The Economic Point of View
2. The Science of Wealth and Welfare
This fatal word “material” is probably more responsible for the ignorant slanders on the “dismal science” than any other economic description . . .
Alec L. Macfie
Political Economy is a science in the same sense in which Astronomy, Dynamics, Chemistry, Physiology are sciences. Its subject-matter is different; it deals with the phenomena of wealth, while they deal with the phenomena of the physical universe.
J. E. Cairnes
. . . In becoming consciously a science of human behavior economics will lay less stress upon wealth and more stress upon welfare.
Wesley C. Mitchell
It is almost as difficult to define the boundaries of welfare economics as it is to define economics itself.
Kenneth E. Boulding
We shall see that many writers of this opinion still further narrowed down the concept of wealth to the idea of material wealth, and many of those stressing welfare qualified the term by singling out the material welfare of mankind. These developments meant that more than ever economics has to do with a particular class of objects as its special province of study. And we shall be concerned in this chapter to explain the emergence of this general outlook on the nature of economics simultaneously with the emergence of the science of economics itself. We shall also be concerned to trace the various forms that this general outlook has taken in response to developments within the science of economics and to discover some of the implications of this outlook.
The Emergence of Political Economy as the Science of Wealth
The writers on economics at the time of the emergence of the subject as a serious discipline in its own right, where they made any attempt at all to outline the scope of their inquiries, did so quite as a matter of course by reference to “wealth” as its subject matter. By the latter half of the eighteenth century, thinkers in England, France, and Italy were coming to recognize that the subject of the mass of writings and speculations dealing with commerce, industry, foreign trade, money, interest, taxation, and the like constitutes a distinct theme of inquiry. Hitherto these speculations (such as those of the mercantilist writers and of those whom Schumpeter has called the consultant administrators and pamphleteers) had been isolated inquiries seeking to explain specific phenomena of the real world. Where inquiries on these and kindred subjects had been incorporated into more general systems, they appeared as unmistakably subsidiary material introduced to round out treatises whose subjects were juristic, political, or moral.
With the recognition of the fundamental unity of the principles underlying these scattered inquiries and of their analytical independence of juristic, political, and moral systems, economics, or political economy, emerged as a distinct discipline. Works appeared attempting to deal with economic phenomena in general, and these works typically identified their subject matter as being “wealth.”
That this new science was considered, not as explaining the operation of a specific type of social organization or the results of a certain kind of human behavior or any of the various other matters that economists have at times believed it to be their principal concern to explain, but as primarily explaining the phenomena of wealth, is a circumstance that deserves some closer attention. It seems appropriate to glance briefly at the background against which economic thought developed, in order to throw some light on this interesting circumstance before we trace the later history of this idea on economic affairs.
In later chapters there will come under discussion a number of possibly more sophisticated conceptions of that economic point of view from which the economist scrutinizes the world. In the course of these discussions, the failure of the classical economists to perceive the unity of their subject to be implied in such conceptions will be more fully understood as stemming at least in part from their freedom from those influences that were operative in the emergence of the later views. At this point four positive elements in the background of early economic thought and its surrounding Zeitgeist may be distinguished as possible catalysts in the precipitation of wealth as the recognized subject matter of a distinct discipline.
It is not difficult to see that this attitude toward the utility of economic inquiries necessarily carried with it the elevation of wealth into an object of scientific study. An investigation that sets out to find the means of enriching the people and the sovereign, if it discovers laws governing the attainment of this objective, may not unnaturally presume to have discovered the laws of wealth. If we grant the assumption that the goal of economics is to make the nation wealthy, a goal to which a fairly well-understood meaning was attached, then it follows that economists must be considered, both by themselves and by the public, as expounding the principles of wealth—understood in the same sense—and its acquisition by the nation. How a nation wrests wealth from niggardly nature, how this wealth is distributed and exchanged within the nation—all these inquiries focus the attention on that which now becomes an object of scientific scrutiny. The general objectivism of the classical school in its substantive economic doctrines here finds its counterpart in that school’s very conception of its task: an economist investigates the phenomena of a special class of objects that together comprise wealth.
This reaction against extreme egoism and especially against the effect on the nation’s welfare ascribed to egoism seems to be at least partly responsible for the division of the field of human action into two independent classes, the one class of acts being induced by purely egoistic motives, the other class being constituted of acts in which the motivating forces are the altruistic and “higher” impulses. And it is not difficult to see how the acts induced by selfishness could be easily confused with acts aimed at fulfilling material desires. Careful thinking had demonstrated the existence of regularities in the phenomena of wealth. The identification of the study of these regularities with the study of material or other wealth thus obviously provided the new science with an appropriate and distinct niche within the structure of knowledge as conceived by the eighteenth-century thinkers.
The tremendous advances in the natural sciences, especially mathematics and astronomy, associated with such names as Newton, Clairault, Euler, and d’Alembert, were radically transforming the intellectual atmosphere in which the eighteenth-century philosophers thought and taught. The reaction against airy metaphysical speculation set in motion by Hume and the other British empiricists, and the quasi-positivist philosophy of the French Encyclopedists, with its anathematization of all forms of anthropomorphism and animism, were all part of the environment in which economic science emerged.
The Science of Material Wealth
Our account of the history of the point of view that sees economic affairs as essentially concerned with a special class of objects, i.e., with wealth, finds a convenient point of departure in an early and long-lived form of this idea, which confined economics to the consideration of material wealth.
From the beginning alternative suggestions were made by the economists themselves about what should and what should not be included under the heading of wealth even when the latter was universally regarded as the subject matter of economics. Indeed, many writers, in their definition of political economy, expressly included in its scope the exposition of “the nature” of wealth. Smith, Lauderdale, Malthus, and Senior all felt the elucidation of this question to be part of their task. As has been the lot of other problems taken up by economists, this question was treated in a variety of ways. As early as 1810 the French economist Ganilh cited eight distinct definitions of “wealth” by economists; Senior, writing on terms “peculiarly liable to be used ambiguously” in economics, somewhat despairingly quotes seven different definitions, besides his own contribution.
Of these controversies over the meaning of the term “wealth” probably the best known was that concerning its restriction exclusively to material goods. It must be remembered that the issue was not between a “materialistic” economics and one that embraced the catallactic consequences of man’s “higher” interests and desires. The fact is that the classical economists were little concerned about why an item of wealth was desired. To invest an object with the quality of wealth (apart from other specific conditions, such as scarcity, that may have been required), it sufficed that it was desired. The issue between definitions of “wealth” formulated in material terms and those that extended the concept to include the immaterial was purely one of convenience in analysis. Both sides of the controversy had the same objectivistic outlook on wealth; neither side laid stress on the character of economic behavior. Malthus clearly states his reason for recognizing only material goods as wealth:
For Malthus there was evidently no single bond in logic that could place these benefits and gratifications in a single discipline. McCulloch’s comments are even more revealing:
It would be difficult to discover a more damaging statement indicative of the kind of thinking exemplified by the less enlightened classical economists. Ricardo, to whom political economy meant only the distribution, not the production, of wealth, would never have excluded good health from economics on the ground that it involved the science of medicine. If the production of health involves medical science, the production of cement just as much involves chemistry, and the production of wheat, biology. According to McCulloch, wealth was clearly a distinct objective entity, the production of which involved the science of political economy. To draw the line so as to exclude from its purview such inconvenient studies as medicine and politics, McCulloch included only material goods in his technical definition of wealth. Apparently it was believed that certain general laws governing the physical production of material commodities could be abstracted from the several sciences concretely concerned with the production of each specific good. These laws, however, did not admit of further generalization so as to comprise the production of such immaterial goods as health or good government. The only sciences that were relevant to the latter were those of medicine and politics.
The striking feature of this discussion concerning Lauderdale’s definition is that the criticisms levelled against it could easily have led to a less limited view of economic phenomena. It was clearly seen that the extension of the concept of wealth to include everything that is desired would mean the abandonment of the effort to arrive at any scientific laws involving objective wealth. But what was overlooked was that the very broadest conceptions of wealth involved an essential unity, from which a less limited political economy might take its point of departure.
There is every reason why economists concerned purely with the distributive aspects of economics should tend to concentrate on the tangible “pie” from which each of the factors of production is to receive a slice proportioned according to the laws of political economy. Students of “production” may find it difficult to exclude the production of any “utility,” whether or not embodied in a material good. But the laws of distribution can clearly afford to be confined (and with so much more elegant definiteness) to the long-run tendencies in the division of tangible wealth. Where, as with Read, the laws of distribution are the handmaidens of the laws of private property, the convenience and reasonableness of a restriction of wealth to material, alienable goods must have appeared irresistible.
The Science of Subsistence
Thus far the account of what the economic point of view has meant to economists has treated of the classical conception of it as a science of wealth, with special reference to the restriction of the latter concept to that of material goods. The account of the gradual advance of economics from a science of wealth to one of welfare will be resumed later in the chapter, with special attention to those elements of the earlier “material” conception of wealth that continued to be retained. At this point a discussion is in order of a special case of this “material” approach to economics, which seems to have held a fascination for a number of economists over an extended period of time, viz., the view that saw economics as essentially concerned with the goods necessary to ensure the physical subsistence of mankind.
This view seems to be the most extreme form of the materialistic outlook on economic affairs. The distinctive feature of all conceptions of economics as a science of wealth or of material goods, as against alternative conceptions of the discipline, consists in their identification of economics with some special end of human action. Not all action is subject to economic law, but only such action as is directed towards a more or less well-defined class of objects, viz., wealth or material goods. Most of the definitions advanced during the greater part of the nineteenth century can be considered as variants of this view. The earlier ones saw economics as concerned with the results achieved with regard to these ends themselves, its enquiries being directed at describing the phenomena of this desired wealth. The later, less objectivistic definitions looked at economics, as will be seen in subsequent chapters, as a description of man in one department of his activities—that directed towards, or pertaining to, the desired wealth.
When economics is narrowed down still further by restricting it to the study of the goods necessary for human survival, the relevant range of human ends is contracted to the point where the term “end” begins to lose its meaning. No matter how objective a view one had of the wealth around which political economy was supposed to revolve, it was extremely difficult to close one’s eyes to the fact that wealth is wealth only because it is desired by human beings, i.e., that it is an end of human endeavor. But when the only parts of wealth permitted to come into consideration are biological necessities, then it is dangerously tempting to consider these necessities as not being the ends of human desire at all. Instead of being goods brought under the play of market forces by being the goals of human aspirations, these necessities gain their economic relevance purely objectively, by being the physiologically determined causes of quasi-biological tropisms. And this, indeed, is the direction towards which a number of “subsistence” definitions of economic phenomena have tended.
Clearly, then, there emerges from the various formulations of the materialist interpretation of history a conception of economic affairs that centers about biological survival. Not the provision of wealth, but the provision of bare life is the realm of economics. Nor is it that life referred to in Ruskin’s phrase, “There is no wealth but life” (in which life includes “all its powers of love, of joy, and of admiration”), but the elemental existence that is the subject of biology. Not “wants,” in the sense of the reflections of standards of ultimate values, but rather the inexorable, objective requisites of survival—“needs”—are the data of economics.
The same explicit warning against the biological view of economic affairs was sounded by Sherwood.
This statement formulates the issue precisely. The imposition of “subsistence” as the goal of economic activity sets up a value involving among all others the least troublesome subjective differences between individuals. The only area of choice left to human intelligence is in the means objectively best suited to attain this one end. Once man’s power to select his own ends is prescinded from economics, the subject is at once reduced to an only slightly more involved version of biology.
The Science of Wealth Retained
From both of the opposing sides in the Methodenstreit came statements tying the economic world to material goods. In so far as this criterion appeared in the works of economists of the Historical School, the matter admits of some explanation. In later chapters it will be seen that the earliest rebellion against the conception of economics as a science of wealth came as a result of the analysis of actual human behavior and the hypothetical isolation of a specific pattern of behavior in economic affairs. This diverted attention from the wealth itself towards the activity of the wealth-seeker. Such a way out from the limited conception of economics as a science of wealth was obviously closed to the Historical School. It was, after all, the very postulation of such hypothetical patterns of behavior on the part of “economic man” that had initially aroused the protests of the adherents of the Historical School and later became the butt of the ridicule expressed by those of their successors who went to the greatest extremes. The urge to restrict economics arbitrarily to material goods and to see the essential character of economic phenomena in their relationship to these objects may therefore well have been stronger for the adherents of the Historical School. So long as action is to be considered only in its empirical totality, any attempt at an analytical separation of economic phenomena from the rest is ruled out from the start.
The decades after 1870 were full of change for economics in many directions. The numerous alternative definitions to be considered in subsequent chapters may almost all be traced to the ferment of economic ideas that were revolutionizing economic theory at this time. Again and again it will be found that the application of methodological self-consciousness and precision to fundamental questions of economic epistemology began in earnest during the Methodenstreit of the eighties. The discussion in the foregoing pages demonstrates the persistence, in the face of these developments, of the older conception of economic affairs. Side by side with the newer views to be noticed later, definitions of economics as a science of wealth or of material wealth continued to occupy a central place in economic thought.
Man Against Nature
It is convenient here to notice a point of view that enjoyed the endorsement of a number of writers. They see economics and economic activities as consisting in the constant struggle on the part of man to subdue nature to his own ends. This creates a line of cleavage between two categories of resources. On the one hand, we have the human agent with all his powers of brain and brawn, emotions and skills. These resources he marshals to attack those of the external physical world which he turns to his own purposes. The interaction between man and his physical environment is the area of economic activity.
A fundamentally similar attitude to that of Lecky and Schäffle is evidenced about the turn of the century by the American Tuttle. Tuttle speaks of the “fundamental and universal economic principle”—a phrase that he uses in a sense quite different from the usual one. “Three primary facts,” he writes,
Here again the economic relationship is conceived as one involving man and his surroundings. This view of the matter bears the clear imprint of the definition of economic phenomena in terms of material wealth. From the external world man creates the goods with which to satisfy his wants. To effect the production of these goods, man applies his own human resources to the external world. The changes that acting man imposes on the outer world both affect and are affected by the changes that are constantly taking place “within” man himself. Envisaging economic activity in this light, as the interaction of man—with all his shifting desires and human resources—and external nature, Tuttle offers a definition in consonance with the more popular conceptions, formulated in terms of wealth, and at the same time suggestive of the place of acting man in the phenomena of economic life.
From Wealth to Welfare
The period in which economic affairs were chiefly considered as being concerned with a class of objects known as wealth coincided roughly with the nineteenth century. Only since the turn of the century have economists been increasingly inclined to consider the scope of their subject in less objective terms. Yet most of the newer views on the question of definition had already found some expression in the writings of the more thoughtful students of economic methodology well before the present century. These murmurings of dissatisfaction with the traditional wealth-bound conception of economics may most illuminatingly be interpreted as the reflection of the more general revolt against the classical system that came to a head in the last quarter of the century.
All this made necessary a search for some new criterion for determining the scope of economics. If economics has to do with goods, then its scope is as clear as is permitted by the definition of the word “goods.” But if it is urged that economics is primarily concerned with man, then there is an obvious need to make clear precisely which aspect of the study of man economic theory is concerned with. The subsequent chapters of this book deal with some of the different approaches that have been made toward the solution of this problem. At this point in the chapter describing the conception of economics as a science of wealth, attention must be drawn to one of the most popular of these approaches, viz., the view that sees economics as dealing with the phenomena connected with economic welfare.
This view of economics had, in fact, the most persuasive claim to qualify as the natural successor to the earlier definition of it as a science of wealth. Wealth promotes the economic welfare of man. If exclusive attention to the objects of wealth was to be declared scientifically inexpedient, then the problem could be avoided by shifting attention from the goods themselves to the welfare to which they minister. Instead of studying the effects of various measures on the wealth of a nation, economic analysis may be viewed as going a step further and studying the welfare of the nation as affected by these measures.
Robertson’s words gives added salience to the difficulty that the advance from wealth to welfare brought in its train. If economics is concerned with a part of welfare, how is this part to be identified? The “material wealth” criterion embraced by Cannan provided an answer to this question by retaining a direct bond to the discarded conception of economics as a science of wealth. The objections which might be raised against such a criterion, and which Robertson here brushes aside, are clearly in large measure those that can be levelled at the type of definition treated generally in the present chapter.
