other. In modern economics “fertility” has no very definite meaning. It may mean what is ordinarily understood by the word—climate, rainfall, railway rates or anything else except “indestructible powers of the soil.” To speak of “additional labour and capital” without reference to the kind and quality of the labour and capital, and the manner in which they are employed, organized and directed, throws very little light on agriculture. Every improvement involves, from a quantitative point of view, more or less of capital or of labour, so that it is the “antagonizing” influences, which are nearly all qualitative, which appear to be really important. It is therefore extraordinarily difficult at present to know what happens, or rather what would happen if it were not prevented, when a country reaches “the stage of diminishing returns”; what precisely it is which comes into operation, for obviously the diminishing returns are the results, not the cause; or how commodities “obey” a law which is always “suspended.” Possibly the present generation of English industrial history will furnish many illustrations of the law of diminishing returns. We can only say that it requires investigation and restatement.
Closely related to the law of diminishing returns is the Theory of Rent. No economic doctrine so well illustrates the achievements and the defects of modern economic analysis. Ricardo’s statement of the theory left upon the world an impression, not wholly just, of singular clearness. He employed the theory with wonderful success in unravelling the problems of his time. Its importance has not been seriously, or at any rate successfully, called in question. Treated at first as a doctrine peculiarly applicable to land, with a certain controverted relevance to other natural agents, it has been so extended that there is scarcely any subject of economic study in which we may not expect to find adaptations or analogies, so that Ricardo seemed to have discovered the key of economic knowledge. But it was discovered that there were no “indestructible powers of the soil”; that the fertility of land in a country like England is almost entirely the result of improvement at some time or other; that “advantage of situation” includes very much more than the words in their literal sense imply; that both “fertility” and “advantage of situation” include many kinds of differential advantage; that in some circumstances rent does not enter into the price of agricultural and other produce, and that in others it does. Moreover, the study of the theory of rent has had a very great influence on all branches of economics by destroying the notion that it is possible to draw sharp lines of distinction, or deal with economic conceptions as though they were entirely independent categories. That modern economic analysis is incomparably more accurate than that of earlier times there can be no question. But the net result of the development of the doctrine of rent is that all problems in which this factor appears, and they embrace the whole range of economic theory, must apparently be treated on their merits. In its modern form the doctrine is far too general to be serviceable without the closest scrutiny of all the facts relating to the particular case to which it is applied. To deal adequately with the numerous extensions or qualifications of these and other doctrines in the hands of modern economists would involve us in an attempt to do what we have already said is impossible except on conditions not at present realized. It is clear that in the interests of general economic theory we require a vast number of special studies before an adequate restatement can be undertaken.
It must be clearly recognized that the functions of economic science in the present requirements of the world cannot possibly be discharged by treatises on economic theory. The relations between general theory and special studies conducted on the lines we have indicated have completely Relations between general economics and special studies.changed. General theory never has been, and in the nature of things never can be, the actual reflex of the life and movement of the economic world. It never has been, and never can be, more than an indication of the kind of thing which might be expected in a purely hypothetical world. When the aim of the man of affairs and the hypothesis of the economist was unrestricted competition, and measures were being adopted to realize it, general theory such as the classical economists provided was perhaps a sufficiently trustworthy guide for practical statesmen and men of business. If only people can be got to believe in them, a few abstract principles are quite enough to destroy an institution which it has taken centuries to create. But a new institution cannot be made on the same terms. The modern industrial system has brought with it an immense variety of practical problems which nations must solve on pain of industrial and commercial ruin. For these problems we want, not a few old-established general principles which no one seriously calls in question, but genuine constructive and organizing capacity, aided by scientific and detailed knowledge of particular institutions, industries and classes. Just as the historical school grew up along with the greatest constructive achievement of the 19th century, namely, the consolidation of Germany, so the application to modern problems of the methods of that school has been called forth by the constructive needs of the present generation. We have already shown how these methods, in their turn, require the aid of general theory, but not of a general theory which tries to do their work. In fact, every attempt to make it do so must inevitably fail. How can such a huge mass of general propositions as are necessarily included in a system of economics ever be thoroughly tested by an appeal to facts? If they are not so tested, the general theory will remain a general theory, of no practical use in itself, until the end of time. It they are to be tested, an indefinitely large number of special studies must be made, for which the original materials must be collected and examined. That is, original investigation of special problems has to be carried out on a more gigantic scale than any economist of the historical school ever dreamt of or the world requires, with the certain knowledge that at the end of it all the general theory will not correspond with the facts of life. For there is all the difference in the world between using a body of general theory as an indication of the factors to be considered in the study of a special problem, and undertaking special studies with a view to testing the general theory. If the necessary limitations of general economic theory are recognized, most of the difficulties we have noticed disappear. Now that the “industrial revolution” has extended practically all over the world, so that we have several countries carrying on production by modern methods, it is easily possible to sketch the main features of industrial and commercial organization at the present time, to describe the banking and currency systems of the principal nations, their means of transport and communication, their systems of commercial law and finance, and their commercial policy. It is true that at present very little work of this kind has been done in England, but innumerable books, many of them about England, have been written by thoroughly competent economists, in French, German and other languages. So that no great amount of original work is required for a reliable account of those general features of the modern system which should form the introduction to economics. The general theory which we require should be sketched in firm and clear outline, leaving the detailed qualifications of broad principles to special studies, where they can be dealt with if it is necessary or desirable, and examined by statistical and other tests. For such a general theory there is ample material in the economic literature of all civilized countries. It is of the utmost importance that the economic terms, which are also, though in many cases with an entirely different meaning, the terms of business and commerce, should as far as possible be used in their common and ordinary English sense: that they should correspond in meaning with the same words when used in description, in law, accountancy and ordinary business. This is no doubt a difficult matter. But some change in this direction is necessary both in the interests of the science itself and of its practical utility. All the materials for investigation, all the facts and figures from which illustrations are drawn, all methods of keeping accounts in England, assume the ordinary English tongue. There are few if any conceptions in economics which cannot be expressed in it without depleting the ordinary vocabulary. At present the language of economics is for the ordinary Englishman
