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which can afford a basis for reasoning. Ricardo and his contem-
poraries naturally spent but little effort in speculating upon indus-
trial and social changes, of which their time showed only the
beginnings. Mill, writing when the changes had become revolu-
tionary, saw that they were characteristic of the century, and that
no term could be set to their extension. Still, in the greater part
of his treatise, he was unable to do more than refer to them as
transitory "counteracting influences," on the succession of which
no great amount of reasoning needs to rest. It is clear, however,
that these influences, although in one sense transitory, are for our
time practically constant. Inventions, the opening of new conti-
nents, the abolition of time and space, the economic rejuvenation
of countries by social and political reform, follow each other in a
long line and in a certain orderly movement. Reason compels
us to reject the vision of perpetual advance ; but, for these gener-
ations of the world's history at any rate, industrial improvement,
or that which tends in the same direction, is not an accidental, but,
as nearly as possible, a permanent force, acting with the primary
forces of which the economist treats, but constantly masking and
for the time, perhaps, reversing their effects. Here, then, has
been offered the opportunity for the economist to make useful
application of his method, for investigating the movement of
society in the ascending part of its orbit, and dealing with a mass
of striking phenomena, far too complex for systematic siudy with-
out the working hypothesis already in his hand.

It follows, from this view of the field open to political economy,
as defined and studied by the deductive school, that the science,
so far from having reached the end of its work, has before it a
task which, as Cairnes says, is never to be completed, " so long as
human beings continue to progress"; for "the main facts of the



40



ESSAYS



economist's study — man as an industrial being, man as organized
in society — are ever undergoing change." It follows, too, that,
while the connection between assumed premises and the logical
conclusion is immutable, so much of the economist's conclusions as
are based on conditions peculiar to his own time must lose a part
of their importance as years pass. To this extent, we may easily
agree with the proposition so ably supported by Dr. Seligman,^
that "the economic theories of any generation must be regarded
primarily as the outgrowth of the peculiar conditions of time,
place, and nationality," and that " no particular set of tenets can
arrogate to itself the claim of immutable truth."

It must be added, moreover, that, if the development of politi-
cal economy by its normal course had been pushed by the deduc-
tive school, the science itself would have been held closer to
modern life and to the great problems which demand their
answer from the modern world. Bagehot complains that the
science " lies rather dead in the public mind," and that young men
do not feel "that it matches with their most living ideas." This
is a natural result of the omission to deal adequately and systemati-
cally with existing economic relations, in an age which is chiefly
characterized by the multiplication and change of such relations ;
and it seems clear that the position which the deductive political
economy held, even twenty years ago, need not have been lost, if
its followers had pursued the natural course of widening their
discussion of economic law, by drawing steadily from the fresh
experience of the day.

What has happened in political economy, then, is a singular
instance of a scientific inquiry stopped short in its path, it may be
by the timidity — at any rate, by the failure — of those who had
it in charge. In such a case, reaction is not only inevitable, but
is probably the best hope of renewed activity and progress. Even
if the reactionary movement itself should be misdirected or should
run to excesses of its own, and should thus finally contribute noth-
ing directly, the chances are still strong that it will be the stimulus
of thought and of fresh investigation ; and, from such revival,
science, pursued by sound methods, has nothing to fear.

The reaction in political economy has come in the rapid growth
of what is variously known as the German, the inductive, or the

^ Science, 1 886, p. 375.



THE REACTION IN POLITICAL ECONOMY 41

historical school.^ No one of these terms is well chosen. The
new school can no longer be called German, for its influence is
now so diffused as to be entirely independent of the place of its
origin. To call it the inductive school, as is suggested by a natu-
ral antithesis, implies some radical change in methods of reasoning,
often vaguely asserted, but generally disappearing in any attempt
at precise analysis. Even the term " historical," which it will be
convenient to use here, seems to imply some peculiar use of his-
torical material for the discovery of economic truth, as distinguished
from its verification or illustration, — a use not to be detected in
the leading writers of the new school, whose pages bristle with the
results of hypothetical reasoning.

In fact, so far as scientific method is concerned, it may be
stated positively, that the leading writers of the new school do
not agree in rejecting the deductive method, nor in adopting any
other method inconsistent with this or ultimately exclusive of it.
Use of deduction in some way and to some extent is admitted
by nearly all, and is no doubt logically inseparable from the pro-
cess commonly called inductive. Dr. Ely, no moderate supporter
of the historical school, remarks that "the term inductive is to
be applied to those writers who do not start out with all their
premises ready made, but who include the induction of premises
within the scope of their science, and proceed to use these prem-
ises deductively."^ This statement would no doubt bring the
greater part of the English school and their followers, including
the leading writers upon method, within the fold of the inductive
school, and illustrates the difficulty of drawing any line between
the two which shall, in fact, mark any distinction except as to the
degree in which one or another is disposed to draw new premises
from observation.^ Schmoller, indeed, believing that the old

^ Among the numerous statements of the history and tendencies of the new school,
we may refer to Professor Ingram's remarkable article, " Political Economy," in the
ninth edition of the Encyclopaedia Britannica, and to Dr. Ely's study, " The Past and the
Present of Political Economy," in the second series of Johns Hopkins University Studies.

2 "The Past and the Present of Political Economy," p. 8.

^ A striking illustration of the real thinness of distinction as to method between
the two schools is found in President Walker's comment upon Cairnes's statement of the
deductive process, that " nothing could be added to this admirable statement of the
logical method of political economy according to the so-called German school." " Politi-
cal Economy," p. 15.



42



ESSAYS



method and its results are alike obsolete, would postpone for
twenty years the attempt to construct a system of principles ; and
this would unquestionably be a logical course to pursue, if the
deductive method is rejected for inherent unsoundness, as often
seems to be supposed. But leaders like Roscher, Wagner, Cohn,
and writers in Schonberg's "Handbuch," who are recognized as
representing the historical movement, accept and use conclusions
which there is no pretence of having reached save by the old
process of verified deduction. And Wagner's reply to Schmoller's
contention that the old systematic dogma has been outlived is
most emphatic.^ He thinks it proper to object, he tells us, —

that this rejection in the lump goes too far. The old master of historical
national economy in Germany, W. Roscher, with good reason, has not thus
thrown the "old dogma" overboard. And such a step would be all the more
questionable from the difficulty of knowing how to fill up the deficiencies ; for,
except some dry critical observations, there is nothing at hand which can take
the place of the " old dogma." On the contrary, even the " historical national
economists " make use, step by step, of propositions, e.g. in the theory of price
and cost, which are either a part of the " old dogma," or follow as consequences
from it.

It must be added that it is also quite clear that this acceptance
of the old results is not a mere provisional arrangement, — a con-
cession made/rt? tempore, as it were, while some new method is
getting into working order. To take as an example the case of
Wagner, such a supposition would be inconsistent with the terms
in which he has laid down some of the leading doctrines of the
English school,^ and, which is more important, is also excluded by

1 See the article, " Systeniatische Nationalokonomie," by Adolph Wagner, in Jahr-
biicher fiir Nationalokonomie, 1 886, p. 245. A large part of this article will be found,
translated, in the Quarterly Journal of Economics for October, 1886.

2 In the article just cited, p. 246, Wagner enumerates, as the weightiest points of
the old " Dogmatik," the doctrine of the limitation of production from land and the
theory of rent, the doctrine of population, the doctrine of the limitation of production
by capital, and with it the wages-fund theory, with a few modifications. All these, he
says, are held in substance by Cohn, Roscher, Schaffle, and himself. On the Malthusian
doctrine, see an important note in Wagner's " Volkswirthschaftslehre," i., 145. It is
interesting to observe that, with respect to the wages-fund, Wagner's approval is given
to " Mill's older doctrine," and not to the restatement made and confuted by Mill him-
self in 1869. For Roscher's position, see, inter alia, his "Grundlagen der National-
okonomie," §§ 149-156, 242, 243. Compare also " Geschichte der Nationalokonomik in
Deutschland," pp. 652, 909. In Schonberg's " Handbuch," it is noticeable that the
article on the theoretically crucial subject of distribution (by Ur. Mithoff, of Dorpat) gives



THE REACTION IN POLITICAL ECONOMY 43

his views as to the permanent function of the deductive method in
economic investigation. Economic phenomena, in his opinion, are
properly to be isolated by a hypothetical process, in order to de-
termine their causal relations. " Only thus can they be rightly
grasped and understood, and their connections and operative influ-
ences investigated." ^ Without examining more closely into the
contrast which Wagner, as well as others, draws between the
deductive and inductive methods, it is enough to note the fact
that, in his judgment, both must be used, but in varying propor-
tions. " The individuality of the particular investigator must
determine that now one and now the other method shall be applied
more or less than it is by other investigators. This does not in
itself present any occasion for praise or blame, but only the
proper or improper application of each method in the concrete case,
and the worth or worthlessness of the results secured by each
investigator by the method which he uses." ^ Holding this broad
ground as to the legitimate application of both methods, Wagner
appears to view with equal distrust, not to say contempt, the ex-
treme Historisimts of some who are commonly reckoned as of the
same school with himself, and the mere abstract dogmatism of
some representatives of the old economics. Not by him, therefore,
nor by the great writers of whom he may properly be taken as a
leader and type, is countenance given to the pretension that a
particular method in political economy is the scientific method,
that its work alone is true investigation, or that upon its followers
alone must rest the hope of the future. Some of Wagner's warn-
ings, indeed, as to the mischief threatened by a spirit of exclu-
siveness and by " Verschnlung'' among scholars, seem to have been

what would be called an orthodox discussion of the subject, for which Ricardo supplies a
great part of the material. The wild talk, so often indulged in, about the " iron law of
wages," finds little support from this writer, and as little from Roscher, Wagner, and
Cohn.

1 " Die okonomischen Erscheinungen gehoren doch nur zu den socialen, sind aber
nicht kurzweg die socialen. Sie miissen als etwas besonderes, wenn auch eng mit
anderen zusammenhangendes erkannt, daher eben doch, methodologisch richtig, zunachst
moglichst isoliert werden, wenn auch auf Grund eines hypothetischen Verfahrens in
Bezug auf die kausalen und konditionellen Momente, unter denen sie zu Stande kommen.
Nur so konnen sie richtig erfasst und verstanden werden. Als dann erst ist ihre Ver-
bindung mit und ihre Beeinflussung durch andere soziale Momente zu erforschen."
Jakrbilfher, 1886, p. 200. And see also p. 226.

^ /ahrbiicher, 1886, p. 241.



44



ESSAYS



written with a side glance at tendencies visible in his own school
in Germany and elsewhere.

The "new departure " in political economy then, as illustrated
by this tv^pical case, consists at most in the addition of historical
inquiry to methods of investigation already in use. The extent of
this addition, and its relation to economic theory, ranges all the
way from the copious use of history to illustrate theory — as in
Roscher's principal treatise — to the specific investigation of eco-
nomic history, with the light afforded by long familiarity with
economic reasoning, of which in English a brilliant example is
given us by Thorold Rogers. But, after all, the difference between
the old school and the new is essentially a difference of emphasis
or of relative weight given to the historical side of the subject, and
not a radical change of method in arriving at economic truths.
The movement by which historical inquiry is thus brought more
or less into the foreground, according to the intellectual tendencies
or the opportunities of the individual, is, no doubt, an important
reaction against the opposite tendency, which had stopped the
progress of political economy. But such a movement can become
a revolution only when the old method and its results are frankly
abandoned, as is demanded by Schmoller and the most advanced
section, in the expectation of reconstructing the whole fabric of
the science by a new process. That this reaction has a close
affinity with the intellectual movement which has given new life
and meaning to the study of history and jurisprudence is undeni-
able. No doubt, the development of the industrial life of nations
and of their economic institutions, and the causes which, in all
that relates to material life, make one nation a different historical
product from another, could have no complete exposition without
the application of modern methods of research and comparative
study. No doubt, too, the exposition of these subjects in the light
of ascertained economic laws must be one of the conditions of
the advance of social science and of wise legislation. All this,
however, is far from carrying with it either the necessary unsettling
of established doctrines, or the abandonment of the processes by
which they have been established.

There is another important subject, however, on which the new
school of political economy is better agreed, and as to which it is
understood to be in strong opposition to the old economists. This



THE REACTION IN POLITICAL ECONOMY 45

is the vast increase of the functions and activity of the state, now
called for in so many quarters. The old political economy, it is
declared, was "atomistic," and dealt only with individuals: that of
the future must be social, and must take the given society, not the
individuals composing that society, as its unit ; society, as a con-
scious whole, has duties limited only by the possibility of actively
advancing the general well-being of its members ; its powers are
to be adapted to this end, and, if adapted, are the justifiable, the
most effective, and the necessary means of social advancement.^
A great and not easily definable extension of the activity of govern-
ment is thus contemplated. That there is a " law of increasing
functions of government" may be an extreme opinion ;2 but, at
any rate, the old presumption in favor of individual freedom is at
least obscured,^ and for laissez faire is to be substituted a system
of direct and pervasive, although carefully studied, interference.
There is no doubt as to the loftiness of the ideal which such a
system sets before the government of any modern state, or as to
the qualities with which such a government must by some means
be endowed, in order to approach this ideal. Such conceptions of
centralized and all-sufficient power, we may add, are a natural
effect both of imperialism and of democracy ; and, hence, at this
juncture in the world's history, we have a set of the tide from
opposite quarters, in favor of extending the functions of govern-
ment, quite as marked as the doctrinaire tendency of the last
generation toward non-interference. Whether the present flow
is permanent, or is destined to be followed by an ebb, it is at
present an active influence in large sections of existing society,
and gives a marked character to the political economy of the new
school.

But to determine the relation of the new movement to the old
political economy in this respect, requires some consideration of
the place hitherto held by what is called the doctrine of laissez

^ This demand appears in most urgent and, as it seems to the writer, questionable
terms in Professor James's declaration that the State " must be continually interfering
[to promote and create industry] ; otherwise, progress would stop, and retrogression set
in." " Science Economic Discussion," p. 43.

2 See Ely, "The Past and the Present of Political Economy," p. 52 ; and Wagner,
" Volkswirthschaftslehre," i., 308.

' See Dr. Schonberg's language as to the decision between " freedom and unfree-
-dom." " Handbuch," i., 48.



46



ESSAYS



faire. There is plainly a broad distinction between the assump-
tion of non-interference as one of the conditions of a problem on
which we are reasoning, and a recognized principle or maxim that
no interference with individual choice, under such circumstances,
is justifiable or expedient. To take the case in which interference
is most familiar, — in the reasoning upon international trade and
international values, — the problem is to determine the mode of
action of the reciprocal demands made by two trading countries.
The reasoning must of necessity — in the first instance, at any rate
— suppose the exchange to be free from any influences except
those whose effect is under investigation ; namely, the desires of
the countries respectively to satisfy certain wants with the least
effort, and the means of satisfaction offered by their respective
industrial conditions and resources. To introduce the supposition
of governmental interference by the levying of duties on the one
side or the other, would obviously bring in a new element, not
necessary to the essentials of the problem, and of infinitely vari-
able action and intensity. The exclusion of such a supposition,
however, carries no implication whatever as to the right or expedi-
ency of interfering ; nor can the conclusions reached, after such
exclusion, afford more than a part of the grounds on which to rest
a judgment as to such right or expediency. And the distinction
thus to be made in the reasoning as to international dealings holds
good in the discussion of other leading topics. For example, in
the discussion of domestic supply and demand and of price, it is
assumed that the dealings are free from control or influence by
any superior power ; and, in discussing wages and profits, it is
assumed that the competition of individual interests acts by itself.
But, plainly, the question whether competition may be restricted
by law or by combination, or should be free, must be answered
by entirely independent reasoning. No answer is implied, or is
approached, by that reasoning which merely seeks to ascertain
the normal effects of the primary forces with which political econ-
omy has mainly occupied itself.

It seems, then, that laissez faire is no part of the logical
structure of the old economic doctrine. The most rigid Ricardian
may accept it or reject it, and equally without derogation from his
purity of doctrine. And, if we inquire into the opinions as to par-
ticular cases of governmental action held by some leading econo-



THE REACTION IN POLITICAL ECONOMY 47

mists of the old school, we shall find among them a singular and
often forgotten indifference to the doctrine so commonly associated
with the system which they built up. Adam Smith, as is often
recalled in a different connection, gave his sanction to interference
in the two test cases of the navigation acts and of protective duties
in certain cases. Malthus supported the protective duties on Brit-
ish corn. Senior, dealing with such practical subjects as distress
among the hand-loom weavers and the reform of the poor laws,
reached conclusions and made recommendations often entirely
inconsistent with any idea of laisses faire. Even McCulloch,
anxious to uphold the maxim pas trop goiivcrncr, still commended
some legislation on factory labor, on the dwellings of the poor,
and on employer's liability. Mill, first or last, suggested legisla-
tion as the cure for pretty nearly every evil not deemed positively
incurable. In every one of these cases, — and the list might be
extended easily, — it is clear that the writer had no principle, as
regards governmental interference, which could prevent his recom-
mending it, if he thought the object aimed at important enough,
and the prospect of success good. And Cairnes finally went so
far as to declare expressly that " the maxim of laissez faire has no
scientific basis whatever, but is at best a mere handy rule of prac-
tice, useful, perhaps, as a reminder to statesmen on which side the
presumption lies in questions of industrial legislation, but totally
destitute of all scientific authority," or, as he said in another place,
" a rule which must never for a moment be allowed to stand in the
way of the candid consideration of any promising proposal of social
or industrial reform." ^

It is plain, in short, that, not only logically, but according to
the practice of leading economists,^ the maxim of laissez faire,
whatever validity we assign to it, has to do only with the practical
applications of economic reasoning, and has no place as a part of
the reasoning itself. It belongs in the same sphere with a great
variety of other considerations, which must be weighed by the legis-
lator and by the economist when he considers legislative proposi-

1 See his essay on "Political Economy and Laissez Faire,'''' "Essays in Political
Economy," p. 244.

2 But for a highly fanciful statement of laissez faire as an integral part of the deduc-
tive political economy, see M. Laveleye's article, Revue des Deux Mondes, July, 1875,
P- 447-



48 ESSAYS

tions, but which do not affect those relations of cause and effect
known as economic laws. It is no doubt true that, for various
reasons, the great majority of economists of the deductive school
have in fact given so much effect to the maxim as to recognize
a presumption in favor of non-interference, to be set aside only for
strong reasons. In the familiar case of protective customs duties,
it is no doubt true that their conclusions in favor of freedom have
often rested upon such broad ground as to account for, if not jus-
tify, the common belief that a general doctrine of laissez faire lies
at the foundation of the deductive political economy. Still, it is
with perfect ease, and with no sense of logical inconsistency, that
the German writers already noticed can adopt the most critical
points of doctrine from the English school, and yet demand an
increase of the state's activity, without apparent limit.

But behind this practical tendency in favor of a more effective
use of the authority of the state, lies what seems to be regarded
as the chief theoretical characteristic of the new movement, "the
reunion of ethics with political economy." The power of society
is to be directed by a keen sense of duties, scientifically defined
and recognized. The obligation to consider other and higher aims
than the mere enriching of the community, the duty of treating
the laborer as something more than a certain amount of energy to



Online LibraryCharles Franklin DunbarEconomic essays → online text (page 6 of 40)