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where ; for in the coming century an economic blunder in the
United States will be a blunder on a far more portentous scale
than those of the past, and will work out its consequences among
political elements which will admit of no trifling. Already our
public men are appalled by the responsibility of answering such a
question as is set them by the currency. But in such a country as
we may reasonably believe this will be fifty years hence, and with
the dangerous forces now growing within our democracy fairly
developed, such a question will be for the men or the party to
whom it is offered for answer a very Sphinx's riddle, and failure
to solve it will mean political death. It will then no longer be
possible for statesmen or scholars to ignore or neglect those eco-
nomic laws which determine the consequences of our actions. The
same unfailing operation of historical causes, which in other
countries has led to every great step yet made in the progress of
economic thought, will produce its effect here. This action may
be hastened by the shock of some crisis in national affairs ; but if
not, the same result must come in the fulness of time. The regu-
lar course of our development must, at a point not far distant, dis-
close to us an imperious necessity for investigating the laws of
material wealth ; and that point being reached, we may confidently
expect that the United States will no longer fail to contribute their
due share to the advancement of this branch of knowledsre.



THE REACTION IN POLITICAL ECONOMY ^

Sixteen years ago, Professor Cairnes was guided, in choosing
the subject for his opening lecture at University College, London,
by seeing the signs of a belief among the educated public that
" political economy had ceased to be a fruitful speculation." Six
years later, it was noted that in the speeches at the Adam Smith
Centennial, celebrated by the English Political Economy Club,
there were indications that a similar sense of frustration and of
limited hope as to the future had made its way even among econ-
omists, and this at the traditional centre of the EngUsh school.
And a few years more have now brought into full activity what is
variously described as a reaction or a revolution, in which a deter-
mined body of dissentients from the old political economy are
striving, in every leading country, for some sort of reorganization
of the science and its method, upon principles rather vaguely
defined, but generally declared to be in peculiar harmony with
those which have given new life to almost every other branch of
learned investigation.

To the present writer, this movement appears to be no revolu-
tion, but a natural reaction, probably salutary, and destined to
promote ultimately a rapid but still orderly development of the
science, upon the lines laid down by the great masters of what is
called the deductive school. The real import of the movement
appears to him to be often misconceived, partly from a negligent
consideration of the scope and proper limitation of the old eco-
nomics, and partly from failure to observe the course pursued by
the greatest masters of the new. It is proposed in the present
article, therefore, to review briefly the position held by the deduc-
tive school, to consider some of the shortcomings by which the
way for reaction has been made easy, and to show what appear to
be the characteristic tendencies and real drift of the new move-

1 Quarterly Journal of Economics, October, 1886.



THE REACTION IN POLITICAL ECONOMY 31

ment. In doing this, ground must be traversed which is so famil-
iar to many readers, that nothing but the frequent and sometimes
apparently studied neglect of its existence can be the writer's
sufficient apology.

Little space need be given to the formal description of the
method used by what will be called here the deductive school.
The authentic statement of that method is found in Mill's " Logic,"
in the concluding paper in his "Essays on Some Unsettled Ques-
tions," and also in Cairnes's " Character and Logical Method of
Political Economy." As stated by these consistent followers of the
Ricardian doctrine and conscious preservers of its continuity of
development, the method starts from a few simple premises, collected
by observation of the nature of man and of his environment, draws
from these premises a series of logical conclusions, verifies these
conclusions by fresh observation and comparison, and thus ascer-
tains certain relations of cause and effect, which are termed laws.
As an example of the application of this method, to be considered
a little more in detail, Mill's " Principles of Political Economy " will
be taken, not only as the most convenient, but because it presents
the full and rounded statement of a system of leading doctrines,
partly thought out in the " Wealth of Nations," and then given in the
rough, with little effort for orderly statement, in Ricardo's writings.

Mill has undertaken to investigate the production and distribu-
tion of wealth, or, in other words, the nature and the results of the
efforts, which it may be assumed that men living in civilized
society will make, to provide the material goods by which the
satisfaction both of physical and of mental wants is in large meas-
ure secured. These efforts, he takes it for granted, will be made
by preference along the lines of least resistance. They will be
made also under the conditions of a natural tendency to increase of
numbers, and of the application of labor to natural agents, which,
when pushed beyond a certain point, no longer yield a proportional
increase of returns. These data Mill finds sufficient for the estab-
lishment of a considerable body of general propositions as to the
use of labor and capital in production.

But, for the investigation of the laws of distribution, it becomes
necessary to have further data respecting the organization and
methods of the society in which the distribution takes place. It is
true that "whatever mankind produce must be produced in the



2>2



ESSAYS



modes and under the conditions imposed by the constitution of
external things, and by the inherent properties of their own bodily
and mental structure" ; and so a great body of truths as to pro-
duction are as applicable in a communistic Utopia as in the United
States or Great Britain. But, in dealing with distribution, some-
thing must be premised as to the ownership of the natural agents
and of the goods produced, and something also as to the freedom
with which goods and services can be contracted for or exchanged.
Mill, therefore, writing with reference to modern western civiliza-
tion and for modern readers of the western nations, assumes at
this point, as further premises, the private ownership of property,
both real and personal, and the existence of a free competition.
These assumptions import no judgment as to the necessity or the
special excellence of the conditions assumed, nor does Mill ignore
either the possible advantages of other conditions, or the fact that
they may exist. His assumption as to private property is followed
by a digression as to other systems, applicable to property in gen-
eral or to real property in particular, in which the opinions
expressed by the writer as to some fundamental arrangements of
the society around him are generally thought to be heterodox.
His assumption as to competition is made with a full recognition
of the fact that, even where competition finds the fewest obstacles,
its effects are often greatly modified and limited by the prevailing
habits of the community ; and here again follows a digression,
filling several chapters, in which are considered a variety of social
conditions, ranging from slavery to cottier tenancy, under which
competition cannot be said to act. Plainly, it is only as an
observed fact, general enough to give shape to the mass of eco-
nomic relations in the western nations, that the existence of private
property is assumed ; and it is in the modern tendency of compe-
tition to overcome the resistance both of institutions and of custom,
and to be the prevailing rule of dealing, that Mill finds his warrant
for assuming its free action as a premise for reasoning upon dis-
tribution. The warning, however, that competition in any given
case acts, as it were, in a resisting medium of greater or less
density, and that conclusions based upon its possible maximum of
effect are to be modified /;v ;r 7iata, is given by Mill, not once for
all and to be forgotten either by writer or reader, but repeatedly,
and is enforced at several stacfcs of his discussion.



THE REACTION IN POLITICAL ECONOMY 33

It is obvious that the process thus described is a study of the
action of a certain force under given conditions, — the force being
selected for consideration, not as being the sole spring of action,
but as one generally found in operation, and the conditions being
such as are usually presented by modern civilized life. The pro-
cess is understood to be thus strictly limited, because of the com-
plexity of the motives and external conditions by which the
production and distribution of wealth are affected. A single great
force is studied by itself, because this is believed to be a necessary
preliminary to the study of its action when in composition with the
other forces, which, although of secondary importance as regards
the purpose in hand, are, nevertheless, to be finally included in
any complete investigation ; and this isolation of the force first
brought under examination is affected by hypothesis, because it
cannot be effected by experiment, as in physical science. Even if
we suppose, then, that some other force or motive might better
have been selected as the primary object of study, — a supposition
warranted by the conclusions of few economists of any school, —
it would still remain true that the adoption of this process by Mill
is a strictly logical and philosophical method of arriving at impor-
tant truths affecting a great department of human activity. Even
if other methods should be found, more rapid or far-reaching, this
would still be a scientifically defensible method of investigating
the action of economic motives.

This method is said, however, to be indifferent to facts, and,
since it proceeds upon assumed premises, to lead to the evolution
of a system having no necessary relation to the external world.
Fairly considered, the verification of results reached by deductive
reasoning should call for as patient collection and as conscientious
sifting of facts as any other use of observation. But, beyond this,
it is from facts that the suggestion must come of all such secondary
influences or forces, which modify the action of the primary force
investigated by the economist ; and it is from the study of facts and
of their evidence as to the conditions under which such secondary
influences act, that we must proceed in determining the law of their
action. For example, Ricardo's law of rent is a deduction from
simple premises respecting the effort to employ capital with the
best profit on lands differing in productiveness or convenience.
But, in reasoning upon rent or the value of land in any given



34



ESSAYS



country, Ricardo's law is found to give the clew, indeed, — but a
clew to be followed through special conditions, often of wonderful
variety. To the originally simple case of economic rent are added
the modifications arising from customs of deahng between owner
and occupant, from the speculative holding of land, or from changes
in its uses, or revolutions in transportation. And these new con-
ditions are the necessary objects of close study, as supplying the
material for fresh reasoning, if the economist, following the deduc-
tive method, seeks to advance his knowledge of cause and effect —
that is, his knowledge of economic law — beyond the elementary
state. So far from facts being a matter of indifference or being
of only occasional use, in the deductive method, every one of the
leading writers — Adam Smith, Malthus, Ricardo, the younger Mill,
Senior, McCulloch, and Cairnes — either had special occasion for
minute acquaintance with important classes of economic facts much
reasoned upon by him, or shows the proof of special study of such
facts.

The further charge, that the results arrived at by the deductive
method have no necessary relation to the external world, no doubt
has so much foundation as this, — that the truths arrived at are
conditional truths. Deduced from certain premises by a logical
process, they are undeniable ; but, still, they declare only the effects
of causes acting under specified conditions. So far from being of
universal application, they are limited by their own complete logi-
cal statement to cases where the conditions originally premised are
present, and not controlled by any others. It is even conceivable
that no exact parallel to the hypothetical case should ever present
itself, and afford the simple and perfect realization in practice of
an economic truth. To use the familiar illustration, in every
actual case there might be some allowance needed for perturbing
forces or friction. Still, few will deny that truths, even in this
abstract form, if rightly apprehended and used, must be of the
highest service in helping to understand the march of human
affairs.

It is a necessary consequence of the conditional nature of the
truths arrived at by the deductive process that their use as guides
of conduct is subject to strict limitations. No doubt, the tempta-
tion to treat abstract truths as universally applicable, without
qualification, has often proved irresistible. Still, the warning



THE REACTION IN POLITICAL ECONOMY 35

against this misuse of them is found in their statement. " The
economist's conclusions," says Senior, " do not authorize him in
adding a syllable of advice," — a negation which, it must be added,
proved offensive to McCulloch, who was little disposed to let any
opportunity for profitable exhortation pass unimproved. Plainly,
Senior, in theory as well as in his own public service, regarded
the results of the economist as contributory to practical judgments,
but seldom as sufficient therefor in themselves. Taken in connec-
tion with the special facts which surround any question, — the
facts historical, social, psychological, or physical, which create
special conditions, — economic truths are theoretically as essential
as any others for the formation of sound opinions, and are also,
taken by themselves, as insufficient. This limitation of their
practical effect as supplying a part, but only a part, of the grounds
of action, is of special importance, of course, in their bearing upon
legislation. Economic laws, in strictness, deal with wealth ; but
the object of legislation is welfare. Or, as Adam Smith says, when
dealing with a special case, " Defence is of much more importance
than opulence." Without multiplying citations upon this point, it
is enough to recall Cairnes's declaration, often urged by him in
different forms, that, " there are few practical problems which do
not present other aspects than the purely economical, — pohtical,
moral, educational, artistic aspects ; and these may involve con-
sequences so weighty as to turn the scale against purely economic
solutions."

This recognized limitation of the scope of economic conclusions,
as applied to practical affairs, brings to view what is sometimes
indignantly described as the divorce of political economy from all
ethical considerations. The economist, it is charged, carefully
ignores all higher purposes and duties, that he may devote his
thoughts to the pursuit of wealth alone. But need it be ex-
plained that, in this alleged divorce, the only question really at
issue is one of classification, — a question as to the drawing of
a line for purposes of nomenclature between several fields of
thought, all of which, it is admitted, must be traversed before
action can be decided upon } When the economist restricts his
discussion to something less than the sum of all the considerations
of right and expediency which must weigh in questions of political
action, his contribution toward the final decision may indeed be



36 ESSAYS

pronounced important or the reverse, according to the judgment
of the critic ; but there is as httle ground for the moral condemna-
tion sometimes fulminated, as when one investigator declares his
field to be physiology and not therapeutics, or another devotes
himself to the mechanical and chemical properties of the rocks,
and not to their geological relations. It is only when the economist
undertakes to apply his conclusions in disregard of other aspects
of the political or social questions before him, and treats these
questions as problems in political economy only, that there is room
for the reprobation of his neglect of ethical considerations ; and, in
this case, he is sinning against the law implied in his own method.^
Much confusion and misplaced censure, however, upon other
points as well as this, might easily be avoided, by keeping in mind
more carefully the necessary distinction between a science and its
applications.

But it is unnecessary to carry any farther this review of the
characteristics of the deductive method. The method may be
imperfectly applied by those who profess to use it, the conclusions
reached by its means may be misinterpreted ; but it is in itself a
process of careful investigation of causes and effects, naturally
tending to the establishment of that orderly body of verified truths
which is called a science. It is, in short, a strictly scientific
method of approaching our great set of problems presented by the
life of man in society. Other methods of approaching the same
subject-matter may conceivably be used, but it is pure arrogance
to claim for any other that it is tJie scientific method.

It must be recognized as a fact, however, that political economy,
as pursued by the deductive method, has seriously disappointed
the hopes which formerly centred around it ; and this not merely
because of the extravagance of the hopes, but also by reason of
its own sterility in results. To the present writer, this state of
things appears to be the consequence, not of some discovered weak-
ness or insufficiency of the method, but of the failure of economists
to pursue the path on which they had entered. For this failure, the
very nature of the body of doctrine, which was early established,

' A strikitifj instance of a wide range of consiticrations taken account of by an
economist, when engaged as a legislator in the discussion of a grave practical question,
is presented by Mill's speech in the House of Commons, 17 May, 1866, on the Tenure
and Improvement of Land (Ireland) Bill.



THE REACTION IN POLITICAL ECONOMY



37



may perhaps afford a partial explanation. It has already been
said that, in the system of principles stated by Mill, — and this
means in the system obscurely suggested by Ricardo, — the pri-
mary object of study is a single great force, acting under given
conditions. Among these conditions is a tendency to steady
increase of resistance as society advances, resulting from the laws
of population and of production from land. What have been
called the dynamics of political economy must, therefore, with the
growth of a community and in any given state of the arts, develop
a gradually slackened movement, pointing to an ultimate cessation
of advance at the point where the motive force shall be offset by
the increased resistance ; that is, to a state of quiescence, not
necessarily unfortunate, but still demanding some new impulse as
the condition either of further advance or of decline. This is
the theoretical point, — far off, it may be, and postponed by every
fresh discovery and the opening of new resources, but still con-
ceivably attainable, — to which increasing numbers and declining
profits point, as it were, by converging lines. Now, such a concep-
tion, of which traces may be found in Adam Smith, seems in a
certain sense to finish the task of economic science. The move-
ment of human society has been forecast. The goal toward which
the great constant force tends is ascertained. What remains, it
might easily be asked, except to elaborate the reasoning, to rivet
the logic, and to present the elements of the calculation more
clearly .-* It seems to have been some such conception as this, of
a science completed and rounded and adequately describing the
destined movement of every human society to its ultimate stage,
that led Lord Sherbrooke, then Mr. Robert Lowe, to declare in
1876 that the work of political economy appeared to him to be
about finished. And many a younger student, who has admired
the logical strength and symmetry of the system, has wondered at
the seeming meagreness of its content, as he has found himself
suddenly confronted by what might be mistaken for the last pos-
sible deduction.

That, dealing with such a system, economists should fail to
push as they might their investigations into causes, was, no doubt,
all the more natural by reason of the oppressive influence of the few
great names which adorned the deductive school during its rise.
And yet the method by which economic science should be carried



38 ESSAYS

into regions never penetrated by Ricardo was simple. It was only-
necessary to draw from the actual observation of affairs fresh
premises relating to forces of what we have called the secondary
order. There is a pregnant sentence in Mill's essay on definition,
declaring that, in order to make political economy perfect as an
abstract science, "the combinations of circumstances which it
assumes, in order to trace their effects, should embody all the
circumstances that are common to all cases whatever, and likewise
all the circumstances that are common to any important class of
cases." In other words, the framing and insertion of new premises,
and the tracing of effects in the ever increasing complexity of con-
ditions necessary in order to reach all those " common to any im-
portant class of cases," were the natural course of development.
Upon this line Mill entered when, reasoning from the impeded
flow of labor and capital from one country to another, he succeeded
in adding to Ricardo's theory of international trade a theory of in-
ternational values. Cairnes also took the same course, when he
extended the same reasoning to the cases where competition is im-
perfect in domestic exchanges, either as between different parts of
the same country, or as between different industrial strata or occu-
pations in a given community. In the same direction of fruitful
development were the inquiries which Cairnes made at different
stages of his career, as to the unequal measure in which the prices
of different articles respond to a common influence, — as, e.g., to a
cheapened supply of money, which is usually treated as affecting
all alike and simultaneously ; and other examples could easily be
cited from the same suggestive writer.^

Plainly, the system of political economy, as elaborated in the
earlier part of this century, gave unlimited scope for investigation
and expansion of this kind, and for the discovery of what have
been called "derivative laws" of probable interest and importance.
The very fact that, as already noticed, the system had to assume
in the first instance, and in order to simpHfy its task, that compe-
tition acts uniformly, shows that the whole field of distribution

1 Trofessor James says of the old economy that it satisfied a demand for "something
perfect in its way. It was indeed a closed circle, but it had consequently no line of
advance," To go on with Professor James's figure, however, the deductions from simple
premises being closed, new premises afford the opportunity for new circles, of wider and
wider sweep, limited only by the variety of human interests to be dealt with. See
Science Economic Discussion, p. 42.



THE REACTION IN POLITICAL ECONOMY 39

and exchange might be worked over, with new conditions drawn
from observation, and with the promise of valuable results. Or,
to take another region into which investigation by the deductive
method might well have been carried, — that suggested by the
familiar condition, "in a given state of the arts." The improve-
ment of instruments, processes, and institutions, by which produc-
tion is aided and the resistance of nature is offset, is ordinarily
treated by the economist as something fortuitous, — to be allowed
for in a given case, no doubt, but showing no stated recurrence



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