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• 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 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

[[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.