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AN ESSAY ON THENATURE ftf SIGNIFICANCEO F E C O N O M I C S C I E N C E

BYLIONEL ROBBINS

Professor of Economics in the University of Londo n

S E C O N D E D I T I O N , R E V I S E D AND E X T E N D E D

MACMILLAN AND CO., LIMITEDST. MARTIN'S STREET, LONDONi945


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COPYRIGHTFirst Edition, 1932Second Edition, 1935Seprtnted, 1937,1940and 1945

PRINTED TN GKEAT BRITAIN


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TO MY FATHER


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PREFACE TO TH E SECOND EDITIONTH E first edition of this essay has been out of printfor some time, but apparently some demand for itcontinues. I have therefore taken advantage of thepublisher's decision to reprint to introduce certainalterations and improvements which experience sinceit was first w ritten seemed to m ake desirable.In making these revisions I have not found itnecessary to change substan tially th e main tren d of th eargument. Public criticism has tended to focus uponthe denial in Chapter VI. of the scientific legitimacyof interpersonal comparisons of utility. I am afraidthat without the least disposition to be intransi-gent, here or elsewhere, I am still quite unconvinced.I contended that the aggregation or comparison ofthe different satisfactions of different individualsinvolves judgments of value rather than judgmentsof fact, and that such judgments are beyond thescope of positive science. Nothing that has beensaid by any of my critics has persuaded me thatthis contention is false. Beyond a few supplementaryremarks intended to elucidate matters further, there-fore, I have left this section unaltered. I hope thatmy critics (some of whom seemed to assume that Iwas a very combative fellow indeed) will not regardthis as a gesture of unfriendly defiance. I assure themI am not at all cocksure about any of my own ideas.B ut, in spite of the disposition of some of them torefer to this and other well-known propositions as

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vi ii SIGNIFICAN CE OF ECONOMIC SCIENCE"Robbinsian Econom ics," it is no t m y own, and th eweight of the authorities by whom it has been pro-pounded encourages me to believe th a t in this case, a tleast, my own lights have not led m e astr ay .On the other hand, many of my critics have in-ferred from my arguments in this connection certainprecepts of practice which I should be the first torepudiate. It has been held that because I attemptedclearly to delimit the spheres of Economics and othersocial sciences, and Economics and moral philosophy,that therefore I advocated the abstention of theeconomist from all interest or activity outside hisown subject. It has been heldin spite of activitieswhich I feared had become notoriousthat I hadurged that economists should play no part in shapingthe conduct of affairs beyond giving a very primand restrained diagnosis of the implications of allpossible courses of action. My friend Mr. LindleyFraser was even led to urge upon me in an article en-titled "H ow do we want Economists to Behave ?" moresocially-minded behaviour. W here so m any h ave mis-apprehended my intentions, I cannot flatter myselfthat I was free from obscurity. But I do plead thatI did in fact state the contraryas I thought, mostemphatically. In a footnote to Section 6, Chapter V.,I stated, "It is more accuracy in mode of statement,not over-austerity in speculative range, for which Iam pleading", and I went on to urge that economistshave probably high differential advantages as sociolo-gists. And in Section 4, Chapter VI., I went on tosay: "All this is not to say that economists should notdeliver themselves on ethical questions, an y more th anan argument that botany is not sthetics is to saythat botanists should not have views of their own on


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PREFACE TO TH E SECOND EDITION ixthe lay-out of gardens. On the contrary, it is greatlyto be desired that economists should have speculatedlong and widely on these matters, since only in thisway will they be in a position to appreciate the im-plications as regards given ends of problems which arepu t to them for solution." I can only add to this th a tI quite agree with Mr. Fraser that an economist whois only an economist and who does not happen to bea genius at his subjectand how unwise it is for anyof us to assume that we are thatis a pretty poorfish. I agree, too, that by itself Economics affords nosolution to any of the important problems of life. Iagree that for this reason an education which consistsof Economics alone is a very imperfect education. Ihave taught so long in institutions where this is re-garded as a pedagogic axiom that any omission onmy part to emphasise it further is to be attributed tothe fact that I assumed that everybody would take itfor granted. All that I contend is that there is muchto be said for separating out the different kinds ofpropositions involved by the different disciplineswhich are germane to social action, in order that wemay know at each step exactly on what grounds weare deciding. I do not believe that Mr. Fraser reallydisagrees with me here.jln exactly the same way I would plead that it isa complete misunderstanding of my position to con-tend that because I have emphasised the conventionalna ture of the assumptions underlying m any of the so-called "measurements" of economic phenomena, I amtherefore "opposed" to the carrying out of operationsof this sort. I t does seem to m e to be a m atter of greatimportance to recognise very clearly that in com-puting such aggregates as the national income or the


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x SIGNIFICANCE OF ECONOMIC SCIENCEnational capital we are making assumptions whichare not reached by scientific analysis, but which areessentially conventional in character. But, as I urgedin the body of the essay (pp. 57 and 62), this is not inth e least to say tha t, provided we are fully conscious ofthe implications of our procedure, the re is any objectionto such com putations. On th e contrary, it is clear th a tnot enough of this sort of thing has been done in thepast, and that much is to be expected from its exten-sion in the future. Recognition of this, however, isnot incompatible with the view that it is desirableto know at each step where we are merely recordingfacts, and where we are evaluating these facts byarbitrary measures, and it is just because thesethings are so frequently confused that I still main-tain that emphasis on their dissimilarity is notuncalled for.There is, however, a part of the essay where re-vision has seemed to be much more incum ben t. I hav enever been satisfied with the chapter on the nature ofeconomic generalisations. I am not conscious of anyfundamental change of opinion on these matters. ButI do think that in my eagerness to bring out asvividly as possible the significance of certain recentinnovations I was led in certain places to a simplifica-tion of emphasis and to a looseness in the use oflogical term s, ap t to be misleading outside the con textof my own thought: and the fact that, while somecritics have reproached me with "barren scholas-ticism", others have accused me of "behaviourism",has not permitted me completely to comfort myselfwith the belief that I elucidated satisfactorily thecorrect position between these extremes. AccordinglyI have rew ritten large pa rts of this chapter, and I hav e


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PREFACE TO TH E SECOND EDITION xialso extended its scope to cover certain more complextopics, such as the meaning of th e assumption of purelyrational conduct, which, in the earlier version, I hadom itted in order not to overload the exposition. I amafraid this makes this part of the book at once moredifficult and more contentious. But although I amacutely aware of its imperfections, it satisfies my con-science more tha n my earlier atte m pt to deal with suchmatters only by implication. The opening section ofChapter V. has also been rewritten, and I have intro-duced additional paragraphs in Section 2, in which Idevelop a little further my reasons for believing theimportance of the contrast between the qualitativelaws discussed in the preceding chapter and the quan-titative "laws" of statistical analysis. I have alsoadded short sections in Chapters IV. and V. dealingwith the relations between statics and dynamics andthe possibility of a theory of economic developmentm atters upon which there seems to exist some unneces-sary confusion. I hope th a t th e changes I have madewill be acceptable to my friends Professor F. A. vonH ayek, Dr. P. N . Rosenstein Rodan and D r. A. W.Stonier, whose advice and criticisms on these diffi-cult matters have taught me much. They naturallyare not responsible for any mistakes which may havecrept in.I have wondered very much what I ought to doabout the various attacks on my work which havebeen made by Professor R. W. Souter. I have readProfessor Souter's strictures with interest and respect.As I have said already, I am not convinced by a ny thin gthat he says about what he calls the "positivism" ofmy attitude. So far as this part of his case is con-cerned Professor Souter must demolish, not me, but


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xii SIGN IFICAN CE OF ECONOMIC SCIENCEMax Weber: and I th ink Max W eber still stands, ttwith much of what he says, particularly with regardto the desirability of transcending the rather tritegeneralisations of elementary statics, I am in cordialagreement. Where I part company with him is inthe belief that it is possible to do this without sacri-ficing precision and w ithou t regarding th e essentialstatic foundations as useless. My acquaintance withthe findings of modern mathematical physics andastronomy is not great, but I question whether theeminent scientists to whom he makes appeal wouldshare his apparently very low opinion of the methodsof mathematical economics, however much they feltthat its results were still in a very elementary stage.In this respect I am in fairly complete agreementwith w ha t has been said already by Professor Knigh t.1I cannot help feeling, too, that, so far as this essayis concerned, one or two inadvertent acerbities ofexposition have so angered Professor Souter that hehas really misunderstood my position much morethan would otherwise have been the case. I regretthis, but it is difficult to know what to do aboutit. At one or two points I have tried to make thingsclearer. B ut to defend myself aga inst all these mis-understandings would involve so great an overloadingwith personal apologia of what is perhaps already anunduly protracted essay that I fear I should becometotally unreadable. I do not wish to appear dis-courteous, and I hope, if time permits me to completevarious works now projected, to be able to do some-thing to persuade Professor Souter th a t m y claim th a the has misunderstood me is no t unjustified.

1 "Economic Science in Recent Discussion", American Economic Revitw,vol. xxiv., pp. 225-238.


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PREFACE TO TH E SECOND EDITION xiiiFor the rest I have made only small changes. Ihave deleted certain footnotes whose topical relevance

has waned, and I have endeavoured to eliminatecertain manifestations of high spirits no longer inharmony with present moods. But nothing short ofcomplete rewriting could conceal the fact that, forbetter or worse, the essay was written some timeagolarge parts of it were conceived and draftedyears before publicationand although I think it isperhaps worth reprinting, I do not think it is worththe time that that would involve. So with all thecrudities and angularities that remain I commend itonce more to the mercies of its readers.

LIONEL BOBBINS.T H E L O N D O N S C H O O L OP E C O N O M I C S ,May, 1935.


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P R E F A C E T O T H E F I R S T E D I T I O NTH E purpose of this essay is twofold. In the firstplace, it seeks to arriye at precise notions concerningthe subject-matter of Economic Science and thenature of the generalisations of which EconomicScience consists. Secondly it attempts to explain thelimitations and the significance of these generalisa-tions, both as a guide to the interpretation of realityand as a basis for political practice. At the presentday , as a resu lt of the theoretical developments of t helast sixty years, there is no longer any ground forserious differences of opinion on these matters, oncethe issues are clearly stated. Yet, for lack of suchstatement, confusion still persists in many quarters,and false ideas are prevalent with regard to the pre-occupations of the economist and the nature and theextent of his competence. As a result, the reputationof Economics sutlers, and full advantage is not takenof the knowledge it confers. This essay is an attemptto remedy this deficiencyto make clear what it isthat economists discuss and what may legitimatelybe expected as a result of their discussions. Thus onthe one hand it may be regarded as a commentaryon the methods and assumptions of pure theory: onthe other hand, as a series of prolegomena to workin Applied E conom ics.

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PREFACE TO TH E FIRST EDITION xvThe object of the essay necessitates the taking ofbroad views. B ut m y aim throug hout h as been to keepas close to earth as possible. I have eschewed philo-sophical refinements as falling outside th e province inwhich I have any claim to professional competence;and I have based my propositions on the actualpractice of the best modern works on the subject.In a study of this sort, written by an economist forfellow-economists, it seemed better to try to drivehome the argument by continual reference to acceptedsolutions of particular problems, than to elaborate,out of the void, a theory of what Economics shouldbecome. At the same time, I have tried to be

brief. My object has been to suggest a point of viewrather th an to tre at th e subject in all its details. Todo this it seemed desirable to be concise even at theexpense of sacrificing much material which I hadoriginally collected. I hope, however, at a later stageto publish a work on general Economic Theory inwhich the principles here laid down are further illus-trated and amplified.For the views which I have advanced, I make noclaim whatever to originality. I venture to hope thatin one or two instances I have succeeded in givingexpository force to certain principles not alwaysclearly stated. But, in the main, my object has beento state, as simply as I could, propositions which arethe common property of most modern economists.I owe much to conversations with my colleagues andpupils at the School of Economics. For the restI have acknowledged in footnotes the debts of whichI am chiefly conscious. I should like, however, oncemore to acknowledge my especial indebtedness to


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xvi SIGNIFICANCE OF ECONOMIC SCIENCEthe works of Professor Ludwig von Mises and to theCommonsense of Political Economy of the late PhilipWicksteed. The considerable extent to which I havecited these sources is yet a very inadequate reflectionof the general assistance which I have derived fromtheir use.

LIONEL ROBBINS.T H B L O N D O N S CH O O L O P E C O N OM I C S,February, 1932.


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C O N T E N T SP A G E

P R E F A C E T O T H E S E C O N D E D I T I O N v i iP R E F A C E T O T H E F I R S T E D I T I O N . . . . x i v

C H A P T E R IT H E S U B J E C T - M A T T E R O F E C O N O M I C S

1 . I n t r o d u c t i o n . . . . . . . 12 . T h e " M a t e r i a l i s t " D e f i n i t i o n o f E c o n o m i c s . . 43 . T h e " S c a r c i t y " D e f i n i t i o n of E c o n o m i c s . . l 4 . E c o n o m i c s a n d t h e E x c h a n g e E c o n o m y . . 1 65 . T h e " M a t e r i a l i s t " a n d " S c a r c i t y " D e f i n it io n sC o m p a r e d . . . . . . . 21

C H A P T E R I IE N D S A N D M E A N S

1 . I n t r o d u c t i o n . . . . . . . 2 42 . E c o n o m i c s a n d E n d s 2 43 . E c o n o m i c s a n d t h e s t h e t i c . . . . 2 84 . E c o n o m i c s a n d T e c h n o l o g y . . . . . 3 25 . E c o n o m i c T h e o r y a n d E c o n o m i c H i s t o r y . . 3 86 . T h e M a t e r i a l i s t I n t e r p r e t a t i o n o f H i s t o r y . . 4 2

C H A P T E R I I IT H E R E L A T I V I T Y O F E C O N O M I C " Q U A N T I T I E S "

1 . T h e M e a n i n g of S c a r c i t y . . . . . 4 62 . T h e C o n c e p t of a n E c o n o m i c G o o d . 4 63 . T h e " F a l l a c y of M i s p l a c e d C o n c r e t e n e s s " . . 4 94 . T h e M e a n i n g of E co n o m i c S ta t i s t i c s . . . 5 45 . T h e S ig n i f i c a n c e of T i m e S e r i e s . . . . 5 96 . " P r o d u c t i o n - D i s t r i b u t i o n " versus " E q u i l i b r i u m "A n a l y s i s . . . . . . , . 6 3x v i i


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xvii i SIGNIFICANCE OF ECONOMIC SCIENCECHAPTER IV

T H E NATURE OF ECONOMIC GENERALISATIONS P A 1 B1 . I n t r o d u c t i o n 722 . The F o u n d a t i o n s of E c o n o m i c A n a l y s i s . . 723. E c o n o m i c L a w an d the " H i s t o r i c o -R e l a t i v e " . 794 . E c o n o m i c s and P s y c h o l o g y . . . . . 835. The A s s u m p t i o n of R a t i o n a l C o n d u c t . . . 906. T h e M y t h o l o g y of Homo conomicus . . . 9 47 . S t a t i c s and D y n a m i c s . . . . . 99

C H A P T E R VE C O N O M I C G E N E R A L I S A T I O N S AND R E A L I T Y1 . E c o n o m i c s as a Sc ience . . . . . 1042 . S t a t i s t i c a l " L a w s " of S u p p l y a n d D e m a n d . . 1063 . The " Q u a n t i t a t i v e E c o n o m i c s " of the I n s t i t u -t i o n a l i s t s . . . . . . . 112

4 . T h e F u n c t i o n of E m p i r i c a l S t u d i e s . . . 1 1 55. T h e I n e v i t a b i l i t y of E c o n o m i c L a w . . . 1 2 16. T h e L i m i t a t i o n s of E c o n o m i c Law . . . 1 2 67. The Poss ib i l i t y of a T h e o r y of E c o n o m i c D e v e l o p -m e n t 131C H A P T E R VI

T H E S I G N IF I C AN C E OF E C O N O M I C S C I E N C E1 . I n t r o d u c t i o n . . . . . . . 1 3 62 . Th e Law of Dimin i sh ing Marg ina l U t i l i t y . . 1363 . The N e u t r a l i t y of the T h e o r y of E q u i l i b r i u m . . 1434 . E c o n o m i c s a n d E t h i c s . . . . . . 1 4 75 . The Signif icance of Economic Sc ience . . . 1 5 1

I N D E X OF A U T H O R S C I T E D 159


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C H AP T E R ITHE SUBJECT-MATTER OP ECONOMICS

1. TH E object of this Essay is to exhibit the natureand significance of Economic Science. Its first tasktherefore is to delimit the sub ject-m atter of Economicsto provide a working definition of what Economicsis about.Unfortunately, this is by no means as simple asit sounds. The efforts of economists during the lasthun dred and fifty years have resulted in the establish-ment of a body of generalisations whose substantialaccuracy and importance are open to question onlyby the ignorant or the perverse. But they haveachieved no una nim ity concerning the ultim ate n atu reof the common subject-matter of these generalisa-tions. The central chapters of the standard works onEconomics retail, with only minor variations, themain principles of the science. But the chapters inwhich the object of the work is explained still presentwide divergences. We all talk abo ut th e same thing s,but we have not yet agreed what it is we are talkingabout.1

1 Lest this should be thought an overstatement I subjoin below a fewcharacteristic definitions. I have confined my choice to Anglo-Saxonliterature because, as will be shown later on, a more satisfactory state ofaffairs is coming to prevail elsewhere. " Economics is a study of m ankind inthe ordinary business of life; it examines tha t p art of individual and socialaction which is most closely connected with the attainment and with theuse of the material requisites of well-being" (Marshall, Principles, p. 1).

1


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2 SIGNIFICANCE OF ECONOMIC SCIENCE OH.This is no t in any way an unexpected or a disgrace-ful circumstance. As Mill pointed out a hundred yearsago, the definition of a science has almost invariably,not preceded, but followed the creation of the science

itself. "Like the wall of a city it has usually beenerected, not to be a receptacle for such edifices asmight afterwards spring up, but to circumscribe anaggregate already in existence."1 Indeed, it followsfrom the very nature of a science that until it hasreached a certain stage of development, definition ofits scope is necessarily impossible. For the unity ofa science only shows itself in the uni ty of the problemsit is able to solve, and such unity is not discovereduntil the interconnection of its explanatory principleshas been established.2 Modern Economics takes itsrise from various separate spheres of practical andphilosophical enquiryfrom investigations of thebalance of tradefrom discussions of the legitimacyof the taking of interest.3 It was not until quite recenttimes that it had become sufficiently unified for the"Economics is the science which treats phenomena (rom the s tandpoint ofpr ice" (Davenpor t , Economics of Enterprise, p. 25). "The aim of Political.Econom y is the exp lanation of the general causes on which the m ater ial wel-fare of human beings depends" (Cannan, Elementary Political Economy, p. 1)"It is too wide a definition to speak of Economics as the science of them ateria l s ide of hu ma n welfare." Econom ics is "th e s t ud y of the generalmethods by which men co-operate to meet their material needs" (Beveridge,Economics as a Liberal Education, Economica, vol. i . , p . 3) . Econo mics,according to Professor Pigou, is the study of economic welfare, economicwelfare being defined as " that part of welfare which can be brought directlyor indirectly into relation with the measuring rod of money" (Economics ofWelfare, 3rd edition, p. 1). The sequel will show how widely the implicationsof these definitions diverge from one another.1 Unsettled Questions of Political Economy, p. 120.s "Nicht d ie 'sachlichen` Zusammenhnge der 'Dinge ' sondern d iegedanklichen Zusammenhnge der Probleme liegen den Arbeitagebeten derWissenschaften zugrunde" (Max Weber, Die Objectivilt sozialwissenschaft-licher und sozialpolitischer Erkenn tnis, Oesam melle Aufstze zur W issen-schaftslehre, p . 166).J See Cannan, Review of Economic Theory, pp. 1-35, and Schumpeter,Ej>ochen der lethoden- und Dogmengeschickte, pp. 21-38.


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r TH E SUBJECT-MATTER OF ECONOMICS 3identity of the problems underlying these differentenquiries to be detected. At an earlier stage, anyattempt to discover the ultimate nature of the sciencewas necessarily doomed to disaster. It would havebeen waste of time to have attem pte d it.B ut once th is stage of unification h as been reachednot only is it not waste of time to attempt precisedelimitation; it is waste of time not to do so. Furtherelaboration can only take place if the objective isclearly indicated. The problems are no longer sug-gested by nave reflection. They are indicated bygaps in the unity of theory, by insufficiencies in itsexplanatory principles. Unless one has grasped whatth is un ity is, one is ap t to go off on false scen ts. Therecan be little doubt that one of the greatest dangerswhich beset the modern economist is preoccupationwith the irrelevantthe multiplication of activitieshaving little or no connection with the solution ofproblems strictly germane to his subject.1 There canbe equally little doubt that, in those centres wherequestions of this sort are on the way to ultimatesettlement, the solution of the central theoreticalproblems proceeds most rapidly. Moreover, if thesesolutions are to be fruitfully app lied, if we are tounderstand correctly the bearing of Economic Scienceon prac tice, it is essential th a t we should know exac tlythe implications and limitations of the generalisationsit establishes. It is therefore with an easy con-science that we may advance to what, at first sight,is the extremely academic problem of finding aformula to describe the general subject-matter ofEconomics.

1 See Chapter II., Section 5, especially the footnote on p. 42, for furtherelaboration of this point.


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4 SIGNIFICANCE OF ECONOMIC SCIENCE OH.2. The definition of Economics which would prob-ably command most adherents, at any rate in Anglo-Saxon countries, is that which relates it to the studyof the causes of material welfare. This element iscommon to the definitions of Cannan1 and Marshall,2and even Pareto, whose approach 3 in so many wayswas so different from that of the two English econo-mists, gives it the sanction of his usage. It is implied,too, in the definition of J. B. Clark.4And, at first sight, it must be admitted, it certainlydoes appear as if we have here a definition which forpractical purposes describes the object of our interest.In ordinary speech there is unquestionably a sense inwhich the word "economic" is used as equivalent to"material" . One has only to reflect upon its signi-fication to the layman in such phrases as "EconomicH istory",6 or "a conflict between economic andpolitical advantage", to realise the extreme plausi-bility of this interpretation. No doubt there are somematters falling outside this definition which seem tofall within the scope of Economics, but at first sightthese may very well seem to be of the order of mar-ginal cases inevitable with every definition.But the final tes t of the validity of any such defini-tion is not its apparent harmony with certain usagesof everyday speech, but its capacity to describeexactly the ultimate subject-matter of the main

1 Wealth, 1st edition, p. 17.2 Principles, 8th edition, p. 1.3 Court "Eamomie Politique, p. 6.4 Essentials of Economic Theory, p. . See also Philosophy of Wealth,o h . i . In this chapter the difficulties discussed below are explicitly recog-nised, but, surprisingly enough, instead of this leading to a rejection of thedefinition, it leads only to a somewhat surprising attempt to change thesignificance of the word "material".8 But see Chapter II. below for an examination of the validity of thisinterpretation.


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i TH E SUBJECT-MATTER OF ECONOMICS generalisations of the science.1 And when we submitthe definition in question to this test, it is seen topossess deficiencies which, so far from being marginaland subsidiary, amount to nothing less than a com-plete failure to exhibit either the scope or the signi-ficance of the most central generalisations of all.Let us tak e any one of the m ain divisions of theore ti-cal Economics and exam ine to wha t exten t it is coveredby the definition we are examining. We should allagree, for instance, that a theory of wages was anintegral part of any system of economic analysis. Canwe be content with the assumption th a t the phenomenawith which such a theory has to deal are adequatelydescribed as pertaining to the more material side ofhuman welfare?

Wages, in the strict sense of the term, are sumsearned by the performance of work at stipulated ratesunder the supervision of an employer. In the loosersense in which the term is often used in generaleconomic analysis, it stands for labour incomes otherthan profits. Now it is perfectly true that some wagesare the price of work which may be described as con-ducive to material welfarethe wages of a sewagecollector, for instance. B ut it is equally tru e th a t some

1 In this connection it is perhaps worth while clearing up a confusionwhich not infrequently occurs in discussions of terminology. It is oftenurged that scientific definitions of words used both in ordinary languageand in scientific analysis should not depart from the usages of everydayspeech. No doubt this is a counsel of perfection, but in principle the maincontention may be accepted. Great confusion is certainly created when a wordwhich is used in one sense in business practice is used in another sense inthe analysis of such practice . One has only to th ink of the difficulties whichhave been created by such departures in regard to the meaning of the termcapital. But it is one thing to follow everyday usage when appropriatinga term . I t is another thing to contend th at everyday speech is the finalcourt of appeal when defining a science. For in this case the significantimplication of the word is the subject-matter of the generalisations of thescience. And it is only by reference to these th at the definition can fina llybe established. Any other procedure would be intolerable.


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6 SIGNIFICANC E OF ECONOMIC SCIENCE OH.wages, the wages of the members of an orchestra, forinstance, are paid for work which has not the remotestbearing on material welfare. Yet the one set ofservices, equally with the other, commands a priceand enters into the circle of exchange. The theoryof wages is as applicable to the explanation of thelatter as it is to the explanation of the former. Itselucidations are not limited to wages which are paidfor work ministering to the "more material" side ofhuman well-beingwhatever that may be.Nor is th e situation saved if we turn from the workfor which wages are paid to the things on which wagesare spent. It might be urged that it is not becausewhat the wage-earner produces is conducive to otherpeople's material welfare that the theory of wagesmay be subsumed under the description, but becausewhat he gets is conducive to his own. But this doesnot bear examination for an instant. The wage-earner may buy bread with his earnings. But he maybuy a seat at the theatre. A theory of wages whichignored all those sums which were paid for "im m ate rial"services or spent on "immaterial" ends would be in-tolerable. The circle of exchange would be hopelesslyruptured . The whole process of general analysis couldnever be employed. It is impossible to conceive sig-nificant generalisations about a field thus arbitrarilydelimited.It is improbable that any serious economist hasattempted to delimit the theory of wages in this man-ner, however much he may have attempted thus todelimit the whole body of generalisations of which thetheo ry of wages is a par t. But attem pt s have certainlybeen made to deny the applicability of economicanalysis to the examination of the achievement of


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i TH E SUBJECT-MATTER OF ECONOMICS 7,ends other than material welfare. No less an econo-mist than Professor Cannan has urged that thepolitical economy of war is " a contradiction interms",1 apparently on the ground that, since Econo-mics is concerned with the causes of material welfare,and since war is not a cause of material welfare, warcannot be part of the subject-matter of Economics.As a moral judgment on the uses to which abstractknowledge should be put , Professor Cannan's stricturesmay be accepted. But it is abundantly clear, asProfessor Cannan's own practice has shown, that, sofar from Economics having no light to throw on thesuccessful prosecution of modern warfare, it is highlydoubtful whether the organisers of war can possiblydo without it. It is a curious paradox that ProfessorCannan's pronouncement on this matter should occurin a work which, more than any other published inour language, uses the apparatus of economic analysisto illuminate many of the most urgent and the mostintricate problems of a community organised for war.This habit on the p ar t of modern English economistsof describing Economics as concerned with the causesof material welfare, is all the more curious when wereflect upon the unanimity with which they haveadopted a non-material definition of "productivity".Adam Smith, it will be remembered, distinguishedbetween productive and unproductive labour, ac-cording as the efforts in question did or didnot result in the production of a tangible materialobject. "The labour of some of the most respectableorders in the society is, like that of menial servants,unproductive of any value and does not fix or realiseitself in any permanent subject or vendible commodity

1 Cannan, An Economist's Protest, p . 49 .


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8 SIGN IFICAN CE O P ECONOMIC SCIENCE CH.Cwhich endures after that labour is past. . . . Thesovereign, for example, with all the officers both ofjustice and w ar who serve under him are unproductivelabourers. . . . In the same class must be rankedsome both of the gravest and most important, andsome of the most frivolous professions: churchmen,lawyers, physicians, men of lette rs of all kind s; players,buffoons, musicians, opera singers, opera dancers,etc. . . ."* Modern economists, Professor Cannanforemost among them,2 have rejected this conceptionof productivity as inadequate.3 So long as it is theobject of demand, whether privately or collectivelyformulated, the labour of the opera singers anddancers must be regarded as "productiv e". Butproductive of what? Of material welfare becauseit cheers the business man and releases new storesof energy to organise the production of material?That way lies dilettantism and Wortspielerei. It isproductive because it is valued, because it hasspecific importance for various "economic subjects".So far is modern theory from the point of viewof Adam Smith and the Physiocrats that the epithetof productive labour is denied even to the produc-tion of material objects, if the material objects arenot valuable. Indeed, it has gone further than this.Professor Fisher, among others, has demonstratedconclusively4 that the income from a material objectmust in the last resort be conceived as an "im m ate rial "

i Wealth of Nations (Cannan's ed.), p . 316. Theories of Production and Distribution, pp. 18-31; Review of EconomicTheory, pp. 49-l.3 It is even arguable that the reaction has gone too far. Whatever itsdements, the Smithian classification had a significance for capital theorywhich in recent times has not always been clearly recognised. See Taussig,Waaes and Capital, pp. 132-151. The Nature of Capital and Income, oh. vii.


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TH E SUBJECT-MATTER OF ECONOMICS 9use. From my house equally as from my valet or theservices of the opera singer, I derive an income which"perishes in the moment of its production".But, if this is so, is it not misleading to go ondescribing Economics as the study of the causes ofmaterial welfare? The services of the opera dancerare wealth. Economics deals with the pricing of theseservices, equally with the pricing of the services of acook. Whatever Economics is concerned with, it isnot concerned with the causes of material welfare assuch.The causes which have led to th e persistence of th isdefinition are mainly historical in character. It is thelast vestige of Physiocratic influence. English econo-mists are not usually interested in questions of scopeand method. In nine cases out of ten where thisdefinition occurs, it has probably been taken overquite uncritically from some earlier work. But, in thecase of Professor Carman, its retention is due to morepositive causes; and it is instructive to attempt totrace the processes of reasoning which seem to haverendered it plausible to so penetrating and so acutean intellect.The rationale of any definition is usually to be foundin the use which is actually made of it. ProfessorCannan develops his definition in close juxtapositionto a discussion of "the Fundamental Conditions ofWealth for Isolated Man and for Society",1 and it isin connection with this discussion that he actuallyuses his conception of what is economic and what isno t. I t is no accident, it m ay be suggested, th a t ifthe approach to economic analysis is made from thispoint of view, the "materialist" definition, as we may

1 This is the title of o h. ii. of Wealth (1st edition).


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10 SIGNIFICANCE OF ECONOMIC SCIENCE en.call it, has the maximum plausibility. This deservesvindication in some detail.Professor Cannan commences by contemplatingthe activities of a man isolated completely fromsociety and enquiring what conditions will de-termine his wealththat is to say, his materialwelfare. In such conditions, a division of activitiesinto "economic" and "non-economic"activitiesdirected to the increase of material welfare and acti-vities directed to the increase of non-material welfarehas a certain plausibility. If Robinson Crusoe digspotatoes, he is pursuing material or "economic"welfare. If he talks to the parrot, his activities are"non-econom ic" in character . There is a difficulty hereto which we must return later, b ut it is clear prima faciethat, in this context, the distinction is not ridiculous.

But let us suppose Crusoe is rescued and, cominghome, goes on the stage and talks to the parrot fora living. Surely in such conditions these conversationshave an economic aspect. Whether he spends hisearnings on potatoes or philosophy, Crusoe's gettingand spending are capable of being exhibited in termsof the fundamental economic categories.Professor Cannan does not pause to ask whetherhis distinction is very helpful in the analysis of anexchange economythough, after all, it is here thateconomic generalisations have the greatest practicalutility. Instead, he proceeds forthwith to considerthe "fundamental conditions of wealth" for societyconsidered as a whole irrespective of whether it isorganised on the basis of private property and freeexchanges or not. And here again his definition be-comes plausible: once more the aggregate of socialactivities can be sorted out into the twofold classi-


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i TH E SUBJECT-MATTER OF ECONOMICS 11fication it implies. Some activities are devoted to thepursuit of material welfare: some are not. We think,for instance, of the executive of a communist society,deciding to spend so much labour-time on the pro-vision of bread, so much on the provision of circuses.But even here and in the earlier case of the CrusoeEconomy, the procedure is open to what is surelya crushing objection. Le t us accept Professor Cannan 'suse of the terms "economic" and "non-economic"as being equivalent to conducive to material and non-material welfare respectively. Then we may say withhim that the wealth of society will be greater thegreater prop ortion of tim e which is devoted to m aterialends, the less the proportion which is devoted toimmaterial ends. We may say this. But we must alsoadmit that, using the word "economic" in a perfectlynormal sense, there still remains an economic problem,both for society and for the individual, of choosingbetween these two kinds of activitya problem ofhow, given the relative valuations of product andleisure and the opportunities of production, the fixedsupply of twenty-four hours in the day is to be dividedb e tween th em . There is still an econom ic problem ofdeciding between the "economic" and the "non-economic".One of the main problems of the Theory of Productionlies half outside Professor Cannan's definition.Is not this in itself a sufficient argument for itsabandonment?1

1 There are other quarrels which we might pick with this particuladefinition. From the philosophical point of view, the term "m aterial welfare"is a very odd construction. "The material causes of welfare" might beadmitted. But "material welfare" seems to involve a division of states ofmind which are essentially unitary. For the purposes of this chapter, how-ever, it has seemed better to ignore these deficiencies and to concentrateon the main question, namely, whether the definition can in any way describethe contents of which it is intended to serve as a label.


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12 SIGN IFICAN CE OF ECONOMIC SCIENCE OH .3. But where, then, are we to turn? The positionis by no means hopeless. Our critical examinationof the "materialist" definition has brought us to apoint from which it is possible to proceed forthwith toformulate a definition which shall be immune from allthese strictures.Let us turn back to the simplest case in whichwe found this definition inappropriatethe case ofisolated man dividing his time between the produc-tion of real income and the enjoyment of leisure. Wehave just seen that such a division may legitimatelybe said to have an economic aspect. Wherein doesthis aspect consist?The answer is to be found in the formulation ofthe exact conditions which make such division neces-

sary . They are four. In t he first place, isolatedman wants both real income and leisure. Secondly,he has not enough of either fully to satisfy his wantof each. Thirdly, he can spend his time in augment-ing his real income or he can spend it in taking moreleisure. Fourthly, it may be presumed that, save inmost exceptional cases, his want for the different con-stituents of real income and leisure will be different.Therefore he has to choose. H e has to economise. Thedisposition of his time and his resources has a re-lationship to his system of wants. It has an econo-mic aspect.This exam ple is typ ica l of the whole field of econo-mic studies. From the point of view of the econo-mist, the conditions of human existence exhibit fourfundamental characteristics. The ends are various.The time and the means for achieving these ends arelimited and capable of alternative application. At thesame time th e ends have different im portance. H ere


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i TH E SUBJECT-MATTER OF ECONOMICS 13we are, sentient creatures with bundles of desires andaspirations, with masses of instinctive tendencies allurging us in different ways to action. But the time inwhich these tendencies can be expressed is limited.The ex ternal world does no t offer full opportunities fortheir complete achievement. Life is short. Nature isniggardly. Our fellows have other objectives. Yetwe can use our lives for doing different things, ourmaterials and the services of others for achievingdifferent objectives.Now by itself the multiplicity of ends has nonecessary interest for the economist. If I want todo two things, and I have ample time and amplemeans with which to do them, and I do not want thetime or the means for anything else, then my conductassumes none of those forms which are the subject ofeconomic science. Nirvana is not necessarily singlebliss. It is merely the complete satisfaction of allrequirements.Nor is the mere limitation of means by itself suffi-cient to give rise to economic phenom ena. If means ofsatisfaction have no alternative use, then they may bescarce, but they cannot be economised. The Mannawhich fell from heaven may have been scarce, but, ifit was impossible to exchange it for something elseor to postpone its use,1 it was not the object of anyactivity with an economic aspect.Nor again is the alternative applicability of scarcemeans a complete condition of the existence of thekind of phenomena we are analysing. If the economic

1 It is perhaps worth emphasising the significance of this qualification.The application of technically similar means to the achievement of qualita-tively similar ends at different times constitute alternative uses of thesemeans. Unless this is clearly realised, one of the most important types ofeconomic action is overlooked.


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14 SIGN IFICAN CE OF ECONOMIC SCIEN CE OR.subject has two ends and one means of satisfyingthem, and the two ends are of equal importance, hisposition will be like th e position of th e ass in the fable,paralysed halfway between the two equally attractivebundles of hay.1But when time and the means for achieving endsare limited and capable of alternative application,and the ends are capable of being distinguished inorder of importance, then behaviour necessarily as-sumes the form of choice. Every act which involvestime and scarce means for the achievement of oneend involves the relinquishment of their use for theachievement of another. It has an economic aspect.2If I want bread and sleep, and in the time at mydisposal I cannot have all I want of both, then somepa rt of my wan ts of bread and sleep must go unsatisfied.If, in a limited lifetime, I would wish to be both aphilosopher and a mathematician, but my rate ofacquisition of knowledge is such that I cannot doboth completely, then some part of my wish forphilosophical or mathematical competence or bothmust be relinquished.Now not all the means for achieving human endsare limited. There are things in the external worldwhich are present in such comparative abundancethat the use of particular units for one thing does not

1 This may seem an unnecessary refinement, and in the first edition ofthis essay I left it out for tha t reason. But the condition th at there exists ahierarchy of ends is so important in the theory of value th at it seems betterto state it explicitly even at th is stage. See Chapter IV., Section 2.* Cp . Schnfeld, Grenznutzen und Wirtschaftsrechnung, p . 1 ; H ans M ayer,Untersuchungen zu dem Orundgesetze der wirtschaftlichen Wertrechnung (Zeit-echriftfr Volksw irtchaft und SozialpoU lih, Bd. 2, p. 123).I t should be sufficiently clear th at it is not "t im e" as such which isscarce, but rather the potentialities of ourselves viewed as instruments. Tospeak of scarcity of time is simply a metaphorical way of invoking this ra therabstract concept.


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i TH E SUBJECT-MATTER OF ECONOMICS 15involve going without other units for others. The airwhich we breathe, for instance, is such a "free"commodity. Save in very special circumstances, thefact that we need air imposes no sacrifice of time orresources. The loss of one cubic foot of air implies nosacrifice of alternatives. Units of air have no specificsignificance for conduct. And it is conceivable thatliving creatures might exist whose "ends" were solimited that all goods for them were "free" goods,that no goods had specific significance.But, in general, human activity with its multi-plicity of objectives has not this independence of timeor specific resources. The time a t our disposal islimited. There are only twenty-four hours in theday. We have to choose between the different usesto which they may be pu t. The services whichothers put at our disposal are limited. The materialmeans of achieving ends are limited. We have beenturned out of Paradise. We have neither eternal lifenor unlimited means of gratification. Everywhere weturn , if we choose one thing we must relinquish otherswhich, in different circumstances, we would wish notto have relinquished. Scarcity of means to satisfyends of varying importance is an almost ubiquitouscondition of human behaviour.1H ere, then , is the un ity of subject of EconomicScience, the forms assumed by human behaviour indisposing of scarce means. The examples we have

1 It should be clear that there is no disharmony between the conceptionof end here employed, the terminus of particular lines of conduct in acts offinal consumption, and the conception involved when it is said that thereis but one end of activity the maximising of satisfaction, "ut ili ty", or whatnot. Our "end s" are to be regarded as proximate to the achievement of thiBultimate end. If the means are scarce they cannot all be achieved, and accord-ing to the scarcity of means and their relative importance the achievementof some ends has to be relinquished.


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16 SIGNIFICANCE OF ECONOMIC SCIENCE OH.discussed already harmonise perfectly with thisconception. Both the services of cooks and theservices of opera dancers are limited in relation todemand and can be put to alternative uses. Thetheory of wages in its entirety is covered by ourpresent definition. So, too, is the political economyof war. The waging of war necessarily involvesthe withdrawal of scarce goods and services fromother uses, if it is to be satisfactorily achieved. Ithas therefore an economic aspect. The economiststudies th e disposal of scarce means. H e is interestedin the way different degrees of scarcity of differentgoods give rise to diferent ratio s of valua tion betweenthem, and he is interested in the way in whichchanges in conditions of scarcity, whether comingfrom changes in ends or changes in meansfrom thedemand side or the supply sideaffect these ratios.Economics is the science which studies human be-haviour as a relationship between ends and scarcemeans which have alternative uses.14. It is important at once to notice certain impli-cations of this conception. The conception we haverejected, the conception of Economics as the study ofthe causes of material welfare, was what may becalled a classificatory conception. It marks off certainkinds of human behaviour, behaviour directed to theprocuring of material welfare, and designates theseas the subject-matter of Economics. Other kinds ofconduct lie outside the scope of its investigations.The conception we have adopted may be described asamrlytical. It does not attempt to pick out certain

1 Cp. Menger, Grundstze der Volkswirtschaftslehre, l te Aufl . , pp. 51-70;Mises, Die Oemeinwirtschaft, pp . 98 seq.; Fet te r , Economic Principles, ch. i . ;Strigl, Die t>konomischen Kalegorien und die Orga nisation der Wirtschaft,passim; Mayer , op. cit.


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i TH E SUBJECT-MATTER OF ECONOMICS 17kinds of behaviour, but focuses attention on a par-ticular aspect of behaviour, the form imposed by theinfluence of scarcity.1 It follows from this, therefore,that in so far as it presents this aspect, any kind ofhuman behaviour falls within the scope of economicgeneralisations. We do not say-that the production ofpotatoes is economic activity and the production ofphilosophy is not. We say rather that, in so far aseither kind of activity involves the relinquishmentof other desired alterna tives, it has its economic aspect.There are no limitations on the subject-matter ofEconomic Science save th is.Certain writers, however, while rejecting the con-ception of Economics as concerned with materialwelfare, have sought to impose on its scope a restric-tion of another nature: They have urged that thebehaviour with which Economics is concerned isessentially a certain type of social behaviour, thebehaviour implied by the institutions of the In-dividualist Exchange Economy. On this view, thatkind of behaviour which is not specifically social inthis definite sense is not the subject-matter of Econo-mics, Professor Amonn in particular has devotedalmost infinite pains to elaborating this conception.2Now it may be freely admitted that, within the

1 On the distinction between analytical and classifioatory definitions,see Irving Fisher, Senses of Capital (Economic Journal, vol. vii., p. 213). Itis interesting to observe that the change in the conception of Economicsimplied by our definition is similar to the change in the conception ofoapital implied in Professor Fisher's definition. Adam Smith defined capitalas a kind of wealth. Professor Fisher would have us regard it as an aspectof wealth.* See his Object und Qrundbegrffe der theoretischen Nationalkonomie, 2 Aufl.The criticisms of Schumpeter and Strigl on pp . 110-125 and pp . 165-156 areparticularly important from this point of view. With the very greatestrespect for Professor Amonn's exhaustive analysis, I cannot resist theimpression that he is inclined rather to magnify the degree of his divergencefrom the attitude of these two authors.


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18 SIGNIFICANCE OF ECONOMIC SCIENCE OH.wide field of our definition, th e atten tion of economistsis focused chiefly on the complications of the ExchangeEconomy. The reason for this is one of interest. Theactivities of isolated man, equally with the activitiesof the exchange economy, are subject to th e lim itationswe are contemplating. But, from the point of view ofisolated man, economic analysis is unnecessary. Theelements of the problem are given to unaided reflec-tion. Examination of the behaviour of a Crusoe maybe immensely illuminating as an aid to more advancedstudies. But, from the point of view of Crusoe, it isobviously extra-marginal. So too in the case of a"closed" communistic society. Again, from the pointof view of the economist, the comparison of thephenomena of such a society with those of the ex-change economy may be very illuminating. But fromthe point of view of the-members of the executive,the generalisations of Economics would be un-interesting. Their position would be analogous toCrusoe's. For them the economic problem wouldbe merely whether to apply productive power to thisor to that. Now, as Professor Mises has emphasised,given central ownership and control of the means ofproduction, the registering of individual pulls andresistances by a mechanism of prices and costs isexcluded by definition. It follows therefore thatthe decisions of the executive must necessarily be"arbitrary". 1 That is to say, they must be based onits valuationsnot on the valuations of consumersand producers. This at once simplifies the form ofchoice. Without the guidance of a price system, the

1 See Mises, Die Gemeinwirtschaft, pp. 94-138. In his Economic Planningin Soviet Russia, Professor Boris Brutzkus has well shown the way in whichthis difficulty has been exemplified in the various phases of the Russianexperiment.


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I TH E SUBJECT-MATTER OF ECONOMICS 19organisation of production must depend on the valua-tions of the final organiser, just as the organisationof a patriarchal estate unconnected with a moneyeconomy must depend on the valuations of thepatriarch.But in the exchange economy the position is muchmore complicated. The implications of individualdecisions reach beyond the repercussions on the indi-vidual. One may realise completely the implicationsfor oneself of a decision to spend money in this wayrather than in that way. But it is not so easy to tracethe effects of this decision on the whole complexof "scarcity relationships"on wages, on profits, onprices, on rates of capitalisation, and the organisationof production. On the contrary, the utmost effort ofabstract thought is required to devise generalisationswhich enable us to grasp them. For this reasoneconomic analysis has most utility in the exchangeeconomy. It is unnecessary in the isolated economy.It is debarred from any but the simplest generalisa-tions by the very raison d'etre of a strictly communistsociety. But where independent initiative in socialrelationships is permitted to the individual, thereeconomic analysis comes into its own.But it is one thing to contend that economicanalysis has most interest and utility in an exchangeeconomy. It is another to contend that its subject-matter is limited to such phenomena. The unjustifi-ability of this latter contention may be shown con-clusively by two considerations. In the first place, itis clear that behaviour outside the exchange economyis conditioned by the same limitation of means inrelation to ends as behaviour within the economy, andis capable of being subsumed under the same funda-


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20 SIGNIFICANCE OF ECONOMIC SCIENCE OH.mental categories.1 The generalisations of the theoryof value are as applicable to the behaviour of isolatedm an or the executive authority of a comm unist society,as to th e behaviour of man in an exchange economyeven if they are not so illuminating in such contexts.The exchange relationship is a technical incident, atechnical incident indeed which gives rise to nearlyall the interesting complications, bu t still, for all t h a t,subsidiary to the main fact of scarcity.In the second place, it is clear tha t th e phenomenaof the exchange economy itself can only be explainedby going behind such relationships and invoking theoperation of those laws of choice which are best seenwhen contemplating the behaviour of the isolatedindividual.2 Professor Amonn seems willing to admitthat such a system of pure Economics may be usefulas an auxiliary to Economic Science, but he precludeshimself from making it the basis of the main systemby postulating that the subject-matter of Economicsm ust be defined in term s of th e problems discussed byRicardo . The view th a t a definition m us t describe anexisting body of knowledge and not lay down arbitr arylim its is adm irable. B ut, it may legitimately be asked,why s top at Ricardo? Is it no t clear th a t the imperfec-tions of the Ricardian system were due to just thiscircumstance that it stopped at the valuations of themarket and did not press through to the valuations ofthe individual? Surely it is the great achievement of

1 See Strigl, op. cit., pp . 23-28.> Professor Cassel's d ismissal of Crusoe Economics (FundamentalThoughU, p. 27) seems unfortunate since it is only when contemplatingthe conditions of isolated man that the importance of the condition that thescarce means must have alternative uses if there is to be economic activ ity,which was emphasised above, leaps clearly to the eye. In a social economyof any k ind, the mere multiplicity of economic subjects leads one to overlookthe possibility of the existence of scarce goods with no alternative uses.


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i TH E SUBJECT-MATTER OF ECONOMICS 21the more recent theories of value to have surmountedjust this barrier?15. Finally, we may return to the definition werejected and examine how it compares with thedefinition we have now chosen.At first sight, it is possible to underestimate thedivergence between the two definitions. The oneregards the subject-matter of economics as humanbehaviour conceived as a relationship between endsand means, the other as the causes of materialwelfare. Scarcity of means and the causes of m ateria lwelfareare these not more or less the same thing ?Such a con tention, however, would re st upon a mis-conception. I t is true th a t the scarcity of materials isone of the limitations of conduct. But the scarcity ofour own time and the services of others is just asimportant. The scarcity of the services of the school-master and the sewage man have each their economicaspect. Only by saying that services are materialvibra tions or t he like can one stre tch th e definition tocover the whole field. But this is not only perverse,it is also misleading. In this form the definition maycover th e field, bu t it does no t describe it. For it is notthe materiality of even material means of gratification1 The objections outlined above to the definition suggested by ProfessorAmonn should be sufficient to indicate the na ture of the objections to thosedefinitions which run in terms of phenomena from the standpoint of price(Davenport), susceptibility to the "measuring rod of money" (Pigou), orthe "science of exchange" (Landry, etc.). Professor Schumpeter, in hisWesen und H auptnhalt der theoretischen Nationalkonomie, has attemptedwith never to be forgotten subtlety to vindicate the latter definition bydemonstrating that it is possible to conceive all the fundamental aspects ofbehaviour germane to Economic Science as having the form of exchange.That th is is correct and th at it embodies a tru th fundamental to the properunderstanding of equilibrium theory may be readily admitted. But it isone thing to generalise the notion of exchange as a construction,. I t is anotherto use it in this sense as a criterion. That it can function in this way is notdisputed. But that it throws the maximum light on the ultimate nature ofour subject-matter ia surely open to question.


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22 SIGN IFICA NC E OF ECONOMIC SCIENCE OH.which gives them their status as economic goods;it is their relation to valuations. It is their rela-tionship to given wants rather than their technicalsubstance which is significant. The "materialist"definition of Economics therefore misrepresents thescience as we know it. Even if it does not definitelymislead as to its scope, it necessarily fails to conveyan adeq uate concept of its na ture. There seems novalid argument against its rejection.At the same time, it is important to realise thatwhat is rejected is but a definition. We do not rejectthe body of knowledge which it was intended todescribe. The practice of those who have adopted itfits in perfectly with the alternative definition whichhas been suggested. There is no im po rtan t generalisa-tion in the whole range of Professor Carman's system,for instance, which is incompatible with the definitionof the subject-matter of Economics in terms of thedisposal of scarce means.Moreover, the very example which ProfessorCannan selects to illustrate his definition fits muchbetter into our framework than it does into his."Economists", he says, "would agree that 'DidBacon write Shakespeare?' was not an economicquestion, and that the satisfaction which believersin the cryptogram would feel if it were universallyaccepted would no t be an economic satisfaction. . . .On the other hand, they would agree that the con-troversy would have an economic side if copyrightwere perpetual and the descendants of Bacon andShakespeare were disputing the ownership of theplays."1 Exactly. But why? Because the ownershipof the copyright involves material welfare? But the

1 Wealth (1st edition), ch. i.


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i TH E SUBJECT-MATTER OF ECONOMICS 23proceeds may all go to missionary societies. Surelythe question has an economic aspect simply and solelybecause the copyright laws supposed would make theuse of the plays scarce in relation to the demand fortheir use, and would in turn provide their owners withcommand over scarce means of gratification whichotherwise would be differently distributed.


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CHAPTER I IENDS AND MEANS

1. W E have now established a w orking definition ofthe subject-matter of Economics. The next step is toexamine its implications. In this chapter we shall beconcerned with the status of ends and means as theyfigure in Economic Theory and Economic H istory.In th e next we shall be concerned w ith the interpre ta-tion of various economic "quantities".2. Let us turn first to the status of ends.1Economics, we have seen, is concerned with thataspect of behaviour which arises from the scarcity ofmeans to achieve given ends. I t follows th a t Economicsis entirely neutral between ends; that, in so far as theachievement of any end is dependent on scarce means,it is germane to the preoccupations of the economist.

Economics is not concerned with ends as such. Itassumes that human beings have ends in the sensethat they have tendencies to conduct which can bedefined and understood, and it asks how theirprogress towards their objectives is conditioned bythe scarcity of meanshow the disposal of the scarcemeans is contingent on these ultimate valuations.It should be clear, therefore, that to speak of anyend as being itself "economic" is entirely misleading.

1 The following sections are devoted to the elucidation of the implica-tions of Economics as a positive science. On the question whether Economicsshould aspire to a normative status, see Chapter VI., Section 4 , below.24


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ENDS AND MEANS 25The habit, prevalent among certain groups of econo-mists, of discussing "economic satisfactions" is aliento the central intention of economic analysis. A satis-faction is to be conceived as an end-product of ac tivity.It is not itself part of that activity which we study.It would be going too far to urge that it is impossibleto conceive of "economic satisfactions". For, pre-sumably, we can so describe a satisfaction which iscontingent on the availability of scarce means asdistinct from a satisfaction which depends entirelyon subjective factors e.g., the satisfaction of havinga summer holiday, as compared with the satisfac-tion of remembering it. But since, as we have seen,the scarcity of means is so wide as to influence insome degree almost all kinds of conduct, this doesnot seem a useful conception. And since it is mani-festly out of harmony with the main implications ofour definition, it is probably best avoided altogether.It follows, further, that the belief, prevalent amongcertain critics of Economic Science, that the pre-occupation of the economist is with a peculiarly lowtype of conduct, depends upon misapprehension.The economist is not concerned with ends as such.H e is concerned w ith the way in which the attainm entof ends ie limited. The ends m ay be noble or they maybe base. They may be "material" or "immaterial"if ends can be so described. But if the attainmentof one set of ends involves the sacrifice of others, thenit has an economic aspect.

All this is quite obvious if only we consider theactual sphere of application of economic analysis,instead of resting content with the assertions of thosewho do no t know w hat economic analysis is. Suppose,for instance, a community of sybarites, their pleasures


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26 SIGN IFICAN CE OF ECONOMIC SCIENCE OH .gross and sensual, their intellectual activities pre-occupied with th e "purely m ateria l", * lt is clearenough that economic analysis can provide categoriesfor describing th e relationships between these ends andthe means which are available for achieving them.Bu t it is no t true , as Ruskin and Carlyle and suchlikecritics have asserted, that it is limited to this sort ofthing. Let us suppose this reprehensible communityto be visited by a Savonarola. Their former endsbecome revolting to the m . The pleasures of the sensesare banished. The sybarites become ascetics. Surelyeconomic analysis is still applicable. There is no needto change the categories of explanation. All that hashappened is that the demand schedules have changed.Some things have become relatively less scarce,others more so. The rent of vineyards falls. The rentof quarries for ecclesiastical masonry rises. That is all.The distribution of time between prayer and goodworks has its economic aspect equally with the dis-tribution of time betwen orgies and slumber. The"pig-philosophy" to use Carlyle's contemptuousepithetturns out to be all-embracing.

To be perfectly fair, it m ust be adm itted th a t this isa case in which economists are to some extent to blamefor their own misfortunes. As we have seen already,their practice has been more or less unexceptionable.But their definitions have been misleading, and theirattitude in the face of criticism has been unnecessarilyapologetic. It is even said that quite modern econo-mists who have been convinced both of the import-ance of Economics and of its preoccupation with the"more material side of human welfare" have beenreduced to prefacing the ir lectures on general EconomicTheory with the rather sheepish apology that, after


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ii ENDS AND MEANS 27all, bread and butter are necessary, even to the livesof artists and saints. This seems to be unnecessaryin itself, and at the same time liable to give rise tomisconception in the minds of those who are apt tofind the merely material rather small beer. Neverthe-less, if Carlyle and B,uskin had been willing to makethe intellectual effort necessary to assimilate the bodyof analysis bequeathed by the great men whom theycriticised so unjustly, they would have realised itsprofound significance in regard to the interpretationof conduct in general, even if they had been unable toprovide any better description than its authors. But,as is abundantly clear from their criticisms, theynever made this effort. They did not want to makethe effort. It was so much easier, so much morecongenial, misrepresenting those who did. And theopportunities for misrepresenting a science that hadhardly begun to become conscious of its ultimateimplications were not far to seek.But, if there is no longer any excuse for thedetractors of Economics to accuse it of preoccupationwith particularly low ends of conduct, there is equallyno excuse for economists to adopt an attitude ofsuperiority as regards the subjects that they arecapable of handling. We have already noticed Pro-fessor Carman's rather paradoxical attitude to apolitical economy of war. And, speaking generally,are we no t entitled to urge t h a t in this respect Pr o-fessor Cannan is a little apt to follow St. Peter andcry, "Not so, Lord: for nothing common or uncleanhath at any t ime entered into my mouth"? In theopening chapter of Wealth,1 he goes out of his way tosay that "the criterion of buying and selling brings

1 First; edition, p. l.


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28 SIGNIFICA NC E OF ECONOMIC SCIENCE OH .many things into economics which are not commonlytreated there and which it does not seem convenientto treat there. A large trade has existed since historybegan in supplying certain satisfactions of a sensualcharacter which are never regarded as economicgoods. Indulgences to commit what would otherwisebe regarded as offences against religion or moralityhave been sold sometimes openly and at all timesunder some thin disguise: nobody has regarded theseas economic goods". This is surely very question-able. Economists, equally with other human beings,may regard the services of prostitutes as conduciveto no "g ood" in the ultimate ethical sense. B ut todeny that such services are scarce in the sense inwhich we use the term, and that there is thereforean economic aspect of hired love, susceptible totreatment in the same categories of general analysisas enable us to explain fluctuations in the price ofhired rhetoric, does not seem to be in accordance withthe facts. As for the sale of indulgences, surely thesta tus in Economic H istory of these agreeable tran s-actions is not seriously open to question. Did thesale of indulgences affect the distribution of income,the magnitude of expenditure on other commodities,the direction of production, or did it not? We mustnot evade the consequences of the conclusion that allconduct coming under the influence of scarcity hasits economic aspect.

3. A very interesting example of the difficultieswhich may arise if the implications which we havebeen trying to drag into the light are neglected, isafforded in a paper by Sir Josiah Stamp on stheticsas an Economic `actor.1 Sir Josiah, in common with

1 Some Economic Factors in Modern Life, pp. 1-2S.


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a ENDS AND MEANS 29m o s t men of vision and imagina t ion , is a nx ious topreserve the count rys ide and to safeguard ancientm o n u m e n t s . (The occasion of the p a p e r was a de-cision on the p a r t of his ra i lway company not todes t roy St ra t fo rd H ouse , a s ix teen th-cen tury half-t imbered bui ld ing in B i r m i n g h a m , to ma ke room forrailway sidings.) At the same t ime , he bel ieves tha tEconomics is concerned with mater ial welfare .1 Heis, therefore, dr iven to argue that "indifference to thesthetic will in the long run lessen the economicp roduc t ; t ha t a t t e n t ion to the sthetic will increaseeconomic welfare".2 T h a t is to say, t h a t if we seekfirst the Kingdom of the Beautiful , all mater ia lwelfare will be a dde d un to us. And he br ings all thesolid weight of his a u t h o r i t y to the t a sk of s t a m -peding the business world into believing that this ist r u e .I t is easy to sympa th i se w i th the in ten t ion of thea r g u m e n t . But it is difficult to bel ieve tha t its logicis very convincing. It may be perfec t ly t rue , as SirJos iah con tends , tha t the wide interests fostered byt he s tudy of a nc ie n t monume n ts and the contempla -t ion of beautiful objects are both s t imula t ing to theintelligence and restful to the nervous sys tem, andt h a t , to t h a t e x t e n t , a community which offers oppor-tun i t ie s for such in teres ts may gain in other , "morema te r i a l " , wa ys . But it is surely an opt imism, un-justif ied either by experience or by a priori probabi l i ty ,to a s sume tha t th i s necessarily follows. It is surely afact which we m u s t all recognise that re jection ofmaterial comfort in favour of sthet ic or ethicalvalues does not necessar i ly br ing mater ial compensa-

1 " . . . I use . . . economics as a term to cover the get t ing of materialwelfare" (op. cit., p. 3). 8 Ibid., p. 4.


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30 SIGNIFICANCE OF ECONOMIC SCIENCE OH.tion. There are cases when it is either bread or a lily.Choice of the one involves sacrifice of the other, and,although we may be satisfied with our choice, wecannot delude ourselves that it was not really a choiceat all, that more bread will follow. It is not true thatall things work together for material good to themth a t love God. So far from postulating a harm onyof ends in this sense, Economics brings into full viewthat conflict of choice which is one of the permanentcharacteristics of human existence. Your economistis a true tragedian.What has happened, of course, is that adherenceto the "materialist" definition has prevented SirJosiah from recognising clearly that Economics andsthetics are not in pari materia.1 sthetics is con-cerned with certain kinds of ends. The beautiful isan end which offers itself for choice in competition, soto speak, with others. Economics is not concerned atall with any ends as such. It is concerned with endsin so far as they affect the disposition of means. Ittak es th e ends as given in scales of relative valua tion,and enquires what consequences follow in regard tocertain aspects of behaviour.But, it may be argued, is it not possible to regardthe procuring of money as something which competeswith other ends, and, if this is so, may we not legiti-mately speak of an "economic" end of conduct?This raises questions of very great import. Full dis-cussion of the part played in economic analysis ofthe assumption that money-making is the sole motive

of conduct must be deferred until a later chapter,where it will be investigated fully. But, for the1 It is only fair to s tate tha t there are passages in the same essay whichseem to be dictated by this sort of consideration, especially the remarkson pp. 14-16 on balance in consumption.


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ii EN DS AND MEA NS 31moment, it may be replied that the objection restsupon a misconception of the significance of money.Money-making in the normal sense of the term ismerely the intermediate stage between a sale and apurchase. The procuring of a flow of money from thesale of one's services or th e hiring o ut of one's propertyis not an end per se. The money is clearly a means toultimate purchase. It is sought, not for itself, but forthe things on which it may be spentwhether thesebe the constituents of real income now or of realincome in the future. Money-making in this sensemeans securing the means for the achievement of allthose ends which are capable of achievement by theaid of purchasable commodities. Money as such isobviously merely a meansa medium of exchange,an instrument of calculation. For society, from thesta tic point of view, the presence of more or less moneyis irrelevant. For the individual it is relevant onlyin so far as it serves his ul tim ate objectives. Only themiser, the psychological monstrosity, desires an in-finite accumulation of money. Indeed, so little do weregard this as typical that, far from regarding thedemand for money to hold as being indefinitely great,we are in the habit of assuming that money is desiredonly to be passed on. Ins tead of assuming the dem andcurve for money to hold to be a straight line parallelwith the y axis, economists have been in the habitof assuming, as a first approximation, that it is of thenature of a rectangular hyperbola.1

1 On all this, see Wicksteed, The Com monsenae of Political Economy,pp. 155-157. It is not denied that the acquisition of the power to procurereal income may itself become an ob jective, or that , if i t does, the economicsystem will not be affected in various ways. All that is contended is thatto label any of these ends "econom ic" implies a false view of what is neces-sarily embraced by economic analysis. Economics takes all ends for gran ted.They "show" themselves in the scales of relative valuation whioh areassumed by the propositions of modern economic analysis.


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32 SIGNIFICA NCE OF ECONOMIC SCIENCE CH .4. Economics, then, is in no way to be conceived,as we may conceive Ethics or sthetics, as beingconcerned with ends as such. It is equally importantthat its preoccupations should be sharply distin-guished from those of th e technical ar ts of production with ways of using given means . This raises certainissues of considerable complexity which it is desirableto examine at some length.The relation between Economics and the technicalarts of production is one which has always presentedgrea t difficulties to those economists who have thoug htthat they were concerned with the causes of materialwelfare. It is clear that the technical arts of produc-tion are concerned with material welfare. Yet thedistinction between art and science does not seem toexhaust the difference. So much scientific knowledgeis germane to the technical arts of production that isforeign to Economic Science. Yet where is one todraw the line? Sir William Beveridge has put thisdifficulty very clearly in his lecture on Economics asa Liberal Education. "It is too wide a definitionto speak of Economics as the science of the materialside of human welfare. A house contributes to humanwelfare and should be material. If, however, one isconsidering the building of a house, the questionwhether the roof should be made of paper or of someother material is a question not of Economics but ofthe technique of house building".1 Nor do we meetthis difficulty by inserting the word "general" before"causes of material welfare". Economics is not theaggregate of the technologies. Nor is it an attempt to1 Economica, vol. i.. p. 3. Of course the question whether the roof shallbe of slate or tiles, for instance may well depend on the relative prices ofthese materials and therefore ha ve an economic aspect .Technique merelyprescribes certain limits within which choice may operate. See below,p. 35.


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n EN DS AND MEANS 33select from each the elements common to several.Motion study, for instance, may yield generalisationsapplicable to more than one occupation. But motionstudy has nothing to do with Economics. Nor, inspite of the hopes of certain industrial psychologists,is it capable of tak ing its place. So long as we rem ainwithin the ambit of any definition of the subject-m atte r of Economics in term s of the causes of m aterialwelfare, the connection between Economics and thetechnical arts of production must remain hopelesslyobscure.But, from the point of view of the definition wehave adopted, the connection is perfectly definite.The technical arts of production are simply to begrouped among the given factors influencing therelative scarcity of different economic goods.1 Thetechnique of cotton manufacture, as such, is no partof the subject-matter of Economics, but the existenceof a given technique of various potentialities, togetherwith the other factors influencing supply, conditionsthe possible response to any va luation of cotton goods,and consequently influences the adaptations which itis the business of Economics to study.So far, matters are supremely simple. But now itis necessary to remove certain possible misunder-standings. At first sight it might appear as if theconception we are adopting ran the danger of tippingthe baby out with the bath water. In regardingtechnique as merely data, are we not in danger of- * Professor Knight in a recent article ("Economic Science in RecentDiscussion", American Economic Review, vol. xxiv., p. 225 et seq.) com-plains that I do not make clear that technique in relation to economics issimply so much data. I cannot help thinking that the passage above musthave escaped Professor Knight's attention. I certainly agree with his viewsin this respect. But I do not know how to put the m atte r more strongly tha nI have done already.

3


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34 SIGN IFICAN CE O F ECONOMIC SCIENCE OH .excluding from the subject-matter of Economics justthose matters where economic analysis is most athome? For is not production a matter of technique?And is no t th e theory of production one of th e centralpreoccupations of economic analysis?The objection sounds plausible. But, in fact, itinvolves a complete misapprehensiona misappre-hension which it is important finally to dispel. Theattitude we have adopted towards the technical artsof production does not eliminate the desirability of aneconomic theory of production.1 For the influencesdetermining the structure of production are notpurely technical in nature. No doubt, technique isvery imp ortan t. B ut technique is not everything.It is one of the merits of modern analysis that itenables us to put technique in its proper place. Thisdeserves further elucidation. It is not an exaggerationto say that, at the present day, one of the maindangers to civilisation arises from the inability ofminds trained in the natural sciences to perceive thedifference between the economic and the technical.Let us consider the behaviour of an isolated manin disposing of a single scarce commodity.2 Let usconsider, for instance, the behaviour of a RobinsonCrusoe in regard to a stock of wood of strictly limiteddimensions. Robinson has not sufficient wood for allthe purposes to which he could put it. For the timebeing the stock is irreplaceable. What are the in-fluences which will determine the way in which heutilises it?

1 Whether this theory is to be conceived, as it sometimes has been inthe past, as concerned with aggregates of wealth is another matter whichwill be dealt with in the next chapter. See below, Chapter I II ., Section 6.a Compare Oswalt , Voirge ber wirtschaftliche Orundbegriffe, p p .20-41.


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EN DS AND MEANS 35Now, if th e wood can only be used a t one tim e andfor one purpose, or if it is only wanted at one time andfor one purpose, and if we assume that Eobinson hasample time to devote to its utilisation, it is perfectlytrue that his economising will be dictated entirely byhis knowledge of the technical arts of productionconcerned. If he only wants the wood to make a fireof given dimensions, then, if there is only a limitedsupply of wood available, his activities will be deter-

mined by his knowledge of the technique of fire-making.H is activities in this respect are purely technical.But if he wants the wood for more than one pur-poseif, in addition to wanting it for a fire, he needsit for fencing the ground round the cabin and keepingthe fence in good conditionthen, inevitably, he isconfronted by a new problem the problem of howmuch wood to use for fires and how much for fencing.In these circumstances the techniques of fire-makingand fencing are still im po rtan t. But th e problem is nolonger a purely technical problem.1 Or, to put thematter another way, the considerations determininghis disposal of wood are no longer purely technical.Conduct is the resultant of conflicting psychologicalpulls acting within an environment of given materialand technical possibilities. The problem of techniqueand the problem of economy are fundamentallydifferent problems. To use Professor M ayer's veryelegant way of putting the distinction, the problemof technique arises when there is one end and amultiplicity of means, the problem of economy whenboth the ends and the means are multiple.2

1 All this can be made very clear by the use of a few Paretean curves.Given the production o pportun ity curves, we know th e technical possibilities.But the problem is not determinate unless the consumption indifferencecurves are also known. 2 See H ans Mayer, op. cit., pp. 5 and 6.


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36 SIGNIFICA NC E OF ECONOMIC SCIENCE OH.Now, as we have seen already, it is one of thecharacteristics of the world as we find it that ourends are various and that most of the scarce meansat our disposal are capable of alternative applica-tion. This applies no t only to scarce products. I tapplies still more to the ultimate factors of produc-tion. The various kinds of na tur al resources andlabour can be used for an almost infinite variety ofpurposes. The disposition to abstain from consump-tion in the present releases uses of primary factorsfor more than one kind of roundabout process. And,for this reason, a m ere knowledge of existing techniquedoes not enable us to determine the actual "set" ofthe productive apparatus. We need to know also theultimate valuations of the producers and consumersconnected with it. It is out of the interplay of thegiven systems of ends on the one side and the materialand technical potentialities on the other, that theaspects of behaviour which the economist studies aredetermined. Only in a world in which all goods werefree goods would technical considerations be the soledeterminants of the satisfaction of given ends. But,in such a world, by definition, the economic problemwould have ceased to exist.All this sounds very abstract. But, in fact, itmerely sta tes , in term s of a degree of generality appro-priate to the very fundamental questions we areexamining, facts which are well known to all of us.If we ask the concrete question, why is the production

of such a commodity in such and such an area whatit is , and no t som ething else, our answer is no t couchedin terms which, in the first instance, have a technicalimplication. Our answer runs in terms of prices andcosts; and, as every first-year student knows, prices


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ii ENDS AND MEANS 37and costs are the reflection of relative valuations, notof merely technical conditions. We all know of com-modities which, from the technical point of view,could be produced quite easily.1 Yet their productionis not at the moment a business proposition. Why isthis? Because, given the probable price, the costsinvolved are too great. And why are costs too great?Because the technique is not sufficiently developed?This is only true in a historical sense. B ut it doesnot answer the fundamental question why, given thetechnique, the costs are too high. And the answer tothat can only be couched in economic terms. Itdepends essentially on the price which it is necessaryto pay for the factors of production involved com-pared with the probable price of the product. Andthat may depend on a variety of considerations. Incompetitive conditions, it will depend on the valua-tions placed by consumers on the commodities whichthe factors are capab le of producing. And if thecosts are too high, that means that the factors ofproduction can be employed elsewhere producingcommodities which are valued more highly. If thesupply of any factor is monopolised, then high costsmay m erely mean th a t the controllers of the monopolyare pursuing a policy which leads to some of the factorsthey control being temporarily unemployed. But, inany case, the process of ultimate explanation beginsjust where the description of the technical conditionsleaves off.

But this brings us back although with new know-ledge of its implicationsto the proposition fromwhich we started. Economists are not interested in1 The production of motor oils from coal is a very topical case inpoint.


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38 SIGNIFICAN CE OF ECONOMIC SCIENCE CH .technique as such. They are interested in it solely asone of the influences determining relative scarcity.Conditions of technique "show" themselves in theproductivity functions just as conditions of taste"show" themselves in the scales of relative valua-tions. But there the connection ceases. Economicsis a study of the disposal of scarce commodities. Thetechnical arts of production study the "intrinsic"properties of objects or human beings.5. It follows from the argument of the precedingsections that the subject-matter of Economics isessentially a series of relationshipsrelationshipsbetwee

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