Social Rights And Duties: Addresses to Ethical Societies. Vol 1 [of 2]

by Leslie Stephen

THE SPHERE OF POLITICAL ECONOMY.

There seem to be at present many conflicting views as to the nature of Political Economy. There is a popular impression that Political Economy, or, at any rate, the so-called "classical" doctrine, the doctrine which was made most definite by Ricardo, and accepted with modifications by J. S. Mill, is altogether exploded. Their main doctrines, it is suggested, were little better than mares' nests, and we may set aside their pretensions to have founded an exact science. What, then, is to come in its place? Are we simply to admit that there is no certainty about economical problems, and to fall back upon mere empiricism? Everything,—shall we say?—is to be regarded as an open question. That is, perhaps, a common impression in the popular mind. Yet, on the other hand, we may find some very able thinkers applying mathematical formulæ to economics; and that seems to suppose, that within a certain region they obtain results comparable in precision and accuracy to those of the great physical sciences. The topic is a very wide one; and it would be presumptuous in me to speak dogmatically. I wish, however, to suggest certain considerations which may, perhaps, be worth taking into account; and, as I must speak briefly, I must not attempt to supply all the necessary qualifications. I can only attempt to indicate what seems to me to be the correct point of view, and apologise if I appear to speak too dogmatically, simply because I cannot waste time by expressions of diffidence, by reference to probable criticisms, or even by a full statement of my own reasons.

A full exposition would have to define the sphere of Political Economy by describing its data and its methods. What do we assume, and how do we reason? A complete answer to these questions would indicate the limits within which we can hope for valid conclusions. I will first refer, briefly, to a common statement of one theory advocated by the old-fashioned or classical school. Economic doctrine, they have said, supposes a certain process of abstraction. We have to do with what has been called the "economic man". He is not, happily, the real man. He is an imaginary being, whose sole principle of action is to buy in the cheapest and sell in the dearest market: a man, more briefly, who always prefers a guinea—even a dirty guinea—to a pound of the cleanest. Economists reply to the remonstrances of those who deny the existence of such a monster, by adding that they do not for a moment suppose that men in general, or even tradesmen or stockbrokers, are in reality such beings,—mere money-making machines, stripped bare of all generous or altruistic sentiment—but simply that, as a matter of fact, most people do, ceteris paribus, prefer a guinea to a pound; and that so large a part of our industrial activity is carried on from motives of this kind, that we may obtain a fair approximation to the actual course of affairs by considering them as the sole motives. We shall not go wrong, for example, in financial questions, by assuming that the sole motive of speculators in the Stock Exchange is the desire to make money. Now, it is possible, perhaps, to justify this way of putting the case, by certain qualifications. I think, however, that, if strictly interpreted, it is apt to cover a serious fallacy. The "economic man" theory, we may say, assumes too much in one direction, and too little in another. It assumes too much if it is understood as implying that the desire for wealth is a purely selfish desire. A man may desire to make money in order simply to gratify his own sensual appetites. But he may also desire to be independent; and that may include a desire to do his part in the work of society, and probably does include some desire to relieve others of a burden. The wish to be self-supporting is not necessarily or purely "selfish". And obviously, too, one great motive in all such occupations is the desire to support a family, and one main inducement to saving is the desire to support it after your own death. Remove such motives, and half the impulses to regular industrial energy of all kinds would be destroyed. We must, therefore, give our "economic man" credit for motives referring to many interests besides those which he buttons into his own waistcoat. And therefore, too, as I have said, the assumption is insufficient. The very conception of economic science supposes all that is supposed, in the growth of a settled order of society. The purest type of the "economic man," as he is sometimes described, would be realised in the lowest savage, as sometimes described, who is absolutely selfish, who knocks his child on the head because it cries, and eats his aged parent if he cannot find a supply of roots. But such a being could only form herds, not societies. Political Economy only becomes conceivable when we suppose certain institutions to have been developed. It assumes, obviously, and in the first place, the institution of property; it becomes applicable, with less qualification, in proportion to the growth of the corresponding sentiments; it takes for granted all that highly elaborate set of instincts which induce me, when I want something, to produce an equivalent in exchange for it, instead of going out to take it by force. The more thorough the respect for property, the more applicable are rules of economics; and that respect implies a long training in that sense of other people's rights, which, unfortunately, is by no means so perfect as might be desired.

It follows, then, that the economist really assumes more—and rightly assumes more—than he sometimes claims. He assumes what Adam Smith assumed at the opening of his great treatise: that is, the division of labour. But the division of labour implies the organisation of society. It implies that one man is growing corn while another is digging gold, because each is confident that he will be able to exchange the products of his own labour for the products of the other man's labour. This, of course, implies settled order, respect for contracts, the preservation of peace, and the abolition of force throughout the area occupied by the society. And this, again, is only possible in so far as certain political and ecclesiastical and military institutions have been definitely constructed. The economic assumption is really an assumption—not of a certain psychological condition of the average man, but—of the existence of a certain social mechanism. A complete science would clear up fully a problem which must occur often to all of us: How do you account for London? How is it that four or five millions of people manage to subsist on an area of a few square miles, which itself produces nothing? that other millions all over the world are engaged in providing for their wants? that food and clothes and fuel, in sufficient quantities to preserve life, are being distributed with tolerable regularity to each unit in this vast and apparently chaotic crowd? and that, somehow or other, we struggle on, well or ill, by the help of a gigantic commissariat, performing functions incomparably more complex than were ever needed for military purposes? The answer supposes that there is, as a matter of fact, a great industrial organisation which discharges the various functions of producing, exchanging, distributing, and so forth; and that its mutual relations are just as capable of being investigated and stated as the relations between different parts of an army. The men and officers do not wear uniforms; they are not explicitly drilled or subject to a definite code of discipline; and their rates of pay are not settled by any central authority. But there are capitalists, "undertakers" and labourers, merchants and retail dealers and contractors, and so forth, just as certainly as there are generals and privates, horse, foot, and artillery; and their mutual relations are equally definable. The economist has to explain the working of this industrial mechanism; and the thought may sometimes occur to us, that it is strange that he should find the task so difficult. Since we ourselves have made, or at any rate constitute, the mechanism, why should it be so puzzling to find out what it is? We are cooperating in a systematic production and distribution of wealth, and we surely ought not to find any impenetrable mystery in discovering what it is that we are doing every day of our lives. Certain economists writing within this century have often been credited with the discovery of the true theory of rent, or, which is equally good for my purpose, of starting a false theory. Yet landowners and agents had been letting farms and houses for generations; and surely they ought to have known what it was that they were themselves doing. One explanation of the difficulty is, that whereas an army is constituted by certain regulations of a central authority, the industrial army has grown up unconsciously and spontaneously. Its multitudinous members have only looked each at his own little circle; the labourer only thinks of his wages, and the capitalist of his profits, without considering his relations to the whole system of which he forms a part. The peasant drives his plough for wages, and buys his tea as if the tea fell like manna from the skies, without thinking of the curious relation into which he is thus brought with the natives of another hemisphere. The order which results from all these independent activities appeared to the older economists as an illustration of the doctrine of Final Causes. Providence had so ordered things that each man, by pursuing his own interests, pursued the interests of all. To a later school it appears rather as an illustration of the doctrine by which organisms are constructed through the struggle for existence and the survival of the fittest. In either case, it seems as though the mechanism were made rather for us than by us; that it is the product of conditions which we cannot control, instead of being an arrangement put together by conscious volitions. And, therefore, when the economist shows us what in fact are the existing arrangements and their mutual relations, he appears to be making a discovery of a scientific fact as much as if he were describing the anatomy of some newly-discovered animal or plant.

The real assumption of the economist therefore is, as I think, simply the existence of a certain industrial organisation, which has a real existence as much as an army or a church; and there is no reason why his description should not be as accurate as the complexity of the facts allows. He is giving us the anatomy of society considered as a huge mechanism for producing and distributing wealth, and he makes an abstraction only in the sense that he is considering one set of facts at a time. The military writer would describe the constitution of an army without going into the psychological or political conditions which are of course implied, and without considering the soldiers in any other relations than those implied in their military services. In the same way, the economist describes the army of industry, and classifies its constituent parts. In order to explain their mutual relations, he has to make certain further assumptions, of which it would be rash to attempt a precise summary. He assumes as a fact, what has of course always been known, that scarcity implies dearness and plenty cheapness; that commodities flow to the markets where they will fetch the highest prices; that there is a certain gravitation towards equalisation of profits among capitalists, and of wages among labourers; so that capital or labour will flow towards the employments in which they will secure the highest reward. He endeavours to give the greatest accuracy to such formulæ, of which nobody, so far as I know, denies a certain approximate truth. So long as they hold good, his inferences, if logically drawn, will also hold good. They take for granted certain psychological facts, such as are implied in all statements about human nature. But the economist, as an economist, is content to take them for granted without investigating the ultimate psychological laws upon which they depend. Those laws, or rather their results, are a part of his primary data, although he may go so far into psychological problems as to try to state them more accurately. The selfishness or unselfishness of the economic man has to be considered by the psychologist or by the moralist; but the economist has only to consider their conclusions so far as they affect the facts. So long as it is true, for example, that scarcity causes dearness, that profits attract capital, that demand and supply tend to equalise each other, and so forth, his reasonings are justified; and the further questions of the ethical and psychological implications of these facts must be treated by a different science. The question of the play of economic forces thus generally reduces itself to a problem which may be thus stated: What are the conditions of industrial equilibrium? How must prices, rates of wages, and profit be related in order that the various classes concerned may receive such proportions of produce as are compatible with the maintenance of the existing system of organisation? If any specified change occurs, if production becomes easier or more difficult, if a tax be imposed, or a regulation of any kind affects previous conditions, what changes will be necessary to restore the equilibrium? These are the main problems of Political Economy. To solve, or attempt to solve them, we have to describe accurately the existing mechanism, and to suppose that it will regulate itself on the assumption which I have indicated as to demand and supply, the flow of capital and labour, and so forth. To go beyond these assumptions, and to justify them by psychological and other considerations, may be and is a most interesting task, but it takes us beyond the sphere of Economics proper.

I must here diverge for a little, to notice the view of the school of economists which seems to regard scientific accuracy as attainable by a different path. Jevons, its most distinguished leader in England, says roundly, that political science must be a "mathematical science," because "it deals throughout with quantities"; and we have been since provided with a number of formulæ, corresponding to this doctrine. The obvious general reply would be, that Political Economy cannot be an exact science because it also deals throughout with human desires. The objection is not simply that our data are too vague. That objection, as Jevons says, would, perhaps, apply to meteorology, of which nobody doubts that it is capable of being made an exact science. But why does nobody doubt that meteorology might become an exact science? Because we are convinced that all the data which would be needed are expressible in precise terms of time and space; we have to do with volumes, and masses, and weights, and forces which can be exactly measured by lines; and, in short, with things which could be exactly measured and counted. The data are, at present, insufficiently known, and possibly the problems which would result might be too complex for our powers of calculation. Still, if we could once get the data, we could express all relevant considerations by precise figures and numbers.

Now, is this true of economic science? Within certain limits, it is apparently true: Ricardo used mathematical formulæ, though he kept to arithmetic, instead of algebra. When Malthus spoke of arithmetical and geometrical ratios, the statement, true or false, was, of course, capable of precise numerical expression, so soon as the ratios were assigned. So there was the famous formula proving a relation between the number of quarters of corn produced by a given harvest, and the number of shillings that would be given for a quarter of corn. If, again, we took the number of marriages corresponding to a given price of corn, we should obtain a formula connecting the number of marriages with the number of quarters of corn produced. The utility of statistics, of course, depends upon the fact that we do empirically discover some tolerably constant and simple numerical formulæ. Such statistical statements are useful, indeed, not only in economical, but in other inquiries, which are clearly beyond the reach of mathematics. The proportion of criminals in a given population, the number of suicides, or of illegitimate births, may throw some light upon judicial and political, and even religious or ethical problems. Nor are such formulæ useless simply because empirical. The law of gravitation, for example, is empirical. Nobody knows the cause of the observed tendency of bodies to gravitate to each other, and therefore no one can say how far the law which represents the tendency must be universal. Still, the fact that, so far as we have observed, it is invariably verified, and that calculations founded upon it enable us to bring a vast variety of phenomena under a single rule, is quite enough to justify astronomical calculation.

If, therefore, we could find a mathematical formula which was, as a matter of fact, verifiable in economical problems about prices, and so forth, we should rightly apply to mathematicians to help us with their methods. But, not only do we not find any such simple relations, but we can see conclusive reasons for being sure that we can never find them. Take, for example, the case of the number of marriages under given conditions. I need hardly say that it is impossible for the ablest mathematician to calculate whether the individual A will marry the individual B. But, by taking averages, and so eliminating individual eccentricities, he might discover that, in a given country and at a given time, a rise of prices will diminish marriages in certain proportion. Our knowledge of human nature is sufficient to make that highly probable. But our knowledge also shows that such a change will act differently in different cases: there will be one formula for France, and another for England; one for Lancashire, and another for Cornwall; one for the rich, and another for the poor; and both the total wealth of a country and its distribution will affect the rule. Differences of national temperament, of political and social constitution, of religion and ecclesiastical organisation, will all have an effect; and, therefore, a formula true here and now must, in all probability, fail altogether elsewhere. The formula is, in the mathematical phrase, a function of so many independent variables, that it must be complex beyond all conception, if it takes them all into account; while it must yet be necessarily inaccurate if it does not take them into account. But, besides this, the conditions upon which the law obviously depends are not themselves capable of being accurately defined, and still less of being numerically stated. Ingenious thinkers have, indeed, tried to apply mathematical formulæ to psychology; but they have not got very far; and it may, I think, be assumed, without further argument, that while you have to deal both with psychological and sociological elements, with human desires, and with those desires modified by social relations, it is impossible to find any data which can be mathematically stated. There is no arithmetical measure of the forces of love, or hunger, or avarice, by which (among others) the whole problem is worked out.

It seems to me, therefore, that we must accept the alternative which is only mentioned to be repudiated by Jevons, namely, that Political Economy, if not a "mathematical science," must be part of sociology. I should say that it clearly is so; for if we wish to investigate the cause of any of the phenomena concerned, and not simply to tabulate from observations, we are at once concerned with the social structure and with the underlying psychology. The mathematical methods are quite in their place when dealing with statistics. The rise and fall of prices, and so forth, can be stated precisely in figures; and, whenever we can discover some approximation to a mathematical law (as in the cases I have noticed) we may work out the results. If, for example, the price of a commodity under certain conditions bears a certain relation to its scarcity, we can discover the one fact when the other fact is given, remembering only that our conclusions are not more certain than our premisses, and that the observed law depends upon unknown and most imperfectly knowable conditions. Such results, again, may be very useful in various ways, as illustrative of the way in which certain laws will work if they hold good; and, again, as testing many of our general theories. If you have argued that the price of gold or silver cannot be fixed, the fact that it has been fixed under certain conditions will of course lead to a revision of your arguments. But I cannot help thinking that it is an illusion to suppose that such methods can justify the assertion that the science as a whole is "mathematical". Nothing, indeed, is easier than to speak as if you had got a mathematical theory. Let x mean the desire for marriage and y the fear of want, then the number of marriages is a function of x and y, and I can express this by symbols as well as by ordinary words. But there is no magic about the use of symbols. Mathematical inquiries are not fruitful because symbols are used, but because the symbols represent something absolutely precise and assignable. The highest mathematical inquiries are simply ingenious methods of counting; and till you have got something precise to count, they can take you no further. I cannot help thinking that this fallacy imposes upon some modern reasoners; that they assume that they have got the data because they have put together the formulæ which would be useful if they had the data; and, in short, that you can get more out of a mill than you put into it; or, in other words, that more conclusions than really follow can be got out of premisses, simply because you show what would follow if you had the required knowledge. When the attempt is made, as it seems to me to be made sometimes, to deduce economical laws from some law of human desire—as from the simple theorem that equal increments of a commodity imply diminishing amounts of utility—I should reply not only that the numerical data are vaguely defined and incapable of being accurately stated, but that the attempt must be illusory because the conclusions are not determinable from the premisses. The economic laws do not follow from any simple rule about human desires, because they vary according to the varying constitution of human society; and any conclusion which you could obtain would be necessarily confined to the abstract man of whom the law is supposed to hold good. Every such method, therefore, if it could be successful, could only lead to conclusions about human desire in general, and could throw no light upon the special problems of political economy, which essentially depend upon varying industrial organisation.

I will not, however, go further. You must either, I hold, limit Political Economy to the field of statistical inquiry, or admit that, as a part of sociology, it deals with questions altogether beyond the reach of mathematics. Like physiology, it is concerned with results capable of numerical statement. The number of beats of the pulse, or the number of degrees of temperature of the body, are important data in physiological problems. They may be counted, and may give rise to mathematically expressible formulæ. But the fact does not excuse us from considering the physical conditions of the organs which are in some way correlated with these observed phenomena; and, in the case of Political Economy, we have to do with the social structure, which is dependent upon forces altogether incapable of precise numerical estimates. That, at least, is my view; and I shall apply it to illustrate one remark, which must, I think, have often occurred to us. Political Economy, that is, often appears to have a negative rather than a positive value. It is exceedingly potent—so, at least, I think—in dispersing certain popular fallacies; but it fails when we regard it as a science which can give us positive concrete "laws". The general reason is, I should say, that although its first principles may be true descriptions of facts, and any denial of them, or any inconsistent applications of them, may lead us into error, they are yet far from sufficient descriptions. They omit some considerations which are relevant in any concrete case; and the facts which they describe are so complex that, even when we look at them consistently and follow the right clue, we cannot solve the complicated problems which occur. It may be worth while to insist a little upon this, and to apply it to one or two peculiar problems.