The history of economics

Front matter

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CHAPTER I. On the Method of Investigation Proper to Economics

Socrates discouraged the study of Physical Science . • • 3

Bacon proclaims the doctrine of the Continuity of Science . 3

He says that Natural Philosophy is the Mother of all Science . . 5

The Inductive Method applicable to Moral Science . . . 6

Physical Inductive Science must precede Moral Inductive Science . 6

Function of Logic . . ... 7

Newton and Butler say the same . ... 8

The Economists declared that there is a Natural Moral Science . . 9

Generally admitted that Physical Science is the true basis of all Science 10

Self-contradiction of John Stuart Mill as to the method of Investigation

proper to Economics . . ... 10

He says that the Inductive is the true method to investigate Economics 12

Unanimous opinion that Economics is an Inductive Science . .12

Self-contradiction of Mill. He says that the <J priori method is the

only proper one to investigate Economics . . . . 13

Mill's assertion erroneous . . . ... 14

Mill's reason for asserting that Economics is an d, priori Science . .16*

Mill's arguments untenable . . . . 17

Argument from Feigned Cases . . 18

Experimental and Experiential Philosophy . . . . 18

The Principles of Inductive Logic applicable to Experiential Philosophy 19

Economics admitted to be a Physical Science . . . . 19

VI

CHAPTER II. On the Nature of a Physical Science; and on the Formation

OF General Concepts and Axioms.

1. On the Nature of a Physical Sicence

2. Definition of a Phjrsical Science 3« Mechanics

4. Chemistry

5. Optics and Heat •

6. Requisites of a Physical Science

7. Meaning of a Physical Moral Science

8. Not capable of same perfection as Physical Science

9* Which Moral Science' approaches most nearly to a Physical Science

0. How Economics may be made a Physical Science

1. An Economic Quantity .....

2. Economic Quantities of divers natures

3. Science consists of two parts — General Concepts and General Axioms

4. Relation between these and Reality • . . .

5. Alleged distinction between minds in Science .

6. The Formation of Concepts and Axioms subject to General Laws

7. On the Formation of General Concepts

8. On the Formation of General Axioms

9. On the Law of Continuity ..... 20. Plan of the Work .....

FAGB 20

24 24

25 29

CHAPTER in.

History of Economics.

Erroneous notions as to the origin of the Science of Economics

The Theory of Money .....

Foundation of Economics as a Science

The Economists .....

'Outline of the Doctrine of the Economists

Doctrine of the Ek:onomists r^arding Commerce or Exchanges

Meaning of the expression ** Production, Distribution, and Consumption of Wealth" .....

Definition of Wealth by ancient writers

Three Species of Wealth or £k:onomic Quantities

35 36 40

41 43 45

47 51 52

Contents

Vll

Demo6th^es shows that Personal Credit is Wealth . ...

The Roman and Greek Jurists show that Abstract Rights and Rights of Action are Wealth • . # • .

Sketch of the History of the Theory of Credit

The Elconomists on Money •

The Economists on the Balance of Trade .

*, The Economists on Productive Labour, and on Sterile or Unproductive Labour .

Dogma of the Economists that Labour and Credit are not to be admitted to be Wealth

The Economists founded a New Order of Sciences

Reaction against the Economists — Condillac

Adam Smith

' Free Trade on a Moral and Economical basis • Fallacy of Reciprocity and Retaliation

Adam Smith's Definition of Wealth

Smith classes Human Abilities or Labour as Wealth

Smith admits that Rights are Wealth infusion of Smith on Value

Smith's chief merits v°

His chief defects

Say and John Stuart Mill

Ricardo

Whately

The Economics of Jean Baptiste

S>'stem of J. B. 5 iy .

John Stuart Mill N^Iill on Value

Reaction against the Economics of Jean Baptiste Say

Frederic Bastiat

The Author .

V Arthur Latham Perry . yStanlej* Jevons

Economics is a Physical Science

On the best Name for the Science

Eo^nomics as a Liberal Science .

and John

Stuart Mill

HACB

63 66

73 75

86 .88 88 92 96 97

lOO

107 III

•13 120

»35

154 156

Vlll

Contents iSooft II.

THE FUNDAMENTAL CONCEPTS AND AXIOMS OF

X ECONOMICS

Acceptilation

PAGB

Goodwill

PACK . 446

Accommodation Paper

Gresham's Law

• 448

Annuity .

Assignable Instruments

Interest

Issue ...

• 463

• 470

Bailment and Debt

Balance of Trade .

Labour

. 471

Bank .

Lend — I/mui

. 479

Banking

Bill of Exchange .

Market Price of Gold and Silver 483

Bill of Lading

Mint Price of Gold and Silver . 484

Money .

. 486

Capital .

Cash Credit

Negative Quantities in Economics 501

Channel of Circulation

Negotiable Instruments .

Cheque

Novation

. 524

Chose-in-Action .

Circulating Medium, or

Currency

Patent .

Clearing House .

Payment and Satisfieiction

. 528

Coin

Persona

• 53'

Compensation

Pound? What is a

• 533

Confiisio

Practice

• 535

Consumption

Price .

. 536

Copyright

Production

. 539

Cost of Production

Productive and Unproductive

Credit .

Labour

. 545

Currenc}- Principle

Profit, Rate of Promissory Note .

. 556 • 564

Debt

Property

Dqxisit

Depreciation and Diminution in

Rent .

• 571

Value

Ives •

. 608

Discount

Rights .

Distribution

•

Dock Warrant

Shares in Commercial Compa

inies 619

Draft .

•

Tithes .

. 620

Estate .

B •

409 ,

Trade Secrets

\^alue .

Farm .

.

Funds, The

.

Wealth .

. 670

PRELIMINARY REMARKS

IF there be one set of men more than another to whom the undying gratitude of mankind is pre-eminently due, it is that iQustrious band of thinkers in France, Italy, Great Britain, and Spain, who during the last century founded the Science now usually called Economics, and brought about that great revolution in opinion which, after a long and arduous struggle, finally established the doctrines of Free Trade in this country. Lord Macaulay observes that the two greatest and most salutary social revolutions which have taken place in England, were those which in the thirteenth century put an end to the tyranny of nation over nation, and which, some generations later, put an end to the property of man in man ; but to these may be added a third— not less great, and not less salutary than the other two — that great revolution in the ideas of the age, which abolished for ever the property of one set of men in the industry of others.

But however deep the gratitude which is due to these immortal thinkers, and however warmly we may acknowledge it, it is given to no men, however illustrious, to arrest the progress of thought, and to impose limits upon science. It is the sacred duty of those in succeeding generations who would aspire to walk in their steps, to sift and examine their doctrines by the light of further experience, even as they examined the doctrines of their predecessors, and to carry on the science from where they left it

It has thus happened that nearly every science has undergone a complete transformation from the mode in which it was conceived by its founders, and there is besides in every science a certain stage

Preliminary Remarks at which it becomes necessary to introduce more powerful and refined methods of investigation, more comprehensive forms of expression, and more minute and exact observations.

Highly as we may esteem the great Economists of this and other countries, it is essential to remember the character of the great Economical contests up to the present time. They have been almost entirely destructive. The first Economists found the public mind and the administration infected with an immense mass of rooted prejudices, errors, and abuses. Their first efforts were, therefore, naturally directed to sweep these away; to beat down and abolish false doctrines of all sorts; to extirpate bad and mischievous laws interfering with the natural order of things ; to abolish legislative interference with wages, with prices, with the interest of money, and with the commercial intercourse of nations ; to establish, in fact, freedom of contract and exchange. And in this Economists of all nations are agreed.

The repeal of the Com and Navigation Laws in England may be regarded as the consummation of the destructive era of Economical Science in this country. We have now arrived at a new and distinct phase of the Science; that, in fact, at which the period of destruction has ended, and that of construction has come.

With that great practical work before them, which it required three-quarters of a century to accomplish in this country, it is not very surprising that Economists have not hitherto given any very close attention to settle the exact foundations of the Science. The early treatises are filled with long controversies and discussions, which, though indispensably necessary at that time, may now be dismissed in a few lines.

But while Economists of all schools are agreed on what was the destructive portion of their Science, when we come to the positive, or constructive, Science, this agreement is at an end. Nothing can be more lamentable or astonishing than the differences of doctrine and the antagonism of Economists on almost every point in the Science, so as to create a widely-spread impression that there is no such intelligible Science at all as Economics.

Preliminary Remarks xi

It is well known that each of the phjrsical sciences which have attained such magnitude and extent in modern times, and which have produced such admirable results, have been brought to their present state of perfection by extraordinary labour having been bestowed in ascertaining and settling their first elements, namely, their definitions and axioms, or accurate conceptions and expressions of the objects they treat about, and the general laws which regulate their relations to each other.

But it has not always been sa These wonderful sciences were once in a very difierent state. The modem plan of teaching a science only in its existing state, no doubt imparts a vast amount of actoal knowledge. But as a mental discipline, or as a matter of education, the History of Science is of enormous value, and, we venture to say, is far too much neglected.

Many persons can acquire a considerable amount of actual knowledge, and yet derive but little benefit from it But to study the History of Ideas on the subject, to understand clearly the principles of the difierent controversies which have been waged, to comprehend why one set of ideas prevailed over another, is an educational exercise of immense utility, which is almost entirely neglected. Few persons are aware of the wrecks of the fierce controversies which lie btuied beneath the calm and placid surface of modem Science, like those of mighty armaments beneath the summer sea.

Many persons are apt to think that controversies in Economics are mere logomachy, vain and unprofitable disputes about words, and of no real consequence. They are apt to think that the Phjrsical Sciences treat about things, and Economics only about words, but those who think so display a total want of knowledge of the History of Science. The early history of all sciences is full of controversies about the meaning of words. Many may think that Physical Science being about things, there is no difficulty in giving a name to what is seen so readily. This is a lamentable error. On the contrary, it almost invariably happens that names get into a science, and acquire a position in it, before anyone can give an xii Preliminary Remarks exact definition of their meaning. Thus the words Momentum^ Vis Viva^ Uniform Forcty Accelerating Force^ and several others acquired a position in Mechanics before anyone could tell what they really meant, and all the philosophical world of the day was engaged in the wordy war to settle their meaning, and obtain true definitions : consequently, it is an entire error to suppose that controversies in Physical Science are not about words. On the contrary, it was in the true definitions of words that the whole foundations of the sciences were laid, and it was just because all the great mathematicians of the day so thoroughly understood the supreme importance of ascertaining the true meaning of words, and fought out the meaning of each separate term with such perseverance, that they at length arrived at such an unanimity of agreement, and these controversies have now been almost forgotten. There was a time, then, when what are called the exact sciences had not attained that rank. They were once matters of opinion^ and not of demonstration, and they only attained the rank of demonstrative truth, because each separate word and each separate principle was thoroughly discussed and settled.

And why has Economics not yet attained the same rank as Mechanics as an exact Science ? Because the same care has never yet been given to settle its definitions and axioms. Economics is now like Mechanics in its early stages, overrun and infested with words whose meaning has never yet been settled on certain principles, and which are never almost used by any two writers in the same sense — nay, even none of the most popular writers are consistent with themselves. The men who have cultivated Economics are probably of as great natural ability as those who have cultivated Physical Science, of course with the exception of a few unapproachable examples. Why, then, have they not come to the same unanimity of opinion as their brethren ? The simple reason is that they have not adopted the only means which could by any possibility ensure success, namely, a thorough discussion and settlement of the meaning of words. Nay, they have systematically despised it. Now what the words Momentuniy Vis Viva, &c., were to

Preliminary Remarks xiii

Mechanics in its early stages, that Wealthy Value^ Currency^ Credit^ Oi^ital^ &a, are at the present day to Economics.

And it is for this very reason that many suppose that Economics cannot be made an exact Science^ because the only means by which it can be made so have been systematically neglected. Many suppose that there is no need for such a thing : matters will go on just the same, they think, for all the disputes. But the same may be said of Physical Science. A man may be an excellent seaman, and yet be entirely ignorant of the mechanical principles which govern the progress of his ship. But is there no use in the Science of Mechanics ? So, doubtless, a man may be an excellent practical banker, and a very successful merchant, without any knowledge of Economics : and yet is there no use in the Science of Economics?

Now Economics is based upon certain fundamental concepts or definitions, and axioms or general laws, just as Mechanics is, and by settling these with as great care as is done in Physical Science, it may be raised to the rank of an exact Science. And yet there are writers — of no mean acquirements, too — who entirely discourage such a course of proceeding; who consider such attempts as pedantic, and mere waste of time ; who would admit that in every other branch of human knowledge clear and precise technical terms are absolutely indispensable; and yet, in Economics alone, think that there is no need of anything of the sort.

Besides the nature and extent of the Science itself, and the method of investigation proper to it, the fundamental concepts are Wealthy VcUue^ Credit^ Capital, Production, Consumption, Currency, Money, Price, and many others. It might naturally have been expected that, as these terms are means by which discussions are carried on. Economists would have been agreed upon all of them.

On the contrary, there is no agreement among Economists upon any one of them. They are entirely at variance with each other, not only as to the nature and extent of the Science, but even as to the method of investigation proper to it No Economist has, hitherto.

XIV Preliminary Remarks attempted to fix the fundamental concepts of Economics on sure and certain scientific principles, as those of Mechanics have been done. Excellent as are many of their refiitations of previous errors, they have never yet made any attempt to give an exposition of the facts of the Science to form the foundation of a theory. Now, as the phenomena of Economics are all produced by the actions of men, if the same care were taken to ascertain these facts and to express their relations in the same accurate and generalised language as is done with regard to those of Physical Science, Economics might be made a science as certain as any Physical Science.

The first thing, then, that is wanted, is to introduce into the Science the spirit of true Generalisation — the generalisation of its fundamental concepts, and the generalisation of its axioms or its general principles, by the acknowledged canons of Inductive Logic.

When Galileo began to study Natural Philosophy, he put aside Mathematics, not thinking that there could be any connection between the two — a sentiment which appears, too, in Bacon. Many persons at the present day think that there is no connection between Economics and Natural Philosophy. They are in just as great an error as Galileo and Bacon were. Economics is a science of causes and effects numerically measured, produced by the properties of men, and its types and standards of reasoning are to be found in the sciences which treat of the causes and effects produced by the properties of material substances. In both equally the Inductive Logic reigns supreme. The same general method of investigation is common to both, and there is the same hope and encouragement to expect success that the Athenian orator gave to his countrymen because their failure arose, not from the nature of the thing, but from their own errors. So it is with Economics. The lamentable state in which it is at present does not arise from the nature of the Science itself, but hova its method of treatment.

By paying the same attention as Physicists have done to obtain true concepts and axioms fi'om ideality itself by proper methods, and

Preliminmy Remarks xv not by arbitrary dogmatism ; by proceeding step by step, definition by definition, axiom by axiom, principle by principle, in due and proper order; by maintaining a proper unity of conception and principle from the beginning to the end, it will be found that a vast and magnificent edifice of Demonstrative science may be built up. Economics will emerge from the turbid regions of controversy as clear and precise, as sharply defined, and as capable of being erected into an exact science, as any other whatever ; it will attain a grandeur, a precision, and a compass never yet thought of. A new Inductive Science, the connecting link between Physical and Moral Science, will be created, and a new monument raised to the everlasting glory of the Monarch of Philosophy.