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  THE PLACE OF SCIENCE
  IN MODERN CIVILISATION




  BOOKS BY THORSTEIN VEBLEN

    THE THEORY OF THE LEISURE CLASS
    THE THEORY OF BUSINESS ENTERPRISE
    THE INSTINCT OF WORKMANSHIP
    IMPERIAL GERMANY AND THE INDUSTRIAL REVOLUTION
    THE NATURE OF PEACE AND THE TERMS OF ITS PERPETUATION
    THE HIGHER LEARNING IN AMERICA
    THE VESTED INTERESTS AND THE STATE OF THE INDUSTRIAL ARTS
    THE PLACE OF SCIENCE IN MODERN CIVILISATION




  THE PLACE OF SCIENCE
  IN
  MODERN CIVILISATION

  AND OTHER ESSAYS

  _by_

  THORSTEIN VEBLEN


  _New York_
  B. W. HUEBSCH
  _Mcmxix_




  COPYRIGHT,  1919
  BY B. W. HUEBSCH

  PRINTED IN THE UNITED STATES OF AMERICA




PUBLISHER'S NOTE


These essays are here reprinted from various periodicals, running over
a period of about twenty years. The selection is due to Messrs. Leon
Ardzrooni, Wesley C. Mitchell and Walter W. Stewart.

It is unlikely that more than a few public libraries possess files so
complete as to give access to all of these essays, and even if the
magazines were readily obtainable at libraries they would almost
certainly have to be read in those institutions. The nature of the
material, its timeliness (Mr. Veblen deals with ideas in such a manner
as to give the date of composition a secondary importance), and the fact
that it would otherwise be lost to all save diligent excavators, explain
its preservation in this form.

The courtesy of the periodicals in which the papers first appeared, in
permitting their reproduction, is gratefully acknowledged.




CONTENTS


                                                        PAGE
  THE PLACE OF SCIENCE IN MODERN CIVILISATION              1
  THE EVOLUTION OF THE SCIENTIFIC POINT OF VIEW           32
  WHY IS ECONOMICS NOT AN EVOLUTIONARY SCIENCE?           56
  THE PRECONCEPTIONS OF ECONOMIC SCIENCE. I.              82
   "        "         "     "        "    II.            114
   "        "         "     "        "    III.           148
  PROFESSOR CLARK'S ECONOMICS                            180
  THE LIMITATIONS OF MARGINAL UTILITY                    231
  GUSTAV SCHMOLLER'S ECONOMICS                           252
  INDUSTRIAL AND PECUNIARY EMPLOYMENTS                   279
  ON THE NATURE OF CAPITAL. I.                           324
   "  "     "    "    "     II.                          352
  SOME NEGLECTED POINTS IN THE THEORY OF SOCIALISM       387
  THE SOCIALIST ECONOMICS OF KARL MARX. I.               409
   "      "         "      "   "    "   II.              431
  THE MUTATION THEORY AND THE BLOND RACE                 457
  THE BLOND RACE AND THE ARYAN CULTURE                   477
  AN EARLY EXPERIMENT IN TRUSTS                          497




THE PLACE OF SCIENCE IN MODERN CIVILISATION[1]


It is commonly held that modern Christendom is superior to any and all
other systems of civilised life. Other ages and other cultural regions
are by contrast spoken of as lower, or more archaic, or less mature. The
claim is that the modern culture is superior on the whole, not that it
is the best or highest in all respects and at every point. It has, in
fact, not an all-around superiority, but a superiority within a closely
limited range of intellectual activities, while outside this range many
other civilisations surpass that of the modern occidental peoples. But
the peculiar excellence of the modern culture is of such a nature as to
give it a decisive practical advantage over all other cultural schemes
that have gone before or that have come into competition with it. It has
proved itself fit to survive in a struggle for existence as against
those civilisations which differ from it in respect of its distinctive
traits.

Modern civilisation is peculiarly matter-of-fact. It contains many
elements that are not of this character, but these other elements do not
belong exclusively or characteristically to it. The modern civilised
peoples are in a peculiar degree capable of an impersonal, dispassionate
insight into the material facts with which mankind has to deal. The apex
of cultural growth is at this point. Compared with this trait the rest
of what is comprised in the cultural scheme is adventitious, or at the
best it is a by-product of this hard-headed apprehension of facts. This
quality may be a matter of habit or of racial endowment, or it may be an
outcome of both; but whatever be the explanation of its prevalence, the
immediate consequence is much the same for the growth of civilisation. A
civilisation which is dominated by this matter-of-fact insight must
prevail against any cultural scheme that lacks this element. This
characteristic of western civilisation comes to a head in modern
science, and it finds its highest material expression in the technology
of the machine industry. In these things modern culture is creative and
self-sufficient; and these being given, the rest of what may seem
characteristic in western civilisation follows by easy consequence. The
cultural structure clusters about this body of matter-of-fact knowledge
as its substantial core. Whatever is not consonant with these opaque
creations of science is an intrusive feature in the modern scheme,
borrowed or standing over from the barbarian past.

Other ages and other peoples excel in other things and are known by
other virtues. In creative art, as well as in critical taste, the
faltering talent of Christendom can at the best follow the lead of the
ancient Greeks and the Chinese. In deft workmanship the handicraftsmen
of the middle Orient, as well as of the Far East, stand on a level
securely above the highest European achievement, old or new. In
myth-making, folklore, and occult symbolism many of the lower barbarians
have achieved things beyond what the latter-day priests and poets know
how to propose. In metaphysical insight and dialectical versatility many
orientals, as well as the Schoolmen of the Middle Ages, easily surpass
the highest reaches of the New Thought and the Higher Criticism. In a
shrewd sense of the religious verities, as well as in an unsparing faith
in devout observances, the people of India or Thibet, or even the
mediæval Christians, are past-masters in comparison even with the select
of the faith of modern times. In political finesse, as well as in
unreasoning, brute loyalty, more than one of the ancient peoples give
evidence of a capacity to which no modern civilised nation may aspire.
In warlike malevolence and abandon, the hosts of Islam, the Sioux
Indian, and the "heathen of the northern sea" have set the mark above
the reach of the most strenuous civilised warlord.

To modern civilised men, especially in their intervals of sober
reflection, all these things that distinguish the barbarian
civilisations seem of dubious value and are required to show cause why
they should not be slighted. It is not so with the knowledge of facts.
The making of states and dynasties, the founding of families, the
prosecution of feuds, the propagation of creeds and the creation of
sects, the accumulation of fortunes, the consumption of
superfluities--these have all in their time been felt to justify
themselves as an end of endeavor; but in the eyes of modern civilised
men all these things seem futile in comparison with the achievements of
science. They dwindle in men's esteem as time passes, while the
achievements of science are held higher as time passes. This is the one
secure holding-ground of latter-day conviction, that "the increase and
diffusion of knowledge among men" is indefeasibly right and good. When
seen in such perspective as will clear it of the trivial perplexities of
workday life, this proposition is not questioned within the horizon of
the western culture, and no other cultural ideal holds a similar
unquestioned place in the convictions of civilised mankind.

On any large question which is to be disposed of for good and all the
final appeal is by common consent taken to the scientist. The solution
offered in the name of science is decisive so long as it is not set
aside by a still more searching scientific inquiry. This state of things
may not be altogether fortunate, but such is the fact. There are other,
older grounds of finality that may conceivably be better, nobler,
worthier, more profound, more beautiful. It might conceivably be
preferable, as a matter of cultural ideals, to leave the last word with
the lawyer, the duelist, the priest, the moralist, or the college of
heraldry. In past times people have been content to leave their
weightiest questions to the decision of some one or other of these
tribunals, and, it cannot be denied, with very happy results in those
respects that were then looked to with the greatest solicitude. But
whatever the common-sense of earlier generations may have held in this
respect, modern common-sense holds that the scientist's answer is the
only ultimately true one. In the last resort enlightened common-sense
sticks by the opaque truth and refuses to go behind the returns given by
the tangible facts.

_Quasi lignum vitae in paradiso Dei, et quasi lucerna fulgoris in domo
Domini_, such is the place of science in modern civilisation. This
latterday faith in matter-of-fact knowledge may be well grounded or it
may not. It has come about that men assign it this high place, perhaps
idolatrously, perhaps to the detriment of the best and most intimate
interests of the race. There is room for much more than a vague doubt
that this cult of science is not altogether a wholesome growth--that the
unmitigated quest of knowledge, of this matter-of-fact kind, makes for
race-deterioration and discomfort on the whole, both in its immediate
effects upon the spiritual life of mankind, and in the material
consequences that follow from a great advance in matter-of-fact
knowledge.

But we are not here concerned with the merits of the case. The question
here is: How has this cult of science arisen? What are its cultural
antecedents? How far is it in consonance with hereditary human nature?
and, What is the nature of its hold on the convictions of civilised men?

       *       *       *       *       *

In dealing with pedagogical problems and the theory of education,
current psychology is nearly at one in saying that all learning is of a
"pragmatic" character; that knowledge is inchoate action inchoately
directed to an end; that all knowledge is "functional"; that it is of
the nature of use. This, of course, is only a corollary under the main
postulate of the latter-day psychologists, whose catchword is that The
Idea is essentially active. There is no need of quarreling with this
"pragmatic" school of psychologists. Their aphorism may not contain the
whole truth, perhaps, but at least it goes nearer to the heart of the
epistemological problem than any earlier formulation. It may confidently
be said to do so because, for one thing, its argument meets the
requirements of modern science. It is such a concept as matter-of-fact
science can make effective use of; it is drawn in terms which are, in
the last analysis, of an impersonal, not to say tropismatic, character;
such as is demanded by science, with its insistence on opaque cause and
effect. While knowledge is construed in teleological terms, in terms of
personal interest and attention, this teleological aptitude is itself
reducible to a product of unteleological natural selection. The
teleological bent of intelligence is an hereditary trait settled upon
the race by the selective action of forces that look to no end. The
foundations of pragmatic intelligence are not pragmatic, nor even
personal or sensible.

This impersonal character of intelligence is, of course, most evident on
the lower levels of life. If we follow Mr. Loeb, e.g., in his inquiries
into the psychology of that life that lies below the threshold of
intelligence, what we meet with is an aimless but unwavering motor
response to stimulus.[2] The response is of the nature of motor impulse,
and in so far it is "pragmatic," if that term may fairly be applied to
so rudimentary a phase of sensibility. The responding organism may be
called an "agent" in so far. It is only by a figure of speech that these
terms are made to apply to tropismatic reactions. Higher in the scale of
sensibility and nervous complication instincts work to a somewhat
similar outcome. On the human plane, intelligence (the selective effect
of inhibitive complication) may throw the response into the form of a
reasoned line of conduct looking to an outcome that shall be expedient
for the agent. This is naïve pragmatism of the developed kind. There is
no longer a question but that the responding organism is an "agent" and
that his intelligent response to stimulus is of a teleological
character. But that is not all. The inhibitive nervous complication may
also detach another chain of response to the given stimulus, which does
not spend itself in a line of motor conduct and does not fall into a
system of uses. Pragmatically speaking, this outlying chain of response
is unintended and irrelevant. Except in urgent cases, such an idle
response seems commonly to be present as a subsidiary phenomenon. If
credence is given to the view that intelligence is, in its elements, of
the nature of an inhibitive selection, it seems necessary to assume some
such chain of idle and irrelevant response to account for the further
course of the elements eliminated in giving the motor response the
character of a reasoned line of conduct. So that associated with the
pragmatic attention there is found more or less of an irrelevant
attention, or idle curiosity. This is more particularly the case where
a higher range of intelligence is present. This idle curiosity is,
perhaps, closely related to the aptitude for play, observed both in man
and in the lower animals.[3] The aptitude for play, as well as the
functioning of idle curiosity, seems peculiarly lively in the young,
whose aptitude for sustained pragmatism is at the same time relatively
vague and unreliable.

This idle curiosity formulates its response to stimulus, not in terms of
an expedient line of conduct, nor even necessarily in a chain of motor
activity, but in terms of the sequence of activities going on in the
observed phenomena. The "interpretation" of the facts under the guidance
of this idle curiosity may take the form of anthropomorphic or animistic
explanations of the "conduct" of the objects observed. The
interpretation of the facts takes a dramatic form. The facts are
conceived in an animistic way, and a pragmatic animus is imputed to
them. Their behavior is construed as a reasoned procedure on their part
looking to the advantage of these animistically conceived objects, or
looking to the achievement of some end which these objects are conceived
to have at heart for reasons of their own.

Among the savage and lower barbarian peoples there is commonly current a
large body of knowledge organised in this way into myths and legends,
which need have no pragmatic value for the learner of them and no
intended bearing on his conduct of practical affairs. They may come to
have a practical value imputed to them as a ground of superstitious
observances, but they may also not.[4] All students of the lower
cultures are aware of the dramatic character of the myths current among
these peoples, and they are also aware that, particularly among the
peaceable communities, the great body of mythical lore is of an idle
kind, as having very little intended bearing on the practical conduct of
those who believe in these myth-dramas. The myths on the one hand, and
the workday knowledge of uses, materials, appliances, and expedients on
the other hand, may be nearly independent of one another. Such is the
case in an especial degree among those peoples who are prevailingly of a
peaceable habit of life, among whom the myths have not in any great
measure been canonised into precedents of divine malevolence.

The lower barbarian's knowledge of the phenomena of nature, in so far as
they are made the subject of deliberate speculation and are organised
into a consistent body, is of the nature of life-histories. This body of
knowledge is in the main organised under the guidance of an idle
curiosity. In so far as it is systematised under the canons of curiosity
rather than of expediency, the test of truth applied throughout this
body of barbarian knowledge is the test of dramatic consistency. In
addition to their dramatic cosmology and folk legends, it is needless to
say, these peoples have also a considerable body of worldly wisdom in a
more or less systematic form. In this the test of validity is
usefulness.[5]

The pragmatic knowledge of the early days differs scarcely at all in
character from that of the maturest phases of culture. Its highest
achievements in the direction of systematic formulation consist of
didactic exhortations to thrift, prudence, equanimity, and shrewd
management--a body of maxims of expedient conduct. In this field there
is scarcely a degree of advance from Confucius to Samuel Smiles. Under
the guidance of the idle curiosity, on the other hand, there has been a
continued advance toward a more and more comprehensive system of
knowledge. With the advance in intelligence and experience there come
closer observation and more detailed analysis of facts.[6] The
dramatisation of the sequence of phenomena may then fall into somewhat
less personal, less anthropomorphic formulations of the processes
observed; but at no stage of its growth--at least at no stage hitherto
reached--does the output of this work of the idle curiosity lose its
dramatic character. Comprehensive generalisations are made and
cosmologies are built up, but always in dramatic form. General
principles of explanation are settled on, which in the earlier days of
theoretical speculation seem invariably to run back to the broad vital
principle of generation. Procreation, birth, growth, and decay
constitute the cycle of postulates within which the dramatised processes
of natural phenomena run their course. Creation is procreation in these
archaic theoretical systems, and causation is gestation and birth. The
archaic cosmological schemes of Greece, India, Japan, China, Polynesia,
and America, all run to the same general effect on this head.[7] The
like seems true for the Elohistic elements in the Hebrew scriptures.

Throughout this biological speculation there is present, obscurely in
the background, the tacit recognition of a material causation, such as
conditions the vulgar operations of workday life from hour to hour. But
this causal relation between vulgar work and product is vaguely taken
for granted and not made a principle for comprehensive generalisations.
It is overlooked as a trivial matter of course. The higher
generalisations take their color from the broader features of the
current scheme of life. The habits of thought that rule in the
working-out of a system of knowledge are such as are fostered by the
more impressive affairs of life, by the institutional structure under
which the community lives. So long as the ruling institutions are those
of blood-relationship, descent, and clannish discrimination, so long the
canons of knowledge are of the same complexion.

When presently a transformation is made in the scheme of culture from
peaceable life with sporadic predation to a settled scheme of predaceous
life, involving mastery and servitude, gradations of privilege and
honor, coercion and personal dependence, then the scheme of knowledge
undergoes an analogous change. The predaceous, or higher barbarian,
culture is, for the present purpose, peculiar in that it is ruled by an
accentuated pragmatism. The institutions of this cultural phase are
conventionalised relations of force and fraud. The questions of life are
questions of expedient conduct as carried on under the current relations
of mastery and subservience. The habitual distinctions are distinctions
of personal force, advantage, precedence, and authority. A shrewd
adaptation to this system of graded dignity and servitude becomes a
matter of life and death, and men learn to think in these terms as
ultimate and definitive. The system of knowledge, even in so far as its
motives are of a dispassionate or idle kind, falls into the like terms,
because such are the habits of thought and the standards of
discrimination enforced by daily life.[8]

The theoretical work of such a cultural era, as, for instance, the
Middle Ages, still takes the general shape of dramatisation, but the
postulates of the dramaturgic theories and the tests of theoretic
validity are no longer the same as before the scheme of graded servitude
came to occupy the field. The canons which guide the work of the idle
curiosity are no longer those of generation, blood-relationship, and
homely life, but rather those of graded dignity, authenticity, and
dependence. The higher generalisations take on a new complexion, it may
be without formally discarding the older articles of belief. The
cosmologies of these higher barbarians are cast in terms of a
feudalistic hierarchy of agents and elements, and the causal nexus
between phenomena is conceived animistically after the manner of
sympathetic magic. The laws that are sought to be discovered in the
natural universe are sought in terms of authoritative enactment. The
relation in which the deity, or deities, are conceived to stand to facts
is no longer the relation of progenitor, so much as that of suzerainty.
Natural laws are corollaries under the arbitrary rules of status imposed
on the natural universe by an all-powerful Providence with a view to the
maintenance of his own prestige. The science that grows in such a
spiritual environment is of the class represented by alchemy and
astrology, in which the imputed degree of nobility and prepotency of the
objects and the symbolic force of their names are looked to for an
explanation of what takes place.

The theoretical output of the Schoolmen has necessarily an accentuated
pragmatic complexion, since the whole cultural scheme under which they
lived and worked was of a strenuously pragmatic character. The current
concepts of things were then drawn in terms of expediency, personal
force, exploit, prescriptive authority, and the like, and this range of
concepts was by force of habit employed in the correlation of facts for
purposes of knowledge even where no immediate practical use of the
knowledge so gained was had in view. At the same time a very large
proportion of the scholastic researches and speculations aimed directly
at rules of expedient conduct, whether it took the form of a philosophy
of life under temporal law and custom, or of a scheme of salvation under
the decrees of an autocratic Providence. A naïve apprehension of the
dictum that all knowledge is pragmatic would find more satisfactory
corroboration in the intellectual output of scholasticism than in any
system of knowledge of an older or a later date.

With the advent of modern times a change comes over the nature of the
inquiries and formulations worked out under the guidance of the idle
curiosity--which from this epoch is often spoken of as the scientific
spirit. The change in question is closely correlated with an analogous
change in institutions and habits of life, particularly with the changes
which the modern era brings in industry and in the economic organisation
of society. It is doubtful whether the characteristic intellectual
interests and teachings of the new era can properly be spoken of as less
"pragmatic," as that term is sometimes understood, than those of the
scholastic times; but they are of another kind, being conditioned by a
different cultural and industrial situation.[9] In the life of the new
era conceptions of authentic rank and differential dignity have grown
weaker in practical affairs, and notions of preferential reality and
authentic tradition similarly count for less in the new science. The
forces at work in the external world are conceived in a less animistic
manner, although anthropomorphism still prevails, at least to the degree
required in order to give a dramatic interpretation of the sequence of
phenomena.

The changes in the cultural situation which seem to have had the most
serious consequences for the methods and animus of scientific inquiry
are those changes that took place in the field of industry. Industry in
early modern times is a fact of relatively greater preponderance, more
of a tone-giving factor, than it was under the régime of feudal status.
It is the characteristic trait of the modern culture, very much as
exploit and fealty were the characteristic cultural traits of the
earlier time. This early-modern industry is, in an obvious and
convincing degree, a matter of workmanship. The same has not been true
in the same degree either before or since. The workman, more or less
skilled and with more or less specialised efficiency, was the central
figure in the cultural situation of the time; and so the concepts of the
scientists came to be drawn in the image of the workman. The
dramatisations of the sequence of external phenomena worked out under
the impulse of the idle curiosity were then conceived in terms of
workmanship. Workmanship gradually supplanted differential dignity as
the authoritative canon of scientific truth, even on the higher levels
of speculation and research. This, of course, amounts to saying in other
words that the law of cause and effect was given the first place, as
contrasted with dialectical consistency and authentic tradition. But
this early-modern law of cause and effect--the law of efficient
causes--is of an anthropomorphic kind. "Like causes produce like
effects," in much the same sense as the skilled workman's product is
like the workman; "nothing is found in the effect that was not contained
in the cause," in much the same manner.

These dicta are, of course, older than modern science, but it is only in
the early days of modern science that they come to rule the field with
an unquestioned sway and to push the higher grounds of dialectical
validity to one side. They invade even the highest and most recondite
fields of speculation, so that at the approach to the transition from
the early-modern to the late-modern period, in the eighteenth century,
they determine the outcome even in the counsels of the theologians. The
deity, from having been in mediæval times primarily a suzerain concerned
with the maintenance of his own prestige, becomes primarily a creator
engaged in the workmanlike occupation of making things useful for man.
His relation to man and the natural universe is no longer primarily that
of a progenitor, as it is in the lower barbarian culture, but rather
that of a talented mechanic. The "natural laws" which the scientists of
that era make so much of are no longer decrees of a preternatural
legislative authority, but rather details of the workshop specifications
handed down by the master-craftsman for the guidance of handicraftsmen
working out his designs. In the eighteenth-century science these natural
laws are laws specifying the sequence of cause and effect, and will bear
characterisation as a dramatic interpretation of the activity of the
causes at work, and these causes are conceived in a quasi-personal
manner. In later modern times the formulations of causal sequence grow
more impersonal and more objective, more matter-of-fact; but the
imputation of activity to the observed objects never ceases, and even in
the latest and maturest formulations of scientific research the dramatic
tone is not wholly lost. The causes at work are conceived in a highly
impersonal way, but hitherto no science (except ostensibly mathematics)
has been content to do its theoretical work in terms of inert magnitude
alone. Activity continues to be imputed to the phenomena with which
science deals; and activity is, of course, not a fact of observation,
but is imputed to the phenomena by the observer.[10] This is, also of
course, denied by those who insist on a purely mathematical formulation
of scientific theories, but the denial is maintained only at the cost of
consistency. Those eminent authorities who speak for a colorless
mathematical formulation invariably and necessarily fall back on the
(essentially metaphysical) preconception of causation as soon as they go
into the actual work of scientific inquiry.[11]

Since the machine technology has made great advances, during the
nineteenth century, and has become a cultural force of wide-reaching
consequence, the formulations of science have made another move in the
direction of impersonal matter-of-fact. The machine process has
displaced the workman as the archetype in whose image causation is
conceived by the scientific investigators. The dramatic interpretation
of natural phenomena has thereby become less anthropomorphic; it no
longer constructs the life-history of a cause working to produce a given
effect--after the manner of a skilled workman producing a piece of
wrought goods--but it constructs the life-history of a process in which
the distinction between cause and effect need scarcely be observed in an
itemised and specific way, but in which the run of causation unfolds
itself in an unbroken sequence of cumulative change. By contrast with
the pragmatic formulations of worldly wisdom these latter-day theories
of the scientists appear highly opaque, impersonal, and matter-of-fact;
but taken by themselves they must be admitted still to show the
constraint of the dramatic prepossessions that once guided the savage
myth-makers.

In so far as touches the aims and the animus of scientific inquiry, as
seen from the point of view of the scientist, it is a wholly fortuitous
and insubstantial coincidence that much of the knowledge gained under
machine-made canons of research can be turned to practical account. Much
of this knowledge is useful, or may be made so, by applying it to the
control of the processes in which natural forces are engaged. This
employment of scientific knowledge for useful ends is technology, in the
broad sense in which the term includes, besides the machine industry
proper, such branches of practice as engineering, agriculture, medicine,
sanitation, and economic reforms. The reason why scientific theories can
be turned to account for these practical ends is not that these ends are
included in the scope of scientific inquiry. These useful purposes lie
outside the scientist's interest. It is not that he aims, or can aim, at
technological improvements. His inquiry is as "idle" as that of the
Pueblo myth-maker. But the canons of validity under whose guidance he
works are those imposed by the modern technology, through habituation to
its requirements; and therefore his results are available for the
technological purpose. His canons of validity are made for him by the
cultural situation; they are habits of thought imposed on him by the
scheme of life current in the community in which he lives; and under
modern conditions this scheme of life is largely machine-made. In the
modern culture, industry, industrial processes, and industrial products
have progressively gained upon humanity, until these creations of man's
ingenuity have latterly come to take the dominant place in the cultural
scheme; and it is not too much to say that they have become the chief
force in shaping men's daily life, and therefore the chief factor in
shaping men's habits of thought. Hence men have learned to think in the
terms in which the technological processes act. This is particularly
true of those men who by virtue of a peculiarly strong susceptibility in
this direction become addicted to that habit of matter-of-fact inquiry
that constitutes scientific research.

Modern technology makes use of the same range of concepts, thinks in the
same terms, and applies the same tests of validity as modern science. In
both, the terms of standardisation, validity, and finality are always
terms of impersonal sequence, not terms of human nature or of
preternatural agencies. Hence the easy copartnership between the two.
Science and technology play into one another's hands. The processes of
nature with which science deals and which technology turns to account,
the sequence of changes in the external world, animate and inanimate,
run in terms of brute causation, as do the theories of science. These
processes take no thought of human expediency or inexpediency. To make
use of them they must be taken as they are, opaque and unsympathetic.
Technology, therefore, has come to proceed on an interpretation of these
phenomena in mechanical terms, not in terms of imputed personality nor
even of workmanship. Modern science, deriving its concepts from the same
source, carries on its inquiries and states its conclusions in terms of
the same objective character as those employed by the mechanical
engineer.

So it has come about, through the progressive change of the ruling
habits of thought in the community, that the theories of science have
progressively diverged from the formulations of pragmatism, ever since
the modern era set in. From an organisation of knowledge on the basis of
imputed personal or animistic propensity the theory has changed its base
to an imputation of brute activity only, and this latter is conceived in
an increasingly matter-of-fact manner; until, latterly, the pragmatic
range of knowledge and the scientific are more widely out of touch than
ever, differing not only in aim, but in matter as well. In both domains
knowledge runs in terms of activity, but it is on the one hand knowledge
of what had best be done, and on the other hand knowledge of what takes
place; on the one hand knowledge of ways and means, on the other hand
knowledge without any ulterior purpose. The latter range of knowledge
may serve the ends of the former, but the converse does not hold true.

These two divergent ranges of inquiry are to be found together in all
phases of human culture. What distinguishes the present phase is that
the discrepancy between the two is now wider than ever before. The
present is nowise distinguished above other cultural eras by any
exceptional urgency or acumen in the search for pragmatic expedients.
Neither is it safe to assert that the present excels all other
civilisations in the volume or the workmanship of that body of knowledge
that is to be credited to the idle curiosity. What distinguishes the
present in these premises is (1) that the primacy in the cultural scheme
has passed from pragmatism to a disinterested inquiry whose motive is
idle curiosity, and (2) that in the domain of the latter the making of
myths and legends in terms of imputed personality, as well as the
construction of dialectical systems in terms of differential reality,
has yielded the first place to the making of theories in terms of
matter-of-fact sequence.[12]

Pragmatism creates nothing but maxims of expedient conduct. Science
creates nothing but theories.[13] It knows nothing of policy or utility,
of better or worse. None of all that is comprised in what is to-day
accounted scientific knowledge. Wisdom and proficiency of the pragmatic
sort does not contribute to the advance of a knowledge of fact. It has
only an incidental bearing on scientific research, and its bearing is
chiefly that of inhibition and misdirection. Wherever canons of
expediency are intruded into or are attempted to be incorporated in the
inquiry, the consequence is an unhappy one for science, however happy it
may be for some other purpose extraneous to science. The mental attitude
of worldly wisdom is at cross-purposes with the disinterested scientific
spirit, and the pursuit of it induces an intellectual bias that is
incompatible with scientific insight. Its intellectual output is a body
of shrewd rules of conduct, in great part designed to take advantage of
human infirmity. Its habitual terms of standardisation and validity are
terms of human nature, of human preference, prejudice, aspiration,
endeavor, and disability, and the habit of mind that goes with it is
such as is consonant with these terms. No doubt, the all-pervading
pragmatic animus of the older and non-European civilisations has had
more than anything else to do with their relatively slight and slow
advance in scientific knowledge. In the modern scheme of knowledge it
holds true, in a similar manner and with analogous effect, that training
in divinity, in law, and in the related branches of diplomacy, business
tactics, military affairs, and political theory, is alien to the
skeptical scientific spirit and subversive of it.

The modern scheme of culture comprises a large body of worldly wisdom,
as well as of science. This pragmatic lore stands over against science
with something of a jealous reserve. The pragmatists value themselves
somewhat on being useful as well as being efficient for good and evil.
They feel the inherent antagonism between themselves and the scientists,
and look with some doubt on the latter as being merely decorative
triflers, although they sometimes borrow the prestige of the name of
science--as is only good and well, since it is of the essence of worldly
wisdom to borrow anything that can be turned to account. The reasoning
in these fields turns about questions of personal advantage of one kind
or another, and the merits of the claims canvassed in these discussions
are decided on grounds of authenticity. Personal claims make up the
subject of the inquiry, and these claims are construed and decided in
terms of precedent and choice, use and wont, prescriptive authority, and
the like. The higher reaches of generalisation in these pragmatic
inquiries are of the nature of deductions from authentic tradition, and
the training in this class of reasoning gives discrimination in respect
of authenticity and expediency. The resulting habit of mind is a bias
for substituting dialectical distinctions and decisions _de jure_ in the
place of explanations _de facto_. The so-called "sciences" associated
with these pragmatic disciplines, such as jurisprudence, political
science, and the like, are a taxonomy of credenda. Of this character was
the greater part of the "science" cultivated by the Schoolmen, and large
remnants of the same kind of authentic convictions are, of course, still
found among the tenets of the scientists, particularly in the social
sciences, and no small solicitude is still given to their cultivation.
Substantially the same value as that of the temporal pragmatic inquiries
belongs also, of course, to the "science" of divinity. Here the
questions to which an answer is sought, as well as the aim and method of
inquiry, are of the same pragmatic character, although the argument runs
on a higher plane of personality, and seeks a solution in terms of a
remoter and more metaphysical expediency.

       *       *       *       *       *

In the light of what has been said above, the questions recur: How far
is the scientific quest of matter-of-fact knowledge consonant with the
inherited intellectual aptitudes and propensities of the normal man?
and, What foothold has science in the modern culture? The former is a
question of the temperamental heritage of civilised mankind, and
therefore it is in large part a question of the circumstances which have
in the past selectively shaped the human nature of civilised mankind.
Under the barbarian culture, as well as on the lower levels of what is
currently called civilised life, the dominant note has been that of
competitive expediency for the individual or the group, great or small,
in an avowed struggle for the means of life. Such is still the ideal of
the politician and business man, as well as of other classes whose
habits of life lead them to cling to the inherited barbarian traditions.
The upper-barbarian and lower-civilised culture, as has already been
indicated, is pragmatic, with a thoroughness that nearly bars out any
non-pragmatic ideal of life or of knowledge. Where this tradition is
strong there is but a precarious chance for any consistent effort to
formulate knowledge in other terms than those drawn from the prevalent
relations of personal mastery and subservience and the ideals of
personal gain.

During the Dark and Middle Ages, for instance, it is true in the main
that any movement of thought not controlled by considerations of
expediency and conventions of status are to be found only in the obscure
depths of vulgar life, among those neglected elements of the population
that lived below the reach of the active class struggle. What there is
surviving of this vulgar, non-pragmatic intellectual output takes the
form of legends and folk-tales, often embroidered on the authentic
documents of the Faith. These are less alien to the latest and highest
culture of Christendom than are the dogmatic, dialectical, and chivalric
productions that occupied the attention of the upper classes in mediæval
times. It may seem a curious paradox that the latest and most perfect
flower of the western civilisation is more nearly akin to the spiritual
life of the serfs and villeins than it is to that of the grange or the
abbey. The courtly life and the chivalric habits of thought of that past
phase of culture have left as nearly no trace in the cultural scheme of
later modern times as could well be. Even the romancers who ostensibly
rehearse the phenomena of chivalry, unavoidably make their knights and
ladies speak the language and the sentiments of the slums of that time,
tempered with certain schematised modern reflections and speculations.
The gallantries, the genteel inanities and devout imbecilities of
mediæval high-life would be insufferable even to the meanest and most
romantic modern intelligence. So that in a later, less barbarian age the
precarious remnants of folklore that have come down through that vulgar
channel--half savage and more than half pagan--are treasured as
containing the largest spiritual gains which the barbarian ages of
Europe have to offer.

The sway of barbarian pragmatism has, everywhere in the western world,
been relatively brief and relatively light; the only exceptions would be
found in certain parts of the Mediterranean seaboard. But wherever the
barbarian culture has been sufficiently long-lived and unmitigated to
work out a thoroughly selective effect in the human material subjected
to it, there the pragmatic animus may be expected to have become supreme
and to inhibit all movement in the direction of scientific inquiry and
eliminate all effective aptitude for other than worldly wisdom. What the
selective consequences of such a protracted régime of pragmatism would
be for the temper of the race may be seen in the human flotsam left by
the great civilisations of antiquity, such as Egypt, India, and Persia.
Science is not at home among these leavings of barbarism. In these
instances of its long and unmitigated dominion the barbarian culture has
selectively worked out a temperamental bias and a scheme of life from
which objective, matter-of-fact knowledge is virtually excluded in favor
of pragmatism, secular and religious. But for the greater part of the
race, at least for the greater part of civilised mankind, the régime of
the mature barbarian culture has been of relatively short duration, and
has had a correspondingly superficial and transient selective effect. It
has not had force and time to eliminate certain elements of human nature
handed down from an earlier phase of life, which are not in full
consonance with the barbarian animus or with the demands of the
pragmatic scheme of thought. The barbarian-pragmatic habit of mind,
therefore, is not properly speaking a temperamental trait of the
civilised peoples, except possibly within certain class limits (as,
_e.g._, the German nobility). It is rather a tradition, and it does not
constitute so tenacious a bias as to make head against the strongly
materialistic drift of modern conditions and set aside that increasingly
urgent resort to matter-of-fact conceptions that makes for the primacy
of science. Civilised mankind does not in any great measure take back
atavistically to the upper-barbarian habit of mind. Barbarism covers too
small a segment of the life-history of the race to have given an
enduring temperamental result. The unmitigated discipline of the higher
barbarism in Europe fell on a relatively small proportion of the
population, and in the course of time this select element of the
population was crossed and blended with the blood of the lower elements
whose life always continued to run in the ruts of savagery rather than
in those of the high-strung, finished barbarian culture that gave rise
to the chivalric scheme of life.

Of the several phases of human culture the most protracted, and the one
which has counted for most in shaping the abiding traits of the race, is
unquestionably that of savagery. With savagery, for the purpose in hand,
is to be classed that lower, relatively peaceable barbarism that is not
characterised by wide and sharp class discrepancies or by an unremitting
endeavor of one individual or group to get the better of another. Even
under the full-grown barbarian culture--as, for instance, during the
Middle Ages--the habits of life and the spiritual interests of the great
body of the population continue in large measure to bear the character
of savagery. The savage phase of culture accounts for by far the greater
portion of the life-history of mankind, particularly if the lower
barbarism and the vulgar life of later barbarism be counted in with
savagery, as in a measure they properly should. This is particularly
true of those racial elements that have entered into the composition of
the leading peoples of Christendom.

The savage culture is characterised by the relative absence of
pragmatism from the higher generalisations of its knowledge and beliefs.
As has been noted above, its theoretical creations are chiefly of the
nature of mythology shading off into folklore. This genial spinning of
apocryphal yarns is, at its best, an amiably inefficient formulation of
experiences and observations in terms of something like a life-history
of the phenomena observed. It has, on the one hand, little value, and
little purpose, in the way of pragmatic expediency, and so it is not
closely akin to the pragmatic-barbarian scheme of life; while, on the
other hand, it is also ineffectual as a systematic knowledge of
matter-of-fact. It is a quest of knowledge, perhaps of systematic
knowledge, and it is carried on under the incentive of the idle
curiosity. In this respect it falls in the same class with the civilised
man's science; but it seeks knowledge not in terms of opaque
matter-of-fact, but in terms of some sort of spiritual life imputed to
the facts. It is romantic and Hegelian rather than realistic and
Darwinian. The logical necessities of its scheme of thought are
necessities of spiritual consistency rather than of quantitative
equivalence. It is like science in that it has no ulterior motive beyond
the idle craving for a systematic correlation of data; but it is unlike
science in that its standardisation and correlation of data run in terms
of the free play of imputed personal initiative rather than in terms of
the constraint of objective cause and effect.

By force of the protracted selective discipline of this past phase of
culture, the human nature of civilised mankind is still substantially
the human nature of savage man. The ancient equipment of congenital
aptitudes and propensities stands over substantially unchanged, though
overlaid with barbarian traditions and conventionalities and readjusted
by habituation to the exigencies of civilised life. In a measure,
therefore, but by no means altogether, scientific inquiry is native to
civilised man with his savage heritage, since scientific inquiry
proceeds on the same general motive of idle curiosity as guided the
savage myth-makers, though it makes use of concepts and standards in
great measure alien to the myth-makers' habit of mind. The ancient human
predilection for discovering a dramatic play of passion and intrigue in
the phenomena of nature still asserts itself. In the most advanced
communities, and even among the adepts of modern science, there comes up
persistently the revulsion of the native savage against the inhumanly
dispassionate sweep of the scientific quest, as well as against the
inhumanly ruthless fabric of technological processes that have come out
of this search for matter-of-fact knowledge. Very often the savage need
of a spiritual interpretation (dramatisation) of phenomena breaks
through the crust of acquired materialistic habits of thought, to find
such refuge as may be had in articles of faith seized on and held by
sheer force of instinctive conviction. Science and its creations are
more or less uncanny, more or less alien, to that fashion of craving for
knowledge that by ancient inheritance animates mankind. Furtively or by
an overt breach of consistency, men still seek comfort in marvelous
articles of savage-born lore, which contradict the truths of that
modern science whose dominion they dare not question, but whose findings
at the same time go beyond the breaking point of their jungle-fed
spiritual sensibilities.

The ancient ruts of savage thought and conviction are smooth and easy;
but however sweet and indispensable the archaic ways of thinking may be
to the civilised man's peace of mind, yet such is the binding force of
matter-of-fact analysis and inference under modern conditions that the
findings of science are not questioned on the whole. The name of science
is after all a word to conjure with. So much so that the name and the
mannerisms, at least, if nothing more of science, have invaded all
fields of learning and have even overrun territory that belongs to the
enemy. So there are "sciences" of theology, law, and medicine, as has
already been noted above. And there are such things as Christian
Science, and "scientific" astrology, palmistry, and the like. But within
the field of learning proper there is a similar predilection for an air
of scientific acumen and precision where science does not belong. So
that even that large range of knowledge that has to do with general
information rather than with theory--what is loosely termed
scholarship--tends strongly to take on the name and forms of theoretical
statement. However decided the contrast between these branches of
knowledge on the one hand, and science properly so called on the other
hand, yet even the classical learning, and the humanities generally,
fall in with this predilection more and more with each succeeding
generation of students. The students of literature, for instance, are
more and more prone to substitute critical analysis and linguistic
speculation, as the end of their endeavors, in the place of that
discipline of taste and that cultivated sense of literary form and
literary feeling that must always remain the chief end of literary
training, as distinct from philology and the social sciences. There is,
of course, no intention to question the legitimacy of a science of
philology or of the analytical study of literature as a fact in cultural
history, but these things do not constitute training in literary taste,
nor can they take the place of it. The effect of this straining after
scientific formulations in a field alien to the scientific spirit is as
curious as it is wasteful. Scientifically speaking, these
quasi-scientific inquiries necessarily begin nowhere and end in the same
place; while in point of cultural gain they commonly come to nothing
better than spiritual abnegation. But these blindfold endeavors to
conform to the canons of science serve to show how wide and unmitigated
the sway of science is in the modern community.

Scholarship--that is to say an intimate and systematic familiarity with
past cultural achievements--still holds its place in the scheme of
learning, in spite of the unadvised efforts of the short-sighted to
blend it with the work of science, for it affords play for the ancient
genial propensities that ruled men's quest of knowledge before the
coming of science or of the outspoken pragmatic barbarism. Its place may
not be so large in proportion to the entire field of learning as it was
before the scientific era got fully under way. But there is no intrinsic
antagonism between science and scholarship, as there is between
pragmatic training and scientific inquiry. Modern scholarship shares
with modern science the quality of not being pragmatic in its aim. Like
science it has no ulterior end. It may be difficult here and there to
draw the line between science and scholarship, and it may even more be
unnecessary to draw such a line; yet while the two ranges of discipline
belong together in many ways, and while there are many points of contact
and sympathy between the two; while the two together make up the modern
scheme of learning; yet there is no need of confounding the one with the
other, nor can the one do the work of the other. The scheme of learning
has changed in such manner as to give science the more commanding place,
but the scholar's domain has not thereby been invaded, nor has it
suffered contraction at the hands of science, whatever may be said of
the weak-kneed abnegation of some whose place, if they have one, is in
the field of scholarship rather than of science.

       *       *       *       *       *

All that has been said above has of course nothing to say as to the
intrinsic merits of this quest of matter-of-fact knowledge. In point of
fact, science gives its tone to modern culture. One may approve or one
may deprecate the fact that this opaque, materialistic interpretation of
things pervades modern thinking. That is a question of taste, about
which there is no disputing. The prevalence of this matter-of-fact
inquiry is a feature of modern culture, and the attitude which critics
take toward this phenomenon is chiefly significant as indicating how far
their own habit of mind coincides with the enlightened common-sense of
civilised mankind. It shows in what degree they are abreast of the
advance of culture. Those in whom the savage predilection or the
barbarian tradition is stronger than their habituation to civilised life
will find that this dominant factor of modern life is perverse, if not
calamitous; those whose habits of thought have been fully shaped by the
machine process and scientific inquiry are likely to find it good. The
modern western culture, with its core of matter-of-fact knowledge, may
be better or worse than some other cultural scheme, such as the classic
Greek, the mediæval Christian, the Hindu, or the Pueblo Indian. Seen in
certain lights, tested by certain standards, it is doubtless better; by
other standards, worse. But the fact remains that the current cultural
scheme, in its maturest growth, is of that complexion; its
characteristic force lies in this matter-of-fact insight; its highest
discipline and its maturest aspirations are these.

In point of fact, the sober common-sense of civilised mankind accepts no
other end of endeavor as self-sufficient and ultimate. That such is the
case seems to be due chiefly to the ubiquitous presence of the machine
technology and its creations in the life of modern communities. And so
long as the machine process continues to hold its dominant place as a
disciplinary factor in modern culture, so long must the spiritual and
intellectual life of this cultural era maintain the character which the
machine process gives it.

But while the scientist's spirit and his achievements stir an
unqualified admiration in modern men, and while his discoveries carry
conviction as nothing else does, it does not follow that the manner of
man which this quest of knowledge produces or requires comes near
answering to the current ideal of manhood, or that his conclusions are
felt to be as good and beautiful as they are true. The ideal man, and
the ideal of human life, even in the apprehension of those who most
rejoice in the advances of science, is neither the finikin skeptic in
the laboratory nor the animated slide-rule. The quest of science is
relatively new. It is a cultural factor not comprised, in anything like
its modern force, among those circumstances whose selective action in
the far past has given to the race the human nature which it now has.
The race reached the human plane with little of this searching knowledge
of facts; and throughout the greater part of its life-history on the
human plane it has been accustomed to make its higher generalisations
and to formulate its larger principles of life in other terms than those
of passionless matter-of-fact. This manner of knowledge has occupied an
increasing share of men's attention in the past, since it bears in a
decisive way upon the minor affairs of workday life; but it has never
until now been put in the first place, as the dominant note of human
culture. The normal man, such as his inheritance has made him, has
therefore good cause to be restive under its dominion.

FOOTNOTES:

[1] Reprinted by permission from _The American Journal of Sociology_,
Vol. XI, March, 1906.

[2] Jacques Loeb, _Heliotropismus der Thiere_, and _Comparative
Psychology and Physiology of the Brain_.

[3] Cf. Gross, _Spiele der Thiere_, chap. 2 (esp. pp. 65-76), and chap.
5; _The Play of Man_, Part III, sec. 3; Spencer, _Principles of
Psychology_, secs. 533-35.

[4] The myths and legendary lore of the Eskimo, the Pueblo Indians, and
some tribes of the northwest coast afford good instances of such idle
creations. Cf. various _Reports_ of the Bureau of American Ethnology;
also, e.g., Tylor, _Primitive Culture_, esp. the chapters on "Mythology"
and "Animism."

[5] "Pragmatic" is here used in a more restricted sense than the
distinctively pragmatic school of modern psychologists would commonly
assign the term. "Pragmatic," "teleological," and the like terms have
been extended to cover imputation of purpose as well as conversion to
use. It is not intended to criticise this ambiguous use of terms, nor to
correct it; but the terms are here used only in the latter sense, which
alone belongs to them by force of early usage and etymology. "Pragmatic"
knowledge, therefore, is such as is designed to serve an expedient end
for the knower, and is here contrasted with the imputation of expedient
conduct to the facts observed. The reason for preserving this
distinction is simply the present need of a simple term by which to mark
the distinction between worldly wisdom and idle learning.

[6] Cf. Ward, _Pure Sociology_, esp. pp. 437-48.

[7] Cf., e.g., Tylor, _Primitive Culture_, chap. 8.

[8] Cf. James, _Psychology_, chap. 9, esp. sec. 5.

[9] As currently employed, the term "pragmatic" is made to cover both
conduct looking to the agent's preferential advantage, expedient
conduct, and workmanship directed to the production of things that may
or may not be of advantage to the agent. If the term be taken in the
latter meaning, the culture of modern times is no less "pragmatic" than
that of the Middle Ages. It is here intended to be used in the former
sense.

[10] Epistemologically speaking, activity is imputed to phenomena for
the purpose of organising them into a dramatically consistent system.

[11] Cf., e.g., Karl Pearson, _Grammar of Science_, and compare his
ideal of inert magnitudes as set forth in his exposition with his actual
work as shown in chaps. 9, 10, and 12, and more particularly in his
discussions of "Mother Right" and related topics in _The Chances of
Death_.

[12] Cf. James, _Psychology_, Vol. II, chap. 28, pp. 633-71, esp. p. 640
note.

[13] Cf. Ward, _Principles of Psychology_, pp. 439-43.




THE EVOLUTION OF THE SCIENTIFIC POINT OF VIEW[1]


A discussion of the scientific point of view which avowedly proceeds
from this point of view itself has necessarily the appearance of an
argument in a circle; and such in great part is the character of what
here follows. It is in large part an attempt to explain the scientific
point of view in terms of itself, but not altogether. This inquiry does
not presume to deal with the origin or the legitimation of the
postulates of science, but only with the growth of the habitual use of
these postulates, and the manner of using them. The point of inquiry is
the changes which have taken place in the secondary postulates involved
in the scientific point of view--in great part a question of the
progressive redistribution of emphasis among the preconceptions under
whose guidance successive generations of scientists have gone to their
work.

       *       *       *       *       *

The sciences which are in any peculiar sense modern take as an
(unavowed) postulate the fact of consecutive change. Their inquiry
always centers upon some manner of process. This notion of process about
which the researches of modern science cluster, is a notion of a
sequence, or complex, of consecutive change in which the _nexus_ of the
sequence, that by virtue of which the change inquired into is
consecutive, is the relation of cause and effect. The consecution,
moreover, runs in terms of persistence of quantity or of force. In so
far as the science is of a modern complexion, in so far as it is not of
the nature of taxonomy simply, the inquiry converges upon a matter of
process; and it comes to rest, provisionally, when it has disposed of
its facts in terms of process. But modern scientific inquiry in any case
comes to rest only provisionally; because its prime postulate is that of
consecutive change, and consecutive change can, of course, not come to
rest except provisionally. By its own nature the inquiry cannot reach a
final term in any direction. So it is something of a homiletical
commonplace to say that the outcome of any serious research can only be
to make two questions grow where one question grew before. Such is
necessarily the case because the postulate of the scientist is that
things change consecutively. It is an unproven and unprovable
postulate--that is to say, it is a metaphysical preconception--but it
gives the outcome that every goal of research is necessarily a point of
departure; every term is transitional.[2]

A hundred years ago, or even fifty years ago, scientific men were not in
the habit of looking at the matter in this way. At least it did not
then seem a matter of course, lying in the nature of things, that
scientific inquiry could not reach a final term in any direction.
To-day it is a matter of course, and will be so avowed without argument.
Stated in the broadest terms, this is the substantial outcome of that
nineteenth-century movement in science with which the name of Darwin is
associated as a catch-word.

This use of Darwin's name does not imply that this epoch of science is
mainly Darwin's work. What merit may belong to Darwin, specifically, in
these premises, is a question which need not detain the argument. He
may, by way of creative initiative, have had more or less to do with
shaping the course of things scientific. Or, if you choose, his voice
may even be taken as only one of the noises which the wheels of
civilisation make when they go round. But by scientifically colloquial
usage we have come to speak of pre-Darwinian and post-Darwinian science,
and to appreciate that there is a significant difference in the point of
view between the scientific era which preceded and that which followed
the epoch to which his name belongs.

Before that epoch the animus of a science was, on the whole, the animus
of taxonomy; the consistent end of scientific inquiry was definition and
classification,--as it still continues to be in such fields of science
as have not been affected by the modern notion of consecutive change.
The scientists of that era looked to a final term, a consummation of the
changes which provoked their inquiry, as well as to a first beginning of
the matters with which their researches were concerned. The questions of
science were directed to the problem, essentially classificatory, of
how things had been in the presumed primordial stable equilibrium out of
which they, putatively, had come, and how they should be in the
definitive state of settlement into which things were to fall as the
outcome of the play of forces which intervened between this primordial
and the definitive stable equilibrium. To the pre-Darwinian taxonomists
the center of interest and attention, to which all scientific inquiry
must legitimately converge, was the body of natural laws governing
phenomena under the rule of causation. These natural laws were of the
nature of rules of the game of causation. They formulated the immutable
relations in which things "naturally" stood to one another before causal
disturbance took place between them, the orderly unfolding of the
complement of causes involved in the transition over this interval of
transient activity, and the settled relations that would supervene when
the disturbance had passed and the transition from cause to effect had
been consummated,--the emphasis falling on the consummation.

The characteristic feature by which post-Darwinian science is contrasted
with what went before is a new distribution of emphasis, whereby the
process of causation, the interval of instability and transition between
initial cause and definitive effect, has come to take the first place in
the inquiry; instead of that consummation in which causal effect was
once presumed to come to rest. This change of the point of view was, of
course, not abrupt or catastrophic. But it has latterly gone so far that
modern science is becoming substantially a theory of the process of
consecutive change, which is taken as a sequence of cumulative change,
realized to be self-continuing or self-propagating and to have no final
term. Questions of a primordial beginning and a definitive outcome have
fallen into abeyance within the modern sciences, and such questions are
in a fair way to lose all claim to consideration at the hands of the
scientists. Modern science is ceasing to occupy itself with the natural
laws--the codified rules of the game of causation--and is concerning
itself wholly with what has taken place and what is taking place.

       *       *       *       *       *

Rightly seen from this ultra-modern point of view, this modern science
and this point of view which it affects are, of course, a feature of the
current cultural situation,--of the process of life as it runs along
under our eyes. So also, when seen from this scientific point of view,
it is a matter of course that any marked cultural era will have its own
characteristic attitude and animus toward matters of knowledge, will
bring under inquiry such questions of knowledge as lie within its
peculiar range of interest, and will seek answers to these questions
only in terms that are consonant with the habits of thought current at
the time. That is to say, science and the scientific point of view will
vary characteristically in response to those variations in the prevalent
habits of thought which constitute the sequence of cultural development;
the current science and the current scientific point of view, the
knowledge sought and the manner of seeking it, are a product of the
cultural growth. Perhaps it would all be better characterised as a
by-product of the cultured growth.

       *       *       *       *       *

This question of a scientific point of view, of a particular attitude
and animus in matters of knowledge, is a question of the formation of
habits of thought; and habits of thought are an outcome of habits of
life. A scientific point of view is a consensus of habits of thought
current in the community, and the scientist is constrained to believe
that this consensus is formed in response to a more or less consistent
discipline of habituation to which the community is subjected, and that
the consensus can extend only so far and maintain its force only so long
as the discipline of habituation exercised by the circumstances of life
enforces it and backs it up. The scheme of life, within which lies the
scheme of knowledge, is a consensus of habits in the individuals which
make up the community. The individual subjected to habituation is each a
single individual agent, and whatever affects him in any one line of
activity, therefore, necessarily affects him in some degree in all his
various activities. The cultural scheme of any community is a complex of
the habits of life and of thought prevalent among the members of the
community. It makes up a more or less congruous and balanced whole, and
carries within it a more or less consistent habitual attitude toward
matters of knowledge--more or less consistent according as the
community's cultural scheme is more or less congruous throughout the
body of the population; and this in its turn is in the main a question
of how nearly uniform or consonant are the circumstances of experience
and tradition to which the several classes and members of the community
are subject.

So, then, the change which has come over the scientific point of view
between pre-Darwinian and post-Darwinian times is to be explained, at
least in great part, by the changing circumstances of life, and
therefore of habituation, among the people of Christendom during the
life-history of modern science. But the growth of a scientific point of
view begins farther back than modern Christendom, and a record of its
growth would be a record of the growth of human culture. Modern science
demands a genetic account of the phenomena with which it deals, and a
genetic inquiry into the scientific point of view necessarily will have
to make up its account with the earlier phases of cultural growth. A
life-history of human culture is a large topic, not to be attempted here
even in the sketchiest outline. The most that can be attempted is a
hasty review of certain scattered questions and salient points in this
life-history.

       *       *       *       *       *

In what manner and with what effect the idle curiosity of mankind first
began to tame the facts thrown in its way, far back in the night of
time, and to break them in under a scheme of habitual interpretation;
what may have been the earliest norms of systematic knowledge, such as
would serve the curiosity of the earliest generations of men in a way
analogous to the service rendered the curiosity of later generations by
scientific inquiry--all that is, of course, a matter of long-range
conjecture, more or less wild, which cannot be gone into here. But among
such peoples of the lower cultures as have been consistently observed,
norms of knowledge and schemes for its systematization are always found.
These norms and systems of knowledge are naïve and crude, perhaps, but
there is fair ground for presuming that out of the like norms and
systems in the remoter ages of our own antecedents have grown up the
systems of knowledge cultivated by the peoples of history and by their
representatives now living.

It is not unusual to say that the primitive systems of knowledge are
constructed on animistic lines; that animistic sequence is the rule to
which the facts are broken in. This seems to be true, if "animism" be
construed in a sufficiently naïve and inchoate sense. But this is not
the whole case. In their higher generalisations, in what Powell calls
their "sophiology," it appears that the primitive peoples are guided by
animistic norms; they make up their cosmological schemes, and the like,
in terms of personal or quasi-personal activity, and the whole is thrown
into something of a dramatic form. Through the early cosmological lore
runs a dramatic consistency which imputes something in the way of
initiative and propensity to the phenomena that are to be accounted for.
But this dramatisation of the facts, the accounting for phenomena in
terms of spiritual or quasi-spiritual initiative, is by no means the
whole case of primitive men's systematic knowledge of facts. Their
theories are not all of the nature of dramatic legend, myth, or
animistic life-history, although the broader and more picturesque
generalisations may take that form. There always runs along by the side
of these dramaturgic life-histories, and underlying them, an obscure
system of generalisations in terms of matter-of-fact. The system of
matter-of-fact generalisations, or theories, is obscurer than the
dramatic generalisations only in the sense that it is left in the
background as being less picturesque and of less vital interest, not in
the sense of being less familiar, less adequately apprehended, or less
secure. The peoples of the lower cultures "know" that the broad scheme
of things is to be explained in terms of creation, perhaps of
procreation, gestation, birth, growth, life and initiative; and these
matters engross the attention and stimulate speculation. But they know
equally well the matter of fact that water will run down hill, that two
stones are heavier than one of them, that an edge-tool will cut softer
substances, that two things may be tied together with a string, that a
pointed stick may be stuck in the ground, and the like. There is no
range of knowledge that is held more securely by any people than such
matters of fact; and these are generalisations from experience; they are
theoretical knowledge, and they are a matter of course. They underlie
the dramatical generalisations of the broad scheme of things, and are so
employed in the speculations of the myth-makers and the learned.

It may be that the exceptional efficiency of a given edge-tool, _e.g._,
will be accounted for on animistic or quasi-personal grounds,--grounds
of magical efficacy; but it is the exceptional behavior of such a tool
that calls for explanation on the higher ground of animistic potency,
not its work-day performance of common work. So also if an edge-tool
should fail to do what is expected of it as a matter of course, its
failure may require an explanation in other terms than matter-of-fact.
But all that only serves to bring into evidence the fact that a scheme
of generalisations in terms of matter-of-fact is securely held and is
made use of as a sufficient and ultimate explanation of the more
familiar phenomena of experience. These commonplace matter-of-fact
generalisations are not questioned and do not clash with the higher
scheme of things.

All this may seem like taking pains about trivialities. But the data
with which any scientific inquiry has to do are trivialities in some
other bearing than that one in which they are of account.

In all succeeding phases of culture, developmentally subsequent to the
primitive phase supposed above, there is found a similar or analogous
division of knowledge between a higher range of theoretical explanations
of phenomena, an ornate scheme of things, on the one hand, and such an
obscure range of matter-of-fact generalisations as is here spoken of, on
the other hand. And the evolution of the scientific point of view is a
matter of the shifting fortunes which have in the course of cultural
growth overtaken the one and the other of these two divergent methods
of apprehending and systematising the facts of experience.

The historians of human culture have, no doubt justly, commonly dealt
with the mutations that have occurred on the higher levels of
intellectual enterprise, in the more ambitious, more picturesque, and
less secure of these two contrasted ranges of theoretical knowledge;
while the lower range of generalisations, which has to do with work-day
experience, has in great part been passed over with scant ceremony as
lying outside the current of ideas, and as belonging rather among the
things which engage the attention than among the modes, expedients and
creations of this attention itself. There is good reason for this
relative neglect of the work-day matters of fact. It is on the higher
levels of speculative generalisation that the impressive mutations in
the development of thought have taken place, and that the shifting of
points of view and the clashing of convictions have drawn men into
controversy and analysis of their ideas and have given rise to schools
of thought. The matter-of-fact generalisations have met with relatively
few adventures and have afforded little scope for intellectual
initiative and profoundly picturesque speculation. On the higher levels
speculation is freer, the creative spirit has some scope, because its
excursions are not so immediately and harshly checked by material facts.

In these speculative ranges of knowledge it is possible to form and to
maintain habits of thought which shall be consistent with themselves and
with the habit of mind and run of tradition prevalent in the community
at the time, though not thereby consistent with the material actualities
of life in the community. Yet this range of speculative generalisation,
which makes up the higher learning of the barbarian culture, is also
controlled, checked, and guided by the community's habits of life; it,
too, is an integral part of the scheme of life and is an outcome of the
habituation enforced by experience. But it does not rest immediately on
men's dealings with the refractory phenomena of brute creation, nor is
it guided, undisguised and directly, by the habitual material
(industrial) occupations. The fabric of institutions intervenes between
the material exigencies of life and the speculative scheme of things.

The higher theoretical knowledge, that body of tenets which rises to the
dignity of a philosophical or scientific system, in the early culture,
is a complex of habits of thought which reflect the habits of life
embodied in the institutional structure of society; while the lower,
matter-of-fact generalisations of work-day efficiency--the trivial
matters of course--reflect the workmanlike habits of life enforced by
the commonplace material exigencies under which men live. The
distinction is analogous, and indeed, closely related, to the
distinction between "intangible" and "tangible" assets. And the
institutions are more flexible, they involve or admit a larger margin of
error, or of tolerance, than the material exigencies. The latter are
systematised into what economists have called "the state of the
industrial arts," which enforce a somewhat rigorous standardisation of
whatever knowledge falls within their scope; whereas the institutional
scheme is a matter of law and custom, politics and religion, taste and
morals, on all of which matters men have opinions and convictions, and
on which all men "have a right to their own opinions." The scheme of
institutions is also not necessarily uniform throughout the several
classes of society; and the same institution (as, _e.g._, slavery,
ownership, or royalty) does not impinge with the same effect on all
parties touched by it. The discipline of any institution of servitude,
_e.g._, is not the same for the master as for the serf, etc. If there is
a considerable institutional discrepancy between an upper and a lower
class in the community, leading to divergent lines of habitual interest
or discipline; if by force of the cultural scheme the institutions of
society are chiefly in the keeping of one class, whose attention is then
largely engrossed with the maintenance of the scheme of law and order;
while the workmanlike activities are chiefly in the hands of another
class, in whose apprehension the maintenance of law and order is at the
best a wearisome tribulation, there is likely to be a similarly
considerable divergence or discrepancy between the speculative
knowledge, cultivated primarily by the upper class, and the work-day
knowledge which is primarily in the keeping of the lower class. Such, in
particular, will be the case if the community is organised on a coercive
plan, with well-marked ruling and subject classes. The important and
interesting institutions in such a case, those institutions which fill a
large angle in men's vision and carry a great force of authenticity, are
the institutions of coercive control, differential authority and
subjection, personal dignity and consequence; and the speculative
generalisations, the institutions of the realm of knowledge, are created
in the image of these social institutions of status and personal force,
and fall into a scheme drawn after the plan of the code of honor. The
work-day generalisations, which emerge from the state of the industrial
arts, concomitantly fall into a deeper obscurity, answering to the depth
of indignity to which workmanlike efficiency sinks under such a cultural
scheme; and they can touch and check the current speculative knowledge
only remotely and incidentally. Under such a bifurcate scheme of
culture, with its concomitant two-cleft systematisation of knowledge,
"reality" is likely to be widely dissociated from fact--that is to say,
the realities and verities which are accepted as authentic and
convincing on the plane of speculative generalisation; while science has
no show--that is to say, science in that modern sense of the term which
implies a close contact, if not a coincidence, of reality with fact.

Whereas, if the institutional fabric, the community's scheme of life,
changes in such a manner as to throw the work-day experience into the
foreground of attention and to center the habitual interest of the
people on the immediate material relations of men to the brute
actualities, then the interval between the speculative realm of
knowledge, on the one hand, and the work-day generalisations of fact, on
the other hand, is likely to lessen, and the two ranges of knowledge are
likely to converge more or less effectually upon a common ground. When
the growth of culture falls into such lines, these two methods and norms
of theoretical formulation may presently come to further and fortify one
another, and something in the way of science has at least a chance to
arise.

       *       *       *       *       *

On this view there is a degree of interdependence between the cultural
situation and the state of theoretical inquiry. To illustrate this
interdependence, or the concomitance between the cultural scheme and the
character of theoretical speculation, it may be in place to call to mind
certain concomitant variations of a general character which occur in the
lower cultures between the scheme of life and the scheme of knowledge.
In this tentative and fragmentary presentation of evidence there is
nothing novel to be brought forward; still less is there anything to be
offered which carries the weight of authority.

On the lower levels of culture, even more decidedly than on the higher,
the speculative systematisation of knowledge is prone to take the form
of theology (mythology) and cosmology. This theological and cosmological
lore serves the savage and barbaric peoples as a theoretical account of
the scheme of things, and its characteristic traits vary in response to
the variations of the institutional scheme under which the community
lives. In a prevailingly peaceable agricultural community, such, _e.g._,
as the more peaceable Pueblo Indians or the more settled Indians of the
Middle West, there is little coercive authority, few and slight class
distinctions involving superiority and inferiority; property rights are
few, slight and unstable; relationship is likely to be counted in the
female line. In such a culture the cosmological lore is likely to offer
explanations of the scheme of things in terms of generation or
germination and growth. Creation by fiat is not obtrusively or
characteristically present. The laws of nature bear the character of an
habitual behavior of things, rather than that of an authoritative code
of ordinances imposed by an overruling providence. The theology is
likely to be polytheistic in an extreme degree and in an extremely loose
sense of the term, embodying relatively little of the suzerainty of God.
The relation of the deities to mankind is likely to be that of
consanguinity, and as if to emphasise the peaceable, non-coercive
character of the divine order of things, the deities are, in the main,
very apt to be females. The matters of interest dealt with in the
cosmological theories are chiefly matters of the livelihood of the
people, the growth and care of the crops, and the promotion of
industrial ways and means.

With these phenomena of the peaceable culture may be contrasted the
order of things found among a predatory pastoral people--and pastoral
peoples tend strongly to take on a predatory cultural scheme. Such a
people will adopt male deities, in the main, and will impute to them a
coercive, imperious, arbitrary animus and a degree of princely dignity.
They will also tend strongly to a monotheistic, patriarchal scheme of
divine government; to explain things in terms of creative fiat; and to a
belief in the control of the natural universe by rules imposed by divine
ordinance. The matters of prime consequence in this theology are matters
of the servile relation of man to God, rather than the details of the
quest of a livelihood. The emphasis falls on the glory of God rather
than on the good of man. The Hebrew scriptures, particularly the
Jahvistic elements, show such a scheme of pastoral cultural and
predatory theoretical generalisations.

The learning cultivated on the lower levels of culture might be gone
into at some length if space and time permitted, but even what has been
said may serve to show, in the most general way, what are the
characteristic marks of this savage and barbarian lore. A similarly
summary characterisation of a cultural situation nearer home will bear
more directly on the immediate topic of inquiry. The learning of
mediæval Christendom shows such a concomitance between the scheme of
knowledge and the scheme of institutions, somewhat analogous to the
barbaric Hebrew situation. The mediæval scheme of institutions was of a
coercive, authoritative character, essentially a scheme of graded
mastery and graded servitude, in which a code of honor and a bill of
differential dignity held the most important place. The theology of that
time was of a like character. It was a monotheistic, or rather a
monarchical system, and of a despotic complexion. The cosmological
scheme was drawn in terms of fiat; and the natural philosophy was
occupied, in the main and in its most solemn endeavors, with the
corollaries to be subsumed under the divine fiat. When the philosophical
speculation dealt with facts it aimed to interpret them into systematic
consistency with the glory of God and the divine purpose. The
"realities" of the scholastic lore were spiritual, quasi-personal,
intangible, and fell into a scale of differential dignity and
prepotency. Matter-of-fact knowledge and work-day information were not
then fit topics of dignified inquiry. The interval, or discrepancy,
between reality and actuality was fairly wide. Throughout that era, of
course, work-day knowledge also continually increased in volume and
consistency; technological proficiency was gaining; the effective
control of natural processes was growing larger and more secure; showing
that matter-of-fact theories drawn from experience were being extended
and were made increasing use of. But all this went on in the field of
industry; the matter-of-fact theories were accepted as substantial and
ultimate only for the purposes of industry, only as technological
maxims, and were beneath the dignity of science.

With the transition to modern times industry comes into the foreground
in the west-European scheme of life, and the institutions of European
civilisation fall into a more intimate relation with the exigencies of
industry and technology. The technological range of habituation
progressively counts for more in the cultural complex, and the
discrepancy between the technological discipline and the discipline of
law and order under the institutions then in force grows progressively
less. The institutions of law and order take on a more impersonal, less
coercive character. Differential dignity and invidious discriminations
between classes gradually lose force.

The industry which so comes into the foreground and so affects the
scheme of institutions is peculiar in that its most obvious and
characteristic trait is the workmanlike initiative and efficiency of the
individual handicraftsman and the individual enterprise of the petty
trader. The technology which embodies the theoretical substance of this
industry is a technology of workmanship, in which the salient factors
are personal skill, force and diligence. Such a technology, running as
it does in great part on personal initiative, capacity, and application,
approaches nearer to the commonplace features of the institutional
fabric than many another technological system might; and its
disciplinary effects in some considerable measure blend with those of
the institutional discipline. The two lines of habituation, in the great
era of handicraft and petty trade, even came to coalesce and fortify one
another; as in the organisation of the craft gilds and of the industrial
towns. Industrial life and usage came to intrude creatively into the
cultural scheme on the one hand and into the scheme of authentic
knowledge on the other hand. So the body of matter-of-fact knowledge, in
modern times, is more and more drawn into the compass of theoretical
inquiry; and theoretical inquiry takes on more and more of the animus
and method of technological generalisation. But the matter-of-fact
elements so drawn in are construed in terms of workmanlike initiative
and efficiency, as required by the technological preconceptions of the
era of handicraft.

In this way, it may be conceived, modern science comes into the field
under the cloak of technology and gradually encroaches on the domain of
authentic theory previously held by other, higher, nobler, more
profound, more spiritual, more intangible conceptions and systems of
knowledge. In this early phase of modern science its central norm and
universal solvent is the concept of workmanlike initiative and
efficiency. This is the new organon. Whatever is to be explained must
be reduced to this notation and explained in these terms; otherwise the
inquiry does not come to rest. But when the requirements of this
notation in terms of workmanship have been duly fulfilled the inquiry
does come to rest.

By the early decades of the nineteenth century, with a passable degree
of thoroughness, other grounds of validity and other interpretations of
phenomena, other vouchers for truth and reality, had been eliminated
from the quest of authentic knowledge and from the terms in which
theoretical results were conceived or expressed. The new organon had
made good its pretensions. In this movement to establish the hegemony of
workmanlike efficiency--under the style and title of the "law of
causation," or of "efficient cause"--in the realm of knowledge, the
English-speaking communities took the lead after the earlier scientific
onset of the south-European communities had gone up in the smoke of war,
politics and religion during the great era of state-making. The ground
of this British lead in science is apparently the same as that of the
British lead in technology which came to a head in the Industrial
Revolution; and these two associated episodes of European civilisation
are apparently both traceable to the relatively peaceable run of life,
and so of habituation, in the English-speaking communities, as
contrasted with the communities of the continent.[3]

Along with the habits of thought peculiar to the technology of
handicraft, modern science also took over and assimilated much of the
institutional preconceptions of the era of handicraft and petty trade.
The "natural laws," with the formulation of which this early modern
science is occupied, are the rules governing natural "uniformities of
sequence"; and they punctiliously formulate the due procedure of any
given cause creatively working out the achievement of a given effect,
very much as the craft rules sagaciously specified the due routine for
turning out a staple article of merchantable goods. But these "natural
laws" of science are also felt to have something of that integrity and
prescriptive moral force that belongs to the principles of the system of
"natural rights" which the era of handicraft has contributed to the
institutional scheme of later times. The natural laws were not only held
to be true to fact, but they were also felt to be right and good. They
were looked upon as intrinsically meritorious and beneficent, and were
held to carry a sanction of their own. This habit of uncritically
imputing merit and equity to the "natural laws" of science continued in
force through much of the nineteenth century; very much as the habitual
acceptance of the principles of "natural rights" has held on by force of
tradition long after the exigencies of experience out of which these
"rights" sprang ceased to shape men's habits of life.[4] This
traditional attitude of submissive approval toward the "natural laws" of
science has not yet been wholly lost, even among the scientists of the
passing generation, many of whom have uncritically invested these "laws"
with a prescriptive rectitude and excellence; but so far, at least, has
this animus progressed toward disuse that it is now chiefly a matter for
expatiation in the pulpit, the accredited vent for the exudation of
effete matter from the cultural organism.

The traditions of the handicraft technology lasted over as a commonplace
habit of thought in science long after that technology had ceased to be
the decisive element in the industrial situation; while a new
technology, with its inculcation of new habits of thought, new
preconceptions, gradually made its way among the remnants of the old,
altering them, blending with them, and little by little superseding
them. The new technological departure, which made its first great epoch
in the so-called industrial revolution, in the technological ascendancy
of the machine-process, brought a new and characteristic discipline into
the cultural situation. The beginnings of the machine-era lie far back,
no doubt; but it is only of late, during the past century at the most,
that the machine-process can be said to have come into the dominant
place in the technological scheme; and it is only later still that its
discipline has, even in great part, remodeled the current preconceptions
as to the substantial nature of what goes on in the current of phenomena
whose changes excite the scientific curiosity. It is only relatively
very lately, whether in technological work or in scientific inquiry,
that men have fallen into the habit of thinking in terms of process
rather than in terms of the workmanlike efficiency of a given cause
working to a given effect.

These machine-made preconceptions of modern science, being habits of
thought induced by the machine technology in industry and in daily life,
have of course first and most consistently affected the character of
those sciences whose subject matter lies nearest to the technological
field of the machine-process; and in these material sciences the
shifting to the machine-made point of view has been relatively very
consistent, giving a highly impersonal interpretation of phenomena in
terms of consecutive change, and leaving little of the ancient
preconceptions of differential reality or creative causation. In such a
science as physics or chemistry, _e.g._, we are threatened with the
disappearance or dissipation of all stable and efficient substances;
their place being supplied, or their phenomena being theoretically
explained, by appeal to unremitting processes of inconceivably
high-pitched consecutive change.

In the sciences which lie farther afield from the technological domain,
and which, therefore, in point of habituation, are remoter from the
center of disturbance, the effect of the machine discipline may even yet
be scarcely appreciable. In such lore as ethics, _e.g._, or political
theory, or even economics, much of the norms of the régime of handicraft
still stands over; and very much of the institutional preconceptions of
natural rights, associated with the régime of handicraft in point of
genesis, growth and content, is not only still intact in this field of
inquiry, but it can scarcely even be claimed that there is ground for
serious apprehension of its prospective obsolescence. Indeed, something
even more ancient than handicraft and natural rights may be found
surviving in good vigor in this "moral" field of inquiry, where tests of
authenticity and reality are still sought and found by those who
cultivate these lines of inquiry that lie beyond the immediate sweep of
the machine's discipline. Even the evolutionary process of cumulative
causation as conceived by the adepts of these sciences is infused with a
preternatural, beneficent trend; so that "evolution" is conceived to
mean amelioration or "improvement." The metaphysics of the machine
technology has not yet wholly, perhaps not mainly, superseded the
metaphysics of the code of honor in those lines of inquiry that have to
do with human initiative and aspiration. Whether such a shifting of the
point of view in these sciences shall ever be effected is still an open
question. Here there still are spiritual verities which transcend the
sweep of consecutive change. That is to say, there are still current
habits of thought which definitively predispose their bearers to bring
their inquiries to rest on grounds of differential reality and invidious
merit.

FOOTNOTES:

[1] Read before the Kosmos Club, at the University of California, May 4,
1908. Reprinted by permission from the _University of California
Chronicle_, Vol. X, No. 4.

[2] It is by no means unusual for modern scientists to deny the truth of
this characterization, so far as regards this alleged recourse to the
concept of causation. They deny that such a concept--of efficiency,
activity, and the like--enters, or can legitimately enter, into their
work, whether as an instrument of research or as a means or guide to
theoretical formulation. They even deny the substantial continuity of
the sequence of changes that excite their scientific attention. This
attitude seems particularly to commend itself to those who by preference
attend to the mathematical formulations of theory and who are chiefly
occupied with proving up and working out details of the system of theory
which have previously been left unsettled or uncovered. The concept of
causation is recognized to be a metaphysical postulate, a matter of
imputation, not of observation; whereas it is claimed that scientific
inquiry neither does nor can legitimately, nor, indeed, currently, make
use of a postulate more metaphysical than the concept of an idle
concomitance of variation, such as is adequately expressed in terms of
mathematical function.

The contention seems sound, to the extent that the
materials--essentially statistical materials--with which scientific
inquiry is occupied are of this non-committal character, and that the
mathematical formulations of theory include no further element than that
of idle variation. Such is necessarily the case because causation is a
fact of imputation, not of observation, and so cannot be included among
the data; and because nothing further than non-committal variation can
be expressed in mathematical terms. A bare notation of quantity can
convey nothing further.

If it were the intention to claim only that the conclusions of the
scientists are, or should be, as a matter of conservative caution,
overtly stated in terms of function alone, then the contention might
well be allowed. Causal sequence, efficiency or continuity is, of
course, a matter of metaphysical imputation. It is not a fact of
observation, and cannot be asserted of the facts of observation except
as a trait imputed to them. It is so imputed, by scientists and others,
as a matter of logical necessity, as a basis of a systematic knowledge
of the facts of observation.

Beyond this, in their exercise of scientific initiative, as well as in
the norms which guide the systematisation of scientific results, the
contention will not be made good--at least not for the current phase of
scientific knowledge. The claim, indeed, carries its own refutation. In
making such a claim, both in rejecting the imputation of metaphysical
postulates and in defending their position against their critics, the
arguments put forward by the scientists run in causal terms. For the
polemical purposes, where their antagonists are to be scientifically
confuted, the defenders of the non-committal postulate of concomitance
find that postulate inadequate. They are not content, in this precarious
conjuncture, simply to attest a relation of idle quantitative
concomitance (mathematical function) between the allegations of their
critics, on the one hand, and their own controversial exposition of
these matters on the other hand. They argue that they do not "make use
of" such a postulate as "efficiency," whereas they claim to "make use
of" the concept of function. But "make use of" is not a notion of
functional variation but of causal efficiency in a somewhat gross and
highly anthropomorphic form. The relation between their own thinking and
the "principles" which they "apply" or the experiments and calculations
which they "institute" in their "search" for facts, is not held to be of
this non-committal kind. It will not be claimed that the shrewd insight
and the bold initiative of a man eminent in the empirical sciences bear
no more efficient or consequential a relation than that of mathematical
function to the ingenious experiments by which he tests his hypotheses
and extends the secure bounds of human knowledge. Least of all is the
masterly experimentalist himself in a position to deny that his
intelligence counts for something more efficient than idle concomitance
in such a case. The connection between his premises, hypotheses, and
experiments, on the one hand, and his theoretical results, on the other
hand, is not felt to be of the nature of mathematical function.
Consistently adhered to, the principle of "function" or concomitant
variation precludes recourse to experiment, hypotheses or
inquiry--indeed, it precludes "recourse" to anything whatever. Its
notation does not comprise anything so anthropomorphic.

The case is illustrated by the latter-day history of theoretical
physics. Of the sciences which affect a non-committal attitude in
respect of the concept of efficiency and which claim to get along with
the notion of mathematical function alone, physics is the most outspoken
and the one in which the claim has the best _prima facie_ validity. At
the same time, latter-day physicists, for a hundred years or more, have
been much occupied with explaining how phenomena which to all appearance
involve action at a distance do not involve action at a distance at all.
The greater theoretical achievements of physics during the past century
lie within the sweep of this (metaphysical) principle that action at a
distance does not take place, that apparent action at a distance must be
explained by effective contact, through a continuum, or by a material
transference. But this principle is nothing better than an unreasoning
repugnance on the part of the physicists to admitting action at a
distance. The requirement of a continuum involves a gross form of the
concept of efficient causation. The "functional" concept, concomitant
variation, requires no contact and no continuum. Concomitance at a
distance is quite as simple and convincing a notion as concomitance
within contact or by the intervention of a continuum, if not more so.
What stands in the way of its acceptance is the irrepressible
anthropomorphism of the physicists. And yet the great achievements of
physics are due to the initiative of men animated with this
anthropomorphic repugnance to the notion of concomitant variation at a
distance. All the generalisations on undulatory motion and translation
belong here. The latter-day researches in light, electrical
transmission, the theory of ions, together with what is known of the
obscure and late-found radiations and emanations, are to be credited to
the same metaphysical preconception, which is never absent in any
"scientific" inquiry in the field of physical science. It is only the
"occult" and "Christian" "Sciences" that can dispense with this
metaphysical postulate and take recourse to "absent treatment."

[3] A broad exception may perhaps be taken at this point, to the effect
that this sketch of the growth of the scientific animus overlooks the
science of the Ancients. The scientific achievements of classical
antiquity are a less obscure topic to-day than ever before during modern
times, and the more there is known of them the larger is the credit
given them. But it is to be noted that, (_a_) the relatively large and
free growth of scientific inquiry in classical antiquity is to be found
in the relatively peaceable and industrial Greek communities (with an
industrial culture of unknown pre-Hellenic antiquity), and (_b_) that
the sciences best and chiefly cultivated were those which rest on a
mathematical basis, if not mathematical sciences in the simpler sense of
the term. Now, mathematics occupies a singular place among the sciences,
in that it is, in its pure form, a logical discipline simply; its
subject matter being the logic of quantity, and its researches being of
the nature of an analysis of the intellect's modes of dealing with
matters of quantity. Its generalisations are generalisations of logical
procedure, which are tested and verified by immediate self-observation.
Such a science is in a peculiar degree, but only in a peculiar degree,
independent of the detail-discipline of daily life, whether
technological or institutional; and, given the propensity--the
intellectual enterprise, or "idle curiosity"--to go into speculation in
such a field, the results can scarcely vary in a manner to make the
variants inconsistent among themselves; nor need the state of
institutions or the state of the industrial arts seriously color or
distort such analytical work in such a field. Mathematics is peculiarly
independent of cultural circumstances, since it deals analytically with
mankind's native gifts of logic, not with the ephemeral traits acquired
by habituation.

[4] "Natural laws," which are held to be not only correct formulations
of the sequence of cause and effect in a given situation but also
meritoriously right and equitable rules governing the run of events,
necessarily impute to the facts and events in question a tendency to a
good and equitable, if not beneficent, consummation; since it is
necessarily the consummation, the effect considered as an accomplished
outcome, that is to be adjudged good and equitable, if anything. Hence
these "natural laws," as traditionally conceived, are laws governing the
accomplishment of an end--that is to say, laws as to how a sequence of
cause and effect comes to rest in a final term.




WHY IS ECONOMICS NOT AN EVOLUTIONARY SCIENCE?[1]


M. G. De Lapouge recently said, "Anthropology is destined to
revolutionise the political and the social sciences as radically as
bacteriology has revolutionised the science of medicine."[2] In so far
as he speaks of economics, the eminent anthropologist is not alone in
his conviction that the science stands in need of rehabilitation. His
words convey a rebuke and an admonition, and in both respects he speaks
the sense of many scientists in his own and related lines of inquiry. It
may be taken as the consensus of those men who are doing the serious
work of modern anthropology, ethnology, and psychology, as well as of
those in the biological sciences proper, that economics is helplessly
behind the times, and unable to handle its subject-matter in a way to
entitle it to standing as a modern science. The other political and
social sciences come in for their share of this obloquy, and perhaps on
equally cogent grounds. Nor are the economists themselves buoyantly
indifferent to the rebuke. Probably no economist to-day has either the
hardihood or the inclination to say that the science has now reached a
definitive formulation, either in the detail of results or as regards
the fundamental features of theory. The nearest recent approach to such
a position on the part of an economist of accredited standing is
perhaps to be found in Professor Marshall's Cambridge address of a year
and a half ago.[3] But these utterances are so far from the jaunty
confidence shown by the classical economists of half a century ago that
what most forcibly strikes the reader of Professor Marshall's address is
the exceeding modesty and the uncalled-for humility of the spokesman for
the "old generation." With the economists who are most attentively
looked to for guidance, uncertainty as to the definitive value of what
has been and is being done, and as to what we may, with effect, take to
next, is so common as to suggest that indecision is a meritorious work.
Even the Historical School, who made their innovation with so much
home-grown applause some time back, have been unable to settle down
contentedly to the pace which they set themselves.

The men of the sciences that are proud to own themselves "modern" find
fault with the economists for being still content to occupy themselves
with repairing a structure and doctrines and maxims resting on natural
rights, utilitarianism, and administrative expediency. This aspersion is
not altogether merited, but is near enough to the mark to carry a sting.
These modern sciences are evolutionary sciences, and their adepts
contemplate that characteristic of their work with some complacency.
Economics is not an evolutionary science--by the confession of its
spokesmen; and the economists turn their eyes with something of envy and
some sense of baffled emulation to these rivals that make broad their
phylacteries with the legend, "Up to date."

Precisely wherein the social and political sciences, including
economics, fall short of being evolutionary sciences, is not so plain.
At least, it has not been satisfactorily pointed out by their critics.
Their successful rivals in this matter--the sciences that deal with
human nature among the rest--claim as their substantial distinction that
they are realistic: they deal with facts. But economics, too, is
realistic in this sense: it deals with facts, often in the most
painstaking way, and latterly with an increasingly strenuous insistence
on the sole efficacy of data. But this "realism" does not make economics
an evolutionary science. The insistence on data could scarcely be
carried to a higher pitch than it was carried by the first generation of
the Historical School; and yet no economics is farther from being an
evolutionary science than the received economics of the Historical
School. The whole broad range of erudition and research that engaged the
energies of that school commonly falls short of being science, in that,
when consistent, they have contented themselves with an enumeration of
data and a narrative account of industrial development, and have not
presumed to offer a theory of anything or to elaborate their results
into a consistent body of knowledge.

Any evolutionary science, on the other hand, is a close-knit body of
theory. It is a theory of a process, of an unfolding sequence. But here,
again, economics seems to meet the test in a fair measure, without
satisfying its critics that its credentials are good. It must be
admitted, _e.g._, that J. S. Mill's doctrines of production,
distribution, and exchange, are a theory of certain economic processes,
and that he deals in a consistent and effective fashion with the
sequences of fact that make up his subject-matter. So, also, Cairnes's
discussion of normal value, of the rate of wages, and of international
trade, are excellent instances of a theoretical handling of economic
processes of sequence and the orderly unfolding development of fact.
But an attempt to cite Mill and Cairnes as exponents of an evolutionary
economics will produce no better effect than perplexity, and not a great
deal of that. Very much of monetary theory might be cited to the same
purpose and with the like effect. Something similar is true even of late
writers who have avowed some penchant for the evolutionary point of
view; as, _e.g._, Professor Hadley,--to cite a work of unquestioned
merit and unusual reach. Measurably, he keeps the word of promise to the
ear; but any one who may cite his _Economics_ as having brought
political economy into line as an evolutionary science will convince
neither himself nor his interlocutor. Something to the like effect may
fairly be said of the published work of that later English strain of
economists represented by Professors Cunningham and Ashley, and Mr.
Cannan, to name but a few of the more eminent figures in the group.

Of the achievements of the classical economists, recent and living, the
science may justly be proud; but they fall short of the evolutionist's
standard of adequacy, not in failing to offer a theory of a process or
of a developmental relation, but through conceiving their theory in
terms alien to the evolutionist's habits of thought. The difference
between the evolutionary and the pre-evolutionary sciences lies not in
the insistence on facts. There was a great and fruitful activity in the
natural sciences in collecting and collating facts before these sciences
took on the character which marks them as evolutionary. Nor does the
difference lie in the absence of efforts to formulate and explain
schemes of process, sequence, growth, and development in the
pre-evolutionary days. Efforts of this kind abounded, in number and
diversity; and many schemes of development, of great subtlety and
beauty, gained a vogue both as theories of organic and inorganic
development and as schemes of the life history of nations and societies.
It will not even hold true that our elders overlooked the presence of
cause and effect in formulating their theories and reducing their data
to a body of knowledge. But the terms which were accepted as the
definitive terms of knowledge were in some degree different in the early
days from what they are now. The terms of thought in which the
investigators of some two or three generations back definitively
formulated their knowledge of facts, in their last analyses, were
different in kind from the terms in which the modern evolutionist is
content to formulate his results. The analysis does not run back to the
same ground, or appeal to the same standard of finality or adequacy, in
the one case as in the other.

The difference is a difference of spiritual attitude or point of view in
the two contrasted generations of scientists. To put the matter in other
words, it is a difference in the basis of valuation of the facts for the
scientific purpose, or in the interest from which the facts are
appreciated. With the earlier as with the later generation the basis of
valuation of the facts handled is, in matters of detail, the causal
relation which is apprehended to subsist between them. This is true to
the greatest extent for the natural sciences. But in their handling of
the more comprehensive schemes of sequence and relation--in their
definitive formulation of the results--the two generations differ. The
modern scientist is unwilling to depart from the test of causal relation
or quantitative sequence. When he asks the question, Why? he insists on
an answer in terms of cause and effect. He wants to reduce his solution
of all problems to terms of the conservation of energy or the
persistence of quantity. This is his last recourse. And this last
recourse has in our time been made available for the handling of schemes
of development and theories of a comprehensive process by the notion of
a cumulative causation. The great deserts of the evolutionist
leaders--if they have great deserts as leaders--lie, on the one hand, in
their refusal to go back of the colorless sequence of phenomena and seek
higher ground for their ultimate syntheses, and, on the other hand, in
their having shown how this colorless impersonal sequence of cause and
effect can be made use of for theory proper, by virtue of its cumulative
character.

For the earlier natural scientists, as for the classical economists,
this ground of cause and effect is not definitive. Their sense of truth
and substantiality is not satisfied with a formulation of mechanical
sequence. The ultimate term in their systematisation of knowledge is a
"natural law." This natural law is felt to exercise some sort of a
coercive surveillance over the sequence of events, and to give a
spiritual stability and consistence to the causal relation at any given
juncture. To meet the high classical requirement, a sequence--and a
developmental process especially--must be apprehended in terms of a
consistent propensity tending to some spiritually legitimate end. When
facts and events have been reduced to these terms of fundamental truth
and have been made to square with the requirements of definitive
normality, the investigator rests his case. Any causal sequence which is
apprehended to traverse the imputed propensity in events is a
"disturbing factor." Logical congruity with the apprehended propensity
is, in this view, adequate ground of procedure in building up a scheme
of knowledge or of development. The objective point of the efforts of
the scientists working under the guidance of this classical tradition,
is to formulate knowledge in terms of absolute truth; and this absolute
truth is a spiritual fact. It means a coincidence of facts with the
deliverances of an enlightened and deliberate common sense.

The development and the attenuation of this preconception of normality
or of a propensity in events might be traced in detail from primitive
animism down through the elaborate discipline of faith and metaphysics,
overruling Providence, order of nature, natural rights, natural law,
underlying principles. But all that may be necessary here is to point
out that, by descent and by psychological content, this constraining
normality is of a spiritual kind. It is for the scientific purpose an
imputation of spiritual coherence to the facts dealt with. The question
of interest is how this preconception of normality has fared at the
hands of modern science, and how it has come to be superseded in the
intellectual primacy by the latter-day preconception of a non-spiritual
sequence. This question is of interest because its answer may throw
light on the question as to what chance there is for the indefinite
persistence of this archaic habit of thought in the methods of economic
science.

       *       *       *       *       *

Under primitive conditions, men stand in immediate personal contact with
the material facts of the environment; and the force and discretion of
the individual in shaping the facts of the environment count obviously,
and to all appearance solely, in working out the conditions of life.
There is little of impersonal or mechanical sequence visible to
primitive men in their every-day life; and what there is of this kind in
the processes of brute nature about them is in large part inexplicable
and passes for inscrutable. It is accepted as malignant or beneficent,
and is construed in the terms of personality that are familiar to all
men at first hand,--the terms known to all men by first-hand knowledge
of their own acts. The inscrutable movements of the seasons and of the
natural forces are apprehended as actions guided by discretion, will
power, or propensity looking to an end, much as human actions are. The
processes of inanimate nature are agencies whose habits of life are to
be learned, and who are to be coerced, outwitted, circumvented, and
turned to account, much as the beasts are. At the same time the
community is small, and the human contact of the individual is not wide.
Neither the industrial life nor the non-industrial social life forces
upon men's attention the ruthless impersonal sweep of events that no man
can withstand or deflect, such as becomes visible in the more complex
and comprehensive life process of the larger community of a later day.
There is nothing decisive to hinder men's knowledge of facts and events
being formulated in terms of personality--in terms of habit and
propensity and will power.

As time goes on and as the situation departs from this archaic
character,--where it does depart from it,--the circumstances which
condition men's systematisation of facts change in such a way as to
throw the impersonal character of the sequence of events more and more
into the foreground. The penalties for failure to apprehend facts in
dispassionate terms fall surer and swifter. The sweep of events is
forced home more consistently on men's minds. The guiding hand of a
spiritual agency or a propensity in events becomes less readily
traceable as men's knowledge of things grows ampler and more searching.
In modern times, and particularly in the industrial countries, this
coercive guidance of men's habits of thought in the realistic direction
has been especially pronounced; and the effect shows itself in a
somewhat reluctant but cumulative departure from the archaic point of
view. The departure is most visible and has gone farthest in those
homely branches of knowledge that have to do immediately with modern
mechanical processes, such as engineering designs and technological
contrivances generally. Of the sciences, those have wandered farthest on
this way (of integration or disintegration, according as one may choose
to view it) that have to do with mechanical sequence and process; and
those have best and longest retained the archaic point of view intact
which--like the moral, social, or spiritual sciences--have to do with
process and sequence that is less tangible, less traceable by the use of
the senses, and that therefore less immediately forces upon the
attention the phenomenon of sequence as contrasted with that of
propensity.

There is no abrupt transition from the pre-evolutionary to the
post-evolutionary standpoint. Even in those natural sciences which deal
with the processes of life and the evolutionary sequence of events the
concept of dispassionate cumulative causation has often and effectively
been helped out by the notion that there is in all this some sort of a
meliorative trend that exercises a constraining guidance over the course
of causes and effects. The faith in this meliorative trend as a concept
useful to the science has gradually weakened, and it has repeatedly been
disavowed; but it can scarcely be said to have yet disappeared from the
field.

The process of change in the point of view, or in the terms of
definitive formulation of knowledge, is a gradual one; and all the
sciences have shared, though in an unequal degree, in the change that is
going forward. Economics is not an exception to the rule, but it still
shows too many reminiscences of the "natural" and the "normal," of
"verities" and "tendencies," of "controlling principles" and "disturbing
causes" to be classed as an evolutionary science. This history of the
science shows a long and devious course of disintegrating
animism,--from the days of the scholastic writers, who discussed usury
from the point of view of its relation to the divine suzerainty, to the
Physiocrats, who rested their case on an "_ordre naturel_" and a "_loi
naturelle_" that decides what is substantially true and, in a general
way, guides the course of events by the constraint of logical
congruence. There has been something of a change from Adam Smith, whose
recourse in perplexity was to the guidance of "an unseen hand," to Mill
and Cairnes, who formulated the laws of "natural" wages and "normal"
value, and the former of whom was so well content with his work as to
say, "Happily, there is nothing in the laws of Value which remains for
the present or any future writer to clear up: the theory of the subject
is complete."[4] But the difference between the earlier and the later
point of view is a difference of degree rather than of kind.

The standpoint of the classical economists, in their higher or
definitive syntheses and generalisations, may not inaptly be called the
standpoint of ceremonial adequacy. The ultimate laws and principles
which they formulated were laws of the normal or the natural, according
to a preconception regarding the ends to which, in the nature of things,
all things tend. In effect, this preconception imputes to things a
tendency to work out what the instructed common sense of the time
accepts as the adequate or worthy end of human effort. It is a
projection of the accepted ideal of conduct. This ideal of conduct is
made to serve as a canon of truth, to the extent that the investigator
contents himself with an appeal to its legitimation for premises that
run back of the facts with which he is immediately dealing, for the
"controlling principles" that are conceived intangibly to underlie the
process discussed, and for the "tendencies" that run beyond the
situation as it lies before him. As instances of the use of this
ceremonial canon of knowledge may be cited the "conjectural history"
that plays so large a part in the classical treatment of economic
institutions, such as the normalized accounts of the beginnings of
barter in the transactions of the putative hunter, fisherman, and
boat-builder, or the man with the plane and the two planks, or the two
men with the basket of apples and the basket of nuts.[5] Of a similar
import is the characterisation of money as "the great wheel of
circulation"[6] or as "the medium of exchange." Money is here discussed
in terms of the end which, "in the normal case," it should work out
according to the given writer's ideal of economic life, rather than in
terms of causal relation.

With later writers especially, this terminology is no doubt to be
commonly taken as a convenient use of metaphor, in which the concept of
normality and propensity to an end has reached an extreme attenuation.
But it is precisely in this use of figurative terms for the formulation
of theory that the classical normality still lives its attenuated life
in modern economics; and it is this facile recourse to inscrutable
figures of speech as the ultimate terms of theory that has saved the
economists from being dragooned into the ranks of modern science. The
metaphors are effective, both in their homiletical use and as a
labor-saving device,--more effective than their user designs them to be.
By their use the theorist is enabled serenely to enjoin himself from
following out an elusive train of causal sequence. He is also enabled,
without misgivings, to construct a theory of such an institution as
money or wages or land-ownership without descending to a consideration
of the living items concerned, except for convenient corroboration of
his normalised scheme of symptoms. By this method the theory of an
institution or a phase of life may be stated in conventionalised terms
of the apparatus whereby life is carried on, the apparatus being
invested with a tendency to an equilibrium at the normal, and the theory
being a formulation of the conditions under which this putative
equilibrium supervenes. In this way we have come into the usufruct of a
cost-of-production theory of value which is pungently reminiscent of the
time when Nature abhorred a vacuum. The ways and means and the
mechanical structure of industry are formulated in a conventionalised
nomenclature, and the observed motions of this mechanical apparatus are
then reduced to a normalised scheme of relations. The scheme so arrived
at is spiritually binding on the behavior of the phenomena contemplated.
With this normalised scheme as a guide, the permutations of a given
segment of the apparatus are worked out according to the values assigned
the several items and features comprised in the calculation; and a
ceremonially consistent formula is constructed to cover that much of the
industrial field. This is the deductive method. The formula is then
tested by comparison with observed permutations, by the polariscopic use
of the "normal case"; and the results arrived at are thus authenticated
by induction. Features of the process that do not lend themselves to
interpretation in the terms of the formula are abnormal cases and are
due to disturbing causes. In all this the agencies or forces causally at
work in the economic life process are neatly avoided. The outcome of the
method, at its best, is a body of logically consistent propositions
concerning the normal relations of things--a system of economic
taxonomy. At its worst, it is a body of maxims for the conduct of
business and a polemical discussion of disputed points of policy.

In all this, economic science is living over again in its turn the
experiences which the natural sciences passed through some time back. In
the natural sciences the work of the taxonomist was and continues to be
of great value, but the scientists grew restless under the régime of
symmetry and system-making. They took to asking why, and so shifted
their inquiries from the structure of the coral reefs to the structure
and habits of life of the polyp that lives in and by them. In the
science of plants, systematic botany has not ceased to be of service;
but the stress of investigation and discussion among the botanists
to-day falls on the biological value of any given feature of structure,
function, or tissue rather than on its taxonomic bearing. All the talk
about cytoplasm, centrosomes, and karyokinetic process, means that the
inquiry now looks consistently to the life process, and aims to explain
it in terms of cumulative causation.

What may be done in economic science of the taxonomic kind is shown at
its best in Cairnes's work, where the method is well conceived and the
results effectively formulated and applied. Cairnes handles the theory
of the normal case in economic life with a master hand. In his
discussion the metaphysics of propensity and tendencies no longer
avowedly rules the formulation of theory, nor is the inscrutable
meliorative trend of a harmony of interests confidently appealed to as
an engine of definitive use in giving legitimacy to the economic
situation at a given time. There is less of an exercise of faith in
Cairnes's economic discussions than in those of the writers that went
before him. The definitive terms of the formulation are still the terms
of normality and natural law, but the metaphysics underlying this
appeal to normality is so far removed from the ancient ground of the
beneficent "order of nature" as to have become at least nominally
impersonal and to proceed without a constant regard to the humanitarian
bearing of the "tendencies" which it formulates. The metaphysics has
been attenuated to something approaching in colorlessness the
naturalist's conception of natural law. It is a natural law which, in
the guise of "controlling principles," exercises a constraining
surveillance over the trend of things; but it is no longer conceived to
exercise its constraint in the interest of certain ulterior human
purposes. The element of beneficence has been well-nigh eliminated, and
the system is formulated in terms of the system itself. Economics as it
left Cairnes's hand, so far as his theoretical work is concerned, comes
near being taxonomy for taxonomy's sake.

No equally capable writer has come as near making economics the ideal
"dismal" science as Cairnes in his discussion of pure theory. In the
days of the early classical writers economics had a vital interest for
the laymen of the time, because it formulated the common sense
metaphysics of the time in its application to a department of human
life. But in the hands of the later classical writers the science lost
much of its charm in this regard. It was no longer a definition and
authentication of the deliverances of current common sense as to what
ought to come to pass; and it, therefore, in large measure lost the
support of the people out of doors, who were unable to take an interest
in what did not concern them; and it was also out of touch with that
realistic or evolutionary habit of mind which got under way about the
middle of the century in the natural sciences. It was neither vitally
metaphysical nor matter-of-fact, and it found comfort with very few
outside of its own ranks. Only for those who by the fortunate accident
of birth or education have been able to conserve the taxonomic animus
has the science during the last third of a century continued to be of
absorbing interest. The result has been that from the time when the
taxonomic structure stood forth as a completed whole in its symmetry and
stability the economists themselves, beginning with Cairnes, have been
growing restive under its discipline of stability, and have made many
efforts, more or less sustained, to galvanise it into movement. At the
hands of the writers of the classical line these excursions have chiefly
aimed at a more complete and comprehensive taxonomic scheme of
permutations; while the historical departure threw away the taxonomic
ideal without getting rid of the preconceptions on which it is based;
and the later Austrian group struck out on a theory of process, but
presently came to a full stop because the process about which they
busied themselves was not, in their apprehension of it, a cumulative or
unfolding sequence.

       *       *       *       *       *

But what does all this signify? If we are getting restless under the
taxonomy of a monocotyledonous wage doctrine and a cryptogamic theory of
interest, with involute, loculicidal, tomentous and moniliform variants,
what is the cytoplasm, centrosome, or karyokinetic process to which we
may turn, and in which we may find surcease from the metaphysics of
normality and controlling principles? What are we going to do about it?
The question is rather, What are we doing about it? There is the
economic life process still in great measure awaiting theoretical
formulation. The active material in which the economic process goes on
is the human material of the industrial community. For the purpose of
economic science the process of cumulative change that is to be
accounted for is the sequence of change in the methods of doing
things,--the methods of dealing with the material means of life.

What has been done in the way of inquiry into this economic life
process? The ways and means of turning material objects and
circumstances to account lie before the investigator at any given point
of time in the form of mechanical contrivances and arrangements for
compassing certain mechanical ends. It has therefore been easy to accept
these ways and means as items of inert matter having a given mechanical
structure and thereby serving the material ends of man. As such, they
have been scheduled and graded by the economists under the head of
capital, this capital being conceived as a mass of material objects
serviceable for human use. This is well enough for the purposes of
taxonomy; but it is not an effective method of conceiving the matter for
the purpose of a theory of the developmental process. For the latter
purpose, when taken as items in a process of cumulative change or as
items in the scheme of life, these productive goods are facts of human
knowledge, skill, and predilection; that is to say, they are,
substantially, prevalent habits of thought, and it is as such that they
enter into the process of industrial development. The physical
properties of the materials accessible to man are constants: it is the
human agent that changes,--his insight and his appreciation of what
these things can be used for is what develops. The accumulation of goods
already on hand conditions his handling and utilisation of the materials
offered, but even on this side--the "limitation of industry by
capital"--the limitation imposed is on what men can do and on the
methods of doing it. The changes that take place in the mechanical
contrivances are an expression of changes in the human factor. Changes
in the material facts breed further change only through the human
factor. It is in the human material that the continuity of development
is to be looked for; and it is here, therefore, that the motor forces of
the process of economic development must be studied if they are to be
studied in action at all. Economic action must be the subject-matter of
the science if the science is to fall into line as an evolutionary
science.

Nothing new has been said in all this. But the fact is all the more
significant for being a familiar fact. It is a fact recognised by common
consent throughout much of the later economic discussion, and this
current recognition of the fact is a long step towards centering
discussion and inquiry upon it. If economics is to follow the lead or
the analogy of the other sciences that have to do with a life process,
the way is plain so far as regards the general direction in which the
move will be made.

The economists of the classical trend have made no serious attempt to
depart from the standpoint of taxonomy and make their science a genetic
account of the economic life process. As has just been said, much the
same is true for the Historical School. The latter have attempted an
account of developmental sequence, but they have followed the lines of
pre-Darwinian speculations on development rather than lines which modern
science would recognise as evolutionary. They have given a narrative
survey of phenomena, not a genetic account of an unfolding process. In
this work they have, no doubt, achieved results of permanent value; but
the results achieved are scarcely to be classed as economic theory. On
the other hand, the Austrians and their precursors and their coadjutors
in the value discussion have taken up a detached portion of economic
theory, and have inquired with great nicety into the process by which
the phenomena within their limited field are worked out. The entire
discussion of marginal utility and subjective value as the outcome of a
valuation process must be taken as a genetic study of this range of
facts. But here, again, nothing further has come of the inquiry, so far
as regards a rehabilitation of economic theory as a whole. Accepting
Menger as their spokesman on this head, it must be said that the
Austrians have on the whole showed themselves unable to break with the
classical tradition that economics is a taxonomic science.

The reason for the Austrian failure seems to lie in a faulty conception
of human nature,--faulty for the present purpose, however adequate it
may be for any other. In all the received formulations of economic
theory, whether at the hands of English economists or those of the
Continent, the human material with which the inquiry is concerned is
conceived in hedonistic terms; that is to say, in terms of a passive and
substantially inert and immutably given human nature. The psychological
and anthropological preconceptions of the economists have been those
which were accepted by the psychological and social sciences some
generations ago. The hedonistic conception of man is that of a lightning
calculator of pleasures and pains, who oscillates like a homogeneous
globule of desire of happiness under the impulse of stimuli that shift
him about the area, but leave him intact. He has neither antecedent nor
consequent. He is an isolated, definitive human datum, in stable
equilibrium except for the buffets of the impinging forces that displace
him in one direction or another. Self-imposed in elemental space, he
spins symmetrically about his own spiritual axis until the parallelogram
of forces bears down upon him, whereupon he follows the line of the
resultant. When the force of the impact is spent, he comes to rest, a
self-contained globule of desire as before. Spiritually, the hedonistic
man is not a prime mover. He is not the seat of a process of living,
except in the sense that he is subject to a series of permutations
enforced upon him by circumstances external and alien to him.

The later psychology, reënforced by modern anthropological research,
gives a different conception of human nature. According to this
conception, it is the characteristic of man to do something, not simply
to suffer pleasures and pains through the impact of suitable forces. He
is not simply a bundle of desires that are to be saturated by being
placed in the path of the forces of the environment, but rather a
coherent structure of propensities and habits which seeks realisation
and expression in an unfolding activity. According to this view, human
activity, and economic activity among the rest, is not apprehended as
something incidental to the process of saturating given desires. The
activity is itself the substantial fact of the process, and the desires
under whose guidance the action takes place are circumstances of
temperament which determine the specific direction in which the activity
will unfold itself in the given case. These circumstances of temperament
are ultimate and definitive for the individual who acts under them, so
far as regards his attitude as agent in the particular action in which
he is engaged. But, in the view of the science, they are elements of the
existing frame of mind of the agent, and are the outcome of his
antecedents and his life up to the point at which he stands. They are
the products of his hereditary traits and his past experience,
cumulatively wrought out under a given body of traditions,
conventionalities, and material circumstances; and they afford the point
of departure for the next step in the process. The economic life history
of the individual is a cumulative process of adaptation of means to
ends that cumulatively change as the process goes on, both the agent and
his environment being at any point the outcome of the last process. His
methods of life to-day are enforced upon him by his habits of life
carried over from yesterday and by the circumstances left as the
mechanical residue of the life of yesterday.

What is true of the individual in this respect is true of the group in
which he lives. All economic change is a change in the economic
community,--a change in the community's methods of turning material
things to account. The change is always in the last resort a change in
habits of thought. This is true even of changes in the mechanical
processes of industry. A given contrivance for effecting certain
material ends becomes a circumstance which affects the further growth of
habits of thought--habitual methods of procedure--and so becomes a point
of departure for further development of the methods of compassing the
ends sought and for the further variation of ends that are sought to be
compassed. In all this flux there is no definitively adequate method of
life and no definitive or absolutely worthy end of action, so far as
concerns the science which sets out to formulate a theory of the process
of economic life. What remains as a hard and fast residue is the fact of
activity directed to an objective end. Economic action is teleological,
in the sense that men always and everywhere seek to do something. What,
in specific detail, they seek, is not to be answered except by a
scrutiny of the details of their activity; but, so long as we have to do
with their life as members of the economic community, there remains the
generic fact that their life is an unfolding activity of a teleological
kind.

It may or may not be a teleological process in the sense that it tends
or should tend to any end that is conceived to be worthy or adequate by
the inquirer or by the consensus of inquirers. Whether it is or is not,
is a question with which the present inquiry is not concerned; and it is
also a question of which an evolutionary economics need take no account.
The question of a tendency in events can evidently not come up except on
the ground of some preconception or prepossession on the part of the
person looking for the tendency. In order to search for a tendency, we
must be possessed of some notion of a definitive end to be sought, or
some notion as to what is the legitimate trend of events. The notion of
a legitimate trend in a course of events is an extra-evolutionary
preconception, and lies outside the scope of an inquiry into the causal
sequence in any process. The evolutionary point of view, therefore,
leaves no place for a formulation of natural laws in terms of definitive
normality, whether in economics or in any other branch of inquiry.
Neither does it leave room for that other question of normality, What
should be the end of the developmental process under discussion?

The economic life history of any community is its life history in so far
as it is shaped by men's interest in the material means of life. This
economic interest has counted for much in shaping the cultural growth of
all communities. Primarily and most obviously, it has guided the
formation, the cumulative growth, of that range of conventionalities and
methods of life that are currently recognized as economic institutions;
but the same interest has also pervaded the community's life and its
cultural growth at points where the resulting structural features are
not chiefly and most immediately of an economic bearing. The economic
interest goes with men through life, and it goes with the race
throughout its process of cultural development. It affects the cultural
structure at all points, so that all institutions may be said to be in
some measure economic institutions. This is necessarily the case, since
the base of action--the point of departure--at any step in the process
is the entire organic complex of habits of thought that have been shaped
by the past process. The economic interest does not act in isolation,
for it is but one of several vaguely isolable interests on which the
complex of teleological activity carried out by the individual proceeds.
The individual is but a single agent in each case; and he enters into
each successive action as a whole, although the specific end sought in a
given action may be sought avowedly on the basis of a particular
interest; as _e.g._, the economic, æsthetic, sexual, humanitarian,
devotional interests. Since each of these passably isolable interests is
a propensity of the organic agent man, with his complex of habits of
thought, the expression of each is affected by habits of life formed
under the guidance of all the rest. There is, therefore, no neatly
isolable range of cultural phenomena that can be rigorously set apart
under the head of economic institutions, although a category of
"economic institutions" may be of service as a convenient caption,
comprising those institutions in which the economic interest most
immediately and consistently finds expression, and which most
immediately and with the least limitation are of an economic bearing.

From what has been said it appears that an evolutionary economics must
be the theory of a process of cultural growth as determined by the
economic interest, a theory of a cumulative sequence of economic
institutions stated in terms of the process itself. Except for the want
of space to do here what should be done in some detail if it is done at
all, many efforts by the later economists in this direction might be
cited to show the trend of economic discussion in this direction. There
is not a little evidence to this effect, and much of the work done must
be rated as effective work for this purpose. Much of the work of the
Historical School, for instance, and that of its later exponents
especially, is too noteworthy to be passed over in silence, even with
all due regard to the limitations of space.

We are now ready to return to the question why economics is not an
evolutionary science. It is necessarily the aim of such an economics to
trace the cumulative working-out of the economic interest in the
cultural sequence. It must be a theory of the economic life process of
the race or the community. The economists have accepted the hedonistic
preconceptions concerning human nature and human action, and the
conception of the economic interest which a hedonistic psychology gives
does not afford material for a theory of the development of human
nature. Under hedonism the economic interest is not conceived in terms
of action. It is therefore not readily apprehended or appreciated in
terms of a cumulative growth of habits of thought, and does not provoke,
even if it did lend itself to, treatment by the evolutionary method.
At the same time the anthropological preconceptions current in that
common-sense apprehension of human nature to which economists have
habitually turned has not enforced the formulation of human nature
in terms of a cumulative growth of habits of life. These received
anthropological preconceptions are such as have made possible the
normalized conjectural accounts of primitive barter with which
all economic readers are familiar, and the no less normalized
conventional derivation of landed property and its rent, or the
sociologico-philosophical discussions of the "function" of this or
that class in the life of society or of the nation.

The premises and the point of view required for an evolutionary
economics have been wanting. The economists have not had the materials
for such a science ready to their hand, and the provocation to strike
out in such a direction has been absent. Even if it has been possible at
any time to turn to the evolutionary line of speculation in economics,
the possibility of a departure is not enough to bring it about. So long
as the habitual view taken of a given range of facts is of the taxonomic
kind and the material lends itself to treatment by that method, the
taxonomic method is the easiest, gives the most gratifying immediate
results, and best fits into the accepted body of knowledge of the range
of facts in question. This has been the situation in economics. The
other sciences of its group have likewise been a body of taxonomic
discipline, and departures from the accredited method have lain under
the odium of being meretricious innovations. The well-worn paths are
easy to follow and lead into good company. Advance along them visibly
furthers the accredited work which the science has in hand. Divergence
from the paths means tentative work, which is necessarily slow and
fragmentary and of uncertain value.

It is only when the methods of the science and the syntheses resulting
from their use come to be out of line with habits of thought that
prevail in other matters that the scientist grows restive under the
guidance of the received methods and standpoints, and seeks a way out.
Like other men, the economist is an individual with but one
intelligence. He is a creature of habits and propensities given through
the antecedents, hereditary and cultural, of which he is an outcome; and
the habits of thought formed in any one line of experience affect his
thinking in any other. Methods of observation and of handling facts
that are familiar through habitual use in the general range of
knowledge, gradually assert themselves in any given special range of
knowledge. They may be accepted slowly and with reluctance where their
acceptance involves innovation; but, if they have the continued backing
of the general body of experience, it is only a question of time when
they shall come into dominance in the special field. The intellectual
attitude and the method of correlation enforced upon us in the
apprehension and assimilation of facts in the more elementary ranges of
knowledge that have to do with brute facts assert themselves also when
the attention is directed to those phenomena of the life process with
which economics has to do; and the range of facts which are habitually
handled by other methods than that in traditional vogue in economics has
now become so large and so insistently present at every turn that we are
left restless, if the new body of facts cannot be handled according to
the method of mental procedure which is in this way becoming habitual.

In the general body of knowledge in modern times the facts are
apprehended in terms of causal sequence. This is especially true of that
knowledge of brute facts which is shaped by the exigencies of the modern
mechanical industry. To men thoroughly imbued with this matter-of-fact
habit of mind the laws and theorems of economics, and of the other
sciences that treat of the normal course of things, have a character of
"unreality" and futility that bars out any serious interest in their
discussion. The laws and theorems are "unreal" to them because they are
not to be apprehended in the terms which these men make use of in
handling the facts with which they are perforce habitually occupied. The
same matter-of-fact spiritual attitude and mode of procedure have now
made their way well up into the higher levels of scientific knowledge,
even in the sciences which deal in a more elementary way with the same
human material that makes the subject-matter of economics, and the
economists themselves are beginning to feel the unreality of their
theorems about "normal" cases. Provided the practical exigencies of
modern industrial life continue of the same character as they now are,
and so continue to enforce the impersonal method of knowledge, it is
only a question of time when that (substantially animistic) habit of
mind which proceeds on the notion of a definitive normality shall be
displaced in the field of economic inquiry by that (substantially
materialistic) habit of mind which seeks a comprehension of facts in
terms of a cumulative sequence.

The later method of apprehending and assimilating facts and handling
them for the purposes of knowledge may be better or worse, more or less
worthy or adequate, than the earlier; it may be of greater or less
ceremonial or æsthetic effect; we may be moved to regret the incursion
of underbred habits of thought into the scholar's domain. But all that
is beside the present point. Under the stress of modern technological
exigencies, men's every-day habits of thought are falling into the lines
that in the sciences constitute the evolutionary method; and knowledge
which proceeds on a higher, more archaic plane is becoming alien and
meaningless to them. The social and political sciences must follow the
drift, for they are already caught in it.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
vol. xii, July, 1898.

[2] "The Fundamental Laws of Anthropo-sociology," _Journal of Political
Economy_, December, 1897, p. 54. The same paper, in substance, appears
in the _Rivista Italiana di Sociologia_ for November, 1897.

[3] "The Old Generation of Economists and the New," _Quarterly Journal
of Economics_, January, 1897, p. 133.

[4] _Political Economy_, Book III, chap. i.

[5] Marshall, _Principles of Economics_ (2d ed.), Book V, chap. ii, p.
395, note.

[6] Adam Smith, _Wealth of Nations_ (Bohn ed.), Book II, chap. ii, p.
289.




THE PRECONCEPTIONS OF ECONOMIC SCIENCE[1]

I


In an earlier paper[2] the view has been expressed that the economics
handed down by the great writers of a past generation is substantially a
taxonomic science. A view of much the same purport, so far as concerns
the point here immediately in question, is presented in an admirably
lucid and cogent way by Professor Clark in a recent number of this
journal.[3] There is no wish hereby to burden Professor Clark with a
putative sponsorship of any ungraceful or questionable generalisations
reached in working outward from this main position, but expression may
not be denied the comfort which his unintended authentication of the
main position affords. It is true, Professor Clark does not speak of
taxonomy, but employs the term "statics," which is perhaps better suited
to his immediate purpose. Nevertheless, in spite of the high authority
given the term "statics," in this connection, through its use by
Professor Clark and by other writers eminent in the science, it is
fairly to be questioned whether the term can legitimately be used to
characterize the received economic theories. The word is borrowed from
the jargon of physics, where it is used to designate the theory of
bodies at rest or of forces in equilibrium. But there is much in the
received economic theories to which the analogy of bodies at rest or of
forces in equilibrium will not apply. It is perhaps not too much to say
that those articles of economic theory that do not lend themselves to
this analogy make up the major portion of the received doctrines. So,
for instance, it seems scarcely to the point to speak of the statics of
production, exchange, consumption, circulation. There are, no doubt,
appreciable elements in the theory of these several processes that may
fairly be characterized as statical features of the theory; but the
doctrines handed down are after all, in the main, theories of the
process discussed under each head, and the theory of a process does not
belong in statics. The epithet "statical" would, for instance, have to
be wrenched somewhat ungently to make it apply to Quesnay's classic
_Tableau Économique_ or to the great body of Physiocratic speculations
that take their rise from it The like is true for Books II. and III. of
Adam Smith's _Wealth of Nations_, as also for considerable portions of
Ricardo's work, or, to come down to the present generation, for much of
Marshall's _Principles_, and for such a modern discussion as Smart's
_Studies in Economics_, as well as for the fruitful activity of the
Austrians and of the later representatives of the Historical School.

But to return from this terminological digression. While economic
science in the remoter past of its history has been mainly of a
taxonomic character, later writers of all schools show something of a
divergence from the taxonomic line and an inclination to make the
science a genetic account of the economic life process, sometimes even
without an ulterior view to the taxonomic value of the results obtained.
This divergence from the ancient canons of theoretical formulation is to
be taken as an episode of the movement that is going forward in
latter-day science generally; and the progressive change which thus
affects the ideals and the objective point of the modern sciences seems
in its turn to be an expression of that matter-of-fact habit of mind
which the prosy but exacting exigencies of life in a modern industrial
community breed in men exposed to their unmitigated impact.

In speaking of this matter-of-fact character of the modern sciences it
has been broadly characterized as "evolutionary"; and the evolutionary
method and the evolutionary ideals have been placed in antithesis to the
taxonomic methods and ideals of pre-evolutionary days. But the
characteristic attitude, aims, and ideals which are so designated here
are by no means peculiar to the group of sciences that are professedly
occupied with a process of development, taking that term in its most
widely accepted meaning. The latter-day inorganic sciences are in this
respect like the organic. They occupy themselves with "dynamic"
relations and sequences. The question which they ask is always, What
takes place next, and why? Given a situation wrought out by the forces
under inquiry, what follows as the consequence of the situation so
wrought out? or what follows upon the accession of a further element of
force? Even in so non-evolutionary a science as inorganic chemistry the
inquiry consistently runs on a process, an active sequence, and the
value of the resulting situation as a point of departure for the next
step in an interminable cumulative sequence. The last step in the
chemist's experimental inquiry into any substance is, What comes of the
substance determined? What will it do? What will it lead to, when it is
made the point of departure in further chemical action? There is no
ultimate term, and no definitive solution except in terms of further
action. The theory worked out is always a theory of a genetic
succession of phenomena, and the relations determined and elaborated
into a body of doctrine are always genetic relations. In modern
chemistry no cognisance is taken of the honorific bearing of reactions
or molecular formulæ. The modern chemist, as contrasted with his ancient
congener, knows nothing of the worth, elegance, or cogency of the
relations that may subsist between the particles of matter with which he
busies himself, for any other than the genetic purpose. The spiritual
element and the elements of worth and propensity no longer count.
Alchemic symbolism and the hierarchical glamour and virtue that once
hedged about the nobler and more potent elements and reagents are almost
altogether a departed glory of the science. Even the modest imputation
of propensity involved in the construction of a scheme of coercive
normality, for the putative guidance of reactions, finds little
countenance with the later adepts of chemical science. The science has
outlived that phase of its development at which the taxonomic feature
was the dominant one.

In the modern sciences, of which chemistry is one, there has been a
gradual shifting of the point of view from which the phenomena which the
science treats of are apprehended and passed upon; and to the historian
of chemical science this shifting of the point of view must be a factor
of great weight in the development of chemical knowledge. Something of a
like nature is true for economic science; and it is the aim here to
present, in outline, some of the successive phases that have passed over
the spiritual attitude of the adepts of the science, and to point out
the manner in which the transition from one point of view to the next
has been made.

       *       *       *       *       *

As has been suggested in the paper already referred to, the
characteristic spiritual attitude or point of view of a given generation
or group of economists is shown not so much in their detail work as in
their higher syntheses--the terms of their definitive formulations--the
grounds of their final valuation of the facts handled for purpose of
theory. This line of recondite inquiry into the spiritual past and
antecedents of the science has not often been pursued seriously or with
singleness of purpose, perhaps because it is, after all, of but slight
consequence to the practical efficiency of the present-day science.
Still, not a little substantial work has been done towards this end by
such writers as Hasbach, Oncken, Bonar, Cannan, and Marshall. And much
that is to the purpose is also due to writers outside of economics, for
the aims of economic speculation have never been insulated from the work
going forward in other lines of inquiry. As would necessarily be the
case, the point of view of economists has always been in large part the
point of view of the enlightened common sense of their time. The
spiritual attitude of a given generation of economists is therefore in
good part a special outgrowth of the ideals and preconceptions current
in the world about them.

So, for instance, it is quite the conventional thing to say that the
speculations of the Physiocrats were dominated and shaped by the
preconception of Natural Rights. Account has been taken of the effect of
natural-rights preconceptions upon the Physiocratic schemes of policy
and economic reform as well as upon the details of their doctrines.[4]
But little has been said of the significance of these preconceptions for
the lower courses of the Physiocrats' theoretical structure. And yet
that habit of mind to which the natural-rights view is wholesome and
adequate is answerable both for the point of departure and for the
objective point of the Physiocratic theories, both for the range of
facts to which they turned and for the terms in which they were content
to formulate their knowledge of the facts which they handled. The
failure of their critics to place themselves at the Physiocratic point
of view has led to much destructive criticism of their work; whereas,
when seen through Physiocratic eyes, such doctrines as those of the net
product and of the barrenness of the artisan class appear to be
substantially true.

The speculations of the Physiocrats are commonly accounted the first
articulate and comprehensive presentation of economic theory that is in
line with later theoretical work. The Physiocratic point of view may,
therefore, well be taken as the point of departure in an attempt to
trace that shifting of aims and norms of procedure that comes into view
in the work of later economists when compared with earlier writers.

Physiocratic economics is a theory of the working-out of the Law of
Nature (_loi naturelle_) in its economic bearing, and this Law of Nature
is a very simple matter.

     Les lois naturelles sont ou physiques ou morales.

     On entend ici, par loi physique, _le cours réglé de tout
     évènement physique de l'ordre naturel, évidemment le plus
     avantageux au genre humain_.

     On entend ici, par loi morale, _la règle de toute action
     humaine de l'ordre morale, conforme à l'ordre physique
     évidemment le plus avantageux au genre humain_.

     Ces lois forment ensemble ce qu'on appelle la _loi
     naturelle_. Tous les hommes et toutes les puissances humaines
     doivent être soumis à ces lois souveraines, instituées par
     l'Être-Suprême: elles sont immuables et irréfragables, et les
     meilleures lois possible.[5]

The settled course of material facts tending beneficently to the highest
welfare of the human race,--this is the final term in the Physiocratic
speculations. This is the touchstone of substantiality. Conformity to
these "immutable and unerring" laws of nature is the test of economic
truth. The laws are immutable and unerring, but that does not mean that
they rule the course of events with a blind fatality that admits of no
exception and no divergence from the direct line. Human nature may,
through infirmity or perversity, willfully break over the beneficent
trend of the laws of nature; but to the Physiocrat's sense of the matter
the laws are none the less immutable and irrefragable on that account.
They are not empirical generalisations on the course of phenomena, like
the law of falling bodies or of the angle of reflection; although many
of the details of their action are to be determined only by observation
and experience, helped out, of course, by interpretation of the facts of
observation under the light of reason. So, for instance, Turgot, in his
_Réflections_, empirically works out a doctrine of the reasonable course
of development through which wealth is accumulated and reaches the
existing state of unequal distribution; so also his doctrines of
interest and of money. The immutable natural laws are rather of the
nature of canons of conduct governing nature than generalisations of
mechanical sequence, although in a general way the phenomena of
mechanical sequence are details of the conduct of nature working
according to these canons of conduct. The great law of the order of
nature is of the character of a propensity working to an end, to the
accomplishment of a purpose. The processes of nature working under the
quasi-spiritual stress of this immanent propensity may be characterised
as nature's habits of life. Not that nature is conscious of its travail,
and knows and desires the worthy end of its endeavors; but for all that
there is a quasi-spiritual nexus between antecedent and consequent in
the scheme of operation in which nature is engaged. Nature is not uneasy
about interruptions of its course or occasional deflections from the
direct line through an untoward conjunction of mechanical causes, nor
does the validity of the great overruling law suffer through such an
episode. The introduction of a mere mechanically effective causal factor
cannot thwart the course of Nature from reaching the goal to which she
animistically tends. Nothing can thwart this teleological propensity of
nature except counter-activity or divergent activity of a similarly
teleological kind. Men can break over the law, and have short-sightedly
and willfully done so; for men are also agents who guide their actions
by an end to be achieved. Human conduct is activity of the same kind--on
the same plane of spiritual reality or competency--as the course
of Nature, and it may therefore traverse the latter. The remedy
for this short-sighted traffic of misguided human nature is
enlightenment,--"instruction publique et privée des lois de l'ordre
naturel."[6]

The nature in terms of which all knowledge of phenomena--for the present
purpose economic phenomena--is to be finally synthesised is, therefore,
substantially of a quasi-spiritual or animistic character. The laws of
nature are in the last resort teleological: they are of the nature of a
propensity. The substantial fact in all the sequences of nature is the
end to which the sequence naturally tends, not the brute fact of
mechanical compulsion or causally effective forces. Economic theory is
accordingly the theory (1) of how the efficient causes of the _ordre
naturel_ work in an orderly unfolding sequence, guided by the
underlying natural laws--the propensity immanent in nature to establish
the highest well-being of mankind, and (2) of the conditions imposed
upon human conduct by these natural laws in order to reach the ordained
goal of supreme human welfare. The conditions so imposed on human
conduct are as definitive as the laws and the order by force of which
they are imposed; and the theoretical conclusions reached, when these
laws and this order are known, are therefore expressions of absolute
economic truth. Such conclusions are an expression of reality, but not
necessarily of fact.

Now, the objective end of this propensity that determines the course of
nature is human well-being. But economic speculation has to do with the
workings of nature only so far as regards the _ordre physique_. And the
laws of nature in the _ordre physique_, working through mechanical
sequence, can only work out the physical well-being of man, not
necessarily the spiritual. This propensity to the physical well-being of
man is therefore the law of nature to which economic science must bring
its generalisations, and this law of physical beneficence is the
substantial ground of economic truth. Wanting this, all our speculations
are vain; but having its authentication they are definitive. The great,
typical function, to which all the other functioning of nature is
incidental if not subsidiary, is accordingly that of the alimentation,
nutrition of mankind. In so far, and only in so far as the physical
processes contribute to human sustenance and fullness of life, can they,
therefore, further the great work of nature. Whatever processes
contribute to human sustenance by adding to the material available for
human assimilation and nutrition, by increasing the substance disposable
for human comfort, therefore count towards the substantial end. All
other processes, however serviceable in other than this physiological
respect, lack the substance of economic reality. Accordingly, human
industry is productive, economically speaking, if it heightens the
effectiveness of the natural processes out of which the material of
human sustenance emerges; otherwise not. The test of productivity, of
economic reality in material facts, is the increase of nutritive
material. Whatever employment of time or effort does not afford an
increase of such material is unproductive, however profitable it may be
to the person employed, and however useful or indispensable it may be to
the community. The type of such productive industry is the husbandman's
employment, which yields a substantial (nutritive) gain. The artisan's
work may be useful to the community and profitable to himself, but its
economic effect does not extend beyond an alteration of the form in
which the material afforded by nature already lies at hand. It is
formally productive only, not really productive. It bears no part in the
creative or generative work of nature; and therefore it lacks the
character of economic substantiality. It does not enhance nature's
output of vital force. The artisan's labors, therefore, yield no net
product, whereas the husbandman's labors do.

Whatever constitutes a material increment of this output of vital force
is wealth, and nothing else is. The theory of value contained in this
position has not to do with value according to men's appraisement of the
valuable article. Given items of wealth may have assigned to them
certain relative values at which they exchange, and these conventional
values may differ more or less widely from the natural or intrinsic
value of the goods in question; but all that is beside the substantial
point. The point in question is not the degree of predilection shown by
certain individuals or bodies of men for certain goods. That is a matter
of caprice and convention, and it does not directly touch the
substantial ground of the economic life. The question of value is a
question of the extent to which the given item of wealth forwards the
end of nature's unfolding process. It is valuable, intrinsically and
really, in so far as it avails the great work which nature has in hand.

Nature, then, is the final term in the Physiocratic speculations. Nature
works by impulse and in an unfolding process, under the stress of a
propensity to the accomplishment of a given end. This propensity, taken
as the final cause that is operative in any situation, furnishes the
basis on which to coördinate all our knowledge of those efficient causes
through which Nature works to her ends. For the purpose of economic
theory proper, this is the ultimate ground of reality to which our quest
of economic truth must penetrate. But back of Nature and her works there
is, in the Physiocratic scheme of the universe, the Creator, by whose
all-wise and benevolent power the order of nature has been established
in all the strength and beauty of its inviolate and immutable
perfection. But the Physiocratic conception of the Creator is
essentially a deistic one: he stands apart from the course of nature
which he has established, and keeps his hands off. In the last resort,
of course, "Dieu seul est producteur. Les hommes travaillent,
receuillent, économisent, conservent; mais _économiser_ n'est pas
_produire_."[7] But this last resort does not bring the Creator into
economic theory as a fact to be counted with in formulating economic
laws. He serves a homiletical purpose in the Physiocratic speculations
rather than fills an office essential to the theory. He comes within the
purview of the theory by way of authentication rather than as a subject
of inquiry or a term in the formulation of economic knowledge. The
Physiocratic God can scarcely be said to be an economic fact, but it is
otherwise with that Nature whose ways and means constitute the
subject-matter of the Physiocratic inquiry.

When this natural system of the Physiocratic speculation is looked at
from the side of the psychology of the investigators, or from that of
the logical premises employed, it is immediately recognised as
essentially animistic. It runs consistently on animistic ground; but it
is animism of a high grade,--highly integrated and enlightened, but,
after all, retaining very much of that primitive force and naïveté which
characterise the animistic explanations of phenomena in vogue among the
untroubled barbarians. It is not the disjected animism of the vulgar,
who see a willful propensity--often a willful perversity--in given
objects or situations to work towards a given outcome, good or bad. It
is not the gambler's haphazard sense of fortuitous necessity or the
housewife's belief in lucky days, numbers or phases of the moon. The
Physiocrat's animism rests on a broader outlook, and does not proceed by
such an immediately impulsive imputation of propensity. The teleological
element--the element of propensity--is conceived in a large way, unified
and harmonised, as a comprehensive order of nature as a whole. But it
vindicates its standing as a true animism by never becoming fatalistic
and never being confused or confounded with the sequence of cause and
effect. It has reached the last stage of integration and definition,
beyond which the way lies downward from the high, quasi-spiritual ground
of animism to the tamer levels of normality and causal uniformities.

There is already discernible a tone of dispassionate and colorless
"tendency" about the Physiocratic animism, such as to suggest a
wavering towards the side of normality. This is especially visible in
such writers as the half-protestant Turgot. In his discussion of the
development of farming, for instance, Turgot speaks almost entirely of
human motives and the material conditions under which the growth takes
place. There is little metaphysics in it, and that little does not
express the law of nature in an adequate form. But, after all has been
said, it remains true that the Physiocrat's sense of substantiality is
not satisfied until he reaches the animistic ground; and it remains true
also that the arguments of their opponents made little impression on the
Physiocrats so long as they were directed to other than this animistic
ground of their doctrine. This is true in great measure even of Turgot,
as witness his controversy with Hume. Whatever criticism is directed
against them on other grounds is met with impatience, as being
inconsequential, if not disingenuous.[8]

To an historian of economic theory the source and the line of derivation
whereby this precise form of the order-of-nature preconception reached
the Physiocrats are of first-rate importance; but it is scarcely a
question to be taken up here,--in part because it is too large a
question to be handled here, in part because it has met with adequate
treatment at more competent hands,[9] and in part because it is somewhat
beside the immediate point under discussion. This point is the logical,
or perhaps better the psychological, value of the Physiocrats'
preconception, as a factor in shaping their point of view and the terms
of their definitive formulation of economic knowledge. For this purpose
it may be sufficient to point out that the preconception in question
belongs to the generation in which the Physiocrats lived, and that it is
the guiding norm of all serious thought that found ready assimilation
into the common-sense views of that time. It is the characteristic and
controlling feature of what may be called the common-sense metaphysics
of the eighteenth century, especially so far as concerns the enlightened
French community.

It is to be noted as a point bearing more immediately on the question in
hand that this imputation of final causes to the course of phenomena
expresses a spiritual attitude which has prevailed, one might almost
say, always and everywhere, but which reached its finest, most effective
development, and found its most finished expression, in the
eighteenth-century metaphysics. It is nothing recondite; for it meets us
at every turn, as a matter of course, in the vulgar thinking of
to-day,--in the pulpit and in the market place,--although it is not so
ingenuous, nor does it so unquestionedly hold the primacy in the
thinking of any class to-day as it once did. It meets us likewise, with
but little change of features, at all past stages of culture, late or
early. Indeed, it is the most generic feature of human thinking, so far
as regards a theoretical or speculative formulation of knowledge.
Accordingly, it seems scarcely necessary to trace the lineage of this
characteristic preconception of the era of enlightenment, through
specific channels, back to the ancient philosophers or jurists of the
empire. Some of the specific forms of its expression--as, for instance,
the doctrine of Natural Rights--are no doubt traceable through mediæval
channels to the teachings of the ancients; but there is no need of going
over the brook for water, and tracing back to specific teachings the
main features of that habit of mind or spiritual attitude of which the
doctrines of Natural Rights and the Order of Nature are specific
elaborations only. This dominant habit of mind came to the generation of
the Physiocrats on the broad ground of group inheritance, not by lineal
devolution from any one of the great thinkers of past ages who had
thrown its deliverances into a similarly competent form for the use of
his own generation.

       *       *       *       *       *

In leaving the Physiocratic discipline and the immediate sphere of
Physiocratic influence for British ground, we are met by the figure of
Hume. Here, also, it will be impracticable to go into details as to the
remoter line of derivation of the specific point of view that we come
upon on making the transition, for reasons similar to those already
given as excuse for passing over the similar question with regard to the
Physiocratic point of view. Hume is, of course, not primarily an
economist; but that placid unbeliever is none the less a large item in
any inventory of eighteenth-century economic thought. Hume was not
gifted with a facile acceptance of the group inheritance that made the
habit of mind of his generation. Indeed, he was gifted with an alert,
though somewhat histrionic, skepticism touching everything that was well
received. It is his office to prove all things, though not necessarily
to hold fast that which is good.

Aside from the strain of affectation discernible in Hume's skepticism,
he may be taken as an accentuated expression of that characteristic bent
which distinguishes British thinking in his time from the thinking of
the Continent, and more particularly of the French. There is in Hume,
and in the British community, an insistence on the prosy, not to say the
seamy, side of human affairs. He is not content with formulating his
knowledge of things in terms of what ought to be or in terms of the
objective point of the course of things. He is not even content with
adding to the teleological account of phenomena a chain of empirical,
narrative generalisations as to the usual course of things. He insists,
in season and out of season, on an exhibition of the efficient causes
engaged in any sequence of phenomena; and he is skeptical--irreverently
skeptical--as to the need or the use of any formulation of knowledge
that outruns the reach of his own matter-of-fact, step-by-step argument
from cause to effect.

In short, he is too modern to be wholly intelligible to those of his
contemporaries who are most neatly abreast of their time. He
out-Britishes the British; and, in his footsore quest for a perfectly
tame explanation of things, he finds little comfort, and indeed scant
courtesy, at the hands of his own generation. He is not in sufficiently
naïve accord with the range of preconceptions then in vogue.

But, while Hume may be an accentuated expression of a national
characteristic, he is not therefore an untrue expression of this phase
of British eighteenth-century thinking. The peculiarity of point of view
and of method for which he stands has sometimes been called the critical
attitude, sometimes the inductive method, sometimes the materialistic or
mechanical, and again, though less aptly, the historical method. Its
characteristic is an insistence on matter of fact.

This matter-of-fact animus that meets any historian of economic doctrine
on his introduction to British economics is a large, but not the
largest, feature of the British scheme of early economic thought. It
strikes the attention because it stands in contrast with the relative
absence of this feature in the contemporary speculations of the
Continent. The most potent, most formative habit of thought concerned
in the early development of economic teaching on British ground is best
seen in the broader generalisations of Adam Smith, and this more potent
factor in Smith is a bent that is substantially identical with that
which gives consistency to the speculations of the Physiocrats. In Adam
Smith the two are happily combined, not to say blended; but the
animistic habit still holds the primacy, with the matter-of-fact as a
subsidiary though powerful factor. He is said to have combined deduction
with induction. The relatively great prominence given the latter marks
the line of divergence of British from French economics, not the line of
coincidence; and on this account it may not be out of place to look more
narrowly into the circumstances to which the emergence of this
relatively greater penchant for a matter-of-fact explanation of things
in the British community is due.

To explain the characteristic animus for which Hume stands, on grounds
that might appeal to Hume, we should have to inquire into the peculiar
circumstances--ultimately material circumstances--that have gone to
shape the habitual view of things within the British community, and that
so have acted to differentiate the British preconceptions from the
French, or from the general range of preconceptions prevalent on the
Continent. These peculiar formative circumstances are no doubt to some
extent racial peculiarities; but the racial complexion of the British
community is not widely different from the French, and especially not
widely different from certain other Continental communities which are
for the present purpose roughly classed with the French. Race difference
can therefore not wholly, nor indeed for the greater part, account for
the cultural difference of which this difference in preconceptions is an
outcome. Through its cumulative effect on institutions the race
difference must be held to have had a considerable effect on the habit
of mind of the community; but, if the race difference is in this way
taken as the remoter ground of an institutional peculiarity, which in
its turn has shaped prevalent habits of thought, then the attention may
be directed to the proximate causes, the concrete circumstances, through
which this race difference has acted, in conjunction with other ulterior
circumstances, to work out the psychological phenomena observed. Race
differences, it may be remarked, do not so nearly coincide with national
lines of demarcation as differences in the point of view from which
things are habitually apprehended or differences in the standards
according to which facts are rated.

If the element of race difference be not allowed definitive weight in
discussing national peculiarities that underlie the deliverances of
common sense, neither can these national peculiarities be confidently
traced to a national difference in the transmitted learning that enters
into the common-sense view of things. So far as concerns the concrete
facts embodied in the learning of the various nations within the
European culture, these nations make up but a single community. What
divergence is visible does not touch the character of the positive
information with which the learning of the various nations is occupied.
Divergence is visible in the higher syntheses, the methods of handling
the material of knowledge, the basis of valuation of the facts taken up,
rather than in the material of knowledge. But this divergence must be
set down to a cultural difference, a difference of point of view, not to
a difference in inherited information. When a given body of information
passes the national frontiers it acquires a new complexion, a new
national, cultural physiognomy. It is this cultural physiognomy of
learning that is here under inquiry, and a comparison of early French
economics (the Physiocrats) with early British economics (Adam Smith) is
here entered upon merely with a view to making out what significance
this cultural physiognomy of the science has for the past progress of
economic speculation.

The broad features of economic speculation, as it stood at the period
under consideration, may be briefly summed up, disregarding the element
of policy, or expediency, which is common to both groups of economists,
and attending to their theoretical work alone. With the Physiocrats, as
with Adam Smith, there are two main points of view from which economic
phenomena are treated: (_a_) the matter-of-fact point of view or
preconception, which yields a discussion of causal sequences and
correlations; and (_b_) what, for want of a more expressive word, is
here called the animistic point of view or preconception, which yields a
discussion of teleological sequences and correlations,--a discussion of
the function of this and that "organ," of the legitimacy of this or the
other range of facts. The former preconception is allowed a larger scope
in the British than in the French economics: there is more of
"induction" in the British. The latter preconception is present in both,
and is the definitive element in both; but the animistic element is more
colorless in the British, it is less constantly in evidence, and less
able to stand alone without the support of arguments from cause to
effect. Still, the animistic element is the controlling factor in the
higher syntheses of both; and for both alike it affords the definitive
ground on which the argument finally comes to rest. In neither group of
thinkers is the sense of substantiality appeased until this
quasi-spiritual ground, given by the natural propensity of the course of
events, is reached. But the propensity in events, the natural or normal
course of things, as appealed to by the British speculators, suggests
less of an imputation of will-power, or personal force, to the
propensity in question. It may be added, as has already been said in
another place, that the tacit imputation of will-power or spiritual
consistency to the natural or normal course of events has progressively
weakened in the later course of economic speculation, so that in this
respect, the British economists of the eighteenth century may be said to
represent a later phase of economic inquiry than the Physiocrats.

       *       *       *       *       *

Unfortunately, but unavoidably, if this question as to the cultural
shifting of the point of view in economic science is taken up from the
side of the causes to which the shifting is traceable, it will take the
discussion back to ground on which an economist must at best feel
himself to be but a raw layman, with all a layman's limitations and
ineptitude, and with the certainty of doing badly what might be done
well by more competent hands. But, with a reliance on charity where
charity is most needed, it is necessary to recite summarily what seems
to be the psychological bearing of certain cultural facts.

A cursory acquaintance with any of the more archaic phases of human
culture enforces the recognition of this fact,--that the habit of
construing the phenomena of the inanimate world in animistic terms
prevails pretty much universally on these lower levels. Inanimate
phenomena are apprehended to work out a propensity to an end; the
movements of the elements are construed in terms of quasi-personal
force. So much is well authenticated by the observations on which
anthropologists and ethnologists draw for their materials. This
animistic habit, it may be said, seems to be more effectual and
far-reaching among those primitive communities that lead a predatory
life.

But along with this feature of archaic methods of thought or of
knowledge, the picturesqueness of which has drawn the attention of all
observers, there goes a second feature, no less important for the
purpose in hand, though less obtrusive. The latter is of less interest
to the men who have to do with the theory of cultural development,
because it is a matter of course. This second feature of archaic thought
is the habit of also apprehending facts in non-animistic, or impersonal,
terms. The imputation of propensity in no case extends to all the
mechanical facts in the case. There is always a substratum of matter of
fact, which is the outcome of an habitual imputation of causal sequence,
or, perhaps better, an imputation of mechanical continuity, if a new
term be permitted. The agent, thing, fact, event, or phenomenon, to
which propensity, will-power, or purpose, is imputed, is always
apprehended to act in an environment which is accepted as spiritually
inert. There are always opaque facts as well as self-directing agents.
Any agent acts through means which lend themselves to his use on other
grounds than that of spiritual compulsion, although spiritual compulsion
may be a large feature in any given case.

The same features of human thinking, the same two complementary methods
of correlating facts and handling them for the purposes of knowledge,
are similarly in constant evidence in the daily life of men in our own
community. The question is, in great part, which of the two bears the
greater part in shaping human knowledge at any given time and within any
given range of knowledge or of facts.

Other features of the growth of knowledge, which are remoter from the
point under inquiry, may be of no less consequence to a comprehensive
theory of the development of culture and of thought; but it is of course
out of the question here to go farther afield. The present inquiry will
have enough to do with these two. No other features are correlative with
these, and these merit discussion on account of their intimate bearing
on the point of view of economics. The point of interest with respect to
these two correlative and complementary habits of thought is the
question of how they have fared under the changing exigencies of human
culture; in what manner they come, under given cultural circumstances,
to share the field of knowledge between them; what is the relative part
of each in the composite point of view in which the two habits of
thought express themselves at any given cultural stage.

The animistic preconception enforces the apprehension of phenomena in
terms generically identical with the terms of personality or
individuality. As a certain modern group of psychologists would say, it
imputes to objects and sequences an element of habit and attention
similar in kind, though not necessarily in degree, to the like spiritual
attitude present in the activities of a personal agent. The
matter-of-fact preconception, on the other hand, enforces a handling of
facts without imputation of personal force or attention, but with an
imputation of mechanical continuity, substantially the preconception
which has reached a formulation at the hands of scientists under the
name of conservation of energy or persistence of quantity. Some
appreciable resort to the latter method of knowledge is unavoidable at
any cultural stage, for it is indispensable to all industrial
efficiency. All technological processes and all mechanical contrivances
rest, psychologically speaking, on this ground. This habit of thought is
a selectively necessary consequence of industrial life, and, indeed, of
all human experience in making use of the material means of life. It
should therefore follow that, in a general way, the higher the culture,
the greater the share of the mechanical preconception in shaping human
thought and knowledge, since, in a general way, the stage of culture
attained depends on the efficiency of industry. The rule, while it does
not hold with anything like extreme generality, must be admitted to hold
to a good extent; and to that extent it should hold also that, by a
selective adaptation of men's habits of thought to the exigencies of
those cultural phases that have actually supervened, the mechanical
method of knowledge should have gained in scope and range. Something of
the sort is borne out by observation.

A further consideration enforces the like view. As the community
increases in size, the range of observation of the individuals in the
community also increases; and continually wider and more far-reaching
sequences of a mechanical kind have to be taken account of. Men have to
adapt their own motives to industrial processes that are not safely to
be construed in terms of propensity, predilection, or passion. Life in
an advanced industrial community does not tolerate a neglect of
mechanical fact; for the mechanical sequences through which men, at an
appreciable degree of culture, work out their livelihood, are no
respecters of persons or of will-power. Still, on all but the higher
industrial stages, the coercive discipline of industrial life, and of
the scheme of life that inculcates regard for the mechanical facts of
industry, is greatly mitigated by the largely haphazard character of
industry, and by the great extent to which man continues to be the prime
mover in industry. So long as industrial efficiency is chiefly a matter
of the handicraftsman's skill, dexterity, and diligence, the attention
of men in looking to the industrial process is met by the figure of the
workman, as the chief and characteristic factor; and thereby it comes to
run on the personal element in industry.

But, with or without mitigation, the scheme of life which men perforce
adopt under exigencies of an advanced industrial situation shapes their
habits of thought on the side of their behavior, and thereby shapes
their habits of thought to some extent for all purposes. Each individual
is but a single complex of habits of thought, and the same psychical
mechanism that expresses itself in one direction as conduct expresses
itself in another direction as knowledge. The habits of thought formed
in the one connection, in response to stimuli that call for a response
in terms of conduct, must, therefore, have their effect when the same
individual comes to respond to stimuli that call for a response in terms
of knowledge. The scheme of thought or of knowledge is in good part a
reverberation of the scheme of life. So that, after all has been said,
it remains true that with the growth of industrial organization and
efficiency there must, by selection and by adaptation, supervene a
greater resort to the mechanical or dispassionate method of apprehending
facts.

But the industrial side of life is not the whole of it, nor does the
scheme of life in vogue in any community or at any cultural stage
comprise industrial conduct alone. The social, civic, military, and
religious interests come in for their share of attention, and between
them they commonly take up by far the larger share of it. Especially is
this true so far as concerns those classes among whom we commonly look
for a cultivation of knowledge for knowledge's sake. The discipline
which these several interests exert does not commonly coincide with the
training given by industry. So the religious interest, with its canons
of truth and of right living, runs exclusively on personal relations and
the adaptation of conduct to the predilections of a superior personal
agent. The weight of its discipline, therefore, falls wholly on the
animistic side. It acts to heighten our appreciation of the spiritual
bearing of phenomena and to discountenance a matter-of-fact apprehension
of things. The skeptic of the type of Hume has never been in good repute
with those who stand closest to the accepted religious truths. The
bearing of this side of our culture upon the development of economics is
shown by what the mediæval scholars had to say on economic topics.

The disciplinary effects of other phases of life, outside of the
industrial and the religious, is not so simple a matter; but the
discussion here approaches nearer to the point of immediate
inquiry,--namely, the cultural situation in the eighteenth century, and
its relation to economic speculation,--and this ground of interest in
the question may help to relieve the topic of the tedium that of right
belongs to it.

In the remoter past of which we have records, and even in the more
recent past, Occidental man, as well as man elsewhere, has eminently
been a respecter of persons. Wherever the warlike activity has been a
large feature of the community's life, much of human conduct in society
has proceeded on a regard for personal force. The scheme of life has
been a scheme of personal aggression and subservience, partly in the
naïve form, partly conventionalised in a system of status. The
discipline of social life for the present purpose, in so far as its
canons of conduct rest on this element of personal force in the
unconventionalised form, plainly tends to the formation of a habit of
apprehending and coördinating facts from the animistic point of view. So
far as we have to do with life under a system of status, the like
remains true, but with a difference. The régime of status inculcates an
unremitting and very nice discrimination and observance of distinctions
of personal superiority and inferiority. To the criterion of personal
force, or will-power, taken in its immediate bearing on conduct, is
added the criterion of personal excellence-in-general, regardless of the
first-hand potency of the given person as an agent. This criterion of
conduct requires a constant and painstaking imputation of personal
value, regardless of fact. The discrimination enjoined by the canons of
status proceeds on an invidious comparison of persons in respect of
worth, value, potency, virtue, which must, for the present purpose, be
taken as putative. The greater or less personal value assigned a given
individual or a given class under the canons of status is not assigned
on the ground of visible efficiency, but on the ground of a dogmatic
allegation accepted on the strength of an uncontradicted categorical
affirmation simply. The canons of status hold their ground by force of
preëmption. Where distinctions of status are based on a putative worth
transmitted by descent from honorable antecedents, the sequence of
transmission to which appeal is taken as the arbiter of honor is of a
putative and animistic character rather than a visible mechanical
continuity. The habit of accepting as final what is prescriptively right
in the affairs of life has as its reflex in the affairs of knowledge the
formula, _Quid ab omnibus, quid ubique creditur credendum est_.

Even this meager account of the scheme of life that characterises a
régime of status should serve to indicate what is its disciplinary
effect in shaping habits of thought, and therefore in shaping the
habitual criteria of knowledge and of reality. A culture whose
institutions are a framework of invidious comparisons implies, or rather
involves and comprises, a scheme of knowledge whose definitive standards
of truth and substantiality are of an animistic character; and, the more
undividedly the canons of status and ceremonial honor govern the conduct
of the community, the greater the facility with which the sequence of
cause and effect is made to yield before the higher claims of a
spiritual sequence or guidance in the course of events. Men consistently
trained to an unremitting discrimination of honor, worth, and personal
force in their daily conduct, and to whom these criteria afford the
definitive ground of sufficiency in coördinating facts for the purposes
of life, will not be satisfied to fall short of the like definitive
ground of sufficiency when they come to coördinate facts for the
purposes of knowledge simply. The habits formed in unfolding his
activity in one direction, under the impulse of a given interest, assert
themselves when the individual comes to unfold his activity in any other
direction, under the impulse of any other interest. If his last resort
and highest criterion of truth in conduct is afforded by the element of
personal force and invidious comparison, his sense of substantiality or
truth in the quest of knowledge will be satisfied only when a like
definitive ground of animistic force and invidious comparison is
reached. But when such ground is reached he rests content and pushes the
inquiry no farther. In his practical life he has acquired the habit of
resting his case on an authentic deliverance as to what is absolutely
right. This absolutely right and good final term in conduct has the
character of finality only when conduct is construed in a ceremonial
sense; that is to say, only when life is conceived as a scheme of
conformity to a purpose outside and beyond the process of living. Under
the régime of status this ceremonial finality is found in the concept of
worth or honor. In the religious domain it is the concept of virtue,
sanctity, or tabu. Merit lies in what one is, not in what one does. The
habit of appeal to ceremonial finality, formed in the school of status,
goes with the individual in his quest of knowledge, as a dependence upon
a similarly authentic norm of absolute truth,--a similar seeking of a
final term outside and beyond the range of knowledge.

The discipline of social and civic life under a régime of status, then,
reënforces the discipline of the religious life; and the outcome of the
resulting habituation is that the canons of knowledge are cast in the
animistic mold and converge to a ground of absolute truth, and this
absolute truth is of a ceremonial nature. Its subject-matter is a
reality regardless of fact.

The outcome, for science, of the religious and social life of the
civilisation of status, in Occidental culture, was a structure of
quasi-spiritual appreciations and explanations, of which astrology,
alchemy, and mediæval theology and metaphysics are competent, though
somewhat one-sided, exponents. Throughout the range of this early
learning the ground of correlation of phenomena is in part the supposed
relative potency of the facts correlated; but it is also in part a
scheme of status, in which facts are scheduled according to a
hierarchical gradation of worth or merit, having only a ceremonial
relation to the observed phenomena. Some elements (some metals, for
instance) are noble, others base; some planets, on grounds of ceremonial
efficacy, have a sinister influence, others a beneficent one; and it is
a matter of serious consequence whether they are in the ascendant, and
so on.

The body of learning through which the discipline of animism and
invidious comparison transmitted its effects to the science of economics
was what is known as natural theology, natural rights, moral philosophy,
and natural law. These several disciplines or bodies of knowledge had
wandered far from the naïve animistic standpoint at the time when
economic science emerged, and much the same is true as regards the time
of the emergence of other modern sciences. But the discipline which
makes for an animistic formulation of knowledge continued to hold the
primacy in modern culture, although its dominion was never altogether
undivided or unmitigated. Occidental culture has long been largely an
industrial culture; and, as already pointed out, the discipline of
industry, and of life in an industrial community, does not favor the
animistic preconception. This is especially true as regards industry
which makes large use of mechanical contrivances. The difference in
these respects between Occidental industry and science, on the one hand,
and the industry and science of other cultural regions, on the other
hand, is worth noting in this connection. The result has been that the
sciences, as that word is understood in later usage, have come forward
gradually, and in a certain rough parallelism with the development of
industrial processes and industrial organisation. It is possible to hold
that both modern industry (of the mechanical sort) and modern science
center about the region of the North Sea. It is still more palpably true
that within this general area the sciences, in the recent past, show a
family likeness to the civil and social institutions of the communities
in which they have been cultivated, this being true to the greatest
extent of the higher or speculative sciences; that is, in that range of
knowledge in which the animistic preconception can chiefly and most
effectively find application. There is, for instance, in the eighteenth
century a perceptible parallelism between the divergent character of
British and Continental culture and institutions, on the one hand, and
the dissimilar aims of British and Continental speculation, on the other
hand.

Something has already been said of the difference in preconceptions
between the French and the British economists of the eighteenth century.
It remains to point out the correlative cultural difference between the
two communities, to which it is conceived that the difference in
scientific animus is in great measure due. It is, of course, only the
general features, the general attitude of the speculators, that can be
credited to the difference in culture. Differences of detail in the
specific doctrines held could be explained only on a much more detailed
analysis than can be entered on here, and after taking account of facts
which cannot here be even allowed for in detail.

Aside from the greater resort to mechanical contrivances and the larger
scale of organisation in British industry, the further cultural
peculiarities of the British community run in the same general
direction. British religious life and beliefs had less of the element of
fealty--personal or discretionary mastery and subservience--and more of
a tone of fatalism. The civil institutions of the British had not the
same rich personal content as those of the French. The British subject
owned allegiance to an impersonal law rather than to the person of a
superior. Relatively, it may be said that the sense of status, as a
coercive factor, was in abeyance in the British community. Even in the
warlike enterprise of the British community a similar characteristic is
traceable. Warfare is, of course, a matter of personal assertion.
Warlike communities and classes are necessarily given to construing
facts in terms of personal force and personal ends. They are always
superstitious. They are great sticklers for rank and precedent, and
zealously cultivate those distinctions and ceremonial observances in
which a system of status expresses itself. But, while warlike enterprise
has by no means been absent from the British scheme of life, the
geographical and strategic isolation of the British community has given
a characteristic turn to their military relations. In recent times
British warlike operations have been conducted abroad. The military
class has consequently in great measure been segregated out from the
body of the community, and the ideals and prejudices of the class have
not been transfused through the general body with the same facility and
effect that they might otherwise have had. The British community at home
has seen the campaign in great part from the standpoint of the "sinews
of war."

The outcome of all these national peculiarities of circumstance and
culture has been that a different scheme of life has been current in the
British community from what has prevailed on the Continent. There has
resulted the formation of a different body of habits of thought and a
different animus in their handling of facts. The preconception of causal
sequence has been allowed larger scope in the correlation of facts for
purposes of knowledge; and, where the animistic preconception has been
resorted to, as it always has in the profounder reaches of learning, it
has commonly been an animism of a tamer kind.

Taking Adam Smith as an exponent of this British attitude in theoretical
knowledge, it is to be noted that, while he formulates his knowledge in
terms of a propensity (natural laws) working teleologically to an end,
the end or objective point which controls the formulation has not the
same rich content of vital human interest or advantage as is met with in
the Physiocratic speculations. There is perceptibly less of an imperious
tone in Adam Smith's natural laws than in those of the contemporary
French economists. It is true, he sums up the institutions with which he
deals in terms of the ends which they should subserve, rather than in
terms of the exigencies and habits of life out of which they have
arisen; but he does not with the same tone of finality appeal to the end
subserved as a final cause through whose coercive guidance the complex
of phenomena is kept to its appointed task. Under his hands the
restraining, compelling agency retires farther into the background, and
appeal is taken to it neither so directly nor on so slight provocation.

But Adam Smith is too large a figure to be disposed of in a couple of
concluding paragraphs. At the same time his work and the bent which he
gave to economic speculation are so intimately bound up with the aims
and bias that characterise economics in its next stage of development
that he is best dealt with as the point of departure for the Classical
School rather than merely as a British counterpart of Physiocracy. Adam
Smith will accordingly be considered in immediate connection with the
bias of the classical school and the incursion of utilitarianism into
economics.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
vol. xiii, Jan., 1899.

[2] "Why is Economics not an Evolutionary Science?" _Quarterly Journal
of Economics_, July, 1898.

[3] "The Future of Economic Theory," _ibid._, October, 1898.

[4] See, for instance, Hasbach, _Allgemeine philosophische Grundlagen
der von François Quesnay und Adam Smith begründeten politischen
Oekonomie_.

[5] Quesnay, _Droit Naturel_, ch. v. (Ed. Daire, _Physiocrates_, pp.
52-53).

[6] Quesnay, _Droit Naturel_, ch. v (Ed. Daire, _Physiocrates_, p. 53).

[7] Dupont de Nemours, _Correspondance avec J.-B. Say_ (Ed. Daire,
_Physiocrates_, première partie, p. 399).

[8] See, for instance, the concluding chapters of La Rivière's _Ordre
Naturel des Sociétés Politiques_.

[9] E.g., Hasbach, _loc. cit._; Bonar, _Philosophy and Political
Economy_, Book II; Ritchie, _Natural Rights_.




THE PRECONCEPTIONS OF ECONOMIC SCIENCE[1]

II


Adam Smith's animistic bent asserts itself more plainly and more
effectually in the general trend and aim of his discussion than in the
details of theory. "Adam Smith's _Wealth of Nations_ is, in fact, so far
as it has one single purpose, a vindication of the unconscious law
present in the separate actions of men when these actions are directed
by a certain strong personal motive."[2] Both in the _Theory of the
Moral Sentiments_ and in the _Wealth of Nations_ there are many passages
that testify to his abiding conviction that there is a wholesome trend
in the natural course of things, and the characteristically optimistic
tone in which he speaks for natural liberty is but an expression of this
conviction. An extreme resort to this animistic ground occurs in his
plea for freedom of investment.[3]

In the proposition that men are "led by an invisible hand," Smith does
not fall back on a meddling Providence who is to set human affairs
straight when they are in danger of going askew. He conceives the
Creator to be very continent in the matter of interference with the
natural course of things. The Creator has established the natural order
to serve the ends of human welfare; and he has very nicely adjusted the
efficient causes comprised in the natural order, including human aims
and motives, to this work that they are to accomplish. The guidance of
the invisible hand takes place not by way of interposition, but through
a comprehensive scheme of contrivances established from the beginning.
For the purpose of economic theory, man is conceived to be consistently
self-seeking; but this economic man is a part of the mechanism of
nature, and his self-seeking traffic is but a means whereby, in the
natural course of things, the general welfare is worked out. The scheme
as a whole is guided by the end to be reached, but the sequence of
events through which the end is reached is a causal sequence which is
not broken into episodically. The benevolent work of guidance was
performed in first establishing an ingenious mechanism of forces and
motives capable of accomplishing an ordained result, and nothing beyond
the enduring constraint of an established trend remains to enforce the
divine purpose in the resulting natural course of things.

The sequence of events, including human motives and human conduct, is a
causal sequence; but it is also something more, or, rather, there is
also another element of continuity besides that of brute cause and
effect, present even in the step-by-step process whereby the natural
course of things reaches its final term. The presence of such a
quasi-spiritual or non-causal element is evident from two (alleged)
facts. (1) The course of things may be deflected from the direct line of
approach to that consummate human welfare which is its legitimate end.
The natural trend of things may be overborne by an untoward conjuncture
of causes. There is a distinction, often distressingly actual and
persistent, between the legitimate and the observed course of things. If
"natural," in Adam Smith's use, meant necessary, in the sense of
causally determined, no divergence of events from the natural or
legitimate course of things would be possible. If the mechanism of
nature, including man, were a mechanically competent contrivance for
achieving the great artificer's design, there could be no such episodes
of blundering and perverse departure from the direct path as Adam Smith
finds in nearly all existing arrangements. Institutional facts would
then be "natural."[4] (2) When things have gone wrong, they will right
themselves if interference with the natural course ceases; whereas, in
the case of a causal sequence simply, the mere cessation of interference
will not leave the outcome the same as if no interference had taken
place. This recuperative power of nature is of an extra-mechanical
character. The continuity of sequence by force of which the natural
course of things prevails is, therefore, not of the nature of cause and
effect, since it bridges intervals and interruptions in the causal
sequence.[5] Adam Smith's use of the term "real" in statements of
theory--as, for example, "real value," "real price"[6]--is evidence to
this effect. "Natural" commonly has the same meaning as "real" in this
connection.[7] Both "natural" and "real" are placed in contrast with the
actual; and, in Adam Smith's apprehension, both have a substantiality
different from and superior to facts. The view involves a distinction
between reality and fact, which survives in a weakened form in the
theories of "normal" prices, wages, profits, costs, in Adam Smith's
successors.

This animistic prepossession seems to pervade the earlier of his two
monumental works in a greater degree than the later. In the _Moral
Sentiments_ recourse is had to the teleological ground of the natural
order more freely and with perceptibly greater insistence. There seems
to be reason for holding that the animistic preconception weakened or,
at any rate, fell more into the background as his later work of
speculation and investigation proceeded. The change shows itself also in
some details of his economic theory, as first set forth in the
_Lectures_, and afterwards more fully developed in the _Wealth of
Nations_. So, for instance, in the earlier presentation of the matter,
"the division of labor is the immediate cause of opulence"; and this
division of labor, which is the chief condition of economic well-being,
"flows from a direct propensity in human nature for one man to barter
with another."[8] The "propensity" in question is here appealed to as a
natural endowment immediately given to man with a view to the welfare of
human society, and without any attempt at further explanation of how man
has come by it. No causal explanation of its presence or character is
offered. But the corresponding passage of the _Wealth of Nations_
handles the question more cautiously.[9] Other parallel passages might
be compared, with much the same effect. The guiding hand has withdrawn
farther from the range of human vision.

However, these and other like filial expressions of a devout optimism
need, perhaps, not be taken as integral features of Adam Smith's
economic theory, or as seriously affecting the character of his work as
an economist. They are the expression of his general philosophical and
theological views, and are significant for the present purpose chiefly
as evidences of an animistic and optimistic bent. They go to show what
is Adam Smith's accepted ground of finality,--the ground to which all
his speculations on human affairs converge; but they do not in any
great degree show the teleological bias guiding his formulation of
economic theory in detail.

The effective working of the teleological bias is best seen in Smith's
more detailed handling of economic phenomena--in his discussion of what
may loosely be called economic institutions--and in the criteria and
principles of procedure by which he is guided in incorporating these
features of economic life into the general structure of his theory. A
fair instance, though perhaps not the most telling one, is the
discussion of the "real and nominal price," and of the "natural and
market price" of commodities, already referred to above.[10] The "real"
price of commodities is their value in terms of human life. At this
point Smith differs from the Physiocrats, with whom the ultimate terms
of value are afforded by human sustenance taken as a product of the
functioning of brute nature; the cause of the difference being that the
Physiocrats conceived the natural order which works towards the material
well-being of man to comprise the non-human environment only, whereas
Adam Smith includes man in this concept of the natural order, and,
indeed, makes him the central figure in the process of production. With
the Physiocrats, production is the work of nature: with Adam Smith, it
is the work of man and nature, with man in the foreground. In Adam
Smith, therefore, labor is the final term in valuation. This "real"
value of commodities is the value imputed to them by the economist under
the stress of his teleological preconception. It has little, if any,
place in the course of economic events, and no bearing on human affairs,
apart from the sentimental influence which such a preconception in favor
of a "real value" in things may exert upon men's notions of what is the
good and equitable course to pursue in their transactions. It is
impossible to gauge this real value of goods; it cannot be measured or
expressed in concrete terms. Still, if labor exchanges for a varying
quantity of goods, "it is their value which varies, not that of the
labor which purchases them."[11] The values which practically attach to
goods in men's handling of them are conceived to be determined without
regard to the real value which Adam Smith imputes to the goods; but, for
all that, the substantial fact with respect to these market values is
their presumed approximation to the real values teleologically imputed
to the goods under the guidance of inviolate natural laws. The real, or
natural, value of articles has no causal relation to the value at which
they exchange. The discussion of how values are determined in practice
runs on the motives of the buyers and sellers, and the relative
advantage enjoyed by the parties to the transaction.[12] It is a
discussion of a process of valuation, quite unrelated to the "real," or
"natural," price of things, and quite unrelated to the grounds on which
things are held to come by their real, or natural, price; and yet, when
the complex process of valuation has been traced out in terms of human
motives and the exigencies of the market, Adam Smith feels that he has
only cleared the ground. He then turns to the serious business of
accounting for value and price theoretically, and making the ascertained
facts articulate with his teleological theory of economic life.[13]

The occurrence of the words "ordinary" and "average" in this connection
need not be taken too seriously. The context makes it plain that the
equality which commonly subsists between the ordinary or average rates,
and the natural rates, is a matter of coincidence, not of identity. Not
only are there temporary deviations, but there may be a permanent
divergence between the ordinary and the natural price of a commodity; as
in case of a monopoly or of produce grown under peculiar circumstances
of soil or climate.[14]

The natural price coincides with the price fixed by competition, because
competition means the unimpeded play of those efficient forces through
which the nicely adjusted mechanism of nature works out the design to
accomplish which it was contrived. The natural price is reached through
the free interplay of the factors of production, and it is itself an
outcome of production. Nature, including the human factor, works to turn
out the goods; and the natural value of the goods is their appraisement
from the standpoint of this productive process of nature. Natural value
is a category of production: whereas, notoriously exchange value or
market price is a category of distribution. And Adam Smith's theoretical
handling of market price aims to show how the factors of human
predilection and human wants at work in the higgling of the market
bring about a result in passable consonance with the natural laws that
are conceived to govern production.

The natural price is a composite result of the blending of the three
"component parts of the price of commodities,"--the natural wages of
laborer, the natural profits of stock, and the natural rent of land; and
each of these three components is in its turn the measure of the
productive effect of the factor to which it pertains. The further
discussion of these shares in distribution aims to account for the facts
of distribution on the ground of the productivity of the factors which
are held to share the product between them. That is to say, Adam Smith's
preconception of a productive natural process as the basis of his
economic theory dominates his aims and procedure, when he comes to deal
with phenomena that cannot be stated in terms of production. The causal
sequence in the process of distribution is, by Adam Smith's own showing,
unrelated to the causal sequence in the process of production; but,
since the latter is the substantial fact, as viewed from the standpoint
of a teleological natural order, the former must be stated in terms of
the latter before Adam Smith's sense of substantiality, or "reality," is
satisfied. Something of the same kind is, of course, visible in the
Physiocrats and in Cantillon. It amounts to an extension of the
natural-rights preconception to economic theory. Adam Smith's discussion
of distribution as a function of productivity might be traced in detail
through his handling of Wages, Profits, and Rent; but, since the aim
here is a brief characterisation only, and not an exposition, no farther
pursuit of this point seems feasible.

It may, however, be worth while to point out another line of influence
along which the dominance of the teleological preconception shows itself
in Adam Smith. This is the normalisation of data, in order to bring them
into consonance with an orderly course of approach to the putative
natural end of economic life and development. The result of this
normalisation of data is, on the one hand, the use of what James Steuart
calls "conjectural history" in dealing with past phases of economic
life, and, on the other hand, a statement of present-day phenomena in
terms of what legitimately ought to be according to the God-given end of
life rather than in terms of unconstrued observation. Account is taken
of the facts (supposed or observed) ostensibly in terms of causal
sequence, but the imputed causal sequence is construed to run on lines
of teleological legitimacy.

A familiar instance of this "conjectural history," in a highly and
effectively normalized form, is the account of "that early and rude
state of society which precedes both the accumulation of stock and the
appropriation of land."[15] It is needless at this day to point out that
this "early and rude state," in which "the whole produce of labor
belongs to the laborer," is altogether a figment. The whole narrative,
from the putative origin down, is not only supposititious, but it is
merely a schematic presentation of what should have been the course of
past development, in order to lead up to that ideal economic situation
which would satisfy Adam Smith's preconception.[16] As the narrative
comes nearer the region of known latter-day facts, the normalisation of
the data becomes more difficult and receives more detailed attention;
but the change in method is a change of degree rather than of kind. In
the "early and rude state" the coincidence of the "natural" and the
actual course of events is immediate and undisturbed, there being no
refractory data at hand; but in the later stages and in the present
situation, where refractory facts abound, the coördination is difficult,
and the coincidence can be shown only by a free abstraction from
phenomena that are irrelevant to the teleological trend and by a
laborious interpretation of the rest. The facts of modern life are
intricate, and lend themselves to statement in the terms of the theory
only after they have been subjected to a "higher criticism."

The chapter "Of the Origin and Use of Money"[17] is an elegantly
normalised account of the origin and nature of an economic institution,
and Adam Smith's further discussion of money runs on the same lines. The
origin of money is stated in terms of the purpose which money should
legitimately serve in such a community as Adam Smith considered right
and good, not in terms of the motives and exigencies which have resulted
in the use of money and in the gradual rise of the existing method of
payment and accounts. Money is "the great wheel of circulation," which
effects the transfer of goods in process of production and the
distribution of the finished goods to the consumers. It is an organ of
the economic commonwealth rather than an expedient of accounting and a
conventional repository of wealth.

It is perhaps superfluous to remark that to the "plain man," who is not
concerned with the "natural course of things" in a consummate
_Geldwirtschaft_, the money that passes his hand is not a "great wheel
of circulation." To the Samoyed, for instance, the reindeer which serves
him as unit of value is wealth in the most concrete and tangible form.
Much the same is true of coin, or even of bank-notes, in the
apprehension of unsophisticated people among ourselves to-day. And yet
it is in terms of the habits and conditions of life of these "plain
people" that the development of money will have to be accounted for if
it is to be stated in terms of cause and effect.

       *       *       *       *       *

The few scattered passages already cited may serve to illustrate how
Adam Smith's animistic or teleological bent shapes the general structure
of his theory and gives it consistency. The principle of definitive
formulation in Adam Smith's economic knowledge is afforded by a putative
purpose that does not at any point enter causally into the economic life
process which he seeks to know. This formative or normative purpose or
end is not freely conceived to enter as an efficient agent in the events
discussed, or to be in any way consciously present in the process. It
can scarcely be taken as an animistic agency engaged in the process. It
sanctions the course of things, and gives legitimacy and substance to
the sequence of events, so far as this sequence may be made to square
with the requirements of the imputed end. It has therefore a ceremonial
or symbolical force only, and lends the discussion a ceremonial
competency; although with economists who have been in passable agreement
with Adam Smith as regards the legitimate end of economic life this
ceremonial consistency, or consistency _de jure_ has for many purposes
been accepted as the formulation of a causal continuity in the phenomena
that have been interpreted in its terms. Elucidations of what normally
ought to happen, as a matter of ceremonial necessity, have in this way
come to pass for an account of matters of fact.

But, as has already been pointed out, there is much more to Adam Smith's
exposition of theory than a formulation of what ought to be. Much of the
advance he achieved over his predecessors consists in a larger and more
painstaking scrutiny of facts, and a more consistent tracing out of
causal continuity in the facts handled. No doubt, his superiority over
the Physiocrats, that characteristic of his work by virtue of which it
superseded theirs in the farther growth of economic science, lies to
some extent in his recourse to a different, more modern ground of
normality,--a ground more in consonance with the body of preconceptions
that have had the vogue in later generations. It is a shifting of the
point of view from which the facts are handled; but it comes in great
part to a substitution of a new body of preconceptions for the old, or a
new adaptation of the old ground of finality, rather than an elimination
of all metaphysical or animistic norms of valuation. With Adam Smith, as
with the Physiocrats, the fundamental question, the answer to which
affords the point of departure and the norm of procedure, is a question
of substantiality or economic "reality." With both, the answer to this
question is given naïvely, as a deliverance of common sense. Neither is
disturbed by doubts as to this deliverance of common sense or by any
need of scrutinising it. To the Physiocrats this substantial ground of
economic reality is the nutritive process of Nature. To Adam Smith it is
Labor. His reality has the advantage of being the deliverance of the
common sense of a more modern community, and one that has maintained
itself in force more widely and in better consonance with the facts of
latter-day industry. The Physiocrats owe their preconception of the
productiveness of nature to the habits of thought of a community in
whose economic life the dominant phenomenon was the owner of
agricultural land. Adam Smith owes his preconception in favor of labor
to a community in which the obtrusive economic feature of the immediate
past was handicraft and agriculture, with commerce as a scarcely
secondary phenomenon.

So far as Adam Smith's economic theories are a tracing out of the causal
sequence in economic phenomena, they are worked out in terms given by
these two main directions of activity,--human effort directed to the
shaping of the material means of life, and human effort and discretion
directed to a pecuniary gain. The former is the great, substantial
productive force: the latter is not immediately, or proximately,
productive.[18] Adam Smith still has too lively a sense of the nutritive
purpose of the order of nature freely to extend the concept of
productiveness to any activity that does not yield a material increase
of the creature comforts. His instinctive appreciation of the
substantial virtue of whatever effectually furthers nutrition, even
leads him into the concession that "in agriculture nature labors along
with man," although the general tenor of his argument is that the
productive force with which the economist always has to count is human
labor. This recognised substantiality of labor as productive is, as has
already been remarked, accountable for his effort to reduce to terms of
productive labor such a category of distribution as exchange value.

With but slight qualification, it will hold that, in the causal sequence
which Adam Smith traces out in his economic theories proper (contained
in the first three books of the _Wealth of Nations_), the causally
efficient factor is conceived to be human nature in these two
relations,--of productive efficiency and pecuniary gain through
exchange. Pecuniary gain--gain in the material means of life through
barter--furnishes the motive force to the economic activity of the
individual; although productive efficiency is the legitimate, normal end
of the community's economic life. To such an extent does this concept
of man's seeking his ends through "truck, barter, and exchange" pervade
Adam Smith's treatment of economic processes that he even states
production in its terms, and says that "labor was the first price, the
original purchase-money, that was paid for all things."[19] The human
nature engaged in this pecuniary traffic is conceived in somewhat
hedonistic terms, and the motives and movements of men are normalised to
fit the requirements of a hedonistically conceived order of nature. Men
are very much alike in their native aptitudes and propensities;[20] and,
so far as economic theory need take account of these aptitudes and
propensities, they are aptitudes for the production of the "necessaries
and conveniences of life," and propensities to secure as great a share
of these creature comforts as may be.

Adam Smith's conception of normal human nature--that is to say, the
human factor which enters causally in the process which economic theory
discusses--comes, on the whole, to this: Men exert their force and skill
in a mechanical process of production, and their pecuniary sagacity in a
competitive process of distribution, with a view to individual gain in
the material means of life. These material means are sought in order to
the satisfaction of men's natural wants through their consumption. It is
true, much else enters into men's endeavors in the struggle for wealth,
as Adam Smith points out; but this consumption comprises the legitimate
range of incentives, and a theory which concerns itself with the
natural course of things need take but incidental account of what does
not come legitimately in the natural course. In point of fact, there are
appreciable "actual," though scarcely "real," departures from this rule.
They are spurious and insubstantial departures, and do not properly come
within the purview of the stricter theory. And, since human nature is
strikingly uniform, in Adam Smith's apprehension, both the efforts put
forth and the consumptive effect accomplished may be put in quantitative
terms and treated algebraically, with the result that the entire range
of phenomena comprised under the head of consumption need be but
incidentally considered; and the theory of production and distribution
is complete when the goods or the values have been traced to their
disappearance in the hands of their ultimate owners. The reflex effect
of consumption upon production and distribution is, on the whole,
quantitative only.

Adam Smith's preconception of a normal teleological order of procedure
in the natural course, therefore, affects not only those features of
theory where he is avowedly concerned with building up a normal scheme
of the economic process. Through his normalising the chief causal factor
engaged in the process, it affects also his arguments from cause to
effect.[21] What makes this latter feature worth particular attention
is the fact that his successors carried this normalisation farther, and
employed it with less frequent reference to the mitigating exceptions
which Adam Smith notices by the way.

The reason for that farther and more consistent normalisation of human
nature which gives us the "economic man" at the hands of Adam Smith's
successors lies, in great part, in the utilitarian philosophy that
entered in force and in consummate form at about the turning of the
century. Some credit in the work of normalisation is due also to the
farther supersession of handicraft by the "capitalistic" industry that
came in at the same time and in pretty close relation with the
utilitarian views.

       *       *       *       *       *

After Adam Smith's day, economics fell into profane hands. Apart from
Malthus, who, of all the greater economists, stands nearest to Adam
Smith on such metaphysical heads as have an immediate bearing upon the
premises of economic science, the next generation do not approach their
subject from the point of view of a divinely instituted order; nor do
they discuss human interests with that gently optimistic spirit of
submission that belongs to the economist who goes to his work with the
fear of God before his eyes. Even with Malthus the recourse to the
divinely sanctioned order of nature is somewhat sparing and temperate.
But it is significant for the later course of economic theory that,
while Malthus may well be accounted the truest continuer of Adam Smith,
it was the undevout utilitarians that became the spokesmen of the
science after Adam Smith's time.

There is no wide breach between Adam Smith and the utilitarians, either
in details of doctrine or in the concrete conclusions arrived at as
regards questions of policy. On these heads Adam Smith might well be
classed as a moderate utilitarian, particularly so far as regards his
economic work. Malthus has still more of a utilitarian air,--so much so,
indeed, that he is not infrequently spoken of as a utilitarian. This
view, convincingly set forth by Mr. Bonar,[22] is no doubt well borne
out by a detailed scrutiny of Malthus's economic doctrines. His
humanitarian bias is evident throughout, and his weakness for
considerations of expediency is the great blemish of his scientific
work. But, for all that, in order to an appreciation of the change that
came over classical economics with the rise of Benthamism, it is
necessary to note that the agreement in this matter between Adam Smith
and the disciples of Bentham, and less decidedly that between Malthus
and the latter, is a coincidence of conclusions rather than an identity
of preconceptions.[23]

With Adam Smith the ultimate ground of economic reality is the design of
God, the teleological order; and his utilitarian generalisations, as
well as the hedonistic character of his economic man, are but methods of
the working out of this natural order, not the substantial and
self-legitimating ground. Shifty as Malthus's metaphysics are, much the
same is to be said for him.[24] Of the utilitarians proper the converse
is true, although here, again, there is by no means utter consistency.
The substantial economic ground is pleasure and pain: the teleological
order (even the design of God, where that is admitted) is the method of
its working-out.

It may be unnecessary here to go into the farther implications,
psychological and ethical, which this preconception of the utilitarians
involves. And even this much may seem a taking of excessive pains with a
distinction that marks no tangible difference. But a reading of the
classical doctrines, with something of this metaphysics of political
economy in mind, will show how, and in great part why, the later
economists of the classical line diverged from Adam Smith's tenets in
the early years of the century, until it has been necessary to interpret
Adam Smith somewhat shrewdly in order to save him from heresy.

The post-Bentham economics is substantially a theory of value. This is
altogether the dominant feature of the body of doctrines; the rest
follows from, or is adapted to, this central discipline. The doctrine of
value is of very great importance also in Adam Smith; but Adam Smith's
economics is a theory of the production and apportionment of the
material means of life.[25] With Adam Smith, value is discussed from the
point of view of production. With the utilitarians, production is
discussed from the point of view of value. The former makes value an
outcome of the process of production: the latter make production the
outcome of a valuation process.

The point of departure with Adam Smith is the "productive power of
labor."[26] With Ricardo it is a pecuniary problem concerned in the
distribution of ownership;[27] but the classical writers are followers
of Adam Smith, and improve upon and correct the results arrived at by
him, and the difference of point of view, therefore, becomes evident in
their divergence from him, and the different distribution of emphasis,
rather than in a new and antagonistic departure.

The reason for this shifting of the center of gravity from production to
valuation lies, proximately, in Bentham's revision of the "principles"
of morals. Bentham's philosophical position is, of course, not a
self-explanatory phenomenon, nor does the effect of Benthamism extend
only to those who are avowed followers of Bentham; for Bentham is the
exponent of a cultural change that affects the habits of thought of the
entire community. The immediate point of Bentham's work, as affecting
the habits of thought of the educated community, is the substitution of
hedonism (utility) in place of achievement of purpose, as a ground of
legitimacy and a guide in the normalisation of knowledge. Its effect is
most patent in speculations on morals, where it inculcates determinism.
Its close connection with determinism in ethics points the way to what
may be expected of its working in economics. In both cases the result is
that human action is construed in terms of the causal forces of the
environment, the human agent being, at the best, taken as a mechanism of
commutation, through the workings of which the sensuous effects wrought
by the impinging forces of the environment are, by an enforced process
of valuation, transmuted without quantitative discrepancy into moral or
economic conduct, as the case may be. In ethics and economics alike the
subject-matter of the theory is this valuation process that expresses
itself in conduct, resulting, in the case of economic conduct, in the
pursuit of the greatest gain or least sacrifice.

Metaphysically or cosmologically considered, the human nature into the
motions of which hedonistic ethics and economics inquire is an
intermediate term in a causal sequence, of which the initial and the
terminal members are sensuous impressions and the details of conduct.
This intermediate term conveys the sensuous impulse without loss of
force to its eventuation in conduct. For the purpose of the valuation
process through which the impulse is so conveyed, human nature may,
therefore, be accepted as uniform; and the theory of the valuation
process may be formulated quantitatively, in terms of the material
forces affecting the human sensory and of their equivalents in the
resulting activity. In the language of economics, the theory of value
may be stated in terms of the consumable goods that afford the incentive
to effort and the expenditure undergone in order to procure them.
Between these two there subsists a necessary equality; but the
magnitudes between which the equality subsists are hedonistic
magnitudes, not magnitudes of kinetic energy nor of vital force, for the
terms handled are sensuous terms. It is true, since human nature is
substantially uniform, passive, and unalterable in respect of men's
capacity for sensuous affection, there may also be presumed to subsist a
substantial equality between the psychological effect to be wrought by
the consumption of goods, on the one side, and the resulting expenditure
of kinetic or vital force, on the other side; but such an equality is,
after all, of the nature of a coincidence, although there should be a
strong presumption in favor of its prevailing on an average and in the
common run of cases. Hedonism, however, does not postulate uniformity
between men except in the respect of sensuous cause and effect.

The theory of value which hedonism gives is, therefore, a theory of cost
in terms of discomfort. By virtue of the hedonistic equilibrium reached
through the valuation process, the sacrifice or expenditure of sensuous
reality involved in acquisition is the equivalent of the sensuous gain
secured. An alternative statement might perhaps be made, to the effect
that the measure of the value of goods is not the sacrifice or
discomfort undergone, but the sensuous gain that accrues from the
acquisition of the goods; but this is plainly only an alternative
statement, and there are special reasons in the economic life of the
time why the statement in terms of cost, rather than in terms of
"utility," should commend itself to the earlier classical economists.

On comparing the utilitarian doctrine of value with earlier theories,
then, the case stands somewhat as follows. The Physiocrats and Adam
Smith contemplate value as a measure of the productive force that
realises itself in the valuable article. With the Physiocrats this
productive force is the "anabolism" of Nature (to resort to a
physiological term): with Adam Smith it is chiefly human labor directed
to heightening the serviceability of the materials with which it is
occupied. Production causes value in either case. The post-Bentham
economics contemplates value as a measure of, or as measured by, the
irksomeness of the effort involved in procuring the valuable goods. As
Mr. E. C. K. Gonner has admirably pointed out,[28] Ricardo--and the
like holds true of classical economics generally--makes cost the
foundation of value, not its cause. This resting of value on cost takes
place through a valuation. Any one who will read Adam Smith's
theoretical exposition to as good purpose as Mr. Gonner has read Ricardo
will scarcely fail to find that the converse is true in Adam Smith's
case. But the causal relation of cost to value holds only as regards
"natural" or "real" value in Adam Smith's doctrine. As regards market
price, Adam Smith's theory does not differ greatly from that of Ricardo
on this head. He does not overlook the valuation process by which market
price is adjusted and the course of investment is guided, and his
discussion of this process runs in terms that should be acceptable to
any hedonist.

       *       *       *       *       *

The shifting of the point of view that comes into economics with the
acceptance of utilitarian ethics and its correlate, the associationist
psychology, is in great part a shifting to the ground of causal sequence
as contrasted with that of serviceability to a preconceived end. This is
indicated even by the main fact already cited,--that the utilitarian
economists make exchange value the central feature of their theories,
rather than the conduciveness of industry to the community's material
welfare. Hedonistic exchange value is the outcome of a valuation process
enforced by the apprehended pleasure-giving capacities of the items
valued. And in the utilitarian theories of production, arrived at from
the standpoint so given by exchange value, the conduciveness to welfare
is not the objective point of the argument. This objective point is
rather the bearing of productive enterprise upon the individual
fortunes of the agents engaged, or upon the fortunes of the several
distinguishable classes of beneficiaries comprised in the industrial
community; for the great immediate bearing of exchange values upon the
life of the collectivity is their bearing upon the distribution of
wealth. Value is a category of distribution. The result is that, as is
well shown by Mr. Cannan's discussion,[29] the theories of production
offered by the classical economists have been sensibly scant, and have
been carried out with a constant view to the doctrines on distribution.
An incidental but telling demonstration of the same facts is given, by
Professor Bücher;[30] and in illustration may be cited Torrens's _Essay
on the Production of Wealth_, which is to a good extent occupied with
discussions of value and distribution. The classical theories of
production have been theories of the production of "wealth"; and
"wealth," in classical usage, consists of material things having
exchange value. During the vogue of the classical economics the accepted
characteristic by which "wealth" has been defined has been its
amenability to ownership. Neither in Adam Smith nor in the Physiocrats
is this amenability to ownership made so much of, nor is it in a similar
degree accepted as a definite mark of the subject-matter of the science.

As their hedonistic preconception would require, then, it is to the
pecuniary side of life that the classical economists give their most
serious attention, and it is the pecuniary bearing of any given
phenomenon or of any institution that commonly shapes the issue of the
argument. The causal sequence about which the discussion centers is a
process of pecuniary valuation. It runs on distribution, ownership,
acquisition, gain, investment, exchange.[31] In this way the doctrines
on production come to take a pecuniary coloring; as is seen in a less
degree also in Adam Smith, and even in the Physiocrats, although these
earlier economists very rarely, if ever, lose touch with the concept of
generic serviceability as the characteristic feature of production. The
tradition derived from Adam Smith, which made productivity and
serviceability the substantial features of economic life, was not
abruptly put aside by his successors, though the emphasis was
differently distributed by them in following out the line of
investigation to which the tradition pointed the way. In the classical
economics the ideas of production and of acquisition are not commonly
held apart, and very much of what passes for a theory of production is
occupied with phenomena of investment and acquisition. Torrens's _Essay_
is a case in point, though by no means an extreme case.

This is as it should be; for to the consistent hedonist the sole motive
force concerned in the industrial process is the self-regarding motive
of pecuniary gain, and industrial activity is but an intermediate term
between the expenditure or discomfort undergone and the pecuniary gain
sought. Whether the end and outcome is an invidious gain for the
individual (in contrast with or at the cost of his neighbors), or an
enhancement of the facility of human life on the whole, is altogether a
by-question in any discussion of the range of incentives by which men
are prompted to their work or the direction which their efforts take.
The serviceability of the given line of activity, for the life purposes
of the community or for one's neighbors, "is not of the essence of this
contract." These features of serviceability come into the account
chiefly as affecting the vendibility of what the given individual has to
offer in seeking gain through a bargain.[32]

In hedonistic theory the substantial end of economic life is individual
gain; and for this purpose production and acquisition may be taken as
fairly coincident, if not identical. Moreover, society, in the
utilitarian philosophy, is the algebraic sum of the individuals; and the
interest of the society is the sum of the interests of the individuals.
It follows by easy consequence, whether strictly true or not, that the
sum of individual gains is the gain of the society, and that, in serving
his own interest in the way of acquisition, the individual serves the
collective interest of the community. Productivity or serviceability is,
therefore, to be presumed of any occupation or enterprise that looks to
a pecuniary gain; and so, by a roundabout path, we get back to the
ancient conclusion of Adam Smith, that the remuneration of classes or
persons engaged in industry coincides with their productive contribution
to the output of services and consumable goods.

A felicitous illustration of the working of this hedonistic norm in
classical economic doctrine is afforded by the theory of the wages of
superintendence,--an element in distribution which is not much more than
suggested in Adam Smith, but which receives ampler and more painstaking
attention as the classical body of doctrines reaches a fuller
development. The "wages of superintendence" are the gains due to
pecuniary management. They are the gains that come to the director of
the "business,"--not those that go to the director of the mechanical
process or to the foreman of the shop. The latter are wages simply. This
distinction is not altogether clear in the earlier writers, but it is
clearly enough contained in the fuller development of the theory.

The undertaker's work is the management of investment. It is altogether
of a pecuniary character, and its proximate aim is "the main chance." If
it leads, indirectly, to an enhancement of serviceability or a
heightened aggregate output of consumable goods, that is a fortuitous
circumstance incident to that heightened vendibility on which the
investor's gain depends. Yet the classical doctrine says frankly that
the wages of superintendence are the remuneration of superior
productivity,[33] and the classical theory of production is in good part
a doctrine of investment in which the identity of production and
pecuniary gain is taken for granted.

The substitution of investment in the place of industry as the central
and substantial fact in the process of production is due not to the
acceptance of hedonism simply, but rather to the conjunction of hedonism
with an economic situation of which the investment of capital and its
management for gain was the most obvious feature. The situation which
shaped the common-sense apprehension of economic facts at the time was
what has since been called a capitalistic system, in which pecuniary
enterprise and the phenomena of the market were the dominant and
tone-giving facts. But this economic situation was also the chief ground
for the vogue of hedonism in economics; so that hedonistic economics may
be taken as an interpretation of human nature in terms of the
market-place. The market and the "business world," to which the business
man in his pursuit of gain was required to adapt his motives, had by
this time grown so large that the course of business events was beyond
the control of any one person; and at the same time those far-reaching
organisations of invested wealth which have latterly come to prevail and
to coerce the market were not then in the foreground. The course of
market events took its passionless way without traceable relation or
deference to any man's convenience and without traceable guidance
towards an ulterior end. Man's part in this pecuniary world was to
respond with alacrity to the situation, and so adapt his vendible
effects to the shifting demand as to realise something in the outcome.
What he gained in his traffic was gained without loss to those with whom
he dealt, for they paid no more than the goods were worth to them. One
man's gain need not be another's loss; and, if it is not, then it is net
gain to the community.

Among the striking remoter effects of the hedonistic preconception, and
its working out in terms of pecuniary gain, is the classical failure to
discriminate between capital as investment and capital as industrial
appliances. This is, of course, closely related to the point already
spoken of. The appliances of industry further the production of goods,
therefore capital (invested wealth) is productive; and the rate of its
average remuneration marks the degree of its productiveness.[34] The
most obvious fact limiting the pecuniary gain secured by means of
invested wealth is the sum invested. Therefore, capital limits the
productiveness of industry; and the chief and indispensable condition to
an advance in material well-being is the accumulation of invested
wealth. In discussing the conditions of industrial improvement, it is
usual to assume that "the state of the arts remains unchanged," which
is, for all purposes but that of a doctrine of profits per cent., an
exclusion of the main fact. Investments may, further, be transferred
from one enterprise to another. Therefore, and in that degree, the means
of production are "mobile."

       *       *       *       *       *

Under the hands of the great utilitarian writers, therefore, political
economy is developed into a science of wealth, taking that term in the
pecuniary sense, as things amenable to ownership. The course of things
in economic life is treated as a sequence of pecuniary events, and
economic theory becomes a theory of what should happen in that
consummate situation where the permutation of pecuniary magnitudes takes
place without disturbance and without retardation. In this consummate
situation the pecuniary motive has its perfect work, and guides all the
acts of economic man in a guileless, colorless, unswerving quest of the
greatest gain at the least sacrifice. Of course, this perfect
competitive system, with its untainted "economic man," is a feat of the
scientific imagination, and is not intended as a competent expression of
fact. It is an expedient of abstract reasoning; and its avowed
competency extends only to the abstract principles, the fundamental laws
of the science, which hold only so far as the abstraction holds. But, as
happens in such cases, having once been accepted and assimilated as
real, though perhaps not as actual, it becomes an effective constituent
in the inquirer's habits of thought, and goes to shape his knowledge of
facts. It comes to serve as a norm of substantiality or legitimacy; and
facts in some degree fall under its constraint, as is exemplified by
many allegations regarding the "tendency" of things.

To this consummation, which Senior speaks of as "the natural state of
man,"[35] human development tends by force of the hedonistic character
of human nature; and in terms of its approximation to this natural
state, therefore, the immature actual situation had best be stated. The
pure theory, the "hypothetical science" of Cairnes, "traces the
phenomena of the production and distribution of wealth up to their
causes, in the principles of human nature and the laws and
events--physical, political, and social--of the external world."[36] But
since the principles of human nature that give the outcome in men's
economic conduct, so far as it touches the production and distribution
of wealth, are but the simple and constant sequence of hedonistic cause
and effect, the element of human nature may fairly be eliminated from
the problem, with great gain in simplicity and expedition. Human nature
being eliminated, as being a constant intermediate term, and all
institutional features of the situation being also eliminated (as being
similar constants under that natural or consummate pecuniary _régime_
with which the pure theory is concerned), the laws of the phenomena of
wealth may be formulated in terms of the remaining factors. These
factors are the vendible items that men handle in these processes of
production and distribution; and economic laws come, therefore, to be
expressions of the algebraic relations subsisting between the various
elements of wealth and investment,--capital, labor, land, supply and
demand of one and the other, profits, interest, wages. Even such items
as credit and population become dissociated from the personal factor,
and figure in the computation as elemental factors acting and reacting
though a permutation of values over the heads of the good people whose
welfare they are working out.

       *       *       *       *       *

To sum up: the classical economics, having primarily to do with the
pecuniary side of life, is a theory of a process of valuation. But since
the human nature at whose hands and for whose behoof the valuation takes
place is simple and constant in its reaction to pecuniary stimulus, and
since no other feature of human nature is legitimately present in
economic phenomena than this reaction to pecuniary stimulus, the valuer
concerned in the matter is to be overlooked or eliminated; and the
theory of the valuation process then becomes a theory of the pecuniary
interaction of the facts valued. It is a theory of valuation with the
element of valuation left out,--a theory of life stated in terms of the
normal paraphernalia of life.

In the preconceptions with which classical economics set out were
comprised the remnants of natural rights and of the order of nature,
infused with that peculiarly mechanical natural theology that made its
way into popular vogue on British ground during the eighteenth century
and was reduced to a neutral tone by the British penchant for the
commonplace--stronger at this time than at any earlier period. The
reason for this growing penchant for the commonplace, for the
explanation of things in causal terms, lies partly in the growing resort
to mechanical processes and mechanical prime movers in industry, partly
in the (consequent) continued decline of the aristocracy and the
priesthood, and partly in the growing density of population and the
consequent greater specialisation and wider organisation of trade and
business. The spread of the discipline of the natural sciences, largely
incident to the mechanical industry, counts in the same direction; and
obscurer factors in modern culture may have had their share.

The animistic preconception was not lost, but it lost tone; and it
partly fell into abeyance, particularly so far as regards its avowal. It
is visible chiefly in the unavowed readiness of the classical writers to
accept as imminent and definitive any possible outcome which the
writer's habit or temperament inclined him to accept as right and good.
Hence the visible inclination of classical economists to a doctrine of
the harmony of interests, and their somewhat uncircumspect readiness to
state their generalisations in terms of what ought to happen according
to the ideal requirements of that consummate _Geldwirtschaft_ to which
men "are impelled by the provisions of nature."[37] By virtue of their
hedonistic preconceptions, their habituation to the ways of a pecuniary
culture, and their unavowed animistic faith that nature is in the right,
the classical economists knew that the consummation to which, in the
nature of things, all things tend, is the frictionless and beneficent
competitive system. This competitive ideal, therefore, affords the
normal, and conformity to its requirements affords the test of absolute
economic truth. The standpoint so gained selectively guides the
attention of the classical writers in their observation and apprehension
of facts, and they come to see evidence of conformity or approach to the
normal in the most unlikely places. Their observation is, in great part,
interpretative, as observation commonly is. What is peculiar to the
classical economists in this respect is their particular norm of
procedure in the work of interpretation. And, by virtue of having
achieved a standpoint of absolute economic normality, they became a
"deductive" school, so called, in spite of the patent fact that they
were pretty consistently employed with an inquiry into the causal
sequence of economic phenomena.

The generalisation of observed facts becomes a normalisation of them, a
statement of the phenomena in terms of their coincidence with, or
divergence from, that normal tendency that makes for the actualisation
of the absolute economic reality. This absolute or definitive ground of
economic legitimacy lies beyond the causal sequence in which the
observed phenomena are conceived to be interlinked. It is related to the
concrete facts neither as cause nor as effect in any such way that the
causal relation may be traced in a concrete instance. It has little
causally to do either with the "mental" or with the "physical" data with
which the classical economist is avowedly employed. Its relation to the
process under discussion is that of an extraneous--that is to say, a
ceremonial--legitimation. The body of knowledge gained by its help and
under its guidance is, therefore, a taxonomic science.

So, by way of a concluding illustration, it may be pointed out that
money, for instance, is normalised in terms of the legitimate economic
tendency. It becomes a measure of value and a medium of exchange. It has
become primarily an instrument of pecuniary commutation, instead of
being, as under the earlier normalisation of Adam Smith, primarily a
great wheel of circulation for the diffusion of consumable goods. The
terms in which the laws of money, as of the other phenomena of pecuniary
life, are formulated, are terms which connote its normal function in the
life history of objective values as they live and move and have their
being in the consummate pecuniary situation of the "natural" state. To a
similar work of normalisation we owe those creatures of the myth-maker,
the quantity theory and the wages-fund.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XIII, July. 1899.

[2] Bonar, _Philosophy and Political Economy_, pp. 177, 178.

[3] "Every individual is continually exerting himself to find out the
most advantageous employment for whatever capital he can command. It is
his own advantage, and not that of the society, which he has in view.
But the study of his own advantage naturally, or rather necessarily,
leads him to prefer that employment which is most advantageous to the
society.... By directing that industry in such a manner as its produce
may be of the greatest value, he intends only his own gain; and he is in
this, as in many other cases, led by an invisible hand to promote an end
which was no part of his intention. Nor is it always the worse for
society that it was no part of it. By pursuing his own interest he
frequently promotes that of the society more effectually than when he
really intends to promote it." _Wealth of Nations_, Book IV, chap. ii.

[4] The discrepancy between the actual, causally determined situation
and the divinely intended consummation is the metaphysical ground of all
that inculcation of morality and enlightened policy that makes up so
large a part of Adam Smith's work. The like, of course, holds true for
all moralists and reformers who proceed on the assumption of a
providential order.

[5] "In the political body, however, the wisdom of nature has
fortunately made ample provision for remedying many of the bad effects
of the folly and injustice of man; in the same manner as it has done in
the natural body, for remedying those of his sloth and intemperance."
_Wealth of Nations_, Book IV, chap. ix.

[6] _E.g._, "the real measure of the exchangeable value of all
commodities." _Wealth of Nations_, Book I, chap, v, and repeatedly in
the like connection.

[7] _E.g._, Book I, chap. vii: "When the price of any commodity is
neither more nor less than what is sufficient to pay the rent of the
land, the wages of the labor, and the profits of the stock employed in
raising, preparing, and bringing it to market, according to their
_natural_ rates, the commodity is then sold for what may be called its
_natural_ price." "The actual price at which any commodity is commonly
sold is called its market price. It may be either above, or below or
exactly the same with its natural price."

[8] _Lectures of Adam Smith_ (Ed. Cannan, 1896), p. 169.

[9] "This division of labor, from which so many advantages are derived,
is not originally the effect of any human wisdom, which foresees and
intends that general opulence to which it gives occasion. It is the
necessary though very slow and gradual consequence of a certain
propensity in human nature which has in view no such extensive
utility,--the propensity to truck, barter, and exchange one thing for
another. Whether this propensity be one of those original principles in
human nature of which no further account can be given, or whether, as
seems more probable, it be the necessary consequence of the faculties of
reason and speech, it belongs not to our present subject to inquire."
_Wealth of Nations_, Book I, chap. ii.

[10] _Wealth of Nations_, Book I, chaps, v.-vii.

[11] _Wealth of Nations_, Book I, chap. v.

[12] As, _e.g._, the entire discussion of the determination of Wages,
Profits and Rent, in Book I, chaps, viii.-xi.

[13] "There is in every society or neighborhood an ordinary or average
rate both of wages and profit in every different employment of labor and
stock. This rate is naturally regulated, ... partly by the general
circumstances of the society.... There is, likewise, in every society or
neighborhood an ordinary or average rate of rent, which is regulated,
too.... These ordinary or average rates may be called the natural rates
of wages, profit, and rent, at the time and place in which they commonly
prevail. When the price of any commodity is neither more nor less than
what is sufficient to pay the rent of the land, the wages of the labor,
and the profits of the stock employed in raising, preparing, and
bringing it to market, according to their natural rates, the commodity
is then sold for what may be called its natural price." _Wealth of
Nations_, Book I, chap. vii.

[14] "Such commodities may continue for whole centuries together to be
sold at this high price; and that part of it which resolves itself into
the rent of land is, in this case, the part which is generally paid
above its natural rate." Book I, chap. vii.

[15] _Wealth of Nations_, Book I, chap, vi; also chap. viii.

[16] For an instance of how these early phases of industrial development
appear, when not seen in the light of Adam Smith's preconception, see,
among others, Bücher, _Entstchung der Volkswirtschaft_.

[17] Book I, chap. iv.

[18] See _Wealth of Nations_, Book II, chap. v, "Of the Different
Employment of Capitals."

[19] _Wealth of Nations_, Book I, chap. v. See also the plea for free
trade, Book IV, chap. ii: "But the annual revenue of every society is
always precisely equal to the exchangeable value of the whole annual
produce of its industry, or, rather, is precisely the same thing with
that exchangeable value."

[20] "The difference of natural talents in different men is in reality
much less than we are aware of." _Wealth of Nations_, Book I, chap. ii.

[21] "Mit diesen philosophischen Ueberzeugungen tritt nun Adam Smith an
die Welt der Enfahrung heran, und es ergiebt sich ihm die Richtigkeit
der Principien. Der Reiz der Smith'schen Schriften beruht zum grossen
Teile darauf, dass Smith die Principien in so innige Verbindung mit dem
Thatsächlichen gebracht. Hie und da werden dann auch die Principien, was
durch diese Verbindung veranlasst wird, an ihren Spitzen etwas
abgeschliffen, ihre allzuscharfe Ausprägung dadurch vermieden.
Nichtsdestoweniger aber bleiben sie stets die leitenden Grundgedanken."
Richard Zeyss, _Adam Smith und der Eigennutz_ (Tübingen, 1889), p. 110.

[22] See, _e.g._, _Malthus and his Work_, especially Book III, as also
the chapter on Malthus in _Philosophy and Political Economy_, Book III,
Modern Philosophy: Utilitarian Economics, chap. i, "Malthus."

[23] Ricardo is here taken as a utilitarian of the Benthamite color,
although he cannot be classed as a disciple of Bentham. His hedonism is
but the uncritically accepted metaphysics comprised in the common sense
of his time, and his substantial coincidence with Bentham goes to show
how well diffused the hedonist preconception was at the time.

[24] _Cf._ Bonar, _Malthus and his Work_, pp. 323-336.

[25] His work is an inquiry into "the Nature and Causes of the Wealth of
Nations."

[26] "The annual labor of every nation is the fund which originally
supplies it with all the necessaries and conveniences of life which it
annually consumes, and which consist always either in the immediate
produce of that labor or in what is purchased with that produce from
other nations." _Wealth of Nations_, "Introduction and Plan," opening
paragraph.

[27] "The produce of the earth--all that is derived from its surface by
the united application of labor, machinery, and capital--is divided
among three classes of the community.... To determine the laws which
regulate this distribution, is the principal problem of political
economy." _Political Economy_, Preface.

[28] In the introductory essay to his edition of Ricardo's _Political
Economy_. See, _e.g._, paragraphs 9 and 24.

[29] _Theories of Production and Distribution_, 1776-1848.

[30] _Entstehung der Volkswirtschaft_ (second edition). _Cf._ especially
chaps. ii, iii, vi, and vii.

[31] "Even if we put aside all questions which involve a consideration
of the effects of industrial institutions in modifying the habits and
character of the classes of the community, ... that enough still remains
to constitute a separate science, the mere enumeration of the chief
terms of economics--wealth, value, exchange, credit, money, capital, and
commodity--will suffice to show." Shirres, _Analysis of the Ideas of
Economics_ (London, 1893), pp. 8 and 9.

[32] "If a commodity were in no way useful, ... it would be destitute of
exchangeable value; ... (but), possessing utility, commodities derive
their exchangeable value from two sources," etc. Ricardo, _Political
Economy_, chap, i, sect. I.

[33] _Cf._, for instance, Senior, _Political Economy_ (London, 1872),
particularly pp. 88, 89, and 130-135, where the wages of superintendence
are, somewhat reluctantly, classed under profits; and the work of
superintendence is thereupon conceived as being, immediately or
remotely, an exercise of "abstinence" and a productive work. The
illustration of the bill-broker is particularly apt. The like view of
the wages of superintendence is an article of theory with more than one
of the later descendants of the classical line.

[34] _Cf._ Böhm-Bawerk, _Capital and Interest_, Books II and IV, as well
as the Introduction and chaps. iv and v of Book I. Böhm-Bawerk's
discussion bears less immediately on the present point than the
similarity of the terms employed would suggest.

[35] _Political Economy_, p. 87.

[36] _Character and Logical Method of Political Economy_ (New York,
1875), p. 71. Cairnes may not be altogether representative of the high
tide of classicism, but his characterisation of the science is none the
less to the point.

[37] Senior, _Political Economy_, p. 87.




THE PRECONCEPTIONS OF ECONOMIC SCIENCE[1]

III


In what has already been said, it has appeared that the changes which
have supervened in the preconceptions of the earlier economists
constitute a somewhat orderly succession. The feature of chief interest
in this development has been a gradual change in the received grounds of
finality to which the successive generations of economists have brought
their theoretical output, on which they have been content to rest their
conclusions, and beyond which they have not been moved to push their
analysis of events or their scrutiny of phenomena. There has been a
fairly unbroken sequence of development in what may be called the canons
of economic reality; or, to put it in other words, there has been a
precession of the point of view from which facts have been handled and
valued for the purpose of economic science.

The notion which has in its time prevailed so widely, that there is in
the sequence of events a consistent trend which it is the office of the
science to ascertain and turn to account,--this notion may be well
founded or not. But that there is something of such a consistent trend
in the sequence of the canons of knowledge under whose guidance the
scientist works is not only a generalisation from the past course of
things, but lies in the nature of the case; for the canons of knowledge
are of the nature of habits of thought, and habit does not break with
the past, nor do the hereditary aptitudes that find expression in habit
vary gratuitously with the mere lapse of time. What is true in this
respect, for instance, in the domain of law and institutions is true,
likewise, in the domain of science. What men have learned to accept as
good and definitive for the guidance of conduct and of human relations
remains true and definitive and unimpeachable until the exigencies of a
later, altered situation enforce a variation from the norms and canons
of the past, and so give rise to a modification of the habits of thought
that decide what is, for the time, right in human conduct. So in science
the ancient ground of finality remains a good and valid test of
scientific truth until the altered exigencies of later life enforce
habits of thought that are not wholly in consonance with the received
notions as to what constitutes the ultimate, self-legitimating term--the
substantial reality--to which knowledge in any given case must
penetrate.

This ultimate term or ground of knowledge is always of a metaphysical
character. It is something in the way of a preconception, accepted
uncritically, but applied in criticism and demonstration of all else
with which the science is concerned. So soon as it comes to be
criticised, it is in a way to be superseded by a new, more or less
altered formulation; for criticism of it means that it is no longer fit
to survive unaltered in the altered complex of habits of thought to
which it is called upon to serve as fundamental principle. It is subject
to natural selection and selective adaptation, as are other conventions.
The underlying metaphysics of scientific research and purpose,
therefore, changes gradually and, of course, incompletely, much as is
the case with the metaphysics underlying the common law and the schedule
of civil rights. As in the legal framework the now avowedly useless and
meaningless preconceptions of status and caste and precedent are even
yet at the most metamorphosed and obsolescent rather than
overpassed,--witness the facts of inheritance, vested interests, the
outlawry of debts through lapse of time, the competence of the State to
coerce individuals into support of a given policy,--so in the science
the living generation has not seen an abrupt and traceless disappearance
of the metaphysics that fixed the point of view of the early classical
political economy. This is true even for those groups of economists who
have most incontinently protested against the absurdity of the classical
doctrines and methods. In Professor Marshall's words, "There has been no
real breach of continuity in the development of the science."

But, while there has been no breach, there has none the less been
change,--more far-reaching change than some of us are glad to recognise;
for who would not be glad to read his own modern views into the
convincing words of the great masters?

Seen through modern eyes and without effort to turn past gains to modern
account, the metaphysical or preconceptional furniture of political
economy as it stood about the middle of this century may come to look
quite curious. The two main canons of truth on which the science
proceeded, and with which the inquiry is here concerned, were: (_a_) a
hedonistic-associational psychology, and (_b_) an uncritical conviction
that there is a meliorative trend in the course of events, apart from
the conscious ends of the individual members of the community. This
axiom of a meliorative developmental trend fell into shape as a belief
in an organic or quasi-organic (physiological)[2] life process on the
part of the economic community or of the nation; and this belief carried
with it something of a constraining sense of self-realising cycles of
growth, maturity and decay in the life history of nations or
communities.

Neglecting what may for the immediate purpose be negligible in this
outline of fundamental tenets, it will bear the following construction.
(_a_) On the ground of the hedonistic or associational psychology, all
spiritual continuity and any consequent teleological trend is tacitly
denied so far as regards individual conduct, where the later psychology,
and the sciences which build on this later psychology, insist upon and
find such a teleological trend at every turn. (_b_) Such a spiritual or
quasi-spiritual continuity and teleological trend is uncritically
affirmed as regards the non-human sequence or the sequence of events in
the affairs of collective life, where the modern sciences diligently
assert that nothing of the kind is discernible, or that, if it is
discernible, its recognition is beside the point, so far as concerns the
purposes of the science.

This position, here outlined with as little qualification as may be
admissible, embodies the general metaphysical ground of that classical
political economy that affords the point of departure for Mill and
Cairnes, and also for Jevons. And what is to be said of Mill and Cairnes
in this connection will apply to the later course of the science, though
with a gradually lessening force.

By the middle of the century the psychological premises of the science
are no longer so neat and succinct as they were in the days of Bentham
and James Mill. At J. S. Mill's hands, for instance, the naïvely
quantitative hedonism of Bentham is being supplanted by a sophisticated
hedonism, which makes much of an assumed qualitative divergence between
the different kinds of pleasures that afford the motives of conduct.
This revision of hedonistic dogma, of course, means a departure from the
strict hedonistic ground. Correlated with this advance more closely in
the substance of the change than in the assignable dates, is a
concomitant improvement--at least, set forth as an improvement--upon the
received associational psychology, whereby "similarity" is brought in to
supplement "contiguity" as a ground of connection between ideas. This
change is well shown in the work of J. S. Mill and Bain. In spite of all
the ingenuity spent in maintaining the associational legitimacy of this
new article of theory, it remains a patent innovation and a departure
from the ancient standpoint. As is true of the improved hedonism, so it
is true of the new theory of association that it is no longer able to
construe the process which it discusses as a purely mechanical process,
a concatenation of items simply. Similarity of impressions implies a
comparison of impressions by the mind in which the association takes
place, and thereby it implies some degree of constructive work on the
part of the perceiving subject. The perceiver is thereby construed to be
an agent in the work of perception; therefore, he must be possessed of a
point of view and an end dominating the perceptive process. To perceive
the similarity, he must be guided by an interest in the outcome, and
must "attend." The like applies to the introduction of qualitative
distinctions into the hedonistic theory of conduct. Apperception in the
one case and discretion in the other cease to be the mere registration
of a simple and personally uncolored sequence of permutations enforced
by the factors of the external world. There is implied a spiritual--that
is to say, active--"teleological" continuity of process on the part of
the perceiving or of the discretionary agent, as the case may be.

It is on the ground of their departure from the stricter hedonistic
premises that Mill and, after him, Cairnes are able, for instance, to
offer their improvement upon the earlier doctrine of cost of production
as determining value. Since it is conceived that the motives which guide
men in their choice of employments and of domicile differ from man to
man and from class to class, not only in degree, but in kind, and since
varying antecedents, of heredity and of habit, variously influence men
in their choice of a manner of life, therefore the mere quantitative
pecuniary stimulus cannot be depended on to decide the outcome without
recourse. There are determinable variations in the alacrity with which
different classes or communities respond to the pecuniary stimulus; and
in so far as this condition prevails, the classes or communities in
question are non-competing. Between such non-competing groups the norm
that determines values is not the unmitigated norm of cost of production
taken absolutely, but only taken relatively. The formula of cost of
production is therefore modified into a formula of reciprocal demand.
This revision of the cost-of-production doctrine is extended only
sparingly, and the emphasis is thrown on the pecuniary circumstances on
which depend the formation and maintenance of non-competing groups.
Consistency with the earlier teaching is carefully maintained, so far as
may be; but extra-pecuniary factors are, after all, even if reluctantly,
admitted into the body of the theory. So also, since there are higher
and lower motives, higher and lower pleasures,--as well as motives
differing in degree,--it follows that an unguided response even to the
mere quantitative pecuniary stimuli may take different directions, and
so may result in activities of widely differing outcome. Since
activities set up in this way through appeal to higher and lower motives
are no longer conceived to represent simply a mechanically adequate
effect of the stimuli, working under the control of natural laws that
tend to one beneficent consummation, therefore the outcome of activity
set up even by the normal pecuniary stimuli may take a form that may or
may not be serviceable to the community. Hence _laissez-faire_ ceases to
be a sure remedy for the ills of society. Human interests are still
conceived normally to be at one; but the detail of individual conduct
need not, therefore, necessarily serve these generic human interests.[3]
Therefore, other inducements than the unmitigated impact of pecuniary
exigencies may be necessary to bring about a coincidence of class or
individual endeavor with the interests of the community. It becomes
incumbent on the advocate of _laissez-faire_ to "prove his minor
premise." It is no longer self-evident that: "Interests left to
themselves tend to harmonious combinations, and to the progressive
preponderance of the general good."[4]

The natural-rights preconception begins to fall away as soon as the
hedonistic mechanics have been seriously tampered with. Fact and right
cease to coincide, because the individual in whom the rights are
conceived to inhere has come to be something more than the field of
intersection of natural forces that work out in human conduct. The
mechanics of natural liberty--that assumed constitution of things by
force of which the free hedonistic play of the laws of nature across the
open field of individual choice is sure to reach the right outcome--is
the hedonistic psychology; and the passing of the doctrine of natural
rights and natural liberty, whether as a premise or as a dogma,
therefore coincides with the passing of that mechanics of conduct on the
validity of which the theoretical acceptance of the dogma depends. It
is, therefore, something more than a coincidence that the half-century
which has seen the disintegration of the hedonistic faith and of the
associational psychology has also seen the dissipation, in scientific
speculations, of the concomitant faith in natural rights and in that
benign order of nature of which the natural-rights dogma is a corollary.

It is, of course, not hereby intended to say that the later
psychological views and premises imply a less close dependence of
conduct on environment than do the earlier ones. Indeed, the reverse may
well be held to be true. The pervading characteristic of later thinking
is the constant recourse to a detailed analysis of phenomena in causal
terms. The modern catchword, in the present connection, is "response to
stimulus"; but the manner in which this response is conceived has
changed. The fact, and ultimately the amplitude, at least in great part,
of the reaction to stimulus, is conditioned by the forces in impact; but
the constitution of the organism, as well as its attitude at the moment
of impact, in great part decides what will serve as a stimulus, as well
as what the manner and direction of the response will be.

The later psychology is biological, as contrasted with the metaphysical
psychology of hedonism. It does not conceive the organism as a causal
hiatus. The causal sequence in the "reflex arc" is, no doubt,
continuous; but the continuity is not, as formerly, conceived in terms
of spiritual substance transmitting a shock: it is conceived in terms of
the life activity of the organism. Human conduct, taken as the reaction
of such an organism under stimulus, may be stated in terms of tropism,
involving, of course, a very close-knit causal sequence between the
impact and the response, but at the same time imputing to the organism a
habit of life and a self-directing and selective attention in meeting
the complex of forces that make up its environment. The selective play
of this tropismatic complex that constitutes the organism's habit of
life under the impact of the forces of the environment counts as
discretion.

So far, therefore, as it is to be placed in contrast with the hedonistic
phase of the older psychological doctrines, the characteristic feature
of the newer conception is the recognition of a selectively
self-directing life process in the agent. While hedonism seeks the
causal determinant of conduct in the (probable) outcome of action, the
later conception seeks this determinant in the complex of propensities
that constitutes man a functioning agent, that is to say, a personality.
Instead of pleasure ultimately determining what human conduct shall be,
the tropismatic propensities that eventuate in conduct ultimately
determine what shall be pleasurable. For the purpose in hand, the
consequence of the transition to the altered conception of human nature
and its relation to the environment is that the newer view formulates
conduct in terms of personality, whereas the earlier view was content to
formulate it in terms of its provocation and its by-product. Therefore,
for the sake of brevity, the older preconceptions of the science are
here spoken of as construing human nature in inert terms, as contrasted
with the newer, which construes it in terms of functioning.

It has already appeared above that the second great article of the
metaphysics of classical political economy--the belief in a meliorative
trend or a benign order of nature--is closely connected with the
hedonistic conception of human nature; but this connection is more
intimate and organic than appears from what has been said above. The two
are so related as to stand or fall together, for the latter is but the
obverse of the former. The doctrine of a trend in events imputes purpose
to the sequence of events; that is, it invests this sequence with a
discretionary, teleological character, which asserts itself in a
constraint over all the steps in the sequence by which the supposed
objective point is reached. But discretion touching a given end must be
single, and must alone cover all the acts by which the end is to be
reached. Therefore, no discretion resides in the intermediate terms
through which the end is worked out. Therefore, man being such an
intermediate term, discretion cannot be imputed to him without violating
the supposition. Therefore, given an indefeasible meliorative trend in
events, man is but a mechanical intermediary in the sequence. It is as
such a mechanical intermediate term that the stricter hedonism construes
human nature.[5] Accordingly, when more of teleological activity came to
be imputed to man, less was thereby allowed to the complex of events. Or
it may be put in the converse form: When less of a teleological
continuity came to be imputed to the course of events, more was thereby
imputed to man's life process. The latter form of statement probably
suggests the direction in which the causal relation runs, more nearly
than the former. The change whereby the two metaphysical premises in
question have lost their earlier force and symmetry, therefore, amounts
to a (partial) shifting of the seat of putative personality from
inanimate phenomena to man.

It may be mentioned in passing, as a detail lying perhaps afield, yet
not devoid of significance for latter-day economic speculation, that
this elimination of personality, and so of teleological content, from
the sequence of events, and its increasing imputation to the conduct of
the human agent, is incident to a growing resort to an apprehension of
phenomena in terms of process rather than in terms of outcome, as was
the habit in earlier schemes of knowledge. On this account the
categories employed are, in a gradually increasing degree, categories of
process,--"dynamic" categories. But categories of process applied to
conduct, to discretionary action, are teleological categories: whereas
categories of process applied in the case of a sequence where the
members of the sequence are not conceived to be charged with discretion,
are, by the force of this conception itself, non-teleological,
quantitative categories. The continuity comprised in the concept of
process as applied to conduct is consequently a spiritual, teleological
continuity: whereas the concept of process under the second head, the
non-teleological sequence, comprises a continuity of a quantitative,
causal kind, substantially the conservation of energy. In its turn the
growing resort to categories of process in the formulation of knowledge
is probably due to the epistemological discipline of modern mechanical
industry, the technological exigencies of which enforce a constant
recourse to the apprehension of phenomena in terms of process, differing
therein from the earlier forms of industry, which neither obtruded
visible mechanical process so constantly upon the apprehension nor so
imperatively demanded an articulate recognition of continuity in the
processes actually involved. The contrast in this respect is still more
pronounced between the discipline of modern life in an industrial
community and the discipline of life under the conventions of status and
exploit that formerly prevailed.

To return to the benign order of nature, or the meliorative trend,--its
passing, as an article of economic faith, was not due to criticism
leveled against it by the later classical economists on grounds of its
epistemological incongruity. It was tried on its merits, as an alleged
account of facts; and the weight of evidence went against it. The belief
in a self-realising trend had no sooner reached a competent and
exhaustive statement--_e.g._, at Bastiat's hands, as a dogma of the
harmony of interests specifically applicable to the details of economic
life--than it began to lose ground. With his usual concision and
incisiveness, Cairnes completed the destruction of Bastiat's special
dogma, and put it forever beyond a rehearing. But Cairnes is not a
destructive critic of the classical political economy, at least not in
intention: he is an interpreter and continuer--perhaps altogether the
clearest and truest continuer--of the classical teaching. While he
confuted Bastiat and discredited Bastiat's peculiar dogma, he did not
thereby put the order of nature bodily out of the science. He qualified
and improved it, very much as Mill qualified and improved the tenets of
the hedonistic psychology. As Mill and the ethical speculation of his
generation threw more of personality into the hedonistic psychology, so
Cairnes and the speculators on scientific method (such as Mill and
Jevons) attenuated the imputation of personality or teleological content
to the process of material cause and effect. The work is of course, by
no means, an achievement of Cairnes alone; but he is, perhaps, the best
exponent of this advance in economic theory. In Cairnes's redaction this
foundation of the science became the concept of a colorless normality.

It was in Cairnes's time the fashion for speculators in other fields
than the physical sciences to look to those sciences for guidance in
method and for legitimation of the ideals of scientific theory which
they were at work to realize. More than that, the large and fruitful
achievements of the physical sciences had so far taken men's attention
captive as to give an almost instinctive predilection for the methods
that had approved themselves in that field. The ways of thinking which
had on this ground become familiar to all scholars occupied with any
scientific inquiry, had permeated their thinking on any subject
whatever. This is eminently true of British thinking.

It had come to be a commonplace of the physical sciences that "natural
laws" are of the nature of empirical generalisations simply, or even of
the nature of arithmetical averages. Even the underlying preconception
of the modern physical sciences--the law of the conservation of energy,
or persistence of quantity--was claimed to be an empirical
generalisation, arrived at inductively and verified by experiment. It is
true the alleged proof of the law took the whole conclusion for granted
at the start, and used it constantly as a tacit axiom at every step in
the argument which was to establish its truth; but that fact serves
rather to emphasise than to call in question the abiding faith which
these empiricists had in the sole efficacy of empirical generalisation.
Had they been able overtly to admit any other than an associational
origin of knowledge, they would have seen the impossibility of
accounting on the mechanical grounds of association for the premise on
which all experience of mechanical fact rests. That any other than a
mechanical origin should be assigned to experience, or that any other
than a so-conceived empirical ground was to be admitted for any general
principle, was incompatible with the prejudices of men trained in the
school of the associational psychology, however widely they perforce
departed from this ideal in practice. Nothing of the nature of a
personal element was to be admitted into these fundamental empirical
generalisations; and nothing, therefore, of the nature of a
discretionary or teleological movement was to be comprised in the
generalisations to be accepted as "natural laws." Natural laws must in
no degree be imbued with personality, must say nothing of an ulterior
end; but for all that they remained "laws" of the sequences subsumed
under them. So far is the reduction to colorless terms carried by Mill,
for instance, that he formulates the natural laws as empirically
ascertained sequences simply, even excluding or avoiding all imputation
of causal continuity, as that term is commonly understood by the
unsophisticated. In Mill's ideal no more of organic connection or
continuity between the members of a sequence is implied in subsuming
them under a law of causal relationship than is given by the ampersand.
He is busied with dynamic sequences, but he persistently confines
himself to static terms.

Under the guidance of the associational psychology, therefore, the
extreme of discontinuity in the deliverances of inductive research is
aimed at by those economists--Mill and Cairnes being taken as
typical--whose names have been associated with deductive methods in
modern science. With a fine sense of truth they saw that the notion of
causal continuity, as a premise of scientific generalisation, is an
essentially metaphysical postulate; and they avoided its treacherous
ground by denying it, and construing causal sequence to mean a
uniformity of coexistences and successions simply. But, since a strict
uniformity is nowhere to be observed at first hand in the phenomena with
which the investigator is occupied, it has to be found by a laborious
interpretation of the phenomena and a diligent abstraction and allowance
for disturbing circumstances, whatever may be the meaning of a
disturbing circumstance where causal continuity is denied. In this work
of interpretation and expurgation the investigator proceeds on a
conviction of the orderliness of the natural sequence. "Natura non facit
saltum": a maxim which has no meaning within the stricter limits of the
associational theory of knowledge.

Before anything can be said as to the orderliness of the sequence, a
point of view must be chosen by the speculator, with respect to which
the sequence in question does or does not fulfill this condition of
orderliness; that is to say, with respect to which it is a sequence. The
endeavor to avoid all metaphysical premises fails here as everywhere.
The associationists, to whom economics owes its transition from the
older classical phase to the modern or quasi-classical, chose as their
guiding point of view the metaphysical postulate of congruity,--in
substance, the "similarity" of the associationist theory of knowledge.
This must be called their _proton pseudos_, if associationism pure and
simple is to be accepted. The notion of congruity works out in laws of
resemblance and equivalence, in both of which it is plain to the modern
psychologist that a metaphysical ground of truth, antecedent to and
controlling empirical data, is assumed. But the use of the postulate of
congruence as a test of scientific truth has the merit of avoiding all
open dealing with an imputed substantiality of the data handled, such as
would be involved in the overt use of the concept of causation. The
data are congruous among themselves, as items of knowledge; and they may
therefore be handled in a logical synthesis and concatenation on the
basis of this congruence alone, without committing the scientist to an
imputation of a kinetic or motor relation between them. The metaphysics
of process is thereby avoided, in appearance. The sequences are uniform
or consistent with one another, taken as articles of theoretical
synthesis simply; and so they become elements of a system or discipline
of knowledge in which the test of theoretical truth is the congruence of
the system with its premises.

In all this there is a high-wrought appearance of matter-of-fact, and
all metaphysical subreption of a non-empirical or non-mechanical
standard of reality or substantiality is avoided in appearance. The
generalisations which make up such a system of knowledge are, in this
way, stated in terms of the system itself; and when a competent
formulation of the alleged uniformities has been so made in terms of
their congruity or equivalence with the prime postulates of the system,
the work of theoretical inquiry is done.

The concrete premises from which proceeds the systematic knowledge of
this generation of economists are certain very concise assumptions
concerning human nature, and certain slightly less concise
generalisations of physical fact,[6] presumed to be mechanically
empirical generalisations. These postulates afford the standard of
normality. Whatever situation or course of events can be shown to
express these postulates without mitigation is normal; and wherever a
departure from this normal course of things occurs, it is due to
disturbing causes,--that is to say, to causes not comprised in the main
premises of the science,--and such departures are to be taken account
of by way of qualification. Such departures and such qualification are
constantly present in the facts to be handled by the science; but, being
not congruous with the underlying postulates, they have no place in the
body of the science. The laws of the science, that which makes up the
economist's theoretical knowledge, are laws of the normal case. The
normal case does not occur in concrete fact. These laws are, therefore,
in Cairnes's terminology, "hypothetical" truths; and the science is a
"hypothetical" science. They apply to concrete facts only as the facts
are interpreted and abstracted from, in the light of the underlying
postulates. The science is, therefore, a theory of the normal case, a
discussion of the concrete facts of life in respect of their degree of
approximation to the normal case. That is to say, it is a taxonomic
science.

Of course, in the work actually done by these economists this standpoint
of rigorous normality is not consistently maintained; nor is the
unsophisticated imputation of causality to the facts under discussion
consistently avoided. The associationist postulate, that causal sequence
means empirical uniformity simply, is in great measure forgotten when
the subject-matter of the science is handled in detail. Especially is it
true that in Mill the dry light of normality is greatly relieved by a
strong common sense. But the great truths or laws of the science remain
hypothetical laws; and the test of scientific reality is congruence with
the hypothetical laws, not coincidence with matter-of-fact events.

The earlier, more archaic metaphysics of the science, which saw in the
orderly correlation and sequence of events a constraining guidance of an
extra-causal, teleological kind, in this way becomes a metaphysics of
normality which asserts no extra-causal constraint over events, but
contents itself with establishing correlations, equivalencies,
homologies, and theories concerning the conditions of an economic
equilibrium. The movement, the process of economic life, is not
overlooked, and it may even be said that it is not neglected; but the
pure theory, in its final deliverances, deals not with the dynamics, but
with the statics of the case. The concrete subject-matter of the science
is, of course, the process of economic life,--that is unavoidably the
case,--and in so far the discussion must be accepted as work bearing on
the dynamics of the phenomena discussed; but even then it remains true
that the aim of this work in dynamics is a determination and taxis of
the outcome of the process under discussion rather than a theory of the
process as such. The process is rated in terms of the equilibrium to
which it tends or should tend, not conversely. The outcome of the
process, taken in its relation of equivalence within the system, is the
point at which the inquiry comes to rest. It is not primarily the point
of departure for an inquiry into what may follow. The science treats of
a balanced system rather than of a proliferation. In this lies its
characteristic difference from the later evolutionary sciences. It is
this characteristic bent of the science that leads its spokesman,
Cairnes, to turn so kindly to chemistry rather than to the organic
sciences, when he seeks an analogy to economics among the physical
sciences.[7] What Cairnes has in mind in his appeal to chemistry is, of
course, the received, extremely taxonomic (systematic) chemistry of his
own time, not the tentatively genetic theories of a slightly later day.

       *       *       *       *       *

It may seem that in the characterisation just offered of the standpoint
of normality in economics there is too strong an implication of
colorlessness and impartiality. The objection holds as regards much of
the work of the modern economists of the classical line. It will hold
true even as to much of Cairnes's work; but it cannot be admitted as
regards Cairnes's ideal of scientific aim and methods. The economists
whose theories Cairnes received and developed, assuredly did not pursue
the discussion of the normal case with an utterly dispassionate animus.
They had still enough of the older teleological metaphysics left to give
color to the accusation brought against them that they were advocates of
_laissez-faire_. The preconception of the utilitarians,--in substance
the natural-rights preconception,--that unrestrained human conduct will
result in the greatest human happiness, retains so much of its force in
Cairnes's time as is implied in the then current assumption that what is
normal is also right. The economists, and Cairnes among them, not only
are concerned to find out what is normal and to determine what
consummation answers to the normal, but they also are at pains to
approve that consummation. It is this somewhat uncritical and often
unavowed identification of the normal with the right that gives
colorable ground for the widespread vulgar prejudice, to which Cairnes
draws attention,[8] that political economy "sanctions" one social
arrangement and "condemns" another. And it is against this uncritical
identification of two essentially unrelated principles or categories
that Cairnes's essay on "Political Economy and Laissez-faire," and in
good part also that on Bastiat, are directed. But, while this is one of
the many points at which Cairnes has substantially advanced the ideals
of the science, his own concluding argument shows him to have been but
half-way emancipated from the prejudice, even while most effectively
combating it.[9] It is needless to point out that the like prejudice is
still present in good vigor in many later economists who have had the
full benefit of Cairnes's teachings on this head.[10] Considerable as
Cairnes's achievement in this matter undoubtedly was, it effected a
mitigation rather than an elimination of the untenable metaphysics
against which he contended.

The advance in the general point of view from animistic teleology to
taxonomy is shown in a curiously succinct manner in a parenthetical
clause of Cairnes's in the chapter on Normal Value.[11] With his
acceptance of the later point of view involved in the use of the new
term, Cairnes becomes the interpreter of the received theoretical
results. The received positions are not subjected to a destructive
criticism. The aim is to complete them where they fall short and to cut
off what may be needless or what may run beyond the safe ground of
scientific generalisation. In his work of redaction, Cairnes does not
avow--probably he is not sensible of--any substantial shifting of the
point of view or any change in the accepted ground of theoretic reality.
But his advance to an unteleological taxonomy none the less changes the
scope and aim of his theoretical discussion. The discussion of Normal
Value may be taken in illustration.

Cairnes is not content to find (with Adam Smith) that value will
"naturally" coincide with or be measured by cost of production, or even
(with Mill) that cost of production must, in the long run, "necessarily"
determine value. "This ... is to take a much too limited view of the
range of this phenomenon."[12] He is concerned to determine not only
this general tendency of values to a normal, but all those
characteristic circumstances as well which condition this tendency and
which determine the normal to which values tend. His inquiry pursues the
phenomena of value in a normal economic system rather than the manner
and rate of approach of value relations to a teleologically or
hedonistically defensible consummation. It therefore becomes an
exhaustive but very discriminating analysis of the circumstances that
bear upon market values, with a view to determine what circumstances are
normally present; that is to say, what circumstances conditioning value
are commonly effective and at the same time in consonance with the
premises of economic theory. These effective conditions, in so far as
they are not counted anomalous and, therefore, to be set aside in the
theoretical discussion, are the circumstances under which a hedonistic
valuation process in any modern industrial community is held perforce to
take place,--the circumstances which are held to enforce a recognition
and rating of the pleasure-bearing capacity of facts. They are not, as
under the earlier cost-of-production doctrines, the circumstances which
determine the magnitude of the forces spent in the production of the
valuable article. Therefore, the normal (natural) value is no longer (as
with Adam Smith, and even to some extent with his classical successors)
the primary or initial fact in value theory, the substantial fact of
which the market value is an approximate expression and by which the
latter is controlled. The argument does not, as formerly, set out from
that expenditure of personal force which was once conceived to
constitute the substantial value of goods, and then construe market
value to be an approximate and uncertain expression of this substantial
fact. The direction in which the argument runs is rather the reverse of
this. The point of departure is taken from the range of market values
and the process of bargaining by which these values are determined. This
latter is taken to be a process of discrimination between various kinds
and degrees of discomfort, and the average or consistent outcome of such
a process of bargaining constitutes normal value. It is only by virtue
of a presumed equivalence between the discomfort undergone and the
concomitant expenditure, whether of labor or of wealth, that the normal
value so determined is conceived to be an expression of the productive
force that goes into the creation of the valuable goods. Cost being only
in uncertain equivalence with sacrifice or discomfort, as between
different persons, the factor of cost falls into the background; and the
process of bargaining, which is in the foreground, being a process of
valuation, a balancing of individual demand and supply, it follows that
a law of reciprocal demand comes in to supplant the law of cost. In all
this the proximate causes at work in the determination of values are
plainly taken account of more adequately than in earlier
cost-of-production doctrines; but they are taken account of with a view
to explaining the mutual adjustment and interrelation of elements in a
system rather than to explain either a developmental sequence or the
working out of a foreordained end.

This revision of the cost-of-production doctrine, whereby it takes the
form of a law of reciprocal demand, is in good part effected by a
consistent reduction of cost to terms of sacrifice,--a reduction more
consistently carried through by Cairnes than it had been by earlier
hedonists, and extended by Cairnes's successors with even more
far-reaching results. By this step the doctrine of cost is not only
brought into closer accord with the neo-hedonistic premises, in that it
in a greater degree throws the stress upon the factor of personal
discrimination, but it also gives the doctrine a more general bearing
upon economic conduct and increases its serviceability as a
comprehensive principle for the classification of economic phenomena. In
the further elaboration of the hedonistic theory of value at the hands
of Jevons and the Austrians the same principle of sacrifice comes to
serve as the chief ground of procedure.

       *       *       *       *       *

Of the foundations of later theory, in so far as the postulates of later
economists differ characteristically from those of Mill and Cairnes,
little can be said in this place. Nothing but the very general features
of the later development can be taken up; and even these general
features of the existing theoretic situation can not be handled with the
same confidence as the corresponding features of a past phase of
speculation. With respect to writers of the present or the more recent
past the work of natural selection, as between variants of scientific
aim and animus and between more or less divergent points of view, has
not yet taken effect; and it would be over-hazardous to attempt an
anticipation of the results of the selection that lies in great part yet
in the future. As regards the directions of theoretical work suggested
by the names of Professor Marshall, Mr. Cannan, Professor Clark, Mr.
Pierson, Professor Loria, Professor Schmoller, the Austrian group,--no
off-hand decision is admissible as between these candidates for the
honor, or, better, for the work, of continuing the main current of
economic speculation and inquiry. No attempt will here be made even to
pass a verdict on the relative claims of the recognised two or three
main "schools" of theory, beyond the somewhat obvious finding that, for
the purpose in hand, the so-called Austrian school is scarcely
distinguishable from the neo-classical, unless it be in the different
distribution of emphasis. The divergence between the modernised
classical views, on the one hand, and the historical and Marxist
schools, on the other hand, is wider,--so much so, indeed, as to bar out
a consideration of the postulates of the latter under the same head of
inquiry with the former. The inquiry, therefore, confines itself to the
one line standing most obviously in unbroken continuity with that body
of classical economics whose life history has been traced in outline
above. And, even for this phase of modernised classical economics, it
seems necessary to limit discussion, for the present, to a single
strain, selected as standing peculiarly close to the classical source,
at the same time that it shows unmistakable adaptation to the later
habits of thought and methods of knowledge.

For this later development in the classical line of political economy,
Mr. Keynes's book may fairly be taken as the maturest exposition of the
aims and ideals of the science; while Professor Marshall excellently
exemplifies the best work that is being done under the guidance of the
classical antecedents. As, after a lapse of a dozen or fifteen years
from Cairnes's days of full conviction, Mr. Keynes interprets the aims
of modern economic science, it has less of the "hypothetical" character
assigned it by Cairnes; that is to say, it confines its inquiry less
closely to the ascertainment of the normal case and the interpretative
subsumption of facts under the normal. It takes fuller account of the
genesis and developmental continuity of all features of modern economic
life, gives more and closer attention to institutions and their history.
This is, no doubt, due, in part at least, to impulse received from
German economists; and in so far it also reflects the peculiarly vague
and bewildered attitude of protest that characterises the earlier
expositions of the historical school. To the same essentially extraneous
source is traceable the theoretic blur embodied in Mr. Keynes's attitude
of tolerance towards the conception of economics as a "normative"
science having to do with "economic ideals," or an "applied economics"
having to do with "economic precepts."[13] An inchoate departure from
the consistent taxonomic ideals shows itself in the tentative resort to
historical and genetic formulations, as well as in Mr. Keynes's
pervading inclination to define the scope of the science, not by
exclusion of what are conceived to be non-economic phenomena, but by
disclosing a point of view from which all phenomena are seen to be
economic facts. The science comes to be characterised not by the
delimitation of a range of facts, as in Cairnes,[14] but as an inquiry
into the bearing which all facts have upon men's economic activity. It
is no longer that certain phenomena belong within the science, but
rather that the science is concerned with any and all phenomena as seen
from the point of view of the economic interest. Mr. Keynes does not go
fully to the length which this last proposition indicates. He finds[15]
that political economy "treats of the phenomena arising out of the
economic activities of mankind in society"; but, while the discussion by
which he leads up to this definition might be construed to say that all
the activities of mankind in society have an economic bearing, and
should therefore come within the view of the science, Mr. Keynes does
not carry out his elucidation of the matter to that broad conclusion.
Neither can it be said that modern political economy has, in practice,
taken on the scope and character which this extreme position would
assign it.

The passage from which the above citation is taken is highly significant
also in another and related bearing, and it is at the same time highly
characteristic of the most effective modernised classical economics. The
subject-matter of the science has come to be the "economic activities"
of mankind, and the phenomena in which these activities manifest
themselves. So Professor Marshall's work, for instance, is, in aim, even
if not always in achievement, a theoretical handling of human activity
in its economic bearing,--an inquiry into the multiform phases and
ramifications of that process of valuation of the material means of life
by virtue of which man is an economic agent. And still it remains an
inquiry directed to the determination of the conditions of an
equilibrium of activities and a quiescent normal situation. It is not in
any eminent degree an inquiry into cultural or institutional development
as affected by economic exigencies or by the economic interest of the
men whose activities are analysed and portrayed. Any sympathetic reader
of Professor Marshall's great work--and that must mean every
reader--comes away with a sense of swift and smooth movement and
interaction of parts; but it is the movement of a consummately conceived
and self-balanced mechanism, not that of a cumulatively unfolding
process or an institutional adaptation to cumulatively unfolding
exigencies. The taxonomic bearing is, after all, the dominant feature.
It is significant of the same point that even in his discussion of such
vitally dynamic features of the economic process as the differential
effectiveness of different laborers or of different industrial plants,
as well as of the differential advantages of consumers, Professor
Marshall resorts to an adaptation of so essentially taxonomic a category
as the received concept of rent. Rent is a pecuniary category, a
category of income, which is essentially a final term, not a category of
the motor term, work or interest.[16] It is not a factor or a feature of
the process of industrial life, but a phenomenon of the pecuniary
situation which emerges from this process under given conventional
circumstances. However far-reaching and various the employment of the
rent concept in economic theory has been, it has through all
permutations remained, what it was to begin with, a rubric in the
classification of incomes. It is a pecuniary, not an industrial
category. In so far as resort is had to the rent concept in the
formulation of a theory of the industrial process,--as in Professor
Marshall's work,--it comes to a statement of the process in terms of its
residue. Let it not seem presumptuous to say that, great and permanent
as is the value of Professor Marshall's exposition of quasi-rents and
the like, the endeavor which it involves to present in terms of a
concluded system what is of the nature of a fluent process has made the
exposition unduly bulky, unwieldy, and inconsequent.

There is a curious reminiscence of the perfect taxonomic day in Mr.
Keynes's characterisation of political economy as a "positive science,"
"the sole province of which is to establish economic uniformities";[17]
and, in this resort to the associationist expedient of defining a
natural law as a "uniformity," Mr. Keynes is also borne out by Professor
Marshall.[18] But this and other survivals of the taxonomic terminology,
or even of the taxonomic canons of procedure, do not hinder the
economists of the modern school from doing effective work of a character
that must be rated as genetic rather than taxonomic. Professor
Marshall's work in economics is not unlike that of Asa Gray in botany,
who, while working in great part within the lines of "systematic botany"
and adhering to its terminology, and on the whole also to its point of
view, very materially furthered the advance of the science outside the
scope of taxonomy.

Professor Marshall shows an aspiration to treat economic life as a
development; and, at least superficially, much of his work bears the
appearance of being a discussion of this kind. In this endeavor his work
is typical of what is aimed at by many of the later economists. The aim
shows itself with a persistent recurrence in his _Principles_. His
chosen maxim is, "Natura non facit saltum,"--a maxim that might well
serve to designate the prevailing attitude of modern economists towards
questions of economic development as well as towards questions of
classification or of economic policy. His insistence on the continuity
of development and of the economic structure of communities is a
characteristic of the best work along the later line of classical
political economy. All this gives an air of evolutionism to the work.
Indeed, the work of the neo-classical economics might be compared,
probably without offending any of its adepts, with that of the early
generation of Darwinians, though such a comparison might somewhat
shrewdly have to avoid any but superficial features. Economists of the
present day are commonly evolutionists, in a general way. They commonly
accept, as other men do, the general results of the evolutionary
speculation in those directions in which the evolutionary method has
made its way. But the habit of handling by evolutionist methods the
facts with which their own science is concerned has made its way among
the economists to but a very uncertain degree.

The prime postulate of evolutionary science, the preconception
constantly underlying the inquiry, is the notion of a cumulative causal
sequence; and writers on economics are in the habit of recognising that
the phenomena with which they are occupied are subject to such a law of
development. Expressions of assent to this proposition abound. But the
economists have not worked out or hit upon a method by which the inquiry
in economics may consistently be conducted under the guidance of this
postulate. Taking Professor Marshall as exponent, it appears that, while
the formulations of economic theory are not conceived to be arrived at
by way of an inquiry into the developmental variation of economic
institutions and the like, the theorems arrived at are held, and no
doubt legitimately, to apply to the past,[19] and with due reserve also
to the future, phases of the development. But these theorems apply to
the various phases of the development not as accounting for the
developmental sequence, but as limiting the range of variation. They say
little, if anything, as to the order of succession, as to the derivation
and the outcome of any given phase, or as to the causal relation of one
phase of any given economic convention or scheme of relations to any
other. They indicate the conditions of survival to which any innovation
is subject, supposing the innovation to have taken place, not the
conditions of variational growth. The economic laws, the "statements of
uniformity," are therefore, when construed in an evolutionary bearing,
theorems concerning the superior or the inferior limit of persistent
innovations, as the case may be.[20] It is only in this negative,
selective bearing that the current economic laws are held to be laws of
developmental continuity; and it should be added that they have hitherto
found but relatively scant application at the hands of the economists,
even for this purpose.

Again, as applied to economic activities under a given situation, as
laws governing activities in equilibrium, the economic laws are, in the
main, laws of the limits within which economic action of a given purpose
runs. They are theorems as to the limits which the economic (commonly
the pecuniary) interest imposes upon the range of activities to which
the other life interests of men incite, rather than theorems as to the
manner and degree in which the economic interest creatively shapes the
general scheme of life. In great part they formulate the normal
inhibitory effect of economic exigencies rather than the cumulative
modification and diversification of human activities through the
economic interest, by initiating and guiding habits of life and of
thought. This, of course, does not go to say that economists are at all
slow to credit the economic exigencies with a large share in the growth
of culture; but, while claims of this kind are large and recurrent, it
remains true that the laws which make up the framework of economic
doctrine are, when construed as generalisations of causal relation, laws
of conservation and selection, not of genesis and proliferation. The
truth of this, which is but a commonplace generalisation, might be
shown in detail with respect to such fundamental theorems as the laws of
rent, of profits, of wages, of the increasing or diminishing returns of
industry, of population, of competitive prices, of cost of production.

In consonance with this quasi-evolutionary tone of the neo-classical
political economy, or as an expression of it, comes the further
clarified sense that nowadays attaches to the terms "normal" and
economic "laws." The laws have gained in colorlessness, until it can no
longer be said that the concept of normality implies approval of the
phenomena to which it is applied.[21] They are in an increasing degree
laws of conduct, though they still continue to formulate conduct in
hedonistic terms; that is to say, conduct is construed in terms of its
sensuous effect, not in terms of its teleological content. The light of
the science is a drier light than it was, but it continues to be shed
upon the accessories of human action rather than upon the process
itself. The categories employed for the purpose of knowing this economic
conduct with which the scientists occupy themselves are not the
categories under which the men at whose hands the action takes place
themselves apprehend their own action at the instant of acting.
Therefore, economic conduct still continues to be somewhat mysterious to
the economists; and they are forced to content themselves with
adumbrations whenever the discussion touches this central, substantial
fact.

All this, of course, is intended to convey no dispraise of the work
done, nor in any way to disparage the theories which the passing
generation of economists have elaborated, or the really great and
admirable body of knowledge which they have brought under the hand of
the science; but only to indicate the direction in which the inquiry in
its later phases--not always with full consciousness--is shifting as
regards its categories and its point of view. The discipline of life in
a modern community, particularly the industrial life, strongly
reënforced by the modern sciences, has divested our knowledge of
non-human phenomena of that fullness of self-directing life that was
once imputed to them, and has reduced this knowledge to terms of opaque
causal sequence. It has thereby narrowed the range of discretionary,
teleological action to the human agent alone; and so it is compelling
our knowledge of human conduct, in so far as it is distinguished from
the non-human, to fall into teleological terms. Foot-pounds, calories,
geometrically progressive procreation, and doses of capital, have not
been supplanted by the equally uncouth denominations of habits,
propensities, aptitudes, and conventions, nor does there seem to be any
probability that they will be; but the discussion which continues to run
in terms of the former class of concepts is in an increasing degree
seeking support in concepts of the latter class.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_.
Vol. XIV, Feb., 1900.

[2] So, _e.g._, Roscher, Comte, the early socialists, J. S. Mill, and
later Spencer, Schaeffle, Wagner.

[3] "Let us not confound the statement that _human_ interests are at one
with the statement that _class_ interests are at one. The latter I
believe to be as false as the former is true.... But accepting the major
premises of the syllogism, that the interests of human beings are
fundamentally the same, how as to the minor?--how as to the assumption
that people know their interests in the sense in which they are
identical with the interests of others, and that they spontaneously
follow them _in this sense_?"--Cairnes, Essays in Political Economy
(London, 1873), p. 245. This question cannot consistently be asked by an
adherent of the stricter hedonism.

[4] Bastiat, quoted by Cairnes, _Essays_, p. 319.

[5] It may be remarked, by the way, that the use of the differential
calculus and similar mathematical expedients in the discussion of
marginal utility and the like, proceeds on this psychological ground,
and that the theoretical results so arrived at are valid to the full
extent only if this hedonistic psychology is accepted.

[6] See, _e.g._, Cairnes, _Character and Logical Method_ (New York), p.
71.

[7] _Character and Logical Method_, p. 62.

[8] _Essays in Political Economy_, pp. 260-264.

[9] See especially _Essays_, pp. 263, 264.

[10] It may be interesting to point out that the like identification of
the categories of normality and right gives the dominant note of Mr.
Spencer's ethical and social philosophy, and that later economists of
the classical line are prone to be Spencerians.

[11] "Normal value (called by Adam Smith and Ricardo 'natural value,'
and by Mill 'necessary value,' but best expressed, it seems to me, by
the term which I have used)." _Leading Principles_ (New York), p. 45.

[12] _Leading Principles_, p. 45.

[13] _Scope and Method of Political Economy_ (London, 1891), chaps. i
and ii.

[14] _Character and Logical Method_; _e.g._, Lecture II, especially pp.
53, 54, and 71.

[15] _Scope and Method of Political Economy_, chap. iii, particularly p.
97.

[16] "Interest" is, of course, here used in the sense which it has in
modern psychological discussion.

[17] _Scope and Method of Political Economy_, p. 46.

[18] _Principles of Economics_, Vol. I, Book I, chap, vi, sect. 6,
especially p. 105 (3d edition).

[19] See, _e.g._, Professor Marshall's "Reply" to Professor Cunningham
in the _Economic Journal_ for 1892, pp. 508-113.

[20] This is well illustrated by what Professor Marshall says of the
Ricardian law of rent in his "Reply," cited above.

[21] See, _e.g._, Marshall, _Principles_, Book I, chap, vi, sect. 6, pp.
105-108. The like dispassionateness is visible in most other modern
writers on theory; as, _e.g._, Clark, Cannan, and the Austrians.




PROFESSOR CLARK'S ECONOMICS[1]


For some time past economists have been looking with lively anticipation
for such a comprehensive statement of Mr. Clark's doctrines as is now
offered. The leading purpose of the present volume[2] is "to offer a
brief and provisional statement of the more general laws of progress";
although it also comprises a more abridged restatement of the laws of
"Economic Statics" already set forth in fuller form in his _Distribution
of Wealth_. Though brief, this treatise is to be taken as systematically
complete, as including in due correlation all the "essentials" of Mr.
Clark's theoretical system. As such, its publication is an event of
unusual interest and consequence.

Mr. Clark's position among this generation of economists is a notable
and commanding one. No serious student of economic theory will, or can
afford to, forego a pretty full acquaintance with his development of
doctrines. Nor will any such student avoid being greatly influenced by
the position which Mr. Clark takes on any point of theory on which he
may speak, and many look confidently to him for guidance where it is
most needed. Very few of those interested in modern theory are under no
obligations to him. He has, at the same time, in a singular degree the
gift of engaging the affections as well as the attention of students in
his field. Yet the critic is required to speak impersonally of Mr.
Clark's work as a phase of current economic theory.

In more than one respect Mr. Clark's position among economists recalls
the great figures in the science a hundred years ago. There is the same
rigid grasp of the principles, the "essentials," out of which the broad
theorems of the system follow in due sequence and correlation; and like
the leaders of the classical era, while Mr. Clark is always a
theoretician, never to be diverted into an inconsistent makeshift, he is
moved by an alert and sympathetic interest in current practical
problems. While his aim is a theoretical one, it is always with a view
to the theory of current affairs; and his speculations are animated with
a large sympathy and an aggressive interest in the amelioration of the
lot of man.

His relation to the ancient adepts of the science, however, is something
more substantial than a resemblance only. He is, by spiritual
consanguinity, a representative of that classical school of thought that
dominated the science through the better part of the nineteenth century.
This is peculiarly true of Mr. Clark, as contrasted with many of those
contemporaries who have fought for the marginal-utility doctrines.
Unlike these spokesmen of the Austrian wing, he has had the insight and
courage to see the continuity between the classical position and his
own, even where he advocates drastic changes in the classical body of
doctrines. And although his system of theory embodies substantially all
that the consensus of theorists approves in the Austrian contributions
to the science, yet he has arrived at his position on these heads not
under the guidance of the Austrian school, but, avowedly, by an unbroken
development out of the position given by the older generation of
economists.[3] Again, in the matter of the psychological postulates of
the science, he accepts a hedonism as simple, unaffected, and uncritical
as that of Jevons or of James Mill. In this respect his work is as true
to the canons of the classical school as the best work of the
theoreticians of the Austrian observance. There is the like unhesitating
appeal to the calculus of pleasure and pain as the indefeasible ground
of action and solvent of perplexities, and there is the like readiness
to reduce all phenomena to terms of a "normal," or "natural," scheme of
life constructed on the basis of this hedonistic calculus. Even in the
ready recourse to "conjectural history," to use Steuart's phrase, Mr.
Clark's work is at one with both the early classical and the late
(Jevons-Austrian) marginal-utility school. It has the virtues of both,
coupled with the graver shortcomings of both. But, as his view exceeds
theirs in breadth and generosity, so his system of theory is a more
competent expression of current economic science than what is offered by
the spokesmen of the Jevons-Austrian wing. It is as such, as a competent
and consistent system of current economic theory, that it is here
intended to discuss Mr. Clark's work, not as a body of doctrines
peculiar to Mr. Clark or divergent from the main current.

       *       *       *       *       *

Since hedonism came to rule economic science, the science has been in
the main a theory of distribution,--distribution of ownership and of
income. This is true both of the classical school and of those theorists
who have taken an attitude of ostensible antagonism to the classical
school. The exceptions to the rule are late and comparatively few, and
they are not found among the economists who accept the hedonistic
postulate as their point of departure. And, consistently with the spirit
of hedonism, this theory of distribution has centered about a doctrine
of exchange value (or price) and has worked out its scheme of (normal)
distribution in terms of (normal) price. The normal economic community,
upon which theoretical interest has converged, is a business community,
which centers about the market, and whose scheme of life is a scheme of
profit and loss. Even when some considerable attention is ostensibly
devoted to theories of consumption and production, in these systems of
doctrine the theories are constructed in terms of ownership, price, and
acquisition, and so reduce themselves in substance to doctrines of
distributive acquisition.[4] In this respect Mr. Clark's work is true to
the received canons. The "Essentials of Economic Theory" are the
essentials of the hedonistic theory of distribution, with sundry
reflections on related topics. The scope of Mr. Clark's economics,
indeed, is even more closely limited by concepts of distribution than
many others, since he persistently analyses production in terms of
value, and value is a concept of distribution.

       *       *       *       *       *

As Mr. Clark justly observes (p. 4), "The primitive and general facts
concerning industry ... need to be known before the social facts can
profitably be studied." In these early pages of the treatise, as in
other works of its class, there is repeated reference to that more
primitive and simple scheme of economic life out of which the modern
complex scheme has developed, and it is repeatedly indicated that in
order to an understanding of the play of forces in the more advanced
stages of economic development and complication, it is necessary to
apprehend these forces in their unsophisticated form as they work out in
the simple scheme prevalent on the plane of primitive life. Indeed, to
a reader not well acquainted with Mr. Clark's scope and method of
economic theorising, these early pages would suggest that he is
preparing for something in the way of a genetic study,--a study of
economic institutions approached from the side of their origins. It
looks as if the intended line of approach to the modern situation might
be such as an evolutionist would choose, who would set out with showing
what forces are at work in the primitive economic community, and then
trace the cumulative growth and complication of these factors as they
presently take form in the institutions of a later phase of the
development. Such, however, is not Mr. Clark's intention. The effect of
his recourse to "primitive life" is simply to throw into the foreground,
in a highly unreal perspective, those features which lend themselves to
interpretation in terms of the normalised competitive system. The best
excuse that can be offered for these excursions into "primitive life" is
that they have substantially nothing to do with the main argument of the
book, being of the nature of harmless and graceful misinformation.

In the primitive economic situation--that is to say, in savagery and the
lower barbarism--there is, of course, no "solitary hunter," living
either in a cave or otherwise, and there is no man who "makes by his own
labor all the goods that he uses," etc. It is, in effect, a highly
meretricious misrepresentation to speak in this connection of "the
economy of a man who works only for himself," and say that "the inherent
productive power of labor and capital is of vital concern to him,"
because such a presentation of the matter overlooks the main facts in
the case in order to put the emphasis on a feature which is of
negligible consequence. There is no reasonable doubt but that, at least
since mankind reached the human plane, the economic unit has been not a
"solitary hunter," but a community of some kind; in which, by the way,
women seem in the early stages to have been the most consequential
factor instead of the man who works for himself. The "capital" possessed
by such a community--as, _e.g._, a band of California "Digger"
Indians--was a negligible quantity, more valuable to a collector of
curios than to any one else, and the loss of which to the "Digger"
squaws would mean very little. What was of "vital concern" to them,
indeed, what the life of the group depended on absolutely, was the
accumulated wisdom of the squaws, the technology of their economic
situation.[5] The loss of the basket, digging-stick, and mortar, simply
as physical objects, would have signified little, but the conceivable
loss of the squaw's knowledge of the soil and seasons, of food and fiber
plants, and of mechanical expedients, would have meant the present
dispersal and starvation of the community.

This may seem like taking Mr. Clark to task for an inconsequential gap
in his general information on Digger Indians, Eskimos, and palæolithic
society at large. But the point raised is not of negligible consequence
for economic theory, particularly not for any theory of "economic
dynamics" that turns in great part about questions of capital and its
uses at different stages of economic development. In the primitive
culture the quantity and the value of mechanical appliances is
relatively slight; and whether the group is actually possessed of more
or less of such appliances at a given time is not a question of
first-rate importance. The loss of these objects--tangible assets--would
entail a transient inconvenience. But the accumulated, habitual
knowledge of the ways and means involved in the production and use of
these appliances is the outcome of long experience and experimentation;
and, given this body of commonplace technological information, the
acquisition and employment of the suitable apparatus is easily arranged.
The great body of commonplace knowledge made use of in industry is the
product and heritage of the group. In its essentials it is known by
common notoriety, and the "capital goods" needed for putting this
commonplace technological knowledge to use are a slight
matter,--practically within the reach of every one. Under these
circumstances the ownership of "capital-goods" has no great
significance, and, as a practical fact, interest and wages are unknown,
and the "earning power of capital" is not seen to be "governed by a
specific power of productivity which resides in capital-goods." But the
situation changes, presently, by what is called an advance "in the
industrial arts." The "capital" required to put the commonplace
knowledge to effect grows larger, and so its acquisition becomes an
increasingly difficult matter. Through "difficulty of attainment" in
adequate quantities, the apparatus and its ownership become a matter of
consequence; increasingly so, until presently the equipment required for
an effective pursuit of industry comes to be greater than the common man
can hope to acquire in a lifetime. The commonplace knowledge of ways and
means, the accumulated experience of mankind, is still transmitted in
and by the body of the community at large; but, for practical purposes,
the advanced "state of the industrial arts" has enabled the owners of
goods to corner the wisdom of the ancients and the accumulated
experience of the race. Hence "capital," as it stands at that phase of
the institution's growth contemplated by Mr. Clark.

The "natural" system of free competition, or, as it was once called,
"the obvious and simple system of natural liberty," is accordingly a
phase of the development of the institution of capital; and its claim to
immutable dominion is evidently as good as the like claim of any other
phase of cultural growth. The equity, or "natural justice," claimed for
it is evidently just and equitable only in so far as the conventions of
ownership on which it rests continue to be a secure integral part of the
institutional furniture of the community; that is to say, so long as
these conventions are part and parcel of the habits of thought of the
community; that is to say, so long as these things are currently held to
be just and equitable. This normalised present, or "natural," state of
Mr. Clark, is, as near as may be, Senior's "Natural State of Man,"--the
hypothetically perfect competitive system; and economic theory consists
in the definition and classification of the phenomena of economic life
in terms of this hypothetical competitive system.

Taken by itself, Mr. Clark's dealing with the past development might be
passed over with slight comment, except for its negative significance,
since it has no theoretical connection with the present, or even with
the "natural" state in which the phenomena of economic life are assumed
to arrange themselves in a stable, normal scheme. But his dealings with
the future, and with the present in so far as the present situation is
conceived to comprise "dynamic" factors, is of substantially the same
kind. With Senior's "natural state of man" as the base-line of normality
in things economic, questions of present and future development are
treated as questions of departure from the normal, aberrations and
excesses which the theory does not aim even to account for. What is
offered in place of theoretical inquiry when these "positive perversions
of the natural forces themselves" are taken up (_e.g._, in chapters
xxii.-xxix.) is an exposition of the corrections that must be made to
bring the situation back to the normal static state, and solicitous
advice as to what measures are to be taken with a view to this
beneficent end. The problem presented to Mr. Clark by the current
phenomena of economic development is: how can it be stopped? or, failing
that, how can it be guided and minimised? Nowhere is there a sustained
inquiry into the dynamic character of the changes that have brought the
present (deplorable) situation to pass, nor into the nature and trend of
the forces at work in the development that is going forward in this
situation. None of this is covered by Mr. Clark's use of the word
"dynamic." All that it covers in the way of theory (chapters xii.-xxi.)
is a speculative inquiry as to how the equilibrium reëstablished itself
when one or more of the quantities involved increases or decreases.
Other than quantitive changes are not noticed, except as provocations to
homiletic discourse. Not even the causes and the scope of the quantitive
changes that may take place in the variables are allowed to fall within
the scope of the theory of economic dynamics.

So much of the volume, then, and of the system of doctrines of which the
volume is an exposition, as is comprised in the later eight chapters
(pp. 372-554), is an exposition of grievances and remedies, with only
sporadic intrusions of theoretical matter, and does not properly
constitute a part of the theory, whether static or dynamic. There is no
intention here to take exception to Mr. Clark's outspoken attitude of
disapproval toward certain features of the current business situation or
to quarrel with the remedial measures which he thinks proper and
necessary. This phase of his work is spoken of here rather to call
attention to the temperate but uncompromising tone of Mr. Clark's
writings as a spokesman for the competitive system, considered as an
element in the Order of Nature, and to note the fact that this is not
economic theory.[6]

The theoretical section specifically scheduled as Economic Dynamics
(chapters xii.-xxi.), on the other hand, is properly to be included
under the caption of Statics. As already remarked above, it presents a
theory of equilibrium between variables. Mr. Clark is, indeed, barred
out by his premises from any but a statical development of theory. To
realise the substantially statical character of his Dynamics, it is only
necessary to turn to his chapter xii. (Economic Dynamics). "A highly
dynamic condition, then, is one in which the economic organism changes
rapidly and yet, at any time in the course of its changes, is relatively
near to a certain static model" (p. 196). "The actual shape of society
at any one time is not the static model of that time; but it tends to
conform to it; and in a very dynamic society is more nearly like it than
it would be in one in which the forces of change are less active" (p.
197). The more "dynamic" the society, the nearer it is to the static
model; until in an ideally dynamic society, with a frictionless
competitive system, to use Mr. Clark's figure, the static state would be
attained, except for an increase in size,--that is to say, the ideally
perfect "dynamic" state would coincide with the "static" state. Mr.
Clark's conception of a dynamic state reduces itself to a conception of
an imperfectly static state, but in such a sense that the more highly
and truly "dynamic" condition is thereby the nearer to a static
condition. Neither the static nor the dynamic state, in Mr. Clark's
view, it should be remarked, is a state of quiescence. Both are states
of more or less intense activity, the essential difference being that in
the static state the activity goes on in perfection, without lag, leak,
or friction; the movement of parts being so perfect as not to disturb
the equilibrium. The static state is the more "dynamic" of the two. The
"dynamic" condition is essentially a deranged static condition: whereas
the static state is the absolute perfect, "natural" taxonomic norm of
competitive life. This dynamic-static state may vary in respect of the
magnitude of the several factors which hold one another in equilibrium,
but these are none other than quantitive variations. The changes which
Mr. Clark discusses under the head of dynamics are all of this
character,--changes in absolute or relative magnitude of the several
factors comprised in the equation.

       *       *       *       *       *

But, not to quarrel with Mr. Clark's use of the terms "static" and
"dynamic," it is in place to inquire into the merits of this class of
economic science apart from any adventitious shortcomings. For such an
inquiry Mr. Clark's work offers peculiar advantages. It is lucid,
concise, and unequivocal, with no temporising euphemisms and no politic
affectations of sentiment. Mr. Clark's premises, and therewith the aim
of his inquiry, are the standard ones of the classical English school
(including the Jevons-Austrian wing). This school of economics stands
on the pre-evolutionary ground of normality and "natural law," which the
great body of theoretical science occupied in the early nineteenth
century. It is like the other theoretical sciences that grew out of
the rationalistic and humanitarian conceptions of the eighteenth
century in that its theoretical aim is taxonomy--definition and
classification--with the purpose of subsuming its data under a rational
scheme of categories which are presumed to make up the Order of Nature.
This Order of Nature, or realm of Natural Law, is not the actual run of
material facts, but the facts so interpreted as to meet the needs of the
taxonomist in point of taste, logical consistency, and sense of justice.
The question of the truth and adequacy of the categories is a question
as to the consensus of taste and predilection among the taxonomists;
_i.e._, they are an expression of trained human nature touching the
matter of what ought to be. The facts so interpreted make up the
"normal," or "natural," scheme of things, with which the theorist has to
do. His task is to bring facts within the framework of this scheme of
"natural" categories. Coupled with this scientific purpose of the
taxonomic economist is the pragmatic purpose of finding and advocating
the expedient course of policy. On this latter head, again, Mr. Clark is
true to the animus of the school.

The classical school, including Mr. Clark and his contemporary
associates in the science, is hedonistic and utilitarian,--hedonistic in
its theory and utilitarian in its pragmatic ideals and endeavors. The
hedonistic postulates on which this line of economic theory is built up
are of a statical scope and character, and nothing but statical theory
(taxonomy) comes out of their development.[7] These postulates, and the
theorems drawn from them, take account of none but quantitive
variations, and quantitive variation alone does not give rise to
cumulative change, which proceeds on changes in kind.

Economics of the line represented at its best by Mr. Clark has never
entered this field of cumulative change. It does not approach questions
of the class which occupy the modern sciences,--that is to say,
questions of genesis, growth, variation, process (in short, questions of
a dynamic import),--but confines its interest to the definition and
classification of a mechanically limited range of phenomena. Like other
taxonomic sciences, hedonistic economics does not, and cannot, deal with
phenomena of growth except so far as growth is taken in the quantitative
sense of a variation in magnitude, bulk, mass, number, frequency. In its
work of taxonomy this economics has consistently bound itself, as Mr.
Clark does, by distinctions of a mechanical, statistical nature, and has
drawn its categories of classification on those grounds. Concretely, it
is confined, in substance, to the determination of and refinements upon
the concepts of land, labor, and capital, as handed down by the great
economists of the classical era, and the correlate concepts of rent,
wages, interest and profits. Solicitously, with a painfully meticulous
circumspection, the normal, mechanical metes and bounds of these several
concepts are worked out, the touchstone of the absolute truth aimed at
being the hedonistic calculus. The facts of use and wont are not of the
essence of this mechanical refinement. These several categories are
mutually exclusive categories, mechanically speaking. The circumstance
that the phenomena covered by them are not mechanical facts is not
allowed to disturb the pursuit of mechanical distinctions among them.
They nowhere overlap, and at the same time between them they cover all
the facts with which this economic taxonomy is concerned. Indeed, they
are in logical consistency, required to cover them. They are
hedonistically "natural" categories of such taxonomic force that their
elemental lines of cleavage run through the facts of any given economic
situation, regardless of use and wont, even where the situation does not
permit these lines of cleavage to be seen by men and recognised by use
and wont; so that, _e.g._, a gang of Aleutian Islanders slushing about
in the wrack and surf with rakes and magical incantations for the
capture of shell-fish are held, in point of taxonomic reality, to be
engaged on a feat of hedonistic equilibration in rent, wages, and
interest. And that is all there is to it. Indeed, for economic theory of
this kind, that is all there is to any economic situation. The
hedonistic magnitudes vary from one situation to another, but, except
for variations in the arithmetical details of the hedonistic balance,
all situations are, in point of economic theory, substantially alike.[8]

Taking this unfaltering taxonomy on its own recognisances, let us follow
the trail somewhat more into the arithmetical details, as it leads
along the narrow ridge of rational calculation, above the tree-tops, on
the levels of clear sunlight and moonshine. For the purpose in hand--to
bring out the character of this current economic science as a working
theory of current facts, and more particularly "as applied to modern
problems of industry and public policy" (title-page)--the sequence to be
observed in questioning the several sections into which the theoretical
structure falls is not essential. The structure of classical theory is
familiar to all students, and Mr. Clark's redaction offers no serious
departure from the conventional lines. Such divergence from conventional
lines as may occur is a matter of details, commonly of improvements in
detail; and the revisions of detail do not stand in such an organic
relation to one another, nor do they support and strengthen one another
in such a manner, as to suggest anything like a revolutionary trend or a
breaking away from the conventional lines.

So as regards Mr. Clark's doctrine of Capital. It does not differ
substantially from the doctrines which are gaining currency at the hands
of such writers as Mr. Fisher or Mr. Fetter; although there are certain
formal distinctions peculiar to Mr. Clark's exposition of the "Capital
Concept." But these peculiarities are peculiarities of the method of
arriving at the concept rather than peculiarities substantial to the
concept itself. The main discussion of the nature of capital is
contained in chapter ii. (Varieties of Economic Goods). The conception
of capital here set forth is of fundamental consequence to the system,
partly because of the important place assigned capital in this system of
theory, partly because of the importance which the conception of capital
must have in any theory that is to deal with problems of the current
(capitalistic) situation. Several classes of capital-goods are
enumerated, but it appears that in Mr. Clark's apprehension--at variance
with Mr. Fisher's view--persons are not to be included among the items
of capital. It is also clear from the run of the argument, though not
explicitly stated, that only material, tangible, mechanically definable
articles of wealth go to make up capital. In current usage, in the
business community, "capital" is a pecuniary concept, of course, and is
not definable in mechanical terms; but Mr. Clark, true to the hedonistic
taxonomy, sticks by the test of mechanical demarcation and draws the
lines of his category on physical grounds; whereby it happens that any
pecuniary conception of capital is out of the question. Intangible
assets, or immaterial wealth, have no place in the theory; and Mr. Clark
is exceptionally subtle and consistent in avoiding such modern notions.
One gets the impression that such a notion as intangible assets is
conceived to be too chimerical to merit attention, even by way of
protest or refutation.

Here, as elsewhere in Mr. Clark's writings, much is made of the doctrine
that the two facts of "capital" and "capital-goods" are conceptually
distinct, though substantially identical. The two terms cover virtually
the same facts as would be covered by the terms "pecuniary capital" and
"industrial equipment." They are for all ordinary purposes coincident
with Mr. Fisher's terms, "capital value" and "capital," although Mr.
Clark might enter a technical protest against identifying his categories
with those employed by Mr. Fisher.[9] "Capital is this permanent fund of
productive goods, the identity of whose component elements is forever
changing. Capital-goods are the shifting component parts of this
permanent aggregate" (p. 29). Mr. Clark admits (pp. 29-33) that capital
is colloquially spoken and thought of in terms of value, but he insists
that in point of substantial fact the working concept of capital is
(should be) that of "a fund of productive goods," considered as an
"abiding entity." The phrase itself, "a fund of productive goods," is a
curiously confusing mixture of pecuniary and mechanical terms, though
the pecuniary expression, "a fund," is probably to be taken in this
connection as a permissible metaphor.

This conception of capital, as a physically "abiding entity" constituted
by the succession of productive goods that make up the industrial
equipment, breaks down in Mr. Clark's own use of it when he comes (pp.
37-38) to speak of the mobility of capital; that is to say, so soon as
he makes use of it. A single illustration of this will have to suffice,
though there are several points in his argument where the frailty of the
conception is patent enough. "The transfer of capital from one industry
to another is a dynamic phenomenon which is later to be considered. What
is here important is the fact that it is in the main accomplished
without entailing transfers of capital-goods. An instrument wears itself
out in one industry, and instead of being succeeded by a like instrument
in the same industry, it is succeeded by one of a different kind which
is used in a different branch of production" (p. 38),--illustrated on
the preceding page by a shifting of investment from a whaling-ship to a
cotton-mill. In all this it is plain that the "transfer of capital"
contemplated is a shifting of investment, and that it is, as indeed Mr.
Clark indicates, not a matter of the mechanical shifting of physical
bodies from one industry to the other. To speak of a transfer of
"capital" which does not involve a transfer of "capital-goods" is a
contradiction of the main position, that "capital" is made up of
"capital-goods." The continuum in which the "abiding entity" of capital
resides is a continuity of ownership, not a physical fact. The
continuity, in fact, is of an immaterial nature, a matter of legal
rights, of contract, of purchase and sale. Just why this patent state of
the case is overlooked, as it somewhat elaborately is, is not easily
seen. But it is plain that, if the concept of capital were elaborated
from observation of current business practice, it would be found that
"capital" is a pecuniary fact, not a mechanical one; that it is an
outcome of a valuation, depending immediately on the state of mind of
the valuers; and that the specific marks of capital, by which it is
distinguishable from other facts, are of an immaterial character. This
would, of course, lead, directly, to the admission of intangible assets;
and this, in turn, would upset the law of the "natural" remuneration of
labor and capital to which Mr. Clark's argument looks forward from the
start. It would also bring in the "unnatural" phenomena of monopoly as a
normal outgrowth of business enterprise.

There is a further logical discrepancy avoided by resorting to the
alleged facts of primitive industry, when there was no capital, for the
elements out of which to construct a capital concept, instead of going
to the current business situation. In a hedonistic-utilitarian scheme of
economic doctrine, such as Mr. Clark's, only physically productive
agencies can be admitted as efficient factors in production or as
legitimate claimants to a share in distribution. Hence capital, one of
the prime factors in production and the central claimant in the current
scheme of distribution, must be defined in physical terms and delimited
by mechanical distinctions. This is necessary for reasons which appear
in the succeeding chapter, on The Measure of Consumers' Wealth.

On the same page (38), and elsewhere, it is remarked that "business
disasters" destroy capital in part. The destruction in question is a
matter of values; that is to say, a lowering of valuation, not in any
appreciable degree a destruction of material goods. Taken as a physical
aggregate, capital does not appreciably decrease through business
disasters, but, taken as a fact of ownership and counted in standard
units of value, it decreases; there is a destruction of values and a
shifting of ownership, a loss of ownership perhaps; but these are
pecuniary phenomena, of an immaterial character, and so do not directly
affect the material aggregate of the industrial equipment. Similarly,
the discussion (pp. 301-314) of how changes of method, as, _e.g._,
labor-saving devices, "liberate capital," and at times "destroy"
capital, is intelligible only on the admission that "capital" here is a
matter of values owned by investors and is not employed as a synonym for
industrial appliances. The appliances in question are neither liberated
nor destroyed in the changes contemplated. And it will not do to say
that the aggregate of "productive goods" suffers a diminution by a
substitution of devices which increases its aggregate productiveness, as
is implied, _e.g._, by the passage on page 307,[10] if Mr. Clark's
definition of capital is strictly adhered to. This very singular
passage (pp. 306-311, under the captions, Hardships entailed on
Capitalists by Progress, and the Offset for Capital destroyed by Changes
of Method) implies that the aggregate of appliances of production is
decreased by a change which increases the aggregate of these articles in
that respect (productivity) by virtue of which they are counted in the
aggregate. The argument will hold good if "productive goods" are rated
by bulk, weight, number, or some such irrelevant test, instead of by
their productivity or by their consequent capitalised value. On such a
showing it should be proper to say that the polishing of plowshares
before they are sent out from the factory diminishes the amount of
capital embodied in plowshares by as much as the weight or bulk of the
waste material removed from the shares in polishing them.

Several things may be said of the facts discussed in this passage. There
is, presumably, a decrease, in bulk, weight, or number, of the
appliances that make up the industrial equipment at the time when such a
technological change as is contemplated takes place. This change,
presumably, increases the productive efficiency of the equipment as a
whole, and so may be said without hesitation to increase the equipment
as a factor of production, while it may decrease it, considered as a
mechanical magnitude. The owners of the obsolete or obsolescent
appliances presumably suffer a diminution of their capital, whether they
discard the obsolete appliances or not. The owners of the new
appliances, or rather those who own and are able to capitalise the new
technological expedients, presumably gain a corresponding advantage,
which may take the form of an increase of the effective capitalisation
of their outfit, as would then be shown by an increased market value of
their plant. The largest theoretical outcome of the supposed changes,
for an economist not bound by Mr. Clark's conception of capital, should
be the generalisation that industrial capital--capital considered as a
productive agent--is substantially a capitalisation of technological
expedients, and that a given capital invested in industrial equipment is
measured by the portion of technological expedients whose usufruct the
investment appropriates. It would accordingly appear that the
substantial core of all capital is immaterial wealth, and that the
material objects which are formally the subject of the capitalist's
ownership are, by comparison, a transient and adventitious matter. But
if such a view were accepted, even with extreme reservations, Mr.
Clark's scheme of the "natural" distribution of incomes between capital
and labor would "go up in the air," as the colloquial phrase has it. It
would be extremely difficult to determine what share of the value of the
joint product of capital and labor should, under a rule of "natural"
equity, go to the capitalist as an equitable return for his
monopolisation of a given portion of the intangible assets of the
community at large.[11] The returns actually accruing to him under
competitive conditions would be a measure of the differential advantage
held by him by virtue of his having become legally seized of the
material contrivances by which the technological achievements of the
community are put into effect.

Yet, if in this way capital were apprehended as "an historical
category," as Rodbertus would say, there is at least the comfort in it
all that it should leave a free field for Mr. Clark's measures of
repression as applied to the discretionary management of capital by the
makers of trusts. And yet, again, this comforting reflection is coupled
with the ugly accompaniment that by the same move the field would be
left equally free of moral obstructions to the extreme proposals of the
socialists. A safe and sane course for the quietist in these premises
should apparently be to discard the equivocal doctrines of the passage
(pp. 306-311) from which this train of questions arises, and hold fast
to the received dogma, however unworkable, that "capital" is a congeries
of physical objects with no ramifications or complications of an
immaterial kind, and to avoid all recourse to the concept of value, or
price, in discussing matters of modern business.

       *       *       *       *       *

The center of interest and of theoretical force and validity in Mr.
Clark's work is his law of "natural" distribution. Upon this law hangs
very much of the rest, if not substantially the whole structure of
theory. To this law of distribution the earlier portions of the
theoretical development look forward, and this the succeeding portions
of the treatise take as their point of departure. The law of "natural"
distribution says that any productive agent "naturally" gets what
it produces. Under ideally free competitive conditions--such as
prevail in the "static" state, and to which the current situation
approximates--each unit of each productive factor unavoidably gets
the amount of wealth which it creates,--its "virtual product,"
as it is sometimes expressed. This law rests, for its theoretical
validity, on the doctrine of "final productivity," set forth in
full in the _Distribution of Wealth_, and more concisely in the
_Essentials_[12]--"one of those universal principles which govern
economic life in all its stages of evolution."[13]

In combination with a given amount of capital, it is held, each
succeeding unit of added labor adds a less than proportionate increment
to the product. The total product created by the labor so engaged is at
the same time the distributive share received by such labor as wages;
and it equals the increment of product added by the "final" unit of
labor, multiplied by the number of such units engaged. The law of
"natural" interest is the same as this law of wages, with a change of
terms. The product of each unit of labor or capital being measured by
the product of the "final" unit, each gets the amount of its own
product.

In all of this the argument runs in terms of value; but it is Mr.
Clark's view, backed by an elaborate exposition of the grounds of his
contention,[14] that the use of these terms of value is merely a matter
of convenience for the argument, and that the conclusions so
reached--the equality so established between productivity and
remuneration--may be converted to terms of goods, or "effective
utility," without abating their validity.

Without recourse to some such common denominator as value the outcome of
the argument would, as Mr. Clark indicates, be something resembling the
Ricardian law of differential rent instead of a law drawn in homogeneous
terms of "final productivity"; and the law of "natural" distribution
would then, at the best, fall short of a general formula. But the
recourse to terms of value does not, as Mr. Clark recognises, dispose of
the question without more ado. It smooths the way for the argument, but,
unaided, it leaves it nugatory. According to Hudibras, "The value of a
thing Is just as much as it will bring," and the later refinements on
the theory of value have not set aside this dictum of the ancient
authority. It answers no pertinent question of equity to say that the
wages paid for labor are as much as it will bring. And Mr. Clark's
chapter (xxiv.) on "The Unit for Measuring Industrial Agents and their
Products" is designed to show how this tautological statement in terms
of market value converts itself, under competitive conditions, into a
competent formula of distributive justice. It does not conduce to
intelligibility to say that the wages of labor are just and fair because
they are all that is paid to labor as wages. What further value Mr.
Clark's extended discussion of this matter may have will lie in his
exposition of how competition converts the proposition that "the value
of a thing is just as much as it will bring" into the proposition that
"the market rate of wages (or interest) gives to labor (or capital) the
full product of labor (or capital)."

In following up the theory at this critical point, it is necessary to
resort to the fuller statement of the _Distribution of Wealth_,[15] the
point being not so adequately covered in the _Essentials_. Consistently
hedonistic, Mr. Clark recognises that his law of natural justice must be
reduced to elementary hedonistic terms, if it is to make good its claim
to stand as a fundamental principle of theory. In hedonistic theory,
production of course means the production of utilities, and utility is
of course utility to the consumer.[16] A product is such by virtue of
and to the amount of the utility which it has for a consumer. This
utility of the goods is measured, as value, by the sacrifice
(disutility) which the consumer is willing to undergo in order to get
the utility which the consumption of the goods yields him. The unit and
measure of productive labor is in the last analysis also a unit of
disutility; but it is disutility to the productive laborer, not to the
consumer. The balance which establishes itself under competitive
conditions is a compound balance, being a balance between the utility of
the goods to the consumer and the disutility (cost) which he is willing
to undergo for it, on the one hand, and, on the other hand, a balance
between the disutility of the unit of labor and the utility for which
the laborer is willing to undergo this disutility. It is evident, and
admitted, that there can be no balance, and no commensurability, between
the laborer's disutility (pain) in producing the goods and the
consumer's utility (pleasure) in consuming them, inasmuch as these two
hedonistic phenomena lie each within the consciousness of a distinct
person. There is, in fact, no continuity of nervous tissue over the
interval between consumer and producer, and a direct comparison,
equilibrium, equality, or discrepancy in respect of pleasure and pain
can, of course, not be sought except within each self-balanced
individual complex of nervous tissue.[17] The wages of labor (_i.e._,
the utility of the goods received by the laborer) is not equal to the
disutility undergone by him, except in the sense that he is
competitively willing to accept it; nor are these wages equal to the
utility got by the consumer of the goods, except in the sense that he
is competitively willing to pay them. This point is covered by the
current diagrammatic arguments of marginal-utility theory as to the
determination of competitive prices.

But, while the wages are not equal to or directly comparable with the
disutility of the productive labor engaged, they are, in Mr. Clark's
view, equal to the "productive efficiency" of that labor.[18]
"Efficiency in a worker is, in reality, power to draw out labor on the
part of society. It is capacity to offer that for which society will
work in return." By the mediation of market price, under competitive
conditions, it is held, the laborer gets, in his wages, a valid claim on
the labor of other men (society) as large as they are competitively
willing to allow him for the services for which he is paid his wages.
The equitable balance between work and pay contemplated by the "natural"
law is a balance between wages and "efficiency," as above defined; that
is to say, between the wages of labor and the capacity of labor to get
wages. So far, the whole matter might evidently have been left as
Bastiat left it. It amounts to saying that the laborer gets what he is
willing to accept and the consumers give what they are willing to pay.
And this is true, of course, whether competition prevails or not.

What makes this arrangement just and right under competitive conditions,
in Mr. Clark's view, lies in his further doctrine that under such
conditions of unobstructed competition the prices of goods, and
therefore the wages of labor, are determined, within the scope of the
given market, by a quasi-consensus of all the parties in interest. There
is of course no formal consensus, but what there is of the kind is
implied in the fact that bargains are made, and this is taken as an
appraisement by "society" at large. The (quasi-) consensus of buyers is
held to embody the righteous (quasi-) appraisement of society in the
premises, and the resulting rate of wages is therefore a (quasi-) just
return to the laborer.[19] "Each man accordingly is paid an amount that
equals the total product that he personally creates."[20] If competitive
conditions are in any degree disturbed, the equitable balance of prices
and wages is disturbed by that much. All this holds true for the
interest of capital, with a change of terms.

The equity and binding force of this finding is evidently bound up with
that common-sense presumption on which it rests; namely, that it is
right and good that all men should get what they can without force or
fraud and without disturbing existing property relations. It springs
from this presumption, and, whether in point of equity or of expediency,
it rises no higher than its source. It does not touch questions of
equity beyond this, nor does it touch questions of the expediency or
probable advent of any contemplated change in the existing conventions
as to rights of ownership and initiative. It affords a basis for those
who believe in the old order--without which belief this whole structure
of opinions collapses--to argue questions of wages and profits in a
manner convincing to themselves, and to confirm in the faith those who
already believe in the old order. But it is not easy to see that some
hundreds of pages of apparatus should be required to find one's way back
to these time-worn commonplaces of Manchester.

In effect, this law of "natural" distribution says that whatever men
acquire without force or fraud under competitive conditions is their
equitable due, no more and no less, assuming that the competitive
system, with its underlying institution of ownership, is equitable and
"natural." In point of economic theory the law appears on examination to
be of slight consequence, but it merits further attention for the
gravity of its purport. It is offered as a definitive law of equitable
distribution comprised in a system of hedonistic economics which is in
the main a theory of distributive acquisition only. It is worth while to
compare the law with its setting, with a view to seeing how its broad
declarations of economic justice shows up in contrast with the elements
out of which it is constructed and among which it lies.

Among the notable chapters of the _Essentials_ is one (vi.) on Value and
its Relation to Different Incomes, which is not only a very substantial
section of Mr. Clark's economic theory, but at the same time a type of
the achievements of the latter-day hedonistic school. Certain features
of this chapter alone can be taken up here. The rest may be equally
worthy the student's attention, but it is the intention here not to go
into the general substance of the theory of marginal utility and value,
to which the chapter is devoted, but to confine attention to such
elements of it as bear somewhat directly on the question of equitable
distribution already spoken of. Among these latter is the doctrine of
the "consumer's surplus,"--virtually the same as what is spoken of by
other writers as "consumer's rent."[21] "Consumer's surplus" is the
surplus of utility (pleasure) derived by the consumer of goods above the
(pain) cost of the goods to him. This is held to be a very generally
prevalent phenomenon. Indeed, it is held to be all but universally
present in the field of consumption. It might, in fact, be effectively
argued that even Mr. Clark's admitted exception[22] is very doubtfully
to be allowed, on his own showing. Correlated with this element of
utility on the consumer's side is a similar volume of disutility on the
producer's side, which may be called "producer's abatement," or
"producer's rent": it is the amount of disutility by which the
disutility-cost of a given article to any given producer (laborer) falls
short of (or conceivably exceeds) the disutility incurred by the
marginal producer. Marginal buyers or consumers and marginal sellers or
producers are relatively few: the great body on both sides come in for
something in the way of a "surplus" of utility or disutility.

All this bears on the law of "natural" wages and interest as follows,
taking that law of just remuneration at Mr. Clark's rating of it. The
law works out through the mediation of price. Price is determined,
competitively, by marginal producers or sellers and marginal consumers
or purchasers: the latter alone on the one side get the precise
price-equivalent of the disutility incurred by them, and the latter
alone on the other side pay the full price-equivalent of the utilities
derived by them from the goods purchased.[23] Hence the competitive
price--covering competitive wages and interest--does not reflect the
consensus of all parties concerned as to the "effective utility" of the
goods, on the one hand, or as to their effective (disutility) cost, on
the other hand. It reflects instead, if anything of this kind, the
valuations which the marginal unfortunates on each side concede under
stress of competition; and it leaves on each side of the bargain
relation an uncovered "surplus," which marks the (variable) interval by
which price fails to cover "effective utility." The excess utility--and
the conceivable excess cost--does not appear in the market transactions
that mediate between consumer and producer.[24] In the balance,
therefore, which establishes itself in terms of value between the social
utility of the product and the remuneration of the producer's
"efficiency," the margin of utility represented by the aggregate
"consumer's surplus" and like elements is not accounted for. It follows,
when the argument is in this way reduced to its hedonistic elements,
that no man "is paid an amount that equals the amount of the total
product that he personally creates."

Supposing the marginal-utility (final-utility) theories of objective
value to be true, there is no consensus, actual or constructive, as to
the "effective utility" of the goods produced: there is no "social"
decision in the case beyond what may be implied in the readiness of
buyers to profit as much as may be by the necessities of the marginal
buyer and seller. It appears that there is warrant, within these
premises, for the formula: Remuneration <> than Product. Only by
an infinitesimal chance would it hold true in any given case that,
hedonistically, Remuneration = Product; and, if it should ever happen to
be true, there would be no finding it out.

The (hedonistic) discrepancy which so appears between remuneration and
product affects both wages and interest in the same manner, but there is
some (hedonistic) ground in Mr. Clark's doctrines for holding that the
discrepancy does not strike both in the same degree. There is indeed no
warrant for holding that there is anything like an equable distribution
of this discrepancy among the several industries or the several
industrial concerns; but there appears to be some warrant, on Mr.
Clark's argument, for thinking that the discrepancy is perhaps slighter
in those branches of industry which produce the prime necessaries of
life.[25] This point of doctrine throws also a faint (metaphysical)
light on a, possibly generic, discrepancy between the remuneration of
capitalists and that of laborers: the latter are, relatively, more
addicted to consuming the necessaries of life, and it may be that they
thereby gain less in the way of a consumer's surplus.

All the analysis and reasoning here set forth has an air of undue
tenuity; but in extenuation of this fault it should be noted that this
reasoning is made up of such matter as goes to make up the theory under
review, and the fault, therefore, is not to be charged to the critic.
The manner of argument required to meet this theory of the "natural law
of final productivity" on its own ground is itself a sufficiently
tedious proof of the futility of the whole matter in dispute. Yet it
seems necessary to beg further indulgence for more of the same kind. As
a needed excuse, it may be added that what immediately follows bears on
Mr. Clark's application of the law of "natural distribution" to modern
problems of industry and public policy, in the matter of curbing
monopolies.

       *       *       *       *       *

Accepting, again, Mr. Clark's general postulates--the postulates of
current hedonistic economics--and applying the fundamental concepts,
instead of their corollaries, to his scheme of final productivity, it
can be shown to fail on grounds even more tenuous and hedonistically
more fundamental than those already passed in review. In all
final-utility (marginal-utility) theory it is of the essence of the
scheme of things that successive increments of a "good" have
progressively less than proportionate utility. In fact, the coefficient
of decrease of utility is greater than the coefficient of increase of
the stock of goods. The solitary "first loaf" is exorbitantly useful. As
more loaves are successively added to the stock, the utility of each
grows small by degrees and incontinently less, until, in the end, the
state of the "marginal" or "final" loaf is, in respect of utility,
shameful to relate. So, with a change of phrase, it fares with
successive increments of a given productive factor--labor or capital--in
Mr. Clark's scheme of final productivity. And so, of course, it also
fares with the utility of successive increments of product created by
successively adding unit after unit to the complement of a given
productive factor engaged in the case. If we attend to this matter of
final productivity in consistently hedonistic terms, a curious result
appears.

A larger complement of the productive agent, counted by weight and tale,
will, it is commonly held, create a larger output of goods, counted by
weight and tale;[26] but these are not hedonistic terms and should not
be allowed to cloud the argument. In the hedonistic scheme the magnitude
of goods, in all the dimensions to be taken account of, is measured in
terms of utility, which is a different matter from weight and tale. It
is by virtue of their utility that they are "goods," not by virtue of
their physical dimensions, number and the like; and utility is a matter
of the production of pleasure and the prevention of pain. Hedonistically
speaking, the amount of the goods, the magnitude of the output, is the
quantity of utility derivable from their consumption; and the utility
per unit decreases faster than the number of units increases.[27] It
follows that in the typical or undifferentiated case an increase of the
number of units beyond a certain critical point entails a decrease of
the "total effective utility" of the supply.[28] This critical point
seems ordinarily to be very near the point of departure of the curve of
declining utility, perhaps it frequently coincides with the latter. On
the curve of declining final utility, at any point whose tangent cuts
the axis of ordinates at an angle of less than 45 degrees, an increase
of the number of units entails a decrease of the "total effective
utility of the supply,"[29] so that a gain in physical productivity is
a loss as counted in "total effective utility." Hedonistically,
therefore, the productivity in such a case diminishes, not only
relatively to the (physical) magnitude of the productive agents, but
absolutely. This critical point, of maximum "total effective utility,"
is, if the practice of shrewd business men is at all significant,
commonly somewhat short of the point of maximum physical productivity,
at least in modern industry and in a modern community.

The "total effective utility" may commonly be increased by decreasing
the output of goods. The "total effective utility" of wages may often be
increased by decreasing the amount (value) of the wages per man,
particularly if such a decrease is accompanied by a rise in the price of
articles to be bought with the wages. Hedonistically speaking, it is
evident that the point of maximum net productivity is the point at which
a perfectly shrewd business management of a perfect monopoly would limit
the supply; and the point of maximum (hedonistic) remuneration (wages
and interest) is the point which such a management would fix on in
dealing with a wholly free, perfectly competitive supply of labor and
capital.

Such a monopolistic state of things, it is true, would not answer to Mr.
Clark's ideal. Each man would not be "paid an amount that equals the
amount of the total product that he personally creates," but he would
commonly be paid an amount that (hedonistically, in point of "effective
utility") exceeds what he personally creates, because of the high final
utility of what he receives. This is easily proven. Under the
monopolistic conditions supposed, the laborers would, it is safe to
assume, not be fully employed all the time; that is to say, they would
be willing to work some more in order to get some more articles of
consumption; that is to say, the articles of consumption which their
wages offer them have so high a utility as to afford them a consumer's
surplus,--the articles are worth more than they cost:[30] Q. E. D.

The initiated may fairly doubt the soundness of the chain of argument by
which these heterodox theoretical results are derived from Mr. Clark's
hedonistic postulates, more particularly since the adepts of the school,
including Mr. Clark, are not accustomed to draw conclusions to this
effect from these premises. Yet the argument proceeds according to the
rules of marginal-utility permutations. In view of this scarcely
avoidable doubt, it may be permitted, even at the risk of some tedium,
to show how the facts of every-day life bear out this unexpected turn of
the law of natural distribution, as briefly traced above. The principle
involved is well and widely accepted. The familiar practical maxim of
"charging what the traffic will bear" rests on a principle of this kind,
and affords one of the readiest practical illustrations of the working
of the hedonistic calculus. The principle involved is that a larger
aggregate return (value) may be had by raising the return per unit to
such a point as to somewhat curtail the demand. In practice it is
recognised, in other words, that there is a critical point at which the
value obtainable per unit, multiplied by the number of units that will
be taken off at that price, will give the largest net aggregate result
(in value to the seller) obtainable under the given conditions. A
calculus involving the same principle is, of course, the guiding
consideration in all monopolistic buying and selling; but a moment's
reflection will show that it is, in fact, the ruling principle in all
commercial transactions and, indeed, in all business. The maxim of
"charging what the traffic will bear" is only a special formulation of
the generic principle of business enterprise. Business initiative, the
function of the entrepreneur (business man) is comprehended under this
principle taken in its most general sense.[31] In business the buyer, it
is held by the theorists, bids up to the point of greatest obtainable
advantage to himself under the conditions prevailing, and the seller
similarly bids down to the point of greatest obtainable net aggregate
gain. For the trader (business man, entrepreneur) doing business in the
open (competitive) market or for the business concern with a partial or
limited monopoly, the critical point above referred to is, of course,
reached at a lower point on the curve of price than would be the case
under a perfect and unlimited monopoly, such as was supposed above; but
the principle of charging what the traffic will bear remains intact,
although the traffic will not bear the same in the one case as in the
other.

Now, in the theories based on marginal (or "final") utility, value is an
expression or measure of "effective utility"--or whatever equivalent
term may be preferred. In operating on values, therefore, under the rule
of charging what the traffic will bear, the sellers of a monopolised
supply, _e.g._, must operate through the valuations of the buyers; that
is to say, they must influence the final utility of the goods or
services to such effect that the "total effective utility" of the
limited supply to the consumers will be greater than would be the "total
effective utility" of a larger supply, which is the point in question.
The emphasis falls still more strongly on this illustration of the
hedonistic calculus, if it is called to mind that in the common run of
such limitations of supply by a monopolistic business management the
management would be able to increase the supply at a progressively
declining cost beyond the critical point by virtue of the well-known
principle of increasing returns from industry. It is also to be added
that, since the monopolistic business gets its enhanced return from the
margin by which the "total effective utility" of the limited supply
exceeds that of a supply not so limited, and since there is to be
deducted from this margin the costs of monopolistic management in
addition to other costs, therefore the enhancement of the "total
effective utility" of the goods to the consumer in the case must be
appreciably larger than the resulting net gains to the monopoly.

By a bold metaphor--a metaphor sufficiently bold to take it out of the
region of legitimate figures of speech--the gains that come to
enterprising business concerns by such monopolistic enhancement of the
"total effective utility" of their products are spoken of as "robbery,"
"extortion," "plunder"; but the theoretical complexion of the case
should not be overlooked by the hedonistic theorist in the heat of
outraged sentiment. The monopolist is only pushing the principle of all
business enterprise (free competition) to its logical conclusion; and,
in point of hedonistic theory, such monopolistic gains are to be
accounted the "natural" remuneration of the monopolist for his
"productive" service to the community in enhancing their enjoyment per
unit of consumable goods to such point as to swell their net aggregate
enjoyment to a maximum.

This intricate web of hedonistic calculations might be pursued further,
with the result of showing that, while the consumers of the monopolised
supply of goods are gainers by virtue of the enhanced "total effective
utility" of the goods, the monopolists who bring about this result do so
in great part at their own cost, counting cost in terms of a reduction
of "total effective utility." By injudiciously increasing their own
share of goods, they lower the marginal and effective utility of their
wealth to such a point as, probably, to entail a considerable
(hedonistic) privation in the shrinkage of their enjoyment per unit. But
it is not the custom of economists, nor does Mr. Clark depart from this
custom, to dwell on the hardships of the monopolists. This much may be
added, however, that this hedonistically consistent exposition of the
"natural law of final productivity" shows it to be "one of those
universal principles which govern economic life in all its stages of
evolution," even when that evolution enters the phase of monopolistic
business enterprise,--granting always the sufficiency of the hedonistic
postulates from which the law is derived. Further, the considerations
reviewed above go to show that, on two counts, Mr. Clark's crusade
against monopoly in the later portion of his treatise is out of touch
with the larger theoretical speculations of the earlier portions: (_a_)
it runs counter to the hedonistic law of "natural" distribution; and
(_b_) the monopolistic business against which Mr. Clark speaks is but
the higher and more perfect development of that competitive business
enterprise which he wishes to reinstate,--competitive business, so
called, being incipiently monopolistic enterprise.

Apart from this theoretical bearing, the measures which Mr. Clark
advocates for the repression of monopoly, under the head of applications
"to modern problems of industry and public policy," may be good economic
policy or they may not,--they are the expression of a sound common
sense, an unvitiated solicitude for the welfare of mankind, and a wide
information as to the facts of the situation. The merits of this policy
of repression, as such, cannot be discussed here. On the other hand, the
relation of this policy to the theoretical groundwork of the treatise
needs also not be discussed here, inasmuch as it has substantially no
relation to the theory. In this later portion of the volume Mr. Clark
does not lean on doctrines of "final utility," "final productivity," or,
indeed, on hedonistic economics at large. He speaks eloquently for the
material and cultural interests of the community, and the references to
his law of "natural distribution" might be cut bodily out of the
discussion without lessening the cogency of his appeal or exposing any
weakness in his position. Indeed, it is by no means certain that such an
excision would not strengthen his appeal to men's sense of justice by
eliminating irrelevant matter.

Certain points in this later portion of the volume, however, where the
argument is at variance with specific articles of theory professed by
Mr. Clark, may be taken up, mainly to elucidate the weakness of his
theoretical position at the points in question. He recognises with more
than the current degree of freedom that the growth and practicability of
monopolies under modern conditions is chiefly due to the negotiability
of securities representing capital, coupled with the joint-stock
character of modern business concerns.[32] These features of the modern
(capitalistic) business situation enable a sufficiently few men to
control a section of the community sufficiently large to make an
effective monopoly. The most effective known form of organisation for
purposes of monopoly, according to Mr. Clark, is that of the holding
company, and the ordinary corporation follows it closely in
effectiveness in this respect. The monopolistic control is effected by
means of the vendible securities covering the capital engaged. To meet
the specifications of Mr. Clark's theory of capital, these vendible
securities--as _e.g._, the securities (common stock) of a holding
company--should be simply the formal evidence of the ownership of
certain productive goods and the like. Yet, by his own showing, the
ownership of a share of productive goods proportionate to the face
value, or the market value, of the securities is by no means the chief
consequence of such an issue of securities.[33] One of the consequences,
and for the purposes of Mr. Clark's argument the gravest consequence, of
the employment of such securities, is the dissociation of ownership from
the control of the industrial equipment, whereby the owners of certain
securities, which stand in certain immaterial, technical relations to
certain other securities, are enabled arbitrarily to control the use of
the industrial equipment covered by the latter. These are facts of the
modern organisation of capital, affecting the productivity of the
industrial equipment and its serviceability both to its owners and to
the community. They are facts, though not physically tangible objects;
and they have an effect on the serviceability of industry no less
decisive than the effect which any group of physically tangible objects
of equal market value have. They are, moreover, facts which are bought
and sold in the purchase and sale of these securities, as, _e.g._, the
common stock of a holding company. They have a value, and therefore they
have a "total effective utility."

In short, these facts are intangible assets, which are the most
consequential element in modern capital, but which have no existence in
the theory of capital by which Mr. Clark aims to deal with "modern
problems of industry." Yet, when he comes to deal with these problems,
it is, of necessity, these intangible assets that immediately engage his
attention. These intangible assets are an outgrowth of the freedom of
contract under the conditions imposed by the machine industry; yet Mr.
Clark proposes to suppress this category of intangible assets without
prejudice to freedom of contract or to the machine industry, apparently
without having taken thought of the lesson which he rehearses (pp.
390-391) from the introduction of the holding company, with its
"sinister perfection," to take the place of the (less efficient) "trust"
when the latter was dealt with somewhat as it is now proposed to deal
with the holding company. One is tempted to remark that a more naïve
apprehension of the facts of modern capital would have afforded a more
competent realisation of the problems of monopoly.

       *       *       *       *       *

It appears from what has just been said of Mr. Clark's "natural"
distribution and of his dealing with the problems of modern industry
that the logic of hedonism is of no avail for the theory of business
affairs. Yet it is held, perhaps justly, that the hedonistic
interpretation may be of great avail in analysing the industrial
functions of the community, in their broad, generic character, even if
it should not serve so well for the intricate details of the modern
business situation. It may be at least a serviceable hypothesis for the
outlines of economic theory, for the first approximations to the
"economic laws" sought by taxonomists. To be serviceable for this
purpose, the hypothesis need perhaps not be true to fact, at least not
in the final details of the community's life or without material
qualification;[34] but it must at least have that ghost of actuality
that is implied in consistency with its own corollaries and
ramifications.

As has been suggested in an earlier paragraph, it is characteristic of
hedonistic economics that the large and central element in its
theoretical structure is the doctrine of distribution. Consumption being
taken for granted as a quantitive matter simply,--essentially a matter
of an insatiable appetite,--economics becomes a theory of acquisition;
production is, theoretically, a process of acquisition, and distribution
a process of distributive acquisition. The theory of production is drawn
in terms of the gains to be acquired by production; and under
competitive conditions this means necessarily the acquisition of a
distributive share of what is available. The rest of what the facts of
productive industry include, as, _e.g._, the facts of workmanship or the
" state of the industrial arts," gets but a scant and perfunctory
attention. Those matters are not of the theoretical essence of the
scheme. Mr. Clark's general theory of production does not differ
substantially from that commonly professed by the marginal-utility
school. It is a theory of competitive acquisition. An inquiry into the
principles of his doctrine, therefore, as they appear, _e.g._, in the
early chapters of the _Essentials_, is, in effect, an inquiry into the
competence of the main theorems of modern hedonistic economics.

"All men seek to get as much net service from material wealth as they
can." "Some of the benefit received is neutralised by the sacrifice
incurred; but there is a net surplus of gains not thus canceled by
sacrifices, and the generic motive which may properly be called
economic is the desire to make this surplus large."[35] It is of the
essence of the scheme that the acquisitive activities of mankind afford
a net balance of pleasure. It is out of this net balance, presumably,
that "the consumer's surpluses" arise, or it is in this that they merge.
This optimistic conviction is a matter of presumption, of course; but it
is universally held to be true by hedonistic economists, particularly by
those who cultivate the doctrines of marginal utility. It is not
questioned and not proven. It seems to be a surviving remnant of the
eighteenth-century faith in a benevolent Order of Nature; that is to
say, it is a rationalistic metaphysical postulate. It may be true or
not, as matter of fact; but it is a postulate of the school, and its
optimistic bias runs like a red thread through all the web of argument
that envelops the "normal" competitive system. A surplus of gain is
normal to the theoretical scheme.

The next great theorem of this theory of acquisition is at
cross-purposes with this one. Men get useful goods only at the cost of
producing them, and production is irksome, painful, as has been
recounted above. They go on producing utilities until, at the margin,
the last increment of utility in the product is balanced by the
concomitant increment of disutility in the way of irksome productive
effort,--labor or abstinence. At the margin, pleasure-gain is balanced
by pain-cost. But the "effective utility" of the total product is
measured by that of the final unit; the effective utility of the whole
is given by the number of units of product multiplied by the effective
utility of the final unit; while the effective disutility (pain-cost) of
the whole is similarly measured by the pain-cost of the final unit. The
"total effective utility" of the producer's product equals the "total
effective disutility" of his pains of acquisition. Hence there is no net
surplus of utility in the outcome.

The corrective objection is ready to hand,[36] that, while the balance
of utility and disutility holds at the margin, it does not hold for the
earlier units of the product, these earlier units having a larger
utility and a lower cost, and so leaving a large net surplus of utility,
which gradually declines as the margin is approached. But this attempted
correction evades the hedonistic test. It shifts the ground from the
calculus to the objects which provoke the calculation. Utility is a
psychological matter, a matter of pleasurable appreciation, just as
disutility, conversely, is a matter of painful appreciation. The
individual who is held to count the costs and the gain in this
hedonistic calculus is, by supposition, a highly reasonable person. He
counts the cost to him as an individual against the gain to him as an
individual. He looks before and after, and sizes the whole thing up in a
reasonable course of conduct. The "absolute utility" would exceed the
"effective utility" only on the supposition that the "producer" is an
unreflecting sensory apparatus, such as the beasts of the field are
supposed to be, devoid of that gift of appraisement and calculation
which is the hypothetical hedonist's only human trait. There might on
such a supposition--if the producer were an intelligent sensitive
organism simply--emerge an excess of total pleasure over total pain, but
there could then be no talk of utility or of disutility, since these
terms imply intelligent reflection, and they are employed because they
do so. The hedonistic producer looks to his own cost and gain, as an
intelligent pleasure-seeker whose consciousness compasses the contrasted
elements as wholes. He does not contrast the balance of pain and
pleasure in the morning with the balance of pain and pleasure in the
afternoon, and say that there is so much to the good because he was not
so tired in the morning. Indeed, by hypothesis, the pleasure to be
derived from the consumption of the product is a future, or expected,
pleasure, and can be said to be present, at the point of time at which a
given unit of pain-cost is incurred, only in anticipation; and it cannot
be said that the anticipated pleasure attaching to a unit of product
which emerges from the effort of the producer during the relatively
painless first hour's work exceeds the anticipated pleasure attaching to
a similar unit emerging from the second hour's work. Mr. Clark has, in
effect, explained this matter in substantially the same way in another
connection (_e.g._, p. 42), where he shows that the magnitude on which
the question of utility and cost hinges is the "total effective
utility," and that the "total absolute utility" is a matter not of what
hedonistically is, in respect of utility as an outcome of production,
but of what might have been under different circumstances.

An equally unprofitable result may be reached from the same point of
departure along a different line of argument. Granting that increments
of product should be measured, in respect of utility, by comparison with
the disutility of the concomitant increment of cost, then the
diagrammatic arguments commonly employed are inadequate, in that the
diagrams are necessarily drawn in two dimensions only,--length and
breadth: whereas they should be drawn in three dimensions, so as to take
account of the intensity of application as well as of its duration.[37]
Apparently, the exigencies of graphic representation, fortified by the
presumption that there always emerges a surplus of utility, have led
marginal-utility theorists, in effect, to overlook this matter of
intensity of application.

When this element is brought in with the same freedom as the other two
dimensions engaged, the argument will, in hedonistic consistency, run
somewhat as follows,--the run of the facts being what it may. The
producer, setting out on this irksome business, and beginning with the
production of the exorbitantly useful initial unit of product, will, by
hedonistic necessity, apply himself to the task with a correspondingly
extravagant intensity, the irksomeness (disutility) of which necessarily
rises to such a pitch as to leave no excess of utility in this initial
unit of product above the concomitant disutility of the initial unit of
productive effort.[38] As the utility of subsequent units of product
progressively declines, so will the producer's intensity of irksome
application concomitantly decline, maintaining a nice balance between
utility and disutility throughout. There is, therefore, no excess of
"absolute utility" above "effective utility" at any point on the curve,
and no excess of "total absolute utility" above "total effective
utility" of the product as a whole, nor above the "total absolute
disutility" or the "total effective disutility" of the pain-cost.

A transient evasion of this outcome may perhaps be sought by saying that
the producer will act wisely, as a good hedonist should, and save his
energies during the earlier moments of the productive period in order to
get the best aggregate result from his day's labor, instead of spending
himself in ill-advised excesses at the outset. Such seems to be the fact
of the matter, so far as the facts wear a hedonistic complexion; but
this correction simply throws the argument back on the previous position
and concedes the force of what was there claimed. It amounts to saying
that, instead of appreciating each successive unit of product in
isolated contrast with its concomitant unit of irksome productive
effort, the producer, being human, wisely looks forward to his total
product and rates it by contrast with his total pain-cost. Whereupon, as
before, no net surplus of utility emerges, under the rule which says
that irksome production of utilities goes on until utility and
disutility balance.

But this revision of "final productivity" has further consequences for
the optimistic doctrines of hedonism. Evidently, by a somewhat similar
line of argument the "consumer's surplus" will be made to disappear,
even as this that may be called the "producer's surplus" has
disappeared. Production being acquisition, and the consumer's cost being
cost of acquisition, the argument above should apply to the consumer's
case without abatement. On considering this matter in terms of the
hedonistically responsive individual concerned, with a view to
determining whether there is, in his calculus of utilities and costs,
any margin of uncovered utilities left over after he has incurred all
the disutilities that are worth while to him,--instead of proceeding on
a comparison between the pleasure-giving capacity of a given article and
the market price of the article, all such alleged differential
advantages within the scope of a single sensory are seen to be nothing
better than an illusory diffractive effect due to a faulty instrument.

But the trouble does not end here. The equality: pain-cost =
pleasure-gain, is not a competent formula. It should be: pain-cost
incurred = pleasure-gain anticipated. And between these two formulas
lies the old adage, "there's many a slip 'twixt the cup and the lip." In
an appreciable proportion of ventures, endeavors, and enterprises, men's
expectations of pleasure-gain are in some degree disappointed,--through
miscalculation, through disserviceable secondary effects of their
productive efforts, by "the act of God," by "fire, flood, and
pestilence." In the nature of things these discrepancies fall out on the
side of loss more frequently than on that of gain. After all allowance
has been made for what may be called serviceable errors, there remains a
margin of disserviceable error, so that pain-cost > eventual
pleasure-gain = anticipated pleasure-gain--_n._ Hence, in general,
pain-cost > pleasure-gain. Hence it appears that, in the nature of
things, men's pains of production are underpaid by that much; although
it may, of course, be held that the nature of things at this point is
not "natural" or "normal."

To this it may be objected that the risk is discounted. Insurance is a
practical discounting of risk; but insurance is resorted to only to
cover risk that is appreciated by the person exposed to it, and it is
such risks as are not appreciated by those who incur them that are
chiefly in question here. And it may be added that insurance has
hitherto not availed to equalise and distribute the chances of success
and failure. Business gains--entrepreneur's gains, the rewards of
initiative and enterprise--come out of this uncovered margin of
adventure, and the losses of initiative and enterprise are to be set
down to the same account. In some measure this element of initiative and
enterprise enters into all economic endeavor. And it is not unusual for
economists to remark that the volume of unsuccessful or only partly
successful enterprise is very large. There are some lines of enterprise
that are, as one might say, extra hazardous, in which the average falls
out habitually on the wrong side of the account. Typical of this class
is the production of the precious metals, particularly as conducted
under that régime of free competition for which Mr. Clark speaks. It has
been the opinion, quite advisedly, of such economists of the classic age
of competition as J. S. Mill and Cairnes, _e.g._, that the world's
supply of the precious metals has been got at an average or total cost
exceeding their value by several fold. The producers, under free
competition at least, are over-sanguine of results.

But, in strict consistency, the hedonistic theory of human conduct does
not allow men to be guided in their calculation of cost and gain, when
they have to do with the precious metals, by different norms from those
which rule their conduct in the general quest of gain. The visible
difference in this respect between the production of the precious metals
and production generally should be due to the larger proportions and
greater notoriety of the risks in this field rather than to a difference
in the manner of response to the stimulus of expected gain. The canons
of hedonistic calculus permit none but a quantitative difference in the
response. What happens in the production of the precious metals is
typical of what happens in a measure and more obscurely throughout the
field of productive effort.

Instead of a surplus of utility of product above the disutility of
acquisition, therefore, there emerges an average or aggregate net
hedonistic deficit. On a consistent marginal-utility theory, all
production is a losing game. The fact that Nature keeps the bank, it
appears, does not take the hedonistic game of production out of the
general category known of old to that class of sanguine hedonistic
calculators whose day-dreams are filled with safe and sane schemes for
breaking the bank. "Hope springs eternal in the human breast." Men are
congenitally over-sanguine, it appears; and the production of utilities
is, mathematically speaking, a function of the pig-headed optimism of
mankind. It turns out that the laws of (human) nature malevolently grind
out vexation for men instead of benevolently furthering the greatest
happiness of the greatest number. The sooner the whole traffic ceases,
the better,--the smaller will be the net balance of pain. The great
hedonistic Law of Nature turns out to be simply the curse of Adam,
backed by the even more sinister curse of Eve.

       *       *       *       *       *

The remark was made in an earlier paragraph that Mr. Clark's theories
have substantially no relation to his practical proposals. This broad
declaration requires an equally broad qualification. While the positions
reached in his theoretical development count for nothing in making or
fortifying the positions taken on "problems of modern industry and
public policy," the two phases of the discussion--the theoretical and
the pragmatic--are the outgrowth of the same range of preconceptions and
run back to the same metaphysical ground. The present canvass of items
in the doctrinal system has already far overpassed reasonable limits,
and it is out of the question here to pursue the exfoliation of ideas
through Mr. Clark's discussion of public questions, even in the
fragmentary fashion in which scattered items of the theoretical portion
of his treatise have been passed in review. But a broad and rudely drawn
characterisation may yet be permissible. This latter portion of the
volume has the general complexion of a Bill of Rights. This is said, of
course, with no intention of imputing a fault. It implies that the scope
and method of the discussion is governed by the preconception that there
is one right and beautiful definitive scheme of economic life, "to which
the whole creation tends." Whenever and in so far as current phenomena
depart or diverge from this definitive "natural" scheme or from the
straight and narrow path that leads to its consummation, there is a
grievance to be remedied by putting the wheels back into the rut. The
future, such as it ought to be,--the only normally possible, natural
future scheme of life,--is known by the light of this preconception; and
men have an indefeasible right to the installation and maintenance of
those specific economic relations, expedients, institutions, which this
"natural" scheme comprises, and to no others. The consummation is
presumed to dominate the course of things which is presumed to lead up
to the consummation. The measures of redress whereby the economic Order
of Nature is to renew its youth are simple, direct, and short-sighted,
as becomes the proposals of pre-Darwinian hedonism, which is not
troubled about the exuberant uncertainties of cumulative change. No
doubt presents itself but that the community's code of right and equity
in economic matters will remain unchanged under changing conditions of
economic life.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XXII, Feb., 1908.

[2] _The Essentials of Economic Theory, as Applied to Modern Problems of
Industry and Public Policy._ By John Bates Clark. New York: The
Macmillan Company. 1907.

[3] _Cf._, _e.g. The Distribution of Wealth_, p. 376, note.

[4] See, _e.g._, J. S. Mill, _Political Economy_, Book I; Marshall,
_Principles of Economics_, Vol. I, Books II-V.

[5] _Cf._, _e.g._, such an account as Barrows, _Ethno-botany of the
Coahuilla Indians_.

[6] What would be the scientific rating of the work of a botanist who
should spend his energy in devising ways and means to neutralize the
ecological variability of plants, or of a physiologist who conceived it
the end of his scientific endeavors to rehabilitate the vermiform
appendix or the pineal eye, or to denounce and penalize the imitative
coloring of the Viceroy butterfly? What scientific interest would attach
to the matter if Mr. Loeb, _e.g._, should devote a few score pages to
canvassing the moral responsibilities incurred by him in his parental
relation to his parthenogenetically developed sea-urchin eggs?

Those phenomena which Mr. Clark characterizes as "positive perversions"
may be distasteful and troublesome, perhaps, but "the economic necessity
of doing what is legally difficult" is not of the "essentials of
theory."

[7] It is a notable fact that even the genius of Herbert Spencer could
extract nothing but taxonomy from his hedonistic postulates; _e.g._,
_his Social Statics_. Spencer is both evolutionist and hedonist, but it
is only by recourse to other factors, alien to the rational hedonistic
scheme, such as habit, delusions, use and disuse, sporadic variation,
environmental forces, that he is able to achieve anything in the way of
genetic science, since it is only by this recourse that he is enabled to
enter the field of cumulative change within which the modern
post-Darwinian sciences live and move and have their being.

[8] "The capital-goods have to be taken unit by unit if their value for
productive purposes is to be rightly gauged. A part of a supply of
potatoes is traceable to the hoes that dig them.... We endeavor simply
to ascertain how badly the loss of one hoe would affect us or how much
good the restoration of it would do us. This truth, like the foregoing
ones, has a universal application in economics; for primitive men as
well as civilized ones must estimate the specific productivity of the
tools that they use," etc. Page 43.

[9] _Cf._ a criticism of Mr. Fisher's conception in the _Political
Science Quarterly_ for February, 1908.

[10] "The machine itself is often a hopeless specialist. It can do one
minute thing and that only, and when a new and better device appears for
doing that one thing, the machine has to go, and not to some new
employment, but to the junk heap. There is thus taking place a
considerable waste of capital in consequence of mechanical and other
progress." "Indeed, a quick throwing away of instruments which have
barely begun to do their work is often the secret of the success of an
enterprising manager, but it entails a destruction of capital."

[11] The position of the laborer and his wages, in this light, would not
be substantially different from that of the capitalist and his interest.
Labor is no more possible, as a fact of industry, without the
community's accumulated technological knowledge than is the use of
"productive goods."

[12] _Cf. Distribution of Wealth_, chaps, xii, xiii, vii, viii;
_Essentials_, chaps, v-x.

[13] _Essentials_, p. 158.

[14] _Distribution_, chap. xxiv.

[15] Chap. xxiv.

[16] _Essentials_, p. 40.

[17] Among modern economic hedonists, including Mr. Clark, there stands
over from the better days of the order of nature a presumption,
disavowed, but often decisive, that the sensational response to the like
mechanical impact of the stimulating body is the same in different
individuals. But, while this presumption stands ever in the background,
and helps to many important conclusions, as in the case under
discussion, few modern hedonists would question the statement in the
text.

[18] _Distribution_, p. 394.

[19] In Mr. Clark's discussion, elsewhere, the "quasi"-character of the
productive share of the laborer is indicated by saying that it is the
product "imputed" or "imputable" to him.

[20] _Essentials_, p. 92. Et si sensus deficit, ad firmandum cor
sincerum sola fides sufficit.

[21] See pp. 102-113; also p. 172, note.

[22] "The cheapest and poorest grades of articles." Page 113.

[23] See p. 113.

[24] The disappearance, and the method of disappearance, of such
elements of differential utility and disutility occupies a very
important place in all marginal-utility ("final-utility") theories of
market value, or "objective value."

[25] "Only the simplest and cheapest things that are sold in the market
at all bring just what they are worth to the buyers." Page 113.

[26] It is, _e.g._, open to serious question whether Mr. Clark's curves
of final productivity (pp. 139, 148), showing a declining output per
unit in response to an increase of one of the complementary agents of
production, will fit the common run of industry in case the output be
counted by weight and tale. In many cases they will, no doubt; in many
other cases they will not. But this is no criticism of the curves in
question, since they do not, or at least should not, purport to
represent the product in such terms, but in terms of utility.

[27] To resort to an approximation after the manner of Malthus, if the
supply of goods be supposed to increase by arithmetical progression,
their final utility may be said concomitantly to decrease by geometrical
progression.

[28] _Cf. Essentials_, chap. iii, especially pp. 40-41.

[29] The current marginal-utility diagrams are not of much use in this
connection, because the angle of the tangent with the axis of ordinates,
at any point, is largely a matter of the draftsman's taste. The abscissa
and the ordinate do not measure commensurable units. The units on the
abscissa are units of frequency, while those on the ordinate are units
of amplitude; and the greater or less segment of line allowed per unit
on either axis is a matter of independently arbitrary choice. Yet the
proposition in the text remains true,--as true as hedonistic
propositions commonly are. The magnitude of the angle of the tangent
with the axis of ordinates decides whether the total (hedonistic)
productivity at a given point in the curve increases or decreases with a
(mechanical) increase of the productive agent,--no student at all
familiar with marginal-utility arguments will question that patent fact.
But the angle of the tangent depends on the fancy of the draftsman,--no
one possessed of the elemental mathematical notions will question that
equally patent fact.

[30] A similar line of argument has been followed up by Mr. Clark for
capital and interest, in a different connection. See _Essentials_, pp.
340-345, 356.

[31] _Cf. Essentials_, pp. 83-90, 118-120.

[32] _Cf._ chap. xxii, especially pp. 378-392.

[33] _Cf._ p. 391.

[34] _Cf. Essentials_, p. 39.

[35] _Essentials_, p. 39.

[36] _Cf. Essentials_, chap. iii, especially pp. 51-56.

[37] This difficulty is recognized by the current marginal-utility
arguments, and an allowance for intensity is made or presumed. But the
allowance admitted is invariably insufficient. It might be said to be
insufficient by hypothesis, since it is by hypothesis too small to
offset the factor which it is admitted to modify.

[38] The limit to which the intensity rises is a margin of the same kind
as that which limits the duration. This supposition, that the intensity
of application necessarily rises to such a pitch that its disutility
overtakes and offsets the utility of the product, may be objected to as
a bit of puerile absurdity; but it is a long time since puerility or
absurdity has been a bar to any supposition in arguments on marginal
utility.




THE LIMITATIONS OF MARGINAL UTILITY[1]


The limitations of the marginal-utility economics are sharp and
characteristic. It is from first to last a doctrine of value, and in
point of form and method it is a theory of valuation. The whole system,
therefore, lies within the theoretical field of distribution, and it has
but a secondary bearing on any other economic phenomena than those of
distribution--the term being taken in its accepted sense of pecuniary
distribution, or distribution in point of ownership. Now and again an
attempt is made to extend the use of the principle of marginal utility
beyond this range, so as to apply it to questions of production, but
hitherto without sensible effect, and necessarily so. The most ingenious
and the most promising of such attempts have been those of Mr. Clark,
whose work marks the extreme range of endeavor and the extreme degree of
success in so seeking to turn a postulate of distribution to account for
a theory of production. But the outcome has been a doctrine of the
production of values, and value, in Mr. Clark's as in other utility
systems, is a matter of valuation; which throws the whole excursion back
into the field of distribution. Similarly, as regards attempts to make
use of this principle in an analysis of the phenomena of consumption,
the best results arrived at are some formulation of the pecuniary
distribution of consumption goods.

Within this limited range marginal-utility theory is of a wholly
statical character. It offers no theory of a movement of any kind, being
occupied with the adjustment of values to a given situation. Of this,
again, no more convincing illustration need be had than is afforded by
the work of Mr. Clark, which is not excelled in point of earnestness,
perseverance, or insight. For all their use of the term "dynamic,"
neither Mr. Clark nor any of his associates in this line of research
have yet contributed anything at all appreciable to a theory of genesis,
growth, sequence, change, process, or the like, in economic life. They
have had something to say as to the bearing which given economic
changes, accepted as premises, may have on valuation, and so on
distribution; but as to the causes of change or the unfolding sequence
of the phenomena of economic life they have had nothing to say hitherto;
nor can they, since their theory is not drawn in causal terms but in
terms of teleology.

In all this the marginal-utility school is substantially at one with the
classical economics of the nineteenth century, the difference between
the two being that the former is confined within narrower limits and
sticks more consistently to its teleological premises. Both are
teleological, and neither can consistently admit arguments from cause to
effect in the formulation of their main articles of theory. Neither can
deal theoretically with phenomena of change, but at the most only with
rational adjustment to change which may be supposed to have supervened.

To the modern scientist the phenomena of growth and change are the most
obtrusive and most consequential facts observable in economic life. For
an understanding of modern economic life the technological advance of
the past two centuries--_e.g._, the growth of the industrial arts--is of
the first importance; but marginal-utility theory does not bear on this
matter, nor does this matter bear on marginal-utility theory. As a means
of theoretically accounting for this technological movement in the past
or in the present, or even as a means of formally, technically stating
it as an element in the current economic situation, that doctrine and
all its works are altogether idle. The like is true for the sequence of
change that is going forward in the pecuniary relations of modern life;
the hedonistic postulate and its propositions of differential utility
neither have served nor can serve an inquiry into these phenomena of
growth, although the whole body of marginal-utility economics lies
within the range of these pecuniary phenomena. It has nothing to say to
the growth of business usages and expedients or to the concomitant
changes in the principles of conduct which govern the pecuniary
relations of men, which condition and are conditioned by these altered
relations of business life or which bring them to pass.

It is characteristic of the school that wherever an element of the
cultural fabric, an institution or any institutional phenomenon, is
involved in the facts with which the theory is occupied, such
institutional facts are taken for granted, denied, or explained away. If
it is a question of price, there is offered an explanation of how
exchanges may take place with such effect as to leave money and price
out of the account. If it is a question of credit, the effect of credit
extension on business traffic is left on one side and there is an
explanation of how the borrower and lender coöperate to smooth out their
respective income streams of consumable goods or sensations of
consumption. The failure of the school in this respect is consistent and
comprehensive. And yet these economists are lacking neither in
intelligence nor in information. They are, indeed, to be credited,
commonly, with a wide range of information and an exact control of
materials, as well as with a very alert interest in what is going on;
and apart from their theoretical pronouncements the members of the
school habitually profess the sanest and most intelligent views of
current practical questions, even when these questions touch matters of
institutional growth and decay.

The infirmity of this theoretical scheme lies in its postulates, which
confine the inquiry to generalisations of the teleological or
"deductive" order. These postulates, together with the point of view and
logical method that follow from them, the marginal-utility school shares
with other economists of the classical line--for this school is but a
branch or derivative of the English classical economists of the
nineteenth century. The substantial difference between this school and
the generality of classical economists lies mainly in the fact that in
the marginal-utility economics the common postulates are more
consistently adhered to at the same time that they are more neatly
defined and their limitations are more adequately realized. Both the
classical school in general and its specialized variant, the
marginal-utility school, in particular, take as their common point of
departure the traditional psychology of the early nineteenth-century
hedonists, which is accepted as a matter of course or of common
notoriety and is held quite uncritically. The central and well-defined
tenet so held is that of the hedonistic calculus. Under the guidance of
this tenet and of the other psychological conceptions associated and
consonant with it, human conduct is conceived of and interpreted as a
rational response to the exigencies of the situation in which mankind is
placed; as regards economic conduct it is such a rational and
unprejudiced response to the stimulus of anticipated pleasure and
pain--being, typically and in the main, a response to the promptings of
anticipated pleasure, for the hedonists of the nineteenth century and of
the marginal-utility school are in the main of an optimistic temper.[2]
Mankind is, on the whole and normally, (conceived to be) clearsighted
and farsighted in its appreciation of future sensuous gains and losses,
although there may be some (inconsiderable) difference between men in
this respect. Men's activities differ, therefore, (inconsiderably) in
respect of the alertness of the response and the nicety of adjustment of
irksome pain-cost to apprehended future sensuous gain; but, on the
whole, no other ground or line or guidance of conduct than this
rationalistic calculus falls properly within the cognizance of the
economic hedonists. Such a theory can take account of conduct only in so
far as it is rational conduct, guided by deliberate and exhaustively
intelligent choice--wise adaptation to the demands of the main chance.

The external circumstances which condition conduct are variable, of
course, and so they will have a varying effect upon conduct; but their
variation is, in effect, construed to be of such a character only as to
vary the degree of strain to which the human agent is subject by contact
with these external circumstances. The cultural elements involved in the
theoretical scheme, elements that are of the nature of institutions,
human relations governed by use and wont in whatever kind and
connection, are not subject to inquiry but are taken for granted as
pre-existing in a finished, typical form and as making up a normal and
definitive economic situation, under which and in terms of which human
intercourse is necessarily carried on. This cultural situation comprises
a few large and simple articles of institutional furniture, together
with their logical implications or corollaries; but it includes nothing
of the consequences or effects caused by these institutional elements.
The cultural elements so tacitly postulated as immutable conditions
precedent to economic life are ownership and free contract, together
with such other features of the scheme of natural rights as are implied
in the exercise of these. These cultural products are, for the purpose
of the theory, conceived to be given a priori in unmitigated force. They
are part of the nature of things; so that there is no need of accounting
for them or inquiring into them, as to how they have come to be such as
they are, or how and why they have changed and are changing, or what
effect all this may have on the relations of men who live by or under
this cultural situation.

Evidently the acceptance of these immutable premises, tacitly, because
uncritically and as a matter of course, by hedonistic economics gives
the science a distinctive character and places it in contrast with other
sciences whose premises are of a different order. As has already been
indicated, the premises in question, so far as they are peculiar to the
hedonistic economics, are (_a_) a certain institutional situation, the
substantial feature of which is the natural right of ownership, and
(_b_) the hedonistic calculus. The distinctive character given to this
system of theory by these postulates and by the point of view resulting
from their acceptance may be summed up broadly and concisely in saying
that the theory is confined to the ground of sufficient reason instead
of proceeding on the ground of efficient cause. The contrary is true of
modern science, generally (except mathematics), particularly of such
sciences as have to do with the phenomena of life and growth. The
difference may seem trivial. It is serious only in its consequences. The
two methods of inference--from sufficient reason and from efficient
cause--are out of touch with one another and there is no transition from
one to the other: no method of converting the procedure or the results
of the one into those of the other. The immediate consequence
is that the resulting economic theory is of a teleological
character--"deductive" or "a priori" as it is often called--instead of
being drawn in terms of cause and effect. The relation sought by this
theory among the facts with which it is occupied is the control
exercised by future (apprehended) events over present conduct. Current
phenomena are dealt with as conditioned by their future consequences;
and in strict marginal-utility theory they can be dealt with only in
respect of their control of the present by consideration of the future.
Such a (logical) relation of control or guidance between the future and
the present of course involves an exercise of intelligence, a taking
thought, and hence an intelligent agent through whose discriminating
forethought the apprehended future may affect the current course of
events; unless, indeed, one were to admit something in the way of a
providential order of nature or some occult line of stress of the nature
of sympathetic magic. Barring magical and providential elements, the
relation of sufficient reason runs by way of the interested
discrimination, the forethought, of an agent who takes thought of the
future and guides his present activity by regard for this future. The
relation of sufficient reason runs only from the (apprehended) future
into the present, and it is solely of an intellectual, subjective,
personal, teleological character and force; while the relation of cause
and effect runs only in the contrary direction, and it is solely of an
objective, impersonal, materialistic character and force. The modern
scheme of knowledge, on the whole, rests, for its definitive ground, on
the relation of cause and effect; the relation of sufficient reason
being admitted only provisionally and as a proximate factor in the
analysis, always with the unambiguous reservation that the analysis must
ultimately come to rest in terms of cause and effect. The merits of this
scientific animus, of course, do not concern the present argument.

Now, it happens that the relation of sufficient reason enters very
substantially into human conduct. It is this element of discriminating
forethought that distinguishes human conduct from brute behavior. And
since the economist's subject of inquiry is this human conduct, that
relation necessarily comes in for a large share of his attention in any
theoretical formulation of economic phenomena, whether hedonistic or
otherwise. But while modern science at large has made the causal
relation the sole ultimate ground of theoretical formulation; and while
the other sciences that deal with human life admit the relation of
sufficient reason as a proximate, supplementary, or intermediate ground,
subsidiary, and subservient to the argument from cause to effect;
economics has had the misfortune--as seen from the scientific point of
view--to let the former supplant the latter. It is, of course, true that
human conduct is distinguished from other natural phenomena by the human
faculty for taking thought, and any science that has to do with human
conduct must face the patent fact that the details of such conduct
consequently fall into the teleological form; but it is the peculiarity
of the hedonistic economics that by force of its postulates its
attention is confined to this teleological bearing of conduct alone. It
deals with this conduct only in so far as it may be construed in
rationalistic, teleological terms of calculation and choice. But it is
at the same time no less true that human conduct, economic or otherwise,
is subject to the sequence of cause and effect, by force of such
elements as habituation and conventional requirements. But facts of this
order, which are to modern science of graver interest than the
teleological details of conduct, necessarily fall outside the attention
of the hedonistic economist, because they cannot be construed in terms
of sufficient reason, such as his postulates demand, or be fitted into a
scheme of teleological doctrines.

There is, therefore, no call to impugn these premises of the
marginal-utility economics within their field. They commend themselves
to all serious and uncritical persons at the first glance. They are
principles of action which underlie the current, business-like scheme of
economic life, and as such, as practical grounds of conduct, they are
not to be called in question without questioning the existing law and
order. As a matter of course, men order their lives by these principles
and, practically, entertain no question of their stability and finality.
That is what is meant by calling them institutions; they are settled
habits of thought common to the generality of men. But it would be mere
absentmindedness in any student of civilization therefore to admit that
these or any other human institutions have this stability which is
currently imputed to them or that they are in this way intrinsic to the
nature of things. The acceptance by the economists of these or other
institutional elements as given and immutable limits their inquiry in a
particular and decisive way. It shuts off the inquiry at the point where
the modern scientific interest sets in. The institutions in question are
no doubt good for their purpose as institutions, but they are not good
as premises for a scientific inquiry into the nature, origin, growth,
and effects of these institutions and of the mutations which they
undergo and which they bring to pass in the community's scheme of life.

To any modern scientist interested in economic phenomena, the chain of
cause and effect in which any given phase of human culture is involved,
as well as the cumulative changes wrought in the fabric of human conduct
itself by the habitual activity of mankind, are matters of more
engrossing and more abiding interest than the method of inference by
which an individual is presumed invariably to balance pleasure and pain
under given conditions that are presumed to be normal and invariable.
The former are questions of the life-history of the race or the
community, questions of cultural growth and of the fortunes of
generations; while the latter is a question of individual casuistry in
the face of a given situation that may arise in the course of this
cultural growth. The former bear on the continuity and mutations of that
scheme of conduct whereby mankind deals with its material means of life;
the latter, if it is conceived in hedonistic terms, concerns a
disconnected episode in the sensuous experience of an individual member
of such a community.

In so far as modern science inquires into the phenomena of life, whether
inanimate, brute, or human, it is occupied about questions of genesis
and cumulative change, and it converges upon a theoretical formulation
in the shape of a life-history drawn in causal terms. In so far as it
is a science in the current sense of the term, any science, such as
economics, which has to do with human conduct, becomes a genetic inquiry
into the human scheme of life; and where, as in economics, the subject
of inquiry is the conduct of man in his dealings with the material means
of life, the science is necessarily an inquiry into the life-history of
material civilization, on a more or less extended or restricted plan.
Not that the economist's inquiry isolates material civilization from all
other phases and bearings of human culture, and so studies the motions
of an abstractly conceived "economic man." On the contrary, no
theoretical inquiry into this material civilization that shall be at all
adequate to any scientific purpose can be carried out without taking
this material civilization in its causal, that is to say, its genetic,
relations to other phases and bearings of the cultural complex; without
studying it as it is wrought upon by other lines of cultural growth and
as working its effects in these other lines. But in so far as the
inquiry is economic science, specifically, the attention will converge
upon the scheme of material life and will take in other phases of
civilization only in their correlation with the scheme of material
civilization.

Like all human culture this material civilization is a scheme of
institutions--institutional fabric and institutional growth. But
institutions are an outgrowth of habit. The growth of culture is a
cumulative sequence of habituation, and the ways and means of it are the
habitual response of human nature to exigencies that vary incontinently,
cumulatively, but with something of a consistent sequence in the
cumulative variations that so go forward,--incontinently, because each
new move creates a new situation which induces a further new variation
in the habitual manner of response; cumulatively, because each new
situation is a variation of what has gone before it and embodies as
causal factors all that has been effected by what went before;
consistently, because the underlying traits of human nature
(propensities, aptitudes, and what not) by force of which the response
takes place, and on the ground of which the habituation takes effect,
remain substantially unchanged.

Evidently an economic inquiry which occupies itself exclusively with the
movements of this consistent, elemental human nature under given, stable
institutional conditions--such as is the case with the current
hedonistic economics--can reach statical results alone; since it makes
abstraction from those elements that make for anything but a statical
result. On the other hand an adequate theory of economic conduct, even
for statical purposes, cannot be drawn in terms of the individual
simply--as is the case in the marginal-utility economics--because it
cannot be drawn in terms of the underlying traits of human nature
simply; since the response that goes to make up human conduct takes
place under institutional norms and only under stimuli that have an
institutional bearing; for the situation that provokes and inhibits
action in any given case is itself in great part of institutional,
cultural derivation. Then, too, the phenomena of human life occur only
as phenomena of the life of a group or community: only under stimuli due
to contact with the group and only under the (habitual) control
exercised by canons of conduct imposed by the group's scheme of life.
Not only is the individual's conduct hedged about and directed by his
habitual relations to his fellows in the group, but these relations,
being of an institutional character, vary as the institutional scheme
varies. The wants and desires, the end and aim, the ways and means, the
amplitude and drift of the individual's conduct are functions of an
institutional variable that is of a highly complex and wholly unstable
character.

The growth and mutations of the institutional fabric are an outcome of
the conduct of the individual members of the group, since it is out of
the experience of the individuals, through the habituation of
individuals, that institutions arise; and it is in this same experience
that these institutions act to direct and define the aims and end of
conduct. It is, of course, on individuals that the system of
institutions imposes those conventional standards, ideals, and canons of
conduct that make up the community's scheme of life. Scientific inquiry
in this field, therefore, must deal with individual conduct and must
formulate its theoretical results in terms of individual conduct. But
such an inquiry can serve the purposes of a genetic theory only if and
in so far as this individual conduct is attended to in those respects in
which it counts toward habituation, and so toward change (or stability)
of the institutional fabric, on the one hand, and in those respects in
which it is prompted and guided by the received institutional
conceptions and ideals on the other hand. The postulates of marginal
utility, and the hedonistic preconceptions generally, fail at this point
in that they confine the attention to such bearings of economic conduct
as are conceived not to be conditioned by habitual standards and ideals
and to have no effect in the way of habituation. They disregard or
abstract from the causal sequence of propensity and habituation in
economic life and exclude from theoretical inquiry all such interest in
the facts of cultural growth, in order to attend to those features of
the case that are conceived to be idle in this respect. All such facts
of institutional force and growth are put on one side as not being
germane to pure theory; they are to be taken account of, if at all, by
afterthought, by a more or less vague and general allowance for
inconsequential disturbances due to occasional human infirmity. Certain
institutional phenomena, it is true, are comprised among the premises of
the hedonists, as has been noted above; but they are included as
postulates a priori. So the institution of ownership is taken into the
inquiry not as a factor of growth or an element subject to change, but
as one of the primordial and immutable facts of the order of nature,
underlying the hedonistic calculus. Property, ownership, is presumed as
the basis of hedonistic discrimination and it is conceived to be given
in its finished (nineteenth-century) scope and force. There is no
thought either of a conceivable growth of this definitive
nineteenth-century institution out of a cruder past or of any
conceivable cumulative change in the scope and force of ownership in the
present or future. Nor is it conceived that the presence of this
institutional element in men's economic relations in any degree affects
or disguises the hedonistic calculus, or that its pecuniary conceptions
and standards in any degree standardize, color, mitigate, or divert the
hedonistic calculator from the direct and unhampered quest of the net
sensuous gain. While the institution of property is included in this way
among the postulates of the theory, and is even presumed to be
ever-present in the economic situation, it is allowed to have no force
in shaping economic conduct, which is conceived to run its course to its
hedonistic outcome as if no such institutional factor intervened between
the impulse and its realization. The institution of property, together
with all the range of pecuniary conceptions that belong under it and
that cluster about it, are presumed to give rise to no habitual or
conventional canons of conduct or standards of valuation, no proximate
ends, ideals, or aspirations. All pecuniary notions arising from
ownership are treated simply as expedients of computation which mediate
between the pain-cost and the pleasure-gain of hedonistic choice,
without lag, leak, or friction; they are conceived simply as the
immutably correct, God-given notation of the hedonistic calculus.

The modern economic situation is a business situation, in that economic
activity of all kinds is commonly controlled by business considerations.
The exigencies of modern life are commonly pecuniary exigencies. That is
to say they are exigencies of the ownership of property. Productive
efficiency and distributive gain are both rated in terms of price.
Business considerations are considerations of price, and pecuniary
exigencies of whatever kind in the modern communities are exigencies of
price. The current economic situation is a price system. Economic
institutions in the modern civilized scheme of life are (prevailingly)
institutions of the price system. The accountancy to which all phenomena
of modern economic life are amenable is an accountancy in terms of
price; and by the current convention there is no other recognized scheme
of accountancy, no other rating, either in law or in fact, to which the
facts of modern life are held amenable. Indeed, so great and pervading a
force has this habit (institution) of pecuniary accountancy become that
it extends, often as a matter of course, to many facts which properly
have no pecuniary bearing and no pecuniary magnitude, as, _e.g._, works
of art, science, scholarship, and religion. More or less freely and
fully, the price system dominates the current commonsense in its
appreciation and rating of these non-pecuniary ramifications of modern
culture; and this in spite of the fact that, on reflection, all men of
normal intelligence will freely admit that these matters lie outside the
scope of pecuniary valuation.

Current popular taste and the popular sense of merit and demerit are
notoriously affected in some degree by pecuniary considerations. It is a
matter of common notoriety, not to be denied or explained away, that
pecuniary ("commercial ") tests and standards are habitually made use of
outside of commercial interests proper. Precious stones, it is admitted,
even by hedonistic economists, are more esteemed than they would be if
they were more plentiful and cheaper. A wealthy person meets with more
consideration and enjoys a larger measure of good repute than would fall
to the share of the same person with the same habit of mind and body and
the same record of good and evil deeds if he were poorer. It may well be
that this current "commercialisation" of taste and appreciation has been
overstated by superficial and hasty critics of contemporary life, but it
will not be denied that there is a modicum of truth in the allegation.
Whatever substance it has, much or little, is due to carrying over into
other fields of interest the habitual conceptions induced by dealing
with and thinking of pecuniary matters. These "commercial" conceptions
of merit and demerit are derived from business experience. The pecuniary
tests and standards so applied outside of business transactions and
relations are not reducible to sensuous terms of pleasure and pain.
Indeed, it may, _e.g._, be true, as is commonly believed, that the
contemplation of a wealthy neighbor's pecuniary superiority yields
painful rather than pleasurable sensations as an immediate result; but
it is equally true that such a wealthy neighbor is, on the whole, more
highly regarded and more considerately treated than another neighbor who
differs from the former only in being less enviable in respect of
wealth.

It is the institution of property that gives rise to these habitual
grounds of discrimination, and in modern times, when wealth is counted
in terms of money, it is in terms of money value that these tests and
standards of pecuniary excellence are applied. This much will be
admitted. Pecuniary institutions induce pecuniary habits of thought
which affect men's discrimination outside of pecuniary matters; but the
hedonistic interpretation alleges that such pecuniary habits of thought
do not affect men's discrimination in pecuniary matters. Although the
institutional scheme of the price system visibly dominates the modern
community's thinking in matters that lie outside the economic interest,
the hedonistic economists insist, in effect, that this institutional
scheme must be accounted of no effect within that range of activity to
which it owes its genesis, growth, and persistence. The phenomena of
business, which are peculiarly and uniformly phenomena of price, are in
the scheme of the hedonistic theory reduced to non-pecuniary hedonistic
terms and the theoretical formulation is carried out as if pecuniary
conceptions had no force within the traffic in which such conceptions
originate. It is admitted that preoccupation with commercial
interests has "commercialised" the rest of modern life, but the
"commercialisation" of commerce is not admitted. Business transactions
and computations in pecuniary terms, such as loans, discounts, and
capitalisation, are without hesitation or abatement converted into terms
of hedonistic utility, and conversely.

It may be needless to take exception to such conversion from pecuniary
into sensuous terms, for the theoretical purpose for which it is
habitually made; although, if need were, it might not be excessively
difficult to show that the whole hedonistic basis of such a conversion
is a psychological misconception. But it is to the remoter theoretical
consequences of such a conversion that exception is to be taken. In
making the conversion abstraction is made from whatever elements do not
lend themselves to its terms; which amounts to abstracting from
precisely those elements of business that have an institutional force
and that therefore would lend themselves to scientific inquiry of the
modern kind--those (institutional) elements whose analysis might
contribute to an understanding of modern business and of the life of the
modern business community as contrasted with the assumed primordial
hedonistic calculus.

The point may perhaps be made clearer. Money and the habitual resort to
its use are conceived to be simply the ways and means by which
consumable goods are acquired, and therefore simply a convenient method
by which to procure the pleasurable sensations of consumption; these
latter being in hedonistic theory the sole and overt end of all economic
endeavor. Money values have therefore no other significance than that of
purchasing power over consumable goods, and money is simply an expedient
of computation. Investment, credit extensions, loans of all kinds and
degrees, with payment of interest and the rest, are likewise taken
simply as intermediate steps between the pleasurable sensations of
consumption and the efforts induced by the anticipation of these
sensations, other bearings of the case being disregarded. The balance
being kept in terms of the hedonistic consumption, no disturbance arises
in this pecuniary traffic so long as the extreme terms of this extended
hedonistic equation--pain-cost and pleasure-gain--are not altered, what
lies between these extreme terms being merely algebraic notation
employed for convenience of accountancy. But such is not the run of the
facts in modern business. Variations of capitalization, _e.g._, occur
without its being practicable to refer them to visibly equivalent
variations either in the state of the industrial arts or in the
sensations of consumption. Credit extensions tend to inflation of
credit, rising prices, overstocking of markets, etc., likewise without a
visible or securely traceable correlation in the state of the industrial
arts or in the pleasures of consumption; that is to say, without a
visible basis in those material elements to which the hedonistic theory
reduces all economic phenomena. Hence the run of the facts, in so far,
must be thrown out of the theoretical formulation. The hedonistically
presumed final purchase of consumable goods is habitually not
contemplated in the pursuit of business enterprise. Business men
habitually aspire to accumulate wealth in excess of the limits of
practicable consumption, and the wealth so accumulated is not intended
to be converted by a final transaction of purchase into consumable goods
or sensations of consumption. Such commonplace facts as these, together
with the endless web of business detail of a like pecuniary character,
do not in hedonistic theory raise a question as to how these
conventional aims, ideals, aspirations, and standards have come into
force or how they affect the scheme of life in business or outside of
it; they do not raise those questions because such questions cannot be
answered in the terms which the hedonistic economists are content to
use, or, indeed, which their premises permit them to use. The question
which arises is how to explain the facts away: how theoretically to
neutralize them so that they will not have to appear in the theory,
which can then be drawn in direct and unambiguous terms of rational
hedonistic calculation. They are explained away as being aberrations due
to oversight or lapse of memory on the part of business men, or to some
failure of logic or insight. Or they are construed and interpreted into
the rationalistic terms of the hedonistic calculus by resort to an
ambiguous use of the hedonistic concepts. So that the whole "money
economy," with all the machinery of credit and the rest, disappears in a
tissue of metaphors to reappear theoretically expurgated, sterilized,
and simplified into a "refined system of barter," culminating in a net
aggregate maximum of pleasurable sensations of consumption.

But since it is in just this unhedonistic, unrationalistic pecuniary
traffic that the tissue of business life consists; since it is this
peculiar conventionalism of aims and standards that differentiates the
life of the modern business community from any conceivable earlier or
cruder phase of economic life; since it is in this tissue of pecuniary
intercourse and pecuniary concepts, ideals, expedients, and aspirations
that the conjunctures of business life arise and run their course of
felicity and devastation; since it is here that those institutional
changes take place which distinguish one phase or era of the business
community's life from any other; since the growth and change of these
habitual, conventional elements make the growth and character of any
business era or business community; any theory of business which sets
these elements aside or explains them away misses the main facts which
it has gone out to seek. Life and its conjunctures and institutions
being of this complexion, however much that state of the case may be
deprecated, a theoretical account of the phenomena of this life must be
drawn in these terms in which the phenomena occur. It is not simply that
the hedonistic interpretation of modern economic phenomena is inadequate
or misleading; if the phenomena are subjected to the hedonistic
interpretation in the theoretical analysis they disappear from the
theory; and if they would bear the interpretation in fact they would
disappear in fact. If, in fact, all the conventional relations and
principles of pecuniary intercourse were subject to such a perpetual
rationalized, calculating revision, so that each article of usage,
appreciation, or procedure must approve itself _de novo_ on hedonistic
grounds of sensuous expediency to all concerned at every move, it is not
conceivable that the institutional fabric would last over night.

FOOTNOTES:

[1] Reprinted by permission from the _Journal of Political Economy_,
Vol. XVII, No. 9 November 1909.

[2] The conduct of mankind differs from that of the brutes in being
determined by anticipated sensations of pleasure and pain, instead of
actual sensations. Hereby, in so far, human conduct is taken out of the
sequence of cause and effect and falls instead under the rule of
sufficient reason. By virtue of this rational faculty in man the
connection between stimulus and response is teleological instead of
causal.

The reason for assigning the first and decisive place to pleasure,
rather than to pain, in the determination of human conduct, appears to
be the (tacit) acceptance of that optimistic doctrine of a beneficent
order of nature which the nineteenth century inherited from the
eighteenth.




GUSTAV SCHMOLLER'S ECONOMICS[1]


Professor Schmoller's _Grundriss_[2] is an event of the first importance
in economic literature. It appears from later advices that the second
and concluding volume of the work is hardly to be looked for at as early
a date as the author's expressions in his preface had led us to
anticipate. What lies before Professor Schmoller's readers, therefore,
in this first volume of the _Outlines_ is but one-half of the
compendious statement which he here purposes making of his theoretical
position and of his views and exemplification of the scope and method of
economic science. It may accordingly seem adventurous to attempt a
characterisation of his economic system on the basis of this avowedly
incomplete statement. And yet such an endeavor is not altogether
gratuitous, nor need it in any great measure proceed on hypothetical
grounds. The introduction comprised in the present volume sketches the
author's aim in an outline sufficiently full to afford a convincing view
of the "system" of science for which he speaks; and the two books by
which the introduction is followed show Professor Schmoller's method of
inquiry consistently carried out, as well as the reach and nature of the
theoretical conclusions which he considers to lie within the competency
of economic science. And with regard to an economist who is so much of
an innovator,--not to say so much of an iconoclast,--and whose work
touches the foundations of the science so intimately and profoundly, the
interest of his critics and associates must, at least for the present,
center chiefly about these questions as to the scope and nature assigned
to the theory by his discussion, as to the range and character of the
material of which he makes use, and as to the methods of inquiry which
his sagacity and experience commend. So, therefore, while the _Outlines_
is yet incomplete, considered as a compendium of details of doctrine,
the work in its unfinished state need not thereby be an inadequate
expression of Professor Schmoller's relation to economic science.

Herewith for the first time economic readers are put in possession of a
fully advised deliverance on economic science at large as seen and
cultivated by that modernised historical school of which Professor
Schmoller is the authoritative exponent. Valuable and characteristic as
his earlier discussions on the scope and method of the science are, they
are but preliminary studies and tentative formulations as compared with
this maturer work, which not only avows itself a definitive formulation,
but has about it an air of finality perceptible at every turn. But this
comes near saying that it embodies the sole comprehensive working-out of
the scientific aims of the historical school. Discussions partially
covering the field, monographs and sketches there are in great number,
showing the manner of economic theory that was to be looked for as an
outcome of the "historical diversion." Some of these, especially some of
the later ones, are extremely valuable in the results they offer, as
well as significant of the trend which the science is taking under the
hands of the German students.[3] But a comprehensive work, aiming to
formulate a body of economic theory on the basis afforded by the
"historical method," has not hitherto been seriously attempted.

To the broad statement just made exception might perhaps be taken in
favor of Schaeffle's half-forgotten work of the seventies, together
possibly with several other less notable and less consistent endeavors
of a similar kind, dating back to the early decades of the school.
Probably none of the younger generation of economists would be tempted
to cite Roscher's work as invalidating such a statement as the one made
above. Although time has been allowed for the acceptance and
authentication of these endeavors of the earlier historical economists
in the direction of a system of economic theory,--that is to say, of an
economic science,--they have failed of authentication at the hands of
the students of the science; and there seems no reason to regard this
failure as less than definitive.

During the last two decades the historical school has branched into two
main directions of growth, somewhat divergent, so that broad general
statements regarding the historical economists can be less confidently
made to-day than perhaps at any earlier time. Now, as regards the more
conservative branch, the historical economists of the stricter
observance,--these modern continuers of what may be called the elder
line of the historical school can scarcely be said to cultivate a
science at all, their aim being not theoretical work. Assuredly, the
work of this elder line, of which Professor Wagner is the unquestioned
head, is by no means idle. It is work of a sufficiently important and
valuable order, perhaps it is indispensable to the task which the
science has in hand, but, broadly speaking, it need not be counted with
in so far as it touches directly upon economic theory. This elder line
of German economics, in its numerous modern representatives, shows both
insight and impartiality; but as regards economic theory their work
bears the character of eclecticism rather than that of a constructive
advance. Frequent and peremptory as their utterances commonly are on
points of doctrine, it is only very rarely that these utterances embody
theoretical views arrived at or verified by the economists who make them
or by such methods of inquiry as are characteristic of these economists.
Where these expressions of doctrine are not of the nature of maxims of
expediency, they are, as is well known, commonly borrowed somewhat
uncritically from classical sources. Of constructive scientific
work--that is to say, of theory--this elder line of German economics is
innocent; nor does there seem to be any prospect of an eventual output
of theory on the part of that branch of the historical school, unless
they should unexpectedly take advice, and make the scope, and therefore
the method, of their inquiry something more than historical in the sense
in which that term is currently accepted. The historical economics of
the conservative kind seems to be a barren field in the theoretical
respect.

So that whatever characteristic articles of general theory the
historical school may enrich the science with are to be looked for at
the hands of those men who, like Professor Schmoller, have departed from
the strict observance of the historical method. A peculiar interest,
therefore, attaches to his work as the best accepted and most
authoritative spokesman of that branch of historical economics which
professes to cultivate theoretical inquiry. It serves to show in what
manner and degree this more scientific wing of the historical school
have outgrown the original "historical" standpoint and range of
conceptions, and how they have passed from a distrust of all economic
theory to an eager quest of theoretical formulations that shall cover
all phenomena of economic life to better purpose than the body of
doctrine received from the classical writers and more in consonance with
the canons of contemporary science at large. That this should have been
the outcome of the half-century of development through which the school
has now passed might well seem unexpected, if not incredible, to any who
saw the beginning of that divergence within the school, a generation
ago, out of which this modernised, theoretical historical economics has
arisen.

Professor Schmoller entered the field early, in the sixties, as a
protestant against the aims and ideals then in vogue in economics. His
protest ran not only against the methods and results of the classical
writers, but also against the views professed by the leaders of the
historical school, both as regards the scope of the science and as
regards the character of the laws or generalisations sought by the
science. His early work, in so far as he was at variance with his
colleagues, was chiefly critical; and there is no good evidence that he
then had a clear conception of the character of that constructive work
to which it has been his persistent aim to turn the science. Hence he
came to figure in common repute as an iconoclast and an extreme exponent
of the historical school, in that he was held practically to deny the
feasibility of a scientific treatment of economic matters and to aim at
confining economics to narrative, statistics, and description. This
iconoclastic or critical phase of his economic discussion is now past,
and with it the uncertainty as to the trend and outcome of his
scientific activity.

To understand the significance of the diversion created by Professor
Schmoller as regards the scope and method of economics, it is necessary,
very briefly, to indicate the position occupied by that early generation
of historical economists from which his teaching diverged, and more
particularly those points of the older canon at which he has come to
differ characteristically from the views previously in vogue.

As regards the situation in which the historical school, as exemplified
by its leaders, was then placed, it is, of course, something of a
commonplace that by the end of its first twenty years of endeavor in the
reform of economic science the school had, in point of systematic
results, scarcely got beyond preliminaries. And even these preliminaries
were not in all respects obviously to the purpose. A new and wider scope
had been indicated for economic inquiry, as well as a new aim and method
for theoretical discussion. But the new ideals of theoretical advance,
as well as the ways and means indicated for their attainment, still had
mainly a speculative interest. Nothing substantial had been done towards
the realisation of the former or the _mise en oeuvre_ of the latter.
The historical economists can scarcely be said at that time to have put
their hand to the new engines which they professed to house in their
workshop. Apart from polemics and speculation concerning ideals, the
serious interest and endeavors of the school had up to that time been in
the field of history rather than in that of economics, except so far as
the adepts of the new school continued in a fragmentary way to inculcate
and, in some slight and uncertain degree, to elaborate the dogmas of the
classical writers whom they sought to discredit.

The character of historical economics at the time when Professor
Schmoller entered on his work of criticism and revision is fairly shown
by Roscher's writings. Whatever may be thought to-day of Roscher's rank
as an economist, in contrast with Knies and Hildebrand, it will scarcely
be questioned that at the close of the first quarter-century of the life
history of the historical school it was Roscher's conception of the
scope and method of economics that found the widest acceptance and that
best expressed the animus of that body of students who professed to
cultivate economics by the historical method. For the purpose in hand
Roscher's views may, therefore, be taken as typical, all the more
readily since for the very general purpose here intended there are no
serious discrepancies between Roscher and his two illustrious
contemporaries. The chief difference is that Roscher is more naïve and
more specific. He has also left a more considerable volume of results
achieved by the professed use of his method.

Roscher's professed method was what he calls the
"historico-physiological" method. This he contrasts with the
"philosophical" or "idealistic" method. But his air of depreciation as
regards "philosophical" methods in economics must not be taken to mean
that Roscher's own economic speculations were devoid of all
philosophical or metaphysical basis. It only means that his
philosophical postulates were different from those of the economists
whom he discredits, and that they were regarded by him as self-evident.

As must necessarily be the case with a writer who had neither a special
aptitude for nor special training in philosophical inquiries, Roscher's
metaphysical postulates are, of course, chiefly tacit. They are the
common-sense, commonplace metaphysics afloat in educated German circles
in the time of Roscher's youth,--during the period when his growth and
education gave him his outlook on life and knowledge and laid the basis
of his intellectual habits; which means that these postulates belong to
what Höffding has called the "Romantic" school of thought, and are of a
Hegelian complexion. Roscher being not a professed philosophical
student, it is neither easy nor safe to particularise closely as regards
his fundamental metaphysical tenets; but, as near as so specific an
identification of his philosophical outlook is practicable, he must be
classed with the Hegelian "Right." But since the Hegelian metaphysics
had in Roscher's youth an unbroken vogue in reputable German circles,
especially in those ultra-reputable circles within which lay the
gentlemanly life and human contact of Roscher, the postulates afforded
by the Hegelian metaphysics were accepted simply as a matter of course,
and were not recognised as metaphysical at all. And in this his
metaphysical affiliation Roscher is fairly typical of the early
historical school of economics.

The Hegelian metaphysics, in so far as bears upon the matter in hand, is
a metaphysics of a self-realising life process. This life process, which
is the central and substantial fact of the universe, is of a spiritual
nature,--"spiritual," of course, being here not contrasted with
"material." The life process is essentially active, self-determining,
and unfolds by inner necessity,--by necessity of its own substantially
active nature. The course of culture, in this view, is an unfolding
(exfoliation) of the human spirit; and the task which economic science
has in hand is to determine the laws of this cultural exfoliation in its
economic aspect. But the laws of the cultural development with which the
social sciences, in the Hegelian view, have to do are at one with the
laws of the processes of the universe at large; and, more immediately,
they are at one with the laws of the life process at large. For the
universe at large is itself a self-unfolding life process, substantially
of a spiritual character, of which the economic life process which
occupies the interest of the economist is but a phase and an aspect.
Now, the course of the processes of unfolding life in organic nature has
been fairly well ascertained by the students of natural history and the
like; and this, in the nature of the case, must afford a clew to the
laws of cultural development, in its economic as well as in any other of
its aspects or bearings,--the laws of life in the universe being all
substantially spiritual and substantially at one. So we arrive at a
physiological conception of culture after the analogy of the ascertained
physiological processes seen in the biological domain. It is conceived
to be physiological after the Hegelian manner of conceiving a
physiological process, which is, however, not the same as the modern
scientific conception of a physiological process.[4]

Since this quasi-physiological process of cultural development is
conceived to be an unfolding of the self-realising human spirit, whose
life history it is, it is of the nature of the case that the cultural
process should run through a certain sequence of phases--a certain life
history prescribed by the nature of the active, unfolding spiritual
substance. The sequence is determined on the whole, as regards the
general features of the development, by the nature of life on the human
plane. The history of cultural growth and decline necessarily repeats
itself, since it is substantially the same human spirit that seeks to
realise itself in every comprehensive sequence of cultural development,
and since this human spirit is the only factor in the case that has
substantial force. In its generic features the history of past cultural
cycles is, therefore, the history of the future. Hence the importance,
not to say the sole efficacy for economic science, of an historical
scrutiny of culture. A well-authenticated sequence of cultural phenomena
in the history of the past is conceived to have much the same binding
force for the sequence of cultural phenomena in the future as a "natural
law," as the term has been understood in physics or physiology, is
conceived to have as regards the course of phenomena in the life history
of the human body; for the onward cultural course of the human spirit,
actively unfolding by inner necessity, is an organic process, following
logically from the nature of this self-realising spirit. If the process
is conceived to meet with obstacles or varying conditions, it adapts
itself to the circumstances in any given case, and it then goes on along
the line of its own logical bent until it eventuates in the consummation
given by its own nature. The environment, in this view, if it is not to
be conceived simply as a function of the spiritual force at work, is, at
the most, of subsidiary and transient consequence only. Environmental
conditions can at best give rise to minor perturbations; they do not
initiate a cumulative sequence which can profoundly affect the outcome
or the ulterior course of the cultural process. Hence the sole, or
almost sole, importance of historical inquiry in determining the laws of
cultural development, economic or other.

The working conception which this romantic-historical school had of
economic life, therefore, is, in its way, a conception of development,
or evolution; but it is not to be confused with Darwinism or
Spencerianism. Inquiry into the cultural development under the guidance
of such preconceptions as these has led to generalisations, more or less
arbitrary, regarding uniformities of sequence in phenomena, while the
causes which determine the course of events, and which make the
uniformity or variation of the sequence, have received but scant
attention. The "natural laws" found by this means are necessarily of the
nature of empiricism, colored by the bias or ideals of the investigator.
The outcome is a body of aphoristic wisdom, perhaps beautiful and
valuable after its kind, but quite fatuous when measured by the
standards and aims of modern science. As is well known, no substantial
theoretical gain was made along this romantic-historical line of inquiry
and speculation, for the reason, apparently, that there are no cultural
laws of the kind aimed at, beyond the unprecise generalities that are
sufficiently familiar beforehand to all passably intelligent adults.

       *       *       *       *       *

It has seemed necessary to offer this much in characterisation of that
"historical" aim and method which afforded a point of departure for
Professor Schmoller's work of revision. When he first raised his protest
against the prevailing ideals and methods, as being ill-advised and not
thorough-going, he does not seem himself to have been entirely free from
this Romantic, or Hegelian, bias. There is evidence to the contrary in
his early writings.[5] It cannot even be said that his later theoretical
work does not show something of the same animus, as, _e.g._, when he
assumes that there is a meliorative trend in the course of cultural
events.[6] What has differentiated his work from that of the group of
writers which has above been called the elder line of historical
economics is the weakness or relative absence of this bias in his
theoretical work. Particularly, he has refused to bring his researches
in the field of theory definitely to rest on ground given by the
Hegelian, or Romantic, school of thought. He was from the first
unwilling to accept classificatory statements of uniformity or of
normality as an adequate answer to questions of scientific theory. He
does not commonly deny the truth or the importance of the empirical
generalisations aimed at by the early historical economists. Indeed, he
makes much of them and has been notoriously urgent for a full survey of
historical data and a painstaking digestion of materials with a view to
a comprehensive work of empirical generalisation. As is well known, in
his earlier work of criticism and methodological controversy he was led
to contend that for at least one generation economists must be content
to spend their energies on descriptive work of this kind; and he thereby
earned the reputation of aiming to reduce economics to a descriptive
knowledge of details and to confine its method to the Baconian ground of
generalisation by simple enumeration. But this exhaustive historical
scrutiny and description of detail has always, in Professor Schmoller's
view, been preliminary to an eventual theory of economic life. The
survey of details and the empirical generalisations reached by its help
are useful for the scientific purpose only as they serve the end of an
eventual formulation of the laws of causation that work out in the
process of economic life. The ulterior question, to which all else is
subsidiary, is a question of the causes at work rather than a question
of the historical uniformities observable in the sequence of phenomena.
The scrutiny of historical details serves this end by defining the scope
and character of the several factors causally at work in the growth of
culture, and, what is of more immediate consequence, as they are at work
in the shaping of the economic activities and the economic aims of men
engaged in this unfolding cultural process as it lies before the
investigator in the existing situation.

In the preliminary work, then, of defining and characterising the causes
or factors of economic life, historical investigation plays a large, if
not the largest, part; but it is by no means the sole line of inquiry to
which recourse is had for this purpose. Nor, it may be added, is this
the sole use of historical inquiry. To the like end a comparative study
of the climatic, geographical, and geological features of the
community's environment is drawn into the inquiry; and more particularly
there is a careful study of ethnographic parallels and a scrutiny of the
psychological foundations of culture and the psychological factors
involved in cultural change.

Hence it appears that Professor Schmoller's work differs from that of
the elder line of historical economics in respect of the scope and
character of the preliminaries of economic theory no less than in the
ulterior aim which he assigns the science. It is only by giving a very
broad meaning to the term that this latest development of the science
can be called an "historical" economics. It is Darwinian rather than
Hegelian, although with the earmarks of Hegelian affiliation visible now
and again; and it is "historical" only in a sense similar to that in
which a Darwinian account of the evolution of economic institutions
might be called historical. For the distinguishing characteristic of
Professor Schmoller's work, that wherein it differs from the earlier
work of the economists of his general class, is that it aims at a
Darwinistic account of the origin, growth, persistence, and variation of
institutions, in so far as these institutions have to do with the
economic aspect of life either as cause or as effect. In much of what he
has to say, he is at one with his contemporaries and predecessors within
the historical school; and he shows at many points both the excellences
and weaknesses due to his "historical" antecedents. But his striking and
characteristic merits lie in the direction of a post-Darwinian, causal
theory of the origin and growth of species in institutions. In this line
of theoretical inquiry Professor Schmoller is not alone, nor does he,
perhaps, go so far or with such singleness of purpose in this direction
as some others do at given points; but the seniority belongs to him, and
he is also in the lead as regards the comprehensiveness of his work.

       *       *       *       *       *

But to return to the _Grundriss_, to which recourse must be had to
substantiate the characterisation here offered. The entire work as
projected comprises an Introduction and four Books, of which the
introduction and the first two books are contained in the volume already
published. The two books yet to be published, in a second volume,
promise to be of a length corresponding to the first two. The present
volume should accordingly contain approximately three-fifths of the
whole, counted by bulk. The scheme of the work is as follows: An
Introduction (pp. 1-124) treats of (1) the Concept of Economics, (2) the
Psychical, Ethical (or Conventional, _sittliche_), and Legal Foundations
of Economic Life and of Culture, and (3) the Literature and Method of
the Science. This is followed by Book I. (pp. 125-228) on Land,
Population, and the Industrial Arts, considered as collective phenomena
and factors in economic life, and Book II. (pp. 229-457), on the
Constitution of Economic Society, its chief organs and the causal
factors to which they are due. Books III. and IV. are to deal with the
Circulation of Goods and the Distribution of Income, and to give a
genetic account of the Development of Economic Society.

The course outlined differs noticeably from what has been customary in
treatises on economics. The point of departure is a comprehensive
general survey of the factors which enter into the growth of culture,
with special reference to their economic bearing. This survey runs
chiefly on psychological and ethnographic ground, historical inquiry in
the stricter sense being relatively scant and obviously of secondary
consequence. It is followed up with a more detailed and searching
discussion of the factors engaged in the economic process in any given
situation. The factors, or "collective phenomena," in question are not
the time-honored Land, Labor, and Capital, but rather population,
material environment, and technological conditions. Here, too, the
discussion has to do with ethnographic rather than with properly
historical material. The question of population concerns not the
numerical force of laborers, but rather the diversity of race
characteristics and the bearing of race endowment upon the growth of
economic institutions. The discussion of the material environment,
again, has relatively little to say of the fertility of the soil, and
gives much attention to diversities of climate, geographical situation,
and geological and biological conditions. And this first book closes
with a survey of the growth of technological knowledge and the
industrial arts.

In all this the significant innovation lies not so much in the character
of the details. They are for the most part commonplace enough as details
of the sciences from which they are borrowed. They are shrewdly chosen
and handled in such a way as to bring out their bearing upon the
ulterior questions about which the economist's interest centers; but
there is, as might be expected, little attempt to go back of the returns
given by specialists in the several lines of research that are laid
under contribution. But the significance of it all lies rather in the
fact that material of this kind should have been drawn upon for a
foundation for economic theory, and that it should have seemed necessary
to Professor Schmoller to make this introductory survey so comprehensive
and so painstaking as it is. Its meaning is that these features of human
nature and these forces of nature and circumstances of environment are
the agencies out of whose interaction the economic situation has arisen
by a cumulative process of change, and that it is this cumulative
process of development, and its complex and unstable outcome, that are
to be the economist's subject-matter. The theoretical outcome for which
such a foundation is prepared is necessarily of a genetic kind. It
necessarily seeks to know and explain the structure and functions of
economic society in terms of how and why they have come to be what they
are, not, as so many economic writers have explained them, in terms of
what they are good for and what they ought to be. It means, in other
words, a deliberate attempt to substitute an inquiry into the efficient
causes of economic life in the place of empirical generalisations, on
the one hand, and speculations as to the eternal fitness of things, on
the other hand.

It follows from the nature of the case that an economics of this genetic
character, working on grounds of the kind indicated, comprises nothing
in the way of advice or admonition, no maxims of expediency, and no
economic, political, or cultural creed. How nearly Professor Schmoller
conforms to this canon of continence is another question. The above
indicates the scope of such doctrines as are consistently derivable from
the premises with which the work under review starts out, not the scope
of its writer's speculations on economic matters.

The second book, by the help of prehistoric and ethnographic material as
well as history, deals with the evolution of the methods of social
organisation,--the growth of institutions in so far as this growth
shapes or is shaped by the exigencies of economic life. The "organs," or
social-economic institutions, whose life history is passed in review
are: the family; the methods of settlement and domicile, in town and
country; the political units of control and administration;
differentiation of functions between industrial and other classes and
groups; ownership, its growth and distribution; social classes and
associations; business enterprise, industrial organisations and
corporations.

As regards the singleness of purpose with which Professor Schmoller has
carried out the scheme of economic theory for which he has sketched the
outlines and pointed the way, it is not possible to speak with the same
confidence as of his preliminary work. It goes without saying that this
further work of elaboration is excellent after its kind; and this
excellence, which was to be looked for at Professor Schmoller's hands,
may easily divert the reader's attention from the shortcomings of the
work in respect of kind rather than of quality. Now, while a broad
generalisation on this head may be hazardous and is to be taken with a
large margin, still, with due allowance, the following generalisation
will probably stand, so far as regards this first volume. So long as the
author is occupied with the life-history of institutions down to
contemporary developments, so long his discussion proceeds by the dry
light of the scientific interest, simply, as the term "scientific" is
understood among the modern adepts of the natural sciences; but so soon
as he comes to close quarters with the situation of to-day, and reaches
the point where a dispassionate analysis and exposition of the causal
complex at work in contemporary institutional changes should begin, so
soon the scientific light breaks up into all the colors of the rainbow,
and the author becomes an eager and eloquent counselor, and argues the
question of what ought to be and what modern society must do to be
saved. The argument at this point loses the character of a genetic
explanation of phenomena, and takes on the character of appeal and
admonition, urged on grounds of expediency, of morality, of good taste,
of hygiene, of political ends, and even of religion. All this, of
course, is what we are used to in the common run of writers of the
historical school; but those students whose interest centers in the
science rather than in the ways and means of maintaining the received
cultural forms of German society have long fancied they had ground to
hope for something more to the purpose when Professor Schmoller came to
put forth his great systematic work. Brilliant and no doubt valuable in
its way and for its end, this digression into homiletics and reformatory
advice means that the argument is running into the sands just at the
stage where the science can least afford it. It is precisely at this
point, where men of less years and breadth and weight would find it
difficult to hold tenaciously to the course of cause and effect through
the maze of jarring interests and sentiments that make up the
contemporary situation,--it is precisely at this point that a genetic
theory of economic life most needs the guidance of the firm, trained,
dispassionate hand of the master. And at this point his guidance all but
fails us.

What has just been said applies generally to Professor Schmoller's
treatment of contemporary economic development, and it should be added
that it applies at nearly all points with more or less of qualification.
But the qualifications required are not large enough to belie the
general characterisation just offered. It would be asking too large an
indulgence to follow the point up in this place through all the
discussions of the volume that fairly come under this criticism. The
most that may be done is to point for illustration to the handling which
two or three of the social-economic "organs" receive. So, for instance,
Book II. opens with an account of the family and its place and function
in the structure of economic society. The discussion proceeds along the
beaten paths of ethnographic research, with repeated and well-directed
recourse to the psychological knowledge that Professor Schmoller always
has well in hand. Coming down into recent times, the discussion still
proceeds to show how the large economic changes of late mediæval and
early modern times acted to break down the patriarchal régime of the
earlier culture; but at the same time there comes into sight (pp.
245-249) a bias in favor of the recent as against the earlier form of
the household. The author is no longer content to show the exigencies
which set the earlier patriarchal household aside in favor of the
modified patriarchal household of more recent times. He also offers
reasons why the later, modified form is intrinsically the more
desirable; reasons, it should perhaps be said, which may be well taken,
but which are beside the point so far as regards a scientific
explanation of the changes under discussion.

The closing paragraphs of the section (91) dwell with a kindly
insistence on the many elements of strength and beauty possessed by the
form of household organisation handed down from the past generation to
the present. The facts herewith recited by the author are, no doubt, of
weight, and must be duly taken account of by any economist who ventures
on a genetic discussion of the present situation and the changing
fortunes of the received household. But Professor Schmoller has failed
even to point out in what manner these elements of strength and beauty
have in the recent past or may in the present and immediate future
causally affect the fortunes of the institution. The failure to turn the
material in question to scientific account becomes almost culpable in
Professor Schmoller, since there are few, if any, who are in so
favorable a position to outline the argument which a theoretical account
of the situation at this point must take. Plainly, as shown by Professor
Schmoller's argument, economic exigencies are working an incessant
cumulative change in the form of organisation of the modern household;
but he has done little towards pointing out in what manner and with what
effect these exigencies come into play. Neither has he gone at all into
the converse question, equally grave as a question of economic theory,
of how the persistence, even though qualified, of the patriarchal family
has modified and is modifying economic structure and function at other
points and qualifying or accentuating the very exigencies themselves to
which the changes wrought in the institution are to be traced. Plainly,
too, the strength and beauty of the traditionally received form of the
household--that is to say, the habits of life and of complacency which
are bound up with this household--are elements of importance in the
modern situation as affects the degree of persistence and the direction
of change which this institution shows under modern circumstances. They
are psychological facts, facts of habit and propensity and spiritual
fitness, the efficiency of which as live forces making for survival or
variation is in this connection probably second to that of no other
factors that could be named. We had, therefore, almost a right to expect
that Professor Schmoller's profound and comprehensive erudition in the
fields of psychology and cultural growth should turn these facts to
better ends than a preachment concerning an intrinsically desirable
consummation.

Regarding the present visible disintegration of the family, and the
closely related "woman question," Professor Schmoller's observations are
of much the same texture. He notes the growing disinclination to the
old-fashioned family life on the part of the working population, and
shows that there are certain economic causes for this growth or
deterioration of sentiment. What he has to offer is made up of the
commonplaces of latter-day social-economic discussion, and is charged
with a strong undertone of deprecation. What the trend of the causes at
work to alter or fortify this body of sentiment may be, counts for very
little in what he says on the present movement or on the immediate
future of the institution. The best he has to offer on the "woman
question" is an off-hand reference of the ground of sentiment on which
it rests to a recrudescence of the eighteenth century spirit of
_égalité_. This notion of the equality of the sexes he refutes in
graceful and affecting terms, and he pleads for the unbroken
preservation of woman's sphere and man's primacy; as if the matter of
superiority or inferiority between the sexes could conceivably be
anything more than a conventional outcome of the habits of life imposed
upon the community by the circumstances under which they live. How it
has come to pass that under the economic exigencies of the past the
physical and temperamental diversity between the sexes has been
conventionally construed into a superiority of the man and an
inferiority of the woman,--on this head he has no more to say or to
suggest than on the correlate question of why this conventional
interpretation of the facts has latterly not been holding its ancient
ground. The discussion of the family and of the relation of the sexes,
in modern culture, is marked throughout by unwillingness or inability to
penetrate behind the barrier of conventional finality.

The discussion of the family just cited occupies the opening chapter of
Book II. For a further instance of Professor Schmoller's handling of a
modern economic problem, reference may be had to the closing chapter of
Book I., on the "Development of Technological Expedients and its
Economic Significance," but more particularly the sections (84-86) on
the modern machine industry (pp. 211-228). In this discussion, also, the
point of interest is the attention given to the latter-day phenomena of
machine industry, and the author's method and animus in dealing with
them. There is (pp. 211-218) a condensed and competent presentation of
the main characteristics of the modern "machine age," followed (pp.
218-228) by a critical discussion of its cultural value. The customary
eulogy, but with more than the customary discrimination, is given to the
advantages of the régime of the machine in point of economy, creature
comforts, and intellectual sweep; and it is pointed out how the régime
of the machine has brought about a redistribution of wealth and of
population and a reorganisation and redistribution of social and
economic structures and functions. It is pointed out (p. 223) that the
gravest social effect of the machine industry has been the creation of a
large class of wage laborers. The material circumstances into which this
class has been thrown, particularly in point of physical comfort, are
dealt with in a sober and discriminating way; and it is shown (p. 224)
that in the days of its fuller development the machine's régime has
evolved a class of trained laborers who not only live in comfort, but
are sound and strong in mind and body. But with the citation of these
facts the pursuit of the chain of cause and effect in this modern
machine situation comes to an end. The remainder of the space given to
the subject is occupied with extremely sane and well-advised criticism,
moral and æsthetic, and indications of what the proper ideals and ends
of endeavor should be.

Professor Schmoller misses the opportunity he here has of dealing with
this material in a scientific spirit and with some valuable results for
economic theory. He could, it is not too bold to assume, have sketched
for us an effective method and line of research to be pursued, for
instance, in following up the scientific question of what may be the
cultural, spiritual effects of the machine's régime upon this large body
of trained workmen, and what this body of trained workmen in its turn
counts for as a factor in shaping the institutional growth of the
present and the economic and cultural situation of to-morrow. Work of
this kind, there is reason to believe, Professor Schmoller could have
done with better effect than any of his colleagues in the science; for
he is, as already noticed above, possessed of the necessary
qualifications in the way of psychological training, broad knowledge of
the play of cause and effect in cultural growth, and an ability to take
a scientific point of view. Instead of this he harks back again to the
dreary homiletical waste of the traditional _Historismus_. It seems as
if a topic which he deals with as an objective matter so long as it lies
outside the sphere of every-day humanitarian and social solicitude,
becomes a matter to be passed upon by conventional standards of taste,
dignity, morality, and the like, so soon as it comes within the sweep of
latter-day German sentiment.

This habit of treating a given problem from these various and shifting
points of view at times gives a kaleidoscopic effect that is not without
interest. So in the matter of the technically trained working population
in the machine industry, to which reference has already been made,
something of an odd confusion appears when expressions taken from
diverse phases of the discussion are brought side by side. He speaks of
this class at one point (p. 224) as "sound, strong, spiritually and
morally advancing," superior in all these virtues to the working classes
of other times and places. At another point (pp. 250-253) he speaks of
the same popular element, under the designation of "socialists," as
perverse, degenerate, and reactionary. This latter characterisation may
be substantially correct, but it proceeds on grounds of taste and
predilection, not on grounds of scientifically determinable cause and
effect. And the two characterisations apply to the same elements of
population; for the substantial core and tone-giving factor of the
radical socialistic element in the German community is, notoriously,
just this technically trained population of the industrial towns where
the discipline of the machine industry has been at work with least
mitigation. The only other fairly isolable element of a radical
socialistic complexion is found among the students of modern science.
Now, further, in his speculations on the relation of technological
knowledge to the advance of culture, Professor Schmoller points out
(_e.g._, p. 226) that a high degree of culture connotes, on the whole, a
high degree of technological efficiency, and conversely. In this
connection he makes use of the terms _Halbkulturvölker_ and
_Ganskulturvölker_ to designate different degrees of cultural maturity.
It is curious to reflect, in the light of what he has to say on these
several heads, that if the socialistically affected, technically
trained population of the industrial towns, together with the
radical-socialistic men of science, were abstracted from the German
population, leaving substantially the peasantry, the slums, and the
aristocracy great and small, the resulting German community would
unquestionably have to be classed as a _Halbkulturvölk_ in Professor
Schmoller's scheme. Whereas the elements abstracted, if taken by
themselves, would as unquestionably be classed among the
_Ganskulturvölker_.

In conclusion, one may turn to the concluding chapter (Book II., Chapter
vii.) of the present volume for a final illustration of Professor
Schmoller's method and animus in handling a modern economic problem. All
the more so as this chapter on business enterprise better sustains that
scientific attitude which the introductory outline leads the reader to
look for throughout. It shows how modern business enterprise is in the
main an outgrowth of commercial activity, as also that it has retained
the commercial spirit down to the present. The motive force of business
enterprise is the self-seeking quest of dividends; but Professor
Schmoller shows, with more dispassionate insight than many economists,
that this self-seeking motive is hemmed in and guided at all points in
the course of its development by considerations and conventions that are
not of a primarily self-seeking kind. He is not content to point to the
beneficent working of a harmony of interests, but sketches the play of
forces whereby a self-seeking business traffic has come to serve the
interests of the community. Business enterprise has gradually emerged
and come into its present central and dominant position in the
community's industry as a concomitant of the growth of individual
ownership and pecuniary discretion in modern life. It is therefore a
phase of the modern cultural situation; and its survival and the
direction of its further growth are therefore conditioned by the
exigencies of the modern cultural situation. What this modern cultural
situation is and what are the forces, essentially psychological, which
shape the further growth of the situation, no one is better fitted to
discuss than Professor Schmoller; and he has also given valuable
indications (pp. 428-457) of what these factors are and how the inquiry
into their working must be conducted. But even here, where a
dispassionate tracing-out of the sequence of cause and effect should be
easier to undertake, because less readily blurred with sentiment, than
in the case, _e.g._, of the family, the work of tracing the
developmental sequence tapers off into advice and admonition proceeding
on the assumption that the stage now reached is, or at least should be,
final. The attention in the later pages diverges from the process of
growth and its conditioning circumstances, to the desirability of
maintaining the good results attained and to the ways and means of
holding fast that which is good in the outcome already achieved. The
question to which an answer is sought in discussing the present phase of
the development is not a question as to what is taking place as respects
the institution of business enterprise, but rather a question as to what
form should be given to an optimistic policy of fostering business
enterprise and turning it to account for the common good. At this
point, as elsewhere, though perhaps in a less degree than elsewhere, the
existing form of the institution is accepted as a finality. All this is
disappointing in view of the fact that at no other point do modern
economic institutions bear less of an air of finality than in the forms
and conventions of business organisations and relations. As Professor
Schmoller remarks (p. 455), the scope and character of business
undertakings necessarily conform to the circumstances of the time, not
to any logical scheme of development from small to great or from simple
to complex. So also, one might be tempted to say, the expediency and the
chance of ultimate survival of business enterprise is itself an open
question, to be answered by a scrutiny of the forces that make for its
survival or alteration, not by advice as to the best method of
sustaining and controlling it.

       *       *       *       *       *

What has here been said in criticism of Professor Schmoller's work,
particularly as regards his departure from the path of scientific
research in dealing with present-day phenomena, may, of course, have to
be qualified, if not entirely set aside, when his work is completed with
the promised genetic survey of modern institutions to be set forth in
the concluding fourth book. Perhaps it may even be said that there is
fair hope, on general grounds, of such a consummation; but the present
volume does not afford ground for a confident expectation of this kind.
It is perhaps needless, perhaps gratuitous, to add that the strictures
offered indicate, after all, but relatively slight shortcomings in a
work of the first magnitude.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XVI, Nov., 1901.

[2] _Grundriss der allgemeinen Volkswirtschaftslehre_. Erster Teil.
Leipzig, 1900.

[3] _E.g._, K. Bücher's _Entstehung der Volkswirtschaft_, and _Arbeit
und Rythmus_; R. Hildebrand's _Recht und Sitte_; Knapp's
_Grundherrschaft und Rittergut_; Ehrenberg's _Zeitalter der Fugger_; R.
Mucke's various works.

[4] A physiological conception of society, or of the community, had been
employed before,--_e.g._, by the Physiocrats,--and such a concept was
reached also by English speculators--_e.g._, Herbert Spencer--during
Roscher's lifetime; but these physiological conceptions of society are
reached by a different line of approach from that which led up to the
late-Hegelian physiological or biological conception of human culture as
a spiritual structure and process. The outcome is also a different one,
both as regards the use made of the analogy and as regards the
theoretical results reached by its aid.

It may be remarked, by the way, that neo-Hegelianism, of the "Left,"
likewise gave rise to a theory of a self-determining cultural
exfoliation; namely, the so-called "Materialistic Conception of History"
of the Marxian socialists. This Marxian conception, too, had much of a
physiological air; but Marx and his coadjutors had an advantage over
Roscher and his following, in that they were to a greater extent
schooled in the Hegelian philosophy, instead of being uncritical
receptacles of the Romantic commonplaces left by Hegelianism as a
residue in popular thought. They were therefore more fully conscious of
the bearing of their postulates and less naïve in their assumptions of
self-sufficiency.

[5] _E.g._, in his controversy with Treitschke. See _Grundfragen der
Socialpolitik und der Volkswirtschaftslehre_, particularly pp. 24, 25.

[6] _E.g._, _Grundriss_, pp. 225, 409, 411.




INDUSTRIAL AND PECUNIARY EMPLOYMENTS[1]


For purposes of economic theory, the various activities of men and
things about which economists busy themselves were classified by the
early writers according to a scheme which has remained substantially
unchanged, if not unquestioned, since their time. This scheme is the
classical three-fold division of the factors of production under Land,
Labor, and Capital. The theoretical aim of the economists in discussing
these factors and the activities for which they stand has not remained
the same throughout the course of economic discussion, and the
three-fold division has not always lent itself with facility to new
points of view and new purposes of theory, but the writers who have
shaped later theory have, on the whole, not laid violent hands on the
sacred formula. These facts must inspire the utmost reserve and
circumspection in any one who is moved to propose even a subsidiary
distinction of another kind between economic activities or agents. The
terminology and the conceptual furniture of economics are complex and
parti-colored enough without gratuitous innovation.

It is accordingly not the aim of this paper to set aside the
time-honored classification of factors, or even to formulate an
iconoclastic amendment, but rather to indicate how and why this
classification has proved inadequate for certain purposes of theory
which were not contemplated by the men who elaborated it. To this end a
bit of preface may be in place as regards the aims which led to its
formulation and the uses which the three-fold classification originally
served.

       *       *       *       *       *

The economists of the late eighteenth and early nineteenth centuries
were believers in a Providential order, or an order of Nature. How they
came by this belief need not occupy us here; neither need we raise a
question as to whether their conviction of its truth was well or ill
grounded. The Providential order or order of Nature is conceived to work
in an effective and just way toward the end to which it tends; and in
the economic field this objective end is the material welfare of
mankind. The science of that time set itself the task of interpreting
the facts with which it dealt, in terms of this natural order. The
material circumstances which condition men's life fall within the scope
of this natural order of the universe, and as members of the universal
scheme of things men fall under the constraining guidance of the laws of
Nature, who does all things well. As regards their purely theoretical
work, the early economists are occupied with bringing the facts of
economic life under natural laws conceived somewhat after the manner
indicated; and when the facts handled have been fully interpreted in the
light of this fundamental postulate the theoretical work of the
scientist is felt to have been successfully done.

The economic laws aimed at and formulated under the guidance of this
preconception are laws of what takes place "naturally" or "normally,"
and it is of the essence of things so conceived that in the natural or
normal course there is no wasted or misdirected effort. The standpoint
is given by the material interest of mankind, or, more concretely, of
the community or "society" in which the economist is placed; the
resulting economic theory is formulated as an analysis of the "natural"
course of the life of the community, the ultimate theoretical postulate
of which might, not unfairly, be stated as in some sort a law of the
conservation of economic energy. When the course of things runs off
naturally or normally, in accord with the exigencies of human welfare
and the constraining laws of nature, economic income and outgo balance
one another. The natural forces at play in the economic field may
increase indefinitely through accretions brought in under man's dominion
and through the natural increase of mankind, and, indeed, it is of the
nature of things that an orderly progress of this kind should take
place; but within the economic organism, as within the larger organism
of the universe, there prevails an equivalence of expenditure and
returns, an equilibrium of flux and reflux, which is not broken over in
the normal course of things. So it is, by implication, assumed that the
product which results from any given industrial process or operation is,
in some sense or in some unspecified respect, the equivalent of the
expenditure of forces, or of the effort, or what not, that has gone into
the process out of which the product emerges.

This theorem of equivalence is the postulate which lies at the root of
the classical theory of distribution, but it manifestly does not admit
of proof--or of disproof either, for that matter; since neither the
economic forces which go into the process nor the product which emerges
are, in the economic respect, of such a tangible character as to admit
of quantitative determination. They are in fact incommensurable
magnitudes. To this last remark the answer may conceivably present
itself that the equivalence in question is an equivalence in utility or
in exchange value, and that the quantitative determination of the
various items in terms of exchange value or of utility is,
theoretically, not impossible; but when it is called to mind that the
forces or factors which go to the production of a given product take
their utility or exchange value from that of the product, it will easily
be seen that the expedient will not serve. The equivalence between the
aggregate factors of production in any given case and their product
remains a dogmatic postulate whose validity cannot be demonstrated in
any terms that will not reduce the whole proposition to an aimless
fatuity, or to metaphysical grounds which have now been given up.

The point of view from which the early, and even the later classical,
economists discussed economic life was that of "the society" taken as a
collective whole and conceived as an organic unit. Economic theory
sought out and formulated the laws of the normal life of the social
organism, as it is conceived to work out in that natural course whereby
the material welfare of society is attained. The details of economic
life are construed, for purposes of general theory, in terms of their
subservience to the aims imputed to the collective life process. Those
features of detail which will bear construction as links in the process
whereby the collective welfare is furthered, are magnified and brought
into the foreground, while such features as will not bear this
construction are treated as minor disturbances. Such a procedure is
manifestly legitimate and expedient in a theoretical inquiry whose aim
is to determine the laws of health of the social organism and the normal
functions of this organism in a state of health. The social organism is,
in this theory, handled as an individual endowed with a consistent life
purpose and something of an intelligent apprehension of what means will
serve the ends which it seeks. With these collective ends the interests
of the individual members are conceived to be fundamentally at one; and,
while men may not see that their own individual interests coincide with
those of the social organism, yet, since men are members of the
comprehensive organism of nature and consequently subject to beneficent
natural law, the ulterior trend of unrestrained individual action is, on
the whole, in the right direction.

The details of individual economic conduct and its consequences are of
interest to such a general theory chiefly as they further or disturb the
beneficent "natural" course. But if the aims and methods of individual
conduct were of minor importance in such an economic theory, that is not
the case as regards individual rights. The early political economy was
not simply a formulation of the natural course of economic phenomena,
but it embodied an insistence on what is called "natural liberty."
Whether this insistence on natural liberty is to be traced to
utilitarianism or to a less specific faith in natural rights, the
outcome for the purpose in hand is substantially the same. To avoid
going too far afield, it may serve the turn to say that the law of
economic equivalence, or conservation of economic energy, was, in early
economics, backed by this second corollary of the order of nature, the
closely related postulate of natural rights. The classical doctrine of
distribution rests on both of these, and it is consequently not only a
doctrine of what must normally take place as regards the course of life
of society at large, but it also formulates what ought of right to take
place as regards the remuneration for work and the distribution of
wealth among men.

Under the resulting natural-economic law of equivalence and equity, it
is held that the several participants or factors in the economic process
severally get the equivalent of the productive force which they expend.
They severally get as much as they produce; and conversely, in the
normal case they severally produce as much as they get. In the earlier
formulations, as, for example, in the authoritative formulation of Adam
Smith, there is no clear or consistent pronouncement as regards the
terms in which this equivalence between production and remuneration
runs. With the later, classical economists, who had the benefit of a
developed utilitarian philosophy, it seems to be somewhat consistently
conceived in terms of an ill-defined serviceability. With some later
writers it is an equivalence of exchange values; but as this latter
reduces itself to tautology, it need scarcely be taken seriously. When
we are told in the later political economy that the several agents or
factors in production normally earn what they get, it is perhaps fairly
to be construed as a claim that the economic service rendered the
community by any one of the agents in production equals the service
received by the agent in return. In terms of serviceability, then, if
not in terms of productive force,[2] the individual agent, or at least
the class or group of agents to which the individual belongs, normally
gets as much as he contributes and contributes as much as he gets. This
applies to all those employments or occupations which are ordinarily
carried on in any community, throughout the aggregate of men's dealings
with the material means of life. All activity which touches industry
comes in under this law of equivalence and equity.

Now, to a theorist whose aim is to find the laws governing the economic
life of a social organism, and who for this purpose conceives the
economic community as a unit, the features of economic life which are of
particular consequence are those which show the correlation of efforts
and the solidarity of interests. For this purpose, such activities and
such interests as do not fit into the scheme of solidarity contemplated
are of minor importance, and are rather to be explained away or
construed into subservience to the scheme of solidarity than to be
incorporated at their face value into the theoretical structure. Of this
nature are what are here to be spoken of under the term "pecuniary
employments," and the fortune which these pecuniary employments have met
at the hands of classical economic theory is such as is outlined in the
last sentence.

In a theory proceeding on the premise of economic solidarity, the
important bearing of any activity that is taken up and accounted for, is
its bearing upon the furtherance of the collective life process. Viewed
from the standpoint of the collective interest, the economic process is
rated primarily as a process for the provision of the aggregate material
means of life. As a late representative of the classical school
expresses it: "Production, in fact, embraces every economic operation
except consumption."[3] It is this aggregate productivity, and the
bearing of all details upon the aggregate productivity, that constantly
occupies the attention of the classical economists. What partially
diverts their attention from this central and ubiquitous interest, is
their persistent lapse into natural-rights morality.

The result is that acquisition is treated as a sub-head under
production, and effort directed to acquisition is construed in terms of
production. The pecuniary activities of men, efforts directed to
acquisition and operations incident to the acquisition or tenure of
wealth, are treated as incidental to the distribution to each of his
particular proportion in the production of goods. Pecuniary activities,
in short, are handled as incidental features of the process of social
production and consumption, as details incident to the method whereby
the social interests are served, instead of being dealt with as the
controlling factor about which the modern economic process turns.

Apart from the metaphysical tenets indicated above as influencing them,
there are, of course, reasons of economic history for the procedure of
the early economists in so relegating the pecuniary activities to the
background of economic theory. In the days of Adam Smith, for instance,
economic life still bore much of the character of what Professor
Schmoller calls _Stadtwirtschaft_. This was the case to some extent in
practice, but still more decidedly in tradition. To a greater extent
than has since been the case, households produced goods for their own
consumption, without the intervention of sale; and handicraftsmen still
produced for consumption by their customers, without the intervention of
a market. In a considerable measure, the conditions which the Austrian
marginal-utility theory supposes, of a producing seller and a consuming
buyer, actually prevailed. It may not be true that in Adam Smith's time
the business operations, the bargain and sale of goods, were, in
general, obviously subservient to their production and consumption, but
it comes nearer being true at that time than at any time since then. And
the tradition having once been put into form and authenticated by Adam
Smith, that such was the place of pecuniary transactions in economic
theory, this tradition has lasted on in the face of later and further
changes. Under the shadow of this tradition the pecuniary employments
are still dealt with as auxiliary to the process of production, and the
gains from such employments are still explained as being due to a
productive effect imputed to them.

According to ancient prescription, then, all normal, legitimate economic
activities carried on in a well regulated community serve a materially
useful end, and so far as they are lucrative they are so by virtue of
and in proportion to a productive effect imputed to them. But in the
situation as it exists at any time there are activities and classes of
persons which are indispensable to the community, or which are at least
unavoidably present in modern economic life, and which draw some income
from the aggregate product, at the same time that these activities are
not patently productive of goods and can not well be classed as
industrial, in any but a highly sophisticated sense. Some of these
activities, which are concerned with economic matters but are not
patently of an industrial character, are integral features of modern
economic life, and must therefore be classed as normal; for the existing
situation, apart from a few minor discrepancies, is particularly normal
in the apprehension of present-day economists. Now, the law of economic
equivalence and equity says that those who normally receive in income
must perforce serve some productive end; and, since the existing
organization of society is conceived to be eminently normal, it becomes
imperative to find some ground on which to impute industrial
productivity to those classes and employments which do not at first view
appear to be industrial at all. Hence there is commonly visible in the
classical political economy, ancient and modern, a strong inclination to
make the schedule of industrially productive employments very
comprehensive; so that a good deal of ingenuity has been spent in
economically justifying their presence by specifying the productive
effect of such non-industrial factors as the courts, the army, the
police, the clergy, the schoolmaster, the physician, the opera singer.

But these non-economic employments are not so much to the point in the
present inquiry; the point being employments which are unmistakably
economic, but not industrial in the naïve sense of the word industry,
and which yield an income.

Adam Smith analysed the process of industry in which he found the
community of his time engaged, and found the three classes of agents or
factors: Land, Labor, and Capital (stock). The productive factors
engaged being thus determined, the norm of natural-economic equivalence
and equity already referred to above, indicated what would be the
natural sharers in the product. Later economists have shown great
reserve about departing from this three-fold division of factors, with
its correlated three-fold division of sharers of remuneration;
apparently because they have retained an instinctive, indefeasible trust
in the law of economic equivalence which underlies it. But circumstances
have compelled the tentative intrusion of a fourth class of agent and
income. The undertaker and his income presently came to be so large and
ubiquitous figures in economic life that their presence could not be
overlooked by the most normalising economist. The undertaker's activity
has been interpolated in the scheme of productive factors, as a peculiar
and fundamentally distinctive kind of labor, with the function of
coördinating and directing industrial processes. Similarly, his income
has been interpolated in the scheme of distribution, as a peculiar kind
of wages, proportioned to the heightened productivity given the
industrial process by his work.[4] His work is discussed in expositions
of the theory of production. In discussions of his functions and his
income the point of the argument is, how and in what degree does his
activity increase the output of goods, or how and in what degree does it
save wealth to the community. Beyond his effect in enhancing the
effective volume of the aggregate wealth the undertaker receives but
scant attention, apparently for the reason that so soon as that point
has been disposed of the presence of the undertaker and his income has
been reconciled with the tacitly accepted natural law of equivalence
between productive service and remuneration. The normal balance has been
established, and the undertaker's function has been justified and
subsumed under the ancient law that Nature does all things well and
equitably.

This holds true of the political economy of our grandfathers. But this
aim and method of handling the phenomena of life for theoretical ends,
of course, did not go out of vogue abruptly in the days of our
grandfathers.[5] There is a large sufficiency of the like aim and animus
in the theoretical discussions of a later time; but specifically to cite
and analyse the evidence of its presence would be laborious, nor would
it conduce to the general peace of mind.

Some motion towards a further revision of the scheme is to be seen in
the attention which has latterly been given to the function and the
profits of that peculiar class of undertakers whom we call speculators.
But even on this head the argument is apt to turn on the question of how
the services which the speculator is conceived to render the community
are to be construed into an equivalent of his gains.[6] The difficulty
of interpretation encountered at this point is considerable, partly
because it is not quite plain whether the speculators as a class come
out of their transactions with a net gain or with a net loss. A
systematic net loss, or a no-profits balance, would, on the theory of
equivalence, mean that the class which gets this loss or doubtful gain
is of no service to the community; yet we are, out of the past,
committed to the view that the speculator is useful--indeed economically
indispensable--and shall therefore have his reward. In the discussions
given to the speculator and his function some thought is commonly given
to the question of the "legitimacy" of the speculator's traffic. The
legitimate speculator is held to earn his gain by services of an
economic kind rendered the community. The recourse to this epithet,
"legitimate," is chiefly of interest as showing that the tacit postulate
of a natural order is still in force. Legitimate are such speculative
dealings as are, by the theorist, conceived to serve the ends of the
community, while illegitimate speculation is that which is conceived to
be disserviceable to the community.

The theoretical difficulty about the speculator and his gains (or
losses) is that the speculator _ex professo_ is quite without interest
in or connection with any given industrial enterprise or any industrial
plant. He is, industrially speaking, without visible means of support.
He may stake his risks on the gain or on the loss of the community with
equal chances of success, and he may shift from one side to the other
without winking.

The speculator may be treated as an extreme case of undertaker, who
deals exclusively with the business side of economic life rather than
with the industrial side. But he differs in this respect from the common
run of business men in degree rather than in kind. His traffic is a
pecuniary traffic, and it touches industry only remotely and
uncertainly; while the business man as commonly conceived is more or
less immediately interested in the successful operation of some concrete
industrial plant. But since the undertaker first broke into economic
theory, some change has also taken place as regards the immediacy of the
relations of the common run of undertakers to the mechanical facts of
the industries in which they are interested. Half a century ago it was
still possible to construe the average business manager in industry as
an agent occupied with the superintendence of the mechanical processes
involved in the production of goods or services. But in the later
development the connection between the business manager and the
mechanical processes has, on an average, grown more remote; so much so,
that his superintendence of the plant or of the processes is frequently
visible only to the scientific imagination. That activity by virtue of
which the undertaker is classed as such makes him a businessman, not a
mechanic or foreman of the shop. His superintendence is a
superintendence of the pecuniary affairs of the concern, rather than of
the industrial plant; especially is this true in the higher development
of the modern captain of industry. As regards the nature of the
employment which characterises the undertaker, it is possible to
distinguish him from the men who are mechanically engaged in the
production of goods, and to say that his employment is of a business or
pecuniary kind, while theirs is of an industrial or mechanical kind. It
is not possible to draw a similar distinction between the undertaker who
is in charge of a given industrial concern, and the business man who is
in business but is not interested in the production of goods or
services. As regards the character of employment, then, the line falls
not between legitimate and illegitimate pecuniary transactions, but
between business and industry.

The distinction between business and industry has, of course, been
possible from the beginning of economic theory, and, indeed, the
distinction has from time to time temporarily been made in the contrast
frequently pointed out between the proximate interest of the business
man and the ulterior interest of society at large. What appears to have
hindered the reception of the distinction into economic doctrine, is the
constraining presence of a belief in an order of Nature and the habit of
conceiving the economic community as an organism. The point of view
given by these postulates has made such a distinction between
employments not only useless, but even disserviceable for the ends to
which theory has been directed. But the fact has come to be gradually
more and more patent that there are constantly, normally present in
modern economic life an important range of activities and classes of
persons who work for an income but of whom it cannot be said that they,
either proximately or remotely, apply themselves to the production of
goods. Their services, proximate or remote, to society are often of
quite a problematical character. They are ubiquitous, and it will
scarcely do to say that they are anomalous, for they are of ancient
prescription, they are within the law and within the pale of popular
morals.

Of these strictly economic activities that are lucrative without
necessarily being serviceable to the community, the greater part are to
be classed as "business." Perhaps the largest and most obvious
illustration of these legitimate business employments is afforded by the
speculators in securities. By way of further illustration may be
mentioned the extensive and varied business of real-estate men
(land-agents) engaged in the purchase and sale of property for
speculative gain or for a commission; so, also, the closely related
business of promoters and boomers of other than real-estate ventures; as
also attorneys, brokers, bankers, and the like, although the work
performed by these latter will more obviously bear interpretation in
terms of social serviceability. The traffic of these business men shades
off insensibly from that of the _bona fide_ speculator who has no
ulterior end of industrial efficiency to serve, to that of the captain
of industry or entrepreneur as conventionally set forth in the economic
manuals.

The characteristic in which these business employments resemble one
another, and in which they differ from the mechanical occupations as
well as from other non-economic employments, is that they are concerned
primarily with the phenomena of value--with exchange or market values
and with purchase and sale--and only indirectly and secondarily, if at
all, with mechanical processes. What holds the interest and guides and
shifts the attention of men within these employments is the main
chance. These activities begin and end within what may broadly be called
"the higgling of the market." Of the industrial employments, in the
stricter sense, it may be said, on the other hand, that they begin and
end outside the higgling of the market. Their proximate aim and effect
is the shaping and guiding of material things and processes. Broadly,
they may be said to be primarily occupied with the phenomena of material
serviceability, rather than with those of exchange value. They are taken
up with phenomena which make the subject matter of Physics and the other
material sciences.

The business man enters the economic life process from the pecuniary
side, and so far as he works an effect in industry he works it through
the pecuniary dispositions which he makes. He takes thought most
immediately of men's convictions regarding market values; and his
efforts as a business man are directed to the apprehension, and commonly
also to the influencing of men's beliefs regarding market values. The
objective point of business is the diversion of purchase and sale into
some particular channel, commonly involving a diversion from other
channels. The laborer and the man engaged in directing industrial
processes, on the other hand, enter the economic process from the
material side; in their characteristic work they take thought most
immediately of mechanical effects, and their attention is directed to
turning men and things to account for the compassing of some material
end. The ulterior aim, and the ulterior effect, of these industrial
employments may be some pecuniary result; work of this class commonly
results in an enhancement, or at least an alteration, of market values.
Conversely, business activity may, and in a majority of cases it
perhaps does, effect an enhancement of the aggregate material wealth of
the community, or the aggregate serviceability of the means at hand; but
such an industrial outcome is by no means bound to follow from the
nature of the business man's work.

From what has just been said it appears that, if we retain the classical
division of economic theory into Production, Distribution, and
Consumption, the pecuniary employments do not properly fall under the
first of these divisions, Production, if that term is to retain the
meaning commonly assigned to it. In an earlier and less specialised
organisation of economic life, particularly, the undertaker frequently
performs the work of a foreman or a technological expert, as well as the
work of business management. Hence in most discussions of his work and
his theoretical relations his occupation is treated as a composite one.
The technological side of his composite occupation has even given a name
to his gains (wages of superintendence), as if the undertaker were
primarily a master-workman. The distinction at this point has been drawn
between classes of persons instead of between classes of employments;
with the result that the evident necessity of discussing his
technological employment under production has given countenance to the
endeavor to dispose of the undertaker's business activity under the same
head. This endeavor has, of course, not wholly succeeded.

In the later development, the specialisation of work in the economic
field has at this point progressed so far, and the undertaker now in
many cases comes so near being occupied with business affairs alone, to
the exclusion of technological direction and supervision, that, with
this object lesson before us, we no longer have the same difficulty in
drawing a distinction between business and industrial employments. And
even in the earlier days of the doctrines, when the aim was to dispose
of the undertaker's work under the theoretical head of Production, the
business side of his work persistently obtruded itself for discussion in
the books and chapters given to Distribution and Exchange. The course
taken by the later theoretical discussion of the entrepreneur, leaves no
question but that the characteristic fact about his work is that he is a
business man, occupied with pecuniary affairs.

Such pecuniary employments, of which the purely fiscal or financiering
forms of business are typical, are nearly all and nearly throughout,
conditioned by the institution of property or ownership--an institution
which, as John Stuart Mill remarks, belongs entirely within the
theoretical realm of Distribution. Ownership, no doubt, has its effect
upon productive industry, and, indeed, its effect upon industry is very
large, both in scope and range, even if we should not be prepared to go
the length of saying that it fundamentally conditions all industry; but
ownership is not itself primarily or immediately a contrivance for
production. Ownership directly touches the results of industry, and only
indirectly the methods and processes of industry. If the institution of
property be compared with such another feature of our culture, for
instance, as the domestication of plants or the smelting of iron, the
meaning of what has just been said may seem clearer.

So much then of the business man's activity as is conditioned by the
institution of property, is not to be classed, in economic theory, as
productive or industrial activity at all. Its objective point is an
alteration of the distribution of wealth. His business is, essentially,
to sell and buy--sell in order to buy cheaper, buy in order to sell
dearer.[7] It may or may not, indirectly, and in a sense incidentally,
result in enhanced production. The business man may be equally
successful in his enterprise, and he may be equally well remunerated,
whether his activity does or does not enrich the community. Immediately
and directly, so long as it is confined to the pecuniary or business
sphere, his activity is incapable of enriching or impoverishing the
community as a whole except, after the fashion conceived by the
mercantilists, through his dealings with men of other communities. The
circulation and distribution of goods incidental to the business man's
traffic is commonly, though not always or in the nature of the case,
serviceable to the community; but the distribution of goods is a
mechanical, not a pecuniary transaction, and it is not the objective
point of business nor its invariable outcome. From the point of view of
business, the distribution or circulation of goods is a means of gain,
not an end sought.

It is true, industry is closely conditioned by business. In a modern
community, the business man finally decides what may be done in
industry, or at least in the greater number and the more conspicuous
branches of industry. This is particularly true of those branches that
are currently thought of as peculiarly modern. Under existing
circumstances of ownership, the discretion in economic matters,
industrial or otherwise, ultimately rests in the hands of the business
men. It is their business to have to do with property, and property
means the discretionary control of wealth. In point of character, scope
and growth, industrial processes and plants adapt themselves to the
exigencies of the market, wherever there is a developed market, and the
exigencies of the market are pecuniary exigencies. The business man,
through his pecuniary dispositions, enforces his choice of what
industrial processes shall be in use. He can, of course, not create or
initiate methods or aims for industry; if he does so he steps out of the
business sphere into the material domain of industry. But he can decide
whether and which of the known processes and industrial arts shall be
practiced, and to what extent. Industry must be conducted to suit the
business man in his quest for gain; which is not the same as saying that
it must be conducted to suit the needs or the convenience of the
community at large. Ever since the institution of property was
definitely installed, and in proportion as purchase and sale has been
practiced, some approach has been made to a comprehensive system of
control of industry by pecuniary transactions and for pecuniary ends,
and the industrial organisation is nearer such a consummation now than
it ever has been. For the great body of modern industry the final term
of the sequence is not the production of the goods but their sale; the
endeavor is not so much to fit the goods for use as for sale. It is well
known that there are many lines of industry in which the cost of
marketing the goods equals the cost of making and transporting them.

Any industrial venture which falls short in meeting the pecuniary
exigencies of the market declines and yields ground to others that meet
them with better effect. Hence shrewd business management is a requisite
to success in any industry that is carried on within the scope of the
market. Pecuniary failure carries with it industrial failure, whatever
may be the cause to which the pecuniary failure is due--whether it be
inferiority of the goods produced, lack of salesmanlike tact, popular
prejudice, scanty or ill-devised advertising, excessive truthfulness, or
what not. In this way industrial results are closely dependent upon the
presence of business ability; but the cause of this dependence of
industry upon business in a given case is to be sought in the fact that
other rival ventures have the backing of shrewd business management,
rather than in any help which business management in the aggregate
affords to the aggregate industry of the community. Shrewd and
farsighted business management is a requisite of survival in the
competitive pecuniary struggle in which the several industrial concerns
are engaged, because shrewd and farsighted business management abounds
and is employed by all the competitors. The ground of survival in the
selective process is fitness for pecuniary gain, not fitness for
serviceability at large. Pecuniary management is of an emulative
character and gives, primarily, relative success only. If the change
were equitably distributed, an increase or decrease of the aggregate or
average business ability in the community need not immediately affect
the industrial efficiency or the material welfare of the community. The
like can not be said with respect to the aggregate or average industrial
capacity of the men at work. The latter are, on the whole, occupied with
production of goods; the business men, on the other hand, are occupied
with the acquisition of them.

Theoreticians who are given to looking beneath the facts and to
contemplating the profounder philosophical meaning of life speak of the
function of the undertaker as being the guidance and coördination of
industrial processes with a view to economies of production. No doubt,
the remoter effect of business transactions often is such coördination
and economy, and, no doubt also, the undertaker has such economy in view
and is stimulated to his maneuvers of combination by the knowledge that
certain economies of this kind are feasible and will inure to his gain
if the proper business arrangements can be effected. But it is
practicable to class even this indirect furthering of industry by the
undertaker as a permissive guidance only. The men in industry must first
create the mechanical possibility of such new and more economical
methods and arrangements, before the undertaker sees the chance, makes
the necessary business arrangements, and gives directions that the more
effective working arrangements be adopted.

It is notorious, and it is a matter upon which men dilate, that the wide
and comprehensive consolidations and coördinations of industry, which
often add so greatly to its effectiveness, take place at the initiative
of the business men who are in control. It should be added that the fact
of their being in control precludes such coördination from being
effected except by their advice and consent. And it should also be
added, in order to a passably complete account of the undertaker's
function, that he not only can and does effect economising coördinations
of a large scope, but he also can and does at times inhibit the process
of consolidation and coördination. It happens so frequently that it
might fairly be said to be the common run that business interests and
undertaker's maneuvers delay consolidation, combination, coördination,
for some appreciable time after they have become patently advisable on
industrial grounds. The industrial advisability or practicability is not
the decisive point. Industrial advisability must wait on the eventual
convergence of jarring pecuniary interests and on the strategical moves
of business men playing for position.

Which of these two offices of the business man in modern industry, the
furthering or the inhibitory, has the more serious or more far-reaching
consequences is, on the whole, somewhat problematical. The furtherance
of coördination by the modern captain of industry bulks large in our
vision, in great part because the process of widening coördination is of
a cumulative character. After a given step in coördination and
combination has been taken, the next step takes place on the basis of
the resulting situation. Industry, that is to say the working force
engaged in industry, has a chance to develop new and larger
possibilities to be taken further advantage of. In this way each
successive move in the enhancement of the efficiency of industrial
processes, or in the widening of coördination in industrial processes,
pushes the captain of industry to a further concession, making possible
a still farther industrial growth. But as regards the undertaker's
inhibitory dealings with industrial coördination the visible outcome is
not so striking. The visible outcome is simply that nothing of the kind
then takes place in the premises. The potential cumulative sequence is
cut off at the start, and so it does not figure in our appraisement of
the disadvantage incurred. The loss does not commonly take the more
obtrusive form of an absolute retreat, but only that of a failure to
advance where the industrial situation admits of an advance.

It is, of course, impracticable to foot up and compare gain and loss in
such a case, where the losses, being of the nature of inhibited growth,
cannot be ascertained. But since the industrial serviceability of the
captain of industry is, on the whole, of a problematical complexion, it
should be advisable for a cautious economic theory not to rest its
discussion of him on his serviceability.[8]

It appears, then, as all economists are no doubt aware, that there is in
modern society a considerable range of activities, which are not only
normally present, but which constitute the vital core of our economic
system; which are not directly concerned with production, but which are
nevertheless lucrative. Indeed, the group comprises most of the highly
remunerative employments in modern economic life. The gains from these
employments must plainly be accounted for on other grounds than their
productivity, since they need have no productivity.

But it is not only as regards the pecuniary employments that
productivity and remuneration are constitutionally out of touch. It
seems plain, from what has already been said, that the like is true for
the remuneration gained in the industrial employments. Most wages,
particularly those paid in the industrial employments proper, as
contrasted with those paid for domestic or personal service, are paid on
account of pecuniary serviceability to the employer, not on grounds of
material serviceability to mankind at large. The product is valued,
sought and paid for on account of and in some proportion to its
vendibility, not for more recondite reasons of ulterior human welfare
at large. It results that there is no warrant, in general theory, for
claiming that the work of highly paid persons (more particularly that of
highly paid business men) is of greater substantial use to the community
than that of the less highly paid. At the same time, the reverse could,
of course, also not be claimed. Wages, resting on a pecuniary basis,
afford no consistent indication of the relative productivity of the
recipients, except in comparisons between persons or classes whose
products are identical except in amount,--that is to say, where a
resort to wages as an index of productivity would be of no use
anyway.[9]

       *       *       *       *       *

A result of the acceptance of the theoretical distinction here attempted
between industrial and pecuniary employments and an effective
recognition of the pecuniary basis of the modern economic organisation
would be to dissociate the two ideas of productivity and remuneration.
In mathematical language, remuneration could no longer be conceived and
handled as a "function" of productivity,--unless productivity be taken
to mean pecuniary serviceability to the person who pays the
remuneration. In modern life remuneration is, in the last analysis,
uniformly obtained by virtue of an agreement between individuals who
commonly proceed on their own interest in point of pecuniary gain. The
remuneration may, therefore, be said to be a "function" of the pecuniary
service rendered the person who grants the remuneration; but what is
pecuniarily serviceable to the individual who exercises the discretion
in the matter need not be productive of material gain to the community
as a whole. Nor does the algebraic sum of individual pecuniary gains
measure the aggregate serviceability of the activities for which the
gains are got.

In a community organized, as modern communities are, on a pecuniary
basis, the discretion in economic matters rests with the individuals, in
severalty; and the aggregate of discrete individual interests nowise
expresses the collective interest. Expressions constantly recur in
economic discussions which imply that the transactions discussed are
carried out for the sake of the collective good or at the initiative of
the social organism, or that "society" rewards so and so for their
services. Such expressions are commonly of the nature of figures of
speech and are serviceable for homiletical rather than for scientific
use. They serve to express their user's faith in a beneficent order of
nature, rather than to convey or to formulate information in regard to
facts.

Of course, it is still possible consistently to hold that there is a
natural equivalence between work and its reward, that remuneration is
naturally, or normally, or in the long run, proportioned to the material
service rendered the community by the recipient; but that proposition
will hold true only if "natural" or "normal" be taken in such a sense as
to admit of our saying that the natural does not coincide with the
actual; and it must be recognised that such a doctrine of the "natural"
apportionment of wealth or of income disregards the efficient facts of
the case. Apart from effects of this kind in the way of equitable
arrangements traceable to grounds of sentiment, the only recourse which
modern science would afford the champion of a doctrine of natural
distribution, in the sense indicated, would be a doctrine of natural
selection; according to which all disserviceable or unproductive,
wasteful employments would, perforce, be weeded out as being
incompatible with the continued life of any community that tolerated
them. But such a selective elimination of unserviceable or wasteful
employments would presume the following two conditions, neither of which
need prevail: (1) It must be assumed that the disposable margin between
the aggregate productivity of industry and the aggregate necessary
consumption is so narrow as to admit of no appreciable waste of energy
or of goods; (2) it must be assumed that no deterioration of the
condition of society in the economic respect does or can "naturally"
take place. As to the former of these two assumptions, it is to be said
that in a very poor community, and under exceptionally hard economic
circumstances, the margin of production may be as narrow as the theory
would require. Something approaching this state of things may be found,
for instance, among some Eskimo tribes. But in a modern industrial
community--where the margin of admissible waste probably always exceeds
fifty per cent, of the output of goods--the facts make no approach to
the hypothesis. The second assumed condition is, of course, the
old-fashioned assumption of a beneficent, providential order or
meliorative trend in human affairs. As such, it needs no argument at
this day. Instances are not far to seek of communities in which economic
deterioration has taken place while the system of distribution, both of
income and of accumulated wealth, has remained on a pecuniary basis.

       *       *       *       *       *

To return to the main drift of the argument. The pecuniary employments
have to do with wealth in point of ownership, with market values, with
transactions of exchange, purchase and sale, bargaining for the purpose
of pecuniary gain. These employments make up the characteristic
occupations of business men, and the gains of business are derived from
successful endeavors of the pecuniary kind. These business employments
are the characteristic activity (constitute the "function") of what are
in theory called undertakers. The dispositions which undertakers, _qua_
business men, make are pecuniary dispositions--whatever industrial
sequel they may or may not have--and are carried out with a view to
pecuniary gain. The wealth of which they have the discretionary disposal
may or may not be in the form of "production goods"; but in whatever
form the wealth in question is conceived to exist, it is handled by the
undertakers in terms of values and is disposed of by them in the
pecuniary respect. When, as may happen, the undertaker steps down from
the pecuniary plane and directs the mechanical handling and functioning
of "production goods," he becomes for the time a foreman. The
undertaker, if his business venture is of the industrial kind, of course
takes cognizance of the aptness of a given industrial method or process
for his purpose, and he has to choose between different industrial
processes in which to invest his values; but his work as undertaker,
simply, is the investment and shifting of the values under his hand from
the less to the more gainful point of investment. When the investment
takes the form of material means of industry, or industrial plant, the
sequel of a given business transaction is commonly some particular use
of such means; and when such industrial use follows, it commonly takes
place at the hands of other men than the undertaker, although it takes
place within limits imposed by the pecuniary exigencies of which the
undertaker takes cognizance. Wealth turned to account in the way of
investment or business management may or may not, in consequence, be
turned to account, materially, for industrial effect. Wealth, values, so
employed for pecuniary ends is capital in the business sense of the
word.[10] Wealth, material means of industry, physically employed for
industrial ends is capital in the industrial sense. Theory, therefore,
would require that care be taken to distinguish between capital as a
pecuniary category, and capital as an industrial category, if the term
capital is retained to cover the two concepts.[11] The distinction here
made substantially coincides with a distinction which many late writers
have arrived at from a different point of approach and have, with
varying success, made use of under different terms.[12]

A further corollary touching capital may be pointed out. The gains
derived from the handling of capital in the pecuniary respect have no
immediate relation, stand in no necessary relation of proportion, to the
productive effect compassed by the industrial use of the material means
over which the undertaker may dispose; although the gains have a
relation of dependence to the effects achieved in point of vendibility.
But vendibility need not, even approximately, coincide with
serviceability, except serviceability be construed in terms of marginal
utility or some related conception, in which case the outcome is a
tautology. Where, as in the case commonly assumed by economists as
typical, the investing undertaker seeks his gain through the production
and sale of some useful article, it is commonly also assumed that his
effort is directed to the most economical production of as large and
serviceable a product as may be, or at least it is assumed that such
production is the outcome of his endeavors in the natural course of
things. This account of the aim and outcome of business enterprise may
be natural, but it does not describe the facts. The facts being, of
course, that the undertaker in such a case seeks to produce economically
as vendible a product as may be. In the common run vendibility depends
in great part on the serviceability of the goods, but it depends also on
several other circumstances; and to that highly variable, but nearly
always considerable extent to which vendibility depends on other
circumstances than the material serviceability of the goods, the
pecuniary management of capital must be held not to serve the ends of
production. Neither immediately, in his purely pecuniary traffic, nor
indirectly, in the business guidance of industry through his pecuniary
traffic, therefore, can the undertaker's dealings with his pecuniary
capital be accounted a productive occupation, nor can the gains of
capital be taken to mark or to measure the productivity due to the
investment. The "cost of production" of goods in the case contemplated
is to an appreciable, but indeterminable, extent a cost of production
of vendibility--an outcome which is often of doubtful service to the
body of consumers, and which often counts in the aggregate as waste. The
material serviceability of the means employed in industry, that is to
say the functioning of industrial capital in the service of the
community at large, stands in no necessary or consistent relation to the
gainfulness of capital in the pecuniary respect. Productivity can
accordingly not be predicated of pecuniary capital. It follows that
productivity theories of interest should be as difficult to maintain as
productivity theories of the gains of the pecuniary employments, the two
resting on the same grounds.

It is, further, to be remarked that pecuniary capital and industrial
capital do not coincide in respect of the concrete things comprised
under each. From this and from the considerations already indicated
above, it follows that the magnitude of pecuniary capital may vary
independently of variations in the magnitude of industrial capital--not
indefinitely, perhaps, but within a range which, in its nature, is
indeterminate. Pecuniary capital is a matter of market values, while
industrial capital is, in the last analysis, a matter of mechanical
efficiency, or rather of mechanical effects not reducible to a common
measure or a collective magnitude. So far as the latter may be spoken of
as a homogenous aggregate--itself a doubtful point at best--the two
categories of capital are disparate magnitudes, which can be mediated
only through a process of valuation conditioned by other circumstances
besides the mechanical efficiency of the material means valued. Market
values being a psychological outcome, it follows that pecuniary capital,
an aggregate of market values, may vary in magnitude with a freedom
which gives the whole an air of caprice,--such as psychological
phenomena, particularly the psychological phenomena of crowds,
frequently present, and such as becomes strikingly noticeable in times
of panic or of speculative inflation. On the other hand, industrial
capital, being a matter of mechanical contrivances and adaptation,
cannot similarly vary through a revision of valuations. If it is taken
as an aggregate, it is a physical magnitude, and as such it does not
alter its complexion or its mechanical efficiency in response to the
greater or less degree of appreciation with which it is viewed. Capital
pecuniarily considered rests on a basis of subjective value; capital
industrially considered rests on material circumstances reducible to
objective terms of mechanical, chemical and physiological effect.

The point has frequently been noted that it is impossible to get at the
aggregate social (industrial) capital by adding up the several items of
individual (pecuniary) capital. A reason for this, apart from variations
in the market values of given material means of production, is that
pecuniary capital comprises not only material things but also
conventional facts, psychological phenomena not related in any rigid way
to material means of production,--as _e.g._, good will, fashions,
customs, prestige, effrontery, personal credit. Whatever ownership
touches, and whatever affords ground for pecuniary discretion, may be
turned to account for pecuniary gain and may therefore be comprised in
the aggregate of pecuniary capital. Ownership, the basis of pecuniary
capital, being itself a conventional fact, that is to say a matter of
habits of thought, it is intelligible that phenomena of convention and
opinion should figure in an inventory of pecuniary capital; whereas,
industrial capital being of a mechanical character, conventional
circumstances do not affect it--except as the future production of
material means to replace the existing outfit may be guided by
convention--and items having but a conventional existence are,
therefore, not comprised in its aggregate. The disparity between
pecuniary and industrial capital, therefore, is something more than a
matter of an arbitrarily chosen point of view, as some recent
discussions of the capital concept would have us believe; just as the
difference between the pecuniary and the industrial employments, which
are occupied with the one or the other category of capital, means
something more than the same thing under different aspects.

       *       *       *       *       *

But the distinction here attempted has a farther bearing, beyond the
possible correction of a given point in the theory of distribution.
Modern economic science is to an increasing extent concerning itself
with the question of what men do and how and why they do it, as
contrasted with the older question of how Nature, working through human
nature, maintains a favorable balance in the output of goods. Neither
the practical questions of our generation, nor the pressing theoretical
questions of the science, run on the adequacy or equity of the share
that goes to any class in the normal case. The questions are rather such
realistic ones as these: Why do we, now and again, have hard times and
unemployment in the midst of excellent resources, high efficiency and
plenty of unmet wants? Why is one-half our consumable product contrived
for consumption that yields no material benefit? Why are large
coördinations of industry, which greatly reduce cost of production, a
cause of perplexity and alarm? Why is the family disintegrating among
the industrial classes, at the same time that the wherewithal to
maintain it is easier to compass? Why are large and increasing portions
of the community penniless in spite of a scale of remuneration which is
very appreciably above the subsistence minimum? Why is there a
widespread disaffection among the intelligent workmen who ought to know
better? These and the like questions, being questions of fact, are not
to be answered on the grounds of normal equivalence. Perhaps it might
better be said that they have so often been answered on those grounds,
without any approach to disposing of them, that the outlook for help in
that direction has ceased to have a serious meaning. These are, to
borrow Professor Clark's phrase, questions to be answered on dynamic,
not on static grounds. They are questions of conduct and sentiment, and
so far as their solution is looked for at the hands of economists it
must be looked for along the line of the bearing which economic life has
upon the growth of sentiment and canons of conduct. That is to say, they
are questions of the bearing of economic life upon the cultural changes
that are going forward.

For the present it is the vogue to hold that economic life, broadly,
conditions the rest of social organization or the constitution of
society. This vogue of the proposition will serve as excuse from going
into an examination of the grounds on which it may be justified, as it
is scarcely necessary to persuade any economist that it has substantial
merits even if he may not accept it in an unqualified form. What the
Marxists have named the "Materialistic Conception of History" is
assented to with less and less qualification by those who make the
growth of culture their subject of inquiry. This materialistic
conception says that institutions are shaped by economic conditions;
but, as it left the hands of the Marxists, and as it still functions in
the hands of many who knew not Marx, it has very little to say regarding
the efficient force, the channels, or the methods by which the economic
situation is conceived to have its effect upon institutions. What answer
the early Marxists gave to this question, of how the economic situation
shapes institutions, was to the effect that the causal connection lies
through a selfish, calculating class interest. But, while class interest
may count for much in the outcome, this answer is plainly not a
competent one, since, for one thing, institutions by no means change
with the alacrity which the sole efficiency of a reasoned class interest
would require.

Without discrediting the claim that class interest counts for something
in the shaping of institutions, and to avoid getting entangled in
preliminaries, it may be said that institutions are of the nature of
prevalent habits of thought, and that therefore the force which shapes
institutions is the force or forces which shape the habits of thought
prevalent in the community. But habits of thought are the outcome of
habits of life. Whether it is intentionally directed to the education of
the individual or not, the discipline of daily life acts to alter or
reënforce the received habits of thought, and so acts to alter or
fortify the received institutions under which men live. And the
direction in which, on the whole, the alteration proceeds is conditioned
by the trend of the discipline of daily life. The point here immediately
at issue is the divergent trend of this discipline in those occupations
which are prevailingly of an industrial character, as contrasted with
those which are prevailingly of a pecuniary character. So far as regards
the different cultural outcome to be looked for on the basis of the
present economic situation as contrasted with the past, therefore, the
question immediately in hand is as to the greater or less degree in
which occupations are differentiated into industrial and pecuniary in
the present as compared with the past.

The characteristic feature which is currently held to differentiate the
existing economic situation from that out of which the present has
developed, or out of which it is emerging, is the prevalence of the
machine industry with the consequent larger and more highly specialised
organisation of the market and of the industrial force and plant. As has
been pointed out above, and as is well enough known from the current
discussions of the economists, industrial life is organised on a
pecuniary basis and managed from the pecuniary side. This, of course, is
true in a degree both of the present and of the nearer past, back at
least as far as the Middle Ages. But the larger scope of organisations
in modern industry means that the pecuniary management has been
gradually passing into the hands of a relatively decreasing class, whose
contact with the industrial classes proper grows continually less
immediate. The distinction between employments above spoken of is in an
increasing degree coming to coincide with a differentiation of
occupations and of economic classes. Some degree of such specialisation
and differentiation there has, of course, been, one might almost say,
always. But in our time, in many branches of industry, the
specialisation has been carried so far that large bodies of the working
population have but an incidental contact with the business side of the
enterprise, while a minority have little if any other concern with the
enterprise than its pecuniary management. This was not true, _e.g._, at
the time when the undertaker was still salesman, purchasing agent,
business manager, foreman of the shop, and master workman. Still less
was it true in the days of the self-sufficing manor or household, or in
the days of the closed town industry. Neither is it true in our time of
what we call the backward or old-fashioned industries. These latter have
not been and are not organised on a large scale, with a consistent
division of labor between the owners and business managers on the one
side and the operative employees on the other. Our standing
illustrations of this less highly organised class of industries are the
surviving handicrafts and the common run of farming as carried on by
relatively small proprietors. In that earlier phase of economic life,
out of which the modern situation has gradually grown, all the men
engaged had to be constantly on their guard, in a pecuniary sense, and
were constantly disciplined in the husbanding of their means and in the
driving of bargains,--as is still true, _e.g._, of the American farmer.
The like was formerly true also of the consumer, in his purchases, to a
greater extent than at present. A good share of the daily attention of
those who were engaged in the handicrafts was still perforce given to
the pecuniary or business side of their trade. But for that great body
of industry which is conventionally recognised as eminently modern,
specialisation of function has gone so far as, in great measure, to
exempt the operative employees from taking thought of pecuniary matters.

Now, as to the bearing of all this upon cultural changes that are in
progress or in the outlook. Leaving the "backward," relatively
unspecialised, industries on one side, as being of an equivocal
character for the point in hand and as not differing characteristically
from the corresponding industries in the past so far as regards their
disciplinary value; modern occupations may, for the sake of the
argument, be broadly distinguished, as economic employments have been
distinguished above, into business and industrial. The modern industrial
and the modern business occupations are fairly comparable as regards the
degree of intelligence required in both, if it be borne in mind that the
former occupations comprise the highly trained technological experts and
engineers as well as the highly skilled mechanics. The two classes of
occupations differ in that the men in the pecuniary occupations work
within the lines and under the guidance of the great institution of
ownership, with its ramifications of custom, prerogative, and legal
right; whereas those in the industrial occupations are, in their work,
relatively free from the constraint of this conventional norm of truth
and validity. It is, of course, not true that the work of the latter
class lies outside the reach of the institution of ownership; but it is
true that, in the heat and strain of the work, when the agent's powers
and attention are fully taken up with the work which he has in hand,
that of which he has perforce to take cognisance is not conventional
law, but the conditions impersonally imposed by the nature of material
things. This is the meaning of the current commonplace that the required
close and continuous application of the operative in mechanical industry
bars him out of all chance for an all-around development of the cultural
graces and amenities. It is the periods of close attention and hard work
that seem to count for most in the formation of habits of thought.

An _a priori_ argument as to what cultural effects should naturally
follow from such a difference in discipline between occupations, past
and present, would probably not be convincing, as _a priori_ arguments
from half-authenticated premises commonly are not. And the experiments
along this line which later economic developments have so far exhibited
have been neither neat enough, comprehensive enough, nor long continued
enough to give definite results. Still, there is something to be said
under this latter head, even if this something may turn out to be
somewhat familiar.

It is, _e.g._ a commonplace of current vulgar discussions of existing
economic questions, that the classes engaged in the modern mechanical or
factory industries are improvident and apparently incompetent to take
care of the pecuniary details of their own life. In this indictment may
well be included not only factory hands, but the general class of highly
skilled mechanics, inventors, technological experts. The rule does not
hold in any hard and fast way, but there seems to be a substantial
ground of truth in the indictment in this general form. This will be
evident on comparison of the present factory population with the class
of handicraftsmen of the older culture whom they have displaced, as also
on comparison with the farming population of the present time,
especially the small proprietors of this and other countries. The
inferiority which is currently conceded to the modern industrial classes
in this respect is not due to scantier opportunities for saving, whether
they are compared with the earlier handicraftsmen or with the modern
farmer or peasant. This phenomenon is commonly discussed in terms which
impute to the improvident industrial classes something in the way of
total depravity, and there is much preaching of thrift and steady
habits. But the preaching of thrift and self-help, unremitting as it is,
is not producing an appreciable effect. The trouble seems to run deeper
than exhortation can reach. It seems to be of the nature of habit rather
than of reasoned conviction. Other causes may be present and may be
competent partially to explain the improvidence of these classes; but
the inquiry is at least a pertinent one; how far the absence of
property and thrift among them may be traceable to the relative absence
of pecuniary training in the discipline of their daily life. If, as the
general lie of the subject would indicate, this peculiar pecuniary
situation of the industrial classes is in any degree due to
comprehensive disciplinary causes, there is material in it for an
interesting economic inquiry.

The surmise that the trouble with the industrial class is something of
this character is strengthened by another feature of modern vulgar life,
to which attention is directed as a further, and, for the present, a
concluding illustration of the character of the questions that are
touched by the distinction here spoken for. The most insidious and most
alarming malady, as well as the most perplexing and unprecedented, that
threatens the modern social and political structure is what is vaguely
called socialism. The point of danger to the social structure, and at
the same time the substantial core of the socialistic disaffection, is a
growing disloyalty to the institution of property, aided and abetted as
it is by a similarly growing lack of deference and affection for other
conventional features of social structure. The classes affected by
socialistic vagaries are not consistently averse to a competent
organisation and control of society, particularly not in the economic
respect, but they are averse to organisation and control on conventional
lines. The sense of solidarity does not seem to be either defective or
in abeyance, but the ground of solidarity is new and unexpected. What
their constructive ideals may be need not concern nor detain us; they
are vague and inconsistent and for the most part negative. Their
disaffection has been set down to discontent with their lot by
comparison with others, and to a mistaken view of their own interests;
and much and futile effort has been spent in showing them the error of
their ways of thinking. But what the experience of the past suggests
that we should expect under the guidance of such motives and reasoning
as these would be a demand for a redistribution of property, a
reconstitution of the conventions of ownership on such new lines as the
apprehended interests of these classes would seem to dictate. But such
is not the trend of socialistic thinking, which contemplates rather the
elimination of the institution of property. To the socialists property
or ownership does not seem inevitable or inherent in the nature of
things; to those who criticise and admonish them it commonly does.

Compare them in this respect with other classes who have been moved by
hardship or discontent, whether well or ill advised, to put forth
denunciations and demands for radical economic changes; as _e.g._, the
American farmers in their several movements, of grangerism, populism,
and the like. These have been loud enough in their denunciations and
complaints, and they have been accused of being socialistic in their
demand for a virtual redistribution of property. They have not felt the
justice of the accusation, however, and it is to be noted that their
demands have consistently run on a rehabilitation of property on some
new basis of distribution, and have been uniformly put forth with the
avowed purpose of bettering the claimants in point of ownership.
Ownership, property "honestly" acquired, has been sacred to the rural
malcontents, here and elsewhere; what they have aspired to do has been
to remedy what they have conceived to be certain abuses under the
institution, without questioning the institution itself.

Not so with the socialists, either in this country or elsewhere. Now,
the spread of socialistic sentiment shows a curious tendency to affect
those classes particularly who are habitually employed in the
specialised industrial occupations, and are thereby in great part exempt
from the intellectual discipline of pecuniary management. Among these
men, who by the circumstances of their daily life are brought to do
their serious and habitual thinking in other than pecuniary terms, it
looks as if the ownership preconception were becoming obsolescent
through disuse. It is the industrial population, in the modern sense,
and particularly the more intelligent and skilled men employed in the
mechanical industries, that are most seriously and widely affected. With
exceptions both ways, but with a generality that is not to be denied,
the socialistic disaffection spreads through the industrial towns,
chiefly and most potently among the better classes of operatives in the
mechanical employments; whereas the relatively indigent and
unintelligent regions and classes, which the differentiation between
pecuniary and industrial occupations has not reached, are relatively
free from it. In like manner the upper and middle classes, whose
employments are of a pecuniary character, if any, are also not seriously
affected; and when avowed socialistic sentiment is met with among these
upper and middle classes it commonly turns out to be merely a
humanitarian aspiration for a more "equitable" redistribution of
wealth--a readjustment of ownership under some new and improved method
of control--not a contemplation of the traceless disappearance of
ownership.

Socialism, in the sense in which the word connotes a subversion of the
economic foundations of modern culture, appears to be found only
sporadically and uncertainly outside the limits, in time and space, of
the discipline exercised by the modern mechanical, non-pecuniary
occupations. This state of the case need of course not be due solely to
the disciplinary effects of the industrial employments, nor even solely
to effects traceable to those employments whether in the way of
disciplinary results, selective development, or what not. Other factors,
particularly factors of an ethnic character, seem to coöperate to the
result indicated; but, so far as evidence bearing on the point is yet in
hand and has been analysed, it indicates that this differentiation of
occupations is a necessary requisite to the growth of a consistent body
of socialistic sentiment; and the indication is also that wherever this
differentiation prevails in such a degree of accentuation and affects
such considerable and compact bodies of people as to afford ground for a
consistent growth of common sentiment, a result is some form of
iconoclastic socialism. The differentiation may of course have a
selective as well as a disciplinary effect upon the population affected,
and an off-hand separation of these two modes of influence can of course
not be made. In any case, the two modes of influence seem to converge to
the outcome indicated; and, for the present purpose of illustration
simply, the tracing out of the two strands of sequence in the case
neither can nor need be undertaken. By force of this differentiation, in
one way and another, the industrial classes are learning to think in
terms of material cause and effect, to the neglect of prescription and
conventional grounds of validity; just as, in a faintly incipient way,
the economists are also learning to do in their discussion of the life
of these classes. The resulting decay of the popular sense of
conventional validity of course extends to other matters than the
pecuniary conventions alone, with the outcome that the socialistically
affected industrial classes are pretty uniformly affected with an
effortless iconoclasm in other directions as well. For the discipline to
which their work and habits of life subject them gives not so much a
training away from the pecuniary conventions, specifically, as a
positive and somewhat unmitigated training in methods of observation and
inference proceeding on grounds alien to all conventional validity. But
the practical experiment going on in the specialisation of discipline,
in the respect contemplated, appears still to be near its beginning, and
the growth of aberrant views and habits of thought due to the peculiar
disciplinary trend of this late and unprecedented specialisation of
occupations has not yet had time to work itself clear.

The effects of the like one-sided discipline are similarly visible in
the highly irregular, conventionally indefensible attitude of the
industrial classes in the current labor and wage disputes, not of an
avowedly socialistic aim. So also as regards the departure from the
ancient norm in such non-economic, or secondarily economic matters as
the family relation and responsibility, where the disintegration of
conventionalities in the industrial towns is said to threaten the
foundations of domestic life and morality; and again as regards the
growing inability of men trained to materialistic, industrial habits of
thought to appreciate, or even to apprehend, the meaning of religious
appeals and consolations that proceed on the old-fashioned conventional
or metaphysical grounds of validity. But these and other like directions
in which the cultural effects of the modern specialisation of
occupations, whether in industry or in business, may be traceable can
not be followed up here.

FOOTNOTES:

[1] Reprinted by permission from _Publications of the American Economic
Association_, series 3, Vol. II.

[2] Some late writers, as, _e.g._, J. B. Clark, apparently must be held
to conceive the equivalence in terms of productive force rather than of
serviceability; or, perhaps, in terms of serviceability on one side of
the equation and productive force on the other.

[3] J. B. Clark, _The Distribution of Wealth_, p. 20.

[4] The undertaker gets an income; therefore he must produce goods. But
human activity directed to the production of goods is labor; therefore
the undertaker is a particular kind of laborer. There is, of course,
some dissent from this position.

[5] The change which has supervened as regards the habitual resort to a
natural law of equivalence is in large part a change with respect to the
degree of immediacy and "reality" imputed to this law, and to a still
greater extent a change in the degree of overtness with which it is
avowed.

[6] See, _e.g._, a paper by H. C. Emery in the _Papers and Proceedings
of the Twelfth Annual Meeting_ of the American Economic Association, on
"The Place of the Speculator in the Theory of Distribution," and more
particularly the discussion following the paper.

[7] _Cf. e.g._, Marx, _Capital_, especially bk. I, ch. IV.

[8] It is not hereby intended to depreciate the services rendered the
community by the captain of industry in his management of business. Such
services are no doubt rendered and are also no doubt of substantial
value. Still less is it the intention to decry the pecuniary incentive
as a motive to thrift and diligence. It may well be that the pecuniary
traffic which we call business is the most effective method of
conducting the industrial policy of the community; not only the most
effective that has been contrived, but perhaps the best that can be
contrived. But that is a matter of surmise and opinion. In a matter of
opinion on a point that can not be verified, a reasonable course is to
say that the majority are presumably in the right. But all that is
beside the point. However probable or reasonable such a view may be, it
can find no lodgment in modern scientific theory, except as a corollary
of secondary importance. Nor can scientific theory build upon the ground
it may be conceived to afford. Policy may so build, but science can not.
Scientific theory is a formulation of the laws of phenomena in terms of
the efficient forces at work in the sequence of phenomena. So long as
(under the old dispensation of the order of nature) the animistically
conceived natural laws, with their God-given objective end, were
considered to exercise a constraining guidance over the course of events
whereof they were claimed to be laws, so long it was legitimate
scientific procedure for economists to formulate their theory in terms
of these laws of the natural course; because so long they were speaking
in terms of what was, to them, the efficient forces at work. But so soon
as these natural laws were reduced to the plane of colorless empirical
generalization as to what commonly happens, while the efficient forces
at work are conceived to be of quite another cast, so soon must theory
abandon the ground of the natural course, sterile for modern scientific
purposes, and shift to the ground of the causal sequence, where alone it
will have to do with the forces at work as they are conceived in our
time. The generalisations regarding the normal course, as "normal" has
been defined in economics since J. S. Mill, are not of the nature of
theory, but only rule-of-thumb. And the talk about the "function" of
this and that factor of production, etc., in terms of the collective
life purpose, goes to the same limbo; since the collective life purpose
is no longer avowedly conceived to cut any figure in the every-day
guidance of economic activities or the shaping of economic results.

The doctrine of the social-economic function of the undertaker may for
the present purpose be illustrated by a supposititious parallel from
Physics. It is an easy generalisation, which will scarcely be
questioned, that, in practice, pendulums commonly vibrate in a plane
approximately parallel with the nearest wall of the clock-case in which
they are placed. The normality of this parallelism is fortified by the
further observation that the vibrations are also commonly in a plane
parallel with the nearest wall of the room; and when it is further
called to mind that the balance which serves the purpose of a pendulum
in watches similarly vibrates in a plane parallel with the walls of its
case, the absolute normality of the whole arrangement is placed beyond
question. It is true, the parallelism is not claimed to be related to
the working of the pendulum, except as a matter of fortuitous
convenience; but it should be manifest from the generality of the
occurrence that in the normal case, in the absence of disturbing causes,
and in the long run, all pendulums will "naturally" tend to swing in a
plane faultlessly parallel with the nearest wall. The use which has been
made of the "organic concept," in economics and in social science at
large, is fairly comparable with this supposititious argument concerning
the pendulum.

[9] Since the ground of payment of wages is the vendibility of the
product, and since the ground of a difference in wages is the different
vendibility of the product acquired through the purchase of the labor
for which the wages are paid, it follows that wherever the difference in
vendibility rests on a difference in the magnitude of the product alone,
there wages should be somewhat in proportion to the magnitude of the
product.

[10] All wealth so used is capital, but it does not follow that all
pecuniary capital is social wealth.

[11] In current theory the term capital is used in these two senses;
while in business usage it is employed pretty consistently in the former
sense alone. The current ambiguity in the term capital has often been
adverted to by economists, and there may be need of a revision of the
terminology at this point; but this paper is not concerned with that
question.

[12] Professor Fetter, in a recent paper (_Quarterly Journal of
Economics_, November, 1900) is, perhaps, the writer who has gone the
farthest in this direction in the definition of the capital concept.
Professor Fetter wishes to confine the term capital to pecuniary
capital, or rather to such pecuniary capital as is based on the
ownership of material goods. The wisdom of such a terminological
expedient is, of course, not in question here.




ON THE NATURE OF CAPITAL[1]


I. THE PRODUCTIVITY OF CAPITAL GOODS

It has been usual in expositions of economic theory to speak of capital
as an array of "productive goods." What is immediately had in mind in
this expression, as well as in the equivalent "capital goods," is the
industrial equipment, primarily the mechanical appliances employed in
the processes of industry. When the productive efficiency of these and
of other subsidiary classes of capital goods is subjected to further
analysis, it is not unusual to trace it back to the productive labor of
the workmen, the labor of the individual workman being the ultimate
productive factor in the commonly accepted systems of theory. The
current theories of production, as also those of distribution, are drawn
in individualistic terms, particularly when these theories are based on
hedonistic premises, as they commonly are.

Now, whatever may or may not be true for human conduct in some other
bearing, in the economic respect man has never lived an isolated,
self-sufficient life as an individual, either actually or potentially.
Humanly speaking, such a thing is impossible. Neither an individual
person nor a single household, nor a single line of descent, can
maintain its life in isolation. Economically speaking, this is the
characteristic trait of humanity that separates mankind from the other
animals. The life-history of the race has been a life-history of human
communities, of more or less considerable size, with more or less of
group solidarity, and with more or less of cultural continuity over
successive generations. The phenomena of human life occur only in this
form.

This continuity, congruity, or coherence of the group, is of an
immaterial character. It is a matter of knowledge, usage, habits of life
and habits of thought, not a matter of mechanical continuity or contact,
or even of consanguinity. Wherever a human community is met with, as,
_e.g._, among any of the peoples of the lower cultures, it is found in
possession of something in the way of a body of technological
knowledge,--knowledge serviceable and requisite to the quest of a
livelihood, comprising at least such elementary acquirements as
language, the use of fire, of a cutting edge, of a pointed stick, of
some tool for piercing, of some form of cord, thong, or fiber, together
with some skill in the making of knots and lashings. Coördinate with
this knowledge of ways and means, there is also uniformly present some
matter-of-fact knowledge of the physical behavior of the materials with
which men have to deal in the quest of a livelihood, beyond what any one
individual has learned or can learn by his own experience alone. This
information and proficiency in the ways and means of life vests in the
group at large; and, apart from accretions borrowed from other groups,
it is the product of the given group, though not produced by any single
generation. It may be called the immaterial equipment, or, by a license
of speech, the intangible assets[2] of the community; and, in the early
days at least, this is far and away the most important and
consequential category of the community's assets or equipment. Without
access to such a common stock of immaterial equipment no individual and
no fraction of the community can make a living, much less make an
advance. Such a stock of knowledge and practice is perhaps held loosely
and informally; but it is held as a common stock, pervasively, by the
group as a body, in its corporate capacity, as one might say; and it is
transmitted and augmented in and by the group, however loose and
haphazard the transmission may be conceived to be, not by individuals
and in single lines of inheritance.

The requisite knowledge and proficiency of ways and means is a product,
perhaps a by-product, of the life of the community at large; and it can
also be maintained and retained only by the community at large. Whatever
may be true for the unsearchable prehistoric phases of the life-history
of the race, it appears to be true for the most primitive human groups
and phases of which there is available information that the mass of
technological knowledge possessed by any community, and necessary to its
maintenance and to the maintenance of each of its members or subgroups,
is too large a burden for any one individual or any single line of
descent to carry. This holds true, of course, all the more rigorously
and consistently, the more advanced the "state of the industrial arts"
may be. But it seems to hold true with a generality that is fairly
startling, that whenever a given cultural community is broken up or
suffers a serious diminution of numbers, its technological heritage
deteriorates and dwindles, even though it may have been apparently
meager enough before. On the other hand, it seems to hold true with a
similar uniformity that, when an individual member or a fraction of a
community on what we call a lower stage of economic development is drawn
away and trained and instructed in the ways of a larger and more
efficient technology, and is then thrown back into his home community,
such an individual or fraction proves unable to make head against the
technological bent of the community at large or even to create a serious
diversion. Slight, perhaps transient, and gradually effective
technological consequences may result from such an experiment; but they
become effective by diffusion and assimilation through the body of the
community, not in any marked degree in the way of an exceptional
efficiency on the part of the individual or fraction which has been
subjected to exceptional training. And inheritance in technological
matters runs not in the channels of consanguinity, but in those of
tradition and habituation, which are necessarily as wide as the scheme
of life of the community. Even in a relatively small and primitive
community the mass of detail comprised in its knowledge and practice of
ways and means is large,--too large for any one individual or household
to become competently expert in it all; and its ramifications are
extensive and diverse, at the same time that all these ramifications
bear, directly or indirectly, on the life and work of each member of the
community. Neither the standard and routine of living nor the daily work
of any individual in the community would remain the same after the
introduction of an appreciable change, for good or ill, in any branch of
the community's equipment of technological expedients. If the community
grows larger, to the dimensions of a modern civilised people, and this
immaterial equipment grows proportionately great and various, then it
will become increasingly difficult to trace the connection between any
given change in technological detail and the fortunes of any given
obscure member of the community. But it is at least safe to say that an
increase in the volume and complexity of the body of technological
knowledge and practice does not progressively emancipate the life and
work of the individual from its dominion.

The complement of technological knowledge so held, used, and transmitted
in the life of the community is, of course, made up out of the
experience of individuals. Experience, experimentation, habit,
knowledge, initiative, are phenomena of individual life, and it is
necessarily from this source that the community's common stock is all
derived. The possibility of its growth lies in the feasibility of
accumulating knowledge gained by individual experience and initiative,
and therefore it lies in the feasibility of one individual's learning
from the experience of another. But the initiative and technological
enterprise of individuals, such, _e.g._, as shows itself in inventions
and discoveries of more and better ways and means, proceeds on and
enlarges the accumulated wisdom of the past. Individual initiative has
no chance except on the ground afforded by the common stock, and the
achievements of such initiative are of no effect except as accretions to
the common stock. And the invention or discovery so achieved always
embodies so much of what is already given that the creative contribution
of the inventor or discoverer is trivial by comparison.

In any known phase of culture this common stock of intangible,
technological equipment is relatively large and complex,--_i.e._,
relatively to the capacity of any individual member to create or to use
it; and the history of its growth and use is the history of the
development of material civilisation. It is a knowledge of ways and
means, and is embodied in the material contrivances and processes by
means of which the members of the community make their living. Only by
such means does technological efficiency go into effect. These "material
contrivances" ("capital goods," material equipment) are such things as
tools, vessels, vehicles, raw materials, buildings, ditches, and the
like, including the land in use; but they include also, and through the
greater part of the early development chiefly, the useful minerals,
plants, and animals. To say that these minerals, plants, and animals are
useful--in other words, that they are economic goods--means that they
have been brought within the sweep of the community's knowledge of ways
and means.

In the relatively early stages of primitive culture the useful plants
and minerals are, no doubt, made use of in a wild state, as, _e.g._,
fish and timber have continued to be used. Yet in so far as they are
useful they are unmistakably to be counted in among the material
equipment ("tangible assets") of the community. The case is well
illustrated by the relation of the Plains Indians to the buffalo, and by
the northwest coast Indians to the salmon, on the one hand, and by the
use of a wild flora by such communities as the Coahuilla Indians,[3] the
Australian blacks, or the Andamanese, on the other hand.

But with the current of time, experience, and initiative, domesticated
(that is to say improved) plants and animals come to take the first
place. We have then such "technological expedients" in the first rank as
the many species and varieties of domestic animals, and more
particularly still the various grains, fruits, root-crops, and the like,
virtually all of which were created by man for human use; or perhaps a
more scrupulously veracious account would say that they were in the main
created by the women, through long ages of workmanlike selection and
cultivation. These things, of course, are useful because men have
learned their use, and their use, so far as it has been learned, has
been learned by protracted and voluminous experience and
experimentation, proceeding at each step on the accumulated achievements
of the past. Other things, which may in time come to exceed these in
usefulness are still useless, economically non-existent, on the early
levels of culture, because of what men in that time have not yet
learned.

       *       *       *       *       *

While this immaterial equipment of industry, the intangible assets of
the community, have apparently always been relatively very considerable
and are always mainly in the keeping of the community at large, the
material equipment, the tangible assets, on the other hand, have, in the
early stages (say the earlier 90 per cent.) of the life-history of human
culture, been relatively slight, and have apparently been held somewhat
loosely by individuals or household groups. This material equipment is
relatively very slight in the earlier phases of technological
development, and the tenure by which it is held is apparently vague and
uncertain. At a relatively primitive phase of the development, and under
ordinary conditions of climate and surroundings, the possession of the
concrete articles ("capital goods") needed to turn the commonplace
knowledge of ways and means to account is a matter of slight
consequence,--contrary to the view commonly spoken for by the economists
of the classical line. Given the commonplace technological knowledge and
the commonplace training,--and these are given by common notoriety and
the habituation of daily life,--the acquisition, construction, or
usufruct of the slender material equipment needed arranges itself almost
as a matter of course, more particularly where this material equipment
does not include a stock of domestic animals or a plantation of
domesticated trees and vegetables. Under given circumstances a
relatively primitive technological scheme may involve some large items
of material equipment, as the buffalo pens (_piskun_) of the Blackfoot
Indians or the salmon weirs of the river Indians of the northwest coast.
Such items of material equipment are then likely to be held and worked
collectively, either by the community at large or by subgroups of a
considerable size. Under ordinary, more generally prevalent conditions,
it appears that even after a relatively great advance has been made in
the cultivation of crops the requisite industrial equipment is not a
matter of serious concern, particularly so aside from the tilled ground
and the cultivated trees, as is indicated by the singularly loose and
inconsequential notions of ownership prevalent among peoples occupying
such a stage of culture. A primitive stage of communism is not known.

But as the common stock of technological knowledge increases in volume,
range, and efficiency, the material equipment whereby this knowledge of
ways and means is put into effect grows greater, more considerable
relatively to the capacity of the individual. And so soon, or in so far,
as the technological development falls into such shape as to require a
relatively large unit of material equipment for the effective pursuit of
industry, or such as otherwise to make the possession of the requisite
material equipment a matter of consequence, so as seriously to handicap
the individuals who are without these material means, and to place the
current possessors of such equipment at a marked advantage, then the
strong arm intervenes, property rights apparently begin to fall into
definite shape, the principles of ownership gather force and
consistency, and men begin to accumulate capital goods and take measures
to make them secure.

An appreciable advance in the industrial arts is commonly followed or
accompanied by an increase of population. The difficulty of procuring a
livelihood may be no greater after such an increase; it may even be
less; but there results a relative curtailment of the available area and
raw materials, and commonly also an increased accessibility of the
several portions of the community. A wide-reaching control becomes
easier. At the same time a larger unit of material equipment is needed
for the effective pursuit of industry. As this situation develops, it
becomes worth while--this is to say, it becomes feasible--for the
individual with the strong arm to engross, or "corner," the usufruct of
the commonplace knowledge of ways and means by taking over such of the
requisite material as may be relatively scarce and relatively
indispensable for procuring a livelihood under the current state of the
industrial arts.[4] Circumstances of space and numbers prevent escape
from the new technological situation. The commonplace knowledge of ways
and means cannot be turned to account, under the new conditions, without
a material equipment adapted to the then current state of the industrial
arts; and such a suitable material equipment is no longer a slight
matter, to be compassed by workmanlike initiative and application.
_Beati possidentes._

The emphasis of the technological situation, as one might say, may fall
now on one line of material items, now on another, according as the
exigencies of climate, topography, flora and fauna, density of
population, and the like, may decide. So also, under the rule of the
same exigencies, the early growth of property rights and of the
principles (habits of thought) of ownership may settle on one or another
line of material items, according as one or another affords the
strategic advantage for engrossing the current technological efficiency
of the community.

Should the technological situation, the state of the industrial arts, be
such as to throw the strategic emphasis on manual labor, on workmanlike
skill and application, and if at the same time the growth of population
has made land relatively scarce, or hostile contact with other
communities has made it impracticable for members of the community to
range freely over outlying tracts, then it would be expected that the
growth of ownership should take the direction primarily of slavery, or
of some equivalent form of servitude, so effecting a naïve and direct
monopolistic control of the current knowledge of ways and means.[5]
Whereas if the development has taken such a turn, and the community is
so placed as to make the quest of a livelihood a matter of the natural
increase of flocks and herds, then it should reasonably be expected that
these items of equipment will be the chief and primary subject of
property rights. In point of fact, it appears that a pastoral culture
commonly involves also some degree of servitude, along with the
ownership of flocks and herds.

Under different circumstances the mechanical appliances of industry, or
the tillable land, might come into the position of strategic advantage,
and might come in for the foremost place in men's consideration as
objects of ownership. The evidence afforded by the known (relatively)
primitive cultures and communities seems to indicate that slaves and
cattle have in this way come into the primacy as objects of ownership at
an earlier period in the growth of material civilisation than land or
the mechanical appliances. And it seems similarly evident--more so,
indeed--that land has on the whole preceded the mechanical equipment as
the stronghold of ownership and the means of engrossing the community's
industrial efficiency.

It is not until a late period in the life-history of material
civilisation that ownership of the industrial equipment, in the narrower
sense in which that phrase is commonly employed, comes to be the
dominant and typical method of engrossing the immaterial equipment.
Indeed, it is a consummation which has been reached only a very few
times even partially, and only once with such a degree of finality as to
leave the fact indisputable. If it may be said, loosely, that mastery
through the ownership of slaves, cattle, or land comes on in force only
after the economic development has run through some nine-tenths of its
course hitherto, then it may be said likewise that some ninety-nine
one-hundredths of this course of development had been completed before
the ownership of the mechanical equipment came into undisputed primacy
as the basis of pecuniary dominion. So late an innovation, indeed, is
this modern institution of "capitalism,"--the predominant ownership of
industrial capital as we know it,--and yet so intimate a fact is it in
our familiar scheme of life, that we have some difficulty in seeing it
in perspective at all, and we find ourselves hesitating between denying
its existence, on the one hand, and affirming it to be a fact of nature
antecedent to all human institutions, on the other hand.

In so speaking of the ownership of industrial equipment as being an
institution for cornering the community's intangible assets, there is
conveyed an unavoidably implied, though unintended, note of
condemnation. Such an implication of merit or demerit is an untoward
circumstance in any theoretical inquiry. Any sentimental bias, whether
of approval or disapproval, aroused by such an implied censure, must
unavoidably hamper the dispassionate pursuit of the argument. To
mitigate the effect of this jarring note as far as may be, therefore, it
will be expedient to turn back for a moment to other, more primitive and
remoter forms of the institution,--as slavery and landed wealth,--and so
reach the modern facts of industrial capital by a roundabout and gradual
approach.

These ancient institutions of ownership, slavery and landed wealth, are
matters of history. Considered as dominant factors in the community's
scheme of life, their record is completed; and it needs no argument to
enforce the proposition that it is a record of economic dominion by the
owners of the slaves or the land, as the case may be. The effect of
slavery in its best day, and of landed wealth in mediæval and early
modern times, was to make the community's industrial efficiency serve
the needs of the slave-owners in the one case and of the land-owners in
the other. The effect of these institutions in this respect is not
questioned now, except in such sporadic and apologetical fashion as need
not detain the argument.

But the fact that such was the direct and immediate effect of these
institutions of ownership in their time by no means involves the instant
condemnation of the institutions in question. It is quite possible to
argue that slavery and landed wealth, each in its due time and due
cultural setting, have served the amelioration of the lot of man and the
advance of human culture. What these arguments may be that aim to show
the merits of slavery and landed wealth as a means of cultural advance
does not concern the present inquiry, neither do the merits of the case
in which the arguments are offered. The matter is referred to here to
call to mind that any similar theoretical outcome of an analysis of the
productivity of "capital goods" need not be admitted to touch the merits
of the case in controversy between the socialistic critics of capitalism
and the spokesmen of law and order.

The nature of landed wealth, in point of economic theory, especially as
regards its productivity, has been sifted with the most jealous
precautions and the most tenacious logic during the past century; and
any economic student can easily review the course of the argument
whereby that line of economic theory has been run to earth. It is only
necessary here to shift the point of view slightly to bring the whole
argument concerning the rent of land to bear on the present question.
Rent is of the nature of a differential gain, resting on a differential
advantage in point of productivity of the industry employed upon or
about it. This differential advantage attaching to a given parcel of
land may be a differential as against another parcel or as against
industry applied apart from land. The differential advantage attaching
to agricultural land--_e.g._, as against industry at large--rests on
certain broad peculiarities of the technological situation. Among them
are such peculiarities as these: the human species, or the fraction of
it concerned in the case, is numerous, relatively to the extent of its
habitat; the methods of getting a living, as hitherto elaborated, the
ways and means of life, make use of certain crop-plants and certain
domestic animals. Apart from such conditions, taken for granted in
arguments concerning agricultural rent, there could manifestly be no
differential advantage attaching to land, and no production of rent.
With increased command of methods of transportation, the agricultural
lands of England, _e.g._, and of Europe at large, declined in value, not
because these lands became less fertile, but because an equivalent
result could more advantageously be got by a new method. So, again, the
flint- and amber-bearing regions that are now Danish and Swedish
territory about the waters at the entrance to the Baltic were in the
neolithic culture of northern Europe the most favored and valuable lands
within that cultural region. But, with the coming of the metals and the
relative decline of the amber trade, they began to fall behind in the
scale of productivity and preference. So also in later time, with the
rise of "industry" and the growth of the technology of communication,
urban property has gained, as contrasted with rural property, and land
placed in an advantageous position relatively to shipping and railroads
has acquired a value and a "productiveness" which could not be claimed
for it apart from these modern technological expedients.

The argument of the single-tax advocates and other economists as to the
"unearned increment" is sufficiently familiar, but its ulterior
implications have not commonly been recognised. The unearned increment,
it is held, is produced by the growth of the community in numbers and in
the industrial arts. The contention seems to be sound, and is commonly
accepted; but it has commonly been overlooked that the argument involves
the ulterior conclusion that all land values and land productivity,
including the "original and indestructible powers of the soil," are a
function of the "state of the industrial art." It is only within the
given technological situation, the current scheme of ways and means,
that any parcel of land has such productive powers as it has. It is, in
other words, useful only because, and in so far, and in such manner, as
men have learned to make use of it. This is what brings it into the
category of "land," economically speaking. And the preferential position
of the landlord as a claimant of the "net product" consists in his legal
right to decide whether, how far, and on what terms men shall put this
technological scheme into effect in those features of it which involve
the use of his parcel of land.

       *       *       *       *       *

All this argument concerning the unearned increment may be carried over,
with scarcely a change of phrase, to the case of "capital goods." The
Danish flint supply was of first-rate economic consequence, for a
thousand years or so, during the stone age; and the polished-flint
utensils of that time were then "capital goods" of inestimable
importance to civilisation, and were possessed of a "productivity" so
serious that the life of mankind in that world may be said to have been
balanced on the fine-ground edge of those magnificent polished-flint
axes. All that lasted through its technological era. The flint supply
and the mechanical expedients and "capital goods," whereby it was turned
to account, were valuable and productive then, but neither before nor
after that time. Under a changed technological situation the capital
goods of that time have become museum exhibits, and their place in human
economy has been taken by technological expedients which embody another
"state of the industrial arts," the outcome of later and different
phases of human experience. Like the polished-flint ax, the metal
utensils which gradually displaced it and its like in the economy of the
Occidental culture were the product of long experience and the gradual
learning of ways and means. The steel ax, as well as the flint ax,
embodies the same ancient technological expedient of a cutting edge, as
well as the use of a helve and the efficiency due to the weight of the
tool. And in the case of the one or the other, when seen in historical
perspective and looked at from the point of view of the community at
large, the knowledge of ways and means embodied in the utensils was the
serious and consequential matter. The construction or acquisition of the
concrete "capital goods" was simply an easy consequence. It "cost
nothing but labor," as Thomas Mun would say.

Yet it might be argued that each concrete article of "capital goods" was
the product of some one man's labor, and, as such, its productivity,
when put to use, was but the indirect, ulterior, deferred productiveness
of the maker's labor. But the maker's productivity in the case was but a
function of the immaterial technological equipment at his command, and
that in its turn was the slow spiritual distillate of the community's
time-long experience and initiative. To the individual producer or
owner, to whom the community's accumulated stock of immaterial equipment
was open by common notoriety, the cost of the concrete material goods
would be the effort involved in making or getting them and in making
good his claim to them. To his neighbor who had made or acquired no such
parcel of "productive goods," but to whom the resources of the
community, material and immaterial, were open on the same easy terms,
the matter would look very much the same. He would have no grievance,
nor would he have occasion to seek one. Yet, as a resource in the
maintenance of the community's life and a factor in the advance of
material civilisation, the whole matter would have a different meaning.

So long, or rather in so far, as the "capital goods" required to meet
the technological demands of the time were slight enough to be compassed
by the common man with reasonable diligence and proficiency, so long
the draft upon the common stock of immaterial assets by any one would be
no hindrance to any other, and no differential advantage or disadvantage
would emerge. The economic situation would answer passably to the
classical theory of a free competitive system,--"the obvious and simple
system of natural liberty," which rests on the presumption of equal
opportunity. In a roughly approximate way, such a situation supervened
in the industrial life of western Europe on the transition from mediæval
to modern times, when handicraft and "industrial" enterprise superseded
landed wealth as the chief economic factor. Within the "industrial
system," as distinct from the privileged non-industrial classes, a man
with a modicum of diligence, initiative, and thrift might make his way
in a tolerable fashion without special advantages in the way of
prescriptive right or accumulated means. The principle of equal
opportunity was, no doubt, met only in a very rough and dubious fashion;
but so favorable became the conditions in this respect that men came to
persuade themselves in the course of the eighteenth century that a
substantially equitable allotment of opportunities would result from the
abrogation of all prerogatives other than the ownership of goods. But so
precarious and transient was this approximation to a technologically
feasible system of equal opportunity that, while the liberal movement
which converged upon this great economic reform was still gathering
head, the technological situation was already outgrowing the possibility
of such a scheme of reform. After the Industrial Revolution came on, it
was no longer true, even in the roughly approximate way in which it
might have been true some time earlier, that equality before the law,
barring property rights, would mean equal opportunity. In the leading,
aggressive industries which were beginning to set the pace for all that
economic system that centered about the market, the unit of industrial
equipment, as required by the new technological era, was larger than one
man could compass by his own efforts with the free use of the
commonplace knowledge of ways and means. And the growth of business
enterprise progressively made the position of the small, old-fashioned
producer more precarious. But the speculative theoreticians of that time
still saw the phenomena of current economic life in the light of the
handicraft traditions and of the preconceptions of natural rights
associated with that system, and still looked to the ideal of "natural
liberty" as the goal of economic development and the end of economic
reform. They were ruled by the principles (habits of thought) which had
arisen out of an earlier situation, so effectually as not to see that
the rule of equal opportunity which they aimed to establish was already
technologically obsolete.[6]

During the hundred years and more of this ascendancy of the
natural-rights theories in economic science, the growth of technological
knowledge has unremittingly gone forward, and concomitantly the
large-scale industry has grown great and progressively dominated the
field. This large-scale industrial régime is what the socialists, and
some others, call "capitalism." "Capitalism," as so used, is not a neat
and rigid technical term, but it is definite enough to be useful for
many purposes. On its technological side the characteristic trait of
this capitalism is that the current pursuit of industry requires a
larger unit of material equipment than one individual can compass by
his own labor, and larger than one person can make use of alone.

So soon as the capitalist régime, in this sense, comes in, it ceases to
be true that the owner of the industrial equipment (or the controller of
it) in any given case is or may be the producer of it, in any naïve
sense of "production." He is under the necessity of acquiring its
ownership or control by some other expedient than that of industrially
productive work. The pursuit of industry requires an accumulation of
wealth, and, barring force, fraud, and inheritance, the method of
acquiring such an accumulation of wealth is necessarily some form of
bargaining; that is to say, some form of business enterprise. Wealth is
accumulated, within the industrial field, from the gains of business;
that is to say, from the gains of advantageous bargaining.[7] Taking the
situation by and large, looking to the body of business enterprise as a
whole, the advantageous bargaining from which gains accrue and from
which, therefore, accumulations of capital are derived, is necessarily,
in the last analysis, a bargaining between those who own (or control)
industrial wealth and those whose work turns this wealth to account in
productive industry. This bargaining for hire--commonly a wage
agreement--is conducted under the rule of free contract, and is
concluded according to the play of demand and supply, as has been well
set forth by many writers.

On this technological view of capital, as here spoken for,
the relations between the two parties to the bargain, the
capitalist-employer and the working class, stand as follows. More or
less rigorously, the technological situation enforces a certain scale
and method in the various lines of industry.[8] The industry can, in
effect, be carried on only by recourse to the technologically requisite
scale and method, and this requires a material equipment of a certain
(large) magnitude; while material equipment of this required magnitude
is held exclusively by the capitalist-employer, and is _de facto_ beyond
the reach of the common man.

A corresponding body of immaterial equipment--knowledge and practice of
ways and means--is likewise requisite, under the rule of the same
technological exigencies. This immaterial equipment is in part
drawn on in the making of the material equipment held by the
capitalist-employers, in part in the use to be made of this material
equipment in the further processes of industry. This body of immaterial
equipment so drawn on in any line of industry is, relatively, still
larger, being, on any exhaustive analysis, virtually the whole body of
industrial experience accumulated by the community up to date. A free
draft on this common stock of technological wisdom must be had both in
the construction and in the subsequent use of the material equipment;
although no one person can master, or himself employ, more than an
inconsiderable fraction of the immaterial equipment so drawn on for the
installation or operation of any given block of the material equipment.

The owner of the material equipment, the capitalist-employer, is, in the
typical case, not possessed of any appreciable fraction of the
immaterial equipment necessarily drawn on in the construction and
subsequent use of the material equipment owned (controlled) by him. His
knowledge and training, so far as it enters into the question, is a
knowledge of business, not of industry.[9] The slight technological
proficiency which he has or needs for his business ends is of a general
character, wholly superficial and impracticable in point of workmanlike
efficiency; nor is it turned to account in actual workmanship. He
therefore "needs in his business" the service of persons who have a
competent working mastery of this immaterial technological equipment,
and it is with such persons that his bargains for hire are made. By and
large, the measure of their serviceability for his ends is the measure
of their technological competency. No workman not possessed of some
fractional mastery of the technological requirements is
employed,--imbeciles are useless in proportion to their imbecility; and
even unskilled and "unintelligent" workmen, so called, are of relatively
little use, although they may be possessed of a proficiency in the
commonplace industrial details such as would bulk large in absolute
magnitude. The "common laborer" is, in fact, a highly trained and widely
proficient workman when contrasted with the conceivable human blank
supposed to have drawn on the community for nothing but his physique.

In the hands of these workmen--the industrial community, the bearers of
the immaterial, technological equipment--the capital goods owned by the
capitalist become a "means of production." Without them, or in the
hands of men who do not know their use, the goods in question would be
simply raw materials, somewhat deranged and impaired through having been
given the form which now makes them "capital goods." The more proficient
the workmen in their mastery of the technological expedients involved,
and the greater the facility with which they are able to put these
expedients into effect, the more productive will be the processes in
which the workmen turn the employer's capital goods to account. So,
also, the more competent the work of "superintendence," the foreman-like
oversight and correlation of the work in respect of kind, speed, volume,
the more will it count in the aggregate of productive efficiency. But
this work of correlation is a function of the foreman's mastery of the
technological situation at large and his facility in proportioning one
process of industry to the requirements and effects of another. Without
this due and sagacious correlation of the processes of industry, and
their current adaptation to the demands of the industrial situation at
large, the material equipment engaged would have but slight efficiency
and would count for but little in the way of capital goods. The
efficiency of the control exercised by the master-workman, engineer,
superintendent, or whatever term may be used to designate the
technological expert who controls and correlates the productive
processes,--this workmanlike efficiency determines how far the given
material equipment is effectually to be rated as "capital goods."

Through all this functioning of the workman and the foreman the
capitalist's business ends are ever in the background, and the degree of
success that attends his business endeavors depends, other things equal,
on the efficiency with which these technologists carry on the processes
of industry in which he has invested. His working arrangements with
these workmen, the bearers of the immaterial equipment engaged, enables
the capitalist to turn the processes for which his capital goods are
adapted to account for his own profit, but at the cost of such a
deduction from the aggregate product of these processes as the workmen
may be able to demand in return for their work. The amount of this
deduction is determined by the competitive bidding of other capitalists
who may have use for the same lines of technological efficiency, in the
manner set forth by writers on wages.

With the conceivable consolidation of all material assets under one
business management, so as to eliminate competitive bidding between
employers, it is plain that the resulting business concern would command
the undivided forces of the technological situation, with such deduction
as is involved in the livelihood of the working population. This
livelihood would in such a case be reduced to the most economical
footing, as seen from the standpoint of the employer. And the employer
(capitalist) would be the _de facto_ owner of the community's aggregate
knowledge of ways and means, except so far as this body of immaterial
equipment serves also the housekeeping routine of the working
population. How nearly the current economic situation may approach to
this finished state is a matter of opinion. There is also place for a
broad question whether the conditions are more or less favorable to the
working population under the existing business régime, involving
competitive bidding between the several business concerns, than they
would be in case a comprehensive business consolidation had eliminated
competition and placed the ownership of the material assets on a footing
of unqualified monopoly. Nothing but vague surmises can apparently be
offered in answer to these questions.

But as bearing on the question of monopoly and the use of the
community's immaterial equipment it is to be kept in mind that the
technological situation as it stands to-day does not admit of a complete
monopolisation of the community's technological expedients, even if a
complete monopolisation of the existing aggregate of material property
were effected. There is still current a large body of industrial
processes to which the large-scale methods do not apply and which do not
presume such a large unit of material equipment or involve such rigorous
correlation with the large-scale industry as to take them out of the
range of discretionary use by persons not possessed of appreciable
material wealth. Typical of such lines of work, hitherto not amenable to
monopolisation, are the details of housekeeping routine alluded to
above. It is, in fact, still possible for an appreciable fraction of the
population to "pick up a living," more or less precarious, without
recourse to the large-scale processes that are controlled by the owners
of the material assets. This somewhat precarious margin of free recourse
to the commonplace knowledge of ways and means appears to be what stands
in the way of a neater adjustment of wages to the "minimum of
subsistence" and the virtual ownership of the immaterial equipment by
the owners of the material equipment.

It follows from what has been said that all tangible[10] assets owe
their productivity and their value to the immaterial industrial
expedients which they embody or which their ownership enables their
owner to engross. These immaterial industrial expedients are necessarily
a product of the community, the immaterial residue of the community's
experience, past and present; which has no existence apart from the
community's life, and can be transmitted only in the keeping of the
community at large. It may be objected by those who make much of the
productivity of capital that tangible capital goods on hand are
themselves of value and have a specific productive efficiency, if not
apart from the industrial processes in which they serve, then at least
as a prerequisite to these processes, and therefore a material
condition-precedent standing in a causal relation to the industrial
product. But these material goods are themselves a product of the past
exercise of technological knowledge, and so back to the beginning. What
there is involved in the material equipment, which is not of this
immaterial, spiritual nature, and so what is not an immaterial residue
of the community's experience, is the raw material out of which the
industrial appliances are constructed, with the stress falling wholly on
the "raw."

The point is illustrated by what happens to a mechanical contrivance
which goes out of date because of a technological advance and is
displaced by a new contrivance embodying a new process. Such a
contrivance "goes to the junk-heap," as the phrase has it. The specific
technological expedient which it embodies ceases to be effective in
industry, in competition with "improved methods." It ceases to be an
immaterial asset. When it is in this way eliminated, the material
repository of it ceases to have value as capital. It ceases to be a
material asset. "The original and indestructible powers" of the material
constituents of capital goods, to adapt Ricardo's phrase, do not make
these constituents capital goods; nor, indeed, do these original and
indestructible powers of themselves bring the objects in question into
the category of economic goods at all. The raw materials--land,
minerals, and the like--may, of course, be valuable property, and may be
counted among the assets of a business. But the value which they so have
is a function of the anticipated use to which they may be put, and that
is a function of the technological situation under which it is
anticipated that they will be useful.

       *       *       *       *       *

All this may seem to undervalue or perhaps to overlook the physical
facts of industry and the physical nature of commodities. There is, of
course, no call to understate the importance of material goods or of
manual labor. The goods about which this inquiry turns are the products
of trained labor working on the available materials; but the labor has
to be trained, in the large sense, in order to be labor, and the
materials have to be available in order to be materials of industry. And
both the trained efficiency of the labor and the availability of the
material objects engaged are a function of the "state of the industrial
arts."

Yet the state of the industrial arts is dependent on the traits of human
nature, physical, intellectual, and spiritual, and on the character of
the material environment. It is out of these elements that the human
technology is made up; and this technology is efficient only as it meets
with the suitable material conditions and is worked out, practically, in
the material forces required. The brute forces of the human animal are
an indispensable factor in industry, as are likewise the physical
characteristics of the material objects with which industry deals. And
it seems bootless to ask how much of the products of industry or of its
productivity is to be imputed to these brute forces, human and
non-human, as contrasted with the specifically human factors that make
technological efficiency. Nor is it necessary to go into questions of
that import here, since the inquiry here turns on the productive
relation of capital to industry; that is to say, the relation of the
material equipment and its ownership to men's dealings with the physical
environment in which the race is placed. The question of capital goods
(including that of their ownership and therefore including the question
of investment) is a question of how mankind as a species of intelligent
animals deals with the brute forces at its disposal. It is a question of
how the human agent deals with his means of life, not of how the forces
of the environment deal with man. Questions of the latter class belong
under the head of Ecology, a branch of the biological sciences dealing
with the adaptive variability of plants and animals. Economic inquiry
would belong under that category if the human response to the forces of
the environment were instinctive and variational only, including nothing
in the way of a technology. But in that case there would be no question
of capital goods, or of capital, or of labor. Such questions do not
arise in relation to the non-human animals.

In an inquiry into the productivity of labor some perplexity might be
met with as to the share or the place of the brute forces of the human
organism in the theory of production; but in relation to capital that
question does not arise, except so far as these forces are involved in
the production of the capital goods. As a parenthesis, more or less
germane to the present inquiry into capital, it may be remarked that an
analysis of the productive powers of labor would apparently take account
of the brute energies of mankind (nervous and muscular energies) as
material forces placed at the disposal of man by circumstances largely
beyond human control, and in great part not theoretically dissimilar to
the like nervous and muscular forces afforded by the domestic animals.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XXII, Aug., 1908.

[2] "Assets" is, of course, not to be taken literally in this
connection. The term properly covers a pecuniary concept, not an
industrial (technological) one, and it connotes ownership as well as
value; and it will be used in this literal sense when, in a later
article, ownership and investment come into the discussion. In the
present connection it is used figuratively, for want of a better term,
to convey the connotation of value and serviceability without thereby
implying ownership.

[3] Barrows.

[4] Motives of exploit and emulation, no doubt, play a serious part in
bringing on the practice of ownership and in establishing the principles
on which it rests; but this play of motives and the concomitant growth
of institutions cannot be taken up here. _Cf._ _The Theory of the
Leisure Class_, chaps. i, ii, iii.

[5] _Cf._ H. Nieboer, _Slavery as an Industrial System_, chap. iv, sect.
12.

[6] For a more extended discussion of this point see the _Quarterly
Journal of Economics_, July, 1899, "The Preconceptions of Economic
Science"; also _The Theory of Business Enterprise_, chap. iv, especially
pp. 70-82.

[7] Marx holds that the "primitive accumulation" from which capitalism
takes its rise is a matter of force and fraud (_Capital_, Book I, chap.
xxiv.). Sombart holds the source to have been landed wealth (_Moderne
Kapitalismus_, Book II, Part II, especially chap. xii). Ehrenberg and
other critics of Sombart incline to the view that the most important
source was usury and the petty trade (_Zeitalter der Fugger_, chaps. i,
ii).

[8] The phrase "more or less" covers a certain margin of tolerance in
respect of scale and method, which may be very appreciably wider in some
lines of industry than in others, and which cannot be more adequately
defined or described here within such space as could reasonably be
allowed. The requirement of scale and method is enforced by competition.
The force and reach of this competitive adjustment can also not be dealt
with here, but the familiar current acceptance of the fact will dispense
with details.

[9] _Cf._ _Theory of Business Enterprise_, chap. iii.

[10] "Tangible assets" is here taken to signify serviceable capital
goods considered as valuable possessions yielding income to their owner.




ON THE NATURE OF CAPITAL[1]


II. INVESTMENT, INTANGIBLE ASSETS, AND THE PECUNIARY MAGNATE

What has been said in the earlier section of this paper[2] applies to
"capital goods," so called, and it is intended to apply to these in
their character of "productive goods" rather than in their character of
"capital"; that is to say, what is had in mind is the industrial, or
technological, efficiency and subservience of the material means of
production, rather than the pecuniary use and effect of invested wealth.
The inquiry has dealt with the industrial equipment as "plant" rather
than as "assets." In the course of this inquiry it has appeared that out
of the profitable engrossing of the community's industrial efficiency
through control of the material equipment there arises the practice of
investment, which has further consequences that merit more detailed
attention.

Investment is a pecuniary transaction, and its aim is pecuniary
gain,--gain in terms of value and ownership. Invested wealth is capital,
a pecuniary magnitude, measured in terms of value and determined in
respect of its magnitude by a valuation which proceeds on an
appraisement of the gain expected from the ownership of this invested
wealth. In modern business practice, capital is distinguished into two
coördinate categories of assets, tangible and intangible. "Tangible
assets" is here taken to designate pecuniarily serviceable capital
goods, considered as a valuable possession yielding an income to their
owner. Such goods, material items of wealth, are "assets" to the amount
of their capitalisable value, which may be more or less closely related
to their industrial serviceability as productive goods. "Intangible
assets" are immaterial items of wealth, immaterial facts owned, valued,
and capitalised on an appraisement of the gain to be derived from their
possession. These are also assets to the amount of their capitalisable
value, which has commonly little, if any, relation to the industrial
serviceability of these items of wealth considered as factors of
production.

       *       *       *       *       *

Before going into the matter of intangible assets, it is necessary to
speak further of the consequences which investment--and hence
capitalisation--has for the use and serviceability of (material) capital
goods. It has commonly been assumed by economists, without much
scrutiny, that the gains which accrue from invested wealth are derived
from and (roughly) measured by the productivity of the industrial
process in which the items of wealth so invested are employed,
productivity being counted in some terms of material serviceability to
the community, conduciveness to the livelihood, comfort, or consumptive
needs of the community. In the course of the present inquiry it has
appeared that the gainfulness of such invested wealth (tangible assets)
is due to a more or less extensive engrossing of the community's
industrial efficiency. The aggregate gains of the aggregate material
capital accrue from the community's industrial activity, and bear some
relation to the productive capacity of the industrial traffic so
engrossed. But it will be noted that there is no warrant in the
analysis of these phenomena as here set forth for alleging that the
gains of investment bear a relation of equality or proportion to the
material serviceability of the capital goods, as rated in terms of
effectual usefulness to the community. Given capital goods, tangible
assets, may owe their pecuniary serviceability to their owner, and so
their value, to other things than their serviceability to the community;
although the gains of investment in the aggregate are drawn from the
aggregate material productivity of the community's industry.

The ownership of the material equipment gives the owner not only the
right of use over the community's immaterial equipment, but also the
right of abuse and of neglect or inhibition. This power of inhibition
may be made to afford an income, as well as the power to serve; and
whatever will yield an income may be capitalised and become an item of
wealth to its possessor. Under modern conditions of investment it
happens not infrequently that it becomes pecuniarily expedient for the
owner of the material equipment to curtail or retard the processes of
industry,--"restraint of trade." The motive in all such cases of
retardation is the pecuniary expediency of the measure for the owner
(controller) of capital,--expediency in terms of income from investment,
not expediency in terms of serviceability to the community at large or
to any fraction of the community except the owner (manager). Except for
the exigencies of investment, _i.e._, exigencies of pecuniary gain to
the investor, phenomena of this character would have no place in the
industrial system. They invariably come of the endeavors of business men
to secure a pecuniary gain or to avoid a pecuniary loss. More
frequently, perhaps, manoeuvers of inhibition--advised idleness of
plant--in industry aim to effect a saving or avoid a waste than to
procure an increase of gain; but the saving to be effected and the waste
to be avoided are always pecuniary saving to the owner and pecuniary
waste in the matter of ownership, not a saving of goods to the community
or a prevention of wasteful consumption or wasteful expenditure of
effort and resources on the part of the community. Pecuniary--that is to
say, differential--advantage to the capitalist-manager has, under the
régime of investment, taken precedence of economic advantage to the
community; or rather, the differential advantage of ownership is alone
regarded in the conduct of industry under this system.

Business practices which inhibit industrial efficiency and curtail the
industrial output are too well known to need particular enumeration. Nor
is it necessary to cite evidence to show that such inhibition and
curtailment are resorted to from motives of pecuniary expediency. But an
illustrative example or two will make the theoretical point clearer, and
perhaps more plainly bring out the wholly pecuniary grounds of such
business procedure. The most comprehensive principle involved in this
class of business management is that of raising prices, and so
increasing the net gains of business, by limiting the supply, or
"charging what the traffic will bear." Of a similar effect, for the
point here in question, are the obstructive tactics designed to hinder
the full efficiency of a business rival. These phenomena lie along the
line of division between tangible and intangible assets. Successful
strategy of this kind may, by force of custom, legislation, or the
"freezing-out" of rival concerns, pass into settled conditions of
differential advantage for the given business concern, which so may be
capitalised as an item of intangible assets and take their place in the
business community as articles of invested wealth.

But, aside from such capitalisation of inefficiency, it is at least an
equally consequential fact that the processes of productive industry are
governed in detail by the exigencies of investment, and therefore by the
quest of gain as counted in terms of price, which leads to the
dependence of production on the course of prices. So that, under the
régime of capital, the community is unable to turn its knowledge of ways
and means to account for a livelihood except at such seasons and in so
far as the course of prices affords a differential advantage to the
owners of the material equipment. The question of advantageous--which
commonly means rising--prices for the owners (managers) of the capital
goods is made to decide the question of livelihood for the rest of the
community. The recurrence of hard times, unemployment, and the rest of
that familiar range of phenomena, goes to show how effectual is the
inhibition of industry exercised by the ownership of capital under the
price system.[3]

So also as regards the discretionary abuse of the community's industrial
efficiency vested in the owner of the material equipment.
Disserviceability may be capitalised as readily as serviceability, and
the ownership of the capital goods affords a discretionary power of
misdirecting the industrial processes and perverting[4] industrial
efficiency, as well as of inhibiting or curtailing industrial processes
and their output, while the outcome may still be profitable to the owner
of the capital goods. There is a large volume of capital goods whose
value lies in their turning the technological inheritance to the injury
of mankind. Such are, _e.g._, naval and military establishments,
together with the docks, arsenals, schools, and manufactories of arms,
ammunition, and naval and military stores, that supplement and supply
such establishments. These armaments and the like are, of course, public
and quasi-public enterprises, under the current régime, with somewhat
disputable relations to the system of current business enterprise. But
it is no far-fetched interpretation to say that they are, in great part,
a material equipment for the maintenance of law and order, and so enable
the owners of capital goods with immunity to inhibit or pervert the
industrial processes when the exigencies of business profits make it
expedient; that they are, further, a means--more or less ineffectual, it
is true--for extending and protecting trade, and so serve the
differential advantage of business men at the cost of the community; and
that they are also in large part a material equipment set apart for the
diversion of a livelihood from the community at large to the military,
naval, diplomatic, and other official classes. These establishments may
in any case be taken as illustrating how items of material equipment may
be devoted to and may be valued for the use of the technological
expedients for the damage and discomfort of mankind, without sensible
offset or abatement.

Typical of a class of investments which derive profits from capital
goods devoted to uses that are altogether dubious, with a large
presumption of net detriment, are such establishments as race-tracks,
saloons, gambling-houses, and houses of prostitution.[5] Some spokesmen
of the "non-Christian tribes" might wish to include churches under the
same category, but the consensus of opinion in modern communities
inclines to look on churches as serviceable, on the whole; and it may be
as well not to attempt to assign them a specific place in the scheme of
serviceable and disserviceable use of invested wealth.

There is, further, a large field of business, employing much capital
goods and many technological processes, whose profits come from products
in which serviceability and disserviceability are mingled with waste in
the most varying proportions. Such are the production of goods of
fashion, disingenuous proprietary articles, sophisticated household
supplies, newspapers and advertising enterprise. In the degree in which
business of this class draws its profits from wasteful practices,
spurious goods, illusions and delusions, skilled mendacity, and the
like, the capital goods engaged must be said to owe their capitalisable
value to a perverse use of the technological expedients employed.

These wasteful or disserviceable uses of capital goods have been cited,
not as implying that the technological proficiency embodied in these
goods or brought into effect in their use, intrinsically has a
disserviceable bearing, nor that investment in these things, and
business enterprise in the management of them, need aim at
disserviceability, but only to bring out certain minor points of theory,
obvious but commonly overlooked: (_a_) technological proficiency is not
of itself and intrinsically serviceable or disserviceable to
mankind,--it is only a means of efficiency for good or ill; (_b_) the
enterprising use of capital goods by their businesslike owner aims not
at serviceability to the community, but only at serviceability to the
owner; (_c_) under the price system--under the rule of pecuniary
standards and management--circumstances make it advisable for the
business man at times to mismanage the processes of industry, in the
sense that it is expedient for his pecuniary gain to inhibit, curtail,
or misdirect industry, and so turn the community's technological
proficiency to the community's detriment. These somewhat commonplace
points of theory are of no great weight in themselves, but they are of
consequence for any theory of business or of life under the rules of the
price system, and they have an immediate bearing here on the question of
intangible assets.

       *       *       *       *       *

At the risk of some tedium it is necessary to the theory of intangible
assets to pursue this analysis and piecing together of commonplaces
somewhat farther. As has already been remarked, "assets" is a pecuniary
concept, not a technological one; a concept of business, not of
industry. Assets are capital, and tangible assets are items of material
equipment and the like, considered as available for capitalisation. The
tangibility of tangible assets is a matter of the materiality of the
items of wealth of which they are made up, while they are assets to the
amount of their value. Capital goods, which typically make up the
category of tangible assets, are capital goods by virtue of their
technological serviceability, but they are capital in the measure, not
of their technological serviceability, but in the measure of the income
which they may yield to their owner. The like is, of course, true of
intangible assets, which are likewise capital, or assets, in the measure
of their income-yielding capacity. Their intangibility is a matter of
the immateriality of the items of wealth--objects of ownership--of which
they are made up, but their character and magnitude as assets is a
matter of the gainfulness to their owner of the processes which their
ownership enables him to engross. The facts so engrossed, in the case of
intangible assets, are not of a technological or industrial character;
and herein lies the substantial disparity between tangible and
intangible assets.

Mankind has other dealings with the material means of life, besides
those covered by the community's technological proficiency. These other
dealings have to do with the use, distribution, and consumption of the
goods procured by the employment of the community's technological
proficiency, and are carried out under working arrangements of an
institutional character,--use and wont, law and custom. The principles
and practice of the distribution of wealth vary with the changes in
technology and with the other cultural changes that are going forward;
but it is probably safe to assume that the principles of
apportionment,--that is to say, the consensus of habitual opinion as to
what is right and good in the distribution of the product,--these
principles and the concomitant methods of carrying them out in practice
have always been such as to give one person or group or class something
of a settled preference above another. Something of this kind, something
in the way of a conventionally arranged differential advantage in the
apportionment of the common livelihood, is to be found in all cultures
and communities that have been observed at all carefully; and it is
perhaps needless to remark that in the higher cultures such economic
preferences, privileges, prerogatives, differential advantages and
disadvantages, are numerous and varied, and that they make up an
intricate fabric of economic institutions. Indeed, peculiarities of
class difference in some such respect are among the most striking and
decisive features that distinguish one cultural era from another. In all
phases of material civilisation these preferential advantages are sought
and valued. Classes or groups which are in a position to make good a
claim to such differential advantages commonly come, in due course, to
put forward such claims; as, _e.g._, the priesthood, the princely and
ruling class, the men as contrasted with the women, the adults as
against minors, the able-bodied as against the infirm. Principles
(habits of thought) countenancing some form of class or personal
preference in the distribution of income are to be found incorporated in
the moral code of all known civilisations and embodied in some form of
institution. Such items of immaterial wealth are of a differential
character, in that the advantage of those who secure the preference is
the disadvantage of those who do not; and it may be mentioned in
passing, that such a differential advantage inuring to any one class or
person commonly carries a more than equal disadvantage to some other
class or person or to the community at large.[6]

When property rights fall into definite shape and the price system comes
in, and more particularly when the practice of investment arises and
business enterprise comes into vogue, such differential advantages take
on something of the character of intangible assets. They come to have a
pecuniary value and rating, whether they are transferable or not; and if
they are transferable, if they can be sold and delivered, they become
assets in a fairly clear and full sense of that term. Such immaterial
wealth, preferential benefits of the nature of intangible assets, may be
a matter of usage simply, as the vogue of a given public house, or of a
given tradesman, or of a given brand of consumable goods; or may be a
matter of arrogation, as the King's Customs in early times, or the once
notorious Sound Dues, or the closing of public highways by large
land-owners; or of contractual concession, as the freedom of a city or a
guild, or a franchise in the Hanseatic League or in the Associated
Press; or of government concession, whether on the basis of a bargain or
otherwise, as the many trade monopolies of early modern times, or a
corporation charter, or a railway franchise, or letters of marque, or
letters patent; or of statutory creation, as trade protection by import,
export, or excise duties or navigation laws; or of conventionalised
superstitious punctilio, as the creation of a demand for wax by the
devoutly obligatory consumption of consecrated tapers, or the similar
devout consumption of and demand for fish during Lent.

Under the régime of investment and business enterprise these and the
like differential benefits may turn to the business advantage of a given
class, group, or concern, and in such an event the resulting
differential business advantage in the pursuit of gain becomes an asset,
capitalised on the basis of its income-yielding capacity, and possibly
vendible under the cover of a corporation security (as, _e.g._, common
stock), or even under the usual form of private sale (as, _e.g._, the
appraised good-will of a business concern).

But the régime of business enterprise has not only taken over various
forms of institutional privileges and prerogatives out of the past: it
also gives rise to new kinds of differential advantage and capitalises
them into intangible assets. These are all (or virtually all) of one
kind, in that their common aim and common basis of value and
capitalisation is a preferentially advantageous sale. Naturally so,
since the end of all business endeavor, in the last analysis, is an
advantageous sale. The commonest and typical kind of such intangible
assets is "good-will," so called,--a term which has come to cover a
great variety of differential business advantages, but which in the
original business usage of it meant the customary resort of a clientèle
to the concern so possessed of the good-will. It seems originally to
have implied a kindly sentiment of trust and esteem on the part of a
customer, but as the term is now used it has lost this sentimental
content. In the broad and loose sense in which it is now currently
employed it is extended to cover such special advantages as inure to a
monopoly or a combination of business concerns through its power to
limit or engross the supply of a given line of goods or services. So
long as such a special advantage is not specifically protected by
special legislation or by a due legal instrument,--as in the case of a
franchise or a patent right,--it is likely to be spoken of loosely as
"good-will."

The results of the analysis may be summed up to show the degree of
coincidence and the distinctions between the two categories of assets:
(_a_) the value (that is to say, the amount) of given assets, whether
tangible or intangible, is the capitalised (or capitalisable) value of
the given articles of wealth, rated on the basis of their
income-yielding capacity to their owner; (_b_) in the case of tangible
assets there is a presumption that the objects of wealth involved have
some (at least potential) serviceability at large, since they serve a
materially productive work, and there is therefore a presumption, more
or less well founded, that their value represents, though it by no means
measures, an item of serviceability at large; (_c_) in the case of
intangible assets there is no presumption that the objects of wealth
involved have any serviceability at large, since they serve no
materially productive work, but only a differential advantage to the
owner in the distribution of the industrial product;[7] (_d_) given
tangible assets may be disserviceable to the community,--a given
material equipment may owe its value as capital to a disserviceable use,
though in the aggregate or on an average the body of tangible assets are
(presumptively) serviceable; (_e_) given intangible assets may be
indifferent in respect of serviceability at large, though in the
aggregate, or on an average, intangible assets are (presumably)
disserviceable to the community.

On this showing it would appear that the substantial difference between
tangible and intangible assets lies in the different character of the
immaterial facts which are turned to pecuniary account in the one case
and in the other. The former, in effect, capitalise such fraction
of the technological proficiency of the community as the ownership
of the capital goods involved enables the owner to engross. The
latter capitalise such habits of life, of a non-technological
character,--settled by usage, convention, arrogation, legislative
action, or what not,--as will effect a differential advantage to the
concern to which the assets in question appertain. The former owe their
existence and magnitude to the usufruct of technological expedients
involved in the industrial process proper; while the latter are in like
manner due to the usufruct of what may be called the interstitial
correlations and adjustments both within the industrial system and
between industry proper and the market, in so far as these relations are
of a pecuniary rather than a technological character. Much the same
distinction may be put in other words, so as to bring the expression
nearer the current popular apprehension of the matter, by saying that
tangible assets, commonly so called, capitalise the processes of
production, while intangible assets, so called, capitalise certain
expedients and processes of acquisition, not productive of wealth, but
affecting only its distribution. Formulated in either way, the
distinction seems not to be an altogether hard-and-fast one, as will
immediately appear if it is called to mind that intangible assets may be
converted into tangible assets, and conversely, as the exigencies of
business may decide. Yet, while the two categories of assets stand in
such close relation to one another as this state of things presumes, it
is still evident from the same state of things that they are not to be
confounded with one another.

Taking "good-will" as typical of the category of "intangible assets," as
being the most widely prevalent and at the same time the farthest
removed in its characteristics from the range of "tangible assets," some
slight further discussion of it may serve to bring out the difference
between the two categories of assets and at the same time to enforce
their essential congruity as assets as well as the substantial
connection between them. In the earlier days of the concept, in the
period of growth to which it owes its name, when good-will was coming
into recognition as a factor affecting assets, it was apparently looked
on habitually as an adventitious differential advantage accruing
spontaneously to the business concern to which it appertained; an
immaterial by-product of the concern's conduct of business,--commonly
presumed to be an adventitious blessing incident to an upright and
humane course of business life. Poor Richard would express this sense of
the matter in the saying that "honesty is the best policy." But
presently, no doubt, some thought would be taken of the acquirement of
good-will, and some effort would be expended by the wise business man in
that behalf. Goods would be given a more elegant finish for the sake of
a readier sale, beyond what would conduce to their brute serviceability
simply; smooth-spoken and obsequious salesmen and solicitors, gifted
with a tactful effrontery, have come to be preferred to others, who,
without these merits, may be possessed of all the diligence, dexterity,
and muscular force required in their trade; something is expended on
convincing, not to say vain-glorious, show-windows that shall promise
something more than one would like to commit one's self to in words;
itinerant agents, and the like, are employed at some expense to secure a
clientèle; much thought and substance is spent on advertising of many
kinds.

This last-named item may be taken as typical of the present stage of
growth in the production or generation of good-will, and therefore in
the creation of intangible assets. Advertising has come to be an
important branch of business enterprise by itself, and it employs a
large and varied array of material appliances and processes (tangible
assets). Investment is made in certain material items (productive
goods), such as printed matter, billboards, and the like, with a view to
creating a certain body of good-will. The precise magnitude of the
product may not be foreseen, but, if sagaciously made, such investment
rarely fails of the effect aimed at--unless a business rival with even
greater sagacity should out-manoeuver and offset these endeavors with
a superior array of appliances (productive goods) and workmen for the
generation of good-will. The product aimed at, commonly with effect, is
good-will,--an intangible asset,--which may be considered to have been
generated by converting certain tangible assets into this intangible; or
it may be considered as an industrial product, the output of certain
industrial processes in which the given items of material equipment are
employed and give effect to the requisite technological proficiency.
Whichever view be taken of the causal relation between the material
equipment and processes employed, on the one hand, and the output of
good-will, on the other hand, the result is substantially the same for
the purpose in hand.

The ulterior end of the advertising is, it may be said, the sale of an
increased quantity of the advertised articles, at an increased net gain;
which would mean an increased value of the material items offered for
sale; which, in turn, is the same as saying an increase of tangible
assets. It may be assumed without debate that the end of business
endeavor is a gain in final terms of tangible values. But this ulterior
end is, in the case of advertising enterprise, to be gained only by the
intermediate step of a production of an immaterial item of good-will, an
intangible asset.

So the case in illustration shows not only the conversion of tangible
assets (material capital goods, such as printed matter) into intangible
wealth, or, if that formula be preferred, the production of immaterial
wealth by the productive use of material wealth, but also, conversely,
in the second step of the process, it shows the conversion of intangible
assets into tangible wealth (enhanced value of vendible goods), or, if
the expression seems preferable, the production of tangible assets by
the use of intangible wealth.

This creation of tangible wealth out of intangible assets is seen
perhaps at its neatest in the enhancement of land values by the
endeavors of interested parties. Real estate is, of course, a tangible
asset of the most authentic tangibility, and it is an asset to the
amount of its value, which is determined, say, by the figures at which
the real estate in question is currently bought and sold. This is the
current value of the real estate, and therefore its current actual
magnitude as a tangible asset. The value of the real estate might also
be computed by capitalising its rental value; but, where the current
market value does not coincide with the capitalised rental value, the
former must, according to business conceptions, be accepted as the
actual value. In many parts of this country, perhaps in most, but
particularly in the Western States and in the neighborhood of
flourishing towns, these two methods of rating the pecuniary magnitude
of real estate will habitually not coincide. Due allowance, often very
considerable, being made, the capitalised rental value of the land may
be taken as measuring its current serviceability as an item of material
equipment; while the amount by which the market value of the land
exceeds its capitalised rental value may be taken as the product, the
tangible residue, of an intangible asset of the nature of good-will,
turned to account, or "productively employed," in behalf of this parcel
of land.[8]

Some of the lands of California may be taken as a very good, though
perhaps not an extreme, example of such a creation of real estate by
spiritual instrumentalities. It is probably well within the mark to say
that some of these lands owe not more than one-half their current market
value to their current serviceability as an instrument of production or
use. The excess may be attributable to illusions touching the chances of
future sale, to anticipation of a prospective enhanced usefulness, and
the like; but all these are immaterial factors, of the nature of
good-will. Like other assets, these lands are capitalised on the basis
of the anticipated income from them, part of which income is anticipated
from profitable sales to persons who, it is hoped, will be persuaded to
take a very sanguine view of the land situation, while part of it may be
due to over-sanguine anticipations of usefulness generated by the
advertising matter and the efforts of the land agents directed to what
is called "developing the country."

To any one preoccupied with the conceit that "capital" means "capital
goods" such a conversion of intangible into tangible goods, or such a
generation of intangible assets by the productive use of tangible
assets, might be something of a puzzle. If "assets" were a physical
concept, covering a range of physical things, instead of a pecuniary
concept, such conversion of tangible into intangible assets, and
conversely, would be a case of transubstantiation. But there is nothing
miraculous in the matter. "Assets" are a pecuniary magnitude, and belong
among the facts of investment. Except in relation to investment the
items of wealth involved are not assets. In other words, assets are a
matter of capitalisation, which is a special case of valuation; and the
question of tangibility or intangibility as regards a given parcel of
assets is a question of what article or class of articles the valuation
shall attach to or be imputed to. If, _e.g._, the fact to which value is
imputed in the valuation is the habitual demand for a given article of
merchandise, or the habitual resort of a given group of customers to a
particular shop or merchant, or a monopolistic control or limitation of
price and supply, then the resulting item of assets will be
"intangible," since the object to which the capitalised value in
question is imputed is an immaterial object. If the fact which is by
imputation made the bearer of the capitalised value is a material
object, as, _e.g._, the merchantable goods of which the supply is
arbitrarily limited or the price arbitrarily fixed, or if it is the
material means of supplying such goods, then the capitalised value in
question is a case of tangible assets. The value involved is, like all
value, a matter of imputation, and as assets it is a matter of
capitalisation; but capitalisation is an appraisement of a pecuniary
"income-stream" in terms of the vendible objects to the ownership of
which the income is assumed to inure. To what object the capitalised
value of the "income-stream" shall be imputed is a question of what
object of ownership secures to the owner an effectual claim on this
"income-stream "; that is to say, it is a question of what object of
ownership the strategic advantages is assumed to attach to, which is a
question of the play of business exigencies in the given case.

The "income-stream" in question is a pecuniary income-stream, and is in
the last resort traceable to transactions of sale. Within the confines
of business--and therefore within the scope of capital, investments,
assets, and the like business concepts--transactions of purchase and
sale are the final terms of any analysis. But beyond these confines,
comprehending and conditioning the business system, lie the material
facts of the community's work and livelihood. In the final transaction
of sale the merchantable goods are valued by the consumer, not as
assets, but as livelihood;[9] and in the last analysis and long run it
is to some such transaction that all business imputations of value and
capitalistic appraisement of assets must have regard and by which they
must finally be checked. Dissociated from the facts of work and
livelihood, therefore, assets cease to be assets; but this does not
preclude their relation to these facts of work and livelihood being at
times somewhat remote and loose.

Without recourse, immediately or remotely, to certain material facts of
industrial process and equipment, assets would not yield earnings; that
is to say, wholly disjoined from these material facts, they would in
effect not be assets. This is true for both tangible and intangible
assets, although the relation of the assets to the material facts of
industry is not the same in the two cases. The case of tangible assets
needs no argument. Intangible assets, such as patent right or
monopolistic control, are likewise of no effect except in effectual
contact with industrial facts. The patent right becomes effective for
the purpose only in the material working of the innovation covered by
it; and monopolistic control is a source of gain only in so far as it
effectually modifies or divides the supply of goods.

In the light of these considerations it seems feasible to indicate both
the congruence and the distinction between the two categories of assets
a little more narrowly than was done above. Both are assets,--that is to
say, both are values determined by a capitalisation of anticipated
income-yielding capacity; both depend for their income-yielding capacity
on the preferential use of certain immaterial factors; both depend for
their efficiency on the use of certain material objects; both may
increase or decrease, as assets, apart from any increase or decrease of
the material objects involved. The tangible assets capitalise the
preferential use of technological, industrial expedients,--expedients of
production, dealing with the facts of brute nature under the laws of
physical cause and effect,--this preferential use being secured by the
ownership of material articles employed in the processes in which these
expedients are put into effect. The intangible assets capitalise the
preferential use of certain facts of human nature--habits, propensities,
beliefs, aspirations, necessities--to be dealt with under the
psychological laws of human motivation; this preferential use being
secured by custom, as in the case of old-fashioned good-will, by legal
assignment, as in patent or copyright, by ownership of the instruments
of production, as in the case of industrial monopolies.[10]

       *       *       *       *       *

Intangible assets are capital as well as tangible assets; that is to
say, they are items of capitalised wealth. Both categories of assets,
therefore, represent expected "income-streams" which are of such
definite character as to admit of their being rated in set terms per
cent. per time unit; although the expected income need not therefore be
anticipated to come in an even flow or to be distributed in any equable
manner over a period of time. The income-streams to be so rated and
capitalised are associated in such a manner with some external fact
(impersonal to their claimant), whether material or immaterial, as to
permit their being traced or attributed to an income-yielding capacity
on the part of this external fact, to which their valuation as a whole
may be imputed and which may then be capitalised as an item of wealth
yielding this income-stream. Income-streams which do not meet these
requirements do not give rise to assets in the accepted sense of the
term, and so do not swell the volume of capitalised wealth.

There are income-streams which do not meet the necessary specifications
of capitalisable wealth; and in modern business traffic, particularly,
there are large and secure sources of income that are in this way not
capitalisable and yet yield a legitimate business income. Such are,
indeed, to be rated among the most consequential factors in the current
business situation. Under the guidance of traditions carried over from a
more primitive business situation, it has been usual to speak of
income-streams derived in such a manner as "wages of superintendence,"
or "undertaker's wages," or "entrepreneur's profits," or, latterly, as
"profits" simply and specifically. Such phenomena of this class as are
of consequence in business are commonly accounted for, theoretically,
under this head; and the effort so to account for them is to be taken
as, at least, a laudable endeavor to avoid an undue multiplication of
technical terms and categories.[11] Yet the most striking phenomena of
this class, and the most consequential for modern business and industry,
both in respect of their magnitude and in respect of the pecuniary
dominion and discretion which they represent, cannot well be accounted
undertaker's gains, in the ordinary sense of that term. The great gains
of the great industrial financiers or of the great "interests," _e.g._,
do not answer the description of undertaker's gains, in that they do not
accrue to the captain of industry on the basis of his "managerial
ability" alone, apart from his wealth or out of relation to his wealth;
and yet it is not safe to say that such gains (which are over and above
ordinary returns on his investments) accrue on the ground of the
requisite amount of wealth alone, apart from the exercise of a large
business direction on the part of the owner of such wealth, or on the
part of his agent to whom discretion has been delegated. Administrative,
or strategic, discretion and activity must necessarily be present in the
case: otherwise, the income in question would rightly be rated as income
from capital simply.

The captain of industry, the pecuniary magnate, is normally in receipt
of income in excess of the ordinary rate per cent. on investment; but
apart from his large holdings he is not in a position to get these large
gains. Dissociated from his large holdings, he is not a large captain of
industry; but it is not the size of his holdings alone that determines
what the gains of the pecuniary magnate in modern industry shall be.
Gains of the kind and magnitude that currently come to this class of
business men come only on condition that the owner (or his agent) shall
exercise a similarly large discretion and control in the affairs of the
business community; but the magnitude of the gains, as well as of the
discretion and control exercised, is somewhat definitely conditioned by
the magnitude of the wealth which gives effect to this discretion.

The disposition of pecuniary forces in such matters may be well seen in
the work and remuneration of any coalition of "interests," such as the
modern business community has become familiar with. The "interests" in
such a case are of a personal character,--they are "interested
parties,"--and the sagacity, experience, and animus of these various
interested parties counts in the outcome, both as regards the aggregate
gains of the coalition and as regards the distribution of these gains
among the several parties in interest; but the weight of any given
"interest" in a coalition or "system" is more nearly proportioned to the
wealth controlled by the given "interest," and to the strategic position
of such wealth, than to any personal talents or proficiency of the
"interested party." The talents and proficiency involved are not the
main facts. Indeed, the movements of such a "system," and of the several
component "interests," are largely a matter of artless routine, in which
the greatest ingenuity and initiative engaged in the premises are
commonly exercised by the legal counsel working for a fee.

A dispassionate student of the current business traffic, who is not
overawed by round numbers, will be more impressed by the ease and
simplicity of the manoeuvers that lead to large pecuniary results in the
higher business finance than by any evidence of preëminent sagacity and
initiative among the pecuniary magnates. One need only call to mind the
simple and obvious way in which the promoters of the Steel Corporation
were magnificently checkmated by the financiers of the Carnegie
"interest," when that great and reluctant corporation was floated, or
the pettyfogging tactics of Standard Oil in its later career. In
extenuation of their visible lack of initiative and insight it may not
be ungraceful to call to mind that many of the discretionary heads of
the great "interests" are men of advanced years, and that in the nature
of the case the pecuniary magnates of the present generation must
commonly be men of a somewhat advanced age; and it is only during the
present generation that the existing situation has arisen, with its
characteristic opportunities and demands. To take their present foremost
rank in the new business finance which is here under inquiry, they have
had to accumulate the great wealth on which alone their discretionary
control of business affairs rests, and their best vigor has been spent
in this work of preparation; so that they have commonly attained the
requisite strategic position only after they had outlived their "years
of discretion."

But there is no intention here to depreciate the work of the pecuniary
magnates or the spokesmen of the great "interests." The matter has been
referred to only as it bears on this category of capitalistic income
which accrues on other grounds than the "earning-capacity" of the assets
involved, and which still cannot be imputed to the "earning-capacity" of
these business men apart from these assets. The case is evidently not
one of "wages of superintendence" or "undertaker's profits"; but it is
as evidently not a case of the earning-capacity of the assets. The proof
of the latter point is quite as easy as of the former. If the gains of
the "system" or of its constituent "interests" and magnates were
imputable to the earning-capacity of the assets involved,--in any
accepted sense of "earnings,"--then it would immediately follow that
these assets would be recapitalised on the basis of these extraordinary
earnings, and that the income derived in this class of traffic should
reappear as interest or dividends on the capital so increased to
correspond with the increased earnings. But such recapitalisation takes
place only to a relatively very limited extent, and the question then
bears on the income which is not so accounted for in the
recapitalisation.

The gains of this class of traffic are, of course, themselves
capitalised,--for the most part they accrue in the capitalised form, as
issues of securities and the like; but the sources of this income are
not capitalised as such. The (large) accumulated wealth, or assets,
which gives weight to the movements of the "interests" and magnates in
question, and which affords the ground for the discretionary control of
business affairs exercised by them, are, for the most part at least,
invested in ordinary business ventures, in the form of corporation
securities and the like, and are there earning dividends or interest at
current rates; and these assets are valued in the market (and thereby
capitalised) on the basis of their current earnings in the various
enterprises in which they are so invested. But their being so invested
in profitable business enterprises does not in the least hinder their
usefulness in the hands of the magnates as a basis or means of carrying
on the large and highly profitable transactions of the higher industrial
finance. To impute these gains to these assets as "earnings," therefore,
would be to count the assets twice as capital, or rather to count them
over and over.

An additional perplexity in endeavoring to handle gains of this class
theoretically as earnings, in the ordinary sense, arises from the fact
that they stand in no definable time relation to their underlying
assets. They have no definable "time-shape," as Mr. Fisher might put
it.[12] Such gains are timeless, in the sense that the time relation
does not count in any substantial manner or in any sensible degree in
their determination.[13]

       *       *       *       *       *

In a more painstaking statement of this point of theory it would be
necessary to note that these gains are "timeless," in the sense
indicated, in so far as the enterprise from which they accrue is
dissociated from the technological circumstances and processes of
industry, and only in so far. Technological (industrial) procedure,
being of the nature of physical causation, is subject to the time
relation under which causal sequence runs. This is the basis of such
discussions of capital and interest as those of Böhm-Bawerk, and of
Fisher. But business traffic, as distinguished from the processes of
industry, being not immediately concerned with the technological
process, is also not immediately or uniformly subject to the time
relation involved in the causal sequence of the technological process.
Business traffic is subject to the time relation because and in so far
as it depends upon and follows up the processes of production. The
commonplace or old-fashioned business enterprise, the competitive system
of investment in industrial business simply, commonly rests pretty
directly on the due sequence of the industrial processes in which the
investments of such enterprise are placed. Such enterprise, as conceived
by the current theories of capital, does business at first hand in the
industrial efficiency of the community, which is conditioned by the time
relation of the causal sequence, and which is, indeed, in great measure
a function of the time consumed in the technological processes.
Therefore, the gains, as well as the transactions, of such enterprise
are also commonly somewhat closely conditioned by the like time
relation, and they typically emerge under the form of a per-cent. per
time unit; that is to say, as a function of the lapse of time. Yet the
business transactions themselves are not a matter of the lapse of time.
Time is not of the essence of the case. The magnitude of a pecuniary
transaction is not a function of the time consumed in concluding it, nor
are the gains which accrue from the transaction. In business enterprise
on the higher plane, which is here under inquiry, the relation of the
transactions, and of their gains, to the consecution of the
technological processes remotely underlying them is distant, loose, and
uncertain, so that the time element here does not obtrude itself:
rather, it somewhat obviously falls into abeyance, marking the degree of
its remoteness. Yet this phase of business enterprise, like any other,
of course takes place in time; and, it is also to be remarked, the
volume of the traffic and the gains derived from it are, no doubt,
somewhat closely conditioned in the long run by the time relation which
dominates that technological (industrial) efficiency on which this
enterprise, too, ultimately and indirectly rests and from which in the
last resort its gains are finally drawn, however remotely and
indirectly.

An analysis of these phenomena on lines similar to those which have been
followed in the discussion of assets above is not without difficulty,
nor can it fairly be expected to yield any but tentative and provisional
results. The matter has received so little attention from economic
theoreticians that even significant mistakes in this connection are of
very rare occurrence.[14] The cause of this scant attention to these
matters lies, no doubt, in the relative novelty of the facts in
question. The facts may be roughly drawn together under the caption
"Traffic in Vendible Capital"; although that term serves rather as a
comprehensive designation of the class of business enterprise from which
these gains accrue than as an adequate characterisation of the play of
forces involved.[15] Traffic in vendible capital has not been unknown
in the past, but it is only recently that it has come into the
foreground as the most important line of business enterprise. Such it
now is, in that it is in this traffic that the ultimate initiative and
discretion in business are now to be found. It is at the same time the
most gainful of business enterprise, not only in absolute terms, but
relatively to the magnitude of the assets involved as well. One reason
for this superior gainfulness is the fact that the assets involved in
this traffic are at the same time engaged as assets to their full extent
in ordinary business, so that the peculiar gains of this traffic are of
the nature of a bonus above the earnings of the invested wealth. "It is
like finding money."

As was said above, the method, or the ways and means, characteristic of
this superior business enterprise is a traffic in vendible capital. The
wealth gained in this field is commonly in the capitalised form, and
constitutes in each transaction, or "deal," a deduction or abstraction
from the capitalised wealth of the business community in favor of the
magnates or "interests" to whom the gains accrue. Its proximate aim is a
transfer of capitalised wealth from other capitalists to those who so
gain. This transfer or abstraction of capitalised wealth from the former
owners is commonly effected by an augmentation of the nominal capital,
based on a (transient) advantage inuring to the particular concerns
whose capitalisation is so augmented.[16] Any such increase of the
community's aggregate capitalisation, without a corresponding increase
of the material wealth on which the capitalisation is based, involves,
of course, in effect a redistribution of the aggregate capitalised
wealth; and in this redistribution the great financiers are in a
position to gain. The gains in question, it will be seen, come out of
the business community, out of invested wealth, and only remotely and
indirectly out of the community at large from which the business
community draws its income. These gains, therefore, are a tax on
commonplace business enterprise, in much the same manner and with much
the like effects as the gains of commonplace business (ordinary profits
and interest) are a tax on industry.[17]

In a manner analogous to the old-fashioned capitalist-employer's
engrossing of the industrial community's technological efficiency does
the modern pecuniary magnate engross the business community's
capitalistic efficiency. This capitalistic efficiency lies in the
capitalist-employer's ability--by force of the ownership of the material
equipment--to induce the industrial community, through suitable
bargaining, to turn over to the owner of the material equipment the
excess of the product above the industrial community's livelihood. The
fortunes of the capitalist-employer are closely dependent on the run of
the market,--the conjunctures of advantageous purchase and sale; and it
is his constant endeavor to create or gain for himself some peculiar
degree of advantage in the market, in the way of monopoly, good-will,
legalised privilege, and the like,--something in the way of intangible
assets. But the pecuniary magnate, in the measure in which he truly
answers to the concept, is superior to the market on which the
capitalist-employer depends, and can make or mar its conjunctures of
advantageous purchase and sale of goods; that is to say, he is in a
position to make or mar any peculiar advantage possessed by the given
capitalist-employer who comes in his way. He does this by force of his
large holdings of capital at large, the weight of which he can shift
from one point of investment to another as the relative
efficiency--earning-capacity--of one and another line of investment may
make it expedient; and at each move of this kind, in so far as it is
effective for his ends, he cuts into and assimilates a fraction of the
invested wealth involved, in that he cuts into and sequesters a fraction
of the capital's earning-capacity in the given line. That is to say, in
the measure in which he is a pecuniary magnate, and not simply a
capitalist-employer, he engrosses the capitalistic efficiency of
invested wealth; he turns to his own account the capitalist-employer's
effectual engrossing of the community's industrial efficiency. He
engrosses the community's pecuniary initiative and proficiency. In the
measure, therefore, in which this relatively new-found serviceability of
extraordinarily large wealth is effective for its peculiar business
function, the old-fashioned capitalist-employer loses his discretionary
initiative and becomes a mediator, an instrumentality of extraction and
transmission, a collector and conveyer of revenue from the community at
large to the pecuniary magnate, who, in the ideal case, should leave him
only such an allowance out of the gross earnings collected and
transmitted as will induce him to continue in business.

To the community at large, whose industrial efficiency is already
virtually engrossed by the capitalist-employer's ownership and control
of the material equipment, this later step in the evolution of the
economic situation should apparently not be a matter of substantial
consequence or a matter for sentimental disturbance. On the face of it,
it should appear to have little more than a speculative interest for
those classes of the community who do not derive an income from
investments; particularly not for the working classes, who own nothing
to speak of and whose only dependence is their technological efficiency,
which has virtually ceased to be their own. But such is not the current
state of sentiment. This inchoate new phase of capitalism, this business
enterprise on the higher plane, is in fact viewed with the most lively
apprehension. In a maze of consternation and solicitude the boldest,
wisest, most public-spirited, most illustrious gentlemen of our time are
spending their manhood in an endeavor to make the hen continue sitting
on the nest after the chickens are out of the shell. The modern
community is imbued with business principles--of the old dispensation.
By precept and example, men have learned that the business interests
(of the authentic superannuated scale and kind) are the palladium
of our civilisation, as Mr. Dooley would say; and it is felt
that any disturbance of the existing pecuniary dominion of the
capitalist-employer--as contrasted with the pecuniary magnate--would
involve the well-being of the community in one common agony of
desolation.

The merits of this perturbation, or of the remedies proposed for saving
the pecuniary life of the old-fashioned capitalist-employer, of course
do not concern the present inquiry; but the matter has been referred to
here as evidence that the pecuniary magnate's work, and the dominion
which his extraordinarily large wealth gives him, are, in effect,
substantially a new phase of the economic development, and that these
phenomena are distastefully unfamiliar and are felt to be consequential
enough to threaten the received institutional structure. That is to
say, it is felt to be a new phase of business enterprise,--distasteful
to those who stand to lose by it.

The basis of this business enterprise on the higher plane is
capital-at-large, as distinguished from capital invested in a given line
of industrial enterprise, and it becomes effective when wealth has
accumulated in holdings sufficiently large to give the holder (or
combination of holders, the "system") a controlling weight in any group
or ramification of business interests into which he may throw his weight
by judicious investment (or by underwriting and the like). The pecuniary
magnate must be able effectually to engross the pecuniary initiative and
the business opportunities on which such a section or ramification of
the business community depends for its ordinary gains. How large a
proportion of the business community's capital is needed for such an
effectual engrossing of its capitalistic efficiency, in any given
bearing, is a question that cannot be answered in anything like absolute
terms, or even in relative terms of a satisfactorily definite kind. It
is, of course, evident that a relatively large disposable body of
capital is needed for such a purpose; and it is also evident, from the
current facts of business, that the body of capital so disposed of need
not amount to a majority, or anything near a majority, of the
investments involved,--at least not at the present relatively inchoate
phase of this larger business enterprise. The larger the holdings of the
magnate, the more effectual and expeditious will be his work of
absorbing the holdings of the smaller capitalist-employer, and the more
precipitately will the latter yield his assets to the new claimant.

Evidently, this work of the pecuniary magnate bears a great resemblance
to the creation of intangible assets under the ordinary competitive
system. This is, no doubt, the point of its nearest relation to the
current capitalistic enterprise. But, as has already been indicated
above, it cannot be said that the magnate's peculiar work is the
creation of intangible, or other assets, although there is commonly some
recapitalisation involved in his manoeuvers, and although his gains
commonly come as assets, _i.e._, in the capitalised form. Nor can it, as
has also been indicated above, be said that the wealth which serves him
as the means of his peculiar enterprise stands in the relation of assets
to this enterprise or to the gains in question, since this wealth
already stands in an exhaustive relation as assets to some corporate
enterprise in ordinary business and to the corresponding items of
interest and dividends. It may, of course, be contended that the present
state of things on this higher plane of enterprise is transient and
transitional only, and that in the settled condition which may
conceivably supervene, the magnate's relation to business at large will
be capitalised in some form of intangible assets, after the manner in
which the monopoly advantage of an ordinary "trust" is now capitalised.
But this is at the best only a surmise, guided by inapplicable
generalisations drawn from a past situation in which this higher
enterprise has not engrossed the pecuniary initiative and played the
ruling part.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XXIII, Nov., 1908.

[2] See this Journal for August, 1908.

[3] For the connection between prices and prosperity, hard times,
unemployment, etc., see _The Theory of Business Enterprise_, chap. vii
(pp. 185-252, especially 196-212).

[4] By "perversion" is here meant such disposition of the industrial
forces as entails a net waste or detriment to the community's
livelihood.

[5] Should the connection at this point with the main argument of the
paper as set forth in the earlier section seem doubtful or obscure, it
may be called to mind that these dubious enterprises in dissipation are
cases of investment for a profit, and that the "capital goods" engaged
are invested wealth yielding an income, but that they yield an income
only on the fulfillment of two conditions: (_a_) the possession and
employment of these capital goods enables their holder to turn to
account the common stock of technological proficiency, in those bearings
in which it may be of use in his enterprise; and (_b_) the limited
amount of wealth available for the purpose enables their holder to
"engross" the usufruct of such a fraction of the common stock of
technological proficiency, in the degree determined by this limitation
of the amount available. In so far, these enterprises are like any other
industrial enterprise; but beyond this they have the peculiarity that
they do not, or need not, even ostensibly, turn the current knowledge
and use of ways and means to "productive" account for the community at
large, but simply take their stand on the (institutionally sacred)
"accomplished fact" of invested wealth. They have less of the fog of
apology about them than the common run of business enterprise.

[6] This statement may not seem clear without indicating in a more
concrete manner some terms in which to measure the relative differential
advantage and disadvantage which so emerge in such a case of prerogative
or privilege. Where, as in the earlier, non-pecuniary phases of culture,
no price test is applicable, the statement in the text may be taken to
mean that the differential disadvantage at the cost of which the
differential benefit in question is gained is greater than the
beneficiary would be willing to undergo in order to procure this
benefit.

[7] A doubt has been offered as to the applicability of this
characterization to such intangible assets as a patent right and other
items of the same class. The doubt seems to arise from a misapprehension
of the analysis and of its intention. It should be remarked that there
is no intention to condemn or disapprove any of the items here spoken of
as intangible assets. The patent right may be justifiable or it may not:
there is no call to discuss that question here. Other intangible assets
are in the same case in this respect.

Further, as to the character of a patent right considered as an asset.
The invention or innovation covered by the patent right is a
contribution to the common stock of technological proficiency. It may be
(immediately) serviceable to the community at large, or it may
not;--_e.g._, a cash register, a bank-check punch, a streetcar fare
register; a burglar-proof safe, and the like are of no immediate service
to the community at large, but serve only a pecuniary use to their
users. But, whether the innovation is useful or not, the patent right,
as an asset, has no (immediate) usefulness at large, since its essence
is the restriction of the usufruct of the innovation to the patentee.
Immediately and directly the patent right must be considered a detriment
to the community at large, since its purport is to prevent the community
from making use of the patented innovation, whatever may be its ulterior
beneficial effects or its ethical justification.

[8] Neither as a physical magnitude ("land") nor as a pecuniary
magnitude ("real estate") is the capitalised land in question an item of
"good-will"; but its value as real estate--_i.e._, its magnitude as an
asset--is in part a product of the "good-will" (illusions and the like)
worked up in its behalf and turned to account, by the land agent. The
real estate is a tangible asset, an item of material wealth, while the
"good-will" to which in part it owes its magnitude as an item of wealth
is an intangible asset, an item of immaterial wealth.

[9] "Livelihood" is, of course, here taken in a loose sense, not as
denoting the means of subsistence simply or even the means of physical
comfort, but as signifying that the purchases in question are made with
a view to the consumptive use of the goods rather than with a view to
their use for a profit.

[10] The instruments of production so monopolised are, of course,
tangible assets, but the ownership of such means of production in amount
sufficient to enable the owner to monopolise or control the market,
whether for purchase (as of materials or labor) or for sale (as of
marketable goods or services), gives rise to a differential business
advantage which is to be classed as intangible assets.

[11] One writer even goes so far in the endeavor to bring the facts
within the scope of the staple concepts of theory at this point as to
rate the persons concerned in such a case as "capital," after having
satisfied himself that such income-streams are traceable to a personal
source.--See Fisher, _Nature of Capital and Income_, chap. v.

[12] _Cf._ Fisher, _Rate of Interest_, chap. vi.

[13] This conclusion is reached, _e.g._, by Mr. G. P. Watkins (_The
Growth of Large Fortunes_, chap. iii, sec. 10), although through a
curious etymological misapprehension he rejects the term "timeless" as
not available.

[14] Even Mr. Watkins (as cited above), _e.g._, is led by a superficial
generalisation to class these gains as "speculative," and so to excuse
himself from a closer acquaintance with their character and with the
bearings of the class of business enterprise out of which they arise.

[15] _Cf._ _Theory of Business Enterprise_, chap, v, pp. 119-130; chap.
vi, pp. 162-174.

[16] _Cf._ _Theory of Business Enterprise_, footnote on pp. 169-170.

[17] As should be evident from the run of the argument in the earlier
portions of this paper, the use of the words "tax," "deduction,"
"abstraction," in this connection, is not to be taken as implying
approval or disapproval of the phenomena so characterised. The words are
used for want of better terms to indicate the source of business gains,
and objectively to characterise the relation of give-and-take between
industry and ordinary capitalistic business, on the one hand, and
between ordinary business and this business enterprise on the higher
plane, on the other hand.




SOME NEGLECTED POINTS IN THE THEORY OF SOCIALISM[1]


The immediate occasion for the writing of this paper was given by the
publication of Mr. Spencer's essay, "From Freedom to Bondage";[2]
although it is not altogether a criticism of that essay. It is not my
purpose to controvert the position taken by Mr. Spencer as regards the
present feasibility of any socialist scheme. The paper is mainly a
suggestion, offered in the spirit of the disciple, with respect to a
point not adequately covered by Mr. Spencer's discussion, and which has
received but very scanty attention at the hands of any other writer on
either side of the socialist controversy. This main point is as to an
economic ground, as a matter of fact, for the existing unrest that finds
expression in the demands of socialist agitators.

I quote from Mr. Spencer's essay a sentence which does fair justice, so
far as it goes, to the position taken by agitators: "In presence of
obvious improvements, joined with that increase of longevity, which even
alone yields conclusive proof of general amelioration, it is proclaimed,
with increasing vehemence, that things are so bad that society must be
pulled to pieces and reorganised on another plan." The most obtrusive
feature of the change demanded by the advocates of socialism is
governmental control of the industrial activities of society--the
nationalisation of industry. There is also, just at present, a distinct
movement in practice, towards a more extended control of industry by the
government, as Mr. Spencer has pointed out. This movement strengthens
the position of the advocates of a complete nationalisation of industry,
by making it appear that the logic of events is on their side.

In America at least, this movement in the direction of a broader
assertion of the paramount claims of the community, and an extension of
corporate action on part of the community in industrial matters, has not
generally been connected with or based on an adherence to socialistic
dogmas. This is perhaps truer of the recent past than of the immediate
present. The motive of the movement has been, in large part, the
expediency of each particular step taken. Municipal supervision, and,
possibly, complete municipal control, has come to be a necessity in the
case of such industries--mostly of recent growth--as elementary
education, street-lighting, water-supply, etc. Opinions differ widely as
to how far the community should take into its own hands such industries
as concern the common welfare, but the growth of sentiment may fairly be
said to favor a wider scope of governmental control.

But the necessity of some supervision in the interest of the public
extends to industries which are not simply of municipal importance. The
modern development of industry and of the industrial organisation of
society makes it increasingly necessary that certain industries--often
spoken of as "natural monopolies"--should be treated as being of a
semi-public character. And through the action of the same forces a
constantly increasing number of occupations are developing into the form
of "natural monopolies."

The motive of the movement towards corporate action on the part of the
community--State control of industry--has been largely that of
industrial expediency. But another motive has gone with this one, and
has grown more prominent as the popular demands in this direction have
gathered wider support and taken more definite form. The injustice, the
inequality, of the existing system, so far as concerns these natural
monopolies especially, are made much of. There is a distinct unrest
abroad, a discontent with things as they are, and the cry of injustice
is the expression of this more or less widely prevalent discontent. This
discontent is the truly socialistic element in the situation.

It is easy to make too much of this popular unrest. The clamor of the
agitators might be taken to indicate a wider prevalence and a greater
acuteness of popular discontent than actually exists; but after all due
allowance is made for exaggeration on the part of those interested in
the agitation, there can still be no doubt of the presence of a chronic
feeling of dissatisfaction with the working of the existing industrial
system, and a growth of popular sentiment in favor of a leveling policy.
The economic ground of this popular feeling must be found, if we wish to
understand the significance, for our industrial system, of the movement
to which it supplies the motive. If its causes shall appear to be of a
transient character, there is little reason to apprehend a permanent or
radical change of our industrial system as the outcome of the agitation;
while if this popular sentiment is found to be the outgrowth of any of
the essential features of the existing social system, the chances of its
ultimately working a radical change in the system will be much greater.

The explanation offered by Mr. Spencer, that the popular unrest is due
essentially to a feeling of _ennui_--to a desire for a change of posture
on part of the social body, is assuredly not to be summarily rejected;
but the analogy will hardly serve to explain the sentiment away. This
may be a cause, but it can hardly be accepted as a sufficient cause.

Socialist agitators urge that the existing system is necessarily
wasteful and industrially inefficient. That may be granted, but it does
not serve to explain the popular discontent, because the popular
opinion, in which the discontent resides, does notoriously not favor
that view. They further urge that the existing system is unjust, in that
it gives an advantage to one man over another. That contention may also
be true, but it is in itself no explanation, for it is true only if it
be granted that the institutions which make this advantage of one man
over another possible are unjust, and that is begging the question. This
last contention is, however, not so far out of line with popular
sentiment. The advantage complained of lies, under modern conditions, in
the possession of property, and there is a feeling abroad that the
existing order of things affords an undue advantage to property,
especially to owners of property whose possessions rise much above a
certain rather indefinite average. This feeling of injured justice is
not always distinguishable from envy; but it is, at any rate, a factor
that works towards a leveling policy. With it goes a feeling of slighted
manhood, which works in the same direction. Both these elements are to a
great extent of a subjective origin. They express themselves in the
general, objective form, but it is safe to say that on the average they
spring from a consciousness of disadvantage and slight suffered by the
person expressing them, and by persons whom he classes with himself. No
flippancy is intended in saying that the rich are not so generally
alive to the necessity of any leveling policy as are people of slender
means. Any question as to the legitimacy of the dissatisfaction, on
moral grounds, or even on grounds of expediency, is not very much to the
point; the question is as to its scope and its chances of persistence.

The modern industrial system is based on the institution of private
property under free competition, and it cannot be claimed that these
institutions have heretofore worked to the detriment of the material
interests of the average member of society. The ground of discontent
cannot lie in a disadvantageous comparison of the present with the past,
so far as material interests are concerned. It is notorious, and,
practically, none of the agitators deny, that the system of industrial
competition, based on private property, has brought about, or has at
least co-existed with, the most rapid advance in average wealth and
industrial efficiency that the world has seen. Especially can it fairly
be claimed that the result of the last few decades of our industrial
development has been to increase greatly the creature comforts within
the reach of the average human being. And, decidedly, the result has
been an amelioration of the lot of the less favored in a relatively
greater degree than that of those economically more fortunate. The claim
that the system of competition has proved itself an engine for making
the rich richer and the poor poorer has the fascination of epigram; but
if its meaning is that the lot of the average, of the masses of humanity
in civilised life, is worse to-day, as measured in the means of
livelihood, than it was twenty, or fifty, or a hundred years ago, then
it is farcical. The cause of discontent must be sought elsewhere than in
any increased difficulty in obtaining the means of subsistence or of
comfort. But there is a sense in which the aphorism is true, and in it
lies at least a partial explanation of the unrest which our conservative
people so greatly deprecate. The existing system has not made, and does
not tend to make, the industrious poor poorer as measured absolutely in
means of livelihood; but it does tend to make them relatively poorer, in
their own eyes, as measured in terms of comparative economic importance,
and, curious as it may seem at first sight, that is what seems to count.
It is not the abjectly poor that are oftenest heard protesting; and when
a protest is heard in their behalf it is through spokesmen who are from
outside their own class, and who are not delegated to speak for them.
They are not a negligible element in the situation, but the unrest which
is ground for solicitude does not owe its importance to them. The
protest comes from those who do not habitually, or of necessity, suffer
physical privation. The qualification "of necessity," is to be noticed.
There is a not inconsiderable amount of physical privation suffered by
many people in this country, which is not physically necessary. The
cause is very often that what might be the means of comfort is diverted
to the purpose of maintaining a decent appearance, or even a show of
luxury.

Man as we find him to-day has much regard to his good fame--to his
standing in the esteem of his fellowmen. This characteristic he always
has had, and no doubt always will have. This regard for reputation may
take the noble form of a striving after a good name; but the existing
organisation of society does not in any way preëminently foster that
line of development. Regard for one's reputation means, in the average
of cases, emulation. It is a striving to be, and more immediately to be
thought to be, better than one's neighbor. Now, modern society, the
society in which competition without prescription is predominant, is
preëminently an industrial, economic society, and it is
industrial--economic--excellence that most readily attracts the
approving regard of that society. Integrity and personal worth will, of
course, count for something, now as always; but in the case of a person
of moderate pretentions and opportunities, such as the average of us
are, one's reputation for excellence in this direction does not
penetrate far enough into the very wide environment to which a person is
exposed in modern society to satisfy even a very modest craving for
respectability. To sustain one's dignity--and to sustain one's
self-respect--under the eyes of people who are not socially one's
immediate neighbors, it is necessary to display the token of economic
worth, which practically coincides pretty closely with economic success.
A person may be well-born and virtuous, but those attributes will not
bring respect to the bearer from people who are not aware of his
possessing them, and these are ninety-nine out of every one hundred that
one meets. Conversely, by the way, knavery and vulgarity in any person
are not reprobated by people who know nothing of the person's
shortcomings in those respects.

In our fundamentally industrial society a person should be economically
successful, if he would enjoy the esteem of his fellowmen. When we say
that a man is "worth" so many dollars, the expression does not convey
the idea that moral or other personal excellence is to be measured in
terms of money, but it does very distinctly convey the idea that the
fact of his possessing many dollars is very much to his credit. And,
except in cases of extraordinary excellence, efficiency in any direction
which is not immediately of industrial importance, and does not redound
to a person's economic benefit, is not of great value as a means of
respectability. Economic success is in our day the most widely accepted
as well as the most readily ascertainable measure of esteem. All this
will hold with still greater force of a generation which is born into a
world already encrusted with this habit of a mind.

But there is a further, secondary stage in the development of this
economic emulation. It is not enough to possess the talisman of
industrial success. In order that it may mend one's good fame
efficiently, it is necessary to display it. One does not "make much of a
showing" in the eyes of the large majority of the people whom one meets
with, except by unremitting demonstration of ability to pay. That is
practically the only means which the average of us have of impressing
our respectability on the many to whom we are personally unknown, but
whose transient good opinion we would so gladly enjoy. So it comes about
that the appearance of success is very much to be desired, and is even
in many cases preferred to the substance. We all know how nearly
indispensable it is to afford whatever expenditure other people with
whom we class ourselves can afford, and also that it is desirable to
afford a little something more than others.

This element of human nature has much to do with the "standard of
living." And it is of a very elastic nature, capable of an indefinite
extension. After making proper allowance for individual exceptions and
for the action of prudential restraints, it may be said, in a general
way, that this emulation in expenditure stands ever ready to absorb any
margin of income that remains after ordinary physical wants and comforts
have been provided for, and, further, that it presently becomes as hard
to give up that part of one's habitual "standard of living" which is due
to the struggle for respectability, as it is to give up many physical
comforts. In a general way, the need of expenditure in this direction
grows as fast as the means of satisfying it, and, in the long run, a
large expenditure comes no nearer satisfying the desire than a smaller
one.

It comes about through the working of this principle that even the
creature comforts, which are in themselves desirable, and, it may even
be, requisite to a life on a passably satisfactory plane, acquire a
value as a means of respectability quite independent of, and out of
proportion to, their simple utility as a means of livelihood. As we are
all aware, the chief element of value in many articles of apparel is not
their efficiency for protecting the body, but for protecting the
wearer's respectability; and that not only in the eyes of one's
neighbors but even in one's own eyes. Indeed, it happens not very rarely
that a person chooses to go ill-clad in order to be well dressed. Much
more than half the value of what is worn by the American people may
confidently be put down to the element of "dress," rather than to that
of "clothing." And the chief motive of dress is emulation--"economic
emulation." The like is true, though perhaps in a less degree, of what
goes to food and shelter.

This misdirection of effort through the cravings of human vanity is of
course not anything new, nor is "economic emulation" a modern fact. The
modern system of industry has not invented emulation, nor has even this
particular form of emulation originated under that system. But the
system of free competition has accentuated this form of emulation, both
by exalting the industrial activity of man above the rank which it held
under more primitive forms of social organisation, and by in great
measure cutting off other forms of emulation from the chance of
efficiently ministering to the craving for a good fame. Speaking
generally and from the standpoint of the average man, the modern
industrial organization of society has practically narrowed the scope of
emulation to this one line; and at the same time it has made the means
of sustenance and comfort so much easier to obtain as very materially to
widen the margin of human exertion that can be devoted to purposes of
emulation. Further, by increasing the freedom of movement of the
individual and widening the environment to which the individual is
exposed--increasing the number of persons before whose eyes each one
carries on his life, and, _pari passu_, decreasing the chances which
such persons have of awarding their esteem on any other basis than that
of immediate appearances, it has increased the relative efficiency of
the economic means of winning respect through a show of expenditure for
personal comforts.

It is not probable that further advance in the same direction will lead
to a different result in the immediate future; and it is the _immediate_
future we have to deal with. A further advance in the efficiency of our
industry, and a further widening of the human environment to which the
individual is exposed, should logically render emulation in this
direction more intense. There are, indeed, certain considerations to be
set off against this tendency, but they are mostly factors of slow
action, and are hardly of sufficient consequence to reverse the general
rule. On the whole, other things remaining the same, it must be admitted
that, within wide limits, the easier the conditions of physical life for
modern civilised man become, and the wider the horizon of each and the
extent of the personal contact of each with his fellowmen, and the
greater the opportunity of each to compare notes with his fellows, the
greater will be the preponderance of economic success as a means of
emulation, and the greater the straining after economic respectability.
Inasmuch as the aim of emulation is not any absolute degree of comfort
or of excellence, no advance in the average well-being of the community
can end the struggle or lessen the strain. A general amelioration cannot
quiet the unrest whose source is the craving of everybody to compare
favorably with his neighbor.

Human nature being what it is, the struggle of each to possess more than
his neighbor is inseparable from the institution of private property.
And also, human nature being what it is, one who possesses less will, on
the average, be jealous of the one who possesses more; and "more" means
not more than the average share, but more than the share of the person
who makes the comparison. The criterion of complacency is, largely, the
_de facto_ possession or enjoyment; and the present growth of sentiment
among the body of the people--who possess less--favors, in a vague way,
a readjustment adverse to the interests of those who possess more, and
adverse to the possibility of legitimately possessing or enjoying
"more"; that is to say, the growth of sentiment favors a socialistic
movement. The outcome of modern industrial development has been, so far
as concerns the present purpose, to intensify emulation and the jealousy
that goes with emulation, and to focus the emulation and the jealousy on
the possession and enjoyment of material goods. The ground of the unrest
with which we are concerned is, very largely, jealousy,--envy, if you
choose; and the ground of this particular form of jealousy, that makes
for socialism, is to be found in the institution of private property.
With private property, under modern conditions, this jealousy and unrest
are unavoidable.

The corner-stone of the modern industrial system is the institution of
private property. That institution is also the objective point of all
attacks upon the existing system of competitive industry, whether open
or covert, whether directed against the system as a whole or against
any special feature of it. It is, moreover, the ultimate ground--and,
under modern conditions, necessarily so--of the unrest and discontent
whose proximate cause is the struggle for economic respectability. The
inference seems to be that, human nature being what it is, there can be
no peace from this--it must be admitted--ignoble form of emulation, or
from the discontent that goes with it, this side of the abolition of
private property. Whether a larger measure of peace is in store for us
after that event shall have come to pass, is of course not a matter to
be counted on, nor is the question immediately to the point.

This economic emulation is of course not the sole motive, nor the most
important feature, of modern industrial life; although it is in the
foreground, and it pervades the structure of modern society more
thoroughly perhaps than any other equally powerful moral factor. It
would be rash to predict that socialism will be the inevitable outcome
of a continued development of this emulation and the discontent which it
fosters, and it is by no means the purpose of this paper to insist on
such an inference. The most that can be claimed is that this emulation
is one of the causes, if not the chief cause, of the existing unrest and
dissatisfaction with things as they are; that this unrest is inseparable
from the existing system of industrial organisation; and that the growth
of popular sentiment under the influence of these conditions is
necessarily adverse to the institution of private property, and
therefore adverse to the existing industrial system of free competition.

       *       *       *       *       *

The emulation to which attention has been called in the preceding
section of this paper is not only a fact of importance to an
understanding of the unrest that is urging us towards an untried path in
social development, but it has also a bearing on the question of the
practicability of any scheme for the complete nationalisation of
industry. Modern industry has developed to such a degree of efficiency
as to make the struggle of subsistence alone, under average conditions,
relatively easy, as compared with the state of the case a few
generations ago. As I have labored to show, the modern competitive
system has at the same time given the spirit of emulation such a
direction that the attainment of subsistence and comfort no longer
fixes, even approximately, the limit of the required aggregate labor on
the part of the community. Under modern conditions the struggle for
existence has, in a very appreciable degree, been transformed into a
struggle to keep up appearances. The ultimate ground of this struggle to
keep up appearance by otherwise unnecessary expenditure, is the
institution of private property. Under a régime which should allow no
inequality of acquisition or of income, this form of emulation, which is
due to the possibility of such inequality, would also tend to become
obsolete. With the abolition of private property, the characteristic of
human nature which now finds its exercise in this form of emulation,
should logically find exercise in other, perhaps nobler and socially
more serviceable, activities; it is at any rate not easy to imagine it
running into any line of action more futile or less worthy of human
effort.

Supposing the standard of comfort of the community to remain
approximately at its present average, the abolition of the struggle to
keep up economic appearances would very considerably lessen the
aggregate amount of labor required for the support of the community. How
great a saving of labor might be effected is not easy to say. I believe
it is within the mark to suppose that the struggle to keep up
appearances is chargeable, directly and indirectly, with one-half the
aggregate labor, and abstinence from labor--for the standard of
respectability requires us to shun labor as well as to enjoy the fruits
of it--on part of the American people. This does not mean that the same
community, under a system not allowing private property, could make its
way with half the labor we now put forth; but it means something more or
less nearly approaching that. Any one who has not seen our modern social
life from this point of view will find the claim absurdly extravagant,
but the startling character of the proposition will wear off with longer
and closer attention to this aspect of the facts of everyday life. But
the question of the exact amount of waste due to this factor is
immaterial. It will not be denied that is is a fact of considerable
magnitude, and that is all that the argument requires.

It is accordingly competent for the advocates of the nationalisation of
industry and property to claim that even if their scheme of organisation
should prove less effective for production of goods than the present, as
measured absolutely in terms of the aggregate output of our industry,
yet the community might readily be maintained at the present average
standard of comfort. The required aggregate output of the nation's
industry would be considerably less than at present, and there would
therefore be less necessity for that close and strenuous industrial
organisation and discipline of the members of society under the new
régime, whose evils unfriendly critics are apt to magnify. The chances
of practicability for the scheme should logically be considerably
increased by this lessening of the necessity for severe application. The
less irksome and exacting the new régime, the less chance of a reversion
to the earlier system.

Under such a social order, where common labor would no longer be a mark
of peculiar economic necessity and consequent low economic rank on part
of the laborer, it is even conceivable that labor might practically come
to assume that character of nobility in the eyes of society at large,
which it now sometimes assumes in the speculations of the well-to-do, in
their complacent moods. Much has sometimes been made of this possibility
by socialist speculators, but the inference has something of a utopian
look, and no one, certainly, is entitled to build institutions for the
coming social order on this dubious ground.

What there seems to be ground for claiming is that a society which has
reached our present degree of industrial efficiency would not go into
the Socialist or Nationalist state with as many chances of failure as a
community whose industrial development is still at the stage at which
strenuous labor on the part of nearly all members is barely sufficient
to make both ends meet.

In Mr. Spencer's essay, in conformity with the line of argument of his
"Principles of Sociology," it is pointed out that, as the result of
constantly operative social forces, all social systems, as regards the
form of organisation, fall into the one or the other of Sir Henry
Maine's two classes--the system of status or the system of contract. In
accordance with this generalisation it is concluded that whenever the
modern system of contract or free competition shall be displaced, it
will necessarily be replaced by the only other known system--that of
status; the type of which is the military organisation, or, also, a
hierarchy, or a bureaucracy. It is something after the fashion of the
industrial organisation of ancient Peru that Mr. Spencer pictures as the
inevitable sequel of the demise of the existing competitive system.
Voluntary coöperation can be replaced only by compulsory coöperation,
which is identified with the system of status and defined as the
subjection of man to his fellow-man.

Now, at least as a matter of speculation, this is not the only
alternative. These two systems, of status, or prescription, and of
contract, or competition, have divided the field of social organisation
between them in some proportion or other in the past. Mr. Spencer has
shown that, very generally, where human progress in its advanced stages
has worked towards the amelioration of the lot of the average member of
society, the movement has been away from the system of status and
towards the system of contract. But there is at least one, if not more
than one exception to the rule, as concerns the recent past. The latest
development of the industrial organisation among civilised
nations--perhaps in an especial degree in the case of the American
people--has not been entirely a continuation of the approach to a régime
of free contract. It is also, to say the least, very doubtful if the
movement has been towards a régime of status, in the sense in which Sir
Henry Maine uses the term. This is especially evident in the case of the
great industries which we call "natural monopolies"; and it is to be
added that the present tendency is for a continually increasing
proportion of the industrial activities of the community to fall into
the category of "natural monopolies." No revolution has been achieved;
the system of competition has not been discarded, but the course of
industrial development is not in the direction of an extension of that
system at all points; nor does the principle of status always replace
that of competition wherever the latter fails.

The classification of methods of social organisation under the two heads
of status or of contract, is not logically exhaustive. There is nothing
in the meaning of the terms employed which will compel us to say that
whenever man escapes from the control of his fellow man, under a system
of status, he thereby falls into a system of free contract. There is a
conceivable escape from the dilemma, and it is this conceivable, though
perhaps impracticable, escape from both these systems that the socialist
agitator wishes to effect. An acquaintance with the aims and position of
the more advanced and consistent advocates of a new departure leaves no
doubt but that the principles of contract and of status, both, are in
substance familiar to their thoughts--though often in a vague and
inadequate form--and that they distinctly repudiate both. This is
perhaps less true of those who take the socialist position mainly on
ethical grounds.

As bearing on this point it may be remarked that while the industrial
system, in the case of all communities with whose history we are
acquainted, has always in the past been organised according to a scheme
of status or of contract, or of the two combined in some proportion, yet
the social organisation has not in all cases developed along the same
lines, so far as concerns such social functions as are not primarily
industrial. Especially is this true of the later stages in the
development of those communities whose institutions we are accustomed to
contemplate with the most complacency, _e.g._, the case of the
English-speaking peoples. The whole system of modern constitutional
government in its latest developed forms, in theory at least, and, in a
measure, in practice, does not fall under the head of either contract or
status. It is the analogy of modern constitutional government through an
impersonal law and impersonal institutions, that comes nearest doing
justice to the vague notions of our socialist propagandists. It is true,
some of the most noted among them are fond of the analogy of the
military organisation, as a striking illustration of one feature of the
system they advocate, but that must after all be taken as an _obiter
dictum_.

Further, as to the manner of the evolution of existing institutions and
their relation to the two systems spoken of. So far as concerns the
communities which have figured largely in the civilised world, the
political organisation has had its origin in a military system of
government. So, also, has the industrial organisation. But while the
development of industry, during its gradual escape from the military
system of status, has been, at least until lately, in the direction of a
system of free contract, the development of the political organisation,
so far as it has escaped from the régime of status, has not been in that
direction. The system of status is a system of subjection to personal
authority,--of prescription and class distinctions, and privileges and
immunities; the system of constitutional government, especially as seen
at its best among a people of democratic traditions and habits of mind,
is a system of subjection to the will of the social organism, as
expressed in an impersonal law. This difference between the system of
status and the "constitutional system" expresses a large part of the
meaning of the boasted free institutions of the English-speaking people.
Here, subjection is not to the person of the public functionary, but to
the powers vested in him. This has, of course, something of the ring of
latter-day popular rhetoric, but it is after all felt to be true, not
only speculatively, but in some measure also in practice.

The right of eminent domain and the power to tax, as interpreted under
modern constitutional forms, indicate something of the direction of
development of the political functions of society at a point where they
touch the province of the industrial system. It is along the line
indicated by these and kindred facts that the socialists are advancing;
and it is along this line that the later developments made necessary by
the exigencies of industry under modern conditions are also moving. The
aim of the propagandists is to sink the industrial community in the
political community; or perhaps better, to identify the two
organisations; but always with insistence on the necessity of making the
political organisation, in some further developed form, the ruling and
only one in the outcome. Distinctly, the system of contract is to be
done away with; and equally distinctly, no system of status is to take
its place.

All this is pretty vague, and of a negative character, but it would
quickly pass the limits of legitimate inference from the accepted
doctrines of the socialists if it should attempt to be anything more. It
does not have much to say as to the practicability of any socialist
scheme. As a matter of speculation, there seems to be an escape from the
dilemma insisted on by Mr. Spencer. We may conceivably have nationalism
without status and without contract. In theory, both principles are
entirely obnoxious to that system. The practical question, as to whether
modern society affords the materials out of which an industrial
structure can be erected on a system different from either of these, is
a problem of constructive social engineering which calls for a
consideration of details far too comprehensive to be entered on here.
Still, in view of the past course of development of character and
institutions on the part of the people to which we belong, it is perhaps
not extravagant to claim that no form of organisation which should
necessarily eventuate in a thorough-going system of status could endure
among us. The inference from this proposition may be, either that a near
approach to nationalisation of industry would involve a régime of
status, a bureaucracy, which would be unendurable, and which would
therefore drive us back to the present system before it had been
entirely abandoned; or that the nationalisation would be achieved with
such a measure of success, in conformity with the requirements of our
type of character, as would make it preferable to what we had left
behind. In either case the ground for alarm does not seem so serious as
is sometimes imagined.

A reversion to the system of free competition, after it had been in
large part discarded, would no doubt be a matter of great practical
difficulty, and the experiment which should demonstrate the necessity of
such a step might involve great waste and suffering, and might seriously
retard the advance of the race toward something better than our present
condition; but neither a permanent deterioration of human society, nor a
huge catastrophe, is to be confidently counted on as the outcome of the
movement toward nationalisation, even if it should prove necessary for
society to retrace its steps.

It is conceivable that the application of what may be called the
"constitutional method" to the organisation of industry--for that is
essentially what the advocates of Nationalisation demand--would result
in a course of development analogous to what has taken place in the case
of the political organisation under modern constitutional forms. Modern
constitutional government--the system of modern free institutions--is by
no means an unqualified success, in the sense of securing to each the
rights and immunities which in theory are guaranteed to him.

Our modern republics have hardly given us a foretaste of that political
millennium whereof they proclaim the fruition. The average human nature
is as yet by no means entirely fit for self-government according to the
"constitutional method." Shortcomings are visible at every turn. These
shortcomings are grave enough to furnish serious arguments against the
practicability of our free institutions. On the continent of Europe the
belief seems to be at present in the ascendant that man must yet, for a
long time, remain under the tutelage of absolutism before he shall be
fit to organise himself into an autonomous political body. The belief is
not altogether irrational. Just how great must be the advance of society
and just what must be the character of the advance, preliminary to its
advantageously assuming the autonomous--republican--form of political
organisation, must be admitted to be an open question. Whether we, or
any people, have yet reached the required stage of the advance is also
questioned by many. But the partial success which has attended the
movement in this direction, among the English-speaking people for
example, goes very far towards proving that the point in the development
of human character at which the constitutional method may be
advantageously adopted in the political field, lies far this side the
point at which human nature shall have become completely adapted for
that method. That is to say, it does not seem necessary, as regards the
functions of society which we are accustomed to call political, to be
entirely ready for nationalisation before entering upon it. How far the
analogy of this will hold when applied to the industrial organisation of
society is difficult to say, but some significance the analogy must be
admitted to possess.

Certainly, the fact that constitutional government--the nationalisation
of political functions--seems to have been a move in the right direction
is not to be taken as proof of the advisability of forthwith
nationalising the industrial functions. At the same time this fact does
afford ground for the claim that a movement in this direction may prove
itself in some degree advantageous, even if it takes place at a stage
in the development of human nature at which mankind is still far from
being entirely fit for the duties which the new system shall impose. The
question, therefore, is not whether we have reached the perfection of
character which would be necessary in order to a perfect working of the
scheme of nationalisation of industry, but whether we have reached such
a degree of development as would make an imperfect working of the scheme
possible.

FOOTNOTES:

[1] Reprinted by permission from the _Annals of American Academy of
Political and Social Science_, Vol. II, 1892.

[2] Introductory paper of _A Plea for Liberty_; edited by Thomas Mackay.




THE SOCIALIST ECONOMICS OF KARL MARX AND HIS FOLLOWERS[1]


I. THE THEORIES OF KARL MARX

The system of doctrines worked out by Marx is characterised by a certain
boldness of conception and a great logical consistency. Taken in detail,
the constituent elements of the system are neither novel nor
iconoclastic, nor does Marx at any point claim to have discovered
previously hidden facts or to have invented recondite formulations of
facts already known; but the system as a whole has an air of originality
and initiative such as is rarely met with among the sciences that deal
with any phase of human culture. How much of this distinctive character
the Marxian system owes to the personal traits of its creator is not
easy to say, but what marks it off from all other systems of economic
theory is not a matter of personal idiosyncrasy. It differs
characteristically from all systems of theory that had preceded it, both
in its premises and in its aims. The (hostile) critics of Marx have not
sufficiently appreciated the radical character of his departure in both
of these respects, and have, therefore, commonly lost themselves in a
tangled scrutiny of supposedly abstruse details; whereas those writers
who have been in sympathy with his teachings have too commonly been
disciples bent on exegesis and on confirming their fellow-disciples in
the faith.

Except as a whole and except in the light of its postulates and aims,
the Marxian system is not only not tenable, but it is not even
intelligible. A discussion of a given isolated feature of the system
(such as the theory of value) from the point of view of classical
economics (such as that offered by Böhm-Bawerk) is as futile as a
discussion of solids in terms of two dimensions.

Neither as regards his postulates and preconceptions nor as regards the
aim of his inquiry is Marx's position an altogether single-minded one.
In neither respect does his position come of a single line of
antecedents. He is of no single school of philosophy, nor are his ideals
those of any single group of speculators living before his time. For
this reason he takes his place as an originator of a school of thought
as well as the leader of a movement looking to a practical end.

As to the motives which drive him and the aspirations which guide him,
in destructive criticism and in creative speculation alike, he is
primarily a theoretician busied with the analysis of economic phenomena
and their organisation into a consistent and faithful system of
scientific knowledge; but he is, at the same time, consistently and
tenaciously alert to the bearing which each step in the progress of his
theoretical work has upon the propaganda. His work has, therefore, an
air of bias, such as belongs to an advocate's argument; but it is not,
therefore, to be assumed, nor indeed to be credited, that his
propagandist aims have in any substantial way deflected his inquiry or
his speculations from the faithful pursuit of scientific truth. His
socialistic bias may color his polemics, but his logical grasp is too
neat and firm to admit of any bias, other than that of his metaphysical
preconceptions, affecting his theoretical work.

There is no system of economic theory more logical than that of Marx.
No member of the system, no single article of doctrine, is fairly to be
understood, criticised, or defended except as an articulate member of
the whole and in the light of the preconceptions and postulates which
afford the point of departure and the controlling norm of the whole. As
regards these preconceptions and postulates, Marx draws on two distinct
lines of antecedents,--the Materialistic Hegelianism and the English
system of Natural Rights. By his earlier training he is an adept in the
Hegelian method of speculation and inoculated with the metaphysics of
development underlying the Hegelian system. By his later training he is
an expert in the system of Natural Rights and Natural Liberty, ingrained
in his ideals of life and held inviolate throughout. He does not take a
critical attitude toward the underlying principles of Natural Rights.
Even his Hegelian preconceptions of development never carry him the
length of questioning the fundamental principles of that system. He is
only more ruthlessly consistent in working out their content than his
natural-rights antagonists in the liberal-classical school. His polemics
run against the specific tenets of the liberal school, but they run
wholly on the ground afforded by the premises of that school. The ideals
of his propaganda are natural-rights ideals, but his theory of the
working out of these ideals in the course of history rests on the
Hegelian metaphysics of development, and his method of speculation and
construction of theory is given by the Hegelian dialectic.

       *       *       *       *       *

What first and most vividly centered interest on Marx and his
speculations was his relation to the revolutionary socialistic movement;
and it is those features of his doctrines which bear immediately on the
propaganda that still continue to hold the attention of the greater
number of his critics. Chief among these doctrines, in the apprehension
of his critics, is the theory of value, with its corollaries: (_a_) the
doctrines of the exploitation of labor by capital; and (_b_) the
laborer's claim to the whole product of his labor. Avowedly, Marx traces
his doctrine of labor-value to Ricardo, and through him to the classical
economists.[2] The laborer's claim to the whole product of labor, which
is pretty constantly implied, though not frequently avowed by Marx, he
has in all probability taken from English writers of the early
nineteenth century,[3] more particularly from William Thompson. These
doctrines are, on their face, nothing but a development of the
conceptions of natural rights which then pervaded English speculation
and afforded the metaphysical ground of the liberal movement. The more
formidable critics of the Marxian socialism have made much of these
doctrinal elements that further the propaganda, and have, by laying the
stress on these, diverted attention from other elements that are of more
vital consequence to the system as a body of theory. Their exclusive
interest in this side of "scientific socialism" has even led them to
deny the Marxian system all substantial originality, and make it a
(doubtfully legitimate) offshoot of English Liberalism and natural
rights.[4] But this is one-sided criticism. It may hold as against
certain tenets of the so-called "scientific socialism," but it is not
altogether to the point as regards the Marxian system of theory. Even
the Marxian theory of value, surplus value, and exploitation, is not
simply the doctrine of William Thompson, transcribed and sophisticated
in a forbidding terminology, however great the superficial resemblance
and however large Marx's unacknowledged debt to Thompson may be on these
heads. For many details and for much of his animus Marx may be indebted
to the Utilitarians; but, after all, his system of theory, taken as a
whole, lies within the frontiers of neo-Hegelianism, and even the
details are worked out in accord with the preconceptions of that school
of thought and have taken on the complexion that would properly belong
to them on that ground. It is, therefore, not by an itemised scrutiny of
the details of doctrine and by tracing their pedigree in detail that a
fair conception of Marx and his contribution to economics may be
reached, but rather by following him from his own point of departure out
into the ramifications of his theory, and so overlooking the whole in
the prospective which the lapse of time now affords us, but which he
could not himself attain, since he was too near to his own work to see
why he went about it as he did.

       *       *       *       *       *

The comprehensive system of Marxism is comprised within the scheme of
the Materialistic Conception of History.[5] This materialistic
conception is essentially Hegelian,[6] although it belongs with the
Hegelian Left, and its immediate affiliation is with Feuerbach, not with
the direct line of Hegelian orthodoxy. The chief point of interest here,
in identifying the materialistic conception with Hegelianism, is that
this identification throws it immediately and uncompromisingly into
contrast with Darwinism and the post-Darwinian conceptions of evolution.
Even if a plausible English pedigree should be worked out for this
Materialistic Conception, or "Scientific Socialism," as has been
attempted, it remains none the less true that the conception with which
Marx went to his work was a transmuted framework of Hegelian
dialectic.[7]

Roughly, Hegelian materialism differs from Hegelian orthodoxy by
inverting the main logical sequence, not by discarding the logic or
resorting to new tests of truth or finality. One might say, though
perhaps with excessive crudity, that, where Hegel pronounces his dictum,
_Das Denken ist das Sein_, the materialists, particularly Marx and
Engels, would say _Das Sein macht das Denken_. But in both cases some
sort of a creative primacy is assigned to one or the other member of the
complex, and in neither case is the relation between the two members a
causal relation. In the materialistic conception man's spiritual
life--what man thinks--is a reflex of what he is in the material
respect, very much in the same fashion as the orthodox Hegelian would
make the material world a reflex of the spirit. In both, the dominant
norm of speculation and formulation of theory is the conception of
movement, development, evolution, progress; and in both the movement is
conceived necessarily to take place by the method of conflict or
struggle. The movement is of the nature of progress,--gradual advance
toward a goal, toward the realisation in explicit form of all that is
implicit in the substantial activity involved in the movement. The
movement is, further, self-conditioned and self-acting: it is an
unfolding by inner necessity. The struggle which constitutes the method
of movement or evolution is, in the Hegelian system proper, the struggle
of the spirit for self-realisation by the process of the well-known
three-phase dialectic. In the materialistic conception of history this
dialectical movement becomes the class struggle of the Marxian system.

The class struggle is conceived to be "material," but the term
"material" is in this connection used in a metaphorical sense. It does
not mean mechanical or physical, or even physiological, but economic. It
is material in the sense that it is a struggle between classes for the
material means of life. "The materialistic conception of history
proceeds on the principle that production and, next to production, the
exchange of its products is the groundwork of every social order."[8]
The social order takes its form through the class struggle, and the
character of the class struggle at any given phase of the unfolding
development of society is determined by "the prevailing mode of economic
production and exchange." The dialectic of the movement of social
progress, therefore, moves on the spiritual plane of human desire and
passion, not on the (literally) material plane of mechanical and
physiological stress, on which the developmental process of brute
creation unfolds itself. It is a sublimated materialism, sublimated by
the dominating presence of the conscious human spirit; but it is
conditioned by the material facts of the production of the means of
life.[9] The ultimately active forces involved in the process of
unfolding social life are (apparently) the material agencies engaged in
the mechanics of production; but the dialectic of the process--the
class struggle--runs its course only among and in terms of the secondary
(epigenetic) forces of human consciousness engaged in the valuation of
the material products of industry. A consistently materialistic
conception, consistently adhering to a materialistic interpretation of
the process of development as well as of the facts involved in the
process, could scarcely avoid making its putative dialectic struggle a
mere unconscious and irrelevant conflict of the brute material forces.
This would have amounted to an interpretation in terms of opaque cause
and effect, without recourse to the concept of a conscious class
struggle, and it might have led to a concept of evolution similar to the
unteleological Darwinian concept of natural selection. It could scarcely
have led to the Marxian notion of a conscious class struggle as the one
necessary method of social progress, though it might conceivably, by the
aid of empirical generalisation, have led to a scheme of social process
in which a class struggle would be included as an incidental though
perhaps highly efficient factor.[10] It would have led, as Darwinism
has, to a concept of a process of cumulative change in social structure
and function; but this process, being essentially a cumulative sequence
of causation, opaque and unteleological, could not, without an infusion
of pious fancy by the speculator, be asserted to involve progress as
distinct from retrogression or to tend to a "realisation" or
"self-realisation" of the human spirit or of anything else. Neither
could it conceivably be asserted to lead up to a final term, a goal to
which all lines of the process should converge and beyond which the
process would not go, such as the assumed goal of the Marxian process of
class struggle, which is conceived to cease in the classless economic
structure of the socialistic final term. In Darwinism there is no such
final or perfect term, and no definitive equilibrium.

The disparity between Marxism and Darwinism, as well as the disparity
within the Marxian system between the range of material facts that are
conceived to be the fundamental forces of the process, on the one hand,
and the range of spiritual facts within which the dialectic movement
proceeds,--this disparity is shown in the character assigned the class
struggle by Marx and Engels. The struggle is asserted to be a conscious
one, and proceeds on a recognition by the competing classes of their
mutually incompatible interests with regard to the material means of
life. The class struggle proceeds on motives of interest, and a
recognition of class interest can, of course, be reached only by
reflection on the facts of the case. There is, therefore, not even a
direct causal connection between the material forces in the case and the
choice of a given interested line of conduct. The attitude of the
interested party does not result from the material forces so immediately
as to place it within the relation of direct cause and effect, nor even
with such a degree of intimacy as to admit of its being classed as a
tropismatic, or even instinctive, response to the impact of the material
force in question. The sequence of reflection, and the consequent choice
of sides to a quarrel, run entirely alongside of a range of material
facts concerned.

A further characteristic of the doctrine of class struggle requires
mention. While the concept is not Darwinian, it is also not legitimately
Hegelian, whether of the Right or the Left. It is of a utilitarian
origin and of English pedigree, and it belongs to Marx by virtue of his
having borrowed its elements from the system of self-interest. It is in
fact a piece of hedonism, and is related to Bentham rather than to
Hegel. It proceeds on the grounds of the hedonistic calculus, which is
equally foreign to the Hegelian notion of an unfolding process and to
the post-Darwinian notions of cumulative causation. As regards the
tenability of the doctrine, apart from the question of its derivation
and its compatibility with the neo-Hegelian postulates, it is to be
added that it is quite out of harmony with the later results of
psychological inquiry,--just as is true of the use made of the
hedonistic calculus by the classical (Austrian) economics.

       *       *       *       *       *

Within the domain covered by the materialistic conception, that is to
say within the domain of unfolding human culture, which is the field of
Marxian speculation at large, Marx has more particularly devoted his
efforts to an analysis and theoretical formulation of the present
situation,--the current phase of the process, the capitalistic system.
And, since the prevailing mode of the production of goods determines the
institutional, intellectual, and spiritual life of the epoch, by
determining the form and method of the current class struggle, the
discussion necessarily begins with the theory of "capitalistic
production," or production as carried on under the capitalistic
system.[11]

Under the capitalistic system, that is to say under the system of modern
business traffic, production is a production of commodities,
merchantable goods, with a view to the price to be obtained for them in
the market. The great fact on which all industry under this system
hinges is the price of marketable goods. Therefore it is at this point
that Marx strikes into the system of capitalistic production, and
therefore the theory of value becomes the dominant feature of his
economics and the point of departure for the whole analysis, in all its
voluminous ramifications.[12]

It is scarcely worth while to question what serves as the beginning of
wisdom in the current criticisms of Marx; namely, that he offers no
adequate proof of his labor-value theory.[13] It is even safe to go
farther, and say that he offers no proof of it. The feint which occupies
the opening paragraphs of the _Kapital_ and the corresponding passages
of _Zur Kritik_, etc., is not to be taken seriously as an attempt to
prove his position on this head by the ordinary recourse to argument. It
is rather a self-satisfied superior's playful mystification of those
readers (critics) whose limited powers do not enable them to see that
his proposition is self-evident. Taken on the Hegelian (neo-Hegelian)
ground, and seen in the light of the general materialistic conception,
the proposition that value = labor-cost is self-evident, not to say
tautological. Seen in any other light, it has no particular force.

In the Hegelian scheme of things the only substantial reality is the
unfolding life of the spirit. In the neo-Hegelian scheme, as embodied in
the materialistic conception, this reality is translated into terms of
the unfolding (material) life of man in society.[14] In so far as the
goods are products of industry, they are the output of this unfolding
life of man, a material residue embodying a given fraction of this
forceful life-process. In this life-process lies all substantial
reality, and all finally valid relations of quantivalence between the
products of this life-process must run in its terms. The life-process,
which, when it takes the specific form of an expenditure of labor power,
goes to produce goods, is a process of material forces, the spiritual or
mental features of the life-process and of labor being only its
insubstantial reflex. It is consequently only in the material changes
wrought by this expenditure of labor power that the metaphysical
substance of life--labor power--can be embodied; but in these changes of
material fact it cannot but be embodied, since these are the end to
which it is directed.

This balance between goods in respect of their magnitude as output of
human labor holds good indefeasibly, in point of the metaphysical
reality of the life-process, whatever superficial (phenomenal)
variations from this norm may occur in men's dealings with the goods
under the stress of the strategy of self-interest. Such is the value of
the goods in reality; they are equivalents of one another in the
proportion in which they partake of this substantial quality, although
their true ratio of equivalence may never come to an adequate expression
in the transactions involved in the distribution of the goods. This real
or true value of the goods is a fact of production, and holds true under
all systems and methods of production, whereas the exchange value (the
"phenomenal form" of the real value) is a fact of distribution, and
expresses the real value more or less adequately according as the scheme
of distribution in force at the given time conforms more or less closely
to the equities given by production. If the output of industry were
distributed to the productive agents strictly in proportion to their
shares in production, the exchange value of the goods would be presumed
to conform to their real value. But, under the current, capitalistic
system, distribution is not in any sensible degree based on the equities
of production, and the exchange value of goods under this system can
therefore express their real value only with a very rough, and in the
main fortuitous, approximation. Under a socialistic régime, where the
laborer would get the full product of his labor, or where the whole
system of ownership, and consequently the system of distribution, would
lapse, values would reach a true expression, if any.

Under the capitalistic system the determination of exchange value is a
matter of competitive profit-making, and exchange values therefore
depart erratically and incontinently from the proportions that would
legitimately be given them by the real values whose only expression
they are. Marx's critics commonly identify the concept of "value" with
that of "exchange value,"[15] and show that the theory of "value" does
not square with the run of the facts of price under the existing system
of distribution, piously hoping thereby to have refuted the Marxian
doctrine; whereas, of course, they have for the most part not touched
it. The misapprehension of the critics may be due to a (possibly
intentional) oracular obscurity on the part of Marx. Whether by his
fault or their own, their refutations have hitherto been quite
inconclusive. Marx's severest stricture on the iniquities of the
capitalistic system is that contained by implication in his development
of the manner in which actual exchange value of goods systematically
diverges from their real (labor-cost) value. Herein, indeed, lies not
only the inherent iniquity of the existing system, but also its fateful
infirmity, according to Marx.

The theory of value, then, is _contained in_ the main postulates of the
Marxian system rather than derived from them. Marx identifies this
doctrine, in its elements, with the labor-value theory of Ricardo,[16]
but the relationship between the two is that of a superficial
coincidence in their main propositions rather than a substantial
identity of theoretic contents. In Ricardo's theory the source and
measure of value is sought in the effort and sacrifice undergone by the
producer, consistently, on the whole, with the Benthamite-utilitarian
position to which Ricardo somewhat loosely and uncritically adhered. The
decisive fact about labor, that quality by virtue of which it is assumed
to be the final term in the theory of production, is its irksomeness.
Such is of course not the case in the labor-value theory of Marx, to
whom the question of the irksomeness of labor is quite irrelevant, so
far as regards the relation between labor and production. The
substantial diversity or incompatibility of the two theories shows
itself directly when each is employed by its creator in the further
analysis of economic phenomena. Since with Ricardo the crucial point is
the degree of irksomeness of labor, which serves as a measure both of
the labor expended and the value produced, and since in Ricardo's
utilitarian philosophy there is no more vital fact underlying this
irksomeness, therefore no surplus-value theory follows from the main
position. The productiveness of labor is not cumulative, in its own
working; and the Ricardian economics goes on to seek the cumulative
productiveness of industry in the functioning of the products of labor
when employed in further production and in the irksomeness of the
capitalist's abstinence. From which duly follows the general position of
classical economics on the theory of production.

With Marx, on the other hand, the labor power expended in production
being itself a product and having a substantial value corresponding to
its own labor-cost, the value of the labor power expended and the value
of the product created by its expenditure need not be the same. They are
not the same, by supposition, as they would be in any hedonistic
interpretation of the facts. Hence a discrepancy arises between the
value of the labor power expended in production and the value of the
product created, and this discrepancy is covered by the concept of
surplus value. Under the capitalistic system, wages being the value
(price) of the labor power consumed in industry, it follows that the
surplus product of their labor cannot go to the laborers, but becomes
the profits of capital and the source of its accumulation and increase.
From the fact that wages are measured by the value of labor power rather
than by the (greater) value of the product of labor, it follows also
that the laborers are unable to buy the whole product of their labor,
and so that the capitalists are unable to sell the whole product of
industry continuously at its full value, whence arise difficulties of
the gravest nature in the capitalistic system, in the way of
overproduction and the like.

But the gravest outcome of this systematic discrepancy between the value
of labor power and the value of its product is the accumulation of
capital out of unpaid labor, and the effect of this accumulation on the
laboring population. The law of accumulation, with its corollary, the
doctrine of the industrial reserve army, is the final term and the
objective point of Marx's theory of capitalist production, just as the
theory of labor value is his point of departure.[17] While the theory of
value and surplus value are Marx's explanation of the possibility of
existence of the capitalistic system, the law of the accumulation of
capital is his exposition of the causes which must lead to the collapse
of that system and of the manner in which the collapse will come. And
since Marx is, always and everywhere, a socialist agitator as well as a
theoretical economist, it may be said without hesitation that the law of
accumulation is the climax of his great work, from whatever point of
view it is looked at, whether as an economic theorem or as a tenet of
socialistic doctrine.

The law of capitalistic accumulation may be paraphrased as follows:[18]
Wages being the (approximately exact) value of the labor power bought in
the wage contract; the price of the product being the (similarly
approximate) value of the goods produced; and since the value of the
product exceeds that of the labor power by a given amount (surplus
value), which by force of the wage contract passes into the possession
of the capitalist and is by him in part laid by as savings and added to
the capital already in hand, it follows (_a_) that, other things equal,
the larger the surplus value, the more rapid the increase of capital;
and, also (_b_), that the greater the increase of capital relatively to
the labor force employed, the more productive the labor employed and the
larger the surplus product available for accumulation. The process of
accumulation, therefore, is evidently a cumulative one; and, also
evidently, the increase added to capital is an unearned increment drawn
from the unpaid surplus product of labor.

But with an appreciable increase of the aggregate capital a change takes
place in its technological composition, whereby the "constant" capital
(equipment and raw materials) increases disproportionately as compared
with the "variable" capital (wages fund). "Labor-saving devices" are
used to a greater extent than before, and labor is saved. A larger
proportion of the expenses of production goes for the purchase of
equipment and raw materials, and a smaller proportion--though perhaps
an absolutely increased amount--goes for the purchase of labor power.
Less labor is needed relatively to the aggregate capital employed as
well as relatively to the quantity of goods produced. Hence some portion
of the increasing labor supply will not be wanted, and an "industrial
reserve army," a "surplus labor population," an army of unemployed,
comes into existence. This reserve grows relatively larger as the
accumulation of capital proceeds and as technological improvements
consequently gain ground; so that there result two divergent cumulative
changes in the situation,--antagonistic, but due to the same set of
forces and, therefore, inseparable: capital increases, and the number of
unemployed laborers (relatively) increases also.

This divergence between the amount of capital and output, on the one
hand, and the amount received by laborers as wages, on the other hand,
has an incidental consequence of some importance. The purchasing power
of the laborers, represented by their wages, being the largest part of
the demand for consumable goods, and being at the same time, in the
nature of the case, progressively less adequate for the purchase of the
product, represented by the price of the goods produced, it follows that
the market is progressively more subject to glut from overproduction,
and hence to commercial crises and depression. It has been argued, as if
it were a direct inference from Marx's position, that this maladjustment
between production and markets, due to the laborer not getting the full
product of his labor, leads directly to the breakdown of the
capitalistic system, and so by its own force will bring on the
socialistic consummation. Such is not Marx's position, however, although
crises and depression play an important part in the course of
development that is to lead up to socialism. In Marx's theory,
socialism is to come by way of a conscious class movement on the part of
the propertyless laborers, who will act advisedly on their own interest
and force the revolutionary movement for their own gain. But crises and
depression will have a large share in bringing the laborers to a frame
of mind suitable for such a move.

Given a growing aggregate capital, as indicated above, and a concomitant
reserve of unemployed laborers growing at a still higher rate, as is
involved in Marx's position, this body of unemployed labor can be, and
will be, used by the capitalists to depress wages, in order to increase
profits. Logically, it follows that, the farther and faster capital
accumulates, the larger will be the reserve of unemployed, both
absolutely and relatively to the work to be done, and the more severe
will be the pressure acting to reduce wages and lower the standard of
living, and the deeper will be the degradation and misery of the working
class and the more precipitately will their condition decline to a still
lower depth. Every period of depression, with its increased body of
unemployed labor seeking work, will act to hasten and accentuate the
depression of wages, until there is no warrant even for holding that
wages will, on an average, be kept up to the subsistence minimum.[19]
Marx, indeed, is explicit to the effect that such will be the
case,--that wages will decline below the subsistence minimum; and he
cites English conditions of child labor, misery, and degeneration to
substantiate his views.[20] When this has gone far enough, when
capitalist production comes near enough to occupying the whole field of
industry and has depressed the condition of its laborers sufficiently to
make them an effective majority of the community with nothing to lose,
then, having taken advice together, they will move, by legal or
extra-legal means, by absorbing the state or by subverting it, to
establish the social revolution.

Socialism is to come through class antagonism due to the absence of all
property interests from the laboring class, coupled with a generally
prevalent misery so profound as to involve some degree of physical
degeneration. This misery is to be brought about by the heightened
productivity of labor due to an increased accumulation of capital and
large improvements in the industrial arts; which in turn is caused by
the fact that under a system of private enterprise with hired labor the
laborer does not get the whole product of his labor; which, again, is
only saying in other words that private ownership of capital goods
enables the capitalist to appropriate and accumulate the surplus product
of labor. As to what the régime is to be which the social revolution
will bring in, Marx has nothing particular to say, beyond the general
thesis that there will be no private ownership, at least not of the
means of production.

       *       *       *       *       *

Such are the outlines of the Marxian system of socialism. In all that
has been said so far no recourse is had to the second and third volumes
of _Kapital_. Nor is it necessary to resort to these two volumes for the
general theory of socialism. They add nothing essential, although many
of the details of the processes concerned in the working out of the
capitalist scheme are treated with greater fullness, and the analysis is
carried out with great consistency and with admirable results. For
economic theory at large these further two volumes are important
enough, but an inquiry into their contents in that connection is not
called for here.

Nothing much need be said as to the tenability of this theory. In its
essentials, or at least in its characteristic elements, it has for the
most part been given up by latter-day socialist writers. The number of
those who hold to it without essential deviation is growing gradually
smaller. Such is necessarily the case, and for more than one reason. The
facts are not bearing it out on certain critical points, such as the
doctrine of increasing misery; and the Hegelian philosophical
postulates, without which the Marxism of Marx is groundless, are for the
most part forgotten by the dogmatists of to-day. Darwinism has largely
supplanted Hegelianism in their habits of thought.

The particular point at which the theory is most fragile, considered
simply as a theory of social growth, is its implied doctrine of
population,--implied in the doctrine of a growing reserve of unemployed
workmen. The doctrine of the reserve of unemployed labor involves as a
postulate that population will increase anyway, without reference to
current or prospective means of life. The empirical facts give at least
a very persuasive apparent support to the view expressed by Marx, that
misery is, or has hitherto been, no hindrance to the propagation of the
race; but they afford no conclusive evidence in support of a thesis to
the effect that the number of laborers must increase independently of an
increase of the means of life. No one since Darwin would have the
hardihood to say that the increase of the human species is not
conditioned by the means of living.

But all that does not really touch Marx's position. To Marx, the
neo-Hegelian, history, including the economic development, is the
life-history of the human species; and the main fact in this
life-history, particularly in the economic aspect of it, is the growing
volume of human life. This, in a manner of speaking, is the base-line of
the whole analysis of the process of economic life, including the phase
of capitalist production with the rest. The growth of population is the
first principle, the most substantial, most material factor in this
process of economic life, so long as it is a process of growth, of
unfolding, of exfoliation, and not a phase of decrepitude and decay. Had
Marx found that his analysis led him to a view adverse to this position,
he would logically have held that the capitalist system is the mortal
agony of the race and the manner of its taking off. Such a conclusion is
precluded by his Hegelian point of departure, according to which the
goal of the life-history of the race in a large way controls the course
of that life-history in all its phases, including the phase of
capitalism. This goal or end, which controls the process of human
development, is the complete realisation of life in all its fullness,
and the realisation is to be reached by a process analogous to the
three-phase dialectic, of thesis, antithesis, and synthesis, into which
scheme the capitalist system, with its overflowing measure of misery and
degradation, fits as the last and most dreadful phase of antithesis.
Marx, as a Hegelian,--that is to say, a romantic philosopher,--is
necessarily an optimist, and the evil (antithetical element) in life is
to him a logically necessary evil, as the antithesis is a necessary
phase of the dialectic; and it is a means to the consummation, as the
antithesis is a means to the synthesis.

FOOTNOTES:

[1] The substance of lectures before students in Harvard University in
April, 1906. Reprinted by permission from _The Quarterly Journal of
Economics_, Vol. XX, Aug., 1906

[2] _Cf._ _Critique of Political Economy_, chap. i, "Notes on the
History of the Theory of Commodities," pp. 56-73 (English translation,
New York, 1904).

[3] See Menger, _Right to the Whole Produce of Labor_, sections iii-v
and viii-ix, and Foxwell's admirable Introduction to Menger.

[4] See Menger and Foxwell, as above, and Schaeffle, _Quintessence of
Socialism_, and _The Impossibility of Social Democracy_.

[5] See Engels, _The Development of Socialism from Utopia to Science_,
especially section ii and the opening paragraphs of section iii; also
the preface of _Zur Kritik der politischen Oekonomie_.

[6] See Engels, as above, and also his _Feuerbach: The Roots of
Socialist Philosophy_ (translation, Chicago, Kerr & Co., 1903).

[7] See _e.g._, Seligman, _The Economic Interpretation of History_, Part
I.

[8] Engels, _Development of Socialism_, beginning of section iii.

[9] _Cf._, on this point, Max Adler, "Kausalität und Teleologie im
Streite um die Wissenschaft" (included in _Marx-Studien_, edited by
Adler and Hilfendirg, vol. i), particularly section xi; _cf._ also
Ludwig Stein, _Die soziale Frage im Lichte der Philosophie_, whom Adler
criticises and claims to have refuted.

[10] _Cf._ Adler, as above.

[11] It may be noted, by way of caution to readers familiar with the
terms only as employed by the classical (English and Austrian)
economists, that in Marxian usage "capitalistic production" means
production of goods for the market by hired labor under the direction of
employers who own (or control) the means of production and are engaged
in industry for the sake of a profit. "Capital" is wealth (primarily
funds) so employed. In these and other related points of terminological
usage Marx is, of course, much more closely in touch with colloquial
usage than those economists of the classical line who make capital
signify "the products of past industry used as aids to further
production." With Marx "Capitalism" implies certain relations of
ownership, no less than the "productive use" which is alone insisted on
by so many later economists in defining the term.

[12] In the sense that the theory of value affords the point of
departure and the fundamental concepts out of which the further theory
of the workings of capitalism is constructed,--in this sense, and in
this sense only, is the theory of value the central doctrine and the
critical tenet of Marxism. It does not follow that the Marxist doctrine
of an irresistible drift towards a socialistic consummation hangs on the
defensibility of the labor-value theory, nor even that the general
structure of the Marxist economics would collapse if translated into
other terms than those of this doctrine of labor-value. _Cf_.
Böhm-Bawerk, _Karl Marx and the Close of his System_; and, on the
other hand, Franz Oppenheimer, _Das Grundgesetz der Marx'schen
Gesellschaftslehre_; and Rudolf Goldscheid, _Verelendungs- oder
Meliorationstheorie_.

[13] _Cf._, _e.g._, Böhm-Bawerk, as above; Georg Adler, _Grundlagen der
Karl Marx'schen Kritik_.

[14] In much the same way, and with an analogous effect on their
theoretical work, in the preconceptions of the classical (including the
Austrian) economists, the balance of pleasure and pain is taken to be
the ultimate reality in terms of which all economic theory must be
stated and to terms of which all phenomena should finally be reduced in
any definitive analysis of economic life. It is not the present purpose
to inquire whether the one of these uncritical assumptions is in any
degree more meritorious or more serviceable than the other.

[15] Böhm-Bawerk, _Capital and Interest_, Book VI, chap, iii; also _Karl
Marx and the Close of his System_, particularly chap. iv; Adler,
_Grundlagen_, chaps. ii. and iii.

[16] _Cf._ _Kapital_, vol. i, chap. xv, p. 486 (4th ed.). See also notes
9 and 16 to chap. i of the same volume, where Marx discusses the
labor-value doctrines of Adam Smith and an earlier (anonymous) English
writer, and compares them with his own. Similar comparisons with the
early--classical--value theories recur from time to time in the later
portions of _Kapital_.

[17] Oppenheimer (_Das Grundgesetz der Marx'schen Gesellschaftslehre_)
is right in making the theory of accumulation the central element in the
doctrines of Marxist socialism, but it does not follow, as Oppenheimer
contends, that this doctrine is the keystone of Marx's economic
theories. It follows logically from the theory of surplus value, as
indicated above, and rests on that theory in such a way that it would
fail (in the form in which it is held by Marx) with the failure of the
doctrine of surplus value.

[18] See _Kapital_, vol. i, chap. xxiii.

[19] The "subsistence minimum" is here taken in the sense used by Marx
and the classical economists, as meaning what is necessary to keep up
the supply of labor at its current rate of efficiency.

[20] See _Kapital_, vol. i, chap, xxiii, sections 4 and 5.




THE SOCIALIST ECONOMICS OF KARL MARX AND HIS FOLLOWERS[1]


II. THE LATER MARXISM

Marx worked out his system of theory in the main during the third
quarter of the nineteenth century. He came to the work from the
standpoint given him by his early training in German thought, such as
the most advanced and aggressive German thinking was through the middle
period of the century, and he added to this German standpoint the
further premises given him by an exceptionally close contact with and
alert observation of the English situation. The result is that he brings
to his theoretical work a twofold line of premises, or rather of
preconceptions. By early training he is a neo-Hegelian, and from this
German source he derives his peculiar formulation of the Materialistic
Theory of History. By later experience he acquired the point of view of
that Liberal-Utilitarian school which dominated English thought through
the greater part of his active life. To this experience he owes
(probably) the somewhat pronounced individualistic preconceptions on
which the doctrines of the Full Product of Labor and the Exploitation of
Labor are based. These two not altogether compatible lines of doctrine
found their way together into the tenets of scientific[2] socialism, and
gives its characteristic Marxian features to the body of socialist
economics.

The socialism that inspires hopes and fears to-day is of the school of
Marx. No one is seriously apprehensive of any other so-called
socialistic movement, and no one is seriously concerned to criticise or
refute the doctrines set forth by any other school of "socialists." It
may be that the socialists of the Marxist observance are not always or
at all points in consonance with the best accepted body of Marxist
doctrine. Those who make up the body of the movement may not always be
familiar with the details--perhaps not even with the general
features--of the Marxian scheme of economics; but with such consistency
as may fairly be looked for in any popular movement, the socialists of
all countries gravitate toward the theoretical position of the avowed
Marxism. In proportion as the movement in any given community grows in
mass, maturity, and conscious purpose, it unavoidably takes on a more
consistently Marxian complexion. It is not the Marxism of Marx, but the
materialism of Darwin, which the socialists of to-day have adopted. The
Marxist socialists of Germany have the lead, and the socialists of other
countries largely take their cue from the German leaders.

The authentic spokesmen of the current international socialism are
avowed Marxists. Exceptions to that rule are very few. On the whole, the
substantial truth of the Marxist doctrines is not seriously questioned
within the lines of the socialists, though there may be some appreciable
divergence as to what the true Marxist position is on one point and
another. Much and eager controversy circles about questions of that
class.

The keepers of the socialist doctrines are passably agreed as to the
main position and the general principles. Indeed, so secure is this
current agreement on the general principles that a very lively
controversy on matters of detail may go on without risk of disturbing
the general position. This general position is avowedly Marxism. But it
is not precisely the position held by Karl Marx. It has been modernised,
adapted, filled out, in response to exigencies of a later date than
those which conditioned the original formulation of the theories. It is,
of course, not admitted by the followers of Marx that any substantial
change or departure from the original position has taken place. They are
somewhat jealously orthodox, and are impatient of any suggested
"improvements" on the Marxist position, as witness the heat engendered
in the "revisionist" controversy of a few years back. But the jealous
protests of the followers of Marx do not alter the fact that Marxism has
undergone some substantial change since it left the hands of its
creator. Now and then a more or less consistent disciple of Marx will
avow a need of adapting the received doctrines to circumstances that
have arisen later than the formulation of the doctrines; and amendments,
qualifications, and extensions, with this need in view, have been
offered from time to time. But more pervasive though unavowed changes
have come in the teachings of Marxism by way of interpretation and an
unintended shifting of the point of view. Virtually, the whole of the
younger generation of socialist writers shows such a growth. A citation
of personal instances would be quite futile.

       *       *       *       *       *

It is the testimony of his friends as well as of his writings that the
theoretical position of Marx, both as regards his standpoint and as
regards his main tenets, fell into a definitive shape relatively early,
and that his later work was substantially a working out of what was
contained in the position taken at the outset of his career.[3] By the
latter half of the forties, if not by the middle of the forties, Marx
and Engels had found the outlook on human life which came to serve as
the point of departure and the guide for their subsequent development of
theory. Such is the view of the matter expressed by Engels during the
later years of his life.[4] The position taken by the two great leaders,
and held by them substantially intact, was a variant of neo-Hegelianism,
as has been indicated in an earlier section of this paper.[5] But
neo-Hegelianism was short-lived, particularly considered as a standpoint
for scientific theory. The whole romantic school of thought, comprising
neo-Hegelianism with the rest, began to go to pieces very soon after it
had reached an approach to maturity, and its disintegration proceeded
with exceptional speed, so that the close of the third quarter of the
century saw the virtual end of it as a vital factor in the development
of human knowledge. In the realm of theory, primarily of course in the
material sciences, the new era belongs not to romantic philosophy, but
to the evolutionists of the school of Darwin. Some few great figures, of
course, stood over from the earlier days, but it turns out in the sequel
that they have served mainly to mark the rate and degree in which the
method of scientific knowledge has left them behind. Such were Virchow
and Max Müller, and such, in economic science, were the great figures of
the Historical School, and such, in a degree, were also Marx and Engels.
The later generation of socialists, the spokesmen and adherents of
Marxism during the closing quarter of the century, belong to the new
generation, and see the phenomena of human life under the new light. The
materialistic conception in their handling of it takes on the color of
the time in which they lived, even while they retain the phraseology of
the generation that went before them.[6]

The difference between the romantic school of thought, to which Marx
belonged, and the school of the evolutionists into whose hands the
system has fallen,--or perhaps, better, is falling,--is great and
pervading, though it may not show a staring superficial difference at
any one point,--at least not yet. The discrepancy between the two is
likely to appear more palpable and more sweeping when the new method of
knowledge has been applied with fuller realisation of its reach and its
requirement in that domain of knowledge that once belonged to the
neo-Hegelian Marxism. The supplanting of the one by the other has been
taking place slowly, gently, in large measure unavowedly, by a sort of
precession of the point of view from which men size up the facts and
reduce them to intelligible order.

The neo-Hegelian, romantic, Marxian standpoint was wholly personal,
whereas the evolutionistic--it may be called Darwinian--standpoint is
wholly impersonal. The continuity sought in the facts of observation and
imputed to them by the earlier school of theory was a continuity of a
personal kind,--a continuity of reason and consequently of logic. The
facts were construed to take such a course as could be established by an
appeal to reason between intelligent and fair-minded men. They were
supposed to fall into a sequence of logical consistency. The romantic
(Marxian) sequence of theory is essentially an intellectual sequence,
and it is therefore of a teleological character. The logical trend of it
can be argued out. That is to say, it tends to a goal. On the other
hand, in the Darwinian scheme of thought, the continuity sought in and
imputed to the facts is a continuity of cause and effect. It is a scheme
of blindly cumulative causation, in which there is no trend, no final
term, no consummation. The sequence is controlled by nothing but the
_vis a tergo_ of brute causation, and is essentially mechanical. The
neo-Hegelian (Marxian) scheme of development is drawn in the image of
the struggling ambitious human spirit: that of Darwinian evolution is of
the nature of a mechanical process.[7]

What difference, now, does it make if the materialistic conception is
translated from the romantic concepts of Marx into the mechanical
concepts of Darwinism? It distorts every feature of the system in some
degree, and throws a shadow of doubt on every conclusion that once
seemed secure.[8] The first principle of the Marxian scheme is the
concept covered by the term "Materialistic," to the effect that the
exigencies of the material means of life control the conduct of men in
society throughout, and thereby indefeasibly guide the growth of
institutions and shape every shifting trait of human culture. This
control of the life of society by the material exigencies takes effect
through men's taking thought of material (economic) advantages and
disadvantages, and choosing that which will yield the fuller material
measure of life. When the materialistic conception passes under the
Darwinian norm, of cumulative causation, it happens, first, that this
initial principle itself is reduced to the rank of a habit of thought
induced in the speculator who depends on its light, by the circumstances
of his life, in the way of hereditary bent, occupation, tradition,
education, climate, food supply, and the like. But under the Darwinian
norm the question of whether and how far material exigencies control
human conduct and cultural growth becomes a question of the share which
these material exigencies have in shaping men's habits of thought,
_i.e._, their ideals and aspirations, their sense of the true, the
beautiful, and the good. Whether and how far these traits of human
culture and the institutional structure built out of them are the
outgrowth of material (economic) exigencies becomes a question of what
kind and degree of efficiency belongs to the economic exigencies among
the complex of circumstances that conduce to the formation of habits. It
is no longer a question of whether material exigencies rationally should
guide men's conduct, but whether, as a matter of brute causation, they
do induce such habits of thought in men as the economic interpretation
presumes, and whether in the last analysis economic exigencies alone
are, directly or indirectly, effective in shaping human habits of
thought.

Tentatively and by way of approximation some such formulation as that
outlined in the last paragraph is apparently what Bernstein and others
of the "revisionists" have been seeking in certain of their
speculations,[9] and, sitting austere and sufficient on a dry shoal up
stream, Kautsky has uncomprehendingly been addressing them advice and
admonition which they do not understand.[10] The more intelligent and
enterprising among the idealist wing--where intellectual enterprise is
not a particularly obvious trait--have been struggling to speak for the
view that the forces of the environment may effectually reach men's
spiritual life through other avenues than the calculus of the main
chance, and so may give rise to habitual ideals and aspirations
independent of, and possibly alien to, that calculus.[11]

So, again, as to the doctrine of the class struggle. In the Marxian
scheme of dialectical evolution the development which is in this way
held to be controlled by the material exigencies must, it is held,
proceed by the method of the class struggle. This class struggle is held
to be inevitable, and is held inevitably to lead at each revolutionary
epoch to a more efficient adjustment of human industry to human uses,
because, when a large proportion of the community find themselves ill
served by the current economic arrangements, they take thought, band
together, and enforce a readjustment more equitable and more
advantageous to them. So long as differences of economic advantage
prevail, there will be a divergence of interests between those more
advantageously placed and those less advantageously placed. The members
of society will take sides as this line of cleavage indicated by their
several economic interests may decide. Class solidarity will arise on
the basis of this class interest, and a struggle between the two classes
so marked off against each other will set in,--a struggle which, in the
logic of the situation, can end only when the previously less fortunate
class gains the ascendancy,--and so must the class struggle proceed
until it shall have put an end to that diversity of economic interest on
which the class struggle rests. All this is logically consistent and
convincing, but it proceeds on the ground of reasoned conduct, calculus
of advantage, not on the ground of cause and effect. The class struggle
so conceived should always and everywhere tend unremittingly toward the
socialistic consummation, and should reach that consummation in the end,
whatever obstructions or diversions might retard the sequence of
development along the way. Such is the notion of it embodied in the
system of Marx. Such, however, is not the showing of history. Not all
nations or civilisations have advanced unremittingly toward a
socialistic consummation, in which all divergence of economic interest
has lapsed or would lapse. Those nations and civilisations which have
decayed and failed, as nearly all known nations and civilisations have
done, illustrate the point that, however reasonable and logical the
advance by means of the class struggle may be, it is by no means
inevitable. Under the Darwinian norm it must be held that men's
reasoning is largely controlled by other than logical, intellectual
forces; that the conclusion reached by public or class opinion is as
much, or more, a matter of sentiment than of logical inference; and that
the sentiment which animates men, singly or collectively, is as much, or
more, an outcome of habit and native propensity as of calculated
material interest. There is, for instance, no warrant in the Darwinian
scheme of things for asserting _a priori_ that the class interest of the
working class will bring them to take a stand against the propertied
class. It may as well be that their training in subservience to their
employers will bring them again to realise the equity and excellence of
the established system of subjection and unequal distribution of
wealth. Again, no one, for instance, can tell to-day what will be the
outcome of the present situation in Europe and America. It may be that
the working classes will go forward along the line of the socialistic
ideals and enforce a new deal, in which there shall be no economic class
discrepancies, no international animosity, no dynastic politics. But
then it may also, so far as can be foreseen, equally well happen that
the working class, with the rest of the community in Germany, England,
or America, will be led by the habit of loyalty and by their
sportsmanlike propensities to lend themselves enthusiastically to the
game of dynastic politics, which alone their sportsmanlike rulers
consider worth while. It is quite impossible on Darwinian ground to
foretell whether the "proletariat" will go on to establish the
socialistic revolution or turn aside again, and sink their force in the
broad sands of patriotism. It is a question of habit and native
propensity and of the range of stimuli to which the proletariat are
exposed and are to be exposed, and what may be the outcome is not a
matter of logical consistency, but of response to stimulus.

So, then, since Darwinian concepts have begun to dominate the thinking
of the Marxists, doubts have now and again come to assert themselves
both as to the inevitableness of the irrepressible class struggle and to
its sole efficacy. Anything like a violent class struggle, a seizure of
power by force, is more and more consistently deprecated. For resort to
force, it is felt, brings in its train coercive control with all its
apparatus of prerogative, mastery, and subservience.[12]

So, again, the Marxian doctrine of progressive proletarian distress, the
so-called _Verelendungstheorie_, which stands pat on the romantic ground
of the original Marxism, has fallen into abeyance, if not into
disrepute, since the Darwinian conceptions have come to prevail. As a
matter of reasoned procedure, on the ground of enlightened material
interest alone, it should be a tenable position that increasing misery,
increasing in degree and in volume, should be the outcome of the present
system of ownership, and should at the same time result in a
well-advised and well-consolidated working-class movement that would
replace the present system by a scheme more advantageous to the
majority. But so soon as the question is approached on the Darwinian
ground of cause and effect, and is analysed in terms of habit and of
response to stimulus, the doctrine that progressive misery must effect a
socialistic revolution becomes dubious, and very shortly untenable.
Experience, the experience of history, teaches that abject misery
carries with it deterioration and abject subjection. The theory of
progressive distress fits convincingly into the scheme of the Hegelian
three-phase dialectic. It stands for the antithesis that is to be merged
in the ulterior synthesis; but it has no particular force on the ground
of an argument from cause to effect.[13]

It fares not much better with the Marxian theory of value and its
corollaries and dependent doctrines when Darwinian concepts are brought
in to replace the romantic elements out of which it is built up. Its
foundation is the metaphysical equality between the volume of human life
force productively spent in the making of goods and the magnitude of
these goods considered as human products. The question of such an
equality has no meaning in terms of cause and effect, nor does it bear
in any intelligible way upon the Darwinian question of the fitness of
any given system of production or distribution. In any evolutionary
system of economics the central question touching the efficiency and
fitness of any given system of production is necessarily the question as
to the excess of serviceability in the product over the cost of
production.[14] It is in such an excess of serviceability over cost that
the chance of survival lies for any system of production, in so far as
the question of survival is a question of production, and this matter
comes into the speculation of Marx only indirectly or incidentally, and
leads to nothing in his argument.

And, as bearing on the Marxian doctrines of exploitation, there is on
Darwinian ground no place for a natural right to the full product of
labor. What can be argued in that connection on the ground of cause and
effect simply is the question as to what scheme of distribution will
help or hinder the survival of a given people or a given
civilisation.[15]

But these questions of abstruse theory need not be pursued, since they
count, after all, but relatively little among the working tenets of the
movement. Little need be done by the Marxists to work out or to adapt
the Marxian system of value theory, since it has but slight bearing on
the main question,--the question of the trend towards socialism and of
its chances of success. It is conceivable that a competent theory of
value dealing with the excess of serviceability over cost, on the one
hand, and with the discrepancy between price and serviceability, on the
other hand, would have a substantial bearing upon the advisability of
the present as against the socialistic régime, and would go far to clear
up the notions of both socialists and conservatives as to the nature of
the points in dispute between them. But the socialists have not moved in
the direction of this problem, and they have the excuse that their
critics have suggested neither a question nor a solution to a question
along any such line. None of the value theorists have so far offered
anything that could be called good, bad, or indifferent in this
connection, and the socialists are as innocent as the rest. Economics,
indeed, has not at this point yet begun to take on a modern tone, unless
the current neglect of value theory by the socialists be taken as a
negative symptom of advance, indicating that they at least recognise the
futility of the received problems and solutions, even if they are not
ready to make a positive move.

       *       *       *       *       *

The shifting of the current point of view, from romantic philosophy to
matter-of-fact, has affected the attitude of the Marxists towards the
several articles of theory more than it has induced an avowed alteration
or a substitution of new elements of theory for the old. It is always
possible to make one's peace with a new standpoint by new
interpretations and a shrewd use of figures of speech, so far as the
theoretical formulation is concerned, and something of this kind has
taken place in the case of Marxism; but when, as in the case of Marxism,
the formulations of theory are drafted into practical use, substantial
changes of appreciable magnitude are apt to show themselves in a changed
attitude towards practical questions. The Marxists have had to face
certain practical problems, especially problems of party tactics, and
the substantial changes wrought in their theoretical outlook have come
into evidence here. The real gravity of the changes that have overtaken
Marxism would scarcely be seen by a scrutiny of the formal professions
of the Marxists alone. But the exigencies of a changing situation have
provoked readjustments of the received doctrinal position, and the
shifting of the philosophical standpoint and postulates has come into
evidence as marking the limits of change in their professions which the
socialistic doctrinaires could allow themselves.

The changes comprised in the cultural movement that lies between the
middle and the close of the nineteenth century are great and grave, at
least as seen from so near a standpoint as the present day, and it is
safe to say that, in whatever historical perspective they may be seen,
they must, in some respects, always assert themselves as unprecedented.
So far as concerns the present topic, there are three main lines of
change that have converged upon the Marxist system of doctrines, and
have led to its latter-day modification and growth. One of these--the
change in the postulates of knowledge, in the metaphysical foundations
of theory--has been spoken of already, and its bearing on the growth of
socialist theory has been indicated in certain of its general features.
But, among the circumstances that have conditioned the growth of the
system, the most obvious is the fact that since Marx's time his
doctrines have come to serve as the platform of a political movement,
and so have been exposed to the stress of practical party politics
dealing with a new and changing situation. At the same time the
industrial (economic) situation to which the doctrines are held to
apply--of which they are the theoretical formulation--has also in
important respects changed its character from what it was when Marx
first formulated his views. These several lines of cultural change
affecting the growth of Marxism cannot be held apart in so distinct a
manner as to appraise the work of each separately. They belong
inextricably together, as do the effects wrought by them in the system.

In practical politics the Social Democrats have had to make up their
account with the labor movement, the agricultural population, and the
imperialistic policy. On each of these heads the preconceived programme
of Marxism has come in conflict with the run of events, and on each head
it has been necessary to deal shrewdly and adapt the principles to the
facts of the time. The adaptation to circumstances has not been
altogether of the nature of compromise, although here and there the
spirit of compromise and conciliation is visible enough. A conciliatory
party policy may, of course, impose an adaptation of form and color
upon the party principles, without thereby seriously affecting the
substance of the principles themselves; but the need of a conciliatory
policy may, even more, provoke a substantial change of attitude toward
practical questions in a case where a shifting of the theoretical point
of view makes room for a substantial change.

Apart from all merely tactical expedients, the experience of the past
thirty years has led the German Marxists to see the facts of the labor
situation in a new light, and has induced them to attach an altered
meaning to the accepted formulations of doctrine. The facts have not
freely lent themselves to the scheme of the Marxist system, but the
scheme has taken on such a new meaning as would be consistent with the
facts. The untroubled Marxian economics, such as it finds expression in
the _Kapital_ and earlier documents of the theory, has no place and no
use for a trade-union movement, or, indeed, for any similar
non-political organisation among the working class, and the attitude of
the Social-Democratic leaders of opinion in the early days of the
party's history was accordingly hostile to any such movement,[16]--as
much so, indeed, as the loyal adherents of the classical political
economy. That was before the modern industrial era had got under way in
Germany, and therefore before the German socialistic doctrinaires had
learned by experience what the development of industry was to bring with
it. It was also before the modern scientific postulates had begun to
disintegrate the neo-Hegelian preconceptions as to the logical sequence
in the development of institutions.

In Germany, as elsewhere, the growth of the capitalistic system
presently brought on trade-unionism; that is to say, it brought on an
organised attempt on the part of the workmen to deal with the questions
of capitalistic production and distribution by business methods, to
settle the problems of working-class employment and livelihood by a
system of non-political, businesslike bargains. But the great point of
all socialist aspiration and endeavor is the abolition of all business
and all bargaining, and, accordingly, the Social Democrats were heartily
out of sympathy with the unions and their endeavors to make business
terms with the capitalist system, and make life tolerable for the
workmen under that system. But the union movement grew to be so serious
a feature of the situation that the socialists found themselves obliged
to deal with unions, since they could not deal with the workmen over the
heads of the unions. The Social Democrats, and therefore the Marxian
theorists, had to deal with a situation which included the union
movement, and this movement was bent on improving the workman's
conditions of life from day to day. Therefore it was necessary to figure
out how the union movement could and must further the socialistic
advance; to work into the body of doctrines a theory of how the unions
belong in the course of economic development that leads up to socialism,
and to reconcile the unionist efforts at improvement with the ends of
Social Democracy. Not only were the unions seeking improvement by
unsocialistic methods, but the level of comfort among the working
classes was in some respects advancing, apparently as a result of these
union efforts. Both the huckstering animus of the workmen in their
unionist policy and the possible amelioration of working-class
conditions had to be incorporated into the socialistic platform and into
the Marxist theory of economic development. The Marxist theory of
progressive misery and degradation has, accordingly, fallen into the
background, and a large proportion of the Marxists have already come to
see the whole question of working-class deterioration in some such
apologetic light as is shed upon it by Goldscheid in his
_Verelendungs-oder Meliorationstheorie_. It is now not an unusual thing
for orthodox Marxists to hold that the improvement of the conditions of
the working classes is a necessary condition to the advance of the
socialistic cause, and that the unionist efforts at amelioration must be
furthered as a means toward the socialistic consummation. It is
recognised that the socialistic revolution must be carried through not
by an anæmic working class under the pressure of abject privation, but
by a body of full-blooded workingmen gradually gaining strength from
improved conditions of life. Instead of the revolution being worked out
by the leverage of desperate misery, every improvement in working-class
conditions is to be counted as a gain for the revolutionary forces. This
is a good Darwinism, but it does not belong in the neo-Hegelian Marxism.

Perhaps the sorest experience of the Marxist doctrinaires has been with
the agricultural population. Notoriously, the people of the open country
have not taken kindly to socialism. No propaganda and no changes in the
economic situation have won the sympathy of the peasant farmers for the
socialistic revolution. Notoriously, too, the large-scale industry has
not invaded the agricultural field, or expropriated the small
proprietors, in anything like the degree expected by the Marxist
doctrinaires of a generation ago. It is contained in the theoretical
system of Marx that, as modern industrial and business methods gain
ground, the small proprietor farmers will be reduced to the ranks of the
wage-proletariat, and that, as this process of conversion goes on, in
the course of time the class interest of the agricultural population
will throw them into the movement side by side with the other
wage-workmen.[17] But at this point the facts have hitherto not come out
in consonance with the Marxist theory. And the efforts of the Social
Democrats to convert the peasant population to socialism have been
practically unrewarded. So it has come about that the political leaders
and the keepers of the doctrines have, tardily and reluctantly, come to
see the facts of the agrarian situation in a new light, and to give a
new phrasing to the articles of Marxian theory that touch on the
fortunes of the peasant farmer. It is no longer held that either the
small properties of the peasant farmer must be absorbed into larger
properties, and then taken over by the State, or that they must be taken
over by the State directly, when the socialistic revolution is
established. On the contrary, it is now coming to be held that the
peasant proprietors will not be disturbed in their holdings by the great
change. The great change is to deal with capitalistic enterprise, and
the peasant farming is not properly "capitalistic." It is a system of
production in which the producer normally gets only the product of his
own labor. Indeed, under the current régime of markets and credit
relations, the small agricultural producer, it is held, gets less than
the product of his own labor, since the capitalistic business
enterprises with which he has to deal are always able to take advantage
of him. So it has become part of the overt doctrine of socialists that
as regards the peasant farmer it will be the consistent aim of the
movement to secure him in the untroubled enjoyment of his holding, and
free him from the vexatious exactions of his creditors and the ruinous
business traffic in which he is now perforce involved. According to the
revised code, made possible by recourse to Darwinian concepts of
evolution instead of the Hegelian three-phase dialectic, therefore, and
contrary to the earlier prognostications of Marx, it is no longer held
that agricultural industry must go through the capitalistic mill; and it
is hoped that under the revised code it may be possible to enlist the
interest and sympathy of this obstinately conservative element for the
revolutionary cause. The change in the official socialist position on
the agricultural question has come about only lately, and is scarcely
yet complete, and there is no knowing what degree of success it may meet
with either as a matter of party tactics or as a feature of the
socialistic theory of economic development. All discussions of party
policy, and of theory so far as bears on policy, take up the question;
and nearly all authoritative spokesmen of socialism have modified their
views in the course of time on this point.

The socialism of Karl Marx is characteristically inclined to peaceable
measures and disinclined to a coercive government and belligerent
politics. It is, or at least it was, strongly averse to international
jealousy and patriotic animosity, and has taken a stand against
armaments, wars, and dynastic aggrandisement. At the time of the
French-Prussian war the official organisation of Marxism, the
International, went so far in its advocacy of peace as to urge the
soldiery on both sides to refuse to fight. After the campaign had warmed
the blood of the two nations, this advocacy of peace made the
International odious in the eyes of both French and Germans. War begets
patriotism, and the socialists fell under the reproach of not being
sufficiently patriotic. After the conclusion of the war the Socialistic
Workingmen's Party of Germany sinned against the German patriotic
sentiment in a similar way and with similarly grave results. Since the
foundation of the empire and of the Social-Democratic party, the
socialists and their doctrines have passed through a further experience
of a similar kind, but on a larger scale and more protracted. The
government has gradually strengthened its autocratic position at home,
increased its warlike equipment, and enlarged its pretensions in
international politics, until what would have seemed absurdly impossible
a generation ago is now submitted to by the German people, not only with
a good grace, but with enthusiasm. During all this time that part of the
population that has adhered to the socialist ideals has also grown
gradually more patriotic and more loyal, and the leaders and keepers of
socialist opinion have shared in the growth of chauvinism with the rest
of the German people. But at no time have the socialists been able to
keep abreast of the general upward movement in this respect. They have
not attained the pitch of reckless loyalty that animates the
conservative German patriots, although it is probably safe to say that
the Social Democrats of to-day are as good and headlong patriots as the
conservative Germans were a generation ago. During all this period of
the new era of German political life the socialists have been freely
accused of disloyalty to the national ambition, of placing their
international aspirations above the ambition of imperial aggrandisement.

The socialist spokesmen have been continually on the defensive. They
set out with a round opposition to any considerable military
establishment, and have more and more apologetically continued to oppose
any "undue" extension of the warlike establishments and the warlike
policy. But with the passage of time and the habituation to warlike
politics and military discipline, the infection of jingoism has
gradually permeated the body of Social Democrats, until they have now
reached such a pitch of enthusiastic loyalty as they would not patiently
hear a truthful characterisation of. The spokesmen now are concerned to
show that, while they still stand for international socialism, consonant
with their ancient position, they stand for national aggrandisement
first and for international comity second. The relative importance of
the national and the international ideals in German socialist
professions has been reversed since the seventies.[18] The leaders are
busy with interpretation of their earlier formulations. They have come
to excite themselves over nebulous distinctions between patriotism and
jingoism. The Social Democrats have come to be German patriots first and
socialists second, which comes to saying that they are a political party
working for the maintenance of the existing order, with modifications.
They are no longer a party of revolution, but of reform, though the
measure of reform which they demand greatly exceeds the Hohenzollern
limit of tolerance. They are now as much, if not more, in touch with the
ideas of English liberalism than with those of revolutionary Marxism.

The material and tactical exigencies that have grown out of changes in
the industrial system and in the political situation, then, have brought
on far-reaching changes of adaptation in the position of the
socialists. The change may not be extremely large at any one point, so
far as regards the specific articles of the programme, but, taken as a
whole, the resulting modification of the socialistic position is a very
substantial one. The process of change is, of course, not yet
completed,--whether or not it ever will be,--but it is already evident
that what is taking place is not so much a change in amount or degree of
conviction on certain given points as a change in kind,--a change in the
current socialistic habit of mind.

The factional discrepancies of theory that have occupied the socialists
of Germany for some years past are evidence that the conclusion, even a
provisional conclusion, of the shifting of their standpoint has not been
reached. It is even hazardous to guess which way the drift is setting.
It is only evident that the past standpoint, the standpoint of
neo-Hegelian Marxism, cannot be regained,--it is a forgotten standpoint.
For the immediate present the drift of sentiment, at least among the
educated, seems to set toward a position resembling that of the National
Socials and the Rev. Mr. Naumann; that is to say, imperialistic
liberalism. Should the conditions, political, social, and economic,
which to-day are chiefly effective in shaping the habits of thought
among the German people, continue substantially unchanged and continue
to be the chief determining causes, it need surprise no one to find
German socialism gradually changing into a somewhat characterless
imperialistic democracy. The imperial policy seems in a fair way to get
the better of revolutionary socialism, not by repressing it, but by
force of the discipline in imperialistic ways of thinking to which it
subjects all classes of the population. How far a similar process of
sterilisation is under way, or is likely to overtake the socialist
movement in other countries, is an obscure question to which the German
object-lesson affords no certain answer.

FOOTNOTES:

[1] Reprinted by permission from _The Quarterly Journal of Economics_,
Vol. XXI, Feb., 1907.

[2] "Scientific" is here used in the half-technical sense which by usage
it often has in this connection, designating the theories of Marx and
his followers.

[3] There is, indeed, a remarkable consistency, amounting substantially
to an invariability of position, in Marx's writing, from the _Communist
Manifesto_ to the last volume of the _Capital_. The only portion of the
great _Manifesto_ which became antiquated, in the apprehension of its
creators, is the polemics addressed to the "Philosophical" socialists of
the forties and the illustrative material taken from contemporary
politics. The main position and the more important articles of
theory--the materialistic conception, the doctrine of class struggle,
the theory of value and surplus value, of increasing distress, of the
reserve army, of the capitalistic collapse--are to be found in the
_Critique of Political Economy_ (1859), and much of them in the _Misery
of Philosophy_ (1847), together with the masterful method of analysis
and construction which he employed throughout his theoretical work.

[4] _Cf._ Engels, _Feuerbach_ (English translation, Chicago, 1903),
especially Part IV, and various papers published in the _Neue Zeit_;
also the preface to the _Communist Manifesto_ written in 1888; also the
preface to volume ii. of _Capital_, where Engels argues the question of
Marx's priority in connection with the leading theoretical principles of
his system.

[5] _Cf._ _Feuerbach_, as above; _The Development of Socialism from
Utopia to Science_, especially sections ii and iii.

[6] Such a socialist as Anton Menger, _e.g._, comes into the neo-Marxian
school from without, from the field of modern scientific inquiry, and
shows, at least virtually, no Hegelian color, whether in the scope of
his inquiry, in his method, or in the theoretical work which he puts
forth. It should be added that his _Neue Staatslehre_, and _Neue
Sittenlehre_ are the first socialistic constructive work of substantial
value as a contribution to knowledge, outside of economic theory proper,
that has appeared since Lassalle. The efforts of Engels (_Ursprung der
Familie_) and Bebel (_Die Frau_) would scarcely be taken seriously as
scientific monographs even by hot-headed socialists if it were not for
the lack of anything better. Menger's work is not Marxism, whereas
Engels's and Bebel's work of this class is practically without value or
originality. The unfitness of the Marxian postulates and methods for the
purposes of modern science shows itself in the sweeping barrenness of
socialistic literature all along that line of inquiry into the evolution
of institutions for the promotion of which the materialistic dialectic
was invented.

[7] This contrast holds between the original Marxism of Marx and the
scope and method of modern science; but it does not, therefore, hold
between the latter-day Marxists--who are largely imbued with
post-Darwinian concepts--and the non-Marxian scientists. Even Engels, in
his latter-day formulation of Marxism, is strongly affected with the
notions of post-Darwinian science, and reads Darwinism into Hegel and
Marx with a good deal of _naïveté_. (See his _Feuerbach_, especially pp.
93-98 of the English translation.) So, also, the serious but scarcely
quite consistent qualifications of the materialistic conception offered
by Engels in the letters printed in the _Sozialistische Akademiker_,
1895.

[8] The fact that the theoretical structures of Marx collapse when their
elements are converted into the terms of modern science should of itself
be sufficient proof that those structures were not built by their maker
out of such elements as modern science habitually makes use of. Marx was
neither ignorant, imbecile, nor disingenuous, and his work must be
construed from such a point of view and in terms of such elements as
will enable his results to stand substantially sound and convincing.

[9] Cf. _Voraussetzungen des Sozialismus_, especially the first two
(critical) chapters. Bernstein's reverent attitude toward Marx and
Engels, as well as his somewhat old-fashioned conception of the scope
and method of science, gives his discussion an air of much greater
consonance with the orthodox Marxism than it really has. In his later
expressions this consonance and conciliatory animus show up more
strongly rather than otherwise. (See _Socialism and Science_, including
the special preface written for the French edition.) That which was to
Marx and Engels the point of departure and the guiding norm--the
Hegelian dialectic--is to Bernstein a mistake from which scientific
socialism must free itself. He says, _e.g._ (_Voraussetzungen_, end of
ch. iv.), "The great things achieved by Marx and Engels they have
achieved not by the help of the Hegelian dialectic, but in spite of it."

The number of the "revisionists" is very considerable, and they are
plainly gaining ground as against the Marxists of the older line of
orthodoxy. They are by no means agreed among themselves as to details,
but they belong together by virtue of their endeavor to so construe (and
amend) the Marxian system as to bring it into consonance with the
current scientific point of view. One should rather say points of view,
since the revisionists' endeavors are not all directed to bringing the
received views in under a single point of view. There are two main
directions of movement among the revisionists: (_a_) those who, like
Bernstein, Conrad Schmidt, Tugan-Baranowski, Labriola, Ferri, aim to
bring Marxism abreast of the standpoint of modern science, essentially
Darwinists; and (_b_) those who aim to return to some footing on the
level of the romantic philosophy. The best type and the strongest of the
latter class are the neo-Kantians, embodying that spirit of revulsion to
romantic norms of theory that makes up the philosophical side of the
reactionary movement fostered by the discipline of German imperialism.
(See K. Vorländer, _Die neukantische Bewegung im Sozialismus_.)

Except that he is not officially inscribed in the socialist calendar,
Sombart might be cited as a particularly effective revisionist, so far
as concerns the point of modernising Marxism and putting the modernised
materialistic conception to work.

[10] _Cf._ the files of the _Neue Zeit_, particularly during the
controversy with Bernstein, and _Bernstein und das Sozialdemokratische
Programm_.

[11] The "idealist" socialists are even more in evidence outside of
Germany. They may fairly be said to be in the ascendant in France, and
they are a very strong and free-spoken contingent of the socialist
movement in America. They do not commonly speak the language either of
science or of philosophy, but, so far as their contentions may be
construed from the standpoint of modern science, their drift seems to be
something of the kind indicated above. At the same time the spokesmen of
this scattering and shifting group stand for a variety of opinions and
aspirations that cannot be classified under Marxism, Darwinism, or any
other system of theory. At the margin they shade off into theology and
the creeds.

[12] Throughout the revisionist literature in Germany there is a visible
softening of the traits of the doctrine of the class struggle, and the
like shows itself in the programmes of the party. Outside of Germany the
doctrinaire insistence on this tenet is weakening even more decidedly.
The opportunist politicians, with strong aspirations, but with
relatively few and ill-defined theoretical preconceptions, are gaining
ground.

[13] _Cf._ Bernstein, _Die heutige Sozialdemokratie in Theorie
und Praxis_, an answer to Brunhuber, _Die heutige Sozialdemokratie_,
which should be consulted in the same connection: Goldscheid,
_Verelendungs- oder Meliorationstheorie_; also Sombart, _Sozialismus
und soziale Bewegung_, 5th edition, pp. 86-89.

[14] Accordingly, in later Marxian handling of the questions of
exploitation and accumulation, the attention is centered on the "surplus
product" rather than on the "surplus value." It is also currently held
that the doctrines and practical consequences which Marx derived from
the theory of surplus value would remain substantially well founded,
even if the theory of surplus value was given up. These secondary
doctrines could be saved--at the cost of orthodoxy--by putting a theory
of surplus product in the place of the theory of surplus value, as in
effect is done by Bernstein (_Socialdemokratie in Theorie und Praxis_,
sec. 5. Also various of the essays included in _Zur Geschichte und
Theorie des Sozialismus_).

[15] The "right to the full product of labor" and the Marxian theory of
exploitation associated with that principle has fallen into the
background, except as a campaign cry designed to stir the emotions of
the working class. Even as a campaign cry it has not the prominence, nor
apparently the efficacy, which it once had. The tenet is better
preserved, in fact, among the "idealists", who draw for their
antecedents on the French Revolution and the English philosophy of
natural rights, than among the latter-day Marxists.

[16] It is, of course, well known that even in the transactions and
pronounciamentos of the International a good word is repeatedly said for
the trade-unions, and both the Gotha and the Erfurt programmes speak in
favor of labor organisations, and put forth demands designed to further
the trade-union endeavors. But it is equally well known that these
expressions were in good part perfunctory, and that the substantial
motive behind them was the politic wish of the socialists to conciliate
the unionists, and make use of the unions for the propaganda. The early
expressions of sympathy with the unionist cause were made for an
ulterior purpose. Later on, in the nineties, there comes a change in the
attitude of the socialist leaders toward the unions.

[17] _Cf._ _Kapital_, vol. i, ch. xiii, sect 10.

[18] _Cf._ Kautsky, _Erfurter Programm_, ch. v, sect. 13; Bernstein,
_Voraussetzungen_, ch. iv, sect. e.




THE MUTATION THEORY AND THE BLOND RACE[1]


The theories of racial development by mutation, associated with the name
of Mendel, when they come to be freely applied to man, must greatly
change the complexion of many currently debated questions of race--as to
origins, migrations, dispersion, chronology, cultural derivation and
sequence. In some respects the new theories should simplify current
problems of ethnology, and they may even dispense with many analyses and
speculations that have seemed of great moment in the past.

The main postulate of the Mendelian theories--the stability of type--has
already done much service in anthropological science, being commonly
assumed as a matter of course in arguments dealing with the derivation
and dispersion of races and peoples. It is only by force of this
assumption that ethnologists are able to identify any given racial stock
over intervals of space or time, and so to trace the racial affinities
of any given people. Question has been entertained from time to time as
to the racial fixity of given physical traits--as, _e.g._, stature, the
cephalic indices, or hair and eye color--but on the whole these and
other standard marks of race are still accepted as secure grounds of
identification.[2] Indeed, without some such assumption any ethnological
inquiry must degenerate into mere wool-gathering.

But along with this, essentially Mendelian, postulate of the stability
of types, ethnologists have at the same time habitually accepted the
incompatible Darwinian doctrine that racial types vary incontinently
after a progressive fashion, arising through insensible cumulative
variations and passing into new specific forms by the same method, under
the Darwinian rule of the selective survival of slight and unstable
(non-typical) variations. The effect of these two incongruous premises
has been to leave discussions of race derivation somewhat at loose ends
wherever the two postulates cross one another.

If it be assumed, or granted, that racial types are stable, it follows
as a matter of course that these types or races have not arisen by the
cumulative acquirement of unstable non-specific traits, but must have
originated by mutation or by some analogous method, and this view must
then find its way into anthropology as into the other biological
sciences. When such a step is taken an extensive revision of questions
of race will be unavoidable, and an appreciable divergence may then be
looked for among speculations on the mutational affinities of the
several races and cultures.

Among matters so awaiting revision are certain broad questions of
derivation and ethnography touching the blond race or races of Europe.
Much attention, and indeed much sentiment, has been spent on this
general topic. The questions involved are many and diverse, and many of
them have been subject of animated controversy, without definitive
conclusions.

The mutation theories, of course, have immediately to do with the facts
of biological derivation alone, but when the facts are reviewed in the
light of these theories it will be found that questions of cultural
origins and relationship are necessarily drawn into the inquiry. In
particular, an inquiry into the derivation and distribution of the
blond stock will so intimately involve questions of the Aryan speech and
institutions as to be left incomplete without a somewhat detailed
attention to this latter range of questions. So much so that an inquiry
into the advent and early fortunes of the blond stock in Europe will
fall, by convenience, under two distinct but closely related captions:
The Origin of the Blond Type, and The Derivation of the Aryan Culture.

       *       *       *       *       *

(a) It is held, on the one hand, that there is but a single blond race,
type or stock (Keane, Lapouge, Sergi), and on the other hand that there
are several such races or types, more or less distinct but presumably
related (Deniker, Beddoe, and other, especially British, ethnologists).
(b) There is no good body of evidence going to establish a great
antiquity for the blond stock, and there are indications, though perhaps
inconclusive, that the blond strain, including all the blond types, is
of relatively late date--unless a Berber (Kabyle) blond race is to be
accepted in a more unequivocal manner than hitherto. (c) Neither is
there anything like convincing evidence that this blond strain has come
from outside of Europe--except, again, for the equivocal Kabyle--or that
any blond race has ever been widely or permanently distributed outside
of its present European habitat, (d) The blond race is not found
unmixed. In point of pedigree all individuals showing the blond traits
are hybrids, and the greater number of them show their mixed blood in
their physical traits. (e) There is no community, large or small, made
up exclusively of blonds, or nearly so, and there is no good evidence
available that such an all-blond or virtually all-blond community ever
has existed, either in historic or prehistoric times. The race appears
never to have lived in isolation. (f) It occurs in several (perhaps
hybrid) variants--unless these variants are to be taken (with Deniker)
as several distinct races, (g) Counting the dolicho-blond as the
original type of the race, its nearest apparent relative among the races
of mankind is the Mediterranean (of Sergi), at least in point of
physical traits. At the same time the blond race, or at least the
dolicho-blond type, has never since neolithic times, so far as known,
extensively and permanently lived in contact with the Mediterranean. (h)
The various (national) ramifications of the blond stock--or rather the
various racial mixtures into which an appreciable blond element
enters--are all, and to all appearance have always been, of Aryan
("Indo-European," "Indo-Germanic") speech--with the equivocal exception
of the Kabyle. (i) Yet far the greater number and variety (national and
linguistic) of men who use the Aryan speech are not prevailingly blond,
or even appreciably mixed with blond. (j) The blond race, or the peoples
with an appreciable blond admixture, and particularly the communities in
which the dolicho-blond element prevails, show little or none of the
peculiarly Aryan institutions--understanding by that phrase not the
known institutions of the ancient Germanic peoples, but that range of
institutions said by competent philologists to be reflected in the
primitive Aryan speech. (k) These considerations raise the presumption
that the blond race was not originally of Aryan speech or of Aryan
culture, and they also suggest (l) that the Mediterranean, the nearest
apparent relative of the dolicho-blond, was likewise not originally
Aryan.

       *       *       *       *       *

Accepting the mutation theory, then, for the purpose in hand, and
leaving any questions of Aryanism on one side for the present, a
canvass of the situation so outlined may be offered in such bold, crude
and summary terms as should be admissible in an analysis which aims to
be tentative and provisional only. It may be conceived that the
dolichocephalic blond originated as a mutant of the Mediterranean type
(which it greatly resembles in its scheme of biometric measurements[3])
probably some time after that race had effected a permanent lodgment on
the continent of Europe. The Mediterranean stock may be held (Sergi and
Keane) to have come into Europe from Africa,[4] whatever its remoter
derivation may have been. It is, of course, not impossible that the
mutation which gave rise to the dolicho-blond may have occurred before
the parent stock left Africa, or rather before it was shut out of Africa
by the submergence of the land connection across Sicily, but the
probabilities seem to be against such a view. The conditions would
appear to have been less favorable to a mutation of this kind in the
African habitat of the parent stock than in Europe, and less favorable
in Europe during earlier quaternary time than toward the close of the
glacial period.

The causes which give rise to a variation of type have always been
sufficiently obscure, whether the origin of species be conceived after
the Darwinian or the Mendelian fashion, and the mutation theories have
hitherto afforded little light on that question. Yet the Mendelian
postulate that the type is stable except for such a mutation as shall
establish a new type raises at least the presumption that such a
mutation will take place only under exceptional circumstances, that is
to say, under circumstances so substantially different from what the
type is best adapted to as to subject it to some degree of physiological
strain. It is to be presumed that no mutation will supervene so long as
the conditions of life do not vary materially from what they have been
during the previous uneventful life-history of the type. Such is the
presumption apparently involved in the theory and such is also the
suggestion afforded by the few experimental cases of observed mutation,
as, _e.g._, those studied by De Vries.

A considerable climatic change, such as would seriously alter the
conditions of life either directly or through its effect on the food
supply, might be conceived to bring on a mutating state in the race; or
the like effect might be induced by a profound cultural change,
particularly any such change in the industrial arts as would radically
affect the material conditions of life. These considerations, mainly
speculative it is true, suggest that the dolicho-blond mutant could
presumably have emerged only at a time when the parent stock was exposed
to notably novel conditions of life, such as would be presumed (with De
Vries) to tend to throw the stock into a specifically unstable
(mutating) state; at the same time these novel conditions of life must
also have been specifically of such a nature as to favor the survival
and multiplication of this particular human type. The climatic tolerance
of the dolicho-blond, _e.g._, is known to be exceptionally narrow. Now,
it is not known, indeed there is no reason to presume, that the
Mediterranean race was exposed to such variations of climate or of
culture before it entered Europe as might be expected to induce a
mutating state in the stock, and at the same time a mutant gifted with
the peculiar climatic intolerance of the dolicho-blond would scarcely
have survived under the conditions offered by northern Africa in late
quaternary time. But the required conditions are had later on in Europe,
after the Mediterranean was securely at home in that continent.

The whole episode may be conceived to have run off somewhat in the
following manner. The Mediterranean race is held to have entered Europe
in force during quaternary time, presumably after the quaternary period
was well advanced, most likely during the last genial, interglacial
period. This race then brought the neolithic culture, but without the
domestic animals (or plants?) that are a characteristic feature of the
later neolithic age, and it encountered at least the remnants of an
older, palaeolithic population. This older European population was made
up of several racial stocks, some of which still persist as obscure and
minor elements in the later peoples of Europe. The (geologic) date to be
assigned this intrusion of the Mediterranean race into Europe is of
course not, and can perhaps never be, determined with any degree of
nicety or confidence. But there is a probability that it coincides with
the recession of the ice-sheet, following one or another of the severer
periods of glaciations, that occurred before the submergence of the land
connection between Europe and Africa, over Gibraltar, Sicily, and
perhaps Crete. How late in quaternary time the final submergence of the
Mediterranean basin occurred is still a matter of surmise; the intrusion
of the Mediterranean race into Europe appears, on archaeological
evidence, to have occurred in late quaternary time, and in the end this
archaeological evidence may help to decide the geologic date of the
severance of Europe from Africa.

The Mediterranean race seems to have spread easily over the habitable
surface of Europe and shortly to have grown numerous and taken rank as
the chief racial element in the neolithic population; which argues that
no very considerable older population occupied the European continent at
the time of the Mediterranean invasion; which in turn implies that the
fairly large (Magdalenian) population of the close of the palaeolithic
age was in great part destroyed or expelled by the climatic changes that
coincided with or immediately preceded the advent of the Mediterranean
race. The known characteristics of the Magdalenian culture indicate a
technology, a situation and perhaps a race, somewhat closely paralleled
by the Eskimo;[5] which argues that the climatic situation before which
this Magdalenian race and culture gave way would have been that of a
genial interglacial period rather than a period of glaciation.

During this genial (perhaps sub-tropical) inter-glacial period
immediately preceding the last great glaciation the Magdalenian stock
would presumably find Europe climatically untenable, judging by analogy
with the Eskimo; whereas the Mediterranean stock should have found it an
eminently favorable habitat, for this race has always succeeded best in
a warm-temperate climate. Both the extensive northward range of the
early neolithic (Mediterranean) settlements and the total disappearance
of the Magdalenian culture from the European continent point to a
climatic situation in Europe more favorable to the former race and more
unwholesome for the latter than the conditions known to have prevailed
at any time since the last interglacial period, especially in the higher
latitudes. The indications would seem to be that the whole of Europe,
even the Baltic and Arctic seaboards, became climatically so fully
impossible for the Magdalenian race during this interglacial period as
to result in its extinction or definitive expulsion; for when, in recent
times, climatically suitable conditions return, on the Arctic seaboard,
the culture which takes the place that should have been occupied by the
Magdalenian is the Finnic (Lapp)--a culture unrelated to the
Magdalenian either in race or technology, although of much the same
cultural level and dealing with a material environment of much the same
character. And this genial interval that was fatal to the Magdalenian
was, by just so much, favorable to the Mediterranean race.

But glacial conditions presently returned, though with less severity
than the next preceding glacial period; and roughly coincident with the
close of the genial interval in Europe the land connection with Africa
was cut off by submergence, shutting off retreat to the south. How far
communication with Asia may have been interrupted during the subsequent
cold period, by the local glaciation of the Caucasus, Elburz and
Armenian highlands, is for the present apparently not to be determined,
although it is to be presumed that the outlet to the east would at least
be seriously obstructed during the glaciation. There would then be left
available for occupation, mainly by the Mediterranean race, central and
southern Europe together with the islands, notably Sicily and Crete,
left over as remnants of the earlier continuous land between Europe and
Africa. The southern extensions of the mainland, and more particularly
the islands, would still afford a favorable place for the Mediterranean
race and its cultural growth. So that the early phases of the great
Cretan (Aegean) civilisation are presumably to be assigned to this
period that is covered by the last advance of the ice in northern
Europe. But the greater portion of the land area so left accessible to
the Mediterranean race, in central or even in southern Europe, would
have been under glacial or sub-glacial climatic conditions. For this
race, essentially native to a warm climate, this situation on the
European mainland would be sufficiently novel and trying, particularly
throughout that ice-fringed range of country where they would be
exposed to such cold and damp as this race has never easily tolerated.

The situation so outlined would afford such a condition of physiological
strain as might be conceived to throw the stock into a specifically
unstable state and so bring on a phase of mutation. At the same time
this situation, climatic and technological, would be notably favorable
to the survival and propagation of a type gifted with all the peculiar
capacities and limitations of the dolicho-blond; so that any mutant
showing the traits characteristic of that type would then have had an
eminently favorable chance of survival. Indeed, it is doubtful, in the
present state of the available evidence, whether such a type of man
could have survived in Europe from or over any period of quaternary time
prior to the last period of glaciation. The last preceding interglacial
period appears to have been of a sufficiently genial (perhaps
sub-tropical) character throughout Europe to have definitively
eliminated the Magdalenian race and culture, and a variation of climate
in the genial sense sufficiently pronounced to make Europe absolutely
untenable for the Magdalenian--presumed to be something of a counterpart
to the Eskimo both in race and culture--should probably have reached the
limit of tolerance for the dolicho-blond as well. The latter is
doubtless not as intolerant of a genial--warm-temperate--climate as the
former, but the dolicho-blond after all stands much nearer to the Eskimo
in this matter of climatic tolerance than to either of the two chief
European stocks with which it is associated. Apparently no racial stock
with a climatic tolerance approximately like that of the Eskimo, the
Magdalenian, or the current races of the Arctic seaboard, survived over
the last inter-glacial period; and if the dolicho-blond is conceived to
have lived through that period it would appear to have been by a
precariously narrow margin. So that, on one ground and another, the
mutation out of which the dolicho-blond has arisen is presumably to be
assigned to the latest period of glaciation in Europe, and with some
probability to the time when the latest glaciation was at its maximum,
and to the region where glacial and seaboard influences combined to give
that racial type a differential advantage over all others.

This dolicho-blond mutation may, of course, have occurred only once, in
a single individual, but it should seem more probable, in the light of
De Vries' experiments, that the mutation will have been repeated in the
same specific form in several individuals in the same general locality
and in the same general period of time. Indeed, it would seem highly
probable that several typically distinct mutations will have occurred,
repeatedly, at roughly the same period and in the same region, giving
rise to several new types, some of which, including the dolicho-blond,
will have survived. Many, presumably the greater number, of these mutant
types will have disappeared, selectively, being unfit to survive under
those sub-glacial seaboard conditions that were eminently favorable to
the dolicho-blond; while other mutants arising out of the same mutating
period and adapted to climatic conditions of a more continental
character, suitable to more of a continental habitat, less humid, at a
higher altitude and with a wider seasonal variation of temperature, may
have survived in the regions farther inland, particularly eastward of
the selectively defined habitat of the dolicho-blond. These latter may
have given rise to several blond races, such as are spoken for by
Deniker[6] and certain British ethnologists.

The same period of mutation may well have given rise also to one or more
brunet types, some of which may have survived. But if any new brunet
type has come up within a period so recent as this implies, the fact has
not been noted or surmised hitherto--unless the brunet races spoken for
by Deniker are to be accepted as typically distinct and referred to such
an origin. The evidence for the brunet stocks has not been canvassed
with a question of this kind in view. These stocks have not been subject
of such eager controversy as the dolicho-blond, and the attention given
them has been correspondingly less. The case of the blond is unique in
respect of the attention spent on questions of its derivation and
prehistory, and it is also singular in respect of the facility with
which it can be isolated for the purposes of such an inquiry. This large
and persistent attention, from all sorts of ethnologists, has brought
the evidence bearing on the dolicho-blond into such shape as to permit
more confident generalisations regarding that race than any other.

In any case the number of mutant individuals, whether of one or of
several specific types, will have been very few as compared with the
numbers of the parent stock from which they diverged, even if they may
have been somewhat numerous as counted absolutely, and the survivors
whose offspring produced a permanent effect on the European peoples will
have been fewer still. It results that these surviving mutants will not
have been isolated from the parent stock, and so could not breed in
isolation, but must forthwith be crossed on the parent stock and could
therefore yield none but hybrid offspring. From the outset, therefore,
the community or communities in which the blond mutants were propagated
would be made up of a mixture of blond and brunet, with the brunet
greatly preponderating. It may be added that in all probability there
were also present in this community from the start one or more minor
brunet elements besides the predominant Mediterranean, and that at least
shortly after the close of the glacial period the new brachycephalic
brunet (Alpine) race comes into the case; so that the chances favor an
early and persistent crossing of the dolicho-blond with more than one
brunet type, and hence they favor complications and confusion of types
from the start. It follows that, in point of pedigree, according to this
view there neither is nor ever has been a pure-bred dolicho-blond
individual since the putative original mutant with which the type came
in. But under the Mendelian rule of hybrids it is none the less to be
expected that, in the course of time and of climatically selective
breeding, individuals (perhaps in appreciable numbers) will have come up
from time to time showing the type characters unmixed and unweakened,
and effectively pure-bred in point of heredity. Indeed, such
individuals, effectively pure-bred or tending to the establishment of a
pure line, will probably have emerged somewhat frequently under
conditions favorable to the pure type. The selective action of the
conditions of life in the habitat most favorable to the propagation of
the dolicho-blond has worked in a rough and uncertain way toward the
establishment, in parts of the Baltic and North Sea region, of
communities made up prevailingly of blonds. Yet none of these
communities most favorably placed for a selective breeding in the
direction of a pure dolicho-blond population have gone far enough in
that direction to allow it safely to be said that the composite
population of any such given locality is more than half blond.

Placed as it is in a community of nations made up of a hybrid mixture of
several racial stocks there is probably no way at present of reaching a
convincing demonstration of the typical originality of this
dolicho-blond mutant, as contrasted with the other blond types with
which it is associated in the European population; but certain general
considerations go decidedly, perhaps decisively, to enforce such a view:
(a) This type shows such a pervasive resemblance to a single one of the
known older and more widely distributed types of man (the Mediterranean)
as to suggest descent by mutation from this one rather than derivation
by crossing of any two or more known types. The like can not be said of
the other blond types, all and several of which may plausibly be
explained as hybrids of known types. They have the appearance of blends,
or rather of biometrical compromises, between two or more existing
varieties of man. Whereas it does not seem feasible to explain the
dolicho-blond as such a blend or compromise between any known racial
types. (b) The dolicho-blond occurs, in a way, centrally to the other
blond types, giving them a suggestive look of being ramifications of the
blond stock, by hybridisation, into regions not wholly suited to the
typical blond. The like can scarcely be said for any of the other
European types or races. The most plausible exception would be Deniker's
East-European or Oriental race, Beddoe's Saxon, which stands in a
somewhat analogous spacial relation to the other blond types. But this
brachycephalic blond is not subject to the same sharp climatic
limitations that hedge about the dolicho-blond; it occurs apparently
with equally secure viability within the littoral home area of the
dolicho-blond and in continental situations where conditions of altitude
and genial climate would bar the latter from permanent settlement. The
ancient and conventionally accepted center of diffusion of blondness in
Europe lies within the seaboard region bordering on the south Baltic,
the North Sea and the narrow waters of the Scandinavian peninsulas.
Probably, if this broad central area of diffusion were to be narrowed
down to a particular spot, the consensus of opinion as to where the
narrower area of characteristic blondness is to be looked for, would
converge on the lands immediately about the narrow Scandinavian waters.
This would seem to hold true for historic and for prehistoric times
alike. This region is at the same time, by common consent, the peculiar
home of the dolicho-blond, rather than of any other blond type. (c) The
well known but little discussed climatic limitation of the blond race
applies particularly to the dolicho-blond, and only in a pronouncedly
slighter degree to the other blond types. The dolicho-blond is subject
to a strict regional limitation, the other blond types to a much less
definite and wider limitation of the same kind. Hence these others are
distributed somewhat widely, over regions often remote and climatically
different from the home area of the dolicho-blond, giving them the
appearance of being dispersed outward from this home area as hybrid
extensions of the central and typical blond stock. A further and equally
characteristic feature of this selective localisation of the
dolicho-blond race is the fact that while this race does not succeed
permanently outside the seaboard region of the south Baltic and North
Sea, there is no similar selective bar against other races intruding
into this region. Although the dolicho-blond perhaps succeeds better
within its home area than any other competing stock or type, yet several
other types of man succeed so well within the same region as to hold it,
and apparently always to have held it, in joint tenancy with the
dolicho-blond.

A close relationship, amounting to varietal identity, of the Kabyle with
the dolicho-blond has been spoken for by Keane and by other
ethnologists. But the very different climatic tolerance of the two
races should put such an identity out of the question. The Kabyle lives
and thrives best, where his permanent home area has always been, in a
high and dry country, sufficiently remote from the sea to make it a
continental rather than a littoral habitat. The dolicho-blond, according
to all available evidence, can live in the long run only in a seaboard
habitat, damp and cool, at a high latitude and low altitude. There is no
known instance of this race having gone out from its home area on the
northern seaboard into such a region as that inhabited by the Kabyle and
having survived for an appreciable number of generations. That this type
of man should have come from Mauritania, where it could apparently not
live under the conditions known to have prevailed there in the recent or
the remoter past, would seem to be a biologic impossibility. Hitherto,
when the dolicho-blond has migrated into such or a similar habitat it
has not adapted itself to the new climatic requirements but has
presently disappeared off the face of the land. Indeed, the experiment
has been tried in Mauritanian territory. If the Kabyle blond is to be
correlated with those of Europe, it will in all probability have to be
assigned an independent origin, to be derived from an earlier mutation
of the same Mediterranean stock to which the dolicho-blond is to be
traced.

Questions of race in Europe are greatly obscured by the prevalence of
hybrid types having more or less fixity and being more or less
distinctly localised. The existing European peoples are hybrid mixtures
of two or more racial stocks. The further fact is sufficiently obvious,
though it has received less critical attention than might be, that
these several hybrid populations have in the course of time given
rise to a number of distinct national and local types, differing
characteristically from one another and having acquired a degree of
permanence, such as to simulate racial characters and show well marked
national and local traits in point of physiognomy and temperament.
Presumably, these national and local types of physique and temperament
are hybrid types that have been selectively bred into these
characteristic forms in adaptation to the peculiar circumstances of
environment and culture under which each particular local population is
required to live, and that have been so fixed (provisionally) by
selective breeding of the hybrid material subject to such locally
uniform conditions--except so far as the local characters in question
are of the nature of habits and are themselves therefore to be classed
as an institutional element rather than as characteristics of race.

It is evident that under the Mendelian law of hybridisation the range of
favorable, or viable, variations in any hybrid population must be very
large--much larger than the range of fluctuating (non-typical)
variations obtainable under any circumstances in a pure-bred race. It
also follows from these same laws of hybridisation that by virtue of the
mutual exclusiveness of allelomorphic characters or groups of characters
it is possible selectively to obtain an effectually "pure line" of
hybrids combining characters drawn from each of the two or more parent
stocks engaged, and that such a composite pure line may selectively be
brought to a provisional fixity[7] in any such hybrid population. And
under conditions favorable to a type endowed with any given hybrid
combination of characters so worked out the given hybrid type (composite
pure line) may function in the racial mixture in which it is so placed
very much as an actual racial type would behave under analogous
circumstances; so that, _e.g._, under continued intercrossing such a
hybrid population would tend cumulatively to breed true to this
provisionally stable hybrid type, rather than to the actual racial type
represented by any one of the parent stocks of which the hybrid
population is ultimately made up, unless the local conditions should
selectively favor one or another of these ultimate racial types.
Evidently, too, the number of such provisionally stable composite pure
lines that may be drawn from any hybrid mixture of two or more parent
stocks must be very considerable--indeed virtually unlimited; so that on
this ground there should be room for any conceivable number of
provisionally stable national or local types of physique and
temperament, limited only by the number of characteristically
distinguishable local environments or situations that might each
selectively act to characterise and establish a locally characteristic
composite pure line; each answering to the selective exigencies of the
habitat and cultural environment in which it is placed, and each
responding to these exigencies in much the same fashion as would an
actual racial type--provided only that this provisionally stable
composite pure line is not crossed on pure-bred individuals of either of
the parent stocks from which it is drawn, pure-bred in respect of the
allelomorphic characters which give the hybrid type its typical traits.

When the hybrid type is so crossed back on one or other of its parent
stocks it should be expected to break down; but in so slow-breeding a
species as man, with so large a complement of unit characters (some 4000
it has been estimated), it will be difficult to decide empirically which
of the two lines--the hybrid or the parent stock--proves itself in the
offspring effectively to be a racial type; that is to say, which of the
two (or more) proves to be an ultimately stable type arisen by a
Mendelian mutation, and which is a provisionally stable composite pure
line selectively derived from a cross. The inquiry at this point,
therefore, will apparently have to content itself with arguments of
probability drawn from the varying behavior of the existing hybrid types
under diverse conditions of life.

Such general consideration of the behavior of the blond types of Europe,
other than the dolicho-blond, and more particularly consideration of
their viability under divergent climatic conditions, should apparently
incline to the view that they are hybrid types, of the nature of
provisionally stable composite pure lines.

So far, therefore, as the evidence has yet been canvassed, it seems
probable on the whole that the dolicho-blond is the only survivor from
among the several mutants that may have arisen out of this presumed
mutating period; that the other existing blond types, as well as certain
brunets, are derivatives of the hybrid offspring of the dolicho-blond
crossed on the parent Mediterranean stock or on other brunet stocks with
which the race has been in contact early or late; and that several of
these hybrid lines have in the course of time selectively been
established as provisionally stable types (composite pure lines),
breakable only by a fresh cross with one or other of the parent types
from which the hybrid line sprang, according to the Mendelian rule.[8]

All these considerations may not be convincing, but they are at least
suggestive to the effect that if originality is to be claimed for any
one of the blond types or stocks it can best be claimed for the
dolicho-blond, while the other blond types may better be accounted for
as the outcome of the crossing of this stock on one or another of the
brunet stocks of Europe.

FOOTNOTES:

[1] Reprinted by permission from _The Journal of Race Development_, Vol.
III, No. 4.

[2] _Cf._, however, W. Ridgeway, "The Application of Zoölogical Laws to
Man," _Report, British Association for Advancement of Science_ (Dublin),
1908.

[3] _Cf._ Sergi, _The Mediterranean Race_, ch. xi, xiii.

[4] Sergi, _Arii e Italici_; Keane, _Man Past and Present_, ch. xii.

[5] _Cf._ W. J. Sollas, "Palaeolithic Races and their Modern
Representatives," _Science Progress_, vol. iv, 1909-1910.

[6] _The Races of Mankind_; and "Les six races composant la population
de l'Europe," _Journal Anth. Inst._, 1906.

[7] Illustrated by the various pure breeds or "races" of domestic
animals.

[8] Mr. R. B. Bean's discussion of Deniker's "Six Races," _e.g._, goes
far to show that such is probably the standing of the blond types, other
than the dolicho-blond, among these six races of Europe; although such
is not the conclusion to which Mr. Bean comes. _Philippine Journal of
Science_, September, 1909.




THE BLOND RACE AND THE ARYAN CULTURE[1]


It has been argued in an earlier paper[2] that the blond type or types
of man (presumably the dolichocephalic blond) arose by mutation from the
Mediterranean stock during the last period of severe glaciation in
Europe. This would place the emergence of this racial type roughly
coincident with the beginning of the European neolithic; the evidence
going presumptively to show that the neolithic technology came into
Europe with the Mediterranean race, at or about the same time with that
race, and that the mutation which gave rise to the dolicho-blond took
place after the Mediterranean race was securely settled in Europe. Since
this blond mutant made good its survival under the circumstances into
which it so was thrown it should presumably be suited by native
endowment to the industrial and climatic conditions that prevailed
through the early phases of the neolithic age in Europe; that is to say,
it would be a type of man selectively adapted to the technological
situation characteristic of the early neolithic but lacking as yet the
domestic animals (and crop-plants?) that presently give much of its
character to that culture.

Beginning, then, with the period of the last severe glaciation, and
starting with this technological equipment, those portions of the
European population that contained an appreciable and increasing
admixture of the blond may be conceived to have ranged across the
breadth of Europe, particularly in the lowlands, in the belt of damp and
cool country that fringed the ice, and to have followed the receding
ice-sheet northward when the general climate of Europe began to take on
its present character with the returning warmth and dryness. By force of
the strict climatic limitation to which this type is subject, the blond
element, and more particularly the dolicho-blond, will presently have
disappeared by selective elimination from the population of those
regions from which the ice-sheet and its fringe of cool and humid
climate had receded. The cool and humid belt suited to the propagation
of the blond mutant (and its blond hybrids) would shift northward and
shorten down to the seaboard as the glacial conditions in which it had
originated presently ceased. So that presently, when Europe finally lost
its ice-sheet, the blond race and its characteristic hybrids would be
found confined nearly within the bounds which have marked its permanent
extension in historic times. These limits have, no doubt, fluctuated
somewhat in response to secular variations of climate; but on the whole
they appear to have been singularly permanent and singularly rigid.

Apparently after the dolicho-blond had come to occupy the restricted
habitat which the stock has since continued to hold on the northern
seaboard of Europe, toward the close of what is known in Danish
chronology as the "older stone age," the early stock of domestic animals
appear to have been introduced into Europe from Asia; the like statement
will hold more doubtfully for the older staple crop plants, with the
reservation that their introduction appears to antedate that of the
domestic animals. At least some such date seems indicated by their first
appearance in Denmark late in the period of the "kitchen middens."
Virtually all of these essential elements of their material civilisation
appear to have come to the blond-hybrid communities settled on the
narrow Scandinavian waters, as to the rest of Europe, from Turkestan.
This holds true at least for the domestic animals as a whole, the
possible exceptions among the early introductions being not of great
importance. Some of the early crop plants may well have come from what
is now Mesopotamian or Persian territory, and may conceivably have
reached western Europe appreciably earlier, without affecting the
present argument. If the European horse had been domesticated in
palæolithic times, as appears at least extremely probable, that
technological gain appears to have been lost before the close of the
palæolithic age; perhaps along with the extinction of the European
horse.

These new elements of technological equipment, the crop plants and
animals, greatly affected the character of the neolithic culture in
Europe; visibly so as regards the region presumably occupied by the
dolicho-blond,--or the blond-hybrid peoples. On the material side of the
community's life they would bring change direct and immediate, altering
the whole scheme of ways and means and shifting the pursuit of a
livelihood to new lines; and on the immaterial side their effect would
be scarcely less important, in that the new ways and means and the new
manner of life requisite and induced by their use would bring on certain
new institutional features suitable to a system of mixed farming.
Whatever may have been the manner of their introduction, whether they
were transmitted peaceably by insensible diffusion from group to group
or were carried in with a high hand by a new intrusive population that
overran the country and imposed its own cultural scheme upon the
Europeans along with the new ways and means of life,--in any case these
new cultural elements will have spread over the face of Europe somewhat
gradually and will have reached the blond-hybrid communities in their
remote corner of the continent only after an appreciable lapse of time.
Yet, it is to be noted, it is after all relatively early in neolithic
times that certain of the domestic plants and animals first come into
evidence in the Scandinavian region.

The crop plants appear to have come in earlier than the domestic
animals, being perhaps brought in by the peoples of the Mediterranean
race at their first occupation of Europe in late quaternary time. With
tillage necessarily goes a sedentary manner of life. So that at their
first introduction the domestic animals were intruded into a system of
husbandry carried on by a population living in settled communities, and
drawing their livelihood in great part from the tilled ground but also
in part from the sea and from the game-bearing forests that covered much
of the country at that time. It was into such a situation that the
domestic animals were intruded on their first coming into
Europe,--particularly into the seaboard region of north Europe.

On the open ranges of western and central Asia, from which these
domestic animals came, and even in the hill country of that general
region, the peoples that draw their livelihood from cattle and sheep are
commonly of a nomadic habit of life, in the sense that the requirements
of forage for their herds and flocks hold them to an unremitting round
of seasonal migration. It results that, except in the broken hill
country, these peoples habitually make use of movable habitations, live
in camps rather than in settled, sedentary communities. Certain peculiar
institutional arrangements also result from this nomadic manner of life
associated with the care of flocks and herds on a large scale. But on
their introduction into Europe the domestic animals appear on the whole
not to have supplanted tillage and given rise to such a nomadic-pastoral
scheme of life, exclusively given to cattle raising, but rather to have
fallen into a system of mixed farming which combined tillage with a
sedentary or quasi-sedentary grazing industry. Such particularly appears
to have been the case in the seaboard region of the north, where there
is no evidence of tillage having been displaced by a nomadic grazing
industry. Indeed, the small-scale and broken topography of this European
region has never admitted a large-scale cattle industry, such as has
prevailed on the wide Asiatic ranges. An exception, at least partial and
circumscribed, may perhaps be found in the large plains of the extreme
Southeast and in the Danube valley; and it appears also that grazing,
after the sedentary fashion, took precedence of tillage in prehistoric
Ireland as well as here and there in the hilly countries of southern and
central Europe.

Such an introduction of tillage and grazing would mean a revolutionary
change in the technology of the European stone age, and a technological
revolution of this kind will unavoidably bring on something of a radical
change in the scheme of institutions under which the community lives;
primarily in the institutions governing the details of its economic
life, but secondarily also in its domestic and civil relations. When
such a change comes about through the intrusion of new material factors
the presumption should be that the range of institutions already
associated with these material factors in their earlier home will
greatly influence the resulting new growth of institutions in the new
situation, even if circumstances may not permit these alien institutions
to be brought in and put into effect with the scope and force which they
may have had in the culture out of which they have come. Some
assimilation is to be looked for even if circumstances will not permit
the adoption of the full scheme of institutions, and the institutions
originally associated with the intrusive technology will be found
surviving with least loss or qualification in those portions of the
invaded territory where the invaders have settled in force, and
particularly where conditions have permitted them to retain something of
their earlier manner of life.

The bringers of these new elements of culture, material and immaterial,
had acquired what they brought with them on the open sheep and cattle
ranges of the central-Asiatic plains and uplands,--as is held to be the
unequivocal testimony of the Aryan speech, and as is borne out by the
latest explorations in that region. These later explorations indicate
west-central Turkestan as the probable center of the domestication and
diffusion of the animals, if not also of the crop plants, that have
stocked Europe. Of what race these bearers of the new technology and
culture may have been, and just what they brought into Europe, is all
a matter of inference and surmise. It was once usual to infer, as a
ready matter of course, that these immigrant pastoral nomads from the
Asiatic uplands were "Aryans," "Indo-Europeans," "Indo-Germans," of a
predominantly blond physique. But what has been said above as well as in
the earlier paper referred to comes near excluding the possibility of
these invaders being blonds, or more specifically the dolicho-blond. It
is, of course, conceivable, with Keane (if his speculations on this head
are to be taken seriously), that a fragment of the alleged blond race
from Mauretania may have wandered off into Turkestan by way of the
Levant, and so may there have acquired the habits of a pastoral life,
together with the Aryan speech and institutions, and may then presently
have carried these cultural factors into Europe and imposed them on the
European population, blond and brunet. But such speculations, which once
were allowable though idle, have latterly been put out of all question,
at least for the present, by the recent Pumpelly explorations in
Turkestan. It is, for climatic reasons, extremely improbable that any
blond stock should have inhabited any region of the central-Asiatic
plains or uplands long enough to acquire the pastoral habits of life and
the concomitant Aryan speech and institutions, and it is fairly certain
that the dolicho-blond could not have survived for that length of time
under the requisite conditions of climate and topography.

It is similarly quite out of the question that the dolicho-blond,
arising as a mutant type late in quaternary time, should have created
the Aryan speech and culture in Europe, since neither the archæological
evidence nor the known facts of climate and topography permit the
hypothesis that a pastoral-nomadic culture of home growth has ever
prevailed in Europe on a scale approaching that required for such a
result. And there is but little more possibility that the bringers of
the new (Aryan) culture should have been of the Mediterranean race;
although the explorations referred to make it nearly certain that the
communities which domesticated the pastoral animals (and perhaps the
crop-plants) in Turkestan were of that race. The Mediterranean race
originally is Hamitic, not Aryan, it is held by men competent to speak
on that matter, and the known (presumably) Mediterranean prehistoric
settlements in Turkestan, at Anau, are moreover obviously the
settlements of a notably sedentary people following a characteristically
peaceable mode of life. The population of these settlements might of
course conceivably have presently acquired the nomadic and predatory
habits reflected by the Aryan speech and institutions, but there is no
evidence of such an episode at Anau, where the finds show an
uninterrupted peaceable and sedentary occupation of the sites throughout
the period that could come in question. The population of the
settlements at Anau could scarcely have made such a cultural innovation,
involving the adoption of an alien language, except under the pressure
of conquest by an invading people; which would involve the subjection of
the peaceable communities of Anau and the incorporation of their
inhabitants as slaves or as a servile class in the predatory
organisation of their masters. The Mediterranean people of Anau could
accordingly have had a hand in carrying this pastoral-predatory (Aryan)
culture into the West only as a subsidiary racial element in a migratory
community made up primarily of another racial stock.

This leaves the probability that an Asiatic stock, without previous
settled sedentary habits of life, acquired the domesticated animals from
the sedentary and peaceable communities of Anau, or from some similar
village (pueblo) or villages of western Turkestan, and then through a
(moderately) long experience of nomadic pastoral life acquired also the
predatory habits and institutions that commonly go with a pastoral life
on a large scale. These cultural traits they acquired in such a degree
of elaboration and maturity as is implied by the primitive Aryan (or,
better, proto-Aryan) speech, including a more or less well developed
patriarchal system; so that they would presently become a militant and
migratory community somewhat after the later-known Tatar fashion, and so
made their way westward as a self-sufficient migratory host and carried
the new material culture into Europe together with the alien Aryan
speech. It is at the same time almost unavoidable that in such an event
this migratory host would have carried with them into the West an
appreciable servile contingent made up primarily of enslaved captives
from the peaceable agricultural settlements of the Mediterranean race,
which had originally supplied them with their stock of domestic animals.

Along with these new technological elements and the changes of law and
custom which their adoption would bring on, there will also have come in
the new language that was designed to describe these new ways and means
of life and was adapted to express the habits of thought which the new
ways and means bred in the peoples that adopted them. The immigrant
pastoral (proto-Aryan) language and the pastoral (patriarchal and
predatory) law and custom will in some degree have been bound up with
the technological ways and means out of which they arose, and they would
be expected to have reached and affected the various communities of
Europe in somewhat the same time and the same measure in which these
material facts of the pastoral life made their way among these peoples.
In the course of the diffusion of these cultural elements, material and
immaterial, among the European communities the language and in a less
degree the domestic and civil usages and ideals bred by the habits of
the pastoral life might of course come to be dissociated from their
material or technological basis and might so be adopted by remoter
peoples who never acquired any large measure of the material culture of
those pastoral nomads whose manner of life had once given rise to these
immaterial features of Aryan civilisation.

       *       *       *       *       *

Certain considerations going to support this far-flung line of
conjectural history may be set out more in detail: (a) The Aryan
civilisation is of the pastoral type, with such institutions, usages
and preconceptions as a large-scale pastoral organisation commonly
involves. Such is said by competent philologists to be the evidence of
the primitive Aryan speech. It is substantially a servile organisation
under patriarchal rule, or, if the expression be preferred, a militant
or predatory organisation; these alternative phrases describe the same
facts from different points of view. It is characterised by a
well-defined system of property rights, a somewhat pronounced subjection
of women and children, and a masterful religious system tending strongly
to monotheism. A pastoral culture on the broad plains and uplands of a
continental region, such as west-central Asia, will necessarily fall
into some such shape, because of the necessity of an alert and mobile
readiness for offense and defense and the consequent need of soldierly
discipline. Insubordination, which is the substance of free
institutions, is incompatible with a prosperous pastoral-nomadic mode of
life. When worked out with any degree of maturity and consistency the
pastoral-nomadic culture that has to do with sheep and cattle appears
always to have been a predatory, and therefore a servile culture,
particularly when drawn on the large scale imposed by the topography of
the central-Asiatic plains, and reënforced with the use of the horse.
(The reindeer nomads of the arctic seaboard may appear to be an
exception, at least in a degree, but they are a special case, admitting
a particular explanation, and their case does not affect the argument
for the Aryan civilisation.) The characteristic and pervasive human
relation in such a culture is that of master and servant, and the social
(domestic and civil) structure is an organisation of graded servitude,
in which no one is his own master but the overlord, even nominally. The
family is patriarchal, women and children are in strict tutelage, and
discretion vests in the male head alone. If the group grows large its
civil institutions are of a like coercive character, it commonly shows a
rigorous tribal organisation, and in the end, with the help of warlike
experience, it almost unavoidably becomes a despotic monarchy.

It has not been unusual to speak of the popular institutions of Germanic
paganism--typified, _e.g._, by the Scandinavian usages of local
self-government in pagan times--as being typically Aryan institutions,
but that is a misnomer due to uncritical generalisation guided by a
chauvinistic bias. These ancient north-European usages are plainly alien
to the culture reflected by the primitive Aryan Speech, if we are to
accept the consensus of the philological ethnologists to the effect that
the people who used the primitive Aryan speech must have been a
community of pastoral nomads inhabiting the plains and uplands of a
continental region. That many of these philological ethnologists also
hold to the view that these Aryans were north-European pagan blonds may
raise a personal question of consistency but does not otherwise touch
the present argument.

(b) A racial stock that has ever been of first-rate consequence in the
ethnology of Europe (the Alpine, brachycephalic brunet, the _homo
alpinus_ of the Linnean scheme) comes into Europe at this general
period, from Asia; and this race is held to have presently made itself
at home, if not dominant, throughout middle Europe, where it has in
historic times unquestionably been the dominant racial element.

(c) The pastoral-nomadic institutions spoken of above appear to have
best made their way in those regions of Europe where this brachycephalic
brunet stock has been present in some force if not as a dominant racial
factor. The evidence is perhaps not conclusive, but there is at least a
strong line of suggestion afforded by the distribution of the
patriarchal type of institutions within Europe, including the tribal and
gentile organisation. There is a rough concomitance between the
distribution of these cultural elements presumably derived from an Aryan
source on the one hand, and the distribution past or present of the
brachycephalic brunet type on the other hand. The regions where this
line of institutions are known to have prevailed in early times are, in
the main, regions in which the Alpine racial type is also known to have
been present in force, as, _e.g._, in the classic Greek and Roman
republics.

At the same time a gentile organisation seems also to have been
associated from the outset with the Mediterranean racial stock and may
well have been comprised in the institutional furniture of that race as
it stood before the advent of the Alpine stock; but the drift of later
inquiry and speculation on this head appears to support the view that
this Mediterranean gentile system was of a matrilinear character, such
as is found in many extant agricultural communities of the lower
barbarian culture, rather than of a patriarchal kind, such as
characterises the pastoral nomads. The northern blond communities alone
appear, on the available evidence, to have had no gentile or tribal
institutions, whether matrilinear or patriarchal. The classic Greek and
Roman communities appear originally to have been of the Mediterranean
race and to have always retained a broad substratum of the Mediterranean
stock as the largest racial element in their population, but the Alpine
stock was also largely represented in these communities at the period
when their tribal and gentile institutions are known to have counted for
much, as, indeed, it has continued ever since.

Apart from these communities of the Mediterranean seaboard, the peoples
of the Keltic culture appear to have had the tribal and gentile system,
together with the patriarchal family, in more fully developed form than
it is to be found in Europe at large. The peoples of Keltic speech are
currently believed by ethnologists to have originally been of a blond
type, although opinions are not altogether at one on that head,--the
tall, perhaps red-haired, brachycephalic blond, the "Saxon" of Beddoe,
the "Oriental" of Deniker. But this blond type is perhaps best accounted
for as a hybrid of the dolicho-blond crossed on the Alpine
brachycephalic brunet. Some such view of its derivation is fortified by
what is known of the prehistory and the peculiar features of the early
Keltic culture. This culture differs in some respects radically from
that of the dolicho-blond communities, and it bears more of a
resemblance to the culture of such a brunet group of peoples as the
early historic communities of upper and middle Italy. If the view is to
be accepted which is coming into currency latterly, that the Keltic is
to be affiliated with the culture of Hallstatt and La Tène, such
affiliation will greatly increase the probability that it is to be
counted as a culture strongly influenced if not dominated by the Alpine
stock. The Hallstatt culture, lying in the valley of the Danube and its
upper affluents, lay in the presumed westward path of immigration of the
Alpine stock; its human remains are of a mixed character, showing a
strong admixture of the brachycephalic brunet type; and it gives
evidence of cultural gains due to outside influence in advance of the
adjacent regions of Europe. This Keltic culture, then, as known to
history and prehistory, runs broadly across middle Europe along the belt
where blond and brunet elements meet and blend; and it has some of the
features of that predatory-pastoral culture reflected by the primitive
Aryan speech, in freer development, or in better preservation, than the
adjacent cultural regions to the north; at the same time the peoples of
this Keltic culture show more of affiliation to or admixture with the
brachycephalic brunet than the other blond-hybrid peoples do.

On the other hand the communities of dolicho-blond hybrids on the shores
of the narrow Scandinavian waters, remote from the centers of the Alpine
culture, show little of the institutions peculiar to a pastoral people.
These dolicho-blond hybrids of the North come into history at a later
date, but with a better preserved and more adequately recorded
paganism than the other barbarians of Europe. The late-pagan
Germanic-Scandinavian culture affords the best available instance of
archaic dolicho-blond institutions, if not the sole instance; and it is
to be noted that among these peoples the patriarchal system is weak and
vague,--women are not in perpetual tutelage, the discretion of the male
head of the household is not despotic nor even unquestioned, children
are not held under paternal discretion beyond adult age, the patrimony
is held to no clan liabilities and is readily divisible on inheritance,
and so forth. Neither is there any serious evidence of a tribal or
gentile system among these peoples, early or late, nor are any of them,
excepting the late and special instance of the Icelandic colony, known
ever to have been wholly or mainly of pastoral habits; indeed, they are
known to have been without the pastoral animals until some time in the
neolithic period. The only dissenting evidence on these heads is that of
the Latin writers, substantially Cæsar and Tacitus, whose testimony is
doubtless to be thrown out as incompetent in view of the fact that it is
supported neither by circumstantial evidence nor by later and more
authentic records. In speaking of "tribes" among the Germanic hordes
these Latin writers are plainly construing Germanic facts in Roman
terms, very much as the Spanish writers of a later day construed
Mexican and Peruvian facts in mediæval-feudalistic terms,--to the
lasting confusion of the historians; whereas in enlarging on the
pastoral habits of the Germanic communities they go entirely on data
taken from bodies of people on the move and organised for raiding, or
recently and provisionally settled upon a subject population presumably
of Keltic derivation or of other alien origin and inhabiting the broad
lands of middle Europe remote from the permanent habitat of the
dolicho-blond. Great freedom of assumption has been used and much
ingenuity has been spent in imputing a tribal system to the early
Germanic peoples, but apart from the sophisticated testimony of these
classical writers there is no evidence for it. The nearest approach to a
tribal or a gentile organisation within this culture is the "kin" which
counts for something in early Germanic law and custom; but the kin is
far from being a gens or clan, and it will be found to have more of the
force of a clan organisation the farther it has strayed from the
Scandinavian center of diffusion of the dolicho-blond and the more
protracted the warlike discipline to which the wandering host has been
exposed. All these properly Aryan institutions are weakest or most
notably wanting where the blond is most indubitably in evidence.

Taking early Europe as a whole, it will appear that among the European
peoples at large institutions of the character reflected in the
primitive Aryan speech and implied in the pastoral-nomadic life
evidenced by the same speech are relatively weak, ill-defined or
wanting, arguing that Europe was never fully Aryanised. And the peculiar
geographical and ethnic distribution of this Aryanism of institutions
argues further that the dolicho-blond culture of the Scandinavian region
was less profoundly affected by the Aryan invasion than any other
equally well known section of Europe. What is known of this primitive
Aryan culture, material, domestic, civil and religious, through the
Sanskrit and other early Asiatic sources, may convincingly be contrasted
with what is found in early Europe. These Asiatic records, which are our
sole dependence for a competent characterisation of the Aryan culture,
shows it to have resembled the culture of the early Hebrews or that of
the pastoral Turanians more closely than it resembles the early European
culture at large, and greatly more than it resembles the known culture
of the early communities of dolicho-blond hybrids.

(d) Scarcely more conclusive, but equally suggestive, is the evidence
from the religious institutions of the Aryanised Europeans. As would be
expected in any predatory civilisation, such as the pastoral-nomadic
cultures typically are, the Aryan religious system is said to have
leaned strongly toward a despotic monarchical form, a hierarchically
graded polytheism, culminating in a despotic monotheism. There is little
of all this to be found in early pagan Europe. The nearest well-known
approach to anything of the kind is the late-Greek scheme of Olympian
divinities with Zeus as a doubtful suzerain,--known through latter-day
investigations to have been superimposed on an earlier cult of a very
different character. The Keltic (Druidical) system is little known, but
it is perhaps not beyond legitimate conjecture, on the scant evidence
available, that this system had rather more of the predatory,
monarchical-despotic cast than the better known pagan cults of Europe.
The Germanic paganism, as indicated by the late Scandinavian--which
alone is known in any appreciable degree--was a lax polytheism which
imputed little if any coercive power to the highest god, and which was
not taken so very seriously anyway by the "worshipers,"--if Snorri's
virtually exclusive account is to be accepted without sophistication.
The evidence accorded by the religious cults of Europe yields little
that is conclusive, beyond throwing the whole loose-jointed, proliferous
European paganism out of touch with anything that can reasonably be
called Aryan. And this in spite of the fact that all the available
evidence is derived from the European cults as they stood after having
been exposed to long centuries of Aryanisation. So that it may well be
held that such systematisation of myths and observances as these
European cults give evidence of, and going in the direction of a
despotic monotheism, is to be traced to the influence of the intrusive
culture of the Aryan or Aryanised invaders,--as is fairly plain in the
instance of the Olympians.

(e) That the languages of early Europe, so far as known, belong almost
universally to the Aryan family may seem an insurmountable obstacle to
the view here spoken for. But the difficulties of the case are not
appreciably lessened by so varying the hypothesis as to impute the Aryan
speech to the dolicho-blond, or to any blond stock, as its original
bearer. Indeed, the difficulties are increased by such an hypothesis,
since the Aryan-speaking peoples of early times, as of later times, have
in the main been communities made up of brunets without evidence of a
blond admixture, not to speak of an exclusively blond people. (There is
no evidence of the existence of an all-blond people anywhere, early or
late.)

The early European situation, so far as known, offers no exceptional
obstacles to the diffusion of an intrusive language. Certain mass
movements of population, or rather mass movements of communities
shifting their ground by secular progression, are known to have taken
place, as, _e.g._, in the case of the Hallstatt-La Tène-Keltic culture
moving westward on the whole as it gained ground and spread by shifting
and ramification outward from its first-known seat in the upper Danube
valley. All the while, as this secular movement of growth, ramification
and advance was going on, the Hallstatt-La Tène-Keltic peoples continued
to maintain extensive trade relations with the Mediterranean seaboard
and the Ægean on the one side and reaching the North-Sea littoral on the
other side. In all probability it is by trade relations of this
kind--chiefly, no doubt, through trade carried on by itinerant
merchants--that the new speech made its way among the barbarians of
Europe; and it is no far-fetched inference that it made its way, in the
North at least, as a trade jargon. All this accords with what is going
on at present under analogous circumstances. The superior merit by force
of which such a new speech would make its way need be nothing more
substantial than a relatively crude syntax and phonetics--such as
furthers the dissemination of English to-day in the form of Chinook
jargon, Pidgin English, and Beach la Mar. Such traits, which might in
some other light seem blemishes, facilitate the mutilation of such a
language into a graceless but practicable trade jargon. With jargons as
with coins the poorer (simpler) drives out the better (subtler and more
complex). A second, and perhaps the chief, point of superiority by
virtue of which a given language makes its way as the dominant factor in
such a trade jargon, is the fact that it is the native language of the
people who carry on the trade for whose behoof the jargon is contrived.
The traders, coming in contact with many men, of varied speech, and
carrying their varied stock of trade goods, will impose their own names
for the articles bartered and so contribute that much to the jargon
vocabulary,--and a jargon is at its inception little more than a
vocabulary. The traders at the same time are likely to belong to the
people possessed of the more efficient technology, since it is the
superior technology that commonly affords them their opportunity for
advantageous trade; hence the new or intrusive words, being the names of
new or intrusive facts, will in so far find their way unhindered into
current speech and further the displacement of the indigenous language
by the jargon.

Such a jargon at the outset is little else than a vocabulary comprising
names for the most common objects and the most tangible relations. On
this simple but practicable framework new varieties of speech will
develop, diversified locally according to the kind and quantity of
materials and linguistic tradition contributed by the various languages
which it supplants or absorbs.

In so putting forward the conjecture that the several forms of Aryan
speech have arisen out of trade jargons that have run back to a common
source in the language of an intrusive proto-Aryan people, and
developing into widely diversified local and ethnic variants according
as the mutilated proto-Aryan speech (vocabulary) fell into the hands of
one or another of the indigenous barbarian peoples,--in this suggestion
there is after all nothing substantially novel beyond giving a
collective name to facts already well accepted by the philologists.
Working backward analytically step by step from the mature results given
in the known Aryan languages they have discovered and divulged--with
what prolixity need not be alluded to here--that in their beginnings
these several idioms were little else than crude vocabularies covering
the commonest objects and most tangible relations, and that by time-long
use and wont the uncouth strings of vocables whereby the beginners of
these languages sought to express themselves have been worked down
through a stupendously elaborate fabric of prefixes, infixes and
suffixes, etc., etc., to the tactically and phonetically unexceptionable
inflected languages of the Aryan family as they stood at their classical
best. And what is true of the European languages should apparently hold
with but slight modification for the Asiatic members of the family.
These European idioms are commonly said to be, on the whole, less true
to the pattern of the inferentially known primitive Aryan than are its
best Asiatic representatives; as would be expected in case the latter
were an outgrowth of jargons lying nearer the center of diffusion of the
proto-Aryan speech and technology.

As regards the special case of the early north-European communities of
dolicho-blond hybrids, the trade between the Baltic and Danish waters on
the one hand and the Danube valley, Adriatic and Ægean on the other hand
is known to have been continued and voluminous during the neolithic and
bronze ages,--as counted by the Scandinavian chronology. In the course
of this traffic, extending over many centuries and complicated as it
seems to have been with a large infiltration of the brachycephalic
brunet type, much might come to pass in the way of linguistic
substitution and growth.

FOOTNOTES:

[1] Reprinted by permission from _The University of Missouri Bulletin_,
Science Series, vol. ii, No. 3.

[2] "The Mutation Theory and the Blond Race," in _The Journal of Race
Development_, April, 1913.




AN EARLY EXPERIMENT IN TRUSTS[1]


According to Much,[2] following in the main the views of Penka, Wilser,
De Lapouge, Sophus Müller, Andreas Hansen, and other spokesmen of the
later theories touching Aryan origins, the area of characterisation of
the West-European culture, as well as of that dolicho-blond racial stock
that bears this culture, is the region bordering on the North Sea and
the Baltic, and its center of diffusion is to be sought on the southern
shores of the Baltic. This region is in a manner, then, the primary
focus of that culture of enterprise that has reshaped the scheme of life
for mankind during the Christian era. Its spirit of enterprise and
adventure has carried this race to a degree of material success that is
without example in history, whether in point of the extent or of the
scope of its achievements. Up to the present the culminating achievement
of this enterprise is dominion in business, and its most finished
instrument is the quasi-voluntary coalition of forces known as a Trust.

In its method and outward form this enterprise of the Indo-germanic
racial stock has varied with the passage of time and the change of
circumstances; but in its spirit and objective end it has maintained a
singularly consistent character through all the mutations of name and
external circumstance that have passed over it in the course of history.

In its earlier, more elemental expression this enterprise takes the
form of raiding, by land and sea. A shrewd interpretation might, without
particular violence to the facts, find a coalition of forces of the kind
which is later known as a Trust in the Barbarian raids spoken of as the
_Völkerwanderung_. Such an interpretation would seem remote, however,
and not particularly apt. The beginnings of a _bona fide_ trust
enterprise are of a more businesslike character and have left a record
more amenable to the tests of accountancy. A trust, as that term is
colloquially understood, is a business organisation.

Now, the line of enterprise, of indigenous growth in the north-European
cultural region, which first falls into settled shape as an orderly,
organised business is the traffic of those seafaring men of the North
known to fame as the Vikings. And it is in this traffic, so far as the
records show, that a trust, with all essential features, is first
organised. The term "viking" covers, somewhat euphemistically, two main
facts: piracy and slave-trade. Without both of these lines of business
the traffic could not be maintained in the long run; and both, but more
particularly the latter, presume, as an indispensable condition to their
successful prosecution, a regular market and an assured demand for the
output. It is a traffic in which, in order to get the best results, a
relatively large initial investment must be sunk, and the period of
turnover--the "period of production"--is necessarily of some duration;
the risk is also considerable. Further, certain technological
prerequisites must be met, in the way particularly of shipbuilding,
navigation, and the manufacture of weapons; an adequate accumulation of
capital goods must be had, coupled with a sagacious spirit of adventure;
there must also be an available supply of labor. There appears to have
been a concurrence of all these circumstances, together with favorable
market conditions, in the south-Baltic region from about the sixth
century onward; the circumstances apparently growing gradually more
favorable through the succeeding four centuries.

The viking trade appears to have grown up gradually on the Baltic
seaboard, as well as in the Sound country and throughout the fjord
region of Norway, as a by-occupation of the farming population. Its
beginnings are earlier than any records, so that the earliest traditions
speak of it as an institution well understood and fully legitimate. The
well-to-do freehold farmers, including some who laid claim to the rank
of _jarl_, seem to have found it an agreeable and honorable diversion,
as well as a lucrative employment for their surplus wealth and labor
supply. From such sporadic and occasional beginnings it passed presently
into an independently organised and self-sustaining line of business
enterprise, and in the course of time it attained a settled business
routine and a defined code of professional ethics. Syndication, of a
loose form, had begun as early as the oldest accounts extant, but it is
evident from the way in which the matter is spoken of that combination
had not at that date--say, about the beginning of the ninth
century--long been the common practice. It was not then a matter of
course. The early combinations were relatively small and transient. They
took the form of "gentlemen's agreements," pools, working arrangements,
division of territory, etc., rather than hard and fast syndicates. In
those early days a combine would be formed for a season between two or
more capitalist-undertakers, for the most part employing their own
capital only, without recourse to credit; although credit arrangements
occur quite early, but are not very common in the earlier recorded
phases of the trade. Such a loose combine, say about the middle of the
ninth century, might comprise from two to a dozen boats. What may be
called the normal unit in the trade at that time was a boat of perhaps
thirty tons' burden, with an effective crew of some eighty men. Boats
and crews gradually increase both in size and efficiency for a century
and a half after that time.

Syndication, of an increasingly close texture and increasingly permanent
effect, appears to have rapidly grown in favor through the ninth and
tenth centuries. The reasons for this movement of coalition are plain.
The volume of the trade, as well as its territorial extension, increased
uninterruptedly. The technique of the trade was gradually improved, and
the equipment and management were improved and reduced to standard
forms. The tonnage employed at any given time can, of course, not be
ascertained with anything like a confident approximation; but its steady
increase is unmistakable. Year by year the boats and crews increase in
average size as well as in number, until by the middle of the tenth
century the number of men and ships engaged, as well as the volume of
capital invested in the trade, are probably larger than the
corresponding figures for any other form of lucrative enterprise at that
time. It is, at that time, altogether the best-organised line of
enterprise in the West-European region in respect of its business
management, and the most efficient and progressive in respect of its
equipment and technology. At a conservative guess, the aggregate number
of ships engaged about the middle of the tenth century must have
appreciably exceeded six hundred, and may have reached one thousand;
with crews which had also grown gradually larger until they may by this
time have averaged 150 or 200 men. There was consequently what would in
modern phrase be called an "overproduction" of piratical
craft--overinvestment in the viking trade and consequent cut-throat
competition. The various coalitions came into violent conflict, and many
of them went under, with great resultant loss of capital, impoverishment
of well-to-do families, hardship and demoralisation of the entire trade.

Added to these untoward conditions within the trade was the open
disfavor of the crown, in each of the three Scandinavian kingdoms. The
traffic had long passed out of the stage at which it had offered a
lucrative opening for farmers' sons who were tired of the farm and eager
to find excitement, reputation, and creature comforts in that wider
human contact and busier life for which the tedium of the farm had
sharpened their appetites. The larger capitalists alone could succeed as
organisers or directors of a viking concern under the changed
conditions. The common run of well-to-do farmers had neither the
tangible assets nor the "good-will" requisite to the successful
promotion of a new company of freebooters. At the best, their sons could
enter the business only as employees and with but a very uncertain
outlook to speedy promotion to an executive position. On the other hand,
as the trade became better organised in stronger hands, with a larger
equipment, and as the competition within the trade grew more severe, the
blackmail from which much of the profits of the trade was drawn grew
more excessive and more uncertain, both as to its amount and as to the
manner and incidents with which it was levied. As competition grew
severe and the small vikings practically disappeared, and as the
demoralisation that goes with cut-throat competition set in, the
livelihood of the common people, at whose expense the vikings lived,
grew progressively more precarious, and even their domestic peace and
household industry grew insecure. Popular sentiment was running strongly
against the whole traffic. So much so, indeed, as to threaten the tenure
of courts and sovereigns if the popular hardship incident to the
continuance of the trade were not abated.

The politicians, therefore, made a strenuous show of effort to regulate,
or even to repress, the viking organisations. Outright and
indiscriminate repression was scarcely a feasible remedy, certainly not
an agreeable one. The viking companies were a source of strength to the
country, both in that they might be drawn on for support in case of war
and in that they brought funds into the country. The remedy to which the
politicians turned, by preference, therefore, was a regulation of the
companies in such a manner as to let "the foreigners pay the tax," to
adapt a modern phrase. If the freebooters of a given state could be
induced, by stringent regulations, to prey upon the people of the
neighboring states, and particularly if they worked at cross-purposes
with similar companies of freebooters domiciled in such neighboring
states, it was then plain to the sagacious politicians of those days
that the companies might be more of a blessing than a curse. On trial it
was found that this policy of control gave at the best but very dubious
results, and consequently the repressive hand of the authorities
perforce fell with increasingly rigorous pressure on the viking
organisations, particularly on the smaller ones which were scarcely of
national importance. The competition in the trade was too severe to
admit of a consistent avoidance of excesses and irregularities on the
part of the vikings, and these irregularities obliged the authorities to
interfere.

Under these circumstances it is plain that no viking combine could hope
to prosper in the long run unless it were strong enough to take an
international position and to maintain a practical monopoly of the
trade. "International" in these premises means within the Scandinavian
countries. In the days of its finest development the viking trade was
domiciled in the Scandinavian countries, almost exclusively. This means
the two Scandinavian peninsulas, with Iceland, the Faroes, Orkneys,
Hebrides, and the Scandinavian portions of Scotland. To this, for
completeness of statement, is to be added a stretch of Wendish seaboard
on the south of the Baltic and a negligible patch of German territory.
The trade, so far as regards its home offices, to use a modern phrase,
gathered in the main about two chief centers: the Orkneys and the south
end of the Baltic. Outlying regions, such as the Norwegian fjord country
and the Hebrides, are by no means negligible, but the two regions named
above are after all the chief seats of the traffic; and of these two
centers the Baltic--chiefly Danish--region is in many respects the more
notable. Its viking traffic is better, more regularly organised, is
carried on with a more evident sense of a solidarity of interests and a
more consistent view to a long-term prosperity. As one might say,
looking at the matter from the modern standpoint, it has more of a look
of stability and conservative management, such as belongs to an
investment business, and has less of a speculative air, than the trade
that centers in the western isles.

Perhaps it is just on this account, because of its greater stability of
interests and more conservative animus, that the traffic of this region
responds with greater alacrity to the pressure of excessive competition
and political interference, and so enters on a policy of larger and
closer coalition. It may be added that many of the great captains of
adventure in this region are men of good family and substantial standing
in the community. As may often happen in a like conjuncture, when the
irksomeness of this competitive situation in the Baltic was fast
becoming intolerable, there arose a man of far-seeing sagacity and
settled principles, of executive ability and businesslike integrity, who
saw the needs of the hour and the available remedy, and who saw at the
same glance his own opportunity of gain. This man was Pálnatoki, the
descendant of an honorable line of country gentlemen in the island of
Funen, whose family had from time immemorial borne an active and prudent
part in the trade, and had been well seen at court and in society. He
was a man of mature experience, with a large investment in the traffic,
and with a body of "good-will" that gave him perhaps his most decisive
advantage.

During the reign of Harald Gormsson, about the middle of the tenth
century, Pálnatoki seems to have cast about for a basis on which to
promote an international coalition of vikings, such as would put an end
to headlong competition in the trade and would at the same time be
placed above the accidents of national politics. To this end it was
necessary to find a neutral ground on which to establish the home office
of the concern. Such a mediæval-Scandinavian New Jersey was the Wendish
kingdom at the south of the Baltic.

Jómsborg (on the island of Wollin, at the mouth of the Oder) seems to
have been a resort of vikings before Pálnatoki organised his company
there and strengthened the harbor, which may have been fortified by
those who held it before him. Here the new company was incorporated
under a special franchise from the Wendish crown, with the stipulation
that it was to do business only outside the Wendish territories. The
tangible assets of the corporation were the harbor and fortified town
of Jómsborg, together with the ships and other equipment of such vikings
as were admitted to fellowship; its intangible assets were its franchise
and the good-will of the promoter and the underlying companies. Its
by-laws were very strict, both as to the discipline of the personnel and
as to the distribution of earnings. The promoter, who was the first
president of the corporation, was given extreme powers for the
enforcement of the by-laws, and throughout his long incumbency of office
he exercised his powers with the greatest discretion and with a most
salutary effect.

This neutral, international corporation of piracy rapidly won a great
prestige. In modern phrase, its intangible assets grew rapidly larger.
Backed by the competitive pressure which the new corporation was able to
bring upon the smaller companies and syndicates, this prestige of the
Jómsvikings brought a steady run of applications for admission into the
trust. The trust's policy was substantially the same as has since become
familiar in other lines of enterprise, with the difference that in those
early days the competitive struggle took a less sophisticated form.
Outstanding syndicates and private firms were given the alternative of
submission to the trust's terms or retirement from the traffic. There
was great hardship among the outstanding concerns, especially among that
large proportion of them that were unable to meet the scale of
requirements imposed on applicants for admission into the trust. The
qualifications both as to equipment and personnel were extremely strict,
so that a large percentage of the applicants were excluded; and the
unfortunates who failed of admission found themselves in a doubtful
position that grew more precarious with every year that passed.
Practically, such concerns were either frozen out of the business or
forced into a liquidation which permanently wound up their affairs and
terminated their corporate existence.

The accounts extant are of course not reliable in minute details, being
not strictly contemporary, nor are they cast in such modern terms as
would give an easy comparison with present-day facts. The chief
documents in the case are _Jómsvikingasaga_, _Saxo Grammaticus_,
_Heimskringla_, and _Olafssaga Tryggvasonar_; but nearly the whole of
the saga literature bears on the development of the viking trade, and
characteristic references to the Jómsviking trust occur throughout. The
evidence afforded by these accounts converges to the conclusion that
toward the close of the tenth century the trust stood in a high state of
prosperity and was in a position virtually to dictate the course of the
traffic for all that portion of the viking trade that centered in the
Baltic. Its prestige and influence were strong wherever the traffic
extended, even in the region of the western isles and in the fjord
country of Norway. It had even come to be a factor of first-rate
consequence in international politics, and its power was feared and
courted by those two sovereigns who established the Danish rule in
England, as well as by their Swedish, Norwegian, and Russian
contemporaries. It is probably not an overstatement to say that the
Danish conquest of England would not have been practicable except for
the alliance of the trust with Svend, which enabled him to turn his
attention from the complications of Scandinavian politics to his English
interests.

The extent of the trust's material equipment at the height of its
prosperity is a matter of surmise rather than of statistical
information. Some notion of its strength may be gathered from the
statement that the fortified harbor of Jómsborg included within its
castellated sea-wall an inclosed basin capable of floating three
hundred ships at anchor. In the great raid against the kingdom of
Norway, whose failure inaugurated the disintegration of the trust, the
number of ships sent out is variously given by different authorities.
The _Jómsvikingasaga_ says that they numbered one long hundred. This
fleet, however, was made up of craft selected from among the ships that
were under the immediate command of four of the great captains of
adventure. The fleet, as it lay in the Sound before the final selection,
is said to have numbered 185, but the context shows that this fleet was
but a fraction of the aggregate Jómsviking tonnage. Of this disastrous
expedition but a fraction returned; yet various later expeditions of the
Jómsvikings are mentioned in which some scores of their ships took part.

The trust having become an international power, it undertook to shape
the destiny of nations and dynasties, and it broke under the strain. It,
or its directors, took a contract to bring Norway into subjection to the
Danish crown. Partly through untoward accidents, partly through
miscalculation and hurried preparations, it failed in this undertaking,
which brought the affairs of the trust to a spectacular crisis. From
this disaster it never recovered. With the opening of the eleventh
century the viking trust fell into abeyance, and in a few years it
disappeared from the field. There are several good reasons for its
failure. On the death of its founder the management had passed into the
hands of Sigvaldi, a man of less sagacity and less integrity as well as
of more unprincipled personal ambition, and somewhat given to flighty
ventures in the field of politics. It was Sigvaldi's overweening
personal ambition that committed the corporation to the ill-advised
expedition against Norway. The trust, moreover, being supreme within its
field, the discipline grew lax and its exactions grew arbitrary,
sometimes going to unprovoked excesses. As one might say, too little
thought was given to "economies of production," and the charges were
pushed beyond "what the traffic would bear." But for all that, in spite
of its meddling in politics, and in spite of jobbery and corruption in
its management, the trust still had a fair outlook for continued
success, except that the bottom dropped out of the trade. For better or
worse, the slave-trade in the north of Europe collapsed on the
introduction of Christianity, at least so far as regards the trade in
Christians; and without a slave market the viking enterprise had no
chance of reasonable earnings. At the same time, the risk and hardships
of the traffic--the "cost of production"--grew heavier as the countries
to the south became better able to defend their shores. The passenger
traffic failed almost entirely, and the goods traffic was in a
disorganised and unprofitable state. The costs were fast becoming
prohibitive, even to men so enterprising and necessitous as the
Norwegian freebooters. The situation changed in such a way as to leave
the trust out.

Some show of corporate existence was still maintained for a short period
after the trust's great crisis, but there was an end of discipline and
authoritative control. The minor concerns and private establishments
that had once formed part of the trust continued in the trade on an
independent footing, but with decreasing regularity and with diminishing
strength. As the equipment wore out it was not replaced, and the trade
lapsed. The great captains of the industry, like Sigvaldi, Thorkel
Haraldson, Sigurd Kápa, and Vagn Akason, turned their holdings to the
service of the dynastic politics which were then engaging the attention
of the northern countries. Much of this body of enterprise and wealth
was exhausted in working out the imperialistic schemes of expansion of
Svend and Knut the Great; and what was left over shared the fortunes
of the other available forces of the Scandinavian countries, being
dissipated in political dissensions, extortionate government
organisations, and the establishment of a church and a nobility.

FOOTNOTES:

[1] Reprinted by permission from _The Journal of Political Economy_,
Vol. XII, March, 1904.

[2] MATTHAEUS MUCH, _Die Heimat der Indogermanen_.


  THE END