ECONOMIC PRINCIPLES - PURPOSE AND NATURE OF ECONOMICS 1. Definition of economics. ˘ 2. Economics contrasted with the nat ural sciences. I 3. Science as abstraction. I 4. Science and art. ˘ 5. Place of economics among the sciences. I 6. Subdivisions of economics.
7. Economy in the sense of the subject studied. ˘ 8. Economy not parsimony. I 9. Social aims of economics. I 10. Economics in a democ racy. Note on Economic laws and other terms.
§ 1. Definition of economics. - Economics may be defined, briefly, as the study of men earning a living; or, more fully, as the study of the material world and of the activities and mutual relations of men so far as all these are the objective conditions to the gratification and to the welfare of men. The ideas of most persons on this subject are vague, yet it would be very desirable if the student could approach this study with an exact understanding of the nature of the questions with which it deals. Until a subject has been studied, however, a definition in mere words but slightly aids in marking it off clearly in our thought. The student must first try to see the general field of facts and of human interests that eco nomics covers.
§ 2. Economics contrasted with the natural sciences. Economics may be contrasted with the natural sciences, which deal with material things and their mutual relations. A defi nition that suggests clear and familiar thoughts to the student seems at first much more difficult to get in economics than in the natural sciences. These deal with concrete, material things which we are accustomed to see, handle, and measure. If a child is told that botany is a study in which he may learn about flowers, trees, and plants, the answer is fairly satisfying, for he at once thinks of many things of that kind. When, in like manner, zoology is defined as the study of animals, or geology as the study of rocks and the earth, the words call up memories of many familiar objects. Even so difficult and foreign-looking a word as ichthyology seems to be made clear by the statement that it is the name of the study in which one learns about fish. It is true that there may be some misun derstanding as to the way in which these subjects are studied, for botany is not in the main to teach how to cultivate plants in the garden, nor ichthyology how to catch fish or to propa gate them in a pond. But the main purpose of these studies is easily made clear at the outset; it is to know about the natural objects themselves. It is true that as each science is pursued, and knowledge widens to take in the manifold and various forms of life, the boundaries of the special scienc become not more but less sharp and definite.
In contrast with these, economics is one of the social sciences which deal with the inner nature of men and with men's relations in society. These are less tangible facts—we are tempted to say that they are less familiar—than are the ma terials with which the natural sciences deal. But the truth may be that social acts and relations are more familiar to our thought than is the subject matter of the physical sciences. Every hour in the streets and stores one may witness thou sands of acts, such as bargains, labor, and payments, that are the data of economic science. Their very familiarity taus( us to overlook their deeper meaning.
§ 3. Science as abstraction. A science by its very nature as science is concerned primarily with abstractions rather than with concrete objects. To think scientifically is to think ab stractly. Abstraction is a certain way of looking at things ; it is looking at their qualities. It is more difficult to think abstractly than it is to think of concrete things. It implies an analysis, a taking-apart of things to get at their components, and a grouping of these parts into some general idea—not an easy task for most minds. Economics singles out for study those aspects of the world which have to do with man's desire for the things about him and the use that he makes of them.
Economics "as the study of the material world" also has to do with all of those things which are the subject-matter of the natural sciences; but only in a secondary way. It studies them only as they are related to man's welfare, or as they affect his valuation of things; only in so far as they are related to the central subject of economic interest, the earning of a living.
§ 5. Place of economics among the sciences. Economics seeks the reason, connection, and relations in the great multi tude of acts arising out of the dependence of men on the world of things and of other men. Economics has to study men in two sets of relations, as is indicated in the definition: the relation on the one hand of man to material (non-human) things about him, and on the other hand to other men with whom he has "economic" dealings. In so far as economics is concerned with the former, the relation of man to his ma terial environment, economics borders on some phases of each of the engineering sciences, and of the natural sciences, as geology, botany, zoology, and (in considering how these things affect man) physiology and psychology.
In so far as economics is concerned with the mutual rela tions of men in business, it becomes one of the group of social sciences. The word "social" comes from the Latin socius, meaning a fellow, comrade, companion, associate. The social sciences deal with men and their relations with each other. As men living together have to do with each other in a great many different ways, and enter into a great many different re lations, there arise many different social problems, and the several social sciences of politics, law, ethics, and economics. Each of these attempts to study social relations in some one important aspect, that is, to view them from some one stand point. Politics treats of the form and working of govern ment, and is mainly concerned with the question of power or control of the individual's actions and liberty. Law treats of the rules of the sovereign state controlling the actions of men (criminal jurisprudence), and of the principles guiding the interpreting of the contracts into which men see fit to enter in their economic affairs (civil jurisprudence). Ethics treats the question of right and wrong, and the moral aspects of men's acts and relations with each other. As compared with these, economics is a much less purely social science; it has to do almost constantly with the material environment as well as with the social environment in which men live.
The attempt to distinguish between the fields occupied by the various social sciences discloses at once a fundamental unity existing among them. The acts of men are closely related in their lives, but they may be looked at from different sides. The central thought in economics in its social aspect is the business relation, the relation of men in working together, or in exchanging their services and material goods. In pursu ing economic inquiries we come into contact with political, legal, and ethical considerations, all of which must be recog nized before a fintl, practical answer can be given to any ques tion. Nevertheless, the province of economics is limited. It is because of the feebleness of our mental power that we divide and subdivide these complex questions and try to answer cer tain parts before we seek to answer the whole. Whoever at tempts this final and more difficult task should rise to the standpoint of the social philosopher.
§ 6. Subdivisions of economics. Economics in its most general sense includes various subdivisions. First is domestic economics (household economics), the modern equivalent of oiko-nomos, first used by Xenophon as the name for a set of rules to help the housekeeper or steward of an estate. The
typical Greek household, however, was a large estate with slaves, almost a little state in itself, carrying on nearly all the arts and crafts. The term political economy (as economic politigue) was first used in France in the eighteenth century to express the set of rules or principles to guide the king and his counselors in the control of his country, which was thought of much as if it were the king's private estate. Of late the term "economics," as expressing better a broadening con ception of the subject, and at the same time as less likely to be confused with politics, has been gradually displacing the term political economy. It is used with various adjectives in dicating the field covered; for example, domestic economics, household economics, corporation economics, national econom ics, political economy, world-economy, etc.
§ 7. Economy in the sense of the subject studied. We have chosen for our purpose to define economics as a "study," a body of knowledge, a science. But as in the case of various other sciences, its name is used also to indicate the body of facts and group of persons which are studied. One person (like Robinson Crusoe, on his desert island) constitutes an in dividual economy. There are, in such a case, no personal rela tions to study, but only the relations of man to his environ ment. A group of persons thought of together with all their material environment and in their relations with each other, forming something of an economic unity, constitute a social economy. The economic affairs of a family constitute a family or domestic economy, and those of a nation a political, or a national, economy.
§ 8. Economy not parsimony. It should hardly be neces sary to warn against giving to the word "economy" the mean ing of (the act or the quality of) parsimony. Economy im plies good management, making the best of whatever means one has, and this is not stinginess, tho the thriftless and the self-seeking are always prone to impute it as such to others. Economy as a mode of action is parallel to economics as the science that seeks to arrive at such general rules and principles as will lead to the best results in the use of the resources and services of individuals, families, and nations.
It is true that there are different standards by which to judge what is "best"; sometimes a merely pecuniary stand ard of business profit to the individual is taken, and this may come close to mere avarice. Again, a standard of true welfare for the nation or for the race may be taken. These two views may be, and often are, in conflict, and it is a part of the task in this study to keep before the mind as clearly as possible the difference between these standards. The one standard is that of individual—pecuniary, acquisitive eco nomics ; the other that of public—industrial, productive eco nomics.' § 9. Social aims of economics. Economics is often defined as the science of wealth. Partly because of this, and partly because of the unfortunate confusion of the individual and of the social points of view, it has been characterized as a "gospel of Mammon." But, in the main, economics must be under stood as a social study for social ends, not a selfish study for individual advantage. The individual interest must be recog nized, but treated as within, and subordinate to, the larger social interests. Certainly some of the lessons of economics may be of practical value to men in active business, and training in economics is increasingly deemed a helpful prep aration for many special callings. Many economic "princi ples" are but the general statement of those ideas that have been approved by the experience of business men, of states men, and of the masses of men. Economics is not dreamed out by the closest philosopher, but more and more it is the attempt to describe and comprehend the interests and the action of the practical world in which men must live. Many men are working together to develop this study—those who collect statistics and facts bearing on all kinds of practical affairs, and those who search through the records of the past for illustrations of experiments and experiences that may help us in our life to-day.
§ 10. Economics in a democracy. With the growth of the modern state, with the increasing importance of business, and of industrial and commercial interests, as compared with changes of dynasty or the personal rivalries of rulers, eco nomic questions have grown in relative importance. In our own country, particularly since the subjects of slavery and of states' rights ceased to absorb the attention of our people, eco nomic questions have pushed rapidly into the foreground. In deed, it has of late been more clearly seen that many of the older political questions, such as the American Revolution and 1This distinction is developed in Part VI, especially in ch. 39.
slavery, formerly discussed almost entirely in their political and constitutional aspects, were at bottom largely questions of economic rivalry and of economic welfare. The remarkable increase in the attention given to this study in colleges and universities since the beginning of the last quarter of the nine teenth century is but the index of the greatly increased in terest and attention given to it by citizens generally.
The conception of political economy as the term was first used, has been modified wherever unlimited monarchy has given way to the rule of the people. In a democracy there is need for a general diffusion of knowledge, if the economic policy and legislation of the State is to be intelligent. The power now rests not with the king and a few counselors, but in the last resort with the people, and therefore the people must be acquainted with the experiences of the past, must so far as possible have economic knowledge to enlighten them in their choice of men and of measures.
Nan Economic laws and other terms. In the science of economics some general ideas and statements are attained, and are called variously laws, principles, theories, hypotheses, and doctrines. These terms are used somewhat loosely, and we may note the general meaning that we are to attach to them.
Law originally meant (1) the binding custom or practice of a com munity; then came to mean (2) a rule laid down and enforced by some authority, as the State (acting through the political law-making body), or as divine will; (3) a statement of an order or relation of phenomena which appears to hold under the given conditions. Economic laws have this last meaning; they are not made and enforced by man, but are discovered as the true order inher6nt in things. Often in the physical sciences law in this sense suggests a pretty definite arithmetic state ment (i.e., Newton's law of gravitation, Kepler's law, etc.), but it is used generally of an orderly recurrence. In economics the term is frequently applied, as in the phrases, law of diminishing returns, Gresham's law of money, etc.
Principle meant (1) beginning; then (2) source, or origin; (3) a fundamental truth; (4) an elementary proposition. Law and prin ciple are used almost interchangeably, tho it would seem better to speak of principle when a more elementary statement is meant, and a law when the statement is more complex. Throughout this book the preference is generally given to the word principle rather than law in cases where there is good usage favorable to both.
Theory meant (1) contemplation; then (2) the general explanation of a body of facts, or group of phenomena; in other words, a plan or scheme of thought constructed to fit the facts so far as they are known. The popular use of the term theory to mean some plan of action, especially a poorly thought out plan sure to fail, should have no place in our discussion. It is an error to contrast theory and practice as the impracticable versus the practical. They should be contrasted only as idea, or explanation, versus action, or execution. Good theory then, usually goes with good practice and bad theory with poor prac tice. Usually when it is said that a thing is true in theory but false in practice, what is meant is that the theory is untrue, based on purely imaginary conditions and hence will not work. Science has to do with theory; art has to do with practice.
Hypothesis, often used interchangeably with theory, may be distin guished from it; it is a provisional conjecture regarding the relations of certain phenomena, whereas a theory is a hypothesis which has under gone a large measure of verification.
Doctrine meant originally (1) that which is taught, usually by a group of thinkers; hence (2)a body of principles. In such expressions as the law of rent, the theory of rent, and the doctrine of rent, the terms are well nigh synonymous, and the preference for the use of "doctrine" in certain cases rather than theory or principle, resulted more or less from the historical accident that a theory became connected in thought with a group of thinkers (that is, was taught by them, as Malthusian doctrine, the Ricardian rent doctrine, the free-trade doctrine of the Manchester School, etc.).