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Chapter XV: Economy and Economics

All societies embrace an institution called ‘economy,’ and the cultural science which takes this institution as its subject matter is known as ‘economics.’ What is that aspect of social life1 which leads to the organization of an economy, and gives it a place beside conscience, polity, and law among the ubiquitous and perennial institutions?

As has been pointed out, all interests tend to assume a preëmptive form, that is, to demand the exclusive possession of their objects. Insofar as the interest fails unless the object is exclusively possessed, the object is said to be “needed.” The effort or strength of the interest, or some fraction thereof, is then directed to the acquisition of that which is deemed indispensable. In the primary sense, an economy is an arrangement by which men, having interests, acquire what they need. It will be noted at once that this function of economy is not limited to any class of interests, since all interests, humanly speaking — physical or mental, high or low, from the basest appetites to the most soaring aspirations — generate needs and therefore fall within its provisions. Hence economy is all-pervasive and universal.

But why is it necessary that an economy should be organized? Because, in the first place, needs compete with one another in the field of causal interaction. They reach into the common environment, and in taking for themselves they tend to take away from others; as when the hungry man, needing food to eat, and appropriating it to his own use, deprives other hungry men of its use. Men may find themselves competing for the same external object even when there is actually plenty for all. Interests have to be organized to prevent, remove, or mitigate this incompatibility.

There are certain simple methods by which this is attained. The same object may be used in rotation, or it may be divided; or a particular bone may cease to be a bone of contention through substituting another and equivalent bone from an existing supply of bones. By combining their efforts men can provide for more needs than they can by acting separately. But coöperation, to achieve the maximum of fruit-fulness requires that the several coöperating parties shall not only supplement one another but play complementary roles which coincide with differences of talent, aptitude, and skill. Save, perhaps, on the biological level of paternity and maternity, coöperation requires an organized division of labor.

This highly simplified description of economy implies its essential features. This is its merit. It omits the details of the modern western economy, but it construes these as complexities which develop from the simplicities, and which have to be brought back to the simplicities if their meaning is to be understood.

Production and distribution perform the double function of escaping incompatibility and procuring abundance because the things which interests require are usually in some degree limited; scarcity is an essential, and not an accidental feature, of the economic situation. This is equally true of cost: production is impossible without the sacrifice of some good, or possibility of good, even if its loss is compensated. If objects are to be used they must be possessed — hence property; property may be accumulated — hence wealth. The instruments of production must themselves be produced — hence capital goods as distinguished from consumer goods. If production is to serve its purpose the products must be distributed among the needs which it is designed to supply. When production is organized there are those who labor and those who manage, with varieties of each. If there is to be production for future use there must be an ad interim provision for present needs; as when a man must be fed today while he is planting next season's crop — hence saving, borrowing, and eventually banking, with all their refinements. The possession of objects in excess of present needs leads not only to saving for the future but to the exchange of the unneeded for the needed or the exchange of the less needed for the more needed; and the gain of each by this transaction is called his profit. When needed objects are divisible into quantitatively equal units there is a ratio of exchange, or price. The fecundity of organized production within any community leads to an excess beyond use: hence surplus and commerce.

There is an aspect of economy which has yet to be brought to light, and which is properly associated with the word ‘economy’ and all of its derivatives, such as ‘economical’ and ‘economize.’ Since economy involves cost, that is, the forfeiture, or postponement, of something needed, the norm of minimal cost is the negative implication of the norm of maximal provision for need, as the diminution of evil is implied in the augmenting of good. ‘Cost’ means cost to all embraced within the economy. The cost to each party — his labor at the sacrifice of leisure or of preferred activities, his surrender to others of things possessed — must be induced by his expectation of gain. An economy is an organized reciprocity, in which both the costs and the gains are shared.

The same truth may be expressed by saying that all genuinely economic relations, such as that between producer and consumer, buyer and seller, employer and worker, or lender and borrower, are partnerships; not as judged by some external humane or religious standard, but intrinsically insofar as they are not partnerships they are not economic relations. They presuppose an underlying agreement of the parties concerned to engage in a joint enterprise for their mutual and total benefit.

This reciprocity defines the dividing line between economy and certain procedures which economy supersedes — between the economic institution, and the economic “state of nature.” Plunder, piracy, and banditry, that is, the dispossession of a person or group by violence, is a non-economic procedure, because the cost to the second party is not compensated and commends itself only to the first party. Loving kindness, private charity, public relief, and the care of dependents, however admirable on other grounds, fall outside of economy, because the recipient of the gift makes no contribution to its cost. Unemployment is a sign of economic failure, since the unemployed, having no opportunity to pay their way, are thereby excluded from the economy.

An economic system, once established, is thus an automotive or self-propelling system, in which the several parties are moved by their hope of benefit. It pays its costs out of its benefits. It is a system of incentives, by which in order to provide for their own needs each party contributes to the needs of others. If an economy requires external intervention, or the use of violence, or total self-renunciation, it is, for better or worse, no economy. An economy does not do its own particular work, and make its own peculiar contribution to society, except insofar as it goes of itself. An economy to be an economy must draw; it must generate its own power by the inducements which it offers; it must be “viable” or “dynamic.”

This must not, however, be taken to imply that such a self-propelling system can be divorced from conscience, polity, law, and other institutions. It is only through these that it can be created and operated. But despite its penetration by every sort of social and historical influence, economy has its own specific function, by which it serves the moral purpose of non-conflict and fruitful coöperation, and in terms of which it can be described and appraised.


A considerable portion of economic theory is devoted to what is called ‘theory of value’ or ‘value theory.’ What is the relation of value in the strictly economic sense to value in general, as that has been already defined?

A New York business man once asserted that brains are cheap.2 By way of explanation he went on to say that anyone could hire a college professor for five thousand dollars a year. It is clear that in self-defense a college professor is bound to insist that being expensive is not the only way of being valuable. He may be driven to retort that the things that are freely available, such as truth, beauty, or the grace of God, are the things that are worth most: or that the best things are priceless. Or he may retort by suggesting that a man who estimates the value of things in terms of dollars is corrupted by his occupational habits. At any rate it seems fairly obvious that what is “cheap” may yet have redeeming features. ‘Expensive,’ when taken as connoting value, has a special and restricted meaning determined by the economic context.

Adam Smith distinguished between “value in use” and “value in exchange”3 to which Mill added that “the word Value, when used without adjunct, always means, in political economy, value in exchange.”4 But this is highly misleading if it is taken to mean that economics excludes value in use: value in exchange is itself derivative from value in use.

No economist treats utility as lying outside his field. He may contend that utility does not enter his domain until exchange occurs, but when it does occur it does not leave utility behind; it embraces utility, and is quite meaningless without it. Thus when value in exchange is explained in terms of supply and demand, demand is explained in terms of anticipated utility; that is, in terms of what is deemed needful.5 And since needs are to be explained in terms of interests, economic value conceived as exchange value is a derivative of value in general, defined as object of interest.

The only serious attempt to divorce economic value from interest is the so-called “labor theory of value.” Although this theory has had a long and respectable history, it would seem at best to rest on confusion and misunderstanding. If ‘labor’ means “work” in the physical sense of that term, that is, measurable in foot-pounds, it can be duplicated in the fall of a body to the earth's surface, or in any other physical event involving the expenditure of energy. If, on the other hand, ‘labor’ means effort, that is, motivated action, or if it is taken to imply painful effort, or disagreeable drudgery, or expenditure of time, or sacrifice of any description, or if the outcome is taken as useful, or if a man is said to have earned a “right” to the fruits of his labor, then interest becomes the essential factor in the description.

Economic value, as distinguished from value in general, is commonly identified with price. And so — what is price? This is an ambiguous question. It might mean the question that can be answered simply by the price tag, or the price list, or the price index, or the market quotations. But no economist would admit that such information was a contribution to economic theory. The more serious question which he has in mind cannot be answered by the salesman or the statistician, in terms of some monetary standard of measurement, such as the dollar or pound, but only by stating what it is that the price measures.


Broadly speaking, the price of any given object measures what one can get for a thing if one has it, or what one can get it for, if one does not have it. The underlying fact is giving for the sake of getting, impelled by a comparison of needs. Every man has something to give, and in terms of that, he will think of the “price he has to pay” for what he gets. If he has nothing to give but his labor, he will think in terms of his time, his bodily strength, his skill, his painful exertions, and the exclusion of other things he would like to do. The man who has land or domesticated animals to give will think of price in terms of their surrender. The difference is not fundamental. The first man presumably used his hands for two purposes: to make something, or to grasp something. Whether he gave his labor for the sake of the product, or gave up his present possession for the sake of acquiring another possession, he was exchanging something he had for something he had not but which he believed he needed more.

‘Exchange’ in the economic sense does not mean that an object changes hands; it is not a mere exchange of place or possession, as when two men accidentally exchange hats in the coatroom, or generously exchange gifts at Christmas. To qualify as an economic exchange it must be a calculated exchange, from which both parties believe they profit. To understand ‘price’ as a measure of exchange it is not necessary to accept (or reject) the law of “diminishing returns,” or the doctrine of “marginal utility,” or the Malthusian doctrine of the subsistence wage, or the Marxian doctrine of “surplus value,” or the classic doctrines of interest or rent, or any of the doctrines which have played so prominent a role in the economic theory of the past but are now matters of controversy. The meaning of ‘exchange’ in the economic sense does not imply any of these ideas, though its complete analysis will no doubt borrow something from all of them.

Exchange does presuppose, in the first place, two or more subjects each of whom has needs, and each of whom has resources at his disposal, which can either be used to meet these needs, or transferred to the possession and use of another subject. It presupposes, in the second place, that each subject is qualified to arrange his needs in an order of preference, and to anticipate, more or less correctly, their fulfillment by his own resources or by the acquisition of resources possessed by a second party. In other words, exchange presupposes economic agents possessing those faculties of thought and choice which are the peculiar prerogatives of a person.

It is presupposed, further, that the subject's existing resources are capable of alternative uses. The most unmistakable example of this is the subject's time, which he can employ for any of his interests, or which he can give to the service of someone else. The same will hold, in a more restricted measure, of his labor and his skill. But the principle of alternative uses will also hold, although in a still more restricted measure, of his possessions. Thus, his house and his child can be transferred to the service of another's needs when considered only as space and labor, though not when considered as objects of his domestic affection.

These are not the only presuppositions of exchange. It presupposes communication and transportation. It presupposes possession and transfer of possession. It presupposes mobility of labor. It presupposes noninterference by any agency, private or public. It is not to be argued against economy as here defined that these presuppositions are never wholly met; that there is never, in short, a “pure” or “free” economy. It is necessary, as in all science, to abstract from the full concreteness of existence in order to understand its complicating factors.

Exchange occurs, then, when there is a meeting of two economic agents, each of whom is bent on providing for needs still outstanding, who are so situated that each can give up to the other in return for what he gets from the other, and each of whom believes that he needs what he gets more than what he gives. Exchange is thus an extension of alternative uses. In the absence of exchange, a man having a cow can use the cow either to eat or to milk. Adding the possibility of exchanging the cow for an acre of land he can use the cow either to eat, or to milk, or, indirectly, to extend the area of his arable soil.

When exchange occurs the price of what he gets is what he gives, and the price of what he gives is what he gets. The cow is “worth” an acre of land, and an acre of land is worth a cow. Which is the same as to say that when two things exchange for one another their price is the same. This is all that ‘price’ means. ‘Sameness of price’ does not mean equal usefulness: as a matter of fact it arises from unequal usefulness: one party finds the cow more useful, and the other finds the acre of land more useful.

To understand how a “standard” of value arises it is necessary only to extend bilateral exchange to multilateral exchange. The man who obtains the acre of land in exchange for a cow may exchange it for a house. These future possibilities of exchange may govern both economic agents in making the original bargain, and they thus enlarge the range of alternative uses. The cow is then worth any one of the things which its owner may obtain for it; and all of the things that are thus directly or indirectly exchangeable for a cow are worth the same, namely, one cow. The economy is then a cow economy; or may be said to be based on a “bovine standard.”

In other words, it is possible to substitute for the rate at which two objects are exchangeable the rate at which each is exchangeable for a third; or the rate at which all are exchangeable for one; which then becomes the medium or common denominator of exchange, called ‘money.’ Monetary price is thus a many-one relationship, which can be represented as a circle with the chosen medium at the center and radii to all other goods on the periphery. The relation of the center to the periphery represents the command, through exchange, of a variety of goods obtainable by him who possesses some one. What object shall be selected by the purpose is determined by reasons of convenience: it might be a cow, which would be highly inconvenient, or a package of cigarettes, which is said to have served the purpose in parts of post-war Europe, but it is more likely to be a precious metal, such as gold or silver, or a piece of paper which is convertible by government into a precious metal, or which is legally recognized in payment of debts or taxes.

He who has money virtually possesses all the things that “money will buy.” It opens to him a vast, indeed a limitless, perspective of getting what he has not but needs more, to replace what he has but needs less. It is this power, and not because of any base appetite or hoarding mania, that men seek money and more money.

The money value of a given possession thus represents no single value computed in terms of interests and needs. To say that an object is worth one hundred dollars means that it is exchangeable for a class of objects. He who has one hundred dollars can obtain any one of this class, and he who has any one of this class can obtain one hundred dollars, with which he can obtain any other member of the class. But the members of this class of interchangeable objects will have different interest-values for the different parties to the exchange. The “hundred dollars’ worth” may be of negligible value relatively to one man, while “beyond the dreams of avarice” to another. To suppose that “a hundred dollars’ worth” represents a single value relatively to the interests and needs of society as a whole would be to substitute a fictitious substantive entity for a complex network of relations.


Since economy is coextensive with man, explanatory economics is an inexhaustible inquiry. There is no cause which affects human life at all that does not affect economy. There are, however, certain broad considerations which are appropriate to the present context. The first of these is the distinction between analytical or systematic explanation, and historical explanation.

Analytical explanation explains economy in general, and expounds the forces which are at work in all economies. It is this explanation which has been offered above in expounding the general nature of economy and of economic values. Such explanation may be pushed much further than has here been attempted. Especially inviting is the examination of “economic behavior” by social psychology and sociology.6 Such a study would deal with the general characteristics of human nature and human relations as applied to the general characteristics of man's economic life.

Applied historically the explanatory method sets forth the particular circumstances of time and place which distinguish one particular economy from another — difference of geography, soil, climate, racial traits, social structure, scientific and technological development, custom and tradition. Unfortunately analytical and historical explanations are sometimes confused, with the result that the characteristics of a special economy, such as that of England in the nineteenth century, are taken to define economy in general.

The fact that economy is an organization of interests prescribes the manner in which its causes operate. Physical changes which diminish or increase natural resources will affect an economy through affecting human needs and the alternatives open to choice. Through the interests which it serves an economy will reflect the conscience or mores of the community: a society of ascetics will have a different economy from that of a society of sensualists and sybarites. The kind of economy a society has will reflect the character of its political institutions, whether they are democratic or authoritarian. Whether government is in business or out of business, a very considerable part of law and rights is that which regulates men's economic relations — from the laws protecting property and prescribing the keeping of contracts, to the complicated laws of incorporation, finance and trade. Science, art, religion, and education, with their differences and changes, will all determine economy whether through the interests served, or through the modes of human relationships which they create.

There is a quite gratuitous dispute over the question of the social or individual character of economic causes. When it is understood that ‘social’ means a plurality, agreement, interaction, or other relation among individuals, there is no problem. The following is a typical form of the argument:

It is only changes in fashion or mode, in general business confidence, in moral attitude toward this or the other sort of consumption, in the distribution of wealth, changes in taxes and other laws, etc. — causes of a general social character — that you can count on to produce important changes in values.7

It is quite true that economic value, as measured by price, is an effect of many minds, and is changed only when many minds are changed. It is quite true that an individual's felt need for an object is mediated by his judgment of the attitudes of others: he wants it because others want it or admire it. It is quite true that because price is a product of so many minds it is independent of any single given mind, and that an individual is obliged to accept it as an objective fact.


Normative economics, or economic critique, is divisible into three distinguishable but overlapping parts: the internal instrumental critique; the external critique, instrumental or final; and the internal final, or moral, critique.

Judged by its instrumental standard the worst economy is that condition of man in which there is no economy at all. This condition has, presumably, never existed in human history, since some economy is a condition of survival. A group whose members lived by plundering one another and were deprived of the advantages of organized production, distribution, and exchange, could scarcely bear the impact of natural forces or of rival groups.

Economy of some sort or of some degree is an organization already acquired when human history begins. But a society which has economy enough to survive may yet embrace members who do not participate in its economy — that is, who do not pay their way. So far as these members are concerned there is no economy. For reasons of age, incapacity, or incorrigible selfishness, there will always be a residuum of persons remaining outside of the economy, as its wards or enemies; as there is always a residuum disqualified for political citizenship or legal rights.

But otherwise the presence in society of persons who neither give nor get, or get without giving or give without getting, is an indictment of that society's economy.

A highly organized economy of the modern occidental type may generate the causes of its own failure, as the bearings of a machine may be obstructed by the products of friction. The economy which has prevailed in Western Europe and the United States since the Industrial Revolution is frequently indicted on this score, even by its own friends. It is said in this or that respect to “break down” or not to “work.” 8 The terms of this indictment of the capitalistic economy are familiar. It is subject to cycles and to periods of so-called “depression.” It presupposes competition, but tends to monopoly because the competitive motive itself leads each competitor to weaken and destroy its rivals. The motive of reducing costs leads to combinations, and great combinations absorb the small.

Successes and failures lead to gross inequalities of wealth, breeding a class of idle rich and a class of helpless poor. Those who possess too much have no incentive to expenditure and those who possess too little have nothing to expend. Savings become stagnant at the top and dry up altogether at the bottom. Large-scale enterprise leads to aggregations of labor which by inheritance, habit, narrowly specialized skill, and the costs of migration, become immobile. Since labor is a cost of production at the same time that laborers comprise a major part of the consumers, the reduction of costs diminishes the demand for the product. In their economic action men oscillate between extremes of timidity and rash speculation — between underconfidence and overconfidence. Fluctuations of price catch men unprepared, or lead to spirals of inflation and deflation through the attempt to discount them. New inventions lead to overproduction, which leads through retrenchment to underproduction and unemployment.

As men become more and more dependent on the large-scale and delicate mechanisms of mass-production, transportation, and public utilities, they become more vulnerable. If anything goes wrong at some bottleneck or focal center, so that the great machine slows down and stops, even for a day, everybody suffers, and men may pass precipitately from affluence to privation. So that even in the midst of unparalleled economic efficiency there is a haunting sense of impending disaster.

The modern economy has its flaws and weaknesses and seeks to amend them. But judged by this same instrumental standard it has demonstrated remarkable efficiency. Its outstanding merit lies in its abundant and perpetually advancing provision for human needs by the inducements and incentives which it offers to those who pay the costs. It excludes confiscation; slavery, forced labor, and paternalism at home, and substitutes trade for conquest abroad. It is not surprising that it should have been gratefully accepted as a gift of God or the order of nature.

Any economic system as well as economy in general may be criticized or the ground of its incompatibility with democracy, and free enterprise is defended on the ground of its unique consistency with democracy. An economy, or any of its practices, may be condemned as violating legal rights; or owing to its emphasis on property, approved as conducive to a stable order.

In the history of man there has been a continuous critique of economy from the standpoint of religion. Such is the wholesale charge that economy exalts earthly and temporal goods when man's attention should be directed to the life to come or to eternity. Thus Christianity has taught that the possession of riches prevents access to the Kingdom of Heaven. Similarly, a religion of the ascetic type, such as Buddhism, condemns modern industrialism as preventing the attainment of Nirvana. Mahommedanism has prohibited interest, and Christianity usury. Protestantism has given its blessing to capitalism, as has Confucianism to the traditional economy of China. Christianity has always felt uneasy over the conflict between the hard bargaining of a competitive economy and its own gospel of charity; and its occasional marriage with socialism is a result of the application to economy of the Christian parable of the Good Samaritan.

From the standpoint of higher culture, economy has been held guilty of neglecting the pursuits of art and pure science; as when England was slightingly referred to as a “nation of shopkeepers,” and economics as the “dismal science.”9 Judged by educational standards economy is condemned for its emphasis on livelihood and vocational subjects rather than on “spiritual” values and the humanities.

The external critique of economy may be taken as revealing its limits rather than its inherent evils. It is concerned with meeting the needs which are generated by human interests, and not with the nature of those interests. It is concerned indifferently with the tools of the artist, the weapons of the soldier, the plow of the farmer, the vestments of the priest, and the investments of the financier. It deals with objects which are divisible into homogeneous and interchangeable units, and therefore neglects or omits the unique objects of love and admiration. Its place in life is in the market place, and goods which are not marketable lie outside its province. But it cannot be condemned for omitting what lies beyond its province so long as it recognizes the limits of its province. It is at fault only when, and insofar as, it mistakes its province for the whole empire of human life: when, through the narrowing effect of its own habits, the preoccupation of men with the exigency of livelihood, and the inordinate passion for riches and the power which riches bring, it accounts as of no value those things whose price is above rubies or whose value is priceless.


An economy may qualify as an economy and yet fall short of being an optimum economy because of failing to fulfill its final moral purpose. The slogan “Business is business” bespeaks the vain attempt to evade this moral obligation. Business is a great deal more than business.

The view that economy is subject to the requirements of morality has prevailed throughout the greater part of the history of economic theory, beginning with Aristotle. After an interregnum during which the claims of morality were disputed in the name of “scientific” economics, morality again speaks with authority.

The “Beveridge Report” cites Lord Keynes's argument that accumulated savings are uneconomical unless they are expended, and then goes on to say:

On the earlier teaching of the economists, moral and technical considerations in regard to the distribution of wealth had appeared to be in conflict. Moral considerations suggested the desirability of a more equal distribution of wealth, while technical considerations appeared to require great inequality as the condition of adequate saving. On the newer teaching of the economists … moral and technical considerations unite in favor of substantially greater equality of wealth than has obtained in Britain in the past.10

Assuming that the words ‘technical’ and ‘social’ are here equivalent to the terms ‘instrumental’ and ‘moral’ as used above, this passage illustrates the admission of a moral standard by which an economy may properly be judged. From the beginning of the Industrial Revolution the moral defects of the laissez-faire economy were noted and in some measure remedied: low wages, excessive hours of labor, unsanitary and over-congested living conditions, excessive dependence of worker on employer. The growing body of ameliorative legislation has been resisted by the proponents of a strictly “scientific” economics. But when pressed to justify themselves the proponent and opponent of reform have taken the same ultimate moral ground.

It is true that the impulse to economic reform is usually generated among those who are aggrieved; and who are open to the charge of pressing their own special interest, and engaging in reprisals against the more privileged. But in their final self-justification they take broader ground, and speak for society as a whole. The exponents of the economic status quo are open to a similar charge of bias, since they are usually those whose special interests are entrenched. But when pressed to defend themselves they take the same ground as the aggrieved. They do not say, “We possess economic advantages, and propose to hold them. What are you going to do about it?” On the contrary, they endeavor to persuade the aggrieved that their interest, too, lies in adherence to the existing system — that it is good for everybody. They speak of the indirect and universal benefits of the competitive system, as catering to the wants of the consumer, rewarding thrift, stimulating invention, increasing production, reducing costs, accelerating progress, and multiplying opportunities. They say to the less privileged: “We are, indeed, at the moment more successful than you. But what we have attained, you may attain; or if not you yourself, then your children.”

The implication of the moral standard pervades economic thinking throughout. It appears in the assumption that there is something wrong with the feudal system, not because it did not work, but because it was authoritarian and unjust. It appears in the assumed obligation of government to control the public domain, and conserve natural resources, in the interest of the total society, present and future, and in the condemnation of “log-rolling,” by which special groups exchange economic favors with no regard to the public interest. It appears in the assumption that there is something wrong with a system in which the rich grow richer and the poor grow poorer, and not merely because it reduces consumer demand. It appears in the assumption that there is something wrong with a system which fails to remedy human poverty, misery, and unemployment. It appears in the assumption that a Malthusian economy in which growth of population reduces wages to bare subsistence, or in which labor is induced only by fear of starvation, or in which survival is based on the elimination of the relatively weak by plague or malnutrition, is a deplorable state of affairs which economy is bound if possible to remedy or prevent.

This moral premise, often unspoken, is unmistakably clear in the critique of slavery — in its defense as well as in its condemnation. Slavery was attacked on the ground that slaves, being property, have no voice in the economic system under which they live. It was defended on the ground that were the slaves to know their interest, being by nature slavish, they would assent to their slavery; or on the ground that as slaves they were “better treated” than they would be as free men, or on the ground that the conditions of production were such that the wealth whose benefits they in some measure enjoyed were unattainable without slave labor.

Somehow, in other words, by direction or indirection, by hook or crook, the institution was so presented as to secure the hypothetical agreement of the slave. Such a moral justification of slavery is clearly distinguished from the narrower judgment which considers only the advantage of the slaveholder. Thus it has been argued that free labor would be more efficient than slavery; would create a local purchasing power and market for the master's goods; would enrich him more abundantly; or would deliver him from the menace of a slave insurrection. But it is the broader moral ground, the ground, namely, that it is unfair to the slaves, on which is based the final condemnation of the slave economy, however well or ill it may work.

It is one of the unhappy results of economic thinking that this ulterior purpose of economy is so often allowed to remain in the background, to be brought forward only when the system is on the defensive. Too often the economic thinker instead of surveying economy as a whole and judging its processes and instrumentalities by the moral good, puts himself in the position of adviser to a special client.


The ulterior moral purpose of economy may be presented by an examination of the moral limits of prudence, which is the name given to an organization of interests however limited they may be. It is entirely consistent with selfishness, that is, with an absence of independent benevolence. It is apparent that the ordinary processes of business and trade fall within this definition. The economic agent may not be concerned with a merely private gain: he may be the trustee of an orphan asylum, and his customer may be the director of a board of foreign missions, and each may genuinely represent the interests with which he is charged.11 But in the strictly economic transaction the two are pitted against one another. The first party is at the moment ignoring the heathen, and the second is ignoring the orphan. The breadwinner of one family may be similarly pitted against the breadwinner of another family; or the director of one corporation may serve its stockholders with no consideration for the stockholders of a second corporation. When the economic adviser remarks to the physician: “You ought to charge more for your services — you could easily get it,” or to a benevolent employer apropos of his high wage-scale: “This may be good religion, but it isn't good business,” he is appealing to the limited prudential standard. Judged by the same limited standard the economic agent is absolved from the obligation of buying in the dearer market out of sheer goodness of heart, or of paying more than necessary in order to benefit a deserving merchant.

It is this same prudential principle which justifies a purely competitive, as distinguished from a coöperative, relation between persons. Hence it is associated with mere ‘success,’ or ‘the Goddess of Getting On.’12 Its code of ‘economic virtues’ emphasizes thrift, industry, and sobriety; those virtues, namely, which contribute to the conserving and increase of a person's resources regardless of other purposes. The moral purpose, on the other hand, prescribes that account shall be taken of all the interests which action affects, or its consequences all around. The prudential principle which serves a limited set of interests must on moral grounds be subordinated to a principle of larger scope which provides for the good of the other party to every transaction, and implies the motive of independent benevolence.

The moral economist will concern himself with those who get the worst of the bargain. He will be disturbed by the comparative helplessness of any party to recognize and press its interest. He will align himself against an economy in which advantage is taken of ignorance; and will seek to promote an economy which provides for sales resistance as well as sales pressure. He will not be satisfied with an economic system merely because those who profit by it most are enabled to drive good bargains, and induce others to accept them. He will be concerned not with bargains only, but with bargaining power.

Economic value as measured by price conceals inequality of bargaining power. It measures the more needed which a man gets, in terms of the less needed which he gives; but ignores the place of the needs in the personal scales of the bargainers. One party in exchange differs from another in how much he needs that which he needs less, and which he is obliged to surrender for what he needs more. He who possesses little is obliged to give from that little, which, though he needs it less than that which he gets, he nevertheless needs greatly. Thus the man without property has nothing to give but his labor, and may be obliged to give that in order to obtain food and shelter. The man of large property, on the other hand, has so much to give that he need not labor at all, and he may, in giving from what he has, deprive himself of what he needs slightly or not at all.

When one party is in a position to give what he needs comparatively little and the other party must give what he needs comparatively much the first party's bargaining power is superior to that of the second. He has superior power because he can in a higher degree control the second party's disposition of his possessions and services. He can ‘force’ the second party to trade, and he can ‘dictate’ the terms of the trade. Such inequality of bargaining power tends to be cumulative. Each transaction increases the advantage of the one and the disadvantage of the other. When this advantage is pressesed beyond a certain point it is called ‘exploitation’ — or in its extreme development, ‘wage-slavery.’

It may be objected that the terms ‘force’ and ‘dictate’ cannot accurately apply to superior bargaining power, since the weaker party is still free to work, buy, or sell, or not, as he chooses. But to condone such a system in the name of freedom is to falsify the meaning of freedom. The man who must sacrifice leisure, recreation, and self-development to bare subsistence, or the woman whose circumstances compel her to sell her body or starve, has ‘little or no choice.’ An economic system which even though it operates through the choices of its members has the effect of abridging their choices, cannot be praised on the ground of freedom. It may in fact reach a point at which it is doubtful whether it is better than no economy at all, and at which its victims are tempted to resort to plunder.

Expressed in more familiar terms, this means that great inequality of wealth indicates an unsound economy. This is not because inequality of wealth dries up the purchasing power of consumers, or removes incentives to investment, or depresses the morale of the workers, so that the system becomes less profitable to the exploiter. It is unsound for the reason that it is unjust to the exploited, that is, fails to satisfy the moral requirement that an economy shall be equally mindful of the interests of all concerned.


The rationalization of economy requires enlightened fidelity to its moral purpose. There must be an overruling of selfish prudence by justice and humanity — a control of limited self-interest, however shrewd and calculating, by the long range good of all. Where shall this rational control be lodged? There are two possibilities. This moral control must be lodged either in the public authority, or in the conscience and moral wills of those who participate in the economy. Economy must either regulate itself, or submit to being regulated. The ‘interference’ which it resents is the penalty of its moral irresponsibility.

The common resort has been to government, which enacts and interprets laws to control economy in the general interest. Reliance on the intervention of government is typified in the following statement, made apropos of the widespread suffering predicted as a result of the mechanization of cotton growing in the Southern United States:

It is not within the province of private enterprise to deal with problems of this nature. Strictly speaking, social problems are irrelevant to the operation of a private business. We cannot expect the new agricultural industrialists to have either the will or the capacity to handle them; that is a function of government.13

The influential teachings of Maynard Keynes provide for the systematic, and not the piecemeal, intervention of government. If the operations of an economy are to be beneficent as well as efficient, it is necessary that government shall determine the framework within which it operates:

Thus I agree … that the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System,’ but to indicate the nature of the environment which the free play of economic forces requires if it is to realize the full potentialities of production. The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government.14

But government is not an infallible instrument of moral control. It may itself be unfaithful to its trust. It is composed of human beings who may or may not be disinterested. There is danger of a vicious circle: an unregulated economy may have corrupted the very government which is called upon to regulate it. Inequality of wealth implies inequailty of influence, with the result that government tends to become the voice and instrument of those very interests whose privileges it may be required to correct. Even ‘public opinion’ may be only the private opinion of those whose disproportionate wealth enables them to control the agencies of publicity; in which case the making of the public opinion on which government rests becomes itself a form of exploitation.

The moral apportionment of economic goods must in the last analysis be determined by a social will which expresses agreement among persons who through sympathy and benevolence take account of one another's interests. Ideally speaking, the final judgments of an economy are voiced only by persons who by consent are entitled to speak for all. If such persons are found in public office so much the better; but there is little likelihood that they will be found there if they are not widely dispersed among private individuals and groups.

A society's economy, like its other social institutions, will reflect the moral enlightenment of its members. Here, as elsewhere, there is no escape from individual human responsibility. Sooner or later, and somewhere, there must be men who play a double role, men whose prudence is subordinated in their own persons to the control of the moral purpose. Fidelity to the moral purpose cannot be imposed from without but must be implanted within; and this is a task to which all the agencies of moral education — parents, teachers, preachers, sages, priests, orators, journalists, officials — working together are scarcely equal.

The extreme exponents of the laissez-faire doctrine, who have entrusted economy to economic agents governed by selfish prudence, have assumed that a rivalry among such agents would be morally beneficent.

They have assumed that men are so constituted that their intelligent self-seeking, no matter what self they seek, would be good for everybody automatically; that men are by nature so predisposed to harmony that all they have to do in order to promote harmony is to be natural.

Now that it has been proved by the sciences of human nature and by the bitter experience of conflict — between man and man — that such is not the case, it is evident that if a harmonious society is to be achieved, human nature must be fashioned to fit it. Original human nature must be transformed into human second nature, before it can be trusted to follow its own promptings. Certain primitive impulses, such as fear and combativeness, must be played down, and other primitive impulses such as sympathy and love must be played up; and the first must be subordinated to the second. Men must be socially trained. They must acquire a sense of the total community and their devotion to it must become their overruling interest. When men are thus internally governed by good will they may then seek to excel one another in good works. The self having been socialized they may then give free rein to self-interest, and drive with one another what bargains they please.

There are two forms of economic knowledge. On the one hand there is prudential intelligence — the shrewdness and foresight, the understanding and inventiveness, the specialized skills — which enables men to produce what can be sold, to sell what is produced, and to outstrip competitors. On the other hand, there is that higher enlightenment which aligns the instruments of economy with the moral purpose. Both forms of knowledge are indispensable: it is necessary that they should be combined in the same society and in the same persons, and that the first should be subordinated to the second.


In the case of economy, as in the case of other moral institutions, it is illuminating to distinguish two canons of reform which are implied by its ulterior moral purpose: the standard of liberality, and the standard of universality. Both have to do with the resolution of conflict: liberality is the moral standard as applied to class conflict or the social revolution within societies; universality is the moral standard as applied to war or the conflict between societies. Both principles have meaning in the field of economy.

The term ‘social revolution’ is commonly used to signify a revolution that is motivated by economic discontent, and which results in a radical redistribution of economic wealth and power. Insofar as groups within society are consolidated by the sense of their common advantages or disadvantages they form so-called classes, and their conflict becomes class-struggle. Marxism introduces rigidity and fatality into what is a perennial phenomenon permitting of many differences of degree. In any economy there are always those who profit more by the system, or are relatively privileged, and those who profit less, and are relatively unprivileged. This difference appears in a socialist economy such as Soviet Russia, as well as in capitalistic societies. The extent to which the privileged and the unprivileged are set apart and mobilized against each other is the accident and not the essence of the matter.

The standard of liberality arises from the fact that morality is an organization of life for the benefit of the elements organized — not for the sake of the unity of the whole but for the sake of the parts. Such an organization is morally defensible only insofar as it commends itself to its members on this ground. Like any organization, it limits the interests of the participants; but, like any moral organization, it limits each only so far as is required by the good of all.

This is the principle which defines the moral right of the relatively unprivileged to protest and demand reorganization when they believe that the limits imposed are excessively narrow. Their protest is not justified because of their poverty, helplessness, or frustration; or even because their share of the proceeds of the economy is less than that of others — although this gives them a prima facie case. The appeal is not to the interest of the aggrieved party, but to disinterestedness — that is, all-interestedness. The aggrieved party may rightly demand that its comparative privation shall be proved necessary in the interest of all concerned.

This analysis is applicable to the lowest imaginable economies, such, for example, as that which employs the labor of galley slaves who exchange their much-needed time and bodily strength for what they need even more — namely, escape from punishment and starvation. This is a morally bad economy, not because of the slave's hardships — it might be that no other method of transport by sea was possible, and that these hard necessities were imposed by the interests of the total group, including the slaves — but because the economy neglects the interests of the slaves, and gives weight only to the interests of the owner, the trader, or the slave driver. The exponent of the slave's interest may rightly claim that if all interests were considered the resulting economy would distribute the burden more equitably. Such a better economy would, perhaps, assign the hitherto more privileged parties a turn at the oars; or it would alleviate the burden of the oarsmen by better food and shorter hours; or it would give the oarsmen a voice in the conduct of the enterprise; or it would seek for some improved system of transport, such as the sailing vessel, by which the costs to its human participants would be diminished.

The demand for liberality finds its authentic expression not in the sheer self-assertion of the unfortunate nor in their envy of the fortunate, nor in pity felt for the unfortunate, but in the will to reform. The fault lies in the system, and remedy is to be sought in its liberalization: not in alleviating suffering, but in preventing it; not in treating the economically sick, but in economic prophylaxis or hygiene; not in visiting the poor, but in eradicating poverty; not in bread and circuses, but in social reconstruction. In this sense, in their demand that the house be remodeled rather than that its less attractive quarters be made more habitable by fumigation, incense, soporifics, or anaesthetics, the social revolutionaries are profoundly right; provided, however, due allowance is made for the losses incurred by all when the remodeling is too abrupt or violent.

Interpreted in the light of these considerations, the so-called ‘labor movement’ was a moral movement, which applied the standard of liberality to the existing system or employment. Its exponents, whether workers or reformers speaking in their behalf, believed that it was possible to provide for human needs at less cost to those who worked with their hands. They affirmed that if the total enterprise were conceived in terms of the workers’ interests as well as the employers’, it would not embrace a group of persons so near to the subsistence level, and so dependent, as were the workers immediately after the Industrial Revolution. The system as it stood, they contended, was an imperfect economy which had not rid itself of an inheritance of plunder and exploitation. They asked the employer and consumer, and the disinterested judge, to design a more liberal economy.

In pursuing this goal, the labor movement encountered an opposition of special or vested interests. But insofar as the labor movement was justified, the opposing force was a species of an obscurantism, which failed to start from the true moral premises and to face their broad human implications. So conceived, the issue of principle was between the friends of justice who desired that all parties should have that to which they were rightly entitled, and the unwitting partners of injustice who were satisfied that some (usually themselves) should have a disproportionate share, or between those who proposed to equalize bargaining power and those who accepted, and profited by, its inequality.

In order to improve its bargaining power, labor bargains collectively. The employer's need of the services of a single worker is so slight, and the individual worker's need of employment is so great, that the employer can virtually dictate the terms of their agreement. When workers are organized, however, they can withhold their total services and prevent the employer from doing business at all; and meanwhile, during the period of negotiation, the needs of the individual worker can be supplied from a common fund. The workers’ power to withhold or to ‘strike’ is a weapon to be used against the employer's power to deny employment. Collective bargaining so construed is a contest between opposing interests — an endurance test, or an exchange of threats, each party thinking only in terms of its own gains and losses.

When, however, collective bargaining is looked to for a fundamental solution of the problem of conflict, the premises of the argument are shifted. Both parties appeal to public opinion, or to a third party representing the public — an official of government, a neutral arbitrator, or industrial relations expert. In the course of the argument, the issue is broadened and the representatives of employment and labor themselves develop an attitude of disinterestedness. Each recognizes the claims of the other and adds them to his own, until both participate in the solution of a common problem which is to reconcile the interests of all concerned.

To understand the motivation of organized labor it is important to recognize that it is an effort to obtain power and to obtain rights. The employer who ‘treats his employees well,’ and helps them to create a ‘company union,’ or whose wife visits their homes and dispenses charity, often exhibits a hurt surprise when the recipients of this indulgence are ungrateful, or even resentful. This unwillingness to accept gratuities is due, at least in part, to a rivalry for power, since it is more blessedly powerful to give than to receive: to give is a form of control. But the deeper reason for the attitude of organized labor lies in the fact that it is not asking for favors but for the right of workers to choose their good for themselves, and the right to a just share of the proceeds of the economy in which they participate.

When economy is considered broadly as a system devised to provide as abundantly as possible for all human needs, account must be taken of the negative effect of the pains of labor — not only pain in the strict sense, but fatigue, anxiety, and boredom. When the immediate values of labor are negative, so that a man works only in order to escape work at some future time, or in the hope of compensation, there is clearly a loss. But when work itself is enjoyed, through its appeal to pride and emulation or to the creative impulses of craftsmanship and management, there is a positive value to be added, and not a negative value to be subtracted. The recent emphasis on the psychology of the worker15 — his motivation and the conditions of his personal happiness — thus has a moral and not a merely instrumentalist meaning. The depressing effect of modern mechanization, with its tendency to convert the worker into a robot, is to be deplored not merely because it reduces his efficiency, but because it deprives him of good.


The canon of universality is clearly applicable to economy. Its beneficent relationships embrace all human persons, who, having needs, are confronted by the alternatives of plundering one another or of engaging in transactions that are mutually profitable. When an economy stops at some geographical, racial, or national frontier, while other persons with interests and resources are within reach on the other side of the frontier, there is at that point no economy; and there is a loss of that moral good which economy provides, namely non-conflict and coöperation.

So strong is this extensive force of economy that international economy has been the first international institution to develop, and has paved the way for the others. The trader has sponsored or accompanied the discoverer and has often been himself the discoverer, or the crusader and missionary. And although the first contacts have assumed the form of plunder, they have led immediately to exchange, even with ignorant and defenseless aborigines. The Mediterranean world, Europe and the Americas, and finally the West and the East, have been unified by commerce when still profoundly divided in conscience, polity, law, science, art, education, and religion.

Economy tends to global economy — to an economy embracing all mankind. This does not imply, as is sometimes supposed, that worldwide business transactions are necessarily more profitable to their participants than local transactions; or that business transactions between Asiatics and Europeans who live 10,000 miles apart, are more profitable than a transaction between two European neighbors; or that multilateral business transactions are more profitable than bilateral business transactions. They may or may not be, depending on what two or more parties have to give one another in return for what they get. The members of a local economy may be cut off from possibilities of profit which would be available within a larger economy. A purely urban economy may be unable to exchange a financial or industrial surplus for the products of agriculture, and the national economy is then better than the merely regional economy; but it does not follow that a local enterprise, such as a retail store, is less profitable. Improved communications make it possible to do business at a distance or through a third party, but such remote or indirect transactions are not necessarily more profitable than next-to-next transactions. In short, the global economy merely multiplies the alternatives of economic choice.

The normative judgments applicable to limited or national economics are also applicable to a global economy. It may be criticized instrumentally, that is, as failing to work and as generating the causes of its own failure. The world-wide economy is subject to cycles, monopolies (here called ‘cartels’), excessive saving, the decline of purchasing power, overproduction, unemployment, inflation and deflation. A global economy may or may not be true to its moral purpose of fulfilling the needs of all to the maximum degree. If this purpose is to be fulfilled the global economy must be controlled by international statesmen who are faithful and enlightened; or, in the last analysis, by an international economic statesmanship widely distributed among the private persons and groups or the national rulers, who conduct its economic affairs.

An economy which satisfies the requirement of universality may nevertheless fail to satisfy the standard of liberality. It was its illiberality which discredited the economic imperialisms of the nineteenth century. The European power which imported ivory from Africa or spices from the East Indies, or employed native labor for the development of local resources, often exploited ignorance and poverty. After its fashion it was an economy on the global scale; since both parties obtained what they needed more for what they needed less. But it rested on a grossly unequal bargaining power.

No doubt mere prudence would dictate an increase of the purchasing power of the so-called dependent peoples up to a certain point; but it would not close the gap between selfish economy and economy considered in terms of its advantage to both. Only the disinterested recognition of the interest of dependent peoples themselves would prescribe that they should be made independent; that is, encouraged to develop their own resources and industries so as to compete on more equal terms with the developed economies of Europe and America.

A liberal world economy will be organized in behalf of all mankind, and that which it prescribes will take precedence of an economy organized in behalf of any limited part. Its requirements will overrule those of so-called “national self-interest,” if and when there is a conflict between the two. There is more lip-service to this idea than understanding of its meaning. Perhaps national self-interest is only what some national says it is — without too much protest from his fellow nationals. But let it be assumed that the standard of a national self-interest is the provision which it makes for the interests of its members, as they stand, and whatever they are. One may then inquire whether a national economy so defined will do its job better by extension of its economic transactions beyond its borders.

No one has ever doubted that this will to some extent be the case. The people of the United States clearly benefit from a mass production which is made possible only by access to foreign markets. But the world economy stands on its own independent ground, as being good for the interests of the totality of mankind, as they stand and whatever they are. All of the declarations of recent years, from the Atlantic Charter to the guiding principles of the Economic and Social Council, the International Bank and Monetary Fund, and the Commercial Charter of the United Nations, have taken this broader ground; and have affirmed that the claims made on this ground take precedence of the claim made on the narrower ground of the national interest. It is hoped, or dogmatically believed, that the two claims will agree; and for home consumption it is customary to dwell upon this agreement, so that appeal may be made to the national rather than the international claim. But there is no reason to suppose that the two claims will agree in their applications throughout unless the national interest is taken to include a benevolent interest in other nations.16

Thus when the exploitation of dependent areas is condemned, it is not merely because it is bad for the exploited; although in some measure it undoubtedly is. When it is conceded that all nations should have access to basic raw materials, it is not merely because this will better the position of those who have hitherto monopolized them. When an international bank is created for the purpose of making loans to backward economies this is not merely because these economies will then provide new customers for the advanced economies. Beyond a certain point, and in the last analysis, these proposals argue from the good of all concerned, and require that the participants be activated by independent benevolence. If this ground were not taken the argument could not possibly appeal to all parties; it would be meaningless to hope for agreement through a conference of all parties in the full light of the economic facts and possibilities.

It is morally admirable to relieve distress in all parts of the world, but if this is to be done by economic means the mechanisms and instruments of economy must be preserved. It is true that Good Samaritanism is in principle not confined to near neighbors: on humanitarian principles all men are neighbors, and in the age of travel by air the road from Jerusalem to Jericho encompasses the earth. But the binding up of wounds is not economy — unless, as is not recorded of the Scriptural Samaritan, it is attended with the expectation of eventually doing business after the wound has healed. In an ideal economy men and nations would still do business with each other, and do it in a businesslike manner. The interests of each man might be exalted to the highest level of humanity; and art, science, and piety might be preferred to material goods. All men and groups might possess equal wealth, intelligence, and bargaining power, poverty and exploitation having been eradicated. But it would still be good that men should exchange for their mutual profit, and by division of labor and combined effort produce more abundantly for their several needs.


Economic technology embraces all knowledge that is adapted to any economic use. The increase of expertness is the most unquestionable feature of economic history. The rapid advance of scientific discovery is reflected in the acceleration of industrial progress, and reflected so promptly that nuclear physics is scarcely discovered before the imagination of the industrialist is anticipating its applications to war, engineering, and medicine. Indeed technology presses so hard on science as to overrun it, and put the technological cart before the scientific horse. So far does science now rise in response to the demands of technology that the laboratories of science dwell under the same roof with engineering, and research is housed with industry.

Manufacturing utilizes applications of mathematics, physics, and chemistry. Soil culture and animal husbandry utilize the applications of chemistry and biology. Industrial management and advertising utilize the applications of psychology and sociology. Business employs lawyers and political lobbyists. All this is external technology, that is, the utilization of knowledge drawn from sources other than economics itself and devoted to economic ends.

There is also an internal economic technology in which economy profits by its own experience, or uses economic knowledge. This knowledge may be used by an individual economic agent for his own private profit, or by organized industries and corporations, or by government. It may be used to facilitate the total economy—to recover from depressions or to prevent them, to increase the national income, or to provide employment and purchasing power in order that the economic wheels may continue to revolve. Or it may be used to raise the system to a higher level of justice and humanity. All this is too evident to require elaboration.

The economies of today and of tomorrow, whether individualist or collectivist, are planned economies: proved, corrected, and developed in the light of their success in providing society with the benefits for which an economy is designed. It is true that despite the obsolescence of the metaphysical and historical myths which placed economy beyond the reach of the will, there is still a sense of man's helplessness to cope with his own product. Production, distribution, exchange, advancing technology; the specialization, segregation, and correlation of services; the creation and mobilization of capital; the financial agencies of money, banking, and credit; the organization of labor; and the countless other devices in which economy proliferates, form a system so vast and intricate that the individual born into it is disposed to accept it, for better or for worse, as a fatality to which he must needs conform himself. But while the modern economy places an increasing burden on man's power to organize himself, there is no providence of nature or history which is going to relieve him of the burden.

Here again the extension of economy into the wider international and global area points its moral meaning. There is no global economy, as there is no global conscience, polity, or law; or, if they exist at all, they exist only in their crude beginnings. But there is a felt demand for such institutions and a resolve to achieve them. Needing them and not having them, man must invent them. The great moral institutions are man's to make or to leave unmade; to accept as they are with all their faults of commission and omission, or to refashion in accordance with the common moral purpose which commends them to human choice. Conscience, polity, law, and economy are different branches of the same fundamental moral pursuit, employing different instrumentalities for the same end, namely, an organization of men and of human interests that shall enable them to live and prosper together. This long campaign of man against conflict and helplessness has its advances and retreats, its battles won and its battles lost or drawn; but the goal and direction of effort are clear.

  • 1.

    Although there may be said to be an internal economy within each person, and an imaginary economy of a single person, such as Robinson Crusoe, for the purpose of the present discussion ‘economy’ is taken to mean social economy.

  • 2.

    Portions of the text which follows are reprinted from the Author's article “Economic Value and Moral Value,” Quarterly Journal of Economics, 30 (1916).

  • 3.

    A. Smith, Wealth of Nations, Bk. I, ch. iv.

  • 4.

    J. S. Mill, Principles of Political Economy, Bk. III, ch. i.

  • 5.

    J. M. Keynes has pointed out that it is the “expected utility,” and not the actual utility, which determines economic value. Cf. his The General Theory of Employment, Interest, and Money, 1936, ch. v.

  • 6.

    For a psychological approach to this question, cf. C. L. Hull, “Value, Valuation, and Natural-Science Methodology,” Philosophy of Science, 10–11 (1943–4).

  • 7.

    B. M. Anderson, “Schumpeter's Dynamic Economics,” Political Science Quarterly, 30 (1915), p. 651.

  • 8.

    For an examination of the “break-down theory,” cf. Paul M. Sweezy, Theory of Capitalistic Development, 1942, ch. xi.

  • 9.

    The first of these characterizations was Carlyle's and the second is attributed to Samuel Adams.

  • 10.

    W. H. Beveridge, Full Employment in a Free Society, W. W. Norton and Company, Inc., 1945, pp. 95–6. Cf. J. M. Keynes, The General Theory of Employment, Interest and Money, 1936, pp. 372–4. Keynes's famous book is pervaded by an appeal to moral or social standards, as when in his “Concluding Notes on Social Philosophy” he remarks that “the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes” (p. 372).

  • 11.

    On this matter cf. P. H. Wickstead, Common Sense of Political Economy, 1933, Bk. I, ch. v.

  • 12.

    Cf. Ruskin, Crown of Wild Olives, Lect. II.

  • 13.

    J. M. Morse, ‘Revolution in Cotton,’ New Republic, Aug. 19, 1946.

  • 14.

    J. M. Keynes, op. cit., Harcourt, Brace and Company, Inc., p. 379 (italics mine).

  • 15.

    Cf. G. W. Allport, ‘The Ego in Contemporary Psychology,’ Psychological Review, 50 (1943), pp. 471–2; T. N. Whitehead, Leadership in a Free Society, 1937; F. J. Roethlisberger and W. J. Dickson, Management and the Worker, 1939; also the writings of Thorstein Veblen.

  • 16.

    The convenient but unwarranted assumption that the two claims coincide is illustrated on a more limited scale by a typical statement of the economic relations of the United States and Latin America. Having laid down the principle that “in a human world … intelligent self-interest must be the paramount guiding force,” the writer goes on to say that “no policy is satisfactory to the United States that does not redound to the common interest of the entire hemisphere — including the United States.” “Is the ‘Good Neighbor’ Policy Sound?,” New York Times Magazine, March 28, 1948.

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