FOOTNOTES:

Apart from this theoretical bearing, the measures which Mr. Clark advocates for the repression of monopoly, under the head of applications "to modern problems of industry and public policy," may be good economic policy or they may not,—they are the expression of a sound common sense, an unvitiated solicitude for the welfare of mankind, and a wide information as to the facts of the situation. The merits of this policy of repression, as such, cannot be discussed here. On the other hand, the relation of this policy to the theoretical groundwork of the treatise needs also not be discussed here, inasmuch as it has substantially no relation to the theory. In this later portion of the volume Mr. Clark does not lean on doctrines of "final utility," "final productivity," or, indeed, on hedonistic economics at large. He speaks eloquently for the material and cultural interests of the community, and the references to his law of "natural distribution" might be cut bodily out of the discussion without lessening the cogency of his appeal or exposing any weakness in his position. Indeed, it is by no means certain that such an excision would not strengthen his appeal to men's sense of justice by eliminating irrelevant matter.

Certain points in this later portion of the volume, however, where the argument is at variance with specific articles of theory professed by Mr. Clark, may be taken up, mainly to elucidate the weakness of his theoretical position at the points in question. He recognises with more than the current degree of freedom that the growth and practicability of monopolies under modern conditions is chiefly due to the negotiability of securities representing capital, coupled with the joint-stock character of modern business concerns.[32]These features of the modern(capitalistic) business situation enable a sufficiently few men to control a section of the community sufficiently large to make an effective monopoly. The most effective known form of organisation for purposes of monopoly, according to Mr. Clark, is that of the holding company, and the ordinary corporation follows it closely in effectiveness in this respect. The monopolistic control is effected by means of the vendible securities covering the capital engaged. To meet the specifications of Mr. Clark's theory of capital, these vendible securities—ase.g., the securities (common stock) of a holding company—should be simply the formal evidence of the ownership of certain productive goods and the like. Yet, by his own showing, the ownership of a share of productive goods proportionate to the face value, or the market value, of the securities is by no means the chief consequence of such an issue of securities.[33]One of the consequences, and for the purposes of Mr. Clark's argument the gravest consequence, of the employment of such securities, is the dissociation of ownership from the control of the industrial equipment, whereby the owners of certain securities, which stand in certain immaterial, technical relations to certain other securities, are enabled arbitrarily to control the use of the industrial equipment covered by the latter. These are facts of the modern organisation of capital, affecting the productivity of the industrial equipment and its serviceability both to its owners and to the community. They are facts, though not physically tangible objects; and they have an effect on the serviceability of industry no less decisive than the effect which any group of physically tangible objects of equal market value have. They are, moreover, facts which are bought and sold in the purchase and sale of these securities, as,e.g., the common stock of a holding company. They have a value, and therefore they have a "total effective utility."

In short, these facts are intangible assets, which are the most consequential element in modern capital, but which have no existence in the theory of capital by which Mr. Clark aims to deal with "modern problems of industry." Yet, when he comes to deal with these problems, it is, of necessity, these intangible assets that immediately engage his attention. These intangible assets are an outgrowth of the freedom of contract under the conditions imposed by the machine industry; yet Mr. Clark proposes to suppress this category of intangible assets without prejudice to freedom of contract or to the machine industry, apparently without having taken thought of the lesson which he rehearses (pp. 390-391) from the introduction of the holding company, with its "sinister perfection," to take the place of the (less efficient) "trust" when the latter was dealt with somewhat as it is now proposed to deal with the holding company. One is tempted to remark that a more naïve apprehension of the facts of modern capital would have afforded a more competent realisation of the problems of monopoly.

It appears from what has just been said of Mr. Clark's "natural" distribution and of his dealing with the problems of modern industry that the logic of hedonism is of no avail for the theory of business affairs. Yet it is held, perhaps justly, that the hedonistic interpretation may be of great avail in analysing the industrial functions of the community, in their broad, generic character, even if it should not serve so well for the intricate details of the modern business situation. It may be at least a serviceable hypothesis for the outlines of economic theory, for the first approximations to the "economic laws" soughtby taxonomists. To be serviceable for this purpose, the hypothesis need perhaps not be true to fact, at least not in the final details of the community's life or without material qualification;[34]but it must at least have that ghost of actuality that is implied in consistency with its own corollaries and ramifications.

As has been suggested in an earlier paragraph, it is characteristic of hedonistic economics that the large and central element in its theoretical structure is the doctrine of distribution. Consumption being taken for granted as a quantitive matter simply,—essentially a matter of an insatiable appetite,—economics becomes a theory of acquisition; production is, theoretically, a process of acquisition, and distribution a process of distributive acquisition. The theory of production is drawn in terms of the gains to be acquired by production; and under competitive conditions this means necessarily the acquisition of a distributive share of what is available. The rest of what the facts of productive industry include, as,e.g., the facts of workmanship or the "state of the industrial arts," gets but a scant and perfunctory attention. Those matters are not of the theoretical essence of the scheme. Mr. Clark's general theory of production does not differ substantially from that commonly professed by the marginal-utility school. It is a theory of competitive acquisition. An inquiry into the principles of his doctrine, therefore, as they appear,e.g., in the early chapters of theEssentials, is, in effect, an inquiry into the competence of the main theorems of modern hedonistic economics.

"All men seek to get as much net service from material wealth as they can." "Some of the benefit received is neutralised by the sacrifice incurred; but there is a net surplus of gains not thus canceled by sacrifices, and thegeneric motive which may properly be called economic is the desire to make this surplus large."[35]It is of the essence of the scheme that the acquisitive activities of mankind afford a net balance of pleasure. It is out of this net balance, presumably, that "the consumer's surpluses" arise, or it is in this that they merge. This optimistic conviction is a matter of presumption, of course; but it is universally held to be true by hedonistic economists, particularly by those who cultivate the doctrines of marginal utility. It is not questioned and not proven. It seems to be a surviving remnant of the eighteenth-century faith in a benevolent Order of Nature; that is to say, it is a rationalistic metaphysical postulate. It may be true or not, as matter of fact; but it is a postulate of the school, and its optimistic bias runs like a red thread through all the web of argument that envelops the "normal" competitive system. A surplus of gain is normal to the theoretical scheme.

The next great theorem of this theory of acquisition is at cross-purposes with this one. Men get useful goods only at the cost of producing them, and production is irksome, painful, as has been recounted above. They go on producing utilities until, at the margin, the last increment of utility in the product is balanced by the concomitant increment of disutility in the way of irksome productive effort,—labor or abstinence. At the margin, pleasure-gain is balanced by pain-cost. But the "effective utility" of the total product is measured by that of the final unit; the effective utility of the whole is given by the number of units of product multiplied by the effective utility of the final unit; while the effective disutility (pain-cost) of the whole is similarly measured by the pain-cost of the final unit. The "total effectiveutility" of the producer's product equals the "total effective disutility" of his pains of acquisition. Hence there is no net surplus of utility in the outcome.

The corrective objection is ready to hand,[36]that, while the balance of utility and disutility holds at the margin, it does not hold for the earlier units of the product, these earlier units having a larger utility and a lower cost, and so leaving a large net surplus of utility, which gradually declines as the margin is approached. But this attempted correction evades the hedonistic test. It shifts the ground from the calculus to the objects which provoke the calculation. Utility is a psychological matter, a matter of pleasurable appreciation, just as disutility, conversely, is a matter of painful appreciation. The individual who is held to count the costs and the gain in this hedonistic calculus is, by supposition, a highly reasonable person. He counts the cost to him as an individual against the gain to him as an individual. He looks before and after, and sizes the whole thing up in a reasonable course of conduct. The "absolute utility" would exceed the "effective utility" only on the supposition that the "producer" is an unreflecting sensory apparatus, such as the beasts of the field are supposed to be, devoid of that gift of appraisement and calculation which is the hypothetical hedonist's only human trait. There might on such a supposition—if the producer were an intelligent sensitive organism simply—emerge an excess of total pleasure over total pain, but there could then be no talk of utility or of disutility, since these terms imply intelligent reflection, and they are employed because they do so. The hedonistic producer looks to his own cost and gain, as an intelligent pleasure-seeker whose consciousness compasses the contrasted elements as wholes. He does not contrastthe balance of pain and pleasure in the morning with the balance of pain and pleasure in the afternoon, and say that there is so much to the good because he was not so tired in the morning. Indeed, by hypothesis, the pleasure to be derived from the consumption of the product is a future, or expected, pleasure, and can be said to be present, at the point of time at which a given unit of pain-cost is incurred, only in anticipation; and it cannot be said that the anticipated pleasure attaching to a unit of product which emerges from the effort of the producer during the relatively painless first hour's work exceeds the anticipated pleasure attaching to a similar unit emerging from the second hour's work. Mr. Clark has, in effect, explained this matter in substantially the same way in another connection (e.g., p. 42), where he shows that the magnitude on which the question of utility and cost hinges is the "total effective utility," and that the "total absolute utility" is a matter not of what hedonistically is, in respect of utility as an outcome of production, but of what might have been under different circumstances.

An equally unprofitable result may be reached from the same point of departure along a different line of argument. Granting that increments of product should be measured, in respect of utility, by comparison with the disutility of the concomitant increment of cost, then the diagrammatic arguments commonly employed are inadequate, in that the diagrams are necessarily drawn in two dimensions only,—length and breadth: whereas they should be drawn in three dimensions, so as to take account of the intensity of application as well as of its duration.[37]Apparently, the exigencies of graphic representation, fortified by the presumption that there always emerges a surplus of utility, have led marginal-utility theorists, in effect, to overlook this matter of intensity of application.

When this element is brought in with the same freedom as the other two dimensions engaged, the argument will, in hedonistic consistency, run somewhat as follows,—the run of the facts being what it may. The producer, setting out on this irksome business, and beginning with the production of the exorbitantly useful initial unit of product, will, by hedonistic necessity, apply himself to the task with a correspondingly extravagant intensity, the irksomeness (disutility) of which necessarily rises to such a pitch as to leave no excess of utility in this initial unit of product above the concomitant disutility of the initial unit of productive effort.[38]As the utility of subsequent units of product progressively declines, so will the producer's intensity of irksome application concomitantly decline, maintaining a nice balance between utility and disutility throughout. There is, therefore, no excess of "absolute utility" above "effective utility" at any point on the curve, and no excess of "total absolute utility" above "total effective utility" of the product as a whole, nor above the "total absolute disutility" or the "total effective disutility" of the pain-cost.

A transient evasion of this outcome may perhaps be sought by saying that the producer will act wisely, as agood hedonist should, and save his energies during the earlier moments of the productive period in order to get the best aggregate result from his day's labor, instead of spending himself in ill-advised excesses at the outset. Such seems to be the fact of the matter, so far as the facts wear a hedonistic complexion; but this correction simply throws the argument back on the previous position and concedes the force of what was there claimed. It amounts to saying that, instead of appreciating each successive unit of product in isolated contrast with its concomitant unit of irksome productive effort, the producer, being human, wisely looks forward to his total product and rates it by contrast with his total pain-cost. Whereupon, as before, no net surplus of utility emerges, under the rule which says that irksome production of utilities goes on until utility and disutility balance.

But this revision of "final productivity" has further consequences for the optimistic doctrines of hedonism. Evidently, by a somewhat similar line of argument the "consumer's surplus" will be made to disappear, even as this that may be called the "producer's surplus" has disappeared. Production being acquisition, and the consumer's cost being cost of acquisition, the argument above should apply to the consumer's case without abatement. On considering this matter in terms of the hedonistically responsive individual concerned, with a view to determining whether there is, in his calculus of utilities and costs, any margin of uncovered utilities left over after he has incurred all the disutilities that are worth while to him,—instead of proceeding on a comparison between the pleasure-giving capacity of a given article and the market price of the article, all such alleged differential advantages within the scope of a single sensoryare seen to be nothing better than an illusory diffractive effect due to a faulty instrument.

But the trouble does not end here. The equality: pain-cost = pleasure-gain, is not a competent formula. It should be: pain-cost incurred = pleasure-gain anticipated. And between these two formulas lies the old adage, "there's many a slip 'twixt the cup and the lip." In an appreciable proportion of ventures, endeavors, and enterprises, men's expectations of pleasure-gain are in some degree disappointed,—through miscalculation, through disserviceable secondary effects of their productive efforts, by "the act of God," by "fire, flood, and pestilence." In the nature of things these discrepancies fall out on the side of loss more frequently than on that of gain. After all allowance has been made for what may be called serviceable errors, there remains a margin of disserviceable error, so that pain-cost > eventual pleasure-gain = anticipated pleasure-gain—n.Hence, in general, pain-cost > pleasure-gain. Hence it appears that, in the nature of things, men's pains of production are underpaid by that much; although it may, of course, be held that the nature of things at this point is not "natural" or "normal."

To this it may be objected that the risk is discounted. Insurance is a practical discounting of risk; but insurance is resorted to only to cover risk that is appreciated by the person exposed to it, and it is such risks as are not appreciated by those who incur them that are chiefly in question here. And it may be added that insurance has hitherto not availed to equalise and distribute the chances of success and failure. Business gains—entrepreneur's gains, the rewards of initiative and enterprise—come out of this uncovered margin of adventure, and the lossesof initiative and enterprise are to be set down to the same account. In some measure this element of initiative and enterprise enters into all economic endeavor. And it is not unusual for economists to remark that the volume of unsuccessful or only partly successful enterprise is very large. There are some lines of enterprise that are, as one might say, extra hazardous, in which the average falls out habitually on the wrong side of the account. Typical of this class is the production of the precious metals, particularly as conducted under that régime of free competition for which Mr. Clark speaks. It has been the opinion, quite advisedly, of such economists of the classic age of competition as J. S. Mill and Cairnes,e.g., that the world's supply of the precious metals has been got at an average or total cost exceeding their value by several fold. The producers, under free competition at least, are over-sanguine of results.

But, in strict consistency, the hedonistic theory of human conduct does not allow men to be guided in their calculation of cost and gain, when they have to do with the precious metals, by different norms from those which rule their conduct in the general quest of gain. The visible difference in this respect between the production of the precious metals and production generally should be due to the larger proportions and greater notoriety of the risks in this field rather than to a difference in the manner of response to the stimulus of expected gain. The canons of hedonistic calculus permit none but a quantitative difference in the response. What happens in the production of the precious metals is typical of what happens in a measure and more obscurely throughout the field of productive effort.

Instead of a surplus of utility of product above the disutility of acquisition, therefore, there emerges anaverage or aggregate net hedonistic deficit. On a consistent marginal-utility theory, all production is a losing game. The fact that Nature keeps the bank, it appears, does not take the hedonistic game of production out of the general category known of old to that class of sanguine hedonistic calculators whose day-dreams are filled with safe and sane schemes for breaking the bank. "Hope springs eternal in the human breast." Men are congenitally over-sanguine, it appears; and the production of utilities is, mathematically speaking, a function of the pig-headed optimism of mankind. It turns out that the laws of (human) nature malevolently grind out vexation for men instead of benevolently furthering the greatest happiness of the greatest number. The sooner the whole traffic ceases, the better,—the smaller will be the net balance of pain. The great hedonistic Law of Nature turns out to be simply the curse of Adam, backed by the even more sinister curse of Eve.

The remark was made in an earlier paragraph that Mr. Clark's theories have substantially no relation to his practical proposals. This broad declaration requires an equally broad qualification. While the positions reached in his theoretical development count for nothing in making or fortifying the positions taken on "problems of modern industry and public policy," the two phases of the discussion—the theoretical and the pragmatic—are the outgrowth of the same range of preconceptions and run back to the same metaphysical ground. The present canvass of items in the doctrinal system has already far overpassed reasonable limits, and it is out of the question here to pursue the exfoliation of ideas through Mr. Clark's discussion of public questions, even in the fragmentary fashion in which scattered items of thetheoretical portion of his treatise have been passed in review. But a broad and rudely drawn characterisation may yet be permissible. This latter portion of the volume has the general complexion of a Bill of Rights. This is said, of course, with no intention of imputing a fault. It implies that the scope and method of the discussion is governed by the preconception that there is one right and beautiful definitive scheme of economic life, "to which the whole creation tends." Whenever and in so far as current phenomena depart or diverge from this definitive "natural" scheme or from the straight and narrow path that leads to its consummation, there is a grievance to be remedied by putting the wheels back into the rut. The future, such as it ought to be,—the only normally possible, natural future scheme of life,—is known by the light of this preconception; and men have an indefeasible right to the installation and maintenance of those specific economic relations, expedients, institutions, which this "natural" scheme comprises, and to no others. The consummation is presumed to dominate the course of things which is presumed to lead up to the consummation. The measures of redress whereby the economic Order of Nature is to renew its youth are simple, direct, and short-sighted, as becomes the proposals of pre-Darwinian hedonism, which is not troubled about the exuberant uncertainties of cumulative change. No doubt presents itself but that the community's code of right and equity in economic matters will remain unchanged under changing conditions of economic life.

FOOTNOTES:[1]Reprinted by permission fromThe Quarterly Journal of Economics, Vol. XXII, Feb., 1908.[2]The Essentials of Economic Theory, as Applied to Modern Problems of Industry and Public Policy.By John Bates Clark. New York: The Macmillan Company. 1907.[3]Cf., e.g.The Distribution of Wealth, p. 376, note.[4]See,e.g., J. S. Mill,Political Economy, Book I; Marshall,Principles of Economics, Vol. I, Books II-V.[5]Cf., e.g., such an account as Barrows,Ethno-botany of the Coahuilla Indians.[6]What would be the scientific rating of the work of a botanist who should spend his energy in devising ways and means to neutralize the ecological variability of plants, or of a physiologist who conceived it the end of his scientific endeavors to rehabilitate the vermiform appendix or the pineal eye, or to denounce and penalize the imitative coloring of the Viceroy butterfly? What scientific interest would attach to the matter if Mr. Loeb,e.g., should devote a few score pages to canvassing the moral responsibilities incurred by him in his parental relation to his parthenogenetically developed sea-urchin eggs?Those phenomena which Mr. Clark characterizes as "positive perversions" may be distasteful and troublesome, perhaps, but "the economic necessity of doing what is legally difficult" is not of the "essentials of theory."[7]It is a notable fact that even the genius of Herbert Spencer could extract nothing but taxonomy from his hedonistic postulates;e.g.,his Social Statics. Spencer is both evolutionist and hedonist, but it is only by recourse to other factors, alien to the rational hedonistic scheme, such as habit, delusions, use and disuse, sporadic variation, environmental forces, that he is able to achieve anything in the way of genetic science, since it is only by this recourse that he is enabled to enter the field of cumulative change within which the modern post-Darwinian sciences live and move and have their being.[8]"The capital-goods have to be taken unit by unit if their value for productive purposes is to be rightly gauged. A part of a supply of potatoes is traceable to the hoes that dig them.... We endeavor simply to ascertain how badly the loss of one hoe would affect us or how much good the restoration of it would do us. This truth, like the foregoing ones, has a universal application in economics; for primitive men as well as civilized ones must estimate the specific productivity of the tools that they use," etc. Page 43.[9]Cf.a criticism of Mr. Fisher's conception in thePolitical Science Quarterlyfor February, 1908.[10]"The machine itself is often a hopeless specialist. It can do one minute thing and that only, and when a new and better device appears for doing that one thing, the machine has to go, and not to some new employment, but to the junk heap. There is thus taking place a considerable waste of capital in consequence of mechanical and other progress." "Indeed, a quick throwing away of instruments which have barely begun to do their work is often the secret of the success of an enterprising manager, but it entails a destruction of capital."[11]The position of the laborer and his wages, in this light, would not be substantially different from that of the capitalist and his interest. Labor is no more possible, as a fact of industry, without the community's accumulated technological knowledge than is the use of "productive goods."[12]Cf. Distribution of Wealth, chaps, xii, xiii, vii, viii;Essentials, chaps, v-x.[13]Essentials, p. 158.[14]Distribution, chap. xxiv.[15]Chap. xxiv.[16]Essentials, p. 40.[17]Among modern economic hedonists, including Mr. Clark, there stands over from the better days of the order of nature a presumption, disavowed, but often decisive, that the sensational response to the like mechanical impact of the stimulating body is the same in different individuals. But, while this presumption stands ever in the background, and helps to many important conclusions, as in the case under discussion, few modern hedonists would question the statement in the text.[18]Distribution, p. 394.[19]In Mr. Clark's discussion, elsewhere, the "quasi"-character of the productive share of the laborer is indicated by saying that it is the product "imputed" or "imputable" to him.[20]Essentials, p. 92. Et si sensus deficit, ad firmandum cor sincerum sola fides sufficit.[21]See pp. 102-113; also p. 172, note.[22]"The cheapest and poorest grades of articles." Page 113.[23]See p. 113.[24]The disappearance, and the method of disappearance, of such elements of differential utility and disutility occupies a very important place in all marginal-utility ("final-utility") theories of market value, or "objective value."[25]"Only the simplest and cheapest things that are sold in the market at all bring just what they are worth to the buyers." Page 113.[26]It is,e.g., open to serious question whether Mr. Clark's curves of final productivity (pp. 139, 148), showing a declining output per unit in response to an increase of one of the complementary agents of production, will fit the common run of industry in case the output be counted by weight and tale. In many cases they will, no doubt; in many other cases they will not. But this is no criticism of the curves in question, since they do not, or at least should not, purport to represent the product in such terms, but in terms of utility.[27]To resort to an approximation after the manner of Malthus, if the supply of goods be supposed to increase by arithmetical progression, their final utility may be said concomitantly to decrease by geometrical progression.[28]Cf. Essentials, chap. iii, especially pp. 40-41.[29]The current marginal-utility diagrams are not of much use in this connection, because the angle of the tangent with the axis of ordinates, at any point, is largely a matter of the draftsman's taste. The abscissa and the ordinate do not measure commensurable units. The units on the abscissa are units of frequency, while those on the ordinate are units of amplitude; and the greater or less segment of line allowed per unit on either axis is a matter of independently arbitrary choice. Yet the proposition in the text remains true,—as true as hedonistic propositions commonly are. The magnitude of the angle of the tangent with the axis of ordinates decides whether the total (hedonistic) productivity at a given point in the curve increases or decreases with a (mechanical) increase of the productive agent,—no student at all familiar with marginal-utility arguments will question that patent fact. But the angle of the tangent depends on the fancy of the draftsman,—no one possessed of the elemental mathematical notions will question that equally patent fact.[30]A similar line of argument has been followed up by Mr. Clark for capital and interest, in a different connection. SeeEssentials, pp. 340-345, 356.[31]Cf. Essentials, pp. 83-90, 118-120.[32]Cf.chap. xxii, especially pp. 378-392.[33]Cf.p. 391.[34]Cf. Essentials, p. 39.[35]Essentials, p. 39.[36]Cf. Essentials, chap. iii, especially pp. 51-56.[37]This difficulty is recognized by the current marginal-utility arguments, and an allowance for intensity is made or presumed. But the allowance admitted is invariably insufficient. It might be said to be insufficient by hypothesis, since it is by hypothesis too small to offset the factor which it is admitted to modify.[38]The limit to which the intensity rises is a margin of the same kind as that which limits the duration. This supposition, that the intensity of application necessarily rises to such a pitch that its disutility overtakes and offsets the utility of the product, may be objected to as a bit of puerile absurdity; but it is a long time since puerility or absurdity has been a bar to any supposition in arguments on marginal utility.

[1]Reprinted by permission fromThe Quarterly Journal of Economics, Vol. XXII, Feb., 1908.

[2]The Essentials of Economic Theory, as Applied to Modern Problems of Industry and Public Policy.By John Bates Clark. New York: The Macmillan Company. 1907.

[3]Cf., e.g.The Distribution of Wealth, p. 376, note.

[4]See,e.g., J. S. Mill,Political Economy, Book I; Marshall,Principles of Economics, Vol. I, Books II-V.

[5]Cf., e.g., such an account as Barrows,Ethno-botany of the Coahuilla Indians.

[6]What would be the scientific rating of the work of a botanist who should spend his energy in devising ways and means to neutralize the ecological variability of plants, or of a physiologist who conceived it the end of his scientific endeavors to rehabilitate the vermiform appendix or the pineal eye, or to denounce and penalize the imitative coloring of the Viceroy butterfly? What scientific interest would attach to the matter if Mr. Loeb,e.g., should devote a few score pages to canvassing the moral responsibilities incurred by him in his parental relation to his parthenogenetically developed sea-urchin eggs?Those phenomena which Mr. Clark characterizes as "positive perversions" may be distasteful and troublesome, perhaps, but "the economic necessity of doing what is legally difficult" is not of the "essentials of theory."

Those phenomena which Mr. Clark characterizes as "positive perversions" may be distasteful and troublesome, perhaps, but "the economic necessity of doing what is legally difficult" is not of the "essentials of theory."

[7]It is a notable fact that even the genius of Herbert Spencer could extract nothing but taxonomy from his hedonistic postulates;e.g.,his Social Statics. Spencer is both evolutionist and hedonist, but it is only by recourse to other factors, alien to the rational hedonistic scheme, such as habit, delusions, use and disuse, sporadic variation, environmental forces, that he is able to achieve anything in the way of genetic science, since it is only by this recourse that he is enabled to enter the field of cumulative change within which the modern post-Darwinian sciences live and move and have their being.

[8]"The capital-goods have to be taken unit by unit if their value for productive purposes is to be rightly gauged. A part of a supply of potatoes is traceable to the hoes that dig them.... We endeavor simply to ascertain how badly the loss of one hoe would affect us or how much good the restoration of it would do us. This truth, like the foregoing ones, has a universal application in economics; for primitive men as well as civilized ones must estimate the specific productivity of the tools that they use," etc. Page 43.

[9]Cf.a criticism of Mr. Fisher's conception in thePolitical Science Quarterlyfor February, 1908.

[10]"The machine itself is often a hopeless specialist. It can do one minute thing and that only, and when a new and better device appears for doing that one thing, the machine has to go, and not to some new employment, but to the junk heap. There is thus taking place a considerable waste of capital in consequence of mechanical and other progress." "Indeed, a quick throwing away of instruments which have barely begun to do their work is often the secret of the success of an enterprising manager, but it entails a destruction of capital."

[11]The position of the laborer and his wages, in this light, would not be substantially different from that of the capitalist and his interest. Labor is no more possible, as a fact of industry, without the community's accumulated technological knowledge than is the use of "productive goods."

[12]Cf. Distribution of Wealth, chaps, xii, xiii, vii, viii;Essentials, chaps, v-x.

[13]Essentials, p. 158.

[14]Distribution, chap. xxiv.

[15]Chap. xxiv.

[16]Essentials, p. 40.

[17]Among modern economic hedonists, including Mr. Clark, there stands over from the better days of the order of nature a presumption, disavowed, but often decisive, that the sensational response to the like mechanical impact of the stimulating body is the same in different individuals. But, while this presumption stands ever in the background, and helps to many important conclusions, as in the case under discussion, few modern hedonists would question the statement in the text.

[18]Distribution, p. 394.

[19]In Mr. Clark's discussion, elsewhere, the "quasi"-character of the productive share of the laborer is indicated by saying that it is the product "imputed" or "imputable" to him.

[20]Essentials, p. 92. Et si sensus deficit, ad firmandum cor sincerum sola fides sufficit.

[21]See pp. 102-113; also p. 172, note.

[22]"The cheapest and poorest grades of articles." Page 113.

[23]See p. 113.

[24]The disappearance, and the method of disappearance, of such elements of differential utility and disutility occupies a very important place in all marginal-utility ("final-utility") theories of market value, or "objective value."

[25]"Only the simplest and cheapest things that are sold in the market at all bring just what they are worth to the buyers." Page 113.

[26]It is,e.g., open to serious question whether Mr. Clark's curves of final productivity (pp. 139, 148), showing a declining output per unit in response to an increase of one of the complementary agents of production, will fit the common run of industry in case the output be counted by weight and tale. In many cases they will, no doubt; in many other cases they will not. But this is no criticism of the curves in question, since they do not, or at least should not, purport to represent the product in such terms, but in terms of utility.

[27]To resort to an approximation after the manner of Malthus, if the supply of goods be supposed to increase by arithmetical progression, their final utility may be said concomitantly to decrease by geometrical progression.

[28]Cf. Essentials, chap. iii, especially pp. 40-41.

[29]The current marginal-utility diagrams are not of much use in this connection, because the angle of the tangent with the axis of ordinates, at any point, is largely a matter of the draftsman's taste. The abscissa and the ordinate do not measure commensurable units. The units on the abscissa are units of frequency, while those on the ordinate are units of amplitude; and the greater or less segment of line allowed per unit on either axis is a matter of independently arbitrary choice. Yet the proposition in the text remains true,—as true as hedonistic propositions commonly are. The magnitude of the angle of the tangent with the axis of ordinates decides whether the total (hedonistic) productivity at a given point in the curve increases or decreases with a (mechanical) increase of the productive agent,—no student at all familiar with marginal-utility arguments will question that patent fact. But the angle of the tangent depends on the fancy of the draftsman,—no one possessed of the elemental mathematical notions will question that equally patent fact.

[30]A similar line of argument has been followed up by Mr. Clark for capital and interest, in a different connection. SeeEssentials, pp. 340-345, 356.

[31]Cf. Essentials, pp. 83-90, 118-120.

[32]Cf.chap. xxii, especially pp. 378-392.

[33]Cf.p. 391.

[34]Cf. Essentials, p. 39.

[35]Essentials, p. 39.

[36]Cf. Essentials, chap. iii, especially pp. 51-56.

[37]This difficulty is recognized by the current marginal-utility arguments, and an allowance for intensity is made or presumed. But the allowance admitted is invariably insufficient. It might be said to be insufficient by hypothesis, since it is by hypothesis too small to offset the factor which it is admitted to modify.

[38]The limit to which the intensity rises is a margin of the same kind as that which limits the duration. This supposition, that the intensity of application necessarily rises to such a pitch that its disutility overtakes and offsets the utility of the product, may be objected to as a bit of puerile absurdity; but it is a long time since puerility or absurdity has been a bar to any supposition in arguments on marginal utility.

The limitations of the marginal-utility economics are sharp and characteristic. It is from first to last a doctrine of value, and in point of form and method it is a theory of valuation. The whole system, therefore, lies within the theoretical field of distribution, and it has but a secondary bearing on any other economic phenomena than those of distribution—the term being taken in its accepted sense of pecuniary distribution, or distribution in point of ownership. Now and again an attempt is made to extend the use of the principle of marginal utility beyond this range, so as to apply it to questions of production, but hitherto without sensible effect, and necessarily so. The most ingenious and the most promising of such attempts have been those of Mr. Clark, whose work marks the extreme range of endeavor and the extreme degree of success in so seeking to turn a postulate of distribution to account for a theory of production. But the outcome has been a doctrine of the production of values, and value, in Mr. Clark's as in other utility systems, is a matter of valuation; which throws the whole excursion back into the field of distribution. Similarly, as regards attempts to make use of this principle in an analysis of the phenomena of consumption, the best results arrived at are some formulation of the pecuniary distribution of consumption goods.

Within this limited range marginal-utility theory is of awholly statical character. It offers no theory of a movement of any kind, being occupied with the adjustment of values to a given situation. Of this, again, no more convincing illustration need be had than is afforded by the work of Mr. Clark, which is not excelled in point of earnestness, perseverance, or insight. For all their use of the term "dynamic," neither Mr. Clark nor any of his associates in this line of research have yet contributed anything at all appreciable to a theory of genesis, growth, sequence, change, process, or the like, in economic life. They have had something to say as to the bearing which given economic changes, accepted as premises, may have on valuation, and so on distribution; but as to the causes of change or the unfolding sequence of the phenomena of economic life they have had nothing to say hitherto; nor can they, since their theory is not drawn in causal terms but in terms of teleology.

In all this the marginal-utility school is substantially at one with the classical economics of the nineteenth century, the difference between the two being that the former is confined within narrower limits and sticks more consistently to its teleological premises. Both are teleological, and neither can consistently admit arguments from cause to effect in the formulation of their main articles of theory. Neither can deal theoretically with phenomena of change, but at the most only with rational adjustment to change which may be supposed to have supervened.

To the modern scientist the phenomena of growth and change are the most obtrusive and most consequential facts observable in economic life. For an understanding of modern economic life the technological advance of the past two centuries—e.g., the growth of the industrial arts—is of the first importance; but marginal-utility theory does not bear on this matter, nor does this matter bear on marginal-utility theory. As a means of theoretically accounting for this technological movement in the past or in the present, or even as a means of formally, technically stating it as an element in the current economic situation, that doctrine and all its works are altogether idle. The like is true for the sequence of change that is going forward in the pecuniary relations of modern life; the hedonistic postulate and its propositions of differential utility neither have served nor can serve an inquiry into these phenomena of growth, although the whole body of marginal-utility economics lies within the range of these pecuniary phenomena. It has nothing to say to the growth of business usages and expedients or to the concomitant changes in the principles of conduct which govern the pecuniary relations of men, which condition and are conditioned by these altered relations of business life or which bring them to pass.

It is characteristic of the school that wherever an element of the cultural fabric, an institution or any institutional phenomenon, is involved in the facts with which the theory is occupied, such institutional facts are taken for granted, denied, or explained away. If it is a question of price, there is offered an explanation of how exchanges may take place with such effect as to leave money and price out of the account. If it is a question of credit, the effect of credit extension on business traffic is left on one side and there is an explanation of how the borrower and lender coöperate to smooth out their respective income streams of consumable goods or sensations of consumption. The failure of the school in this respect is consistent and comprehensive. And yet these economists are lacking neither in intelligence nor in information. They are, indeed, to be credited, commonly, with a wide rangeof information and an exact control of materials, as well as with a very alert interest in what is going on; and apart from their theoretical pronouncements the members of the school habitually profess the sanest and most intelligent views of current practical questions, even when these questions touch matters of institutional growth and decay.

The infirmity of this theoretical scheme lies in its postulates, which confine the inquiry to generalisations of the teleological or "deductive" order. These postulates, together with the point of view and logical method that follow from them, the marginal-utility school shares with other economists of the classical line—for this school is but a branch or derivative of the English classical economists of the nineteenth century. The substantial difference between this school and the generality of classical economists lies mainly in the fact that in the marginal-utility economics the common postulates are more consistently adhered to at the same time that they are more neatly defined and their limitations are more adequately realized. Both the classical school in general and its specialized variant, the marginal-utility school, in particular, take as their common point of departure the traditional psychology of the early nineteenth-century hedonists, which is accepted as a matter of course or of common notoriety and is held quite uncritically. The central and well-defined tenet so held is that of the hedonistic calculus. Under the guidance of this tenet and of the other psychological conceptions associated and consonant with it, human conduct is conceived of and interpreted as a rational response to the exigencies of the situation in which mankind is placed; as regards economic conduct it is such a rational and unprejudiced response to the stimulus of anticipated pleasure and pain—being, typicallyand in the main, a response to the promptings of anticipated pleasure, for the hedonists of the nineteenth century and of the marginal-utility school are in the main of an optimistic temper.[2]Mankind is, on the whole and normally, (conceived to be) clearsighted and farsighted in its appreciation of future sensuous gains and losses, although there may be some (inconsiderable) difference between men in this respect. Men's activities differ, therefore, (inconsiderably) in respect of the alertness of the response and the nicety of adjustment of irksome pain-cost to apprehended future sensuous gain; but, on the whole, no other ground or line or guidance of conduct than this rationalistic calculus falls properly within the cognizance of the economic hedonists. Such a theory can take account of conduct only in so far as it is rational conduct, guided by deliberate and exhaustively intelligent choice—wise adaptation to the demands of the main chance.

The external circumstances which condition conduct are variable, of course, and so they will have a varying effect upon conduct; but their variation is, in effect, construed to be of such a character only as to vary the degree of strain to which the human agent is subject by contact with these external circumstances. The cultural elements involved in the theoretical scheme, elements thatare of the nature of institutions, human relations governed by use and wont in whatever kind and connection, are not subject to inquiry but are taken for granted as pre-existing in a finished, typical form and as making up a normal and definitive economic situation, under which and in terms of which human intercourse is necessarily carried on. This cultural situation comprises a few large and simple articles of institutional furniture, together with their logical implications or corollaries; but it includes nothing of the consequences or effects caused by these institutional elements. The cultural elements so tacitly postulated as immutable conditions precedent to economic life are ownership and free contract, together with such other features of the scheme of natural rights as are implied in the exercise of these. These cultural products are, for the purpose of the theory, conceived to be given a priori in unmitigated force. They are part of the nature of things; so that there is no need of accounting for them or inquiring into them, as to how they have come to be such as they are, or how and why they have changed and are changing, or what effect all this may have on the relations of men who live by or under this cultural situation.

Evidently the acceptance of these immutable premises, tacitly, because uncritically and as a matter of course, by hedonistic economics gives the science a distinctive character and places it in contrast with other sciences whose premises are of a different order. As has already been indicated, the premises in question, so far as they are peculiar to the hedonistic economics, are (a) a certain institutional situation, the substantial feature of which is the natural right of ownership, and (b) the hedonistic calculus. The distinctive character given to this system of theory by these postulates and by the point of viewresulting from their acceptance may be summed up broadly and concisely in saying that the theory is confined to the ground of sufficient reason instead of proceeding on the ground of efficient cause. The contrary is true of modern science, generally (except mathematics), particularly of such sciences as have to do with the phenomena of life and growth. The difference may seem trivial. It is serious only in its consequences. The two methods of inference—from sufficient reason and from efficient cause—are out of touch with one another and there is no transition from one to the other: no method of converting the procedure or the results of the one into those of the other. The immediate consequence is that the resulting economic theory is of a teleological character—"deductive" or "a priori" as it is often called—instead of being drawn in terms of cause and effect. The relation sought by this theory among the facts with which it is occupied is the control exercised by future (apprehended) events over present conduct. Current phenomena are dealt with as conditioned by their future consequences; and in strict marginal-utility theory they can be dealt with only in respect of their control of the present by consideration of the future. Such a (logical) relation of control or guidance between the future and the present of course involves an exercise of intelligence, a taking thought, and hence an intelligent agent through whose discriminating forethought the apprehended future may affect the current course of events; unless, indeed, one were to admit something in the way of a providential order of nature or some occult line of stress of the nature of sympathetic magic. Barring magical and providential elements, the relation of sufficient reason runs by way of the interested discrimination, the forethought, of an agent who takes thought of the future and guides his presentactivity by regard for this future. The relation of sufficient reason runs only from the (apprehended) future into the present, and it is solely of an intellectual, subjective, personal, teleological character and force; while the relation of cause and effect runs only in the contrary direction, and it is solely of an objective, impersonal, materialistic character and force. The modern scheme of knowledge, on the whole, rests, for its definitive ground, on the relation of cause and effect; the relation of sufficient reason being admitted only provisionally and as a proximate factor in the analysis, always with the unambiguous reservation that the analysis must ultimately come to rest in terms of cause and effect. The merits of this scientific animus, of course, do not concern the present argument.

Now, it happens that the relation of sufficient reason enters very substantially into human conduct. It is this element of discriminating forethought that distinguishes human conduct from brute behavior. And since the economist's subject of inquiry is this human conduct, that relation necessarily comes in for a large share of his attention in any theoretical formulation of economic phenomena, whether hedonistic or otherwise. But while modern science at large has made the causal relation the sole ultimate ground of theoretical formulation; and while the other sciences that deal with human life admit the relation of sufficient reason as a proximate, supplementary, or intermediate ground, subsidiary, and subservient to the argument from cause to effect; economics has had the misfortune—as seen from the scientific point of view—to let the former supplant the latter. It is, of course, true that human conduct is distinguished from other natural phenomena by the human faculty for taking thought, and any science that has to do with humanconduct must face the patent fact that the details of such conduct consequently fall into the teleological form; but it is the peculiarity of the hedonistic economics that by force of its postulates its attention is confined to this teleological bearing of conduct alone. It deals with this conduct only in so far as it may be construed in rationalistic, teleological terms of calculation and choice. But it is at the same time no less true that human conduct, economic or otherwise, is subject to the sequence of cause and effect, by force of such elements as habituation and conventional requirements. But facts of this order, which are to modern science of graver interest than the teleological details of conduct, necessarily fall outside the attention of the hedonistic economist, because they cannot be construed in terms of sufficient reason, such as his postulates demand, or be fitted into a scheme of teleological doctrines.

There is, therefore, no call to impugn these premises of the marginal-utility economics within their field. They commend themselves to all serious and uncritical persons at the first glance. They are principles of action which underlie the current, business-like scheme of economic life, and as such, as practical grounds of conduct, they are not to be called in question without questioning the existing law and order. As a matter of course, men order their lives by these principles and, practically, entertain no question of their stability and finality. That is what is meant by calling them institutions; they are settled habits of thought common to the generality of men. But it would be mere absentmindedness in any student of civilization therefore to admit that these or any other human institutions have this stability which is currently imputed to them or that they are in this way intrinsic to the nature of things. The acceptance by the economists of these orother institutional elements as given and immutable limits their inquiry in a particular and decisive way. It shuts off the inquiry at the point where the modern scientific interest sets in. The institutions in question are no doubt good for their purpose as institutions, but they are not good as premises for a scientific inquiry into the nature, origin, growth, and effects of these institutions and of the mutations which they undergo and which they bring to pass in the community's scheme of life.

To any modern scientist interested in economic phenomena, the chain of cause and effect in which any given phase of human culture is involved, as well as the cumulative changes wrought in the fabric of human conduct itself by the habitual activity of mankind, are matters of more engrossing and more abiding interest than the method of inference by which an individual is presumed invariably to balance pleasure and pain under given conditions that are presumed to be normal and invariable. The former are questions of the life-history of the race or the community, questions of cultural growth and of the fortunes of generations; while the latter is a question of individual casuistry in the face of a given situation that may arise in the course of this cultural growth. The former bear on the continuity and mutations of that scheme of conduct whereby mankind deals with its material means of life; the latter, if it is conceived in hedonistic terms, concerns a disconnected episode in the sensuous experience of an individual member of such a community.

In so far as modern science inquires into the phenomena of life, whether inanimate, brute, or human, it is occupied about questions of genesis and cumulative change, and it converges upon a theoretical formulation in the shape of a life-history drawn in causal terms. In sofar as it is a science in the current sense of the term, any science, such as economics, which has to do with human conduct, becomes a genetic inquiry into the human scheme of life; and where, as in economics, the subject of inquiry is the conduct of man in his dealings with the material means of life, the science is necessarily an inquiry into the life-history of material civilization, on a more or less extended or restricted plan. Not that the economist's inquiry isolates material civilization from all other phases and bearings of human culture, and so studies the motions of an abstractly conceived "economic man." On the contrary, no theoretical inquiry into this material civilization that shall be at all adequate to any scientific purpose can be carried out without taking this material civilization in its causal, that is to say, its genetic, relations to other phases and bearings of the cultural complex; without studying it as it is wrought upon by other lines of cultural growth and as working its effects in these other lines. But in so far as the inquiry is economic science, specifically, the attention will converge upon the scheme of material life and will take in other phases of civilization only in their correlation with the scheme of material civilization.

Like all human culture this material civilization is a scheme of institutions—institutional fabric and institutional growth. But institutions are an outgrowth of habit. The growth of culture is a cumulative sequence of habituation, and the ways and means of it are the habitual response of human nature to exigencies that vary incontinently, cumulatively, but with something of a consistent sequence in the cumulative variations that so go forward,—incontinently, because each new move creates a new situation which induces a further new variation in the habitual manner of response; cumulatively, becauseeach new situation is a variation of what has gone before it and embodies as causal factors all that has been effected by what went before; consistently, because the underlying traits of human nature (propensities, aptitudes, and what not) by force of which the response takes place, and on the ground of which the habituation takes effect, remain substantially unchanged.

Evidently an economic inquiry which occupies itself exclusively with the movements of this consistent, elemental human nature under given, stable institutional conditions—such as is the case with the current hedonistic economics—can reach statical results alone; since it makes abstraction from those elements that make for anything but a statical result. On the other hand an adequate theory of economic conduct, even for statical purposes, cannot be drawn in terms of the individual simply—as is the case in the marginal-utility economics—because it cannot be drawn in terms of the underlying traits of human nature simply; since the response that goes to make up human conduct takes place under institutional norms and only under stimuli that have an institutional bearing; for the situation that provokes and inhibits action in any given case is itself in great part of institutional, cultural derivation. Then, too, the phenomena of human life occur only as phenomena of the life of a group or community: only under stimuli due to contact with the group and only under the (habitual) control exercised by canons of conduct imposed by the group's scheme of life. Not only is the individual's conduct hedged about and directed by his habitual relations to his fellows in the group, but these relations, being of an institutional character, vary as the institutional scheme varies. The wants and desires, the end and aim, the ways and means, the amplitude and drift of the individual's conduct arefunctions of an institutional variable that is of a highly complex and wholly unstable character.

The growth and mutations of the institutional fabric are an outcome of the conduct of the individual members of the group, since it is out of the experience of the individuals, through the habituation of individuals, that institutions arise; and it is in this same experience that these institutions act to direct and define the aims and end of conduct. It is, of course, on individuals that the system of institutions imposes those conventional standards, ideals, and canons of conduct that make up the community's scheme of life. Scientific inquiry in this field, therefore, must deal with individual conduct and must formulate its theoretical results in terms of individual conduct. But such an inquiry can serve the purposes of a genetic theory only if and in so far as this individual conduct is attended to in those respects in which it counts toward habituation, and so toward change (or stability) of the institutional fabric, on the one hand, and in those respects in which it is prompted and guided by the received institutional conceptions and ideals on the other hand. The postulates of marginal utility, and the hedonistic preconceptions generally, fail at this point in that they confine the attention to such bearings of economic conduct as are conceived not to be conditioned by habitual standards and ideals and to have no effect in the way of habituation. They disregard or abstract from the causal sequence of propensity and habituation in economic life and exclude from theoretical inquiry all such interest in the facts of cultural growth, in order to attend to those features of the case that are conceived to be idle in this respect. All such facts of institutional force and growth are put on one side as not being germane to pure theory; they are to be taken account of, if at all, byafterthought, by a more or less vague and general allowance for inconsequential disturbances due to occasional human infirmity. Certain institutional phenomena, it is true, are comprised among the premises of the hedonists, as has been noted above; but they are included as postulates a priori. So the institution of ownership is taken into the inquiry not as a factor of growth or an element subject to change, but as one of the primordial and immutable facts of the order of nature, underlying the hedonistic calculus. Property, ownership, is presumed as the basis of hedonistic discrimination and it is conceived to be given in its finished (nineteenth-century) scope and force. There is no thought either of a conceivable growth of this definitive nineteenth-century institution out of a cruder past or of any conceivable cumulative change in the scope and force of ownership in the present or future. Nor is it conceived that the presence of this institutional element in men's economic relations in any degree affects or disguises the hedonistic calculus, or that its pecuniary conceptions and standards in any degree standardize, color, mitigate, or divert the hedonistic calculator from the direct and unhampered quest of the net sensuous gain. While the institution of property is included in this way among the postulates of the theory, and is even presumed to be ever-present in the economic situation, it is allowed to have no force in shaping economic conduct, which is conceived to run its course to its hedonistic outcome as if no such institutional factor intervened between the impulse and its realization. The institution of property, together with all the range of pecuniary conceptions that belong under it and that cluster about it, are presumed to give rise to no habitual or conventional canons of conduct or standards of valuation, noproximate ends, ideals, or aspirations. All pecuniary notions arising from ownership are treated simply as expedients of computation which mediate between the pain-cost and the pleasure-gain of hedonistic choice, without lag, leak, or friction; they are conceived simply as the immutably correct, God-given notation of the hedonistic calculus.

The modern economic situation is a business situation, in that economic activity of all kinds is commonly controlled by business considerations. The exigencies of modern life are commonly pecuniary exigencies. That is to say they are exigencies of the ownership of property. Productive efficiency and distributive gain are both rated in terms of price. Business considerations are considerations of price, and pecuniary exigencies of whatever kind in the modern communities are exigencies of price. The current economic situation is a price system. Economic institutions in the modern civilized scheme of life are (prevailingly) institutions of the price system. The accountancy to which all phenomena of modern economic life are amenable is an accountancy in terms of price; and by the current convention there is no other recognized scheme of accountancy, no other rating, either in law or in fact, to which the facts of modern life are held amenable. Indeed, so great and pervading a force has this habit (institution) of pecuniary accountancy become that it extends, often as a matter of course, to many facts which properly have no pecuniary bearing and no pecuniary magnitude, as,e.g., works of art, science, scholarship, and religion. More or less freely and fully, the price system dominates the current commonsense in its appreciation and rating of these non-pecuniary ramifications of modern culture; and this in spite of the fact that,on reflection, all men of normal intelligence will freely admit that these matters lie outside the scope of pecuniary valuation.

Current popular taste and the popular sense of merit and demerit are notoriously affected in some degree by pecuniary considerations. It is a matter of common notoriety, not to be denied or explained away, that pecuniary ("commercial ") tests and standards are habitually made use of outside of commercial interests proper. Precious stones, it is admitted, even by hedonistic economists, are more esteemed than they would be if they were more plentiful and cheaper. A wealthy person meets with more consideration and enjoys a larger measure of good repute than would fall to the share of the same person with the same habit of mind and body and the same record of good and evil deeds if he were poorer. It may well be that this current "commercialisation" of taste and appreciation has been overstated by superficial and hasty critics of contemporary life, but it will not be denied that there is a modicum of truth in the allegation. Whatever substance it has, much or little, is due to carrying over into other fields of interest the habitual conceptions induced by dealing with and thinking of pecuniary matters. These "commercial" conceptions of merit and demerit are derived from business experience. The pecuniary tests and standards so applied outside of business transactions and relations are not reducible to sensuous terms of pleasure and pain. Indeed, it may,e.g., be true, as is commonly believed, that the contemplation of a wealthy neighbor's pecuniary superiority yields painful rather than pleasurable sensations as an immediate result; but it is equally true that such a wealthy neighbor is, on the whole, more highly regarded and more considerately treated than another neighbor who differs from the former only in being less enviable in respect of wealth.

It is the institution of property that gives rise to these habitual grounds of discrimination, and in modern times, when wealth is counted in terms of money, it is in terms of money value that these tests and standards of pecuniary excellence are applied. This much will be admitted. Pecuniary institutions induce pecuniary habits of thought which affect men's discrimination outside of pecuniary matters; but the hedonistic interpretation alleges that such pecuniary habits of thought do not affect men's discrimination in pecuniary matters. Although the institutional scheme of the price system visibly dominates the modern community's thinking in matters that lie outside the economic interest, the hedonistic economists insist, in effect, that this institutional scheme must be accounted of no effect within that range of activity to which it owes its genesis, growth, and persistence. The phenomena of business, which are peculiarly and uniformly phenomena of price, are in the scheme of the hedonistic theory reduced to non-pecuniary hedonistic terms and the theoretical formulation is carried out as if pecuniary conceptions had no force within the traffic in which such conceptions originate. It is admitted that preoccupation with commercial interests has "commercialised" the rest of modern life, but the "commercialisation" of commerce is not admitted. Business transactions and computations in pecuniary terms, such as loans, discounts, and capitalisation, are without hesitation or abatement converted into terms of hedonistic utility, and conversely.

It may be needless to take exception to such conversion from pecuniary into sensuous terms, for the theoretical purpose for which it is habitually made; although, if need were, it might not be excessively difficult to show that the whole hedonistic basis of such a conversion is apsychological misconception. But it is to the remoter theoretical consequences of such a conversion that exception is to be taken. In making the conversion abstraction is made from whatever elements do not lend themselves to its terms; which amounts to abstracting from precisely those elements of business that have an institutional force and that therefore would lend themselves to scientific inquiry of the modern kind—those (institutional) elements whose analysis might contribute to an understanding of modern business and of the life of the modern business community as contrasted with the assumed primordial hedonistic calculus.

The point may perhaps be made clearer. Money and the habitual resort to its use are conceived to be simply the ways and means by which consumable goods are acquired, and therefore simply a convenient method by which to procure the pleasurable sensations of consumption; these latter being in hedonistic theory the sole and overt end of all economic endeavor. Money values have therefore no other significance than that of purchasing power over consumable goods, and money is simply an expedient of computation. Investment, credit extensions, loans of all kinds and degrees, with payment of interest and the rest, are likewise taken simply as intermediate steps between the pleasurable sensations of consumption and the efforts induced by the anticipation of these sensations, other bearings of the case being disregarded. The balance being kept in terms of the hedonistic consumption, no disturbance arises in this pecuniary traffic so long as the extreme terms of this extended hedonistic equation—pain-cost and pleasure-gain—are not altered, what lies between these extreme terms being merely algebraic notation employed for convenience of accountancy. But such is not the run of the facts in modern business.Variations of capitalization,e.g., occur without its being practicable to refer them to visibly equivalent variations either in the state of the industrial arts or in the sensations of consumption. Credit extensions tend to inflation of credit, rising prices, overstocking of markets, etc., likewise without a visible or securely traceable correlation in the state of the industrial arts or in the pleasures of consumption; that is to say, without a visible basis in those material elements to which the hedonistic theory reduces all economic phenomena. Hence the run of the facts, in so far, must be thrown out of the theoretical formulation. The hedonistically presumed final purchase of consumable goods is habitually not contemplated in the pursuit of business enterprise. Business men habitually aspire to accumulate wealth in excess of the limits of practicable consumption, and the wealth so accumulated is not intended to be converted by a final transaction of purchase into consumable goods or sensations of consumption. Such commonplace facts as these, together with the endless web of business detail of a like pecuniary character, do not in hedonistic theory raise a question as to how these conventional aims, ideals, aspirations, and standards have come into force or how they affect the scheme of life in business or outside of it; they do not raise those questions because such questions cannot be answered in the terms which the hedonistic economists are content to use, or, indeed, which their premises permit them to use. The question which arises is how to explain the facts away: how theoretically to neutralize them so that they will not have to appear in the theory, which can then be drawn in direct and unambiguous terms of rational hedonistic calculation. They are explained away as being aberrations due to oversight or lapse of memory on the part of business men, or to some failure of logic orinsight. Or they are construed and interpreted into the rationalistic terms of the hedonistic calculus by resort to an ambiguous use of the hedonistic concepts. So that the whole "money economy," with all the machinery of credit and the rest, disappears in a tissue of metaphors to reappear theoretically expurgated, sterilized, and simplified into a "refined system of barter," culminating in a net aggregate maximum of pleasurable sensations of consumption.

But since it is in just this unhedonistic, unrationalistic pecuniary traffic that the tissue of business life consists; since it is this peculiar conventionalism of aims and standards that differentiates the life of the modern business community from any conceivable earlier or cruder phase of economic life; since it is in this tissue of pecuniary intercourse and pecuniary concepts, ideals, expedients, and aspirations that the conjunctures of business life arise and run their course of felicity and devastation; since it is here that those institutional changes take place which distinguish one phase or era of the business community's life from any other; since the growth and change of these habitual, conventional elements make the growth and character of any business era or business community; any theory of business which sets these elements aside or explains them away misses the main facts which it has gone out to seek. Life and its conjunctures and institutions being of this complexion, however much that state of the case may be deprecated, a theoretical account of the phenomena of this life must be drawn in these terms in which the phenomena occur. It is not simply that the hedonistic interpretation of modern economic phenomena is inadequate or misleading; if the phenomena are subjected to the hedonistic interpretation in the theoretical analysis they disappear from the theory; and if theywould bear the interpretation in fact they would disappear in fact. If, in fact, all the conventional relations and principles of pecuniary intercourse were subject to such a perpetual rationalized, calculating revision, so that each article of usage, appreciation, or procedure must approve itselfde novoon hedonistic grounds of sensuous expediency to all concerned at every move, it is not conceivable that the institutional fabric would last over night.

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