The Harvard Classics Vol. 51/Political Science I.
THE term Economics, as originally used by the Greeks, meant the art of household management, or the principles which govern the wise management of the household. Xenophon's treatise on this subject is a description of the management of a simple agricultural household where problems of revenue and expenditure, of business and home life, are not very sharply separated. In modern times, particularly in urban life, the business, or the source of income, is so sharply separated from the home, where the income is utilized, that we now have two distinct branches of the subject instead of one. To one branch we now give the name business economics, business management, or business administration. The other is known by such names as home economics, household economics, household management, domestic science, etc. That these two branches are now so sharply separated as to seem unrelated is a commentary on how far we have departed from the simple conditions of the self-sufficing rural household, and how thoroughly we have divorced business from life.
Xenophon also wrote a treatise on the Revenues of Athens. While this cannot be regarded as a general treatise on public finance, it serves at least to show that he had some interest in that field, which may not inaptly be called public housekeeping. Every government, considered as a corporate body, has needs of its own apart from those of the people whom it governs. Whether it be a city, a state, or a smaller governing unit, it must solve the problems of revenue and expenditure just as a private household. Later writers applied the term economics mainly to this group of problems to which we now apply the name public finance, rather than to that group which in the diagram above are included under Private Economics. In a monarchy the providing of revenues for the king's household, and the expenditure of those revenues in the support of the household, may approximate very closely to the character of private economics, as when the chief source of revenue is the royal demesne, or to public economics when the chief source of revenue is taxation, and the king is regarded merely as a public official to be supported as other public officials are.
EARLY CONCEPTIONS OF PUBLIC ECONOMICS
In the mediæval and early modern period, the chief interest in economics had shifted from the private to the public aspects of the science, but was still centered mainly in problems of public revenue and expenditure, or, as we should now say, public finance. The chief students in this field were the finance ministers, who were charged with the office of raising revenue for the royal household and the enterprises both constructive and military of the king. It was soon apparent that the amount of royal revenue was strictly limited by the wealth of the people. If larger revenues were needed, the people must be made more prosperous in order that they might pay heavier taxes. From that time forward students gave increasing attention to the problems of national prosperity, until, at the present time, that is the primary object of interest, problems of public revenue and expenditure being strictly subordinated. That is to say, instead of trying to promote national prosperity in order that there may be more taxes and other forms of public revenue, the modern policy is to promote general prosperity for its own sake, and to raise revenue for the government only when, and to the extent that, it is necessary to do so in order to promote the general welfare.
MERCANTILISTS AND PHYSIOCRATS
Even when students began to focus their attention upon general economic prosperity, it took them some time to develop a really broad view of that problem. One school, known as the mercantilists, emphasized commerce, particularly foreign commerce, to such an extent as to make it seem that they identified prosperity with foreign trade. Writers of this school, for example, were accustomed to point out that an abundant supply of cheap labor was one factor in the development of foreign trade, because with cheap labor the country could compete with rival nations in international trade. This was obviously not intended to promote the prosperity of the laborers who were to supply the cheap labor. Another school, the physiocrats, emphasized the importance of agriculture as the industry which really produced a surplus over and above the cost of production.
Both these schools made the mistake of assuming an analogy between public prosperity and private prosperity. A private business which sells more than it buys, or takes in more money than it pays out, is said to be prosperous. The mercantile school assumed the same to be true of the nation at large, overlooking the fact that in the nation at large what is profit to one man may be cost to some one else, as in the case of the merchants who exported goods at a profit because they paid the laborers so little for their work. Again, a private business may be said to be prosperous when its products are greater than its costs. In agriculture there is the rent of land, which is not, strictly speaking, a cost, but a surplus income to the owner. This surplus income is the surplus value of the produce over and above the cost of producing it. Since very little rent was produced by the handicraft manufacturers of the day, the physiocrats assumed that these were not very profitable industries for the country at large, but that its main prosperity came from agriculture, where the main surplus, namely rent, accrued. Like the mercantilists, they overlooked the fact that this surplus might be the result, in part at least, of the poverty of the farm laborers. With a given efficiency, the cheaper they would work the lower the cost of growing crops and the higher the rent of the land.
It was not until Adam Smith's epoch-making work, the "Wealth of Nations,"[1] was given to the world that students began to take a really broad and comprehensive view of the problems of national welfare. Different students naturally have different special interests, but they generally realize the bearing of their specialties upon the larger problem. It has seemed at times that too many were focusing their attention upon production or exchange, and too few upon problems of distribution. For the last twenty-five years the problem of distribution has attracted more attention than all the others; but now the idea is beginning to dawn that consumption is the most important field of all, though it has been receiving the least attention of any.
THE MEANING OF WEALTH
Now that economics is definitely focusing attention upon problems of national prosperity, it is important that the student should understand clearly the leading concepts of the science before proceeding to study its literature. The leading concept is that of wealth, but this is a term with two distinct but closely related meanings. In the first place, it is the name of a condition of well-being, in which sense it is not very different from the Saxon term weal, from which it is descended. In the second and more usual sense, wealth is the collective name for a category of goods. Goods are the means of satisfying desires, but not all goods are wealth. Only those goods are wealth upon which the satisfaction of desires depends in a very special and practical sense. People desire air, sunlight, and a number of other things which do not constitute wealth. But if they not only desire a thing, but desire more than they have, or more than there is to be had at once, then that thing is wealth. Their state of satisfaction is definitely affected by the question of more or less of this thing. More of it, more satisfaction; less of it, less satisfaction. Though we could not live at all without air, yet we do not ordinarily desire more than we have. There is enough to go around and satisfy everybody. We should not notice the difference if there were a little less. If special conditions should arise in any time and place where there was not enough air for everybody, so that people should desire more than they had, air would then and there be wealth.
Wealth may also be defined, tentatively, as the name of those goods upon which weal or well-being depends, in this immediate and practical sense. If our weal is increased by having more of a certain class of things, and decreased by having less of them, those things therefore constitute wealth. They become the objects of conscious and active human desire and therefore of conscious and active human endeavor. More bread, more weal; less bread, less weal. Because we can say that, bread is wealth. Broadly speaking, everything to which we can apply that formula in any time and place is then and there wealth. Nothing is wealth which cannot be brought under that formula.
This statement calls for one qualification, namely, that men may not know upon what their weal or well-being depends. That upon which they think that their well-being depends they will regard as wealth. In other words, if they desire a thing, and desire more of it than they have, that indicates that they think their weal, or state of satisfaction, would be increased by having more of it. The fact that they want more, and try to get it, either by producing or purchasing it, indicates that they regard it as wealth, or as the means to well-being. Therefore it sometimes happens that the student is compelled to include some things under wealth which he regards as not only useless but deleterious and immoral—the means of satisfying vicious appetites, such as opium, tobacco, and alcohol. If one were to make much of this qualification, he would probably choose to divorce the word wealth from well-being, and define it as scarce means of satisfying desires.
Any of these definitions will be found to harmonize perfectly with another that has had some currency, namely, that wealth is the collective name for all goods which have value or power in exchange; for only those things which are desirable and scarce will have power in exchange, or value. In fact they are evaluated, bought and sold, solely because they are scarce and some one wants more than he has.
THE MEANING OF ECONOMY
The idea of scarcity as an essential to the concept of wealth suggests, next, the meaning of economy, which is another fundamental concept of the science of economics. Economy suggests the adjusting of means to ends, making a little go a long way, or, in the last analysis, choosing among one's desires and sacrificing the less important in order that the more important may be satisfied. This choice is forced upon us by the fact of scarcity, without which such choosing would be unnecessary, since we could, if everything were sufficiently abundant, satisfy all our desires without sacrificing any. It is in the utilization of those things which are scarce that economy is called for. These things which, being scarce, need to be economized in the interest of the largest satisfaction or well-being constitute economic goods, for which wealth is only another name. These are the things which have to be appraised, evaluated, and compared with one another with respect to their utility, in order that the limited supplies may be meted out and made to go as far as possible in the satisfaction of human desires, and in order that they may satisfy the greater rather than the lesser desires.
The economizing of scarce goods cannot be dissociated from such outstanding facts as production and exchange. The things toward which we must practice economy come to be esteemed or evaluated in a very direct and practical sense which is not true of anything else. When we desire a thing and desire more than we have, we not only try to get more, either by purchase or by production, but the more intensely we desire more of it the more we will give in exchange for a given unit of it, or the harder we will try to produce more of it. This process of evaluation gives such a thing power in exchange in proportion to its scarcity, or rather in proportion to the intensity of our desire for more. It also determines the direction in which the productive energies of society will be turned. Whether a given individual himself desires more of a thing or not, if there is somewhere in the community such a desire for more as will give the thing a high power in exchange, or a high value, that value will serve as effectively to induce the individual to produce it as though he desired the thing itself.
THE LAW OF VARIABLE PROPORTIONS
The process of production, in turn, calls for a new exercise of economy, because the means of production are scarce in some cases and abundant in others. In the last analysis, all industry consists in moving materials from one place to another. That is all that the moving-picture machine, or the human eye as a mechanical device, would reveal. But the mind sees plans, purposes, and laws back of this process of moving materials. One of the great generalizations of the scientific observer is that all this moving of materials is for the purpose of getting things together in the right proportions. Of course there are purposes back of all this, but the observed fact is that every industrial purpose is carried out by getting materials together in the right proportion. All this moving of materials which the eye sees is dominated by the law of proportionality, and the skill of the producer consists first in knowing the right proportions in which to combine materials, and, second, in his ability to bring them together.
This applies everywhere from a chemical experiment to the irrigation of a desert, from the work of the artist in his studio to that of the farmer in his field. The chemist, however, works under a law of definite proportions, under which chemical elements have to be combined in exact mathematical ratios, whereas the greater part of the work of production is under the law of variable proportions. In the irrigation of a piece of land, for example, there are variable quantities of water which may be used in the growing of a crop. One cannot say that an exact quantity of water must be applied, otherwise there will be no crop at all, or that the slightest variation either way would utterly ruin the crop. Within fairly wide limits of moisture a crop can be grown, though within these limits the crop will vary somewhat—but not exactly—according to the quantity of moisture provided.
Wherever the law of variable proportions holds, that is, wherever the law of definite proportions does not hold, the product may vary whenever any of the factors which are necessary to its production varies; but the product will seldom vary in exact proportion as any single factor is varied. Adding one-tenth to the quantity of moisture in the soil will seldom, and only accidentally, result in the increase of exactly one-tenth to the crop. The same may be said with respect to fertilizer, or to any single element of fertility, with respect to the labor of cultivation, or with respect to any other single factor which enters into the determination of the size of a crop. Moreover, all this can be repeated with respect to any productive plant, say a factory, and of the factors of production which have to be combined in it.
The work of assembling the factors of production in any productive establishment, whether it be a shop, farm, factory, or transportation system, calls for a degree of knowledge and care comparable with that of the chemist in the assembling of chemical elements, though, as stated before, the chemist must follow definite formulae with mathematical precision, because of the law of definite proportions.
This law of variable proportions is difficult to state concisely, but the following formulae may serve to give a fairly accurate notion as to its meaning and import. Let us assume that three factors, x, y, and z, are necessary to get a certain desirable product, which we will call p.
| If 10 x with 20 y with 30 z will produce 100 p, | ||
| then 11 x with 20 y with 30 z will produce | (1) more than 110 p; (2) 110 p; | |
If it should be found by experiment that the addition of one unit of x resulted in (1) more than 110 p, or (2) 110 p, that would indicate that the proportion of x to the other factors y and z was too low. Since an additional unit of x will result in such a large increase in the product, it is evident that more of x will be strongly desired, as compared with more of y and z, for if there is too little of x in the combination there must be too much of y and z. If, however, it were found that the addition of one unit of x resulted in (4) 100 p—that is, no increase at all—or (5) in less than 100 p—that is, less than was produced before—it is obvious that the proportion of x to the other factors is too high. Consequently, more of x will be little desired as compared with y and z, because if there is too much of x in the combination there must be too little of y and z. But if the increase in x results in an increase of five units of product proportional increase, in the product, then the factors are nearing the right proportions. Whether it is better to increase x by one unit will then depend upon the cost of x and the value of the increased product. Let us suppose that the increase in x results in an increase of five units of product (105 p). If one unit of x cost less than five units of p, it will be profitable to increase the factor x from 10 to 11; otherwise it will not.
Of course the formula and all that comes after it could be repeated with respect to y or z, as well as of x, if either were regarded as the variable factor. x, y, and z may represent labor, land, and capital in industry in general; they may represent different grades of labor in any industry; they may represent nitrogen, potash, and phosphorus in the soil; or they may represent any group of factors anywhere combined to get any product. The essential thing to remember is that in any combination the scarcest factor is the limiting factor, and the product will vary more directly with that than with any other. Since the variation in the product follows more sharply the variation in this scarce factor than that of any of the more abundant factors in the combination, it is not uncommon to speak of the scarcest factor as having the highest productivity. Whether that be an accurate use of terms or not, there is not the slightest doubt that it will be most highly prized, will command the highest price, and will need to be economized most carefully. This formula and the remarks under it will serve to bring out the underlying physical fact of productivity upon which the law of supply and demand is based.
THE CONFLICT OF INTERESTS BETWEEN MAN AND MAN
That utility and scarcity, and these alone, are the factors which give value to a thing, whether its utility consists in its power to satisfy wants directly or indirectly, that is, whether it be an article of consumption or a factor of production, is now perhaps sufficiently clear. That the factor of scarcity creates the necessity for economy is also fairly obvious. That it is the source also of the conflict of human interests out of which most of our moral and social problems grow may not be quite so obvious, but the following considerations will show it to be true. The fact of scarcity means that man has wants for which nature does not spontaneously provide. This in turn implies a lack of harmony between man and nature, which it is the purpose of productive industry to restore.
That phase of the disharmony between man and nature which takes the form of scarcity gives rise also to a disharmony between man and man. Where there is scarcity there will be two men wanting the same thing; and where two men want the same thing there is an antagonism of interests. Where there is an antagonism of interests between man and man, there will be questions to be settled, questions of right and wrong, of justice and injustice; and these questions could not arise under any other condition. The antagonism of interests is, in other words, what gives rise to a moral problem, and it is, therefore, about the most fundamental fact in sociology and moral philosophy.[2]
This does not overlook the fact that there are many harmonies between man and man, as there are between man and nature. There may be innumerable cases where all human interests harmonize, but these give rise to no problem and therefore we do not need to concern ourselves with them. As already pointed out, there are many cases where man and nature are in complete harmony. There are things, for example, which nature furnishes in sufficient abundance to satisfy all our wants, but these also give rise to no problem. Toward these non-economic goods our habitual attitude is one of indifference or unconcern. Where the relations between man and nature are perfect, why should we concern ourselves about them? But the whole industrial world is bent on improving those relations where they are imperfect. Similarly with the relations between man and man; where they are perfect, that is, where interests are all harmonious, why should we concern ourselves about them? As a matter of fact we do not. But where they are imperfect, where interests are antagonistic and trouble is constantly arising, we are compelled to concern ourselves whether we want to or not. As a matter of fact, we do concern ourselves in various ways; we work out systems of moral philosophy and theories of justice, after much disputation; we establish tribunals where, in the midst of much wrangling, some of these theories are applied to the settlement of actual conflicts; we talk and argue interminably about the proper adjustment of antagonistic interests of various kinds, all of which, it must be remembered, grow out of the initial fact of scarcity—that there are not as many things as people want.
That underneath all these disharmonies there is a deep underlying harmony of human interests is the profound belief of some. But this belief, like that in a harmony between man and nature, is not susceptible of a positive proof. It rests upon philosophical conjecture—and faith. To be sure, it is undoubtedly true that most men, even the strongest, are better off in the long run under a just government, where all their conflicts are accurately and wisely adjudicated, than they would be in a state of anarchy, where everyone who was able did what he pleased, or what he could if he was not able to do what he pleased. This might possibly be construed to imply a harmony of interests, in that all alike, the strong as well as the weak, are interested in maintaining a just government. But the argument is violently paradoxical, because it literally means that interests are so very antagonistic that in the absence of a government to hold them in check there would be such a multiplicity of conflicts, wasting the energies of society, that in the end everybody would suffer, even the strongest. This is an excellent argument in favor of the necessity of government, but it is the poorest kind of an argument in favor of the universal harmony of human interests.
Fundamentally, therefore, there are only two practical problems imposed upon us. The one is industrial and the other moral; the one has to do with the improvement of the relations between man and nature, and the other with the improvement of the relations between man and man. But these two primary problems are so inextricably intermingled, and they deal with such infinitely varying factors, that the secondary and tertiary problems are more than we can count.
THE CONFLICT OF MAN WITH NATURE
But whence arises that phase of the conflict with nature out of which grows the conflict between man and man? Is man in any way responsible for it, or is it due wholly to the harshness or the niggardliness of nature? The fruitfulness of nature varies, of course, in different environments. But in any environment there are two conditions, for both of which man is in a measure responsible, and either of which will result in economic scarcity. One is the indefinite expansion of human wants, and the other is the multiplication of numbers.
The well-known expansive power of human wants, continually running beyond the power of nature to satisfy, has attracted the attention of moralists in all times and places. "When goods increase, they are increased that eat them; and what good is there to the owners thereof, saving the beholding of them with their eyes?" is the point of view of The Preacher.[3] It was the same aspect of life, obviously throwing man out of harmony with nature, which gave point to the Stoic's principle of "living according to nature." To live according to nature would necessarily mean, among other things, to keep desires within such limits as nature could supply without too much coercion. Seeing that the best things in life cost nothing, and that the most ephemeral pleasures are the most expensive, there would appear to be much economic wisdom in the Stoic philosophy. But the pious Buddhist in his quest of Nirvana, overlooking the real point—that the expansion of wants beyond nature's power to satisfy is what throws man inevitably out of harmony with nature and produces soul-killing conflicts—sees in desire itself the source of evil, and seeks release in the eradication of all desire.
Out of the view that the conflict of man with nature is a source of evil grow two widely different practical conclusions as to social conduct. If we assume that nature is beneficent and man at fault, the conclusion follows as a matter of course that desires must be curbed and brought into harmony with nature, which is closely akin to Stoicism, if it be not its very essence. But if, on the contrary, we assume that human nature is sound, then the only practical conclusion is that external nature must be coerced into harmony with man's desires and made to yield more and more for their satisfaction. This is the theory of the modern industrial spirit in its wild pursuit of wealth and luxury.
Even if the wants of the individual never expanded at all, it is quite obvious that an indefinite increase in the number of individuals in any locality would, sooner or later, result in scarcity and bring them into conflict with nature, and therefore into conflict with one another. That human populations are physiologically capable of indefinite increase, if time be allowed, is admitted, and must be admitted by anyone who has given the slightest attention to the subject. Among the non-economizing animals and plants, it is not the limits of their procreative power but the limits of subsistence which determine their numbers. Neither is it lack of procreative power which limits numbers in the case of man, the economic animal. With him also it is a question of subsistence, but of subsistence according to some standard. Being gifted with economic foresight, he will not multiply beyond the point where he can maintain that standard of life which he considers decent. But—and this is to be especially noted—so powerful are his procreative and domestic instincts that he will multiply up to the point where it is difficult to maintain whatever standard he has. Whether his standard of living be high or low to begin with, the multiplication of numbers will be carried to the point where he is in danger of being forced down to a lower standard. In other words, it will always be hard for us to make as good a living as we think we ought to have. Unsatisfied desires, or economic scarcity, which means the same thing, are therefore inevitable. It is a condition from which there is no possible escape. The cause lies deeper than forms of social organization: it grows out of the relation of man and nature.
THE INTERNAL CONFLICT OF INTERESTS
These considerations reveal a third form of conflict—perhaps it ought to be called the second—a conflict of interests within the individual himself. If the procreative and domestic instincts are freely gratified, there will inevitably result a scarcity of means of satisfying other desires, however modest those desires may be, through the multiplication of numbers. If an abundance of these things is to be assured, those instincts must be only partially satisfied. Either horn of the dilemma leaves us with unsatisfied desires of one kind or another. We are therefore pulled in two directions, and this also is a condition from which there is no possible escape. But this is only one illustration of the internal strife which tears the individual. The very fact of scarcity means necessarily that if one desire is satisfied it is at the expense of some other. What I spend for luxuries I cannot spend for necessaries; what I spend for clothing I cannot spend for food; and what I spend for one kind of food I cannot spend for some other kind. This is the situation which calls for economy, since to economize is merely to choose what desires shall be gratified, knowing that certain others must, on that account, remain ungratified. Economy always and everywhere means a three-fold conflict; a conflict between man and nature, between man and man, and between the different interests of the same man.
THE PROBLEM OF EVIL
This suggests the twofold nature of the problem of evil. Evil in the broadest sense merely means disharmony, since any kind of disharmony is a source of pain to somebody. But that form of disharmony which arises between man and nature has, in itself, no moral qualities. It is an evil to be cold or hungry, to have a tree fall upon one, to be devoured by a wild beast, or wasted by microbes. But to evils of this kind, unless they are in some way the fault of other men, we never ascribe any moral significance whatever. It is also an evil for one man to rob another, or to cheat him, or in any way to injure him through carelessness or malice; and we do ascribe a moral significance to evils of this kind—to any evil, in fact, which grows out of the relations of man with man. But, as already pointed out, this latter form of evil—moral evil—grows out of, or results from, the former, which may be called non-moral evil. Any true account of the origin of moral evil must therefore begin with the disharmony between man and nature.
Let us imagine a limited number of individuals living in a very favorable environment, where all their wants could be freely and fully gratified, where there was no scarcity nor any need for economy. Under a harmony with nature so nearly perfect as this, there could arise none of those conflicts of interests within the individual, since the gratification of one desire would never be at the expense of some other; nor could there arise any conflict of interests among individuals, since the gratification of one individual's desire would never prevent the gratification of another's. There being no conflict of interests either within the individual or among different individuals, there could never arise a moral problem. That would be paradise. But suppose that wants should expand, or new wants develop; or suppose that, through the gratification of an elemental impulse, numbers should increase beyond any provision which nature had made. Paradise would be lost. Not only would labor and fatigue be necessary, but an antagonism of interests and a moral problem would arise. Human ingenuity would have to be directed, not only toward the problem of increasing the productivity of the earth, but toward the problem of adjusting conflicting interests. Questions of justice and equity would begin to puzzle men's brains.
It would be difficult to find in this illustration any suggestion of original sin or hereditary taint of any kind. The act which made for increase of numbers, instead of being a sinful one, for which punishment was meted out as a matter of justice, would, on the contrary, be as innocent of moral guilt as any other. But the inevitable consequence of it would be the destruction of the preexisting harmony, giving rise, in turn, to a conflict of human interests. Nor does the illustration suggest or imply any "fall" or change in human nature, but rather a change of conditions under which the same human qualities would produce different social results. Moreover, the illustration does not depend for its validity upon its historical character. That it to say, it is not necessary to show that there ever was a harmony between man and nature so nearly complete as the illustration assumes to begin with. The fundamental basis of conflict is clearly enough revealed by the illustration when it is shown to be inherent in the nature of man and of the material world about him.
This theory of the origin of evil is already embodied in a well-known story, which need not be interpreted as having a historical basis in order to have a profound meaning—more profound, probably, than its most reverent students have seen in it. Once upon a time there was a garden in which lived a man and a woman, all of whose wants were supplied by the spontaneous fruits of the earth. There was no struggle for existence, no antagonism of interests; in short, that was paradise. But the gratification of a certain desire brought increase of numbers, and increase of numbers brought scarcity, and paradise was lost. Thenceforward man was to eat his bread in the sweat of his brow. The struggle for existence had set in. Man had to contend against either natural or human rivals for the means of satisfying his wants, and every form of greed and rapacity had a potential existence. When his eyes were opened to these inherent antagonisms, that is, when he became a discerner of good and evil, of advantages and disadvantages, both near and remote, he became an economic being, an adapter of means to ends; a chooser between pleasures and pains. In short, the process of industrial civilization, of social evolution, had made its first faint beginning. The human race was caught in a network of forces from which it was never to extricate itself. It was adrift upon a current which set irresistibly outward—no man knew whither.
THE ORIGIN OF INSTITUTIONS
In this antagonism of interests, growing out of scarcity, the institutions of property, of the family, and of the state, all have their common origin. No one, for example, thinks of claiming property in anything which exists in sufficient abundance for all. But when there is not enough to go around, each unit of the supply becomes a prize for somebody, and there would be a general scramble did not society itself undertake to determine to whom each unit should belong. Possession, of course, is not property; but when society recognizes one's right to a thing, and undertakes to protect him in that right, that is property. Wherever society is sufficiently organized to recognize these rights and to afford them some measure of protection, there is a state; and there is a family wherever there is a small group within which the ties of blood and kinship are strong enough to overcome any natural rivalry and to create a unity of interests. This unity of economic interests within the group is sufficient to separate it from the rest of the world, or from other similar groups among which the natural rivalry of interests persists. Saying nothing of the barbaric notion that wives and children are themselves property, even in the higher types of society it is the desire to safeguard those to whom one is bound by ties of natural affection, by sharing the advantages of property with them, which furnishes the basis for the legal definition of the family group.
THE FUNDAMENTAL POSITION OF ECONOMICS
Closely associated with the right of property—as parts of it in fact—is a group of rights such as that of contract, of transfer, of bequest, and a number of other things with which lawyers occupy themselves. It would be difficult to find any question in the whole science of jurisprudence, or of ethics, or politics, or any of the social sciences for that matter, which does not grow out of the initial fact of economic scarcity and the consequent antagonism of interests among men. This reveals, as nothing else can, the underlying unity of all the social sciences, that is, of all the sciences which have to do with the relations between man and man; and it shows very clearly that the unifying principle is an economic one. Even the so-called gregarious instinct may very probably be the product of the struggle for existence, which, in turn, is the product of scarcity—the advantage of acting in groups being the selective agency in the development of this instinct. But that question, like a great many others, lies beyond the field of positive knowledge. This does not necessarily constitute economics as the "master science," with the other social sciences subordinate to it; but it does signify that, if there is such a thing as a master science, economics has the first claim to that position among the social sciences. The economic problem is the fundamental one, out of which all other social and moral problems have grown.
ECONOMIC COMPETITION
This conflict of man with man, when uncontrolled by society, either through moral codes or legal procedure, does not differ materially from the struggle for existence among brutes. But there is no human society which does not control the struggle in some way. In fact the one purpose for which organized society exists is that of controlling the struggle and directing it into productive channels. The self-interested individual cares nothing for production as such. What he is interested in is the acquisition of things which are scarce. If the easiest method of acquisition is that of production, then he will produce. If there is some easier way, he will pursue that way. The purpose of the law and government is to make it difficult and dangerous to acquire by any other method than that of production, or free and voluntary exchange of products, which means the same thing. In so far as the state succeeds in this attempt and thus forces all individuals to acquire by methods of production, it is justifying its existence.
When the struggle for existence is thus turned into productive channels, when every individual finds that he can acquire desirable things only by producing them, or by offering the producer something of equal value in exchange for them, then the brutal struggle for existence is transformed into economic competition. Perfect economic competition is merely a system under which each individual finds it most advantageous to acquire by productive or serviceable effort of some kind, and so, in Adam Smith's words, "to promote the public good while trying to promote his own."
When we consider that the individual's value to the rest of society is measured by the excess of his production over consumption, while his position in industry is determined by his rate of accumulation, which is merely his acquisition minus his consumption, we shall see how important it is that acquisition and production should be identified. This may be expressed by means of the following formulæ:
- The value of a man=his production—his consumption.
- His competing power=his acquisition—his consumption.
- When acquisition=production
- Then his value=his competing power.
- The purpose of the state is to make acquisition=production.
- ↑ See Harvard Classics, x, and Lecture III in this Course.
- ↑ Cf. "The Economic Basis of the Problem of Evil," by T. N. Carver, in "Harvard Theological Review," Vol. I, No. 6.
- ↑ H. C., xliv, 341-342.