The Economic Point of View
6. Economics and Economizing
Before Wicksteed wrote, it was still possible for intelligent men to give countenance to the belief that the whole strucure of Economics depends upon the assumption of a world of economic men, each actuated by egocentric or hedonistic motives. For anyone who has read the Common Sense, the expression of such a view is no longer consistent with intellectual honesty.
Lionel C. Robbins
Before Robbins explained the “nature” of economic science, it was still possible for the economist to hold to the so-called “materialist” definition of economics, or to similar ones . . .
. . . Similarly, before Robbins’ definition, criticism of economics on the ground of its being “too wide” or “too narrow” was still understandable. Now, however, such discussions have become meaningless: economics is a given pie, which the economist is only allowed to dress a bit, to cut as deeply and into as many parts as he wishes, and to eat according to his need.
G. Tagliacozzo
Something of a turning point in discussions on the nature of economic science and of economic affairs came in 1930 with the appearance of Robbins’ Nature and Significance of Economic Science. Professor Robbins brought to the problem a method of attack that clearly revealed the logical inadequacies of earlier conceptions of the economic sector of affairs. At the same time he set forth his own positive definition of economics with effective simplicity and persuasive literary charm. The problem of definition was treated by Robbins as an integral part of the exposition of his general views on the appropriate tasks and methodology of economics. As such, the book as a whole and Robbins’ definition of economics attracted widespread attention. Although Robbins claimed no originality for his definition, he effectively presented to the English-speaking world a group of earlier views with a clarity and a vigor that made them the focus of a newly awakened interest and unmistakably left his own stamp on the formulation he espoused. Since the publication of his book, discussions of the problem of definition have invariably tended to revolve around Robbins’ definition, or at least to take it as a starting point.
The Economics of Professor Robbins
From the point of view of the economist, the conditions of human existence exhibit four fundamental characteristics. The ends are various. The time and the means for achieving these ends are limited and capable of alternative application. At the same time the ends have different importance. Here we are, sentient creatures with bundles of desires and aspirations, with masses of instinctive tendencies all urging us in different ways to action. But the time in which these tendencies can be expresed is limited. The external world does not offer full opportunities for their complete achievement. Life is short. Nature is niggardly. Our fellows have other objectives. Yet we can use our lives for doing different things, our materials and the services of others for achieving different objectives.
Now by itself the multiplicity of ends has no necessary interest for the economist. If I want to do two things, and I have ample time and ample means with which to do them, and I do not want the time or the means for anything else, then my conduct assumes none of those forms which are the subject of economic science . . .
Nor is the mere limitation of means by itself sufficient to give rise to economic phenomena. If means of satisfaction have no alternative use, then they may be scarce, but they cannot be economised . . .
Nor again is the alternative applicability of scarce means a complete condition of the existence of the kind of phenomena we are analysing. If the economic subject has two ends and one means of satisfying them, and the two ends are of equal importance, his position will be like the position of the ass in the fable, paralysed halfway between the two equally attractive bundles of hay.
Several highlights stand out in Robbins’ conception of the nature of economic affairs. Central to the whole idea is the concept of scarcity. The limitations that prevent the attainment of the desired ends fundamentally affect the character of all activity directed towards these ends. The importance of the role assigned to scarcity as a governing condition of realizing ends makes possible the rejection of the idea that economics is concerned with specific kinds of ends. Robbins’ definition rejects the identification of economics with certain kinds of behavior; it attempts, on the other hand, to bring out the economic aspect of behavior of all kinds. All kinds of behavior that occurs under the shadow of inadequate means present such an economic aspect to the observer.
In fact, the recognition that there can be distinguished in human actions a pattern of behavior that depends for its uniqueness, not on any one type of end pursued, but on the economizing aspect of actions directed at ends in general, led Robbins several years later to take yet a further step. Having emancipated economics from the bonds that tied it to particular ends, Robbins was led to suggest that the “economic” motive refers precisely to actions that are not directed to any particular ends. By saying
The core of Robbins’ conception is thus the act of economizing scarce means with regard to numerous, differently valued ends. A considerable body of literature has grown up in the past few decades in which this central concept has been subjected to careful scrutiny by economists generally, and economic methodologists in particular. The implications of these ideas for the substantive content of economic science have been thoroughly investigated; and the minute dissection of Robbins’ definition has provided several distinct topics for debate. In this chapter we shall proceed to survey the area covered by this literature, after briefly glancing at some earlier ideas to which Robbins’ definition owes its source.
Scarcity and Economics
Economizing and Maximization
Besides the sources for Robbins’ formulation to be found in earlier references to scarcity and the approaches to the fundamental notion of economizing, yet another line of thought that was historically relevant to the emergence of the new definition must be recognized. This was the stress on the maximization principle, the getting of the most out of the least, as the distinctive mark of economic activity. The appearance and development of this line of thought has been outlined in an earlier chapter; at this point the relationship between the two concepts—maximization and economizing—must be briefly pointed out.
Maximization as a possible criterion for distinguishing economic phenomena had been clearly suggested towards the last quarter of the past century and even earlier. In its earlier expressions the so-called economic principle usually referred to the maximization of some tangible entity such as wealth and thus bore little resemblance to economizing. However, when maximization is understood to refer to something less objective, such as pleasure or satisfaction, then its similarity to the act of economizing becomes fairly close. After all, the economizing of scarce means in the face of competing arrays of ends is undertaken with the purpose of squeezing as much “satisfaction” out of available resources as their shrewd management will permit. Just as the bare concept of economizing abstracts from the concrete ends at which activity is aimed and the specific means utilized to attain them, so does the idea of getting the greatest return at the least cost. It was seen in an earlier chapter, in fact, that the shift in emphasis to the maximization principle was closely associated with the denial of any specifically economic impulse.
In substituting an ultimate end such as satisfaction for the intermediate “ends” chosen as conducive to it, the conception of economic activity as maximizing behavior suffers from two weaknesses. On the one hand, it involves setting up such an ultimate end, with the presumption that it can be meaningfully “maximized”; on the other hand, it ignores the multiplicity of intermediary “ends” and the effects that their very number has on the allocation of resources. The first weakness, the postulation of an ultimate “satisfaction” that can be maximized, is brought into relief by the way in which the alternative notion of economizing scarce resources among competing ends avoids altogether this awkward idea of “quantities” of satisfaction. The concept of economizing dispenses with the necessity of assuming that men act as if they were constantly scanning a potential “store” of satisfaction and striving to accumulate the largest possible stock. Instead, this concept recognizes that men act to change their situation until no further action promises to lead to a condition preferred to the present one. The advance in economics from the stress on maximizing satisfaction to that on economizing thus parallels the advance from the older utility analysis (especially where it involved cardinal utility) to the more recent indifference techniques.
The second weakness of the concept of maximization, that it ignores the multiplicity of intermediate “ends,” is a consequence of the fact that it abstracts too drastically from actual economic activity. It may be true to say that the economizing of resources is merely the maximization of a more ultimate satisfaction, but to speak in such terms is to miss one of the really significant features of economic activity, the allocation of these resources among the different uses clamoring for these limited means. The whole idea of the allocation of limited resources and their economic distribution among the competing demands for them is hidden under the facile phrase, “the maximization of satisfaction.” The constraint to administer resources, to apportion them judiciously among alternative uses by the careful comparison and weighing of relative degrees of importance—a necessity imposed by the fact that the intermediate “ends” are numerous—is overlooked in the maximization formula. By its stress on allocation as the characteristic feature of economic activity, the concept of economizing, on the other hand, leads directly to the appreciation of the significance for economics of the idea of price and exchange at the margin. Hence, this formulation is eminently suitable for characterizing the subject matter of economics.
These considerations thus clearly set Robbins’ definition apart from the earlier definitions of economic activity in terms of maximization, despite the undoubtedly important part that the latter conception, in conjunction with the literature on scarcity, played in the emergence of Robbins’ view of economics. Robbins’ formulation of this view, which sees the essence of the subject matter of economics in the peculiar quality of economizing behavior, attracted the critical attention of economists to an extent achieved by no previous attempt at definition. Several waves of debate were set in motion concerning various aspects of the freshly expounded view. These must now be examined more closely, and their investigation will provide an opportunity to glance at the most important of the opinions inspired by Robbins’ work.
The Character of Robbins’ Definition
As the essential component of Robbins’ definition, this disregard for the kinds of ends pursued in action had certain further consequences that aroused lively discussion. Perhaps the foremost of these is the ethical neutrality of the economic point of view as set forth by Robbins. If the economist is, as such, exempted or interdicted from choosing particular ends of action as his special concern, then the results of his researches will be achieved with ethical indifference towards the data with which he deals. This consequence of the definition of economics in terms of a particular aspect of action is reserved for separate discussion later in this chapter.
Two implications of this ethical neutrality have led to sharp criticism of the definition as a whole. On the one hand, the abandonment of the search for particular ends of action meant that the range of economic interest is widened to cover the “economic aspect” of actions that had not been able to qualify for inclusion in the class of “economic” acts on the basis of any of the previous definitions. On the other hand, the lack of concern for the nature of ends facilitated an academic detachment from the full reality of actions and the cultivation of a “purely formal” view of the economist’s interest in the relationship between ends and means.
A. THE “BREADTH” OF ROBBINS’ DEFINITION
Ultimately these attacks and the consequent pronouncements rejecting the concept of economizing as a criterion for defining the nature of economic phenomena provide yet another instance of the similarities between the conception of economics as a science concerned with economizing and the conception of it as a science concerned with maximization. Writers in the eighties of the last century who had considered the essence of economic behavior to consist in the impulse toward maximization had found themselves vulnerable to the objection that this propensity characterizes all human activities. The fact that economizing, like maximization, is an operation capable of being performed in widely differing situations means that the use of such a concept as a criterion for defining the nature of the economic cuts across many traditional boundaries. But clearly if a definition is to be rejected as too wide, some area must be accepted as the standard of reference. The stress that economists in the past have laid on the phenomena of the market as the area to which their researches applied makes suspect a definition that sees an essential economic unity existing in activities ranging far beyond this area.
Nevertheless, there is an important sense in which the definition of the economic in terms of economizing is less suspect in this regard than that couched in terms of maximization had been. The latter had been used in the form of the so-called economic principle, which was seen as essentially a principle of explanation. Market phenomena were explained on the hypothesis of the existence of such an economic principle. The concept of a form of behavior characterized by maximization was found to yield the results required to understand the real economic world. From this point of view, the definition of economics as the science concerned with the maximization pattern of behavior drew the boundaries of the subject in such a way as to include all phenomena that admitted of explanation on the hypothesis of the existence of such a principle. Any activity that involved maximization was thus prima facie economically relevant. And here the objection was immediately raised that such a criterion embraced all human behavior, including areas in which maximization did not lead to “explanations” such as economists had successfully provided in what was then accepted as the domain of economics.
B. THE “FORMALISM” OF ROBBINS’ DEFINITION
The other implication of the ethical neutrality inherent in Robbins’ definition has occasioned perhaps even warmer debate. If economic theory is seen as focusing interest, not on the actual ends of action, but merely on the bare relationship that scarce resources have to these ends, then the theory becomes very formal, very pure indeed. Robbins stressed this feature of his conception of economics as finally detaching the essentially economic structure of action from the clutter of concrete data necessarily enveloping it in the real world. But several critics saw this “formalism” as an arid scholastic exercise that succeeded only in leaving out the important features of an economic problem.
In the last analysis, the attempts to condemn Robbins’ definition of economics on account of its “formal” character fall into the same class as attempts to discredit economic theory as such and to construct an “economics” altogether free of theoretical propositions. The search for the definition of economic science in a particular “aspect” of the phenomena with which it deals simply brings to the task of definition the analytical attitude with which economic theorists have always expounded the substantive content of the discipline.
The Nature of Ends and Means
Several writers have seen the relationship of ends and means in terms of which Professor Robbins defines economic science as an artificial schema that does violence to the true nature of human action. In a book in which the concept of an end of action is used many, many times, Robbins devoted very little space to explaining the nature of an “end” and to elucidating the difficulties that the notion involves. Robbins had described human ends as associated with “tendencies to conduct which can be defined and understood.” This description was seized upon as typical of a certain “positivism” that critics believed themselves to have detected in Robbins’ position. Robbins is eager, it is contended, to invest a study of economizing—which is a subjective notion—with the objectivity of science. He has sought to achieve this by pressing human action into a mould involving ends and means that can be defined and understood. Ends are in this respect conceived of as quite analogous to the definite “external” resources of nature that constitute means. Ends, that is, are considered as “external” to the actor. The relationship between the definite means, on the one hand, and equally definite ends, on the other, defines the scope of economic science. This view of Robbins on the nature of ends has been severely criticized by several writers.
In addition to the criticisms of Robbins’ concretization of ends, some debate has developed on the very obvious relativity of the ends-means schema. It has been pointed out that ends may be considered as means to further ends, and that means may be equally well considered as the ends of earlier actions. Consciousness of this flimsiness in the ends-means dichotomy must necessarily raise doubts about the validity of a category such as economizing whose claim to a definite status is based exclusively on the relationship between ends and means.
Once again Robbins’ disregard of these considerations seems in consonance with his lack of concern for the element of purpose in human action. Once an end has been postulated as the goal of action, then all the actions undertaken with this end in view can, ex post facto, be grouped in a separate class from that of the end. All the chains of subordinate ends and means leading up to the final goal can be telescoped together to form a homogeneous pool of “resources” and “means” for the final goal. But from the point of view of the actor, such a dichotomy is in no sense unique or even especially significant. To him these resources, means, and subordinate courses of action are all arrays pointing purposefully to the final end, but at the same time and for the same reason containing subpatterns of purposefully ordered arrays, within each of which the ex post facto dichotomy betweens ends and means could be distinguished with equal validity.
“Given” Ends and Means
But apart from the complaint that the treatment of ends as mere data is an unholy attempt to extrude from economics the contributions of the psychologist and the sociologist, this notion of ends implies a profoundly important outlook on the very nature of human action and the possibility of its scientific explanation. In the full reality of human action the values of men and the ends to which they direct their energies are continually changing, continually becoming modified under the impact of outside changes as well as through the effect of changes wrought by the very action aimed at the original ends and by the very effort of pursuing those ends. The attempt to introduce scientific explanatory analysis into the study of human action has involved the isolation, from the tangled intricacies of the web of action, of an element in it that we call its economic aspect. According to Robbins’ conception of the precise nature of this element, its isolation involves the analysis of action in terms of its relation to the array of ends as they are esteemed at a given moment in time. Any proposition deduced from the fundamental concept of the economic act will thus have relevance only within the particular frame of reference relatively to which the economic aspect of action has meaning—i.e., the ends whose respective values were the data of the problem.
This view of the nature of the assumptions implicit in economic theory involves two important corollaries. First, economic theory can only analyze the implications of given wants; it cannot as such explain or determine changes in wants themselves (although, of course, its explanations can throw enormous light on these questions). Second, economic theory has validity only on the assumptions of the constancy of wants throughout the duration of the problem under consideration.
The conception of the ends of economic action as data involves, we have noticed, two corollaries. It is implicit in this conception that the selection and ordering of ends do not constitute an economic problem; and it follows that for the duration of any economic problem its analysis must assume constancy in the relative urgency of the wants that economic action seeks to satisfy. Both these implications of Robbins’ formulation are revealing. It requires no great insight into the affairs of the world with which economists largely deal to realize that if the economist is to work under the restraints imposed by these implications, he must, in his capacity as an economist, renounce interest in perhaps the most fascinating and important aspects of the data with which he works. The economist qua economist (and this phrase of Robbins has been used by critics with characteristic, but hardly deserved, sarcasm) must ignore the fact that tastes and values are swiftly changing variables and must avert his eyes from the intensely interesting and important processes whereby men arrive at their judgments of value.
These limitations on the scope of the economist’s area of competence have, of course, been condemned again and again by historically-minded and institutionally-conscious critics of economic theory. The fact that the validity of these limitations follows rigorously from Robbins’ definition of economics reveals the close faithfulness with which this definition of the subject mirrors the procedures that economic theorists have, in fact, been following all the time. What the explicit recognition of the fact that the phenomena with which the economist deals are data does achieve is the appreciation that self-restraint by economic theorists does not spring from blindness to the facts of economic life. The “abstractions” of the economists, against which realistically-minded critics have so vigorously rebelled, are inherent in the nature of the problems to which they address themselves. Their subject matter forms a distinct field precisely because there exists an element in action that is distinct from the nature of the ends of action and at least conceptually independent of the processes whereby ends are selected and ordered. It must surely be regarded as a merit of Robbins’ definition that it isolates this element with clarity. A grasp of the character of this element in action makes it immediately evident that the severely circumscribed applicability of the propositions enunciated by the economic theorist, far from being the necessary result of a crudely unrealistic methodology, is but the properly incomplete contribution of the specialist whose skills have been developed by a judicious and fruitful division of labor. Specific policy recommendations on economic affairs may require long and careful study of the actual attitudes of human beings, their wants, valuations, and expectations. Crucially important though such information may well be, the research and scholarship involved in its compilation is different from the application of economic reasoning. Robbins’ definition brings this distinction into sharp focus.
Single End and Multiple Ends
One of the basic components of Robbins’ formulation of the nature of economic activity is its assumption of the presence of a multiplicity of ends to which the scarce resources can be applied and among which they must be judiciously allocated. It has been seen that Robbins himself pointed out that where a single ultimate end, such as “utility,” is considered as the goal of action, then the process of economizing resources among competing ends reduces to the operation of maximizing this ultimate end. It has been shown earlier in this chapter that the superiority of the definition of economics in terms of economizing over the definitions couched in terms of the maximization principle has its source in the more penetrating analysis of action that is made possible by the recognition of numerous competing wants whose satisfaction is conducive to the ultimate end of utility.
The relation between this understanding of an economic “end” and the economic aspect of activity in general is clear. We have, in the description of the economically motivated act as one directed at gaining the power to achieve unspecified ends, the view precisely opposite to the older notion of economic activity as directed to a single, sharply defined end (such as material goods and the like). The first step taken by Robbins away from the older type of definition was the recognition of an economic aspect to activity in general, regardless of the concrete nature of the particular ends involved. With the adjective “economic” freed of positive association with specific ends, Robbins is now able to press still further and identify the economic motive with activity distinguished precisely by the lack of any specifically selected ends.
The recognition that a large part of human activity, that directed at gaining general purchasing power in the form of money, does, in fact, conform to this pattern is highly revealing. The maximization of money income, of “wealth,” as the essence of economic activity was one of a group of concepts underlying many older definitions of economics. The maximization of some less specific entity, such as satisfaction, utility, welfare, and the like, came to be identified with economics as a result of the introduction of subjective thinking into the discipline in the latter part of the previous century. Robbins’ formulation of the economic aspect of activity in terms of the allocation of scarce means among numerous alternative ends is now seen to occupy a very special position in respect to these two types of maximization. It begins by pressing on to the multiplicity of ends of action that lie behind the quest for wealth. It sees the economic aspect of action to exist precisely in the circumstances brought about by this multiplicity of real goals and action. But it is, on the other hand, able to retain its grip on this economic aspect of action only by deliberately refraining from submerging the multiplicity of these ends into a single, more ultimate end. The economic aspect of affairs, as seen by Robbins, is predicated on an interpretation of action that, while reaching beyond the false homogenization of ends implicit in the definition of all economic activity as the maximization of the single end, “wealth,” is able to resist the parallel homogenization of ends in terms of their resultant that is implicit in the characterization of action as the maximization of “satisfaction.”
Economics and Ethics: the Positive and the Normative
Mention has already been made in this chapter of one important implication of Robbins’ formulation of the nature of economic activity, viz., the necessary ethical neutrality of the economic point of view. The highly controversial consequences that have been drawn from this principle and the profound effect that adherence to it must have on the role of the economist and on the nature of his analysis demand a more detailed account of this aspect of Robbins’ definition as well as the criticism with which it has been confronted.
Previously, the question of freedom from judgments of value on the part of the economist had been debated chiefly from considerations of scientific propriety. Weber had devoted great pains to demonstrating that investigation into the “cultural sciences” is not incompatible with an attitude of detachment. Now Robbins had attempted to make it clear that ethical considerations can, by definition, in no way affect the economic aspect of affairs. The economic point of view is concerned with a concept of the act in which the ends of action have been previously determined and for the duration of which those ends are not permitted to change. The content of these ends is completely irrelevant to the economic aspect of the act and hence to economic analysis. Introduction of judgments of value into the consideration of the economic consequences of action thus constitutes deliberate transgression of the proper scope of economic inquiry.
With earlier writers the concept of economy was treated simply as the neutral expression of the concrete purposes of action. Where given ends were the motives of human endeavor, the desire to encompass these ends in the face of inadequate resources enforced the application of “economy,” of careful comparison of ends and means, simply in order to fulfil the given goals of endeavor as completely as circumstances would permit. The practice of economy fulfilled only the originally selected goals of action; the content of these goals having been selected before the economic act, analysis of such an economic act could be “positive,” i.e., unconcerned with the nature of the ends of action.
The Nature of Economic Science and the Significance of Macroeconomics
The identification of Robbins’ conception of the nature of economic science with “classical” economics and its assumption of full employment must be considered, moreover, from yet another angle. As expounded by Robbins, the analysis of economic affairs proceeds exclusively from the consideration of economizing by individuals. A problem is economic because it involves the necessity for an individual to reconcile his numerous desires with the limited resources available to him. A social problem has an economic aspect only in so far as it affects the conditions in the light of which individuals are constrained to economize. The consideration of the general level of economic activity and the degree of employment of a nation’s resources would thus be excluded by definition from an individualistic ends-means economics. Economics, as Professor Robbins conceives it, must, it would seem, remain exclusively a microeconomics.
The point is, of course, that it is precisely from the perspective of microeconomics that problems of unemployed resources are most obviously seen to be economic problems in Robbins’ sense. If it is an economic problem whether to devote resources to use A or to use B, this is not because the uses A and B are valued, but because they are differently valued. Where the problem is how idle resources can be utilized, not for one or another use, but at all, then society is facing the tragedy of total waste of the means that could be applied to secure desired ends. What seems a resource robbed of its scarcity is clearly a valuable means, which, instead of being allocated to the most prized purpose, has been allocated by a breakdown in the economic system to no end at all. From the point of view of the ends of the members of society, a resource involuntarily idle represents, not a quasi-free good, but scarce means unprofitably withdrawn from a potentially fully-employed economy.
The determination of the circumstances tending to bring about the tragic misallocation (or rather nonallocation) of precious resources must, of course, be one of the principal tasks of a discipline dealing with the way in which the members of society, through the division of labor, concertedly economize the resources at their disposal, with respect to their desired ends.
