigorously from Robbins' definition of economics reveals the close faithfulness with which this definition of the subject mirrors the procedures that economic theorists have, in fact, been following all the time. What the explicit recognition of the fact that the phenomena with which the economist deals are data does achieve is the appreciation that self-restraint by economic theorists does not spring from blindness to the facts of economic life. The “abstractions” of the economists, against which realistically-minded critics have so vigorously rebelled, are inherent in the nature of the problems to which they address themselves. Their subject matter forms a distinct field precisely because there exists an element in action that is distinct from the nature of the ends of action and at least conceptually independent of the processes whereby ends are selected and ordered. It must surely be regarded as a merit of Robbins' definition that it isolates this element with clarity. A grasp of the character of this element in action makes it immediately evident that the severely circumscribed applicability of the propositions enunciated by the economic theorist, far from being the necessary result of a crudely unrealistic methodology, is but the properly incomplete contribution of the specialist whose skills have been developed by a judicious and fruitful division of labor. Specific policy recommendations on economic affairs may require long and careful study of the actual attitudes of human beings, their wants, valuations, and expectations. Crucially important though such information may well be, the research and scholarship involved in its compilation is different from the application of economic reasoning. Robbins' definition brings this distinction into sharp focus.

Single End and Multiple Ends

One of the basic components of Robbins' formulation of the nature of economic activity is its assumption of the presence of a multiplicity of ends to which the scarce resources can be applied and among which they must be judiciously allocated. It has been seen that Robbins himself pointed out that where a single ultimate end, such as “utility,” is considered as the goal of action, then the process of economizing resources among competing ends reduces to the operation of maximizing this ultimate end. It has been shown earlier in this chapter that the superiority of the definition of economics in terms of economizing over the definitions couched in terms of the maximization principle has its source in the more penetrating analysis of action that is made possible by the recognition of numerous competing wants whose satisfaction is conducive to the ultimate end of utility.

It was the conception of economic activity as involving numerous ends that enabled Robbins to adopt Mayer's distinction between economics and technology. Technology involves selection among means for the attainment of only a single end, whereas economics necessitates comparing the urgency of several competing ends.45 At this point attention must be turned to the question of the actual multiplicity of ends which, it is alleged, are to be found in economic action, and, on the other hand, of the extent to which the idea of an underlying single ultimate end is to be considered essential to the Mayer-Robbins conception of economizing. The problem arises partly from the very premise from which the Mayer-Robbins formulation starts—the existence of a given ordered array of variously prized ends.

It was seen in the previous section that given wants in Robbins' sense implied an ordering of ends separate from the economic act itself. It is on the assumption of previously ordered ends that the process of allocation of resources can proceed. Professor Knight, among others, has repeatedly stressed, however, that the comparison of ends as to their importance and the allocation of resources consistently with such a comparison imply “quantitative comparability in the final results of all uses of any ‘resource’”; they imply, in other words, that “there is really only one end.”46 It would have to be admitted, if this argument be accepted, that economic action too is merely a matter of technique in so far as the ultimate (single) end of action is concerned.

It must be noted that the reservations that these considerations inspire concerning the validity of the notion of a multiplicity of ends are rather different from those expressed by Souter and Parsons on the same topic. The latter writers too laid stress on the unified character of systems of ends, whether of the individual or society; but their criticisms focused chiefly on Robbins' exposition of the ends of individual economizing in terms of psychological “pulls” that, when unified into a “system,” seem to contradict the very concept of economy.47 The points raised by Knight, on the other hand, do not at all lose their force even if the nature of the ends of action is set forth in less “positivist” terms. If ends can be compared and arranged in order, it is argued, there must be some common denominator relating them to one another. However revealing and significant it may be to break down this single ultimate end of maximization into the numerous intermediate ends of economizing, the elegant Mayer-Robbins distinction between economics and technology seems difficult to salvage.

It is interesting to draw attention at this point to a somewhat different characterization of economic activity as directed to a single end, which was developed by Robbins himself, and which has been used with great effect by Hayek. This is the view that recognizes the economic motive as “merely desire for general opportunity, the desire for power to achieve unspecified ends.”48 Money has come to be linked with the economic motive, according to this view, because it offers the means to enjoy the widest choice of goods and services that we may desire. (One is reminded of a century-old definition of wealth that saw it, not as particular goods and services, but as the “power” to command goods and services in general.)49

The relation between this understanding of an economic “end” and the economic aspect of activity in general is clear. We have, in the description of the economically motivated act as one directed at gaining the power to achieve unspecified ends, the view precisely opposite to the older notion of economic activity as directed to a single, sharply defined end (such as material goods and the like). The first step taken by Robbins away from the older type of definition was the recognition of an economic aspect to activity in general, regardless of the concrete nature of the particular ends involved. With the adjective “economic” freed of positive association with specific ends, Robbins is now able to press still further and identify the economic motive with activity distinguished precisely by the lack of any specifically selected ends.

It is unnecessary to examine the doubts that have been expressed whether Professor Robbins has in fact been able to salvage a scientifically acceptable notion of an “economic” objective distinct, let us say, from military and political objectives.50 What is of interest in the present connection is the significance of the very conception of an activity distinguished by its orientation to ends-in-general rather than to particular ends. The view of economic activity as the effort to gain power to obtain ends that are to be selected only later represents an analysis of action that is intriguingly parallel to that which ignores altogether the multiplicity of ends in human action. We have seen that activity, as analyzed from the economic aspect, may be described in terms of one of two patterns. Either it may, with Robbins, be seen as the allocation of means with regard to numerous, ordered ends; or it may, with Knight, be seen as the technique of maximizing, with given resources, the single ultimate end, “satisfaction,” in terms of which alone the numerous intermediate ends can conceivably be compared. The concept of an activity directed at ends-in-general involves the isolation of one kind of activity, which is, indeed, related to numerous, desired ends, but in which the latter have been superseded by a single end, not as their resultant, but as the preliminary to their attainment. Action was entirely deprived of its economic aspect, in the Robbins-Mayer view, when the ends of action were replaced by the end of “satisfaction,” to which they are conceived as being subservient. Where many ends were supplanted by a single end, viz., the resultant of them all, activity became merely a question of technique with regard to this single, ultimate end. Now, on the other hand, we have isolated an activity in which numerous desired ends are superseded by the single intermediate goal of attaining power in general to command the as-yet-unspecified further ends.

The recognition that a large part of human activity, that directed at gaining general purchasing power in the form of money, does, in fact, conform to this pattern is highly revealing. The maximization of money income, of “wealth,” as the essence of economic activity was one of a group of concepts underlying many older definitions of economics. The maximization of some less specific entity, such as satisfaction, utility, welfare, and the like, came to be identified with economics as a result of the introduction of subjective thinking into the discipline in the latter part of the previous century. Robbins' formulation of the economic aspect of activity in terms of the allocation of scarce means among numerous alternative ends is now seen to occupy a very special position in respect to these two types of maximization. It begins by pressing on to the multiplicity of ends of action that lie behind the quest for wealth. It sees the economic aspect of action to exist precisely in the circumstances brought about by this multiplicity of real goals and action. But it is, on the other hand, able to retain its grip on this economic aspect of action only by deliberately refraining from submerging the multiplicity of these ends into a single, more ultimate end. The economic aspect of affairs, as seen by Robbins, is predicated on an interpretation of action that, while reaching beyond the false homogenization of ends implicit in the definition of all economic activity as the maximization of the single end, “wealth,” is able to resist the parallel homogenization of ends in terms of their resultant that is implicit in the characterization of action as the maximization of “satisfaction.”

Economics and Ethics: the Positive and the Normative

Mention has already been made in this chapter of one important implication of Robbins' formulation of the nature of economic activity, viz., the necessary ethical neutrality of the economic point of view. The highly controversial consequences that have been drawn from this principle and the profound effect that adherence to it must have on the role of the economist and on the nature of his analysis demand a more detailed account of this aspect of Robbins' definition as well as the criticism with which it has been confronted.

The demand that the economist preserve a scientific neutrality with regard to the desirability of particular situations explored by his analysis has been maintained with a fair degree of consistency. Nineteenth-century economic methodologists had stressed the distinction between the science of political economy and a possible art of political economy. “Almost all leading economists, from N. Senior and J. S. Mill onwards” had made pronouncement “that the science of economics should be concerned only with what is and not what ought to be ... ”51 By the turn of the century the relationship between economics and ethics had become a lively topic for discussion in the German literature. Heated controversy over the place of the Werturteil (value judgment) in economics culminated, at the famous Vienna meeting in 1909 of the Verein fürSozialpolitik, in what Schumpeter describes as almost amounting to a row.52 It was at this time that Max Weber was vigorously campaigning for professional and academic Wertfreiheit in the social sciences. What Robbins injected into this time-honored issue was the claim to have demonstrated that such ethical neutrality on the part of the economist follows with rigorous necessity from the very definition of an economic problem.

Previously, the question of freedom from judgments of value on the part of the economist had been debated chiefly from considerations of scientific propriety. Weber had devoted great pains to demonstrating that investigation into the “cultural sciences” is not incompatible with an attitude of detachment. Now Robbins had attempted to make it clear that ethical considerations can, by definition, in no way affect the economic aspect of affairs. The economic point of view is concerned with a concept of the act in which the ends of action have been previously determined and for the duration of which those ends are not permitted to change. The content of these ends is completely irrelevant to the economic aspect of the act and hence to economic analysis. Introduction of judgments of value into the consideration of the economic consequences of action thus constitutes deliberate transgression of the proper scope of economic inquiry.

In Robbins' exposition, this point of view found its expression in the emphasis on the distinction between “positive” studies, on the one hand, and “normative” studies, on the other.53 Between these two fields of enquiry Robbins saw a “logical gulf,” and it is this unbridgeable chasm that separates economics from ethics. The two fields of study are “not on the same plane of discourse.” “Propositions involving the verb ‘ought’ are different in kind from propositions involving the verb ‘is.’” “Economics deals with ascertainable facts; ethics with valuations and obligations.”54

Several years before the publication of his Nature and Significance of Economic Science, Professor Robbins, in objecting to Hawtrey's postulation of the ethical character of economic propositions, had been able to declare that Hawtrey's position was contrary to the general agreement of economists.55 However, Robbins' more extended discussion in his Nature and Significance and especially his postulation of the gulf between the positive and the normative met with far from general agreement. Two streams of sharp dissent may be distinguished in the subsequent literature. The one group of critics, with Souter, denied the validity of Robbins' positive-normative dichotomy on the ground that it is a part of a wholly unacceptable view of the nature of economic activity and economic science. Their condemnation of this distinction followed consistently from fundamental disagreement with Robbins' principal theses. On the other hand, several writers, with Macfie, have built solidly on the general framework constructed by Robbins, but have reached conclusions on the possibility of a normative economics that are sharply at variance with those developed by Robbins himself.56

Souter's' rejection of Robbins' characterization of economics as a “positive” science is closely connected with his previously cited condemnations of Robbins' entire position as “positivist.” The treatment of the ends of action as abstract might indeed justify a distinction between two levels of inquiry: one concerned with the concrete ends of action taken as the “norms,” and the other wtih the “positive” disposition of means with regard to these ends considered in the abstract. But the norms themselves may be studied quite as “positively.” The rules of logic, for example, offer a field of study altogether as “positive” as does the “psychology of reasoning,” even though the former deals with how we “ought” to reason (with truth as our norm), and the latter with how we do.57 The distinction between positive and normative levels of discourse is thus seen to be only a relative one, not at all necessarily warranting the withholding of the name “science” from normative disciplines.58 Moreover, as we have seen, Parsons forcefully pointed out that Robbins' conception of a positive end in the abstract, free of any normative tinge, contradicts the very nature of an end, which necessarily involves the notions of effort and purpose. While the circumstance that men do try to economize can be described and analyzed in “positive” terms by abstracting from the normative aspect of action, such an abstraction must necessarily pass over the essential quality of purposive action.59

The Souter-Parsons critique of Robbins' dichotomy and especially of its application to problems of economy thus has its source in a fundamental disagreement with the conceptual framework into which Robbins has fitted the economic act. Of quite a different character is the position taken up by Macfie with regard to the possibility of a “normative” economics. Macfie vigorously pursues his theme, which leads him to the conviction “that economics is fundamentally a normative science, not merely a positive science like chemistry.”60 But Macfie arrives at this conclusion, diametrically opposed to that of Robbins, by enthusiastically accepting Robbins' general framework and building solidly upon it as the foundation for his own position. In acknowledging his indebtedness to the work of Robbins, Macfie expresses the belief that Robbins' essay is final, “within its chosen scope.” Macfie's own contribution he regards as a “superstructure” erected on it.61

But the superstructure that Macfie has erected would turn the concept of economy and the entire science of economics in a direction completely different from that envisaged by Robbins. Macfie accepts the analysis of economic action as the allocation of means with regard to given alternative ends. He endorses with fervor the rejection of the view linking the concept of economy with specific types of ends. He, too, relies heavily on the notion of economy as an aspect of all kinds of human endeavor. Although Macfie stresses the purposive character of human action far more than Robbins does, he too stresses the essential homogeneity of the economic element in action regardless of the particular type of motivation involved. Where he parts company with Robbins and attempts to embark on the construction of his own “superstructure” is in his elevation of the idea of “economy” into a “value” in its own right.62

With earlier writers the concept of economy was treated simply as the neutral expression of the concrete purposes of action. Where given ends were the motives of human endeavor, the desire to encompass these ends in the face of inadequate resources enforced the application of “economy,” of careful comparison of ends and means, simply in order to fulfil the given goals of endeavor as completely as circumstances would permit. The practice of economy fulfilled only the originally selected goals of action; the content of these goals having been selected before the economic act, analysis of such an economic act could be “positive,” i.e., unconcerned with the nature of the ends of action.

What Macfie introduced into this schema was the idea that, with given competing ends of action and with scarce resources, economy is enforced on the economic agent as an end and final value in itself. By acting rationally to achieve the optimum satisfaction of his previously selected desires, economic man is realizing a reasonable objective. “And the realisation of an objective which is reasonable is in some sense good in itself.”63 The principle “that scarce means should not be wasted, or should be used to the best advantage” is seen as a universal human value that fundamentally affects all kinds of endeavor, whether singing, writing, or activity in the market. If this view of the nature of economy is accepted, then the economic act becomes immediately more than merely the allocation of limited means in order to achieve specific competing ends. Economy, the fitting of scarce means to ends, is imposed not merely by force of the originally selected ends, but “under the persuasiveness of a value, to maximize total satisfactions.” Economics does not “just accept human desires, and give them back unchanged. The principle of economy itself transmutes them through its criticism.” The choice that emerges from subjecting competing desires to judgment in terms of the value, economy, is something quite different from the originally selected ends. Ends cannot remain “constant” throughout economic action because such action in itself injects a new “end” into the system of the agent's desired ends.64

Economics as Macfie conceives it thus emerges as an essentially normative discipline, analyzing the impact on numerous desired ends of a new end, viz., the value, economy, which is introduced through the presence of scarcity. This view has found favor with Professor Knight,65 among recent writers, but the basic thesis is not new. Macfie's value, economy, is strikingly reminiscent of Veblen's “instinct for workmanship.” In Veblen's view there is in the human character “a taste for effective work and a distaste for futile effort ... a sense of the merit of serviceability or efficiency and of the demerit of futility, waste, or incapacity ... ”66 Man is “possessed of a discriminating sense of purpose, by force of which all futility of life or of action is distasteful to him ... It is not a proclivity to effort, but to achievement—to the encompassing of an end. ... Within the purview of economic theory, the last analysis of any given phenomenon must run back to this ubiquitous human impulse to do the next thing.”67 In this discussion of what he calls the “pervading norm of action,” Veblen, in what, coming from his pen, must be considered a remarkable passage, is clearly covering the same ground as Macfie.

The Nature of Economic Science and the Significance of Macroeconomics

In a chapter devoted to the discussion of Professor Robbins' definition of economic science, attention must be paid to the complaint that his formulation excludes from the subject the entire field of the “consideration of the general level of economic activity.”68 In an era in which investigation into the causes of general unemployment of resources has assumed the most prominent place in the work of economic theorists and policy-makers, such a complaint, if well founded, would be a serious limitation on the practical usefulness of Robbins' definition.

The point at issue has been raised by several writers. Robbins' definition is predicated on the necessity, imposed by the scarcity of resources, to economize in order to satisfy most fully alternative human wants. The concept of economy depends on the necessity of comparing alternative ends. This is so because the allocation of resources for any one selected end involves the necessary withdrawal of these resources from possible allocation to another, alternative end. Where, for example in the case of a resource that is a free good, the devotion of the resource to a particular use does not require its withdrawal from an alternative use, no economy is called for and no concept of economic “efficiency” can be applied. What critics of Professor Robbins have pointed out is that the same absence of “economy” that characterizes the use of a free good may quite as certainly characterize the use of a “scarce” resource if there is, for any reason, a demand insufficient to bring the resource into employment. “Efficiency in the use of underemployed scarce resources is as irrelevant as it is in the administration of free resources ... ”69 “The problem of utilizing these [i.e., idle] resources fully is not a matter of deciding whether they should be devoted to use A or use B, but of how they can be used at all.”70

Parallel to the use of this criticism to deny altogether the adequacy of Robbins' definition of economics is the view that the prevalence of idle resources renders inapplicable the conventional economic analysis of which Professor Robbins' formulation is the (correct) definition. It cannot be too strongly emphasized, Barbara Wootton has declared, that the absence of scarcity (through underemployment) of resources “renders inoperative, irrelevant and unreal the whole corpus of economic studies as defined by Professor Robbins and as embodied in the classical analysis and its contemporary elaborations and refinements.”71

The question that is here being raised relates, of course, to the impact that the demand for the reconstruction of economics implicit in Keynes' General Theory must have on the conception of the very nature of economic analysis. On the basis of the “classical” concept of the economy, according to which the idleness of resources could be only a temporary phenomenon of disequilibrium, economic science as defined by Professor Robbins could adequately analyze the economic problems of the real world. In the real world the use of a resource for any one purpose does, in fact, mean its withdrawal from some alternative purpose. But the economics that Barbara Wootton has in mind takes serious account of the Keynesian proposition that resources may be unemployed for reasons other than the fact that too much is asked for their use. This would certainly undermine the whole assumption of scarcity72 and cast a definite shadow on Professor Robbins' definition of economics. It would be inconvenient indeed if the validity of a definition of economics were to be made dependent on the particular view taken of a proposition advanced by an economic theorist, no matter how controversial that proposition might be.

The identification of Robbins' conception of the nature of economic science with “classical” economics and its assumption of full employment must be considered, moreover, from yet another angle. As expounded by Robbins, the analysis of economic affairs proceeds exclusively from the consideration of economizing by individuals. A problem is economic because it involves the necessity for an individual to reconcile his numerous desires with the limited resources available to him. A social problem has an economic aspect only in so far as it affects the conditions in the light of which individuals are constrained to economize. The consideration of the general level of economic activity and the degree of employment of a nation's resources would thus be excluded by definition from an individualistic ends-means economics. Economics, as Professor Robbins conceives it, must, it would seem, remain exclusively a microeconomics.

Despite these misgivings concerning the problems falling within the scope of Robbins' conception of economics, it has been shown by Rivett that it is quite sufficiently elastic to embrace the problems of idle resources. In the relevant sense, it is pointed out, unemployed resources are scarce. While they may be abundant in relation to effective demand, they are most certainly scarce relatively to desire. The doctrine that a deficiency in the effective demand for services is a result of a lack of purchasing power associated with low prices for that factor of production does not necessarily deny that idleness would be removed by sufficiently low prices. “If labor were not scarce relative to demand and were expected never to be scarce again, wages would be nil and ... all labor would soon be employed”73 .

The point is, of course, that it is precisely from the perspective of microeconomics that problems of unemployed resources are most obviously seen to be economic problems in Robbins' sense. If it is an economic problem whether to devote resources to use A or to use B, this is not because the uses A and B are valued, but because they are differently valued. Where the problem is how idle resources can be utilized, not for one or another use, but at all, then society is facing the tragedy of total waste of the means that could be applied to secure desired ends. What seems a resource robbed of its scarcity is clearly a valuable means, which, instead of being allocated to the most prized purpose, has been allocated by a breakdown in the economic system to no end at all. From the point of view of the ends of the members of society, a resource involuntarily idle represents, not a quasi-free good, but scarce means unprofitably withdrawn from a potentially fully-employed economy.

The determination of the circumstances tending to bring about the tragic misallocation (or rather nonallocation) of precious resources must, of course, be one of the principal tasks of a discipline dealing with the way in which the members of society, through the division of labor, concertedly economize the resources at their disposal, with respect to their desired ends.

7

Economics as a Science of Human Action

We must regard industrial and commercial life, not as a separate and detached region of activity, but as an organic part of our whole personal and social life; and we shall find the clue to the conduct of men in their commercial relations, not in the first instance amongst those characteristics wherein our pursuit of industrial objects differs from our pursuit of pleasure or of learning, or our efforts for some political and social ideal, but rather amongst those underlying principles of conduct and selection wherein they all resemble each other ...
Philip H. Wicksteed

The whole subject matter of conduct ... constitutes a different realm of reality from the external world ...
The first fact to be recorded is that this realm of reality exists or “is there.” This fact cannot be proved or argued or “tested.” If anyone denies that men have interests or that “we” have a considerable amount of valid knowledge about them, economics and all its works will simply be to such a person what the world of color is to the blind man. But there would still be one difference: a man who is physically, ocularly blind may still be rated of normal intelligence and in his right mind.
Frank H. Knight

Thus far we have given an account of a number of different conceptions of economic science, each of which reflects a fundamentally distinct understanding of what is to be meant by the economic point of view. In the present chapter we bring our survey to a close with an exposition of yet another conception of the point of view taken by the economist. In its completest form this definition of economics, by virtue of which the discipline emerges as one of the group of sciences of human action, embraces an entire and unique epistemology of the branches of knowledge commonly subsumed under the cultural and social sciences. As such, the view of economics as a science of human action deserves a close and full discussion in its own right, together with a clear exposition of its points of contact, both of agreement and of conflict, with the views treated in previous chapters.

Such a discussion is all the more in order since it has been long overdue in the methodological literature on economics. The concept of a science of human action, or, to use the term applied by Professor Mises, the praxeological view of economics,1 has been singularly unsuccessful in gaining the degree of attention that, in its significance for economic methodology, it unquestionably deserves. Although isolated aspects of the praxeological point of view have been perfunctorily treated in the literature, little attempt has been made to understand them as integral parts of a complete epistemological system of the social sciences. The result has been a tendency to replace the system as a whole, in the public view, with specific controversial propositions concerning such concepts as apriorism, rationality, and the like. Taken out of context and discussed against the background of radically different epistemological ideas, these propositions could rarely command the serious consideration to which they were entitled. Especially unfortunate has been the consequence that the praxeological view has come to be even more profoundly neglected.

It is therefore the task of the present chapter to outline in some detail the conception of the nature of economic science as viewed from the perspective of praxeology. In addition, an attempt will be made to relate this view to several of the alternative definitions treated in earlier chapters. In particular, its points of contact with that discussed in the previous chapter will require careful examination. It will be shown that, side by side with the emergence of the view of economics as the science concerned with the allocation of scarce means, which culminated in the work of Professor Robbins, there has, for over sixty years, existed a stream of thought that has recognized the praxeological aspect of economics. The view of economics as concerned with scarce means will be seen to take its place naturally as an example of a limited application of praxeological ideas; many of its apparent inadequacies are seen to disappear when it is related explicitly to the broader concepts of a general theory of human action.

Coming at the end of a book setting forth a series of widely diverging views on the nature of the economic in human affairs, the subject of the present chapter throws a revealing light on the sources of this remarkable range of disagreement. The exposition of the praxeological element in social phenomena will help to explain why it so long succeeded in eluding the attention of so many brilliant thinkers. The recurrent and unfortunate identification of this economic aspect with so many of the actual facets of social history with which the praxeological element is intimately connected will gain in intelligibility, it is believed, by an understanding of the nature of social phenomena as viewed from the vantage point of praxeology itself.

I

The Sciences of Human Action

The description of economics as a praxeological science must necessarily be preceded by a rather detailed exposition of the praxeological point of view in general. This will readily be seen to embrace a far wider range of phenomena than is considered in conventional economics. At this point it is sufficient that the praxeological view sees economic affairs as distinguished solely by the fact that they belong to the larger body of phenomena that have their source in human actions. The core of the concept of human action is to be found in the unique property possessed by human beings of engaging in operations designed to attain a state of affairs that is preferred to that which has hitherto prevailed. A person perceives the possibility of an improvement in his position, perhaps through possession of an additional commodity, perhaps by the abandonment of an unwanted piece of property, by a change in physical location, or through some other alteration in the configuration of matters that might affect his sense of wellbeing. The recognition of any such opportunity for improving his well-being sets in motion the actions that the person will take to secure the improvement. The pattern of action taken will be broadly defined by the circumstances surrounding the desired alteration of affairs. Sound logic will, in a given situation, point to one or several courses of action that give promise of most successfully securing the desired change. In so far as human behavior is guided by logic, then, conduct will follow a path that has been selected by reason. This path of conduct is what is known praxeologically as human action.

The concrete forms that human action may take are as innumerable as are the ways in which men can achieve relief from states of relative dissatisfaction. The particular form that an individual human action takes is determined by factors that include those making up the specific environmental conditions as well as those that have shaped the character and values of the actor. The conception of sciences of human action recognizes that the form of action as it unfolds in its historical reality is the result of influences that range from the physiological to the religious, the social to the geographical. An explanation of human action can be adequately undertaken only with full awareness of these varied influences. The historian seeking to understand what men have done in particular instances must draw on the disciplines whose task it is to explain the sequences of cause and effect in the physical, physiological, or psychological influences upon action.

The contribution that the praxeological point of view has made to the scientific explication of action in history is the isolation of an element in action the explanation of which is not exhausted by even the most complete application of the sciences concerned with the concrete manifestations of human action. This residual element is that of the operation of human action itself, which neither is explained by physical, physiological, or psychological theories nor requires the assistance of these doctrines for its own exposition. A praxeological science, using the rationality of human action as its foundation, is able to derive theorems describing the path of action under given circumstances. The reasoning that constructs these theorems mirrors the reasoning that is implied in action itself. New links in the chain of knowledge, in the form of praxeological theorems, are forged from the constraint that human purposefulness imposes on action, namely, that it be taken only with the sanction of reason.

Given all the physical, physiological, and psychological influences on the setting of an action, action of a specific form might be predicted with assurance. But such prediction is conceivable, not because these influences in themselves determine action, but because action is subject to the mandate of reason, which guides the act into the path that is to be preferred among those indicated by these external influences. A complete knowledge on the part of an observer of these external influences might allow prediction of the form to be taken by action only because the logic of the observer enables him to know with certainty the path that the actor's own logic will select. When a man is about to perform a mathematical computation upon given data, an observer of the data may attempt to predict the results that the computer will arrive at. But for such a prediction to be successful, it is not sufficient to rely on the fact that these results are “determined” by the data; it is necessary that the observer with his own logic be able to reproduce mentally the logical operations performed by the computer in arriving at his results. There is, of course, a definite meaning to the statement that the results of a mathematical computation are determined by the relevant data. An attempt at the computation by a human mathematician, however, yields these “determined” results only in so far as his logic constrains him to conform to the objectively correct computational operations. The case with human action in general is rather closely analogous to this example.

At the root of the notion of human action is the simple assumption that human reason plays a role in every action. Although, of course, by no means universally acceptable, this assumption remains a simple, and at least superficially, plausible one. No matter how compelling the physiological or physical factors that crave action may seem, it is within the power of reason to resist them. No matter how strong the psychological pressures on man may be, his actions have necessarily passed the scrutiny and gained at least the tacit assent of his reason. These pressures may well be overwhelmingly powerful, and, of course, in sanctioning or prohibiting action, men's reason is operating with the consciousness of these imperious, often contradictory forces. The concept of human action depends, however, on the introspectively valid fact that there is a form of conduct that is specifically human, i.e., conduct that is accompanied by the consciousness of volition, of something more than a bundle of reflexes responding to specific stimuli. The nature of these various stimuli and the directions towards which they variously tend to guide action are completely independent of the desires and will of the actor. As such they are part of the subject matters of the physical, physiological, and psychological sciences. Were action taken simply in instinctive obedience to these stimuli, it could be conceived as objectively determined by the data constituting its setting, in the same way as the results of a mathematical computation are determined by the data of the problem. But because man possesses the power to reject one course of action for another, to arrange the satisfaction to be derived from obeying specific impulses within a wider ordering of values, the physical, physiological, and psychological sciences do not exhaust the facts of action that are capable of scientific explanation. The element in conduct that is the reflection of man's power to weigh, arrange, and choose among courses of behavior is the specifically human element in action. The investigation of this element of human action and of its manifestation in various particular situations forms a field of study unique by virtue of the nature of human action itself. Sciences of human action will be distinct from other sciences in that the former begin where the latter end, viz., in the implications of the rationality that governs purposeful behavior.

The Emergence of the Praxeological View of Economics

Postponing for subsequent discussion the further details of the praxeological view and the consideration of the controversial points involved in it, we shall proceed to outline the development, during the past three quarters of a century, of the stream of thought to be regarded as the praxeological view of economic science. Since its emergence, the praxeological point of view has been most fruitful, not in the extensive exploration of new sciences of human action, but in the consequences of its recognizing the theorems of economics as being the propositions of a science of human action. The possibility of theoretical statements concerning economic activity was seen as not at all due to any supposed uniqueness in the phenomena of wealth or material welfare or money or any of the other numerous criteria that had been used in defining economics. It was perceived that economic theory derives from precisely that element in human behavior which we have described as human action. The particular forms of action that have been traditionally investigated by economists are, indeed, distinguished by close association with various institutions such as money or with specific patterns of action such as interpersonal exchange. But if there is any meaningful underlying unity in the theorems of economics, it is to be found only in the concept of human action. Seen from this vantage point, economic theory acquires immediately a position unique within the range of human knowledge. It is the discipline that has alone successfully sought to harness the element of human action to the scientific explanation of social phenomena.

The earliest formulations of the praxeological view of economics in anything approaching a complete statement appeared about the turn of the century. Before this there had been several penetrating attempts to elucidate the nature of economic science. Several of these, especially those seeking to distinguish a specifically “economic principle” in action, have been cited in earlier chapters. But the uniqueness of human action as seen by praxeology, that is, as making possible a characteristically distinct contribution to the understanding of social phenomena, had not been expounded. Aside from isolated statements by several writers, who seem to have caught a glimpse of such a possibility,2 it was not until the nineties that economics was clearly identified with the logic of conscious choice.

Perhaps the first discussion of the role of economics as a science of human action in this praxeological sense is that of an American, Sidney Sherwood. Writing in 1897 on the “philosophical basis of economics,”3 Sherwood declared that a general science dealing with “consciousness in action,” a “science of practical life,” was the intellectual necessity of the time. Hitherto special disciplines such as history, law, politics, and sociology had groped forward in this direction. But a “master science” was required to give a common starting point and method to these special inquiries. Such a science “must explain all the conscious activities of men by reducing them to terms of the motives and choices of the individual consciousness.” To Sherwood it seemed that economics is the science outstandingly fitted to play this role. “Economics deals with wants consciously felt, resources consciously perceived, and consciously directed to the end of gaining conscious satisfaction ... ” Any restriction of economic reasoning to the sphere of material goods is completely artificial. It seemed “inevitable” to Sherwood that economics must ultimately include all human values. “All pleasures, all values, all choices, all teleological activities, are, in fact, chosen and followed upon principles which economics alone has explained in a scientific manner.”

All human self-directed conduct, Sherwood pointed out, proceeds from choices that are simply the valuations of certain courses of action. The motive power in the practical activities of man is to be found in his consciously felt desires. Sherwood sharply criticized the temptation, to which several sociologists of the period had succumbed, of applying physical and biological concepts to psychical phenomena. The fitness that survives, according to the biological notion of evolution, is an unforeseen fitness, an adjustment wrought out in consequence of the struggle. But psychical activities are essentially purposeful; the fitness that survives in social adjustments is prearranged. Sociologists are guilty of unscientific procedure when they group the phenomena of economic adjustments together with those of unexplained and fortuitous biological change.4

Sherwood's perception of the nature of human action and of the praxeological character of economics is unmistakably clear. The adjective “conscious,” which he constantly uses to describe the types of conduct dealt with by economics, and his explicit relation of such conduct to human motives identify the “master science” for which Sherwood is searching as an all-embracing praxeology. That Sherwood's definition of economics represents, in this respect, an advance over that of his contemporaries becomes apparent from the originality of his attitude towards the use of the “economic principle” as the defining criterion. It was seen in an earlier chapter that several writers, such as Dietzel and Neumann in Germany and Hawley in the United States, had been deterred from using the economic principle as a criterion for defining economics on the very grounds that make the principal significant, namely, that it characterizes all kinds of human activity. These writers recognized the importance to economics of the rational element in economic activity; indeed, this element played so obvious and dominant a role in economic analysis that, as the “economic principle,” it suggested itself to them as the natural mark identifying the phenomena with which the discipline dealt. This suggestion they found themselves forced to reject on the ground that all human activity displays the very same hallmark of rationality, that the economic principle governs all the conscious activities of man. And this left them no choice but to seek for some other quality in economic phenomena that they, among all other social phenomena, might uniquely possess in common.

Sherwood, starting from a position substantially similar to that of these writers, was able to reach a quite different conclusion. Once it had been suggested that economic phenomena are susceptible of analysis by virtue of their rational quality, Sherwood found it impossible to discard this idea. Instead of being dismayed at finding a similar purposefulness, a similar rationality and adherence to the economic principle, throughout the range of human activities, Sherwood was awakened thereby to a new appreciation of the role of economics. Instead of impelling him to look for other characteristics by which to delineate the scope of economic science, the realization of the all-pervasive influence of the economic principle convinced Sherwood of the futility and artificiality of erecting rigid boundaries purporting to separate economic activity from human action generally. The conscious direction of resources to the end of gaining conscious satisfaction was so fundamental to the very conception of economics and was at the same time so obviously a factor decisive in all action, that Sherwood could see economics transformed into a spearhead of a new “master science” that might investigate the consequences in activity generally of the consciously motivated element in action. Hitherto economics had been confined, to be sure, to specific kinds of phenomena, but this restriction was an artificial one and in no way corresponded to a unique field of knowledge.

This statement of the nature of economics seems to have passed unnoticed in the literature. Happily, similar ideas were being formulated at about the very same time by the celebrated Italian philosopher, Benedetto Croce. His views were set down with rather greater painstaking precision and expounded against the background of a fully articulated general philosophical and epistemological system. As such, Croce's position has attracted the attention of a number of subsequent writers. It has not always been appreciated, however, how closely Croce's view of economics mirrors the praxeological outlook. This feature of Croce's ideas on the nature of economy and economics is brought clearly into focus by their juxtaposition with the radically different views of Pareto, with whom Croce conducted an elaborate exchange of opinions on the subject. A brief review of Croce's opinions as expressed in this published correspondence will at the same time provide a remarkably clear, if not complete, statement of the view of economics as a science of human action.

The root of the difference between the outlook of Croce and that of Pareto, and the source of their celebrated debate on the nature of economics, is to be found in their attitudes towards teleology. According to Pareto, the act is a subject for science only in so far as it yields “facts and concrete cases.” According to Croce, on the other hand, the act is aimed at a purpose, and economics obtains its distinctiveness and its homogeneity from this characteristic of the act itself. Croce's crusade against the behaviorism of Pareto5 a took the form of a vigorous rebellion against the latter's injunction to economists to confine their attention to the “result of action” and to leave the “nature” of action for the metaphysicians.6

Pareto's position, Croce complains, itself involves an implicit metaphysical postulate. It is implied that the facts of man's activity are of the same nature as physical facts; that in both cases regularities can be observed and consequences can be thereby deduced, but that the “inner nature of the facts” can never be exposed.7 Upon the testimony of experience, however, Croce insists on the fundamental distinction between the physical and the mental, between mechanics and teleology, between passivity and activity. From this point of view, it is of the utmost relevance (Pareto's statements to the contrary notwithstanding) to recognize that the choice with which economics is concerned is not simply “the fact of choice,” but the fact of conscious choice. And because the economic fact is a fact of conscious choice, a fact of will, its “inner nature” is not at all obscure. The nature of economic activity is grasped as immediately as is the nature of the operation of willing. An act is economic in so far as it is the consistent expression of a man's will, of his conscious aiming at a perceived goal.8

From Croce's position on the nature of economic activity flows immediately his praxeological conception of economic science. The purposefulness of human action—a category to which nothing in physical science corresponds—is the unique element that invests economic science with its individuality. The propositions of economics relate to the effective execution of the purposes willed by the actor. They are not descriptions, but theorems in the sense that they follow rigorously and necessarily from the postulated systems of ends and means. “Economic Science ... is a mathematic applied to the concept of human action ... It does not inquire what human action is; but having posited certain concepts of action, it creates formulae for the prompt recognition of the necessary connections.”9

Croce's ideas will have been perhaps more fully set forth when we shall have considered his contributions to several points of detail in the praxeological conception of economics. Although his stature as a thinker drew more academic attention to these ideas than had been given to those of Sherwood, Croce's impact on the development of economic methodology has to this day not reached its full potential. Writings during the last half century on the proper conception of economic science could in many instances have greatly benefited from familiarity with Croce's work in this field. One author whose writings do deserve a place in any discussion of the evolution of praxeological ideas, although his contribution in this respect scarcely approaches that of Croce, is Max Weber.

Max Weber and Human Action

The great sociologist's views on the nature of economics and, in particular, the significance of his ideas for the development of praxeology are closely related to his views on the social sciences in general. These in turn revolve around the concept of Verstehen, which is the epistemological tool that Weber used to distinguish the Geisteswissenschaften from the natural sciences. It is of some interest to compare Weber's way of achieving this distinction with the method used by Croce.

Like Croce, Weber sees purpose as the most conspicuous feature in action, and, because it is the foundation for the notion of Verstehen, as the source of the possibility of separating the social from the physical sciences. A motive is “a meaningful complex ... which appears to the actor himself or the observer to be an adequate ... ground for his attitudes or acts.” The significance of purpose in the scientific analysis of action is its introduction of a new notion of causality. It permits the grasping of the cause of an action through the understanding (Verstehen) of its motive. A correct causal interpretation of concrete action implies that “the outward course and the motive are each correctly grasped and that their relationship to each other is ‘understandable.’”10 And it is the possibility of making this kind of statement regarding the causation of a phenomenon of interest to the Geisteswissenschaften that marks these disciplines as distinct from the physical sciences. In the latter, events can be only “externally” observed, while the teleological orientation of social phenomena permits their being grasped completely.

Economics, like verstehende Soziologie in general, becomes in this way, for Weber as for Croce, a science of human action. That which is understood is purposeful human action.11 But it is here that Weber and Croce part company and that Weber's progress in praxeological thought becomes diverted. Croce had not understood the economic aspect of human action to consist merely in the simple fact that action is aimed at a purpose. In perceiving the economic aspect, Croce recognized the constraint that purposefulness imposes on action, i.e., that action actually tend to achieve the purposes that serve as its inspiration. Economics, for Croce, is the science that investigates the extensive implications and consequences of precisely this tendency. But this aspect of purpose in action plays no role in Weber's conception of economic activity or of the nature of economic science. Weber's science takes notice of the teleological character of human action merely because this purposive feature opens a window on the “internal” nature of the act, not at all because it implies that the action is constrained to follow a specific path. The fact that human actions are motivated is in itself sufficient only to invest them with the property of being “understood”; it is not sufficient to set up a category of “economy,” still less to establish an economic science.

Weber, indeed, is able to extend the concept of Verstehen to grasp the behavior of the most unreasonable or emotional human beings. To approach the construction of an economic science, it is necessary first for Weber to introduce the notion of the “ideal type,” i.e., the formulation of abstract, arbitrary models of acting man. Only one of Weber's four ideal types finds a place in his concept of economics. This is the ideal type of rational action, the model of a coldly calculating human being conscious of ends and means. Within the range of actions that can be intuitively grasped because of their motivations there exist patterns of action that are distinguished in that they are in fact suited to the attainment of the chosen goals. Among these patterns are to be found the materials to be studied by the economist as Weber conceives him.

The necessity that Weber felt of introducing rationality into economic activity as a specific assumption limiting the general concept of human action reveals the limited extent to which he appreciated the praxeological content of action. For Weber, the common denominator of all human actions that are “understandable” is not their conformity to a rational pattern of utilizing given means towards a desired end, but simply their conscious “direction” towards an end as such. We can understand an action, not necessarily because we ourselves would, under similar circumstances, act likewise, but because we can sense and appreciate the possibility that such an action could be induced by the agent's mental posture of desire towards the end. For Weber, there is no presumption that the action so induced will at all hasten the attainment of the end concerned. A man seeking a desired object may, in his anger at being thwarted, or in the excitement of pursuit, act in a manner that, in the judgment of both the cool observer and subsequent history, is supremely capable of frustrating the attainment of the sought-for end. Such a conception of action is, of course, incapable in itself of serving as a foundation for economic science. Only by imposing an artificial abstraction of the ideal type is Weber able to reach economics. And it is apparent that when conformity to an ideal type must be assumed for the deduction of the propositions of economics, these propositions cease to be the logical implications of human action, and economics ceases to be a branch of praxeology.12

Acting Man and Economizing Man: Mises and Robbins

In the decades following the age of Weber, praxeological ideas developed in two directions, yielding two related, but significantly distinct, conceptions of economic science. On the one hand, there developed, partly under the influence of Max Weber, the conception of economics that has been treated in the previous chapter. Here the ends-means dichotomy came to serve as the framework for the construction of an economic science that took as its foundation the idea of economizing. The previous chapter has described the culmination of this stream of thought in the work of Professor Robbins. This must now be clearly related to another direction of praxeological thought, to the influence of which, indeed, the development of the first must in some degree be ascribed.

This second line of praxeological thought has been led by the work of Professor Mises. It is in this direction that we find the most complete and consistent development of the praxeological concept, and it is this development that the present chapter set out to describe. Mises' explicit enunciation of the character of economics as a science of human action, the most highly developed of the potential praxeological disciplines, represents one of his most seminal and original ideas. It may be reasonably asserted that most, perhaps all, of Mises' characteristic contributions to the various branches of economic theory are, in his eyes, simply the consistently worked out corollaries of this fundamental thesis concerning the nature of economics.13 If economic theory, as the science of human action, has become a system at the hands of Mises, it is so because his grasp of its praxeological character imposes on its propositions an epistemological rationale that in itself creates this systematic unity. It is unfortunate, but not difficult to understand, that disagreement with some of Professor Mises' economic theories on the part of his critics has induced in them a tendency to ignore, if not to disparage, the epistemological basis from which Mises' conclusions seem to follow so rigorously. The truth is that the comprehension of economics as a science of human action provides a basis broad enough to support widely diverging conclusions. The validity of the praxeological approach must be tested on its own merits and by its internal epistemological adequacy.

Although praxeological ideas already appear in germinal form in Mises' first book, The Theory of Money and Credit (1912), it was not until the twenties that they became explicitly formulated. By the early thirties Mises' ideas on the nature and scope of economics had reached their full development,14 and some of these ideas attracted the attention of writers on the methodology of economics in a number of countries.15 The works in which Professor Mises has most fully presented the case for praxeology are his Grundprobleme der Nationalökonomie. (1933), Nationalökonomie (1940), and its English counterpart Human Action (1949). A vigorous restatement of the position of the sciences of human action and a spirited defense of their epistemological assumptions are to be found in Mises' recently published Theory and History (1957).

In comparing the two views of economics represented by the works of Mises and Robbins, it is necessary to notice carefully their points of similarity and to observe even more carefully the degree to which they differ from one another. Writers have tended to group Mises and Robbins together as continuators of Weber in their stress on the ends-means dichotomy and its importance for economic activity.16 But the two views place economic science in two quite distinct positions.

Economizing consists in the allocation of scarce resources among competing ends. Acting, in the praxeological sense, consists in selecting a pattern of behavior designed to further the actor's purposes. Of course, the particular allocation that, in any given situation, will be made of scarce means in respect of different ends will constitute a course of action, a pattern of conduct designed to further the achievement of as many of those goals (in their preferred order) as possible. But the concept of action is wider and at the same time more fundamental than that of economizing. Although action may be described in terms of ends and means, such a description is quite different from that of an operation of economizing. In the concept of economy, ends and means constitute a scheme more or less artificially imposed on action so that the relative valuations of ends can be reflected in the specific pattern in which resources are allocated. The essential idea becomes, not the intent pursuit of a set purpose, but the almost mechanical translation of the scale of “ultimate” ends into appropriately apportioned shares at the level of means. “Means” are required for the notion of economy because they are the entities that must be “allocated”; it is in the comparison of different ways of utilizing resources that economizing finds its place.

With the broader notion of action, on the other hand, we are not primarily interested in the particular pattern in which resources will be apportioned among ends. Such an allocation, if carried out, will be of interest as one of the possible implications of action and will, of course, as such, find a place somewhere in the science of human action. But on the basis of Robbins' conception of the nature of economic science, economics can achieve homogeneity and individuality only by virtue of its concern with the existence of such operations of comparison and allocation of means. The praxeological approach, on the other hand, finds a basis for the homogeneity and individuality of economics at a deeper level, which does not necessarily require a clearly recognizable pattern of allocation. This basis is found in the fundamental characteristic of action, viz., that it is conduct directed at the achievement of a purpose.

In this characteristic, praxeology finds a sufficient source of explanation for the specific patterns of action, among which the judicious disposal of scarce means appears as a frequent example. But a really unique criterion for the definition of economics is not to be found in the idea of allocating scarce resources, nor can this concept serve as an adequate foundation on which that science can be constructed. The key point is not that acting man ponders the comparative efficacy in different uses of certain given “means,” but that he behaves under a constraint that he himself has imposed, i.e., the necessity of acting in order to achieve what he wants to achieve, so that his behavior tends to conform to the pattern implied by his scale of ends. “Means” exist as such for acting man only after he has turned them to his purpose; acting is not apportioning, but doing—doing what seems likely to further one's purposes.

The remainder of this chapter, which attempts to set forth several details of the praxeological view and to consider various criticisms levelled against it, will serve at the same time as a commentary on the similarities and distinctions between an economics built around homo agens and one centered around economizing man.

II

Praxeology and Purpose

We shall begin the more detailed dissection of the category of human action and the discussion of its suitability to serve as the focus of the economic point of view with a survey of the role of purpose in action. It has already been noticed in this chapter that it is purpose that endows the behavior of men with the unique properties that praxeology finds in human action. The views of Croce and Weber have been cited in this connection as expressions of the discovery, in the act, of a phenomenon unlike anything coming within the range of observation of the physical sciences. Stones dislodged from a hillside by the elements and hurtling down on the unsuspecting traveller in the valley are part of a different “event” than stones hurled with intent by men waiting in ambush. The latter are hurled with purpose; they are—in this case literally—aimed by human beings. Stone-throwing by human beings is something that the scientist can in part “explain” by reference to an element not present in natural phenomena, viz., the conscious aim of the thrower. Praxeology takes this very element as its point of departure; it finds human actions amenable to analysis in that they bear the imprint of a constraint imposed by chosen goals.

Now, the recognition of purposefulness in economic activity did not begin with the emergence of praxeological ideas. It is, of course, true that the older conceptions of economic science, which saw it as concerned with an objective entity such as wealth or goods, did not require reference to the purposefulness of human action. The scope of their discipline was described completely by the character of the objects whose “laws” it investigated. But even here it was difficult to avoid the implication of purposefulness in men's attitude towards these objects. This implication was given tacit recognition in the substantive analysis that the classical economists employed, and it tended to be brought into the open in the more sophisticated of the classical attempts to define “wealth.”

With the tendency, during the nineteenth century, to place man at the center of economics, the recognition of the role of purpose became almost a matter of course. Political economy was, in fact, the extended exposition of the consequences of one of man's many purposes, the acquisition of wealth. Discussions of the character that was thrust upon homo oeconomicus could hardly avoid the central fact of his purposefulness. Towards the close of the century economics came to be identified explicitly as a “teleological” discipline.17 Wealth came to be endowed with a “teleological nature.” Discussions of the assumption of rationality made by economists necessarily involved the notion of purposive behavior, of “ends” and “means,” and consequently pointed to the distinction that this characteristic conferred on any human, as against physical, phenomena. The emergence, during the early decades of the present century, of the concept of Verstehen brought the teleological character of human action still further into the forefront.

However, it is of some importance to appreciate the quite different role that praxeology assigns to human purposefulness in economic activity from that assigned by other points of view. Wesley Mitchell could point out that economists cannot understand what men do if they treat them as molecules, leaving their purposes out of account. He and other economists could draw attention to the new element of causality introduced by teleology in human affairs. They could recognize a chain of cause and effect in which the usual temporal relation is reversed, the present being “caused” by the goals set up for the future.18 But all this does not necessarily lead to a praxeological position. The economic point of view could be held to imply any arbitrary criterion that might be imagined, without in any way ruling out recognition of the causal element introduced by the teleological character of economic activity. Mitchell, for example, saw economic activity as essentially connected with phenomena of money. This was perfectly consistent with his stress on the usefulness of referring to purpose in providing the economists with “explanations.” The phenomena of the real world are the products of a number of diverse chains of causes and effects. The investigation of any group of phenomena in the real world must take into account as many such causal relations as possible. In the class of phenomena constituted by “economic affairs,” there exists a causal relation, the consequence of human purposefulness, that is absent among phenomena of the physical world. But no attempt need necessarily be made to state explicitly the distinctive qualities of “economic affairs” in terms of this purposefulness or of the causality to which it is admitted to give rise.

The part played by purposefulness in the praxeological conception of economic activity is a far more important one. Purpose is not something to be merely “taken into account”: it provides the sole foundation of the concept of human action. When Engliš defined economics as a teleological discipline, he was attempting to place his finger on the very nerve center of the subject.19 There is place for a distinct science of economics only because the teleological quality of action makes possible a unique kind of “explanation.” The theorems of economics are derived for praxeology exclusively on the basis of the purposefulness of human behavior. Other determinants of behavior—heredity, environment, and the like—are on a completely different level of “explanation”; as such, they belong to other disciplines; they have no place in a “pure” economic science.

The crucial position that purpose fills in the praxeological system is intimately connected, of course, with the conception of human action as rational. Rationality in human behavior consists, after all, in the consistent pursuit of one's own purposes; in selecting the means that appear best adapted to the achievement of one's goals; in refraining from courses of action that might frustrate their achievement or promise only the attainment of less valued, at the expense of more highly prized, objectives. The place of the rationality of action is sufficiently important for the praxeological point of view to deserve separate discussion in a subsequent section of this chapter. It is sufficient at this point, for the appreciation of the praxeological importance of human purposefulness, to emphasize as much as possible that a concept of rationality exists for praxeology only as the expression of human purposes.20

Emphasis of this kind is called for, perhaps, in order to disassociate the praxeological approach from what may be called the “positivist” conception of rationality in human action. It was seen in the previous chapter that Professor Robbins has been charged with employing the ends-means dichotomy in too positivistic a fashion. An “end” in Robbins' scheme, it has been alleged, is set up by an external observer as something positive, as a “correlate of a tendency to conduct”; it is used by Robbins in a way that abstracts from the conscious aiming and striving that characterizes human actions before they have been completed. “Rationality” in the disposition of means with regard to such denatured ends becomes simply the mechanical ordering and sharing of resources according to a given pattern.

Without our entering here into a discussion concerning the justice of this objection to Robbins' system, it is worthwhile to make explicit the quite different kind of rationality that is central to the praxeological view. Action is not described as rational because it involves the automatic manipulation of resources into a pattern faithfully reflecting a given hierarchy of ends. Rationality consists rather in the transference, to conduct involving means, of those features in behavior that accompany the direct pursuit of ends. Rationality involves the conscious effort to make one's conduct conform to a given path; it calls for the same aiming and striving by the economic agent towards necessary intermediate goals as he displays towards the “final” goals themselves. It is only from the “outside” that such rationality can be described merely in terms of a particular pattern of resource allocation. The full praxeological grasp of human action perceives its rationality as completely pervaded by the “aiming” quality bestowed on action by its teleological character. This aspect of purpose leads, in fact, directly into the more detailed exposition of the praxeological view of rationality, which is the subject of the succeeding section.

Praxeology and Rationality

Few features of the praxeological position seem to have been more seriously misunderstood than the very special significance that it attaches to the rationality of human action. In the praxeological view, action is rational by definition; and this has been attacked from two directions. On the one hand, it has been branded as palpably false and contrary to the facts of experience.21 On the other hand, it has been interpreted as a vicious misuse of language, in which the word “rational” has been emptied of all meaning, so that its use to describe action, while not false, conveys no information whatsoever. The insistent description of action as rational is thus a misleading attempt to appear to be saying something, without, in fact, doing anything of the sort.22 To say that a man acts rationally, it is complained, tells us nothing more about what it is that he does than that he does it. Both these types of criticism rest on a quite incomplete appreciation of how the rationality of action is used in the praxeological system.

The concept of rationality in human behavior has long been a topic for discussion in the literature on the methodology of economics. Attacks on the undue reliance which economic theory has been accused of placing upon human reason are as old as attacks on the very notion of an economic theory. Historically-minded critics of theory long ago discovered that man is possessed of “instincts,” that he is a creature of “habit,” that he is capable of being carried away by mass hysteria and other psychological aberrations. Economic theory, it was found, had blindly ignored the realities of life. Where it had not explicitly endowed economic man with an exclusive thirst for “wealth” or with an utterly selfish character, economics had apparently proceeded on the quite gratuitous assumption that men behave sensibly from the point of view of their own interests. It was easy to demonstrate how far from the truth economics must be; it was easy to point out the true character of men with their full array of impulses, instincts, and stupidities. On the other hand, it was not difficult for economists to defend their theorems as hypothetical constructions with a definite, if limited, applicability to the real world, or, alternatively, as providing norms for the appraisal of actual performance. And debates on these lines abound in the economic journals of the decades around the turn of the century and later.

In all these discussions the assumption of rationality made by traditional economic theory was treated in a special sense; and what is chiefly responsible for the misunderstandings mentioned above is the confusion of this traditional conception of rationality with the conception of it employed in praxeological discussions. The point at issue in the earlier discussions concerning the empirical validity of economic theorems that treat men as reasoning beings free of irrational impulses and instincts was the fruitfulness of a particular simplifying abstraction. The social phenomena of the real world are the consequences of human actions in which all types of influences have played a part. One of these influences stems from man's reasoning powers, which urge him to pursue a selected goal with a steadfastness and tenacity unperturbed by human weaknesses and passions. Economic theory, it was believed, investigates social phenomena on the assumption that this influence of cool reason is, in fact, sufficiently powerful to make man pursue unwaveringly a goal once chosen. And this assumption, introduced in order to make analysis possible, was criticized or defended in respect to its justifiability, in the light of the realities of human nature.

It was quite natural for the conception of rationality that was made central to praxeological ideas to be discussed in a similar fashion. When these ideas are made to hinge on a conception of rationality as a pervasive quality of all human action, they of course invited criticism as being in contradiction to the facts. And when it is pointed out that in the sense in which the praxeological view sees human actions as rational, no such contradiction exists, then the praxeological postulate of rationality is criticized as a misleading and empty use of words. It is explained, for example, that a man who is swayed from the pursuit of his own best interests by falling prey to a fleeting temptation is yet acting “rationally” in the praxeological sense. In the praxeological view, the man has simply substituted a new set of ends, represented by the fleeting temptation, for the previously chosen ends. The fact that in the eyes of an outside observer, or even in the eyes of the man himself at a cooler moment, it is the original set of ends that constitutes the man's “best interests,” is not sufficient to justify our labeling the man's pursuit of his newly selected goal as “irrational.” The selection of an end can never, as such, be judged in regard to its rationality; and there is no reason to question the rationality with which the man pursues his newly chosen end.

It is this kind of explanation that provokes the annoyance of the critics and incurs the charge of using the word “rational” in a viciously misleading manner. These strictures are, in fact, quite undeserved; and it is worthwhile to devote attention to clearing up the confusion on this point. We can perhaps best succeed in this by considering in some detail the contribution of Tagliacozzo, mentioned in the previous chapter, to the clarification of the notion of “economic error” or “uneconomic behavior.” Tagliacozzo deals with the “Rhine-wine” situation which had been involved in the Pareto-Croce correspondence cited earlier in this chapter at the turn of the century.

The “Rhine-wine” case concerned the man who does not wish to indulge in gluttony, who has in fact budgeted all his money for other, more highly valued purposes, but who, yielding to the temptation of the moment, buys and drinks Rhenish wine. Croce had written that by so acting the man has placed himself in contradiction with himself23 and that his sensual pleasure will be followed by a judgment of reprobation, an economic (to be carefully distinguished from a moral) remorse.24 The man is guilty of what Croce has elsewhere called “economic error”: the “failure to aim directly at one's own object: to wish this and that, i.e., not really to wish either this or that.”25 By contrasting this concept of economic error, as an error of will, with a technical error, which is an error of knowledge, Croce was enabled to criticize Pareto's distinction between logical (i.e., rational) actions, which are economic, and illogical actions, which are not. Action, Croce explains, is a fact of will, not of knowledge. The will presupposes reasoning, it is true, but action, which is the expression of will, cannot itself be qualified by adjectives such as “logical” or “illogical,” which pertain only to the application of reason.26

It was with this example of an economic error, the consumption of wine in defiance of a previously chosen program, that Tagliacozzo dealt at length. Tagliacozzo pointed out that the purchase of wine can be appraised from various vantage points. From the standpoint of full reality, no distinction between means and ends need be made at all. Wine has been purchased because such a purchase was desired, and that is all. There is no recognition of any “program” against which the man's action is to be compared and in terms of which it can incur disapproval or excite remorse. There is, consequently, no notion of an “end” separate from the means that might “bring about” the realization of the end.

From the point of view of the man's own budget plan, however, the case is very different. Here a yardstick has been set up by the man himself against which the “economic” correctness of his actions can be measured and found wanting. The artificial creation of a “plan” in the form of a prior selection of ends necessarily carries with it a “point of view” from which it is possible to appraise the wine purchase and to convict it of economic error.

Finally, the man's action can be contemplated with the realization that any one yardstick in the form of a program will necessarily be quite arbitrary; that the span of time over which such a “program” is to have validity may be as long or as short as we please. From this point of view it is clear that what is a “temptation” from the standpoint of a long-range program becomes itself an independent “program” in its own right in relation to a suitably brief span of time taken as a frame of reference. The consumption of wine has now become the desired end; the man's actions can still be appraised, but only for their consistency with this newly adopted “program.”

The distinguishing of these possible attitudes towards the wine purchase and the recognition of the relativity of the notion of an economic error enable Tagliacozzo to pursue Croce's theme to its ultimate praxeological conclusion. In a real action, taken as an independent event, there is no room for any discrepancy between the conception of a program and its realization; the two concepts coincide completely. But this understanding of the situation does not at all exhaust its significance. Actions can be “judged” with regard to the faithfulness with which they conform to “programs.” And there can exist a complete range of such “programs” against which any action may be appraised, depending on the particular frame of reference selected. The important fact is that the very conception of an economic “judgment” implies a particular tendency on the part of human beings such that deviation from it incurs (economic) “disapproval.” This tendency is one that makes for an identity of means and end, comparable to the intrinsic coincidence of means and end that is present in any real action considered as an independent event with no frame of reference other than itself. It is this “tendency” that demands “that given programs be respected; that wine not be bought, if the program does not provide for such purchase; that given means go as far as they can in the fulfilment of the ends.”27

Together with the consciousness of a chosen set of ends that comprise a program there is an inevitable consciousness of an inclination to reduce all the means and resources required for the attainment of the program to the same rank as the chosen purposes themselves. Failure to achieve such a complete coordination of ends and means, which spells susceptibility to the distractions of “temptations of the moment,” can be sustained only at the expense of fighting free of this conscious inclination—a struggle that makes up the sense of economic error. Now in so far as all human action is teleological and is the expression of purposes consciously chosen, it is clear that all action must necessarily be part of the operation of the tendency toward the identification of means and end. The man who has cast aside a budget plan of long standing in order to indulge in the fleeting pleasure of wine still acts under a constraint to adapt the means to the new program. Should a fit of anger impel him to forgo this program as well and to hurl the glass of wine at the bartender's head, there will nonetheless be operative some constraint—let us say the control required to ensure an accurate aim—which prevents his action from being altogether rudderless. It is here that praxeology has grasped the possibility of a new scientific range of explanation of social phenomena. Precisely because man's actions are not haphazard, but are expressions of a necessity for bringing means into harmony with ends, there is room for explanation of the content of particular actions in terms of the relevant array of ends.28

During the course of this discussion of the nature of economic error, the sense in which praxeology sees human action as “rational” will have become abundantly clear. It will also have become clear how the praxeological use of the concept of rationality is quite unaffected by both types of criticisms that we noticed to have been levelled against it. Its description of all human action as rational constitutes a proposition that is, in fact, incapable of being falsified by any experience, yet does, nevertheless, convey highly valuable information. Action is necessarily rational because, as we have seen, the notion of purpose carries with it invariably the implication of requiring the selection of the most reasonable means for its successful fulfilment.29 Such a proposition cannot be proved empirically false because, as we have seen, programs can be changed, so that evidence that a man no longer “follows his best interests” proves only that he has chosen a new “program” the necessary requirements of which no longer permit him to follow—what used to be identified as—his best interests. Despite the impossibility of its empirical contradiction, this proposition yet conveys highly useful information because the insight it provides makes possible the derivation, in regard to whatever program is relevant in given circumstances, of highly developed chains of theorems. The kind of knowledge that such theorems can convey, their dependence on the praxeological postulate of rationality, and the implications of the italicized qualification in the previous sentence will become more easily comprehensible in the subsequent sections of this chapter.

The Assumption of Constant Wants—the Praxeological Context

Closely related to the preceding definition of the sense in which praxeology depends on the rationality of human action is the further clarification of the relevance of such rationality for a praxeological science, and especially of the character of the assumption of a constancy of wants. A praxeological theorem becomes possible because of the quality of purpose in action. This quality enables the praxeological theorist, by resorting to his own reason, to predict the path that a given person will follow under the requirement of using his reason in order to fulfil his purposes.

The appreciation of the character of a praxeological theorem so derived throws immediate light on the notion of “given ends” and the assumption of a constancy of wants, both of which are inevitably involved in such a theorem. The previous chapter dealt in some detail with Robbins' conception of ends as data for economics. It will be noticed that the praxeological view places equal emphasis, and for substantially similar reasons, on the notion of given wants and purposes. The point at issue hinges on the very possibility of knowledge acquired through praxeological excogitation.

A great city is served by alternative means of transportation; one of these means of transportation has been crippled by an accident. It will be obvious to the observer of the effects of the accident that the alternative means of transportation will tend to be employed in larger than normal volume. In making this prediction the observer has made a simple application of his reasoning powers to a problem of human action; he has applied a theorem of praxeology. The knowledge that he has so acquired is a piece of information different from the data from which he began, but which was, nevertheless, implied in the assumptions concerning human purposes that the observer felt entitled to make. Because he was able to assume that many people desired transportation with sufficient urgency, the observer was able, from his own knowledge of the alternatives open to them, to predict the course of action that they would take. It is clear that this newly acquired knowledge was gained only because of the existence of given purposes, and it is only in relation to these given purposes that this praxeological knowledge has significance.

Analysis of human action can proceed only by the treatment of given purposes as data; the effects of a change in surrounding circumstances can be deduced only on the assumption that these purposes are adhered to with constancy, that no new “program” has been substituted for the old. These restrictions on the derivation of praxeological knowledge follow from what has been said in the previous section concerning the rationality implicit in the concept of human action. It was seen that the rationality of action can be appraised relatively to various mutually inconsistent programs that a person may, under different sets of conditions, have chosen. Because this is the case, it is essential, for the derivation of a praxeological theorem, that it be formulated in reference to one such program, whose dominance and relevance must, along with other information, be supplied by the data. Once the data have been supplied, theorems may be derived that will possess necessary truth, but their validity remains strictly dependent on the data; their truth is limited to the “programs” to which they are relevant.

It is a curious fact that critics of economic theory have time and again seized on this feature as a central and damning weakness. The application of economic theorems to the explanation of concrete historical situations requires careful scrutiny of the data on which such theorems are to be grounded. The data will vary, of course, from one concrete case to another. The correct use of economic propositions in particular real situations presupposes, as a matter of course, adequate factual information regarding changes in the data. The writers who have from time to time disparaged the work of economic theorists altogether and urged economists to devote themselves more or less exclusively to the description and classification of those changing facts themselves have pointed to the “relativity” of theories. They considered the necessary limitations on theoretical constructions, which are imposed by virtue of the fact that they are valid only in relation to given programs, as grounds for believing that economic knowledge can be derived more efficiently by simple reference to the changing programs themselves. An economic theory might be an elegant source of intellectual satisfaction, but the severe circumscription of its applicability made it of only academic interest.

It seems worthwhile to point out that, as our discussion of the foundations of praxeological knowledge makes clear, the acknowledged relativity of a praxeological theorem to a given program as its frame of reference is, in fact, not a weakness at all, but is, on the contrary, a reflection of remarkable scientific achievement. Contemplation of the raw data alone presents a range of social phenomena that seem to defy orderly explanation altogether. It seems impossible to develop chains of cause and effect that can bring any semblance of determinacy into the data. Certainly mere analysis of the masses of empirical figures cannot yield any stable “laws” and relationships. The very fact of changing programs, changing tastes and prejudices, makes for an area in which no logical necessity is visible at all and in which everything seems to be in a condition of haphazard flux.

It is into this bewildering mass of empirical data that the economic point of view throws a ray of light. It enables us to grasp an element that does introduce a measure of explanation into social phenomena. This element is laid bare by subjecting the empirical data to a systematic abstraction, made possible by recognition of the character of human action. By taking a cross section of social phenomena at a particular instant in time, by considering the programs that members of society have chosen at that instant and by mentally arresting program changes, one can apply praxeological theorems to these various programs and deduce the consequences. The conclusions so derived are valid in relation to the assumed programs, and provide an explanation of the concrete phenomena of the real world in so far as there is a tendency for men to adhere to programs once they have been initiated. Moreover, once the possibility of this type of explanation is grasped, it is clear that all historical phenomena admit, at least in principle, of being treated in such terms. It becomes merely a matter of feeding the suitable assumptions and data into the theoretical system and extracting the appropriately complicated chains of reasoning.

The crucial point is that the perception of any kind of explanatory framework has been made possible only by prescinding from any conceivable change in a given set of programs. The introduction of any kind of order into the jungle of empirical data has been accomplished by abstracting from full reality and accepting a hypothetical state of affairs as a frame of reference. It is the outstanding achievement of economic theorists to have been able to recognize determinate causal chains within the tangles of statistics; they were able to succeed in this only by treating social phenomena as the systematic working out of the praxeological consequences of given programs that were adhered to. A particular program may not necessarily be adhered to, but the emergence of human action at all presupposes the existence of some program that was adhered to, and it is in reference to this that praxeological reasoning provides the explanatory key.

An economic proposition referring to a given set of circumstances, a particular configuration of demand, a specific technological context will provide information concerning this definite situation. Changes in the data, a revolution in tastes, the acquisition of new habits, the discovery of more efficient techniques will all make up a situation to which a new praxeological solution will be relevant. To deny the applicability of economic reasoning because of the change in conditions is to deny that the old set of conditions did set up specific “forces” constraining action; it is to deny that these “forces” provide an interpretation of action that goes beyond a mere cataloguing of observed events. “But,” as Professor Knight has commented, “this fact certainly cannot be denied.”30

The position that the praxeological element occupies within the whole class of social phenomena has been set forth by various writers. Professors Mises and Knight have devoted considerable attention in their writings to the elucidation of this point.31 Within narrow limits man can be observed and his behavior explained purely mechanically. At this level of interpretation human behavior is considered only in the positive terms of stimulus and response; it is completely “caused” in the sense that the problem-solving elements in human conduct are ignored. On higher levels of interpretation, however, the conduct of men involves recognition of their putting forth effort, of their attempt to solve problems—in short, of their human actions.

Here again various levels of discussion are possible. Unquestionably the most “interesting” and, for the business of living, the most important is the consideration of the ways in which men have acquired their particular interests; the development of particular programs that men believe worthy of undertaking; the forces that determine people's value judgments and the emergence of their sense of absolute moral appraisement. The level of interpretation on which praxeology has a contribution to make is, however, a more modest one. It is willing to accept the interests and programs of men as data and seeks to understand, in terms of these interests and programs, the chains of consequences that can be deduced. The principles of human action make it possible to ascribe and refer back historical events to such interests and programs as “final causes” that can be accepted without further explanation.

Praxeology, Apriorism, and Operationalism

The considerations set forth in the previous section are sufficient to make clear what writers have had in mind when they have characterized economics as an a priori science. This description of economic knowledge has been repeatedly misunderstood; it has been repeatedly taken out of context and held up for ridicule.32 But the matter is essentially logical and clear.

Professor Mises in particular has stressed the a priori nature of praxeological knowledge. A theorem of a praxeological science provides information that has been derived by sheer reasoning; it is the product of pure logic without the assistance of any empirical observation. As such, a praxeological theorem is congeneric with a theorem of geometry; being the rigorously derived consequences of given assumptions, it partakes of the “apodictic certainty” that is necessarily possessed by such an exercise in logic.

Disagreement with this approach has been vigorously expressed by a number of writers. Dissatisfaction has arisen from several points of view. On the one hand, it is pointed out that an a priori theorem, being derived by sheer logic from given axioms, is necessarily circular, in that it merely tells us in a different way what we already know by our knowledge of the axioms themselves. All the information provided by economic reasoning is thus merely extended circumlocution. So long as economics was not acknowledged as a praxeological science, it is argued, this objection could not be raised. So long as it had been necessary to introduce specific postulates about the way in which people actually behave, an economic theorem did tell something new. If, for example, it was postulated that men behave “rationally” and rationality was defined so as to possess definite empirical content, such as a pattern of behavior that maximized money profits, and the like, then the consequences of this assumption do provide new information. Deduction from the specific assumption made has yielded a theory, against which the assumption could, in fact, be tested for its faithfulness to the facts. But with the emergence of the view of economic knowledge that saw it as completely independent of particular empirical assumptions, the situation became completely altered. A theorem describing the consequences of human behavior that does not take into account the concrete content of that behavior must remain, it has been repeatedly asserted, simply a different way of saying that people behave as they behave.33

Closely connected with this criticism of economics a priori are the objections raised against its supposed misuse of a method of doubtful respectability, viz., introspection. Implicit in much of the unfavorable discussion of apriorism in economics is the current belief that only “operationally meaningful” propositions ought to find a place in science.34 A theorem which makes no direct reference to observable facts, and which therefore cannot be “tested” against observable facts, is one the interpersonal validity of which must remain in doubt and to which “scientific” status is to be denied.

Now, these are issues that concern basic epistemological problems far wider than the range of this book. Closely though they relate to the praxeological view of the nature of the economic aspect of affairs, they themselves are concerned with inquiries into the nature of science and knowledge that would carry us far away from our own subject. Professor Robbins has gone so far as to relegate completely to philosophy all such discussions concerning the a priori character of economics.35 Mises, Knight, and Hayek have most vigorously justified the kind of introspection that is necessary for the conception of economic knowledge as “scientific” without being empirically “testable.”36 We are not so much concerned here with the scientific validity that may be attributed to a priori economics as with the clarification of the precise sense in which the praxeological conception of the economic point of view does, in fact, imply a strictly a priori position.

The concept of human action is sufficient, in the praxeological view, for the deduction of complex chains of reasoning concerning the choices men will make, the alternatives from which they will be forced to choose, and the like. Human action relates to real entities, goods, or services; it develops against the background of objectively measurable price relationships. Economic science seeks to provide an explanation of these real phenomena; it seeks to explain the consequences of given changes in data, to relate market phenomena to the underlying human motives. Praxeology envisages the successful attainment of these goals through the scrutiny of human affairs from a specific point of view that recognizes the teleological and rational nature of human action. This point of view makes possible the construction of chains of reasoning that are purely formal, in the sense that they refer to goods, services or factors of production only abstractly; they depend for their validity not on the specific objects with which human action may be concretely concerned, but only on postulated attitudes of men towards them. The propositions that can be deduced in this manner may thus, of course, include the analysis of situations that may be quite unreal. And in order to be of service in the understanding of reality, praxeology must direct its attention exclusively to the analysis of situations that correspond to the actualities of the external world. It would be possible, for example, to examine the consequences of a world in which labor was preferred over leisure. Economics could certainly deduce theorems concerning prices, incomes, and production in such a world. But this would be intellectual gymnastics of a fruitless kind.37

To maintain contact with situations that do in fact require explanation, economics must thus resort to experience for guidance. It must take the facts as they are and apply to them the a priori logic of human action. “It adopts for the organized presentation of its results a form in which aprioristic theory and the interpretation of historical phenomena are intertwined.”38 It is clear that the exposition of economics as an a priori science has never implied that it can dispense with references to factual observation in the final statement of its results. Particular economic propositions will concern human attitudes and conventions that do conform to those of the real world. The sense in which it is maintained that economics is an a priori branch of knowledge is a much narrower one. It concerns the contribution that the recognition of the concept of human action makes to the explanation of social phenomena.

The observation of facts provides useful knowledge. This is the procedure of history. But observation does not exhaust the knowledge and understanding that we can attain concerning these affairs. The economic point of view injects an immediate sense of order into these affairs, an order that brings with it a large measure of explanation. This explanation is achieved by subjecting the observed data to a specific scientific procedure, praxeological reasoning. This procedure is in itself quite independent of the facts to which it is applied. It could be applied to conditions that are nonexistent. It is itself the contribution of human logic and reasoning alone. In this sense the theorems of economics, closely though they refer to concrete reality, are to be described as a priori. They are derived purely from the knowledge that the human mind possesses of the category of action.39

The separation that is thus emphasized, between the facts and their logical analysis through economic reasoning, is a fruitful one. It stresses the quite distinct operations that are being performed in the observation of economic history and in the development of economic theorems. It focuses attention on the new source of knowledge that is provided by our understanding the nature of action. It illuminates the striking fact that pure reason can convey knowledge concerning brute facts of the real world. Because men act as reasoning beings, it is possible to explain their concrete patterns of behavior by applying to their attitude the theorems that our own reason has supplied.

All this does not prevent the praxeologist from maintaining a becoming modesty with regard to his own contribution. He does not in any way believe that his theorems can exhaust all that can be known about social phenomena; he does insist on the unique assistance he can provide. He does not deplore close attention to market data, to masses of statistics, and the like; but he does deprecate the view that this kind of scrutiny can be a substitute for economic reasoning or that it needs to be resorted to as a “test” for the correctness of such reasoning. His recognition of the category of human action does impress upon him most forcefully the utter helplessness with which the masses of facts must be faced without the illumination provided by a procedure of analysis that itself owes nothing to these facts—the application of economic reasoning.

The Economic Point of View and Praxeology

Our discussion thus far in this chapter has made no attempt to distinguish a specifically economic point of view from the general praxeological outlook. We set out, in this book, to examine the various points of view held to characterize economic science and through which an “economic” aspect of social phenomena has been distinguished. Our search has led us in this chapter to consider the filiation of ideas that have found the specifically economic point of view to be merely part of a broader perspective, the praxeological view. The economic aspect of affairs is simply the praxeological; a theorem of economics is simply a praxeological proposition.

To be sure, the praxeological perspective embraces a range of human action far wider than that usually treated in economic theory. All human actions, motivated though they may be by the entire range of the purposes that have inspired and fired men to act, come within the sway of the ideal praxeological discipline. The constraint that men feel to fulfil their purposes in spite of obstacles pervades all aspects of life. It is the position of praxeology that the common category that embraces the entire range of human efforts is the key to economic science. We have seen at various points in this book that economists have again and again searched for something in economics that should differentiate it from the rest of human action. These thinkers were deterred from expounding the praxeological character of economics for the very reason that this character is common to other aspects of social life.

The praxeological view sees economic science as the branch of praxeology that has been most highly developed.40 Perhaps other branches will one day attain a similar stage of development. The important point is that distinctions between various “branches” of praxeology must be arbitrary. Economics is a “given pie”; it is not a pie that every economist can make at will or for which he can prescribe his own recipe. Economic theory has a “nature of its own” that must be respected; certainly it must be recognized if its distinctive contribution is to be made at all. But the pie that is the economic aspect of affairs is bigger than that traditionally treated by economists; it embraces all human action. The slice that makes up economic theory may—so long as it is cut from the correct pie—be cut in any arbitrary way. “It is impossible to draw a clear-cut boundary around the sphere or domain of human action to be included in economic science.”41 “The scope of praxeology, the general theory of human action, can be precisely defined and circumscribed. The specifically economic problems ... can only by and large be disengaged from the comprehensive body of praxeological theory.”42

Economic theory has traditionally dealt with the phenomena of the market, prices, production, and monetary calculation. In these spheres of human activity, theorists have developed constructions that help to explain the regularities these phenomena evince and to bring into clear focus the tendencies for change in these phenomena consequent upon given autonomous changes in the data. Writers on economics have striven to present precise definitions of the scope of this discipline. From the point of view of praxeology, the earlier attempts suffered from their tendency to seek for the defining criteria in the nature of the specific affairs with which market phenomena are concerned. The consequence of these searches was the series of formulations examined in the earlier chapters of this book. The subject matter of economics came to be connected with the material things that are the objects of traffic in the market; it came to be linked peculiarly with the use of money in market transactions or with the specific social relationships that characterize the market system. Where writers came closest to the recognition that these criteria were only accidental characteristics of the affairs upon which economic analysis could be brought to bear, where they were able to glimpse the congenerousness of the specifically economic type of analysis with the underlying actions of men, they were unable to follow this clue to the conclusion to which it pointed. Precisely because those features in action that made it susceptible of economic analysis seemed common to all human activities, these writers were driven back to look for some other defining characteristic. And this meant again the search for some arbitrary quality to justify selecting the particular slice of pie that made up economic theory; but it meant in addition the relegation yet further into the background of the true recipe of that larger pie from which their conception of economics was being arbitrarily hacked.

From this point of view the formulation of the nature of the economic in terms of the allocation of scarce means among competing ends occupies a rather special position. This definition, discussed at length in the previous chapter, differs from the rest in its approach to the problem. It defines an aspect of human activities in general; it does not look for the key to economic phenomena in the specific kinds of activity with which they are mostly concerned. In finding the economic aspect of activities in general to consist in concern with the ends-means relationship, this conception too includes within its scope kinds of actions with which economics has had traditionally little to do. From the praxeological standpoint, in fact, the idea of economizing scarce means in allocating them among alternative ends, when used as a criterion for defining the domain of the economic, is nothing but a convenient, though artificial, framework in which human actions can be analyzed. The allocation among competing goals is a technical concomitant of a good deal of purposeful behavior. Human action does frequently call for carefully apportioning scarce means among competing projects. In a formal sense it is even possible to consider all human action as consisting in such allocation; but this involves the kind of artificiality in the conception of ends and means with which Professor Robbins' definition was charged. The principal merit of the latter is thus its implicit dependence on the concept of human action; its apparent inadequacies stem from its attempt to consider action as conforming to a particular technical pattern. Much of the criticism Robbins' definition received will be seen to dissolve when his conception of economics is related more clearly to the idea of human action. The allocation of scarce means among alternative ends simply signifies the consistent pursuit of ends, the consistent pursuit of the more highly valued ends taking precedence over the fulfilment of the less highly esteemed ends. It means, in fact, the exercise of the human faculty for purposeful action.

It is not to be denied that the ends-means formulation seems to fit with remarkable neatness the phenomena treated by economic theory. But this neatness has been achieved at the cost of a failure to press on to the very crux of the economic point of view. We are not thereby apprised, as the expression of this economic point of view is able to apprise us, how an analysis of human affairs by economic science is made possible by the very perspective from which the economic theorist views them. The ends-means dichotomy does not show how the recognition of the principle that governs the allocation of means conduces at the same time to a recognition of the possibility of scientific analysis and explanation of economic phenomena. Only when the economic point of view is conceived as focusing attention on the nature of human action is it able to provide the key to economic science. And in this sense it can indeed be contended that the definition of economics in terms of the economizing of scarce means (like others before it) “fails to convey an adequate concept of its nature,”43 until this definition is superseded by the fully developed conception of economics to which it logically leads, viz., the praxeological point of view.

“Economists would agree,” Cannan wrote, “that ‘Did Bacon write Shakespeare?’ was not an economic controversy. ... On the other hand, they would agree that the controversy would have an economic side if copyright were perpetual and the descendants of Bacon and Shakespeare were disputing the ownership of the plays.”44 This is so, Professor Robbins explains,45 because the supposed copyright laws would make the use of the plays scarce and would in turn yield their owners scarce means of gratification that would otherwise be differently distributed. Of course, Professor Robbins is correct, but the same explanation can be given in terms that make it immediately clear how the economic side of such a controversy is able to yield material for the economic theorist.

It can be explained, that is, that the controversy has an economic aspect because the assumed copyright laws affect the conditions of human action in either or both of two ways. In the first place, as they render the use of the plays scarce, the laws will have altered the pattern of action on the part of prospective producers. An additional obstacle has been placed in the way of persons desiring to produce the plays; and it will be obvious that a prospective producer will be constrained to forgo some less highly prized gratification in order to fulfil his dramatic purposes. On the other hand, it will be clear that this state of affairs opens up a new avenue by which the legal owner of the plays may possibly be enabled to fulfil his own purposes more completely, through taking advantage of the producers' attitudes. Either of these two influences of the controversy on human actions is sufficient to invest it with interest for the economic point of view. This way of expressing the nature of this point of view, however, reveals at the same time the very nature of the analysis that it makes possible.

[[1]]Memorials of Alfred Marshall, ed. A. C. Pigou (London: Macmillan & Co., 1925), p. 499.

[[2]]R. Robinson, Definition (Oxford, 1950), p. 15.

[[3]]B. Croce, Historical Materialism and the Economics of Karl Marx (English ed.; London: Macmillan & Co., 1915), p. 29.

[[4]]These considerations will account for the absence of references in this essay to the achievements in recent years in mathematical programming, input–output analysis, and game theory. Rivett has suggested, in “The Definition of Economics,” Economic Record, November, 1955, pp. 229–230, that progress in linear programming might one day require review of the borderlines of economics. Apart from its special relevance to Rivett's own definition of economics, this suggestion can refer only to the scope of the subject, not at all to the delineation of the economic point of view. On this point see especially W. J. Baumol, “Activity Analysis in One Lesson,” American Economic Review, December, 1958, p. 837.

[[5]]E. Cannan, Wealth (3rd ed.; London, 1945), p. 4.

[[6]]For examples of the specific restriction of definitions of economics to “economic theory,” or even more narrowly to “price theory,” see J. A. Schumpeter, History of Economic Analysis (New York, 1954), pp. 535–536; F. H. Knight, “The Nature of Economic Science in Some Recent Discussion,” American Economic Review, Vol. XXIV, No. 2 (June, 1934), p. 226.

[[7]]On the distinction between real and nominal definitions, see, e.g., J. S. Mill, A System of Logic (10th ed.; London, 1879), I, 162 f.; L. S. Stebbing, A Modern Introduction to Logic (6th ed.; London, 1948), p. 426; C. K. Ogden and I. A. Richards, The Meaning of Meaning (3rd ed. revised; London, 1930), p. 109 n.

[[8]]For examples of writers who saw in the multiplicity of definitions a proof of their fundamental weakness, see L. Walras, Elémentsd'économie politique pure, ou Théorie de la richesse sociale (Lausanne, 1874), p. 3; A. P. Usher, “The Content of the Value Concept,” Quarterly Journal of Economics, August, 1917, p. 712; F. Kaufmann, “On the Subject Matter and Method of Economic Science,” Economica, November, 1933, pp. 381–382.

[[9]]For Pareto's views on the usefulness of defining economic affairs, see the translation of his paper “On the Economic Phenomenon” (first published in Giornale degli economisti, 1900, II, 139–162) in International Economic Papers, No. 3, p. 194. See also V. Pareto, “L'économie et la sociologie au point de vue scientifique,” Rivista di scienza, 1907, p. 294. Myrdal's views are expressed in his The Political Element in the Development of Economic Theory (Harvard, 1954), pp. 154–155; for those of Hutchison see his The Significance and Basic Postulates of Economic Theory (London: Macmillan & Co., 1938), p. 53.

[[10]]G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, Vol. LIX, No. 3 (May, 1945), p. 308.

[[11]]For examples of earlier views recognizing the importance of an adequate definition of economic affairs, see E. de Laveleye, “Les lois naturelles et l'objet de l'économie politique,” Journal des économistes, April, 1883, p. 92; S. Patten, “The Scope of Political Economy,” The Yale Review, November, 1893, reprinted in S. Patten, Essays in Economic Theory (New York, 1924), p. 178.

[[12]]L. Robbins, An Essay on the Nature and Significance of Economic Science (2nd ed.; London: Macmillan & Co., 1935), p. 3. Robbins put forward the same view, as well as the suggestion for a history of the stream of thought leading up to modern definitions, in his Introduction to Wicksteed's The Common Sense of Political Economy (London, 1933), I, xxii. See also L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 344, for an acknowledgment of the minor importance of the precise wording in the expression of the (correct) definition.

[[13]]F. H. Knight, review of L. Mises, Nationalökonomie, in Economica, 1941, p. 410 n.

[[14]]A. L. Macfie, An Essay on Economy and Value (London, 1936), pp. 2–3.

[[15]]For examples of economists convinced of the insuperable difficulty of achieving a determinate definition of economic affairs, see P. T. Homan, “Issues in Economic Theory, an Attempt to Clarify,” Quarterly Journal of Economics, May, 1928, pp. 349, 364; F. St. Leger Daly, “The Scope and Method of Economics,” The Canadian Journal of Economics and Political Science, May, 1945, p. 169.

[[16]]G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945, p. 307.

[[17]]See, e.g., R. Robinson, Definition, pp. 162–172.

[[18]]B. Croce, “On the Economic Principle II,” translated in International Economic Papers, No. 3, 1953, pp. 197–198, from Giornale degli economisti, I (1901). See also International Economic Papers, No. 3, p. 203, for an interpretation by Pareto of the differences between Croce and himself in terms of the philosophical clash between the medieval nominalists and realists.

[[19]]F. A. Hayek, “The Trend of Economic Thinking,” Economica, May, 1933, p. 131.

[[20]]On these points see, e.g., L. Robbins, The Theory of Economic Policy in English Classical Political Economy (London, 1952), p. 3; M. Bowley, Nassau Senior and Classical Political Economy (London, 1937), pp. 27 f.

[[21]]See, e.g., A. Amonn, Objekt und Grundbegriffe der theoretische Nationalökonomie (2nd ed.), pp. 23 f.

[[22]]J. S. Mill, “On the Definition of Political Economy: and on the Method of Investigation Proper to It,” (in Essays on Some Unsettled Questions of Political Economy) London reprint, pp. 120 f.

[[23]]See the Centenary Volume of the Political Economy Club, London, 1921, p. 44.

[[24]]It was in this period too that one of the earliest denials of a specifically economic side of affairs was put forward by Comte. Any such separation was “irrational” and evidenced the “metaphysical” character of economics. For an account of Comte's criticism of economics and of J. S. Mill's reaction to it, see Ashley's Introduction to his 1909 edition of Mill's Principles, pp. xi f. See also R. Mauduit, A. Comte et la science économique (Paris, 1929); F. A. Hayek, The Counter–Revolution of Science (Glencoe, 1952), pp. 181–182. An early discussion of Comte's views on economics is J. E. Cairnes' “M. Comte and Political Economy,” in Essays in Political Economy (London, 1873).

[[25]]Knies required of a definition of economics that it comprise a) “das Gebiet der Untersuchungen,” b) its “Aufgabe,” and c) its “Methode.” (K. Knies, Die politische Oekonomie vom geschichtliche Standpuncte [Braunschweig, 1883], p. 157.) Menger required a similar scope for a definition. (C. Menger, Untersuchungen über die Methode der Sozialwissenschaften und der politischen Oekonomie insbesondere [Leipzig, 1883], p. 238.)

[[26]]The distinction between the “individual” (or concrete) and the “general” (or abstract) in economic phenomena was made famous by Menger in his Untersuchungen, pp. 3 f.

[[27]]Prominent United States writers who applied themselves to the careful definition of the economic point of view during this period include in their ranks Ely, Patten, Davenport; Taussig, Hadley, Giddings, Hadley, and Ward.

[[28]]Among French writers of the period who concentrated most directly on definition may be mentioned: R. Worms (La science et l'art en économie politique, Paris, 1896); E. Levasseur (De la methode dans les sciences économiques, Paris, 1898); A. Jourdan (Des rapports entre le droit et l'économie politique, Paris, 1884); G. Schmidt (“Rapports de l'économie politique avec la morale et le droit,” Revued'économie politique, 1900); G. Tarde (Psychologie économique, Paris, 1902).

[[29]]Cammillo Supino, La definizione dell'economia politica (Milan, 1883).

[[30]]L. M. Fraser, Economic Thought and Language (2nd printing, 1947), ch. 2.

[[31]]The following references support the conclusion that writers who have sought to define the scope of economics have done so with regard to the discipline as it has actually developed, not to any projected subject: A. Marshall, The Present Position of Economics (London, 1885); L. Robbins, Nature and Significance of Economic Science (2nd ed.; London, 1935), p. 22; R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939; A. Amonn, Objekt und Grundbegriffe der theoretischen Nationalökonomie (1911), p. 12.

[[1]]L. M. Fraser, Economic Thought and Language (London, 1947), pp. 21 ff.

[[2]]Contrast, however, Cunningham's appraisal of Adam Smith's achievement as consisting “in isolating the conception of national wealth, while previous writers had treated it in conscious subordination to national power” (quoted in A. Marshall, Principles of Economics, [8th ed.; Macmillan & Co.], p. 758 n.).

[[3]]Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Cannan (Modern Library, 1937), p. 643.

[[4]]See, e.g., op. cit., p. 403.

[[5]]Op. cit., p. 397. John Neville Keynes has remarked (The Scope and Method of Political Economy [4th ed.; London, 1930], p. 39 n.) that although Smith's work has the form of a science, he himself conceived his subject primarily as an art. In this connection, however, a note of Jeremy Bentham is of considerable interest. He wrote (Economic Writings, ed. Stark, Vol. III [George Allen and Unwin, 1954], p. 318 n.): “To Adam Smith, the science alone has been the direct and constant object in view: the art the collateral and occasional one.”

[[6]]L. Robbins, The Theory of Economic Policy in English Classical Political Economy (London, 1952), pp. 170–171.

[[7]]James Steuart, An Inquiry into the Principles of Political Economy (1767), cited in L. Haney, History of Economic Thought (4th ed.), p. 138.

[[8]]On the attitudes of some of the earliest economic writers towards the right of private property, see, e.g., E. Halévy, The Growth of Philosophic Radicalism (Boston, 1955), p. 45; L. Robbins, The Theory of Economic Policy, pp. 50 f.; J. Bonar, Philosophy and Political Economy (3rd ed.; London, 1922), pp. 142 f. Perhaps the most clear example of an economist who was stimulated by concern with private property rights was Samuel Read. Read, one of the economists “rediscovered” by Seligman (“Some Neglected British Economists,” Economic Journal, 1903), called his book Political Economy. An Inquiry into the Natural Grounds of Right to Vendible Property or Wealth (Edinburgh, 1829). He treated economics, not as concerning wealth, but as concerning the “right to wealth.” It is of interest to note that the alternative name which Read suggested (p. xvii) for political economy, “Political Justice,” is the title of Godwin's book of 1793 fiercely attacking the institution of private property.

[[9]]Gunnar Myrdal, The Political Element in the Development of Economic Theory (English ed.; Harvard, 1954), pp. 69 f. Contrast Schumpeter's remark in this regard (History of Economic Analysis, New York, 1954), p. 120.

[[10]]The intellectual ancestry of classical political economy has been traced variously to the moral tradition represented by the Mandeville–Shaftesbury–Hutcheson realm of thought and to the political tradition of the Grotius–Pufendorf–Hobbes–Locke filiation. See, e.g., J. T. Merz, History of European Thought in the Nineteenth Century (Edinburgh, 1914), IV, 127–128; J. Bonar, Philosophy and Political Economy, pp. 6, 85, 151; W. Hasbach, Untersuchungen über Adam Smith (Leipzig, 1891), pp. 23 f., 140 f. See also F. A. Hayek, “Individualism: True and False” (reprinted in Individualism and Economic Order, Chicago, 1948).

[[11]]B. Mandeville, Fable of the Bees (ed. of 1723), pp. 427–428.

[[12]]W. Röpke, The Social Crisis of Our Time (English edition; Chicago, 1950), p. 68.

[[13]]F. A. Hayek, The Counter–Revolution of Science (Glencoe, 1952), p. 107.

[[14]]See, e.g., W. H. Hutt, Economists and the Public (Jonathan Cape: London, 1936), pp. 301–302.

[[15]]See E. Halévy, The Growth of Philosophic Radicalism (Beacon Press: Boston, 1955), pp. 13, 19, 57.

[[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.

[[26]]On Hume's views in this regard, see J. Bonar, Philosophy and Political Economy, p. 107.

[[27]]See above n. 7.

[[28]]Ganilh in his Inquiry into the Various Systems of Political Economy (English ed.; New York, 1812), pp. 2–4, cites Palmieri's Pubblica felicità (1787) and Canard's Principesd'économie politique (1801) for the view that wealth is superfluous. Boileau (An Introduction to Political Economy [London, 1811], Ganilh himself (op. cit. p. 22) and the American economist Raymond (The Elements of Political Economy, [2nd ed.; Baltimore, 1823], p. 40) all defined wealth as surplus over current expenditure for “wants.” This position seems to have considerable bearing on the classical attitude towards the consumption of wealth. (On this see J. N. Keynes, Scope and Method of Political Economy, [4th ed.; London, 1930], pp. 105 f; L. Robbins, The Theory of Economic Policy, p. 7.) The conception of wealth as surplus after expenditure implies a finite area of human “needs” which are objectively fixed. This conception led to the view that the consumption of wealth is the destruction of wealth rather than the consummation of the process of production. One recalls J. S. Mill's unhappy description of the desire for present enjoyment of goods as being antagonistic to the desire for wealth (Essays on Some Unsettled Questions of Political Economy, London reprint, p. 138).

[[29]]Bentham recommended the use of the term “matter of wealth” in place of “wealth” to make it absolutely clear that political economy was not confined to the treatment of great riches. Malthus in a letter to Ricardo in 1817 explicitly included the poverty of nations in the scope of economics (Sraffa ed., Vol. VII, Letter No. 200). Samuel Bailey, celebrated critic of Ricardian value theory, ascribed the popular view of political economy as a “degrading” inquiry to the mistaken belief that it treats only of excessive wealth. S. Bailey, Discourses on Various Subjects Read Before Literary and Philosophical Societies (London, 1852), p. 125. For examples of later writers clinging to the “surplus” view of wealth, see Sargent, Science of Social Opulence (London, 1856); M. Liberatore, Principles of Political Economy (English ed.; London, 1891).

[[30]]F. H. Knight, The Ethics of Competition (Harper & Bros.), p. 24. See also on this point K. Mannheim, Essays on the Sociology of Culture (New York, 1956), p. 35. For bibliography on the materialist interpretation of history, see W. J. Blake, Elements of Marxian Economic Theory and Its Criticism (New York, 1939), pp. 686–691. See also T. Parsons, “Some Reflections on ‘The Nature and Significance of Economics,’” Quarterly Journal of Economics, May, 1934, p. 534, n. 4.

[[31]]K. Marx, Capital (English ed.; Ch. Kerr & Co., Chicago, 1915), I, 406, n. 2. See, however, the significantly different translation of this note by E. and C. Paul (Everyman's ed.; 1930), p. 393 n.

[[32]]K. Marx, A Contribution to the Critique of Political Economy (translated by N. Stone, Chicago, 1904), pp. 10–11.

[[33]]See E. R. A. Seligman, The Economic Interpretation of History (New York: Columbia University Press, 1902), p. 43.

[[34]]See Eastman's edition of selections from Marx (Modern Library), p. 10.

[[35]]F. Engels, The Origin of the Family, Private Property, and the State (English translation, Moscow, 1940), p. 5. For another statement by Engels in virtually the same words, see Knight, Ethics and Competition, p. 24 n.

[[36]]From a letter by Engels to Der sozialistische Akademiker (1895), quoted in Seligman, The Economic Interpretation of History, pp. 58–59.

[[37]]Karl Kautsky, Die materialistische Geschichtsauffassung (Berlin, 1927), I, 3–6.

[[38]]The following references are to later writers who seem to have formulated their definitions with stress on “subsistence”: B. Hildebrand, Die Nationalökonomie der Gegenwart und Zukunft, ed. by Gehrig (Jena, 1922), p. 305: E. Sax, Das Wesen und die Aufgaben der Nationalökonomie (Vienna, 1884), p. 12; P. Leroy–Beaulieu, Précisd'économie politique (Paris, 1888), p. 1; C. Perin, Premiers principesd'économie politique (Paris, 1896), p. 2.

[[39]]Thorstein Veblen, The Theory of the Leisure Class (Modern Library, 1934), p. 24.

[[40]]T. Veblen, The Place of Science in Modern Civilization and Other Essays, (New York: Viking Press, 1919), p. 91.

[[41]]T. Veblen, “The Limitations of Marginal Utility,” Journal of Political Economy, 1909; reprinted in The Place of Science in Modern Civilization, p. 241. A list of passages in Veblen's writings in which the material–means–of–life criterion is used would include: T. Veblen, “Why Is Economics Not an Evolutionary Science?” Quarterly Journal of Economics, 1895, reprinted in The Place of Science in Modern Civilization, pp. 71, 76; T. Veblen, “Mr. Cummings' Strictures on ‘The Theory of the Leisure Class.’” Journal of Political Economy, 1899, and “The Instinct for Workmanship and the Irksomeness of Labor,” American Journal of Sociology, 1898, both reprinted in Essays in Our Changing Order (New York, 1943), pp. 27, 78, 80. It is of special interest to note that Veblen uses the phrase “material means of life” as synonymous with the object of Marx's materialism. (See his “The Socialist Economics of Karl Marx and His Followers,” Quarterly Journal of Economics, 1906, reprinted in The Place of Science in Modern Civilization, p. 415.)

[[42]]Franklin Giddings, “The Economic Ages,” Political Science Quarterly, June, 1901, p. 195. For a similar distinction between human economy and its biological analogues, see Lester F. Ward, “Psychological Basis of Social Economics,” Annals of the American Academy of Political and Social Science, 1893, pp. 464–465.

[[43]]S. Sherwood, “The Philosophical Basis of Economics,” Publications of the American Academy of Political and Social Science (October 5, 1897), p. 71.

[[44]]J. E. Cairnes, The Character and Logical Method of Political Economy (London, 1875), p. 31. (The lectures published in the book were delivered during the 1850's.)

[[45]]Cairnes, op. cit., p. 18.

[[46]]Bonamy Price, Chapters on Practical Political Economy (London, 1878), p. 19. For further references in which the wealth–focus of economics was retained, see the quotation from a speech by Robert Lowe in Cliffe Leslie, Essays in Political Economy (2nd ed.; 1888), p. 21; H. Sidgwick, The Principles of Political Economy (2d ed.; 1887), p. 12; W. F. Marriott, A Grammar of Political Economy (London, 1874), p. 1; J. N. Keynes, The Scope and Method of Political Economy (4th ed.; 1917), p. 100. Jevons and Marshall made free use of such terms as “the laws of wealth” and the “study of wealth.” W. S. Jevons, “The Future of Political Economy,” Fortnightly Review, November, 1876, reprinted in his Principles of Economics and Other Papers (London, 1905), p. 193; A. Marshall, Principles of Economics (8th ed.; London, 1920), p. 1. When Mr. Norman, a veteran member of the Political Economy Club, rose at the club dinner in 1876 to express his sentiments, he was not fighting an uphill battle when he asserted that the “real essence of Political Economy” is the explanation of wealth phenomena; Revised Report of the Proceedings at the Dinner of 31st May, 1876, held in Celebration of the Hundredth Year of the Publication of the “Wealth of Nations” (Political Economy Club: London, 1876), p. 26.

[[47]]References to writers in German who defined economics with special attention to Güter or Sachgüter include: G. v. Schönberg, “Die Volkswirtschaft,” Handbuch der politischen Oekonomie (4th ed.; Tübingcn, 1896), p. 15; K. Knies, Die politische Oekonomie vom geschichtliche Standpuncte, (Braunschweig, 1883), p. 158; C. Menger, Untersuckungen (1883), p. 232 n.; E. v. Philippovich, Über Aufgabe und Methode der politischen Ökonomie (Freiburg, 1886), pp. 20–21; E. Sax, Das Wesen und die Aufgaben der Nationalökonomie (Vienna, 1884), H. Dietzel, Ueber das Verhaltnis der Volkswirthschaftslehre zur Sozialwirthschaftslehre (Berlin, 1881), p. 9; see also Dietzel “Beitrage zur Methodik der Wirtschaftswissenschaft,” Conrads Jahrbucher, 1884, p. 18.

[[48]]See J. K. Ingram's Preface to Ely's Introduction to the Study of Political Economy (quoted by Ely in his Introduction to the enlarged edition of Ingram's A History of Political Economy [London, 1915], p. xvii); and Cliffe Leslie, “On the Philosophical Method of Political Economy,” Hermathena, 1876 (reprinted in his Essays in Political Economy, p. 189).

[[49]]Cliffe Leslie, op. cit., p. 212.

[[50]]Besides the references to Dietzel's works in note 47 above, see also his “Der Ausgangspunkt der Sozialwirtschaftslehre und ihr Grundbegriff,” Tübinger Zeitschrift, 1883; and his article “Selbstinteresse” in the Handwörterbuch der Staatswissenschaften (3rd ed.; Jena, 1911), VII, 435 ff.

[[51]]H. Dietzel, Theoretische Sozialökonomik (Leipzig, 1895), p. 182.

[[52]]R. T. Ely, The Past and the Present of Political Economy (Baltimore, 1884), p. 20.

[[53]]E. de Laveleye, “Les lois naturelles et l'objet de l'économie politique,” Journal des économistes (April, 1883), p. 92. French writers of this period stressing richesses include: Arendt, Limousin, Landry, Beauregard, Herve–Bazin, Courtois, Worms, and Levasseur.

[[54]]For an interpretation of classical economics generally as seeing the central economic problem in the struggle of man against nature, see M. Dobb, Political Economy and Capitalism, pp. 19 f.; H. Myint, Theories of Welfare Economics, pp. 2 f.

[[55]]H. Storch, Coursd'économie politique (St. Petersburg, 1815), I, ii.

[[56]]See W. E. H. Lecky, History of the Rise and Influence of the Spirit of Rationalism in Europe (1865; American ed., 1955), pp. 335 f. On the possible influence on Lecky exerted by Comte, see Hayek, Counter–Revolution of Science, p. 187.

[[57]]For passages in his writings in which the Aussenwelt is stressed, see A. Schäffle, Die Nationalökonomie oder allgemeine Wirtschaftslehre (Leipzig, 1861), pp. 2, 24; Das gesellschaftliche System der menschlichen Wirtschaft (3rd ed.; Tübingen, 1873), p. 2; “Die ethische Seite der Nationalökonomischen Lehre vom Werthe,” Gesammelte Aufsätze (Tübingen, 1885).

[[58]]On Mangoldt's and Sax's position, see E. Sax, Das Wesen und die Aufgaben der Nationalökonomie (Vienna, 1884), pp. 14–15. On Cohn's position, see Menger, Untersuchungen, p. 243. Julius Lehr in his Grundbegriffe und Grundlagen der Volkswirtschaft (Leipzig, 1893), p. 67, instead of referring to Güter, speaks of “die Dinge der Aussenwelt.”

[[59]]C. A. Tuttle, “The Fundamental Economic Principle,” Quarterly Journal of Economics, 1901, p. 218.

[[60]]On the existence of a line of subjective development in economics after the death of Ricardo, see M. Bowley, Nassau Senior and Classical Political Economy, ch. II.

[[61]]See A. Schäffle, “Mensch und Gut in der Volkswirtschaft” (1861) in his Gesammelte Aufsätze, pp. 158 ff.; Droz's very strongly held position is cited by an American economist, Stephen Colwell, in a preliminary essay to an edition of F. List's National System of Political Economy (Philadelphia, 1856), p. xxxvii; see also P. Cauwés, Précis du coursd'économie politique (Paris, 1881), p. 6.

[[62]]R. T. Ely, An Introduction to Political Economy (New York, 1889), p. 105.

[[63]]This continuity between the classical conception of economics as a science of wealth and the later emphasis on welfare gains in significance if classical economics is interpreted as “welfare analysis at the physical level” on the grounds that the classical economists implicitly assumed “that quantities of satisfaction of given wants are roughly proportional to quantities of physical products.” H. Myint, Theories of Welfare Economics, p. xii.

[[64]]E. Cannan, A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848 (3rd ed.; London, 1917), p. 312. The quoted passage first appeared in the second edition (1903).

[[65]]On the distinction between “classificatory” and “analytical” definitions of economics, see L. Robbins, Nature and Significance of Economic Science (2nd ed.), pp. 16 f.; A. L. Macfie, An Essay on Economy and Value, p. 2; L. Fraser, Economic Thought and Language, pp. 26 f.

[[66]]“Welfare was like a fluid or a gas which, although perhaps difficult to measure, was in principle measurable ... ” I. Little, A Critique of Welfare Economics (Oxford, 1950), p. 9.

[[67]]Dugald Stewart, Political Economy, ed. Hamilton (1855), I, 9. The passage was written about 1810. Cf. Bonar, Philosophy and Political Economy (London, 1922), p. 152.

[[68]]J. C. L. Simonde de Sismondi, Nouveaux principesd'économie politique (3rd ed.; Geneva, 1951), p. 66.

[[69]]See W. S. Jevons, The Principles of Economics (London: Macmillan & Co., 1905), p. 49; H. H. Powers, “Wealth and Welfare,” Publications of the American Academy of Political and Social Science (April 4, 1899), p. 16.

[[70]]Among French writers of the period who expressly condemned the objectivism of the definitions formulated in terms of richesses were: H. Dameth, Introduction à l'étude de l'économie politique (Paris, 1878), p. 89; A. Girault, “Les grandes divisions de la science économique,” Revued'économie politique, 1900, p. 796; E. Villey, Principesd'économie politique (Paris, 1894), p. 5; C. Gide, Principles of Political Economy (2nd American ed.; Boston, 1905), p. 3 n.; G. Tarde, Psychologie économique (Paris, 1902), I, 127.

[[71]]See L. Robbins, Nature and Significance, p. 4 and footnotes.

[[72]]For a more detailed discussion of Marshall's conception of the economic point of view, see below, chap. V. See also T. Parsons, “Wants and Activities in Marshall,” Quarterly Journal of Economics, November, 1931, pp. 106 ff. For a discussion of the limitations circumscribing Marshall's adoption of the welfare formulation, see also F. Fetter, “Price Economics Versus Welfare Economics,” American Economic Review, 1920, p. 721.

[[73]]E. Cannan, review of L. Robbins' Nature and Significance in Economic Journal, September, 1932, pp. 424–427.

[[74]]F. Fetter, “Price Economics Versus Welfare Economics,” American Economic Review, 1920; W. C. Mitchell, The Backward Art of Spending Money and Other Essays, p. 381.

[[75]]For an informative survey of these problems, see Streeten's Appendix to his translation of Myrdal's The Political Element in the Development of Economic Theory (1954).

[[76]]D. H. Robertson, “Utility and All What?” Economic Journal, December, 1954, reprinted in his Economic Commentaries (London: Staples Press), pp. 57–58. Robertson has coined the term “ecfare” to denote the specific area of human welfare which is of concern to the economist.

[[77]]S. Bailey, “On the Science of Political Economy,” in his Discourses on Various Subjects Read Before Literary and Philosophical Societies (London, 1852), p. 125. This essay was written about 1835.

[[78]]On the disrepute in which the “economic virtues” had been held, see, e.g., R. H. Tawney, Religion and the Rise of Capitalism (London, 1926), ch. IV.

[[79]]In his Inquiry into the Various Systems of Political Economy (translated by D. Boileau, New York, 1812), Ganilh devoted some thirty pages to a survey of classical and modern civilizations, attempting to show that in the latter the desire for wealth bears no similarity to its objectionable counterpart in the former.

[[80]]See R. Whately, Introductory Lectures on Political Economy (4th ed.; London, 1855), p. 25; M. Longfield, Lectures on Political Economy (Dublin, 1834), p. 3.

[[81]]R. Jennings, Natural Elements of Political Economy (London, 1855), p. 41.

[[82]]W. Bagehot, Works (Hartford, 1889), V, 224.

[[83]]See W. S. Jevons, The Theory of Political Economy (1871); (4th ed.; London: Macmillan & Co., 1911), p. 26; F. Y. Edgeworth, Mathematical Psychics (London, 1881), pp. 52–53.

[[84]]See W. S. Jevons, “Future of Political Economy,” reprinted in Principles of Economics and Other Papers, pp. 197–199.

[[85]]See F. A. Hayek, The Road to Serfdom (Chicago, 1956), pp. 88–89, for an interesting commentary on the possible sinister consequences of the belief that economic affairs pertain to the more sordid sides of life.

[[1]]J. Ruskin, Unto This Last, Preface, sec. 5, note.

[[2]]H. T. Buckle, History of Civilization (New York, 1871), II, 343. See also W. H. Hutt, Economists and the Public (London, 1936), p. 301, n. 2.

[[3]]Mill's essay was published originally in the October, 1836, number of the London and Westminster Review. The essay had been written several years previously. On this point see J. Bonar, Philosophy and Political Economy (3rd ed.; London, 1922), p. 239; see also Ashley, Introduction to his 1909 edition of J. S. Mill's Principles of Political Economy, p. xvi.

[[4]]J. S. Mill, “On the Definition of Political Economy,” reprinted in Essays on Some Unsettled Questions of Political Economy (1844), p. 127. (All references are to the 1948 reprint by the London School of Economics and Political Science.)

[[5]]Ibid., pp. 129–132.

[[6]]Ibid., p. 137.

[[7]]Ibid., p. 140.

[[8]]The earlier classical economists had used the concept of “economic man” but had not felt the need to define his nature, to state explicitly the degree of abstraction of which he is the product, or even to say whether he exists at all. This is easily understandable. In a science of wealth it is an obvious simplification to take into account only those aspects of human nature that seem to bear most directly on the phenomena of wealth. It is only for a Mill, for whom political economy deals exclusively with the “laws of mind,” that it becomes imperative to demarcate those areas in human nature that pertain specifically to the investigations of political economy. For an analysis of the role of economic man in classical political economy, see A. Fey, Der Homo Oeconomicus in der klassischen Nationalökonomie, und seiner Kritik durch den Historismus (Limberg, 1936).

[[9]]J. S. Mill, System of Logic, Book VI, ch. 9, sec. 3. A position remarkably similar to that of Mill seems to have been taken independently by Samuel Bailey, the author of A Critical Dissertation on the Nature, Measures, and Causes of Value; Chiefly in Reference to the Writings of Mr. Ricardo and His Followers (1825). It is unfortunate that Bailey's other writings, especially his essay On the Science of Political Economy, have received less attention. This essay was published as Discourse IV in S. Bailey, Discourses on Various Subjects Read Before Literary and Philosophical Societies (London, 1852); a footnote on p. 112 declares the essay on political economy to have been written in 1835 (that is, about a year before the publication of Mill's essay). Bailey objects forcefully to the usual definition of the subject in terms of wealth (pp. 107 f.). Like Mill, Bailey is concerned with distinguishing between the technical laws of production (which involve the physical sciences) and the economic laws relevant to political economy. Bailey unequivocally shifted the conception of economics from that of a science of wealth to that of a science of man and, in so doing, seems to have been tempted to create something suspiciously resembling Mill's economic man.

[[10]]R. Whately, Introductory Lectures on Political Economy (4th ed.; London, 1855), p. 16; N. Senior, An Outline of the Science of Political Economy (London, 1938), p. 27; for Senior's view of Mill's economic man, see M. Bowley, Nassau Senior and Classical Political Economy, pp. 61 f.

[[11]]See F. Y. Edgeworth, Papers Relating to Political Economy (London, 1925), I, 173. Edgeworth was aware of Marshall's denial of the necessity of self-interest for economics. See Edgeworth's review of the third edition of Marshall's Principles in Economic Journal, V, 586. On Cunningham, see his “The Perversion of Economic History,” Economic Journal, II, 498. For a fuller discussion of the place of self-interest in neoclassical economics, see W. H. Hutt, Economists and the Public (London, 1936), ch. XIX. See also F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, pp. 461 f.

[[12]]See especially M. Bowley, Nassau Senior and Classical Political Economy, ch. II.

[[13]]N. Senior, An Outline of the Science of Political Economy (George Allen & Unwin), p. 26.

[[14]]Henry George, The Science of Political Economy (New York, 1898), p. 88.

[[15]]F. Hermann, Staatswirtschaftliche Untersuchungen (2nd ed.; Munich, 1870), pp. 67–68. See especially p. 68 n., where Hermann cites from a review that he wrote in 1836 ideas closely similar to those written at the same time by Mill and Bailey.

[[16]]W. S. Jevons, The Theory of Political Economy (Macmillan & Co.), p. 23. See also the quotation from Jevons in Cliffe Leslie, Essays in Political Economy, p. 101.

[[17]]See A. Schäffle, Das gesellschaftliche System der menschlichen Wirthschaft (3rd ed.; Tübingen, 1873), I, 46, cited in C. Menger's Untersuchungen, p. 242.

[[18]]See A. Wagner, Grundlegung der politischen Oekonomie, Vol. I, Grundlagen der Volkswirtschaft (2d ed.; 1879), p. 9; and (3rd ed.; 1892), p. 81.

[[19]]See H. Dietzel, “Der Ausgangspunkt der Sozialwirtschaftslehre, und ihr Grundbegriff,” Tübinger Zeitschrift für gesamte Staatswissenschaften, 1883; H. Dietzel, Theoretische Sozialökonomik (Leipzig, 1895), p. 81;F. J. Neumann, Grundlagen der Volkswirtschaftslehre (Tübingen, 1889), pp. 4 f; see also E. V. Philippovich, Grundriss der politischen Oekonomie, Vol. I (1913), p. 2, and W. Sombart, “Die Elemente des Wirtschaftslebens,” Archiv für Sozialwissenschaft und Sozialpolitik, 1913, XXXVII, for similar expressions. For Sax's views on the usefulness of the economic principle for definition, see his Das Wesen und die Aufgaben der Nationalökonomie (Vienna, 1884), p. 12.

[[20]]It is of interest to note that Robbins has in fact used an argument almost identical with that of Dietzel to reject the material-welfare criterion towards which Dietzel was drawn. To the material-welfare economists Robbins points out the peculiar accident that generalizations valid for material-welfare activities prove to have equal applicability to other activities as well. L. Robbins, “Robertson on Utility and Scope,” Economica, May, 1953, p. 105.

[[21]]A. T. Hadley, “Economic Laws and Methods,” in Science Economic Discussion (New York, 1886), p. 93; for other United States writers of the period who discussed the economic principle, see J. B. Clark, Philosophy of Wealth (Boston, 1892), p. 57; R. T. Ely, Introduction to Political Economy (New York, 1889), pp. 58–59; E. R. A. Seligman, Principles of Economics (10th ed.; 1923), p. 4.

[[22]]F. B. Hawley, Enterprise and the Productive Process (New York, 1907), p. 73.

[[23]]H. J. Davenport, Outlines of Economic Theory (New York, 1896), p. 32.

[[24]]See, however, K. Kautsky, Die materialistische Geschichtsauffassung (Berlin, 1927), I, 3–6, for the denial of this.

[[25]]Of course, where maximization is itself expressed in terms of wealth, it leads back to the old notion of a specifically economic impulse (see, e.g., B. M. Anderson, Social Value [Cambridge, 1911], pp. 144–145).

[[26]]James S. Early, “The Growth and Breadth of Theoretical Economics,” in Economic Theory in Review, ed. C. L. Christenson (Indiana University, 1949) p. 13.

[[27]]W. Roscher, Geschichte der National-Oekonomik in Deutschland (Munich, 1874), p. 1033.

[[28]]P. Wicksteed, Common Sense of Political Economy, ed. Robbins, I, 163–165. For some later views on the subject see Z. Clark Dickinson, “The Relations of Recent Psychological Developments to Economic Theory,” Quarterly Journal of Economics, May, 1919, p. 388; see also his book Economic Motives (Harvard, 1922); T. Parsons, “The Motivation of Economic Activities,” Canadian Journal of Economics and Political Science (1940).

[[29]]Among the writers who rejected the economic principle as a means of definition of the economic point of view, see especially the discussion by Oswalt of a paper by Voigt in Verhandlungen des ersten Deutschen Soziologentages, published in Schriften der Deutschen Gesellschaft fur Soziologie, 1911, p. 270; H. Halberstaedter, Die Problematik des wirtschaftlichen Prinzips (1925), p. 76; F. Zweig, Economics and Technology (London, 1936), p. 19. Compare also P. Wicksteed, The Common Sense of Political Economy, ed. Robbins, I, 159 f.

[[30]]J. Viner, “Some Problems of Logical Method in Political Economy,” Journal of Political Economy, March, 1917, (Copyright 1917 by the University of Chicago), p. 248.

[[31]]K. E. Boulding, The Skills of the Economist (Cleveland: Howard Allen, 1958), p. 179.

[[32]]A. L. Macfie, An Essay on Economy and Value (London, 1936). For further discussion of Macfie's position, see chapter VI of this essay.

[[33]]See Professor Robbins' Introduction to his edition of Wicksteed's Common Sense, p. xxi.

[[34]]Wicksteed's “nontuism” was noted by Roche-Agussol in his Etude bibliographique des sources de la psychologie économique (1919), p. 61, n. 1. Roche-Agussol also points out the similarity of Wicksteed's “nontuism” to the ideas of Hawley (see especially “A Positive Theory of Economics,” Quarterly Journal of Economics, 1902, pp. 233 f; and his Enterprise and the Productive Process [New York, 1907].

[[35]]P. Wicksteed, Common Sense of Political Economy, ed. Robbins, p. 175.

[[36]]P. Wicksteed, “Scope and Method of Political Economy” (reprinted in op. cit., II, 782).

[[37]]P. Wicksteed, Common Sense, p. 182.

[[38]]To be compared with Wicksteed's position is that of Viner, “Some Problems of Logical Method in Political Economy,” Journal of Political Economy, March, 1917, (Copyright 1917 by the University of Chicago), p. 249: “ ... the economic transaction becomes non-moral in the sense that each party excludes the other from his moral situation.”

[[39]]N. Senior, An Outline of the Science of Political Economy (London: George Allen & Unwin, 1938), p. 28. One recalls, in connection with this analogy, Gossen's claim to qualify as the Copernicus of economics.

[[40]]M. Pantaleoni, Pure Economics (1889; English translation, London, 1898), p. 5. (The term “mathematical economics” thus had for Pantaleoni an unusual meaning, for he gave it the task of solving “the problem of inscribing in a given triangle a rectangle of maximum dimensions, or that of circumscribing a given sphere with a minimum cone.”) See also I. Little, Welfare Economics (1950), p. 21.

[[41]]See Pantaleoni, op. cit., pp. 7, 19. See also M. Pantaleoni, “An Attempt to Analyse the Concepts of ‘Strong and Weak’ in their Economic Connection,” Economic Journal, 1898.

[[42]]See B. Croce, “On the Economic Principle I,” in International Economic Papers, No. 3, p. 177.

[[43]]See J. Schumpeter, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (Leipzig, 1908), p. 86, for the explicit view that the economist must consider the changes in “economic quantities” as if they were caused automatically, without paying attention to the human beings who may have been involved in the appearance of such changes.

[[44]]Schumpeter's outlook on economics may be related to the influence which Mach in Vienna was exerting at the time on scientific thought. For a characterization of mechanics parallel to Schumpeter's view of economics, see Ernst Mach, The Science of Mechanics (Chicago, 1919), pp. 256 f. It is to be remarked that Schumpeter was surprisingly reticent about precisely what he understood under his güter. (See op. cit., p. 80 n.) At least one of his critics seems to have understood Schumpeter to include all that is meant by “utility.” (See A. Amonn, Objekt und Grundbegriffe der theoretische Nationalökonomie, 1911, p. 129.)

[[45]]J. Schumpeter, Wesen und Hauptinhalt, pp. xvi, xvii, 47, 64.

[[46]]See, e.g., Schumpeter's paper “Über die mathematische Methode der theoretischen Okonomie,” Zeitschrift für Volkswirtschaft, Sozialpolitik, und Verwaltung, XV (1908), 30–49.

[[47]]For the similarity of Pareto's position to that of Schumpeter, see his “On the Economic Phenomenon,” in International Economic Papers, No. 3, p. 184, and his “Anwendungen der Mathematik auf Nationalökonomie,” in Encyclopädie der mathematischen Wissenschaften, 1902, pp. 1107–1108. For a recent example of the hardiness of the Schumpeter view, see Boulding, The Skills of the Economist, pp. 28–29.

[[48]]B. Croce, “On the Economic Principle II,” in International Economic Papers, No. 3, p. 197.

[[1]]T. Malthus, Definitions in Political Economy, pp. 70 f. Mill's position is in his Commerce Defended (1808), p. 22; McCulloch's, in his Principles of Political Economy (1825), part I, p. 5. Parallel to the exchangeability condition required for wealth by these writers is the requirement that items of wealth be capable of appropriation and alienation. (See, e.g., S. Read, Political Economy [Edinburgh, 1929], p. 1.] Sismondi explicitly denied that exchangeability is a prerequisite for wealth (Nouveaux principesd'économie politique [Geneva, 1951], p. 71).

[[2]]Count DeStutt de Tracy, A Treatise on Political Economy (English ed., Georgetown, 1817), “Of Action,” pp. 6, 15.

[[3]]R. Whately, Introductory Lectures on Political Economy (4th ed.; London, 1855), p. 4.

[[4]]Ibid., p. 5. See N. Senior, Outline of the Science of Political Economy, p. 25. Torrens, apparently, was in disagreement (ibid.), See also E. Cannan, Theories of Production and Distribution, 1776–1848, p. 7.

[[5]]On the existence of a Dublin “school” in economics during this period, see R. D. Black, “Trinity College, Dublin, and the Theory of Value, 1832–1863,” Economica, New Series, XII (1945), 140–148.

[[6]]The Whately professors who endorsed the catallactic view were J. A. Lawson, Five Lectures on Political Economy, delivered before the University of Dublin, 1843 (London and Dublin, 1844), pp. 12 f.; and W. N. Hancock, An Introductory Lecture on Political Economy (Dublin, 1849), p. 7. The writer who wrote under the pseudonym Patrick Plough (and was noticed by Seligman in his “On Some Neglected British Economists,” Economic Journal, 1903), bestowed on his book (London, 1842) the following title: Letters on the Rudiments of a Science, called formerly, improperly, Political Economy, recently more pertinently, Catallactics.

[[7]]Among writers who condemned the narrowness of the catallactic view were F. W. Newman, Lectures on Political Economy (London, 1851), p. 19; J. Cazenove, Thoughts on a Few Subjects of Political Economy (London, 1859), p. 70. See also W. E. Hearn, Plutology (London and Melbourne, 1864), p. 6. For later criticism of the narrowness of Whately's position, see W. Roscher, Geschichte der National-Oekonomik in Deutschland (Munich, 1874), pp. 844, 1072; P. Cauwèes, Précis du coursd'économie politique (Paris, 1881), p. 7; P. Leroy-Beaulieu, Traité théorique et pratiqued'économie politique (Paris, 1896), I, 16.

[[8]]H. D. Macleod, The Elements of Political Economy (London, 1858), p. 5. Macleod stresses his independent arrival at the catallactic position. In his notion of exchange Macleod is narrower than some of his precursors. Thus he dismisses taxation from political economy on the grounds that it is not the subject of exchange. Whately expressly considered taxation as exchange (Introductory Lectures, p. 7 n.). Senior too (Outline of the Science of Political Economy, p. 87) viewed “all that is received by the officers of Government as given in Exchange for Services. ... ” In his History of Economics, published some forty years later, Macleod carefully collected favorable references to his own work by later writers and cites the American Perry, about whom more below.

[[9]]J. A. Lawson, Five Lectures on Political Economy, pp. 12–13.

[[10]]A. Smith, Wealth of Nations, ed. Cannan (Modern Library edition), p. 13.

[[11]]See J. A. Lawson, op. cit., p. 26. (A similar ambivalence seems visible also in Plough's work cited above, n. 6.)

[[12]]A. L. Perry, Elements of Political Economy (14th ed.; New York, 1877), pp. 1, 54.

[[13]]F. A. Walker, Political Economy (New York, 1883), p. 3. Henry George's criticism is in his The Science of Political Economy (New York, 1898), p. 130.

[[14]]Albert S. Bolles, Political Economy (New York, 1878), p. 3.

[[15]]Franklin H. Giddings, “The Sociological Character of Political Economy,” read at the second annual meeting of the association; published in the association's Publications, III (1889), 43. It is of some interest that Giddings, who here castigates the “absurdity” of the Perry position, has elsewhere (Essays in Honor of J. B. Clark, 1927) gratefully cited Perry's book as having been his own first textbook in economics.

[[16]]See, e.g., A. Amonn, Objekt und Grundbegriffe der theoretische Nationalökonomie (2nd ed.), pp. 160 f., for Max Weber's position; Felix Kaufmann, “On the Subject Matter and Method of Economic Science,” Economica, November, 1933, pp. 384 f; H. Halberstaedter, Die Problematik des wirtschaftlichen Prinzips (1925), p. 76. Schumpeter's position is discussed later in this chapter.

[[17]]A. L. Perry, An Introduction to Political Economy (New York, 1877), p. 12.

[[18]]P. Wicksteed, “The Scope and Method of Political Economy,” Economic Journal, March, 1914, reprinted in Common Sense of Political Economy, II, 781.

[[19]]See S. Newcomb, Principles of Political Economy (New York, 1886), p. 6; F. B. Hawley, “A Positive Theory of Economics,” Quarterly Journal of Economics, 1902, pp. 233 f.

[[20]]A. Marshall, The Present Position of Political Economy (London, 1885), pp. 22–25.

[[21]]See especially G. Tarde, Psychologie économique (Paris, 1902), pp. 151 f., for the use of this aspect of exchange to distinguish between economics and politics. On Weber's position, see above, n. 16; see also shils and Finch, eds., Max Weber on the Methodology of the Social Sciences (Glencoe, 1949), p. 63; M. Weber, Gesammelte Aufsätze zur Wissenschaftslehre (Tübingen, 1922), pp. 365–366.

[[22]]Schumpeter's definition of economics in terms of exchange was set forth in his Das Wesen und der Hauptinhalt der theoretische Nationalökonomie (Leipzig, 1908); see especially pp. 55, 582. For Schumpeter's maturer view of exchange, see his History of Economic Analysis (1954), p. 911. For what seems to be a change in Schumpeter's appraisal of Whately's stress on catallactics, see Wesen und Hauptinhalt, p. 50 n., and History of Economic Analysis, p. 536 n.

[[23]]See A. Amonn, Objekt und Grundbegriffe der theoretischen Nationalökonomie (1st ed., 1911), p. 128; L. Robbins, Nature and Significance of Economic Science (2nd ed.), p. 21 n.

[[24]]E. R. A. Seligman, “Social Elements in the Theory of Value,” Quarterly Journal of Economics, May, 1901, p. 327. See also L. Mises, Socialism (English ed., London: Jonathan Cape, 1936), pp. 114, 117.

[[25]]J. A. Schumpeter, Wesen und Hauptinhalt, p. 53.

[[26]]Op. cit., p. 49.

[[27]]Carl E. Parry, “A Revaluation of Traditional Economic Theory,” American Economic Review (Supplement, 1921), p. 125.

[[28]]“If economic theory is interpreted as a critique of the competitive system of organization, its first and most general problem is that of determining whether the fundamental tendencies of free contractual relations under competitive control lead to the maximum production of value as measured in price terms.” (F. H. Knight, “Fallacies in the Interpretation of Social Cost,” Quarterly Journal of Economics, 1924, reprinted in The Ethics of Competition, p. 218.)

[[29]]J. E. Cairnes, “Bastiat,” reprinted in his Essays in Political Economy (London, 1873), pp. 312 f.

[[30]]F. Bastiat, Harmonies économiques (8th ed.; Paris, 1881), pp. 25–28.

[[31]]R. G. Hawtrey, The Economic Problem (London: Longmans, Green & Co., 1925), p. 3.

[[32]]F. A. v. Hayek, “The Trend of Economic Thinking,” Economica, May, 1933, pp. 130–131. For similar passages stressing the economic organization for the purposes of definition, see R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939, p. 626; K. E. Boulding, The Skills of the Economist (Cleveland, 1958), p. 8. See also F. Oppenheimer, “Alfred Amonn's ‘Objekt und Grundbegriffe,’” Weltwirtschaftliches Archiv. Bd. 27 (1928), I, Literatur, p. 170.

[[33]]For samples of the literature on this point, see C. Menger's Untersuchungen (Appendix I, “Ueber das Wesen der Volkswirthschaft”); G. Schmoller, “Die Volkswirtschaft, die Volkswirtschaftslehre, und ihre Methode” (1893), reprinted in his Über einige Grundfragen der Sozialpolitik und der Volkswirtschaftslehre (Leipzig, 1898).

[[34]]For one example of German influence in this regard, see Ely's approving reference to the definition of economics as the “science of national housekeeping,” an idea which he relates to that of a “Volkswirthschaft” (Introduction to Political Economy [New York, 1889], p. 95).

[[35]]See G. Schmoller, Über einige Grundfragen, p. 217.

[[36]]See G. Schmoller, Grundriss der allgemeinen Volkswirtschaftslehre (11th and 12th ed.; 1919), I, 1.

[[37]]W. Roscher, System der Volkswirtschaft, I (Berlin, 1906), 42.

[[38]]F. Kleinwachter, “Wesen, Aufgabe und System der Nationalökonemie,” Conrads Jahrbucher (1889), p. 639.

[[39]]See especially A. Amonn, Objekt und Grundbegriffe (2nd ed.), pp. 153 f.

[[40]]See especially the article by Oppenheimer cited above, n. 32.

[[41]]See, e.g., D. Raymond, The Elements of Political Economy (2nd ed.; Baltimore, 1823), p. 35; Patrick Plough (pseud.), Letters on the Rudiments of ... Catallactics, p. 4; R. Whately, Introductory Lectures, pp. 16, 33 f.

[[42]]On this see T. Suranyi-Unger, Economics in the Twentieth Century (English ed., New York, 1931), p. 78. See also the next section in this chapter.

[[43]]For J. S. Mill's emphasis on the social character of economic affairs, see his Essays on Some Unsettled Questions of Political Economy, pp. 133, 135, 137, 140. Amonn, in his sharply critical review of Mill's position (Objekt und Grundbegriffe, 1st ed., pp. 35–36), does not seem to take notice of these passages. Gehrig (in an essay introducing his 1922 edition of Hildebrand's Die Nationalökonomie der Gegenwart und Zukunft, p. 1x), ascribes it to the credit of the “new” economists to have first recognized the social character of their discipline.

[[44]]See Comte's Cours de philosophie positive (2nd ed., 1864), IV, 194 f.; see also the works cited above, ch. I, n. 24.

[[45]]On this see above, ch. II, n. 48. Compare Parsons' view that Marshall's conception of economics turned it into an “encyclopedic sociology,” so that any separate identity of economic theory as a discipline is destroyed. (See, e.g., T. Parsons, The Structure of Social Action [Glencoe, 1949], p. 173.)

[[46]]See, e.g., A. Amonn, Objekt und Grundbegriffe (1st ed.), p. 154 n.

[[47]]It comes as not altogether a shock to discover at least one writer who advanced a view precisely opposed to that of Amonn. A. Schor (in his dissertation Die rein ökonomische Kategorie in der Wirtschaft [Königsberg, 1903]) can find the purely economic aspect of affairs only by abstracting completely from the social element.

[[48]]R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939, p. 625; J. F. Hayford, “The Relation of Engineering to Economics,” Journal of Political Economy, January, 1917, p. 59.

[[49]]See above n. 42. See also B. M. Anderson, Social Value (Cambridge, 1911); L. H. Haney, “The Social Point of View in Economics,” Quarterly Journal of Economics, 1913; T. Parsons, “Some Reflections on ‘The Nature and Significance of Economics,’” Quarterly Journal of Economics, May, 1934, pp. 518 f.; Alec L. Macfie, Economic Efficiency and Social Welfare (London, 1943). The justification for what might seem the perfunctory treatment of the matters touched on in this paragraph must be that, important as they are in other connections, they have far less relevance—and that of a chiefly negative character—for our own discussion.

[[50]]On this, see Talcott Parsons and Neil J. Smelser, Economy and Society (Glencoe, 1956), p. 6.

[[51]]Ibid., Parsons and Smelser ascribe the original suggestion to Professor W. W. Rostow. See also P. A. Sorokin, Society, Culture and Personality (New York, 1947), pp. 7 f.

[[1]]See, e.g., E. Cannan, A History of the Theories of Production and Distribution in English Political Economy from 1776–1848, ch. I.

[[2]]J. Dupuit, “On the Measurement of Utility of Public Works” (translated in International Economic Papers, No. 2, p. 89).

[[3]]W. Bagehot, Works (Hartford, 1889), V, 324.

[[4]]R. Lowe, “Recent Attacks on Political Economy,” Nineteenth Century, November, 1878, p. 864.

[[5]]For passages in which Bagehot consistently refers to economics as the “science of business,” see his Works (Hartford, 1889), III, 269; V, 243, 259, 324. See III, 44 for a passage in which Bagehot writes of Cairnes that he defined “the exact sort of science which political economy is” better than any previous writer.

[[6]]The use of money as the criterion for defining the nature of economic activity, on the grounds that human action directed towards consumer goods is first channeled into a search for general purchasing power in the form of money, bears a close similarity to a distinction used later by Robbins and Hayek. In the following chapter we shall notice the identification by these writers of the economic motive with the desire for general opportunity, the ability to achieve unspecified ends. On this point see also L. Robbins, Nature and Significance (2nd ed.), pp. 30–31.

[[7]]For examples of writers who have fairly recently sought for a defining criterion in this division between man's money-getting actions and his other actions, see K. Rivett, “The Definition of Economics,” Economic Record, November, 1955, pp. 221, 229; E. Heimann, “Comparative Economic Systems,” in Goals of Economic Life, ed. A. D. Ward (New York, 1953), pp. 122 f.

[[8]]Parsons has minimized the importance to Marshall of his criterion of measurability (Structure of Social Action, p. 134). Robbins consistently associates the criterion of money as a measuring rod with Pigou rather than with Marshall. See also J. N. Tewari, “What Is Economics?” Indian Journal of Economics, April, 1947, for a similar implication of a difference between Marshall and Pigou with regard to the idea of money as a measuring rod.

[[9]]A. Marshall, The Present Position of Economics (London, 1885). Passages from this lecture appear again in the Principles; in particular, several passages having reference to this chapter reappear verbatim in Appendix D (in the 8th edition).

[[10]]A. Marshall, Principles of Economics (8th ed.; Macmillan & Co.), p. 1.

[[11]]A. Marshall, The Present Position of Economics, pp. 22 f.

[[12]]Ibid., p. 28.

[[13]]Ibid., pp. 22–25.

[[14]]Ibid., p. 29.

[[15]]Ibid., p. 31.

[[16]]A. Marshall, Principles, p. 38. Similar passages are to be found on pp. 15, 27, 57.

[[17]]A. C. Pigou, Wealth and Welfare (London: Macmillan & Co., 1912), p. 3.

[[18]]Ibid., p. 8. See also Pigou's inaugural Cambridge lecture, published as Economic Science in Relation to Practice (London, 1908).

[[19]]A. C. Pigou, The Economics of Welfare (4th ed.; London: Macmillan & Co., 1932), p. 11.

[[20]]See G. Tarde, Psychologie économique (Paris, 1902), p. 77.

[[21]]B. Croce, “On the Economic Principle II,” in International Economic Papers, No. 3, p. 197.

[[22]]A. Marshall, The Present Position of Economics, p. 27.

[[23]]See the article by L. Mises in Studium Generale, VI, No. 2, 1953.

[[24]]F. H. Knight, “The Nature of Economic Science in Some Recent Discussion,” American Economic Review, June, 1934, p. 236.

[[25]]S. Pattern, “The Scope of Political Economy,” reprinted in S. Patten, Essays in Economic Theory, ed. R. Tugwell (New York: Alfred Knopf, 1924), p. 192.

[[26]]Ibid., p. 185.

[[27]]Ibid. For other passages on economics and measurable motives, see O. R. Trowbridge, Bisocialism (1903), p. 106; R. Scoon, “Professor Robbins' Definition of Economics,” Journal of Political Economy, August, 1943, p. 321.

[[28]]On the possibility of infinite utility, see P. H. Wicksteed, “On Certain Passages in Jevons' Theory of Political Economy,“ Quarterly Journal of Economics, 1889, reprinted in Common Sense, II, 736.

[[29]]L. Mises, Socialism (London: Jonathan Cape, 1936), p. 116.

[[30]]Writers who have criticized the criterion of money as a measuring rod include J. A. Hobson, Free Thought in the Social Sciences (New York, 1926), pp. 97 f.; R. G. Hawtrey, The Economic Problem (London, 1925), p. 184; F. A. Fetter, “Price Economics Versus Welfare Economics,” American Economic Review, 1920, pp. 721, 736; A. L. Macfie, An Essay on Economy and Value (London, 1936), pp. 72–73.

[[31]]See, e.g., V. Pareto, “On the Economic Phenomenon,” International Economic Papers, No. 3, p. 190; H. J. Davenport, “Fetter's ‘Economic Principles,’” Journal of Political Economy, March, 1916; W. Mitchell, The Backward Art of Spending Money, pp. 232–233, 256–257; J. Viner, “The Utility Concept in Value Theory and Its Critics,” Journal of Political Economy, 1925, p. 659.

[[32]]At least one writer explicitly identified the position of the “priceeconomists” as the “catallactic point of view” (Carl Parry, “A Revaluation of Traditional Economic Theory,” American Economic Review [Supplement, 1921], p. 123.)

[[33]]For a discussion of the restriction of price-economics to monetary phenomena see F. A. Fetter, “Davenport's Competitive Economics,” Journal of Political Economy, June, 1914, pp. 554 ff.

[[34]]See above, ch. I, n. 4.

[[35]]L. Mises, Nation, Staat and Wirtschaft (1919), p. 133. See also L. Mises, Human Action (1949), p. 232 on the same point.

[[36]]W. C. Mitchell, “The Role of Money in Economic Theory,” American Economic Review (Supplement, 1916), reprinted in The Backward Art of Spending Money, p. 171.

[[37]]The Backward Art of Spending Money, pp. 256–257.

[[38]]W. C. Mitchell, “Thorstein Veblen,” in The Backward Art of Spending Money, pp. 304–305.

[[39]]Op. cit., p. 256.

[[40]]C. H. Cooley, especially, expanded on the pecuniary influences on society in a number of papers in the second decade of this century. See also A. A. Young, “Some Limitations of the Value Concept,” Quarterly Journal of Economics, May, 1911, p. 415.

[[41]]L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 344.

[[1]]L. Robbins, The Nature and Significance of Economic Science (2nd ed.; Macmillan & Co.), p. 16.

[[2]]Ibid., pp. 12–14.

[[3]]L. Robbins, The Economic Causes of War (London: Jonathan Cape, 1939), pp. 117–118. This point is discussed further in a later section of this chapter.

[[4]]Earl of Lauderdale, Inquiry into the Nature and Origin of Public Wealth (Edinburgh, 1804), pp. 56–57.

[[5]]See, e.g., N. Senior, An Outline of the Science of Political Economy, pp. 14 f.

[[6]]On this point see Hayek's essay “Carl Menger,” Economica, 1934, printed as the Introduction to the edition of Menger's Collected Works of the London School of Economics, p. xiii. See also Knight's critical comment on this in his Introduction to the English edition of Menger's Grundsätze (Glencoe, 1950), p. 13, n. 5.

[[7]]C. Menger, Principles of Economics (trans. Dingwall and Hoselitz, Glencoe, 1950), p. 96.

[[8]]H. Dietzel, Theoretische Sozialökonomik, p. 160.

[[9]]See A. Schäffle, Das gasellschaftliche System der menschlichen Wirthschaft (Tubingen, 1873), p. 2; G. Cohn, Grundlegung der Nationalökonomie (Stuttgart, 1885), p. 4 (see, however, an earlier passage by Cohn cited in Menger's Untersuchungen, p. 254).

[[10]]F. J. Neumann, Grundlagen der Volkswirtschaftslehre (Tübingen, 1889), p. 16.

[[11]]L. Haney, History of Economic Thought (New York: Macmillan & Co., 1949), p. 600; see also K. Wicksell, Lectures on Political Economy (London, 1934), I. 32, for the same point.

[[12]]For these references to precursors of Robbins' definition, see Nature and Significance, pp. 15, 16; L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 344; A. Lowe, Economics and Sociology (London, 1935), p. 42; A. Emery, “The Totalitarian Economics of Othmar Spann,” Journal of Social Philosophy, April, 1936, pp. 270–271; F. Oppenheimer, “Alfred Amonn's ‘Objekt und Grundbegriffe,’” Weltwirtschaftliches Archiv, Bd. 27 (1928), I, 174–175. A. Voigt, “Die Unterscheidung von Wirtschaft und Technik, Erwiderung,” Zeitschrift fur Sozialwissenschaft, 1915, p. 395; Shils and Finch, eds., Max Weber on the Methodology of the Social Sciences (Glencoe: Free Press, 1949), pp. 63 f.; Gesammelte Aufsatze zur Wissenschaftslehre von Max Weber (Tübingen, 1922), p. 365. See, however, Weber's comment on Voigt's position, in Verhandlung des ersten Deutschen Soziologentages (Schriften der Deutschen Gesellschaft für Soziologie, 1911), pp. 265 f.

[[13]]See D. H. MacGregor, Economic Thought and Policy (London, 1949), pp. 1–6; see also O. F. Boucke, A Critique of Economics (New York, 1922), p. 249.

[[14]]See H. Myint, Theories of Welfare Economics (Harvard, 1948), pp. 2 f., for a discussion of the position of the classical economists towards the scarcity view of economics.

[[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.

[[16]]L. Robbins, Nature and Significance, pp. 16–17; see also Robbins' Introduction to his edition of Wicksteed's Common Sense of Political Economy, p. xxii.

[[17]]Among the writers who have hailed Robbins' stress on the concern of economics with an aspect of action are A. L. Macfie, An Essay on Economy and Value, pp. 2–6; G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945, pp. 308 f; W. H. Hutt, Economists and the Public (London, 1936), pp. 308–309.

[[18]]L. M. Fraser, Economic Thought and Language, p. 32.

[[19]]These writers include E. Heimann, “Comparative Economic Systems,” in Goals of Economic Life, ed. by A. D. Ward (New York, 1953), p. 122; J. S. Early, “The Growth and Breadth of Theoretical Economics,” in Economic Theory in Review, ed. by C. L. Christenson (1949), pp. 12–13; see also S. Schoeffler, The Failures of Economics: a Diagnostic Study (Harvard, 1955), pp. 11 f.

[[20]]For examples see B. Higgins, What Do Economists Know? (Melbourne, 1951), pp. 2–3; L. M. Fraser, Economic Thought and Language, p. 32; L. Robbins, Nature and Significance, p. 22. See also G. J. Stigler, The Theory of Price (revised ed., 1952), p. 1 n.

[[21]]Nature and Significance, pp. 19 f.

[[22]]R. W. Souter, “The Nature and Significance of Economic Science' in Recent Discussion,” Quarterly Journal of Economics, May, 1933, p. 384.

[[23]]Ibid., p. 386.

[[24]]Ibid., p. 399.

[[25]]Ibid., p. 390.

[[26]]Ibid., p. 395 n.

[[27]]Ibid., p. 400.

[[28]]T. Parsons, “Some Reflections on ‘The Nature and Significance of Economics,’” Quarterly Journal of Economics, May, 1934, pp. 536–537, 530–531.

[[29]]J. S. Early, “The Growth and Breadth of Theoretical Economics,” in Economic Theory in Review, p. 13.

[[30]]On these matters see G. Myrdal, Value in Social Theory (London, 1958), pp. 206 ff. See also the Introduction by P. Streeten, pp. xxi f.

[[31]]R. W. Souter, op. cit., p. 379; T. Parsons, op. cit., pp. 513–516; A. L. Macfie, An Essay on Economy and Value, p. 16; see also F. H. Knight's review of Robbins' Nature and Significance in the International Journal of Ethics, April, 1934, p. 359.

[[32]]T. Parsons, op. cit., pp. 514 f.

[[33]]For Robbins' views on the purposive element in economic activity, see Nature and Significance, p. 93.

[[34]]F. Kaufmann, “On the Subject Matter and Method of Economic Science,” Economica, November, 1933, p. 383.

[[35]]See F. Zweig, Economics and Technology (London, 1936), p. 20.

[[36]]T. Parsons, op. cit., pp. 523 f.

[[37]]Cited in L. Robbins, Nature and Significance, p. 35. See also E. Fossati, The Theory of General Static Equilibrium, ed. G. L. Shackle (1957), p. 9.

[[38]]K. Rivett, “The Definition of Economics,” Economic Record, Vol. XXXI, No. 61 (November, 1955), pp. 217–219.

[[39]]G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945.

[[40]]Cf. Parsons, The Structure of Social Action, ch. IV, for a discussion of the degree in which Marshall refused to consider wants as data for economics.

[[41]]On this see, e.g., F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, p. 464.

[[42]]The fact that means as well as ends are data for the economist is made clear by a number of writers; see A. Lowe, Economics and Sociology, p. 43: F. H. Knight, “The Nature of Economic Science in Some Recent Discussion,” American Economic Review, 1934, p. 229. Among the writers apparently not admitting this, see W. C. Mitchell, Backward Art of Spending Money, p. 224.

[[43]]Max Weber, The Theory of Social and Economic Organization (translated by A. M. Henderson and T. Parsons, New York, 1947), pp. 162, 209. For passages in which Weber discusses the distinction between economics and technology, see Shils and Finch, eds., Max Weber on the Methodology of the Social Sciences (Glencoe: Free Press, 1949). pp. 34–35; and “R. Stammler's ‘Ueberwindung’ der materialistischen Geschichtsauffassung,” Archiv fur Sozialwissenschaft und Sozialpolitik, 1907, reprinted in Gesammelte Aufsatze zur Wissenschaftslehre von Max Weber, p. 328.

[[44]]See, e.g., F. Zweig, Economics and Technology (London, 1936), pp. 20 f.

[[45]]For an example of the use of this kind of distinction, see Dorfman, Samuelson, and Solow, Linear Programming and Economic Analysis (1958), p. 202.

[[46]]F. H. Knight, “The Nature of Economic Science in Recent Discussion,” American Economic Review, June, 1934, p. 228; see also Knight's review of Robbins' Nature and Significance in the International Journal of Ethics, April, 1934, p. 359; and his “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, p. 463.

[[47]]See especially T. Parsons, Quarterly Journal of Economics, May, 1934, pp. 516–518.

[[48]]F. Hayek, The Road to Serfdom (University of Chicago Press, copyright 1956 by the University of Chicago), p. 89, and footnote. See also above, ch. V, n. 6.

[[49]]P. Plough (pseud.), Letters on the Rudiments of ... Catallactics (London, 1842), p. 15.

[[50]]For such criticism see K. Rivett, “The Definition of Economics,” Economic Record, November, 1955, pp. 227 f.

[[51]]G. Myrdal, Value in Social Theory (London: Routledge & Kegan Paul, 1958), p. 237; see also Myrdal's Political Element in the Development of Economic Theory.

[[52]]J. A. Schumpeter, History of Economic Analysis (1954), p. 805.

[[53]]Nature and Significance, pp. 147 ff.

[[54]]For the claim to have discovered an inconsistency in Robbins' position on this point, see L. M. Fraser, “How Do We Want Economists to Behave?” Economic Journal, December, 1932, p. 557 n.; A. L. Macfie, An Essay on Economy and Value, p. 27.

[[55]]L. Robbins, “Mr. Hawtrey on the Scope of Economics,” Economica, 1927, p. 174.

[[56]]On Knight's position in the positive-normative controversy, see his article: “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science (1940), p. 461; see, however, below n. 65.

[[57]]R. Souter, Quarterly Journal of Economics, May, 1933, pp. 402 ff.

[[58]]Cf. T. W. Hutchison, Significance and Basic Postulates of Economic Theory (London, 1938), pp. 153–155.

[[59]]See T. Parsons, Quarterly Journal of Economics, May, 1934, p. 520.

[[60]]A. L. Macfie, An Essay on Economy and Value (Macmillan & Co.), p. 69.

[[61]]Ibid., pp. vii-viii. See also Macfie's article “What Kind of Experience Is Economizing?” Ethics, 1949, pp. 19 ff.

[[62]]See also the discussion concerning Macfie's position above in ch. III of this essay.

[[63]]A. L. Macfie, Economy and Value, p. 34.

[[64]]Ibid., pp. 69–70.

[[65]]See Knight's preface to Macfie, Economic Efficiency and Social Welfare (London, 1943), p. v; see also F. H. Knight, “‘What Is Truth’ in Economics?” Journal of Political Economy, February, 1940, reprinted in his On the History and Method of Economics (Chicago, 1956), p. 172; F. Kaufmann, “On the Postulates of Economic Theory,” Social Research, September, 1942, p. 393.

[[66]]T. Veblen, Theory of the Leisure Class (Modern Library, 1934), p. 15.

[[67]]T. Veblen, Essays in Our Changing Order (New York: Viking Press, 1943), pp. 80–81; see also R. B. Perry, “Economic Value and Moral Value,” Quarterly Journal of Economics, May, 1916, pp. 444 f.

[[68]]R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939 (Copyright 1939 by the University of Chicago), p. 645.

[[69]]T. Scitovsky, Welfare and Competition (London, 1952), p. 9.

[[70]]R. T. Bye, op. cit., p. 646.

[[71]]B. Wootton, Lament for Economics (New York, 1938), p. 106.

[[72]]See Wootton, op. cit., p. 96; cf. also T. W. Hutchison, Significance and Basic Postulates, p. 135.

[[73]]K. Rivett, “The Definition of Economics,” Economic Record, Vol. XXXI, No. 61 (November, 1955), p. 217.

[[1]]On the term “praxeology,” see A. Espinas, “Les origines de la technologie,” Revue philosophique de la France et de l'étranger, 15th Year, July-December, 1890; L. Mises, Human Action (1949), p. 3; F. A. Hayek, The Counter-Revolution of Science, p. 209, note 20.

[[2]]For such early glimpses of the possibility of a science of human action, see H. Storch, Coursd'économie politique (St. Petersburg, 1815), I, ii; R. Jennings, Natural Elements of Political Economy (London, 1855), p. 41, where political economy is described as “a science of human actions”; W. E. Hearn, Plutology: or the Theory of the Efforts to Satisfy Human Wants (London and Melbourne, 1864).

[[3]]Sidney Sherwood, “The Philosophical Basis of Economics, A Word to Sociologists,” Publications of the American Academy of Political and Social Science, October 5, 1897.

[[4]]See further above, ch. II, in the section entitled “The Science of Subsistence.”

[[5]]See, however, T. Parsons, “Economics and Sociology: Marshall in Relation to the Thought of His Time,” Quarterly Journal of Economics, February, 1932, p. 340, for the emphasis on that aspect of Pareto's thinking which cuts him off from economic behaviorism.

[[6]]See International Economic Papers, No. 3, pp. 190, 204.

[[7]]For a similar charge of implicit metaphysical bias in the position of those denying the concept of human action, see L. Mises, Theory and History (Yale, 1957), pp. 3 f.

[[8]]The writings of R. G. Collingwood reveal some similarity to Croce's views. See, e.g., his “Human Nature and Human History,” Proceedings of the British Academy, Vol. XXII (1936): “The self-knowledge of reason is not an accident; it belongs to its essence.” See also his “Economics as a Philosophical Science,” Ethics, Vol. XXXVI (1926).

[[9]]B. Croce, Philosophy of the Practical (English ed.; London: Macmillan & Co., 1913), pp. 365–371. For a brief exposition of the position which Croce's views on economy occupy within his complete system of philosophy, see G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945.

[[10]]M. Weber, “Die Objektivitat sozialwissenschaftlicher und sozialpolitischer Erkenntnis,” Archiv fur Sozialwissenschaft und Sozialpolitik, 1904; translated in Shils and Finch, eds., Max Weber on the Methodology of the Social Sciences (Glencoe: Free Press, 1949), p. 83.

[[11]]See, e.g., M. Weber, “Die Grenznutzlehre und das ‘psychophysische’ Grundgesetz,” Archiv fur Sozialwissenschaft und Sozialpolitik, 1908; reprinted in Gesammelte Aufsatze zur Wissenschaftslehre von Max Weber (Tübingen, 1922), pp. 364–365.

[[12]]For criticism of Weber's conception of economics, see L. Mises, “Soziologie und Geschichte, Epilog zum Methodenstreit in der Nationalökonomie,” Archiv fur Sozialwissenschaft und Sozialpolitik, 1929, pp. 465 ff. See further T. Parsons, The Structure of Social Action, ch. XVI, and Essays in Sociological Theory, Pure and Applied (Glencoe, 1949), pp. 67–147.

[[13]]Cf. F. A. Hayek, The Counter-Revolution of Science, p. 209, n. 24.

[[14]]See also L. Mises, Socialism (English ed.; London, 1936), pp. 111 ff.; L. Mises, “Vom Weg der subjektivistichen Wertlehre,” Schriften des Vereins fur Sozialpolitik, 183/1, pp. 76–93; L. Mises, “Begreifen und Verstehen,” Schmollers Jahrbuch, 1930.

[[15]]See, e.g., L. Robbins, Nature and Significance (1930); also his “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938; F. Kaufmann, Methodology of the Social Sciences (English ed.; New York, 1944), ch. XVI; M. Bowley, Nassau Senior and Classical Political Economy (1937), p. 64; T. W. Hutchison, The Significance and Basic Postulates of Economic Theory (1938); O. Morgenstern, The Limits of Economics (English ed.; 1937), p. 154.

[[16]]See, e.g., L. M. Lachmann, “The Science of Human Action,” Economica, November, 1951, p. 413.

[[17]]See, e.g., G. H. Schmidt, “Rapports de l'économie politique avec la morale et le droit,” Revued'économie politique, 1900, p. 334; G. Trade, Psychologie économique (Paris, 1902), p. 151.

[[18]]On the use of teleology for the recognition of causation as running from the future back to the present, see W. C. Mitchell, “Commons on Institutional Economics,” American Economic Review, December, 1935, reprinted in The Backward Art of Spending Money, p. 334; Z. C. Dickinson, “The Relations of Recent Psychological Developments to Economic Theory,” Quarterly Journal of Economics, May, 1919, p. 388; see also the reference to Weber's writing above in note 10. Cf., however, M. J. Plotnick, Werner Sombart and His Type of Economics (New York, 1937), pp. 88–89.

[[19]]K. Engliš, Grundlagen des wirtschaftlichen Denkens (Brunn, 1925).

[[20]]See J. N. Tewari, “What Is Economics?” Indian Journal of Economics, April, 1947, pp. 421 ff., for the identification of rationality with purposefulness.

[[21]]For an example of this kind of criticism, see J. Robinson, Economics Is a Serious Subject (Cambridge, 1932), p. 10.

[[22]]For this type of objection, see L. M. Fraser, Economic Thought and Language, p. 37 n.; T. W. Hutchison, Significance and Basic Postulates of Economic Theory, pp. 115 ff.

[[23]]Croce's characterization of the action of a man yielding to temptation as placing himself in contradiction to himself finds a recent echo in a passage in Little's Critique of Welfare Economics, p. 23. Little makes it clear that what is meant by a man's maximization of his utility is simply his behaving in the way in which he said he would behave. “Roughly speaking, maximizing utility means telling the truth.”

[[24]]International Economic Papers, No. 3, p. 201. For an appraisal of Croce's position, see A. L. Macfie, An Essay on Economy and Value, Appendix B, pp. 143 ff.

[[25]]International Economic Papers, No. 3, p. 177.

[[26]]Professor Mises has not recognized the close similarity to his own position which is evidenced in Croce's writing (see L. Mises, Theory and History, p. 308). What appears to be the principal point of difference between their positions has little relevance to the conception of the character of economic science. Both writers emphasize the rationality of all human action; both recognize that a chosen program may fail to be adhered to either because of a technical error (an error of knowledge) or because of the choice of a new program of ends with respect to which action will be “rational.” Where the two writers disagree is that the discarding of a chosen program in favor of one chosen in response to a “temptation of the moment” is, for Croce, itself a special kind of error—an economic error, an error of will. For Mises, there is room for only one kind of error, an error of knowledge (see Theory and History, p. 268). The conscious abandonment of a chosen program under the influence of a fleeting temptation is considered “positively” as merely the adoption of a new set of ends instead of the old, and that is all.

[[27]]G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945, pp. 319–320.

[[28]]Especially relevant to the considerations of this section are Mises' strictures on Weber's “ideal type” of rational economic behavior. See above, note 10.

[[29]]The proposition that the notion of purpose implies a constraint that one select the most suitable means for the fulfilment of the purpose is not a proposition about that purpose. The proposition as such cannot, for example, be “explained” (as Macfie does) by the postulation of a moral urge to fulfil one's purposes. Rather, the proposition, on the praxeological view, sets forth the nature of purpose itself. The statement that man's actions are purposeful is thus only another way of saying that man feels constrained to match means to ends.

[[30]]F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, p. 463. In this connection it is of interest to notice that the position of economic science in the face of changing hierarchies of chosen programs has been set forth with exceptional clarity by F. S. C. Northrop in his article “The Impossibility of a Theoretical Science of Economic Dynamics,” Quarterly Journal of Economics, November, 1941, reprinted as ch. XIII in his The Logic of the Sciences and the Humanities (New York: Macmillan & Co., 1947). Northrop demonstrates the impossibility of theoretical economic dynamics (on the assumptions and with the method of contemporary economic theory) by pointing out the lack, in economic affairs, of the conditions for such a theory. The data of economics (human wants) are, for its theorems, purely formal entities, whose specific properties are necessarily not to be considered. Moreover, there is no way of deducing the structure of future wants from present wants because wants obey no “conservation law.” Nor, Northrop adds, is there any a priori reason why the subject matter of economics should be conceived in terms of concepts obeying such a law. The quest for an economic dynamics may well “have its basis in a dogmatic assumption, with respect to which our empirical knowledge already gives the lie.” Northrop takes two groups of critics to task: those who mistakenly demand of economics that it take account of changes in the basic data—the relevant chosen ends; and those who, despairing of such an achievement, conclude that economics is of no use whatsoever. Both extremes err in their assessment of the nature of the scientific contribution that it is in the power of economic theory to make.

[[31]]See, e.g., L. Mises, Theory and History, ch. XII; F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, pp. 463 ff.; F. H. Knight, “‘What Is Truth’ in Economics?” On the History and Method of Economics (Chicago, 1956), pp. 171–173.

[[32]]For passages in which the a priori view has been compared to scholasticism, see R. F. Harrod, The Trade Cycle, pp. 38–39; E. C. Harwood, Reconstruction of Economics, p. 39.

[[33]]See, e.g., T. W. Hutchison, Significance and Basic Postulates of Economic Theory, p. 116; P. A. Samuelson, Foundations of Economic Analysis (Cambridge, 1948), p. 91.

[[34]]On this see the references in the previous note; see also A. G. Papandreou, Economics as a Science (1958). For a criticism of this position, see F. Machlup, “The Inferiority Complex of the Social Sciences” in On Freedom and Free Enterprise, Essays in Honor of Ludwig von Mises, ed. M. Sennholz (1956).

[[35]]L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 348.

[[36]]See, e.g., L. Mises, Theory and History, pp. 283 ff.; F. H. Knight, “‘What Is Truth’ in Economics?” On the History and Method of Economics, p. 160; F. A. Hayek, Counter-Revolution of Science, Part I, ch. III; cf. also P. A. Sorokin, Socio-cultural Causality, Space, Time (Durham, 1943), ch. I. See also F. S. C. Northrop, Logic of the Sciences and the Humanities, p. 247, for the recognition of the “empirical verification” of economic theory in the confirmation of its logical derivation from the immediately confirmed postulates. On this see also M. Rothbard, “Mises' ‘Human Action’: Comment,” American Economic Review, March, 1951, p. 181; M. Rothbard, “Towards a Reconstruction of Utility and Welfare Economics” in On Freedom and Free Enterprise, Essays in Honor of Ludwig von Mises, ed. M. Sennholz (1956), pp. 225–228.

[[37]]L. Mises, Human Action (Yale, 1949), p. 65; cf. M. Pantaleoni, Pure Economics (English ed.; London, 1898), p. 8.

[[38]]L. Mises, Human Action, p. 66. See also F. A. Hayek, “Economics and Knowledge,” Economica, 1937; reprinted in Individualism and Economic Order (1948), pp. 47–48.

[[39]]See especially the remarks on Mises' “apriorism” by H. Bernadelli in his “What Has Philosophy to Contribute to the Social Sciences, and to Economics in Particular?” Economica, November, 1936, p. 449. For an analysis of propositions concerning land rent which displays the a priori nature of the pure economic theory involved as well as its relation to the empirical finding that makes the theory applicable to specific situations, see Hayek, Counter-Revolution of Science, p. 32.

[[40]]For a systematic table of the possible praxeological sciences and the place that economics occupies within the system, see M. Rothbard, “Praxeology: Reply to Mr. Schuller,” American Economic Review, December, 1951, pp. 945–946.

[[41]]F. H. Knight, “The Common Sense of Political Economy,” Journal of Political Economy, October, 1934, reprinted in On the History and Method of Economics (University of Chicago Press, copyright 1956 by the University of Chicago), p. 110.

[[42]]L. Mises, Human Action, p. 235.

[[43]]C. L. Robbins, Nature and Significance, p. 22.

[[44]]E. Cannan, Wealth (1st ed.), ch. I.

[[45]]L. Robbins, Nature and Significance, p. 22.
Back to Top
2: Ludwig von Mises, Liberalism: The Classical Tradition (LF ed.) [1962]

Ludwig von Mises, Liberalism: The Classical Tradition, trans. Ralph Raico, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005).

Accessed from oll.libertyfund.org/title/1463 on 2008-03-05

The copyright to this edition, in both print and electronic forms, is held by Liberty Fund, Inc.

PREFACE, 1985

The term “liberalism,” from the Latin “liber” meaning “free,” referred originally to the philosophy of freedom. It still retained this meaning in Europe when this book was written (1927) so that readers who opened its covers expected an analysis of the freedom philosophy of classical liberalism. Unfortunately, however, in recent decades, “liberalism” has come to mean something very different. The word has been taken over, especially in the United States, by philosophical socialists and used by them to refer to their government intervention and “welfare state” programs. As one example among many possible ones, former U.S. Senator Joseph S. Clark, Jr., when he was mayor of Philadelphia, described the modern “liberal” position very frankly in these words:
To lay a ghost at the outset and to dismiss semantics, a liberal is here defined as one who believes in utilizing the full force of government for the advancement of social, political, and economic justice at the municipal, state, national, and international levels. . . . A liberal believes government is a proper tool to use in the development of a society which attempts to carry Christian principles of conduct into practical effect. (Atlantic, July 1953, p. 27)

This view of “liberalism” was so prevalent in 1962, when the English translation of this book appeared, that Mises believed then that to translate literally the original title, Liberalismus, would be too confusing. So he called the English version The Free and Prosperous Commonwealth. By the following year, however, Mises had decided that the advocates of freedom and free markets should not relinquish “liberalism” to the philosophical socialists. In the prefaces of both the second (1963) and third (1966) editions of his magnum opus, Human Action, Mises wrote that the advocates of the freedom philosophy should reclaim “the term ‘liberal’ . . . because there is simply no other term available to signify the great political and intellectual movement” that ushered in modern civilization by fostering the free market economy, limited government and individual freedom. It is in this sense that “liberalism” is used throughout this book.

For the benefit of readers who are not familiar with the works of Ludwig von Mises (1881–1973), he was for decades the leading spokes-man of the “Austrian” school of economics, so named because Mises as well as his two prominent predecessors—Carl Menger and Eugen von Böhm-Bawerk—were all Austrian born. The cornerstone of the “Austrian” school is the subjective value marginal utility theory. This theory traces all economic phenomena, simple and complex, to the actions of individuals, each undertaken as a result of personal subjective values. On the basis of this subjective value theory, Mises explained and analyzed methodology, value, action, prices, markets, money, monopoly, government intervention, economic booms and busts, etc., making especially significant contributions in the fields of money and economic calculation.

Mises earned his doctorate from the University of Vienna in 1906. His thesis, The Theory of Money and Credit, published in German in 1912 and in English in 1934, was the first of his many theoretical works in economics. During the interwar years, in addition to writing articles and books, such as the powerful treatise, Socialism, Mises worked full time at the Austrian Chamber of Commerce as economic adviser to the Austrian government and taught part time as a Privatdozent (lecturer) at the University of Vienna. He also conducted a private economics seminar for scholars, many of whom became influential worldwide. In 1926 he established the private Austrian Institute for Business Cycle Research which still survives.

After Hitler came to power in Germany, Mises anticipated trouble for Austria. So in 1934 he took a position in Switzerland with the Graduate Institute of International Studies. While there he wrote Nationaloekonomie (1940). Although there were few German readers in national socialist Europe for this monumental economic treatise, Mises’s explanations of sound economic principles have reached a much wider audience through the English-language version of Nationaloekonomie, completely rewritten by Mises for American readers under the title of Human Action (1st edition, 1949).

To escape Hitler-dominated Europe, Mises and his wife left Switzerland in 1940 and came to the United States. His reputation had been well established in Europe, but he was little known in this country. Therefore, he had to begin practically all over again to attract students and readers. English-language books began to appear from his pen—Omnipotent Government and Bureaucracy, both in 1944. And then his masterful economic treatise, Human Action, in 1949. There soon followed Planning for Freedom (1952), The Anti-Capitalistic Mentality (1952), Theory and History (1957) and The Ultimate Foundations of Economic Science (1962), all important books in economic theory.

In 1947, Mises was instrumental in founding the international Mont Pèlerin Society. He lectured widely in the U.S. and Latin America and for 24 years he conducted his well-known graduate economics seminar at New York University. He also served as a consultant to the National Association of Manufacturers and as adviser to the Foundation for Economic Education.

Mises received many honors throughout the course of his lifetime—honorary doctorates from Grove City College (1957), New York University (1963), and the University of Freiburg (1964) in Germany. His accomplishments were recognized in 1956 by his alma mater, the University of Vienna, when his doctorate was memorialized on its 50th anniversary and “renewed,” a European tradition, and in 1962 by the Austrian government. He was also cited in 1969 as “Distinguished Fellow” by the American Economic Association.

Mises’s influence continues to spread among thoughtful persons. His most prominent student from his European days, Nobel Laureate F. A. Hayek, has written: “Mises’s influence now reaches beyond the personal sphere. . . . The torch which you [Mises] have lighted has become the guide of a new movement for freedom which is gathering strength every day.” And one of his leading students in the United States, Professor Israel Kirzner of New York University, has described his impact on modern students: “[T]o the ferment and sense of excitement now evident in the resurgence of interest in this Austrian perspective, Mises’s contributions have been crucial and decisive.”

Mises was always the careful and logical theoretician, but he was not only an ivory tower theoretician. Driven by the logic of his scientific reasoning to the conclusion that a liberal society with free markets is the only road to domestic and international peace and harmony, he felt compelled to apply the economic theories he expounded to government policy. In Liberalism Mises not only offers brief explanations of many important economic phenomena, but he also presents, more explicitly than in any of his other books, his views on government and its very limited but essential role in preserving social cooperation under which the free market can function. Mises’s views still appear fresh and modern and readers will find his analysis pertinent.

Mises’s message, that ideas rule the world, runs as a constant refrain throughout all his books. But it comes through especially strong in Liberalism. “The ultimate outcome of the struggle” between liberalism and totalitarianism, he wrote in 1927, “will not be decided by arms, but by ideas. It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. It is they alone, and not arms, that, in the last analysis, turn the scales.”

In fact, the only hope of keeping the world from plunging still further into international chaos and conflict is to convince the people to abandon government intervention and adopt liberal policies.

Bettina Bien Greaves
- The Foundation for Economic Education, Inc.
August, 1985

PREFACE TO THE ENGLISH-LANGUAGE EDITION

The social order created by the philosophy of the Enlightenment assigned supremacy to the common man. In his capacity as a consumer, the “regular fellow” was called upon to determine ultimately what should be produced, in what quantity and of what quality, by whom, how, and where; in his capacity as a voter, he was sovereign in directing his nation’s policies. In the precapitalistic society those had been paramount who had the strength to beat their weaker fellows into submission. The much decried “mechanism” of the free market leaves only one way open to the acquisition of wealth, viz., to succeed in serving the consumers in the best possible and cheapest way. To this “democracy” of the market corresponds, in the sphere of the conduct of affairs of state, the system of representative government. The greatness of the period between the Napoleonic Wars and the first World War consisted precisely in the fact that the social ideal after the realization of which the most eminent men were striving was free trade in a peaceful world of free nations. It was an age of unprecedented improvement in the standard of living for a rapidly increasing population. It was the age of liberalism.

Today the tenets of this nineteenth-century philosophy of liberalism are almost forgotten. In continental Europe it is remembered only by a few. In England the term “liberal” is mostly used to signify a program that only in details differs from the totalitarianism of the socialists.* In the United States “liberal” means today a set of ideas and political postulates that in every regard are the opposite of all that liberalism meant to the preceding generations. The American self-styled liberal aims at government omnipotence, is a resolute foe of free enterprise, and advocates all-round planning by the authorities, i.e., socialism. These “liberals” are anxious to emphasize that they disapprove of the Russian dictator’s policies not on account of their socialistic or communistic character but merely on account of their imperialistic tendencies. Every measure aiming at confiscating some of the assets of those who own more than the average or at restricting the rights of the owners of property is considered as liberal and progressive. Practically unlimited discretionary power is vested in government agencies the decisions of which are exempt from judicial review. The few upright citizens who dare to criticize this trend toward administrative despotism are branded as extremists, reactionaries, economic royalists, and Fascists. It is suggested that a free country ought not to tolerate political activities on the part of such “public enemies.”

Surprisingly enough, these ideas are in this country viewed as specifically American, as the continuation of the principles and the philosophy of the Pilgrim Fathers, the signers of the Declaration of Independence, and the authors of the Constitution and the Federalist papers. Only few people realize that these allegedly progressive policies originated in Europe and that their most brilliant nineteenth-century exponent was Bismarck, whose policies no American would qualify as progressive and liberal. Bismarck’s Sozialpolitik was inaugurated in 1881, more than fifty years before its replica, F. D. Roosevelt’s New Deal. Following in the wake of the German Reich, the then most successful power, all European industrial nations more or less adopted the system that pretended to benefit the masses at the expense of a minority of “rugged individualists.” The generation that reached voting age after the end of the first World War took statism for granted and had only contempt for the “bourgeois prejudice,” liberty.

When, thirty-five years ago, I tried to give a summary of the ideas and principles of that social philosophy that was once known under the name of liberalism, I did not indulge in the vain hope that my account would prevent the impending catastrophes to which the policies adopted by the European nations were manifestly leading. All I wanted to achieve was to offer to the small minority of thoughtful people an opportunity to learn something about the aims of classical liberalism and its achievements and thus to pave the way for a resurrection of the spirit of freedom after the coming debacle.

On October 28, 1951, Professor J. P. Hamilius of Luxembourg ordered a copy of Liberalismus from the publishing firm of Gustav Fischer in Jena (Russian Zone of Germany). The publishing firm answered, on November 14, 1951, that no copies of the book were available and added: “Die Vorräte dieser Schrift mussten auf Anordnung behördlicher Stellen restlos makuliert werden.” (By order of the authorities all the copies of this book had to be destroyed.) The letter did not say whether the “authorities” referred to were those of Nazi Germany or those of the “democratic” republic of East Germany.

In the years that elapsed since the publication of Liberalismus I have written much more about the problems involved. I have dealt with many issues with which I could not deal in a book the size of which had to be limited in order not to deter the general reader. On the other hand, I referred in it to some matters that have little importance for the present. There are, moreover, in this book various problems of policy treated in a way which can be understood and correctly appreciated only if one takes into account the political and economic situation at the time in which it was written.

I have not changed anything in the original text of the book and did not influence in any way the translation made by Dr. Ralph Raico and the editing done by Mr. Arthur Goddard. I am very grateful to these two scholars for the pains they took in making the book available to the English-reading public.

Ludwig von Mises
New York, April, 1962

liberalism

The Classical Tradition

Introduction

1

Liberalism

The philosophers, sociologists, and economists of the eighteenth and the early part of the nineteenth century formulated a political program that served as a guide to social policy first in England and the United States, then on the European continent, and finally in the other parts of the inhabited world as well. Nowhere was this program ever completely carried out. Even in England, which has been called the homeland of liberalism and the model liberal country, the proponents of liberal policies never succeeded in winning all their demands. In the rest of the world only parts of the liberal program were adopted, while others, no less important, were either rejected from the very first or discarded after a short time. Only with some exaggeration can one say that the world once lived through a liberal era. Liberalism was never permitted to come to full fruition.

Nevertheless, brief and all too limited as the supremacy of liberal ideas was, it sufficed to change the face of the earth. A magnificent economic development took place. The release of man’s productive powers multiplied the means of subsistence many times over. On the eve of the World War (which was itself the result of a long and bitter struggle against the liberal spirit and which ushered in a period of still more bitter attacks on liberal principles), the world was incomparably more densely populated than it had ever been, and each inhabitant could live incomparably better than had been possible in earlier centuries. The prosperity that liberalism had created reduced considerably infant mortality, which had been the pitiless scourge of earlier ages, and, as a result of the improvement in living conditions, lengthened the average span of life.

Nor did this prosperity flow only to a select class of privileged persons. On the eve of the World War the worker in the industrial nations of Europe, in the United States, and in the overseas dominions of England lived better and more graciously than the nobleman of not too long before. Not only could he eat and drink according to his desire; he could give his children a better education; he could, if he wished, take part in the intellectual and cultural life of his nation; and, if he possessed enough talent and energy, he could, without difficulty, raise his social position. It was precisely in the countries that had gone the farthest in adopting the liberal program that the top of the social pyramid was composed, in the main, not of those who had, from their very birth, enjoyed a privileged position by virtue of the wealth or high rank of their parents, but of those who, under favorable conditions, had worked their way up from straitened circumstances by their own power. The barriers that had in earlier ages separated lords and serfs had fallen. Now there were only citizens with equal rights. No one was handicapped or persecuted on account of his nationality, his opinions, or his faith. Domestic political and religious persecutions had ceased, and international wars began to become less frequent. Optimists were already hailing the dawn of the age of eternal peace.

But events have turned out otherwise. In the nineteenth century strong and violent opponents of liberalism sprang up who succeeded in wiping out a great part of what had been gained by the liberals. The world today wants to hear no more of liberalism. Outside England the term “liberalism” is frankly proscribed. In England, there are, to be sure, still “liberals,” but most of them are so in name only. In fact, they are rather moderate socialists. Everywhere today political power is in the hands of the antiliberal parties. The program of antiliberalism unleashed the forces that gave rise to the great World War and, by virtue of import and export quotas, tariffs, migration barriers, and similar measures, has brought the nations of the world to the point of mutual isolation. Within each nation it has led to socialist experiments whose result has been a reduction in the productivity of labor and a concomitant increase in want and misery. Whoever does not deliberately close his eyes to the facts must recognize everywhere the signs of an approaching catastrophe in world economy. Antiliberalism is heading toward a general collapse of civilization.

If one wants to know what liberalism is and what it aims at, one cannot simply turn to history for the information and inquire what the liberal politicians stood for and what they accomplished. For liberalism nowhere succeeded in carrying out its program as it had intended.

Nor can the programs and actions of those parties that today call themselves liberal provide us with any enlightenment concerning the nature of true liberalism. It has already been mentioned that even in England what is understood as liberalism today bears a much greater resemblance to Toryism and socialism than to the old program of the freetraders. If there are liberals who find it compatible with their liberalism to endorse the nationalization of railroads, of mines, and of other enterprises, and even to support protective tariffs, one can easily see that nowadays nothing is left of liberalism but the name.

Nor does it any longer suffice today to form one’s idea of liberalism from a study of the writings of its great founders. Liberalism is not a completed doctrine or a fixed dogma. On the contrary, it is the application of the teachings of science to the social life of man. And just as economics, sociology, and philosophy have not stood still since the days of David Hume, Adam Smith, David Ricardo, Jeremy Bentham, and Wilhelm Humboldt, so the doctrine of liberalism is different today from what it was in their day, even though its fundamental principles have remained unchanged. For many years now no one has undertaken to present a concise statement of the essential meaning of that doctrine. This may serve to justify our present attempt at providing just such a work.

2

Material Welfare

Liberalism is a doctrine directed entirely towards the conduct of men in this world. In the last analysis, it has nothing else in view than the advancement of their outward, material welfare and does not concern itself directly with their inner, spiritual and metaphysical needs. It does not promise men happiness and contentment, but only the most abundant possible satisfaction of all those desires that can be satisfied by the things of the outer world.

Liberalism has often been reproached for this purely external and materialistic attitude toward what is earthly and transitory. The life of man, it is said, does not consist in eating and drinking. There are higher and more important needs than food and drink, shelter and clothing. Even the greatest earthly riches cannot give man happiness; they leave his inner self, his soul, unsatisfied and empty. The most serious error of liberalism has been that it has had nothing to offer man’s deeper and nobler aspirations.

But the critics who speak in this vein show only that they have a very imperfect and materialistic conception of these higher and nobler needs. Social policy, with the means that are at its disposal, can make men rich or poor, but it can never succeed in making them happy or in satisfying their inmost yearnings. Here all external expedients fail. All that social policy can do is to remove the outer causes of pain and suffering; it can further a system that feeds the hungry, clothes the naked, and houses the homeless. Happiness and contentment do not depend on food, clothing, and shelter, but, above all, on what a man cherishes within himself. It is not from a disdain of spiritual goods that liberalism concerns itself exclusively with man’s material well-being, but from a conviction that what is highest and deepest in man cannot be touched by any outward regulation. It seeks to produce only outer well-being because it knows that inner, spiritual riches cannot come to man from without, but only from within his own heart. It does not aim at creating anything but the outward preconditions for the development of the inner life. And there can be no doubt that the relatively prosperous individual of the twentieth century can more readily satisfy his spiritual needs than, say, the individual of the tenth century, who was given no respite from anxiety over the problem of eking out barely enough for survival or from the dangers that threatened him from his enemies.

To be sure, to those who, like the followers of many Asiatic and medieval Christian sects, accept the doctrine of complete asceticism and who take as the ideal of human life the poverty and freedom from want of the birds of the forest and the fish of the sea, we can make no reply when they reproach liberalism for its materialistic attitude. We can only ask them to let us go our way undisturbed, just as we do not hinder them from getting to heaven in their own fashion. Let them shut themselves up in their cells, away from men and the world, in peace.

The overwhelming majority of our contemporaries cannot understand the ascetic ideal. But once one rejects the principle of the ascetic conduct of life, one cannot reproach liberalism for aiming at outer well-being.

3

Rationalism

Liberalism is usually reproached, besides, for being rationalistic. It wants to regulate everything reasonably and thus fails to recognize that in human affairs great latitude is, and, indeed, must be, given to feelings and to the irrational generally—i.e., to what is unreasonable.

Now liberalism is by no means unaware of the fact that men sometimes act unreasonably. If men always acted reasonably, it would be superfluous to exhort them to be guided by reason. Liberalism does not say that men always act intelligently, but rather that they ought, in their own rightly understood interest, always to act intelligently. And the essence of liberalism is just this, that it wants to have conceded to reason in the sphere of social policy the acceptance that is conceded to it without dispute in all other spheres of human action.

If, having been recommended a reasonable—i.e., hygienic—mode of life by his doctor, someone were to reply: “I know that your advice is reasonable; my feelings, however, forbid me to follow it. I want to do what is harmful for my health even though it may be unreasonable,” hardly anybody would regard his conduct as commendable. No matter what we undertake to do in life, in order to reach the goal that we have set for ourselves we endeavor to do it reasonably. The person who wants to cross a railroad track will not choose the very moment when a train is passing over the crossing. The person who wants to sew on a button will avoid pricking his finger with the needle. In every sphere of his practical activity man has developed a technique or a technology that indicates how one is to proceed if one does not want to behave in an unreasonable way. It is generally acknowledged that it is desirable for a man to acquire the techniques which he can make use of in life, and a person who enters a field whose techniques he has not mastered is derided as a bungler.

Only in the sphere of social policy, it is thought, should it be otherwise. Here, not reason, but feelings and impulses should decide. The question: How must things be arranged in order to provide good illumination during the hours of darkness? is generally discussed only with reasonable arguments. As soon, however, as the point in the discussion is reached when it is to be decided whether the lighting plant should be managed by private individuals or by the municipality, then reason is no longer considered valid. Here sentiment, world view—in short, unreason—should determine the result. We ask in vain: Why?

The organization of human society according to the pattern most suitable for the attainment of the ends in view is a quite prosaic and matter-of-fact question, not unlike, say, the construction of a railroad or the production of cloth or furniture. National and governmental affairs are, it is true, more important than all other practical questions of human conduct, since the social order furnishes the foundation for everything else, and it is possible for each individual to prosper in the pursuit of his ends only in a society propitious for their attainment. But however lofty may be the sphere in which political and social questions are placed, they still refer to matters that are subject to human control and must consequently be judged according to the canons of human reason. In such matters, no less than in all our other mundane affairs, mysticism is only an evil. Our powers of comprehension are very limited. We cannot hope ever to discover the ultimate and most profound secrets of the universe. But the fact that we can never fathom the meaning and purpose of our existence does not hinder us from taking precautions to avoid contagious diseases or from making use of the appropriate means to feed and clothe ourselves, nor should it deter us from organizing society in such a way that the earthly goals for which we strive can be most effectually attained. Even the state and the legal system, the government and its administration are not too lofty, too good, too grand, for us to bring them within the range of rational deliberation. Problems of social policy are problems of social technology, and their solution must be sought in the same ways and by the same means that are at our disposal in the solution of other technical problems: by rational reflection and by examination of the given conditions. All that man is and all that raises him above the animals he owes to his reason. Why should he forgo the use of reason just in the sphere of social policy and trust to vague and obscure feelings and impulses?

4

The Aim of Liberalism

There is a widespread opinion that liberalism is distinguished from other political movements by the fact that it places the interests of a part of society—the propertied classes, the capitalists, the entrepreneurs—above the interests of the other classes. This assertion is completely mistaken. Liberalism has always had in view the good of the whole, not that of any special group. It was this that the English utilitarians meant to express—although, it is true, not very aptly—in their famous formula, “the greatest happiness of the greatest number.” Historically, liberalism was the first political movement that aimed at promoting the welfare of all, not that of special groups. Liberalism is distinguished from socialism, which likewise professes to strive for the good of all, not by the goal at which it aims, but by the means that it chooses to attain that goal.

If it is maintained that the consequence of a liberal policy is or must be to favor the special interests of certain strata of society, this is still a question that allows of discussion. It is one of the tasks of the present work to show that such a reproach is in no way justified. But one cannot, from the very outset, impute unfairness to the person who raises it; though we consider his opinion incorrect, it could very well be advanced in the best of faith. In any case, whoever attacks liberalism in this way concedes that its intentions are disinterested and that it wants nothing but what it says it wants.

Quite different are those critics of liberalism who reproach it for wanting to promote, not the general welfare, but only the special interests of certain classes. Such critics are both unfair and ignorant. By choosing this mode of attack, they show that they are inwardly well aware of the weakness of their own case. They snatch at poisoned weapons because they cannot otherwise hope for success.

If a doctor shows a patient who craves food detrimental to his health the perversity of his desire, no one will be so foolish as to say: “The doctor does not care for the good of the patient; whoever wishes the patient well must not grudge him the enjoyment of relishing such delicious food.” Everyone will understand that the doctor advises the patient to forgo the pleasure that the enjoyment of the harmful food affords solely in order to avoid injuring his health. But as soon as the matter concerns social policy, one is prone to consider it quite differently. When the liberal advises against certain popular measures because he expects harmful consequences from them, he is censured as an enemy of the people, and praise is heaped on the demagogues who, without consideration of the harm that will follow, recommend what seems to be expedient for the moment.

Reasonable action is distinguished from unreasonable action by the fact that it involves provisional sacrifices. The latter are only apparent sacrifices, since they are outweighed by the favorable consequences that later ensue. The person who avoids tasty but unwholesome food makes merely a provisional, a seeming sacrifice. The outcome—the nonoccurrence of injury to his health—shows that he has not lost, but gained. To act in this way, however, requires insight into the consequences of one’s action. The demagogue takes advantage of this fact. He opposes the liberal, who calls for provisional and merely apparent sacrifices, and denounces him as a hard-hearted enemy of the people, meanwhile setting himself up as a friend of humanity. In supporting the measures he advocates, he knows well how to touch the hearts of his hearers and to move them to tears with allusions to want and misery.

Antiliberal policy is a policy of capital consumption. It recommends that the present be more abundantly provided for at the expense of the future. It is in exactly the same case as the patient of whom we have spoken. In both instances a relatively grievous disadvantage in the future stands in opposition to a relatively abundant momentary gratification. To talk, in such a case, as if the question were one of hard-heartedness versus philanthropy is downright dishonest and untruthful. It is not only the common run of politicians and the press of the antiliberal parties that are open to such a reproach. Almost all the writers of the school of Sozialpolitik have made use of this underhanded mode of combat.

That there is want and misery in the world is not, as the average newspaper reader, in his dullness, is only too prone to believe, an argument against liberalism. It is precisely want and misery that liberalism seeks to abolish, and it considers the means that it proposes the only suitable ones for the achievement of this end. Let whoever thinks that he knows a better, or even a different, means to this end adduce the proof. The assertion that the liberals do not strive for the good of all members of society, but only for that of special groups, is in no way a substitute for this proof.

The fact that there is want and misery would not constitute an argument against liberalism even if the world today followed a liberal policy. It would always be an open question whether still more want and misery might not prevail if other policies had been followed. In view of all the ways in which the functioning of the institution of private property is curbed and hindered in every quarter today by antiliberal policies, it is manifestly quite absurd to seek to infer anything against the correctness of liberal principles from the fact that economic conditions are not, at present, all that one could wish. In order to appreciate what liberalism and capitalism have accomplished, one should compare conditions as they are at present with those of the Middle Ages or of the first centuries of the modern era. What liberalism and capitalism could have accomplished had they been allowed free rein can be inferred only from theoretical considerations.

5

Liberalism and Capitalism

A society in which liberal principles are put into effect is usually called a capitalist society, and the condition of that society, capitalism. Since the economic policy of liberalism has everywhere been only more or less closely approximated in practice, conditions as they are in the world today provide us with but an imperfect idea of the meaning and possible accomplishments of capitalism in full flower. Nevertheless, one is altogether justified in calling our age the age of capitalism, because all that has created the wealth of our time can be traced back to capitalist institutions. It is thanks to those liberal ideas that still remain alive in our society, to what yet survives in it of the capitalist system, that the great mass of our contemporaries can enjoy a standard of living far above that which just a few generations ago was possible only to the rich and especially privileged.

To be sure, in the customary rhetoric of the demagogues these facts are represented quite differently. To listen to them, one would think that all progress in the techniques of production redounds to the exclusive benefit of a favored few, while the masses sink ever more deeply into misery. However, it requires only a moment’s reflection to realize that the fruits of all technological and industrial innovations make for an improvement in the satisfaction of the wants of the great masses. All big industries that produce consumers’ goods work directly for their benefit; all industries that produce machines and half-finished products work for them indirectly. The great industrial developments of the last decades, like those of the eighteenth century that are designated by the not altogether happily chosen phrase, “the Industrial Revolution,” have resulted, above all, in a better satisfaction of the needs of the masses. The development of the clothing industry, the mechanization of shoe production, and improvements in the processing and distribution of foodstuffs have, by their very nature, benefited the widest public. It is thanks to these industries that the masses today are far better clothed and fed than ever before. However, mass production provides not only for food, shelter, and clothing, but also for other requirements of the multitude. The press serves the masses quite as much as the motion picture industry, and even the theater and similar strongholds of the arts are daily becoming more and more places of mass entertainment.

Nevertheless, as a result of the zealous propaganda of the antiliberal parties, which twists the facts the other way round, people today have come to associate the ideas of liberalism and capitalism with the image of a world plunged into ever increasing misery and poverty. To be sure, no amount of depreciatory propaganda could ever succeed, as the demagogues had hoped, in giving the words “liberal” and “liberalism” a completely pejorative connotation. In the last analysis, it is not possible to brush aside the fact that, in spite of all the efforts of antiliberal propaganda, there is something in these expressions that suggests what every normal person feels when he hears the word “freedom.” Antiliberal propaganda, therefore, avoids mentioning the word “liberalism” too often and prefers the infamies that it attributes to the liberal system to be associated with the term “capitalism.” That word brings to mind a flint-hearted capitalist, who thinks of nothing but his own enrichment, even if that is possible only through the exploitation of his fellow men.

It hardly occurs to anyone, when he forms his notion of a capitalist, that a social order organized on genuinely liberal principles is so constituted as to leave the entrepreneurs and the capitalists only one way to wealth, viz., by better providing their fellow men with what they themselves think they need. Instead of speaking of capitalism in connection with the prodigious improvement in the standard of living of the masses, antiliberal propaganda mentions capitalism only in referring to those phenomena whose emergence was made possible solely because of the restraints that were imposed upon liberalism. No reference is made to the fact that capitalism has placed a delectable luxury as well as a food, in the form of sugar, at the disposal of the great masses. Capitalism is mentioned in connection with sugar only when the price of sugar in a country is raised above the world market price by a cartel. As if such a development were even conceivable in a social order in which liberal principles were put into effect! In a country with a liberal regime, in which there are no tariffs, cartels capable of driving the price of a commodity above the world market price would be quite unthinkable.

The links in the chain of reasoning by which antiliberal demagogy succeeds in laying upon liberalism and capitalism the blame for all the excesses and evil consequences of antiliberal policies are as follows: One starts from the assumption that liberal principles aim at promoting the interests of the capitalists and entrepreneurs at the expense of the interests of the rest of the population and that liberalism is a policy that favors the rich over the poor. Then one observes that many entrepreneurs and capitalists, under certain conditions, advocate protective tariffs, and still others—the armaments manufacturers—support a policy of “national preparedness”; and, out of hand, one jumps to the conclusion that these must be “capitalistic” policies.

In fact, however, the case is quite otherwise. Liberalism is not a policy in the interest of any particular group, but a policy in the interest of all mankind. It is, therefore, incorrect to assert that the entrepreneurs and capitalists have any special interest in supporting liberalism. Their interest in championing the liberal program is exactly the same as that of everyone else. There may be individual cases in which some entrepreneurs or capitalists cloak their special interests in the program of liberalism; but opposed to these are always the special interests of other entrepreneurs or capitalists. The matter is not quite so simple as those who everywhere scent “interests” and “interested parties” imagine. That a nation imposes a tariff on iron, for example, cannot “simply” be explained by the fact that this benefits the iron magnates. There are also persons with opposing interests in the country, even among the entrepreneurs; and, in any case, the beneficiaries of the tariff on iron are a steadily diminishing minority. Nor can bribery be the explanation, for the people bribed can likewise be only a minority; and, besides, why does only one group, the protectionists, do the bribing, and not their opponents, the freetraders?

The fact is that the ideology that makes the protective tariff possible is created neither by the “interested parties” nor by those bribed by them, but by the ideologists, who give the world the ideas that direct the course of all human affairs. In our age, in which antiliberal ideas prevail, virtually everyone thinks accordingly, just as, a hundred years ago, most people thought in terms of the then prevailing liberal ideology. If many entrepreneurs today advocate protective tariffs, this is nothing more than the form that antiliberalism takes in their case. It has nothing to do with liberalism.

6

The Psychological Roots of Antiliberalism

It cannot be the task of this book to discuss the problem of social cooperation otherwise than with rational arguments. But the root of the opposition to liberalism cannot be reached by resort to the method of reason. This opposition does not stem from the reason, but from a pathological mental attitude—from resentment and from a neurasthenic condition that one might call a Fourier complex, after the French socialist of that name.

Concerning resentment and envious malevolence little need be said. Resentment is at work when one so hates somebody for his more favorable circumstances that one is prepared to bear heavy losses if only the hated one might also come to harm. Many of those who attack capitalism know very well that their situation under any other economic system will be less favorable. Nevertheless, with full knowledge of this fact, they advocate a reform, e.g., socialism, because they hope that the rich, whom they envy, will also suffer under it. Time and again one hears socialists say that even material want will be easier to bear in a socialist society because people will realize that no one is better off than his neighbor.

At all events, resentment can still be dealt with by rational arguments. It is, after all, not too difficult to make clear to a person who is filled with resentment that the important thing for him cannot be to worsen the position of his better situated fellow men, but to improve his own.

The Fourier complex is much harder to combat. What is involved in this case is a serious disease of the nervous system, a neurosis, which is more properly the concern of the psychologist than of the legislator. Yet it cannot be neglected in investigating the problems of modern society. Unfortunately, medical men have hitherto scarcely concerned themselves with the problems presented by the Fourier complex. Indeed, they have hardly been noticed even by Freud, the great master of psychology, or by his followers in their theory of neurosis, though it is to psychoanalysis that we are indebted for having opened up the path that alone leads to a coherent and systematic understanding of mental disorders of this kind.

Scarcely one person in a million succeeds in fulfilling his life’s ambition. The upshot of one’s labors, even if one is favored by fortune, remains far inferior to what the wistful daydreams of youth allowed one to hope for. Plans and desires are shattered on a thousand obstacles, and one’s powers prove too weak to achieve the goals on which one has set one’s heart. The failure of his hopes, the frustration of his schemes, his own inadequacy in the face of the tasks that he has set himself—these constitute every man’s most deeply painful experience. They are, indeed, the common lot of man.

There are two ways in which man can react to this experience. One way is indicated by the practical wisdom of Goethe:
- Dost thou fancy that I should hate life,
- Should flee to the wilderness,
- Because not all my budding dreams have
- blossomed?
his Prometheus cries. And Faust recognizes at the “highest moment” that “the last word of wisdom” is:
- No man deserves his freedom or his life
- Who does not daily win them anew.
Such a will and such a spirit cannot be vanquished by any earthly misfortune. He who accepts life for what it is and never allows himself to be overwhelmed by it does not need to seek refuge for his crushed self-confidence in the solace of a “saving lie.” If the longed-for success is not forthcoming, if the vicissitudes of fate destroy in the twinkling of an eye what had to be painstakingly built up by years of hard work, then he simply multiplies his exertions. He can look disaster in the eye without despairing.

The neurotic cannot endure life in its real form. It is too raw for him, too coarse, too common. To render it bearable he does not, like the healthy man, have the heart to “carry on in spite of everything.” That would not be in keeping with his weakness. Instead, he takes refuge in a delusion. A delusion is, according to Freud, “itself something desired, a kind of consolation”; it is characterized by its “resistance to attack by logic and reality.” It by no means suffices, therefore, to seek to talk the patient out of his delusion by conclusive demonstrations of its absurdity. In order to recuperate, the patient himself must overcome it. He must learn to understand why he does not want to face the truth and why he takes refuge in delusions.

Only the theory of neurosis can explain the success enjoyed by Fourierism, the mad product of a seriously deranged brain. This is not the place to adduce evidence of Fourier’s psychosis by quoting passages from his writings. Such descriptions are of interest only to the psychiatrist and, perhaps, also to people who derive a certain pleasure from reading the productions of a lewd phantasy. But the fact is that Marxism, when it is obliged to leave the field of pompous dialectical rhetoric and the derision and defamation of its opponents and to make a few meager remarks pertinent to the issue, never has anything different to advance from what Fourier, the “utopian,” had to offer. Marxism is likewise unable to construct a picture of a socialist society without making two assumptions already made by Fourier that contradict all experience and all reason. On the one hand, it assumes that the “material substratum” of production, which is “already present in nature without the need of productive effort on the part of man,” stands at our disposal in such abundance that it need not be economized; hence the faith of Marxism in a “practically limitless increase in production.” On the other hand, it assumes that in a socialist community work will change from “a burden into a pleasure”—indeed, that it will become “the primary necessity of life.” Where a superfluity of all goods abounds and work is a pleasure, it is, doubtless, an easy matter to establish a land of Cockaigne.

Marxism believes that from the height of its “scientific socialism” it is entitled to look down with contempt on romanticism and romantics. But in reality its own procedure is no different from theirs. Instead of removing the impediments that stand in the way of the realization of its desires, it too prefers to let all obstacles simply fade away in the mists of phantasy.

In the life of the neurotic the “saving lie” has a double function. It not only consoles him for past failure, but holds out the prospect of future success. In the case of social failure, which alone concerns us here, the consolation consists in the belief that one’s inability to attain the lofty goals to which one has aspired is not to be ascribed to one’s own inadequacy, but to the defectiveness of the social order. The malcontent expects from the overthrow of the latter the success that the existing system has withheld from him. Consequently, it is entirely futile to try to make clear to him that the utopia he dreams of is not feasible and that the only foundation possible for a society organized on the principle of the division of labor is private ownership of the means of production. The neurotic clings to his “saving lie,” and when he must make the choice of renouncing either it or logic, he prefers to sacrifice logic. For life would be unbearable for him without the consolation that he finds in the idea of socialism. It tells him that not he himself, but the world, is at fault for having caused his failure; and this conviction raises his depressed self-confidence and liberates him from a tormenting feeling of inferiority.

Just as the devout Christian could more easily endure the misfortune that befell him on earth because he hoped for a continuation of personal existence in another, better world, where those who on earth had been first would be last and the last would be first; so, for modern man, socialism has become an elixir against earthly adversity. But whereas the belief in immortality, in a recompense in the hereafter, and in resurrection formed an incentive to virtuous conduct in this life, the effect of the socialist promise is quite different. It imposes no other duty than that of giving political support to the party of socialism; but at the same time it raises expectations and demands.

This being the character of the socialist dream, it is understandable that every one of the partisans of socialism expects from it precisely what has so far been denied to him. Socialist authors promise not only wealth for all, but also happiness in love for everybody, the full physical and spiritual development of each individual, the unfolding of great artistic and scientific talents in all men, etc. Only recently Trotsky stated in one of his writings that in the socialist society “the average human type will rise to the heights of an Aristotle, a Goethe, or a Marx. And above this ridge new peaks will rise.”1 The socialist paradise will be the kingdom of perfection, populated by completely happy supermen. All socialist literature is full of such nonsense. But it is just this nonsense that wins it the most supporters.

One cannot send every person suffering from a Fourier complex to the doctor for psychoanalytic treatment; the number of those afflicted with it is far too great. No other remedy is possible in this case than the treatment of the illness by the patient himself. Through self-knowledge he must learn to endure his lot in life without looking for a scapegoat on which he can lay all the blame, and he must endeavor to grasp the fundamental laws of social cooperation.}}

LIBERALISM

The Classical Tradition

CHAPTER 1

The Foundations of Liberal Policy

1

Property

Human society is an association of persons for cooperative action. As against the isolated action of individuals, cooperative action on the basis of the principle of the division of labor has the advantage of greater productivity. If a number of men work in cooperation in accordance with the principle of the division of labor, they will produce (other things being equal) not only as much as the sum of what they would have produced by working as self-sufficient individuals, but considerably more. All human civilization is founded on this fact. It is by virtue of the division of labor that man is distinguished from the animals. It is the division of labor that has made feeble man, far inferior to most animals in physical strength, the lord of the earth and the creator of the marvels of technology. In the absence of the division of labor, we would not be in any respect further advanced today than our ancestors of a thousand or ten thousand years ago.

Human labor by itself is not capable of increasing our well-being. In order to be fruitful, it must be applied to the materials and resources of the earth that Nature has placed at our disposal. Land, with all the substances and powers resident within it, and human labor constitute the two factors of production from whose purposeful cooperation proceed all the commodities that serve for the satisfaction of our outer needs. In order to produce, one must deploy labor and the material factors of production, including not only the raw materials and resources placed at our disposal by Nature and mostly found in the earth, but also the intermediate products already fabricated of these primary natural factors of production by previously performed human labor. In the language of economics we distinguish, accordingly, three factors of production: labor, land, and capital. By land is to be understood everything that Nature places at our disposal in the way of substances and powers on, under, and above the surface of the earth, in the water, and in the air; by capital goods, all the intermediate goods produced from land with the help of human labor that are made to serve further production, such as machines, tools, half-manufactured articles of all kinds, etc.

Now we wish to consider two different systems of human cooperation under the division of labor—one based on private ownership of the means of production, and the other based on communal ownership of the means of production. The latter is called socialism or communism; the former, liberalism or also (ever since it created in the nineteenth century a division of labor encompassing the whole world) capitalism. The liberals maintain that the only workable system of human cooperation in a society based on the division of labor is private ownership of the means of production. They contend that socialism as a completely comprehensive system encompassing all the means of production is unworkable and that the application of the socialist principle to a part of the means of production, though not, of course, impossible, leads to a reduction in the productivity of labor, so that, far from creating greater wealth, it must, on the contrary, have the effect of diminishing wealth.

The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production (for in regard to commodities ready for consumption, private ownership is a matter of course and is not disputed even by the socialists and communists). All the other demands of liberalism result from this fundamental demand.

Side by side with the word “property” in the program of liberalism one may quite appropriately place the words “freedom” and “peace.” This is not because the older program of liberalism generally placed them there. We have already said that the program of present-day liberalism has outgrown that of the older liberalism, that it is based on a deeper and better insight into interrelationships, since it can reap the benefit of the advances that science has made in the last decades. Freedom and peace have been placed in the forefront of the program of liberalism, not because many of the older liberals regarded them as coordinate with the fundamental principle of liberalism itself, rather than as merely a necessary consequence following from the one fundamental principle of the private ownership of the means of production; but solely because freedom and peace have come under especially violent attack from the opponents of liberalism, and liberals have not wanted to give the appearance, through the omission of these principles, that they in any way acknowledged the justness of the objections raised against them.

2

Freedom

The idea of freedom has become so ingrained in all of us that for a long time no one dared to call it into question. People were accustomed always to speaking of freedom only with the greatest of reverence; it remained for Lenin to call it a “bourgeois prejudice.” Although the fact is often forgotten today, all this is an achievement of liberalism. The very name of liberalism is derived from freedom, and the name of the party in opposition to the liberals (both designations arose in the Spanish constitutional struggles of the first decades of the nineteenth century) was originally the “servile.”

Before the rise of liberalism even high-minded philosophers, founders of religions, clerics animated by the best of intentions, and statesmen who genuinely loved their people, viewed the thralldom of a part of the human race as a just, generally useful, and downright beneficial institution. Some men and peoples are, it was thought, destined by nature for freedom, and others for bondage. And it was not only the masters who thought so, but the greater number of the slaves as well. They put up with their servitude, not only because they had to yield to the superior force of the masters, but also because they found some good in it: the slave is relieved of concern for securing his daily bread, for the master is obliged to provide him with the necessities of life. When liberalism set out, in the eighteenth and the first half of the nineteenth century, to abolish the serfdom and subjection of the peasant population in Europe and the slavery of the Negroes in the overseas colonies, not a few sincere humanitarians declared themselves in opposition. Unfree laborers are used to their bondage and do not feel it as an evil. They are not ready for freedom and would not know how to make use of it. The discontinuation of the master’s care would be very harmful to them. They would not be capable of managing their affairs in such a way as always to provide more than just the bare necessities of life, and they would soon fall into want and misery. Emancipation would thus not only fail to gain for them anything of real value, but would seriously impair their material well-being.

What was astonishing was that one could hear these views expressed even by many of the slaves whom one questioned. In order to counter such opinions, many liberals believed it necessary to represent as the general rule and even on occasion to depict in an exaggerated manner the exceptional cases in which serfs and slaves had been cruelly abused. But these excesses were by no means the rule. There were, of course, isolated instances of abuse, and the fact that there were such cases was an additional reason for the abolition of this system. As a rule, however, the treatment of bondsmen by their masters was humane and mild.

When those who recommended the abolition of involuntary servitude on general humanitarian grounds were told that the retention of the system was also in the interest of the enslaved, they knew of nothing to say in rejoinder. For against this objection in favor of slavery there is only one argument that can and did refute all others—namely, that free labor is incomparably more productive than slave labor. The slave has no interest in exerting himself fully. He works only as much and as zealously as is necessary to escape the punishment attaching to failure to perform the minimum. The free worker, on the other hand, knows that the more his labor accomplishes, the more he will be paid. He exerts himself to the full in order to raise his income. One has only to compare the demands placed on the worker by the tending of a modern tractor with the relatively small expenditure of intelligence, strength, and industry that just two generations ago was deemed sufficient for the enthralled ploughmen of Russia. Only free labor can accomplish what must be demanded of the modern industrial worker.

Muddleheaded babblers may therefore argue interminably over whether all men are destined for freedom and are as yet ready for it. They may go on contending that there are races and peoples for whom Nature has prescribed a life of servitude and that the master races have the duty of keeping the rest of mankind in bondage. The liberal will not oppose their arguments in any way because his reasoning in favor of freedom for all, without distinction, is of an entirely different kind. We liberals do not assert that God or Nature meant all men to be free, because we are not instructed in the designs of God and of Nature, and we avoid, on principle, drawing God and Nature into a dispute over mundane questions. What we maintain is only that a system based on freedom for all workers warrants the greatest productivity of human labor and is therefore in the interest of all the inhabitants of the earth. We attack involuntary servitude, not in spite of the fact that it is advantageous to the “masters,” but because we are convinced that, in the last analysis, it hurts the interests of all members of human society, including the “masters.” If mankind had adhered to the practice of keeping the whole or even a part of the labor force in bondage, the magnificent economic developments of the last hundred and fifty years would not have been possible. We would have no railroads, no automobiles, no airplanes, no steamships, no electric light and power, no chemical industry, just as the ancient Greeks and Romans, with all their genius, were without these things. It suffices merely to mention this for everyone to realize that even the former masters of slaves or serfs have every reason to be satisfied with the course of events after the abolition of involuntary servitude. The European worker today lives under more favorable and more agreeable outward circumstances than the pharaoh of Egypt once did, in spite of the fact that the pharaoh commanded thousands of slaves, while the worker has nothing to depend on but the strength and skill of his hands. If a nabob of yore could be placed in the circumstances in which a common man lives today, he would declare without hesitation that his life had been a beggarly one in comparison with the life that even a man of moderate means can lead at present.

This is the fruit of free labor. It is able to create more wealth for everyone than slave labor once provided for the masters.

3

Peace

There are high-minded men who detest war because it brings death and suffering. However much one may admire their humanitarianism, their argument against war, in being based on philanthropic grounds, seems to lose much or all of its force when we consider the statements of the supporters and proponents of war. The latter by no means deny that war brings with it pain and sorrow. Nevertheless, they believe it is through war and war alone that mankind is able to make progress. War is the father of all things, said a Greek philosopher, and thousands have repeated it after him. Man degenerates in time of peace. Only war awakens in him slumbering talents and powers and imbues him with sublime ideals. If war were to be abolished, mankind would decay into indolence and stagnation.

It is difficult or even impossible to refute this line of reasoning on the part of the advocates of war if the only objection to war that one can think of is that it demands sacrifices. For the proponents of war are of the opinion that these sacrifices are not made in vain and that they are well worth making. If it were really true that war is the father of all things, then the human sacrifices it requires would be necessary to further the general welfare and the progress of humanity. One might lament the sacrifices, one might even strive to reduce their number, but one would not be warranted in wanting to abolish war and to bring about eternal peace.

The liberal critique of the argument in favor of war is fundamentally different from that of the humanitarians. It starts from the premise that not war, but peace, is the father of all things. What alone enables mankind to advance and distinguishes man from the animals is social cooperation. It is labor alone that is productive: it creates wealth and therewith lays the outward foundations for the inward flowering of man. War only destroys; it cannot create. War, carnage, destruction, and devastation we have in common with the predatory beasts of the jungle; constructive labor is our distinctively human characteristic. The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones.

The peace-loving humanitarian approaches the mighty potentate and addresses him thus: “Do not make war, even though you have the prospect of furthering your own welfare by a victory. Be noble and magnanimous and renounce the tempting victory even if it means a sacrifice for you and the loss of an advantage.” The liberal thinks otherwise. He is convinced that victorious war is an evil even for the victor, that peace is always better than war. He demands no sacrifice from the stronger, but only that he should come to realize where his true interests lie and should learn to understand that peace is for him, the stronger, just as advantageous as it is for the weaker.

When a peace-loving nation is attacked by a bellicose enemy, it must offer resistance and do everything to ward off the onslaught. Heroic deeds performed in such a war by those fighting for their freedom and their lives are entirely praiseworthy, and one rightly extols the manliness and courage of such fighters. Here daring, intrepidity, and contempt for death are praiseworthy because they are in the service of a good end. But people have made the mistake of representing these soldierly virtues as absolute virtues, as qualities good in and for themselves, without consideration of the end they serve. Whoever holds this opinion must, to be consistent, likewise acknowledge as noble virtues the daring, intrepidity, and contempt for death of the robber. In fact, however, there is nothing good or bad in and of itself. Human actions become good or bad only through the end that they serve and the consequences they entail. Even Leonidas would not be worthy of the esteem in which we hold him if he had fallen, not as the defender of his homeland, but as the leader of an invading army intent on robbing a peaceful people of its freedom and possessions.

How harmful war is to the development of human civilization becomes clearly apparent once one understands the advantages derived from the division of labor. The division of labor turns the self-sufficient individual into the ζῷον πολιτιϗόν [political animal] dependent on his fellow men, the social animal of which Aristotle spoke. Hostilities between one animal and another, or between one savage and another, in no way alter the economic basis of their existence. The matter is quite different when a quarrel that has to be decided by an appeal to arms breaks out among the members of a community in which labor is divided. In such a society each individual has a specialized function; no one is any longer in a position to live independently, because all have need of one another’s aid and support. Self-sufficient farmers, who produce on their own farms everything that they and their families need, can make war on one another. But when a village divides into factions, with the smith on one side and the shoemaker on the other, one faction will have to suffer from want of shoes, and the other from want of tools and weapons. Civil war destroys the division of labor inasmuch as it compels each group to content itself with the labor of its own adherents.

If the possibility of such hostilities had been considered likely in the first place, the division of labor would never have been allowed to develop to the point where, in case a fight really did break out, one would have to suffer privation. The progressive intensification of the division of labor is possible only in a society in which there is an assurance of lasting peace. Only under the shelter of such security can the division of labor develop. In the absence of this prerequisite, the division of labor does not extend beyond the limits of the village or even of the individual household. The division of labor between town and country—with the peasants of the surrounding villages furnishing grain, cattle, milk, and butter to the town in exchange for the manufactured products of the townsfolk—already presupposes that peace is assured at least within the region in question. If the division of labor is to embrace a whole nation, civil war must lie outside the realm of possibility; if it is to encompass the whole world, lasting peace among nations must be assured.

Everyone today would regard it as utterly senseless for a modern metropolis like London or Berlin to prepare to make war on the inhabitants of the adjacent countryside. Yet for many centuries the towns of Europe kept this possibility in mind and made economic provision for it. There were towns whose fortifications were, from the very beginning, so constructed that in case of need they could hold out for a while by keeping cattle and growing grain within the town walls.

At the beginning of the nineteenth century by far the greater part of the inhabited world was still divided into a number of economic regions that were, by and large, self-sufficient. Even in the more highly developed areas of Europe, the needs of a region were met, for the most part, by the production of the region itself. Trade that went beyond the narrow confines of the immediate vicinity was relatively insignificant and comprised, by and large, only such commodities as could not be produced in the area itself because of climatic conditions. In by far the greater part of the world, however, the production of the village itself supplied almost all the needs of its inhabitants. For these villagers, a disturbance in trade relations caused by war did not generally mean any impairment of their economic well-being. But even the inhabitants of the more advanced countries of Europe did not suffer very severely in time of war. If the Continental System, which Napoleon I imposed on Europe in order to exclude from the continent English goods and those coming from across the ocean only by way of England, had been enforced even more rigorously than it was, it would have still inflicted on the inhabitants of the continent hardly any appreciable privations. They would, of course, have had to do without coffee and sugar, cotton and cotton goods, spices, and many rare kinds of wood; but all these things then played only a subordinate role in the households of the great masses.

The development of a complex network of international economic relations is a product of nineteenth-century liberalism and capitalism. They alone made possible the extensive specialization of modern production with its concomitant improvement in technology. In order to provide the family of an English worker with all it consumes and desires, every nation of the five continents cooperates. Tea for the breakfast table is provided by Japan or Ceylon, coffee by Brazil or Java, sugar by the West Indies, meat by Australia or Argentina, cotton from America or Egypt, hides for leather from India or Russia, and so on. And in exchange for these things, English goods go to all parts of the world, to the most remote and out-of-the-way villages and farmsteads. This development was possible and conceivable only because, with the triumph of liberal principles, people no longer took seriously the idea that a great war could ever again break out. In the golden age of liberalism, war among members of the white race was generally considered a thing of the past.

But events have turned out quite differently. Liberal ideas and programs were supplanted by socialism, nationalism, protectionism, imperialism, etatism, and militarism. Whereas Kant and Von Humboldt, Bentham and Cobden had sung the praises of eternal peace, the spokesmen of a later age never tired of extolling war, both civil and international. And their success came only all too soon. The result was the World War, which has given our age a kind of object lesson on the incompatibility between war and the division of labor.

4

Equality

Nowhere is the difference between the reasoning of the older liberalism and that of neoliberalism clearer and easier to demonstrate than in their treatment of the problem of equality. The liberals of the eighteenth century, guided by the ideas of natural law and of the Enlightenment, demanded for everyone equality of political and civil rights because they assumed that all men are equal. God created all men equal, endowing them with fundamentally the same capabilities and talents, breathing into all of them the breath of His spirit. All distinctions between men are only artificial, the product of social, human—that is to say, transitory—institutions. What is imperishable in man—his spirit—is undoubtedly the same in rich and poor, noble and commoner, white and colored.

Nothing, however, is as ill-founded as the assertion of the alleged equality of all members of the human race. Men are altogether unequal. Even between brothers there exist the most marked differences in physical and mental attributes. Nature never repeats itself in its creations; it produces nothing by the dozen, nor are its products standardized. Each man who leaves her workshop bears the imprint of the individual, the unique, the never-to-recur. Men are not equal, and the demand for equality under the law can by no means be grounded in the contention that equal treatment is due to equals.

There are two distinct reasons why all men should receive equal treatment under the law. One was already mentioned when we analyzed the objections to involuntary servitude. In order for human labor to realize its highest attainable productivity, the worker must be free, because only the free worker, enjoying in the form of wages the fruits of his own industry, will exert himself to the full. The second consideration in favor of the equality of all men under the law is the maintenance of social peace. It has already been pointed out that every disturbance of the peaceful development of the division of labor must be avoided. But it is well-nigh impossible to preserve lasting peace in a society in which the rights and duties of the respective classes are different. Whoever denies rights to a part of the population must always be prepared for a united attack by the disenfranchised on the privileged. Class privileges must disappear so that the conflict over them may cease.

It is therefore quite unjustifiable to find fault with the manner in which liberalism put into effect its postulate of equality, on the ground that what it created was only equality before the law, and not real equality. All human power would be insufficient to make men really equal. Men are and will always remain unequal. It is sober considerations of utility such as those we have here presented that constitute the argument in favor of the equality of all men under the law. Liberalism never aimed at anything more than this, nor could it ask for anything more. It is beyond human power to make a Negro white. But the Negro can be granted the same rights as the white man and thereby offered the possibility of earning as much if he produces as much.

But, the socialists say, it is not enough to make men equal before the law. In order to make them really equal, one must also allot them the same income. It is not enough to abolish privileges of birth and of rank. One must finish the job and do away with the greatest and most important privilege of all, namely, that which is accorded by private property. Only then will the liberal program be completely realized, and a consistent liberalism thus leads ultimately to socialism, to the abolition of private ownership of the means of production.

Privilege is an institutional arrangement favoring some individuals or a certain group at the expense of the rest. The privilege exists, although it harms some—perhaps the majority—and benefits no one except those for whose advantage it was created. In the feudal order of the Middle Ages certain lords had the hereditary right to hold a judgeship. They were judges because they had inherited the position, regardless of whether they possessed the abilities and qualities of character that fit a man to be a judge. In their eyes this office was nothing more than a lucrative source of income. Here judgeship was the privilege of a class of noble birth.

If, however, as in modern states, judges are always drawn from the circle of those with legal knowledge and experience, this does not constitute a privilege in favor of lawyers. Preference is given to lawyers, not for their sake, but for the sake of the public welfare, because people are generally of the opinion that a knowledge of jurisprudence is an indispensable prerequisite for holding a judgeship. The question whether a certain institutional arrangement is or is not to be regarded as a privilege granted to a certain group, class, or person is not to be decided by whether or not it is advantageous to that group, class, or person, but according to how beneficial to the general public it is considered to be. The fact that on a ship at sea one man is captain and the rest constitute his crew and are subject to his command is certainly an advantage for the captain. Nevertheless, it is not a privilege of the captain if he possesses the ability to steer the ship between reefs in a storm and thereby to be of service not only to himself, but to the whole crew.

In order to determine whether an institutional arrangement is to be regarded as the special privilege of an individual or of a class, the question one should ask is not whether it benefits this or that individual or class, but only whether it is beneficial to the general public. If we reach the conclusion that only private ownership of the means of production makes possible the prosperous development of human society, it is clear that this is tantamount to saying that private property is not a privilege of the property owner, but a social institution for the good and benefit of all, even though it may at the same time be especially agreeable and advantageous to some.

It is not on behalf of property owners that liberalism favors the preservation of the institution of private property. It is not because the abolition of that institution would violate property rights that the liberals want to preserve it. If they considered the abolition of the institution of private property to be in the general interest, they would advocate that it be abolished, no matter how prejudicial such a policy might be to the interests of property owners. However, the preservation of that institution is in the interest of all strata of society. Even the poor man, who can call nothing his own, lives incomparably better in our society than he would in one that would prove incapable of producing even a fraction of what is produced in our own.

5

The Inequality of Wealth and Income

What is most criticized in our social order is the inequality in the distribution of wealth and income. There are rich and poor; there are very rich and very poor. The way out is not far to seek: the equal distribution of all wealth.

The first objection to this proposal is that it will not help the situation much because those of moderate means far outnumber the rich, so that each individual could expect from such a distribution only a quite insignificant increment in his standard of living. This is certainly correct, but the argument is not complete. Those who advocate equality of income distribution overlook the most important point, namely, that the total available for distribution, the annual product of social labor, is not independent of the manner in which it is divided. The fact that that product today is as great as it is, is not a natural or technological phenomenon independent of all social conditions, but entirely the result of our social institutions. Only because inequality of wealth is possible in our social order, only because it stimulates everyone to produce as much as he can and at the lowest cost, does mankind today have at its disposal the total annual wealth now available for consumption. Were this incentive to be destroyed, productivity would be so greatly reduced that the portion that an equal distribution would allot to each individual would be far less than what even the poorest receives today.

The inequality of income distribution has, however, still a second function quite as important as the one already mentioned: it makes possible the luxury of the rich.

Many foolish things have been said and written about luxury. Against luxury consumption it has been objected that it is unjust that some should enjoy great abundance while others are in want. This argument seems to have some merit. But it only seems so. For if it can be shown that luxury consumption performs a useful function in the system of social cooperation, then the argument will be proved invalid. This, however, is what we shall seek to demonstrate.

Our defense of luxury consumption is not, of course, the argument that one occasionally hears, that is, that it spreads money among the people. If the rich did not indulge themselves in luxuries, it is said, the poor would have no income. This is simply nonsense. For if there were no luxury consumption, the capital and labor that would otherwise have been applied to the production of luxury goods would produce other goods: articles of mass consumption, necessary articles, instead of “superfluous” ones.

To form a correct conception of the social significance of luxury consumption, one must first of all realize that the concept of luxury is an altogether relative one. Luxury consists in a way of living that stands in sharp contrast to that of the great mass of one’s contemporaries. The conception of luxury is, therefore, essentially historical. Many things that seem to us necessities today were once considered as luxuries. When, in the Middle Ages, an aristocratic Byzantine lady who had married a Venetian doge made use of a golden implement, which could be called the forerunner of the fork as we know it today, instead of her fingers, in eating her meals, the Venetians looked on this as a godless luxury, and they thought it only just when the lady was stricken with a dreadful disease; this must be, they supposed, the well-merited punishment of God for such unnatural extravagance. Two or three generations ago even in England an indoor bathroom was considered a luxury; today the home of every English worker of the better type contains one. Thirty-five years ago there were no automobiles; twenty years ago the possession of such a vehicle was the sign of a particularly luxurious mode of living; today in the United States even the worker has his Ford. This is the course of economic history. The luxury of today is the necessity of tomorrow. Every advance first comes into being as the luxury of a few rich people, only to become, after a time, the indispensable necessity taken for granted by everyone. Luxury consumption provides industry with the stimulus to discover and introduce new things. It is one of the dynamic factors in our economy. To it we owe the progressive innovations by which the standard of living of all strata of the population has been gradually raised.

Most of us have no sympathy with the rich idler who spends his life in pleasure without ever doing any work. But even he fulfills a function in the life of the social organism. He sets an example of luxury that awakens in the multitude a consciousness of new needs and gives industry the incentive to fulfill them. There was a time when only the rich could afford the luxury of visiting foreign countries. Schiller never saw the Swiss mountains, which he celebrated in Wilhelm Tell, although they bordered on his Swabian homeland. Goethe saw neither Paris nor Vienna nor London. Today, however, hundreds of thousands travel, and soon millions will do so.

6

Private Property and Ethics

In seeking to demonstrate the social function and necessity of private ownership of the means of production and of the concomitant inequality in the distribution of income and wealth, we are at the same time providing proof of the moral justification for private property and for the capitalist social order based upon it.

Morality consists in the regard for the necessary requirements of social existence that must be demanded of each individual member of society. A man living in isolation has no moral rules to follow. He need have no qualms about doing anything he finds it to his advantage to do, for he does not have to consider whether he is not thereby injuring others. But as a member of society, a man must take into consideration, in everything he does, not only his own immediate advantage, but also the necessity, in every action, of affirming society as such. For the life of the individual in society is possible only by virtue of social cooperation, and every individual would be most seriously harmed if the social organization of life and of production were to break down. In requiring of the individual that he should take society into consideration in all his actions, that he should forgo an action that, while advantageous to him, would be detrimental to social life, society does not demand that he sacrifice himself to the interests of others. For the sacrifice that it imposes is only a provisional one: the renunciation of an immediate and relatively minor advantage in exchange for a much greater ultimate benefit. The continued existence of society as the association of persons working in cooperation and sharing a common way of life is in the interest of every individual. Whoever gives up a momentary advantage in order to avoid imperiling the continued existence of society is sacrificing a lesser gain for a greater one.

The meaning of this regard for the general social interest has frequently been misunderstood. Its moral value was believed to consist in the fact of the sacrifice itself, in the renunciation of an immediate gratification. One refused to see that what is morally valuable is not the sacrifice, but the end served by the sacrifice, and one insisted on ascribing moral value to sacrifice, to renunciation, in and for itself alone. But sacrificing is moral only when it serves a moral end. There is a world of difference between a man who risks his life and property for a good cause and the man who sacrifices them without benefiting society in any way.

Everything that serves to preserve the social order is moral; everything that is detrimental to it is immoral. Accordingly, when we reach the conclusion that an institution is beneficial to society, one can no longer object that it is immoral. There may possibly be a difference of opinion about whether a particular institution is socially beneficial or harmful. But once it has been judged beneficial, one can no longer contend that, for some inexplicable reason, it must be condemned as immoral.

7

State and Government

The observance of the moral law is in the ultimate interest of every individual, because everyone benefits from the preservation of social cooperation; yet it imposes on everyone a sacrifice, even though only a provisional one that is more than counterbalanced by a greater gain. To perceive this, however, requires a certain insight into the connection between things, and to conform one’s actions in accordance with this perception demands a certain strength of will. Those who lack the perception, or, having the perception, lack the necessary will power to put it to use, are not able to conform to the moral law voluntarily. The situation here is no different from that involved in the observance of the rules of hygiene that the individual ought to follow in the interest of his own well-being. Someone may give himself over to unwholesome dissipation, such as indulgence in narcotics, whether because he does not know the consequences, or because he considers them less disadvantageous than the renunciation of the momentary pleasure, or because he lacks the requisite will power to adjust his behavior to his knowledge. There are people who consider that society is justified in resorting to coercive measures to set such a person on the right path and to correct anyone whose heedless actions imperil his own life and health. They advocate that alcoholics and drug addicts be forcibly deterred from indulging their vices and compelled to protect their good health.

The question whether compulsion really answers the purpose in such cases we shall reserve for later consideration. What concerns us here is something quite different, namely, the question whether people whose actions endanger the continued existence of society should be compelled to refrain from doing so. The alcoholic and the drug addict harm only themselves by their behavior; the person who violates the rules of morality governing man’s life in society harms not only himself, but everyone. Life in society would be quite impossible if the people who desire its continued existence and who conduct themselves accordingly had to forgo the use of force and compulsion against those who are prepared to undermine society by their behavior. A small number of antisocial individuals, i.e., persons who are not willing or able to make the temporary sacrifices that society demands of them, could make all society impossible. Without the application of compulsion and coercion against the enemies of society, there could not be any life in society.

We call the social apparatus of compulsion and coercion that induces people to abide by the rules of life in society, the state; the rules according to which the state proceeds, law; and the organs charged with the responsibility of administering the apparatus of compulsion, government.

There is, to be sure, a sect that believes that one could quite safely dispense with every form of compulsion and base society entirely on the voluntary observance of the moral code. The anarchists consider state, law, and government as superfluous institutions in a social order that would really serve the good of all, and not just the special interests of a privileged few. Only because the present social order is based on private ownership of the means of production is it necessary to resort to compulsion and coercion in its defense. If private property were abolished, then everyone, without exception, would spontaneously observe the rules demanded by social cooperation.

It has already been pointed out that this doctrine is mistaken in so far as it concerns the character of private ownership of the means of production. But even apart from this, it is altogether untenable. The anarchist, rightly enough, does not deny that every form of human cooperation in a society based on the division of labor demands the observance of some rules of conduct that are not always agreeable to the individual, since they impose on him a sacrifice, only temporary, it is true, but, for all that, at least for the moment, painful. But the anarchist is mistaken in assuming that everyone, without exception, will be willing to observe these rules voluntarily. There are dyspeptics who, though they know very well that indulgence in a certain food will, after a short time, cause them severe, even scarcely bearable pains, are nevertheless unable to forgo the enjoyment of the delectable dish. Now the interrelationships of life in society are not as easy to trace as the physiological effects of a food, nor do the consequences follow so quickly and, above all, so palpably for the evildoer. Can it, then, be assumed, without falling completely into absurdity, that, in spite of all this, every individual in an anarchist society will have greater foresight and will power than a gluttonous dyspeptic? In an anarchist society is the possibility entirely to be excluded that someone may negligently throw away a lighted match and start a fire or, in a fit of anger, jealousy, or revenge, inflict injury on his fellow man? Anarchism misunderstands the real nature of man. It would be practicable only in a world of angels and saints.

Liberalism is not anarchism, nor has it anything whatsoever to do with anarchism. The liberal understands quite clearly that without resort to compulsion, the existence of society would be endangered and that behind the rules of conduct whose observance is necessary to assure peaceful human cooperation must stand the threat of force if the whole edifice of society is not to be continually at the mercy of any one of its members. One must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace.

The German socialist, Ferdinand Lassalle, tried to make the conception of a government limited exclusively to this sphere appear ridiculous by calling the state constituted on the basis of liberal principles the “night-watchman state.” But it is difficult to see why the night-watchman state should be any more ridiculous or worse than the state that concerns itself with the preparation of sauerkraut, with the manufacture of trouser buttons, or with the publication of newspapers. In order to understand the impression that Lassalle was seeking to create with this witticism, one must keep in mind that the Germans of his time had not yet forgotten the state of the monarchical despots, with its vast multiplicity of administrative and regulatory functions, and that they were still very much under the influence of the philosophy of Hegel, which had elevated the state to the position of a divine entity. If one looked upon the state, with Hegel, as “the self-conscious moral substance,” as the “Universal in and for itself, the rationality of the will,” then, of course, one had to view as blasphemous any attempt to limit the function of the state to that of serving as a night watchman.

It is only thus that one can understand how it was possible for people to go so far as to reproach liberalism for its “hostility” or enmity towards the state. If I am of the opinion that it is inexpedient to assign to the government the task of operating railroads, hotels, or mines, I am not an “enemy of the state” any more than I can be called an enemy of sulphuric acid because I am of the opinion that, useful though it may be for many purposes, it is not suitable either for drinking or for washing one’s hands.

It is incorrect to represent the attitude of liberalism toward the state by saying that it wishes to restrict the latter’s sphere of possible activity or that it abhors, in principle, all activity on the part of the state in relation to economic life. Such an interpretation is altogether out of the question. The stand that liberalism takes in regard to the problem of the function of the state is the necessary consequence of its advocacy of private ownership of the means of production. If one is in favor of the latter, one cannot, of course, also be in favor of communal ownership of the means of production, i.e., of placing them at the disposition of the government rather than of individual owners. Thus, the advocacy of private ownership of the means of production already implies a very severe circumscription of the functions assigned to the state.

The socialists are sometimes wont to reproach liberalism with a lack of consistency. It is, they maintain, illogical to restrict the activity of the state in the economic sphere exclusively to the protection of property. It is difficult to see why, if the state is not to remain completely neutral, its intervention has to be limited to protecting the rights of property owners.

This reproach would be justified only if the opposition of liberalism to all governmental activity in the economic sphere going beyond the protection of property stemmed from an aversion in principle against any activity on the part of the state. But that is by no means the case. The reason why liberalism opposes a further extension of the sphere of governmental activity is precisely that this would, in effect, abolish private ownership of the means of production. And in private property the liberal sees the principle most suitable for the organization of man’s life in society.

8

Democracy

Liberalism is therefore far from disputing the necessity of a machinery of state, a system of law, and a government. It is a grave misunderstanding to associate it in any way with the idea of anarchism. For the liberal, the state is an absolute necessity, since the most important tasks are incumbent upon it: the protection not only of private property, but also of peace, for in the absence of the latter the full benefits of private property cannot be reaped.

These considerations alone suffice to determine the conditions that a state must fulfill in order to correspond to the liberal ideal. It must not only be able to protect private property; it must also be so constituted that the smooth and peaceful course of its development is never interrupted by civil wars, revolutions, or insurrections.

Many people are still haunted by the idea, which dates back to the preliberal era, that a certain nobility and dignity attaches to the exercise of governmental functions. Up to very recently public officials in Germany enjoyed, and indeed still enjoy even today, a prestige that has made the most highly respected career that of a civil servant. The social esteem in which a young “assessor”* or lieutenant is held far exceeds that of a businessman or an attorney grown old in honest labor. Writers, scholars, and artists whose fame and glory have spread far beyond Germany enjoy in their own homeland only the respect corresponding to the often rather modest rank they occupied in the bureaucratic hierarchy.

There is no rational basis for this overestimation of the activities carried on in the offices of the administrative authorities. It is a form of atavism, a vestige from the days when the burgher had to fear the prince and his knights because at any moment he might be spoliated by them. In itself it is no finer, nobler, or more honorable to spend one’s days in a government office filling out documents than, for example, to work in the blueprint room of a machine factory. The tax collector has no more distinguished an occupation than those who are engaged in creating wealth directly, a part of which is skimmed off in the form of taxes to defray the expenses of the apparatus of government.

This notion of the special distinction and dignity attaching to the exercise of all the functions of government is what constitutes the basis of the pseudodemocratic theory of the state. According to this doctrine, it is shameful for anyone to allow himself to be ruled by others. Its ideal is a constitution in which the whole people rules and governs. This, of course, never has been, never can be, and never will be possible, not even under the conditions prevailing in a small state. It was once thought that this ideal had been realized in the Greek city-states of antiquity and in the small cantons of the Swiss mountains. This too was a mistake. In Greece only a part of the populace, the free citizens, had any share in the government; the metics and slaves had none. In the Swiss cantons only certain matters of a purely local character were and still are settled on the constitutional principle of direct democracy; all affairs transcending these narrow territorial bounds are managed by the Federation, whose government by no means corresponds to the ideal of direct democracy.

It is not at all shameful for a man to allow himself to be ruled by others. Government and administration, the enforcement of police regulations and similar ordinances, also require specialists: professional civil servants and professional politicians. The principle of the division of labor does not stop short even of the functions of government. One cannot be an engineer and a policeman at the same time. It in no way detracts from my dignity, my well-being, or my freedom that I am not myself a policeman. It is no more undemocratic for a few people to have the responsibility of providing protection for everyone else than it is for a few people to undertake to produce shoes for everyone else. There is not the slightest reason to object to professional politicians and professional civil servants if the institutions of the state are democratic. But democracy is something entirely different from what the romantic visionaries who prattle about direct democracy imagine.

Government by a handful of people—and the rulers are always as much in the minority as against those ruled as the producers of shoes are as against the consumers of shoes—depends on the consent of the governed, i.e., on their acceptance of the existing administration. They may see it only as the lesser evil, or as an unavoidable evil, yet they must be of the opinion that a change in the existing situation would have no purpose. But once the majority of the governed becomes convinced that it is necessary and possible to change the form of government and to replace the old regime and the old personnel with a new regime and new personnel, the days of the former are numbered. The majority will have the power to carry out its wishes by force even against the will of the old regime. In the long run no government can maintain itself in power if it does not have public opinion behind it, i.e., if those governed are not convinced that the government is good. The force to which the government resorts in order to make refractory spirits compliant can be successfully applied only as long as the majority does not stand solidly in opposition.

There is, therefore, in every form of polity a means for making the government at least ultimately dependent on the will of the governed, viz., civil war, revolution, insurrection. But it is just this expedient that liberalism wants to avoid. There can be no lasting economic improvement if the peaceful course of affairs is continually interrupted by internal struggles. A political situation such as existed in England at the time of the Wars of the Roses would plunge modern England in a few years into the deepest and most dreadful misery. The present level of economic development would never have been attained if no solution had been found to the problem of preventing the continual outbreak of civil wars. A fratricidal struggle like the French Revolution of 1789 cost a heavy loss in life and property. Our present economy could no longer endure such convulsions. The population of a modern metropolis would have to suffer so frightfully from a revolutionary uprising that could bar the importation of food and coal and cut off the flow of electricity, gas, and water that even the fear that such disturbances might break out would paralyze the life of the city.

Here is where the social function performed by democracy finds its point of application. Democracy is that form of political constitution which makes possible the adaptation of the government to the wishes of the governed without violent struggles. If in a democratic state the government is no longer being conducted as the majority of the population would have it, no civil war is necessary to put into office those who are willing to work to suit the majority. By means of elections and parliamentary arrangements, the change of government is executed smoothly and without friction, violence, or bloodshed.

9

Critique of the Doctrine of Force

The champions of democracy in the eighteenth century argued that only monarchs and their ministers are morally depraved, injudicious, and evil. The people, however, are altogether good, pure, and noble, and have, besides, the intellectual gifts needed in order always to know and to do what is right. This is, of course, all nonsense, no less so than the flattery of the courtiers who ascribed all good and noble qualities to their princes. The people are the sum of all individual citizens; and if some individuals are not intelligent and noble, then neither are all together.

Since mankind entered the age of democracy with such high-flown expectations, it is not surprising that disillusionment should soon have set in. It was quickly discovered that the democracies committed at least as many errors as the monarchies and aristocracies had. The comparison that people drew between the men whom the democracies placed at the head of the government and those whom the emperors and kings, in the exercise of their absolute power, had elevated to that position, proved by no means favorable to the new wielders of power. The French are wont to speak of “killing with ridicule.” And indeed, the statesmen representative of democracy soon rendered it everywhere ridiculous. Those of the old regime had displayed a certain aristocratic dignity, at least in their outward demeanor. The new ones, who replaced them, made themselves contemptible by their behavior. Nothing has done more harm to democracy in Germany and Austria than the hollow arrogance and impudent vanity with which the Social-Democratic leaders who rose to power after the collapse of the empire conducted themselves.

Thus, wherever democracy triumphed, an antidemocratic doctrine soon arose in fundamental opposition to it. There is no sense, it was said, in allowing the majority to rule. The best ought to govern, even if they are in the minority. This seems so obvious that the supporters of antidemocratic movements of all kinds have steadily increased in number. The more contemptible the men whom democracy has placed at the top have proved themselves to be, the greater has grown the number of the enemies of democracy.

There are, however, serious fallacies in the antidemocratic doctrine. What, after all, does it mean to speak of “the best man” or “the best men”? The Republic of Poland placed a piano virtuoso* at its head because it considered him the best Pole of the age. But the qualities that the leader of a state must have are very different from those of a musician. The opponents of democracy, when they use the expression “the best,” can mean nothing else than the man or the men best fitted to conduct the affairs of the government, even if they understand little or nothing of music. But this leads to the same political question: Who is the best fitted? Was it Disraeli or Gladstone? The Tory saw the best man in the former; the Whig, in the latter. Who should decide this if not the majority?

And so we reach the decisive point of all antidemocratic doctrines, whether advanced by the descendants of the old aristocracy and the supporters of hereditary monarchy, or by the syndicalists, Bolsheviks, and socialists, viz., the doctrine of force. The opponents of democracy champion the right of a minority to seize control of the state by force and to rule over the majority. The moral justification of this procedure consists, it is thought, precisely in the power actually to seize the reins of government. One recognizes the best, those who alone are competent to govern and command, by virtue of their demonstrated ability to impose their rule on the majority against its will. Here the teaching of l’Action Française coincides with that of the syndicalists, and the doctrine of Ludendorff and Hitler, with that of Lenin and Trotsky.

Many arguments can be urged for and against these doctrines, depending on one’s religious and philosophical convictions, about which any agreement is scarcely to be expected. This is not the place to present and discuss the arguments pro and con, for they are not conclusive. The only consideration that can be decisive is one that bases itself on the fundamental argument in favor of democracy.

If every group that believes itself capable of imposing its rule on the rest is to be entitled to undertake the attempt, we must be prepared for an uninterrupted series of civil wars. But such a state of affairs is incompatible with the stage of the division of labor that we have reached today. Modern society, based as it is on the division of labor, can be preserved only under conditions of lasting peace. If we had to prepare for the possibility of continual civil wars and internal struggles, we should have to retrogress to such a primitive stage of the division of labor that each province at least, if not each village, would become virtually autarkic, i.e., capable of feeding and maintaining itself for a time as a self-sufficient economic entity without importing anything from the outside. This would mean such an enormous decline in the productivity of labor that the earth could feed only a fraction of the population that it supports today. The antidemocratic ideal leads to the kind of economic order known to the Middle Ages and antiquity. Every city, every village, indeed, every individual dwelling was fortified and equipped for defense, and every province was as independent of the rest of the world as possible in its provision of commodities.

The democrat too is of the opinion that the best man ought to rule. But he believes that the fitness of a man or of a group of men to govern is better demonstrated if they succeed in convincing their fellow citizens of their qualifications for that position, so that they are voluntarily entrusted with the conduct of public affairs, than if they resort to force to compel others to acknowledge their claims. Whoever does not succeed in attaining to a position of leadership by virtue of the power of his arguments and the confidence that his person inspires has no reason to complain about the fact that his fellow citizens prefer others to him.

To be sure, it should not and need not be denied that there is one situation in which the temptation to deviate from the democratic principles of liberalism becomes very great indeed. If judicious men see their nation, or all the nations of the world, on the road to destruction, and if they find it impossible to induce their fellow citizens to heed their counsel, they may be inclined to think it only fair and just to resort to any means whatever, in so far as it is feasible and will lead to the desired goal, in order to save everyone from disaster. Then the idea of a dictatorship of the elite, of a government by the minority maintained in power by force and ruling in the interests of all, may arise and find supporters. But force is never a means of overcoming these difficulties. The tyranny of a minority can never endure unless it succeeds in convincing the majority of the necessity or, at any rate, of the utility, of its rule. But then the minority no longer needs force to maintain itself in power.

History provides an abundance of striking examples to show that, in the long run, even the most ruthless policy of repression does not suffice to maintain a government in power. To cite but one, the most recent and the best known: when the Bolsheviks seized control in Russia, they were a small minority, and their program found scant support among the great masses of their countrymen. For the peasantry, who constitute the bulk of the Russian people, would have nothing to do with the Bolshevik policy of farm collectivization. What they wanted was the division of the land among the “landed poverty,” as the Bolsheviks call this part of the population. And it was this program of the peasantry, not that of the Marxist leaders, which was actually put into effect. In order to remain in power, Lenin and Trotsky not only accepted this agrarian reform, but even made it a part of their own program, which they undertook to defend against all attacks, domestic and foreign. Only thus were the Bolsheviks able to win the confidence of the great mass of the Russian people. Since they adopted this policy of land distribution, the Bolsheviks rule no longer against the will of the great mass of the people, but with their consent and support. There were only two possible alternatives open to them: either their program or their control of the government had to be sacrificed. They chose the first and remained in power. The third possibility, to carry out their program by force against the will of the great mass of the people, did not exist at all. Like every determined and well-led minority, the Bolsheviks were able to seize control by force and retain it for a short time. In the long run, however, they would have been no better able to keep it than any other minority. The various attempts of the Whites to dislodge the Bolsheviks all failed because the mass of the Russian people were against them. But even if they had succeeded, the victors too would have had to respect the desires of the overwhelming majority of the population. It would have been impossible for them to alter in any way after the event the already accomplished fact of the land distribution and to restore to the landowners what had been stolen from them.

Only a group that can count on the consent of the governed can establish a lasting regime. Whoever wants to see the world governed according to his own ideas must strive for dominion over men’s minds. It is impossible, in the long run, to subject men against their will to a regime that they reject. Whoever tries to do so by force will ultimately come to grief, and the struggles provoked by his attempt will do more harm than the worst government based on the consent of the governed could ever do. Men cannot be made happy against their will.

10

The Argument of Fascism*

If liberalism nowhere found complete acceptance, its success in the nineteenth century went so far at least as that some of the most important of its principles were considered beyond dispute. Before 1914, even the most dogged and bitter enemies of liberalism had to resign themselves to allowing many liberal principles to pass unchallenged. Even in Russia, where only a few feeble rays of liberalism had penetrated, the supporters of the Czarist despotism, in persecuting their opponents, still had to take into consideration the liberal opinions of Europe; and during the World War, the war parties in the belligerent nations, with all their zeal, still had to practice a certain moderation in their struggle against internal opposition.

Only when the Marxist Social Democrats had gained the upper hand and taken power in the belief that the age of liberalism and capitalism had passed forever did the last concessions disappear that it had still been thought necessary to make to the liberal ideology. The parties of the Third International consider any means as permissible if it seems to give promise of helping them in their struggle to achieve their ends. Whoever does not unconditionally acknowledge all their teachings as the only correct ones and stand by them through thick and thin has, in their opinion, incurred the penalty of death; and they do not hesitate to exterminate him and his whole family, infants included, whenever and wherever it is physically possible.

The frank espousal of a policy of annihilating opponents and the murders committed in the pursuance of it have given rise to an opposition movement. All at once the scales fell from the eyes of the non-Communist enemies of liberalism. Until then they had believed that even in a struggle against a hateful opponent one still had to respect certain liberal principles. They had had, even though reluctantly, to exclude murder and assassination from the list of measures to be resorted to in political struggles. They had had to resign themselves to many limitations in persecuting the opposition press and in suppressing the spoken word. Now, all at once, they saw that opponents had risen up who gave no heed to such considerations and for whom any means was good enough to defeat an adversary. The militaristic and nationalistic enemies of the Third International felt themselves cheated by liberalism. Liberalism, they thought, stayed their hand when they desired to strike a blow against the revolutionary parties while it was still possible to do so. If liberalism had not hindered them, they would, so they believe, have bloodily nipped the revolutionary movements in the bud. Revolutionary ideas had been able to take root and flourish only because of the tolerance they had been accorded by their opponents, whose will power had been enfeebled by a regard for liberal principles that, as events subsequently proved, was overscrupulous. If the idea had occurred to them years ago that it is permissible to crush ruthlessly every revolutionary movement, the victories that the Third International has won since 1917 would never have been possible. For the militarists and nationalists believe that when it comes to shooting and fighting, they themselves are the most accurate marksmen and the most adroit fighters.

The fundamental idea of these movements—which, from the name of the most grandiose and tightly disciplined among them, the Italian, may, in general, be designated as Fascist—consists in the proposal to make use of the same unscrupulous methods in the struggle against the Third International as the latter employs against its opponents. The Third International seeks to exterminate its adversaries and their ideas in the same way that the hygienist strives to exterminate a pestilential bacillus; it considers itself in no way bound by the terms of any compact that it may conclude with opponents, and it deems any crime, any lie, and any calumny permissible in carrying on its struggle. The Fascists, at least in principle, profess the same intentions. That they have not yet succeeded as fully as the Russian Bolsheviks in freeing themselves from a certain regard for liberal notions and ideas and traditional ethical precepts is to be attributed solely to the fact that the Fascists carry on their work among nations in which the intellectual and moral heritage of some thousands of years of civilization cannot be destroyed at one blow, and not among the barbarian peoples on both sides of the Urals, whose relationship to civilization has never been any other than that of marauding denizens of forest and desert accustomed to engage, from time to time, in predatory raids on civilized lands in the hunt for booty. Because of this difference, Fascism will never succeed as completely as Russian Bolshevism in freeing itself from the power of liberal ideas. Only under the fresh impression of the murders and atrocities perpetrated by the supporters of the Soviets were Germans and Italians able to block out the remembrance of the traditional restraints of justice and morality and find the impulse to bloody counteraction. The deeds of the Fascists and of other parties corresponding to them were emotional reflex actions evoked by indignation at the deeds of the Bolsheviks and Communists. As soon as the first flush of anger had passed, their policy took a more moderate course and will probably become even more so with the passage of time.

This moderation is the result of the fact that traditional liberal views still continue to have an unconscious influence on the Fascists. But however far this may go, one must not fail to recognize that the conversion of the Rightist parties to the tactics of Fascism shows that the battle against liberalism has resulted in successes that, only a short time ago, would have been considered completely unthinkable. Many people approve of the methods of Fascism, even though its economic program is altogether antiliberal and its policy completely interventionist, because it is far from practicing the senseless and unrestrained destructionism that has stamped the Communists as the arch-enemies of civilization. Still others, in full knowledge of the evil that Fascist economic policy brings with it, view Fascism, in comparison with Bolshevism and Sovietism, as at least the lesser evil. For the majority of its public and secret supporters and admirers, however, its appeal consists precisely in the violence of its methods.

Now it cannot be denied that the only way one can offer effective resistance to violent assaults is by violence. Against the weapons of the Bolsheviks, weapons must be used in reprisal, and it would be a mistake to display weakness before murderers. No liberal has ever called this into question. What distinguishes liberal from Fascist political tactics is not a difference of opinion in regard to the necessity of using armed force to resist armed attackers, but a difference in the fundamental estimation of the role of violence in a struggle for power. The great danger threatening domestic policy from the side of Fascism lies in its complete faith in the decisive power of violence. In order to assure success, one must be imbued with the will to victory and always proceed violently. This is its highest principle. What happens, however, when one’s opponent, similarly animated by the will to be victorious, acts just as violently? The result must be a battle, a civil war. The ultimate victor to emerge from such conflicts will be the faction strongest in number. In the long run, a minority—even if it is composed of the most capable and energetic—cannot succeed in resisting the majority. The decisive question, therefore, always remains: How does one obtain a majority for one’s own party? This, however, is a purely intellectual matter. It is a victory that can be won only with the weapons of the intellect, never by force. The suppression of all opposition by sheer violence is a most unsuitable way to win adherents to one’s cause. Resort to naked force—that is, without justification in terms of intellectual arguments accepted by public opinion—merely gains new friends for those whom one is thereby trying to combat. In a battle between force and an idea, the latter always prevails.

Fascism can triumph today because universal indignation at the infamies committed by the socialists and communists has obtained for it the sympathies of wide circles. But when the fresh impression of the crimes of the Bolsheviks has paled, the socialist program will once again exercise its power of attraction on the masses. For Fascism does nothing to combat it except to suppress socialist ideas and to persecute the people who spread them. If it wanted really to combat socialism, it would have to oppose it with ideas. There is, however, only one idea that can be effectively opposed to socialism, viz., that of liberalism.

It has often been said that nothing furthers a cause more than creating martyrs for it. This is only approximately correct. What strengthens the cause of the persecuted faction is not the martyrdom of its adherents, but the fact that they are being attacked by force, and not by intellectual weapons. Repression by brute force is always a confession of the inability to make use of the better weapons of the intellect—better because they alone give promise of final success. This is the fundamental error from which Fascism suffers and which will ultimately cause its downfall. The victory of Fascism in a number of countries is only an episode in the long series of struggles over the problem of property. The next episode will be the victory of Communism. The ultimate outcome of the struggle, however, will not be decided by arms, but by ideas. It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. It is they alone, and not arms, that, in the last analysis, turn the scales.

So much for the domestic policy of Fascism. That its foreign policy, based as it is on the avowed principle of force in international relations, cannot fail to give rise to an endless series of wars that must destroy all of modern civilization requires no further discussion. To maintain and further raise our present level of economic development, peace among nations must be assured. But they cannot live together in peace if the basic tenet of the ideology by which they are governed is the belief that one’s own nation can secure its place in the community of nations by force alone.

It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.

11

The Limits of Governmental Activity

As the liberal sees it, the task of the state consists solely and exclusively in guaranteeing the protection of life, health, liberty, and private property against violent attacks. Everything that goes beyond this is an evil. A government that, instead of fulfilling its task, sought to go so far as actually to infringe on personal security of life and health, freedom, and property would, of course, be altogether bad.

Still, as Jacob Burckhardt says, power is evil in itself, no matter who exercises it. It tends to corrupt those who wield it and leads to abuse. Not only absolute sovereigns and aristocrats, but the masses also, in whose hands democracy entrusts the supreme power of government, are only too easily inclined to excesses.

In the United States, the manufacture and sale of alcoholic beverages are prohibited. Other countries do not go so far, but nearly everywhere some restrictions are imposed on the sale of opium, cocaine, and similar narcotics. It is universally deemed one of the tasks of legislation and government to protect the individual from himself. Even those who otherwise generally have misgivings about extending the area of governmental activity consider it quite proper that the freedom of the individual should be curtailed in this respect, and they think that only a benighted doctrinairism could oppose such prohibitions. Indeed, so general is the acceptance of this kind of interference by the authorities in the life of the individual that those who are opposed to liberalism on principle are prone to base their argument on the ostensibly undisputed acknowledgment of the necessity of such prohibitions and to draw from it the conclusion that complete freedom is an evil and that some measure of restriction must be imposed upon the freedom of the individual by the governmental authorities in their capacity as guardians of his welfare. The question cannot be whether the authorities ought to impose restrictions upon the freedom of the individual, but only how far they ought to go in this respect.

No words need be wasted over the fact that all these narcotics are harmful. The question whether even a small quantity of alcohol is harmful or whether the harm results only from the abuse of alcoholic beverages is not at issue here. It is an established fact that alcoholism, cocainism, and morphinism are deadly enemies of life, of health, and of the capacity for work and enjoyment; and a utilitarian must therefore consider them as vices. But this is far from demonstrating that the authorities must interpose to suppress these vices by commercial prohibitions, nor is it by any means evident that such intervention on the part of the government is really capable of suppressing them or that, even if this end could be attained, it might not therewith open up a Pandora’s box of other dangers, no less mischievous than alcoholism and morphinism.

Whoever is convinced that indulgence or excessive indulgence in these poisons is pernicious is not hindered from living abstemiously or temperately. This question cannot be treated exclusively in reference to alcoholism, morphinism, cocainism, etc., which all reasonable men acknowledge to be evils. For if the majority of citizens is, in principle, conceded the right to impose its way of life upon a minority, it is impossible to stop at prohibitions against indulgence in alcohol, morphine, cocaine, and similar poisons. Why should not what is valid for these poisons be valid also for nicotine, caffein, and the like? Why should not the state generally prescribe which foods may be indulged in and which must be avoided because they are injurious? In sports too, many people are prone to carry their indulgence further than their strength will allow. Why should not the state interfere here as well? Few men know how to be temperate in their sexual life, and it seems especially difficult for aging persons to understand that they should cease entirely to indulge in such pleasures or, at least, do so in moderation. Should not the state intervene here too? More harmful still than all these pleasures, many will say, is the reading of evil literature. Should a press pandering to the lowest instincts of man be allowed to corrupt the soul? Should not the exhibition of pornographic pictures, of obscene plays, in short, of all allurements to immorality, be prohibited? And is not the dissemination of false sociological doctrines just as injurious to men and nations? Should men be permitted to incite others to civil war and to wars against foreign countries? And should scurrilous lampoons and blasphemous diatribes be allowed to undermine respect for God and the Church?

We see that as soon as we surrender the principle that the state should not interfere in any questions touching on the individual’s mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated. He becomes a slave of the community, bound to obey the dictates of the majority. It is hardly necessary to expatiate on the ways in which such powers could be abused by malevolent persons in authority. The wielding of powers of this kind even by men imbued with the best of intentions must needs reduce the world to a graveyard of the spirit. All mankind’s progress has been achieved as a result of the initiative of a small minority that began to deviate from the ideas and customs of the majority until their example finally moved the others to accept the innovation themselves. To give the majority the right to dictate to the minority what it is to think, to read, and to do is to put a stop to progress once and for all.

Let no one object that the struggle against morphinism and the struggle against “evil” literature are two quite different things. The only difference between them is that some of the same people who favor the prohibition of the former will not agree to the prohibition of the latter. In the United States, the Methodists and Fundamentalists, right after the passage of the law prohibiting the manufacture and sale of alcoholic beverages, took up the struggle for the suppression of the theory of evolution, and they have already succeeded in ousting Darwinism from the schools in a number of states. In Soviet Russia, every free expression of opinion is suppressed. Whether or not permission is granted for a book to be published depends on the discretion of a number of uneducated and uncultivated fanatics who have been placed in charge of the arm of the government empowered to concern itself with such matters.

The propensity of our contemporaries to demand authoritarian prohibition as soon as something does not please them, and their readiness to submit to such prohibitions even when what is prohibited is quite agreeable to them shows how deeply ingrained the spirit of servility still remains within them. It will require many long years of self-education until the subject can turn himself into the citizen. A free man must be able to endure it when his fellow men act and live otherwise than he considers proper. He must free himself from the habit, just as soon as something does not please him, of calling for the police.

12

Tolerance

Liberalism limits its concern entirely and exclusively to earthly life and earthly endeavor. The kingdom of religion, on the other hand, is not of this world. Thus, liberalism and religion could both exist side by side without their spheres’ touching. That they should have reached the point of collision was not the fault of liberalism. It did not transgress its proper sphere; it did not intrude into the domain of religious faith or of metaphysical doctrine. Nevertheless, it encountered the church as a political power claiming the right to regulate according to its judgment not only the relationship of man to the world to come, but also the affairs of this world. It was at this point that the battle lines had to be drawn.

So overwhelming was the victory won by liberalism in this conflict that the church had to give up, once and for all, claims that it had vigorously maintained for thousands of years. The burning of heretics, inquisitorial persecutions, religious wars—these today belong to history. No one can understand any longer how quiet people, who practiced their devotions as they believed right within the four walls of their own home, could have been dragged before courts, incarcerated, martyred, and burned. But even if no more stakes are kindled ad majorem Dei gloriam [for the greater glory of God], a great deal of intolerance still persists.

Liberalism, however, must be intolerant of every kind of intolerance. If one considers the peaceful cooperation of all men as the goal of social evolution, one cannot permit the peace to be disturbed by priests and fanatics. Liberalism proclaims tolerance for every religious faith and every metaphysical belief, not out of indifference for these “higher” things, but from the conviction that the assurance of peace within society must take precedence over everything and everyone. And because it demands toleration of all opinions and all churches and sects, it must recall them all to their proper bounds whenever they venture intolerantly beyond them. In a social order based on peaceful cooperation, there is no room for the claim of the churches to monopolize the instruction and education of the young. Everything that their supporters accord them of their own free will may and must be granted to the churches; nothing may be permitted to them in respect to persons who want to have nothing to do with them.

It is difficult to understand how these principles of liberalism could make enemies among the communicants of the various faiths. If they make it impossible for a church to make converts by force, whether its own or that placed at its disposal by the state, on the other hand they also protect that church against coercive proselytization by other churches and sects. What liberalism takes from the church with one hand it gives back again with the other. Even religious zealots must concede that liberalism takes nothing from faith of what belongs to its proper sphere.

To be sure, the churches and sects that, where they have the upper hand, cannot do enough in their persecution of dissenters, also demand, where they find themselves in the minority, tolerance at least for themselves. However, this demand for tolerance has nothing whatever in common with the liberal demand for tolerance. Liberalism demands tolerance as a matter of principle, not from opportunism. It demands toleration even of obviously nonsensical teachings, absurd forms of heterodoxy, and childishly silly superstitions. It demands toleration for doctrines and opinions that it deems detrimental and ruinous to society and even for movements that it indefatigably combats. For what impels liberalism to demand and accord toleration is not consideration for the content of the doctrine to be tolerated, but the knowledge that only tolerance can create and preserve the condition of social peace without which humanity must relapse into the barbarism and penury of centuries long past.

Against what is stupid, nonsensical, erroneous, and evil, liberalism fights with the weapons of the mind, and not with brute force and repression.

13

The State and Antisocial Conduct

The state is the apparatus of compulsion and coercion. This holds not only for the “night-watchman” state, but just as much for every other, and most of all for the socialist state. Everything that the state is capable of doing it does by compulsion and the application of force. To suppress conduct dangerous to the existence of the social order is the sum and substance of state activity; to this is added, in a socialist community, control over the means of production.

The sober logic of the Romans expressed this fact symbolically by adopting the axe and the bundle of rods as the emblem of the state. Abstruse mysticism, calling itself philosophy, has done as much as possible in modern times to obscure the truth of the matter. For Schelling, the state is the direct and visible image of absolute life, a phase in the revelation of the Absolute or World Soul. It exists only for its own sake, and its activity is directed exclusively to the maintenance of both the substance and the form of its existence. For Hegel, Absolute Reason reveals itself in the state, and Objective Spirit realizes itself in it. It is ethical mind developed into an organic reality—reality and the ethical idea as the revealed substantial will intelligible to itself. The epigones of idealist philosophy outdid even their masters in their deification of the state. To be sure, one comes no closer to the truth if, in reaction to these and similar doctrines, one calls the state, with Nietzsche, the coldest of all cold monsters. The state is neither cold nor warm, for it is an abstract concept in whose name living men—the organs of the state, the government—act. All state activity is human action, an evil inflicted by men on men. The goal—the preservation of society—justifies the action of the organs of the state, but the evils inflicted are not felt as any less evil by those who suffer under them.

The evil that a man inflicts on his fellow man injures both—not only the one to whom it is done, but also the one who does it. Nothing corrupts a man so much as being an arm of the law and making men suffer. The lot of the subject is anxiety, a spirit of servility and fawning adulation; but the pharisaical self-righteousness, conceit, and arrogance of the master are no better.

Liberalism seeks to take the sting out of the relationship of the government official to the citizen. In doing so, of course, it does not follow in the footsteps of those romantics who defend the antisocial behavior of the lawbreaker and condemn not only judges and policemen, but also the social order as such. Liberalism neither wishes to nor can deny that the coercive power of the state and the lawful punishment of criminals are institutions that society could never, under any circumstances, do without. However, the liberal believes that the purpose of punishment is solely to rule out, as far as possible, behavior dangerous to society. Punishment should not be vindictive or retaliatory. The criminal has incurred the penalties of the law, but not the hate and sadism of the judge, the policeman, and the ever lynch-thirsty mob.

What is most mischievous about the coercive power that justifies itself in the name of the “state” is that, because it is always of necessity ultimately sustained by the consent of the majority, it directs its attack against germinating innovations. Human society cannot do without the apparatus of the state, but the whole of mankind’s progress has had to be achieved against the resistance and opposition of the state and its power of coercion. No wonder that all who have had something new to offer humanity have had nothing good to say of the state or its laws! Incorrigible etatist mystics and state-worshippers may hold this against them; liberals will understand their position even if they cannot approve it. Yet every liberal must oppose this understandable aversion to everything that pertains to jailers and policemen when it is carried to the point of such overweening self-esteem as to proclaim the right of the individual to rebel against the state. Violent resistance against the power of the state is the last resort of the minority in its effort to break loose from the oppression of the majority. The minority that desires to see its ideas triumph must strive by intellectual means to become the majority. The state must be so constituted that the scope of its laws permits the individual a certain amount of latitude within which he can move freely. The citizen must not be so narrowly circumscribed in his activities that, if he thinks differently from those in power, his only choice is either to perish or to destroy the machinery of state.

CHAPTER 2

Liberal Economic Policy

1

The Organization of the Economy

It is possible to distinguish five different conceivable systems of organizing the cooperation of individuals in a society based on the division of labor: the system of private ownership of the means of production, which, in its developed form, we call capitalism; the system of private ownership of the means of production with periodic confiscation of all wealth and its subsequent redistribution; the system of syndicalism; the system of public ownership of the means of production, which is known as socialism or communism; and, finally, the system of interventionism.

The history of private ownership of the means of production coincides with the history of the development of mankind from an animal-like condition to the highest reaches of modern civilization. The opponents of private property have gone to great pains to demonstrate that in the primeval beginnings of human society the institution of private property still did not exist in a complete form because a part of the land under cultivation was subject to periodic redistribution. From this observation, which shows that private property is only a “historical category,” they have tried to draw the conclusion that it could once again be quite safely dispensed with. The logical fallacy involved in this reasoning is too flagrant to require any further discussion. That there was social cooperation in remote antiquity even in the absence of a completely realized system of private property cannot provide the slightest proof that one could manage without private property just as well at higher stages of civilization. If history could prove anything at all in regard to this question, it could only be that nowhere and at no time has there ever been a people which has raised itself without private property above a condition of the most oppressive penury and savagery scarcely distinguishable from animal existence.

The earlier opponents of the system of private ownership of the means of production did not attack the institution of private property as such, but only the inequality of income distribution. They recommended the abolition of the inequality of income and wealth by means of a system of periodical redistribution of the total quantity of commodities or, at least, of land, which was at that time virtually the only factor of production taken into consideration. In the technologically backward countries, where primitive agricultural production prevails, this idea of an equal distribution of property still holds sway today. People are accustomed to call it agrarian socialism, though the appellation is not at all apposite since this system has nothing to do with socialism. The Bolshevist revolution in Russia, which had begun as socialist, did not establish socialism in agriculture—i.e., communal ownership of the land—but, instead, agrarian socialism. In large areas of the rest of Eastern Europe, the division of big landed estates among the small farmers, under the name of agrarian reform, is the ideal espoused by influential political parties.

It is unnecessary to enter further into a discussion of this system. That it must result in a reduction in the output of human labor will scarcely be disputed. Only where land is still cultivated in the most primitive way can one fail to recognize the decrease in productivity which follows upon its division and distribution. That it is utterly senseless to break up a dairy farm equipped with all the devices of modern technology will be conceded by everyone. As for the transference of this principle of division and distribution to industry or commercial enterprises, it is altogether unthinkable. A railroad, a rolling mill, or a machine factory cannot be divided up. One could undertake to carry out the periodical redistribution of property only if one first completely broke up the economy based on the division of labor and the unhampered market and returned to an economy of self-sufficient farmsteads existing side by side without engaging in exchange.

The idea of syndicalism represents the attempt to adapt the ideal of the equal distribution of property to the circumstances of modern large-scale industry. Syndicalism seeks to invest ownership of the means of production neither in individuals nor in society, but in the workers employed in each industry or branch of production.1

Since the proportion in which the material and the personal factors of production are combined is different in the different branches of production, equality in the distribution of property cannot be attained in this way at all. From the very outset the worker will receive a greater portion of property in some branches of industry than in others. One has only to consider the difficulties that must arise from the necessity, continually present in any economy, of shifting capital and labor from one branch of production to another. Will it be possible to withdraw capital from one branch of industry in order thereby more generously to equip another? Will it be possible to remove workers from one branch of production in order to transfer them to another where the quota of capital per worker is smaller? The impossibility of such transfers renders the syndicalist commonwealth utterly absurd and impracticable as a form of social organization. Yet if we assume that over and above the individual groups there exists a central power that is entitled to carry out such transfers, we are no longer dealing with syndicalism, but with socialism. In reality, syndicalism as a social ideal is so absurd that only muddleheads who have not sufficiently thought the problem through have ventured to advocate it on principle.

Socialism or communism is that organization of society in which property—the power of deploying all the means of production—is vested in society, i.e., in the state, as the social apparatus of compulsion and coercion. For a society to be judged as socialist it is of no consequence whether the social dividend is distributed equally or according to some other principle. Neither is it of decisive significance whether socialism is brought about by a formal transfer of the ownership of all the means of production to the state, the social apparatus of compulsion and coercion, or whether the private owners retain their property in name and the socialization consists in the fact that all these “owners” are entitled to employ the means of production left in their hands only according to instructions issued by the state. If the government decides what is to be produced and how, and to whom it is to be sold, and at what “price,” then private property still exists in name only; in reality, all property is already socialized, for the mainspring of economic activity is no longer profit-seeking on the part of entrepreneurs and capitalists, but the necessity of fulfilling an imposed duty and of obeying commands.

Finally, we still have to speak of interventionism. According to a widespread opinion, there is, midway between socialism and capitalism, a third possibility of social organization: the system of private property regulated, controlled, and guided by isolated authoritarian decrees (acts of intervention).

The system of periodical redistribution of property and the system of syndicalism will not be discussed in what follows. These two systems are not generally at issue. No one who is in any way to be taken seriously advocates either one. We have to concern ourselves only with socialism, interventionism, and capitalism.

2

Private Property and Its Critics

Man’s life is not a state of unalloyed happiness. The earth is no paradise. Although this is not the fault of social institutions, people are wont to hold them responsible for it. The foundation of any and every civilization, including our own, is private ownership of the means of production. Whoever wishes to criticize modern civilization, therefore, begins with private property. It is blamed for everything that does not please the critic, especially those evils that have their origin in the fact that private property has been hampered and restrained in various respects so that its full social potentialities cannot be realized.

The usual procedure adopted by the critic is to imagine how wonderful everything would be if only he had his own way. In his dreams he eliminates every will opposed to his own by raising himself, or someone whose will coincides exactly with his, to the position of absolute master of the world. Everyone who preaches the right of the stronger considers himself as the stronger. He who espouses the institution of slavery never stops to reflect that he himself could be a slave. He who demands restrictions on the liberty of conscience demands it in regard to others, and not for himself. He who advocates an oligarchic form of government always includes himself in the oligarchy, and he who goes into ecstasies at the thought of enlightened despotism or dictatorship is immodest enough to allot to himself, in his daydreams, the role of the enlightened despot or dictator, or, at least, to expect that he himself will become the despot over the despot or the dictator over the dictator. Just as no one desires to see himself in the position of the weaker, of the oppressed, of the overpowered, of the negatively privileged, of the subject without rights; so, under socialism, no one desires himself otherwise than in the role of the general director or the mentor of the general director. In the dream and wish phantasies of socialism there is no other life that would be worth living.

Anticapitalist literature has created a fixed pattern for these phantasies of the daydreamer in the customary opposition between profitability and productivity. What takes place in the capitalist social order is contrasted in thought with what—corresponding to the desires of the critic—would be accomplished in the ideal socialist society. Everything that deviates from this ideal image is characterized as unproductive. That the greatest profitability for private individuals and the greatest productivity for the community do not always coincide was long considered the most serious reproach against the capitalist system. Only in recent years has the knowledge gained ground that in the majority of these cases a socialist community could proceed no differently from the way individuals in a capitalist community do. But even where the alleged opposition actually does exist, it cannot simply be assumed that a socialist society would necessarily do what is right and that the capitalist social order is always to be condemned if it does anything else. The concept of productivity is altogether subjective; it can never provide the starting point for an objective criticism.

It is not worth while, therefore, to concern ourselves with the musings of our daydream-dictator. In his dream vision, everyone is willing and obedient, ready to execute his commands immediately and punctiliously. But it is quite another question how things must appear in a real, and not merely visionary, socialist society. The assumption that the equal distribution of the total annual output of the capitalist economy among all members of society would suffice to assure everyone a sufficient livelihood is, as simple statistical calculations show, altogether false. Thus, a socialist society could scarcely achieve a perceptible increase in the standard of living of the masses in this way. If it holds out the prospect of well-being, and even riches, for all, it can do so only on the assumption that labor in a socialist society will be more productive than it is under capitalism and that a socialist system will be able to dispense with a number of superfluous—and consequently unproductive—expenditures.

In connection with this second point, one thinks, for example, of the abolition of all those expenses originating in the costs of marketing merchandise, of competition, and of advertising. It is clear that there is no room in a socialist community for such expenditures. Yet one must not forget that the socialist apparatus of distribution too will involve not inconsiderable costs, perhaps even greater than those of a capitalist economy. But this is not the decisive element in our judgment of the significance of these expenses. The socialist assumes, without question, as a matter of course, that in a socialist system the productivity of labor will be at least the same as in a capitalist society, and he seeks to prove that it will be even greater. But the first assumption is by no means as self-evident as the advocates of socialism seem to think. The quantity of things produced in a capitalist society is not independent of the manner in which production is carried on. What is of decisive significance is that at every single stage of each branch of production the special interest of the persons engaged in it is bound up most intimately with the productivity of the particular share of labor being performed. Every worker must exert himself to the utmost, since his wages are determined by the output of his labor, and every entrepreneur must strive to produce more cheaply—i.e., with less expenditure of capital and labor—than his competitors.

Only because of these incentives has the capitalist economy been able to produce the wealth that is at its command. To take exception to the alleged excessive costs of the capitalist marketing apparatus is to take a myopic view of things indeed. Whoever reproaches capitalism with squandering resources because there are many competing haberdashers and even more tobacconists to be found on bustling business streets fails to see that this sales organization is only the end result of an apparatus of production that warrants the greatest productivity of labor. All advances in production have been achieved only because it is in the nature of this apparatus continually to make advances. Only because all entrepreneurs are in constant competition and are mercilessly weeded out if they do not produce in the most profitable manner are methods of production perpetually being improved and refined. Were this incentive to disappear, there would be no further progress in production and no effort to economize in the application of the traditional methods. Consequently, it is completely absurd to pose the question how much could be saved if the costs of advertising were abolished. One must rather ask how much could be produced if competition among producers were abolished. The answer to this question cannot be in doubt.

Men can consume only if they labor, and then only as much as their labor has produced. Now it is the characteristic feature of the capitalist system that it provides each member of society with this incentive to carry on his work with the greatest efficiency and thus achieves the highest output. In a socialist society, this direct connection between the labor of the individual and the goods and services he might thereby enjoy would be lacking. The incentive to work would not consist in the possibility of enjoying the fruit of one’s labor, but in the command of the authorities to work and in one’s own feeling of duty. The precise demonstration that this organization of labor is unfeasible will be offered in a later chapter.

What is always criticized in the capitalist system is the fact that the owners of the means of production occupy a preferential position. They can live without working. If one views the social order from an individualistic standpoint, one must see in this a serious shortcoming of capitalism. Why should one man be better off than another? But whoever considers things, not from the standpoint of individual persons, but from that of the whole social order, will find that the owners of property can preserve their agreeable position solely on condition that they perform a service indispensable for society. The capitalist can keep his favored position only by shifting the means of production to the application most important for society. If he does not do this—if he invests his wealth unwisely—he will suffer losses, and if he does not correct his mistake in time, he will soon be ruthlessly ousted from his preferential position. He will cease to be a capitalist, and others who are better qualified for it will take his place. In a capitalist society, the deployment of the means of production is always in the hands of those best fitted for it; and whether they want to or not, they must constantly take care to employ the means of production in such a way that they yield the greatest output.

3

Private Property and the Government

All those in positions of political power, all governments, all kings, and all republican authorities have always looked askance at private property. There is an inherent tendency in all governmental power to recognize no restraints on its operation and to extend the sphere of its dominion as much as possible. To control everything, to leave no room for anything to happen of its own accord without the interference of the authorities—this is the goal for which every ruler secretly strives. If only private property did not stand in the way! Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power. It thus becomes the basis of all those activities that are free from violent interference on the part of the state. It is the soil in which the seeds of freedom are nurtured and in which the autonomy of the individual and ultimately all intellectual and material progress are rooted. In this sense, it has even been called the fundamental prerequisite for the development of the individual. But it is only with many reservations that the latter formulation can be considered acceptable, because the customary opposition between individual and collectivity, between individualistic and collective ideas and aims, or even between individualistic and universalistic science, is an empty shibboleth.

Thus, there has never been a political power that voluntarily desisted from impeding the free development and operation of the institution of private ownership of the means of production. Governments tolerate private property when they are compelled to do so, but they do not acknowledge it voluntarily in recognition of its necessity. Even liberal politicians, on gaining power, have usually relegated their liberal principles more or less to the background. The tendency to impose oppressive restraints on private property, to abuse political power, and to refuse to respect or recognize any free sphere outside or beyond the dominion of the state is too deeply ingrained in the mentality of those who control the governmental apparatus of compulsion and coercion for them ever to be able to resist it voluntarily. A liberal government is a contradictio in adjecto [a contradiction in terms]. Governments must be forced into adopting liberalism by the power of the unanimous opinion of the people; that they could voluntarily become liberal is not to be expected.

It is easy to understand what would constrain rulers to recognize the property rights of their subjects in a society composed exclusively of farmers all of whom were equally rich. In such a social order, every attempt to abridge the right to property would immediately meet with the resistance of a united front of all subjects against the government and thus bring about the latter’s fall. The situation is essentially different, however, in a society in which there is not only agricultural but also industrial production, and especially where there are big business enterprises involving large-scale investments in industry, mining, and trade. In such a society, it is quite possible for those in control of the government to take action against private property. In fact, politically there is nothing more advantageous for a government than an attack on property rights, for it is always an easy matter to incite the masses against the owners of land and capital. From time immemorial, therefore, it has been the idea of all absolute monarchs, of all despots and tyrants, to ally themselves with the “people” against the propertied classes. The Second Empire of Louis Napoleon was not the only regime to be founded on the principle of Caesarism. The Prussian authoritarian state of the Hohenzollerns also took up the idea, introduced by Lassalle into German politics during the Prussian constitutional struggle, of winning the masses of workers to the battle against the liberal bourgeoisie by means of a policy of etatism and interventionism. This was the basic principle of the “social monarchy” so highly extolled by Schmoller and his school.

In spite of all persecutions, however, the institution of private property has survived. Neither the animosity of all governments, nor the hostile campaign waged against it by writers and moralists and by churches and religions, nor the resentment of the masses—itself deeply rooted in instinctive envy—has availed to abolish it. Every attempt to replace it with some other method of organizing production and distribution has always of itself promptly proved unfeasible to the point of absurdity. People have had to recognize that the institution of private property is indispensable and to revert to it whether they liked it or not.

But for all that, they have still refused to admit that the reason for this return to the institution of free private ownership of the means of production is to be found in the fact that an economic system serving the needs and purposes of man’s life in society is, in principle, impracticable except on this foundation. People have been unable to make up their minds to rid themselves of an ideology to which they have become attached, namely, the belief that private property is an evil that cannot, at least for the time being, be dispensed with as long as men have not yet sufficiently evolved ethically. While governments—contrary to their intentions, of course, and to the inherent tendency of every organized center of power—have reconciled themselves to the existence of private property, they have still continued to adhere firmly—not only outwardly, but also in their own thinking—to an ideology hostile to property rights. Indeed, they consider opposition to private property to be correct in principle and any deviation from it on their part to be due solely to their own weakness or to consideration for the interests of powerful groups.

4

The Impracticability of Socialism

People are wont to consider socialism impracticable because they think that men lack the moral qualities demanded by a socialist society. It is feared that under socialism most men will not exhibit the same zeal in the performance of the duties and tasks assigned to them that they bring to their daily work in a social order based on private ownership of the means of production. In a capitalist society, every individual knows that the fruit of his labor is his own to enjoy, that his income increases or decreases according as the output of his labor is greater or smaller. In a socialist society, every individual will think that less depends on the efficiency of his own labor, since a fixed portion of the total output is due him in any case and the amount of the latter cannot be appreciably diminished by the loss resulting from the laziness of any one man. If, as is to be feared, such a conviction should become general, the productivity of labor in a socialist community would drop considerably.

The objection thus raised against socialism is completely sound, but it does not get to the heart of the matter. Were it possible in a socialist community to ascertain the output of the labor of every individual comrade with the same precision with which this is accomplished for each worker by means of economic calculation in the capitalist system, the practicability of socialism would not be dependent on the good will of every individual. Society would be in a position, at least within certain limits, to determine the share of the total output to be allotted to each worker on the basis of the extent of his contribution to production. What renders socialism impracticable is precisely the fact that calculation of this kind is impossible in a socialist society.

In the capitalist system, the calculation of profitability constitutes a guide that indicates to the individual whether the enterprise he is operating ought, under the given circumstances, to be in operation at all and whether it is being run in the most efficient possible way, i.e., at the least cost in factors of production. If an undertaking proves unprofitable, this means that the raw materials, half-finished goods, and labor that are needed in it are employed by other enterprises for an end that, from the standpoint of the consumers, is more urgent and more important, or for the same end, but in a more economical manner (i.e., with a smaller expenditure of capital and labor). When, for instance, hand weaving came to be unprofitable, this signified that the capital and labor employed in weaving by machine yield a greater output and that it is consequently uneconomical to adhere to a method of production in which the same input of capital and labor yields a smaller output.

If a new enterprise is being planned, one can calculate in advance whether it can be made profitable at all and in what way. If, for example, one has the intention of constructing a railroad line, one can, by estimating the traffic to be expected and its ability to pay the freight rates, calculate whether it pays to invest capital and labor in such an undertaking. If the result of this calculation shows that the projected railroad promises no profit, this is tantamount to saying that there is other, more urgent employment for the capital and the labor that the construction of the railroad would require; the world is not yet rich enough to be able to afford such an expenditure. But it is not only when the question arises whether or not a given undertaking is to be begun at all that the calculation of value and profitability is decisive; it controls every single step that the entrepreneur takes in the conduct of his business.

Capitalist economic calculation, which alone makes rational production possible, is based on monetary calculation. Only because the prices of all goods and services in the market can be expressed in terms of money is it possible for them, in spite of their heterogeneity, to enter into a calculation involving homogeneous units of measurement. In a socialist society, where all the means of production are owned by the community, and where, consequently, there is no market and no exchange of productive goods and services, there can also be no money prices for goods and services of higher order. Such a social system would thus, of necessity, be lacking in the means for the rational management of business enterprises, viz., economic calculation. For economic calculation cannot take place in the absence of a common denominator to which all the heterogeneous goods and services can be reduced.

Let us consider a quite simple case. For the construction of a railroad from A to B several routes are conceivable. Let us suppose that a mountain stands between A and B. The railroad can be made to run over the mountain, around the mountain, or, by way of a tunnel, through the mountain. In a capitalist society, it is a very easy matter to compute which line will prove the most profitable. One ascertains the cost involved in constructing each of the three lines and the differences in operating costs necessarily incurred by the anticipated traffic on each. From these quantities it is not difficult to determine which stretch of road will be the most profitable. A socialist society could not make such calculations. For it would have no possible way of reducing to a uniform standard of measurement all the heterogeneous quantities and qualities of goods and services that here come into consideration. In the face of the ordinary, everyday problems which the management of an economy presents, a socialist society would stand helpless, for it would have no possible way of keeping its accounts.

The prosperity that has made it possible for many more people to inhabit the earth today than in the precapitalist era is due solely to the capitalist method of lengthy chains of production, which necessarily requires monetary calculation. This is impossible under socialism. In vain have socialist writers labored to demonstrate how one could still manage even without monetary and price calculation. All their efforts in this respect have met with failure.

The leadership of a socialist society would thus be confronted by a problem that it could not possibly solve. It would not be able to decide which of the innumerable possible modes of procedure is the most rational. The resulting chaos in the economy would culminate quickly and irresistibly in universal impoverishment and a retrogression to the primitive conditions under which our ancestors once lived.

The socialist ideal, carried to its logical conclusion, would eventuate in a social order in which all the means of production were owned by the people as a whole. Production would be completely in the hands of the government, the center of power in society. It alone would determine what was to be produced and how, and in what way goods ready for consumption were to be distributed. It makes little difference whether we imagine this socialist state of the future as democratically constituted or otherwise. Even a democratic socialist state would necessarily constitute a tightly organized bureaucracy in which everyone, apart from the highest officials, though he might very well, in his capacity as a voter, have participated in some fashion in framing the directives issued by the central authority, would be in the subservient position of an administrator bound to carry them out obediently.

A socialist state of this kind is not comparable to the state enterprises, no matter how vast their scale, that we have seen developing in the last decades in Europe, especially in Germany and Russia. The latter all flourish side by side with private ownership of the means of production. They engage in commercial transactions with enterprises that capitalists own and manage, and they receive various stimuli from these enterprises that invigorate their own operation. State railroads, for instance, are provided by their suppliers, the manufacturers of locomotives, coaches, signal installations, and other equipment, with apparatus that has proved successful elsewhere in the operation of privately owned railroads. Thence they receive the incentive to institute innovations in order to keep up with the progress in technology and in methods of business management that is taking place all around them.

It is a matter of common knowledge that national and municipal enterprises have, on the whole, failed, that they are expensive and inefficient, and that they have to be subsidized out of tax funds just to maintain themselves in operation. Of course, where a public enterprise occupies a monopolistic position—as is, for instance, generally the case with municipal transportation facilities and electric light and power plants—the bad consequences of inefficiency need not always express themselves in visible financial failure. Under certain circumstances it may be possible to conceal it by making use of the opportunity open to the monopolist of raising the price of his products and services high enough to render these enterprises, in spite of their uneconomic management, still profitable. The lower productivity of the socialist method of production merely manifests itself differently here and is not so easily recognized as otherwise; essentially, however, the case remains the same.

But none of these experiments in the socialist management of enterprises can afford us any basis for judging what it would mean if the socialist ideal of the communal ownership of all means of production were to be realized. In the socialist society of the future, which will leave no room whatsoever for the free activity of private enterprises operating side by side with those owned and controlled by the state, the central planning board will lack entirely the gauge provided for the whole economy by the market and market prices. In the market, where all goods and services come to be traded, exchange ratios, expressed in money prices, may be determined for everything bought and sold. In a social order based on private property, it thus becomes possible to resort to monetary calculation in checking on the results of all economic activities. The social productivity of every economic transaction may be tested by the methods of bookkeeping and cost accounting. It yet remains to be shown that public enterprises are unable to make use of cost accounting in the same way as private enterprises do. Nevertheless, monetary calculation does give even governmental and communal enterprises some basis for judging the success or failure of their management. In a completely socialist economic system, this would be quite impossible, for in the absence of private ownership of the means of production, there could be no exchange of capital goods in the market and consequently neither money prices nor monetary calculation. The general management of a purely socialist society will therefore have no means of reducing to a common denominator the costs of production of all the heterogeneous commodities that it plans to produce.

Nor can this be achieved by setting expenditures in kind against savings in kind. One cannot calculate if it is not possible to reduce to a common medium of expression hours of labor of various grades, iron, coal, building materials of every kind, machines, and all the other things needed in the operation and management of different enterprises. Calculation is possible only when one is able to reduce to monetary terms all the goods under consideration. Of course, monetary calculation has its imperfections and deficiencies, but we have nothing better to put in its place. It suffices for the practical purposes of life as long as the monetary system is sound. If we were to renounce monetary calculation, every economic computation would become absolutely impossible.

This is the decisive objection that economics raises against the possibility of a socialist society. It must forgo the intellectual division of labor that consists in the cooperation of all entrepreneurs, landowners, and workers as producers and consumers in the formation of market prices. But without it, rationality, i.e., the possibility of economic calculation, is unthinkable.

5

Interventionism

The socialist ideal is now beginning to lose more and more of its adherents. The penetrating economic and sociological investigations of the problems of socialism that have shown it to be impracticable have not remained without effect, and the failures in which socialist experiments everywhere have ended have disconcerted even its most enthusiastic supporters. Gradually people are once more beginning to realize that society cannot do without private property. Yet the hostile criticism to which the system of private ownership of the means of production has been subjected for decades has left behind such a strong prejudice against the capitalist system that, in spite of their knowledge of the inadequacy and impracticability of socialism, people cannot make up their minds to admit openly that they must return to liberal views on the question of property. To be sure, it is conceded that socialism, the communal ownership of the means of production, is altogether, or at least for the present, impracticable. But, on the other hand, it is asserted that unhampered private ownership of the means of production is also an evil. Thus people want to create a third way, a form of society standing midway between private ownership of the means of production, on the one hand, and communal ownership of the means of production, on the other. Private property will be permitted to exist, but the ways in which the means of production are employed by the entrepreneurs, capitalists, and landowners will be regulated, guided, and controlled by authoritarian decrees and prohibitions. In this way, one forms the conceptual image of a regulated market, of a capitalism circumscribed by authoritarian rules, of private property shorn of its allegedly harmful concomitant features by the intervention of the authorities.

One can best acquire an insight into the meaning and nature of this system by considering a few examples of the consequences of government interference. The crucial acts of intervention with which we have to deal aim at fixing the prices of goods and services at a height different from what the unhampered market would have determined.

In the case of prices formed on the unhampered market, or which would have been formed in the absence of interference on the part of the authorities, the costs of production are covered by the proceeds. If a lower price is decreed by the government, the proceeds will fall short of the costs. Merchants and manufacturers will, therefore, unless the storage of the goods involved would cause them to deteriorate rapidly in value, withhold their merchandise from the market in the hope of more favorable times, perhaps in the expectation that the government order will soon be rescinded. If the authorities do not want the goods concerned to disappear altogether from the market as a result of their interference, they cannot limit themselves to fixing the price; they must at the same time also decree that all stocks on hand be sold at the prescribed price.

But even this does not suffice. At the price determined on the unhampered market, supply and demand would have coincided. Now, because the price was fixed lower by government decree, the demand has increased while the supply has remained unchanged. The stocks on hand are not sufficient to satisfy fully all who are prepared to pay the prescribed price. A part of the demand will remain unsatisfied. The mechanism of the market, which otherwise tends to equalize supply and demand by means of price fluctuations, no longer operates. Now people who would have been prepared to pay the price prescribed by the authorities must leave the market with empty hands. Those who were on line earlier or who were in a position to exploit some personal connection with the sellers have already acquired the whole stock; the others have to go unprovided. If the government wishes to avoid this consequence of its intervention, which runs counter to its intentions, it must add rationing to price control and compulsory sale: a governmental regulation must determine how much of a commodity may be supplied to each individual applicant at the prescribed price.

But once the supplies already on hand at the moment of the government’s intervention are exhausted, an incomparably more difficult problem arises. Since production is no longer profitable if the goods are to be sold at the price fixed by the government, it will be reduced or entirely suspended. If the government wishes to have production continue, it must compel the manufacturers to produce, and, to this end, it must also fix the prices of raw materials and half-finished goods and the wages of labor. Its decrees to this effect, however, cannot be limited to only the one or the few branches of production that the authorities wish to regulate because they deem their products especially important. They must encompass all branches of production. They must regulate the price of all commodities and all wages. In short, they must extend their control over the conduct of all entrepreneurs, capitalists, landowners, and workers. If some branches of production are left free, capital and labor will flow into these, and the government will fail to attain the goal that it wished to achieve by its first act of intervention. But the object of the authorities is that there should be an abundance of production in precisely that branch of industry which, because of the importance they attach to its products, they have especially singled out for regulation. It runs altogether counter to their design that precisely in consequence of their intervention this branch of production should be neglected.

It is therefore clearly evident that an attempt on the part of the government to interfere with the operation of the economic system based on private ownership of the means of production fails of the goal that its authors wished to achieve by means of it. It is, from the point of view of its authors, not only futile, but downright contrary to purpose, because it enormously augments the very “evil” that it was supposed to combat. Before the price controls were decreed, the commodity was, in the opinion of the government, too expensive; now it disappears from the market altogether. This, however, is not the result aimed at by the government, which wanted to make the commodity accessible to the consumer at a cheaper price. On the contrary: from its viewpoint, the absence of the commodity, the impossibility of securing it, must appear as by far the greater evil. In this sense one can say of the intervention of the authorities that it is futile and contrary to the purpose that it was intended to serve, and of the system of economic policy that attempts to operate by means of such acts of intervention that it is impracticable and unthinkable, that it contradicts economic logic.

If the government will not set things right again by desisting from its interference, i.e., by rescinding the price controls, then it must follow up the first step with others. To the prohibition against asking any price higher than the prescribed one it must add not only measures to compel the sale of all stocks on hand under a system of enforced rationing, but price ceilings on goods of higher order, wage controls, and, ultimately, compulsory labor for entrepreneurs and workers. And these regulations cannot be limited to one or a few branches of production, but must encompass them all. There is simply no other choice than this: either to abstain from interference in the free play of the market, or to delegate the entire management of production and distribution to the government. Either capitalism or socialism: there exists no middle way.

The mechanism of the series of events just described is well known to all who have witnessed the attempts of governments in time of war and during periods of inflation to fix prices by fiat. Everyone knows nowadays that government price controls had no other result than the disappearance from the market of the goods concerned. Wherever the government resorts to the fixing of prices, the result is always the same. When, for instance, the government fixes a ceiling on residential rents, a housing shortage immediately ensues. In Austria, the Social Democratic Party has virtually abolished residential rent. The consequence is that in the city of Vienna, for example, in spite of the fact that the population has declined considerably since the beginning of the World War and that several thousand new houses have been constructed by the municipality in the meantime, many thousands of persons are unable to find accommodations.

Let us take still another example: the fixing of minimum wage rates.

When the relationship between employer and employee is left undisturbed by legislative enactments or by violent measures on the part of trade unions, the wages paid by the employer for every type of labor are exactly as high as the increment of value that it adds to the materials in production. Wages cannot rise any higher than this because, if they did, the employer could no longer make a profit and hence would be compelled to discontinue a line of production that did not pay. But neither can wages fall any lower, because then the workers would turn to other branches of industry where they would be better rewarded, so that the employer would be forced to discontinue production because of a labor shortage.

There is, therefore, in the economy always a wage rate at which all workers find employment and every entrepreneur who wishes to undertake some enterprise still profitable at that wage finds workers. This wage rate is customarily called by economists the “static” or “natural” wage. It increases if, other things being equal, the number of workers diminishes; it decreases if, other things being equal, the available quantity of capital for which employment in production is sought suffers any diminution. However, one must, at the same time, observe that it is not quite precise to speak simply of “wages” and “labor.” Labor services vary greatly in quality and quantity (calculated per unit of time), and so too do the wages of labor.

If the economy never varied from the stationary state, then in a labor market unhampered by interference on the part of the government or by coercion on the part of the labor unions there would be no unemployed. But the stationary state of society is merely an imaginary construction of economic theory, an intellectual expedient indispensable for our thinking, that enables us, by contrast, to form a clear conception of the processes actually taking place in the economy which surrounds us and in which we live. Life—fortunately, we hasten to add—is never at rest. There is never a standstill in the economy, but perpetual changes, movement, innovation, the continual emergence of the unprecedented. There are, accordingly, always branches of production that are being shut down or curtailed because the demand for their products has fallen off, and other branches of production that are being expanded or even embarked upon for the first time. If we think only of the last few decades, we can at once enumerate a great number of new industries that have sprung up: e.g., the automobile industry, the airplane industry, the motion picture industry, the rayon industry, the canned goods industry, and the radio broadcasting industry. These branches of industry today employ millions of workers, only some of whom have been drawn from the increase in population. Some came from branches of production that were shut down, and even more from those that, as a result of technological improvements, are now able to manage with fewer workers.

Occasionally the changes that occur in the relations among individual branches of production take place so slowly that no worker is obliged to shift to a new type of job; only young people, just beginning to earn their livelihood, will enter, in greater proportion, the new or expanding industries. Generally, however, in the capitalist system, with its rapid strides in improving human welfare, progress takes place too swiftly to spare individuals the necessity of adapting themselves to it. When, two hundred years or more ago, a young lad learned a craft, he could count on practicing it his whole life long in the way he had learned it, without any fear of being injured by his conservatism. Things are different today. The worker too must adjust himself to changing conditions, must add to what he has learned, or begin learning anew. He must leave occupations which no longer require the same number of workers as previously and enter one which has just come into being or which now needs more workers than before. But even if he remains in his old job, he must learn new techniques when circumstances demand it.

All this affects the worker in the form of changes in wage rates. If a particular branch of business employs relatively too many workers, it discharges some, and those discharged will not easily find new work in the same branch of business. The pressure on the labor market exercised by the discharged workers depresses wages in this branch of production. This, in turn, induces the worker to look for employment in those branches of production that wish to attract new workers and are therefore prepared to pay higher wages.

From this it becomes quite clear what must be done in order to satisfy the workers’ desire for employment and for high wages. Wages in general cannot be pushed above the height that they would normally occupy in a market unhampered either by government interference or other institutional pressures without creating certain side effects that cannot be desirable for the worker. Wages can be driven up in an individual industry or an individual country if the transfer of workers from other industries or their immigration from other countries is prohibited. Such wage increases are effected at the expense of the workers whose entrance is barred. Their wages are now lower than they would have been if their freedom of movement had not been hindered. The rise in wages of one group is thus achieved at the expense of the others. This policy of obstructing the free movement of labor can benefit only the workers in countries and industries suffering from a relative labor shortage. In an industry or a country where this is not the case, there is only one thing that can raise wages: a rise in the general productivity of labor, whether by virtue of an increase in the capital available or through an improvement in the technological processes of production.

If, however, the government fixes minimum wages by law above the height of the static or natural wage, then the employers will find that they are no longer in a position to carry on successfully a number of enterprises that were still profitable when wages stood at the lower point. They will consequently curtail production and discharge workers. The effect of an artificial rise in wages, i.e., one imposed upon the market from the outside, is, therefore, the spread of unemployment.

Now, of course, no attempt is being made today to fix minimum wage rates by law on a large scale. But the position of power that the trade unions occupy has enabled them to do so even in the absence of any positive legislation to that effect. The fact that workers form unions for the purpose of bargaining with the employers does not, in and of itself, necessarily provoke disturbances in the operation of the market. Even the fact that they successfully arrogate to themselves the right to break, without notice, contracts duly entered into by them and to lay down their tools would not itself result in any further disturbance in the labor market. What does create a new situation in the labor market is the element of coercion involved in strikes and compulsory union membership that prevails today in most of the industrial countries of Europe. Since the unionized workers deny access to employment to those who are not members of their union, and resort to open violence during strikes to prevent other workers from taking the place of those on strike, the wage demands that the unions present to the employers have precisely the same force as government decrees fixing minimum wage rates. For the employer must, if he does not wish to shut down his whole enterprise, yield to the demands of the union. He must pay wages such that the volume of production has to be restricted, because what costs more to produce cannot find as large a market as what costs less. Thus, the higher wages exacted by the trade unions become a cause of unemployment.

The unemployment originating from this source differs entirely in extent and duration from that which arises from the changes constantly taking place in the kind and quality of the labor demanded in the market. If unemployment had its cause only in the fact that there is constant progress in industrial development, it could neither assume great proportions nor take on the character of a lasting institution. The workers who can no longer be employed in one branch of production soon find accommodation in others which are expanding or just coming into being. When workers enjoy freedom of movement and the shift from one industry to another is not impeded by legal and other obstacles of a similar kind, adjustment to new conditions takes place without too much difficulty and rather quickly. For the rest, the setting up of labor exchanges would contribute much toward reducing still further the extent of this type of unemployment.

But the unemployment produced by the interference of coercive agencies in the operation of the labor market is no transitory phenomenon continually appearing and disappearing. It is incurable as long as the cause that called it into existence continues to operate, i.e., as long as the law or the violence of the trade unions prevents wages from being reduced, by the pressure of the jobless seeking employment, to the level that they would have reached in the absence of interference on the part of the government or the unions, namely, the rate at which all those eager for work ultimately find it.

For the unemployed to be granted support by the government or by the unions only serves to enlarge the evil. If what is involved is a case of unemployment springing from dynamic changes in the economy, then the unemployment benefits only result in postponing the adjustment of the workers to the new conditions. The jobless worker who is on relief does not consider it necessary to look about for a new occupation if he no longer finds a position in his old one; at least, he allows more time to elapse before he decides to shift to a new occupation or to a new locality or before he reduces the wage rate he demands to that at which he could find work. If unemployment benefits are not set too low, one can say that as long as they are offered, unemployment cannot disappear.

If, however, the unemployment is produced by the artificial raising of the height of wage rates in consequence of the direct intervention of the government or of its toleration of coercive practices on the part of the trade unions, then the only question is who is to bear the costs involved, the employers or the workers. The state, the government, the community never do so; they load them either onto the employer or onto the worker or partially onto each. If the burden falls on the workers, then they are deprived entirely or partially of the fruits of the artificial wage increase they have received; they may even be made to bear more of these costs than the artificial wage increase yielded them. The employer can be saddled with the burden of unemployment benefits to some extent by having to pay a tax proportionate to the total amount of wages paid out by him. In this case, unemployment insurance, by raising the costs of labor, has the same effect as a further increase in wages above the static level: the profitability of the employment of labor is reduced, and the number of workers who still can be profitably engaged is concomitantly decreased. Thus, unemployment spreads even further, in an ever widening spiral. The employers can also be drawn on to pay the costs of the unemployment benefits by means of a tax on their profits or capital, without regard for the number of workers employed. But this too only tends to spread unemployment even further. For when capital is consumed or when the formation of new capital is at least slowed down, the conditions for the employment of labor become, ceteris paribus, less favorable.2

It is obviously futile to attempt to eliminate unemployment by embarking upon a program of public works that would otherwise not have been undertaken. The necessary resources for such projects must be withdrawn by taxes or loans from the application they would otherwise have found. Unemployment in one industry can, in this way, be mitigated only to the extent that it is increased in another.

From whichever side we consider interventionism, it becomes evident that this system leads to a result that its originators and advocates did not intend and that, even from their standpoint, it must appear as a senseless, self-defeating, absurd policy.

6

Capitalism: The Only Possible System of Social Organization

Every examination of the different conceivable possibilities of organizing society on the basis of the division of labor must always come to the same result: there is only the choice between communal ownership and private ownership of the means of production. All intermediate forms of social organization are unavailing and, in practice, must prove self-defeating. If one further realizes that socialism too is unworkable, then one cannot avoid acknowledging that capitalism is the only feasible system of social organization based on the division of labor. This result of theoretical investigation will not come as a surprise to the historian or the philosopher of history. If capitalism has succeeded in maintaining itself in spite of the enmity it has always encountered from both governments and the masses, if it has not been obliged to make way for other forms of social cooperation that have enjoyed to a much greater extent the sympathies of theoreticians and of practical men of affairs, this is to be attributed only to the fact that no other system of social organization is feasible.

Nor is there any further need to explain why it is impossible for us to return to the forms of social and economic organization characteristic of the Middle Ages. Over the whole area now inhabited by the modern nations of Europe the medieval economic system was able to support only a fraction of the number of people who now dwell in that region, and it placed much less in the way of material goods at the disposal of each individual for the provision of his needs than the capitalist form of production supplies men with today. A return to the Middle Ages is out of the question if one is not prepared to reduce the population to a tenth or a twentieth part of its present number and, even further, to oblige every individual to be satisfied with a modicum so small as to be beyond the imagination of modern man.

All the writers who represent the return to the Middle Ages, or, as they put it, to the “new” Middle Ages, as the only social ideal worth striving for reproach the capitalist era above all for its materialistic attitude and mentality. Yet they themselves are much more deeply committed to materialistic views than they believe. For it is nothing but the crassest materialism to think, as many of these writers do, that after reverting to the forms of political and economic organization characteristic of the Middle Ages, society could still retain all the technological improvements in production created by capitalism and thus preserve the high degree of productivity of human labor that it has attained in the capitalist era. The productivity of the capitalist mode of production is the outcome of the capitalist mentality and of the capitalist approach to man and to the satisfaction of man’s wants; it is a result of modern technology only in so far as the development of technology must, of necessity, follow from the capitalist mentality. There is scarcely anything so absurd as the fundamental principle of Marx’s materialist interpretation of history: “The hand mill made feudal society; the steam mill, capitalist society.” It was precisely capitalist society that was needed to create the necessary conditions for the original conception of the steam mill to be developed and put into effect. It was capitalism that created the technology, and not the other way round. But no less absurd is the notion that the technological and material appurtenances of our economy could be preserved even if the intellectual foundations on which they are based were destroyed. Economic activity can no longer be carried on rationally once the prevailing mentality has reverted to traditionalism and faith in authority. The entrepreneur, the catalytic agent, as it were, of the capitalist economy and, concomitantly, also of modern technology, is inconceivable in an environment in which everyone is intent solely on the contemplative life.

If one characterizes as unfeasible every system other than that based on private ownership of the means of production, it follows necessarily that private property must be maintained as the basis of social cooperation and association and that every attempt to abolish it must be vigorously combatted. It is for this reason that liberalism defends the institution of private property against every attempt to destroy it. When, therefore, people call the liberals apologists for private property, they are completely justified, for the Greek word from which “apologist” is derived means the same as “defender.” Of course, it would be better to avoid using the foreign word and to be content to express oneself in plain English. For to many people the expressions “apology” and “apologist” convey the connotation that what is being defended is unjust.

Much more important, however, than the rejection of any pejorative suggestion that may be involved in the use of these expressions is the observation that the institution of private property requires no defense, justification, support, or explanation. The continued existence of society depends upon private property, and since men have need of society, they must hold fast to the institution of private property to avoid injuring their own interests as well as the interests of everyone else. For society can continue to exist only on the foundation of private property. Whoever champions the latter champions by the same token the preservation of the social bond that unites mankind, the preservation of culture and civilization. He is an apologist and defender of society, culture, and civilization, and because he desires them as ends, he must also desire and defend the one means that leads to them, namely, private property.

To advocate private ownership of the means of production is by no means to maintain that the capitalist social system, based on private property, is perfect. There is no such thing as earthly perfection. Even in the capitalist system something or other, many things, or even everything, may not be exactly to the liking of this or that individual. But it is the only possible social system. One may undertake to modify one or another of its features as long as in doing so one does not affect the essence and foundation of the whole social order, viz., private property. But by and large we must reconcile ourselves to this system because there simply cannot be any other.

In Nature too, much may exist that we do not like. But we cannot change the essential character of natural events. If, for example, someone thinks—and there are some who have maintained as much—that the way in which man ingests his food, digests it, and incorporates it into his body is disgusting, one cannot argue the point with him. One must say to him: There is only this way or starvation. There is no third way. The same is true of property: either-or —either private ownership of the means of production, or hunger and misery for everyone.

The opponents of liberalism are wont to call its economic doctrine “optimistic.” They intend this epithet either as a reproach or as a derisive characterization of the liberal way of thinking.

If by calling the liberal doctrine “optimistic” one means that liberalism considers the capitalist world as the best of all worlds, then this is nothing but pure nonsense. For an ideology based, like that of liberalism, entirely on scientific grounds, such questions as whether the capitalist system is good or bad, whether or not a better one is conceivable, and whether it ought to be rejected on certain philosophic or metaphysical grounds are entirely irrelevant. Liberalism is derived from the pure sciences of economics and sociology, which make no value judgments within their own spheres and say nothing about what ought to be or about what is good and what is bad, but, on the contrary, only ascertain what is and how it comes to be. When these sciences show us that of all the conceivable alternative ways of organizing society only one, viz., the system based on private ownership of the means of production, is capable of being realized, because all other conceivable systems of social organization are unworkable, there is absolutely nothing in this that can justify the designation “optimistic.” That capitalism is practicable and workable is a conclusion that has nothing to do with optimism.

To be sure, the opponents of liberalism are of the opinion that this society is very bad. As far as this assertion contains a value judgment, it is naturally not open to any discussion that intends to go beyond highly subjective and therefore unscientific opinions. As far, however, as it is founded on an incorrect understanding of what takes place within the capitalist system, economics and sociology can rectify it. This too is not optimism. Entirely aside from everything else, even the discovery of a great many deficiencies in the capitalist system would not have the slightest significance for the problems of social policy as long as it has not been shown, not that a different social system would be better, but that it would be capable of being realized at all. But this has not been done. Science has succeeded in showing that every system of social organization that could be conceived as a substitute for the capitalist system is self-contradictory and unavailing, so that it could not bring about the results aimed at by its proponents.

How little one is justified in speaking in this connection of “optimism” and “pessimism” and how much the characterization of liberalism as “optimistic” aims at surrounding it with an unfavorable aura by bringing in extrascientific, emotional considerations is best shown by the fact that one can, with as much justice, call those people “optimists” who are convinced that the construction of a socialist or of an interventionist commonwealth would be practicable.

Most of the writers who concern themselves with economic questions never miss an opportunity to heap senseless and childish abuse on the capitalist system and to praise in enthusiastic terms either socialism or interventionism, or even agrarian socialism and syndicalism, as excellent institutions. On the other hand, there have been a few writers who, even if in much milder terms, have sung the praises of the capitalist system. One may, if one wishes, call these writers “optimists.” But if one does so, then one would be a thousand times more justified in calling the antiliberal writers “hyperoptimists” of socialism, interventionism, agrarian socialism, and syndicalism. The fact that this does not happen, but that, instead, only liberal writers like Bastiat are called “optimists,” shows clearly that in these cases what we are dealing with is not an attempt at a truly scientific classification, but nothing more than a partisan caricature.

What liberalism maintains is, we repeat, by no means that capitalism is good when considered from some particular point of view. What it says is simply that for the attainment of the ends that men have in mind only the capitalist system is suitable and that every attempt to realize a socialist, interventionist, agrarian socialist, or syndicalist society must necessarily prove unsuccessful. Neurotics who could not bear this truth have called economics a dismal science. But economics and sociology are no more dismal because they show us the world as it really is than the other sciences are—mechanics, for instance, because it teaches the impracticability of perpetual motion, or biology because it teaches us the mortality of all living things.

7

Cartels, Monopolies, and Liberalism

The opponents of liberalism assert that the necessary preconditions for the adoption of the liberal program no longer exist in the contemporary world. Liberalism was still practicable when many concerns of medium size were engaged in keen competition in each industry. Nowadays, since trusts, cartels, and other monopolistic enterprises are in complete control of the market, liberalism is as good as done for in any case. It is not politics that has destroyed it, but a tendency inherent in the inexorable evolution of the system of free enterprise.

The division of labor gives a specialized function to each productive unit in the economy. This process never stops as long as economic development continues. We long ago passed the stage at which the same factory produced all types of machines. Today a machine factory that does not limit itself exclusively to the production of certain types of machinery is no longer able to meet competition. With the progress of specialization, the area served by an individual supplier must continue to widen. The market supplied by a textile mill that produces only a few kinds of fabrics must be larger than that served by a weaver who weaves every kind of cloth. Undoubtedly this progressive specialization of production tends toward the development in every field of enterprises that have the whole world for their market. If this development is not opposed by protectionist and other anticapitalist measures, the result will be that in every branch of production there will be a relatively small number of concerns, or even only a single concern, intent on producing with the highest degree of specialization and on supplying the whole world.

Today, of course, we are very far from this state of affairs, since the policy of all governments aims at snipping off from the unity of the world economy small areas in which, under the protection of tariffs and other measures designed to achieve the same result, enterprises that would no longer be able to meet competition on the free world market are artificially preserved or even first called into being. Apart from considerations of commercial policy, measures of this kind, which are directed against the concentration of business, are defended on the ground that they alone have prevented the consumers from being exploited by monopolistic combinations of producers.

In order to assess the validity of this argument, we shall assume that the division of labor throughout the whole world has already advanced so far that the production of every article offered for sale is concentrated in a single concern, so that the consumer, in his capacity as a buyer, is always confronted with only a single seller. Under such conditions, according to an ill-considered economic doctrine, the producers would be in a position to keep prices pegged as high as they wished, to realize exorbitant profits, and thereby to worsen considerably the standard of living of the consumers. It is not difficult to see that this idea is completely mistaken. Monopoly prices, if they are not made possible by certain acts of intervention on the part of the government, can be lastingly exacted only on the basis of control over mineral and other natural resources. An isolated monopoly in manufacturing that yielded greater profits than those yielded elsewhere would stimulate the formation of rival firms whose competition would break the monopoly and restore prices and profits to the general rate. Monopolies in manufacturing industries cannot, however, become general, since at every given level of wealth in an economy the total quantity of capital invested and of available labor employed in production—and consequently also the amount of the social product—is a given magnitude. In any particular branch of production, or in several, the amount of capital and labor employed could be reduced in order to increase the price per unit and the aggregate profit of the monopolist or monopolists by curtailing production. The capital and labor thereby freed would then flow into another industry. If, however, all industries attempt to curtail production in order to realize higher prices, they forthwith free labor and capital which, because they are offered at lower rates, will provide a strong stimulus to the formation of new enterprises that must again destroy the monopolistic position of the others. The idea of a universal cartel and monopoly of the manufacturing industry is therefore completely untenable.

Genuine monopolies can be established only by control of land or mineral resources. The notion that all the arable land on earth could be consolidated into a single world monopoly needs no further discussion; the only monopolies that we shall consider here are those originating in the control of useful minerals. Monopolies of this kind do, in fact, already exist in the case of a few minerals of minor importance, and it is at any rate conceivable that attempts to monopolize other minerals as well may some day prove successful. This would mean that the owners of such mines and quarries would derive an increased ground rent from them and that the consumers would restrict consumption and look for substitutes for the materials that had become more expensive. A world petroleum monopoly would lead to an increased demand for hydroelectric power, coal, etc. From the standpoint of world economy and sub specie aeternitatis [under the aspect of eternity], this would mean that we would have to be more sparing than we otherwise would have been in our use of those costly materials that we can only exhaust, but cannot replace, and thus leave more of them for future generations than would have been the case in an economy free of monopolies.

The bugbear of monopoly, which is always conjured up when one speaks of the unhampered development of the economy, need cause us no disquiet. The world monopolies that are really feasible could concern only a few items of primary production. Whether their effect is favorable or unfavorable cannot be so easily decided. In the eyes of those who, in treating economic problems, are unable to free themselves from feelings of envy, these monopolies appear as pernicious from the very fact that they yield their owners increased profits. Whoever approaches the question without prepossessions will find that such monopolies lead to a more sparing use of those mineral resources that are at man’s disposal only in a rather limited quantity. If one really envies the monopolist his profit, one can, without danger and without having to expect any harmful economic consequences, have it pass into the public coffers by taxing the income from the mines.

In contradistinction to these world monopolies are the national and international monopolies, which are of practical importance today precisely because they do not originate in any natural evolutionary tendency on the part of the economic system when it is left to itself, but are the product of antiliberal economic policies. Attempts to secure a monopolistic position in regard to certain articles are in almost all cases feasible only because tariffs have divided the world market up into small national markets. Besides these, the only other cartels of any consequence are those which the owners of certain natural resources are able to form because the high cost of transportation protects them against the competition of producers from other areas in the narrow compass of their own locality.

It is a fundamental error, in judging the consequences of trusts, cartels, and enterprises supplying a market with one article alone, to speak of “control” of the market and of “price dictation” by the monopolist. The monopolist does not exercise any control, nor is he in a position to dictate prices. One could speak of control of the market or of price dictation only if the article in question were, in the strictest and most literal sense of the word, necessary for existence and absolutely irreplaceable by any substitute. This is evidently not true of any commodity. There is no economic good whose possession is indispensable to the existence of those prepared to purchase it on the market.

What distinguishes the formation of a monopoly price from the formation of a competitive price is the fact that, under certain very special conditions, it is possible for the monopolist to reap a greater profit from the sale of a smaller quantity at a higher price (which we call the monopoly price) than by selling at the price that the market would determine if more sellers were in competition (the competitive price). The special condition required for the emergence of a monopoly price is that the reaction of the consumers to a price increase does not involve a falling off of demand so sharp as to preclude a greater total profit from fewer sales at higher prices. If it is actually possible to achieve a monopolistic position in the market and to use it to realize monopoly prices, then profits higher than average will be yielded in the branch of industry concerned.

It may be that, in spite of these higher profits, new enterprises of the same kind are not undertaken because of the fear that, after reducing the monopoly price to the competitive price, they will not prove correspondingly profitable. One must, nevertheless, take into account the possibility that related industries, which are in a position to enter into production of the cartelized article at a relatively small cost, may appear as competitors; and, in any case, industries producing substitute commodities will be immediately at hand to avail themselves of the favorable circumstances for expanding their own production. All these factors make it extraordinarily rare for a monopoly to arise in a manufacturing industry that is not based on monopolistic control of particular raw materials. Where such monopolies do occur, they are always made possible only by certain legislative measures, such as patents and similar privileges, tariff regulations, tax laws, and the licensing system. A few decades ago people used to speak of a transportation monopoly. To what extent this monopoly was based on the licensing system remains uncertain. Today people generally do not bother much about it. The automobile and the airplane have become dangerous competitors of the railroads. But even before the appearance of these competitors the possibility of using waterways already set a definite limit to the rates that the railroads could venture to charge for their services on several lines.

It is not only a gross exaggeration, but a misunderstanding of the facts, to speak, as one commonly does today, of the formation of monopolies as having eliminated an essential prerequisite for the realization of the liberal ideal of a capitalist society. Twist and turn the monopoly problem as one may, one always comes back to the fact that monopoly prices are possible only where there is control over natural resources of a particular kind or where legislative enactments and their administration create the necessary conditions for the formation of monopolies. In the unhampered development of the economy, with the exception of mining and related branches of production, there is no tendency toward the exclusion of competition. The objection commonly raised against liberalism that the conditions of competition as they existed at the time when classical economics and liberal ideas were first developed no longer prevail is in no way justified. Only a few liberal demands (viz., free trade within and between nations) need to be realized in order to re-establish these conditions.

8

Bureaucratization

There is yet another sense in which it is commonly said that the necessary conditions for the realization of the liberal ideal of society no longer obtain today. In the big businesses made necessary by progress in the division of labor, the personnel employed must increase more and more. These enterprises must, therefore, in their conduct of business, become ever more like the government bureaucracy that the liberals in particular have made the target of their criticism. From day to day they become more cumbersome and less open to innovations. The selection of personnel for executive positions is no longer made on the basis of demonstrated proficiency on the job, but in accordance with purely formal criteria, such as educational background or seniority, and often just as a result of personal favoritism. Thus the distinctive feature of private, as opposed to public, enterprise finally disappears. If it was still justifiable in the age of classical liberalism to oppose government ownership on the ground that it paralyzes all free initiative and kills the joy of labor, it is no longer so today when private enterprises are carried on no less bureaucratically, pedantically, and formalistically than those that are publicly owned and operated.

In order to be able to assess the validity of these objections, one must first be clear as to what is really to be understood by bureaucracy and the bureaucratic conduct of business, and just how these are distinguished from commercial enterprise and the commercial conduct of business. The opposition between the commercial and the bureaucratic mentality is the counterpart in the intellectual realm of the opposition between capitalism—private ownership of the means of production—and socialism—communal ownership of the means of production. Whoever has factors of production at his disposal, whether his own or those lent to him by their owners in return for some compensation, must always be careful to employ them in such a way as to satisfy those needs of society that, under the given circumstances, are the most urgent. If he does not do this, he will operate at a loss and will find himself at first under the necessity of curtailing his activity as owner and entrepreneur and ultimately ousted from that position altogether. He ceases to be the one or the other and has to fall back into the ranks of those who have only their labor to sell and who do not have the responsibility of guiding production into those channels that, from the point of view of the consumers, are the right ones. In the calculation of profits and losses, which constitutes the whole sum and substance of the businessman’s bookkeeping and accounting, entrepreneurs and capitalists possess a method that enables them to check, with the greatest attainable exactitude, every step in their procedure down to the smallest detail and, where possible, to see what effect each individual transaction in the conduct of their operations will have on the total outcome of the enterprise. Monetary calculation and cost accounting constitute the most important intellectual tool of the capitalist entrepreneur, and it was no one less than Goethe who pronounced the system of double-entry bookkeeping “one of the finest inventions of the human mind.” Goethe could say this because he was free from the resentment that the petty literati always foster against the businessman. It is they that form the chorus whose constant refrain is that monetary calculation and concern with profit and loss are the most shameful of sins.

Monetary calculation, bookkeeping, and statistics on sales and operations make it possible for even the biggest and most complex business concerns to make an exact check on the results achieved in every single department and thereby to form a judgment on the extent to which the head of each department has contributed to the total success of the enterprise. Thus, a reliable guide is provided for determining the treatment to be accorded to the managers of the various departments. One can know what they are worth and how much they are to be paid. Advancement to higher and more responsible positions is by way of unquestionably demonstrated success in a more circumscribed sphere of action. And just as one is able to check on the activity of the manager of each department by means of cost accounting, so one can also scrutinize the activity of the enterprise in every single field of its over-all operation, as well as the effects of certain organizational and similar measures.

There are, to be sure, limits to this exact control. One cannot determine the success or failure of the activity of each individual within a department as one can that of its manager. There are, besides, departments whose contribution to the total output cannot be comprehended by means of calculation: what a research department, a legal bureau, a secretariat, a statistical service, etc., accomplishes cannot be ascertained in the same way as, for instance, the performance of a particular sales or production department. The former may be quite safely left to the approximate estimation of the person in charge of the department, and the latter to that of the general manager of the concern; for conditions can be seen with relative clarity and those who are called upon to make these judgments (both the general management and that of the various departments) have a personal interest in their correctness, as their own incomes are affected by the productivity of the operations of which they are in charge.

The opposite of this type of enterprise, whose every transaction is controlled by the calculation of profit and loss, is represented by the apparatus of public administration. Whether a judge (and what is true of a judge is true in the same way of every high administrative official) has discharged his duties better or worse cannot be demonstrated by any computation. There is no possible way of establishing by an objective criterion whether a district or a province is being administered well or badly, cheaply or expensively. The judgment of the activity of public officials is thus a matter of subjective, and therefore quite arbitrary, opinion. Even the question whether a particular bureau is necessary, whether it has too many or too few employees, and whether its organization is or is not suited to its purpose can be decided only on the basis of considerations that involve some element of subjectivity. There is but one field of public administration in which the criterion of success or failure is unquestionable: the waging of war. But even here the only thing certain is whether the operation has been crowned with success. The question how far the distribution of power determined the issue even before the beginning of hostilities and how much of the outcome is to be attributed to the competence or incompetence of the leaders in their conduct of the operations and to the appropriateness of the measures they took cannot be strictly and precisely answered. There have been generals celebrated for their victories who, in fact, did everything to facilitate the triumph of the enemy and who owe their success solely to circumstances so favorable as to outweigh their mistakes. And vanquished leaders have sometimes been condemned whose genius had done everything possible to prevent the inevitable defeat.

The manager of a private enterprise gives the employees to whom he assigns independent duties only one directive: to make as much profit as possible. Everything that he has to say to them is comprehended in this one order, and an examination of the accounts makes it possible to determine easily and accurately to what extent they have followed it. The manager of a bureaucratic department finds himself in a quite different situation. He can tell his subordinates what they have to accomplish, but he is not in a position to ascertain whether the means employed for the attainment of this result are the most appropriate and economical under the circumstances. If he is not omnipresent in all the offices and bureaus subordinate to him, he cannot judge whether the attainment of the same result would not have been possible with a lesser expenditure of labor and materials. The fact that the result itself is also not amenable to numerical measurement, but only to approximate assessment, need not be discussed here. For we are not considering administrative technique from the point of view of its external effects, but merely from the standpoint of its reaction upon the internal operation of the bureaucratic apparatus; we are concerned with the result attained, therefore, only in its relation to the expenses incurred.

Because it is out of the question to undertake to determine this relationship by means of computations after the manner of commercial bookkeeping, the manager of a bureaucratic organization must provide his subordinates with instructions with which compliance is made obligatory. In these instructions provision is made, in a general way, for the ordinary and regular course of business. In all extraordinary cases, however, before any money is spent, permission must first be obtained from higher authority—a tedious and rather ineffectual procedure in favor of which all that can be said is that it is the only method possible. For if every subaltern bureau, every department head, every branch office, were given the right to make the expenditures that they deemed requisite, the costs of administration would soon soar without limit. One should not delude oneself about the fact that this system is seriously defective and very unsatisfactory. Many expenses are incurred that are superfluous, and many that would be necessary are not made because a bureaucratic apparatus cannot, by its very nature, adjust itself to circumstances as a commercial organization can.

The effect of bureaucratization is most apparent in its representative—the bureaucrat. In a private enterprise, the hiring of labor is not the conferring of a favor, but a business transaction from which both parties, employer and employee, benefit. The employer must endeavor to pay wages corresponding in value to the labor performed. If he does not do this, he runs the risk of seeing the worker leave his employment for that of a better-paying competitor. The employee, in order not to lose his job, must in his turn endeavor to fulfill the duties of his position well enough to be worth his wages. Since employment is not a favor, but a business transaction, the employee does not need to fear that he may be discharged if he falls into personal disfavor. For the entrepreneur who discharges, for reasons of personal bias, a useful employee who is worth his pay harms only himself and not the worker, who can find a similar position elsewhere. There is not the slightest difficulty in entrusting to the manager of each department the authority to hire and fire employees; for under the pressure of the control exercised over his activities by bookkeeping and cost accounting he must see to it that his department shows as great a profit as possible, and hence he is obliged, in his own interest, to be careful to retain the best employees there. If out of spite he discharges someone whom he ought not to have discharged, if his actions are motivated by personal, and not objective, considerations, then it is he himself who must suffer the consequences. Any impairment of the success of the department headed by him must ultimately redound to his loss. Thus, the incorporation of the nonmaterial factor, labor, into the process of production takes place without any friction.

In a bureaucratic organization things are quite different. Since the productive contribution of the individual department, and hence also of the individual employee, even when he occupies an executive position, cannot in this case be ascertained, the door is wide open to favoritism and personal bias both in appointment and remuneration. The fact that the intercession of influential persons plays a certain role in filling official positions in the civil service is not due to a peculiar baseness of character on the part of those responsible for filling these posts, but to the fact that from the very outset there is no objective criterion for determining an individual’s qualification for appointment. Of course, it is the most competent who ought to be employed, but the question is: Who is the most competent? If this question could be as easily answered as the question what an ironworker or a compositor is worth, there would be no problem. But since this is not the case, an element of arbitrariness is necessarily involved in comparing the qualifications of different individuals.

In order to keep this within the narrowest possible limits, one seeks to set up formal conditions for appointment and promotion. Attainment to a particular position is made dependent on the fulfillment of certain educational requirements, on the passing of examinations, and on continued employment for a certain period of time in other positions; promotion is made dependent on years of previous service. Naturally, all these expedients are in no sense a substitute for the possibility of finding the best available man for every post by means of the calculation of profit and loss. It would be supererogatory to point out in particular that attendance at school, examinations, and seniority do not offer the slightest guarantee that the selection will be correct. On the contrary: this system from the very outset prevents the energetic and the competent from occupying positions in line with their powers and capabilities. Never yet has anyone of real worth risen to the top by way of a prescribed program of study and promotion in due course along the established lines. Even in Germany, which has a pious faith in her bureaucrats, the expression, “a perfect functionary,” is used to connote a spineless and ineffectual person, however well intentioned.

Thus, the characteristic mark of bureaucratic management is that it lacks the guidance provided by considerations of profit and loss in judging the success of its operations in relation to the expenses incurred and is consequently obliged, in the effort to compensate for this deficiency, to resort to the entirely inadequate expedient of making its conduct of affairs and the hiring of its personnel subject to a set of formal prescriptions. All the evils that are commonly imputed to bureaucratic management—its inflexibility, its lack of resourcefulness, and its helplessness in the face of problems that are easily solved in profit-seeking enterprise—are the result of this one fundamental deficiency. As long as the activity of the state is restricted to the narrow field that liberalism assigns to it, the disadvantages of bureaucracy cannot, at any rate, make themselves too apparent. They become a grave problem for the whole economy only when the state—and naturally the same is true of municipalities and other forms of local government—proceeds to socialize the means of production and to take an active part in it or even in trade.

A public enterprise conducted with an eye to maximizing profits can, to be sure, make use of monetary calculation as long as most business is privately owned and hence a market still exists and market prices are formed. The only hindrance to its operation and development is the fact that its managers, as functionaries of the state, do not have the personal interest in the success or failure of the business that is characteristic of the management of private enterprises. The director cannot, therefore, be given freedom to act independently in making crucial decisions. Since he would not suffer the losses that could result, under certain circumstances, from his business policy, his conduct of affairs could all too easily be disposed to run risks that would not be taken by a director who, because he must share in the loss, is genuinely responsible. His authority must, therefore, be in some way limited. Whether it is bound by a set of rigid regulations or the decisions of a control council or the consent of a superior authority, bureaucratic management in any case continues to suffer from the unwieldiness and the lack of ability to adjust itself to changing conditions that have everywhere led public enterprises from one failure to another.

But, in fact, it is only seldom that a public enterprise aims at nothing but profit and sets aside all other considerations. As a rule, it is demanded of a public enterprise that it keep in mind certain “national” and other considerations. It is expected, for instance, in its procurement and sales policy, to favor domestic as against foreign production. It is demanded of state railways that they set a schedule of rates that will serve a specific commercial policy on the part of the government, that they construct and maintain lines that cannot be profitably operated simply in order to promote the economic development of a certain area, and that they operate certain others for strategic or similar reasons. When such factors play a role in the conduct of a business, all control by the methods of cost accounting and the calculation of profit and loss is out of the question. The director of the state railways who presents an unfavorable balance sheet at the end of the year is in a position to say: “The railway lines under my supervision have, to be sure, operated at a loss if considered from the strictly commercial point of view of profit-seeking private enterprise; but if one takes into consideration such factors as our national economic and military policy, one must not forget that they have accomplished a great deal that does not enter into the calculation of profit and loss.” Under such circumstances the calculation of profit and loss has clearly lost all value for judging the success of an enterprise, so that—even apart from other factors having the same tendency—it must necessarily be managed quite as bureaucratically as, for example, the administration of a prison or a tax bureau.

No private enterprise, whatever its size, can ever become bureaucratic as long as it is entirely and solely operated on a profit basis. Firm adherence to the entrepreneurial principle of aiming at the highest profit makes it possible for even the largest concern to ascertain with complete precision the part played by every transaction and by the activity of every department in contributing to the total result. As long as enterprises look only to profit, they are proof against all the evils of bureaucratism. The bureaucratization of privately owned enterprises that we see going on about us everywhere today is purely the result of interventionism, which forces them to take into account factors that, if they were free to determine their policies for themselves, would be far from playing any role whatsoever in the conduct of their business. When a concern must pay heed to political prejudices and sensibilities of all kinds in order to avoid being continually harassed by various organs of the state, it soon finds that it is no longer in a position to base its calculations on the solid ground of profit and loss. For instance, some of the public utility enterprises in the United States, in order to avoid conflicts with public opinion and with the legislative, judicial, and administrative organs of the government which it influences, make it a policy not to hire Catholics, Jews, atheists, Darwinists, Negroes, Irishmen, Germans, Italians, and all newly arrived immigrants. In the interventionist state, every business is under the necessity of accommodating itself to the wishes of the authorities in order to avoid burdensome penalties. The result is that these and other considerations foreign to the profit-seeking principle of entrepreneurial management come to play an ever increasing role in the conduct of business, while the part played by precise calculation and cost accounting concomitantly dwindles in significance, and private enterprise begins increasingly to adopt the mode of management of public enterprises, with their elaborate apparatus of formally prescribed rules and regulations. In a word, it becomes bureaucratized.

Thus, the progressing bureaucratization of big business is by no means the result of an inexorable tendency inherent in the development of the capitalist economy. It is nothing but the necessary consequence of adopting a policy of interventionism. In the absence of government interference with their operations, even the largest firms could be run in exactly as businesslike a way as the small ones.

CHAPTER 3

Liberal Foreign Policy

1

The Boundaries of the State

For the liberal, there is no opposition between domestic policy and foreign policy, and the question so often raised and exhaustively discussed, whether considerations of foreign policy take precedence over those of domestic policy or vice versa, is, in his eyes, an idle one. For liberalism is, from the very outset, a world-embracing political concept, and the same ideas that it seeks to realize within a limited area it holds to be valid also for the larger sphere of world politics. If the liberal makes a distinction between domestic and foreign policy, he does so solely for purposes of convenience and classification, to subdivide the vast domain of political problems into major types, and not because he is of the opinion that different principles are valid for each.

The goal of the domestic policy of liberalism is the same as that of its foreign policy: peace. It aims at peaceful cooperation just as much between nations as within each nation. The starting point of liberal thought is the recognition of the value and importance of human cooperation, and the whole policy and program of liberalism is designed to serve the purpose of maintaining the existing state of mutual cooperation among the members of the human race and of extending it still further. The ultimate ideal envisioned by liberalism is the perfect cooperation of all mankind, taking place peacefully and without friction. Liberal thinking always has the whole of humanity in view and not just parts. It does not stop at limited groups; it does not end at the border of the village, of the province, of the nation, or of the continent. Its thinking is cosmopolitan and ecumenical: it takes in all men and the whole world. Liberalism is, in this sense, humanism; and the liberal, a citizen of the world, a cosmopolite.

Today, when the world is dominated by antiliberal ideas, cosmopolitanism is suspect in the eyes of the masses. In Germany there are overzealous patriots who cannot forgive the great German poets, especially Goethe, whose thinking and feeling, instead of being confined by national bounds, had a cosmopolitan orientation. It is thought that an irreconcilable conflict exists between the interests of the nation and those of mankind and that one who directs his aspirations and endeavors toward the welfare of the whole of humanity thereby disregards the interests of his own nation. No belief could be more deeply mistaken. The German who works for the good of all mankind no more injures the particular interests of his compatriots—i.e., those of his fellow men with whom he shares a common land and language and with whom he often forms an ethnic and spiritual community as well—than one who works for the good of the whole German nation injures the interests of his own home town. For the individual has just as much of an interest in the prosperity of the whole world as he has in the blooming and flourishing of the local community in which he lives.

The chauvinistic nationalists, who maintain that irreconcilable conflicts of interests exist among the various nations and who seek the adoption of a policy aimed at securing, by force if need be, the supremacy of their own nation over all others, are generally most emphatic in insisting on the necessity and utility of internal national unity. The greater the stress they place on the necessity of war against foreign nations, the more urgently do they call for peace and concord among the members of their own nation. Now this demand for domestic unity the liberal by no means opposes. On the contrary: the demand for peace within each nation was itself an outcome of liberal thinking and attained to prominence only as the liberal ideas of the eighteenth century came to be more widely accepted. Before the liberal philosophy, with its unconditional extolment of peace, gained ascendancy over men’s minds, the waging of war was not confined to conflicts between one country and another. Nations were themselves torn by continual civil strife and sanguinary internal struggles. In the eighteenth century Briton still stood arrayed in battle against Briton at Culloden, and even as late as the nineteenth century, in Germany, while Prussia waged war against Austria, other German states joined in the fighting on both sides. At that time Prussia saw nothing wrong in fighting on the side of Italy against German Austria, and, in 1870, only the rapid progress of events prevented Austria from joining the French in the war against Prussia and its allies. Many of the victories of which the Prussian army is so proud were won by Prussian troops over those of other German states. It was liberalism that first taught the nations to preserve in their internal conduct of affairs the peace that it desires to teach them to keep also in their relations with other countries.

It is from the fact of the international division of labor that liberalism derives the decisive, irrefutable argument against war. The division of labor has for a long time now gone beyond the boundaries of any one nation. No civilized nation today satisfies its need as a self-sufficient community directly from its own production. All are obliged to obtain goods from abroad and to pay for them by exporting domestic products. Anything that would have the effect of preventing or stopping the international exchange of goods would do immense damage to the whole of human civilization and undermine the well-being, indeed, the very basis of existence, of millions upon millions of people. In an age in which nations are mutually dependent on products of foreign provenance, wars can no longer be waged. Since any stoppage in the flow of imports could have a decisive effect on the outcome of a war waged by a nation involved in the international division of labor, a policy that wishes to take into consideration the possibility of a war must endeavor to make the national economy self-sufficient, i.e., it must, even in time of peace, aim at making the international division of labor come to an end at its own borders. If Germany wished to withdraw from the international division of labor and attempted to satisfy all its needs directly through domestic production, the total annual product of German labor would diminish, and thus the well-being, the standard of living, and the cultural level of the German people would decline considerably.

2

The Right of Self-Determination

It has already been pointed out that a country can enjoy domestic peace only when a democratic constitution provides the guarantee that the adjustment of the government to the will of the citizens can take place without friction. Nothing else is required than the consistent application of the same principle in order to assure international peace as well.

The liberals of an earlier age thought that the peoples of the world were peaceable by nature and that only monarchs desire war in order to increase their power and wealth by the conquest of provinces. They believed, therefore, that to assure lasting peace it was sufficient to replace the rule of dynastic princes by governments dependent on the people. If a democratic republic finds that its existing boundaries, as shaped by the course of history before the transition to liberalism, no longer correspond to the political wishes of the people, they must be peacefully changed to conform to the results of a plebiscite expressing the people’s will. It must always be possible to shift the boundaries of the state if the will of the inhabitants of an area to attach themselves to a state other than the one to which they presently belong has made itself clearly known. In the seventeenth and eighteenth centuries, the Russian Czars incorporated into their empire large areas whose population had never felt the desire to belong to the Russian state. Even if the Russian Empire had adopted a completely democratic constitution, the wishes of the inhabitants of these territories would not have been satisfied, because they simply did not desire to associate themselves in any bond of political union with the Russians. Their democratic demand was: freedom from the Russian Empire; the formation of an independent Poland, Finland, Latvia, Lithuania, etc. The fact that these demands and similar ones on the part of other peoples (e.g., the Italians, the Germans in Schleswig-Holstein, the Slavs in the Hapsburg Empire) could be satisfied only by recourse to arms was the most important cause of all the wars that have been fought in Europe since the Congress of Vienna.

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.

To call this right of self-determination the “right of self-determination of nations” is to misunderstand it. It is not the right of self-determination of a delimited national unit, but the right of the inhabitants of every territory to decide on the state to which they wish to belong. This misunderstanding is even more grievous when the expression “self-determination of nations” is taken to mean that a national state has the right to detach and incorporate into itself against the will of the inhabitants parts of the nation that belong to the territory of another state. It is in terms of the right of self-determination of nations understood in this sense that the Italian Fascists seek to justify their demand that the canton Tessin and parts of other cantons be detached from Switzerland and united to Italy, even though the inhabitants of these cantons have no such desire. A similar position is taken by some of the advocates of Pan-Germanism in regard to German Switzerland and the Netherlands.

However, the right of self-determination of which we speak is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done. This is impracticable only because of compelling technical considerations, which make it necessary that a region be governed as a single administrative unit and that the right of self-determination be restricted to the will of the majority of the inhabitants of areas large enough to count as territorial units in the administration of the country.

So far as the right of self-determination was given effect at all, and wherever it would have been permitted to take effect, in the nineteenth and twentieth centuries, it led or would have led to the formation of states composed of a single nationality (i.e., people speaking the same language) and to the dissolution of states composed of several nationalities, but only as a consequence of the free choice of those entitled to participate in the plebiscite. The formation of states comprising all the members of a national group was the result of the exercise of the right of self-determination, not its purpose. If some members of a nation feel happier politically independent than as a part of a state composed of all the members of the same linguistic group, one may, of course, attempt to change their political ideas by persuasion in order to win them over to the principle of nationality, according to which all members of the same linguistic group should form a single, independent state. If, however, one seeks to determine their political fate against their will by appealing to an alleged higher right of the nation, one violates the right of self-determination no less effectively than by practicing any other form of oppression. A partition of Switzerland among Germany, France, and Italy, even if it were performed exactly according to linguistic boundaries, would be just as gross a violation of the right of self-determination as was the partition of Poland.

3

The Political Foundations of Peace

One would think that after the experience of the World War the realization of the necessity of perpetual peace would have become increasingly common. However, it is still not appreciated that everlasting peace can be achieved only by putting the liberal program into effect generally and holding to it constantly and consistently and that the World War was nothing but the natural and necessary consequence of the antiliberal policies of the last decades.

A senseless and thoughtless slogan makes capitalism responsible for the origin of the war. The connection between the latter and the policy of protectionism is clearly evident, and, as a result of what is certainly a grievous ignorance of the facts, the protective tariff is identified outright with capitalism. People forget that only a short time ago all the nationalistic publications were filled with violent diatribes against international capital (“finance capital” and the “international gold trust”) for being without a country, for opposing protective tariffs, for being averse to war and inclined toward peace. It is altogether absurd to hold the armaments industry responsible for the outbreak of the war. The armaments industry has arisen and grown to a considerable size because governments and peoples bent on war demanded weapons. It would be really preposterous to suppose that the nations turned to imperialistic policies as a favor to the ordnance manufacturers. The armaments industry, like every other, arose in order to satisfy a demand. If the nations had preferred other things to bullets and explosives, then the factory-owners would have produced the former instead of the materials of war.

One can assume that the desire for peace is today universal. But the peoples of the world are not at all clear as to what conditions would have to be fulfilled in order to secure peace.

If the peace is not to be disturbed, all incentive for aggression must be eliminated. A world order must be established in which nations and national groups are so satisfied with living conditions that they will not feel impelled to resort to the desperate expedient of war. The liberal does not expect to abolish war by preaching and moralizing. He seeks to create the social conditions that will eliminate the causes of war.

The first requirement in this regard is private property. When private property must be respected even in time of war, when the victor is not entitled to appropriate to himself the property of private persons, and the appropriation of public property has no great significance because private ownership of the means of production prevails everywhere, an important motive for waging war has already been excluded. However, this is far from being enough to guarantee peace. So that the exercise of the right of self-determination may not be reduced to a farce, political institutions must be such as to render the transference of sovereignty over a territory from one government to another a matter of the least possible significance, involving no advantage or disadvantage for anyone. People do not have a correct conception of what this requires. It is therefore necessary to make it clear by a few examples.

Examine a map of linguistic and national groups in Central or Eastern Europe and notice how often, for example, in northern and western Bohemia, boundaries between them are crossed by railway lines. Here, under conditions of interventionism and etatism, there is no way of making the borders of the state correspond to the linguistic frontier. It will not do to operate a Czech state railroad on the soil of the German state, and it will do even less to run a railroad line that is under a different management every few miles. It would be just as unthinkable after every few minutes or quarter of an hour on a railroad trip to have to face a tariff barrier with all its formalities. It is thus easy to understand why etatists and interventionists reach the conclusion that the “geographic” or “economic” unity of such areas must not be “ruptured” and that the territory in question must therefore be placed under the sovereignty of a single “ruler.” (Obviously, every nation seeks to prove that it alone is entitled and competent to play the role of ruler under such circumstances.) For liberalism there is no problem here at all. Private railroads, if quite free of government interference, can traverse the territory of many states without any trouble. If there are no tariff boundaries and no limitations on the movement of persons, animals, or goods, then it is of no consequence whether a train ride in a few hours crosses over the borders of the state more or less often.

The linguistic map also reveals the existence of national enclaves. Without any land connection of the same nationality with the main body of their people, compatriots dwell together in closed-off settlements or linguistic islands. Under present political conditions, they cannot be incorporated into the mother country. The fact that the area encompassed by the state is today protected by tariff walls makes unbroken territorial continuity a political necessity. A small “foreign possession,” in being isolated from the immediately adjacent territory by tariffs and other measures of protectionism, would be exposed to economic strangulation. But once there is free trade and the state restricts itself to the preservation of private property, nothing is simpler than the solution of this problem. No linguistic island then has to acquiesce in the infringement of its rights as a nation merely because it is not connected to the main body of its own people by a territorial bridge inhabited by its fellow nationals.

The notorious “problem of the corridor” also arises only in an imperialist-etatist-interventionist system. An inland country believes that it needs a “corridor” to the sea in order to keep its foreign trade free of the influence of the interventionist and etatist policies of the countries whose territories separate it from the sea. If free trade were the rule, it would be hard to see what advantage an inland country could expect from the possession of a “corridor.”

Transfer from one “economic zone” (in the etatist sense) to another has serious economic consequences. One need only think, for instance, of the cotton industry of upper Alsatia, which has twice had to undergo this experience, or the Polish textile industry of Upper Silesia, etc. If a change in the political affiliation of a territory involves advantages or disadvantages for its inhabitants, then their freedom to vote for the state to which they really wish to belong is essentially limited. One can speak of genuine self-determination only if the decision of each individual stems from his own free will, and not from fear of loss or hope of profit. A capitalist world organized on liberal principles knows no separate “economic” zones. In such a world, the whole of the earth’s surface forms a single economic territory.

The right of self-determination works to the advantage only of those who comprise the majority. In order to protect minorities as well, domestic measures are required, of which we shall first consider those involving the national policy in regard to education.

In most countries today school attendance, or at least private instruction, is compulsory. Parents are obliged to send their children to school for a certain number of years or, in lieu of this public instruction at school, to have them given equivalent instruction at home. It is pointless to go into the reasons that were advanced for and against compulsory education when the matter was still a live issue. They do not have the slightest relevance to the problem as it exists today. There is only one argument that has any bearing at all on this question, viz., that continued adherence to a policy of compulsory education is utterly incompatible with efforts to establish lasting peace.

The inhabitants of London, Paris, and Berlin will no doubt find such a statement completely incredible. What in the world does compulsory education have to do with war and peace? One must not, however, judge this question, as one does so many others, exclusively from the point of view of the peoples of Western Europe. In London, Paris, and Berlin, the problem of compulsory education is, to be sure, easily solved. In these cities no doubt can arise as to which language is to be used in giving instruction. The population that lives in these cities and sends its children to school may be considered, by and large, of homogeneous nationality. But even the non-English-speaking people who live in London find it in the obvious interest of their children that instruction is given in English and in no other language, and things are not different in Paris and Berlin.

However, the problem of compulsory education has an entirely different significance in those extensive areas in which peoples speaking different languages live together side by side and intermingled in polyglot confusion. Here the question of which language is to be made the basis of instruction assumes crucial importance. A decision one way or the other can, over the years, determine the nationality of a whole area. The school can alienate children from the nationality to which their parents belong and can be used as a means of oppressing whole nationalities. Whoever controls the schools has the power to injure other nationalities and to benefit his own.

It is no solution of this problem to suggest that each child be sent to the school in which the language of his parents is spoken. First of all, even apart from the problem posed by children of mixed linguistic background, it is not always easy to decide what the language of the parents is. In polyglot areas many persons are required by their profession to make use of all the languages spoken in the country. Besides, it is often not possible for an individual—again out of regard for his means of livelihood—to declare himself openly for one or another nationality. Under a system of interventionism, it could cost him the patronage of customers belonging to other nationalities or a job with an entrepreneur of a different nationality. Then again, there are many parents who would even prefer to send their children to the schools of another nationality than their own because they value the advantages of bilingualism or assimilation to the other nationality more highly than loyalty to their own people. If one leaves to the parents the choice of the school to which they wish to send their children, then one exposes them to every conceivable form of political coercion. In all areas of mixed nationality, the school is a political prize of the highest importance. It cannot be deprived of its political character as long as it remains a public and compulsory institution. There is, in fact, only one solution: the state, the government, the laws must not in any way concern themselves with schooling or education. Public funds must not be used for such purposes. The rearing and instruction of youth must be left entirely to parents and to private associations and institutions.

It is better that a number of boys grow up without formal education than that they enjoy the benefit of schooling only to run the risk, once they have grown up, of being killed or maimed. A healthy illiterate is always better than a literate cripple.

But even if we eliminate the spiritual coercion exercised by compulsory education, we should still be far from having done everything that is necessary in order to remove all the sources of friction between the nationalities living in polyglot territories. The school is one means of oppressing nationalities—perhaps the most dangerous, in our opinion—but it certainly is not the only means. Every interference on the part of the government in economic life can become a means of persecuting the members of nationalities speaking a language different from that of the ruling group. For this reason, in the interest of preserving peace, the activity of the government must be limited to the sphere in which it is, in the strictest sense of the word, indispensable.

We cannot do without the apparatus of government in protecting and preserving the life, liberty, property, and health of the individual. But even the judicial and police activities performed in the service of these ends can become dangerous in areas where any basis at all can be found for discriminating between one group and another in the conduct of official business. Only in countries where there is no particular incentive for partiality will there generally be no reason to fear that a magistrate who is supposed to apply the established laws for the protection of life, liberty, property, and health will act in a biased manner. Where, however, differences of religion, nationality, or the like have divided the population into groups separated by a gulf so deep as to exclude every impulse of fairness or humanity and to leave room for nothing but hate, the situation is quite different. Then the judge who acts consciously, or still more often unconsciously, in a biased manner thinks he is fulfilling a higher duty when he makes use of the prerogatives and powers of his office in the service of his own group.

To the extent that the apparatus of government has no other function than that of protecting life, liberty, property, and health, it is possible, at any rate, to draw up regulations that so strictly circumscribe the domain in which the administrative authorities and the courts are free to act as to leave little or no latitude for the exercise of their own discretion or arbitrary, subjective judgment. But once a share in the management of production is relinquished to the state, once the apparatus of government is called upon to determine the disposition of goods of higher order, it is impossible to hold administrative officials to a set of binding rules and regulations that would guarantee certain rights to every citizen. A penal law designed to punish murderers can, to some extent at least, draw a dividing line between what is and what is not to be considered murder and thus set certain limits to the area in which the magistrate is free to use his own judgment. Of course, every lawyer knows only too well that even the best law can be perverted, in concrete cases, in interpretation, application, and administration. But in the case of a government bureau charged with the management of transportation facilities, mines, or public lands, as much as one may restrain its freedom of action on other grounds (which have already been discussed in section 2), the most one can do to keep it impartial in regard to controversial questions of national policy is to give it directives couched in empty generalities. One must grant it a great deal of leeway in many respects because one cannot know beforehand under what circumstances it will have to act. Thus, the door is left wide open for arbitrariness, bias, and the abuse of official power.

Even in areas inhabited by people of various nationalities, there is need for a unified administration. One cannot place at every street-corner both a German and a Czech policeman, each of whom would have to protect only members of his own nationality. And even if this could be done, the question would still arise as to who is to intervene when members of both nationalities are involved in a situation that calls for intervention. The disadvantages that result from the necessity of a unified administration in these territories are unavoidable. But if difficulties already exist even in carrying out such indispensable functions of government as the protection of life, liberty, property, and health, one should not raise them to really monstrous proportions by extending the range of state activity to other fields in which, by their very nature, still greater latitude must be granted to arbitrary judgment.

Large areas of the world have been settled, not by the members of just one nationality, one race, or one religion, but by a motley mixture of many peoples. As a result of the migratory movements that necessarily follow shifts in the location of production, more new territories are continually being confronted with the problem of a mixed population. If one does not wish to aggravate artificially the friction that must arise from this living together of different groups, one must restrict the state to just those tasks that it alone can perform.

4

Nationalism

As long as nations were ruled by monarchical despots, the idea of adjusting the boundaries of the state to coincide with the boundaries between nationalities could not find acceptance. If a potentate desired to incorporate a province into his realm, he cared little whether the inhabitants—the subjects—agreed to a change of rulers or not. The only consideration that was regarded as relevant was whether the available military forces were sufficient to conquer and hold the territory in question. One justified one’s conduct publicly by the more or less artificial construction of a legal claim. The nationality of the inhabitants of the area concerned was not taken into account at all.

It was with the rise of liberalism that the question of how the boundaries of states are to be drawn first became a problem independent of military, historical, and legal considerations. Liberalism, which founds the state on the will of the majority of the people living in a certain territory, disallows all military considerations that were formerly decisive in defining the boundaries of the state. It rejects the right of conquest. It cannot understand how people can speak of “strategic frontiers” and finds entirely incomprehensible the demand that a piece of land be incorporated into one’s own state in order to possess a glacis. Liberalism does not acknowledge the historical right of a prince to inherit a province. A king can rule, in the liberal sense, only over persons and not over a certain piece of land, of which the inhabitants are viewed as mere appendages. The monarch by the grace of God carries the title of a territory, e.g., “King of France.” The kings installed by liberalism received their title, not from the name of the territory, but from that of the people over whom they ruled as constitutional monarchs. Thus, Louis Philippe bore the title “King of the French”; thus too, there is a “King of the Belgians,” as there was once a “King of the Hellenes.”

It was liberalism that created the legal form by which the desire of the people to belong or not to belong to a certain state could gain expression, viz., the plebiscite. The state to which the inhabitants of a certain territory wish to belong is to be ascertained by means of an election. But even if all the necessary economic and political conditions (e.g., those involving the national policy in regard to education) were fulfilled in order to prevent the plebiscite from being reduced to a farce, even if it were possible simply to take a poll of the inhabitants of every community in order to determine to which state they wished to attach themselves, and to repeat such an election whenever circumstances changed, some unresolved problems would certainly still remain as possible sources of friction between the different nationalities. The situation of having to belong to a state to which one does not wish to belong is no less onerous if it is the result of an election than if one must endure it as the consequence of a military conquest. But it is doubly difficult for the individual who is cut off from the majority of his fellow citizens by a language barrier.

To be a member of a national minority always means that one is a second-class citizen. Discussions of political questions must, of course, be carried on by means of the written and spoken word—in speeches, newspaper articles, and books. However, these means of political enlightenment and debate are not at the disposal of the linguistic minority to the same extent as they are for those whose mother tongue—the language used in everyday speech—is that in which the discussions take place. The political thought of a people, after all, is the reflection of the ideas contained in its political literature. Cast into the form of statute law, the outcome of its political discussions acquires direct significance for the citizen who speaks a foreign tongue, since he must obey the law; yet he has the feeling that he is excluded from effective participation in shaping the will of the legislative authority or at least that he is not allowed to cooperate in shaping it to the same extent as those whose native tongue is that of the ruling majority. And when he appears before a magistrate or any administrative official as a party to a suit or a petition, he stands before men whose political thought is foreign to him because it developed under different ideological influences.

But even apart from all this, the very fact that the members of the minority are required, in appearing before tribunals and administrative authorities, to make use of a language foreign to them already handicaps them seriously in many respects. There is all the difference in the world, when one is on trial, between being able to speak in court directly to one’s judges and being compelled to avail oneself of the services of an interpreter. At every turn, the member of a national minority is made to feel that he lives among strangers and that he is, even if the letter of the law denies it, a second-class citizen.

All these disadvantages are felt to be very oppressive even in a state with a liberal constitution in which the activity of the government is restricted to the protection of the life and property of the citizens. But they become quite intolerable in an interventionist or a socialist state. If the administrative authorities have the right to intervene everywhere according to their free discretion, if the latitude granted to judges and officials in reaching their decisions is so wide as to leave room also for the operation of political prejudices, then a member of a national minority finds himself delivered over to arbitrary judgment and oppression on the part of the public functionaries belonging to the ruling majority. What happens when school and church as well are not independent, but subject to regulation by the government, has already been discussed.

It is here that one must seek for the roots of the aggressive nationalism that we see at work today. Efforts to trace back to natural rather than political causes the violent antagonisms existing between nations today are altogether mistaken. All the symptoms of supposedly innate antipathy between peoples that are customarily offered in evidence exist also within each individual nation. The Bavarian hates the Prussian; the Prussian, the Bavarian. No less fierce is the hatred existing among individual groups within both France and Poland. Nevertheless, Germans, Poles, and Frenchmen manage to live peacefully within their own countries. What gives the antipathy of the Pole for the German and of the German for the Pole a special political significance is the aspiration of each of the two peoples to seize for itself political control of the border areas in which Germans and Poles live side by side and to use it to oppress the members of the other nationality. What has kindled the hatred between nations to a consuming fire is the fact that people want to use the schools to estrange children from the language of their fathers and to make use of the courts and administrative offices, political and economic measures, and outright expropriation to persecute those speaking a foreign tongue. Because people are prepared to resort to violent means in order to create favorable conditions for the political future of their own nation, they have established a system of oppression in the polyglot areas that imperils the peace of the world.

As long as the liberal program is not completely carried out in the territories of mixed nationality, hatred between members of different nations must become every fiercer and continue to ignite new wars and rebellions.

5

Imperialism

The lust for conquest on the part of the absolute monarchs of previous centuries was aimed at an extension of their sphere of power and an increase in their wealth. No prince could be powerful enough, for it was by force alone that he could preserve his rule against internal and external enemies. No prince could be rich enough, for he needed money for the maintenance of his soldiers and the upkeep of his entourage.

For a liberal state, the question whether or not the boundaries of its territory are to be further extended is of minor significance. Wealth cannot be won by the annexation of new provinces, since the “revenue” derived from a territory must be used to defray the necessary costs of its administration. For a liberal state, which entertains no aggressive plans, a strengthening of its military power is unimportant. Thus, liberal parliaments resisted all endeavors to increase their country’s war potential and opposed all bellicose and annexationist policies.

But the liberal policy of peace which, in the early sixties of the last [nineteenth] century, as liberalism swept from one victory to another, was considered as already assured, at least in Europe, was based on the assumption that the people of every territory would have the right to determine for themselves the state to which they wished to belong. However, in order to secure this right, since the absolutist powers had no intention of peacefully relinquishing their prerogatives, a number of rather serious wars and revolutions were first necessary. The overthrow of foreign domination in Italy, the preservation of the Germans in Schleswig-Holstein in the face of threatening denationalization, the liberation of the Poles and of the South Slavs could be attempted only by force of arms. In only one of the many places where the existing political order found itself opposed by a demand for the right of self-determination could the issue be peacefully resolved: liberal England freed the Ionian islands. Everywhere else the same situation resulted in wars and revolutions. From the struggles to form a unified German state developed the disastrous modern Franco-German conflict; the Polish question remained unresolved because the Czar crushed one rebellion after another; the Balkan question was only partially settled; and the impossibility of solving the problems of the Hapsburg monarchy against the will of the ruling dynasty ultimately led to the incident that became the immediate cause of the World War.*

Modern imperialism is distinguished from the expansionist tendencies of the absolute principalities by the fact that its moving spirits are not the members of the ruling dynasty, nor even of the nobility, the bureaucracy, or the officers’ corps of the army bent on personal enrichment and aggrandizement by plundering the resources of conquered territories, but the mass of the people, who look upon it as the most appropriate means for the preservation of national independence. In the complex network of antiliberal policies, which have so far expanded the functions of the state as to leave hardly any field of human activity free of government interference, it is futile to hope for even a moderately satisfactory solution of the political problems of the areas in which members of several nationalities live side by side. If the government of these territories is not conducted along completely liberal lines, there can be no question of even an approach to equality of rights in the treatment of the various national groups. There can then be only rulers and those ruled. The only choice is whether one will be hammer or anvil. Thus, the striving for as strong a national state as possible—one that can extend its control to all territories of mixed nationality—becomes an indispensable requirement of national self-preservation.

But the problem of linguistically mixed areas is not limited to countries long settled. Capitalism opens up for civilization new lands offering more favorable conditions of production than great parts of the countries that have been long inhabited. Capital and labor flow to the most favorable location. The migratory movement thus initiated exceeds by far all the previous migrations of the peoples of the world. Only a few nations can have their emigrants move to lands in which political power is in the hands of their compatriots. Where, however, this condition does not prevail, the migration gives rise once again to all those conflicts that generally develop in polyglot territories. In particular cases, into which we shall not enter here, matters are somewhat different in the areas of overseas colonization than in the long-settled countries of Europe. Nevertheless, the conflicts that spring from the unsatisfactory situation of national minorities are, in the last analysis, identical. The desire of each country to preserve its own nationals from such a fate leads, on the one hand, to the struggle for the acquisition of colonies suitable for settlement by Europeans, and, on the other hand, to the adoption of the policy of using import duties to protect domestic production operating under less favorable conditions against the superior competition of foreign industry, in the hope of thereby making the emigration of workers unnecessary. Indeed, in order to expand the protected market as far as possible, efforts are made to acquire even territories that are not regarded as suitable for European settlement. We may date the beginning of modern imperialism from the late seventies of the last [nineteenth] century, when the industrial countries of Europe started to abandon the policy of free trade and to engage in the race for colonial “markets” in Africa and Asia.

It was in reference to England that the term “imperialism” was first employed to characterize the modern policy of territorial expansion. England’s imperialism, to be sure, was primarily directed, not so much toward the incorporation of new territories as toward the creation of an area of uniform commercial policy out of the various possessions subject to the King of England. This was the result of the peculiar situation in which England found itself as the mother country of the most extensive colonial settlements in the world. Nevertheless, the end that the English imperialists sought to attain in the creation of a customs union embracing the dominions and the mother country was the same as that which the colonial acquisitions of Germany, Italy, France, Belgium, and other European countries were intended to serve, viz., the creation of protected export markets.

The grand commercial objectives aimed at by the policy of imperialism were nowhere attained. The dream of an all-British customs union remained unrealized. The territories annexed by European countries in the last decades, as well as those in which they were able to obtain “concessions,” play such a subordinate role in the provision of raw materials and half-manufactured goods for the world market and in their corresponding consumption of industrial products that no essential change in conditions could be brought about by such arrangements. In order to attain the goals that imperialism aimed at, it was not enough for the nations of Europe to occupy areas inhabited by savages incapable of resistance. They had to reach out for territories that were in the possession of peoples ready and able to defend themselves. And it is here that the policy of imperialism suffered shipwreck, or will soon do so. In Abyssinia, in Mexico, in the Caucasus, in Persia, in China—everywhere we see the imperialist aggressors in retreat or at least already in great difficulties.

6

Colonial Policy

The considerations and objectives that have guided the colonial policy of the European powers since the age of the great discoveries stand in the sharpest contrast to all the principles of liberalism. The basic idea of colonial policy was to take advantage of the military superiority of the white race over the members of other races. The Europeans set out, equipped with all the weapons and contrivances that their civilization placed at their disposal, to subjugate weaker peoples, to rob them of their property, and to enslave them. Attempts have been made to extenuate and gloss over the true motive of colonial policy with the excuse that its sole object was to make it possible for primitive peoples to share in the blessings of European civilization. Even assuming that this was the real objective of the governments that sent out conquerors to distant parts of the world, the liberal could still not see any adequate basis for regarding this kind of colonization as useful or beneficial. If, as we believe, European civilization really is superior to that of the primitive tribes of Africa or to the civilizations of Asia—estimable though the latter may be in their own way—it should be able to prove its superiority by inspiring these peoples to adopt it of their own accord. Could there be a more doleful proof of the sterility of European civilization than that it can be spread by no other means than fire and sword?

No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified. The dominion of Europeans in Africa and in important parts of Asia is absolute. It stands in the sharpest contrast to all the principles of liberalism and democracy, and there can be no doubt that we must strive for its abolition. The only question is how the elimination of this intolerable condition can be accomplished in the least harmful way possible.

The most simple and radical solution would be for the European governments to withdraw their officials, soldiers, and police from these areas and to leave the inhabitants to themselves. It is of no consequence whether this is done immediately or whether a freely held plebiscite of the natives is made to precede the surrender of the colonies. For there can scarcely be any doubt as to the outcome of a truly free election. European rule in the overseas colonies cannot count on the consent of its subjects.

The immediate consequence of this radical solution would be, if not outright anarchy, then at least continual conflicts in the areas evacuated by the Europeans. It may be safely taken for granted that up to now the natives have learned only evil ways from the Europeans, and not good ones. This is not the fault of the natives, but rather of their European conquerors, who have taught them nothing but evil. They have brought arms and engines of destruction of all kinds to the colonies; they have sent out their worst and most brutal individuals as officials and officers; at the point of the sword they have set up a colonial rule that in its sanguinary cruelty rivals the despotic system of the Bolsheviks. Europeans must not be surprised if the bad example that they themselves have set in their colonies now bears evil fruit. In any case, they have no right to complain pharisaically about the low state of public morals among the natives. Nor would they be justified in maintaining that the natives are not yet mature enough for freedom and that they still need at least several years of further education under the lash of foreign rulers before they are capable of being left on their own. For this “education” itself is at least partly responsible for the terrible conditions that exist today in the colonies, even though its consequences will not make themselves fully apparent until after the eventual withdrawal of European troops and officials.

But perhaps it will be contended that it is the duty of the Europeans, as members of a superior race, to avoid the anarchy that would presumably break out after the evacuation of the colonies and therefore to maintain their dominion in the interests and for the benefit of the natives themselves. In order to strengthen this argument, a lurid picture may be painted of the conditions that existed in Central Africa and in many parts of Asia before the establishment of European rule. One may recall the hunts for slaves conducted by the Arabs in Central Africa and the wanton outrages that many Indian despots allowed themselves. Of course, there is much that is hypocritical in this mode of argumentation, and one should not forget, for example, that the slave trade in Africa could prosper only because the descendants of Europeans in the American colonies entered the slave market as buyers. But it is not at all necessary for us to go into the pros and cons of this line of reasoning. If all that can be adduced in favor of the maintenance of European rule in the colonies is the supposed interest of the natives, then one must say that it would be better if this rule were brought to an end completely. No one has a right to thrust himself into the affairs of others in order to further their interest, and no one ought, when he has his own interests in view, to pretend that he is acting selflessly only in the interest of others.

There is, however, yet another argument in favor of the continuance of European authority and influence in the colonial areas. If the Europeans had never brought the tropical colonies under their dominion, if they had not made their economic system dependent to a considerable extent on the importation of tropical raw materials and overseas agricultural products that they paid for with industrial goods, it would still be possible to discuss quite calmly the question whether or not it is advisable to draw these areas into the network of the world market. But since colonization has already forced all these territories into the framework of the world-wide economic community, the situation is quite different. The economy of Europe today is based, to a great extent, on the inclusion of Africa and large parts of Asia in the world economy as suppliers of raw materials of all kinds. These raw materials are not taken from the natives of these areas by force. They are not carried away as tribute, but handed over in voluntary exchange for the industrial products of Europe. Thus, relations are not founded on any one-sided advantage; they are, on the contrary, mutually beneficial, and the inhabitants of the colonies derive from them just as many advantages as the inhabitants of England or Switzerland. Any stoppage in these trade relations would involve serious economic losses for Europe as well as for the colonies and would sharply depress the standard of living of great masses of people. If the slow extension of economic relations over the whole earth and the gradual development of the world economy was one of the most important sources of the increasing wealth of the last hundred and fifty years, a reversal of this trend would represent for the world an economic catastrophe of hitherto unprecedented proportions. In its extent and consequences, this catastrophe would exceed by far the crisis connected with the economic consequences of the World War. Ought the well-being of Europe and, at the same time, that of the colonies as well to be allowed to decline further in order to give the natives a chance to determine their own political destinies, when this would lead, in any event, not to their freedom, but merely to a change of masters?

This is the consideration that must be decisive in judging questions of colonial policy. European officials, troops, and police must remain in these areas, as far as their presence is necessary in order to maintain the legal and political conditions required to insure the participation of the colonial territories in international trade. It must be possible to carry on commercial, industrial, and agricultural operations in the colonies, to exploit mines, and to bring the products of the country, by rail and river, to the coast and thence to Europe and America. That all this should continue to be possible is in the interest of everyone, not only of the inhabitants of Europe, America, and Australia, but also of the natives of Asia and Africa themselves. Wherever the colonial powers do not go beyond this in the treatment of their colonies, one can raise no objection to their activities even from the liberal standpoint.

But everyone knows how seriously all the colonial powers have sinned against this principle. It is hardly necessary to recall the horrors that trustworthy English correspondents have reported as having been perpetrated in the Belgian Congo. Let us assume that these atrocities were not intended by the Belgian government and are only to be attributed to the excesses and evil characters of the functionaries sent out to the Congo. Yet the very fact that almost all the colonial powers have established in their overseas possessions a commercial system that grants a favored position to the goods of the mother country shows that present-day colonial policy is dominated by considerations altogether different from those that ought to prevail in this field.

In order to bring the interests of Europe and of the white race into harmony with those of the colored races in the colonies in regard to all questions of economic policy, the League of Nations must be given supreme authority in the administration of all those overseas territories in which there is no system of parliamentary government. The League would have to see to it that self-government is granted as soon as possible to the lands that today do not yet possess it and that the authority of the mother country is limited to the protection of property, of the civil rights of foreigners, and of trade relations. The natives as well as the nationals of other powers must be granted the right to bring complaints directly to the League if any measures of the mother country exceed what is required to guarantee the security of trade and commerce and of economic activity in general in these territories, and the League of Nations must be granted the right to make an effective settlement of such complaints.

The application of these principles would mean, in effect, that all the overseas territories of the European countries would at first be turned into mandates of the League. But even this would have to be viewed only as a transitional stage. The final goal must continue to be the complete liberation of the colonies from the despotic rule under which they live today.

With this solution to a difficult problem—which is becoming ever more difficult with the passage of time—not only the nations of Europe and America that do not possess colonies, but also the colonial powers and the natives would have to be content. The colonial powers have to realize that in the long run they will not be able to maintain their dominion over the colonies. As capitalism has penetrated into these territories, the natives have become self-reliant; there is no longer any cultural disparity between their upper classes and the officers and officials who are in charge of the administration on behalf of the mother country. Militarily and politically, the distribution of power today is quite different from what it was even a generation ago. The attempt of the European powers, the United States, and Japan to treat China as a colonial territory has proved a failure. In Egypt, the English are even now in retreat; in India, they are already in a defensive position. That the Netherlands would be unable to hold the East Indies against a really serious attack is well known. The same is true of the French colonies in Africa and Asia. The Americans are not happy with the Philippines and would be prepared to give them up if a suitable occasion presented itself. The transfer of the colonies to the care of the League of Nations would guarantee to the colonial powers the undiminished possession of their capital investments and protect them against having to make sacrifices to quell native uprisings. The natives too could only be grateful for a proposal that would assure them independence by way of a peaceful evolution and with it the guarantee that no neighbor bent on conquest would threaten their political independence in the future.

7

Free Trade

The theoretical demonstration of the consequences of the protective tariff and of free trade is the keystone of classical economics. It is so clear, so obvious, so indisputable, that its opponents were unable to advance any arguments against it that could not be immediately refuted as completely mistaken and absurd.

Nevertheless, nowadays we find protective tariffs—indeed, often even outright prohibitions on imports—all over the world. Even in England, the mother country of free trade, protectionism is in the ascendancy today. The principle of national autarky wins new supporters with every day that passes. Even countries with only a few million inhabitants, like Hungary and Czechoslovakia, are attempting, by means of a high-tariff policy and prohibitions on imports, to make themselves independent of the rest of the world. The basic idea of the foreign trade policy of the United States is to impose on all goods produced abroad at lower costs import duties to the full amount of this difference. What renders the whole situation grotesque is the fact that all countries want to decrease their imports, but at the same time to increase their exports. The effect of these policies is to interfere with the international division of labor and thereby generally to lower the productivity of labor. The only reason this result has not become more noticeable is that the advances of the capitalist system have always been so far sufficient to outweigh it. However, there can be no doubt that everyone today would be richer if the protective tariff did not artificially drive production from more favorable to less favorable localities.

Under a system of completely free trade, capital and labor would be employed wherever conditions are most favorable for production. Other locations would be used as long as it was still possible to produce anywhere under more favorable conditions. To the extent to which, as a result of the development of the means of transportation, improvements in technology, and more thorough exploration of countries newly opened to commerce, it is discovered that there are sites more favorable for production than those currently being used, production shifts to these localities. Capital and labor tend to move from areas where conditions are less favorable for production to those in which they are more favorable.

But the migration of capital and labor presupposes not only complete freedom of trade, but also the complete absence of obstacles to their movement from one country to another. This was far from being the case at the time that the classical free-trade doctrine was first developed. A whole series of obstacles stood in the way of the free movement of both capital and labor. Because of ignorance of conditions, a general insecurity in regard to law and order, and a number of similar reasons, capitalists felt reluctant about investing in foreign countries. As for the workers, they found it impossible to leave their native land, not only because of their ignorance of foreign languages, but because of legal, religious, and other difficulties. At the beginning of the nineteenth century, it was, to be sure, generally true that capital and labor could move freely within each country, but obstacles stood in the way of their movement from one country to another. The sole justification for distinguishing in economic theory between domestic and foreign trade is to be found in the fact that in the case of the former there is free mobility of capital and labor, whereas this is not true in regard to the commerce between nations. Thus, the problem that the classical theory had to solve may be stated as follows: What are the effects of free trade in consumers’ goods between one country and another if the mobility of capital and labor from one to the other is restricted?

To this question Ricardo’s doctrine provided the answer. The branches of production distribute themselves among the individual countries in such a way that each country devotes its resources to those industries in which it possesses the greatest superiority over other countries. The mercantilists had feared that a country with unfavorable conditions for production would import more than it would export, so that it would ultimately find itself without any money; and they demanded that protective tariffs and prohibitions on imports be decreed in time to prevent such a deplorable situation from arising. The classical doctrine shows that these mercantilist fears were groundless. For even a country in which the conditions of production in every branch of industry are less favorable than they are in other countries need not fear that it will export less than it will import. The classical doctrine demonstrated, in a brilliant and incontrovertible way that has never been contested by anybody, that even countries with relatively favorable conditions of production must find it advantageous to import from countries with comparatively unfavorable conditions of production those commodities that they would, to be sure, be better fitted to produce, but not so much better fitted as they are to produce other commodities in whose production they then specialize.

Thus, what the classical theory of free trade says to the statesman is: There are countries with relatively favorable and others with relatively unfavorable natural conditions of production. In the absence of interference on the part of governments, the international division of labor will, of itself, result in every country’s finding its place in the world economy, no matter how its conditions of production compare with those of other countries. Of course, the countries with comparatively favorable conditions of production will be richer than the others, but this is a fact that cannot be altered by political measures in any case. It is simply the consequence of a difference in the natural factors of production.

This was the situation that confronted the older liberalism, and to this situation it responded with the classical doctrine of free trade. But since the days of Ricardo world conditions have changed considerably, and the problem that the free-trade doctrine had to face in the last sixty years before the outbreak of the World War was completely different from the one with which it had to deal at the close of the eighteenth and the beginning of the nineteenth century. For the nineteenth century partially eliminated the obstacles that, at its beginning, had stood in the way of the free mobility of capital and labor. In the second half of the nineteenth century it was far easier for a capitalist to invest his capital abroad than it had been in Ricardo’s day. Law and order were established on a considerably firmer foundation; knowledge of foreign countries, manners, and customs had spread; and the joint-stock company offered the possibility of dividing the risk of foreign enterprises among many persons and thereby reducing it. It would, of course, be an exaggeration to say that at the beginning of the twentieth century capital was as mobile in its passage from one country to another as it was within the territory of the country itself. Certain differences still existed, to be sure; yet the assumption that capital had to remain within the boundaries of each country was no longer valid. Nor was this any longer true of labor either. In the second half of the nineteenth century millions left Europe to find better opportunities for employment overseas.

In so far as the conditions presupposed by the classical doctrine of free trade, viz., the immobility of capital and labor, no longer existed, the distinction between the effects of free trade in domestic commerce and in foreign commerce likewise necessarily lost its validity. If capital and labor can move as freely between one country and another as they do within the confines of each, then there is no further justification for making a distinction between the effects of free trade in domestic commerce and in foreign commerce. For then what was said in regard to the former holds for the latter as well: the result of free trade is that only those locations are used for production in which the conditions for it are comparatively favorable, while those in which the conditions of production are comparatively unfavorable remain unused. Capital and labor flow from the countries with less favorable conditions of production toward those where the conditions of production are more favorable, or, more precisely, from the long-settled, thickly populated European countries toward America and Australia, as areas that offer more favorable conditions of production.

For the European nations that had at their disposal, besides the old areas of settlement in Europe, overseas territories suitable for colonization by Europeans, this meant nothing more than that they now settled a part of their population overseas. In England’s case, for example, some of her sons now lived in Canada, Australia, or South Africa. The emigrants who had left England could retain their English citizenship and nationality in their new homes. But for Germany the case was quite different. The German who emigrated landed in the territory of a foreign country and found himself among the members of a foreign nation. He became the citizen of a foreign state, and it was to be expected that after one, two, or at the most three generations, his attachment to the German people would be dissolved and the process of his assimilation as a member of a foreign nation would be completed. Germany was faced with the problem of whether it was to look on with indifference while a part of her capital and her people emigrated overseas.

One must not fall into the error of assuming that the problems of commercial policy that England and Germany had to face in the second half of the nineteenth century were the same. For England, it was a question of whether or not she ought to permit a number of her sons to emigrate to the dominions, and there was no reason to hinder their emigration in any way. For Germany, however, the problem was whether it ought to stand by quietly while her nationals emigrated to the British colonies, to South America, and to other countries, where it was to be expected that these emigrants, in the course of time, would give up their citizenship and nationality just as hundreds of thousands, indeed, millions, who had previously emigrated, had already done. Because it did not want this to happen, the German Empire, which during the sixties and seventies had been approaching ever more closely to a policy of free trade, now shifted, toward the end of the seventies, to one of protectionism by the imposition of import duties designed to shield German agriculture and industry against foreign competition. Under the protection of these tariffs German agriculture was able to some extent to bear East-European and overseas competition from farms operating on better land, and German industry could form cartels that kept the domestic price above the price on the world market, enabling it to use the profits thereby realized to undersell its competitors abroad.

But the ultimate goal that was aimed at in the return to protectionism could not be achieved. The higher living and production costs rose in Germany as a direct consequence of these protective tariffs, the more difficult its trade position necessarily became. To be sure, it was possible for Germany to make a mighty industrial upswing in the first three decades of the era of the new commercial policy. But this upswing would have occurred even in the absence of a protective tariff, for it was primarily the result of the introduction of new methods in the German iron and chemical industries, which enabled them to make better use of the country’s abundant natural resources.

Antiliberal policy, by abolishing the free mobility of labor in international trade and considerably restricting even the mobility of capital, has, to a certain extent, eliminated the difference that existed in the conditions of international trade between the beginning and the end of the nineteenth century and has reverted to those prevailing at the time the doctrine of free trade was first formulated. Once again capital and, above all, labor are hindered in their movements. Under the conditions existing today, unhampered trade in consumers’ goods could not give rise to any migratory movements. Once again, it would result in a state of affairs in which the individual peoples of the world would be engaged in those types and branches of production for which the relatively best conditions exist in their own countries.

But whatever may be the prerequisites for the development of international trade, protective tariffs can accomplish only one thing: to prevent production from being carried on where the natural and social conditions are most favorable for it and to cause it to be carried on instead where conditions are worse. The outcome of protectionism is, therefore, always a reduction in the productivity of human labor. The freetrader is far from denying that the evil that the nations of the world wish to combat by means of a policy of protectionism really is an evil. What he maintains is only that the means recommended by the imperialists and protectionists cannot eliminate that evil. He therefore proposes a different way. In order to create the indispensable conditions for a lasting peace, one of the features of the present international situation that the liberal wishes to change is the fact that emigrants from nations like Germany and Italy, which have been treated like stepchildren in the division of the world, must live in areas in which, because of the adoption of antiliberal policies, they are condemned to lose their nationality.

8

Freedom of Movement

Liberalism has sometimes been reproached on the ground that its program is predominantly negative. This follows necessarily, it is asserted, from the very nature of freedom, which can be conceived only as freedom from something, for the demand for freedom consists essentially in the rejection of some sort of claim. On the other hand, it is thought, the program of the authoritarian parties is positive. Since a very definite value judgment is generally connoted by the terms “negative” and “positive,” this way of speaking already involves a surreptitious attempt to discredit the political program of liberalism.

There is no need to repeat here once again that the liberal program—a society based on private ownership of the means of production—is no less positive than any other conceivable political program. What is negative in the liberal program is the denial, the rejection, and the combatting of everything that stands in opposition to this positive program. In this defensive posture, the program of liberalism—and, for that matter, that of every movement—is dependent on the position that its opponents assume towards it. Where the opposition is strongest, the assault of liberalism must also be strongest; where it is relatively weak or even completely lacking, a few brief words, under the circumstances, are sufficient. And since the opposition that liberalism has had to confront has changed during the course of history, the defensive aspect of the liberal program has also undergone many changes.

This becomes most clearly evident in the stand that it takes in regard to the question of freedom of movement. The liberal demands that every person have the right to live wherever he wants. This is not a “negative” demand. It belongs to the very essence of a society based on private ownership of the means of production that every man may work and dispose of his earnings where he thinks best. This principle takes on a negative character only if it encounters forces aiming at a restriction of freedom of movement. In this negative aspect, the right to freedom of movement has, in the course of time, undergone a complete change. When liberalism arose in the eighteenth and nineteenth centuries, it had to struggle for freedom of emigration. Today, the struggle is over freedom of immigration. At that time, it had to oppose laws which hindered the inhabitants of a country from moving to the city and which held out the prospect of severe punishment for anyone who wanted to leave his native land in order to better himself in a foreign land. Immigration, however, was at that time generally free and unhampered.

Today, as is well known, things are quite different. The trend began some decades ago with laws against the immigration of Chinese coolies. Today in every country in the world that could appear inviting to immigration, there are more or less stringent laws either prohibiting it entirely or at least restricting it severely.

This policy must be considered from two points of view: first, as a policy of the trade unions, and then as a policy of national protectionism.

Aside from such coercive measures as the closed shop, compulsory strikes, and violent interference with those willing to work, the only way the trade unions can have any influence on the labor market is by restricting the supply of labor. But since it is not within the power of the trade unions to reduce the number of workers living in the world, the only other possibility remaining open to them is to block access to employment, and thus diminish the number of workers, in one branch of industry or in one country at the expense of the workers employed in other industries or living in other countries. For reasons of practical politics, it is possible only to a limited extent for those engaged in a particular branch of industry to bar from it the rest of the workers in the country. On the other hand, no special political difficulty is involved in imposing such restrictions on the entrance of foreign labor.

The natural conditions of production and, concomitantly, the productivity of labor are more favorable, and, as a consequence, wage rates are higher, in the United States than in vast areas of Europe. In the absence of immigration barriers, European workers would emigrate to the United States in great numbers to look for jobs. The American immigration laws make this exceptionally difficult. Thus, the wages of labor in the United States are kept above the height that they would reach if there were full freedom of migration, whereas in Europe they are depressed below this height. On the one hand, the American worker gains; on the other hand, the European worker loses.

However, it would be a mistake to consider the consequences of immigration barriers exclusively from the point of view of their immediate effect on wages. They go further. As a result of the relative oversupply of labor in areas with comparatively unfavorable conditions of production, and the relative shortage of labor in areas in which the conditions of production are comparatively favorable, production is further expanded in the former and more restricted in the latter than would be the case if there were full freedom of migration. Thus, the effects of restricting this freedom are just the same as those of a protective tariff. In one part of the world comparatively favorable opportunities for production are not utilized, while in another part of the world less favorable opportunities for production are being exploited. Looked at from the standpoint of humanity, the result is a lowering of the productivity of human labor, a reduction in the supply of goods at the disposal of mankind.

Attempts to justify on economic grounds the policy of restricting immigration are therefore doomed from the outset. There cannot be the slightest doubt that migration barriers diminish the productivity of human labor. When the trade unions of the United States or Australia hinder immigration, they are fighting not only against the interests of the workers of the rest of the countries of the world, but also against the interests of everyone else in order to secure a special privilege for themselves. For all that, it still remains quite uncertain whether the increase in the general productivity of human labor which could be brought about by the establishment of complete freedom of migration would not be so great as to compensate entirely the members of the American and Australian trade unions for the losses that they could suffer from the immigration of foreign workers.

The workers of the United States and Australia could not succeed in having restrictions imposed on immigration if they did not have still another argument to fall back upon in support of their policy. After all, even today the power of certain liberal principles and ideas is so great that one cannot combat them if one does not place allegedly higher and more important considerations above the interest in the attainment of maximum productivity. We have already seen how “national interests” are cited in justification of protective tariffs. The same considerations are also invoked in favor of restrictions on immigration.

In the absence of any migration barriers whatsoever, vast hordes of immigrants from the comparatively overpopulated areas of Europe would, it is maintained, inundate Australia and America. They would come in such great numbers that it would no longer be possible to count on their assimilation. If in the past immigrants to America soon adopted the English language and American ways and customs, this was in part due to the fact that they did not come over all at once in such great numbers. The small groups of immigrants who distributed themselves over a wide land quickly integrated themselves into the great body of the American people. The individual immigrant was already half assimilated when the next immigrants landed on American soil. One of the most important reasons for this rapid national assimilation was the fact that the immigrants from foreign countries did not come in too great numbers. This, it is believed, would now change, and there is real danger that the ascendancy—or more correctly, the exclusive dominion—of the Anglo-Saxons in the United States would be destroyed. This is especially to be feared in the case of heavy immigration on the part of the Mongolian peoples of Asia.

These fears may perhaps be exaggerated in regard to the United States. As regards Australia, they certainly are not. Australia has approximately the same number of inhabitants as Austria; its area, however, is a hundred times greater than Austria’s, and its natural resources are certainly incomparably richer. If Australia were thrown open to immigration, it can be assumed with great probability that its population would in a few years consist mostly of Japanese, Chinese, and Malayans.

The aversion that most people feel today towards the members of foreign nationalities and especially towards those of other races is evidently too great to admit of any peaceful settlement of such antagonisms. It is scarcely to be expected that the Australians will voluntarily permit the immigration of Europeans not of English nationality, and it is completely out of the question that they should permit Asiatics too to seek work and a permanent home in their continent. The Australians of English descent insist that the fact that it was the English who first opened up this land for settlement has given the English people a special right to the exclusive possession of the entire continent for all time to come. The members of the world’s other nationalities, however, do not in the least desire to contest the right of the Australians to occupy any of the land that they already are making use of in Australia. They think only that it is unfair that the Australians do not permit the utilization of more favorable conditions of production that today lie fallow and force them to carry on production under the less favorable conditions prevailing in their own countries.

This issue is of the most momentous significance for the future of the world. Indeed, the fate of civilization depends on its satisfactory resolution. On the one side stand scores, indeed, hundreds of millions of Europeans and Asiatics who are compelled to work under less favorable conditions of production than they could find in the territories from which they are barred. They demand that the gates of the forbidden paradise be opened to them so that they may increase the productivity of their labor and thereby receive for themselves a higher standard of living. On the other side stand those already fortunate enough to call their own the land with the more favorable conditions of production. They desire—as far as they are workers, and not owners of the means of production—not to give up the higher wages that this position guarantees them. The entire nation, however, is unanimous in fearing inundation by foreigners. The present inhabitants of these favored lands fear that some day they could be reduced to a minority in their own country and that they would then have to suffer all the horrors of national persecution to which, for instance, the Germans are today exposed in Czechoslovakia, Italy, and Poland.

It cannot be denied that these fears are justified. Because of the enormous power that today stands at the command of the state, a national minority must expect the worst from a majority of a different nationality. As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying. It is frightful to live in a state in which at every turn one is exposed to persecution—masquerading under the guise of justice—by a ruling majority. It is dreadful to be handicapped even as a child in school on account of one’s nationality and to be in the wrong before every judicial and administrative authority because one belongs to a national minority.

If one considers the conflict from this point of view, it seems as if it allows of no other solution than war. In that case, it is to be expected that the nation inferior in numbers will be defeated, that, for example, the nations of Asia, counting hundreds of millions, will succeed in driving the progeny of the white race from Australia. But we do not wish to indulge in such conjectures. For it is certain that such wars—and we must assume that a world problem of such great dimensions cannot be solved once and for all in just one war—would lead to the most frightful catastrophe for civilization.

It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?

9

The United States of Europe

The United States of America is the mightiest and richest nation in the world. Nowhere else was capitalism able to develop more freely and with less interference from the government. The inhabitants of the United States of America are therefore far richer than those of any other country on earth. For more than sixty years their country was not involved in any war. If they had not waged a war of extermination against the original inhabitants of the land, if they had not needlessly waged war against Spain in 1898, and if they had not participated in the World War, only a few graybeards among them would today be able to give a first-hand account of what war means. It is doubtful whether the Americans themselves appreciate how much they owe to the fact that more of the policies of liberalism and capitalism have been realized in their country than in any other. Even foreigners do not know what it is that has made the much-envied republic rich and powerful. But—apart from those who, filled with resentment, affect a profound contempt for the “materialism” of American culture—all are agreed in desiring nothing more eagerly than that their country should be as rich and as powerful as the United States.

In various quarters it is being proposed, as the simplest way to achieve this end, that a “United States of Europe” be formed. By themselves the individual countries of the European continent are too thinly populated and do not have enough land at their disposal to be able to hold their own in the international struggle for supremacy as against the ever increasing power of the United States, against Russia, against the British Empire, against China, and against other groupings of similar size that may be formed in the future, perhaps in South America. They must therefore consolidate into a military and political union, into a defensive and offensive alliance, which alone would be capable of assuring to Europe in the centuries to come the importance in world politics that it has enjoyed in the past. What gives special support to the idea of a Pan-European union is the realization, which is every day impressing itself more strongly on everyone, that nothing can be more absurd than the protective tariff policies presently being pursued by the nations of Europe. Only the further development of the international division of labor can increase the well-being and produce the abundance of goods needed to raise the standard of living, and thereby also the cultural level, of the masses. The economic policies of all countries, but especially those of the smaller European nations, are aimed precisely at destroying the international division of labor. If the conditions under which American industry operates, with a potential market of more than a hundred twenty million rich consumers, unhampered by tariffs or similar obstacles, are compared with those against which German, Czechoslovakian, or Hungarian industry must contend, the utter absurdity of endeavors to create little autarkic economic territories becomes immediately obvious.

The evils that those who champion the idea of a United States of Europe are trying to combat undoubtedly exist, and the sooner they are eliminated, the better. But the formation of a United States of Europe would not be an appropriate means to achieve this end.

Any reform in international relations must aim at abolishing a situation in which each country seeks in every way possible to enlarge its territory at the expense of other countries. The problem of international boundaries, which has assumed such overwhelming importance today, must lose all its significance. The nations must come to realize that the most important problem of foreign policy is the establishment of lasting peace, and they must understand that this can be assured throughout the world only if the field of activity permitted to the state is limited to the narrowest range. Only then will the size and extent of the territory subject to the sovereignty of the state no longer assume such overwhelming importance for the life of the individual as to make it seem natural, now as in the past, for rivers of blood to be shed in disputes over boundaries. The narrow-mindedness which sees nothing beyond one’s own state and one’s own nation and which has no conception of the importance of international cooperation must be replaced by a cosmopolitan outlook. This, however, is possible only if the society of nations, the international superstate, is so constituted that no people and no individual is oppressed on account of nationality or national peculiarities.

Nationalist policies, which always begin by aiming at the ruination of one’s neighbor, must, in the final analysis, lead to the ruination of all. In order to overcome such provincialism and to replace it by a policy genuinely cosmopolitan in its orientation, it is first necessary for the nations of the world to realize that their interests do not stand in mutual opposition and that every nation best serves its own cause when it is intent on promoting the development of all nations and scrupulously abstains from every attempt to use violence against other nations or parts of other nations. Thus, what is needed is not the replacement of national chauvinism by a chauvinism that would have some larger, supranational entity for its object, but rather the recognition that every sort of chauvinism is mistaken. The old, militaristic methods of international politics must now give way to new, peaceful methods aiming at cooperative effort, and not at mutual warfare.

The champions of Pan-Europe and of the United States of Europe, however, have other ends in view. They do not plan on establishing a new kind of state different in its policies from the imperialistic and militaristic states that have existed up to now, but on a reconstitution of the old imperialistic and militaristic idea of the state. Pan-Europe is to be greater than the individual states that will comprise it; it is to be more powerful than they are and therefore more efficient militarily and better suited to oppose such great powers as England, the United States of America, and Russia. A European chauvinism is to take the place of the French, the German, or the Hungarian variety; a united front formed of all the European nations is to be directed against “foreigners”: Britons, Americans, Russians, Chinese, and Japanese.

Now one can base a chauvinistic political consciousness and a chauvinistic military policy on a national foundation, but not on a geographic one. Community of language binds members of the same nationality close together, while linguistic diversity gives rise to a gulf between nations. If it were not for this fact—aside from all ideologies—chauvinistic thinking would never have been able to develop. The geographer, with map in hand, may, no doubt, very well view the European continent (with the exception of Russia) as a unity if he is so minded; but this does not create among the inhabitants of that region any feeling of community or solidarity on which the statesman could base his plans. A Rhinelander can be made to understand that he is defending his own cause if he goes into battle for the Germans of East Prussia. It may even be possible to bring him to see that the cause of all mankind is also his own cause. But he will never be able to understand that, while he has to stand side by side with the Portuguese because they too are Europeans, the cause of England is that of an enemy, or, at best, of a neutral alien. It is not possible to efface from men’s minds (nor, incidentally, does liberalism have any desire to do so) the imprint left by a long historical development that has brought it about that the heart of a German beats faster at every mention of Germany, of the German people, or of all that is typically German. This feeling of nationality existed before any political attempt was made to base upon it the idea of a German state, a German policy, and German chauvinism. All the well-intentioned schemes for replacing national states by a federation of states, whether Central European, Pan-European, Pan-American, or constructed on some similar artificial basis, suffer from the same fundamental defect. They fail to take account of the fact that the words “Europe” or “Pan-Europe” and “European” or “Pan-European” do not have this kind of emotional connotation and are thus incapable of evoking sentiments of the kind called forth by such words as “Germany” and “German.”

The matter may be seen in its clearest light if we direct our attention to the problem, which plays a decisive role in all these projects, of agreeing on a commercial policy for such a federation of states. As conditions are today, a Bavarian can be induced to regard the protection of German labor—let us say, in Saxony—as a sufficient justification for a tariff that makes it more expensive for him, the Bavarian, to purchase some article. We may hope that some day he will succeed in being converted to the realization that all political measures designed to achieve autarky, and hence all protective tariffs, are senseless and self-defeating and consequently ought to be abolished. But never will one succeed in inducing a Pole or a Hungarian to consider it justified that he should pay more than the world market price for any commodity merely in order to enable the French, the Germans, or the Italians to carry on its production in their countries. One can certainly win support for a policy of protectionism by combining an appeal to feelings of national solidarity with the nationalistic doctrine that the interests of different nations are mutually incompatible; but there is nothing similar that could serve a federation of states as an ideological basis for a system of protectionism. It is manifestly absurd to break up the ever increasing unity of world economy into a number of small national territories, each as autarkic as possible. But one cannot counteract the policy of economic isolation on a national scale by replacing it with the same policy on the part of a larger political entity comprising a number of different nationalities. The only way to counteract tendencies toward protectionism and autarky is to recognize their harmfulness and to appreciate the harmony of the interests of all nations.

Once it has been demonstrated that the disintegration of the world economy into a number of small autarkic areas has detrimental consequences for all nations, the conclusion in favor of free trade necessarily follows. In order to prove that a Pan-European zone of autarky should be set up under the shelter of a protective tariff, it would first be necessary to demonstrate that the interests of the Portuguese and the Rumanians, although in harmony with each other, both collide with those of Brazil and Russia. One would have to adduce proof that it is good for the Hungarians to give up their domestic textile industry in favor of the German, the French, and the Belgian, but that the interests of the Hungarians would be injured by the importation of English or American textiles.

The movement in favor of the formation of a federation of European states has arisen from a correct recognition of the untenability of all forms of chauvinistic nationalism. But what the supporters of this movement wish to set in its place is impracticable because it lacks a vital basis in the consciousness of the people. And even if the goal of the Pan-European movement could be achieved, the world would not be in the least the better for it. The struggle of a united European continent against the great world powers outside its territory would be no less ruinous than is the present struggle of the countries of Europe among themselves.

10

The League of Nations

Just as, in the eyes of the liberal, the state is not the highest ideal, so it is also not the best apparatus of compulsion. The metaphysical theory of the state declares—approaching, in this respect, the vanity and presumption of the absolute monarchs—that each individual state is sovereign, i.e., that it represents the last and highest court of appeals. But, for the liberal, the world does not end at the borders of the state. In his eyes, whatever significance national boundaries have is only incidental and subordinate. His political thinking encompasses the whole of mankind. The starting-point of his entire political philosophy is the conviction that the division of labor is international and not merely national. He realizes from the very first that it is not sufficient to establish peace within each country, that it is much more important that all nations live at peace with one another. The liberal therefore demands that the political organization of society be extended until it reaches its culmination in a world state that unites all nations on an equal basis. For this reason he sees the law of each nation as subordinate to international law, and that is why he demands supranational tribunals and administrative authorities to assure peace among nations in the same way that the judicial and executive organs of each country are charged with the maintenance of peace within its own territory.

For a long time the demand for the establishment of such a supranational world organization was confined to a few thinkers who were considered utopians and went unheeded. To be sure, after the end of the Napoleonic Wars, the world repeatedly witnessed the spectacle of the statesmen of the leading powers gathered around the conference table to arrive at a common accord, and after the middle of the nineteenth century, an increasing number of supranational institutions were established, the most widely noted of which are the Red Cross and the International Postal Union. Yet all of this was still a very far cry from the creation of a genuine supranational organization. Even the Hague Peace Conference signified hardly any progress in this respect. It was only the horrors of the World War that first made it possible to win widespread support for the idea of an organization of all nations that would be in a position to prevent future conflicts. With the end of the war, the victors took steps to create an association which they called “The League of Nations” and which is widely held throughout the world to be the nucleus of what could be a really effective future international organization.

In any case, there can be no doubt that what today goes under that name is in no way a realization of the liberal ideal of a supranational organization. In the first place, some of the most important and powerful nations of the world do not belong to the League at all. The United States, not to mention smaller nations, still stands outside. Besides, the covenant of the League of Nations suffers from the very outset from the fact that it distinguishes between two categories of member states: those that enjoy full rights and those that, having been on the losing side in the World War, are not fully qualified members. It is clear that such an inequality of status in the community of nations must bear within itself the seeds of war in the same way that every such division into castes does within a country. All these shortcomings have combined to weaken the League lamentably and to render it impotent in regard to all the substantive questions with which it has been confronted. One has only to think of its conduct in the conflict between Italy and Greece or in regard to the Mosul question, and especially in those cases in which the fate of oppressed minorities depended on its decision.

There are in all countries, but especially in England and Germany, groups that believe that in the interest of transforming this sham League of Nations into a real one—into a genuine supranational state—its present weaknesses and defects should be treated in the most indulgent possible way. Such opportunism never does any good, no matter what question is at issue. The League of Nations is—and this would certainly have to be conceded by everybody except the functionaries and the staff employed in its bureaus—an inadequate institution in no way corresponding to the demands that one is entitled to make of a world organization. This fact, far from being minimized or ignored, needs to be repeatedly and insistently emphasized so that attention is called to all the changes that would have to be made in order to transform this sham into a real League of Nations. Nothing has done greater harm to the idea of a supranational world organization than the intellectual confusion arising from the belief that the present League constitutes a complete or virtually complete realization of what every honest and sincere liberal must demand. It is impossible to build a real League of Nations, capable of assuring lasting peace, on the principle that the traditional, historically determined boundaries of each country are to be treated as inalterably fixed. The League of Nations retains the fundamental defect of all previous international law: in setting up procedural rules for adjudicating disputes between nations, it is not in the least interested in creating any other norms for their settlement than the preservation of the status quo and the enforcement of existing treaties. Under such circumstances, however, peace cannot be assured unless it be by reducing the whole world situation to a state of frozen immobility.

To be sure, the League does hold out, even though very cautiously and with many reservations, the prospect of some future boundary adjustments to do justice to the demands of some nations and parts of nations. It also promises—again very cautiously and qualifiedly—protection to national minorities. This permits us to hope that from these extremely inadequate beginnings a world superstate really deserving of the name may some day be able to develop that would be capable of assuring the nations the peace that they require. But this question will not be decided at Geneva in the sessions of the present League, and certainly not in the parliaments of the individual countries that comprise it. For the problem involved is not at all a matter of organization or of the technique of international government, but the greatest ideological question that mankind has ever faced. It is a question of whether we shall succeed in creating throughout the world a frame of mind without which all agreements for the preservation of peace and all the proceedings of courts of arbitration will remain, at the crucial moment, only worthless scraps of paper. This frame of mind can be nothing less than the unqualified, unconditional acceptance of liberalism. Liberal thinking must permeate all nations, liberal principles must pervade all political institutions, if the prerequisites of peace are to be created and the causes of war eliminated. As long as nations cling to protective tariffs, immigration barriers, compulsory education, interventionism, and etatism, new conflicts capable of breaking out at any time into open warfare will continually arise to plague mankind.

11

Russia

The law-abiding citizen by his labor serves both himself and his fellow man and thereby integrates himself peacefully into the social order. The robber, on the other hand, is intent, not on honest toil, but on the forcible appropriation of the fruits of others’ labor. For thousands of years the world had to submit to the yoke of military conquerors and feudal lords who simply took for granted that the products of the industry of other men existed for them to consume. The evolution of mankind toward civilization and the strengthening of social bonds required, first of all, overcoming the intellectual and physical influence of the military and feudal castes that aspired to rule the world and the substitution of the ideal of the bourgeois for that of the hereditary lord. The supplanting of the militaristic ideal, which esteems only the warrior and despises honest labor, has not, by any means, even yet been completely achieved. In every nation there are still individuals whose minds are altogether taken up with the ideas and images of the militaristic ages. There are nations in which transient atavistic impulses toward plunder and violence, which one would have presumed to have long since been mastered, still break out and once more gain ascendancy. But, by and large, one can say of the nations of the white race that today inhabit central and western Europe and America that the mentality that Herbert Spencer called “militaristic” has been displaced by that to which he gave the name “industrial.” Today there is only one great nation that steadfastly adheres to the militaristic ideal, viz., the Russians.

Of course, even among the Russian people there are some who do not share this attitude. It is only to be regretted that they have not been able to prevail over their compatriots. Ever since Russia was first in a position to exercise an influence on European politics, it has continually behaved like a robber who lies in wait for the moment when he can pounce upon his victim and plunder him of his possessions. At no time did the Russian Czars acknowledge any other limits to the expansion of their empire than those dictated by the force of circumstances. The position of the Bolsheviks in regard to the problem of the territorial expansion of their dominions is not a whit different. They too acknowledge no other rule than that, in the conquest of new lands, one may and indeed must go as far as one dares, with due regard to one’s resources. The fortunate circumstance that saved civilization from being destroyed by the Russians was the fact that the nations of Europe were strong enough to be able successfully to stand off the onslaught of the hordes of Russian barbarians. The experiences of the Russians in the Napoleonic Wars, the Crimean War, and the Turkish campaign of 1877–78 showed them that, in spite of the great number of their soldiers, their army is unable to seize the offensive against Europe. The World War merely confirmed this.

More dangerous than bayonets and cannon are the weapons of the mind. To be sure, the response that the ideas of the Russians found in Europe was due, in the first place, to the fact that Europe itself was already full of these ideas before they came out of Russia. Indeed, it would perhaps be more nearly correct to say that these Russian ideas themselves were not originally Russian, however much they may have suited the character of the Russian people, but that they were borrowed by the Russians from Europe. So great is the intellectual sterility of the Russians that they were never able to formulate for themselves the expression of their own inmost nature.

Liberalism, which is based completely on science and whose policies represent nothing but the application of the results of science, must be on its guard not to make unscientific value judgments. Value judgments stand outside of science and are always purely subjective. One cannot, therefore, classify nations according to their worth and speak of them as worthy or as less worthy. Consequently, the question whether or not the Russians are inferior lies completely outside the scope of our consideration. We do not at all contend that they are so. What we maintain is only that they do not wish to enter into the scheme of human social cooperation. In relation to human society and the community of nations their position is that of a people intent on nothing but the consumption of what others have accumulated. People among whom the ideas of Dostoyevsky, Tolstoy, and Lenin are a living force cannot produce a lasting social organization. They must revert to a condition of complete barbarism. Russia is endowed far more richly by nature with fertility of soil and mineral resources of all kinds than is the United States. If the Russians had pursued the same capitalistic policy as the Americans, they would today be the richest people in the world. Despotism, imperialism, and Bolshevism have made them the poorest. Now they are seeking capital and credits from all over the world.

Once this is recognized, it clearly follows what must be the guiding principle of the policy of the civilized nations toward Russia. Let the Russians be Russians. Let them do what they want in their own country. But do not let them pass beyond the boundaries of their own land to destroy European civilization. This is not to say, of course, that the importation and translation of Russian writings ought to be prohibited. Neurotics may enjoy them as much as they wish; the healthy will, in any case, eschew them. Nor does this mean that the Russians ought to be prohibited from spreading their propaganda and distributing bribes the way the Czars did throughout the world. If modern civilization were unable to defend itself against the attacks of hirelings, then it could not, in any case, remain in existence much longer. This is not to say, either, that Americans or Europeans ought to be prevented from visiting Russia if they are attracted to it. Let them view at first hand, at their own risk and on their own responsibility, the land of mass murder and mass misery. Nor does this mean that capitalists ought to be prevented from granting loans to the Soviets or otherwise to invest capital in Russia. If they are foolish enough to believe that they will ever see any part of it again, let them make the venture.

But the governments of Europe and America must stop promoting Soviet destructionism by paying premiums for exports to Soviet Russia and thereby furthering the Russian Soviet system by financial contributions. Let them stop propagandizing for emigration and the export of capital to Soviet Russia.

Whether or not the Russian people are to discard the Soviet system is for them to settle among themselves. The land of the knout and the prison-camp no longer poses a threat to the world today. With all their will to war and destruction, the Russians are no longer capable seriously of imperiling the peace of Europe. One may therefore safely let them alone. The only thing that needs to be resisted is any tendency on our part to support or promote the destructionist policy of the Soviets.

CHAPTER 4

Liberalism and the Political Parties

1

The “Doctrinairism” of the Liberals

Classical liberalism has been reproached with being too obstinate and not ready enough to compromise. It was because of its inflexibility that it was defeated in its struggle with the nascent anticapitalist parties of all kinds. If it had realized, as these other parties did, the importance of compromise and concession to popular slogans in winning the favor of the masses, it would have been able to preserve at least some of its influence. But it has never bothered to build for itself a party organization and a party machine as the anticapitalist parties have done. It has never attached any importance to political tactics in electoral campaigns and parliamentary proceedings. It has never gone in for scheming opportunism or political bargaining. This unyielding doctrinairism necessarily brought about the decline of liberalism.

The factual assertions contained in these statements are entirely in accordance with the truth, but to believe that they constitute a reproach against liberalism is to reveal a complete misunderstanding of its essential spirit. The ultimate and most profound of the fundamental insights of liberal thought is that it is ideas that constitute the foundation on which the whole edifice of human social cooperation is constructed and sustained and that a lasting social structure cannot be built on the basis of false and mistaken ideas. Nothing can serve as a substitute for an ideology that enhances human life by fostering social cooperation—least of all lies, whether they be called “tactics,” “diplomacy,” or “compromise.” If men will not, from a recognition of social necessity, voluntarily do what must be done if society is to be maintained and general well-being advanced, no one can lead them to the right path by any cunning stratagem or artifice. If they err and go astray, then one must endeavor to enlighten them by instruction. But if they cannot be enlightened, if they persist in error, then nothing can be done to prevent catastrophe. All the tricks and lies of demagogic politicians may well be suited to promote the cause of those who, whether in good faith or bad, work for the destruction of society. But the cause of social progress, the cause of the further development and intensification of social bonds, cannot be advanced by lies and demagogy. No power on earth, no crafty stratagem or clever deception could succeed in duping mankind into accepting a social doctrine that it not only does not acknowledge, but openly spurns.

The only way open to anyone who wishes to lead the world back to liberalism is to convince his fellow citizens of the necessity of adopting the liberal program. This work of enlightenment is the sole task that the liberal can and must perform in order to avert as much as lies within his power the destruction toward which society is rapidly heading today. There is no place here for concessions to any of the favorite or customary prejudices and errors. In regard to questions that will decide whether or not society is to continue to exist at all, whether millions of people are to prosper or perish, there is no room for compromise either from weakness or from misplaced deference for the sensibilities of others.

If liberal principles once again are allowed to guide the policies of great nations, if a revolution in public opinion could once more give capitalism free rein, the world will be able gradually to raise itself from the condition into which the policies of the combined anticapitalist factions have plunged it. There is no other way out of the political and social chaos of the present age.

The most serious illusion under which classical liberalism labored was its optimism in regard to the direction that the evolution of society was bound to take. To the champions of liberalism—the sociologists and economists of the eighteenth and the first half of the nineteenth century and their supporters—it seemed certain that mankind would advance to ever higher stages of perfection and that nothing would be able to arrest this progress. They were firmly convinced that rational cognition of the fundamental laws of social cooperation and interdependence, which they had discovered, would soon become common and that thereafter the social bonds peacefully uniting mankind would become ever closer, there would be a progressive improvement in general well-being, and civilization would rise to ever higher levels of culture. Nothing could shake their optimism. As the attack on liberalism began to grow steadily fiercer, as the ascendancy of liberal ideas in politics was challenged from all sides, they thought that what they had to contend with was only the last volleys fired in retreat by a moribund system that did not require serious study and counterattack because it would in any case soon collapse of itself.

The liberals were of the opinion that all men have the intellectual capacity to reason correctly about the difficult problems of social cooperation and to act accordingly. They were so impressed with the clarity and self-evidence of the reasoning by which they had arrived at their political ideas that they were quite unable to understand how anyone could fail to comprehend it. They never grasped two facts: first, that the masses lack the capacity to think logically; and secondly, that in the eyes of most people, even when they are able to recognize the truth, a momentary, special advantage that may be enjoyed immediately appears more important than a lasting greater gain that must be deferred. Most people do not have even the intellectual endowments required to think through the—after all very complicated—problems of social cooperation, and they certainly do not have the will power necessary to make those provisional sacrifices that all social action demands. The slogans of interventionism and of socialism, especially proposals for the partial expropriation of private property, always find ready and enthusiastic approval with the masses, who expect to profit directly and immediately from them.

2

Political Parties

There can be no more grievous misunderstanding of the meaning and nature of liberalism than to think that it would be possible to secure the victory of liberal ideas by resorting to the methods employed today by the other political parties.

In a caste and status society, constituted not of citizens with equal rights, but divided into ranks vested with different duties and prerogatives, there are no political parties in the modern sense. As long as the special privileges and immunities of the different castes are not called into question, peace reigns among them. But once the privileges of caste and status are contested, the issue is joined, and civil war can be avoided only if one side or the other, recognizing its weakness, yields without an appeal to arms. In all such conflicts, the position of each individual is determined from the outset by his status as a member of one caste or another. To be sure, there can be renegades who, in the expectation of being better able to provide for their personal advantage on the side of the enemy, fight against the members of their own caste and are consequently viewed by them as traitors. But, apart from such exceptional cases, the individual is not confronted with the question of which of the opposing groups he ought to join. He stands by the members of his own caste and shares their fate. The caste or castes that are dissatisfied with their position rebel against the prevailing order and have to win their demands against the opposition of the others. The ultimate outcome of the conflict is—if everything does not, in fact, remain as it was because the rebels have been worsted—that the old order is replaced by a new one in which the rights of the various castes are different from what they were before.

With the advent of liberalism came the demand for the abolition of all special privileges. The society of caste and status had to make way for a new order in which there were to be only citizens with equal rights. What was under attack was no longer only the particular privileges of the different castes, but the very existence of all privileges. Liberalism tore down the barriers of rank and status and liberated man from the restrictions with which the old order had surrounded him. It was in capitalist society, under a system of government founded on liberal principles, that the individual was first granted the opportunity to participate directly in political life and was first called upon to make a personal decision in regard to political goals and ideals. In the caste and status society of earlier days, the only political conflicts had been those among the different castes, each of which had formed a solid front in opposition to the others; or, in the absence of such conflicts, there were, within those castes that were permitted a share in political life, factional conflicts among coteries and cliques for influence, power, and a place at the helm. Only under a polity in which all citizens enjoy equal rights—corresponding to the liberal ideal, which has nowhere ever been fully achieved—can there be political parties consisting of associations of persons who want to see their ideas on legislation and administration put into effect. For there can very well be differences of opinion concerning the best way to achieve the liberal aim of assuring peaceful social cooperation, and these differences of opinion must join issue as conflicts of ideas.

Thus, in a liberal society there could be socialist parties too. Even parties that seek to have a special legal position conceded to particular groups would not be impossible under a liberal system. But all these parties must acknowledge liberalism (at least temporarily, until they emerge victorious) so far as to make use in their political struggles solely of the weapons of the intellect, which liberalism views as the only ones permissible in such contests, even though, in the last analysis, as socialists or as champions of special privileges, the members of the antiliberal parties reject the liberal philosophy. Thus, some of the pre-Marxist “utopian” socialists fought for socialism within the framework of liberalism, and in the golden age of liberalism in western Europe, the clergy and the nobility tried to achieve their ends within the framework of a modern constitutional state.

The parties that we see at work today are of an entirely different kind. To be sure, some part of their program is concerned with the whole of society and purports to address itself to the problem of how social cooperation is to be achieved. But what this part of their program says is only a concession wrung from them by the liberal ideology. What they aim at in reality is set forth in another part of their program, which is the only part that they pay any attention to and which stands in irreconcilable contradiction to the part that is couched in terms of the general welfare. Present-day political parties are the champions not only of certain of the privileged orders of earlier days that desire to see preserved and extended traditional prerogatives that liberalism had to allow them to keep because its victory was not complete, but also of certain groups that strive for special privileges, that is to say, that desire to attain the status of a caste. Liberalism addresses itself to all and proposes a program acceptable to all alike. It promises no one privileges. By calling for the renunciation of the pursuit of special interests, it even demands sacrifices, though, of course, only provisional ones, involving the giving up of a relatively small advantage in order to attain a greater one. But the parties of special interests address themselves only to a part of society. To this part, for which alone they intend to work, they promise special advantages at the expense of the rest of society.

All modern political parties and all modern party ideologies originated as a reaction on the part of special group interests fighting for a privileged status against liberalism. Before the rise of liberalism, there were, of course, privileged orders with their special interests and prerogatives and their mutual conflicts, but at that time the ideology of the status society could still express itself in a completely naive and unembarrassed way. In the conflicts that occurred in those days between the champions and the opponents of special privilege, there was never any question of the antisocial character of the whole system nor any need of maintaining the pretense of justifying it on social grounds. One cannot, therefore, draw any direct comparison between the old system of privileged orders and the activities and propaganda of the present-day parties of special interests.

To understand the true character of all these parties, one must keep in mind the fact that they were originally formed solely as a defense of special privileges against the teachings of liberalism. Their party doctrines are not, like those of liberalism, the political application of a comprehensive, carefully thought-out theory of society. The political ideology of liberalism was derived from a fundamental system of ideas that had first been developed as a scientific theory without any thought of its political significance. In contradistinction to this, the special rights and privileges sought by the antiliberal parties were, from the very outset, already realized in existing social institutions, and it was in justification of the latter that one undertook subsequently to elaborate an ideology, a task that was generally treated as a matter of little moment that could easily be disposed of with a few brief words. Farm groups think it sufficient to point out the indispensability of agriculture. The trade unions appeal to the indispensability of labor. The parties of the middle class cite the importance of the existence of a social stratum that represents the golden mean. It seems to trouble them little that such appeals contribute nothing to proving the necessity or even the advantageousness to the general public of the special privileges they are striving for. The groups that they desire to win over will follow them in any case, and as for the others, every attempt at recruiting supporters from their ranks would be futile.

Thus, all these modern parties of special interests, no matter how far apart their goals may diverge or how violently they may contend against one another, form a united front in the battle against liberalism. In the eyes of all of them, the principle of liberalism that the rightly understood interests of all men are, in the long run, compatible is like a red cloth waved in front of a bull. As they see it, there are irreconcilable conflicts of interests that can be settled only by the victory of one faction over the others, to the advantage of the former and the disadvantage of the latter. Liberalism, these parties assert, is not what it pretends to be. It too is nothing but a party program seeking to champion the special interests of a particular group, the bourgeoisie, i.e., the capitalists and entrepreneurs, against the interests of all other groups.

The fact that this allegation forms part of the propaganda of Marxism accounts for much of the latter’s success. If the doctrine of the irreconcilable conflict between the interests of different classes within a society based on private ownership of the means of production is taken as the essential dogma of Marxism, then all the parties active today on the European continent would have to be considered as Marxist. The doctrine of class antagonisms and of class conflict is also accepted by the nationalist parties in so far as they share the opinion that these antagonisms do exist in capitalist society and that the conflicts to which they give rise must run their course. What distinguishes them from the Marxist parties is only that they wish to overcome class conflict by reverting to a status society constituted along the lines that they recommend and by shifting the battlefront to the international arena, where they believe it should be. They do not dispute the statement that conflicts of this kind occur in a society based on private ownership of the means of production. They merely contend that such antagonisms ought not to arise, and in order to eliminate them, they want to guide and regulate private property by acts of government interference; they want interventionism in place of capitalism. But, in the last analysis, this is in no way different from what the Marxists say. They too promise to lead the world to a new social order in which there will be no more classes, class antagonisms, or class conflicts.

In order to grasp the meaning of the doctrine of the class war, one must bear in mind that it is directed against the liberal doctrine of the harmony of the rightly understood interests of all members of a free society founded on the principle of private ownership of the means of production. The liberals maintained that with the elimination of all the artificial distinctions of caste and status, the abolition of all privileges, and the establishment of equality before the law, nothing else stands in the way of the peaceful cooperation of all members of society, because then their rightly understood, long-run interests coincide. All the objections that the champions of feudalism, of special privileges, and of distinctions of caste and status sought to advance against this doctrine soon proved quite unjustified and were unable to gain any notable support. But in Ricardo’s system of catallactics one may find the point of departure for a new theory of the conflict of interests within the capitalist system. Ricardo believed that he could show how, in the course of progressive economic development, a shift takes place in the relations among the three forms of income in his system, viz., profit, rent, and wages. It was this that impelled a few English writers in the third and fourth decades of the nineteenth century to speak of the three classes of capitalists, landowners, and wage-laborers and to maintain that an irreconcilable antagonism exists among these groups. This line of thought was later taken up by Marx.

In the Communist Manifesto, Marx still did not distinguish between caste and class. Only later, when he became acquainted in London with the writings of the forgotten pamphleteers of the twenties and thirties and, under their influence, began the study of Ricardo’s system, did he realize that the problem in this case was to show that even in a society without caste distinctions and privileges irreconcilable conflicts still exist. This antagonism of interests he deduced from Ricardo’s system by distinguishing among the three classes of capitalists, landowners, and workers. But he by no means adhered firmly to this distinction. Sometimes he asserts that there are only two classes, the propertied and the propertyless; at other times he distinguishes among more classes than just the two or three great ones. At no time, however, did Marx or any one of his many followers attempt in any way to define the concept and nature of the classes. It is significant that the chapter entitled “The Classes” in the third volume of Capital breaks off after a few sentences. More than a generation elapsed from the appearance of the Communist Manifesto, in which Marx first makes class antagonism and class war the keystone of his entire doctrine, to the time of his death. During this entire period Marx wrote volume after volume, but he never came to the point of explaining what is to be understood by a “class.” In his treatment of the problem of classes Marx never went beyond the mere statement, without any proof, of a dogma or, let us rather say, of a slogan.

In order to prove that the doctrine of class warfare is true, one would have to be able to establish two facts: on the one hand, that there is an identity of interests among the members of each class; and, on the other hand, that what benefits one class injures the other. This, however, has never been accomplished. Indeed, it has never even been attempted. Precisely because “class comrades” are all in the same “social situation,” there is no identity of interests among them, but rather competition. The worker, for example, who is employed under better-than-average conditions has an interest in excluding competitors who could reduce his income to the average level. In the decades when the doctrine of the international solidarity of the proletariat was proclaimed time and time again in verbose resolutions adopted at the international Marxist congresses, the workers of the United States and Australia set up the greatest obstacles to immigration. By means of a complex network of petty regulations, the English trade unions made impossible the entrance of outsiders into their branches of labor. What has been done by the labor parties in this regard in every country during the last few years is well known. Of course, one can say that this ought not to have happened; the workers ought to have acted differently; what they did was wrong. But one cannot deny that it directly served their interests—at least for the moment.

Liberalism has demonstrated that the antagonism of interests, which, according to a widely prevalent opinion, is supposed to exist among different persons, groups, and strata within a society based on private ownership of the means of production, does not, in fact, occur. Any increase in total capital raises the income of capitalists and landowners absolutely and that of workers both absolutely and relatively. As regards their income, any shifts in the various interests of the different groups and strata of society—the entrepreneurs, capitalists, landowners, and workers—occur together and move in the same direction as they pass through different phases in their fluctuations; what varies is only the ratio of their shares of the social product. The interests of the landowners oppose those of the members of the other groups only in the one case of a genuine monopoly of a certain mineral. The interests of the entrepreneurs can never diverge from those of the consumers. The entrepreneur prospers the better, the better he is able to anticipate the desires of the consumers.

Conflicts of interests can occur only in so far as restrictions on the owners’ free disposal of the means of production are imposed by the interventionist policy of the government or by interference on the part of other social forces armed with coercive power. For example, the price of a certain article can be artificially raised by a protective tariff, or the wages of a certain group of workers can be increased by excluding all competitors for their jobs. The famous line of reasoning of the free-trade school, never refuted and forever irrefutable, applies to cases of this kind. Such special privileges can, of course, benefit the particular group on whose behalf they were instituted only if other groups have been unable to win similar privileges for themselves. But it cannot be assumed that it would be possible, in the long run, to deceive the majority of the people about the real significance of such special privileges so that they will tolerate them willingly. Yet if one undertakes to use force to compel their acceptance, one will provoke violent rebellion—in short, a disturbance of the peaceful course of social cooperation, the preservation of which is in the interest of everyone. If one seeks to solve the problem by making these special privileges, not exceptions on behalf of just one or a few persons, groups, or strata of society, but the general rule, as, for example, by resorting to import duties to protect most of the articles sold on the home market, or by using similar measures to bar access to the majority of occupations, the advantages gained by each particular group are counterbalanced by the disadvantages that they must suffer, and the end result is only that all are injured by the consequent lowering of the productivity of labor.

If one rejects this doctrine of liberalism, if one heaps ridicule on the controversial theory of the “harmony of interests of all men,” then it is not true, either, as is wrongly assumed by all schools of antiliberal thought, that there could still be a solidarity of interests within narrower circles, as, for instance, among members of the same nation (as against other nations) or among members of the same “class” (as against other classes). In order to demonstrate the existence of such an alleged solidarity, a special line of reasoning would be necessary that no one has followed or has even attempted to follow. For all the arguments that could be employed to prove the existence of a solidarity of interests among the members of any of these groups prove much more besides, viz., the universal solidarity of interests within ecumenical society. How those apparent conflicts of interest that seem at first sight to be irreconcilable are in fact resolved can be shown only by means of a line of reasoning that treats all mankind as an essentially harmonious community and allows no room for the demonstration of any irreconcilable antagonisms among nations, classes, races, and the like.

The antiliberal parties do not, as they believe, prove that there is any solidarity of interests within nations, classes, races, etc. All that they actually do is to recommend to the members of these particular groups alliances for a common struggle against all other groups. When they speak of a solidarity of interests within these groups, they are not so much affirming a fact as stating a postulate. In reality, they are not saying, “The interests are identical,” but rather, “The interests ought to be made identical by an alliance for united action.”

The modern parties of special interests declare quite frankly and unequivocally, from the very outset, that the aim of their policy is the creation of special privileges for a particular group. Agrarian parties strive for protective tariffs and other advantages (e.g., subsidies) for farmers; civil service parties aim at securing privileges for bureaucrats; regional parties are dedicated to gaining special advantages for the inhabitants of a certain region. All these parties evidently seek nothing but the advantage of a single group in society, without consideration of the whole of society or of all other groups, however much they may seek to palliate their procedure by declaring that the welfare of the whole of society can be achieved only by furthering the interests of agriculture, the civil service, etc. Indeed, their exclusive concern with but a single segment of society and their labors and endeavors on its behalf alone have become increasingly obvious and more cynical with the passage of the years. When the modern antiliberal movements were still in their infancy, they had to be more circumspect in regard to such matters, because the generation that had been reared on the liberal philosophy had learned to look upon the undisguised advocacy of the special interests of various groups as antisocial.

The champions of special interests can form great parties only by composing a single combat unit out of the combined forces of various groups whose special interests are in conflict. Privileges granted to a particular group, however, have practical value only when they accrue to a minority and are not outweighed by the privileges granted to another group. But unless circumstances are exceptionally favorable, a small group cannot hope at present, while the liberal condemnation of the privileges of the nobility still retains some traces of its earlier influence, to be able to have their claim to be treated as a privileged class prevail against all other groups. The problem of all the parties of special interests, therefore, is to form great parties out of relatively small groups with differing and, indeed, directly conflicting interests. But in view of the mentality that leads these smaller parties to put forth and defend their demands for special privileges, it is quite impracticable to achieve this end by way of an open alliance among the various groups. No provisional sacrifice can be asked of the man who strives for the acquisition of a privileged position for his own group or even for himself alone; if he were capable of understanding the reason for making the provisional sacrifice, then he would certainly think along liberal lines and not in terms of the demands of those engaged in the scramble for special privileges. Nor can one openly tell him that he will gain more from the privilege intended for him than he will lose from the privileges that he will have to concede to others, for any speeches and writings to this effect could not, in the long run, remain hidden from the others and would impel them to raise their demands even higher.

Thus, the parties of special interests are obliged to be cautious. In speaking of this most important point in their endeavors, they must resort to ambiguous expressions intended to obscure the true state of affairs. Protectionist parties are the best example of this kind of equivocation. They must always be careful to represent the interest in the protective tariffs they recommend as that of a wider group. When associations of manufacturers advocate protective tariffs, the party leaders generally take care not to mention that the interests of individual groups and often even of individual concerns are by no means identical and harmonious. The weaver is injured by tariffs on machines and yarn and will promote the protectionist movement only in the expectation that textile tariffs will be high enough to compensate him for the loss that he suffers from the other tariffs. The farmer who grows fodder demands tariffs on fodder, which the cattle raisers oppose; the winegrower demands a tariff on wine, which is just as disadvantageous to the farmer who does not happen to cultivate a vineyard as it is to the urban consumer. Nevertheless, the protectionists appear as a single party united behind a common program. This is made possible only by throwing a veil of obscurity over the truth of the matter.

Any attempt to found a party of special interests on the basis of an equal apportionment of privileges among the majority of the population would be utterly senseless. A privilege accruing to the majority ceases to be such. In a predominantly agricultural country, which exports farm products, an agrarian party working for special favors for farmers would be, in the long run, impossible. What should it demand? Protective tariffs could not benefit these farmers, who must export; and subsidies could not be paid to the majority of producers, because the minority could not provide them. The minority, on the other hand, which demands privileges for itself must induce the illusion that great masses stand behind it. When the agrarian parties in the industrial countries present their demands, they include in what they call the “farm population” landless workers, cottagers, and owners of small plots of land, who have no interest in a protective tariff on agricultural products. When the labor parties make some demand on behalf of a group of workers, they always talk of the great mass of the working people and gloss over the fact that the interests of trade-unionists employed in different branches of production are not identical, but, on the contrary, actually antagonistic, and that even within individual industries and concerns there are sharp conflicts of interest.

This is one of the two fundamental weaknesses of all parties aiming at privileges on behalf of special interests. On the one hand, they are obliged to rely on only a small group, because privileges cease to be privileges when they are granted to the majority; but, on the other hand, it is only in their guise as the champions and representatives of the majority that they have any prospect of realizing their demands. The fact that many parties in different countries have sometimes succeeded in overcoming this difficulty in carrying on their propaganda and have managed to imbue each social stratum or group with the conviction that its members may expect special advantages from the triumph of the party speaks only for the diplomatic and tactical skill of the leadership and for the want of judgment and the political immaturity of the voting masses. It by no means proves that a real solution of the problem is, in fact, possible. Of course, one can simultaneously promise city-dwellers cheaper bread and farmers higher prices for grain, but one cannot keep both promises at the same time. It is easy enough to promise one group that one will support an increase in certain government expenditures without a corresponding reduction in other government expenditures, and at the same time hold out to another group the prospect of lower taxes; but one cannot keep both these promises at the same time either. The technique of these parties is based on the division of society into producers and consumers. They are also wont to make use of the usual hypostasis of the state in questions of fiscal policy that enables them to advocate new expenditures to be paid out of the public treasury without any particular concern on their part over how such expenses are to be defrayed, and at the same time to complain about the heavy burden of taxes.

The other basic defect of these parties is that the demands they raise for each particular group are limitless. There is, in their eyes, only one limit to the quantity to be demanded: the resistance put up by the other side. This is entirely in keeping with their character as parties striving for privileges on behalf of special interests. Yet parties that follow no definite program, but come into conflict in the pursuit of unlimited desires for privileges on behalf of some and for legal disabilities for others, must bring about the destruction of every political system. People have been coming to recognize this ever more clearly and have begun to speak of a crisis of the modern state and of a crisis of the parliamentary system. In reality, what is involved is a crisis of the ideologies of the modern parties of special interests.

3

The Crisis of Parliamentarism and the Idea of a Diet Representing Special Groups

Parliamentarism, as it has slowly developed in England and in some of her colonies since the seventeenth century, and on the European continent since the overthrow of Napoleon and the July and February Revolutions, presupposes the general acceptance of the ideology of liberalism. All who enter a parliament charged with the responsibility of there deciding how the country shall be governed must be imbued with the conviction that the rightly understood interests of all parts and members of society coincide and that every kind of special privilege for particular groups and classes of the population is detrimental to the common good and must be eliminated. The different parties in a parliament empowered to perform the functions assigned to it by all the constitutions of recent times may, of course, take different sides in regard to particular political questions, but they must consider themselves as the representatives of the whole nation, not as representatives of particular districts or social strata. Above all their differences of opinion there must prevail the conviction that, in the last analysis, they are united by a common purpose and an identical aim and that only the means to the attainment of the goal toward which they all aspire are in dispute. The parties are not separated by an unbridgeable gulf nor by conflicts of interests that they are prepared to carry on to the bitter end even if this means that the whole nation must suffer and the country be brought to ruin. What divides the parties is the position they take in regard to concrete problems of policy. There are, therefore, only two parties: the party in power and the one that wants to be in power. Even the opposition does not seek to obtain power in order to promote certain interests or to fill official posts with its party members, but in order to translate its ideas into legislation and to put them into effect in the administration of the country.

Only under these conditions are parliaments or parliamentary governments practicable. For a time they were realized in the Anglo-Saxon countries, and some traces of them can still be found there today. On the European continent, even during the period usually characterized as the golden age of liberalism, one could really speak only of a certain approximation to these conditions. For decades now, conditions in the popular assemblies of Europe have been something like their direct opposite. There are a great number of parties, and each particular party is itself divided into various subgroups, which generally present a united front to the outside world, but usually oppose one another within the party councils as vehemently as they oppose the other parties publicly. Each particular party and faction feels itself appointed to be the sole champion of certain special interests, which it undertakes to lead to victory at any cost. To allot as much as possible from the public coffers to “our own,” to favor them by protective tariffs, immigration barriers, “social legislation,” and privileges of all kinds, at the expense of the rest of society, is the whole sum and substance of their policy.

As their demands are, in principle, limitless, it is impossible for any one of these parties ever to achieve all the ends it envisages. It is unthinkable that what the agrarian or labor parties strive for could ever be entirely realized. Every party seeks, nevertheless, to attain to such influence as will permit it to satisfy its desires as far as possible, while also taking care always to be able to justify to its electors why all their wishes could not be fulfilled. This can be done either by seeking to give in public the appearance of being in the opposition, although the party is actually in power, or by striving to shift the blame to some force not answerable to its influence: the sovereign, in the monarchical state; or, under certain circumstances, foreign powers or the like. The Bolsheviks cannot make Russia happy nor the socialists Austria because “western capitalism” prevents it. For at least fifty years antiliberal parties have ruled in Germany and Austria, yet we still read in their manifestoes and public statements, even in those of their “scientific” champions, that all existing evils are to be blamed on the dominance of “liberal” principles.

A parliament composed of the supporters of the antiliberal parties of special interests is not capable of carrying on its business and must, in the long run, disappoint everyone. This is what people mean today and have meant for many years now when they speak of the crisis of parliamentarism.

As the solution for this crisis, some demand the abolition of democracy and the parliamentary system and the institution of a dictatorship. We do not propose to discuss once again the objections to dictatorship. This we have already done in sufficient detail.

A second suggestion is directed toward remedying the alleged deficiencies of a general assembly composed of members elected directly by all the citizens, by either supplementing or replacing it altogether with a diet composed of delegates chosen by autonomous corporative bodies or guilds formed by the different branches of trade, industry, and the professions. The members of a general popular assembly, it is said, lack the requisite objectivity and the knowledge of economic affairs. What is needed is not so much a general policy as an economic policy. The representatives of industrial and professional guilds would be able to come to an agreement on questions whose solution either eludes entirely the delegates of constituencies formed on a merely geographical basis or becomes apparent to them only after long delay.

In regard to an assembly composed of delegates representing different occupational associations, the crucial question about which one must be clear is how a vote is to be taken, or, if each member is to have one vote, how many representatives are to be granted to each guild. This is a problem that must be resolved before the diet convenes; but once this question is settled, one can spare oneself the trouble of calling the assembly into session, for the outcome of the voting is thereby already determined. To be sure, it is quite another question whether the distribution of power among the guilds, once established, can be maintained. It will always be—let us not cherish any delusions on this score—unacceptable to the majority of the people. In order to create a parliament acceptable to the majority, there is no need of an assembly divided along occupational lines. Everything will depend on whether the discontent aroused by the policies adopted by the deputies of the guilds is great enough to lead to the violent overthrow of the whole system. In contrast to the democratic system, this one offers no guarantee that a change in policy desired by the overwhelming majority of the population will take place. In saying this, we have said everything that needs to be said against the idea of an assembly constituted on the basis of occupational divisions. For the liberal, any system which does not exclude every violent interruption of peaceful development is, from the very outset, out of the question.

Many supporters of the idea of a diet composed of guild representatives think that conflicts should be settled, not by the submission of one faction to another, but by the mutual adjustment of differences. But what is supposed to happen if the parties cannot succeed in reaching agreement? Compromises come about only when the threatening spectre of an unfavorable issue induces each party to the dispute to make some concession. No one prevents the different parties from coming to an agreement even in a parliament composed of delegates elected directly by the whole nation. No one will be able to compel agreement in a diet consisting of deputies chosen by the members of occupational associations.

Thus, an assembly so constituted cannot function like a parliament that serves as the organ of a democratic system. It cannot be the place where differences of political opinion are peacefully adjusted. It is not in a position to prevent the violent interruption of the peaceful progress of society by insurrection, revolution, and civil war. For the crucial decisions that determine the distribution of political power in the state are not made within its chambers or during the elections that decide its composition. The decisive factor in determining the distribution of power is the relative weight assigned by the constitution to the different corporate associations in the shaping of public policy. But this is a matter that is decided outside the chambers of the diet and without any organic relationship to the elections by which its members are chosen.

It is therefore quite correct to withhold the name “parliament” from an assembly consisting of representatives of corporate associations organized along occupational lines. Political terminology has been accustomed, in the last two centuries, to make a sharp distinction between a parliament and such an assembly. If one does not wish to confound all the concepts of political science, one does well to adhere to this distinction.

Sidney and Beatrice Webb, as well as a number of syndicalists and guild socialists, following in this respect recommendations already made in earlier days by many continental advocates of a reform in the upper chamber, have proposed letting two chambers exist side by side, one elected directly by the whole nation, and the other composed of deputies elected from constituencies divided along occupational lines. However, it is obvious that this suggestion in no way remedies the defects of the system of guild representation. In practice, the bicameral system can function only if one house has the upper hand and has the unconditional power to impose its will on the other, or if, when the two chambers take different positions on an issue, an attempt at a compromise solution must be made. In the absence of such an attempt, however, the conflict remains to be settled outside the chambers of parliament, in the last resort by force alone. Twist and turn the problem as one will, one always returns in the end to the same insurmountable difficulties. Such are the stumbling blocks on which all proposals of this and a similar kind must come to grief, whether they are called corporativism, guild socialism, or anything else. The impracticability of these schemes is admitted when people finally content themselves by recommending a completely inconsequential innovation: the establishment of an economic council empowered to serve solely in an advisory capacity.

The champions of the idea of an assembly composed of guild deputies labor under a serious delusion if they think that the antagonisms that today rend the fabric of national unity can be overcome by dividing the population and the popular assembly along occupational lines. One cannot get rid of these antagonisms by tinkering with technicalities in the constitution. They can be overcome only by the liberal ideology.

4

Liberalism and the Parties of Special Interests

The parties of special interests, which see nothing more in politics than the securing of privileges and prerogatives for their own groups, not only make the parliamentary system impossible; they rupture the unity of the state and of society. They lead not merely to the crisis of parliamentarism, but to a general political and social crisis. Society cannot, in the long run, exist if it is divided into sharply defined groups, each intent on wresting special privileges for its own members, continually on the alert to see that it does not suffer any setback, and prepared, at any moment, to sacrifice the most important political institutions for the sake of winning some petty advantage.

To the parties of special interests, all political questions appear exclusively as problems of political tactics. Their ultimate goal is fixed for them from the start. Their aim is to obtain, at the cost of the rest of the population, the greatest possible advantages and privileges for the groups they represent. The party platform is intended to disguise this objective and give it a certain appearance of justification, but under no circumstances to announce it publicly as the goal of party policy. The members of the party, in any case, know what their goal is; they do not need to have it explained to them. How much of it ought to be imparted to the world is, however, a purely tactical question.

All antiliberal parties want nothing but to secure special favors for their own members, in complete disregard of the resulting disintegration of the whole structure of society. They cannot withstand for a moment the criticism that liberalism makes of their aims. They cannot deny, when their demands are subjected to the test of logical scrutiny, that their activity, in the last analysis, has antisocial and destructive effects and that even on the most cursory examination it must prove impossible for any social order to arise from the operations of parties of special interests continually working against one another. To be sure, the obviousness of these facts has not been able to damage the parties of special interests in the eyes of those who lack the capacity to look beyond the immediate present. The great mass of people do not inquire what will happen the day after tomorrow or later on. They think of today and, at most, of the next day. They do not ask what must follow if all other groups too, in the pursuit of their special interests, were to display the same unconcern for the general welfare. They hope to succeed not only in realizing their own demands, but also in beating down those of others. For the few who apply higher standards to the activities of political parties, who demand that even in political action Kant’s categorical imperative be followed (“Act only on that principle which you can will—at the same time—to be a universal law, i.e., so that no contradiction results from the attempt to conceive of your action as a law to be universally complied with”), the ideology of the parties of special interests certainly has nothing to offer.

Socialism has gained a considerable advantage from this logical deficiency in the position adopted by the parties of special interests. For many who are unable to grasp the great ideal of liberalism, but who think too clearly to be content with demands for privileged treatment on behalf of particular groups, the principle of socialism took on a special significance. The idea of a socialist society—to which one cannot, in spite of its necessarily inherent defects, which we have already discussed in detail, deny a certain grandeur of conception—served to conceal and, at the same time, to vindicate the weakness of the position taken by the parties of special interests. It had the effect of diverting the attention of the critic from the activities of the party to a great problem, which, whatever one may think of it, was at all events deserving of serious and exhaustive consideration.

In the last hundred years, the socialist ideal, in one form or another, has found adherents among many sincere and honest people. A number of the best and noblest men and women have accepted it with enthusiasm. It has been the guiding star of distinguished statesmen. It has achieved a dominant position at the universities and has served as a source of inspiration to youth. It has so filled the thoughts and fed the emotions of both the past and the present generation that history will some day quite justly characterize our era as the age of socialism. In the last decades, in all countries people have done as much as they could to make the socialist ideal a reality by nationalizing and municipalizing enterprises and by adopting measures designed to lead to a planned economy. The defects necessarily involved in socialist management—its unfavorable effects on the productivity of human labor and the impossibility of economic calculation under socialism—everywhere brought these endeavors to the point where virtually every step further in the direction of socialism threatened too flagrant an impairment of the supply of goods available to the public. From sheer necessity one had to pause on the road to socialism; and the socialist ideal—even while preserving its ideological ascendancy—became, in practical politics, merely a cloak for the labor parties in their scramble for privileges.

This could be shown to be true of each of the many socialist parties, such as, for instance, the various factions among the Christian socialists. We propose, however, to confine our discussion to the case of the Marxian socialists, who undoubtedly were and are the most important socialist party.

Marx and his followers were really serious about socialism. Marx rejected all those measures on behalf of particular groups and strata of society that are demanded by the parties of special interests. He did not dispute the validity of the liberal argument that the outcome of such acts of interference can only be a general reduction in the productivity of labor. When he thought, wrote, and spoke consistently, he always took the position that every attempt to tamper with the mechanism of the capitalist system by acts of intervention on the part of the government or of other social organs armed with the same coercive power is pointless because it does not bring about the result intended by its advocates,

The Online Library of LibertyA project of Liberty Fund, Inc.

About Liberty Fund:

Fair use statement:

Ian Dunois’ Free Market foundations

This List Is By:

Print this List

Table of Contents

1: Israel M. Kirzner, The Economic Point of View [1960]

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 Online Library of Liberty
A project of Liberty Fund, Inc.

LIBERALISM

The Classical Tradition