The Basic Facts of EconomicsA COMMON-SENSE PRIMERFOR ADVANCED STUDENTSFIRST LESSONECONOMICS
A COMMON-SENSE PRIMERFOR ADVANCED STUDENTS
Onthe surface, Economics appears to be the science of making money.
This appearance is due, however, to a careless recognition and erroneous application of the fact that Economic accomplishments are measured by money standards and expressed in money terms.
When, for example, a builder builds, he builds to make money. Money measures the Economic extent of what he is doing, and money terms express its Economic desirability. They also express and measure his motive, which is the compensation he can command in the currents of trade.
A merchant makes money when he manages a profitable business.
So does a manufacturer.
Farmers make money when they sell their produce profitably. Nor only when they sell it, but also while they cultivate it; for every day’s growth adds to the money measurement of a crop.
Wage-workers by the day, the week or month, and salary-workers by the year, also workers on commission or for percentages or for profits, make more or less money as working opportunities are more or lessplentiful, and wages or salaries or percentage totals and profit totals are consequently higher or lower.
Engineers, lawyers, physicians, architects, dentists, clergymen, teachers—all professional workers,—make money to the extent of the marketability of the services they offer.
And investors, do they not invest by money measurements and in money terms for the purpose of obtaining Economic incomes measured by money and expressed in terms of money?
Manifestly, the immediate object of everybody’s activity in the field of Economics is to make money.
Does one desire food? By making money he gets food. Does one desire clothing? He gets it by making money. Does he wish for housing, furnishings, automobiles, railway or steamboat transportation, necessaries of any kind, luxuries of whatever variety, household service, professional service, legislative or judicial service, mechanical service, mercantile service, clerical service? By making money he gets them. Does one wish for slaves? If slavery be an institution of his time and place, he may have slaves by purchases with the money he makes. Should he be a slave himself, he may purchase his freedom with money if he can get it. Does land-ownership appeal to one? Let him make money and he can buy land. Whatever object the Economic field may offer for the satisfaction of human desires, that object is attainable by making money. In no other way can it be attained through Economic processes.
If gifts be cited as exceptions let the fact be noted that giving is not an Economic process. It lacks the element of exchange or trade. So, too, of theft in any of its forms. In genuine Economics there must be two gainers in every trade. There is no such science as Economics of the Forty Thieves variety.
Even in such seeming exceptions to the Economic importance of money as are offered by barter, in which no money passes and no money accounting is made, comparisons of the objects thus directly exchanged are nevertheless contemplated by the exchangers in terms of money. The owner of a horse that might sell for two hundred dollars, would not barter it for a horse that could sell for only one hundred—not unless he got “boot” enough to even up the money difference to his satisfaction. Nor would the boy with a two-dollar penknife “swap even” for a one-dollar jackknife. It is only when the two horses or the two knives seem to their respective owners to be approximately equal by money measurement that an “even swap” is conceivable.
Another seeming exception to the money-making characteristic of Economics depends upon individual isolation. That isolated individuals may gather food and improvise shelter and clothing without thinking of them in terms of money, is true enough; but the activities of persons thus isolated are not Economic exceptions, for the science of Economics is a social science. Although some Economic phases or phenomena may be picturesquely and aptly illustrated by reference to the experience, actual or imaginary, of isolated individuals like Robinson Crusoe on his island, states of human isolation are outside the limits of Economics.
Inasmuch, then, as the object of the human factor in the science of Economics is to make money, and as there can be no science of Economics without the human factor, Economics is comprehensively and accurately definable, on the surface, as the science of making money.
But making money in the Economic sense must be distinguished from narrower uses of the phrase. To manufacture coins legitimately, as at a mint, is to“make money,” but only in one Economic particular—only in the narrow mechanical sense in which weaving cloth is “making cloth.” Like weaving cloth, it is but an item in the multitudinous phenomena of that money-making which superficially defines the science of Economics. The same observation is applicable to the occupations of engraving and of printing paper currency legitimately.
Illegitimate makings of either paper currency or coin, like all other forms of forgery, are not in any sense making money within the purview of Economic science. They are varieties of theft, and Economic science excludes theft of every kind, even legal kinds, such as slavery. This exclusion is not for moral reasons, it may be well to interject for the benefit of such advanced students of Economics as recoil from mixing moral principles with Economic science. It is due to the fact that exchange, or trade—an essential element in Economics,—is in theft utterly lacking.
In the Economic sense, making money is making it for all concerned in any particular process, and not for one or more of the parties at the expense of the others. No art of getting something for nothing can be within the scope of Economic science. One-sided methods of making money, whether frankly labeled “theft” or “gambling,” or shrewdly disguised in spurious business ethics, are alien to Economic money-making. Within the domain of Economics no money-making transaction belongs unless it involves the making of money by all parties to the transaction.
To make money in that mutual sense is to augment the supply or the serviceableness of whatever commodities money terms may measure and express, and of the portions or shares of all who contribute to the augmentation.
In phrasing more complete than that of “makingmoney,” Economics is the science of making money by earning it. Getting money without earning it is related to Economics only in a science-disturbing sense. It disturbs the normal Economic relations of effect to cause in the production and dissemination of humanly desirable objects. To realize the truth of that statement, the student need only momentarily conceive of theft as universal. Since universal theft as an Economic phenomenon would be utterly destructive of normal Economic relationships, of beneficial effects from normal causes, so must theft to any extent operate destructively to that extent. The only thinkable relation of theft to Economics is analogous to the relation of murder to the human race. That Economic study may comprise considerations of how to exclude stealing from Economic customs, does not go to prove that stealing is a factor in Economic science. It goes no farther than to prove that stealing may become an Economic parasite.
Even as a parasite, stealing could hardly have wormed its way to the Economic border line, much less across it, but for a disposition among advanced students to confuse normal Economic phenomena with arbitrary business customs.
“Business” might indeed be the nearest approach to a synonym for “Economics.” It would be an exact synonym but for one variation. Whereas Economics relates to a comprehensive social organism which (notwithstanding “scientific” contentions to the contrary) is subject to natural laws of human association (sequences of cause and effect), Business is but a limited collection of individual interests or private organizations that are influenced and largely governed by arbitrary customs. These customs may or may not be in harmony with the normal relations of cause and effect in Economics. And as to each particularbusiness, it is operated, as accountants frankly admit, only “for the benefit of its proprietor.”1
1The quotation is from “Modern Business”, by Thomas W. Mitchell, Ph. D. New York: Alexander Hamilton Institute. 1918–1919.
1The quotation is from “Modern Business”, by Thomas W. Mitchell, Ph. D. New York: Alexander Hamilton Institute. 1918–1919.
In some of its vulgar connotations Business might very well answer to the insolent definition that it consists in the adventures of sprightly gentlemen trying to sell nothing for something to other sprightly gentlemen who are trying to buy something for nothing. In so far, however, as that definition may be appropriate, it applies only to business abuses, not to Business as a possible synonym for Economics. It defines Business only as theft might define morality.
To be a closer synonym for Economics, Business must deserve a definition relating its customs to natural Economic law (a subject to be considered in a later Lesson) and extending its functions more completely to universal mutual service. Moreover, its definition must widen the Business concept so as to include all kinds of such service. Business can no more exclude from its realm particular Business specialties, though that be customary, than it can include the operations of “confidence men,” as it is sometimes supposed to do. Its functions are not limited to commerce, nor to banking, nor to any other of those Business specialties to which careless speech, and sometimes snobbish thought, tend to narrow the meaning of the word.
Business is that function of social life which includes all serviceable specialties. Such terms as “commercial,” “mercantile,” “industrial,” “agriculture,” “labor,” “the professions,” and so on, denominate specializations or sections or subsidiary departments of Business, not Business as a whole. They are useful for subclassification; but, like all subclassifications, whether in Economics or in any other science, theyare misleading when perverted into general terms for primary or fundamental or comprehensive categories. The term Business, like the term Economics, should include them all. Every kind of service necessitates busy-ness; and serviceable busy-ness, what is that but Business?
Considered comprehensively, then, and excluding parasitical adhesions, Business might be, as some advanced students of Economic phenomena suppose it to be, another name for Economics. In the scholastic sense, Economics is the more orthodox term; in the practical sense Business could better express the idea. Both terms might have practically the same meaning if considerately used. Honest Business, inclusive of all serviceable activities—service for service, to adopt a phrase in definition of Business—would be identical with Economics. Either, like the other, may be described superficially as the process of the science of making money.
Quite consistently with the foregoing survey, Economics has been described as the science of “mankind making a living.” This definition, too, excludes the solitary life by limiting Economic science to cooperative mankind—in other words, to Economic association. It, too, identifies Economics and legitimate Business; for only through legitimate Business activities can cooperative mankind make a living. It, too, excludes theft in all its forms and guises; for so much of a living as some may make by any kind of theft, others must lose as victims of theft. It, too, brings Economics on the surface and Business on the surface within the definition of “the science of making money;” for only by means of money measurements in money terms does or can mankind in the mass make its living.
But making money is only a surface fact in Economics. It is but a means to the end. By no possibilitycan it be rationally regarded as the ultimate object. The ultimate object of Economics is earning the living that money will buy. Both the object and the method lie below the surface of money-making. To Economics, making money is somewhat as book-keeping is to a commercial business. It is the surface expression of all underlying Economic phenomena.
Before those phenomena can be thoughtfully observed and studied, the relation to them of money-making must be keenly scrutinized and intelligently considered.