ECONOMICS

is the name applied, in substitution for the older one of political economy, to the scientific study of men in relation to the production, exchange, distribution, and consumption of wealth. The origin of both names lies in the analogy between provision for the needs of a household and for those of a State. To the former the term ‘economy’ was originally applied, as in Xenophon’s treatise on the subject. But it was soon adopted to describe that branch of the art of government which deait with public revenue and expenditure, and a matter intimately connected therewith, the enrichment of the community as a whole. This conception of economics inspired all economic writings until late in the eighteenth century, a typical example being Thomas Mun’s ’s Treasure by Foreign Trade (1664), containing an exposition of the mercantile system which sought to increase natural wealth by regulation of the balance of trade. ‘The treatment of economics as a science had its origin in the writings of the Physiocrats, a group of French philosophers of whom Quesnay (1694— 1774) was the most prominent, and 50 ECONOMICS with whom Turgot (1727-81), the great minister of Louis XVI, held many doctrines in common. The Physiecrats argued that the wealth of the community was raised to the maximum, not by State regulation, but by entire freedom in the economic sphere. But the chief importance of the Physiocrats lay in their paving the way for Adam Smith (1723-90), who in 1776 published Zhe Wealth of Nations, a book which has exercised profound and widespread influence on thought and action, and is still a leading authority on the subject. Adam Smith definitely retained the conception of economics as part of the art of government. “Political economy,” he says, “proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people...and secondly, supply the State or Commonweal with a revenue sufficient for the public service. It proposes to enrich both the people and the sovereign.’’ But the book is also largely occupied with an investigation of the production, distribution, and exchange of wealth when free from all regulation and restriction, together with a powerful indictment of such regulation. This doctrine of non-interference by the State came to be known as the lai er-faire doctrine, from a phrase used by Gournay, one of the Physio. crats. Mainly through Adam Smith’s influence, it became the orthodox view of the State’s relation to trade and industry. This meant that the aims of economics, in its older sense, were best achieved without State action at all; and, consequently, economics came to mean simply the study of what are in fact men’s activities in relation to wealth. This conception is clearly expre ed in such writers as Ricardo (1772-1823), whose Principles of Political Economy and Taxation enunciates the theory of rent which has formed the basis of all subsequent reasoning on the subject, and states a theory of wages which gave colour to Karl Marx’s doctrine of the exploitation of wage earners by capitalists. It is also evident in the work of Na au Senior (1790-1864), in the important Principles of Political Economy of John Stuart Mill (1806-73), and is most fully expre ed by J. E. Cairnes (1823-75). This conception has formed the basis of all modern economics, despite important differences in the method of treating material. The modern view of the matter is well stated by Dr. Alfred Marshall in his Principles of Economics, & most important contribution to the subject, which has exercised much influence. Economics he defines as “‘a study of mankind in the ordinary busine of life; it examines that part of individual and social action which is most closel connected with the attainment an with the rise of material requisites of well-being.”’ The separation between economics and the investigation of social phenomena in general is not so rigidly maintained to-day as in the past. It is realized that men’s activities in relation to wealth are affected by other than purely economic considerations, and that political, moral, religious, and thetic forces must be taken into account. At the same time, the science deals only with what is, and not with what ought to done; and is therefore distinct from Ethics, which is concerned with moral judgments. Of late years, interest in the application of ethical considerations to economic problems has increased considerably, using the conclusions of economic science as its material, mainly in connection with problems of distribution, especially wages. One of the most important of modern political movements, Socialism, makes a@ just distribution of wealth the keynote of its doctrines. In so far as man’s conduct is studied in economics, the science is concerned with psychological considerations; but it is distinet from psychology, taking the principles thereof as data rather than establishing them as conclusions. The traditional arrangement of the subject matter of economics into thy production, exchange, and distribution of wealth is still maintained;but in recent years consumption, the end of almost all man’s productive activity, has received much reper notably from W. S. Jevons (1835-82) and Marshall. Important concepti ans in this connection are those of t diminishing utility to an individual or group of individuals of each succe ive increment of any commodi received beyond a certain point; an of consumer’s surplus, measured by the difference between the price a person pays for a thing and what he would pay rather than go without it. Any rigid distinction between the different branches of economics is, however, impo ible. For example, all proce es of exchange may be considered as part either of distribntion or of production. The central problem of economics is really that of how the exchange value of commodities and services is determined; since in this determination all the forces regulating production, distribution, and consumption are brought to a focus, and their action and interaction can be investigated. 51 ECONOMICS The study of value covers that of all forees affecting either the demand for or the supply of a commodity, in eluding its cost of production. On the side of production, technical proce es are not studied in detail, though some knowledge of them is indispensable; but matters common to all production are dealt with, such as the so-called laws of increasing and diminishing return, which are statements of the relation between the amounts of labour, land, and capital used in production, and the amount of product. Other questions considered are transport, markets of all kinds, banking, currency, finance, and trusts and combinations. The study of distribution includes the methods by which wages, interest and profits, and rent are determined; and since each of these is payment for a service (of labour, capital, and land respectively) it is really an aspect of the study of value. Distribution also covers such subjects as trade unionism, co-operation, and labour disputes. Economics also deals with public finance (including taxation), treating of the effects of different methods of collecting and expending the State revenue. In considering the above-mentioned subjects, the method of economics is strictly that of a science, in that it aims partly at a descriptive analysis of material, and partly at a statement of cause and effect. The laws of economics are, other scientific laws, statements of tendencies. They are not laws such as the commands or prohibitions of the State, though they are often loosely referred to in this way. That economics should be able to generalize and to predict about the action of men is due to its dealing not with individuals, but with large groups, so that individual peculiarities can be neglected and the general characteristics of the group ascertained. It is in this connection that considerable controversy has arisen. The older writers on economics were mainly deductive in method, i.e. they took a few general principles, such as that every man follows his own interest and knows where that interest lies, and made certain a umptions, such as the existence of free competition; and on this basis worked out a group of principles which were sometimes quite unrelated to actual facts. This method is undoubtedly a most powerful one, and of great value provided that the original a umptions are kept clearly in mind, and variations from them in a particular case allowed for in applying conclusions. But the unreality of some of its results produced a reaction, of which an early instance is the famous like E ay on the Principle of Population by T. R. Malthus, published in 1798. This book inaugurated the rise of a school of economists who treated their subject from an_ inductive and historical point of view. The historians, who have been especially prominent in Germany, and of whom representatives are Roscher (1817-— 94), de Laveleye (1822-92), and Cliffe Leslie (1825-82), hold that economics should in the main be descriptive, and not attempt to formulate laws. The inductive school, of whom J. S. Mill is an important member, base their work upon more extensive investigation than the older writers, and constantly test their conclusions by reference to facts. Another important reaction against the early economists arose from the identification of the latter with the doctrine of lai er-faire. Alexander Hamilton (1757-1804) and Fried rich List (17891846) argued in favour of an extension of State activity, especially for the purpose of protecting industry against foreign competition, and may be considered the fathers of modern protectionist doctrine. In most modern treatment of economics, the deductive and inductive methods are employed side by side. The study of economic history has developed as a separate branch, but economists recognize that it provides them with much valuable material. Important recent developments in method are the increased use of stat is ties, made po ible by their more widespread and careful compilation, and the application of mathematical methods to economic data. It is recognized that, with due care, many conceptions which are with difficulty expre ed in words can be treated on mathematical lines to yield results of great service. In this work the researches of Italian writers, such as Pantaleon i and Pareto, are of conspicuous importance.— BIsLioGRAPHY: A. C. Pigou, Wealth and Welfare; Preferential and Protective Import Duties; E. Cannan, Wealth; J. N. Keynes, Scope and Method of Political Economy; G. Ca el, Nature and Nece ity of Interest; W. Smart, Distribution of Income; C. R. Fay, Co-operation; A. Andrea des, History of the Bank of England; H. Levy, Monopoly and Competition; C. F. Bastable, Public Finance.