The Economic Point of View: An Essay in the History of Economic Thought

Kirzner, Israel M.
(1930- )
BIO
Display paragraphs in this book containing:
Editor/Trans.
Laurence S. Moss, ed.
First Pub. Date
1960
Publisher/Edition
Kansas City: Sheed and Ward, Inc.
Pub. Date
1976
Comments
2nd edition. Foreword by Ludwig von Mises.

3
The Science of Avarice; Getting the Most for the Least

3.0

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

3.1

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

3.2

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

3.3

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.

3.4

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.

3.5

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.

3.6

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

3.7

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

3.8

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

3.9

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

3.10

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.

3.11

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.

3.12

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

3.13

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

3.14

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.

3.15

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.

3.16

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

3.17

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.

3.18

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

3.19

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

3.20

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"

3.21

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

3.22

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

3.23

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.

3.24

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

3.25

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.

3.26

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

3.27

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.

3.28

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

3.29

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.

3.30

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"

3.31

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

3.32

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

3.33

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.

3.34

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

3.35

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.

3.36

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

3.37

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

3.38

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."

3.39

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.

3.40

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

3.41

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

3.42

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.

3.43

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 generally*46 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.

3.44

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.


Notes for this chapter


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.

Chapter 4

End of Notes


Return to top