Outlines of economics

Front matter

Class JEl2£ Book

IV7

NEW YORK • BOSTON • CHICAGO - DALLAS

Preface

The first edition of the Outlines of Economics, written by- Professor Ely, was published in 1893. Four persons cooperated in the preparation of a revised and enlarged edition, which appeared in 1908. This was in many respects a new book, although much matter from the earlier edition was incorporated in it, and although pains were taken to retain the general organization and especially the general point of view of the older volume. The present edition does not differ so much from its predecessor as that differed from the first edition, but it is, nevertheless, the result of a more thoroughgoing revision than is usually given to books of this kind.

Some minor changes have been made in the order in which the chapters appear; two chapters have been omitted; and a chapter on labor legislation has been added. No chapter in the book remains unaltered, and the larger part of Books II and III has been virtually rewritten. While the number of different subjects treated has been slightly reduced, the treatment of the more fundamental subjects has been considerably expanded. Each of us has undertaken the revision of a definite portion of the book and, to secure unity, Professor Young has had general editorial supervision of the revision as a whole.

Some of the changes are such as are necessary by reason of eight years of progress in industrial life, in legislation, and in economic thought. Other changes are the outgrowth of the experience gained in eight years' use of the book in university and college courses. Among the many persons to whom we are indebted for helpful criticisms and suggestions are Dr. John Cummings, Professor H. J. Davenport, Dr. C. S. Duncan, Professor L. C. Gray, Professor J. E. Le Rossignol, Professor

VI PREFACE

W. C. Mitchell, Professor T. W. Page, Professor F. M. Taylor, Mr. Ray S. Trent, and Professor N. A. Weston.

The instructors in charge of the course in elementary economics at the University of Wisconsin have generously cooperated by submitting carefully prepared lists of definite, well-considered, and pointed suggestions for the betterment of the book. ' We make grateful acknowledgment to Professors T. K. Urdahl, W. I. King, and H. D. Simpson, and to Messrs. Harry Jerome, A. H. Hansen, J. G. McKay, and F. L. Vaughan.

THE AUTHORS.

September, 1916.

CONTENTS BOOK I. — INTRODUCTION

PAGE

Preface v

Chapter I. — The Nature and Scope of Economics

Diversity of economic study, 3 ; Definition of economics, 4 ; A social science, 5 ; Studies man in process of development, 6 ; Economic laws, 7; Relation of economics to other sciences, 11; Principal divisions of economics, 15.

Chapter II. — The Characteristics of the Present Economic System

Human and physical conditions of economic activity, 17 ; Private enterprise and state activity, 17; Division of labor and exchange, 19 ; Economic classes, 21 ; Private property, 21 ; Trade- marks, copyrights, and patents, 23 ; Inheritance, 24 ; Contractus; Vested interests, 25 ; Freedom, 26 ; Competition and markets, 28 ; Fair competition, 29; Cooperation, 30; Monopoly, 30; Custom, 31.

Chapter III. — The Evolution of Economic Society

Basis of the economic stages, 33; Direct appropriation, 34; Primitive man, 35; Pastoral stage, 36; Agricultural stage, 37; Manorial economy in England, 37; Handicraft stage, 39; Gilds, 39; Domestic system, 40 ; Agricultural changes, 41; The mercantile system, 42 ; Industrial stage, 44 ; Other classifications, 44.

Chapter IV. — The Evolution of Economic Society (Continued)

Industrial Revolution, 47 ; England in 1760, 47; Mechanical inventions, 49 ; Agricultural changes, 50 ; Effects of industrial revolution, 51; The factory system, 51; Industrial specialization, 2; Evils of the transition, 52 ; Competition and laissez-faire, 53 ; Reaction against the passive policy, 54 ; Quality of goods, 55 ; Protection of labor, 55 ; Labor organizations, 57 ; Extension of government enterprise, 58; Summary, 59.

viii CONTENTS

Chapter V. — The Economic Development of the United States Economic stages in American industrial history, 61 ; Sectionalism, 62 ; Characteristics of the American people, 63 ; Growth of population, 64 ; Slavery and the negro problem, 66 ; Immigration, 68; Natural resources, 74 ; Public lands, 75.

Chapter VI. — The Economic Development op the United States (Continued)

Mercantilism in America, 79; English colonial policy, 80; American industries in 1776, 81; The Industrial Revolution in America, 81 ; The development of agriculture, 84; Manufactures, 86 ; Transportation, 90 ; The labor movement, 93 ; State regulation of industry, 96.

Chapter VII. — Elementary Concepts

Motives in economic activity, 103 ; Utility, 105 ; Free and economic goods, 105 ; Effort and waiting, 106 ; Risk, 106 ; Personal qualities as goods, 107 ; Wealth and income, 108 ; Individual and society, 109 ; Wealth and value, 109 ; Capital and other forms of wealth, no; Capital goods and capital value, no; Social and individual capital, in ; National wealth and national dividend, in.

Chapter VIII. — Production

Production defined, 116; Production of values, 118; Factors of production, 119; Saving and capital formation, 122; Production and sacrifice, 124; Organization of productive factors, 123; The entrepreneur, 123 ; Division of labor, 124; Advantages of division of labor, 126 ; Effects upon the worker, 127 ; Territorial division of labor, 128; Productive organization of the American people, 129.

Chapter FX. — Consumption

Consumption defined, 132; Productive and final consumption, 132; Human wants, 133; Law of diminishing utility, 133; Marginal utility, 135 ; Subjective value, 137 ; Economic order of consumption, 139 ; Future wants, 140 ; Consumption and saving, 142 ; Alleged present consumption of future products, 142 ; Luxury, 143 ; Harmful consumption, 144; Statistics of consumption, 144; Consumption and sacrifice, 146 ; Cost of production, expense of production, and opportunity cost, 148.

CONTENTS ix

Chapter X. — Value and Price

Meaning and significance of value, 151 ; The market, 153 ; Exchange value and subjective value, 155 ; Supply and demand, 156 ; Nature of demand, 156; Elasticity of demand, 159; Nature of supply, 162 ; The determination of price, 164.

Chapter XI. — Value and Price {Continued)

Prices and the expenses of production, 167; Normal price, 169; Different conditions of supply, 170; Fixed and variable expenses, 174 ; Joint expenses of production, 179 ; Surplus of bargaining, 181 ; Non-reproducible goods, 182 ; Retail prices, 182 ; Public authority and value, 183; Imputed value, 184; Valuation of production goods, 185 ; Other theories of value, 186.

Chapter XII. — Monopoly

The idea of monopoly, 189 ; Classification and causes, 193 ; Social and natural, 195 ; Monopoly price, 200 ; Effect of a tax, 202 ; Relation of demand to monopoly price, 203 ; Class price, 204 ; Monopoly price, high price, 205 ; Monopolies and distribution of wealth, 207 ; Public policy toward monopolies, 208.

Chapter XIII. — Business Organization

The meaning of "business," 212; The nature of business units, 212 ; The business unit in accounting, 213 ; The individual entrepreneur, 214; Partnerships, 215; The business corporation, 216; The corporation charter, 217; Lack of uniformity in state laws, 218; Corporation capital and capitalization, 219 ; Overcapitalization, 221; Form of capitalization, 225 ; Corporation management, 226; Advantages of the corporation, 228; Social aspects of corporations, 228; Trusts, 230; Causes of combination, 232; Anti-trust laws, 235 ; Unfair competition, 239 ; Public policy towards industrial combinations, 243 ; Federal control of Corporations, 245; Industrial combinations in other countries, 245.

Chapter XIV. — Money

Metallic money, 248; Coinage, 249; The meaning of "money," 250; The media of exchange, 252; The monetary standard, 255; Seigniorage, 255; Limited coinage, 259; Bimetallism, 260; Bimetallism in the United States, 263 ; The gold-exchange standard, 269 ; Government paper money, 271 ; Colonial and Revolutionary

Chapter XV. — Credit and Banking

Credit transactions, 282 ; Personal credit, 285 ; Bank credit, 286 ; Bank notes, 290 ; State banks of issue, 290 ; National banking system, 291 ; The reserve system, 292 ; New York money market, 293 ; Speculation, 295 ; Independent treasury system, 297 ; The movement of money, 298 ; Inelastic currency, 300 ; Inelastic reserves, 301 ; Absence of centralized control, 303 ; Steps toward reform, 304 ; Federal reserve system, 307 ; State and private banks, 313.

Chapter XVI. — Other Problems in Money and Banking

The value of money, 317 ; Quantity of money and the values of money, 319; Equation of exchange, 321; Mechanism of general changes in prices, 325; Industrial uses of gold, 327; Expenses of gold production, 328 ; Increase in gold production, 329 ; Effects of changes in prices, 331; Crises, 333; Standard of deferred payments, 336 ; Index numbers, 337.

Chapter XVII. — International Trade

Foreign exchange, 345; Regulation of the gold supply, 350; Balance of trade, 354; Restriction of international trade, 358; Advantages of international trade, 361.

Chapter XVIII. — Protection and Free Trade

The case for protection, 368; Arguments of free-traders, 374; General considerations, 380; Conclusions, 381.

PART III. — DISTRIBUTION Chapter XIX. — Distribution as an Economic Problem

The problem of distribution, 384; Distribution controlled by existing institutions, 386 ; Money incomes, 3S7 ; Law of diminishing productivity, 388 ; Marginal product of labor, 390 ; Marginal products of land and capital, 392 ; Marginal productivity and the prices of production goods, 398; The meaning of "productivity," 400; Social aspects of diminishing productivity, 404.

Chapter XX. — The Rent of Land

Rent defined, 407 ; The services of land, 408 ; Rent under uniform intensivity of cultivation, 410 ; Rent under actual conditions, 413 ; The different uses of land, 416 ; The capitalization of rent, 418; Rent and social progress, 419; The unearned increment, 422 ; Urban lands, 426.

CONTENTS XI

Chapter XXI. — The Wages of Labor

Wages as the price of labor, 427 ; Demand for labor, 428 ; Labor-saving machinery, 430; Supply of labor, 43 1 ; Growth of population, 434; Subsistence theory of wages, 437; The standard of life and wages, 438 ; Supply of labor in different occupations, 439 ; The wage contract, 442.

Chapter XXII. — Labor Problems

Types of labor organizations, 444; Economic justification of labor organizations, 445 ; Labor organizations and monopoly, 446 ; Methods and policies of labor organizations, 447 ; The closed shop, 448 ; Limitation of output, 449 ; Educational and fraternal activities, 451; The strike, 452; Employers' associations, 454; Trade arbitration, 457 ; Voluntary arbitration, 458 ; Compulsory arbitration, 459; Profit sharing, 461; Industrial democracy, 463; Cooperation, 465 ; The future of the union, 469.

Chapter XXIII. — Labor Legislation

Freedom of contract, conspiracy, and injunctions, 472 ; Child labor laws, 476 ; The labor of women, 479 ; Minimum wage laws, 480 ; Factory acts, 484 ; Employers' liability, 486 ; Philosophy of labor legislation, 488.

Chapter XXIV. — Interest

Interest defined, 493 ; Inadequate explanations, 494 ; How interest is possible, 495 ; Why interest is necessary, 496 ; Investment, 499; Replacement, 501; Shifting of investment, 502; Expense and price of capital, 504 ; Free and specialized capital, 506 ; Capital and land, 507 ; Capital and consumption goods, 512 ; Capital and wages, 512; Competitive investment, 513; The flow of money income, 515; The annual product and the social dividend, 5 1 7 ; Sources of investment funds, 523 ; The interest rate, 521 ; Gross and net interest, 523 ; Usury laws, 524.

Chapter XXV. — Profits

Profits a surplus, 525; Entrepreneur's wage, 526; Pure profits impossible under certain conditions, 527; Sources of pure profits, 528; Marginal productivity and profits, 532; Profits for the industry and profits for the establishment, 533 ; Good-will, 535 ; The relation of risks to profits, 536 ; The entrepreneur, 537 ; Profits and the defense of the competitive system, 538.

Xll CONTENTS

Chapter XXVI. — The Personal Distribution of Wealth

Wealth and income, 542 ; Absolute and relative well-being, 542 ; Concentration of wealth and large-scale production, 542 ; Methods of measuring concentration, 543 ; Statistics of distribution, 544 ; Causes of poverty and riches, 549; Is greater diffusion possible? 551 ; Modifying the methods of wealth acquisition, 553.

PART IV. — SELECTED ECONOMIC PROBLEMS Chapter XXVII. — Transportation Economics Scope and significance, 557; Nature of the railway industry, 558; Railway competition, 560; Pooling and consolidation, 561; The movement of rates, 563 ; The level of rates, 565 ; Relative rates, 567; Distance, 570; Government ownership, 571 ; Regulation, 573 ; The Interstate Commerce Commission, 574.

Chapter XXVIII. — Insurance

Nature of insurance, 577 ; Origin and development, 578 ; Forms of insurance organization, 580; Life tables, 581; Reserve, 583; Surplus, 583; Endowments, 584; Industrial insurance, 585 ; State insurance, 585; State regulation, 586; Social insurance, 587; Workmen's compensation, 588; Sickness insurance, 591; Old-age insurance, 592; Unemployment insurance, 592; Objections to social insurance, 593.

Chapter XXIX. — Agricultural Problems

Size of farms, 596 ; Ownership and tenancy, 603 ; Farm labor, 606 ; Farm indebtedness and agricultural credit, 609 ; Tenancy vs. encumbered ownership, 615; Marketing of farm products, 618; Speculation, 622.

Chapter XXX. — Socialism

Socialism defined, 627; Distributive justice, 627; Varieties of socialism, 628; Communism, 631; Socialism an extension of existing institutions, 632; The strength of socialism, 632; The weakness of socialism, 634 ; The socialist movement, 636 ; Anarchism, 638.

Book Iii.— Public Finance

Chapter XXXI. — Public Expenditures Nature and significance of public finance, 643 ; Public and private expenditures contrasted, 646 ; The proper proportion between the total income of society and public expenditures, 648 ; Economy

CONTENTS Xlii

the total income of society and public expenditures, 648 ; Economy vs. parsimony, 652; Historical development, 654; Development of public expenditures with respect to regularity and irregularity, 659; Classification of public expenditures, 660.

Chapter XXXII. — Public Receipts from Loans and Government Ownership

Public debts, 666; Public domains, 671; Land policy of the United States, 673 ; Forest lands, 674; Mineral lands, 675 ; Success of our land policy, 677 ; Land nationalization and municipalization, 679; Public industries, 682.

Chapter XXXIII. — Public Receipts : Derivative Revenues, Fees, Special Assessments, and Taxes

Definitions, 689 ; Fees, 690; Special assessments, 692; Taxes, 694 ; Justice in taxation, 696 ; Progressive taxation, 699 ; Direct and indirect taxes, 702 ; The shifting of taxes, 703.

Chapter XXXIV. — Public Receipts: Federal, State, and Local Taxes

Constitutional limitations, 710 ; Use of direct taxes by the federal government, 712; Customs duties, 713; Internal revenue duties, 717; Taxes on transactions, 719; Income taxes, 720; Inheritance taxes, 723; General property tax, 726; Corporation taxes, 731; Business and license taxes, 733; Poll taxes, 734; A balanced revenue system, 735.

Appendix A: History of Economic Thought 741

Appendix B : Suggestions for Students and Teachers . . . 754 Index 761

Chapter I

The most striking characteristics of the great field of knowledge the Outlines of which we attempt to sketch in the present volume are its rich diversity and spacious amplitude. Starting from psychology in its analysis of the human needs which explain or condition wealth, it traverses the entire field of social activities and institutions arising from man's efforts to supply his material needs. It touches on one side the physical sciences, from which it borrows some of its most fundamental principles ; occupies joint territory at places with politics, ethics, and law, although their respective jurisdictions are in the main distinct ; and forms at once the most fertile and most thoroughly developed province of the broad science of human society. Within its borders, if we may continue to compare the scientific possibilities of economics with the natural resources of an opulent territory, opportunity is offered for the exercise of every mental aptitude and every scientific method. The historian's gift is needed to unravel the past and trace the development of the industrial institutions whose present-day problems, in turn, offer indefinite scope for the studies of the more practical student with a taste for administration or business management. For the legal mind there are the subtle problems of property, inheritance, labor legislation, and corporation control ; for the mathematically inclined, insurance and modern statistics ; for students with practical political interests, the tariff, currency reform, and a score of important problems in which economics and politics are inextricably interwoven; for the philanthropic, unemployment, accident insurance, and a number of social problems growing out of the maladjustments of modern industry. Animating the entire subject, blended with the love of truth for truth's sake common to all sciences, is the persistent hope that by systematic study we may eventually abolish the material poverty which deadens and dwarfs the lives of millions of our fellows. Economics is a science, but something more than a science ; a science shot through with the infinite variety of human life, calling not only for systematic, ordered thinking, but for human sympathy, imagination, and in an unusual degree for the saving grace of common sense.

To define such a subject adequately in a few sentences is manifestly impossible. It is frequently said that economics treats of man's efforts to earn a living, and this definition is not inaccurate if by " man " we understand " mankind," and if we fully appreciate that the individual's efforts to turn an honest penny's profit receive but little attention in comparison with the community's efforts to feed, clothe, and shelter itself. Satisfaction of social need, and not individual profit, is the objective point of the science. So, similarly, economics has been characterized as the philosophy of human industry; and this description is illuminating provided we interpret " industry " broadly enough. Even the old traditional definition, that economics is the science of wealth, is true enough if we clearly understand that there can be no wealth without man, and that the science which deals with wealth, so far from being a " gospel of mammon," necessarily begins and ends in the study of man. As we prefer to define it, however, economics is the science which treats of those social phenomena that are due to the wealth-getting and wealth-using activities of man.

Economics treats of Man. — The supreme importance of man in the study of wealth has not always been appreciated by those who have expounded the science. Too often they have considered man simply as a producer of wealth, the one " by whom " the necessaries, conveniences, and luxuries of life are created, whereas the infinitely greater truth is that man is the one " for whom " they are all produced. Of course no one denies this truth, but one might almost as well deny it as to leave it out of account. The result of such neglect is that men devise with great skill rules by which man may be made the best possible manufacturing machine. It sometimes quite escapes the notice of these persons that in making man the best possible manufacturing machine they may make him a very poor sort of a man ; that in teaching him to supply his wants very bountifully they may prevent his developing and correcting those same wants. They forget that there are two kinds of poverty — one a lack of goods for the higher wants, the other a lack of wants for the higher goods. To become rich in goods while losing at the same time the power to profit by them is unfortunately one of the commonest retrogressions in human experience. We do not mean that the whole problem of human development is the subject of economics, but simply that manhood, rounded human development, and the equitable organization of human relationships are the objects of all social sciences, and none must consider its subject so narrowly as to exclude these objects.

Another common mistake has been to regard as of chief importance the economic activities of one particular class, especially the employer. Other men were treated simply as " a factor in production." An English writer speaks of dear labor as one of the chief obstacles to England's economic prosperity. Could anything be more utterly an oversight of general human well-being? Dear labor should be the very goal of England's economic effort, for that means abundant supply of the wants of the great mass of her people ; and the fact that labor is dear, so far from being an obstacle to prosperity, is the very proof and substance of that prosperity. A glance at history indicates that men have made these mistakes not only in theory but in practice. Industries have been developed to majestic proportions while man was sinking into deeper degradation ; wealth has at times grown at the expense of that human weal in whose service it won its name.

Economics treats of Man in Society. — This is one of those truisms which only history can make real to us. As we pass from the savage and cannibal, up through all the stages of development, we find an ever-increasing interdependence among men. Man is least dependent when he wants least, cares least, has least, knows least, and is least. With every betterment of condition and character he is more dependent than before, more dependent and yet more free. The beginnings of barter are a confession of mutual need ; the coining of money is a declaration of dependence to all men. We look with pride upon a century of progress, but that progress has consisted in little else than a growth of dependence, an ever-increasing departure from that rude kind of literal self-help in which each one does everything for himself. Our fathers drew water, each for himself, in " the moss-covered bucket," while our mothers* dipped candles for the evening's light. If one was negligent, the rest did not suffer. Today a network of pipes radiates from a common center to enter a thousand households. An engineer makes a blunder at the station, and thousands are in darkness or drought. Progress is a passage from independence to dependence, from distrust to confidence, from hostility to amity, from helplessness to helpfulness, while the great law of social solidarity gains ever-increasing importance. Our science, then, is interested primarily in man in his relations to others, and not in man by himself. Moreover, as a science which studies the present in order that it may predict and prepare for the future, and discovering that interdependence is the law of progress, it must not hesitate to shape its principles with reference to a solidarity which shall grow more rather than less, stronger rather than weaker.

Economics treats of Man as in Process of Development. — Few truths are more easily admitted or more persistently ignored than that of change in human life and condition. History makes it real. Man now wanders about by force of necessity and age-long habit, now starves rather than be moved from his home. Land is now free to all, now parceled out with well-nigh absolute right of individual possession. The seemingly eternal features of the social structure are gone in a few generations. Nothing so invalidates theories, laws, general principles, institutions, and enterprises as this great law of change of which we seldom take full account. Take, for instance, bequests. Nothing is commoner than for a man to leave a legacy under specified and detailed regulations, binding for all time. One leaves money to endow a religious service in a language which in a few generations no one understands ; another founds a college to teach certain doctrines which in a century no one believes ; and so on indefinitely. These and a thousand other laborious efforts of statesman, warrior, or philosopher quite lose their worth for the future because their authors assumed that the future would be like their present. Even the wages system and the division between capital and labor which seem rooted in the constitution of society are scarcely two centuries old as a general system. One must never forget in the study of economics that the phenomena with which it deals are pervaded by the spirit of life, moving forward or backward, progressing or decaying, under those influences which control the rise and fall of social institutions. The science is biological rather than mechanical.

The Laws with which Economics Deals. — The evolutionary character and complexity of economic phenomena, which account for much of the charm of the subject, endow it also with unusual difficulties. Conclusions true for one generation are invalid in the next. Terms and definitions appropriate to one stage of industry are misleading in a succeeding stage. Generalizations valid for one nation and government are inapplicable to another. Even those laws or uniformities which the science prizes as the finest product of its research are but statements of probabilities — declarations of what is most likely to occur for the mass of men in the long run under certain specified circumstances.

In no department of knowledge, consequently, is there greater need of temperate statement and of that humility of mind which is the surest safeguard against bigotry and dogmatism. No system of economics is applicable unchanged to all times and all places : the premises of the arguments change; the ingredients of nearly every problem present themselves in different proportions ; and the conditions of almost every question vary from country to country and from generation to generation. The student must not expect rules of thumb by which he can decide offhand the economic problems of the particular city or country district in which he is for the moment interested. No general treatise on economics can authoritatively decide the practical problems of particular times and places; although the economist, before all other students, is forced to deal with practical problems. What such a treatise can do is to point out mistakes of logic common in the current discussions of economic questions, call attention to obscure factors — sometimes of great importance — which the practical man is likely to overlook, give solutions of typical problems which are likely to arise, and thus afford a training which will assist the student in solving practical problems for himself.

The peculiar and distinctive office of the economic scientist, however, is to emphasize the less tangible truths, the remoter consequences, the deeper and consequently less obvious forces of economic society. The impulses of the moment, the immediate demands of the hour, the present "fact" that stares us in the face (and sometimes blinds us), are not likely to lack vigorous champions; and to preserve the balance there is need of a craft of thinkers far enough removed from the battle to preserve the wider outlook, mindful of the lessons of the past, jealous for the rights of the future, insistent upon the less obvious truths. This is why economics so frequently appears to the practical man strained and academic. This impression arises from a difference of emphasis which in the main is as salutary as it is inevitable. The academic quality of the economist's work arises sometimes from ignorance, sometimes from pedantry, but more frequently from his courageous insistence upon the importance of the less tangible truths and the distant consequences of present action.

Is not economics, then, a science based upon natural law? The question is largely a verbal one. What do we mean bynatural law? In the narrowest sense natural laws are the habits of nature which are subject to absolutely no variation. Such are gravitation and chemical affinity; and the sciences based upon such laws — astronomy, physics, and chemistry — were the first to develop, and have attained a maximum degree of exactitude. The term " science " is sometimes used in a way to imply only sciences of this character. These sciences are more properly known as exact sciences, and they are characterized by the fact that the relations with which they deal can usually be expressed quantitatively.

When we come in contact with life, however, and especially with its higher forms, the exactness with which an astronomer predicts an eclipse or a chemist anticipates a reaction becomes impossible. Not that life is without laws ; very far from it. There is, in the first place, the basis of physical nature, with its perfect regularity, upon which all life rests and to which it must conform. Then, too, there are laws governing life directly and pertaining to it. These form the subject of the group of sciences known as biology. We must remember, however, that all we can say of natural laws is that they are habits, apparent regularities or uniformities in the succession of events ; not, so far as we know, compulsory necessities of nature. And the laws of life seem to differ from those of inanimate nature in that they are not quite invariable habits. Variability seems to be inherent in life, increasing as life rises in the scale of development. It is often assumed, to be sure, that these laws are as invariable as any other, and that this seeming variability is only a greater complexity which we do not yet understand. However that may be, the result is the same for the present. The sciences of life are not exact in the sense we have defined. We must further note that in so far as a science deals with facts which seem to be governed by no invariable law, or whose law has not been discovered, it must content itself with a description of this part of its subject. Thus we have the term " descriptive science." We might better speak of the descriptive part of a science, for all sciences are able in part to reduce their facts to law.

What has been said of the sciences dealing with life applies to an even greater extent to those sciences which deal with man. It is true that within certain limits man is governed by absolutely invariable laws. He is as much bound by gravitation as anything else, and if he falls over a precipice, we can predict the results as certainly as though a stone fell over. But, without entering the bog of discussion as to the nature of human freedom, we may safely assume, for practical purposes, that man is also, within certain limits, a law unto himself. Nowhere do we find an element of variability so great and so seemingly ultimate as here. We must remember, therefore, that the sciences which deal with man deal with a being who is modified

IO OUTLINES OF ECONOMICS

by his environment, but who has the power of modifying that environment by his own conscious effort.

Let us consider very carefully what this means. It does not mean simply that man modifies his environment because he has been modified by it and so reacts upon it, just as things do when they come in contact. If we accept this view, we shall come to Herbert Spencer's theory of natural selection. The forces at work accomplish their own results, according to this theory, whether man will or will not, simply by natural action and reaction. This implies that man is modified by his environment, and that he in turn modifies that environment without conscious effort. This theory is based on an assumption that man has no power of initiating an influence, and consistently concludes that social development, like geological development, must be left to work itself out. Spencer, however, goes farther, and stoutly maintains that man, by conscious effort, especially by collective or state effort, not only does not help this development, but actually hinders it. In this the whole theory is abandoned,, for it is plain that if man by conscious effort can hinder a process, he can help that process in the same way, if he only has enough wisdom and sense. These it is the purpose of science to give him.