Joseph A. Schumpeter
History of Economic Analysis
Oxford University Press, [1954] 1968
(7th printing), 12-24.
CHAPTER 2
Interlude I:
The Techniques of Economic Analysis
1.
Economic History 12
2.
Statistics 13
3. ‘Theory’ 14
4.
Economic Sociology 20
5.
Political Economy 21
6.
Applied Fields 22
THE LAST PARAGRAPH of the preceding chapter points
toward momentous problems, which will, under the heading of Sociology of
Science, be touched upon in Chapter 4. Now we break off our argument and turn aside
in order to hunt two hares whose paths diverge sometimes in a disconcerting
manner: on the one hand, it is necessary to define the relations of economics to
some of the fields of tooled knowledge that have or have had influence upon it
or have border zones in common with it [1] (Ch. 3); on the other hand, it is convenient to use
this opportunity to explain right now some of the concepts and principles that
will govern our exposition of the history of economic analysis. This will be done in the current chapter.
Let us begin in a thoroughly common-sense manner. What distinguishes the ‘scientific’ economist
from all the other people who think, talk, and write about economic topics is a
command of techniques [2] that we class under three heads: history, statistics,
and ‘theory.’ The three together make up
what we shall call Economic Analysis. [Later in this chapter, J. A. S. added to
these three a fourth fundamental field, Economic Sociology.]
Of these fundamental fields, economic history - which
issues into and includes present-day facts - is by far the most important. I wish to state right now that if, starting my
work in economics afresh, I were told that I could study only one of the three
but could have my choice, it would be economic history that I should choose. And this on three grounds. First, the subject matter of economics is
essentially a unique process in historic time. Nobody can hope to understand the economic
phenomena of any, including the present,
1 This clumsy phrasing has been chosen in order to avoid the
unrealistic suggestion of sharp and permanent border lines.
2 The word ‘technique’ should be understood in a very wide sense: mere
command of the facts of some field, systematically acquired and such as to be
beyond the range of knowledge than can be gained by practicing in that field,
is sufficient to constitute scientific level, even though cultivation of the
field does not require any elaborate methods that the layman could not
understand.
12
epoch who
has not an adequate command of historical facts and an adequate amount
of historical sense or of what may be described as historical
experience. [3]
Second, the historical report cannot be purely economic but
must inevitably reflect also ‘institutional’ facts that are not purely
economic: therefore it affords the best method for understanding how economic
and non-economic facts are related to one another and how the various
social sciences should be related to one another. [4] Third, it is, I believe, the fact that most of
the fundamental errors currently committed in economic analysis are due to lack
of historical experience more often than to any other shortcoming of the economist’s
equipment. History must of course be
understood to include fields that have acquired different names as a
consequence of specialization, such as prehistoric reports and ethnology
(anthropology). [5]
Two ominous consequences of the argument above should
be noticed at once. First, since history
is an important source - though not the only one - of the economist’s material
and since, moreover, the economist himself is a product of his own and all
preceding time, economic analysis and its results are certainly affected by
historical relativity [6] and the only question is how much. No worthwhile answer to this question can be
got by philosophizing about it, but it will be one of our major concerns to
work one out by detailed investigation. This is why sketches of ‘the spirit of the
times’ and, in particular, of the politics of each period will preface our
exposition of the economic analysis in the subsequent Parts. Second, we have to face the fact that,
economic history being part of economics, the historian’s techniques are
passengers in the big bus that we call economic analysis. Derivative knowledge is always unsatisfactory.
Hence, even economists who are not
economic historians themselves and who merely read the historical reports written
by others must understand how these reports came into being or else they will
not be able to appraise the real meaning. We shall not be able to live up to the program
that follows from this. In principle
however let us remember: Latin palaeography, for
instance, is one of the techniques of economic analysis.
It stands to reason that for economics, statistics,
that is, the statistical figure or series of figures must be of vital
importance. In practice this has been
3 This does not render ‘theory,’ in the sense to be explained below, either impossible or useless - economic history
itself needs its help.
4. Owing to the unreliability of ‘theories’ on this subject, I
personally believe the study of history to be not only the best but the only
method for this purpose.
5 In this book, unless warning to the contrary is given, anthropology
means physical anthropology only. Above
it has the usual meaning which makes it synonymous with the study of primitive
tribes, their behavior patterns, language, and social institutions. We call this ethnology.
6 This is one of several meanings of that much misused word,
relativity. Here we mean by it no more
than (a) that we cannot use more material than we have and that in consequence
some or all of our results may not stand up in the light of further experience
(a fact that must of course be duly allowed for in the interpretation of the economists
of the past); and (b) that economists’ interests in the problems of their epoch
and also their attitudes to these problems condition their general views
on economic phenomena. See ch. 4. This has
nothing to do with philosophic relativism.
13
recognized
at least since the sixteenth and seventeenth centuries when a large part
of the work of the Spanish poíIticos, for
example, consisted in the collection and interpretation of statistical figures
- not to mention the English econometricians, who were called political
arithmeticians, and their fellow workers in France, Germany, and Italy. [1] We need statistics not only for explaining things but also in order to
know precisely what there is to explain. But a comment has to be added that is
analogous to the comment made in the preceding paragraph on the subject of
history. It is impossible to understand
statistical figures without understanding how they have been compiled. It is equally impossible to extract
information from them or to understand the information that specialists extract
for the rest of us without understanding the methods by which this is done - and
the epistemological backgrounds of these methods. Thus, an adequate command of modern
statistical methods is a necessary (but not a sufficient) condition for
preventing the modern economist from producing nonsense, though very much more
so in some fields than in others: our stake in these methods is too great for
us to leave judgment on the virtues or shortcomings, say, of the variate-difference method to specialists, even if they were
unanimous about it. Again, we shall not
be able to live up to the program that follows from this. But again, we shall recognize, in principle at
least: statistical methods are part of the tools of economic analysis even when
not specially devised to meet its particular needs; and Jacques Bernoulli’s Ass
conjectandi or Laplace’s
Théorie analytique
stand in the history of many sciences but they have their places also in
the history of our own. [2]
The third fundamental field is ‘theory.’ This term carries many meanings but only two
of them are relevant so far as our own usage in this book is concerned. The first and less important one makes
theories synonymous with Explanatory Hypotheses. Such hypotheses are of course essential
ingredients of historiography and statistics also. For instance, even the most fiercely factual
historian, economic or other, can hardly avoid forming an explanatory hypothesis
or theory, or several explanatory hypotheses or theories, on the origins of
1 It is therefore only as a curiosum that we notice the fact
that the simple and apparently unchallengeable statement in the first sentence
of the paragraph above has been staunchly denied by some economists to this
day.
2 Lest the reader should throw up his hands in despair at the range of
competence which the historical and statistical requirements seem to indicate,
let me point out that these requirements can be easily fulfilled by every
graduate student who has had a tolerably good undergraduate training in history
or mathematics. Only the student without
any training in either will have to realize that, as an all-round economist, he
is suffering from a handicap and that he can move with assurance only within
narrow portions of the science unless he is prepared to make up for his
deficiencies by a heroic effort for which one or two years of graduate study
are altogether inadequate. But it also
takes more than that to become a scientifically competent lawyer or engineer or
doctor.
14
towns. The statistician must form a hypothesis or
theory, say, on the joint distribution of the stochastic variables that enter
into his problem. All that needs to be
said about this is that it is an error - though a widespread one - to believe
that the sole or main business of the economic theorist consists in formulating
such hypotheses (some may wish to add: out of the blue sky).
Economic theory does something entirely different. It cannot indeed, any more than can
theoretical physics, do without simplifying schemata
or models that are intended to portray certain aspects of reality and take some
things for granted in order to establish others according to certain rules of
procedure. So far as our present
argument is concerned, the things (propositions) that we take for granted may
be called indiscriminately either hypotheses or axioms or postulates or assumptions
or even principles, [1] and the things (propositions) that we think we have
established by admissible procedure are called theorems. Of course a proposition may figure in one argument
as a postulate and in another as a theorem. Now, hypotheses of this kind are also suggested
by facts - they are framed with an eye to observations made - but in strict
logic they are arbitrary creations of the analyst. [2] They differ from the hypotheses of the first kind in that
they do not embody final results of research that are supposed to be
interesting for their own sake, but are mere instruments or tools framed for
the purpose of establishing interesting results. Moreover, framing them is no more all the
economic theorist does than framing statistical hypotheses is all that the
statistical theorist or in fact any theorist does. Just as important is the devising of the other
gadgets by which results may be extracted from the hypotheses - all the
concepts (such as ‘marginal rate of substitution,’ ‘marginal productivity,’
‘multiplier,’ ‘accelerator’), relations between concepts, and methods of
handling these relations, all of which have nothing hypothetical about them. [3] And it is the sum total of such gadgets - inclusive of
strategically useful assumptions - which constitutes economic theory. In Mrs. Robinson’s unsurpassably
felicitous phrase, economic theory is a box of tools.
The rationale of this conception of economic theory is
very simple and the same as in all other departments of science. Experience teaches us that the phenomena of a
given class - economic, biological, mechanical, electrical, and what not - are
indeed individual occurrences each of which, as it occurs, re-
1 By ‘principle’ we shall mean in this book any statement that we (or
the authors under discussion) do not propose to challenge. But it may be a proposition that we (they)
have established as well as a proposition that we (they) have postulated or assumed.
The same holds for the objectionable
term ‘law,’ the emergence and use or misuse of which will have to be carefully
considered: we speak of the ‘law’ of decreasing returns or of Keynes’s ‘law’ of
the propensity to consume, which are assumptions, but also of the Marxist ‘law’
of the falling rate of profit, which is a proposition that Marx thought he had
established.
2 To use J. H. Poincaré’s simile: tailors can
cut suits as they please; but of course they try to cut them to fit their
customers.
3. Example: theoretical mechanics proceeds upon a number of assumptions
(or hypotheses in this sense); but evidently the list of these assumptions is
not the whole of theoretical mechanics but only constitutes, where explicitly
assembled, its first chapter.
15
veals peculiarities of its own. But experience also teaches us that these individual
occurrences have certain properties or aspects in common and that a
tremendous economy of mental effort may be realized if we deal with these
properties or aspects, and with the problems they raise, once and for all. For some purposes it is indeed necessary
to analyze every individual case of pricing in an individual market, every case
of income formation, every individual business cycle, every international
transaction, and so on. But even where
this is necessary we discover that we are using, in each case, concepts that
occur in the analysis of all. Next we
discover that all cases, or at least large sets of individual cases, display
similar features which, and the implications of which, may be treated for all
of them together by means of general schemata of pricing, income formation,
cycles, international transactions, and so on. And finally we discover that these schemata
are not independent of one another but related, so that there is advantage in
ascending to a still higher level of ‘generalizing abstraction’ on which we
construct a composite instrument or engine or organon
of economic analysis - though not the only one, as we have seen - which
functions formally in the same way, whatever the economic problem to
which we may turn [4] it. Richard Cantillon’s [5] work is the first in which awareness of this last
truth is clearly discernible, though economists took over a century to realize
all its possibilities - Leon Walras was in fact the
first to do so (see below Part IV, ch. 6, sec. 5b).
Although it is neither possible nor desirable for us
to embark upon an epistemology of economics and although some of the topics
pertaining to that field will receive attention both in the subsequent chapters
of this Part and in all the subsequent Parts, it will be helpful to insert here
a few additional remarks in the hope that they will do something to scale down
possible barriers between myself and my readers.
First, then, a qualification should be added to the
preceding argument about the nature and functions of economic theory. This argument ran in terms which are
applicable, substantially at least, to all sciences that have any all-purpose
apparatus of analysis. But there are
limits to this parallelism and the most important of them are represented by
the two following facts. Economics lacks
the benefits that physics derives from laboratory experiments - when economists
talk about experimenting they mean something quite different from experimenting
under laboratory conditions - but enjoys instead a source of information that
is denied to physics, namely, man’s extensive knowledge of the meanings of
economic actions. This source of
information is also a source of controversies that will bother us repeatedly on
our journey. But its existence can
hardly be denied. Now, when we speak,
for example, of motives that are supposed to actuate individuals or groups, our
source of information may be roughly identified with knowledge of psychic
processes, conscious or
1 The statement above is a brief rendering of E. Mach’s doctrine that
every (theoretical) science is a device for effecting economy of effort (Denkökonomie).
2 See below Part II, Ich. 4,
sec. 2.
16
subconscious, which it would be absurd not to use, although, as I shall
never cease to emphasize, this is not the same thing as trespassing upon the
field of professional psychology - any more than stating the ‘law’ of
decreasing returns from land implies trespassing upon the realm of physics. There is, however, also another way of
interpreting our knowledge of meanings which is more akin to logic. If I state, for example, that - under a number
of conditions - instantaneous gains of a firm will be maximized at the output
at which marginal cost equals marginal revenue (the latter equaling price in
the case of pure competition), I may be said to be formulating the logic of the
situation and a result that is true, just as is a rule of general logic,
independently of whether or not anyone ever acts in conformity to it. This means that there is a class of economic
theorems that are logical (not, of course, ethical or political) ideals or
norms. And they evidently differ
from another class of economic theorems that are directly based upon
observations, for example, on observations as to how far expectations of
employment opportunity affect workmen’s expenditure on consumers’ goods or how
variations in wages affect the marriage rate. It would no doubt be possible to assimilate
both types of theory by interpreting the logical norms also as ‘purifying’
generalizations from observational data, if need be, from observations that are
subconsciously stored up by common experience. On the whole, however, it seems better not to
do so but to recognize frankly that we have, or think we have, the ability to
understand meanings and to represent the implications of these meanings by
appropriately constructed schemata.
Second, the foregoing explanation may have done
something toward exonerating me from the suspicion that I am tainted with
Scientism. This term has been introduced
by Professor von Hayek [6] to denote the uncritical copying of the methods of
mathematical physics in the equally uncritical belief that these methods are of
universal application and the peerless example for all scientific activity to
follow. This history as a whole will
answer the question whether there actually has been such uncritical copying of
methods that have meaning only within the particular patterns of the sciences
that developed them - apart of course from programmatic utterances that have
been numerous enough ever since the awe-inspiring successes of the physical
sciences in the seventeenth century but mean next to nothing. As regards the question of principle,
there cannot be the slightest doubt that Hayek is right - and so were all who
in the nineteenth century preceded him in uttering protests similar to his - in
holding that the borrowing by economists of any method on the sole ground that
it has been successful somewhere else is inadmissible,
6. F. A. von Hayek, ‘Scientism and the Study of Society,’ Economica, August 1942, February 1943, and
February 1944. This treatise - these
articles are nothing less than a treatise - is strongly recommended both
because of the profound scholarship of which is the product and because it
presents an excellent example of how near to each other, in discussion of this
kind, dwell truth and error.
17
and that
the rare and unimportant cases in which this has actually been done deserve
what they get at his hands. Unfortunately
this is not the real question. We have
to ask what constitutes ‘borrowing’ before we can proceed to ask what
constitutes illegitimate borrowing. And
here we must beware of an optical illusion similar to the one that makes
Marxists so reluctant to use such terms as price or cost or money or value of
the services of land or even interest when speaking of a future socialist
order: these terms denote concepts of general economic logic and seem to
Marxists to be tainted with a capitalist meaning only because they are used
also in capitalist society. Similarly,
the concepts and procedures of ‘higher’ mathematics have indeed been first
developed in connection with the physicist’s problems, but this does not mean
that there is anything specifically ‘physicalist’
about this particular kind of language. [7] But this also holds for some of the general concepts of
physics, such as equilibrium potential or oscillator, or statics
and dynamics, which turn up of themselves in economic analysis just as do
systems of equations: what we borrow when we use, for example, the concept of
an ‘oscillator’ is a word and nothing else. Two circumstances combine, however, to reinforce
that optical illusion. On the one hand,
physicists and mathematicians, when they hit upon those general concepts that
occurred to us only later, not only baptized them but also worked out their
logic. So long as this logic does not
introduce anything ‘physicalist’ it would be waste of
effort not to make use of it. On the
other hand, students sometimes understand a physical analogy more readily than
they do the economics of the case to be presented. Hence such analogies are often used in
teaching. It therefore seems as though
the things we are accused of borrowing are merely the reflexes of the fact that
all of us, physicists or economists, have only one type of brain to work with
and that this brain acts in ways that are to some extent similar whatever the
task it tackles - the fact to which the Unity-of-Science movement owes its
existence. This does not involve any
mechanistic, deterministic or other ‘-istic’ errors,
or any neglect of the truth that ‘to explain’ means something different in the
natural and in the social sciences, or finally any denial of the implications
of the historical character of our subject matter.
Third, if economic theory is such a simple and
harmless sort of thing as I have represented it to be, the reader might wonder
where the hostility comes from that has followed it ever since it attracted any
attention at all (which was roughly since the time of the physiocrats)
to this day. I shall simply list the
main headings for an answer which our story will amply verify:
(1) At all times, including the present, in judging from the standpoint
of the requirements of each period (not judging the state of the theory
7 Hayek’s teachers, the Austrian utility theorists, by operating the
concept of marginal utility, actually discovered the calculus. It cannot be a crime to formulate their
reasoning correctly.
18
as it was
at any time by standards of a later time) the performance of economic theory
has been below reasonable expectation and open to valid criticism.
(2) Unsatisfactory performance has always been and still is accompanied
by unjustified claims, and especially by irresponsible applications to
practical problems that were and are beyond the powers of the contemporaneous
analytic apparatus.
(3) But while the performance of economic theory was never up to the
mark, that is, never what it might have been, it was at the same time beyond
the grasp of the majority of interested people who failed to understand it and
resented any attempt at analytic refinement. Let us distinguish carefully the two different
elements that enter into this resentment. On the one hand, there were always many
economists who deplored the loss of all those masses of facts that actually are
lost in any process that involves abstraction. So far as application is concerned, resentment
of this type is very frequently quite justified. On the other hand, however, there are untheoretical minds who are unable
to see any use in anything that does not directly bear upon practical problems.
Or, to put it less inoffensively, who
lack the scientific culture which is required in order to appreciate analytic
refinement. It is very important for the
reader to bear in mind this curious combination of justified and unjustified
criticism of economic theory, which will be emphasized all along in this book. It accounts for the fact that criticism of
economic theory practically always proceeded from both people who were above
and people who were below the level of the economic theory of their time.
(4) The hostility that proceeded from these sources was frequently
strengthened by the hostility to the political alliances which the majority of
theorists persisted in forming. The
classical example for this is the alliance of economic theory with the
political liberalism of the nineteenth century. As we shall see, this alliance had the effect
of turning for a time the defeat of political liberalism into a defeat of economic
theory. And at that time many people
positively hated economic theory because they thought it was just a device for
bolstering up a political program of which they disapproved. This view came all the easier to them because
economic theorists themselves shared their error and did all they could to
harness their analytic apparatus into the service of their liberal political
creed. In this and many analogous cases,
of which modern economic theory is another deplorable example, economists
indulged their strong propensity to dabble in politics, to peddle political
recipes, to offer themselves as philosophers of economic life, and in doing so
neglected the duty of stating explicitly the value judgments that they introduced
into their reasoning.
(5) Although really implied under one or more of the preceding headings,
we may just as well list as a separate one the view that economic theory
consists in framing unfounded, speculative hypotheses in the first the two
meanings that were distinguished above. Hence,
the tendency
19
quite
frequent among economists or other social scientists to rule out economic
theory from the realm of serious science. It is interesting to note that a propensity [8] of this kind
is by no means confined to our field. Isaac Newton was a theorist if he was
anything. Nevertheless, he displayed a
marked hostility toward theory and especially toward framing of causal
hypotheses. What he really meant was not
theory or hypothesis of our second kind but just inadequately substantiated speculation.
Perhaps there was also something else in
this hostility, namely the aversion of the truly scientific mind to the use of
the word ‘cause’ that carries a metaphysical flavor. Newton’s example may also be appealed to in
order to illustrate the truth that dislike of the use of metaphysical concepts
in the realm of empirical science does not at all imply any dislike of metaphysics
itself. [J. A. S. intended to have these nine paragraphs of indented material
set in small type so that it would be easy for the average reader to skip
them.]
The reader will have observed that our three
fundamental fields, economic history, statistics and statistical method, and
economic theory, while essentially complementing each other, do not do so
perfectly. In writing economic history,
there are indeed statements that should not be added at all unless properly
substantiated by pieces of reasoning that belong to economic theory: such a
statement is, for instance, the one that links England’s great economic
development from the 1840’s to the end of the nineteenth century to the repeal
of the Corn Laws and of practically every other kind of protection. The schemata of economic theory derive the
institutional frameworks within which they are supposed to function from
economic history, which alone can tell us what sort of society it was, or is,
to which the theoretical schemata are to apply. Yet, it is not only economic
history that renders this service to economic theory. It is easy to see that when we introduce the
institution of private property or of free contracting or else a greater or
smaller amount of government regulation, we are introducing social facts that
are not simply economic history but are a sort of generalized or typified or
stylized economic history. And this
applies still more to the general forms of human behavior which we assume
either in general or for certain social situations but not for others. Every economics textbook that does not confine
itself to teaching technique in the most restricted sense of the word has such
an in-
[8] There is nothing to wonder at in the fact that on this ground alone
the word economic theory, as used by some fellow economists, in itself implies derogation. To some extent, however, this attitude is
simply a consequence of the fact that our intellectual tastes and aptitudes
differ and that we naturally practice in our research according to our
preferences. It is merely human nature
that we overrate the importance of our own types of research and underrate the importance of the types that appeal to others.
Perhaps it is not too much to say that
we should never do what we are doing, both in science and in other pursuits of
life, if we did not do this.
20
stitutional introduction that belongs to sociology rather than to
economic history as such. Borrowing from
German practice, we shall find it useful, therefore, to introduce a fourth
fundamental field to complement the three others, although positive work in
this field also leads us beyond mere economic analysis: the field that we shall
call Economic Sociology (Wirtschaftssoziologie). To use a felicitous phrase:
economic analysis deals with the questions how people behave at any time and
what the economic effects are they produce by so behaving; economic sociology
deals with the question how they came to behave as they do. [1] If we define human behavior widely enough so that it includes not only
actions and motives and propensities but also the social institutions that are
relevant to economic behavior such as government, property inheritance,
contract, and so on, that phrase really tells us all we need. Of course, it should be observed that this
distinction is one we make for our own purposes. It is not implied that this distinction has
been made by the authors themselves whom we are going to encounter. The proof of any pudding is in the eating and
hence I refrain from saying anything in its defense just now.
The sum total of the historical, statistical, and
theoretical techniques that have been characterized above, together with the
results they help to produce, we call (scientific) economics. This term is of relatively recent growth. A. Marshall’s great treatise was the first to
establish its use, from 1890 on, at least in England and the United States. [1] In the nineteenth century, the term commonly in use was Political
Economy, though in some countries other terms competed with it in the first
decades of that century. This
unimportant matter will be attended to, as we go along, in the subsequent
Parts. But it is just as well to note
two points at once. First, political
economy meant different things to different writers, and in some cases it meant
what is now known as economic theory or ‘pure’ economics. A warning must therefore be issued right now
that in order to interpret correctly what any given writer said about the scope
and method of political economy, we must always make sure of the meaning he
attached to this term - some propositions about those subjects that have
outraged critics become perfectly harmless if this rule be borne in mind. Second, ever since our science or agglomeration
of sciences was baptized political economy by a not very significant writer of
the seventeenth century whose work owes an undeserved immortality to this fact,
there has been the implicit or explicit suggestion that the exclusive concern
of our science was with the economy of the state - though of course not only of
the polis, the city-state of Greece - or, what is almost the same thing,
with public policies of an economic nature. This suggestion, which was still more
emphasized by the German term frequently used as a synonym of political
economy, Staats-
1 I believe that this phrase is due to Mr. Gerhard Colm.
1 Later on, a parallel usage was introduced, though less firmly
established, in Germany. The word was
Social Economics, Sozialökonomie, and
the man who did more than any other to assure some currency to it was Max
Weber.
21
wissenschaft, implied of
course an altogether too narrow conception of the scope of economics. Incidentally, it over-emphasized the largely
meaningless distinction between economics and what is now called business
economics. Let us therefore have it
understood that we ourselves do not divorce the two and that all the facts and
tools relevant to the analysis of the behavior of individual firms, past or
present, come within our meaning of economics just as much as do the facts and
tools relevant to the analysis of the behavior of governments, and therefore will
have to be added to the contents of any narrower political economies of the
past. We have, however, to notice a
novel meaning of the term political economy that has asserted itself of late.
Some contemporaneous economists are of the opinion
that modern economic theory (in our sense) hangs too much in the air and does
not take sufficient account of the fact that no sensible application to
practical questions or even to the analysis of given situations of an economy
can be made of its results without reference to the historico-political
framework within which they are to hold. This opinion is sometimes extended so as to
imply criticism of any work that concentrates on the improvement of theoretical
or statistical tools of analysis, and then it seems to me to mean nothing
except a failure to realize the inexorable necessity of specialized work. But all the more justified is this opinion if
it be formulated as it has been in the first sentence of this paragraph. In particular, an economics that includes an adequate
analysis of government action and of the mechanisms and, prevailing
philosophies of political life is likely to be much more satisfactory to the
beginner than an array of different sciences which he does not know how to
co-ordinate - whereas, to his delight,
he finds precisely what he seeks ready-made in Karl Marx. An economics of this type is sometimes
presented under the title Political Economy. In partial recognition of the truth that seems
to be contained in this program, we have set up our ‘fourth fundamental field,’
Economic Sociology.
Political Economy in the sense discussed in the
preceding paragraph calls up still another meaning of the term, the one that
occurs in a discussion of Systems of Political Economy. And this meaning in turn evokes, by association,
the term Economic Thought. But it will
be convenient to deal with these two concepts in Chapter 4. There we shall also try to clarify the
relation of this History of Economic Analysis to any history of the systems of
political economy and to any history of the thoughts on economic subjects that
float in the public mind.
Division of labor, in research as well as in teaching,
has produced, in economics as elsewhere, an indefinite number of specialties
that are usually described as ‘applied fields’. In order to obtain a list of them (which does
not claim to be complete) let us draw inspiration from the courses offered by
the larger institutions of higher learning in the United States that teach
economics.
In addition to general survey courses and courses in
economic history,
22
statistics, economic theory, and economic sociology, [1] we find,
first, offerings in a group of fields which everyone considers part and parcel
of ‘general economics’ and which receive separate treatment only in order to
facilitate more intensive treatment of their subjects. Such are money and banking, business
fluctuations (or cycles), foreign trade (international economic relations),
and, occasionally, location. Second, we
find a group of fields, such as accounting, actuarial science, and insurance,
that, historically, have preserved altogether too much independence from
general economics (which is slowly being surrendered in the case of accounting)
but are useful or even indispensable for all or some economists, because they
offer both instruments of economic analysis or opportunities for applying it - witness,
for example, the subject of depreciation. Third, we find a group of standard fields that
pivot on the old-established departments of public economic policy especially:
agriculture, [2] labor, transportation and ‘utilities,’ the problems
of manufacturing industry (and of its public control) - for which there
is no generally accepted English name - and public finance (‘fiscal policy’),
to which most people will add (for the present) a number of other fields such
as marketing (‘commodity distribution’) and social security (so far as not
covered by insurance). Socialism and
‘comparative economic systems’ or again ‘population’ may stand for a fourth
group, and the ‘area studies’ that have become so popular of late for a fifth. Inclusion of other fields or the subdivision
of some of those that have been mentioned could swell impressively the number
of passengers in what we have described as a big bus. But our list as it stands and the reader’s
general knowledge suffice to verify the three statements which it is relevant
to our task to make.
First, there is evidently no permanence or logical
order to this jumble of applied fields. Nor are there definite frontier lines to any
of them. They appear or vanish, they
increase or decrease in relative importance, and they overlap with one another
as changing interests and methods dictate. And, as has been indicated already, this is as
it should be. To undertake or to refrain
from undertaking any interesting task out of respect for frontiers or tectonics
would be the height of absurdity.
Second, all those special or applied fields,
and not only the three that have
1 Owing to the discredit that, for good reasons and bad, attaches to
the word ‘theory’ in many minds, this word is occasionally replaced by the word
‘analysis’ which then carries a meaning that is more restricted than the one
attached to it in this book. The field
of economic sociology does not, so far as I am aware, appear under this title
or separately, but topics belonging in it are treated in courses on history,
theory, ‘comparative economic systems,’ the more
institutionally oriented courses on labor, and in a number of others.
2 The field of agriculture offers an interesting example of a
department of economics that it is hardly possible to treat without a
considerable command of agricultural technology. In principle, though mostly to a lesser
extent, this is true also in other departments and, so far as this is so, there
is no point in drawing any sharp line between, say, the economics of banking,
marketing, or manufacturing industry and the corresponding ‘technologies.’
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been
mentioned as constituents of our first group, are mixtures of facts and
techniques that form what we have described as the four fundamental divisions
of economic analysis in our sense. The
mixtures differ greatly from one another because there are wide stretches of
ground on which there is much less need or opportunity for elaborate
statistical or theoretical tools than there is in others or even none at all,
though the historical element can hardly ever be entirely neglected with
impunity. In addition, the mixtures also
differ for another reason: the specialist workers in the various fields are,
individually and groupwise, very differently grounded
in the fundamental fields, and so mix techniques in a manner that differs
considerably from what their chosen specialties might be thought to require - a
fact that we must keep in mind if we are to understand why economics is what it
is. In principle, however, it is
impossible to divorce any of the applied fields from the fundamental ones.
But, third, such divorce is also impossible because
the applied fields not only apply a stock of facts and techniques that lies
ready for their use in general economics but also add to it. These fields may accumulate ‘private’ stocks
of facts and methods that are of little or no use outside their boundaries. Beyond this, however, they have repeatedly
developed accumulations of facts and conceptual schemata that should be
recorded as contributions to general economic analysis, even though the
appointed wardens of the latter have sometimes been slow to welcome them. Modern agricultural economics affords some examples, the fields of transportation and public finance
afford others. It follows that we cannot
confine ourselves to the history of ‘general’ economic analysis but shall have
to keep an eye on developments in applied fields as best we can.
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