Revolutionary Government by Elmer Ordoñez

THE OTHER VIEW

Revolutionary Government

By ELMER A. ORDOÑEZ

Francisco Nemenzo Jr., former president of the University of the Philippines, has said at a Diliman forum that the alternative to the present administration—facing a crisis of confidence—is a revolutionary government.Francisco Nemenzo Jr., former president of the University of the Philippines, has said at a Diliman forum that the alternative to the present administration—facing a crisis of confidence—is a revolutionary government. He, in effect, says that any electoral change of government within the present framework would lead only to the continuation of the rule of the elites.The last time we had a "revolutionary government" was after EDSA in 1986, with the downfall of the dictator and the swearing in of Corazon C. Aquino as president. The government was authoritarian: the Batasan Pambansa was abolished, and local government heads were appointed. She named a fifty-member Constitutional Commission to draft a charter to be ratified in a public referendum. President Aquino seemed to have full powers to correct the basic ills of Philippine society. But she didn't or couldn't exercise them.Surrounding her were traditional politicians ("trapos") and another set of oligarchs. Her defense secretary (briefly hailed as an EDSA hero) was one of those who enforced martial law. So did her military chief of staff who served as PC chief under Marcos (also hailed as a hero at EDSA). Intact was the repressive apparatus of the Marcos regime.Other members of Aquino's Cabinet included those perceived to be close to big business and American circles. Her close-in staffers were human-rights lawyers who had progressive ideas about governance (like having a fellow human rights lawyer appointed as labor secretary but who was immediately painted as a communist and subsequently fired by Aquino under pressure). In the long run the "revolutionary government" could not prevail over the powerful interests of a US-backed military and a conservative business sector.Until the election of a new Congress under the 1987 Constitution, the period of the revolutionary government was anything but revolutionary. The period before and after was marked by coups, and the repressive executive orders issued by Marcos were not repealed. But happy days were here again for the "trapos" and new oligarchs. Reports of graft and corruption came from practically all branches of government. Patronage politics became the norm. Human-rights violations continued unabated and new massacres of peasants took place (in Lupao and Mendiola).Plunder and corruption had no letup until they came to a head during the term of Estrada, now being tried by Sandiganbayan. Another People Power uprising took place in EDSA, with the vice president taking over. Now the President is embroiled in allegations of electoral fraud and illegitimacy and members of the First Family are said to be involved in jueteng scandals.Now people are thinking about a snap (special election) or a transition council (junta) to take place if the President does not survive this crisis of people's confidence. A special election for sure will not produce a revolutionary government but more of the same. A transition council (with members from the right, middle and left with conflicting interests) will also not produce a revolutionary government if, by this, we mean an administration to effect radical social change. Maybe, a few reforms.The bourgeois-led revolutions like the French (1789-99) and the Philippines (in 1896-98) succeeded in toppling the absolute monarchy and ending monastic rule but new elites took over. In the Philippines another colonial ruler co-opting the native elites intervened. The broad masses continue to live in poverty and servitude. Not much has changed since independence in 1946. The local ruling class became the surrogates of the former colonizers. No Philippine president has won without US support. Any president who strays off the US path of interests is eventually given the boot.Cuba's history runs almost parallel to that of the Philippines. A former colony of Spain, Cuba gained its independence at the turn of the century while the Philippines had to fight off US interlopers. Independent Cuba was unable to shed its feudal society and became the playground of gambling casino owners and drug and vice lords until the Cuban people led by Fidel Castro managed to throw the rascals out and install a socialist regime in 1961. The US continues to harass Cuba with trade embargo and attacks by CIA-backed Cuban exiles. And the Philippines?So, what does ex-UP head Dodong Nemenzo have in mind for a revolutionary government? Under what concrete conditions? How will it be formed? By whom and for whom? Who are its enemies and who are its friends? The idea deserves another forum.

How and What if? by A.M. Remollino

How and What If?
On the taped conversations, the legitimacy of the GMA presidency, and the validity of the laws signed by GMA

The controversy generated by the surfacing of CDs containing taped conversations allegedly between President Gloria Macapagal-Arroyo and former Election Commissioner Virgilio Garcillano has provoked a debate on whether the presidency of Malacañang’s current occupant is legitimate or not. If it is found to be indeed illegitimate, are the laws and executive orders Macapagal-Arroyo signed since assuming office in 2004 then void?

BY ALEXANDER MARTIN REMOLLINO

The controversy generated by the surfacing of CDs containing taped conversations allegedly between President Gloria Macapagal-Arroyo and Commission on Elections (Comelec) official Virgilio Garcillano has provoked a debate on whether the presidency of Malacañang’s current occupant is indeed legitimate.
Press Secretary Ignacio Bunye had released June 6 two CDs containing audio files of what he said was a taped conversation between the President and a political leader of the administration Lakas-CMD in Mindanao, southern Philippines. One of them, Bunye said, was a version purportedly altered by the opposition to make it appear that Macapagal-Arroyo had cheated in the 2004 presidential election.
Both “original” and “tampered” have portions in which a woman – said to be Macapagal-Arroyo – was asking a man (“Gary” in the “original” version, “Garci” in what Bunye called the tampered version) if she would still win by a million votes. Macapagal-Arroyo won by a million votes over her closest rival, Fernando Poe, Jr.
Days later, lawyer Alan Paguia, counsel for deposed President Joseph Estrada, came out with a longer tape, and after a few days he would be followed by National Bureau of Investigation (NBI) agent Samuel Ong who claimed to possess the “mother of all tapes.” Ong said his source was military intelligence agent T/Sgt. Vidal Doble, who denied this.
Justice Secretary Raul Gonzales had dismissed the content of the tapes as obtained from wiretapping.
The Anti-Wiretapping Law declares it unlawful for any person, “not being authorized by all the parties to any private communication or spoken word, to tap any wire or cable, or by using any other device or arrangement, to secretly overhear, intercept, or record such communication or spoken word by using a device commonly known as a dictaphone or dictagraph or dectaphone or walkie-talkie or tape recorder, or however otherwise described.”
The Department of Justice (DoJ) has been assailed for not investigating the conversation itself. Gonzales has also been criticized for claiming that the tapes were obtained by wiretapping without showing sufficient proof.
Is there need for an investigation to find out whether the contents of the tape were obtained in violation of the Anti-Wiretapping Law?
Which leads to another question. If it is eventually found that Macapagal-Arroyo assumed the presidency by fraudulent means, are all the laws and executive orders she signed rendered void?
Since her assumption of office following a hotly-contested election last year, Maqcapagal-Arroyo has signed a number of controversial laws and executive orders. Among these are the law increasing the coverage of the value-added tax, as well as an executive order pushing for a national identification system.
The new VAT law has been criticized as an added burden to ordinary people who are already weighed down by high prices of commodities and low wages, while the national ID system has been assailed as a violation of the right to privacy and a prelude to a surveilled society.
Bulatlat interviewed lawyer Neri Javier Colmenares for this article. A convenor of the Pro-People Lawyers’ Network (PLN) and the Committee for the Defense of Lawyers (Codal), Colmenares wrote a paper on the country’s party-list law for the book Subverting the People’s Will: The May 10, 2004 Elections published late last year by the Center for People Empowerment in Governance (CenPEG). He has done post-graduate work in law at the University of Melbourne.
Below are excerpts from the interview:
Justice Secretary Raul Gonzales says the contents of the taped conversation cannot be used as evidence in court because they were obtained by wiretapping. However, lawyer Marvic Leonen said in a previous interview that it was only Secretary Gonzales who said they were obtained through wiretapping and it still has to be found whether or not they were indeed obtained through wiretapping.
In fact, NBI chief Reynaldo Wycoco, in yesterday’s (June 23) hearing at the House of Representatives, himself admitted he did not know whether the conversation was wiretapped. Actually, they have no proof that it was wiretapped except whistleblower Samuel Ong, who said the tape came from the ISAFP (Intelligence Service of the Armed Forces of the Philippines).
Attorney Leonen says of Secretary Gonzales that by declaring the tapes to have been obtained by wiretapping, he admits that there was such a conversation.
Technically it’s correct.
What are the elements of RA 4200? There are three: first, there was a private conversation; second, it was tapped; and three, there was no consent from all parties.
So when Gonzales said that the conversation was wiretapped, under RA 4200 he’s admitting to the three elements.
Gonzales is rather stupid. You can quote me on that, Gonzales is rather stupid.
Attorney Leonen also said that by admitting to the existence of such a conversation, Secretary Gonzales places upon himself – as justice secretary – the burden of having to investigate the conversation itself.
You know, that is what shows the bias of the justice department and the NBI which falls under it.
Look, the tape is presented to you as a destabilization attempt. It is said to be a conversation involving President Macapagal-Arroyo. The first thing you’re going to do is to try to research whether or not it’s true or not.
What did the NBI do? Did it investigate? It did not.
The moment you prove that it’s not Macapagal-Arroyo and Garcillano who were caught on tape, that’s one question answered.
But they did not do that. What did the NBI do? Nothing. They just declared that the tapes were both tampered.
In fact the Department of Justice can be sued for dereliction of duty. There was an open call from government to investigate a crime of such magnitude, and you fail to investigate? That is tantamount to dereliction of duty.
Is the current investigation in Congress a possible venue for determining whether the contents of the tapes were obtained through wiretapping or not?
There are many possible venues.
The congressional investigation right now is – it’s really all Bunye’s fault – because he said there are two tapes, one is real and the other is fake, and the fake one is part of a destabilization plot by the opposition, so Congress reacted. The opposition in Congress argued that Bunye’s accusation had to be investigated.
House Minority Leader Francis Escudero delivered a privilege speech and the matter was referred to a number of committees and a hearing is now being conducted to find out whether the accusation is true or not.
Does Congress have the right to do it? Of course, yes.
Malacañang accused the opposition of destabilization, so they called for a congressional hearing. They have a right to do that.
What is being heard here is not whether the tapes are authentic, but whether it is true that the opposition has a destabilization effort against the government.
The problem is, instead of presenting the tape as evidence, the accusers say the tapes are inadmissible as they were obtained through wiretapping. What is that? You accuse and you should show all the evidence you have, but you’re the one saying the evidence is inadmissible. In the first place your accusation turns out to be baseless.
There can be other venues for determining whether the tapes were obtained through wiretapping.
If it is found out that the contents of the tapes were not at all obtained through wiretapping, and Gloria Macapagal-Arroyo’s presidency turns out to be really illegitimate as militant groups and other opposition forces say, do the laws and executive orders she signed retain their validity?
Yes, they’re valid. Under the Constitution they are, unless repealed. All laws are valid unless repealed. We have presidential decrees from Ferdinand Marcos that remain valid because they were not repealed specifically.
Is it because they were signed under the presumption that her presidency was legitimate?
Yes. So they remain valid and Congress has to repeal these.
That’s what sad about that. She has signed so many bad laws and executive orders and it turns out she may not have the right to sign these after all.
We just hope that Congress will repeal the VAT law and others.

Wat do you think? 

The Political Economy of Adam Smith by T.E.Cliffe Leslie

(Please refer to Adam Smith's Wealth of Nations.)

THE POLITICAL ECONOMY OF ADAM SMITH
by T. E. Cliffe Leslie
Fortnightly Review, November 1, 1870.
`Political Economy belongs to no nation; it is of no country: it is the science of the rules for the production, the accumulation, the distribution, and the consumption of wealth. It will assert itself whether you wish it or not. It is founded on the attributes of the human mind, and no power can change it.'(1) In these wordsaccompanying an admission that the Irish Land Bill, which he nevertheless defended on other grounds, `offended against the principles of political economy`Mr. Lowe gave expression last session to the conception of one school of the followers of Adam Smith, that Political Economy is, not what Adam Smith called his own treatise, `An Inquiry into the Nature and Causes of the Wealth of Nations,' but a final answer to the inquirya body of necessary and universal truth, founded on invariable laws of nature, and deduced from the constitution of the human mind.
I venture to maintain, to the contrary, that political economy is not a body of natural laws in the true sense, or of universal and immutable truths, but an assemblage of speculations and doctrines which are the result of a particular history, coloured even by the history and character of its chief writers; that, so far from being of no country, and unchangeable from age to age, it has varied much in different ages and countries, and even with different expositors in the same age and country; that, in fact, its expositors, since the time of Adam Smith, are substantially divisible into two schools, following opposite methods; and that the method of one of them, of which the fundamental conception is, that their political economy is an ascertained body of laws of nature, is an offshoot of the ancient fiction of a Code of Nature and a natural order of things, in a form given to that fiction in modem times, by theology on one hand, and a revolt against the tyranny of the folly and inequality of such human codes as the world had known on the other.
No branch of philosophical doctrine, indeed, can be fairly investigated or apprehended apart from its history. All our systems of politics, morals, and metaphysics would be different if we knew exactly how they grew up, and what transformations they have undergone; if we knew, in short, the true history of human ideas. And the history of political economy, at any rate, is not lost. It would not be difficult to trace the connection between every extant treatise prior to the `Wealth of Nations,' and conditions of thought at the epoch at which it appeared. But there is the less occasion, for the purpose of these pages, or of ascertaining the origin and foundation of the economic doctrines of our own day, to go behind the epoch of Adam Smith, that he has himself traced the systems of political economy antecedent to his own to a particular course of history, to `the different progress of opulence in different ages and nations,' and `the private interests and prejudices of particular orders of men.' What he did not see was, that his own system, in its turn, was the product of a particular history; that what he regarded as the System of Nature was a descendant of the System of Nat-are as conceived by the ancients, in a form fashioned by the ideas and circumstances of his own time, and. coloured by his own disposition and course of life. Still less could he see how, after his time, `the progress of opulence' would govern the interpretation of his doctrines, or how the system he promulgated as the system of liberty, justice, and divine benevolence, would be moulded into a system of selfishness by `the private interests and prejudices of particular orders of men.'
`The Wealth of Nations,' says Mr. Buckle, `is entirely deductive. Smith generalizes the laws of wealth, not from the phenomena of wealth, but from the phenomena of selfishness. He makes men naturally selfish; he represents them as pursuing wealth for sordid objects, and for the narrowest personal pleasures.(2) This description is not misapplied to a political economy of later days, which has guided Mr. Buckle's interpretation of the system of Adam Smith; but with respect to that system itself, it involves two fundamental misconceptions. Selfishness was not the fundamental principle of Adam Smith's theory; and his method, though combining throughout a vein of unsound a priori speculation, was in a large measure inductive. The investigation which establishes this will be found also to exhibit the connection between his economic system and the chief problems pressing for solution in his time; the methods which the philosophy of the age provided for their solution; and the history and phenomena of the economic world in which he lived, and from which his ideas, his inductions, and his verifications were drawn.
One consideration to be carried in mind in the interpretation of the `Wealth of Nations' is that its author's system of philosophy ought to be studied as a whole; his economic system was part of a complete system of social, or, as he called it, moral philosophy. Mr. Buckle, who on other points has much misconceived the `Wealth of Nations,' properly says of it, and the `Theory of Moral Sentiments,' that the two must be taken together and considered as one, both forming part of the scheme embraced in his course of moral philosophy at Glasgowa course which, it is important to observe, began with Natural Theology, and included, along with Ethics and Political Economy, the Philosophy of Law. Again, as his social philosophy should be considered as a whole, so the whole should be considered in connection with the philosophical systems or methods of investigation of his time. Two `essentially opposite systems of reasoning respecting the fundamental laws of human society were before the world at that epoch, which may be respectively designated as the theory of a Code of Nature, and the inductive system of Montesquieuthe former speculating a priori about `Nature,' and seeking to develop from a particular hypothesis the `Natural' order of things; the latter investigating in history and the phenomena of the actual world the different states of society and their antecedents or causesor, in short, the real, as contrasted with an ideal, order of things. The peculiarity of Adam Smith's philosophy is, that it combines these two opposite methods, and hence it is that we have two systems of political economy claiming descent from himone, of which Mr. Ricardo was the founder, reasoning entirely from hypothetical laws or principles of nature, and discarding induction not only for the ascertainment of its premises, but even for the verification of its deductive conclusions; the otherof which Malthus in the - generation after Adam Smith, and Mr. Mill in our own, may be taken as the representativescombining, like Adam Smith himself, the a priori and the inductive methods, reasoning sometimes, it is true, from pure hypotheses, but also from experience, and shrinking from no corrections which the test of experience may require in deductions. Of the two schools, distinguished by their methods, the first finds in assumptions respecting the nature of man, and the course of conduct it prompts, a complete `natural' organization of the economic world, and aims at the discovery of `natural prices,' `natural wages,' and `natural profits.'
An examination of Adam Smith's philosophy enables us to trace to its foundation the t theory upon which the school in question has built its whole superstructure. We shall see that the original foundation is in fact no other than that theory of Nature which, descending through Roman jural philosophy from the speculations of Greece, taught that there is a simple Code of Nature which human institutions have disturbed, though its principles are distinctly visible though them, and a beneficial and harmonious natural order of things which appears wherever Nature is left to itself. In the last century this theory assumed a variety of forms and disguises, all of them, however, involving one fundamental fallacy of reasoning a priori from assumptions obtained, not by the interrogation but by the anticipation of Nature; what is assumed as Nature being at bottom a mere conjecture respecting its constitution and arrangements. The political philosophy flowing from this ideal source presents to us sometimes an assumed state of nature or of society in its natural simplicity; sometimes an assumed natural tendency or order of events, and sometimes a law or principle of human nature; and these different aspects greatly thicken the confusion perpetually arising between the real and the ideal, between that which by the assumption ought to be and that which actually is. The philosophy of Adam Smith, though combining an inductive investigation of the real order of things, is pervaded throughout by this theory of Nature, in a form given to it by theology, by political history, and by the cast of his own mind. `The great and leading object of his speculations,' says Dugald Stewart, by no means intending a criticism, for Mr. Maine had not then explored the fallacies lurking in the terms Nature and Natural Law, `is to illustrate the provisions made by Nature in the principles of the human mind, and in the circumstances of man's external situation, for a gradual and progressive augmentation in the means of national wealth, and to demonstrate that the most effectual means of advancing a people to greatness is to maintain that order of things which Nature has pointed out.' At the end of Book IV. of the `Wealth of Nations' we find the Code of Nature and its institutions definitely marked out: `All systems either of preference or restraint being completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. According to the system of natural liberty, the State has only three duties to attend to:' namely, to protect the nation from foreign aggressions, to administer justice, and to maintain certain great institutions beyond the reach of individual enterprisea supposed natural limitation of the province of law and government which has been the cause of infinite error in both theoretical political economy and practical legislation.
The same fundamental conception pervades both Smith's system of ethics and his philosophy of law. Investigating the character of virtue, he treats first of `the order in which Nature recommends objects to the care of individuals' for their own personal happiness; next, of `the order which Nature has traced out for the direction of our powers of beneficence: first, towards other individuals; and, secondly, towards societies.' So, in the description given by himself of his proposed history of jurisprudence, he states that `every system of positive law may be regarded as a more or less imperfect attempt towards a system of natural jurisprudence;' and that the main end of jural inquiry is to ascertain `what were the natural rules of justice, independent of all positive institutions `a description, perfectly coinciding with Mr. Maine's, of the place which the law of Nature filled in the conception of the Roman jurist. `After Nature had become a household word, the belief gradually prevailed among the Roman lawyers that the old Jus Gentium was in fact the lost Code of Nature. The Roman conceived that, by careful observation of existing institutions, parts of them could be singled out which either exhibited already, or could by judicious purification be made to exhibit, the vestiges of the reign of Nature.'(3)
But abstraction would never have played so great a part in Adam Smith's philosophy, would never have resulted in such sweeping generalizations respecting the beneficent and equitable economy resulting from the play of the natural inclinations and individual interests of men, had not the classical conception of Nature's harmonious code become blended with the theological conception of `that great, benevolent, and all-wise Being, who directs all the movements of Nature, and who is determined to maintain in it at all times the greatest possible quantity of happiness.' Ideas thus derived from early philosophy became converted into the plans of Providence. Mr. Buckle displays less than his customary erudition when he states that theology had been finally separated from morals in the seventeenth centuryfrom politics before the middle of the eighteenth.
Natural theology makes the first part of Adam Smith's course of moral philosophy, and its principles pervade every other part. The law of Nature becomes with him an article of religious belief; the principles of human nature, in accordance with the nature of their Divine Author, necessarily tend to the most beneficial employments of man's faculties and resources. And as the classical conception of Nature supposed simplicity, harmony, order, and equality in the moral as in the physical world, in Adam Smith's philosophy it becomes associated with divine equity and equal benevolence towards all mankind, and by consequence with a substantially equal distribution of wealth, as the means of material happiness. Nothing, therefore, is needed from human legislationand this conclusion was powerfully fortified, as we shall afterwards see, by the political ideas of the agebeyond the maintenance of equal justice and security for every man to pursue his own interest in his own way. In the `Wealth of Nations,' after laying it down that every individual endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, and Therefore necessarily labours to render the annual revenue of his own nation as great as he can, Adam Smith adds: `He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry that its freedom 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.'
So in the `Theory of Moral Sentiments:(4) `The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and, in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhabitants; and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.'
The mischief done in political economy by this assumption respecting the beneficent constitution of Nature, and therefore of all human inclinations and desires, has been incalculable. It became an axiom of science with many economists, and with all English statesmen, that by a natural law the interests of individuals harmonize with the interests of the public; and one pernicious consequence is, that the important department of the consumption of wealth hasthough Mr. Lowe properly includes it in his definition of political economybeen in reality either altogether set aside, as lying beyond the pale of economic investigation, or passed over with a general assumption, after the manner of Mandeville, that private vices are public benefits. The real interests which determine the production, and subsequently, in the course of consumption, in a great degree the distribution, of wealth, are the interests of consumers; although the truth is veiled by the division of labour, the process of exchange, and the intervention of money, which makes wealth in the abstract, or pecuniary interest, seem the motive of producers. If every man produced for himself what he desires to consume or use, it would be patent how diverse are the interests summed up in one vague general term, self-interestinterests which vary in different individuals, different classes, different nations, and different states of civilization. And economic investigation would long since have penetrated beneath the surface of pecuniary interest to the widely different character of the real aims determining the nature and uses of wealth, but for that assumption of an identity between public and private interest which Adam Smith's authority converted into an axiom. Under its influence we find him assuming that the great landowners of the sixteenth century, in enclosing their `manors and dismissing tenants, retainers, and labourers, to purchase luxuries for themselves, employed no less national labour than before; although the land fed sheep instead of men, and the wool of the sheep, in place of clothing labourers at home, went from the country to foreigners in exchange for wines, silks, velvets, and trinkets, for the personal consumption of the lord of the manor. When William the Conqueror afforested at once some three-score parishes, he did only what landowners have done from the fifteenth century to the present time. To take the children's food and give it unto dogs is, by this reasoning, to give it back to the children!
The Nature hypothesis had, however, with Adam Smith another powerful ally besides theology in the idea of liberty. The idea of civil and religious liberty, of resistance to arbitrary government and unequal laws, of confidence in individual reason and private judgment as opposed to the dictates of external authority, had begun even in the seventeenth century to spread from the world of religion and politics to the daily business of life. At the beginning of the second half of the eighteenth century the predominant form which this idea took was the liberation of individual effort in the world of industry and trade from oppressive restrictions and arbitrary and unequal imposts; and it found in the Code of Nature a quasi-philosophical basis on which to build a complete economic `system of natural liberty.' The French Revolution, of which the seeds were then being sown by the Economistes (or Physiocrates, as they were afterwards called, from the name they gave to their system, a name denoting the government of society by nature or natural laws), was, in its origin, an economic revolution, a `rebellion of the belly,' stirred up ab initio by the Economistes, who saw in the fetters and insecurity of industry the cause of the poverty of France, and in the superior freedom and security of its cultivators and tradespeople the secret of the superior prosperity of Great Britain. Living in such a world of human misgovernment and suffering toil, beholding, as the Physiocrates did, all the natural sources of wealth locked up by human laws, it is not surprising that the doctrine of a Code of Nature, of natural rights of liberty and property, of a natural organization of society for the increase of human prosperity and a just distribution of the fruits of the earth and of industry, came upon them like a new revelation, and carried the authority of one. Thus, like Adam Smith, on whom their doctrines had no small influence, the Physiocrates invested the ideal Code of Nature, which had come to them through the lawyers of their country from the jurisprudence of Rome, with a divine origin, and found in it a complete circumscription and definition of the province of human sovereignty. The three same fundamental conceptions derived from the three same sourcesfrom Graeco-Roman speculation, from Christian theology, and from the revolt of the age against arbitrary interference with private industry and unequal imposts on the fruits of labour, formed the groundwork of the political economy of Adam Smith and the Physiocrates: the sole difference in this respect is, that the latter gave the name political economy to the whole of social philosophy, while Adam Smith limits the particular name to a department of social philosophy relating to wealth, and that they enunciated these doctrines as laws of Nature and God with more passionate emphasis. Adam Smith had not derived any of the three fundamental ideas of his political economy from the Physiocrates for those ideas came to both from the history and philosophy of the past, and from the circumstances of the agebut he was strongly confirmed in them by his visits to France, his personal intercourse with them, and his study of their writings; he caught from them, moreover, not only particular propositions and expressions, but something of the form which his doctrine of natural distribution has taken, and also the precise limitation which he gives to the functions of the State.
Smith was himself so sensible of his debt to the Physiocrates, that he not only speaks of Quesnay's system as `the nearest approximation to the truth that had been published upon the subject of political economy,' but was prevented only by Quesnay's death from dedicating to him his own great treatise. He was, however, under a much more solid obligation to a much greater Frenchman, the illustrious Montesquieu. Mr. Buckle, who in his excellent chapters on the `Intellectual History of France' justly traces to England the origination of the spirit of liberty which in the eighteenth century took possession of French philosophy, nevertheless does injustice at once to France and to Great Britain in overlooking the influence of Montesquieu over Scotch philosophy in Adam Smith's age. And the same oversight, coupled with a view of political economy which Mr. Buckle himself adopted from Ricardo and his school, leads him to describe Adam Smith's method as entirely deductive. The philosophy of Great Britain, Mr. Buckle affirms, owes nothing to France; and he represents the intellect of Scotland as having~ under clerical guidance, become wholly deductive, referring as a crucial example to Adam Smith, Scotland's most eminent political philosopher. The clerical system of deductive reasoning certainly runs through and warps the whole philosophy of Adam Smith. Nevertheless, his philosophical love of truth, and of interrogating nature itself in its real phenomena, and the inductive method of doing so which Scotch philosophy in his age had adopted from Montesquieu, preserved him from many errors into which the method of deduction from assumptions respecting Nature and its laws has led one school of his followers, which at the present day is not backward in claiming the clerical prerogative of orthodoxy. It has already been observed that two opposite systems of reasoning were before the world in Adam Smith's age, and that he combined them boththe system of reasoning from a theoretical law of Nature, and the historical inductive method of Montesquieu, which traces the real order of things, and seeks in the circumstances and history of society the explanation of its different states in different ages and countries. The latter method had a powerful attraction for a new school of political and jural philosophy in Scotland to which Adam Smith belonged. Lord Kaimes, his literary patron, and Millar, his own pupil, alike followed Montesquieu's method. Dalrymple, also a disciple of Lord Kaimes, states in the dedication of his `History of Feudal Property`a work which seems to have afforded Adam Smith not a few important suggestionsthat much of his manuscript had actually been `revised by the greatest genius of the age, President Montesquieu.' And Millar expressly states that in his lectures on the Philosophy of Law, his great master `followed the plan which seems to have been suggested by Montesquieu; endeavouring to trace the gradual progress of jurisprudence from the earliest to the most refined ages, and to point out the effect of those arts which contribute to subsistence and to the accumulation of property in producing corresponding improvements in law and government.' But, as Mr. Buckle himself says, Adam Smith's political economy and the rest of his philosophy were `part of a single scheme.' And a comparison of Books iii., iv., and v. (chapter i.) of the `Wealth of Nations' with Adam Smith's own description, on the one hand, of the work he had previously contemplated on the History of Law, and Millar's account of his lectures, on the other, shows how closely connected were his economic and his jural researches. So closely indeed were they so, that internal evidence confirms the statement of Dugald Stewart, that he actually published in the `Wealth of Nations' a valuable part of the work he had long before announced on the jural history of mankind; and we have in this fact a probable explanation of the story that he destroyed a few days before his death the manuscript of his lectures on jurisprudence. He preserved in the `Wealth of Nations' what he probably thought their most valuable results.(5)
The problem which Adam Smith proposed to himself was by no means only the illusive one, What is a priori the order of Nature, or `the natural progress of opulence?' He inquired further' What had been the actual order of things, the actual progress of opulence, and its causes?' What had occasioned the slow progress of Europe from the time of the barbarian conquests down to modern times? What the more rapid advance of Great Britain than of France and other parts of the continent? To answer these inquiries he subjected the phenomena of history and the existing state of the world to a searching investigation, traced the actual economic progress of different countries, the influences of laws of succession, and of the political distribution of property, the action and reaction of legal and industrial changes, and the real movements of wages and profits so far as they could be ascertained. Nor was he content with the inductions of the closet from written evidencethough necessarily the most important field of inductive investigation in social philosophyhe compared all the phenomena which careful personal observation, both in his own country and in France, had brought under his view. In short, he added to the experience of mankind a large personal experience for inductive investigation. Even the Physiocrates, although their study of actual phenomena was much less comprehensive and minute, though they were far more given to accepting at once their own unverified ideas as laws of nature, yet by no means neglected experience entirely. They had studied the economic condition of their own country, and compared it with what they knew of Great Britain; and they believed their theories of the natural order of things founded on the evidence of the results of interference with industry and spoliation of its fruits on the one hand, and of individual liberty and security of property on the other. The extent to which observation guided their doctrines is remarkably illustrated by their division substantially into two schools, whose conclusions, though converging in the main, were reached by different paths of personal experience, and moulded by it. Quesnay, the son of a small farmer, reared in the country amid the sufferings of the peasantry and the stagnation of agriculture under despotic restriction and ruinous imposts, and knowing of what imprisoned riches the soil was possessed, taught that land was the sole original source of wealth, agriculture the sole really productive employment, to whose fruits other industries gave only changes of form or place. Gournay, on the other hand, a merchant himself, and of a line of merchants, made the freedom of trade his staple doctrine, and summed up in the maxim, Laissez faire et passer, the duties of government.(6) The distinction exemplifies, moreover, that influence of personal history on the forms of political economy to which reference has been made.
There ran thus through the political economy of both Adam Smith and the Physiocrates, though much more extensively and systematically in the former, a combination of the experience philosophy, of inductive investigation, with a priori speculation derived from the Nature hypothesis. Hence, while on one hand the inductive method preserved the great Scotchman from grave errors into which not a few of his English followers in the mother-country of inductive philosophy have been led by the a priori method, on the other hand the bias given by preconceived ideas was so strong in the case of Smith himself, as to cause him to see in all his inductions proofs of a complete code of nature of a beneficent order of nature flowing from individual liberty and the natural desires and dispositions of men. Like the Physiocrates, he blended the so-called `evidence,' or self-evidence, of the law of nature in itself, with the evidence of phenomena carefully collated and sifted. The truth is, that Smith wrote before the physical sciences had developed canons of induction, and he thought an induction complete when he had obtained an immense number of instances, and a theory proved when it seemed to fit every observed case. Throughout history, and over Europe, he saw nothing but disorder and misery from such human legislation as the world had known, wherever it went beyond protecting personal liberty and property; he saw on all sides a mass of poverty traceable to State interference; the only sources of whatever wealth and prosperity existed were the natural motives to industry, and the natural powers of production of individual men, and he leaped to the conclusion that nothing was requisite but to leave Nature to itself, that complete harmony existed between individual and public interests, and that the natural conduct of mankind secured not only the greatest abundance, but an equal distribution of wealth. He thought he found in phenomena positive proof of the Law of Nature, and of the character of its enactments. We find here the explanation of the seeming contradiction which Adam Smith's combination of the theory of natural Law with the inductive historical method gives to Mr. Maine's proposition `that the book of Montesquieu, with all its defects, still proceeded on that Historical Method, before which the Law of Nature has never maintained its footing for an instant.' It is incontrovertible that historical investigation convicts the Nature hypothesis of reproducing a mere fiction of ancient philosophy; nevertheless Adam Smith, partly under the bias given by the theory itself, partly because the method of interrogating Nature itself was new, and the canons of induction unsettled, conceived that the method of Montesquieu proved the truth of the theory of Nature; in short, that nature, when interrogated, confirmed his anticipations of Nature.
One cause of the misconception that Adam Smith's economic method was one of mere a priori deduction is the arrangement he has adopted in the order of the five books of the `Wealth of Nations.' In the order of logic the third and fourth books come before the first and second. They contain the induction on which is based the conclusion that the State has only to protect individual liberty, and the natural effort of every individual to better his own conditionor, in one word (with which his first book begins), labourwill supply in the most ample manner all the necessaries and conveniences of life, will divide its functions spontaneously in the best manner, and will distribute its produce in a natural order, and with the utmost equality. It has already been suggested that no such complete organization for the distribution of wealth is made by individual action, or what Adam Smith called Nature. Mr. Mill has shown the fallacy of defining political economy as the science of exchanges; a definition which, besides omitting some of the most important conditions determining the production of wealth, overlooks the truth that human institutions, laws of property and succession, are necessarily chief agencies in determining its distribution. And it affords an instructive exemplification of the two methods which Adam Smith combined, a priori deduction from supposed principles of Nature, and inductive investigation of facts, that when the order of Nature is present to his mind, he finds a complete natural organization for the distribution of wealth, and no function for the State in the matter; but when he traces the actual progress of opulence, his readers are confronted at once with laws of succession, to which he traces the slow and irregular course of European progress after the barbarian conquests;. laws founded on those conquests, and designed to perpetuate the unequal distribution of wealth they effected; laws which are potent agencies in the distribution of wealth in England to this day, and in the determination of its whole social and industrial economy.
But even while tracing in his first book the `natural' distribution of wealth by exchange, or as he expresses it, `the order according to which the produce of labour is naturally distributed among the different ranks of the people,' Adam Smith has been preserved by the inductive method which he combined with a priori deduction from enormous fallacies into which the school of Ricardo has since been betrayed by their method of pure deduction. The ancient theory of natural law involved the idea of uniformity and equality; and this idea in Adam Smith's case was powerfully reinforced both by that of an ideal order deducible from the equity and equal benevolence towards mankind of the Author of Nature, and by the love of system, symmetry, and harmonious arrangement which plays a conspicuous part in the `Theory of Moral Sentiments,' because it did so in the author's own mind. With all these conceptions the theory of a complete equality of the advantages and disadvantages of different human occupations, and an equality, in that sense, of wages and profits, had obviously a powerful attraction for Smith. It affords surprising evidence of his true philosophical spirit of inquiry into facts that he should nevertheless have denied the actual equality of wages and profits, traced the great actual inequalities to their causes, and defined the conditions of equality and inequality, and the actual effect of industrial progress on these movements, in such a manner as to indicate the very progressive divergence which can be shown to have since taken place, and which a school of modern economists not only ignores, but sometimes angrily denies, as inconsistent with its a priori deductions. Adam Smith, for his own part, not only limited ab initio the tendency to equality to what was practically the same neighbourhood, but pointed out that the kingdom was in fact divided into a number of different neighbourhoods with very different rates. Secondly, he traced many of the actual inequalities to pernicious institutions, a class of causes of inequality which later economists have done much to perpetuate by affirming a substantial equality. Thirdly, in place of insisting that competition alone determines the rate of wages, and gives the labourer the utmost value of what he produces, Adam Smith maintained that combination on one hand, tacit or open, on the part of employers, was the normal condition of things; while, on the other, the necessitous position of the labourer exposed him to the exaction of very unequal terms. Fourthly, he expressly confined the tendency to equality in the case of both wages and profits, even where competition was in full and free activity, to a stationary and simple condition of the industrial world. Fifthly, he showed that in place of equalizing wages, industrial progress had already produced great inequalities in England, and was beginning to do so in Scotland.
After observing that the price of labour varied much more in England than in Scotland, he adds: `In the last century the most usual day wages of common labour through the greater part of Scotland were sixpence in summer and fivepence in winter. Three shillings a-week, the same price very nearly, still continues to be paid in some parts of the Highlands. Through the greater part of the low country the most usual wages of common labour are now eightpence a-day; tenpence, and sometimes a shilling about Edinburgh, in the counties which border upon England, and in a few other places where there has lately been a considerable rise in the demand for labour, about Glasgow, Carron, Ayrshire, &c. In England the improvements of agriculture, manufactures, and commerce began much earlier than in Scotland. The demand for labour, and consequently its price, must necessarily have increased with those improvements.'
Manufactures and trade on a great scale were only beginning in Scotland; the steam-engine had not yet been brought to bear on the mine or the loom when the `Wealth of Nations' was composed; and the great inequalities in the local demand for labour throughout the kingdom, which have followed in the wake of steam, were yet to appear. Adam Smith, in truth, lived in a very early industrial world; the only steam-engine he refers to is Newcomen's; the word `manufacture' had not lost its true meaning and become as inappropriate as hideous. In the clothing manufacture, he expressly says, the division of labour was nearly the same as it had been for a century, and the machines employed were the same; adding that only three improvements in them of any importance had taken place since the reign of Edward IV. In place of the infinite diversities of complexity and difficulty in the different employments of capital which have followed the progress of mechanics and chemistry, all modes of employing capital were, he says, about equally easy. The foreign trade of the kingdom was so small that he computed the annual importation of corn at only 23,000 quarters, and concluded that the freest importation never could sensibly affect. prices in the home market.
In short, he applied the doctrine of equality only to a simple and almost stationary condition of industry and neighbourhood trade, in which few changes in the mode of production or the channels of trade took place from one century to another, and in which the inhabitants of each neighbourhood might comparatively easily estimate the profits and prospects of each different employment; and even to such a world, only with many modifications and exceptions. To such a world, in positive terms, he limited the tendency to equality which has been made by his successors, not only an unconditional assumption, but the basis of finance. The truth is, that the doctrine of a tendency to equality is a mere theorem in political economy; and a theorem which imports the tendency only under special conditions well enunciated by Adam Smithconditions the opposites of those which prevail in the present industrial world.
A state of the industrial world which was exceptional in Adam Smith's time is the normal state in our own; and it is certain, both from his positive doctrine and from his close attention to the realities of life, that had he lived even two generations later, his general theory of the organization of the economic world and the results of the competition for economic life would have been cast in a very different mould. Alike in the theory of Nature which pervades his entire philosophy of society, and in his general conceptions of the industrial world, we trace the influence of the early world in which he lived. One striking example of this is that one-half of society has been almost entirely overlooked in his philosophy. His language appears at first sight to point to unrestricted liberty as the unconditional principle of a true political economy, and the -indispensable requisite of the full development of the economic resources of nature; but on closer inspection it will be found that where he speaks of `the natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security,' as the cause of national wealth and prosperity, he had only the half of the nation denoted by the masculine pronoun in his mind; he meant only what he elsewhere says, `the natural effort of every man.' He seems to have been perfectly contentthough it involves an inconsistency which is fatal to his whole theorywith the existing restraints on the energies of women; and the only effort on the part of a woman to better her own condition which he has in view is `to become the mistress of a family.' In the only passage m the `Wealth of Nations' in which women are referred to, we discover at once how far was he from having developed universal laws of industry and wealth, how far he was from escaping from the ideas of a primitive world. `There are,' he said, `no public institutions for the education of women, and there is accordingly nothing useless, absurd, or fantastical, in the common course of their education. They are taught what their parents or guardians judge it necessary or useful for them to learn, and they are taught nothing else. Every part of their education tends evidently to some useful purposeeither to improve the natural attractions of their person, or to form their minds to reserve, to modesty, to chastity, and to economy; to render them both likely to become the mistresses of a family, and to behave properly when they have become such. In every part of her life a woman feels same convenience or advantage from every part of her education.'
Although `the obvious and simple system of natural liberty' is the foundation of Smith's whole system, though he regarded it as the law of the beneficent Author of Nature, it turns out that he applied it only to one-half of mankind. The reason is that the law and the exception alike came to him from the age in which he lived, and the ideas of a yet earlier state of society. The insurrection against the oppressive and unequal economic regime of the past was as yet only on the part of men; and the very theory of the Law of Nature which men invoked for their own emancipation, as it was the offspring of the speculation of the ancient world, so it bore the impress of its narrowness and injustice.
NOTES:
1. Speech on the Irish Land Bill, April 4th, 1870.
2. History of Civilization in England, i. 228; ii. 449.
3. Ancient Law, pp. 56, 88.
4. Theory of Moral Sentiments. Part iv., chap. i.
5. An eminent Scotch philosopher of the present day, Mr. Alexander Bain, has expressed to me a doubt that Adam Smith destroyed anything which he considered valuable; adding, that be was little disposed to consider anything to which he had given research and thought of small value. The preservation of the chief results of his jural studies in the Wealth of Nations reconciles Mr. Bain's opinion on this point with the destruction of the manuscripts, of which there seems to me conclusive evidence.
6. Les Économistes Français du XVIIIme Siècle, by M. Léonce de Lavergne, pp. 173-6.

The Limitations of Marginal Utility by Thorstein Veblen

The Limitations of Marginal Utility
Thorstein Veblen1909
Journal of Political Economy, volume 17.

The limitations of the marginal-utility economics are sharpand characteristic. It is from first to last a doctrine of value,and in point of form and method it is a theory of valuation. Thewhole system, therefore, lies within the theoretical field ofdistribution, and it has but a secondary bearing on any othereconomic phenomena than those of distribution -- the term beingtaken in its accepted sense of pecuniary distribution, ordistribution in point of ownership. Now and again an attempt ismade to extend the use of the principle of marginal utilitybeyond this range, so as to apply it to questions of production,but hitherto without sensible effect, and necessarily so. Themost ingenious and the most promising of such attempts have beenthose of Mr Clark, whose work marks the extreme range of endeavorand the extreme degree of success in so seeking to turn apostulate 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 matterof valuation; which throws the whole excursion back into thefield of distribution. Similarly, as regards attempts to make useof this principle in an analysis of the phenomena of consumption,the best results arrived at are some formulation of the pecuniarydistribution of consumption goods. Within this limited range marginal utility theory is of awholly statical character. It offers no theory of a movement ofany kind, being occupied with the adjustment of values to a givensituation. Of this, again, no more convincing illustration needbe had than is afforded by the work of Mr. Clark, which is notexcelled in point of earnestness, perseverance, or insight. Forall their use of the term "dynamic", neither Mr. Clark nor any ofhis associates in this line of research have yet contributedanything at all appreciable to a theory of genesis, growth,sequence, change, process, or the like, in economic life. Theyhave had something to say as to the bearing which given economicchanges, accepted as premises, may have on economic valuation,and so on distribution; but as to the causes of change or theunfolding sequence of the phenomena of economic life they havehad nothing to say hitherto; nor can they, since their theory isnot drawn in causal terms but in terms of teleology. In all this the marginal utility school is substantially atone with the classical economics of the nineteenth century, thedifference between the two being that the former is confinedwithin narrower limits and sticks more consistently to itsteleological premises. Both are teleological, and neither canconsistently admit arguments from cause to effect in theformulation of their main articles of theory. Neither can dealtheoretically with phenomena of change, but at the most only withrational adjustment to change which may be supposed to havesupervened. To the modern scientist the phenomena of growth and changeare the most obtrusive and most consequential facts observable ineconomic life. For an understanding of modern economic life thetechnological advance of the past two centuries -- e.g., thegrowth of the industrial arts -- is of the first importance; butmarginal utility theory does not bear on this matter, nor doesthis matter bear on marginal utility theory. As a means oftheoretically accounting for this technological movement in thepast or in the present, or even as a means of formally,technically stating it as an element in the current economicsituation, that doctrine and all its works are altogether idle.The like is true for the sequence of change that is going forwardin the pecuniary relations of modern life; the hedonisticpostulate and its propositions of differential utility neitherhave served nor can serve an inquiry into these phenomena ofgrowth, although the whole body of marginal utility economicslies within the range of these pecuniary phenomena. It hasnothing to say to the growth of business usages and expedients orto the concomitant changes in the principles of conduct whichgovern the pecuniary relations of men, which condition and areconditioned by these altered relations of business life or whichbring them to pass. It is characteristic of the school that whatever an elementof the cultural fabric, an institution or any institutionalphenomenon, is involved in the facts with which the theory isoccupied, such institutional facts are taken for granted, denied,or explained away. If it is a question of price, there is offeredan explanation of how exchanges may take place with such effectas to leave money and price out of the account. If it is aquestion of credit, the effect of credit extension on businesstraffic is left on one side and there is an explanation of howthe borrower and lender cooperate to smooth out their respectiveincome streams of consumable goods or sensations of consumption.The failure of the school in this respect is consistent andcomprehensive. And yet these economists are lacking neither inintelligence nor in information. They are, indeed, to becredited, commonly, with a wide range of information and an exactcontrol of materials, as well as with a very alert interest inwhat is going on; and apart from their theoretical pronouncementsthe members of the school habitually profess the sanest and mostintelligent views of current practical questions, even when thesequestions touch matters of institutional growth and decay. The infirmity of this theoretical scheme lies in itspostulates which confine the inquiry to generalisations of theteleological or "deductive" order. These postulates, togetherwith the point of view and logical method that follow from them,the marginal utility school shares with other economists of theclassical line -- for this school is but a branch or derivativeof the English classical economists of the nineteenth century.The substantial difference between this school and the generalityof classical economists lies mainly in the fact that in themarginal utility economics the common postulates are moreconsistently adhered to at the same time that they are moreneatly defined and their limitations are more adequatelyrealized. Both the classical school is general and itsspecialized variant, the marginal utility school, in particular,take as their common point of departure the traditionalpsychology of the early nineteenth century hedonists, which isaccepted as a matter of course or of common notoriety and is heldquite uncritically. The central and well defined tenet so held isthat of the hedonistic calculus. Under the guidance of this tenetand of the other psychological conceptions associated andconsonant with it, human conduct is conceived of and interpretedas a rational response to the exigencies of the situation inwhich mankind is placed; as regards economic conduct it is such arational and unprejudiced response to the stimulus of anticipatedpleasure and pain -- being, typically and in the main, a responseto the promptings of anticipated pleasure, for the hedonists ofthe nineteenth century and of the marginal utility school are inthe main of an optimistic temper.1 Mankind is, on the whole andnormally, (conceived to be) clearsighted and farsighted in itsappreciation of future sensuous gains and losses, although theremay be some (inconsiderable) difference between men in thisrespect. Men's activities differ, therefore, (inconsiderably) inrespect of the alertness of the response and the nicety ofadjustment of irksome pain cost to apprehended future sensuousgain; but, on the whole, no other ground or line or guidance ofconduct than this rationalistic calculus falls properly withinthe cognizance of the economic hedonists. Such a theory can takeaccount of conduct only in so far as it is rational conduct,guided by deliberate and exhaustively intelligent choice -- wiseadaption to the demands of the main chance. The external circumstances which condition conduct arevariable, of course, and so they will have a varying effect uponconduct; but their variation is, in effect, construed to be ofsuch a character only as to vary the degree of strain to whichthe human agent is subject by contact with these externalcircumstances. The cultural elements involved in the theoreticalscheme, elements that are of the nature of institutions, humanrelations governed by use and wont in whatever kind andconnection, are not subject to inquiry but are taken from grantedas preexisting in a finished, typical form and as making up anormal and definite economic situation, under which and in termsof which human intercourse is necessarily carried on. Thiscultural situation comprises a few large and simple articles ofinstitutional furniture, together with their logical implicationsor corollaries; but it includes nothing of the consequences oreffects caused by these institutional elements. The culturalelements so tacitly postulated as immutable conditions precedentto economic life are ownership and free contract, together withsuch other features of the scheme of natural rights as areimplied in the exercise of these. These cultural products are,for the purpose of the theory, conceived to be given a priori inunmitigated force. They are part of the nature of things; so thatthere 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 whythey have changed and are changing, or what effect all this mayhave on the relations of men who live by or under this culturalsituation. Evidently the acceptance of these immutable premises,tacitly, because uncritically and as a matter of course, byhedonistic economics gives the science a distinctive characterand places it in contrast with other sciences whose premises areof a different order. As has already been indicated, the premisesin question, so far as they are peculiar to the hedonisticeconomics, are (a) a certain institutional situation, thesubstantial feature of which is the natural right of ownership,and (b) the hedonistic calculus. The distinctive character givento this system of theory by these postulates and by the point ofview resulting from their acceptance may be summed up broadly andconcisely in saying that the theory is confined to the ground ofsufficient reason instead of proceeding on the ground ofefficient cause. The contrary is true of modern science,generally (except mathematics), particularly of such sciences ashave to do with the phenomena of life and growth. The differencemay seem trivial. It is serious only in its consequences. The twomethods of inference -- from sufficient reason and from efficientcause -- are out of touch with one another and there is notransition from one to the other; no method of converting theprocedure or the results of the one into those of the other. Theimmediate consequence is that the resulting economic theory is ofa teleological character -- "deductive" or "a priori" as it isoften called -- instead of being drawn in terms of cause andeffect. The relation sought by this theory among the facts withwhich it is occupied is the control exercised by future(apprehended) events over present conduct. Current phenomena aredealt with as conditioned by their future consequences; and instrict marginal-utility theory they can be dealt with only inrespect of their control of the present by consideration of thefuture. Such a (logical) relation of control or guidance betweenthe future and the present of course involves an exercise ofintelligence, a taking thought, and hence an intelligent agentthrough whose discriminating forethought the apprehended futuremay affect the current course of events; unless, indeed, one wereto admit something in the way of a providential elements, therelation of sufficient reason runs by way of the interesteddiscrimination, the forethought, of an agent who takes thought ofthe future and guides his present activity by regard for thisfuture. The relation of sufficient reason runs only from the(apprehended) future into the present, and it is solely of anintellectual, subjective, personal, teleological character andforce; while the relation of cause and effect runs only in thecontrary direction, and it is solely of an objective, impersonalmaterialistic character and force. The modern scheme ofknowledge, on the whole, rests for its definitive ground, on therelation of cause and effect; the relation of sufficient reasonbeing admitted only provisionally and as a proximate factor inthe analysis, always with the unambiguous reservation that theanalysis must ultimately come to rest in terms of cause andeffect. The merits of this scientific animus, of course, do notconcern the present argument. Now, it happens that the relation of sufficient reasonenters very substantially into human conduct. It is this elementof discriminating forethought that distinguishes human conductfrom brute behavior. And since the economist's subject of inquiryis this human conduct, that relation necessarily comes in for alarge share of his attention in any theoretical formulation ofeconomic phenomena, whether hedonistic or otherwise. But whilemodern science at large has made the causal relation the soleultimate ground of theoretical formulation; and while the othersciences that deal with human life admit the relation ofsufficient reason as a proximate, supplementary, or intermediateground, subsidiary, and subservient to the argument from causeand effect; economics has had the misfortune -- as seen from thescientific point of view -- to let the former supplant thelatter. It is, of course, true that human conduct isdistinguished from other natural phenomena by the human facultyfor taking thought, and any science that has to do with humanconduct must face the patent fact that the details of suchconduct consequently fall into the teleological form; but it isthe peculiarity of the hedonistic economics that by force of itspostulated its attention is confined to this teleological bearingof conduct alone. It deals with this conduct only in so far as itmay be construed in rationalistic, teleological terms ofcalculation and choice. But it is at the same time no less truethat human conduct, economic or otherwise, is subject to thesequence of cause and effect, by force of such elements ashabituation and conventional requirements. But facts of thisorder, which are to modern science of graver interest than theteleological details of conduct, necessarily fall outside theattention of the hedonistic economist, because they cannot beconstrued in terms of sufficient reason, such as his postulatesdemand, or be fitted into a scheme of teleological doctrines. There is, therefore, no call to impugn these premises ofthe marginal-utility economics within their field. They commendthemselves to all serious and uncritical persons at first glance.They are principles of action which underlie the current,business-like scheme of economic life, and as such, as practicalgrounds of conduct, they are not to be called in question withoutquestioning 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 iswhat is meant by calling them institutions; they are settledhabits of thought common to the generality of men. But it wouldbe mere absentmindedness in any student of civilization thereforeto admit that these or any other human institutions have thisstability which is currently imputed to them or that they are inthis way intrinsic to the nature of things. The acceptance by theeconomists of these or other institutional elements as given andimmutable limits their inquiry in a particular and decisive way.It shuts off the inquiry at the point where the modern scientificinterest sets in. The institutions in question are no doubt goodfor their purpose as institutions, but they are not good aspremises for a scientific inquiry into the nature, origin,growth, and effects of these institutions and of the mutationswhich they undergo and which they bring to pass in thecommunity's scheme of life. To any modern scientist interested in economic phenomena,the chain of cause and effect in which any given phase of humanculture is involved, as well as the cumulative changes wrought inthe fabric of human conduct itself by the habitual activity ofmankind, are matters of more engrossing and more abiding interestthan the method of inference by which an individual is presumedinvariably to balance pleasure and pain under given conditionsthat are presumed to be normal and invariable. The former arequestions 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 theface of a given situation that may arise in the course of thiscultural growth. The former bear on the continuity and mutationsof that scheme of conduct whereby mankind deals with its materialmeans of life; the latter, if it is conceived in hedonisticterms, concerns a disconnected episode in the sensuous experienceof an individual member of such a community. In so far as modern science inquires into the phenomena oflife, whether inanimate, brute, or human, it is occupied aboutquestions of genesis and cumulative change, and it converges upona theoretical formulation in the shape of a life-history drawn incausal terms. In so far as it is a science in the current senseof the term, any science, such as economics, which has to do withhuman conduct, becomes a genetic inquiry into the human scheme oflife; and where, as in economics, the subject of inquiry is theconduct of man in his dealings with the material means of life,the science is necessarily an inquiry into the life-history ofmaterial civilization, on a more or less extended or restrictedplan. Not that the economist's inquiry isolates materialcivilization from all other phases and bearings of human culture,and so studies the motions of an abstractly conceived "economicman." On the contrary, no theoretical inquiry into this materialcivilization 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 ofcultural 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 andwill take in other phases of civilization only in theircorrelation with the scheme of material civilization. Like all human culture this material civilization is ascheme of institutions -- institutional fabric and institutionalgrowth. But institutions are an outgrowth of habit. The growth ofculture is a cumulative sequence of habituation, and the ways andmeans of it are the habitual response of human nature toexigencies that vary incontinently, cumulatively, but withsomething of a consistent sequence in the cumulative variationsthat so go forward, -- incontinently, because each new movecreates a new situation which induces a further new variation inthe habitual manner of response; cumulatively, because each newsituation is a variation of what has gone before it and embodiesas 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 theresponse takes place, and on the ground of which the habituationtakes effect, remain substantially unchanged. Evidently an economic inquiry which occupies itselfexclusively with the movements of this consistent, elementalhuman nature under given, stable institutional conditions -- suchas is the case with the current hedonistic economics -- can reachstatical results alone; since it makes abstraction from thoseelements that make for anything but a statical result. On theother hand an adequate theory of economic conduct, even forstatical purposes, cannot be drawn in terms of the individualsimply -- as is the case in the marginal-utility economics --because it cannot be drawn in terms of the underlying traits ofhuman nature simply; since the response that goes to make uphuman conduct takes place under institutional norms and onlyunder stimuli that have an institutional bearing; for thesituation that provokes and inhibits action in any given case isitself in great part of institutional, cultural derivation. Then,too, the phenomena of human life occur only as phenomena of thelife of a group or community; only under stimuli due to contactwith the group and only under the (habitual) control exercised bycanons of conduct imposed by the group's scheme of life. Not onlyis the individual's conduct hedged about and directed by hishabitual relations to his fellows in the group, but theserelations, being of an institutional character, vary as theinstitutional scheme varies. The wants and desires, the end andaim, the ways and means, the amplitude and drift of theindividual's conduct are functions of an institutional variablethat is of a highly complex and wholly unstable character. The growth and mutations of the institutional fabric are anoutcome of the conduct of the individual members of the group,since it is out of the experience of the individuals, through thehabituation of individuals, that institutions arise; and it is inthis same experience that these institutions act to direct anddefine the aims and end of conduct. It is, of course, onindividuals that the system of institutions imposes thoseconventional standards, ideals, and canons of conduct that makeup the community's scheme of life. Scientific inquiry in thisfield, therefore, must deal with individual conduct and mustformulate its theoretical results in terms of individual conduct.But such an inquiry can serve the purposes of a genetic theoryonly if and in so far as this individual conduct is attended toin those respects in which it counts toward habituation, and sotoward change (or stability) of the institutional fabric, on theone hand, and in those respects in which it is prompted andguided by the received institutional conceptions and ideals onthe other hand. The postulates of marginal utility, and thehedonistic preconceptions generally, fail at this point in thatthey confine the attention to such bearings of economic conductas are conceived not to be conditioned by habitual standards andideals and to have no effect in the way of habituation. Theydisregard or abstract from the causal sequence of propensity andhabituation in economic life and exclude from theoretical inquiryall such interest in the facts of cultural growth, in order toattend to those features of the case that are conceived to beidle in this respect. All such facts of institutional force andgrowth 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 amore or less vague and general allowance for inconsequentialdisturbances due to occasional human infirmity. Certaininstitutional phenomena, it is true, are comprised among thepremises of the hedonists, as has been noted above; but they areincluded as postulates a priori. So the institution of ownershipis taken into the inquiry not as a factor of growth or an elementsubject to change, but as one of the primordial and immutablefacts of the order of nature, underlying the hedonistic calculus.Property, ownership, is presumed as the basis of hedonisticdiscrimination and it is conceived to be given in its finished(nineteenth-century) scope and force. There is not thought eitherof a conceivable growth of this definitive nineteenth-centuryinstitution out of a cruder past or of any conceivable cumulativechange in the scope and force of ownership in the present orfuture. Nor is it conceived that the presence of thisinstitutional element in men's economic relations in any degreeaffects or disguises the hedonistic calculus, or that itspecuniary conceptions and standards in any degree standardize,color, mitigate, or divert the hedonistic calculator from thedirect and unhampered quest of the net sensuous gain. While theinstitution of property is included in this way among thepostulates of the theory, and is even presumed to be ever-presentin the economic situation, it is allowed to have no force inshaping economic conduct, which is conceived to run its course toits hedonistic outcome as if no such institutional factorintervened between the impulse and its realization. Theinstitution of property, together with all the range of pecuniaryconceptions that belong under it and that cluster about it, arepresumed to give rise to no habitual or conventional canons ofconduct or standards of valuation, no proximate ends, ideals, oraspirations. All pecuniary notions arising from ownership aretreated simply as expedients of computation which mediate betweenthe pain-cost and the pleasure-gain of hedonistic choice, withoutlag, leak, or friction; they are conceived simply as theimmutably correct, God-given notation of the hedonistic calculus. The modern economic situation is a business situation, inthat economic activity of all kinds is commonly controlled bybusiness considerations. The exigencies of modern life arecommonly pecuniary exigencies. That is to say they are exigenciesof the ownership of property. Productive efficiency anddistributive gain are both rated in terms of price. Businessconsiderations are considerations of price, and pecuniaryexigencies of whatever kind in the modern communities areexigencies of price. The current economic situation is a pricesystem. Economic institutions in the modern civilized scheme oflife are (prevailing) institutions of the price system. Theaccountancy to which all phenomena of modern economic life areamenable is an accountancy in terms of price; and by the currentconvention there is no other recognized scheme of accountancy, noother rating, either in law or in fact, to which the facts ofmodern life are held amenable. Indeed, so great and pervading aforce has this habit (institution) of pecuniary accountancybecome that it extends, often as a matter of course, to manyfacts which properly have no pecuniary bearing and no pecuniarymagnitude, as, e.g., works of art, science, scholarship, andreligion. More or less freely and fully, the price systemdominates the current common sense in its appreciation and ratingof these non-pecuniary ramifications of modern culture; and thisin spite of the fact that, on reflection, all men of normalintelligence will freely admit that these matters lie outside thescope of pecuniary valuation. Current popular taste and the popular sense of merit anddemerit are notoriously affected in some degree by pecuniaryconsiderations. It is a matter of common notoriety, not to bedenied or explained away, that pecuniary ("commercial") tests andstandards are habitually made use of outside of commercialinterests proper. Precious stones, it is admitted, even byhedonistic economists, are more esteemed than they would be ifthey were more plentiful and cheaper. A wealthy person meets withmore consideration and enjoys a larger measure of good reputethan would fall to the share of the same person with the samehabit of mind and body and the same record of good and evil deedsif he were poorer. It may well be that this current"commercialization" of taste and appreciation has been overstatedby superficial and hasty critics of contemporary life, but itwill not be denied that there is a modicum of truth in theallegation. Whatever substance it has, much or little, is due tocarrying over into other fields of interest the habitualconceptions induced by dealing with and thinking of pecuniarymatters. These "commercial" conceptions of merit and demerit arederived from business experience. The pecuniary tests andstandards so applied outside of business transactions andrelations are not reducible to sensuous terms of pleasure andpain. Indeed, it may, e.g., be true, as is commonly believed,that the contemplation of a wealthy neighbor's pecuniarysuperiority yields painful rather than pleasurable sensations asan immediate result; but it is equally true that such a wealthyneighbor is, on the whole, more highly regarded and moreconsiderately treated than another neighbor who differs from theformer only in being less enviable in respect of wealth. It is the institution of property that gives rise to thesehabitual grounds of discrimination, and in modern times, whenwealth is counted in terms of money, it is in terms of moneyvalue that these tests and standards of pecuniary excellence areapplied. This much will be admitted. Pecuniary institutionsinduce pecuniary habits of thought which affect men'sdiscrimination outside of pecuniary matters; but the hedonisticinterpretation alleges that such pecuniary habits of thought donot affect men's discrimination in pecuniary matters. Althoughthe institutional scheme of the price system visibly dominatesthe modern community's thinking in matters that lie outside theeconomic interest, the hedonistic economists insist, in effect,that this institutional scheme must be accounted of no effectwithin that range of activity to which it owes its genesis,growth, and persistence. The phenomena of business, which arepeculiarly and uniformly phenomena of price, are in the scheme ofthe hedonistic theory reduced to non-pecuniary hedonistic termsand the theoretical formulation is carried out as if pecuniaryconceptions had no force within the traffic in which suchconceptions originate. It is admitted that preoccupation withcommercial interests has "commercialised" the rest of modernlife, but the "commercialization" of commerce is not admitted.Business transactions and computations in pecuniary terms, suchas loans, discounts, and capitalisation, are without hesitationor abatement converted into terms of hedonistic utility, andconversely. It may be needless to take exception to such conversionfrom pecuniary into sensuous terms, for the theoretical purposefor which it is habitually make; although, if need were, it mightnot be excessively difficult to show that the whole hedonisticbasis of such a conversion is a psychological misconception. Butit is to the remoter theoretical consequences of such aconversion that exception is to be taken. In making theconversion abstraction is made from whatever elements do not lendthemselves to its terms; which amounts to abstracting fromprecisely those elements of business that have an institutionalforce and that therefore would lend themselves to scientificinquiry of the modern kind -- those (institutional) elementswhose analysis might contribute to an understanding of modernbusiness and of the life of the modern business community ascontrasted with the assumed primordial hedonistic calculus. The point may perhaps be made clearer. Money and thehabitual resort to its use are conceived to be simply the waysand means by which consumable goods are acquired, and thereforesimply a convenient method by which to procure the pleasurablesensations of consumption; these latter being in hedonistictheory the sole and overt end of all economic endeavor. Moneyvalues have therefore no other significance than that ofpurchasing power over consumable goods, and money is simply anexpedient of computation. Investment, credit extensions, loans ofall kinds and degrees, with payment of interest and the rest, arelikewise taken simply as intermediate steps between thepleasurable sensations of consumption and the efforts induced bythe anticipation of these sensations, other bearings of the casebeing disregarded. The balance being kept in terms of thehedonistic consumption, no disturbance arises in this pecuniarytraffic so long as the extreme terms of this extended hedonisticequation -- pain-cost and pleasure-gain -- are not altered, whatlies between these extreme terms being merely algebraic notationemployed for convenience of accountancy. But such is not the runof the facts in modern business. Variation of capitalization,e.g., occur without its being practicable to refer them tovisibly equivalent variations either in the state of theindustrial arts or in the sensations of consumption. Creditextensions tend to inflation of credit, rising prices,overstocking of markets, etc., likewise without a visible orsecurely traceable correlation in the state of the industrialarts or in the pleasures of consumption; that is to say, withouta visible basis in those material elements to which thehedonistic theory reduces all economic phenomena. Hence the runof the facts, in so far, must be thrown out of the theoreticalformulation. The hedonistically presumed final purchase ofconsumable goods is habitually not contemplated in the pursuit ofbusiness enterprise. Business men habitually aspire to accumulatewealth in excess of the limits of practicable consumption, andthe wealth so accumulated is not intended to be converted by afinal transaction of purchase into consumable goods or sensationsof consumption. Such commonplace facts as these, together withthe endless web of business detail of a like pecuniary character,do not in hedonistic theory raise a question as to how theseconventional aims, ideals, aspirations, and standards have comeinto force or how they affect the scheme of life in business oroutside of it; they do not raise the questions because suchquestions cannot be answered in the terms which the hedonisticeconomists are content to use, or, indeed, which their premisespermit them to use. The question which arises is how to explainthe facts away; how theoretically to neutralize them so that theywill not have to appear in the theory, which can then be drawnindirect and unambiguous terms of rational hedonisticcalculation. They are explained away as being aberrations due tooversight or lapse of memory on the part of business men, or tosome failure of logic or insight. Or they are construed andinterpreted into the rationalistic terms of the hedonisticcalculus by resort to an ambiguous use of the hedonisticconcepts. So that the whole "money economy", with all themachinery of credit and the rest, disappears in a tissue ofmetaphors to reappear theoretically expurgated, sterilized, andsimplified into a "refined system of barter", culminating in anet aggregate maximum of pleasurable sensations of consumption. But since it is in just this unhedonistic, unrationalisticpecuniary traffic that the tissue of business life consists,since it is this peculiar conventionalism of aims and standardsthat differentiates the life of the modern business communityfrom any conceivable earlier or cruder phase of economic life;since it is in this tissue of pecuniary intercourse and pecuniaryconcepts, ideals, expedients, and aspirations that theconjunctures of business life arise and run their course offelicity and devastation; since it is here that thoseinstitutional changes take place which distinguish one phase orera of the business community's life from any other; since thegrowth and change of these habitual, conventional elements makethe growth and character of any business era or businesscommunity; any theory of business which sets these elements asideor explains them away misses the main facts which it has gone outto seek. Life and its conjunctures and institutions being of thiscomplexion, however much that state of the case may bedepreciated, a theoretical account of the phenomena of this lifemust be drawn in these terms in which the phenomena occur. It isnot simply that the hedonistic interpretation of modern economicphenomena is inadequate or misleading; if the phenomena aresubjected to the hedonistic interpretation in the theoreticalanalysis they disappear from the theory; and if they would bearthe interpretation in fact they would disappear in fact. If, infact, all the conventional relations and principles of pecuniaryintercourse were subject to such a perpetual rationalized,calculating revision, so that each article of usage,appreciation, or procedure must approve itself de novo onhedonistic grounds of sensuous expediency to all concerned atevery move, it is not conceivable that the institutional fabricwould last over night.

The Preconceptions of Economic Science Part 2 by Thorstein Veblen

Thorstein VeblenThe Preconceptions of Economic ScienceThe Quarterly Journal of Economics, 13 (1899)
II
ADAM SMITH'S animistic bent asserts itself more plainly and moreeffectually in the general trend and aim of his discussion thanin the details of theory. "Adam Smith's Wealth of Nations is, infact, so far as it has one single purpose, a vindication of theunconscious law present in the separate actions of men when theseactions are directed by a certain strong personal motive."(1*)Both in the Theory of the Moral Sentiments and in the Wealth ofNations there are many passages that testify to his abidingconviction that there is a wholesome trend in the natural courseof things, and the characteristically optimistic tone in which hespeaks for natural liberty is but an expression of thisconviction. An extreme resort to this animistic ground occurs inhis plea for freedom of investment.(2*) In the proposition that men are "led by an invisible hand,"Smith does not fall back on a meddling Providence who is to sethuman affairs straight when they are in danger of going askew. Heconceives the Creator to be very continent in the matter ofinterference with the natural course of things. The Creator hasestablished the natural order to serve the ends of human welfare;and he has very nicely adjusted the efficient causes comprised inthe natural order, including human aims and motives, to this workthat they are to accomplish. The guidance of interposition, theinvisible hand takes place not by way of interposition, butthrough a comprehensive scheme of contrivances established fromthe beginning. For the purpose of economic theory, man isconceived to be consistently self-seeking; but this economic manis a part of the mechanism of nature, and his self-seekingtraffic is but a means whereby, in the natural course of things,the general welfare is worked out. The scheme as a whole isguided by the end to be reached, but the sequence of eventsthrough which the end is reached is a causal sequence which isnot broken into episodically. The benevolent work of guidance wasperformed in first establishing an ingenious mechanism of forcesand motives capable of accomplishing an ordained result, andnothing beyond the enduring constraint of an established trendremains to enforce the divine purpose in the resulting naturalcourse of things. The sequence of events, including human motives and humanconduct, is a causal sequence; but it is also something more, or,rather, there is also another element of continuity besides thatof brute cause and effect, present even in the step-by-stepprocess whereby the natural course of things reaches its finalterm. The presence of such a quasi-spiritual or non-causalelement is evident from two (alleged) facts. (1) The course ofthings may be deflected from the direct line of approach to thatconsummate human welfare which is its legitimate end. The naturaltrend of things may be overborne by an untoward conjuncture ofcauses. There is a distinction, often distressingly actual andpersistent, between the legitimate and the observed course ofthings. If "natural," in Adam Smith's use, meant necessary, inthe sense of causally determined, no divergence of events fromthe natural or legitimate course of things would be possible. Ifthe mechanism of nature, including man, were a mechanicallycompetent contrivance for achieving the great artificer's design,there could be no such episodes of blundering and perversedeparture from the direct path as Adam Smith finds in nearly allexisting arrangements. Institutional facts would then be"natural."(3*) (2) When things have gone wrong, they will rightthemselves if interference with the natural course ceases;whereas, in the case of a causal sequence simply, the merecessation of interference will not leave the outcome the same asif no interference had taken place. This recuperative power ofnature is of an extra-mechanical character. The continuity ofsequence by force of which the natural course of things prevailsis, therefore, not of the nature of cause and effect, since itbridges intervals and interruptions in the causal sequence.(4*)Adam Smith's use of the term "real " in statements of theory --as, for example, "real value," "real price"(5*) -- is evidence tothis effect. "Natural" commonly has the same meaning as "real" inthis connection.(6*) Both "natural" and "real" are placed incontrast with the actual; and, in Adam Smith's apprehension, bothhave a substantiality different from and superior to facts. Theview involves a distinction between reality and fact, whichsurvives 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 ofhis two monumental works in a greater degree than the later. Inthe Moral Sentiments recourse is had to the teleological groundof the natural order more freely and with perceptibly greaterinsistence. There seems to be reason for holding that theanimistic preconception weakened or, at any rate, fell more intothe background as his later work of speculation and investigationproceeded. The change shows itself also in some details of hiseconomic theory, as first set forth in the Lectures, andafterwards more fully developed in the Wealth of Nations. So, forinstance, in the earlier presentation of the matter," thedivision of labor is the immediate cause of opulence"; and thisdivision of labor, which is the chief condition of economicwell-being, "flows from a direct propensity in human nature forone man to barter with another."(7*) The "propensity" in questionis here appealed to as a natural endowment immediately given toman with a view to the welfare of human society, and without anyattempt at further explanation of how man has come by it. Nocausal explanation of its presence or character is offered. Butthe corresponding passage of the Wealth of Nations handles thequestion more cautiously.(8*) Other parallel passages might becompared, with much the same effect. The guiding hand haswithdrawn farther from the range of human vision. However, these and other like filial expressions of a devoutoptimism need, perhaps, not be taken as integral features of AdamSmith's economic theory, or as seriously affecting the characterof his work as an economist. They are the expression of hisgeneral philosophical and theological views, and are significantfor the present purpose chiefly as evidences of an animistic andoptimistic bent. They go to show what is Adam Smith's acceptedground of finality, -- the ground to which all his speculationson human affairs converge; but they do not in any great degreeshow the teleological bias guiding his formulation of economictheory in detail. The effective working of the teleological bias is best seenin Smith's more detailed handling of economic phenomena -- in hisdiscussion of what may loosely be called economic institutions --and in the criteria and principles of procedure by which he isguided in incorporating these features of economic life into thegeneral structure of his theory. A fair instance, though perhapsnot the most telling one, is the discussion of the "real andnominal price," and of the "natural and market price" ofcommodities, already referred to above.(9*) The "real" price ofcommodities is their value in terms of human life. At this pointSmith differs from the Physiocrats, with whom the ultimate termsof value are afforded by human sustenance taken as a product ofthe functioning of brute nature; the cause of the differencebeing that the Physiocrats conceived the natural order whichworks towards the material well-being of man to comprise thenonhuman environment only, whereas Adam Smith includes man inthis concept of the natural order, and, indeed, makes him thecentral figure in the process of production. With thePhysiocrats, production is the work of nature: with Adam Smith,it is the work of man and nature, with man in the foreground. InAdam Smith, therefore, labor the final term in valuation. This"real" value of commodities is the value imputed to them by theeconomist under the stress of his teleological preconception. Ithas little, if any, place in the course of economic events, andno bearing on human affairs, apart from the sentimental influencewhich such a preconception in favor of a "real value " in thingsmay exert upon men's notions of what is the good and equitablecourse to pursue in their transactions. It is impossible to gaugethis real value of goods; it cannot be measured or expressed inconcrete terms. Still, if labor exchanges for a varying qualityof goods, "it is their value which varies, not that of the laborwhich purchases them."(10*) The values which practically attachto goods in men's handling of them are conceived to be determinedwithout regard to the real value which Adam Smith imputes to thegoods; but, for all that, the substantial fact with respect tothese market values is their presumed approximation to the realvalues teleologically imputed to the goods under the guidance ofinviolate natural laws. The real, or natural, value of articleshas no causal relation to the value at which they exchange. Thediscussion of how values are determined in practice runs on themotives of the buyers and sellers, and the relative advantageenjoyed by the parties to the transaction.(11*) It is adiscussion of a process of valuation, quite unrelated to the"real," or "natural," price of things, and quite unrelated to thegrounds on which things are held to come by their real, ornatural, price; and yet, when the complex process of valuationhas been traced out in terms of human motives and the exigenciesof the market, Adam Smith feels that he has only cleared theground. He then turns to the serious business of accounting forvalue and price theoretically, and making the ascertained factsarticulate with his teleological theory of economic life.(12*) The occurrence of the words "ordinary" and "average" in thisconnection need not be taken too seriously. The context makes itplain that the equality which commonly subsists between theordinary or average rates, and the natural rates, is a matter ofcoincidence, not of identity. Not only are there temporarydeviations, but there may be a permanent divergence between theordinary and the natural price of a commodity; as in case of amonopoly or of produce grown under peculiar circumstances of soilor climate.(13*) The natural price coincides with the price fixed bycompetition, because competition means the unimpeded play ofthose efficient forces through which the nicely adjustedmechanism of nature works out the design to accomplish which itwas contrived. The natural price is reached through the freeinterplay of the factors of production, and it is itself anoutcome of production. Nature, including the human factor, worksto turn out the goods; and the natural value of the goods istheir appraisement from the standpoint of this productive processof nature. Natural value is a category of production: whereas,notoriously exchange value or market price is a category ofdistribution. And Adam Smith's theoretical handling of marketprice aims to show how the factors of human predilection andhuman wants at work in the higgling of the market bring about aresult in passable consonance with the natural laws that areconceived to govern production. The natural price is a composite result of the blending ofthe three "component parts of the price of commodities," -- thenatural wages of laborer, the natural profits of stock, and thenatural rent of land; and each of these three components is inits turn the measure of the productive effect of the factor towhich it pertains. The further discussion of these shares indistribution aims to account for the facts of distribution on theground of the productivity of the factors which are held to sharethe product between them. That is to say, Adam Smith'spreconception of a productive natural process as the basis of hiseconomic theory dominates his aims and procedure, when he comesto deal with phenomena that cannot be stated in terms ofproduction. The causal sequence in the process of distributionis, by Adam Smith's own showing, unrelated to the causal sequencein the process of production; but, since the latter is thesubstantial fact, as viewed from the standpoint of a teleologicalnatural order, the former must be stated in terms of the latterbefore Adam Smith's sense of substantiality, or "reality," issatisfied. Something of the same kind is, of course, visible inthe Physiocrats and in Cantillon. It amounts to an extension ofthe natural-rights preconception to economic theory. Adam Smith'sdiscussion of distribution as a function of productivity might betraced in detail through his handling of Wages, Profits, andRent; but, since the aim here is a brief characterisation only,and not an exposition, no farther pursuit of this point seemsfeasible. It may, however, be worth while to point out another line ofinfluence along which the dominance of the teleologicalpreconception shows itself in Adam Smith. This is thenormalisation of data, in order to bring them into consonancewith an orderly course of approach to the putative natural end ofeconomic life and development. The result of this normalisationof data is, on the one and, the use of what James Steuart calls"conjectural history" in dealing with past phases of economiclife, and, on the other hand, a statement of present-dayphenomena in terms of what legitimately ought to be according tothe God-given end of life rather than in terms of unconstruedobservation. Account is taken of the facts (supposed or observed)ostensibly in terms of causal sequence, but the imputed causalsequence is construed to run on lines of teleological legitimacy. A familiar instance of this "conjectural history," in ahighly and effectively normalized form, is the account of "thatearly and rude state of society which precedes both theaccumulation of stock and the appropriation of land." (14*) It isneedless at this day to point out that this "early and rudestate," in which "the whole produce of labor belongs to thelaborer," is altogether a figment. The whole narrative, from theputative origin down, is not only supposititious, but it ismerely a schematic presentation of what should have been thecourse of past development, in order to lead up to that idealeconomic situation which would satisfy Adam Smith'spreconception.(15*) As the narrative comes nearer the region ofknown latter-day facts, the normalisation of the data becomesmore difficult and receives more detailed attention; but thechange in method is a change of degree rather than of kind. Inthe "early and rude state" the coincidence of the "natural" andthe actual course of events is immediate and undisturbed, therebeing no refractory data at hand; but in the later stages and inthe present situation, where refractory facts abound, thecoordination is difficult, and the coincidence can be shown onlyby a free abstraction from phenomena that are irrelevant to theteleological trend and by a laborious interpretation of the rest.The facts of modern life are intricate, and lend themselves tostatement in the terms of the theory only after they have beensubjected to a "higher criticism." The chapter "Of the Origin and Use of Money"(16*) is anelegantly normalised account of the origin and nature of aneconomic institution, and Adam Smith's further discussion ofmoney runs on the same lines. The origin of money is stated interms of the purpose which money should legitimately serve insuch a community as Adam Smith considered right and good, not interms of the motives and exigencies which have resulted in theuse of money and in the gradual rise of the existing method ofpayment and accounts. Money is "the great wheel of circulation,"which effects the transfer of goods in process of production andthe distribution of the finished goods to the consumers. It is anorgan of the economic commonwealth rather than an expedient ofaccounting and a conventional repository of wealth. It is perhapssuperfluous to remark that to the "plain man," who is notconcerned with the "natural course of things" in a consummateGeldwirtschaft, the money that passes his hand is not a "greatwheel of circulation." To the Samoyed, for instance, the reindeerwhich serves him as unit of value is wealth in the most concreteand tangible form. Much the same is true of coin, or even ofbank-notes, in the apprehension of unsophisticated people amongourselves to-day. And yet it is in terms of the habits andconditions of life of these "plain people" that the developmentof money will have to be accounted for if it is to be stated interms of cause and effect. The few scattered passages already cited may serve toillustrate how Adam Smith's animistic or teleological bent shapesthe general structure of his theory and gives it consistency. Theprinciple of definitive formulation in Adam Smith's economicknowledge is afforded by a putative purpose that does not at anypoint enter causally into the economic life process which heseeks to know. This formative or normative purpose or end is notfreely conceived to enter as an efficient agent in the eventsdiscussed, or to be in any way consciously present in theprocess. It can scarcely be taken as an animistic agency engagedin the process. It sanctions the course of things, and giveslegitimacy and substance to the sequence of events, so far asthis sequence may be made to square with the requirements of theimputed end. It has therefore a ceremonial or symbolical forceonly, and lends the discussion a ceremonial competency; althoughwith economists who have been in passable agreement with AdamSmith as regards the legitimate end of economic life thisceremonial consistency, or consistency de jure, has for manypurposes been accepted as the formulation of a causal continuityin the phenomena that have been interpreted in its terms.Elucidations of what normally ought to happen, as a matter ofceremonial necessity, have in this way come to pass for anaccount of matters of fact. But, as has already been pointed out, there is much more toAdam Smith's exposition of theory than a formulation of whatought to be. Much of the advance he achieved over hispredecessors consists in a larger and more painstaking scrutinyof facts, and a more consistent tracing out of causal continuityin the facts handled. No doubt, his superiority over thePhysiocrats, that characteristic of his work by virtue of whichit superseded theirs in the farther growth of economic science,lies to some extent in his recourse to a different, more modernground of normality,-- a ground more in consonance with the bodyof preconceptions that have had the vogue in later generations.It is a shifting of the point of view from which the facts arehandled; but it comes in great part to a substitution of a newbody of preconceptions for the old, or a new adaptation of theold ground of finality, rather than an elimination of allmetaphysical or animistic norms of valuation. With Adam Smith, aswith the Physiocrats, the fundamental question, the answer towhich 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 naively, as a deliverance ofcommon sense. Neither is disturbed by doubts as to thisdeliverance of common sense or by any need of scrutinising it. Tothe Physiocrats this substantial ground of economic reality isthe nutritive process of Nature. To Adam Smith it is Labor. Hisreality has the advantage of being the deliverance of the commonsense of a more modern community, and one that has maintaineditself in force more widely and in better consonance with thefacts of latter-day industry. The Physiocrats owe theirpreconception of the productiveness of nature to the habits ofthought of a community in whose economic life the dominantphenomenon was the owner of agricultural land. Adam Smith oweshis preconception in favor of labor to a community in which theobtrusive economic feature of the immediate past was handicraftand agriculture, with commerce as a scarcely secondaryphenomenon. So far as Adam Smith's economic theories are a tracing out ofthe causal sequence in economic phenomena, they are worked out interms given by these two main directions of activity, -- humaneffort directed to the shaping of the material means of life, andhuman effort and discretion directed to a pecuniary gain. Theformer is the great, substantial productive force: the latter isnot immediately, or proximately, productive.(17*) Adam Smithstill has too lively a sense of the nutritive purpose of theorder of nature freely to extend the concept of productiveness toany activity that does not yield a material increase of thecreature comforts. His instinctive appreciation of thesubstantial virtue of whatever effectually furthers nutrition,even leads him into the concession that "in agriculture naturelabors along with man," although the general tenor of hisargument is that the productive force with which the economistalways has to count is human labor. This recognisedsubstantiality of labor as productive is, as has already beenremarked, accountable for his effort to reduce to terms ofproductive labor such a category of distribution as exchangevalue. With but slight qualification, it will hold that, in thecausal sequence which Adam Smith traces out in his economictheories proper (contained in the first three books of the Wealthof Nations), the causally efficient factor is conceived to behuman nature in these two relations, -- of productive efficiencyand pecuniary gain through exchange. Pecuniary gain -- gain inthe material means of life through barter -- furnishes the motiveforce to the economic activity of the individual; althoughproductive efficiency is the legitimate, normal end of thecommunity's economic life. To such an extent does this concept ofman's seeking his ends through "truck, barter, and exchange"pervade Adam Smith's treatment of economic processes that he evenstates production in its terms, and says that,, labor was thefirst price, the original purchase-money, that was paid for allthings."(18*) The human nature engaged in this pecuniary trafficis conceived in somewhat hedonistic terms, and the motives andmovements of men are normalised to fit the requirements of ahedonistically conceived order of nature. Men are very much alikein their native aptitudes and propensities;(19*) and, so far aseconomic theory need take account of these aptitudes andpropensities, they are aptitudes for the production of the"necessaries and conveniences of life," and propensities tosecure as great a share of these creature comforts as may be. Adam Smith's conception of normal human nature -- that is tosay, the human factor which enters causally in the process whicheconomic theory discusses -- comes, on the whole, to this: Menexert their force and skill in a mechanical process ofproduction, and their pecuniary sagacity in a competitive processof distribution, with a view to individual gain in the materialmeans of life. These material means are sought in order to thesatisfaction of men's natural wants through their consumption. Itis true, much else enters into men's endeavors in the strugglefor wealth, as Adam Smith points out; but this consumptioncomprises the legitimate range of incentives, and a theory whichconcerns itself with the natural course of things need take butincidental account of what does not come legitimately in thenatural course. In point of fact, there are appreciable "actual,"though scarcely "real," departures from this rule. They arespurious and insubstantial departures, and do not properly comewithin the purview of the stricter theory. And, since humannature is strikingly uniform, in Adam Smith's apprehension, boththe efforts put forth and the consumptive effect accomplished maybe put in quantitative terms and treated algebraically, with theresult that the entire range of phenomena comprised under thehead of consumption need be but incidentally considered; and thetheory of production and distribution is complete when the goodsor the values have been traced to their disappearance in thehands of their ultimate owners. The reflex effect of consumptionupon production and distribution is, on the whole, quantitativeonly. Adam Smith's preconception of a normal teleological order ofprocedure in the natural course, therefore, affects not onlythose features of theory where he is avowedly concerned withbuilding up a normal scheme of the economic process. Through hisnormalising the chief causal factor engaged in the process, itaffects also his arguments from cause to effect.(20*) What makesthis latter feature worth particular attention is the fact thathis successors carried this normalisation farther, and employedit with less frequent reference to the mitigating exceptionswhich Adam Smith notices by the way. The reason for that farther and more consistent normalisationof human nature which gives us the "economic man" at the hands ofAdam Smith's successors lies, in great part, in the utilitarianphilosophy that entered in force and in consummate form at aboutthe turning of the century. Some credit in the work ofnormalisation is due also to the farther supersession ofhandicraft by the "capitalistic" industry that came in at thesame time and in pretty close relation with the utilitarianviews. After Adam Smith's day, economics fell into profane hands.Apart from Malthus, who, of all the greater economists, standsnearest to Adam Smith on such metaphysical heads as have animmediate bearing upon the premises of economic science, the nextgeneration do not approach their subject from the point of viewof a divinely instituted, order; nor do they discuss humaninterests with that gently optimistic spirit of submission thatbelongs to the economist who goes to his work with the fear ofGod before his eyes. Even with Malthus the recourse to thedivinely sanctioned order of nature is somewhat sparing andtemperate. But it is significant for the later course of economictheory that, while Malthus may well be accounted the truestcontinuer of Adam Smith, it was the undevout utilitarians thatbecame the spokesmen of the science after Adam Smith's time. There is no wide breach between Adam Smith and theutilitarians, either in details of doctrine or in the concreteconclusions arrived at as regards questions of policy. On theseheads Adam Smith might well be classed as a moderate utilitarian,particularly so far as regards his economic work. Malthus hasstill more of a utilitarian air, -- so much so, indeed, that heis not infrequently spoken of as a utilitarian. This view,convincingly set forth by Mr. Bonar,(21*) is no doubt well borneout by a detailed scrutiny of Malthus's economic doctrines. Hishumanitarian bias is evident throughout, and his weakness forconsiderations of expediency is the great blemish of hisscientific work. But, for all that, in order to an appreciationof the change that came over classical economics with the rise ofBenthamism, it is necessary to note that the agreement in thismatter between Adam Smith and the disciples of Bentham, and lessdecidedly that between Malthus and the latter, is a coincidenceof conclusions rather than an identity of preconceptions.(22*) With Adam Smith the ultimate ground of economic reality isthe design of God, the teleological order; and his utilitariangeneralisations, as well as the hedonistic character of hiseconomic man, are but methods of the working out of this naturalorder, not the substantial and self-legitimating ground. Shiftyas Malthus's metaphysics are, much the same is to be said forhim.(23*) Of the utilitarians proper the converse is true,although here, again, there is by no means utter consistency Thesubstantial economic ground is pleasure and pain: theteleological order (even the design of God, where that isadmitted) is the method of its working-out. It may be unnecessary here to go into the fartherimplications, psychological and ethical, which this preconceptionof the utilitarians involves. And even this much may seem ataking of excessive pains with a distinction that marks notangible 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 theclassical line diverged from Adam Smith's tenets in the earlyyears of the century, until it has been necessary to interpretAdam Smith somewhat shrewdly in order to save him from heresy. The post-Bentham economics is substantially a theory ofvalue. This is altogether the dominant feature of the body ofdoctrines; the rest follows from, or is adapted to, this centraldiscipline. The doctrine of value is of very great importancealso in Adam Smith; but Adam Smith's economics is a theory of theproduction and apportionment of the material, means of life.(24*)With Adam Smith, value is discussed from the point of view ofproduction. With the utilitarians, production is discussed fromthe point of view of value. The former makes value an outcome ofthe process of production: the latter make production the outcomeof a valuation process. The point of departure with Adam Smith is the "productivepower of labor." (25*) With Ricardo it is a pecuniary problemconcerned in the distribution of ownership;(26*) but theclassical writers are followers of Adam Smith, and improve uponand correct the results arrived at by him, and the difference ofpoint of view, therefore, becomes evident in their divergencefrom him, and the different distribution of emphasis, rather thanin a new and antagonistic departure. The reason for this shifting of the center of gravity fromproduction to valuation lies, proximately, in Bentham's revisionof the "principles " of morals. Bentham's philosophical positionis, of course, not a self-explanatory phenomenon, nor does theeffect of Benthamism extend only to those who are avowedfollowers of Bentham; for Bentham is the exponent of a culturalchange that affects the habits of thought of the entirecommunity. The immediate point of Bentham's work, as affectingthe habits of thought of the educated community, is thesubstitution of hedonism (utility) in place of achievement ofpurpose, as a ground of legitimacy and a guide in thenormalisation of knowledge. Its effect is most patent inspeculations on morals, where it inculcates determinism. Itsclose connection with determinism in ethics points the way towhat may be expected of its working in economics. In both casesthe result is that human action is construed in terms of thecausal forces of the environment, the human agent being, at thebest, taken as a mechanism of commutation, through the workingsof which the sensuous effects wrought by the impinging forces ofthe environment are, by an enforced process of valuation,transmuted without quantitative discrepancy into moral oreconomic conduct, as the case may be. In ethics and economicsalike the subject-matter of the theory is this valuation processthat expresses itself in conduct, resulting, in the case ofeconomic conduct, in the pursuit of the greatest gain or leastsacrifice. Metaphysically or cosmologically considered, the human natureinto the motions of which hedonistic ethics and economics inquireis an intermediate term in a causal sequence, of which theinitial and the terminal members are sensuous impressions and thedetails of conduct. This intermediate term conveys the sensuousimpulse without loss of force to its eventuation in conduct. Forthe purpose of the valuation process through which the impulse isso conveyed, human nature may, therefore, be accepted as uniform;and the theory of the valuation process may be formulatedquantitatively, in terms of the material forces affecting thehuman sensory and of their equivalents in the resulting activity.In the language of economics, the theory of value may be statedin terms of the consumable goods that afford the incentive toeffort and the expenditure undergone in order to procure them.Between these two there subsists a necessary equality; but themagnitudes between which the equality subsists are hedonisticmagnitudes, not magnitudes of kinetic energy nor of vital force,for the terms handled are sensuous terms. It is true, since humannature is substantially uniform, passive, and unalterable inrespect of men's capacity for sensuous affection, there may alsobe presumed to subsist a substantial equality between thepsychological effect to be wrought by the consumption of goods,on the one side, and the resulting expenditure of kinetic orvital force, on the other side; but such an equality is, afterall, of the nature of a coincidence, although there should be astrong presumption in favor of its prevailing on an average andin the common run of cases. Hedonism, however, does not postulateuniformity between men except in the respect of sensuous causeand effect. The theory of value which hedonism gives is, therefore, atheory of cost in terms of discomfort. By virtue of thehedonistic equilibrium reached through the valuation process, thesacrifice or expenditure of sensuous reality involved inacquisition is the equivalent of the sensuous gain secured. Analternative statement might perhaps be made, to the effect thatthe measure of the value of goods is not the sacrifice ordiscomfort undergone, but the sensuous gain that accrues from theacquisition of the goods; but this is plainly only an alternativestatement, and there are special reasons in the economic life ofthe time why the statement in terms of cost, rather than in termsof "utility," should commend itself to the earlier classicaleconomists. On comparing the utilitarian doctrine of value with earliertheories, then, the case stands somewhat as follows. ThePhysiocrats and Adam Smith contemplate value as a measure of theproductive force that realises itself in the valuable article.With the Physiocrats this productive force is the "anabolism " ofNature (to resort to a physiological term): with Adam Smith it ischiefly human labor directed to heightening the serviceability ofthe materials with which it is occupied. Production causes valuein either case. The post-Bentham economics contemplates value asa measure of, or as measured by the irksomeness of the effortinvolved in procuring the valuable goods. As Mr. E. C. K. Gonnerhas admirably pointed out,(27*) Ricardo -- and the like holdstrue of classical economics generally -- makes cost thefoundation of value, not its cause. This resting of value on costtakes place through a valuation. Any one who will read AdamSmith's theoretical exposition to as good purpose as Mr. Gonnerhas read Ricardo will scarcely fail to find that the converse istrue in Adam Smith's case. But the causal relation of cost tovalue holds only as regards "natural" or "real" value in AdamSmith's doctrine. As regards market price, Adam Smith's theorydoes not differ greatly from that of Ricardo on this head. Hedoes not overlook the valuation process by which market price isadjusted and the course of investment is guided, and hisdiscussion of this process runs in terms that should beacceptable to any hedonist. The shifting of the point of view that comes into economicswith the acceptance of utilitarian ethics and its correlate, theassociationist psychology, is in great part a shifting to theground of causal sequence as contrasted with that ofserviceability to a preconceived end. This is indicated even bythe main fact already cited, -- that the utilitarian economistsmake exchange value the central feature of their theories, ratherthan the conduciveness of industry to the community's materialwelfare. Hedonistic exchange value is the outcome of a valuationprocess enforced by the apprehended pleasure-giving capacities ofthe items valued. And in the utilitarian theories of production,arrived at from the standpoint so given by exchange value, theconduciveness to welfare is not the objective point of theargument. This objective point is rather the bearing ofproductive enterprise upon the individual fortunes of the agentsengaged, or upon the fortunes of the several distinguishableclasses of beneficiaries comprised in the industrial community;for the great immediate bearing of exchange values upon the lifeof the collectivity is their bearing upon the distribution ofwealth. Value is a category of distribution. The result is that,as is well shown by Mr. Cannan's discussion,(28*) the theories ofproduction offered by the classical economists have been sensiblyscant, and have been carried out with a constant view to thedoctrines on distribution. An incidental but tellingdemonstration of the same facts is given by ProfessorBucher;(29*) and in illustration may be cited Torrens's Essay Onthe Production of Wealth, which is to a good extent occupied withdiscussions of value and distribution. The classical theories ofproduction have been theories of the production of "wealth"; and"wealth," in classical usage, consists of material things havingexchange value. During the vogue of the classical economics theaccepted characteristic by which "wealth" has been defined hasbeen its amenability to ownership. Neither in Adam Smith nor inthe Physiocrats is this amenability to ownership made so much of,nor is it in a similar degree accepted as a definite mark of thesubject-matter of the science. As their hedonistic preconception would require, then, it isto the pecuniary side of life that the classical economists givetheir most serious attention, and it is the pecuniary bearing ofany given phenomenon or of any institution that commonly shapesthe issue of the argument. The causal sequence about which thediscussion centers is a process of pecuniary valuation. It runson distribution, ownership, acquisition, gain, investment,exchange.(30*) In this way the doctrines on production come totake a pecuniary coloring; as is seen in a less degree also inAdam Smith, and even in the Physiocrats, although these earliereconomists very rarely, if ever, lose touch with the concept ofgeneric serviceability as the characteristic feature ofproduction. The tradition derived from Adam Smith, which madeproductivity and serviceability the substantial features ofeconomic life, was not abruptly put aside by his successors,though the emphasis was differently distributed by them infollowing out the line of investigation to which the traditionpointed the way. In the classical economics the ideas ofproduction and of acquisition are not commonly held apart, andvery much of what passes for a theory of production is occupiedwith phenomena of investment and acquisition. Torrens's Essay isa case in point, though by no means an extreme case. This is as it should be; for to the consistent hedonist thesole motive force concerned in the industrial process is theself-regarding motive of pecuniary gain, and industrial activityis but an intermediate term between the expenditure or discomfortundergone and the pecuniary gain sought. Whether the end andoutcome is an invidious gain for the individual (in contrast withor at the cost of his neighbors), or an enhancement of thefacility of human life on the whole, is altogether a by-questionin any discussion of the range of incentives by which men areprompted to their work or the direction which their efforts take.The serviceability of the given line of activity, for the lifepurposes of the community or for one's neighbors, "is not of theessence of this contract." These features of serviceability comeinto the account chiefly as affecting the vendibility of what thegiven individual has to offer in seeking gain through abargain.(31*) In hedonistic theory the substantial end of economic life isindividual, gain, and for this purpose production and acquisitionmay be taken as fairly coincident, if not identical. Moreover,society, in the utilitarian philosophy, is the algebraic sum ofthe individuals; and the interest of the society is the sum ofthe interests of the individuals. It follows by easy consequence,whether strictly true or not, that the sum of individual gains isthe gain of the society, and that, in serving his own interest inthe way of acquisition, the individual serves the collectiveinterest of the community. Productivity or serviceability is,therefore, to be presumed of any occupation or enterprise thatlooks to a pecuniary gain; and so, by a roundabout path, we getback to the ancient conclusion of Adam Smith, that theremuneration of classes or persons engaged in industry coincideswith their productive contribution to the output of services andconsumable goods. A felicitous illustration of the working of this hedonisticnorm in classical economic doctrine is afforded by the theory ofthe wages of superintendence, -- an element in distribution whichis not much more than suggested in Adam Smith, but which receivesampler and more painstaking attention as the classical body ofdoctrines reaches a fuller development. The "wages ofsuperintendence" are the gains due to pecuniary management. Theyare the gains that come to the director of the,, business," --not those that go to the director of the mechanical process or tothe foreman of the shop. The latter are wages simply. Thisdistinction is not altogether clear in the earlier writers, butit is clearly enough contained in the fuller development of thetheory. The undertaker's work is the management of investment. It isaltogether of a pecuniary character, and its proximate aim is"the main chance." If it leads, indirectly, to an enhancement ofserviceability or a heightened aggregate output of consumablegoods, that is a fortuitous circumstance incident to thatheightened vendibility on which the investor's gain depends. Yetthe classical doctrine says frankly that the wages ofsuperintendence are the remuneration of superiorproductivity,(32*) and the classical theory of production is ingood part a doctrine of investment in which the identity ofproduction and pecuniary gain is taken for granted. The substitution of investment in the place of industry asthe central and substantial fact in the process of production isdue not to the acceptance of hedonism simply, but rather to theconjunction of hedonism with an economic situation of which theinvestment of capital and its management for gain was the mostobvious feature. The situation which shaped the common-senseapprehension of economic facts at the time was what has sincebeen called a capitalistic system, in which pecuniary enterpriseand the phenomena of the market were the dominant and tone-givingfacts. But this economic situation was also the chief ground forthe vogue of hedonism in economics; so that hedonistic economicsmay be taken as an interpretation of human nature in terms of themarket-place. The market and the "business world," to which thebusiness man in his pursuit of gain was required to adapt hismotives, had by this time grown so large that the course ofbusiness events was beyond the control of any one person; and atthe same time those far-reaching organisations of invested wealthwhich have latterly come to prevail and to coerce the market werenot then in the foreground. The course of market events took itspassionless way without traceable relation or deference to anyman's convenience and without traceable guidance towards anulterior end. Man's part in this pecuniary world was to respondwith alacrity to the situation, and so adapt his vendible effectsto the shifting demand as to realise something in the outcome.What he gained in his traffic was gained without loss to thosewith whom he dealt, for they paid no more than the goods wereworth to them. One man's gain need not be another's loss; and, ifit is not, then it is net gain to the community. Among the striking remoter effects of the hedonisticpreconception, and its working out in terms of pecuniary gain, isthe classical failure to discriminate between capital asinvestment and capital as industrial appliances. This is, ofcourse, closely related to the point already spoken of. Theappliances of industry further the production of goods, thereforecapital (invested wealth) is productive; and the rate of itsaverage remuneration marks the degree of its productiveness.(33*)The most obvious fact limiting the pecuniary gain secured bymeans of invested wealth is the sum invested. Therefore, capitallimits the productiveness of industry; and the chief andindispensable condition to an advance in material well-being isthe accumulation of invested wealth. In discussing the conditionsof industrial improvement, it is usual to assume that "the stateof the arts remains unchanged," which is, for all purposes butthat of a doctrine of profits per cent., an exclusion of the mainfact. Investments may, further, be transferred from oneenterprise to another. Therefore, and in that degree, the meansof production are "mobile." Under the hands of the great utilitarian writers, therefore,political economy is developed into a science of wealth, takingthat term in the pecuniary sense, as things amenable toownership. The course of things in economic life is treated as asequence of pecuniary events, and economic theory becomes atheory of what should happen in that consummate situation wherethe permutation of pecuniary magnitudes takes place withoutdisturbance and without retardation. In this consummate situationthe pecuniary motive has its perfect work, and guides all theacts of economic man in a guileless, colorless, unswerving questof the greatest gain at the least sacrifice. Of course, thisperfect competitive system, with its untainted "economic man,"isa feat of scientific imagination, and is not intended as acompetent expression of fact. It is an expedient of abstractreasoning; and its avowed competency extends only to the abstractprinciples, the fundamental laws of the science, which hold onlyso far as the abstraction holds. But, as happens in such cases,having once been accepted and assimilated as real, though perhapsnot as actual, it becomes an effective constituent in theinquirer's habits of thought, and goes to shape his knowledge offacts. It comes to serve as a norm of substantiality orlegitimacy; and facts in some degree fall under its constraint,as is exemplified by many allegations regarding the "tendency" ofthings. To this consummation, which Senior speaks of as "the naturalstate of man,"(34*) human development tends by force of thehedonistic character of human nature; and in terms of itsapproximation to this natural state, therefore, the immatureactual situation had best be stated. The pure theory, the"hypothetical science" of Cairnes, "traces the phenomena of theproduction and distribution of wealth up to their causes, in theprinciples of human nature and the laws and events -- physical,political, and social -- of the external world."(35*) But sincethe principles of human nature that give the outcome in men'seconomic conduct, so far as it touches the production anddistribution of wealth, are but the simple and constant sequenceof hedonistic cause and effect, the element of human nature mayfairly be eliminated from the problem, with great gain insimplicity and expedition. Human nature being eliminated, asbeing a constant intermediate term, and all institutionalfeatures of the situation being also eliminated (as being similarconstants under that natural or consummate pecuniary regime withwhich the pure theory is concerned), the laws of the phenomena ofwealth may be formulated in terms of the remaining factors. Thesefactors are the vendible items that men handle in these processesof production and distribution and economic laws come, therefore,to be expressions of the algebraic relations subsisting betweenthe 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 becomedissociated from the personal factor, and figure in thecomputation as elemental factors acting and reacting though apermutation of values over the heads of the good people whosewelfare they are working out. To sum up: the classical economics, having primarily to dowith the pecuniary side of life, is a theory of a process ofvaluation. But since the human nature at whose hands and forwhose behoof the valuation takes place is simple and constant inits reaction to pecuniary stimulus, and since no other feature ofhuman nature is legitimately present in economic phenomena thanthis reaction to pecuniary stimulus, the valuer concerned in thematter is to be overlooked or eliminated; and the theory of thevaluation process then becomes a theory of the pecuniaryinteraction of the facts valued. It is a theory of valuation withthe element of valuation left out,-- a theory of life stated interms of the normal paraphernalia of life. In the preconceptions with which classical economics set outwere comprised the remnants of natural rights and of the order ofnature, infused with that peculiarly mechanical natural theologythat made its way into popular vogue on British ground during theeighteenth century and was reduced to a neutral tone by theBritish penchant for the commonplace -- stronger at this timethan at any earlier period. The reason for this growing penchantfor the commonplace, for the explanation of things in causalterms, lies partly in the growing resort to mechanical processesand mechanical prime movers in industry, partly in the(consequent) continued decline of the aristocracy and thepriesthood, and partly in the growing density of population andthe consequent greater specialisation and wider organisation oftrade and business. The spread of the discipline of the naturalsciences, largely incident to the mechanical industry, counts inthe same direction; and obscurer factors in modern culture mayhave had their share. The animistic preconception was not lost, but it lost tone;and it partly fell into abeyance, particularly so far as regardsits avowal. It is visible chiefly in the unavowed readiness ofthe classical writers to accept as imminent and definitive anypossible outcome which the writer's habit or temperament inclinedhim to accept as right and good. Hence the visible inclination ofclassical economists to a doctrine of the harmony of interests,and their somewhat uncircumspect readiness to state theirgeneralisations in terms of what ought to happen according to theideal requirements of that consummate Geldwirtschaft to which men"are impelled by the provisions of nature."(36*) By virtue oftheir hedonistic preconceptions, their habituation to the ways ofa pecuniary culture, and their unavowed animistic faith thatnature is in the right, the classical economists knew that theconsummation to which, in the nature of things, all things tend,is the frictionless and beneficent competitive system. Thiscompetitive ideal, therefore, affords the normal, and conformityto its requirements affords the test of absolute economic truth.The standpoint so gained selectively guides the attention of theclassical writers in their observation and apprehension of facts,and they come to see evidence of conformity or approach to thenormal in the most unlikely places. Their observation is, ingreat part, interpretative, as observation commonly is. What ispeculiar to the classical economists in this respect is theirparticular norm of procedure in the work of interpretation. And,by virtue of having achieved a standpoint of absolute economicnormality, they became a "deductive" school, so called, in spiteof the patent fact that they were pretty consistently employedwith an inquiry into the causal sequence of economic phenomena. The generalisation of observed facts becomes a normalisationof them, a statement of the phenomena in terms of theircoincidence with, or divergence from, that normal tendency thatmakes for the actualisation of the absolute economic reality.This absolute or definitive ground of economic legitimacy liesbeyond the causal sequence in which the observed phenomena areconceived to be interlinked. It is related to the concrete factsneither as cause nor as effect in any such way that the causalrelation may be traced in a concrete instance. It has littlecausally to do either with the "mental" or with the "physical"data with which the classical economist is avowedly employed. Itsrelation to the process under discussion is that of an extraneous-- that is to say, a ceremonial -- legitimation. The body ofknowledge gained by its help and under its guidance is,therefore, a taxonomic science. So, by way of a concluding illustration, it may be pointedout that money, for instance, is normalised in terms of thelegitimate economic tendency. It becomes a measure of value and amedium of exchange. It has become primarily an instrument ofpecuniary commutation, instead of being, as under the earliernormalisation of Adam Smith, primarily a great wheel ofcirculation for the diffusion of consumable goods. The terms inwhich the laws of money, as of the other phenomena of pecuniarylife, are formulated, are terms which connote its normal functionin the life history of objective values as they live and move andhave their being in the consummate pecuniary situation of the"natural" state. To a similar work of normalisation we owe thosecreatures of the myth-maker, the quantity theory and thewages-fund. NOTES: 1. Bonar, Philosophy and Political Economy, pp. 177, 178. 2. "Every individual is continually exerting himself to find outthe most advantageous employment for whatever capital he cancommand. It is his own advantage, and not that of the society,which he has in view. But the study of his own advantagenaturally, or rather necessarily, leads him to prefer thatemployment which is most advantageous to the society... Bydirecting that industry in such a manner as its produce may be ofthe greatest value, he intends only his own gain; and he is inthis, as in many other cases, led by an invisible hand to promotean end which was no part of his intention. Nor is it always theworse for society that it was no part of it. By pursuing his owninterest he frequently promotes that of the society moreeffectually than when he really intends to promote it." Wealth ofNations, Book IV, chap. ii. 3. The discrepancy between the actual, causally determinedsituation and the divinely intended consummation is themetaphysical ground of all that inculcation of morality andenlightened policy that makes up so large a part of Adam Smith'swork. The like, of course, holds true for all moralists andreformers who proceed on the assumption of a providential order. 4. "In the political body, however, the wisdom of nature hasfortunately made ample provision for remedying many of the badeffects of the folly and injustice of man; in the same manner asit has done in the natural body, for remedying those of his slothand intemperance." Wealth of Nations, Book IV, chap. ix. 5. E.g., "the real measure of the exchangeable value of allcommodities." Wealth of Nations, Book I, chap. v, and repeatedlyin the like connection. 6. E.g., Book I, chap. vii: "When the price of any commodity isneither more nor less than what is sufficient to pay the rent ofthe land, the wages of the labor, and the profits of the stockemployed in raising, preparing, and bringing it to market,according to their natural rates, the commodity is then sold forwhat may be called its natural price." "The actual price at whichany commodity is commonly sold is called its market price. It maybe either above or below or exactly the same with its naturalprice." 7. Lectures of Adam Smith (Ed. Cannan, 1896). p. 169. 8. "This division of labor, from which so many advantages arederived, is not originally the effect of any human wisdom, whichforesees and intends that general opulence to which it givesoccasion. It is the necessary though very slow and gradualconsequence of a certain propensity in human nature which has inview no such extensive utility, -- the propensity to truck,barter, and exchange one thing for another. Whether thispropensity be one of those original principles in human nature ofwhich no further account can be given, or whether, as seems moreprobable, it be the necessary consequence of the faculties ofreason and speech, it belongs not to our present subject toinquire." Wealth of Nations, Book I, chap. ii. 9. Wealth of Nations, Book I, chaps. v.-vii. 10. Wealth of Nations, Book I, chap. v. 11. As e.g., the entire discussion of the determination of Wages,Profits and Rent, in Book I, chaps. viii.-xi. 12. "There is in every society or neighborhood an ordinary oraverage rate both of wages and profit in every differentemployment of labor and stock. The rate is naturally regulated...partly by the general circumstance of the society... There is,likewise, in every socity or neighborhood an ordinary or averagerate of rent, which is regulated, too... These ordinary oraverage 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 thanwhat is sufficient to pay the rent of the land, the wages of thelabor, and the profits of the stock employed in raising,preparing, and bringing it to market, according to their naturalrates, the commodity is then sold for what may be called itsnatural price." Wealth of Nations, Book I, chap. vii. 13. "Such commodities may continue for whole centuries togetherto be sold at this high price; and that part of it which resolvesitself into the rent of land is, in this case, the part which isgenerally paid above its natural rate." Book I, chap. vii. 14. Wealth of Nations, Book I, chap. vi; also chap. viii. 15. For an instance of how these early phases of industrialdevelopment appear, when not seen in the light of Adam Smith'spreconception, see, among others, Bucher, Entstehung derVolkswirtschagt. 16. Book I, chap. iv. 17. See Wealth of Nations, Book II, chap. v, "Of the DifferentEmployment of Capitals." 18. Wealth of Nations, Book I, chap. v. See also the plea forfree trade, Book IV, chap. ii: "But the annual revenue of everysociety is always precisely equal to the exchangeable value ofthe whole annual produce of its industry, or, rather, isprecisely the same thing with that exchangeable value." 19. "The difference of natural talents in different men is inreality much less than we are aware of." Wealth of Nations, BookI, chap. ii. 20. "Mit diesen philosophischen Ueberzeugungen tritt nun AdamSmith an die Welf der Engahrung heran, and es ergiebt sich ihmdie Richtigkeit der Principien. Der Reiz der Smiths'schenSchriften beruht zum grossen Teile darauf, dass Smith diePrincipien in so innige Verbindung mit dem Thatsachlichengebracht. Hie und da werden dann auch die Principien, was durchdiese Verbindung veranlasst wird, an ihren Spitzen etwasalgeschliffen, ihre allruscharfe Auspragung dadurch vermieden.Nichtsdestoweniger aber bleiben sie stets die leitendenGrundgedanken." Richard Zeyss, Adam Smith und der Eigennutz(Tubingen, 1889), p. 110. 21. See, e.g., Malthus and his Work, especially Book III, as alsothe chapter on Malthus in Philosophy and Political Economy, BookIII, Modern Philosophy: Utilitarian Economics, chap. i,"Malthus." 22. Ricardo is here taken as a utilitarian of the Benthamitecolor, although he cannot be classed as a disciple of Bentham.His hedonism is but the uncritically accepted metaphysicscomprised in the common sense of his time, and his substantialcoincidence with Bentham goes to show how well diffused thehedonist preconception was at the time. 23. Cf. Bonar, Malthus and his Work, pp. 323-336. 24. His work is an inquiry into "the Nature and Causes of theWealth of Nations." 25. "The annual labor of every nation is the fund whichoriginally supplies it with all the necessaries and conveniencesof life which it annually consumes, and which consist alwayseither in the immediate produce of that labor or in what ispurchases with that produce from other nations." Wealth ofNations, "Introduction and Plan," opening paragraph. 26. "The produce of the earth -- all that is derived from itssurface by the united application of labor, machinery and capital-- is divided among three classes of the community... Todetermine the laws which regulate this distribution is theprincipal problem of political economy." Political Economy,Preface. 27. In the introductory essay to his edition of Ricardo'sPolitical Economy. See, e.g., paragraphs 9 and 24. 28. Theories of Production and Distribution, 1776-1848. 29. Entstehung der Volkswirtschaft (second edition). Cf.especially chaps. ii, iii, vi, and vii. 30. "Even if we put aside all questions which involve aconsideration of the effects of industrial institutions inmodifying the habits and character of the classes of thecommunity... that enough still remains to constitute a separatescience, 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 ofEconomics (London, 1893), pp. 8 and 9. 31. "If a commodity were in no way useful... it would bedestitute of exchangeable value;... (but), possessing utility,commodities derive their exchangeable value from two sources,"etc. Ricardo, Political Economy, chap. i, sect I. 32. Cf., for instance, Senior, Political Economy (London, 1872),particularly pp. 88, 89, and 130-135, where the wages ofsuperintendence are, somewhat reluctantly, classed under profits;and the work of superintendence is thereupon conceived as being,immediately or remotely, an exercise of "abstinence" and aproductive work. The illustration of the bill-broker isparticularly apt. The like view of the wages of superintendencein an article of theory with more than one of the laterdescendents of the classical line. 33. Cf. Bohm-Bawerk, Capital and Interest, Books II and IV, aswell as the Introduction and chaps. iv and v of Book I.Bohm-Bawerk's discussion bears less immediately on the presentpoint than the similarity of the terms employed would suggest. 34. Political Economy, p. 87. 35. Character and Logical Method of Political Economy (New York,1875), p. 71. Cairnes may not be altogether representative of thehigh tide of classicism, but his characterisation of the scienceis none the less to the point. 36. Senior, Political Economy,