Robbins - Essay Cap. 1

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AN ESSAY ON THE

NATURE ftf SIGNIFICANCE

OF ECONOMIC SCIENCE

BY

LIONEL ROBBINSProfessor of conomics in th University of London

SECOND EDITION REVISE D ND E X T E N D E D

MACMILLAN AND CO., LIMITED

ST. MARTIN'S STREET, LONDON

i945



COPYRIGHT

First Edition 1932

Second Edition, 1935

Seprtnted, 1937,1940

and 1945

PRINTED TN GKEAT BRITAIN



TO MY F THER



CHAPTER I

THE SUBJECT-MATTER OP ECONOMICS

1. THE object of this Essay is to exhibit the natureand significance of Economic Science. Its first tasktherefore is to delimit the sub ject-m atter of Economics—to provide a working definition of what Economicsis about.

Unfortunately, this is by no means as simple asit sounds. The efforts of economists during the last

hun dred and fifty years have resulted in the establish-ment of a body of generalisations whose substantialaccuracy and importance are open to question onlyby the ign orant or the perverse. B ut the y ha veachieved no una nim ity concerning th e u ltimate na tureof the common subject-matter of these generalisa-tions. The central chapters of the standard works on

Economics retail, with only minor variations, themain principles of the science. But the chapters inwhich the object of the work is explained still presentwide divergences. We all talk abo ut th e same thing s,but we have not yet agreed what it is we are talkingabout.

1

1 Lest this should be thought an overstatement I subjoin below a few

characteristic definitions. I have confined my choice to Anglo-Saxonliterature because, as will be shown later on, a more satisfactory state ofaffairs is coming to prevail elsewhere. Economics is a study of mankind inthe ordinary business of life; it examines that part of individual and socialaction which is most closely connected with the a tta inm ent and with theuse of the material requisites of well-being (Marshall, Principles, p. 1).



2 SIGNIFICANCE OF ECONOMIC SCIENCE OH.

This is no t in any way an unexpected or a disgrace-ful circum stance. As Mill pointed out a hundred years

ago, the definition of a science has almost invariably,not preceded, but followed the creation of the scienceitself. Lik e the wall of a city it has usually beenerected, not to be a receptacle for such edifices asmight afterwards spring up, but to circumscribe anaggregate already in existence.

1 Indeed, it follows

from the very nature of a science that until it has

reached a certain stage of development, definition ofits scope is necessarily impossible. For the unity ofa science only shows itself in the uni ty of the problemsit is able to solve, and such unity is not discovereduntil the interconnection of its explanatory principleshas been established.

2 Modern Economics takes its

rise from various separate spheres of practical and

philosophical enquiry—from investigations of thebalance of trade—from discussions of the legitimacyof the taking of interest.

3 It was not until quite recent

times that it had become sufficiently unified for the

E cono mics is the science which t reats pheno men a (rom the standp oint ofpr ice (Davenport , Economics of Enterprise, p . 25). Th e aim of Polit ical.Econ omy is the exp lanatio n of the general causes on w hich the m ater ial wel-fare of hum an beings dep end s (Cannan, Elementary Political Economy, p. 1) It is too wide a definition to speak of Economics as the science of them ater ial side of hu ma n welfare. Econom ics is th e stu dy of the generalmeth ods by which men co-operate to meet the ir ma teria l ne ed s (Beveridge,Economics as a Liberal Education, Economica, vol . i . , p . 3). Econom ics,according to Professor Pigou, is the study of economic welfare, economicwelfare being defined as th a t pa rt of welfare which can be bro ug ht dir ectlyor indirect ly into relat ion with the measuring rod of money (Economics of

Welfare, 3rd editio n, p . 1). The sequel will show how widely t he implication sof these definitions diverge from one another.

1 Unsettled Questions of Political Eco nomy, p. 120.

s

Nich t die 'sachlichen ̀ Zusam menh änge der 'Dinge ' sondern diegedanklichen Zusammenhänge der Probleme liegen den Arbeitagebíeten derWissenschaften zu gru nd e (Max Web er, Die Objectivilät sozialwissenschaft-licher und sozialpolitischer Erkenntnis, Oesam melle Aufsätze zur W issen-schaftslehre, p. 166).

J See Cannan, Review of Economic Theory, pp. 1-35, and Schumpeter,

Ej>ochen der îlethoden- und Dogmengeschickte, pp . 21-38.



r THE SUBJECT-MATTER OF ECONOMICS 3

identity of the problems underlying these differentenquiries to be detected. At an earlier stage, any

attempt to discover the ultimate nature of the sciencewas necessarily doomed to disaster. It would havebeen waste of time to have attem pted it.

But once this stage of unification has been reachednot only is it not waste of time to attempt precisedelimitation; it is waste of time not to do so. Furtherelaboration can only take place if the objective is

clearly indicated. The problems are no longer sug-gested by naïve reflection. They are indicated bygaps in the unity of theory, by insufficiencies in itsexplanatory principles. Unless one has grasped whatthis un ity is, one is ap t to go off on false scen ts. Therecan be little doubt that one of the greatest dangerswhich beset the modern economist is preoccupation

with the irrelevant—the multiplication of activitieshaving little or no connection with the solution ofproblems strictly germane to his subject.

1 There can

be equally little doubt that, in those centres wherequestions of this sort are on the way to ultimatesettlement, the solution of the central theoreticalproblems proceeds most rapidly. Moreover, if thesesolutions are to be fruitfully applied, if we are tounderstand correctly the bearing of Economic Scienceon prac tice, it is essential th a t we should know exactlythe implications and limitations of the generalisationsit establishes. It is therefore with an easy con-science th a t we may advance to what, a t first sight,is the extremely academic problem of finding aformula to describe the general subject-matter ofEconomics.

1 See Chapter I I. , Section 5, especially the footnote on p. 42, for further

elaboration of this point.




2. The definition of Economics which would prob-ably command most adherents, at any rate in Anglo-

Saxon countries, is that which relates it to the studyof the causes of material welfare. This element is

common to the definitions of Cannan1 and Marshall,

2

and even Pareto, whose approach3 in so many ways

was so different from th a t of the two English econo-mists, gives it the sanction of his usage. It is implied,too, in the definition of J. B. Clark.

4

And, at first sight, it must be adm itted, it certainlydoes appear as if we have here a definition which for

practical purposes describes the object of our interest.In ordinary speech there is unquestionably a sense in

which the word econom ic is used as equivalent to

material . One has only to reflect upon its signi-fication to the layman in such phrases as EconomicHistory ,6 or a conflict between economic and

political advantage , to realise the extreme plausi-bility of this interpretation. No doubt there are somematters falling outside this definition which seem to

fall within the scope of Economics, but at first sightthese may very well seem to be of the order of mar-

ginal cases inevitable with every definition.

But the final test of the validity of any such defini-tion is not its apparent harmony with certain usagesof everyday speech, but its capacity to describeexactly the ultimate subject-matter of the main

1 Wealth, 1st edition, p. 17.2 Principles, 8th edition, p. 1.

3 Court à Eamomie Politique, p. 6.

4

Essentials of Economic Theory, p . . See also Philosophy of Wealth,oh . i . In this chapter the difficulties discussed below are explicitly recog-

nised, but, surprisingly enough, instead of this leading to a rejection of the

definition, it leads only to a somewhat surprising attempt to change the

significance of the word material .8 But see Chapter II . below for an examination of the validity of this

interpretation.



i THE SUBJECT-MATTER OF ECONOMICS ö

generalisations of the science.1 And when we submit

the definition in question to this test, it is seen topossess deficiencies which, so far from being marginaland subsidiary, amount to nothing less than a com-plete failure to exhibit either the scope or the signi-ficance of the most central generalisations of all.

Let us take any one of the main divisions of theoreti-cal Economics and examine to what extent it is covered

by the definition we are examining. We should allagree, for instance, that a theory of wages was anintegral part of any system of economic analysis. Canwe be content with the assumption th at the phenomenawith which such a theory has to deal are adequatelydescribed as pertaining to the more material side ofhuman welfare?

Wages, in the strict sense of the term, are sumsearned by the performance of work at stipulated ratesunder the supervision of an employer. In the loosersense in which the term is often used in generaleconomic analysis, it stands for labour incomes otherthan profits. Now it is perfectly t rue th a t some wagesare the price of work which may be described as con-

ducive to material welfare—the wages of a sewagecollector, for instance. But it is equally true that some1 In this connection it is perhaps worth while clearing up a confusion

which not infrequently occurs in discussions of terminology. It is oftenurged that scientific definitions of words used both in ordinary languageand in scientific analysis should not depart from the usages of everydayspeech. No doubt this is a counsel of perfection, but in principle the maincontention may be accepted. Great confusion is certainly created when a wordwhich is used in one sense in business practice is used in another sense inthe analysis of such practice. One has only to think of the difficulties which

have been created by such departures in regard to the meaning of the termcapital. But it is one thing to follow everyday usage when appropriatinga term . I t is another thing to contend that everyday speech is the finalcourt of appeal when defining a science. For in this case the significantimplication of the word is the subject-matter of the generalisations of thescience. And it is only by reference to these that the definition can finallybe established. Any other procedure would be intolerable.



6 SIGN IFICA NC E OF ECONOMIC SCIENC E OH.

wages, the wages of the members of an orchestra, forinstance, are paid for work which has not th e rem otestbearing on material welfare. Yet the one set ofservices, equally with the other, commands a priceand enters into the circle of exchange. The theoryof wages is as applicable to the explanation of thelatter as it is to the explanation of the former. Itselucidations are not limited to wages which are paidfor work ministering to the more m ate rial side ofhuman well-being—whatever that may be.

Nor is the situation saved if we tu rn from the workfor which wages are paid to the things on which wagesare spent. It might be urged that it is not becausewhat the wage-earner produces is conducive to otherpeople's material welfare that the theory of wagesmay be subsumed under the description, but becausewhat he gets is conducive to his own. But this doesnot bear examination for an instant. The wage-earner may buy bread with his earnings. But he maybuy a seat at the theatre. A theory of wages whichignored all those sums which were paid for im materia lservices or spent on im m ate rial ends would be in-tolerable. The circle of exchange would be hopelesslyruptured . The whole process of general analysis couldnever be employed. It is impossible to conceive sig-nificant generalisations about a field thus arbitrarilydelimited.

It is improbable that any serious economist hasattem pted to delimit the theo ry of wages in this man-

ner, however much he may have attempted thu s todelimit the whole body of generalisations of which thetheo ry of wages is a par t. But atte m pts have certainlybeen made to deny the applicability of economicanalysis to the examination of the achievement of



i THE SUBJECT-MATTER OF ECONOMICS 7,

ends other than material welfare. No less an econo-mist than Professor Cannan has urged that thepolitical economy of war is a contradiction interms ,

1 apparently on the ground that, since Econo-

mics is concerned with the causes of material welfare,and since war is not a cause of material welfare, warcannot be part of the subject-matter of Economics.As a moral judgment on the uses to which abstractknowledge should be pu t, Professor Cannan's stricturesmay be accepted. But it is abundantly clear, asProfessor Cannan's own practice has shown, that, sofar from Economics having no light to throw on thesuccessful prosecution of modern warfare, it is highlydoubtful whether the organisers of war can possiblydo without it. It is a curious paradox that ProfessorCannan's pronouncement on this matter should occurin a work which, more than any other published inour language, uses the apparatus of economic analysisto illuminate many of the most urgent and the mostintricate problems of a community organised for war.

This habit on the par t of modern English economistsof describing Economics as concerned with the causesof material welfare, is all the more curious when wereflect upon the unanim ity with which they haveadop ted a non-material definition of prod uc tiv ity .Adam Smith, it will be remembered, distinguishedbetween productive and unproductive labour, ac-cording as the efforts in question did or didnot result in the production of a tangible material

object. The labour of some of th e most respectableorders in the society is, like that of menial servants,unproductive of any value and does not fix or realiseitself in any permanent subject or vendible commodity

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



8 SIGN IFICA NC E O P ECONOMIC SCIENC E CH.C

which endures after that labour is past. . . . Thesovereign, for example, with all the officers both ofjustice and war who serve under him are unproductivelabourers. . . . In the same class mu st be rankedsome both of the gravest and most important, andsome of the most frivolous professions: churchmen,lawyers, physicians, men of lette rs of all kind s; players,buffoons, musicians, opera singers, opera dancers,etc. . . . * Modern economists, Professor Cannanforemost among them,2 have rejected this conceptionof productivity as inadequate.

3 So long as it is the

object of demand, whether privately or collectivelyformulated, the labour of the opera singers anddancers must be regarded as pro du ctive . Butproductive of what? Of material welfare becauseit cheers the business man and releases new stores

of energy to organise the production of material?That way lies dilettantism and Wortspielerei. It isproductive because it is valued, because it hasspecific importance for various economic subjects .So far is modern theory from the point of viewof Adam Smith and the Physiocrats that the epithetof productive labour is denied even to the produc-

tion of material objects, if the material objects arenot valuable. Indeed, it has gone further than this.Professor Fisher, among others, has demonstratedconclusively

4 that the income from a material object

must in the last resort be conceived as an im m ate rial

i Wealth of Nations (Cannan's ed.), p . 316.

« Theories o f Production and Distribution, pp. 18-31; Review of EconomicTheory, pp. 49-õl.3 It is even arguable that the reaction has gone too far. Whatever its

dements, the Smithian classification had a significance for capital theorywhich in recent times has not always been clearly recognised. See Taussig,Waaes and Capital, pp. 132-151.

• The Nature o f Capital and Income, oh. vii.



THE SUBJECT-MATTER OF ECONOMICS 9

use. From my house equally as from my valet or theservices of the opera singer, I derive an income which perishes in the moment of its production .

But, if this is so, is it not misleading to go ondescribing Economics as the study of the causes ofmaterial welfare? The services of the opera dancerare wealth. Economics deals with the pricing of theseservices, equally with the pricing of the services of acook. Whatever Economics is concerned with, it isnot concerned w ith the causes of material welfare assuch.

The causes which have led to th e persistence of th isdefinition are mainly historical in character. It is thelast vestige of Physiocratic influence. English econo-mists are not usually interested in questions of scopeand method. In nine cases out of ten where thisdefinition occurs, it has probably been taken overquite uncritically from some earlier work. But, in thecase of Professor Carman, its retention is due to morepositive causes; and it is instructive to attempt totrace the processes of reasoning which seem to haverendered it plausible to so penetrating and so acutean intellect.

The rationale of any definition is usually to be foundin the use which is actually made of it. ProfessorCannan develops his definition in close juxtapositionto a discussion of th e Fu nd am ental Conditions ofWealth for Isolated Man and for Society ,

1 and it is

in connection with this discussion that he actuallyuses his conception of what is economic and what isno t. I t is no accident, it m ay be suggested, th a t ifthe approach to economic analysis is made from thispoint of view, the mate ria list definition, as we may

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



10 SIGNIFICANCE OF ECONOMIC SCIENCE en.

call it, has the maximum plausibility. This deservesvindication in some detail.

Professor Cannan commences by contemplatingthe activities of a man isolated completely fromsociety and enquiring what conditions will de-termine his wealth—that is to say, his materialwelfare. In such conditions, a division of activitiesinto econom ic and non-econom ic — activitiesdirected to the increase of material welfare and acti-

vities directed to the increase of non-material welfare—has a certain plausibility. If Robinson Crusoe digspotatoes, he is pursuing material or econom icwelfare. If he talks to the parrot, his activities are non-economic in character. There is a difficulty hereto which we must re turn la ter, bu t it is clear prima faciethat, in this context, the distinction is not ridiculous.

But let us suppose Crusoe is rescued and, cominghome, goes on the stage and talks to the parrot fora living. Surely in such conditions these conversationshave an economic aspect. W hether he spends hisearnings on potatoes or philosophy, Crusoe's gettingand spending are capable of being exhibited in termsof the fundamental economic categories.

Professor Cannan does not pause to ask whetherhis distinction is very helpful in the analysis of anexchange economy—though, after all, it is here thateconomic generalisations have the greatest practicalutility. Instead, he proceeds forthwith to considerthe fundam enta l conditions of wealth for societyconsidered as a whole irrespective of whether it is

organised on the basis of private property and freeexchanges or not. And here again his definition be-comes plausible: once more the aggregate of socialactivities can be sorted out into the twofold classi-



i THE SUBJECT-MATTER OF ECONOMICS 11

fication it implies. Some activities are devoted to thepursuit of material welfare: some are not. We think,

for instance, of the executive of a communist society,deciding to spend so much labour-time on the pro-vision of bread, so much on the provision of circuses.

But even here and in the earlier case of the CrusoeEconomy, the procedure is open to what is surelya crushing objection. Le t us accept Professor Cannan 'suse of the term s econom ic and non-economicas being equivalent to conducive to material and non-material welfare respectively. Then we may say withhim that the wealth of society will be greater thegreater proportion of time which is devoted to materialends, the less the proportion which is devoted toimmaterial ends. We may say this. But we must alsoadm it th a t, using the word econom ic in a perfectly

normal sense, there still remains an economic problem,both for society and for the individual, of choosingbetween these two kinds of activity—a problem ofhow, given the relative valuations of product andleisure and the opportunities of production, the fixedsupply of twenty-four hours in the day is to be dividedbe tween them. There is still an economic problem of

deciding between the economic and the non-econom ic .

One of the main problems of the Theory of Productionlies half outside Professor Cannan's definition.

Is not this in itself a sufficient argument for itsabandonment?

1

1 There are other quarrels which we might pick with this particula«

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



12 SIGN IFICA NC E OF ECONOM IC SCIENC E OH.

3. But where, then, are we to turn? The positionis by no means hopeless. Our critical examination

of the m ate ria list definition has brought us to apoint from which it is possible to proceed forthwith toformulate a definition which shall be immune from allthese strictures.

Let us turn back to the simplest case in whichwe found this definition inappropriate—the case ofisolated man dividing his time between the produc-tion of real income and the enjoyment of leisure. Wehave just seen that such a division may legitimatelybe said to have an economic aspect. Wherein doesthis aspect consist?

The answer is to be found in the formulation ofthe exact conditions which make such division neces-

sary. They are four. In the first place, isolatedman wants both real income and leisure. Secondly,he has not enough of either fully to satisfy his wantof each. Thirdly, he can spend his time in augment-ing his real income or he can spend it in taking moreleisure. Fo urth ly, it may be presumed th a t, save inmost exceptional cases, his want for the different con-

stituents of real income and leisure will be different.Therefore he has to choose. He has to economise. Thedisposition of his time and his resources has a re-lationship to his system of wants. It has an econo-mic aspect.

This exam ple is typ ica l of the whole field of econo-mic studies. From the point of view of the econo-

mist, the conditions of human existence exhibit fourfundamental characteristics. The ends are various.The time and the means for achieving these ends arelimited and capable of alternative application. At thesame time the ends have different importance. Here




we are, sentient creatures with bundles of desires andaspirations, with masses of instinctive tendencies all

urging us in different ways to action . But the time inwhich these tendencies can be expressed is limited.The external world does not offer full opportunities fortheir complete achievement. Life is short. Nature isniggardly. Our fellows have other objectives. Yetwe can use our lives for doing different things, ourmaterials and the services of others for achieving

different objectives.Now by itself the multiplicity of ends has no

necessary interest for the economist. If I want todo two things, and I have ample time and amplemeans with which to do them, and I do not want thetime or the means for anything else, then my conductassumes none of those forms which are the subject of

economic science. Nirvana is not necessarily singlebliss. It is merely the complete satisfaction of allrequirements.

Nor is the mere limitation of means by itself suffi-cient to give rise to economic phenom ena. If means ofsatisfaction have no alternative use, then they may bescarce, bu t th ey canno t be economised. The Mannawhich fell from heaven may have been scarce, but, ifit was impossible to exchange it for something elseor to postpone its use,

1 it was not the object of any

activity with an economic aspect.

Nor again is the alternative applicability of scarcemeans a complete condition of the existence of thekind of phenomena we are analysing. If the economic

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



14 SIGN IFICA NC E OF ECONOMIC SCIEN CE OR.

subject has two ends and one means of satisfyingthem, and the two ends are of equal importance, his

position will be like the position of th e ass in the fable,paralysed halfway between the two equally attractivebundles of hay.

1

But when time and the means for achieving endsare limited and capable of alternative application,and the ends are capable of being distinguished inorder of importance, then behaviour necessarily as-

sumes the form of choice. Every act which involvestime and scarce means for the achievement of oneend involves the relinquishment of their use for theachievement of another. It has an economic aspect.

2

If I want bread and sleep, and in the time at mydisposal I cannot have all I want of bo th, then somepa rt of my wants of bread and sleep must go unsatisfied.

If, in a limited lifetime, I would wish to be both aphilosopher and a mathematician, but my rate ofacquisition of knowledge is such that I cannot doboth completely, then some part of my wish forphilosophical or mathematical competence or bothmust be relinquished.

Now not all the means for achieving human endsare limited. There are things in the external worldwhich are present in such comparative abundancethat the use of particular units for one thing does not

1 This may seem an unnecessary refinement, and in the first edition ofthis essay I left it out for that reason. But the condition tha t there exists ahierarchy of ends is so importan t in the theory of value tha t it seems betterto state it explicitly even at th is stage. See Chapter IV., Section 2.

* Cp. Schönfeld, Grenznutzen und Wirtschaftsrechnung, p. 1; Hans Mayer,Untersuchungen zu dem Orundgesetze der w irtschaftlichen Wertrechnung (Zeit-echriftfür Volksw irtíchaft und SozialpoU lih, Bd. 2, p. 123).

I t should be sufficiently clear th at it is not tim e as such which isscarce, but rather the potentialities of ourselves viewed as instruments. Tospeak of scarcity of time is simply a metaphorical way of invoking this ratherabstract concept.




involve going without other units for others. The airwhich we breathe , for instance, is such a freecommodity. Save in very special circumstances, thefact that we need air imposes no sacrifice of time orresources. The loss of one cubic foot of air implies nosacrifice of alternatives. Units of air have no specificsignificance for conduct. And it is conceivable thatliving creatures might exist whose en ds were solimited th a t all goods for them were free goods,

that no goods had specific significance.

But, in general, human activity with its multi-plicity of objectives has not this independence of timeor specific resources. The time a t our disposal islimited. There are only twenty-four hours in th eday. We have to choose between the different usesto which they may be pu t. The services whichothers put at our disposal are limited. The materialmeans of achieving ends are limited. We have beenturned out of Paradise. We have neither eternal lifenor unlimited means of gratification. Everywhere weturn, if we choose one thing we must relinquish otherswhich, in different circumstances, we would wish notto have relinquished. Scarcity of means to satisfy

ends of varying importance is an almost ubiquitouscondition of human behaviour.

1

Here, then, is the unity of subject of EconomicScience, the forms assumed by human behaviour indisposing of scarce means. The examples we have

1 I t should be clear th at there is no disharmony between the conception

of end here employed, th e terminus of particu lar lines of conduct in acts offinal consumption, and the conception involved when it is said that thereis but one end of activity—the maximising of satisfaction, ut ility , or whatnot. Our ends are to be regarded as proximate to the achievement of thiBultimate end. If the means are scarce they cannot all be achieved, and accord-ing to the scarcity of means and their relative importance the achievementof some ends has to be relinquished.




discussed already harmonise perfectly with thisconception. Both the services of cooks and the

services of opera dancers are limited in relation todemand and can be put to alternative uses. Thetheory of wages in its entirety is covered by ourpresent definition. So, too, is the political economyof war. The waging of war necessarily involvesthe withdrawal of scarce goods and services fromother uses, if it is to be satisfactorily achieved. It

has therefore an economic aspect. The economiststudies the disposal of scarce means. He is interestedin the way different degrees of scarcity of differentgoods give rise to difíerent ratios of va luation betweenthem, and he is interested in the way in whichchanges in conditions of scarcity, whether comingfrom changes in ends or changes in means—from the

demand side or the supply side—affect these ratios .Economics is the science which studies human be-haviour as a relationship between ends and scarcemeans which have alternative uses.

1

4. It is important at once to notice certain impli-cations of this conception. The conception we haverejected, the conception of Economics as the study ofthe causes of material welfare, was what may becalled a classificatory conception. It marks off certainkinds of human behaviour, behaviour directed to theprocuring of material welfare, and designates theseas the subject-matter of Economics. Other kinds ofconduct lie outside the scope of its investigations.The conception we have adopted may be described as

amrlytical. I t does not atte m pt to pick ou t certain1 Cp. Menger, Grundsåtze der Volkswirtschaftslehre, l te Aufl . , pp. 51-70;

Mises, Die Oemeinwirtschaft, pp. 98 seq.; Fet te r , Economic Principles, ch. i . ;Strigl, Die t>konomischen Kalegorien und d ie Organisation der Wirtschaft,passim; Mayer, op. cit.




kinds of behaviour, but focuses attention on a par-ticular aspect of behav iour, the form imposed by the

influence of scarcity.1 It follows from this, therefore,that in so far as it presents this aspect, any kind ofhuman behaviour falls within the scope of economicgeneralisations. We do not say-that the production ofpotatoes is economic activity and the production ofphilosophy is not. We say rather that, in so far aseither kind of activity involves the relinquishment

of other desired alterna tives, it has its economic aspect.There are no limitations on the subject-matter ofEconomic Science save this.

Certain writers, however, while rejecting the con-ception of Economics as concerned with materialwelfare, have sought to impose on its scope a restric-tion of another nature: They have urged that thebehaviour with which Economics is concerned isessentially a certain type of social behaviour, thebehaviour implied by the institutions of the In-dividualist Exchange Economy. On this view, thatkind of behaviour which is not specifically social inthis definite sense is not the subject-matter of Econo-mics, Professor Amonn in particular has devotedalmost infinite pains to elaborating this conception.2

Now it may be freely admitted that, within the1 On the distinction between analytical and classifioatory definitions,

see Irving Fisher, Senses o f Capital Economic Journal, vol. vii., p. 213). Itis interesting to observe that the change in the conception of Economicsimplied by our definition is similar to the change in the conception ofoapital implied in Professor Fisher's definition. Adam Smith defined capitalas a kind of wealth. Professor Fisher would have us regard it as an aspect

of wealth.* See his Objeìct und Qrundbegrìffe der theoretischen Nationalõkonomie, 2 Aufl.

The criticisms of Schumpeter and Strigl on pp. 110-125 and pp. 165-156 areparticularly importan t from this point of view. With the very greatestrespect for Professor Amonn's exhaustive analysis, I cannot resist theimpression that he is inclined rather to magnify the degree of his divergencefrom the attitude of these two authors.




wide field of our definition, the atten tion of economistsis focused chiefly on the complications of the Exchange

Economy. The reason for this is one of interest. The

activities of isolated man, equally with the activitiesof the exchange economy, are subject to the lim itationswe are contemplating. But, from the point of view ofisolated man, economic analysis is unnecessary. The

elements of the problem are given to unaided reflec-tion. Examination of the behaviour of a Crusoe may

be immensely illuminating as an aid to more advancedstudies. But, from the point of view of Crusoe, it is

obviously extra-marginal. So too in the case of a

closed communistic society. Again, from the pointof view of the economist, the comparison of the

phenomena of such a society with those of the ex-

change economy may be very illuminating. But from

the point of view of the-members of the executive,the generalisations of Economics would be un-

interesting. Their position would be analogous to

Crusoe's. For them the economic problem wouldbe merely whether to apply productive power to thisor to that. Now, as Professor Mises has emphasised,given central ownership and control of the means of

production, the registering of individual pulls and

resistances by a mechanism of prices and costs is

excluded by definition. It follows therefore thatthe decisions of the executive must necessarily be

arbitrary .1 That is to say, they must be based on

its valuations—not on the valuations of consumersand producers. This at once simplifies the form of

choice. Without the guidance of a price system, the

1 See Mises, Die Gemeinwirtschaft, pp. 94-138. In his Economic Planning

in Soviet Russia, Professor Boris Brutzkus has well shown the way in whichthis difficulty has been exemplified in the various phases of the Russianexperiment.



I THE SUBJECT-MATTER OF ECONOMICS 19

organisation of production must depend on the valua-tions of the final organiser, just as the organisationof a patriarchal estate unconnected with a moneyeconomy must depend on the valuations of thepatriarch.

But in th e exchange economy the position is muchmore complicated. The implications of individualdecisions reach beyond the repercussions on the indi-vidual. One may realise completely the implicationsfor oneself of a decision to spend money in this wayrathe r tha n in th a t way. Bu t it is not so easy to tracethe effects of this decision on the whole complexof scarcity relationships — on wages, on profits, onprices, on rates of capitalisation, and the organisationof production. On the contrary, the utmost effort ofabstract thought is required to devise generalisationswhich enable us to grasp them. For this reasoneconomic analysis has most utility in the exchangeeconomy. It is unnecessary in the isolated economy.It is debarred from any but the simplest generalisa-tions by th e very raison d etre of a strictly communistsociety. But where independent initiative in socialrelationships is permitted to the individual, there

economic analysis comes into its own.

But it is one thing to contend that economicanalysis has most interest and utility in an exchangeeconomy. It is another to contend that its subject-matter is limited to such phenomena. The unjustifi-ability of this latter contention may be shown con-clusively by two considerations. In the first place, itis clear that behaviour outside the exchange economyis conditioned by the same limitation of means inrelation to ends as behaviour within the economy, andis capable of being subsumed under the same funda-




mental categories.1 The generalisations of the theory

of value are as applicable to the behaviour of isolatedman or the executive au tho rity of a communist society,as to th e behaviour of man in an exchange economy—even if they are not so illuminating in such contexts.The exchange relationship is a technical incident, atechnical incident indeed which gives rise to nearlyall the interesting complications, but still, for all that,subsidiary to the main fact of scarcity.

In the second place, it is clear th a t th e phenomenaof the exchange economy itself can only be explainedby going behind such relationships and invoking theoperation of those laws of choice which are best seenwhen contemplating the behaviour of the isolatedindividual.

2 Professor Amonn seems willing to admit

that such a system of pure Economics may be usefulas an auxiliary to Economic Science, but he precludeshimself from making it the basis of the main systemby postulating that the subject-matter of Economicsmust be defined in term s of the problems discussed byRicardo . The view th a t a definition must describe anexisting body of knowledge and not lay down arbi trarylimits is adm irable. But, it may legitimately be asked,

why stop at Ricardo? Is it not clear th a t th e imperfec-tions of the Ricardian system were due to just thiscircumstance that it stopped at the valuations of themarket and did not press through to the valuations ofthe individual? Surely it is the great achievement of

1 See Strigl, op. c it., pp . 23-28.> Professor Cassel's dismissal of Crusoe Economics (Fundamental

ThoughU, p. 27) seems unfortunate since it is only when contemplatingthe conditions of isolated man that the importance of the condition t hat thescarce means must have alternative uses if there is to be economic activity,which was emphasised above, leaps clearly to the eye. In a social economyof any kind, the mere multiplicity of economic subjects leads one to overlookthe possibility of the existence of scarce goods with no alternative uses.




the more recent theories of value to have surmountedjust this barrier?

1

5. Finally, we may return to the definition werejected and examine how it compares with thedefinition we have now chosen.

At first sight, it is possible to underestimate thedivergence between the two definitions. The oneregards the subject-matter of economics as humanbehaviour conceived as a relationship between endsand means, the other as the causes of materialwelfare. Scarcity of means and the causes of m ateria lwelfare—are these not more or less th e same thing ?

Such a contention, however, would rest upon a mis-conception. I t is true th a t the scarcity of materials isone of the limitations of conduct. But the scarcity ofour own time and the services of others is just asimportant. The scarcity of the services of the school-master and the sewage man have each their economicaspect. Only by saying that services are materialvibra tions or t he like can one stre tch th e definition tocover the whole field. But this is not only perverse,it is also misleading. In this form the definition maycover th e field, bu t it does no t describe it. For i t is notthe materiality of even mater ial means of gratification

1 The objections outlined above to the definition suggested by ProfessorAmonn should be sufficient to indicate the nature of the objections to thosedefinitions which run in terms of phenomena from the standpoint of price(Davenport), susceptibility to the measuring rod of money (Pigou), orthe science of exchange (Landry, etc .). Professor Schumpeter, in hisWesen und Hauptìnhalt der theoretischen Nationalõkonomie, has attemptedwith never to be forgotten subtlety to vindicate the latter definition bydemonstrating that it is possible to conceive all the fundamental aspects of

behaviour germane to Economic Science as having the form of exchange.That th is is correct and th at it embodies a truth fundamental to the properunderstanding of equilibrium theory may be readily admitted. But it isone thing to generalise the notion of exchange as a construction,. I t is anotherto use it in this sense as a criterion. That it can function in this way is notdisputed. But that it throws the maximum light on the ultimate nature ofour subject-matter ia surely open to question.



22 SIGN IFICA NC E OF ECONOMIC SCIENCE OH.

which gives them their status as economic goods;it is their relation to valuations. It is their rela-tionship to given wants rather than their technicalsubstance which is significant. The m ate ria listdefinition of Economics therefore misrepresents thescience as we know it. Even if it does not definitelymislead as to its scope, it necessarily fails to conveyan adequate concept of its na tu re . There seems novalid argument against its rejection.

At the same time, it is important to realise thatwhat is rejected is bu t a definition. We do not rejectthe body of knowledge which it was intended todescribe. The practice of those who have adopted itfits in perfectly with the alternative definition whichhas been suggested. There is no im po rtan t generalisa-tion in the whole range of Professor Carman's system,

for instance, which is incompatible with the definitionof the subject-matter of Economics in terms of thedisposal of scarce means.

Moreover, the very example which ProfessorCannan selects to illustrate his definition fits muchbetter into our framework than it does into his. Econom ists , he says, would agree th a t 'Did

Bacon write Shakespeare?' was not an economicquestion, and that the satisfaction which believersin the cryptogram would feel if it were universallyaccepted would no t be an economic satisfaction. . . .On the other hand, they would agree that the con-troversy would have an economic side if copyrightwere perpetual and the descendants of Bacon and

Shakespeare were disputing the ownership of theplays.

1 Exactly. But why? Because the ownership

of the copyright involves material welfare? But the

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




proceeds may all go to missionary societies. Surelythe question has an economic aspect simply and solelybecause the copyright laws supposed would make theuse of the plays scarce in relation to the demand fortheir use, and would in turn provide their owners withcommand over scarce means of gratification whichotherwise would be differently distr ibuted.

Robbins - Essay Cap. 1

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