Table of Contents
PART II THE ECONOMICS OF A SOCIALIST COMMUNITY
SECTION I The Economics of an Isolated Socialist Community
1 A Contribution to the Critique of the Concept "Economic Activity"
The Nature of Economic Activity
Economic Science originated in discussion of the money price of goods and services.
Its first beginnings are to be found in inquiries about coinage, which developed
into investigations of price movements. Money, money prices, and everything concerned
with calculation in terms of money—these form the problems in the discussion of
which the science of Economics emerged. Those attempts at economic inquiry, which
are discernible in works on household management and the organization of production—particularly
agricultural—did not develop further in this direction. They became merely the starting
point for various departments of technology and natural science. And this was no
accident. Only through the rationalization inherent in economic calculation based
on the use of money could the human mind come to understand and trace the laws of
The earlier economists did not ask themselves what the "economic" and "economic
activity" really were. They had enough to do with the great tasks presented by the
particular problems with which they were then concerned. They were not concerned
with methodology. It was quite late before they began to grapple with the methods
and ultimate aims of economics, and its place in the general system of knowledge.
And then an obstacle was encountered which seemed to be insurmountable—the problem
of defining the subject matter of economic activity.
All theoretical inquiries—those of the classical economists, equally with those
of the moderns—start from the economic principle. Yet, as was necessarily soon perceived,
this provides no basis for clearly defining the subject matter of economics. The
economic principle is a general principle of rational action, and not a specific
principle of such action as forms the subject of economic inquiry. The economic
principle directs all rational action, all action capable of becoming the subject
matter of a science. It seemed absolutely unserviceable for separating the "economic"
from the "non-economic," so far as the traditional economic problems were concerned.
But, on the other hand, it was equally impossible to divide up rational actions
according to the immediate end to which they were directed, and to regard as the
subject matter of economics only those actions which were directed to providing
mankind with the commodities of the external world. Against such a procedure it
is a decisive objection that, in the last analysis, the provision of material goods
serves not only those ends which are usually termed economic, but also many other
Such a division of the motives of rational action involves a dual conception of
action—action from economic motives, on the one side, action from non-economic motives,
on the other—which is absolutely irreconcilable with the necessary unit of will
and action. A theory of rational action must conceive such action as unitary.
2 Rational Action
Action based on reason, action therefore which is only to be understood by reason,
knows only one end, the greatest pleasure of the acting individual. The attainment
of pleasure, the avoidance of pain—these are its intentions. By this, of course,
we do not mean "pleasure" and "pain" in the sense in which these terms used to be
used. In the terminology of the modern economist, pleasure is to be understood as
embracing all those things which men hold to be desirable, all that they want and
strive for. There can therefore be no longer any contrast between the "noble" ethics
of duty and the vulgar hedonistic ethics. The modern concept of pleasure, happiness,
utility, satisfaction and the like includes all human ends, regardless of whether
the motives of action are moral or immoral, noble or ignoble, altruistic or egotistical.
In general men act only because they are not completely satisfied. Were they always
to enjoy complete happiness, they would be without will, without desire, without
action. In the land of the lotus-eaters there is no action. Action arises only from
need, from dissatisfaction. It is purposeful striving towards something. Its ultimate
end is always to get rid of a condition which is conceived to be deficient—to fulfil
a need, to achieve satisfaction, to increase happiness. If men had all the external
resources of nature so abundantly at their disposal that they were able to obtain
complete satisfaction by action, then they could use them heedlessly. They would
only have to consider their own powers and the limited time at their disposal. For,
compared with the sum of their needs, they would still have only a limited strength
and a limited life-time available. They would still have to economize time and labour.
But to economy of materials they would be indifferent. In fact, however, materials
are also limited, so that they too have to be used in such a way that the most urgent
needs are satisfied first, with the least possible expenditure of materials for
The spheres of rational action and economic action are therefore co-incident. All
rational action is economic. All economic activity is rational action. All rational
action is in the first place individual action. Only the individual thinks. Only
the individual reasons. Only the individual acts. How society arises from the action
of individuals will be shown in a later part of our discussion.
3 Economic Calculation
All human action, so far as it is rational, appears as the exchange of one condition
for another. Men apply economic goods and personal time and labour in the direction
which, under the given circumstances, promises the highest degree of satisfaction,
and they forgo the satisfaction of lesser needs so as to satisfy the more urgent
needs. This is the essence of economic activity—the carrying out of acts of exchange.
Every man who, in the course of economic activity, chooses between the satisfaction
of two needs, only one of which can be satisfied, makes judgments of value. Such
judgments concern firstly and directly the satisfactions themselves; it is only
from these that they are reflected back upon goods. As a rule anyone in possession
of his senses is able at once to evaluate goods which are ready for consumption.
Under very simple conditions he should also have little difficulty in forming a
judgment upon the relative significance to him of the factors of production. When,
however, conditions are at all complicated, and the connection between things is
harder to detect, we have to make more delicate computations if we are to evaluate
such instruments. Isolated man can easily decide whether to extend his hunting or
his cultivation. The processes of production he has to take into account are relatively
short. The expenditure they demand and the product they afford can easily be perceived
as a whole. But to choose whether we shall use a waterfall to produce electricity
or extend coal-mining and better utilize the energy contained in coal, is quite
another matter. Here the processes of production are so many and so long, the conditions
necessary to the success of the undertaking so multitudinous, that we can never
be content with vague ideas. To decide whether an undertaking is sound we must calculate
But computation demands units. And there can be no unit of the subjective use-value
of commodities. Marginal utility provides no unit of value. The worth of two units
of a given commodity is not twice as great as one—although it is necessarily greater
or smaller than one. Judgments of value do not measure: they arrange, they grade.
If he relies only on subjective valuation, even isolated man cannot arrive at a
decision based on more or less exact computations in cases where the solution is
not immediately evident. To aid his calculations he must assume substitution relations
between commodities. As a rule he will not be able to reduce all to a common unit.
But he may succeed in reducing all elements in the computation to such commodities
as he can evaluate immediately, that is to say, to goods ready for consumption and
the disutility of labour and then he is able to base his decision upon this evidence.
It is obvious that even this is possible only in very simple cases. For complicated
and long processes of production it would be quite out of the question.
In an exchange economy, the objective exchange value of commodities becomes the
unit of calculation. This involves a threefold advantage. In the first place we
are able to take as the basis of calculation the valuation of all individuals participating
in trade. The subjective valuation of one individual is not directly comparable
with the subjective valuation of others. It only becomes so as an exchange value
arising from the interplay of the subjective valuations of all who take part in
buying and selling. Secondly, calculations of this sort provide a control upon the
appropriate use of the means of production. They enable those who desire to calculate
the cost of complicated processes of production to see at once whether they are
working as economically as others. If, under prevailing market prices, they cannot
carry through the process at a profit, it is a clear proof that others are better
able to turn to good account the instrumental goods in question. Finally, calculations
based upon exchange values enable us to reduce values to a common unit. And since
the higgling of the market establishes substitution relations between commodities,
any commodity desired can be chosen for this purpose. In a money economy, money
is the commodity chosen.
Money calculations have their limits. Money is neither a yardstick of value nor
of prices. Money does not measure value. Nor are prices measured in money: they
are amounts of money. And, although those who describe money as a "standard of deferred
payments" naively assume it to be so, as a commodity it is not stable in value.
The relation between money and goods perpetually fluctuates not only on the "goods
side," but on the "money side" also. As a rule, indeed, these fluctuations are not
too violent. They do not too much impair the economic calculus, because under a
state of continuous change of all economic conditions, this calculus takes in view
only comparatively short periods, in which "sound money" at least does not change
its purchasing power to any very great extent.
The deficiencies of money calculations arise for the most part, not because they
are made in terms of a general medium of exchange, money, but because they are based
on exchange values rather than on subjective use-values. For this reason all elements
of value which are not the subject of exchange elude such computations. If, for
example, we are considering whether a hydraulic power-works would be profitable
we cannot include in the computation the damage which will be done to the beauty
of the waterfalls unless the fall in values due to a fall in tourist traffic is
taken into account. Yet we must certainly take such considerations into account
when deciding whether the undertaking shall be carried out.
Considerations such as these are often termed "non-economic." And we may permit
the expression for disputes about terminology gain nothing. But not all such considerations
should be called irrational. The beauty of a place or of a building, the health
of the race, the honour of individuals or nations, even if (because they are not
dealt with on the market) they do not enter into exchange relations, are just as
much motives of rational action, provided people think them significant, as those
normally called economic. That they cannot enter into money calculations arises
from the very nature of these calculations. But this does not in the least lessen
the value of money calculations in ordinary economic matters. For all such moral
goods are goods of the first order. We can value them directly; and therefore have
no difficulty in taking them into account, even though they lie outside the sphere
of money computations. That they elude such computations does not make it any more
difficult to bear them in mind. If we know precisely how much we have to pay for
beauty, health, honour, pride, and the like, nothing need hinder us from giving
them due consideration. Sensitive people may be pained to have to choose between
the ideal and the material. But that is not the fault of a money economy. It is
in the nature of things. For even where we can make judgments of value without money
computations we cannot avoid this choice. Both isolated man and socialist communities
would have to do likewise, and truly sensitive natures will never find it painful.
Called upon to choose between bread and honour, they will never be at a loss how
to act. If honour cannot be eaten, eating can at least be forgone for honour. Only
such as fear the agony of choice because they secretly know that they could not
forgo the material, will regard the necessity of choice as a profanation.
Money computations are only significant for purposes of economic calculation. Here
they are used in order that the disposal of commodities may conform to the criterion
of economy. And such calculations take account of commodities only in the proportions
in which, under given conditions, they exchange for money. Every extension of the
sphere of money calculation is misleading. It is misleading when in historical researches,
it is employed as a measure of past commodity values. It is misleading when it is
employed to evaluate the capital or national income of nations. It is misleading
when it is employed to estimate the value of things which are not exchangeable as,
for instance, when people attempt to estimate the loss due to emigration or war.
All these are dilettantisms—even when they are undertaken by the most competent
But within these limits—and in practical life they are not overstepped—money calculation
does all that we are entitled to ask of it. It provides a guide amid the bewildering
throng of economic possibilities. It enables us to extend judgments of value which
apply directly only to consumption goods—or at best to production goods of the lowest
order—to all goods of higher orders. Without it, all production by lengthy and roundabout
processes would be so many steps in the dark.
Two things are necessary if computations of value in terms of money are to take
place. First, not only goods ready for consumption but also goods of higher orders
must be exchangeable. If this were not so, a system of exchange relationships could
not emerge. It is true that if an isolated man is "exchanging" labour and flour
for bread within his own house, the considerations he has to take into account are
not different from those which would govern his actions if he were to exchange bread
for clothes on the market. And it is, therefore, quite correct to regard all economic
activity, even the economic activity of isolated man, as exchange. But no single
man, be he the greatest genius ever born, has an intellect capable of deciding the
relative importance of each one of an infinite number of goods of higher orders.
No individual could so discriminate between the infinite number of alternative methods
of production that he could make direct judgments of their relative value without
auxiliary calculations. In societies based on the division of labour, the distribution
of property rights effects a kind of mental division of labour, without which neither
economy nor systematic production would be possible.
In the second place, there must be a general medium of exchange, a money, in use.
And this must serve as an intermediary in the exchange of production goods equally
with the rest. If this were not so, it would be impossible to reduce all exchange
relationships to a common denominator.
Only under very simple conditions is it possible to dispense with money calculations.
In the narrow circle of a closed household, where the father is able to supervise
everything, he may be able to evaluate alterations in methods of production without
having recourse to money reckoning. For, in such circumstances, production is carried
on with relatively little capital. Few roundabout methods of production are employed.
As a rule production is concerned with consumption goods, or goods of higher orders
not too far removed from consumption goods. Division of labour is still in its earliest
stages. The labourer carries through the production of a commodity from beginning
to end. In an advanced society all this is changed. It is impossible to argue from
the experience of primitive societies that under modern conditions we can dispense
In the simple conditions of a closed household, it is possible to survey the whole
process of production from beginning to end. It is possible to judge whether one
particular process gives more consumption goods than another. But, in the incomparably
more complicated conditions of our own day, this is no longer possible. True, a
socialistic society could see that 1000 litres of wine were better than 800 litres.
It could decide whether or not 1000 litres of wine were to be preferred to 500 litres
of oil. Such a decision would involve no calculation. The will of some man would
decide. But the real business of economic administration, the adaptation of means
to ends only begins when such a decision is taken. And only economic calculation
makes this adaptation possible. Without such assistance, in the bewildering chaos
of alternative materials and processes the human mind would be at a complete loss.
Whenever we had to decide between different processes or different centres of production,
we would be entirely at sea.
To suppose that a socialist community could substitute calculations in kind for
calculations in terms of money is an illusion. In a community that does not practice
exchange, calculations in kind can never cover more than consumption goods. They
break down completely where goods of higher order are concerned. Once society abandons
free pricing of production goods rational production becomes impossible. Every step
that leads away from private ownership of the means of production and the use of
money is a step away from rational economic activity.
It was possible to overlook all this because such Socialism as we know at first
hand exists only, one might say, in socialistic oases in what, for the rest, is
a system based upon free exchange and the use of money. To this extent, indeed,
we may agree with the otherwise untenable socialist contention—it is only employed
for propagandist purposes—that nationalized and municipalized undertakings within
an otherwise capitalist system are not Socialism. For the existence of a surrounding
system of free pricing supports such concerns in their business affairs to such
an extent that in them the essential peculiarity of economic activity under Socialism
does not come to light. In State and municipal undertakings it is still possible
to carry out technical improvements, because it is possible to observe the effects
of similar improvements in similar private undertakings at home and abroad. In such
concerns it is still possible to ascertain the advantages of reorganization because
they are surrounded by a society which is still based upon private ownership in
the means of production and the use of money. It is still possible for them to keep
books and make calculations which for similar concerns in a purely socialist environment
would be entirely out of the question.
Without calculation, economic activity is impossible. Since under Socialism economic
calculation is impossible, under Socialism there can be no economic activity in
our sense of the word. In small and insignificant things rational action might still
persist. But, for the most part, it would no longer be possible to speak of rational
production. In the absence of criteria of rationality, production could not be consciously
For some time possibly the accumulated tradition of thousands of years of economic
freedom would preserve the art of economic administration from complete disintegration.
Men would preserve the old processes, not because they were rational, but because
they were sanctified by tradition. In the meantime, however, changing conditions
would make them irrational. They would become uneconomical as the result of changes
brought about by the general decline of economic thought. It is true that production
would no longer be "anarchical." The command of a supreme authority would govern
the business of supply. Instead of the economy of "anarchical" production the senseless
order of an irrational machine would be supreme. The wheels would go round, but
to no effect.
Let us try to imagine the position of a socialist community. There will be hundreds
and thousands of establishments in which work is going on. A minority of these will
produce goods ready for use. The majority will produce capital goods and semi-manufactures.
All these establishments will be closely connected. Each commodity produced will
pass through a whole series of such establishments before it is ready for consumption.
Yet in the incessant press of all these processes the economic administration will
have no real sense of direction. It will have no means of ascertaining whether a
given piece of work is really necessary, whether labour and material are not being
wasted in completing it. How would it discover which of two processes was the more
satisfactory? At best, it could compare the quantity of ultimate products. But only
rarely could it compare the expenditure incurred in their production. It would know
exactly—or it would imagine it knew—what it wanted to produce. It ought therefore
to set about obtaining the desired results with the smallest possible expenditure.
But to do this it would have to be able to make calculations. And such calculations
must be calculations of value. They could not be merely "technical," they could
not be calculations of the objective use-value of goods and services; this is so
obvious that it needs no further demonstration.
Under a system based upon private ownership in the means of production, the scale
of values is the outcome of the actions of every independent member of society.
Everyone plays a two-fold part in its establishment first as a consumer, secondly
as producer. As consumer, he establishes the valuation of goods ready for consumption.
As producer, he guides production-goods into those uses in which they yield the
highest product. In this way all goods of higher orders also are graded in the way
appropriate to them under the existing conditions of production and the demands
of society. The interplay of these two processes ensures that the economic principle
is observed in both consumption and production. And, in this way, arises the exactly
graded system of prices which enables everyone to frame his demand on economic lines.
Under Socialism, all this must necessarily be lacking. The economic administration
may indeed know exactly what commodities are needed most urgently. But this is only
half the problem. The other half, the valuation of the means of production, it cannot
solve. It can ascertain the value of the totality of such instruments. That is obviously
equal to the value of the satisfactions they afford. If it calculates the loss that
would be incurred by withdrawing them, it can also ascertain the value of single
instruments of production. But it cannot assimilate them to a common price denominator,
as can be done under a system of economic freedom and money prices.
It is not necessary that Socialism should dispense altogether with money. It is
possible to conceive arrangements permitting the use of money for the exchange of
consumers goods. But since the prices of the various factors of production (including
labour) could not be expressed in money, money could play no part in economic calculations.
Suppose, for instance, that the socialist commonwealth was contemplating a new railway
line. Would a new railway line be a good thing? If so, which of many possible routes
should it cover? Under a system of private ownership we could use money calculations
to decide these questions. The new line would cheapen the transportation of certain
articles, and, on this basis, we could estimate whether the reduction in transport
charges would be great enough to counterweigh the expenditure which the building
and running of the line would involve. Such a calculation could be made only in
money. We could not do it by comparing various classes of expenditure and savings
in kind. If it is out of the question to reduce to a common unit the quantities
of various kinds of skilled and unskilled labour, iron, coal, building materials
of different kinds, machinery and the other things which the building and upkeep
of railways necessitate, then it is impossible to make them the subject of economic
calculation. We can make systematic economic plans only when all the commodities
which we have to take into account can be assimilated to money. True, money calculations
are incomplete. True, they have profound deficiencies. But we have nothing better
to put in their place. And under sound monetary conditions they suffice for practical
purposes. If we abandon them, economic calculation becomes absolutely impossible.
This is not to say that the socialist community would be entirely at a loss. It
would decide for or against the proposed undertaking and issue an edict. But, at
best, such a decision would be based on vague valuations. It could not be based
on exact calculations of value.
A stationary society could, indeed, dispense with these calculations. For there,
economic operations merely repeat themselves. So that, if we assume that the socialist
system of production were based upon the last state of the system of economic freedom
which it superseded, and that no changes were to take place in the future, we could
indeed conceive a rational and economic Socialism. But only in theory. A stationary
economic system can never exist. Things are continually changing, and the stationary
state, although necessary as an aid to speculation, is a theoretical assumption
to which there is no counterpart in reality. And, quite apart from this, the maintenance
of such a connection with the last state of the exchange economy would be out of
the question, since the transition to Socialism with its equalization of incomes
would necessarily transform the whole "set" of consumption and production. And then
we have a socialist community which must cross the whole ocean of possible and imaginable
economic permutations without the compass of economic calculation.
All economic change, therefore, would involve operations the value of which could
neither be predicted beforehand nor ascertained after they had taken place. Everything
would be a leap in the dark. Socialism is the renunciation of rational economy.
4 The Capitalist Economy
The terms "Capitalism" and "Capitalistic Production" are political catchwords. They
were invented by socialists, not to extend knowledge, but to carp, to criticize,
to condemn. Today, they have only to be uttered to conjure up a picture of the relentless
exploitation of wage-slaves by the pitiless rich. They are scarcely ever used save
to imply a disease in the body-politic. From a scientific point of view, they are
so obscure and ambiguous that they have no value whatever. Their users agree only
in this, that they indicate the characteristics of the modern economic system. But
wherein these characteristics consist is always a matter of dispute. Their use,
therefore, is entirely pernicious, and the proposal to extrude them altogether from
economic terminology, and to leave them to the matadors of popular agitation, deserves
If, nevertheless, we do desire to discover for them a precise application, we should
start from the idea of capital calculations. And since we are concerned only with
the analysis of actual economic phenomena, and not with economic theory—where "capital"
is often used in a sense specially extended for particular purposes—we must first
ask what significance is attached to the term in business practice. There we find
it used only for purposes of economic calculation. It serves to bring the original
properties of a concern under one denomination, whether they consisted of money
or were only expressed in money. The object of its computations is to enable
us to ascertain how much the value of this property has altered in the course of
business operations. The concept of capital is derived from economic calculation.
Its true home is accountancy—the chief instrument of commercial rationality. Calculation
in terms of money is an essential element of the concept of capital.
If the term capitalism is used to designate an economic system in which production
is governed by capital calculations, it acquires a special significance for defining
economic activity. Understood thus, it is by no means misleading to speak of Capitalism
and capitalistic methods of production, and expressions such as the capitalistic
spirit and the anti-capitalistic disposition acquire a rigidly circumscribed connotation.
Capitalism is better suited to be the antithesis of Socialism than Individualism,
which is often used in this way. As a rule those who contrast Socialism with Individualism
proceed on the tacit assumption that there is a contradiction between the interests
of the individual and the interest of society, and that, while Socialism takes the
public welfare as its object, individualism serves the interests of particular people.
And since this is one of the gravest sociological fallacies we must avoid carefully
any form of expression which might allow it secretly to creep in.
According to Passow, where the term Capitalism is used correctly, the association
it is intended to convey is usually bound up with the development and spread of
large scale undertakings. We may admit this—even if it is rather difficult to
reconcile with the fact that people customarily speak of "Grosskapital" and "Grosskapitalist"
and then of "Kleinkapitalisten." But, if we recollect that only capital calculation
made the growth of giant enterprise and undertakings possible, this does not in
any way invalidate the definitions we propose.
5 The Narrower Concept of the "Economic"
The common habit of economists of distinguishing between "economic" or "purely economic"
and "non-economic" action is just as unsatisfactory as the old distinction between
ideal and material goods. For willing and acting are unitary. All ends conflict
among themselves and it is this conflict which ranges them in one scale. Not only
the satisfaction of wishes, desires and impulses that can be attained through interaction
with the external world, but the satisfaction also of ideal needs must be judged
by one criterion. In life we have to choose between the "ideal" and the "material."
It is, therefore, just as essential to make the former subject to a unitary criterion
of values as the latter. In choosing between bread and honour, faith and wealth,
love and money, we submit both alternatives to one test.
It is, therefore, illegitimate to regard the "economic" as a definite sphere of
human action which can be sharply delimited from other spheres of action. Economic
activity is rational activity. And since complete satisfaction is impossible, the
sphere of economic activity is coterminous with the sphere of rational action. It
consists firstly in valuation of ends, and then in the valuation of the means leading
to these ends. All economic activity depends, therefore, upon the existence of ends.
Ends dominate economy and alone give it meaning.
Since the economic principle applies to all human action, it is necessary to be
very careful when distinguishing, within its sphere, between "purely economic" and
other kinds of action. Such a division is indeed indispensable for many scientifc
purposes. It singles out one particular end and contrasts it with all others. This
end—at this point we need not discuss whether it is ultimate or not—is the attainment
of the greatest possible product measured in money. It is, therefore, impossible
to assign it a specially delimited sphere of action. It is true that for each individual
it has such a delimited sphere, but this varies in extent according to the general
outlook of the individual concerned. It is one thing for the man to whom honour
is dear. It is another for him who sells his friend for gold. Neither the nature
of the end nor the peculiarity of the means is what justifies the distinction, but
merely the special nature of the methods employed. Only the fact that it uses exact
calculation distinguishes "purely economic" from other action.
The sphere of the "purely economic" is nothing more and nothing less than the sphere
of money calculation. The fact that in a certain field of action it enables us to
compare means with minute exactitude down to the smallest detail means so much both
for thought and action that we tend to invest this kind of action with special importance.
It is easy to overlook the fact that such a distinction is only a distinction in
the technique of thought and action and in no way a distinction in the ultimate
end of action—which is unitary. The failure of all attempts to exhibit the "economic"
as a special department of the rational and within that to discover still another
sharply defined department, the "purely economic," is no fault of the analytical
apparatus employed. There can be no doubt that great subtlety of analysis has been
concentrated on this problem, and the fact that it has not been solved clearly indicates
that the question is one to which no satisfactory answer can be given. The sphere
of the "economic" is plainly the same as the sphere of the rational: and the sphere
of the "purely economic" is nothing but the sphere in which money calculation is
In the last resort the individual can acknowledge one end, and one end only: the
attainment of the greatest satisfaction. This expression includes the satisfying
of all kinds of human wants and desires, regardless of whether they are "material"
or immaterial (moral). In the place of the word "satisfaction" we could employ the
word "happiness," had we not to fear the misunderstandings, for which the controversy
on Hedonism and Eudaemonism was responsible.
Satisfaction is subjective. Modern social philosophy has emphasized this so sharply
in contrast to former theories that there is a tendency to forget that the physiological
structure of mankind and the unity of outlook and emotion arising from tradition
create a far-reaching similarity of views regarding wants and the means to satisfy
them. It is precisely this similarity of views which makes society possible. Because
they have common aims, men are able to live together. Against this fact that the
majority of ends (and those the most important) are common to the great mass of
mankind, the fact that some ends are only entertained by a few is of subordinate
The customary division between economic and non-economic motives is, therefore,
invalidated by the fact that on the one hand, the end of economic activity lies
outside the range of economics, and on the other, that all rational activity is
economic. Nevertheless, there is good justification for separating "purely economic"
activities (that is to say, activity susceptible of valuation in money) from all
other forms of activity. For, as we have already seen, outside the sphere of money
calculation there remain only intermediate ends which are capable of evaluation
by immediate inspection: and once this sphere is left, it is necessary to have recourse
to such judgments. It is the recognition of this necessity which provides the occasion
for the distinction we have been discussing.
If, for example, a nation desires to make war, it is illegitimate to regard the
desire as necessarily irrational because the motive for making war lies outside
those customarily considered as "economic"—as might be the case, e.g. with wars
of religion. If the nation decides on the war with complete knowledge of all the
facts because it judges that the end in view is more important than the sacrifice
involved, and because it regards war as the most suitable means of obtaining it,
then war cannot be regarded as irrational. It is not necessary at this point to
decide whether this supposition is ever true or if it ever can be true. It is precisely
this which has to be examined when one comes to choose between war and peace. And
it is precisely with a view to introducing clarity into such an examination that
the distinction we have been discussing has been introduced.
It is only necessary to remember how often wars or tariffs are recommended as being
"good business" from the "economic" point of view to realize how often this is forgotten.
How much clearer would have been the political discussions of the last century if
the distinction between the "purely economic" and the "non-economic" grounds of
action had been kept in mind.
It was left to the empirical-realistic school,
with its terrible confusion of all concepts, to explain the economic principle as a
specific of production under a money economy, e.g., Lexis, Allgemeine Volkswirtschaftslehre
(Berlin and Leipzig, 1910), p. 15.
Amonn, Objekt und Grundbegriffe der theoretischen
Nationalökonomie (Vienna and Leipzig, 1927), p. 185.
Mill, Das Nützlichkeitsprinzip. Trans. Wahrmund,
Gesammelte Werke, German ed. Th. Gomperz (Leipzig, 1869), vol, 1, pp. 125-200.
Schumpeter, Das Wesen und der Hauptinhalt der
theoretischen Nationalokonomie, (Leipzig, 1908), pp. 50, 80.
The following remarks reproduce parts of my essay
"Die Wirtschaftsrechnung im sozialistischen Gemeinwesen" (Archiv für Sozialwissenschaft, Vol.
XLVII, pp. 86-121).
Cuhel, Zur Lehre yon den Bedürfnissen (Innsbruck, 1907),
Wieser, Uber den Ursprung und die Hauptgesetze
des wirtschaftlichen Wertes, Vienna, 1884, pp. 185 ff.
Gottl-Otthlienfeld, "Wirtschaft und Technik,"
Grundriss der Sozialökonomik, II (Tübingen, 1914), p. 216.
Neurath too admitted this. (Durch die
Kriegswirtschaft zur Naturalwirtschaft [Munich, 1919], pp. 216 ff.) He asserts that every
complete administrative economy (planned economy) is ultimately a natural economy
(barter system). "To socialize therefore means to advance the natural economy."
Neurath, however, did not recognize the insurmountable difficulties economic calculation
would encounter in the socialist community.
Passow, Kapitalismus, eine
begrifflich-terminologische Studie (Jena, 1918), pp. 1 ff. In the 2nd edition,
published 1927, Passow expressed the opinion (p. 15, note 2), in view of the most
recent literature, that the term "Capitalism" might in time gradually lose the moral
Carl Menger, "Zur Theorie des Kapitals"
(Jahrbüchern für Nationalokonomie und Statistik, Vol. XVII), p. 41
Passow, op. cit. (2nd edition), pp. 49 ff.
Passow, op. cit. (2nd edition), pp. 132 ff.
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