An Essay on the Nature and Significance of Economic Science

CHAPTER VI

THE SIGNIFICANCE OF ECONOMIC SCIENCE

1. We now approach the last stage of our investigations. We have surveyed the subject-matter of Economics. We have examined the nature of its generalisations and their bearing on the interpretation of reality. We have finally to ask: What is the significance of it all for social life, and conduct? What is the bearing of Economic Science on practice?

2. It is sometimes thought that certain developments in modern Economic Theory furnish by themselves a set of norms capable of providing a basis for political practice. The Law of Diminishing Marginal Utility is held to provide a criterion of all forms of political and social activity affecting distribution. Anything conducive to greater equality, which does not adversely affect production, is said to be justified by this law; anything conducive to inequality, condemned. These propositions have received the support of very high authority. They are the basis of much that is written on the theory of public finance.1 No less an authority than Professor Cannan has invoked them, to justify the ways of economists to Fabian Socialists.2 They have received the widest countenance in numberless works on Applied Economics. It is safe to say that the great majority of English economists accept them as axiomatic. Yet with great diffidence I venture to suggest that they are in fact entirely unwarranted by any doctrine of scientific economics, and that outside this country they have very largely ceased to hold sway.

The argument by which these propositions are supported is familiar: but it is worth while repeating it explicitly in order to show the exact points at which it is defective. The Law of Diminishing Marginal Utility implies that the more one has of anything the less one values additional units thereof. Therefore, it is said, the more real income one has, the less one values additional units of income. Therefore the marginal utility of a rich man’s income is less than the marginal utility of a poor man’s income. Therefore, if transfers are made, and these transfers do not appreciably affect production, total utility will be increased. Therefore, such transfers are “economically justified”. Quod erat demonstrandum.

At first sight the plausibility of the argument is overwhelming. But on closer inspection it is seen to be merely specious. It rests upon an extension of the conception of diminishing marginal utility into a field in which it is entirely illegitimate. The “Law of Diminishing Marginal Utility” here invoked does not follow in the least from the fundamental conception of economic goods; and it makes assumptions which, whether they are true or false, can never be verified by observation or introspection. The proposition we are examining begs the great metaphysical question of the scientific comparability of different individual experiences. This deserves further examination.

The Law of Diminishing Marginal Utility, as we have seen, is derived from the conception of a scarcity of means in relation to the ends which they serve. It assumes that, for each individual, goods can be ranged in order of their significance for conduct; and that, in the sense that it will be preferred, we can say that one use of a good is more important than another. Proceeding on this basis, we can compare the order in which one individual may be supposed to prefer certain alternatives with the order in which they are preferred by another individual. In this way it is possible to build up a complete theory of exchange.3

But it is one thing to assume that scales can be drawn up showing the order in which an individual will prefer a series of alternatives, and to compare the arrangement of one such individual scale with another. It is quite a different thing to assume that behind such arrangements lie magnitudes which themselves can be compared. This is not an assumption which need anywhere be made in modern economic analysis, and it is an assumption which is of an entirely different kind from the assumption of individual scales of relative valuation. The theory of exchange assumes that I can compare the importance to me of bread at 6d. per loaf and 6d. spent on other alternatives presented by the opportunities of the market. And it assumes that the order of my preferences thus exhibited can be compared with the order of preferences of the baker. But it does not assume that, at any point, it is necessary to compare the satisfaction which I get from the spending of 6d. on bread with the satisfaction which the Baker gets by receiving it. That comparison is a comparison of an entirely different nature. It is a comparison which is never needed in the theory of equilibrium and which is never implied by the assumptions of that theory. It is a comparison which necessarily falls outside the scope of any positive science. To state that A’s preference stands above B’s in order of importance is entirely different from stating that A prefers n to m and B prefers n and m in a different order. It involves an element of conventional valuation. Hence it is essentially normative. It has no place in pure science.

If this is still obscure, the following considerations should be decisive. Suppose that a difference of opinion were to arise about A’s preferences. Suppose that I thought that, at certain prices, he preferred n to m, and you thought that, at the same prices, he preferred m to n. It would be easy to settle our differences in a purely scientific manner. Either we could ask A to tell us. Or, if we refused to believe that introspection on A’s part was possible, we could expose him to the stimuli in question and observe his behaviour. Either test would be such as to provide the basis for a settlement of the difference of opinion.

But suppose that we differed about the satisfaction derived by A from an income of £1,000, and the satisfaction derived by B from an income of twice that magnitude. Asking them would provide no solution. Supposing they differed. A might urge that he had more satisfaction than B at the margin. While B might urge that, on the contrary, he had more satisfaction than A. We do not need to be slavish behaviourists to realise that here is no scientific evidence. There is no means of testing the magnitude of A’s satisfaction as compared with B’s. If we tested the state of their blood-streams, that would be a test of blood, not satisfaction. Introspection does not enable A to measure what is going on in B’s mind, nor B to measure what is going on in A’s. There is no way of comparing the satisfactions of different people.

Now, of course, in daily life we do continually assume that the comparison can be made. But the very diversity of the assumptions actually made at different times and in different places is evidence of their conventional nature. In Western democracies we assume for certain purposes that men in similar circumstances are capable of equal satisfactions. Just as for purposes of justice we assume equality of responsibility in similar situations as between legal subjects, so for purposes of public finance we agree to assume equality of capacity for experiencing satisfaction from equal incomes in similar circumstances as between economic subjects. But, although it may be convenient to assume this, there is no way of proving that the assumption rests on ascertainable fact. And, indeed, if the representative of some other civilisation were to assure us that we were wrong, that members of his caste (or his race) were capable of experiencing ten times as much satisfaction from given incomes as members of an inferior caste (or an “inferior” race), we could not refute him. We might poke fun at him. We might flare up with indignation, and say that his valuation was hateful, that it led to civil strife, unhappiness, unjust privilege, and so on and so forth. But we could not show that he was wrong in any objective sense, any more than we could show that we were right. And since in our hearts we do not regard different men’s satisfactions from similar means as equally valuable, it would really be rather silly if we continued to pretend that the justification for our scheme of things was in any way scientific. It can be justified on grounds of general convenience. Or it can be justified by appeal to ultimate standards of obligation. But it cannot be justified by appeal to any kind of positive science.

Hence the extension of the Law of Diminishing Marginal Utility, postulated in the propositions we are examining, is illegitimate. And the arguments based upon it therefore are lacking in scientific foundation. Recognition of this no doubt involves a substantial curtailment of the claims of much of what now assumes the status of scientific generalisation in current discussions of applied Economics. The conception of diminishing relative utility (the convexity downwards of the indifference curve) does not justify the inference that transferences from the rich to the poor will increase total satisfaction. It does not tell us that a graduated income tax is less injurious to the social dividend than a non-graduated poll tax. Indeed, all that part of the theory of public finance which deals with “Social Utility” must assume a different significance. Interesting as a development of an ethical postulate, it does not at all follow from the positive assumptions of pure theory. It is simply the accidental deposit of the historical association of English Economics with Utilitarianism: and both the utilitarian postulates from which it derives and the analytical Economics with which it has been associated will be the better and the more convincing if this is clearly recognised.4

But supposing this were not so. Suppose that we could bring ourselves to believe in the positive status of these conventional assumptions, the commensurability of different experiences, the equality of capacity for satisfaction, etc. And suppose that, proceeding on this basis, we had succeeded in showing that certain policies had the effect of increasing “social utility”, even so it would be totally illegitimate to argue that such a conclusion by itself warranted the inference that these policies ought to be carried out. For such an inference would beg the whole question whether the increase of satisfaction in this sense was socially obligatory.5 And there is nothing within the body of economic generalisations, even thus enlarged by the inclusion of elements of conventional valuation, which affords any means of deciding this question. Propositions involving “ought” are on an entirely different plane from propositions involving “is”. But more of this later.6

3. Exactly the same type of stricture may be applied to any attempt to make the criteria of free equilibrium in the price system at the same time the criteria of “economic justification”. The pure theory of equilibrium enables us to understand how, given the valuations of the various economic subjects and the facts of the legal and technical environment, a system of relationships can be conceived from which there would be no tendency to variation. It enables us to describe that distribution of resources which, given the valuations of the individual concerned, satisfies demand most fully. But it does not by itself provide any ethical sanctions. To show that, under certain conditions, demand is satisfied more adequately than under any alternative set of conditions, does not prove that that set of conditions is desirable. There is no penumbra of approbation round the theory of equilibrium. Equilibrium is just equilibrium.

Now, of course, it is of the essence of the conception of equilibrium that, given his initial resources, each individual secures a range of free choice, bounded only by the limitations of the material environment and the exercise of a similar freedom on the part of the other economic subjects. In equilibrium each individual is free to move to a different point on his lines of preference, but he does not move, for, in the circumstances postulated, any other point would be less preferred. Given certain norms of political philosophy, this conception may throw an important light upon the types of social institutions necessary to achieve them.7 But freedom to choose may not be regarded as an ultimate good. The creation of a state of affairs offering the maximum freedom of choice may not be thought desirable, having regard to other social ends. To show that, in certain conditions, the maximum of freedom of this sort is achieved is not to show that those conditions should be sought after.

Moreover, there are certain obvious limitations on the possibility of formulating ends in price offers. To secure the conditions within which the equilibrating tendencies may emerge there must exist a certain legal apparatus, not capable of being elicited by price bids, yet essential for their orderly execution.8 The negative condition of health, immunity from infectious disease, is not an end which can be wholly achieved by individual action. In urban conditions the failure of one individual to conform to certain sanitary requirements may involve all the others in an epidemic. The securing of ends of this sort must necessarily involve the using of factors of production in a way not fully compatible with complete freedom in the expenditure of given individual resources. And it is clear that society, acting as a body of political citizens, may formulate ends which interfere much more drastically than this with the free choices of the individuals composing it. There is nothing in the corpus of economic analysis which in itself affords any justification for regarding these ends as good or bad. Economic analysis can simply point out the implications as regards the disposal of means of production of the various patterns of ends which may be chosen.

For this reason, the use of the adjectives “economical” and “uneconomical” to describe certain policies is apt to be very misleading. The criterion of economy which follows from our original definitions is the securing of given ends with least means. It is, therefore, perfectly intelligible to say of a certain policy that it is uneconomical, if, in order to achieve certain ends, it uses more scarce means than are necessary. Once the ends by which they are valued are given as regards the disposition of means, the terms “economical” and “uneconomical” can be used with complete intelligibility.

But it is not intelligible to use them as regards ends themselves. As we have seen already, there are no economic ends.9 There are only economical and uneconomical ways of achieving given ends. We cannot say that the pursuit of given ends is uneconomical because the ends are uneconomical; we can only say it is uneconomical if the ends are pursued with an unnecessary expenditure of means.

Thus it is not legitimate to say that going to war is uneconomical, if, having regard to all the issues and all the sacrifices necessarily involved, it is decided that the anticipated result is worth the sacrifice. It is only legitimate so to describe it if it is attempted to secure this end with an unnecessary degree of sacrifice.

It is the same with measures more specifically “economic”—to use the term in its confused popular sense. If we assume that the ends of public policy are the safeguarding of conditions under which individual demands, as reflected in the price system, are satisfied as amply as possible under given conditions, then, save in very special circumstances which are certainly not generally known to those who impose such measures, it is legitimate to say that a protective tariff on wheat is uneconomical in that it imposes obstacles to the achievement of this end. This follows clearly from purely neutral analysis. But if the object in view transcends these ends—if the tariff is designed to bring about an end not formulated in consumers’ price offers—the safeguarding of food supply against the danger of war, for instance—it is not legitimate to say that it is uneconomical just because it results in the impoverishment of consumers. In such circumstances the only justification for describing it as uneconomical would be a demonstration that it achieved this end also with an unnecessary sacrifice of means.10

Again, we may examine the case of minimum wage regulation. It is a well-known generalisation of theoretical Economics that a wage which is held above the equilibrium level necessarily involves unemployment and a diminution of the value of capital. This is one of the most elementary deductions from the theory of economic equilibrium. The history of this country since the War is one long vindication of its accuracy.11 The popular view that the validity of these “static” deductions is vitiated by the probability of “dynamic improvements” induced by wage pressure, depends upon an oversight of the fact that these “improvements” are themselves one of the manifestations of capital wastage.12 But such a policy is not necessarily to be described as uneconomical. If, in the society imposing such a policy, it is generally thought that the gain of the absence of wage payments below a certain rate more than compensates for the unemployment and losses it involves, the policy cannot be described as uneconomical. As private individuals we may think that such a system of preferences sacrifices tangible increments of the ingredients of real happiness for the false end of a mere diminution of inequality. We may suspect that those who cherish such preferences are deficient in imagination. But there is nothing in scientific Economics which warrants us in passing these judgments. Economics is neutral as between ends. Economics cannot pronounce on the validity of ultimate judgments of value.

4. In recent years, certain economists, realising this inability of Economics, thus conceived, to provide within itself a series of principles binding upon practice, have urged that the boundaries of the subject should be extended to include normative studies. Mr. Hawtrey and Mr. J. A. Hobson, for instance, have argued that Economics should not only take account of valuations and ethical standards as given data in the manner explained above, but that also it should pronounce upon the ultimate validity of these valuations and standards. “Economics”, says Mr. Hawtrey, “cannot be dissociated from Ethics”.13

Unfortunately it does not seem logically possible to associate the two studies in any form but mere juxtaposition. Economics deals with ascertainable facts; ethics with valuations and obligations. The two fields of enquiry are not on the same plane of discourse. Between the generalisations of positive and normative studies there is a logical gulf fixed which no ingenuity can disguise and no juxtaposition in space or time bridge over. The proposition that the price of pork fluctuates with variations in supply and demand follows from a conception of the relation of pork to human impulses which, in the last resort, is verifiable by introspection and observation. We can ask people whether they are prepared to buy pork and how much they are prepared to buy at different prices. Or we can watch how they behave when equipped with currency and exposed to the stimuli of the pig-meat markets.14 But the proposition that it is wrong that pork should be valued, although it is a proposition which has greatly influenced the conduct of different races, is a proposition which we cannot conceive being verified at all in this manner. Propositions involving the verb “ought” are different in kind from propositions involving the verb “is”. And it is difficult to see what possible good can be served by not keeping them separate, or failing to recognise their essential difference.15

All this is not to say that economists may not assume as postulates different judgments of value, and then on the assumption that these are valid enquire what judgment is to be passed upon particular proposals for action. On the contrary, as we shall see, it is just in the light that it casts upon the significance and consistency of different ultimate valuations that the utility of Economics consists. Applied Economics consists of propositions of the form, “If you want to do this, then you must do that.” “If such and such is to be regarded as the ultimate good, then this is clearly incompatible with it.” All that is implied in the distinction here emphasised is that the validity of assumptions relating to the value of what exists or what may exist is not a matter of scientific verification, as is the validity of assumptions relating to mere existence.

Nor is it in the least implied that economists should not deliver themselves on ethical questions, any more than an argument that botany is not æsthetics is to say that botanists should not have views of their own on the lay-out of gardens. On the contrary, it is greatly to be desired that economists should have speculated long and widely on these matters, since only in this way will they be in a position to appreciate the implications as regards given ends of problems which are put to them for solution. We may not agree with J. S. Mill that “a man is not likely to be a good economist if he is nothing else.” But we may at least agree that he may not be as useful as he otherwise might be. Our methodological axioms involve no prohibition of outside interests! All that is contended is that there is no logical connection between the two types of generalisation, and that there is nothing to be gained by invoking the sanctions of one to reinforce the conclusions of the other.

And, quite apart from all questions of methodology, there is a very practical justification for such a procedure. In the rough-and-tumble of political struggle, differences of opinion may arise either as a result of differences about ends or as a result of differences about the means of attaining ends. Now, as regards the first type of difference, neither Economics nor any other science can provide any solvent. If we disagree about ends it is a case of thy blood or mine—or live and let live, according to the importance of the difference, or the relative strength of our opponents. But, if we disagree about means, then scientific analysis can often help us to resolve our differences. If we disagree about the morality of the taking of interest (and we understand what we are talking about),16 then there is no room for argument. But if we disagree about the objective implications of fluctuations in the rate of interest, then economic analysis should enable us to settle our dispute. Shut Mr. Hawtrey in a room as Secretary of a Committee composed of Bentham, Buddha, Lenin and the Head of the United States Steel Corporation, set up to decide upon the ethics of usury, and it is improbable that he could produce an “agreed document”. Set the same committee to determine the objective results of State regulation of the rate of discount, and it ought not to be beyond human ingenuity to produce unanimity—or at any rate a majority report, with Lenin perhaps dissenting. Surely, for the sake of securing what agreement we can in a world in which avoidable differences of opinion are all too common, it is worth while carefully delimiting those fields of enquiry where this kind of settlement is possible from those where it is not to be hoped for17—it is worth while delimiting the neutral area of science from the more disputable area of moral and political philosophy.

5. But what, then, is the significance of Economic Science? We have seen that it provides, within its own structure of generalisations, no norms which are binding in practice. It is incapable of deciding as between the desirability of different ends. It is fundamentally distinct from Ethics. Wherein, then, does its unquestionable significance consist?

Surely it consists in just this, that, when we are faced with a choice between ultimates, it enables us to choose with full awareness of the implications of what we are choosing. Faced with the problem of deciding between this and that, we are not entitled to look to Economics for the ultimate decision. There is nothing in Economics which relieves us of the obligation to choose. There is nothing in any kind of science which can decide the ultimate problem of preference. But, to be completely rational, we must know what it is we prefer. We must be aware of the implications of the alternatives. For rationality in choice is nothing more and nothing less than choice with complete awareness of the alternatives rejected. And it is just here that Economics acquires its practical significance. It can make clear to us the implications of the different ends we may choose. It makes it possible for us to will with knowledge of what it is we are willing. It makes it possible for us to select a system of ends which are mutually consistent with each other.18

An example or two should make this quite clear. Let us start with a case in which the implications of one act of choice are elucidated. We may revert once more to an example we have already considered—the imposition of a protective tariff. We have seen already that there is nothing in scientific Economics which warrants our describing such a policy as good or bad. We have decided that, if such a policy is decided upon with full consciousness of the sacrifices involved, there is no justification for describing it as uneconomical. The deliberate choice by a body of citizens acting collectively to frustrate, in the interests of ends such as defence, the preservation of the countryside, and so on, their several choices as consumers, cannot be described as uneconomical or irrational, if it is done with full awareness of what is being done. But this will not be the case unless the citizens in question are fully conscious of the objective implications of the step they are taking. And in an extensive modern society it is only as a result of intricate economic analysis that they may be placed in possession of this knowledge. The great majority, even of educated people, called upon to decide upon the desirability of, let us say, protection for agriculture, think only of the effects of such measures on the protected industry. They see that such measures are likely to benefit the industry, and hence they argue that the measures are good. But, of course, as every first year student knows, it is only here that the problem begins. To judge the further repercussions of the tariff an analytical technique is necessary. This is why in countries where the level of education in Economics is not high, there is a constant tendency to the approval of more and more protective tariffs.

Nor is the utility of such analysis to be regarded as confined to decisions on isolated measures such as the imposition of a single tariff. It enables us to judge more complicated systems of policy. It enables us to see what sets of ends are compatible with each other and what are not, and upon what conditions such compatibility is dependent. And, indeed, it is just here that the possession of some such technique becomes quite indispensable if policy is to be rational. It may be just possible to will rationally the achievement of particular social ends overriding individual valuations without much assistance from analysis. The case of a subsidy to protect essential food supplies is a case in point. It is almost impossible to conceive the carrying through of more elaborate policies without the aid of such an instrument.19

We may take an example from the sphere of monetary policy. It is an unescapable deduction from the first principles of monetary theory that, in a world in which conditions are changing at different rates in different monetary areas, it is impossible to achieve at once stable prices and stable exchanges.20 The two ends—in this case the “ends” are quite obviously subordinate to other major norms of policy—are logically incompatible. You may try for one or you may try for the other—it is not certain that price stability is either permanently attainable or conducive to equilibrium generally—but you cannot rationally try for both. If you do, there must be a breakdown. These conclusions are well known to all economists. Yet without some analytical apparatus how few of us would perceive the incompatibility of the ends in question!

And even this is a narrow example. Without economic analysis it is not possible rationally to choose between alternative systems of society. We have seen already that if we regard a society which permits inequality of incomes as an evil in itself, and an equalitarian society as presenting an end to be pursued above all other things, then it is illegitimate to regard such a preference as uneconomic. But it is not possible to regard it as rational unless it is formulated with a full consciousness of the nature of the sacrifice which is thereby involved. And we cannot do this unless we understand, not only the essential nature of the capitalistic mechanism, but also the necessary conditions and limitations to which the type of society proposed as a substitute would be subject. It is not rational to will a certain end if one is not conscious of what sacrifice the achievement of that end involves. And, in this supreme weighing of alternatives, only a complete awareness of the implications of modern economic analysis can confer the capacity to judge rationally.

But, if this is so, what need is there to claim any larger status for Economic Science? Is it not the burden of our time that we do not realise what we are doing? Are not most of our difficulties due to just this fact, that we will ends which are incompatible, not because we wish for deadlock, but because we do not realise their incompatibility. It may well be that there may exist differences as regards ultimate ends in modern society which render some conflict inevitable. But it is clear that many of our most pressing difficulties arise, not for this reason, but because our aims are not co-ordinated. As consumers we will cheapness, as producers we choose security. We value one distribution of factors of production as private spenders and savers. As public citizens we sanction arrangements which frustrate the achievement of this distribution. We call for cheap money and lower prices, fewer imports and a larger volume of trade.21 The different “will-organisations” in society, although composed of the same individuals, formulate different preferences. Everywhere our difficulties seem to arise, not so much from divisions between the different members of the body politic, as from, as it were, split personalities on the part of each one of them.22

To such a situation, Economics brings the solvent of knowledge. It enables us to conceive the far-reaching implications of alternative possibilities of policy. It does not, and it cannot, enable us to evade the necessity of choosing between alternatives. But it does make it possible for us to bring our different choices into harmony. It cannot remove the ultimate limitations on human action. But it does make it possible within these limitations to act consistently. It serves for the inhabitant of the modern world with its endless interconnections and relationships as an extension of his perceptive apparatus. It provides a technique of rational action.

This, then, is a further sense in which Economics can be truly said to assume rationality in human society. It makes no pretence, as has been alleged so often, that action is necessarily rational in the sense that the ends pursued are not mutually inconsistent. There is nothing in its generalisations which necessarily implies reflective deliberation in ultimate valuation. It relies upon no assumption that individuals will always act rationally. But it does depend for its practical raison d’être upon the assumption that it is desirable that they should do so. It does assume that, within the bounds of necessity, it is desirable to choose ends which can be achieved harmoniously.

And thus in the last analysis Economics does depend, if not for its existence, at least for its significance, on an ultimate valuation—the affirmation that rationality and ability to choose with knowledge is desirable. If irrationality, if the surrender to the blind force of external stimuli and unco-ordinated impulse at every moment is a good to be preferred above all others, then it is true the raison d’être of Economics disappears. And it is the tragedy of our generation, red with fratricidal strife and betrayed almost beyond belief by those who should have been its intellectual leaders, that there have arisen those who would uphold this ultimate negation, this escape from the tragic necessities of choice which has become conscious. With all such there can be no argument. The revolt against reason is essentially a revolt against life itself. But for all those who still affirm more positive values, that branch of knowledge which, above all others, is the symbol and safeguard of rationality in social arrangements, must, in the anxious days which are to come, by very reason of this menace to that for which it stands, possess a peculiar and a heightened significance.

• 1“Economic Science in Recent Discussion”, American Economic Review, vol. xxiv., pp. 225–238.
• 2Unsettled Questions of Political Economy, p. 120.
• 3“Nicht die ‘sachlichen’ Zusammenhänge der ‘Dinge’ sondern die gedanklichen Zusammenhänge der Probleme liegen den Arbeitsgebieten der Wissenschaften zugrunde” (Max Weber, Die Objectivität sozialwissenschaftlicher und sozialpolitischer Erkenntnis, Gesammelte Aufsätze zur Wissenschaftslehre, p. 166).
• 4See Cannan, Review of Economic Theory, pp. 1–35, and Schumpeter, Epochen der Methoden- und Dogmengeschichte, pp. 21–38.
• 5See Chapter II., Section 5, especially the footnote on p. 42, for further elaboration of this point.
• 6Wealth, 1st edition, p. 17.
• 7Principles, 8th edition, p. 1.
• 8Cours d’Economie Politique, p. 6.
• 9Essentials of Economic Theory, p. 6. See also Philosophy of Wealth, ch. i. In this chapter the difficulties discussed below are explicitly recognised, but, surprisingly enough, instead of this leading to a rejection of the definition, it leads only to a somewhat surprising attempt to change the significance of the word “material”.
• 10But see Chapter II. below for an examination of the validity of this interpretation.
• 11In this connection it is perhaps worth while clearing up a confusion which not infrequently occurs in discussions of terminology. It is often urged that scientific definitions of words used both in ordinary language and in scientific analysis should not depart from the usages of everyday speech. No doubt this is a counsel of perfection, but in principle the main contention may be accepted. Great confusion is certainly created when a word which is used in one sense in business practice is used in another sense in the analysis of such practice. One has only to think of the difficulties which have been created by such departures in regard to the meaning of the term capital. But it is one thing to follow everyday usage when appropriating a term. It is another thing to contend that everyday speech is the final court of appeal when defining a science. For in this case the significant implication of the word is the subject-matter of the generalisations of the science. And it is only by reference to these that the definition can finally be established. Any other procedure would be intolerable.
• 12Cannan, An Economist’s Protest, p. 49.
• 13Wealth of Nations (Cannan’s ed.), p. 315.
• 14Theories of Production and Distribution, pp. 18–31; Review of Economic Theory, pp. 49–51.
• 15It is even arguable that the reaction has gone too far. Whatever its demerits, the Smithian classification had a significance for capital theory which in recent times has not always been clearly recognised. See Taussig, Wages and Capital, pp. 132–151.
• 16The Nature of Capital and Income, ch. vii.
• 17This is the title of ch. ii. of Wealth (1st edition).
• 18There are other quarrels which we might pick with this particular definition. From the philosophical point of view, the term “material welfare” is a very odd construction. “The material causes of welfare” might be admitted. But “material welfare” seems to involve a division of states of mind which are essentially unitary. For the purposes of this chapter, however, it has seemed better to ignore these deficiencies and to concentrate on the main question, namely, whether the definition can in any way describe the contents of which it is intended to serve as a label.
• 19It is perhaps worth emphasising the significance of this qualification. The application of technically similar means to the achievement of qualitatively similar ends at different times constitute alternative uses of these means. Unless this is clearly realised, one of the most important types of economic action is overlooked.
• 20This may seem an unnecessary refinement, and in the first edition of this essay I left it out for that reason. But the condition that there exists a hierarchy of ends is so important in the theory of value that it seems better to state it explicitly even at this stage. See Chapter IV., Section 2.
• 21Cp. Schönfeld, Grenznutzen und Wirtschaftsrechnung, p. 1; Hans Mayer, Untersuchungen zu dem Grundgesetze der wirtschaftlichen Wertrechnung (Zeitschrift für Volkswirtschaft und Sozialpolitik, Bd. 2, p. 123).
• 22It should be clear that there is no disharmony between the conception of end here employed, the terminus of particular lines of conduct in acts of final consumption, and the conception involved when it is said that there is but one end of activity—the maximising of satisfaction, “utility”, or what not. Our “ends” are to be regarded as proximate to the achievement of this ultimate end. If the means are scarce they cannot all be achieved, and according to the scarcity of means and their relative importance the achievement of some ends has to be relinquished.