Principles of Economics
BOOK I, CHAPTER III
ECONOMIC GENERALIZATIONS OR LAWS.
§ 1. It is the business of economics, as of almost every other science, to collect facts, to arrange and interpret them, and to draw inferences from them. "Observation and description, definition and classification are the preparatory activities. But what we desire to reach thereby is a knowledge of the interdependence of economic phenomena.... Induction and deduction are both needed for scientific thought as the right and left foot are both needed for walking*11." The methods required for this twofold work are not peculiar to economics; they are the common property of all sciences. All the devices for the discovery of the relations between cause and effect, which are described in treatises on scientific method, have to be used in their turn by the economist: there is not any one method of investigation which can properly be called the method of economics; but every method must be made serviceable in its proper place, either singly or in combination with others. And as the number of combinations that can be made on the chess-board, is so great that probably no two games exactly alike were ever played; so no two games which the student plays with nature to wrest from her her hidden truths, which were worth playing at all, ever made use of quite the same methods in quite the same way.
But in some branches of economic inquiry and for some purposes, it is more urgent to ascertain new facts, than to trouble ourselves with the mutual relations and explanations of those which we already have. While in other branches there is still so much uncertainty as to whether those causes of any event which lie on the surface and suggest themselves at first are both true causes of it and the only causes of it, that it is even more urgently needed to scrutinize our reasoning about facts which we already know, than to seek for more facts.
For this and other reasons, there always has been and there probably always will be a need for the existence side by side of workers with different aptitudes and different aims, some of whom give their chief attention to the ascertainment of facts, while others give their chief attention to scientific analysis; that is taking to pieces complex facts, and studying the relations of the several parts to one another and to cognate facts. It is to be hoped that these two schools will always exist; each doing its own work thoroughly, and each making use of the work of the other. Thus best may we obtain sound generalizations as to the past and trustworthy guidance from it for the future.
§ 2. Those physical sciences, which have progressed most beyond the points to which they were brought by the brilliant genius of the Greeks, are not all of them strictly speaking "exact sciences." But they all aim at exactness. That is they all aim at precipitating the result of a multitude of observations into provisional statements, which are sufficiently definite to be brought under test by other observations of nature. These statements, when first put forth, seldom claim a high authority. But after they have been tested by many independent observations, and especially after they have been applied successfully in the prediction of coming events, or of the results of new experiments, they graduate as laws. A science progresses by increasing the number and exactness of its laws; by submitting them to tests of ever increasing severity; and by enlarging their scope till a single broad law contains and supersedes a number of narrower laws, which have been shown to be special instances of it.
In so far as this is done by any science, a student of it can in certain cases say with authority greater than his own (greater perhaps than that of any thinker, however able, who relies on his own resources and neglects the results obtained by previous workers), what results are to be expected from certain conditions, or what are the true causes of a certain known event.
Although the subject-matter of some progressive physical sciences is not, at present at least, capable of perfectly exact measurement; yet their progress depends on the multitudinous co-operation of armies of workers. They measure their facts and define their statements as closely as they can: so that each investigator may start as nearly as possible where those before him left off. Economics aspires to a place in this group of sciences: because though its measurements are seldom exact, and are never final; yet it is ever working to make them more exact, and thus to enlarge the range of matters on which the individual student may speak with the authority of his science.
§ 3. Let us then consider more closely the nature of economic laws, and their limitations. Every cause has a tendency to produce some definite result if nothing occurs to hinder it. Thus gravitation tends to make things fall to the ground: but when a balloon is full of gas lighter than air, the pressure of the air will make it rise in spite of the tendency of gravitation to make it fall. The law of gravitation states how any two things attract one another; how they tend to move towards one another, and will move towards one another if nothing interferes to prevent them. The law of gravitation is therefore a statement of tendencies.
It is a very exact statement—so exact that mathematicians can calculate a Nautical Almanac, which will show the moments at which each satellite of Jupiter will hide itself behind Jupiter. They make this calculation for many years beforehand; and navigators take it to sea, and use it in finding out where they are. Now there are no economic tendencies which act as steadily and can be measured as exactly as gravitation can: and consequently there are no laws of economics which can be compared for precision with the law of gravitation.
But let us look at a science less exact than astronomy. The science of the tides explains how the tide rises and falls twice a day under the action of the sun and the moon: how there are strong tides at new and full moon, and weak tides at the moon's first and third quarter; and how the tide running up into a closed channel, like that of the Severn, will be very high; and so on. Thus, having studied the lie of the land and the water all round the British isles, people can calculate beforehand when the tide will probably be at its highest on any day at London Bridge or at Gloucester; and how high it will be there. They have to use the word probably, which the astronomers do not need to use when talking about the eclipses of Jupiter's satellites. For, though many forces act upon Jupiter and his satellites, each one of them acts in a definite manner which can be predicted beforehand: but no one knows enough about the weather to be able to say beforehand how it will act. A heavy downpour of rain in the upper Thames valley, or a strong north-east wind in the German Ocean, may make the tides at London Bridge differ a good deal from what had been expected.
The laws of economics are to be compared with the laws of the tides, rather than with the simple and exact law of gravitation. For the actions of men are so various and uncertain, that the best statement of tendencies, which we can make in a science of human conduct, must needs be inexact and faulty. This might be urged as a reason against making any statements at all on the subject; but that would be almost to abandon life. Life is human conduct, and the thoughts and emotions that grow up around it. By the fundamental impulses of our nature we all—high and low, learned and unlearned—are in our several degrees constantly striving to understand the courses of human action, and to shape them for our purposes, whether selfish or unselfish, whether noble or ignoble. And since we must form to ourselves some notions of the tendencies of human action, our choice is between forming those notions carelessly and forming them carefully. The harder the task, the greater the need for steady patient inquiry; for turning to account the experience, that has been reaped by the more advanced physical sciences; and for framing as best we can well thought-out estimates, or provisional laws, of the tendencies of human action.
§ 4. The term "law" means then nothing more than a general proposition or statement of tendencies, more or less certain, more or less definite. Many such statements are made in every science: but we do not, indeed we can not, give to all of them a formal character and name them as laws. We must select; and the selection is directed less by purely scientific considerations than by practical convenience. If there is any general statement which we want to bring to bear so often, that the trouble of quoting it at length, when needed, is greater than that of burdening the discussion with an additional formal statement and an additional technical name, then it receives a special name, otherwise not*12.
Thus a law of social science, or a Social Law, is a statement of social tendencies; that is, a statement that a certain course of action may be expected under certain conditions from the members of a social group.
Economic laws, or statements of economic tendencies, are those social laws which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price.
There is thus no hard and sharp line of division between those social laws which are, and those which are not, to be regarded also as economic laws. For there is a continuous gradation from social laws concerned almost exclusively with motives that can be measured by price, to social laws in which such motives have little place; and which are therefore generally as much less precise and exact than economic laws, as those are than the laws of the more exact physical sciences.
Corresponding to the substantive "law" is the adjective "legal." But this term is used only in connection with "law" in the sense of an ordinance of government; not in connection with "law" the sense of a statement of relation between cause and effect. The adjective used for this purpose is derived from "norma," a term which is nearly equivalent to "law," and might perhaps with advantage be substituted for it in scientific discussions. And following our definition of an economic law, we may say that the course of action which may be expected under certain conditions from the members of an industrial group is the normal action of the members of that group relatively to those conditions.
This use of the term Normal has been misunderstood; and it may be well to say something as to the unity in difference which underlies various uses of the term. When we talk of a Good man or a Strong man, we refer to excellence or strength of those particular physical mental or moral qualities which are indicated in the context. A strong judge has seldom the same qualities as a strong rower; a good jockey is not always of exceptional virtue. In the same way every use of the term normal implies the predominance of certain tendencies which appear likely to be more or less steadfast and persistent in their action over those which are relatively exceptional and intermittent. Illness is an abnormal condition of man: but a long life passed without any illness is abnormal. During the melting of the snows, the Rhine rises above its normal level: but in a cold dry spring when it is less than usual above that normal level, it may be said to be abnormally low (for that time of year). In all these cases normal results are those which may be expected as the outcome of those tendencies which the context suggests; or, in other words, which are in accordance with those "statements of tendency," those Laws or Norms, which are appropriate to the context.
This is the point of view from which it is said that normal economic action is that which may be expected in the long run under certain conditions (provided those conditions are persistent) from the members of an industrial group. It is normal that bricklayers in most parts of England are willing to work for 10d. an hour, but refuse to work for 7d. In Johannesburg it may be normal that a brick-layer should refuse work at much less than £1 a day. The normal price of bona fide fresh laid eggs may be taken to be a penny when nothing is said as to the time of the year: and yet threepence may be the normal price in town during January; and twopence may be an abnormally low price then, caused by "unseasonable" warmth.
Another misunderstanding to be guarded against arises from the notion that only those economic results are normal, which are due to the undisturbed action of free competition. But the term has often to be applied to conditions in which perfectly free competition does not exist, and can hardly even be supposed to exist; and even where free competition is most dominant, the normal conditions of every fact and tendency will include vital elements that are not a part of competition nor even akin to it. Thus, for instance, the normal arrangement of many transactions in retail and wholesale trade, and on Stock and Cotton Exchanges, rests on the assumption that verbal contracts, made without witnesses, will be honourably discharged; and in countries in which this assumption cannot legitimately be made, some parts of the Western doctrine of normal value are inapplicable. Again, the prices of various Stock Exchange securities are affected "normally" by the patriotic feelings not only of the ordinary purchasers, but of the brokers themselves: and so on.
Lastly it is sometimes erroneously supposed that normal action in economics is that which is right morally. But that is to be understood only when the context implies that the action is being judged from the ethical point of view. When we are considering the facts of the world, as they are, and not as they ought to be, we shall have to regard as "normal" to the circumstances in view, much action which we should use our utmost efforts to stop. For instance, the normal condition of many of the very poorest inhabitants of a large town is to be devoid of enterprise, and unwilling to avail themselves of the opportunities that may offer for a healthier and less squalid life elsewhere; they have not the strength, physical, mental and moral, required for working their way out of their miserable surroundings. The existence of a considerable supply of labour ready to make match-boxes at a very low rate is normal in the same way that a contortion of the limbs is a normal result of taking strychnine. It is one result, a deplorable result, of those tendencies the laws of which we have to study. This illustrates one peculiarity which economics shares with a few other sciences, the nature of the material of which can be modified by human effort. Science may suggest a moral or practical precept to modify that nature and thus modify the action of laws of nature. For instance, economics may suggest practical means of substituting capable workers for those who can only do such work as match-box making; as physiology may suggest measures for so modifying the breeds of cattle that they mature early, and carry much flesh on light frames. The laws of the fluctuation of credit and prices have been much altered by increased powers of prediction.
Again when "normal" prices are contrasted with temporary or market prices, the term refers to the dominance in the long run of certain tendencies under given conditions. But this raises some difficult questions which may be postponed*13.
§ 5. It is sometimes said that the laws of economics are "hypothetical." Of course, like every other science, it undertakes to study the effects which will be produced by certain causes, not absolutely, but subject to the condition that other things are equal, and that the causes are able to work out their effects undisturbed. Almost every scientific doctrine, when carefully and formally stated, will be found to contain some proviso to the effect that other things are equal: the action of the causes in question is supposed to be isolated; certain effects are attributed to them, but only on the hypothesis that no cause is permitted to enter except those distinctly allowed for. It is true however that the condition that time must be allowed for causes to produce their effects is a source of great difficulty in economics. For meanwhile the material on which they work, and perhaps even the causes themselves, may have changed; and the tendencies which are being described will not have a sufficiently "long run" in which to work themselves out fully. This difficulty will occupy our attention later on.
The conditioning clauses implied in a law are not continually repeated, but the common sense of the reader supplies them for himself. In economics it is necessary to repeat them oftener than elsewhere, because its doctrines are more apt than those of any other science to be quoted by persons who have had no scientific training, and who perhaps have heard them only at second hand, and without their context. One reason why ordinary conversation is simpler in form than a scientific treatise, is that in conversation we can safely omit conditioning clauses; because, if the hearer does not supply them for himself, we quickly detect the misunderstanding, and set it right. Adam Smith and many of the earlier writers on economics attained seeming simplicity by following the usages of conversation, and omitting conditioning clauses. But this has caused them to be constantly misunderstood, and has led to much waste of time and trouble in profitless controversy; they purchased apparent ease at too great a cost even for that gain*14.
Though economic analysis and general reasoning are of wide application, yet every age and every country has its own problems; and every change in social conditions is likely to require a new development of economic doctrines*15.
Notes for this chapter
Schmoller in the article on Volkswirtschaft in Conrad's Handwörterbuch.
The relation of "natural and economic laws," is exhaustively discussed by Neumann (Zeitschrift für die gesamte Staatswissenschaft, 1892) who concludes (p. 464) that there is no other word than Law (Gesetz) to express those statements of tendency, which play so important a part in natural as well as economic science. See also Wagner (Grundlegung, §§ 86-91).
They are discussed in Book V, especially chapters III and V.
Compare Book II, chapter I.
Some parts of economics are relatively abstract or pure, because they are concerned mainly with broad general propositions: for, in order that a proposition may be of broad application it must necessarily contain few details: it cannot adapt itself to particular cases; and if it points to any prediction, that must be governed by a strong conditioning clause in which a very large meaning is given to the phrase "other things being equal."
Other parts are relatively applied, because they deal with narrower questions more in detail; they take more account of local and temporary elements; and they consider economic conditions in fuller and closer relation to other conditions of life. Thus there is but a short step from the applied science of banking in its more general sense, to broad rules or precepts of the general Art of banking: while the step from a particular local problem of the applied science of banking to the corresponding rule of practice or precept of Art may be shorter still.
End of Notes
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