Thorstein Veblen
The Preconceptions Of Economic Science

The Quarterly Journal of Economics, vol. 13 (1899), vol. 14 (1900)
Part I. Vol. 13 No. 2. (Jan., 1899), pp. 121-150;
Part II. Vol. 13 No. 4. (Jul., 1899), pp. 396-426;
Part III. Vol. 14 No. 2. (Feb., 1900), pp. 240-269.
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PART I.
In an earlier paper(1*) the view has been expressed that the economics handed 
down by the great writers of a past generation is substantially a taxonomic 
science. A view of much the same purport, so far as concerns the point here 
immediately in question, is presented in an admirably lucid and cogent way by 
Professor Clark in a recent number of this journal.(2*) There is no wish hereby 
to burden Professor Clark with a putative sponsorship of any ungraceful or 
questionable generalisations reached in working outward from this main position, 
but expression may not be denied the comfort which his unintended authentication 
of the main position affords. It is true, Professor Clark does not speak of 
taxonomy, but employs the term "statics" which is this connection, through its 
use by Professor Clark and by other writers eminent in the science, it is fairly 
to be questioned whether the term can legitimately be used to characterize the 
received economic theories. The word is borrowed from the jargon of physics, 
where it is used to designate the theory of bodies at rest or of forces in 
equilibrium. But there is much in the received economic theories to which the 
analogy of bodies at rest or of forces in equilibrium will not apply. It is 
perhaps not too much to say that those articles of economic theory that do not 
lend themselves to this analogy make up the major portion of the received 
doctrines. So, for instance, it seems scarcely to the point to speak of the 
statics of production, exchange, consumption, circulation. There are, no doubt, 
appreciable elements in the theory of these several processes that may fairly be 
characterized as statical features of the theory; but the doctrines handed down 
are after all, in the main, theories of the process discussed under each head, 
and the theory of a process does not belong in statics. The epithet "statical" 
would, for instance, have to be wrenched somewhat ungently to make it apply to 
Quesnay's classic Tableau Economique or to the great body of Physiocratic 
speculations that take their rise from it. The like is true for Books II. and 
III. of Adam Smith's Wealth of Nations, as also for considerable portions 
generation, for much of Marshall's Principles, and for such a modern discussion 
as Smart's Studies in Economics, as well as for the fruitful activity of the 
Austrians and of the later representatives of the Historical School.
But to return from this terminological digression. While economic science in the 
remoter past of its history has been mainly of a taxonomic character, later 
writers of all schools show something of a divergence from the taxonomic line 
and an inclination to make the science a genetic account of the economic life 
process, sometimes even without an ulterior view to the taxonomic value of the 
results obtained. The divergence from the ancient canons of theoretical 
formulation is to be taken as an episode of the movement that is going forward 
in latter-day science generally; and the progressive change which thus affects 
the ideals and the objective point of the modern sciences seems in its turn to 
be an expression of that matter-of-fact habit of mind which the prosy but 
exacting exigencies of life in a modern industrial community breed in men 
exposed to their unmitigated impact.
In speaking of this matter-of-fact character of the modern sciences it has been 
broadly characterized as "evolutionary"; and the evolutionary method and the 
evolutionary ideals have been placed in antithesis to the taxonomic methods and 
ideals of pre-evolutionary days. But the characteristic attitude, aims, and 
ideals which are so designated here are by no means peculiar to the group of 
sciences that are professedly occupied with a process of development, taking 
that term in its most widely accepted meaning. The latter-day inorganic sciences 
are in this respect like the organic. They occupy themselves with "dynamic" 
relations and sequences. The question which they ask is always, What takes place 
next, and why? Given a situation wrought out out by the forces under inquiry, 
what follows as the consequence of the situation so wrought out? or what follows 
upon the accession of further element of force? Even in so non-evolutionary a 
science as inorganic chemistry the inquiry consistently runs on a process, an 
active sequence, and the value of the resulting situation as a point of 
departure for the next step in an interminable cumulative sequence. The last 
step in the chemist's experimental inquiry into any substance is, What comes of 
the substance determined? What will it do? What will it lead to, when it is made 
the point of departure in further chemical action? There is no ultimate term, 
and no definite solution except in terms of further action. The theory worked 
out is always a theory of a genetic succession of phenomena, and the relations 
determined and elaborated into a body of doctrine are always genetic relations. 
In modern chemistry no cognisance is taken of the honorific bearing of reactions 
or molecular formulae. The modern chemist, as contrasted with this ancient 
congener, knows nothing of the worth, elegance, or cogency of the relations that 
may subsist between the particles of matter with which he busies himself, for 
any other than the genetic purpose. The spiritual element and the elements of 
worth and propensity no longer count. Alchemic symbolism and the hierarchical 
glamour and virtue that once hedged about the nobler and more potent elements 
and reagents are almost altogether a departed glory of the science. Even the 
modest imputation of propensity involved in the construction of a scheme of 
coercive normality, for the putative guidance of reactions, finds little 
countenance with the later adepts of chemical science. The science has outlived 
that phase of its development at which the taxonomic feature was the dominant 
one.
In the modern sciences, of which chemistry is one, there has been a gradual 
shifting of the point of view from which the phenomena which the science treats 
of are apprehended and passed upon; and to the historian of chemical science 
this shifting of the point of view must be a factor of great weight in the 
development of chemical knowledge. Something of a like nature is true for 
economic science; and it is the aim here to present, in outline, some of the 
successive phases that have passed over the spiritual attitude of the adepts of 
the science, and to point out the manner in which the transition from one point 
of view to the next has been made.
As has been suggested in the paper already referred to, the characteristic 
spiritual attitude or point of view of a given generation or group of economists 
is shown not so much in their detail work as in their higher syntheses - the 
terms of their definite formulations - the grounds of their final valuation of 
the facts handled for purpose of theory. This line of recondite inquiry into the 
spiritual past and antecedents of the science has not often been pursued 
seriously or with singleness of purpose, perhaps because it is, after all, of 
but slight consequence to the practical efficiency of the present-day science. 
Still, not a little substantial work has been done towards this end by such 
writers as Hasbach, Oncken, Bonar, Cannan, and Marshall. And much that is to the 
purpose is also due to writers outside of economics, for the aims of economic 
speculation have never been insulated from the work going forward in other lines 
of inquiry. As would necessarily be the case, the point of view of the 
enlightened common sense of their time. The spiritual attitude of a given 
generation of economists is therefore in good part a special outgrowth of the 
ideals and preconceptions current in the world about them.
So, for instance, it is quite the conventional thing to say that the 
speculations of the Physiocrats were dominated and shaped by the preconception 
of Natural Rights. Account has been taken of the effect of natural-rights 
preconceptions upon the Physiocratic schemes of policy and economic reform, as 
well as upon the details of their doctrines.(3*) But little has been said of the 
significance of these preconceptions for the lower courses of the Physiocrats' 
theoretical structure. And yet that habit of mind to which the natural-rights 
view is wholesome and adequate is answerable both for the point of departure and 
for the objective point of the Physiocratic theories, both for the range of 
facts to which they turned and for the terms in which they were content to 
formulate their knowledge of the facts which they handled. The failure of their 
critics to place themselves at the Physiocratic point of view has led to much 
destructive criticism of their work; whereas, when seen through Physiocratic 
eyes, such doctrines as those of the net product and of the barrenness of the 
artisan class appear to be substantially true.
The speculations of the Physiocrats are commonly accounted the first articulate 
and comprehensive presentation of economic theory that is in line with later 
theoretical work. The Physiocratic point of view may, therefore, well be taken 
as the point of departure in an attempt to trace that shifting of aims and norms 
of procedure that comes into view in the work of later economists when compared 
with earlier writers.
Physiocratic economics is a theory of the working-out of the Law of Nature (loi 
naturelle) in its economic bearing, and this Law of Nature is a very simple 
matter.
Les lois naturelles sont on physiques ou morales.
On entend ici, par loi physique, le cours régie de tout evenement physique de 
l'ordre naturel, evidemment le plus avatageux au genre humain.
On entend ici, par loi morale, the regle de toute action humaine de l'ordre 
morale, conforme a l'ordre physique evidemment le plus advantageux au genre 
humain.
Ces lois forment ensemble ce qu'on appelle la loi naturelle. Tous les hommes et 
toutes les puissances humaines doivent etre soumis a ces lois souveraines, 
instituees par l' Etre-Supreme: elles sont immuables et irrefragables, et les 
meilleures lois possible.(4*)
The settled course of material facts tending beneficently to the highest welfare 
of the human race, - this is the final term in the Physiocratic speculations. 
This is the touchstone of substantiality. Conformity to these "immutable and 
unerring" laws of nature is the test of economic truth. The laws are immutable 
and unerring, but that does not mean that they rule the course of events with a 
blind fatality that admits of no exception and no divergence from the direct 
line. Human nature may, through infirmity or perversity, willfully break over 
the beneficent trend of the laws of nature; but to the Physiocrat's sense of the 
matter the laws are none the less immutable and irrefragable on that account. 
They are not empirical generalisations on the course of phenomena, like the law 
of falling bodies or of the angle of reflection; although many of the details of 
their action are to be determined only by observation and experience, helped 
out, of course, by interpretation of the facts of observation under the light of 
reason. So, for instance, Turgot, in his Reflections, empirically works out a 
doctrine of the reasonable course of development through which wealth is 
accumulated and reaches the existing state of unequal distribution; so also his 
doctrines of interest and of money. The immutable natural laws are rather of the 
nature of canons of conduct governing nature than generalisations of mechanical 
sequence, although in a general way the phenomena of mechanical sequence are 
details of the conduct of nature working according to these canons of conduct. 
The great law of the order of nature is of the character of a propensity working 
to an end, to the accomplishment of a purpose. The processes of nature working 
under the quasi-spiritual stress of this immanent propensity may be 
characterised as nature's habits of life. Not that nature is conscious of its 
travail, and knows and desires the worthy end of its endeavors; but for all that 
there is a quasi-spiritual nexus between antecedent and consequent in the scheme 
of operation in which nature is engaged. Nature is not uneasy about 
interruptions of its course or occasional deflections from the direct line 
through an untoward conjunction of mechanical causes, nor does the validity of 
the great overruling law suffer through such an episode. The introduction of a 
mere mechanically effective causal factor cannot thwart the course of Nature 
from reaching the goal to which she animistically tends. Nothing can thwart this 
teleological propensity of nature except counter-activity or divergent activity 
of a similarly teleological kind. Men can break over the law, and have short-
sightly and willfully done so; for men are also agents who guide their actions 
by an end to be achieved. Human conduct is activity of the same kind - on the 
same plane of spiritual reality or competency - as the course of Nature, and it 
may therefore traverse the latter. The remedy for this short-sighted traffic of 
misguided human nature is enlightenment, - "instruction publique et privée des 
lois de l'ordre naturel."(5*)
The nature in terms of which all knowledge of phenomena - for the present 
purpose economic phenomena - is to be finally synthesised is, therefore, 
substantially of a quasi-spiritual or animistic character. The laws of nature 
are in the last resort teleological; they are of the nature of a propensity. The 
substantial fact in all the sequences of nature is the end to which the sequence 
naturally tends, not the brute fact of mechanical compulsion or causally 
effective forces. Economic theory is accordingly the theory (1) of how the 
efficient causes of the ordre naturel work in an orderly unfolding sequence, 
guided by the underlying natural law - the propensity immanent in nature to 
establish the highest well-being of mankind, and (2) of the conditions imposed 
upon human conduct by these natural laws in order to reach the ordained goal of 
supreme human welfare. The conditions so imposed on human conduct are as 
definitive as the laws and the order by force of which they are imposed; and the 
theoretical conclusions reached, when these laws and this order are known, are 
therefore expressions of absolute economic truth. Such conclusions are an 
expression of reality, but not necessarily of fact.
Now, the objective end of this propensity that determines the course of nature 
is human well-being. But economic speculation has to do with the workings of 
nature only so far as regards the ordre physique. And the laws of nature in the 
ordre physique, working through mechanical sequence, can only work out the 
physical well-being of man, not necessarily the spiritual. This propensity to 
the physical well-being of man is therefore the law of nature to which economic 
science must bring its generalisations, and this law of physical beneficence is 
the substantial ground of economic truth. Wanting this, all our speculations are 
vain; but having its authentication they are definitive. The great, typical 
function, to which all the other functioning of nature is incidental if not 
subsidiary, is accordingly that of the alimenation, nutrition of mankind. In so 
far, and only in so far as the physical processes contribute to human sustenance 
and fullness of life, can they, therefore, further the great work of nature. 
Whatever processes contribute to human sustenance by adding to the material 
available for human assimilation and nutrition, by increasing the substantial 
disposable for human comfort, therefore count towards the substantial end. All 
other processes, however serviceable in other than this physiological respect, 
lack the substance of economic reality. Accordingly, human industry is 
productive, economically speaking, if it heightens the effectiveness of the 
natural processes out of which the material of human sustenance emerges; 
otherwise not. The test of productivity, or economic reality in material facts, 
is the increase of nutritive material. Whatever employment of time or effort 
does not afford an increase of such material is unproductive, however profitable 
it may be to the person employed, and however useful or indispensable it may be 
to the community. The type of such productive industry is the husbandman's 
employment, which yields a substantial (nutritive) gain. The artisan's work may 
be useful to the community and profitable to himself, but its economic effect 
does not extend beyond an alteration of the form in which the material afforded 
by nature already lies at hand. It is formally productive only, not really 
productive. It bears no part in the creative or generative work of nature; and 
therefore it lacks the character of economic substantiality. It does not enhance 
nature's output of vital force. The artisan's labors, therefore, yield no net 
product, whereas the husbandman's labors do.
Whatever constitutes a material increment of this output of vital force is 
wealth, and nothing else is. The theory of value contained in this position has 
not to do with value according to men's appraisement of the valuable article. 
Given items of wealth may have assigned to them certain relative values at which 
they exchange, and these conventional values may differ more or less widely from 
the natural or intrinsic value of the goods in question; but all that is beside 
the substantial point. The point in question is not the degree of predilection 
shown by certain individuals or bodies of men for certain goods. That is a 
matter of caprice and convention, and it does not directly touch the substantial 
ground of the economic life. The question of value is a question of the extent 
to which the given item of wealth forwards the end of nature's unfolding 
process. It is valuable, intrinsically and really, in so far as it avails the 
great work which nature has in hand.
Nature, then, is the final term in the Physiocratic speculations. Nature works 
by impulse and in an unfolding process, under the stress of a propensity to the 
accomplishment of a given end. The propensity, taken as the final cause that is 
operative in any situation, furnishes the basis on which to coordinate all our 
knowledge of those efficient causes through which Nature works to her ends. For 
the purpose of economic theory proper, this is the ultimate ground of reality to 
which our quest of economic truth must penetrate. But back of Nature and her 
works there is, in the Physiocratic scheme of the universe, the Creator, by 
whose all-wise and benevolent power the order of nature has been established in 
all the strength and beauty of its inviolate and immutable perfection. But the 
Physiocratic conception of the Creator is essentially a deistic one: he stands 
apart from the course of nature which he has established, and keeps his hands 
off. In the last resort, of course, "Dieu seul est producteur. Les hommes 
travaillent, receuillent, economisent, conservent; mais economiser n'est par 
produire."(6*) But this last resort does not bring the Creator into economic 
theory as a fact to be counted with in formulating economic laws. He serves a 
homiletical purpose in the Physiocratic speculations rather than fills an office 
essential to the theory. He comes within the purview of the theory by way of 
authentication rather than as a subject of inquiry or a term in the formulation 
of economic knowledge. The Physiocratic God can scarcely be said to be an 
economic fact, but it is otherwise with that Nature whose ways and means 
constitute the subject-matter of the Physiocratic inquiry.
When this natural system of the Physiocratic speculation is looked at from the 
side of the psychology of the investigators, or from that of the logical 
premises employed, it is immediately recognised as essentially animistic. It 
runs consistently on animistic ground; but it is animism of a high grade, - 
highly integrated and enlightened, but, after all, retaining very much of that 
primitive force and naivete which characterise the animistic explanations of 
phenomena in vogue among the untroubled barbarians. It is not the disjected 
animism of the vulgar, who see a willful propensity - often a willful perversity 
- in given objects or situations to worrk towards a given outcome, good or bad. 
It is not the gambler's haphazard sense of fortuitous necessity or the 
housewife's belief in lucky days, numbers or phases of the moon. The 
Physiocrat's animism rests on a broader outlook, and does not proceed by such an 
immediately impulsive imputation of propensity. The teleological element - the 
element of propensity - is conceived in a large way, unified and harmonised, as 
a comprehensive order of nature as a whole. But it vindicates its standing as a 
true animism by never becoming fatalistic and never being confused or confounded 
with the sequence of cause and effect. It has reached the last stage of 
integration and definition, beyond which the way lies downward from the high, 
quasi-spiritual ground of animism to the tamer levels of normality and causal 
uniformities.
There is already discernible a tone of dispassionate and colorless "tendency" 
about the Physiocratic animism, such as to suggest a wavering towards the side 
of normality. This is especially visible in such writers as the half-protestant 
Turgot. In his discussion of the development of farming, for instance, Turgot 
speaks almost entirely of human motives and the material conditions under which 
the growth takes place. There is little metaphysics in it, and that little does 
not express the law of nature in an adequate form. But, after all has been said, 
it remains true that the Physiocrat's sense of substantiality is not satisfied 
until he reaches the animistic ground; and it remains true also that the 
arguments of their opponents made little impression on the Physiocrats so long 
as they were directed to other than this animistic ground of their doctrine. 
This is true in great measure even of Turgot, as witness his controversy with 
Hume. Whatever criticism is directed against them on other grounds is met with 
impatience, as being inconsequential, if not disingenuous.(7*)
To an historian of economic theory the source and the line of derivation whereby 
this precise form of the order-of-nature preconception reached the Physiocrats 
are of first-rate importance; but it is scarcely a question to be taken up here, 
- in part because it is too large a queestion to be handled here, in part because 
it has met with adequate treatment at more competent hands,(8*) and in part 
because it is somewhat beside the immediate point under discussion. This point 
is the logical, or perhaps better the psychological, value of the Physiocrats' 
preconception, as a factor in shaping their point of view and the terms of their 
definitive formulation of economic knowledge. For this purpose it may be 
sufficient to point out that the preconception in question belongs to the 
generation in which the Physiocrats lived, and that it is the guiding norm of 
all serious thought that found ready assimilation into the common-sense views of 
that time. It is the characteristic and controlling feature of what may be 
called the common-sense metaphysics of the eighteenth century, especially so far 
as concerns the enlightened French community.
It is to be noted as a point bearing more immediately on the question in hand 
that this imputation of final causes to the course of phenomena expresses a 
spiritual attitude which has prevailed, one might almost say, always and 
everywhere, but which reached its finest, most effective development, and found 
its most finished expression, in the eighteenth-century metaphysics. It is 
nothing recondite; for it meets us at every turn, as a matter of course, in the 
vulgar thinking of to-day, - in the pulpit and in the market place, - although it 
is not so ingenuous, nor does it so unquestionedly hold the primacy in the 
thinking of any class to-day as it once did. It meets us likewise, with but 
little change of features, at all past stages of culture, late or early. Indeed, 
it is the most generic feature of human thinking, so far as regards a 
theoretical or speculative formulation of knowledge. Accordingly, it seems 
scarcely necessary to trace the lineage of this characteristic preconception of 
the era of enlightenment, through specific channels, back to the ancient 
philosophers or jurists of the empire. Some of the specific forms of its 
expression - as, for instance, the doctrine of Natural Rights - are no doubt 
traceable through medieval channels to the teachings of the ancients; but there 
is no need of going over the brook for water, and tracing back to specific 
teachings the main features of that habit of mind or spiritual attitude of which 
the doctrines of Natural Rights and the Order of Nature are specific 
elaborations only. This dominant habit of mind came to the generation of the 
Physiocrats on the broad ground of group inheritance, not by lineal devolution 
from any one of the great thinkers of past ages who had thrown its deliverances 
into a similarly competent form for the use of his own generation.
In leaving the Physiocratic discipline and the immediate sphere of Physiocratic 
influence for British ground, we are met by the figure of Hume. Here, also, it 
will be impracticable to go into details as to the remoter line of derivation of 
the specific point of view that we come upon on making the transition, for 
reasons similar to those already given as excuse for passing over the similar 
question with regard to the Physiocratic point of view. Hume is, of course, not 
primarily an economist; but that placid unbeliever is none the less a large item 
in any inventory of eighteenth-century economic thought. Hume was not gifted 
with a facile acceptance of the group inheritance that made the habit of mind of 
his generation. Indeed, he was gifted with an alert, though somewhat histrionic, 
skepticism touching everything that was well received. It is his office to prove 
all things, though not necessarily to hold fast that which is good.
Aside from the strain of affectation discernible in Hume's scepticism, he may be 
taken as an accentuated expression of that characteristic bent which 
distinguishes British thinking in his time from the thinking of the Continent, 
and more particularly of the French. There is in Hume, and in the British 
community, an insistence on the prosy, not to say the seamy, side of human 
affairs. He is not content with formulating his knowledge of things in terms of 
what ought to be or in terms of the objective point of the course of things. He 
is not even content with adding to the teleological account of phenomena a chain 
of empirical, narrative generalisations as to the usual course of things. He 
insists, in season and out of season, on an exhibition of the efficient causes 
engaged in any sequence of phenomena; and he is sceptical - irreverently 
sceptical - as to the need or the use of any formulation of knowledge that 
outruns the reach of his own matter-of-fact, step-by-step argument from cause to 
effect.
In short, he is too modern to be wholly intelligible to those of his 
contemporaries who are most neatly abreast of their time. He out-Britishes the 
British; and, in his footsore quest for a perfectly tame explanation of things, 
he finds little comfort, and indeed scant courtesy, at the hands of his own 
generation. He is not in sufficiently naive accord with the range of 
preconceptions then in vogue.
But, while Hume may be an accentuated expression of a national characteristic, 
he is not therefore an untrue expression of this phase of British eighteenth-
century thinking. The peculiarity of point of view and of method for which he 
stands has sometimes been called the critical attitude, sometimes the inductive 
method, sometimes the materialistic or mechanical, and again, though less aptly, 
the historical method. Its characteristic is an insistence on matter-of-fact.
This matter-of-fact animus that meets any historian of economic doctrine on his 
introduction to British economics is a large, but not the largest, feature of 
the British scheme of early economic thought. It strikes the attention because 
it stands in contrast with the relative absence of this feature in the 
contemporary speculations of the Continent. The most potent, most formative 
habit of thought concerned in the early development of economic teaching on 
British ground is best seen in the broader generalisations of Adam Smith, and 
this more potent factor in Smith is a bent that is substantially identical with 
that which gives consistency to the speculations of the Physiocrats. In Adam 
Smith the two are happily combined, not to say blended; but the animistic habit 
still holds the primacy, with the matter-of-fact as a subsidiary though powerful 
factor. He is said to have combined deduction with induction. The relatively 
great prominence given the latter marks the line of divergence of British from 
French economics, not the line of coincidence; and on this account it may not be 
out of place to look more narrowly into the circumstances to which the emergence 
of this relatively greater penchant for a matter-of-fact explanation of things 
in the British community is due.
To explain the characteristic animus for which Hume stands, on grounds that 
might appeal to Hume, we should have to inquire into the peculiar circumstances 
- ultimately material circumstances - tthat have gone to shape the habitual view 
of things within the British community, and that so have acted to differentiate 
the British preconceptions from the French, or from the general range of 
preconceptions prevalent on the Continent. These peculiar formative 
circumstances are no doubt to some extent racial peculiarities; but the racial 
complexion of the British community is not widely different from the French, and 
especially not widely different from certain other Continental communities which 
are for the present purpose roughly classed with the French. Race difference can 
therefore not wholly, nor indeed for the greater part, account for the cultural 
difference of which this difference in preconceptions is an outcome. Through its 
cumulative effect on institutions the race difference must be held to have had a 
considerable effect on the habit of mind of the community, but, if the race 
difference is in this way taken as the remoter ground of an institutional 
peculiarity, which in its turn has shaped prevalent habits of thought, then the 
attention may be directed to the proximate causes, the concrete circumstances, 
through which this race difference has acted, in conjunction with other ulterior 
circumstances, to work out the psychological phenomena observed. Race 
differences, it may be remarked, do not so nearly coincide with national lines 
of demarcation as differences in the point of view from which things are 
habitually apprehended or differences in the standards according to which facts 
are rated.
If the element of race difference be not allowed definitive weight in discussing 
national peculiarities that underlie the deliverances of common sense, neither 
can these national peculiarities be confidently traced to a national difference 
in the transmitted learning that enters into the common-sense view of things. So 
far as concerns the concrete facts embodied in the learning of the various 
nations within the European culture, these nations make up but a single 
community. What divergence is visible does not touch the character of the 
positive information with which the learning of the various nations is occupied. 
Divergence is visible in the higher syntheses, the methods of handling the 
material of knowledge, the basis of valuation of the facts taken up, rather than 
in the material of knowledge. But this divergence must be set down to a cultural 
difference, a difference of point of view, not to a difference in inherited 
information. When a given body of information passes the national frontiers it 
acquires a new complexion, a new national, cultural physiognomy. It is this 
cultural physiognomy of learning that is here under inquiry, and a comparison of 
early French economics (the Physiocrats) with early British economics (Adam 
Smith) is here entered upon merely with a view to making out what significance 
this cultural physiognomy of the science has for the past progress of economic 
speculation.
The broad features of economic speculation, as it stood at the period under 
consideration, may be briefly summed up, disregarding the element of policy, or 
expediency, which is common to both groups of economists, and attending to their 
theoretical work alone. With the Physiocrats, as with Adam Smith, there are two 
main points of view from which economic phenomena are treated: (a) the matter-
of-fact point of view or preconception, which yields a discussion of causal 
sequences and correlations; and (b) what, for want of a more expressive word, is 
here called the animistic point of view or preconception, which yields a 
discussion of teleological sequences and correlations, a discussion of the 
function of this and that "organ," of the legitimacy of this or the other range 
of facts. The former preconception is allowed a larger scope in the British than 
in the French economics: there is more of "induction" in the British. The latter 
preconception is present in both, and is the definitive element in both but the 
animistic element is more colorless in the British, it is less constantly in 
evidence, and less able to stand alone without the support of arguments from 
cause to effect. Still, the animistic element is the controlling factor in the 
higher syntheses of both; and for both alike it affords the definitive ground on 
which the argument finally comes to rest. In neither group of thinkers is the 
sense of substantiality appeased until this quasi-spiritual ground, given by the 
natural propensity of the course of events, is reached. But the propensity in 
events, the natural or normal course of things, as appealed to by the British 
speculators, suggests less of an imputation of will-power, or personal force, to 
the propensity in question. It may be added, as has already been said in another 
place, that the tacit imputation of will-power or spiritual consistency to the 
natural or normal course of events has progressively weakened in the later 
course of economic speculation, so that in this respect, the British economists 
of the eighteenth century may be said to represent a later phase of economic 
inquiry than the Physiocrats.
Unfortunately, but unavoidably, if this question as to the cultural shifting of 
the point of view in economic science is taken up from the side of the causes to 
which the shifting is traceable, it will take the discussion back to ground on 
which an economist must at best feel himself to be but a raw layman, with all a 
layman's limitations and ineptitude, and with the certainty of doing badly what 
might be done well by more competent hands. But, with a reliance on charity 
where charity is most needed, it is necessary to recite summarily what seems to 
be the psychological bearing of certain cultural facts.
A cursory acquaintance with any of the more archaic phases of human culture 
enforces the recognition of this fact, - that the habit of construing the 
phenomena of the inanimate world in animistic terms prevails pretty much 
universally on these lower levels. Inanimate phenomena are apprehended to work 
out a propensity to an end; the movements of the elements are construed in terms 
of quasi-personal force. So much is well authenticated by the observations on 
which anthropologists and ethnologists draw for their materials. This animistic 
habit, it may be said, seems to be more effectual and far-reaching among those 
primitive communities that lead a predatory life.
But along with this feature of archaic methods of thought or of knowledge, the 
picturesqueness of which has drawn the attention of all observers, there goes a 
second feature, no less important for the purpose in hand, though less 
obtrusive. The latter is of less interest to the men who have to do with the 
theory of cultural development, because it is a matter of course. This second 
feature of archaic thought is the habit of also apprehending facts in non-
animistic, or impersonal, terms. The imputation of propensity in no case extends 
to all the mechanical facts in the case. There is always a substratum of matter 
of fact, which is the outcome of an habitual imputation of causal sequence, or, 
perhaps better, an imputation of mechanical continuity, if a new term be 
permitted. The agent, thing, fact, event, or phenomenon, to which propensity, 
will-power, or purpose, is imputed, is always apprehended to act in an 
environment which is accepted as spiritually inert. There are always opaque 
facts as well as self-directing agents. Any agent acts through means which lend 
themselves to his use on other grounds than that of spiritual compulsion, 
although spiritual compulsion may be a large feature in any given case.
The same features of human thinking, the same two complementary methods of 
correlating facts and handling them for the purposes of knowledge, are similarly 
in constant evidence in the daily life of men in our own community. The question 
is, in great part, which of the two bears the greater part in shaping human 
knowledge at any given time and within any given range of knowledge or of facts.
Other features of the growth of knowledge, which are remoter from the point 
under inquiry, may be of no less consequence to a comprehensive theory of the 
development of culture and of thought; but it is of course out of the question 
here to go farther afield. The present inquiry will have enough to do with these 
two. No other features are correlative with these, and these merit discussion on 
account of their intimate bearing on the point of view of economics. The point 
of interest with respect to these two correlative and complementary habits of 
thought is the question of how they have fared under the changing exigencies of 
human culture; in what manner they come, under given cultural circumstances, to 
share the field of knowledge between them; what is the relative part of each in 
the composite point of view in which the two habits of thought express 
themselves at any given cultural stage.
The animistic preconception enforces the apprehension of phenomena in terms 
generically identical with the terms of personality or individuality. As a 
certain modern group of psychologists would say, it imputes to objects and 
sequences an element of habit and attention similar in kind, though not 
necessarily in degree, to the like spiritual attitude present in the activities 
of a personal agent. The matter-of-fact preconception, on the other hand, 
enforces a handling of facts without imputation of personal force or attention, 
but with an imputation of mechanical continuity, substantially the preconception 
which has reached a formulation at the hands of scientists under the name of 
conservation of energy or persistence of quantity. Some appreciable resort to 
the latter method of knowledge is unavoidable at any cultural stage, for it is 
indispensable to all industrial efficiency. All technological processes and all 
mechanical contrivances rest, psychologically speaking, on this ground. This 
habit of thought is a selectively necessary consequence of industrial life, and, 
indeed, of all human experience in making use of the material means of life. It 
should therefore follow that, in a general way, the higher the culture, the 
greater the share of the mechanical preconception in shaping human thought and 
knowledge, since, in a general way, the stage of culture attained depends on the 
efficiency of industry. The rule, while it does not hold with anything like 
extreme generality, must be admitted to hold to a good extent; and to that 
extent it should hold also that, by a selective adaptation of men's habits of 
thought to the exigencies of those cultural phases that have actually 
supervened, the mechanical method of knowledge should have gained in scope and 
range. Something of the sort is borne out by observation.
A further consideration enforces the like view. As the community increases in 
size, the range of observation of the individuals in the community also 
increases; and continually wider and more far-reaching sequences of a mechanical 
kind have to be taken account of. Men have to adapt their own motives to 
industrial processes that are not safely to be construed in terms of propensity, 
predilection, or passion. Life in an advanced industrial community does not 
tolerate a neglect of mechanical fact; for the mechanical sequences through 
which men, at an appreciable degree of culture, work out their livelihood, are 
no respecters of persons or of will-power. Still, on all but the higher 
industrial stages, the coercive discipline of industrial life, and of the scheme 
of life that inculcates regard for the mechanical facts of industry, is greatly 
mitigated by the largely haphazard character of industry, and by the great 
extent to which man continues to be the prime mover in industry. So long as 
industrial efficiency is chiefly a matter of the handicraftsman's skill, 
dexterity, and diligence, the attention of men in looking to the industrial 
process is met by the figure of the workman, as the chief and characteristic 
factor; and thereby it comes to run on the personal element in industry.
But, with or without mitigation, the scheme of life which men perforce adopt 
under exigencies of an advanced industrial situation shapes their habits of 
thought on the side of their behavior, and thereby shapes their habits of 
thought to some extent for all purposes. Each individual is but a single complex 
of habits of thought, and the same psychical mechanism that expresses itself in 
one direction as conduct expresses itself in another direction as knowledge. The 
habits of thought formed in the one connection, in response to stimuli that call 
for a response in terms of conduct, must, therefore, have their effect when the 
same individual comes to respond to stimuli that call for a response in terms of 
knowledge. The scheme of thought or of knowledge is in good part a reverberation 
of the scheme of life. So that, after all has been said, it remains true that 
with the growth of industrial organization and efficiency there must, by 
selection and by adaptation, supervene a greater resort to the mechanical or 
dispassionate method of apprehending facts.
But the industrial side of life is not the whole of it, nor does the scheme of 
life in vogue in any community or at any cultural stage comprise industrial 
conduct alone. The social, civic, military, and religious interests come in for 
their share of attention, and between them they commonly take up by far the 
larger share of it. Especially is this true so far as concerns those classes 
among whom we commonly look for a cultivation of knowledge for knowledge's sake. 
The discipline which these several interests exert does not commonly coincide 
with the training given by industry. So the religious interest, with its canons 
of truth and of right living, runs exclusively on personal relations and the 
adaptation of conduct to the predilections of a superior personal agent. The 
weight of its discipline, therefore, falls wholly on the animistic side. It acts 
to heighten our appreciation of the spiritual bearing of phenomena and to 
discountenance a matter-of-fact apprehension of things. The sceptic of the type 
of Hume has never been in good repute with those who stand closest to the 
accepted religious truths. The bearing of this side of our culture upon the 
development of economics is shown by what the mediaeval scholars had to say on 
economic topics.
The disciplinary effects of other phases of life, outside of the industrial and 
the religious, is not so simple a matter; but the discussion here approaches 
nearer to the point of immediate inquiry, - namely, the cultural situation in 
the eighteenth century, and its relation to economic speculation, - and this 
ground of interest in the question may help to relieve the topic of the tedium 
that of right belongs to it.
In the remoter past of which we have records, and even in the more recent past, 
Occidental man, as well as man elsewhere, has eminently been a respecter of 
persons. Wherever the warlike activity has been a large feature of the 
community's life, much of human conduct in society has proceeded on a regard for 
personal force. The scheme of life has been a scheme of personal aggression and 
subservience, partly in the naive form, partly conventionalised in a system of 
status. The discipline of social life for the present purpose, in so far as its 
canons of conduct rest on this element of personal force in the 
unconventionalised form, plainly tends to the formation of a habit of 
apprehending and coordinating facts from the animistic point of view. So far as 
we have to do with life under a system of status, the like remains true, but 
with a difference. The régime of status inculcates an unremitting and very nice 
discrimination and observance of distinctions of personal superiority and 
inferiority. To the criterion of personal force, or will-power, taken in its 
immediate bearing on conduct, is added the criterion of personal excellence-in-
general, regardless of the first-hand potency of the given person as an agent. 
This criterion of conduct requires a constant and painstaking imputation of 
personal value, regardless of fact. The discrimination enjoined by the canons of 
status proceeds on an invidious comparison of persons in respect of worth, 
value, potency, virtue, which must, for the present purpose, be taken as 
putative. The greater or less personal value assigned a given individual or a 
given class under the canons of status is not assigned on the ground of visible 
efficiency, but on the ground of a dogmatic allegation accepted on the strength 
of an uncontradicted categorical affirmation simply. The canons of status hold 
their ground by force of preemption. Where distinctions of status are based on a 
putative worth transmitted by descent from honorable antecedents, the sequence 
of transmission to which appeal is taken as the arbiter of honor is of a 
putative and animistic character rather than a visible mechanical continuity. 
The habit of accepting as final what is prescriptively right in the affairs of 
life has as its reflex in the affairs of knowledge the formula,
Quid ab omnibus, quid ubique creditur credendum est.
Even this meager account of the scheme of life that characterises a régime of 
status should serve to indicate what is its disciplinary effect in shaping 
habits of thought, and therefore in shaping the habitual criteria of knowledge 
and of reality. A culture whose institutions are a framework of invidious 
comparisons implies, or rather involves and comprises, a scheme of knowledge 
whose definitive standards of truth and substantiality are of an animistic 
character; and, the more undividedly the canons of status and ceremonial honor 
govern the conduct of the community, the greater the facility with which the 
sequence of cause and effect is made to yield before the higher claims of a 
spiritual sequence or guidance in the course of events. Men consistently trained 
to an unremitting discrimination of honor, worth, and personal force in their 
daily conduct, and to whom these criteria afford the definitive ground of 
sufficiency in coordinating facts for the purposes of life, will not be 
satisfied to fall short of the like definitive ground of sufficiency when they 
come to coordinate facts for the purposes of knowledge simply. The habits formed 
in unfolding his activity in one direction, under the impulse of a given 
interest, assert themselves when the individual comes to unfold his activity in 
any other direction, under the impulse of any other interest. If his last resort 
and highest criterion of truth in conduct is afforded by the element of personal 
force and invidious comparison, his sense of substantiality or truth in the 
quest of knowledge will be satisfied only when a like definitive ground of 
animistic force and invidious comparison is reached. But when such ground is 
reached he rests content and pushes the inquiry no farther. In his practical 
life he has acquired the habit of resting his case on an authentic deliverance 
as to what is absolutely right. This absolutely right and good final term in 
conduct has the character of finality only when conduct is construed in a 
ceremonial sense; that is to say, only when life is conceived as a scheme of 
conformity to a purpose outside and beyond the process of living. Under the 
régime of status this ceremonial finality is found in the concept of worth or 
honor. In the religious domain it is the concept of virtue, sanctity, or tabu. 
Merit lies in what one is, not in what one does. The habit of appeal to 
ceremonial finality, formed in the school of status, goes with the individual in 
his quest of knowledge, as a dependence upon a similarly authentic norm of 
absolute truth, - a similar seeking of a final term outside and beyond the range 
of knowledge.
The discipline of social and civic life under a régime of status, then, 
reinforces the discipline of the religious life; and the outcome of the 
resulting habituation is that the canons of knowledge are cast in the animistic 
mold and converge to a ground of absolute truth, and this absolute truth is of a 
ceremonial nature. Its subject-matter is a reality regardless of fact. The 
outcome, for science, of the religious and social life of the civilisation of 
status, in Occidental culture, was a structure of quasi-spiritual appreciations 
and explanations, of which astrology, alchemy, and medieval theology and 
metaphysics are competent, though somewhat one-sided, exponents. Throughout the 
range of this early learning the ground of correlation of phenomena is in part 
the supposed relative potency of the facts correlated. but it is also in part a 
scheme of status, in which facts are scheduled according to a hierarchical 
gradation of worth or merit, having only a ceremonial relation to the observed 
phenomena. Some elements (some metals, for instance) are noble, others base; 
some planets, on grounds of ceremonial efficacy, have a sinister influence, 
others a beneficent one; and it is a matter of serious consequence whether they 
are in the ascendant, and so on.
The body of learning through which the discipline of animism and invidious 
comparison transmitted its effects to the science of economics was what is known 
as natural theology, natural rights, moral philosophy, and natural law. These 
several disciplines or bodies of knowledge had wandered far from the naive 
animistic standpoint at the time when economic science emerged, and much the 
same is true as regards the time of the emergence of other modern sciences. But 
the discipline which makes for an animistic formulation of knowledge continued 
to hold the primacy in modern culture, although its dominion was never 
altogether undivided or unmitigated. Occidental culture has long been largely an 
industrial culture; and, as already pointed out, the discipline of industry, and 
of life in an industrial community, does not favor the animistic preconception. 
This is especially true as regards industry which makes large use of mechanical 
contrivances. The difference in these respects between Occidental industry and 
science, on the one hand, and the industry and science of other cultural 
regions, on the other hand, is worth noting in this connection. The result has 
been that the sciences, as that word is understood in later usage, have come 
forward gradually, and in a certain rough parallelism with the development of 
industrial processes and industrial organisation. It is possible to hold that 
both modern industry (of the mechanical sort) and modern science center about 
the region of the North Sea. It is still more palpably true that within this 
general area the sciences, in the recent past, show a family likeness to the 
civil and social institutions of the communities in which they have been 
cultivated, this being true to the greatest extent of the higher or speculative 
sciences; that is, in that range of knowledge in which the animistic 
preconception can chiefly and most effectively find application. There is, for 
instance, in the eighteenth century a perceptible parallelism between the 
divergent character of British and Continental culture and institutions, on the 
one hand, and the dissimilar aims of British and Continental speculation, on the 
other hand.
Something has already been said of the difference in preconceptions between the 
French and the British economists of the eighteenth century. It remains to point 
out the correlative cultural difference between the two communities, to which it 
is conceived that the difference in scientific animus is in great measure due. 
It is, of course, only the general features, the general attitude of the 
speculators, that can be credited to the difference in culture. Differences of 
detail in the specific doctrines held could be explained only on a much more 
detailed analysis than can be entered on here, and after taking account of facts 
which cannot here be even allowed for in detail.
Aside from the greater resort to mechanical contrivances and the larger scale of 
organisation in British industry, the further cultural peculiarities of the 
British community run in the same general direction. British religious life and 
beliefs had less of the element of fealty personal or discretionary mastery and 
subservience - and more of a tone of fatalism. The civil institutions of the 
British had not the same rich personal content as those of the French. The 
British subject owned allegiance to an impersonal law rather than to the person 
of a superior. Relatively, it may be said that the sense of status, as a 
coercive factor, was in abeyance in the British community. Even in the warlike 
enterprise of the British community a similar characteristic is traceable. 
Warfare is, of course, a matter of personal assertion. Warlike communities and 
classes are necessarily given to construing facts in terms of personal force and 
personal ends. They are always superstitious. They are great sticklers for rank 
and precedent, and zealously cultivate those distinctions and ceremonial 
observances in which a system of status expresses itself. But, while warlike 
enterprise has by no means been absent from the British scheme of life, the 
geographical and strategic isolation of the British community has given a 
characteristic turn to their military relations. In recent times British warlike 
operations have been conducted abroad. The military class has consequently in 
great measure been segregated out from the body of the community, and the ideals 
and prejudices of the class have not been transfused through the general body 
with the same facility and effect that they might otherwise have had. The 
British community at home has seen the campaign in great part from the 
standpoint of the "sinews of war."
The outcome of all these national peculiarities of circumstance and culture has 
been that a different scheme of life has been current in the British community 
from what has prevailed on the Continent. There has resulted the formation of a 
different body of habits of thought and a different animus in their handling of 
facts. The preconception of causal sequence has been allowed larger scope in the 
correlation of facts for purposes of knowledge; and, where the animistic 
preconception has been resorted to, as it always has in the profounder reaches 
of learning, it has commonly been an animism of a tamer kind.
Taking Adam Smith as an exponent of this British attitude in theoretical 
knowledge, it is to be noted that, while he formulates his knowledge in terms of 
a propensity (natural laws) working teleologically to an end, the end or 
objective point which controls the formulation has not the same rich content of 
vital human interest or advantage as is met with in the Physiocratic 
speculations. There is perceptibly less of an imperious tone in Adam Smith's 
natural laws than in those of the contemporary French economists. It is true, he 
sums up the institutions with which he deals in terms of the ends which they 
should subserve, rather than in terms of the exigencies and habits of life out 
of which they have arisen; but he does not with the same tone of finality appeal 
to the end subserved as a final cause through whose coercive guidance the 
complex of phenomena is kept to its appointed task. Under his hands the 
restraining, compelling agency retires farther into the background, and appeal 
is taken to it neither so directly nor on so slight provocation.
But Adam Smith is too large a figure to be disposed of in a couple of concluding 
paragraphs. At the same time his work and the bent which he gave to economic 
speculation are so intimately bound up with the aims and bias that characterise 
economics in its next stage of development that he is best dealt with as the 
point of departure for the Classical School rather than merely as a British 
counterpart of Physiocracy. Adam Smith will accordingly be considered in 
immediate connection with the bias of the classical school and the incursion of 
utilitarianism into economics.
NOTES:
1. "Why is Economics not an Evolutionary Science?" Quarterly Journal of 
Economics, July, 1898.
2. "The Future of Economic Theory," ibid., October, 1898. 
3. See, for instance, Hasbuch, Allgemeine philosophische Grundlagen der von 
Francois Quesnay und Adam Smith begründeten politischen Oekonomie.
4. Quesnay, Droit Naturel, ch. v. (Ed. Daire, Physiocrates, pp. 52-53).
5. Quesnay, Droit Naturel, ch. v. (Ed. Daire, Physiocrates, p. 53).
6. Dupont de Nemours, Correspondence avec J.-B. Say (Ed. Daire, Physiocrates, 
premiere partie, p. 399).
7. See, for instance, the concluding chapters of La Riviere's Ordre Naturel 
des Societies Politiques.
8. E.g., Hasbuch, loc. cit.; Bonar, Philosophy and Political Economy, Book II; 
Ritchie, Natural Rights.
----------------------------
Thorstein Veblen
The Preconceptions of Economic Science
Vol. 13 No. 4. (Jul., 1899), pp. 396-426.
----------------------------
PART II.
Adam Smith's animistic bent asserts itself more plainly and more effectually in 
the general trend and aim of his discussion than in the details of theory. "Adam 
Smith's Wealth of Nations is, in fact, so far as it has one single purpose, a 
vindication of the unconscious law present in the separate actions of men when 
these actions are directed by a certain strong personal motive."(1*) Both in the 
Theory of the Moral Sentiments and in the Wealth of Nations there are many 
passages that testify to his abiding conviction that there is a wholesome trend 
in the natural course of things, and the characteristically optimistic tone in 
which he speaks for natural liberty is but an expression of this conviction. An 
extreme resort to this animistic ground occurs in his plea for freedom of 
investment.(2*)
In the proposition that men are "led by an invisible hand," Smith does not fall 
back on a meddling Providence who is to set human affairs straight when they are 
in danger of going askew. He conceives the Creator to be very continent in the 
matter of interference with the natural course of things. The Creator has 
established the natural order to serve the ends of human welfare; and he has 
very nicely adjusted the efficient causes comprised in the natural order, 
including human aims and motives, to this work that they are to accomplish. The 
guidance of interposition, the invisible hand takes place not by way of 
interposition, but through a comprehensive scheme of contrivances established 
from the beginning. For the purpose of economic theory, man is conceived to be 
consistently self-seeking; but this economic man is a part of the mechanism of 
nature, and his self-seeking traffic is but a means whereby, in the natural 
course of things, the general welfare is worked out. The scheme as a whole is 
guided by the end to be reached, but the sequence of events through which the 
end is reached is a causal sequence which is not broken into episodically. The 
benevolent work of guidance was performed in first establishing an ingenious 
mechanism of forces and motives capable of accomplishing an ordained result, and 
nothing beyond the enduring constraint of an established trend remains to 
enforce the divine purpose in the resulting natural course of things.
The sequence of events, including human motives and human conduct, is a causal 
sequence; but it is also something more, or, rather, there is also another 
element of continuity besides that of brute cause and effect, present even in 
the step-by-step process whereby the natural course of things reaches its final 
term. The presence of such a quasi-spiritual or non-causal element is evident 
from two (alleged) facts. (1) The course of things may be deflected from the 
direct line of approach to that consummate human welfare which is its legitimate 
end. The natural trend of things may be overborne by an untoward conjuncture of 
causes. There is a distinction, often distressingly actual and persistent, 
between the legitimate and the observed course of things. If "natural," in Adam 
Smith's use, meant necessary, in the sense of causally determined, no divergence 
of events from the natural or legitimate course of things would be possible. If 
the mechanism of nature, including man, were a mechanically competent 
contrivance for achieving the great artificer's design, there could be no such 
episodes of blundering and perverse departure from the direct path as Adam Smith 
finds in nearly all existing arrangements. Institutional facts would then be 
"natural."(3*) (2) When things have gone wrong, they will right themselves if 
interference with the natural course ceases; whereas, in the case of a causal 
sequence simply, the mere cessation of interference will not leave the outcome 
the same as if no interference had taken place. This recuperative power of 
nature is of an extra-mechanical character. The continuity of sequence by force 
of which the natural course of things prevails is, therefore, not of the nature 
of cause and effect, since it bridges intervals and interruptions in the causal 
sequence.(4*) Adam Smith's use of the term "real" in statements of theory - as, 
for example, "real value," "real price"(5*) - is evidence to this effect. 
"Natural" commonly has the same meaning as "real" in this connection.(6*) Both 
"natural" and "real" are placed in contrast with the actual; and, in Adam 
Smith's apprehension, both have a substantiality different from and superior to 
facts. The view involves a distinction between reality and fact, which survives 
in a weakened form in the theories of "normal" prices, wages, profits, costs, in 
Adam Smith's successors.
This animistic prepossession seems to pervade the earlier of his two monumental 
works in a greater degree than the later. In the Moral Sentiments recourse is 
had to the teleological ground of the natural order more freely and with 
perceptibly greater insistence. There seems to be reason for holding that the 
animistic preconception weakened or, at any rate, fell more into the background 
as his later work of speculation and investigation proceeded. The change shows 
itself also in some details of his economic theory, as first set forth in the 
Lectures, and afterwards more fully developed in the Wealth of Nations. So, for 
instance, in the earlier presentation of the matter, "the division of labor is 
the immediate cause of opulence"; and this division of labor, which is the chief 
condition of economic well-being, "flows from a direct propensity in human 
nature for one man to barter with another."(7*) The "propensity" in question is 
here appealed to as a natural endowment immediately given to man with a view to 
the welfare of human society, and without any attempt at further explanation of 
how man has come by it. No causal explanation of its presence or character is 
offered. But the corresponding passage of the Wealth of Nations handles the 
question more cautiously.(8*) Other parallel passages might be compared, with 
much the same effect. The guiding hand has withdrawn farther from the range of 
human vision.
However, these and other like filial expressions of a devout optimism need, 
perhaps, not be taken as integral features of Adam Smith's economic theory, or 
as seriously affecting the character of his work as an economist. They are the 
expression of his general philosophical and theological views, and are 
significant for the present purpose chiefly as evidences of an animistic and 
optimistic bent. They go to show what is Adam Smith's accepted ground of 
finality, - the ground to which all his speculations on human affairs converge; 
but they do not in any great degree show the teleological bias guiding his 
formulation of economic theory in detail.
The effective working of the teleological bias is best seen in Smith's more 
detailed handling of economic phenomena - in his discussion of what may loosely 
be called economic institutions - and in the criteria and principles of 
procedure by which he is guided in incorporating these features of economic life 
into the general structure of his theory. A fair instance, though perhaps not 
the most telling one, is the discussion of the "real and nominal price," and of 
the "natural and market price" of commodities, already referred to above.(9*) 
The "real" price of commodities is their value in terms of human life. At this 
point Smith differs from the Physiocrats, with whom the ultimate terms of value 
are afforded by human sustenance taken as a product of the functioning of brute 
nature; the cause of the difference being that the Physiocrats conceived the 
natural order which works towards the material well-being of man to comprise the 
nonhuman environment only, whereas Adam Smith includes man in this concept of 
the natural order, and, indeed, makes him the central figure in the process of 
production. With the Physiocrats, production is the work of nature: with Adam 
Smith, it is the work of man and nature, with man in the foreground. In Adam 
Smith, therefore, labor the final term in valuation. This "real" value of 
commodities is the value imputed to them by the economist under the stress of 
his teleological preconception. It has little, if any, place in the course of 
economic events, and no bearing on human affairs, apart from the sentimental 
influence which such a preconception in favor of a "real value" in things may 
exert upon men's notions of what is the good and equitable course to pursue in 
their transactions. It is impossible to gauge this real value of goods; it 
cannot be measured or expressed in concrete terms. Still, if labor exchanges for 
a varying quality of goods, "it is their value which varies, not that of the 
labor which purchases them."(10*) The values which practically attach to goods 
in men's handling of them are conceived to be determined without regard to the 
real value which Adam Smith imputes to the goods; but, for all that, the 
substantial fact with respect to these market values is their presumed 
approximation to the real values teleologically imputed to the goods under the 
guidance of inviolate natural laws. The real, or natural, value of articles has 
no causal relation to the value at which they exchange. The discussion of how 
values are determined in practice runs on the motives of the buyers and sellers, 
and the relative advantage enjoyed by the parties to the transaction.(11*) It is 
a discussion of a process of valuation, quite unrelated to the "real," or 
"natural," price of things, and quite unrelated to the grounds on which things 
are held to come by their real, or natural, price; and yet, when the complex 
process of valuation has been traced out in terms of human motives and the 
exigencies of the market, Adam Smith feels that he has only cleared the ground. 
He then turns to the serious business of accounting for value and price 
theoretically, and making the ascertained facts articulate with his teleological 
theory of economic life.(12*)
The occurrence of the words "ordinary" and "average" in this connection need not 
be taken too seriously. The context makes it plain that the equality which 
commonly subsists between the ordinary or average rates, and the natural rates, 
is a matter of coincidence, not of identity. Not only are there temporary 
deviations, but there may be a permanent divergence between the ordinary and the 
natural price of a commodity; as in case of a monopoly or of produce grown under 
peculiar circumstances of soil or climate.(13*)
The natural price coincides with the price fixed by competition, because 
competition means the unimpeded play of those efficient forces through which the 
nicely adjusted mechanism of nature works out the design to accomplish which it 
was contrived. The natural price is reached through the free interplay of the 
factors of production, and it is itself an outcome of production. Nature, 
including the human factor, works to turn out the goods; and the natural value 
of the goods is their appraisement from the standpoint of this productive 
process of nature. Natural value is a category of production: whereas, 
notoriously exchange value or market price is a category of distribution. And 
Adam Smith's theoretical handling of market price aims to show how the factors 
of human predilection and human wants at work in the higgling of the market 
bring about a result in passable consonance with the natural laws that are 
conceived to govern production.
The natural price is a composite result of the blending of the three "component 
parts of the price of commodities," - the natural wages of laborer, the natural 
profits of stock, and the natural rent of land; and each of these three 
components is in its turn the measure of the productive effect of the factor to 
which it pertains. The further discussion of these shares in distribution aims 
to account for the facts of distribution on the ground of the productivity of 
the factors which are held to share the product between them. That is to say, 
Adam Smith's preconception of a productive natural process as the basis of his 
economic theory dominates his aims and procedure, when he comes to deal with 
phenomena that cannot be stated in terms of production. The causal sequence in 
the process of distribution is, by Adam Smith's own showing, unrelated to the 
causal sequence in the process of production; but, since the latter is the 
substantial fact, as viewed from the standpoint of a teleological natural order, 
the former must be stated in terms of the latter before Adam Smith's sense of 
substantiality, or "reality," is satisfied. Something of the same kind is, of 
course, visible in the Physiocrats and in Cantillon. It amounts to an extension 
of the natural-rights preconception to economic theory. Adam Smith's discussion 
of distribution as a function of productivity might be traced in detail through 
his handling of Wages, Profits, and Rent; but, since the aim here is a brief 
characterisation only, and not an exposition, no farther pursuit of this point 
seems feasible.
It may, however, be worth while to point out another line of influence along 
which the dominance of the teleological preconception shows itself in Adam 
Smith. This is the normalisation of data, in order to bring them into consonance 
with an orderly course of approach to the putative natural end of economic life 
and development. The result of this normalisation of data is, on the one and, 
the use of what James Steuart calls "conjectural history" in dealing with past 
phases of economic life, and, on the other hand, a statement of present-day 
phenomena in terms of what legitimately ought to be according to the God-given 
end of life rather than in terms of unconstrued observation. Account is taken of 
the facts (supposed or observed) ostensibly in terms of causal sequence, but the 
imputed causal sequence is construed to run on lines of teleological legitimacy.
A familiar instance of this "conjectural history," in a highly and effectively 
normalized form, is the account of "that early and rude state of society which 
precedes both the accumulation of stock and the appropriation of land." (14*) It 
is needless at this day to point out that this "early and rude state," in which 
"the whole produce of labor belongs to the laborer," is altogether a figment. 
The whole narrative, from the putative origin down, is not only supposititious, 
but it is merely a schematic presentation of what should have been the course of 
past development, in order to lead up to that ideal economic situation which 
would satisfy Adam Smith's preconception.(15*) As the narrative comes nearer the 
region of known latter-day facts, the normalisation of the data becomes more 
difficult and receives more detailed attention; but the change in method is a 
change of degree rather than of kind. In the "early and rude state" the 
coincidence of the "natural" and the actual course of events is immediate and 
undisturbed, there being no refractory data at hand; but in the later stages and 
in the present situation, where refractory facts abound, the coordination is 
difficult, and the coincidence can be shown only by a free abstraction from 
phenomena that are irrelevant to the teleological trend and by a laborious 
interpretation of the rest. The facts of modern life are intricate, and lend 
themselves to statement in the terms of the theory only after they have been 
subjected to a "higher criticism."
The chapter "Of the Origin and Use of Money"(16*) is an elegantly normalised 
account of the origin and nature of an economic institution, and Adam Smith's 
further discussion of money runs on the same lines. The origin of money is 
stated in terms of the purpose which money should legitimately serve in such a 
community as Adam Smith considered right and good, not in terms of the motives 
and exigencies which have resulted in the use of money and in the gradual rise 
of the existing method of payment and accounts. Money is "the great wheel of 
circulation," which effects the transfer of goods in process of production and 
the distribution of the finished goods to the consumers. It is an organ of the 
economic commonwealth rather than an expedient of accounting and a conventional 
repository of wealth. It is perhaps superfluous to remark that to the "plain 
man," who is not concerned with the "natural course of things" in a consummate 
Geldwirtschaft, the money that passes his hand is not a "great wheel of 
circulation." To the Samoyed, for instance, the reindeer which serves him as 
unit of value is wealth in the most concrete and tangible form. Much the same is 
true of coin, or even of bank-notes, in the apprehension of unsophisticated 
people among ourselves to-day. And yet it is in terms of the habits and 
conditions of life of these "plain people" that the development of money will 
have to be accounted for if it is to be stated in terms of cause and effect.
The few scattered passages already cited may serve to illustrate how Adam 
Smith's animistic or teleological bent shapes the general structure of his 
theory and gives it consistency. The principle of definitive formulation in Adam 
Smith's economic knowledge is afforded by a putative purpose that does not at 
any point enter causally into the economic life process which he seeks to know. 
This formative or normative purpose or end is not freely conceived to enter as 
an efficient agent in the events discussed, or to be in any way consciously 
present in the process. It can scarcely be taken as an animistic agency engaged 
in the process. It sanctions the course of things, and gives legitimacy and 
substance to the sequence of events, so far as this sequence may be made to 
square with the requirements of the imputed end. It has therefore a ceremonial 
or symbolical force only, and lends the discussion a ceremonial competency; 
although with economists who have been in passable agreement with Adam Smith as 
regards the legitimate end of economic life this ceremonial consistency, or 
consistency de jure, has for many purposes been accepted as the formulation of a 
causal continuity in the phenomena that have been interpreted in its terms. 
Elucidations of what normally ought to happen, as a matter of ceremonial 
necessity, have in this way come to pass for an account of matters of fact.
But, as has already been pointed out, there is much more to Adam Smith's 
exposition of theory than a formulation of what ought to be. Much of the advance 
he achieved over his predecessors consists in a larger and more painstaking 
scrutiny of facts, and a more consistent tracing out of causal continuity in the 
facts handled. No doubt, his superiority over the Physiocrats, that 
characteristic of his work by virtue of which it superseded theirs in the 
farther growth of economic science, lies to some extent in his recourse to a 
different, more modern ground of normality, - a ground more in consonance with 
the body of preconceptions that have had the vogue in later generations. It is a 
shifting of the point of view from which the facts are handled; but it comes in 
great part to a substitution of a new body of preconceptions for the old, or a 
new adaptation of the old ground of finality, rather than an elimination of all 
metaphysical or animistic norms of valuation. With Adam Smith, as with the 
Physiocrats, the fundamental question, the answer to which affords the point of 
departure and the norm of procedure, is a question of substantiality or economic 
"reality." With both, the answer to this question is given naively, as a 
deliverance of common sense. Neither is disturbed by doubts as to this 
deliverance of common sense or by any need of scrutinising it. To the 
Physiocrats this substantial ground of economic reality is the nutritive process 
of Nature. To Adam Smith it is Labor. His reality has the advantage of being the 
deliverance of the common sense of a more modern community, and one that has 
maintained itself in force more widely and in better consonance with the facts 
of latter-day industry. The Physiocrats owe their preconception of the 
productiveness of nature to the habits of thought of a community in whose 
economic life the dominant phenomenon was the owner of agricultural land. Adam 
Smith owes his preconception in favor of labor to a community in which the 
obtrusive economic feature of the immediate past was handicraft and agriculture, 
with commerce as a scarcely secondary phenomenon.
So far as Adam Smith's economic theories are a tracing out of the causal 
sequence in economic phenomena, they are worked out in terms given by these two 
main directions of activity, - human effort directed to the shaping of the 
material means of life, and human effort and discretion directed to a pecuniary 
gain. The former is the great, substantial productive force; the latter is not 
immediately, or proximately, productive.(17*) Adam Smith still has too lively a 
sense of the nutritive purpose of the order of nature freely to extend the 
concept of productiveness to any activity that does not yield a material 
increase of the creature comforts. His instinctive appreciation of the 
substantial virtue of whatever effectually furthers nutrition, even leads him 
into the concession that "in agriculture nature labors along with man," although 
the general tenor of his argument is that the productive force with which the 
economist always has to count is human labor. This recognised substantiality of 
labor as productive is, as has already been remarked, accountable for his effort 
to reduce to terms of productive labor such a category of distribution as 
exchange value.
With but slight qualification, it will hold that, in the causal sequence which 
Adam Smith traces out in his economic theories proper (contained in the first 
three books of the Wealth of Nations), the causally efficient factor is 
conceived to be human nature in these two relations, - of productive efficiency 
and pecuniary gain through exchange. Pecuniary gain - gain in the material means 
of life through barter - furnishes the motive force to the economic activity of 
the individual; although productive efficiency is the legitimate, normal end of 
the community's economic life. To such an extent does this concept of man's 
seeking his ends through "truck, barter, and exchange" pervade Adam Smith's 
treatment of economic processes that he even states production in its terms, and 
says that,, labor was the first price, the original purchase-money, that was 
paid for all things."(18*) The human nature engaged in this pecuniary traffic is 
conceived in somewhat hedonistic terms, and the motives and movements of men are 
normalised to fit the requirements of a hedonistically conceived order of 
nature. Men are very much alike in their native aptitudes and propensities;(19*) 
and, so far as economic theory need take account of these aptitudes and 
propensities, they are aptitudes for the production of the "necessaries and 
conveniences of life," and propensities to secure as great a share of these 
creature comforts as may be.
Adam Smith's conception of normal human nature - that is to say, the human 
factor which enters causally in the process which economic theory discusses - 
comes, on the whole, to this: Men exert their force and skill in a mechanical 
process of production, and their pecuniary sagacity in a competitive process of 
distribution, with a view to individual gain in the material means of life. 
These material means are sought in order to the satisfaction of men's natural 
wants through their consumption. It is true, much else enters into men's 
endeavors in the struggle for wealth, as Adam Smith points out; but this 
consumption comprises the legitimate range of incentives, and a theory which 
concerns itself with the natural course of things need take but incidental 
account of what does not come legitimately in the natural course. In point of 
fact, there are appreciable "actual," though scarcely "real," departures from 
this rule. They are spurious and insubstantial departures, and do not properly 
come within the purview of the stricter theory. And, since human nature is 
strikingly uniform, in Adam Smith's apprehension, both the efforts put forth and 
the consumptive effect accomplished may be put in quantitative terms and treated 
algebraically, with the result that the entire range of phenomena comprised 
under the head of consumption need be but incidentally considered; and the 
theory of production and distribution is complete when the goods or the values 
have been traced to their disappearance in the hands of their ultimate owners. 
The reflex effect of consumption upon production and distribution is, on the 
whole, quantitative only.
Adam Smith's preconception of a normal teleological order of procedure in the 
natural course, therefore, affects not only those features of theory where he is 
avowedly concerned with building up a normal scheme of the economic process. 
Through his normalising the chief causal factor engaged in the process, it 
affects also his arguments from cause to effect.(20*) What makes this latter 
feature worth particular attention is the fact that his successors carried this 
normalisation farther, and employed it with less frequent reference to the 
mitigating exceptions which Adam Smith notices by the way.
The reason for that farther and more consistent normalisation of human nature 
which gives us the "economic man" at the hands of Adam Smith's successors lies, 
in great part, in the utilitarian philosophy that entered in force and in 
consummate form at about the turning of the century. Some credit in the work of 
normalisation is due also to the farther supersession of handicraft by the 
"capitalistic" industry that came in at the same time and in pretty close 
relation with the utilitarian views.
After Adam Smith's day, economics fell into profane hands. Apart from Malthus, 
who, of all the greater economists, stands nearest to Adam Smith on such 
metaphysical heads as have an immediate bearing upon the premises of economic 
science, the next generation do not approach their subject from the point of 
view of a divinely instituted, order; nor do they discuss human interests with 
that gently optimistic spirit of submission that belongs to the economist who 
goes to his work with the fear of God before his eyes. Even with Malthus the 
recourse to the divinely sanctioned order of nature is somewhat sparing and 
temperate. But it is significant for the later course of economic theory that, 
while Malthus may well be accounted the truest continuer of Adam Smith, it was 
the undevout utilitarians that became the spokesmen of the science after Adam 
Smith's time.
There is no wide breach between Adam Smith and the utilitarians, either in 
details of doctrine or in the concrete conclusions arrived at as regards 
questions of policy. On these heads Adam Smith might well be classed as a 
moderate utilitarian, particularly so far as regards his economic work. Malthus 
has still more of a utilitarian air, - so much so, indeed, that he is not 
infrequently spoken of as a utilitarian. This view, convincingly set forth by 
Mr. Bonar,(21*) is no doubt well borne out by a detailed scrutiny of Malthus's 
economic doctrines. His humanitarian bias is evident throughout, and his 
weakness for considerations of expediency is the great blemish of his scientific 
work. But, for all that, in order to an appreciation of the change that came 
over classical economics with the rise of Benthamism, it is necessary to note 
that the agreement in this matter between Adam Smith and the disciples of 
Bentham, and less decidedly that between Malthus and the latter, is a 
coincidence of conclusions rather than an identity of preconceptions.(22*)
With Adam Smith the ultimate ground of economic reality is the design of God, 
the teleological order; and his utilitarian generalisations, as well as the 
hedonistic character of his economic man, are but methods of the working out of 
this natural order, not the substantial and self-legitimating ground. Shifty as 
Malthus's metaphysics are, much the same is to be said for him.(23*) Of the 
utilitarians proper the converse is true, although here, again, there is by no 
means utter consistency The substantial economic ground is pleasure and pain: 
the teleological order (even the design of God, where that is admitted) is the 
method of its working-out.
It may be unnecessary here to go into the farther implications, psychological 
and ethical, which this preconception of the utilitarians involves. And even 
this much may seem a taking of excessive pains with a distinction that marks no 
tangible difference. But a reading of the classical doctrines, with something of 
this metaphysics of political economy in mind, will show how, and in great part 
why, the later economists of the classical line diverged from Adam Smith's 
tenets in the early years of the century, until it has been necessary to 
interpret Adam Smith somewhat shrewdly in order to save him from heresy.
The post-Bentham economics is substantially a theory of value. This is 
altogether the dominant feature of the body of doctrines; the rest follows from, 
or is adapted to, this central discipline. The doctrine of value is of very 
great importance also in Adam Smith; but Adam Smith's economics is a theory of 
the production and apportionment of the material, means of life.(24*) With Adam 
Smith, value is discussed from the point of view of production. With the 
utilitarians, production is discussed from the point of view of value. The 
former makes value an outcome of the process of production; the latter make 
production the outcome of a valuation process.
The point of departure with Adam Smith is the "productive power of labor." (25*) 
With Ricardo it is a pecuniary problem concerned in the distribution of 
ownership;(26*) but the classical writers are followers of Adam Smith, and 
improve upon and correct the results arrived at by him, and the difference of 
point of view, therefore, becomes evident in their divergence from him, and the 
different distribution of emphasis, rather than in a new and antagonistic 
departure.
The reason for this shifting of the center of gravity from production to 
valuation lies, proximately, in Bentham's revision of the "principles" of 
morals. Bentham's philosophical position is, of course, not a self-explanatory 
phenomenon, nor does the effect of Benthamism extend only to those who are 
avowed followers of Bentham; for Bentham is the exponent of a cultural change 
that affects the habits of thought of the entire community. The immediate point 
of Bentham's work, as affecting the habits of thought of the educated community, 
is the substitution of hedonism (utility) in place of achievement of purpose, as 
a ground of legitimacy and a guide in the normalisation of knowledge. Its effect 
is most patent in speculations on morals, where it inculcates determinism. Its 
close connection with determinism in ethics points the way to what may be 
expected of its working in economics. In both cases the result is that human 
action is construed in terms of the causal forces of the environment, the human 
agent being, at the best, taken as a mechanism of commutation, through the 
workings of which the sensuous effects wrought by the impinging forces of the 
environment are, by an enforced process of valuation, transmuted without 
quantitative discrepancy into moral or economic conduct, as the case may be. In 
ethics and economics alike the subject-matter of the theory is this valuation 
process that expresses itself in conduct, resulting, in the case of economic 
conduct, in the pursuit of the greatest gain or least sacrifice.
Metaphysically or cosmologically considered, the human nature into the motions 
of which hedonistic ethics and economics inquire is an intermediate term in a 
causal sequence, of which the initial and the terminal members are sensuous 
impressions and the details of conduct. This intermediate term conveys the 
sensuous impulse without loss of force to its eventuation in conduct. For the 
purpose of the valuation process through which the impulse is so conveyed, human 
nature may, therefore, be accepted as uniform; and the theory of the valuation 
process may be formulated quantitatively, in terms of the material forces 
affecting the human sensory and of their equivalents in the resulting activity. 
In the language of economics, the theory of value may be stated in terms of the 
consumable goods that afford the incentive to effort and the expenditure 
undergone in order to procure them. Between these two there subsists a necessary 
equality; but the magnitudes between which the equality subsists are hedonistic 
magnitudes, not magnitudes of kinetic energy nor of vital force, for the terms 
handled are sensuous terms. It is true, since human nature is substantially 
uniform, passive, and unalterable in respect of men's capacity for sensuous 
affection, there may also be presumed to subsist a substantial equality between 
the psychological effect to be wrought by the consumption of goods, on the one 
side, and the resulting expenditure of kinetic or vital force, on the other 
side; but such an equality is, after all, of the nature of a coincidence, 
although there should be a strong presumption in favor of its prevailing on an 
average and in the common run of cases. Hedonism, however, does not postulate 
uniformity between men except in the respect of sensuous cause and effect.
The theory of value which hedonism gives is, therefore, a theory of cost in 
terms of discomfort. By virtue of the hedonistic equilibrium reached through the 
valuation process, the sacrifice or expenditure of sensuous reality involved in 
acquisition is the equivalent of the sensuous gain secured. An alternative 
statement might perhaps be made, to the effect that the measure of the value of 
goods is not the sacrifice or discomfort undergone, but the sensuous gain that 
accrues from the acquisition of the goods; but this is plainly only an 
alternative statement, and there are special reasons in the economic life of the 
time why the statement in terms of cost, rather than in terms of "utility," 
should commend itself to the earlier classical economists.
On comparing the utilitarian doctrine of value with earlier theories, then, the 
case stands somewhat as follows. The Physiocrats and Adam Smith contemplate 
value as a measure of the productive force that realises itself in the valuable 
article. With the Physiocrats this productive force is the "anabolism" of 
Nature (to resort to a physiological term): with Adam Smith it is chiefly human 
labor directed to heightening the serviceability of the materials with which it 
is occupied. Production causes value in either case. The post-Bentham economics 
contemplates value as a measure of, or as measured by the irksomeness of the 
effort involved in procuring the valuable goods. As Mr. E. C. K. Gonner has 
admirably pointed out,(27*) Ricardo - and the like holds true of classical 
economics generally - makes cost the foundation of value, not its cause. This 
resting of value on cost takes place through a valuation. Any one who will read 
Adam Smith's theoretical exposition to as good purpose as Mr. Gonner has read 
Ricardo will scarcely fail to find that the converse is true in Adam Smith's 
case. But the causal relation of cost to value holds only as regards "natural" 
or "real" value in Adam Smith's doctrine. As regards market price, Adam Smith's 
theory does not differ greatly from that of Ricardo on this head. He does not 
overlook the valuation process by which market price is adjusted and the course 
of investment is guided, and his discussion of this process runs in terms that 
should be acceptable to any hedonist.
The shifting of the point of view that comes into economics with the acceptance 
of utilitarian ethics and its correlate, the associationist psychology, is in 
great part a shifting to the ground of causal sequence as contrasted with that 
of serviceability to a preconceived end. This is indicated even by the main fact 
already cited, - that the utilitarian economists make exchange value the central 
feature of their theories, rather than the conduciveness of industry to the 
community's material welfare. Hedonistic exchange value is the outcome of a 
valuation process enforced by the apprehended pleasure-giving capacities of the 
items valued. And in the utilitarian theories of production, arrived at from the 
standpoint so given by exchange value, the conduciveness to welfare is not the 
objective point of the argument. This objective point is rather the bearing of 
productive enterprise upon the individual fortunes of the agents engaged, or 
upon the fortunes of the several distinguishable classes of beneficiaries 
comprised in the industrial community; for the great immediate bearing of 
exchange values upon the life of the collectivity is their bearing upon the 
distribution of wealth. Value is a category of distribution. The result is that, 
as is well shown by Mr. Cannan's discussion,(28*) the theories of production 
offered by the classical economists have been sensibly scant, and have been 
carried out with a constant view to the doctrines on distribution. An incidental 
but telling demonstration of the same facts is given by Professor Bucher;(29*) 
and in illustration may be cited Torrens's Essay On the Production of Wealth, 
which is to a good extent occupied with discussions of value and distribution. 
The classical theories of production have been theories of the production of 
"wealth"; and "wealth," in classical usage, consists of material things having 
exchange value. During the vogue of the classical economics the accepted 
characteristic by which "wealth" has been defined has been its amenability to 
ownership. Neither in Adam Smith nor in the Physiocrats is this amenability to 
ownership made so much of, nor is it in a similar degree accepted as a definite 
mark of the subject-matter of the science.
As their hedonistic preconception would require, then, it is to the pecuniary 
side of life that the classical economists give their most serious attention, 
and it is the pecuniary bearing of any given phenomenon or of any institution 
that commonly shapes the issue of the argument. The causal sequence about which 
the discussion centers is a process of pecuniary valuation. It runs on 
distribution, ownership, acquisition, gain, investment, exchange.(30*) In this 
way the doctrines on production come to take a pecuniary coloring; as is seen in 
a less degree also in Adam Smith, and even in the Physiocrats, although these 
earlier economists very rarely, if ever, lose touch with the concept of generic 
serviceability as the characteristic feature of production. The tradition 
derived from Adam Smith, which made productivity and serviceability the 
substantial features of economic life, was not abruptly put aside by his 
successors, though the emphasis was differently distributed by them in following 
out the line of investigation to which the tradition pointed the way. In the 
classical economics the ideas of production and of acquisition are not commonly 
held apart, and very much of what passes for a theory of production is occupied 
with phenomena of investment and acquisition. Torrens's Essay is a case in 
point, though by no means an extreme case.
This is as it should be; for to the consistent hedonist the sole motive force 
concerned in the industrial process is the self-regarding motive of pecuniary 
gain, and industrial activity is but an intermediate term between the 
expenditure or discomfort undergone and the pecuniary gain sought. Whether the 
end and outcome is an invidious gain for the individual (in contrast with or at 
the cost of his neighbors), or an enhancement of the facility of human life on 
the whole, is altogether a by-question in any discussion of the range of 
incentives by which men are prompted to their work or the direction which their 
efforts take. The serviceability of the given line of activity, for the life 
purposes of the community or for one's neighbors, "is not of the essence of this 
contract." These features of serviceability come into the account chiefly as 
affecting the vendibility of what the given individual has to offer in seeking 
gain through a bargain.(31*)
In hedonistic theory the substantial end of economic life is individual, gain, 
and for this purpose production and acquisition may be taken as fairly 
coincident, if not identical. Moreover, society, in the utilitarian philosophy, 
is the algebraic sum of the individuals; and the interest of the society is the 
sum of the interests of the individuals. It follows by easy consequence, whether 
strictly true or not, that the sum of individual gains is the gain of the 
society, and that, in serving his own interest in the way of acquisition, the 
individual serves the collective interest of the community. Productivity or 
serviceability is, therefore, to be presumed of any occupation or enterprise 
that looks to a pecuniary gain; and so, by a roundabout path, we get back to the 
ancient conclusion of Adam Smith, that the remuneration of classes or persons 
engaged in industry coincides with their productive contribution to the output 
of services and consumable goods.
A felicitous illustration of the working of this hedonistic norm in classical 
economic doctrine is afforded by the theory of the wages of superintendence, - 
an element in distribution which is not much more than suggested in Adam Smith, 
but which receives ampler and more painstaking attention as the classical body 
of doctrines reaches a fuller development. The "wages of superintendence" are 
the gains due to pecuniary management. They are the gains that come to the 
director of the "business," - not those that go to the director of the 
mechanical process or to the foreman of the shop. The latter are wages simply. 
This distinction is not altogether clear in the earlier writers, but it is 
clearly enough contained in the fuller development of the theory.
The undertaker's work is the management of investment. It is altogether of a 
pecuniary character, and its proximate aim is "the main chance." If it leads, 
indirectly, to an enhancement of serviceability or a heightened aggregate output 
of consumable goods, that is a fortuitous circumstance incident to that 
heightened vendibility on which the investor's gain depends. Yet the classical 
doctrine says frankly that the wages of superintendence are the remuneration of 
superior productivity,(32*) and the classical theory of production is in good 
part a doctrine of investment in which the identity of production and pecuniary 
gain is taken for granted.
The substitution of investment in the place of industry as the central and 
substantial fact in the process of production is due not to the acceptance of 
hedonism simply, but rather to the conjunction of hedonism with an economic 
situation of which the investment of capital and its management for gain was the 
most obvious feature. The situation which shaped the common-sense apprehension 
of economic facts at the time was what has since been called a capitalistic 
system, in which pecuniary enterprise and the phenomena of the market were the 
dominant and tone-giving facts. But this economic situation was also the chief 
ground for the vogue of hedonism in economics; so that hedonistic economics may 
be taken as an interpretation of human nature in terms of the market-place. The 
market and the "business world," to which the business man in his pursuit of 
gain was required to adapt his motives, had by this time grown so large that the 
course of business events was beyond the control of any one person; and at the 
same time those far-reaching organisations of invested wealth which have 
latterly come to prevail and to coerce the market were not then in the 
foreground. The course of market events took its passionless way without 
traceable relation or deference to any man's convenience and without traceable 
guidance towards an ulterior end. Man's part in this pecuniary world was to 
respond with alacrity to the situation, and so adapt his vendible effects to the 
shifting demand as to realise something in the outcome. What he gained in his 
traffic was gained without loss to those with whom he dealt, for they paid no 
more than the goods were worth to them. One man's gain need not be another's 
loss; and, if it is not, then it is net gain to the community.
Among the striking remoter effects of the hedonistic preconception, and its 
working out in terms of pecuniary gain, is the classical failure to discriminate 
between capital as investment and capital as industrial appliances. This is, of 
course, closely related to the point already spoken of. The appliances of 
industry further the production of goods, therefore capital (invested wealth) is 
productive; and the rate of its average remuneration marks the degree of its 
productiveness.(33*) The most obvious fact limiting the pecuniary gain secured 
by means of invested wealth is the sum invested. Therefore, capital limits the 
productiveness of industry; and the chief and indispensable condition to an 
advance in material well-being is the accumulation of invested wealth. In 
discussing the conditions of industrial improvement, it is usual to assume that 
"the state of the arts remains unchanged," which is, for all purposes but that 
of a doctrine of profits per cent., an exclusion of the main fact. Investments 
may, further, be transferred from one enterprise to another. Therefore, and in 
that degree, the means of production are "mobile."
Under the hands of the great utilitarian writers, therefore, political economy 
is developed into a science of wealth, taking that term in the pecuniary sense, 
as things amenable to ownership. The course of things in economic life is 
treated as a sequence of pecuniary events, and economic theory becomes a theory 
of what should happen in that consummate situation where the permutation of 
pecuniary magnitudes takes place without disturbance and without retardation. In 
this consummate situation the pecuniary motive has its perfect work, and guides 
all the acts of economic man in a guileless, colorless, unswerving quest of the 
greatest gain at the least sacrifice. Of course, this perfect competitive 
system, with its untainted "economic man," is a feat of scientific imagination, 
and is not intended as a competent expression of fact. It is an expedient of 
abstract reasoning; and its avowed competency extends only to the abstract 
principles, the fundamental laws of the science, which hold only so far as the 
abstraction holds. But, as happens in such cases, having once been accepted and 
assimilated as real, though perhaps not as actual, it becomes an effective 
constituent in the inquirer's habits of thought, and goes to shape his knowledge 
of facts. It comes to serve as a norm of substantiality or legitimacy; and facts 
in some degree fall under its constraint, as is exemplified by many allegations 
regarding the "tendency" of things.
To this consummation, which Senior speaks of as "the natural state of man,"(34*) 
human development tends by force of the hedonistic character of human nature; 
and in terms of its approximation to this natural state, therefore, the immature 
actual situation had best be stated. The pure theory, the "hypothetical science" 
of Cairnes, "traces the phenomena of the production and distribution of wealth 
up to their causes, in the principles of human nature and the laws and events - 
physical, political, and social - of the external world."(35*) But since the 
principles of human nature that give the outcome in men's economic conduct, so 
far as it touches the production and distribution of wealth, are but the simple 
and constant sequence of hedonistic cause and effect, the element of human 
nature may fairly be eliminated from the problem, with great gain in simplicity 
and expedition. Human nature being eliminated, as being a constant intermediate 
term, and all institutional features of the situation being also eliminated (as 
being similar constants under that natural or consummate pecuniary régime with 
which the pure theory is concerned), the laws of the phenomena of wealth may be 
formulated in terms of the remaining factors. These factors are the vendible 
items that men handle in these processes of production and distribution and 
economic laws come, therefore, to be expressions of the algebraic relations 
subsisting between the various elements of wealth and investment, - capital, 
labor, land, supply and demand of one and the other, profits, interest, wages. 
Even such items as credit and population become dissociated from the personal 
factor, and figure in the computation as elemental factors acting and reacting 
though a permutation of values over the heads of the good people whose welfare 
they are working out.
To sum up: the classical economics, having primarily to do with the pecuniary 
side of life, is a theory of a process of valuation. But since the human nature 
at whose hands and for whose behoof the valuation takes place is simple and 
constant in its reaction to pecuniary stimulus, and since no other feature of 
human nature is legitimately present in economic phenomena than this reaction to 
pecuniary stimulus, the valuer concerned in the matter is to be overlooked or 
eliminated; and the theory of the valuation process then becomes a theory of the 
pecuniary interaction of the facts valued. It is a theory of valuation with the 
element of valuation left out, - a theory of life stated in terms of the normal 
paraphernalia of life.
In the preconceptions with which classical economics set out were comprised the 
remnants of natural rights and of the order of nature, infused with that 
peculiarly mechanical natural theology that made its way into popular vogue on 
British ground during the eighteenth century and was reduced to a neutral tone 
by the British penchant for the commonplace - stronger at this time than at any 
earlier period. The reason for this growing penchant for the commonplace, for 
the explanation of things in causal terms, lies partly in the growing resort to 
mechanical processes and mechanical prime movers in industry, partly in the 
(consequent) continued decline of the aristocracy and the priesthood, and partly 
in the growing density of population and the consequent greater specialisation 
and wider organisation of trade and business. The spread of the discipline of 
the natural sciences, largely incident to the mechanical industry, counts in the 
same direction; and obscurer factors in modern culture may have had their share.
The animistic preconception was not lost, but it lost tone; and it partly fell 
into abeyance, particularly so far as regards its avowal. It is visible chiefly 
in the unavowed readiness of the classical writers to accept as imminent and 
definitive any possible outcome which the writer's habit or temperament inclined 
him to accept as right and good. Hence the visible inclination of classical 
economists to a doctrine of the harmony of interests, and their somewhat 
uncircumspect readiness to state their generalisations in terms of what ought to 
happen according to the ideal requirements of that consummate Geldwirtschaft to 
which men "are impelled by the provisions of nature."(36*) By virtue of their 
hedonistic preconceptions, their habituation to the ways of a pecuniary culture, 
and their unavowed animistic faith that nature is in the right, the classical 
economists knew that the consummation to which, in the nature of things, all 
things tend, is the frictionless and beneficent competitive system. This 
competitive ideal, therefore, affords the normal, and conformity to its 
requirements affords the test of absolute economic truth. The standpoint so 
gained selectively guides the attention of the classical writers in their 
observation and apprehension of facts, and they come to see evidence of 
conformity or approach to the normal in the most unlikely places. Their 
observation is, in great part, interpretative, as observation commonly is. What 
is peculiar to the classical economists in this respect is their particular norm 
of procedure in the work of interpretation. And, by virtue of having achieved a 
standpoint of absolute economic normality, they became a "deductive" school, so 
called, in spite of the patent fact that they were pretty consistently employed 
with an inquiry into the causal sequence of economic phenomena.
The generalisation of observed facts becomes a normalisation of them, a 
statement of the phenomena in terms of their coincidence with, or divergence 
from, that normal tendency that makes for the actualisation of the absolute 
economic reality. This absolute or definitive ground of economic legitimacy lies 
beyond the causal sequence in which the observed phenomena are conceived to be 
interlinked. It is related to the concrete facts neither as cause nor as effect 
in any such way that the causal relation may be traced in a concrete instance. 
It has little causally to do either with the "mental" or with the "physical" 
data with which the classical economist is avowedly employed. Its relation to 
the process under discussion is that of an extraneous - that is to say, a 
ceremonial - legitimation. The body of knowledge gained by its help and under 
its guidance is, therefore, a taxonomic science.
So, by way of a concluding illustration, it may be pointed out that money, for 
instance, is normalised in terms of the legitimate economic tendency. It becomes 
a measure of value and a medium of exchange. It has become primarily an 
instrument of pecuniary commutation, instead of being, as under the earlier 
normalisation of Adam Smith, primarily a great wheel of circulation for the 
diffusion of consumable goods. The terms in which the laws of money, as of the 
other phenomena of pecuniary life, are formulated, are terms which connote its 
normal function in the life history of objective values as they live and move 
and have their being in the consummate pecuniary situation of the "natural" 
state. To a similar work of normalisation we owe those creatures of the myth-
maker, the quantity theory and the wages-fund.
NOTES:
1. Bonar, Philosophy and Political Economy, pp. 177, 178.
2. "Every individual is continually exerting himself to find out the most 
advantageous employment for whatever capital he can command. It is his own 
advantage, and not that of the society, which he has in view. But the study 
of his own advantage naturally, or rather necessarily, leads him to prefer 
that employment which is most advantageous to the society ... By directing 
that industry in such a manner as its produce may be of the greatest value, 
he intends only his own gain; and he is in this, as in many other cases, led 
by an invisible hand to promote an end which was no part of his intention. Nor 
is it always the worse for society that it was no part of it. By pursuing his 
own interest he frequently promotes that of the society more effectually than 
when he really intends to promote it." Wealth of Nations, Book IV, chap. ii.
3. The discrepancy between the actual, causally determined situation and the 
divinely intended consummation is the metaphysical ground of all that 
inculcation of morality and enlightened policy that makes up so large a part of 
Adam Smith's work. The like, of course, holds true for all moralists and 
reformers who proceed on the assumption of a providential order.
4. "In the political body, however, the wisdom of nature has fortunately made 
ample provision for remedying many of the bad effects of the folly and injustice 
of man; in the same manner as it has done in the natural body, for remedying 
those of his sloth and intemperance." Wealth of Nations, Book IV, chap. ix.
5. E.g., "the real measure of the exchangeable value of all commodities." Wealth 
of Nations, Book I, chap. v, and repeatedly in the like connection.
6. E.g., Book I, chap. vii: "When the price of any commodity is 
neither more nor less than what is sufficient to pay the rent of the land, the 
wages of the labor, and the profits of the stock employed in raising, preparing, 
and bringing it to market, according to their natural rates, the commodity is 
then sold for what may be called its natural price." "The actual price at which 
any commodity is commonly sold is called its market price. It may be either 
above or below or exactly the same with its natural price."
7. Lectures of Adam Smith (Ed. Cannan, 1896). p. 169.
8. "This division of labor, from which so many advantages are derived, is not 
originally the effect of any human wisdom, which foresees and intends that 
general opulence to which it gives occasion. It is the necessary though very 
slow and gradual consequence of a certain propensity in human nature which has 
in view no such extensive utility, - the propensity to truck, barter, and 
exchange one thing for another.
Whether this propensity be one of those original principles in human nature of 
which no further account can be given, or whether, as seems more probable, it be 
the necessary consequence of the faculties of reason and speech, it belongs not 
to our present subject to inquire." Wealth of Nations, Book I, chap. ii.
9. Wealth of Nations, Book I, chaps. v.-vii.
10. Wealth of Nations, Book I, chap. v.
11. As e.g., the entire discussion of the determination of Wages, Profits and 
Rent, in Book I, chaps. viii. - xi.
12. "There is in every society or neighborhood an ordinary or average rate both 
of wages and profit in every different employment of labor and stock. The rate 
is naturally regulated ... partly by the general circumstance of the society ... 
There is, likewise, in every socity or neighborhood an ordinary or average rate 
of rent, which is regulated, too ... These ordinary or average rates may be 
called the natural rates of wages, profit, and rent, at the time and place in 
which they commonly prevail. When the price of any commodity is neither more nor 
less than what is sufficient to pay the rent of the land, the wages of the 
labor, and the profits of the stock employed in raising, preparing, and bringing 
it to market, according to their natural rates, the commodity is then sold for 
what may be called its natural price." Wealth of Nations, Book I, chap. vii.
13. "Such commodities may continue for whole centuries together to be sold at 
this high price; and that part of it which resolves itself into the rent of land 
is, in this case, the part which is generally paid above its natural rate." Book 
I, chap. vii.
14. Wealth of Nations, Book I, chap. vi; also chap. viii.
15. For an instance of how these early phases of industrial development appear, 
when not seen in the light of Adam Smith's preconception, see, among others, 
Bucher, Entstehung der Volkswirtschaft.
16. Book I, chap. iv.
17. See Wealth of Nations, Book II, chap. v, "Of the Different Employment of 
Capitals."
18. Wealth of Nations, Book I, chap. v. See also the plea for free 
trade, Book IV, chap. ii: "But the annual revenue of every society is always 
precisely equal to the exchangeable value of the whole annual produce of its 
industry, or, rather, is precisely the same thing with that exchangeable value." 
19. "The difference of natural talents in different men is in reality much less 
than we are aware of." Wealth of Nations, Book I, chap. ii.
20. "Mit diesen philosophischen Ueberzeugungen tritt nun Adam Smith an die Welt 
der Enfahrung heran, und es ergiebt sich ihm die Richtigkeit der Principien. Der 
Reiz der Smiths'schen Schriften beruht zum grossen Teile darauf, dass Smith die 
Principien in so innige Verbindung mit dem Thatsächlichen gebracht. Hie und da 
werden dann auch die Principien, was durch diese Verbindung veranlasst wird, an 
ihren Spitzen etwas abgeschliffen, ihre allzuscharfe Ausprägung dadurch 
vermieden. Nichtsdestoweniger aber bleiben sie stets die leitenden 
Grundgedanken." Richard Zeyss, Adam Smith und der Eigennutz  (Tübingen, 1889), p. 
110.
21. See, e.g., Malthus and his Work, especially Book III, as also the 
chapter on Malthus in Philosophy and Political Economy, Book III, Modern 
Philosophy: Utilitarian Economics, chap. i, "Malthus."
22. Ricardo is here taken as a utilitarian of the Benthamite color, although he cannot 
be classed as a disciple of Bentham. His hedonism is but the uncritically accepted 
metaphysics comprised in the common sense of his time, and his substantial 
coincidence with Bentham goes to show how well diffused the hedonist 
preconception was at the time.
23. Cf. Bonar, Malthus and his Work, pp. 323-336.
24. His work is an inquiry into "the Nature and Causes of the Wealth of 
Nations."
25. "The annual labor of every nation is the fund which originally supplies it 
with all the necessaries and conveniences of life which it annually consumes, 
and which consist always either in the immediate produce of that labor or in 
what is purchases with that produce from other nations." Wealth of Nations, 
"Introduction and Plan," opening paragraph.
26. "The produce of the earth - all that is derived from its surface by the 
united application of labor, machinery and capital - is divided among three 
classes of the community... To determine the laws which regulate this 
distribution is the principal problem of political economy." Political Economy, 
Preface.
27. In the introductory essay to his edition of Ricardo's Political Economy. 
See, e.g., paragraphs 9 and 24.
28. Theories of Production and Distribution, 1776-1848.
29. Entstehung der Volkswirtschaft (second edition). Cf. especially chaps. 
ii, iii, vi, and vii.
30. "Even if we put aside all questions which involve a consideration of the 
effects of industrial institutions in modifying the habits and character of the 
classes of the community... that enough still remains to constitute a separate 
science, the mere enumeration of the chief terms of economics - wealth, value, 
exchange, credit, money, capital, and commodity - will suffice to show." Shirres, 
Analysis of the Ideas of Economics (London, 1893), pp. 8 and 9.
31. "If a commodity were in no way useful... it would be destitute of exchangeable 
value;... (but), possessing utility, commodities derive their exchangeable value 
from two sources," etc. Ricardo, Political Economy, chap. i, sect I.
32. Cf., for instance, Senior, Political Economy (London, 1872), particularly pp. 
88, 89, and 130-135, where the wages of superintendence are, somewhat reluctantly, 
classed under profits; and the work of superintendence is thereupon conceived as 
being, immediately or remotely, an exercise of "abstinence" and a productive work. 
The illustration of the bill-broker is particularly apt. The like view of the wages 
of superintendence in an article of theory with more than one of the later 
descendents of the classical line.
33. Cf. Böhm-Bawerk, Capital and Interest, Books II and IV, as well as the 
Introduction and chaps. iv and v of Book I. Böhm-Bawerk's discussion bears 
less immediately on the present point than the similarity of the terms employed 
would suggest.
34. Political Economy, p. 87. 
35. Character and Logical Method of Political Economy (New York, 1875), p. 71. 
Cairnes may not be altogether representative of the high tide of classicism, but 
his characterisation of the science is none the less to the point.
36. Senior, Political Economy, p. 87.
------------------------------
Thorstein Veblen
The Preconceptions of Economic Science
Vol. 14 No. 2. (Feb., 1900), pp. 240-269.
----------------------------
PART III.
In what has already been said, it has appeared that the changes which have 
supervened in the preconceptions of the earlier economists constitute a somewhat 
orderly succession. The feature of chief interest in this development has been a 
gradual change in the received grounds of finality to which the successive 
generations of economists have brought their theoretical output, on which they 
have been content to rest their conclusions, and beyond which they have not been 
moved to push their analysis of events or their scrutiny of phenomena. There has 
been a fairly unbroken sequence of development in what may be called the canons 
of economic reality; or, to put it in other words, there has been a precession 
of the point of view from which facts have been handled and valued for the 
purpose of economic science.
The notion which has in its time prevailed so widely, that there is in the 
sequence of events a consistent trend which it is the office of the science to 
ascertain and turn to account, - this notion may be well founded or not. But 
that there is something of such a consistent trend in the sequence of the canons 
of knowledge under whose guidance the scientist works is not only a 
generalisation from the past course of things, but lies in the nature of the 
case; for the canons of knowledge are of the nature of habits of thought, and 
habit does not break with the past, nor do the hereditary aptitudes that find 
expression in habit vary gratuitously with the mere lapse of time. What is true 
in this respect, for instance, in the domain of law and institutions is true, 
likewise, in the domain of science. What men have learned to accept as good and 
definitive for the guidance of conduct and of human relations remains true and 
definitive and unimpeachable until the exigencies of a later, altered situation 
enforce a variation from the norms and canons of the past, and so give rise to a 
modification of the habits of thought that decide what is, for the time, right 
in human conduct. So in good and science the ancient ground of finality remains 
a valid test of scientific truth until the altered exigencies of later life 
enforce habits of thought that are not wholly in consonance with the received 
notions as to what constitutes the ultimate, self-legitimating term - the 
substantial reality - to which knowledge in any given case must penetrate.
This ultimate term or ground of knowledge is always of a metaphysical character. 
It is something in the way of a preconception, accepted uncritically, but 
applied in criticism and demonstration of all else with which the science is 
concerned. So soon as it comes to be criticised, it is in a way to be superseded 
by a new, more or less altered formulation; for criticism of it means that it is 
no longer fit to survive unaltered in the altered complex of habits of thought 
to which it is called upon to serve as fundamental principle. It is subject to 
natural selection and selective adaptation, as are other conventions. The 
underlying metaphysics of scientific research and purpose, therefore, changes 
gradually and, of course, incompletely, much as is the case with the metaphysics 
underlying the common law and the schedule of civil rights. As in the legal 
framework the now avowedly useless and meaningless preconceptions of status and 
caste and precedent are even yet at the most metamorphosed and obsolescent 
rather than overpassed, - witness the facts of inheritance, vested interests, 
the outlawry of debts through lapse of time, the competence of the State to 
coerce individuals into support of a given, policy - so in the science the 
living generation has not seen an abrupt and traceless disappearance of the 
metaphysics that fixed the point of view of the early classical political 
economy. This is true even for those groups of economists who have most 
incontinently protested against the absurdity of the classical doctrines and 
methods. In Professor Marshall's words, "There has been no real breach of 
continuity in the development of the science," but, while there has been no 
breach, there has none the less been change, - more far-reaching change than 
some of us are glad to recognise; for who would not be glad to read his own 
modern views into the convincing words of the great masters?
Seen through modern eyes and without effort to turn past gains to modern 
account, the metaphysical or preconceptional furniture of political economy as 
it stood about the middle of this century may come to look quite curious. The 
two main canons of truth on which the science proceeded, and with which the 
inquiry is here concerned, were: (a) a hedonistic - associational psychology, 
and (b) an uncritical conviction that there is a meliorative trend in the course 
of events, apart from the conscious ends of the individual members of the 
community. This axiom of a meliorative developmental trend fell into shape as a 
belief in an organic or quasi-organic (physiological)(1*) life process on the 
part of the economic community or of the nation; and this belief carried with it 
something of a constraining sense of self realising cycles of growth, maturity 
and decay in the life history of nations or communities.
Neglecting what may for the immediate purpose be negligible in this outline of 
fundamental tenets, it will bear the following construction. (a) On the ground 
of the hedonistic or associational psychology, all spiritual continuity and any 
consequent teleological trend is tacitly denied so far as regards individual 
conduct, where the later psychology, and the sciences which build on this later 
psychology, insist upon and find such a teleological trend at every turn. (b) 
Such a spiritual or quasi-spiritual continuity and teleological trend is 
uncritically affirmed as regards the non-human sequence or the sequence of 
events in the affairs of collective life, where the modern sciences diligently 
assert that nothing of the kind is discernible, or that, if it is discernible, 
its recognition is beside the point, so far as concerns the purposes of the 
science.
This position, here outlined with as little qualification as may be admissible, 
embodies the general metaphysical ground of that classical political economy 
that affords the point of departure for Mill and Cairnes, and also for Jevons. 
And what is to be said of Mill and Cairnes in this connection will apply to the 
later course of the science, though with a gradually lessening force. By the 
middle of the century the psychological premises of the science are no longer so 
neat and succinct as they were in the days of Bentham and James Mill. At J.S. 
Mill's hands, for instance, the naively quantitative hedonism of Bentham is 
being supplanted by a sophisticated hedonism, which makes much of an assumed 
qualitative divergence between the different kinds of pleasures that afford the 
motives of conduct. This revision of hedonistic dogma, of course, means a 
departure from the strict hedonistic ground. Correlated with this advance more 
closely in the substance of the change than in the assignable dates, is a 
concomitant improvement - at least, set forth as an improvement - upon the 
received associational psychology, whereby "similarity" is brought in to 
supplement "contiguity" as a ground of connection between ideas. This change is 
well shown in the work of J. S. Mill and Bain. In spite of all the ingenuity 
spent in maintaining the associational legitimacy of this new article of theory, 
it remains a patent innovation and a departure from the ancient standpoint. As 
is true of the improved hedonism, so it is true of the new theory of association 
that it is no longer able to construe the process which it discusses as a purely 
mechanical process, a concatenation of items simply. Similarity of impressions 
implies a comparison of impressions by the mind in which the association takes 
place, and thereby it implies some degree of constructive work on the part of 
the perceiving subject. The perceiver is thereby construed to be an agent in the 
work of perception; therefore, he must be possessed of a point of view and an 
end dominating the perceptive process. To perceive the similarity, he must be 
guided by an interest in the outcome, and must "attend." The like applies to the 
introduction of qualitative distinctions into the hedonistic theory of conduct. 
Apperception in the one case and discretion in the other cease to be the mere 
registration of a simple and personally uncolored sequence of permutations 
enforced by the factors of the external world. There is implied a spiritual - 
that is to say, active - "teleological" continuity of process on the part of the 
perceiving or of the discretionary agent, as the case may be.
It is on the ground of their departure from the stricter hedonistic premises 
that Mill and, after him, Cairnes are able, for instance, to offer their 
improvement upon the earlier doctrine of cost of production as determining 
value. Since it is conceived that the motives which guide men in their choice of 
employments and of domicile differ from man to man and from class to class, not 
only in degree, but in kind, and since varying antecedents, of heredity and of 
habit, variously influence men in their choice of a manner of life, therefore 
the mere quantitative pecuniary stimulus cannot be depended on to decide the 
outcome without recourse. There are determinable variations in the alacrity with 
which different classes or communities respond to the pecuniary stimulus; and in 
so far as this condition prevails, the classes or communities in question are 
non-competing. Between such non-competing groups the norm that determines values 
is not the unmitigated norm of cost of production taken absolutely, but only 
taken relatively. The formula of cost of production is therefore modified into a 
formula of reciprocal demand. This revision of the cost-of-production doctrine 
is extended only sparingly, and the emphasis is thrown on the pecuniary 
circumstances on which depend the formation and maintenance of non-competing 
groups. Consistency with the earlier teaching is carefully maintained, so far as 
may be; but extra-pecuniary factors are, after all, even if reluctantly, 
admitted into the body of the theory. So also, since there are higher and lower 
motives, higher and lower pleasures, - as well as motives differing in degree, - 
it follows that an unguided response even to the mere quantitative pecuniary 
stimuli may take different directions, and so may result in activities of widely 
differing outcome. Since activities set up in this way through appeal to higher 
and lower motives are no longer conceived to represent simply a mechanically 
adequate effect of the stimuli, working under the control of natural laws that 
tend to one beneficent consummation, therefore the outcome of activity set up 
even by the normal pecuniary stimuli may take a form that may or may not be 
serviceable to the community. Hence laissez-faire ceases to be a sure remedy for 
the ills of society. Human interests are still conceived normally to be at one; 
but the detail of individual conduct need not, therefore, necessarily serve 
these generic human interests.(2*) Therefore, other inducements than the 
unmitigated impact of pecuniary exigencies may be necessary to bring about a 
coincidence of class or individual endeavor with the interests of the community. 
It becomes incumbent on the advocate of laissez-faire to "prove his minor 
premise." It is no longer self-evident that Interests left to themselves tend 
to harmonious combinations, and to the progressive preponderance of the general 
good." (3*)
The natural-rights preconception begins to fall away as soon as the hedonistic 
mechanics have been seriously tampered with. Fact and right cease to coincide, 
because the individual in whom the rights are conceived to inhere has come to be 
something more than the field of intersection of natural forces that work out in 
human conduct. The mechanics of natural liberty - that assumed constitution of 
things by force of which the free hedonistic play of the laws of nature across 
the open field of individual choice is sure to reach the right outcome - is the 
hedonistic psychology, and the passing of the doctrine of natural rights and 
natural liberty whether as a premise or as a dogma, therefore coincides with the 
passing of that mechanics of conduct on the validity of which the theoretical 
acceptance of the dogma depends. It is, therefore, something more than a 
coincidence that the half-century which has seen the disintegration of the 
hedonistic faith and of the associational psychology has also seen the 
dissipation, in scientific speculations, of the concomitant faith in natural 
rights and in that benign order of nature of which the natural-rights dogma is a 
corollary.
It is, of course, not hereby intended to say that the later psychological views 
and premises imply a less close dependence of conduct on environment than do the 
earlier ones. Indeed, the reverse may well be held to be true. The pervading 
characteristic of later thinking is the constant recourse to a detailed analysis 
of phenomena in causal terms. The modern catchword, in the present connection, 
is "response to stimulus," but the manner in which this response is conceived 
has changed. The fact, and ultimately the amplitude, at least in great part, of 
the reaction to stimulus, is conditioned by the forces in impact; but the 
constitution of the organism, as well as its attitude at the moment of impact, 
in great part decides what will serve as a stimulus, as well as what the manner 
and direction of the response will be.
The later psychology is biological, as contrasted with the metaphysical 
psychology of hedonism. It does not conceive the organism as a causal hiatus. 
The causal sequence in the "reflex arc" is, no doubt, continuous; but the 
continuity is not, as formerly, conceived in terms of spiritual substance 
transmitting a shock: it is conceived in terms of the life activity of the 
organism. Human conduct, taken as the reaction of such an organism under 
stimulus, may be stated in terms of tropism, involving, of course, a very close-
knit causal sequence between the impact and the response, but at the same time 
imputing to the organism a habit of life and a self-directing and selective 
attention in meeting the complex of forces that make up its environment. The 
selective play of this tropismatic complex that constitutes the organism's habit 
of life under the impact of the forces of the environment counts as discretion.
So far, therefore, as it is to be placed in contrast with the hedonistic phase 
of the older psychological doctrines, the characteristic feature of the newer 
conception is the recognition of a selectively self-directing life process in 
the agent. While hedonism seeks the causal determinant of conduct in the 
(probable) outcome of action, the later conception seeks this determinant in the 
complex of propensities that constitutes man a functioning agent, that is to 
say, a personality. Instead of pleasure ultimately determining what human 
conduct shall be, the tropismatic propensities that eventuate in conduct 
ultimately determine what shall be pleasurable. For the purpose in hand, the 
consequence of the transition to the altered conception of human nature and its 
relation to the environment is that the newer view formulates conduct in terms 
of personality, whereas the earlier view was content to formulate it in terms of 
its provocation and its by-product. Therefore, for the sake of brevity, the 
older preconceptions of the science are here spoken of as construing human 
nature in inert terms, as contrasted with the newer, which construes it in terms 
of functioning.
It has already appeared above that the second great article of the metaphysics 
of classical political economy the belief in a meliorative trend or a benign 
order of nature - is closely connected with the hedonistic conception of human 
nature; but this connection is more intimate and organic than appears from what 
has been said above. The two are so related as to stand or fall together, for 
the latter is but the obverse of the former. The doctrine of a trend in events 
imputes purpose to the sequence of events; that is, it invests this sequence 
with a discretionary, teleological character, which asserts itself in a 
constraint over all the steps in the sequence by which the supposed objective 
point is reached. But discretion touching a given end must be single, and must 
alone cover all the acts by which the end is to be reached. Therefore, no 
discretion resides in the intermediate terms through which the end is worked 
out. Therefore, man being such an intermediate term, discretion cannot be 
imputed to him without violating the supposition. Therefore, given an 
indefeasible meliorative trend in events, man is but a mechanical intermediary 
in the sequence. It is as such a mechanical intermediate term that the stricter 
hedonism construes human nature.(4*) Accordingly, when more of teleological 
activity came to be imputed to man, less was thereby allowed to the complex of 
events. Or it may be put in the converse form: When less of a teleological 
continuity came to be imputed to the course of events, more was thereby imputed 
to man's life process. The latter form of statement probably suggests the 
direction in which the causal relation runs, more nearly than the former. The 
change whereby the two metaphysical premises in question have lost their earlier 
force and symmetry, therefore, amounts to a (partial) shifting of the seat of 
putative personality from inanimate phenomena to man.
It may be mentioned in passing, as a detail lying perhaps afield, yet not devoid 
of significance for latter-day economic speculation, that this elimination of 
personality, and so of teleological content, from the sequence of events, and 
its increasing imputation to the conduct of the human agent, is incident to a 
growing resort to an apprehension of phenomena in terms of process rather than 
in terms of outcome, as was the habit in earlier schemes of knowledge. On this 
account the categories employed are, in a gradually increasing degree, 
categories of process, - "dynamic" categories. But categories of process applied 
to conduct, to discretionary action, are teleological categories: whereas 
categories of process applied in the case of a sequence where the members of the 
sequence are not conceived to be charged with discretion, are, by the force of 
this conception itself, non-teleological, quantitative categories. The 
continuity comprised in the concept of process as applied to conduct is 
consequently a spiritual, teleological continuity. whereas the concept of 
process under the second head, the non-teleological sequence, comprises a 
continuity of a quantitative, causal kind, substantially the conservation of 
energy. In its turn the growing resort to categories of process in the 
formulation of knowledge is probably due to the epistemological discipline of 
modern mechanical industry, the technological exigencies of which enforce a 
constant recourse to the apprehension of phenomena in terms of process, 
differing therein from the earlier forms of industry, which neither obtruded 
visible mechanical process so constantly upon the apprehension nor so 
imperatively demanded an articulate recognition of continuity in the processes 
actually involved. The contrast in this respect is still more pronounced between 
the discipline of modern life in an industrial community and the discipline of 
life under the conventions of status and exploit that formerly prevailed.
To return to the benign order of nature, or the meliorative trend, - its 
passing, as an article of economic faith, was not due to criticism leveled 
against it by the later classical economists on grounds of its epistemological 
incongruity. It was tried on its merits, as an alleged account of facts; and the 
weight of evidence went against it. The belief in a self-realising trend bad no 
sooner reached a competent and exhaustive statement - e.g., at Bastiat's hands, 
as a dogma of the harmony of interests specifically applicable to the details of 
economic life than it began to lose ground. With his usual concision and 
incisiveness, Cairnes completed the destruction of Bastiat's special dogma, and 
put it forever beyond a rehearing. But Cairnes is not a destructive critic of 
the classical political economy, at least not in intention: he is an interpreter 
and continuer - perhaps altogether the clearest and truest continuer - of the 
classical teaching. While he confuted Bastiat and discredited Bastiat's peculiar 
dogma, he did not thereby put the order of nature bodily out of the science. He 
qualified and improved it, very much as Mill qualified and improved the tenets 
of the hedonistic psychology. As Mill and the ethical speculation of his 
generation threw more of personality into the hedonistic psychology, so Cairnes 
and the speculators on scientific method (such as Mill and Jevons) attenuated 
the imputation of personality or teleological content to the process of material 
cause and effect. The work is of course, by no means, an achievement of Cairnes 
alone; but he is, perhaps, the best exponent of this advance in economic theory. 
In Cairnes's redaction this foundation of the science became the concept of a 
colorless normality. It was in Cairnes's time the fashion for speculators in 
other fields than the physical sciences to look to those sciences for guidance 
in method and for legitimation of the ideals of scientific theory which they 
were at work to realize. More than that, the large and fruitful achievements of 
the physical sciences had so far taken men's attention captive as to give an 
almost instinctive predilection for the methods that had approved themselves in 
that field. The ways of thinking which had on this ground become familiar to all 
scholars occupied with any scientific inquiry, had permeated their thinking on 
any subject whatever. This is eminently true of British thinking.
It had come to be a commonplace of the physical sciences that "natural laws" are 
of the nature of empirical generalisations simply, or even of the nature of 
arithmetical averages. Even the underlying preconception of the modern physical 
sciences - the law of the conservation of energy, or persistence of quantity - 
was claimed to be an empirical generalisation, arrived at inductively and 
verified by experiment. It is true the alleged proof of the law took the whole 
conclusion for granted at the start, and used it constantly as a tacit axiom at 
every step in the argument which was to establish its truth; but that fact 
serves rather to emphasise than to call in question the abiding faith which 
these empiricists had in the sole efficacy of empirical generalisation. Had they 
been able overtly to admit any other than an associational origin of knowledge, 
they would have seen the impossibility of accounting on the mechanical grounds 
of association for the premise on which all experience of mechanical fact rests. 
That any other than a mechanical origin should be assigned to experience, or 
that any other than a so-conceived empirical ground was to be admitted for any 
general principle, was incompatible with the prejudices of men trained in the 
school of the associational psychology, however widely they perforce departed 
from this ideal in practice. Nothing of the nature of a personal element was to 
be admitted into these fundamental empirical generalisations; and nothing, 
therefore, of the nature of a discretionary or teleological movement was to be 
comprised in the generalisations to be accepted as "natural laws." Natural laws 
must in no degree be imbued with personality, must say nothing of an ulterior 
end; but for all that they remained "laws" of the sequences subsumed under them. 
So far is the reduction to colorless terms carried by Mill, for instance, that 
he formulates the natural laws as empirically ascertained sequences simply, even 
excluding or avoiding all imputation of causal continuity, as that term is 
commonly understood by the unsophisticated. In Mill's ideal no more of organic 
connection or continuity between the members of a sequence is implied in 
subsuming them under a law of causal relationship than is given by the 
ampersand. He is busied with dynamic sequences, but he persistently confines 
himself to static terms.
Under the guidance of the associational psychology, therefore, the extreme of 
discontinuity in the deliverances of inductive research is aimed at by those 
economists Mill and Cairnes being taken as typical - whose names have been 
associated with deductive methods in modern science. With a fine sense of truth 
they saw that the notion of causal continuity, as a premise of scientific 
generalisation, is an essentially metaphysical postulate; and they avoided its 
treacherous ground by denying it, and construing causal sequence to mean a 
uniformity of co-existences and successions simply. But, since a strict 
uniformity is nowhere to be observed at first hand in the phenomena with which 
the investigator is occupied, it has to be found by a laborious interpretation 
of the phenomena and a diligent abstraction and allowance for disturbing 
circumstances, whatever may be the meaning of a disturbing circumstance where 
causal continuity is denied. In this work of interpretation and expurgation the 
investigator proceeds on a conviction of the orderliness of the natural 
sequence. "Natura non facit saltum": a maxim which has no meaning within the 
stricter limits of the associational theory of knowledge.
Before anything can be said as to the orderliness of the sequence, a point of 
view must be chosen by the speculator, with respect to which the sequence in 
question does or does not fulfill this condition of orderliness; that is to say, 
with respect to which it is a sequence. The endeavor to avoid all metaphysical 
premises fails here as everywhere. The associationists, to whom economics owes 
its transition from the older classical phase to the modern or quasi-classical, 
chose as their guiding point of view the metaphysical postulate of congruity, - 
in substance, the "similarity" of the associationist theory of knowledge. This 
must be called their proton pseudos, if associationism pure and simple is to be 
accepted. The notion of congruity works out in laws of resemblance and 
equivalence, in both of which it is plain to the modern psychologist that a 
metaphysical ground of truth, antecedent to and controlling empirical data, is 
assumed. But the use of the postulate of congruence as a test of scientific 
truth has the merit of avoiding all open dealing with an imputed substantiality 
of the data handled, such as would be involved in the overt use of the concept 
of causation. The data are congruous among themselves, as items of knowledge; 
and they may therefore be handled in a logical synthesis and concatenation on 
the basis of this congruence alone, without committing the scientist to an 
imputation of a kinetic or motor relation between them. The metaphysics of 
process is thereby avoided, in appearance. The sequences are uniform or 
consistent with one another, taken as articles of theoretical synthesis simply, 
and so they become elements of a system or discipline of knowledge in which the 
test of theoretical truth is the congruence of the system with its premises.
In all this there is a high-wrought appearance of matter-of-fact, and all 
metaphysical subreption of a non-empirical or non-mechanical standard of reality 
or substantiality is avoided in appearance. The generalisations which make up 
such a system of knowledge are, in this way, stated in terms of the system 
itself; and when a competent formulation of the alleged uniformities has been so 
made in terms of their congruity or equivalence with the prime postulates of the 
system, the work of theoretical inquiry is done.
The concrete premises from which proceeds the systematic knowledge of this 
generation of economists are certain very concise assumptions concerning human 
nature, and certain slightly less concise generalisations of physical fact,(5*) 
presumed to be mechanically empirical generalisations. These postulates afford 
the standard of normality. Whatever situation or course of events can be shown 
to express these postulates without mitigation is normal; and wherever a 
departure from this normal course of things occurs, it is due to disturbing 
causes, that is to say, to causes not comprised in the main premises of the 
science, - and such departures are to be taken account of by way of 
qualification. Such departures and such qualification are constantly present in 
the facts to be handled by the science; but, being not congruous with the 
underlying postulates, they have no place in the body of the science. The laws 
of the science, that which makes up the economist's theoretical knowledge, are 
laws of the normal case. The normal case does not occur in concrete fact. These 
laws are, therefore, in Cairnes's terminology, "hypothetical" truths; and the 
science is a "hypothetical" science. They apply to concrete facts only as the 
facts are interpreted and abstracted from, in the light of the underlying 
postulates. The science is, therefore, a theory of the normal case, a discussion 
of the concrete facts of life in respect of their degree of approximation to the 
normal case. That is to say, it is a taxonomic science.
Of course, in the work actually done by these economists this standpoint of 
rigorous normality is not consistently maintained; nor is the unsophisticated 
imputation of causality to the facts under discussion consistently avoided. The 
associationist postulate, that causal sequence means empirical uniformity 
simply, is in great measure forgotten when the subject-matter of the science is 
handled in detail. Especially is it true that in Mill the dry light of normality 
is greatly relieved by a strong common sense. But the great truths or laws of 
the science remain hypothetical laws; and the test of scientific reality is 
congruence with the hypothetical laws, not coincidence with matter-of-fact 
events.
The earlier, more archaic metaphysics of the science, which saw in the orderly 
correlation and sequence of events a constraining guidance of an extra-causal, 
teleological kind, in this way becomes a metaphysics of normality which asserts 
no extra-causal constraint over events, but contents itself with establishing 
correlations, equivalencies, homologies, and theories concerning the conditions 
of an economic equilibrium. The movement, the process of economic life, is not 
overlooked, and it may even be said that it is not neglected, but the pure 
theory, in its final deliverances, deals not with the dynamics, but with the 
statics of the case. The concrete subject-matter of the science is, of course, 
the process of economic life, - that is unavoidably the case, - and in so far 
the discussion must be accepted as work bearing on the dynamics of the phenomena 
discussed; but even then it remains true that the aim of this work in dynamics 
is a determination and taxis of the outcome of the process under discussion 
rather than a theory of the process as such. The process is rated in terms of 
the equilibrium to which it tends or should tend, not conversely, The outcome of 
the process, taken in its relation of equivalence within the system, is the 
point at which the inquiry comes to rest. It is not primarily the point of 
departure for an inquiry into what may follow. The science treats of a balanced 
system rather than of a proliferation. In this lies its characteristic 
difference from the later evolutionary sciences. It is this characteristic bent 
of the science that leads its spokesman, Cairnes, to turn so kindly to chemistry 
rather than to the organic sciences, when he seeks an analogy to economics among 
the physical sciences.(6*) What Cairnes has in mind in his appeal to chemistry 
is, of course, the received, extremely taxonomic (systematic) chemistry of his 
own time, not the tentatively genetic theories of a slightly later day.
It may seem that in the characterisation just offered of the standpoint of 
normality in economics there is too strong an implication of colorlessness and 
impartiality. The objection holds as regards much of the work of the modern 
economists of the classical line. It will hold true even as to much of Cairnes's 
work, but it cannot be admitted as regards Cairnes's ideal of scientific aim and 
methods. The economists whose theories Cairnes received and developed, assuredly 
did not pursue the discussion of the normal case with an utterly dispassionate 
animus. They had still enough of the older teleological metaphysics left to give 
color to the accusation brought against them that they were advocates of 
laissez-faire. The preconception of the utilitarians, - in substance the 
natural-rights preconception, - that unrestrained human conduct will result in 
the greatest human happiness, retains so much of its force in Cairnes's time as 
is implied in the then current assumption that what is normal is also right. The 
economists, and Cairnes among them, not only are concerned to find out what is 
normal and to determine what consummation answers to the normal, but they also 
are at pains to approve that consummation. It is this somewhat uncritical and 
often unavowed identification of the normal with the right that gives colorable 
ground for the widespread vulgar prejudice, to which Cairnes draws 
attention,(7*) that political economy "sanctions" one social arrangement and 
"condemns" another. And it is against this uncritical identification of two 
essentially unrelated principles or categories that Cairnes's essay on 
"Political Economy and Laissez-faire," and in good part also that on Bastiat, 
are directed. But, while this is one of the many points at which Cairnes has 
substantially advanced the ideals of the science, his own concluding argument 
shows him to have been but half-way emancipated from the prejudice, even while 
most effectively combating it.(8*) It is needless to point out that the like 
prejudice is still present in good vigor in many later economists who have had 
the full benefit of Cairnes's teachings on this head.(9*) Considerable as 
Cairnes's achievement in this matter undoubtedly was, it effected a mitigation 
rather than an elimination of the untenable metaphysics against which he 
contended.
The advance in the general point of view from animistic teleology to taxonomy is 
shown in a curiously succinct manner in a parenthetical clause of Cairnes's in 
the chapter on Normal Value.(10*) With his acceptance of the later point of view 
involved in the use of the new term, Cairnes becomes the interpreter of the 
received theoretical results. The received positions are not subjected to a 
destructive criticism. The aim is to complete them where they fall short and to 
cut off what may be needless or what may run beyond the safe ground of 
scientific generalisation. In his work of redaction, Cairnes does not avow - 
probably he is not sensible of - any substantial shifting of the point of view 
or any change in the accepted ground of theoretic reality. But his advance to an 
unteleological taxonomy none the less changes the scope and aim of his 
theoretical discussion. The discussion of Normal Value may be taken in 
illustration.
Cairnes is not content to find (with Adam Smith) that value will "naturally" 
coincide with or be measured by cost of production, or even (with Mill) that 
cost of production must, in the long run, "necessarily" determine value. "This 
is to take a much too limited view of the range of this phenomenon." (11*) He is 
concerned to determine not only this general tendency of values to a normal, but 
all those characteristic circumstances as well which condition this tendency and 
which determine the normal to which values tend. His inquiry pursues the 
phenomena of value in a normal economic system rather than the manner and rate 
of approach of value relations to a teleologically or hedonistically defensible 
consummation. It therefore becomes an exhaustive but very discriminating 
analysis of the circumstances that bear upon market values, with a view to 
determine what circumstances are normally present; that is to say, what 
circumstances conditioning value are commonly effective and at the same time in 
consonance with the premises of economic theory, These effective conditions, in 
so far as they are not counted anomalous and, therefore, to be set aside in the 
theoretical discussion, are the circumstances under which a hedonistic valuation 
process in any modern industrial community is held perforce to take place, - the 
circumstances which are held to enforce a recognition and rating of the 
pleasure-bearing capacity of facts. They are not, as under the earlier cost-of-
production doctrines, the circumstances which determine the magnitude of the 
forces spent in the production of the valuable article. Therefore, the normal 
(natural) value is no longer (as with Adam Smith, and even to some extent with 
his classical successors) the primary or initial fact in value theory, the 
substantial fact of which the market value is an approximate expression and by 
which the latter is controlled. The argument does not, as formerly, set out from 
that expenditure of personal force which was once conceived to constitute the 
substantial value of goods, and then construe market value to be an approximate 
and uncertain expression of this substantial fact. The direction in which the 
argument runs is rather the reverse of this. The point of departure is taken 
from the range of market values and the process of bargaining by which these 
values are determined. This latter is taken to be a process of discrimination 
between various kinds and degrees of discomfort, and the average or consistent 
outcome of such a process of bargaining constitutes normal value. It is only by 
virtue of a presumed equivalence between the discomfort undergone and the 
concomitant expenditure, whether of labor or of wealth, that the normal value so 
determined is conceived to be an expression of the productive force that goes 
into the creation of the valuable goods. Cost being only in uncertain 
equivalence with sacrifice or discomfort, as between different persons, the 
factor of cost falls into the background; and the process of bargaining, which 
is in the foreground, being a process of valuation, a balancing of individual 
demand and supply, it follows that a law of reciprocal demand comes in to 
supplant the law of cost. In all this the proximate causes at work in the 
determination of values are plainly taken account of more adequately than in 
earlier cost-of-production doctrines; but they are taken account of with a view 
to explaining the mutual adjustment and interrelation of elements in a system 
rather than to explain either a developmental sequence or the working out of a 
fore-ordained end.
This revision of the cost-of-production doctrine, whereby it takes the form of a 
law of reciprocal demand, is in good part effected by a consistent reduction of 
cost to terms of sacrifice, - a reduction more consistently carried through by 
Cairnes than it had been by earlier hedonists, and extended by Cairnes's 
successors with even more far-reaching results. By this step the doctrine of 
cost is not only brought into closer accord with the neo-hedonistic premises, in 
that it in a greater degree throws the stress upon the factor of personal 
discrimination, but it also gives the doctrine a more general bearing upon 
economic conduct and increases its serviceability as a comprehensive principle 
for the classification of economic phenomena. In the further elaboration of the 
hedonistic theory of value at the hands of Jevons and the Austrians the same 
principle of sacrifice comes to serve as the chief ground of procedure.
Of the foundations of later theory, in so far as the postulates of later 
economists differ characteristically from those of Mill and Cairnes, little can 
be said in this place. Nothing but the very general features of the later 
development can be taken up; and even these general features of the existing 
theoretic situation can not be handled with the same confidence as the 
corresponding features of a past phase of speculation. With respect to writers 
of the present or the more recent past the work of natural selection, as between 
variants of scientific aim and animus and between more or less divergent points 
of view, has not yet taken effect; and it would be over-hazardous to attempt an 
anticipation of the results of the selection that lies in great part yet in the 
future. As regards the directions of theoretical work suggested by the names of 
Professor Marshall, Mr. Cannan, Professor Clark, Mr. Pierson, Austrian Professor 
Loria, Professor Schmoller, the group, - no off-hand decision is admissible as 
between these candidates for the honor, or, better, for the work, of continuing 
the main current of economic speculation and inquiry. No attempt will here be 
made even to pass a verdict on the relative claims of the recognised two or 
three main "schools" of theory, beyond the somewhat obvious finding that, for 
the purpose in hand, the so-called Austrian school is scarcely distinguishable 
from the neo-classical, unless it be in the different distribution of emphasis. 
The divergence between the modernised classical views, on the one hand, and the 
historical and Marxist schools, on the other hand, is wider, - so much so, 
indeed, as to bar out a consideration of the postulates of the latter under the 
same head of inquiry with the former. The inquiry, therefore, confines itself to 
the one line standing most obviously in unbroken continuity with that body of 
classical economics whose life history has been traced in outline above. And, 
even for this phase of modernised classical economics, it seems necessary to 
limit discussion, for the present, to a single strain, selected as standing 
peculiarly close to the classical source, at the same time that it shows 
unmistakable adaptation to the later habits of thought and methods of knowledge.
For this later development in the classical line of political economy, Mr. 
Keynes's book may fairly be taken as the maturest exposition of the aims and 
ideals of the science; while Professor Marshall excellently exemplifies the best 
work that is being done under the guidance of the classical antecedents. As, 
after a lapse of a dozen or fifteen years from Cairnes's days of full 
conviction, Mr. Keynes interprets the aims of modern economic science, it has 
less of the "hypothetical" character assigned it by Cairnes; that is to say, it 
confines its inquiry less closely to the ascertainment of the normal case and 
the interpretative subsumption of facts under the normal. It takes fuller 
account of the genesis and developmental continuity of all features of modern 
economic life, gives more and closer attention to institutions and their 
history. This is, no doubt, due, in part at least, to impulse received from 
German economists; and in so far it also reflects the peculiarly vague and 
bewildered attitude of protest that characterises the earlier expositions of the 
historical school. To the same essentially extraneous source is traceable the 
theoretic blur embodied in Mr. Keynes's attitude of tolerance towards the 
conception of economics as a "normative" science having to do with "economic 
ideals", or an "applied economics" having to do with "economic precepts." (12*) 
An inchoate departure from the consistent taxonomic ideals shows itself in the 
tentative resort to historical and genetic formulations, as well as in Mr. 
Keynes's pervading inclination to define the scope of the science, not by 
exclusion of what are conceived to be non-economic phenomena, but by disclosing 
a point of view from which all phenomena are seen to be economic facts. The 
science comes to be characterised not by the delimitation of a range of facts, 
as in Cairnes,(13*) but as an inquiry into the bearing which all facts have upon 
men's economic activity. It is no longer that certain phenomena belong within 
the science, but rather that the science is concerned with any and all phenomena 
as seen from the point of view of the economic interest. Mr. Keynes does not go 
fully to the length which this last proposition indicates. He finds (14*) that 
political economy "treats of the phenomena arising out of the economic 
activities of mankind in society"; but, while the discussion by which he leads 
up to this definition might be construed to say that all the activities of 
mankind in society have an economic bearing, and should therefore come within 
the view of the science, Mr. Keynes does not carry out his elucidation of the 
matter to that broad conclusion. Neither can it be said that modern political 
economy has, in practice, taken on the scope and character which this extreme 
position would assign it.
The passage from which the above citation is taken is highly significant also in 
another and related bearing, and it is at the same time highly characteristic of 
the most effective modernised classical economics. The subject matter of the 
science has come to be the "economic activities" of mankind, and the phenomena 
in which these activities manifest themselves. So Professor Marshall's work, for 
instance, is, in aim, even if not always in achievement, a theoretical handling 
of human activity in its economic bearing, - an inquiry into the multiform 
phases and ramifications of that process of valuation of the material means of 
life by virtue of which man is an economic agent. And still it remains an 
inquiry directed to the determination of the conditions of an equilibrium of 
activities and a quiescent normal situation. It is not in any eminent degree an 
inquiry into cultural or institutional development as affected by economic 
exigencies or by the economic interest of the men whose activities are analysed 
and portrayed. Any sympathetic reader of Professor Marshall's great work - and 
that must mean every reader - comes away with a sense of swift and smooth 
movement and interaction of parts; but it is the movement of a consummately 
conceived and self-balanced mechanism, not that of a cumulatively unfolding 
process or an institutional adaptation to cumulatively unfolding exigencies. The 
taxonomic bearing is, after all, the dominant feature. It is significant of the 
same point that even in his discussion of such vitally dynamic features of the 
economic process as the differential effectiveness of different laborers or of 
different industrial plants, as well as of the differential advantages of 
consumers, Professor Marshall resorts to an adaptation of so essentially 
taxonomic a category as the received concept of rent. Rent is a pecuniary 
category, a category of income, which is essentially a final term, not a 
category of the motor term, work or interest.(15*) It is not a factor or a 
feature of the process of industrial life, but a phenomenon of the pecuniary 
situation which emerges from this process under given conventional 
circumstances. However far-reaching and various the employment of the rent 
concept in economic theory has been, it has through all permutations remained, 
what it was to begin with, a rubric in the classification of incomes. It is a 
pecuniary, not an industrial category. In so far as resort is had to the rent 
concept in the formulation of a theory of the industrial process, - as in 
Professor Marshall's work, - it comes to a statement of the process in terms of 
its residue. Let it not seem presumptuous to say that great and permanent as is 
the value of Professor Marshall's exposition of quasi-rents and the like, the 
endeavor which it involves to present in terms of a concluded system what is of 
the nature of a fluent process has made the exposition unduly bulky, unwieldy, 
and inconsequent.
There is a curious reminiscence of the perfect taxonomic day in Mr. Keynes's 
characterisation of political economy as a "positive science," "the sole 
province of which is to establish economic uniformities"; (16*) and, in this 
resort to the associationist expedient of defining a natural law as a "uniformity," 
Mr. Keynes is also borne out by Professor Marshall.(17*) But this 
and other survivals of the taxonomic terminology, or even of the taxonomic 
canons of procedure, do not binder the economists of the modern school from 
doing effective work of a character that must be rated as genetic rather than 
taxonomic. Professor Marshall's work in economics is not unlike that of Asa Gray 
in botany, who, while working in great part within the lines of "systematic 
botany" and adhering to its terminology, and on the whole also to its point of 
view, very materially furthered the advance of the science outside the scope of 
taxonomy.
Professor Marshall shows an aspiration to treat economic life as a development; 
and, at least superficially, much of his work bears the appearance of being a 
discussion of this kind. In this endeavor his work is typical of what is aimed 
at by many of the later economists. The aim shows itself with a persistent 
recurrence in his Principles. His chosen maxim is, "Natura non facit saltum," - 
a maxim that might well serve to designate the prevailing attitude of modern 
economists towards questions of economic development as well as towards 
questions of classification or of economic policy. His insistence on the 
continuity of development and of the economic structure of communities is a 
characteristic of the best work along the later line of classical political 
economy. All this gives an air of evolutionism to the work. Indeed, the work of 
the neo-classical economics might be compared, probably without offending any of 
its adepts, with that of the early generation of Darwinians, though such a 
comparison might somewhat shrewdly have to avoid any but superficial features. 
Economists of the present day are commonly evolutionists, in a general way. They 
commonly accept, as other men do, the general results of the evolutionary 
speculation in those directions in which the evolutionary method has made its 
way. But the habit of handling by evolutionist methods the facts with which 
their own science is concerned has made its way among the economists to but a 
very uncertain degree.
The prime postulate of evolutionary science, the preconception constantly 
underlying the inquiry, is the notion of a cumulative causal sequence; and 
writers on economics are in the habit of recognising that the phenomena with 
which they are occupied are subject to such a law of development. Expressions of 
assent to this proposition abound. But the economists have not worked out or hit 
upon a method by which the inquiry in economics may consistently be conducted 
under the guidance of this postulate. Taking Professor Marshall as exponent, it 
appears that, while the formulations of economic theory are not conceived to be 
arrived at by way of an inquiry into the developmental variation of economic 
institutions and the like, the theorems arrived at are held, and no doubt 
legitimately, to apply to the past,(18*) and with due reserve also to the 
future, phases of the development. But these theorems apply to the various 
phases of the development not as accounting for the developmental sequence, but 
as limiting the range of variation. They say little, if anything, as to the 
order of succession, as to the derivation and the outcome of any given phase, or 
as to the causal relation of one phase of any given economic convention or 
scheme of relations to any other. They indicate the conditions of survival to 
which any innovation is subject, supposing the innovation to have taken place, 
not the conditions of variational growth. The economic laws, the" statements of 
uniformity," are therefore, when construed in an evolutionary bearing, theorems 
concerning the superior or the inferior limit of persistent innovations, as the 
case may be.(19*) It is only in this negative, selective bearing that the 
current economic laws are held to be laws of developmental continuity; and it 
should be added that they have hitherto found but relatively scant application 
at the hands of the economists, even for this purpose.
Again, as applied to economic activities under a given situation, as laws 
governing activities in equilibrium, the economic laws are, in the main, laws of 
the limits within which economic action of a given purpose runs. They are 
theorems as to the limits which the economic (commonly the pecuniary) interest 
imposes upon the range of activities to which the other life interests of men 
incite, rather than theorems as to the manner and degree in which the economic 
interest creatively shapes the general scheme of life. In great part they 
formulate the normal inhibitory effect of economic exigencies rather than the 
cumulative modification and diversification of human activities through the 
economic interest, by initiating and guiding habits of life and of thought. 
This, of course, does not go to say that economists are at all slow to credit 
the economic exigencies with a large share in the growth of culture; but, while 
claims of this kind are large and recurrent, it remains true that the laws which 
make up the framework of economic doctrine are, when construed as 
generalisations of causal relation, laws of conservation and selection, not of 
genesis and proliferation. The truth of this, which is but a commonplace 
generalisation, might be shown in detail with respect to such fundamental 
theorems as the laws of rent, of profits, of wages, of the increasing or 
diminishing returns of industry, of population, of competitive prices, of cost 
of production.
In consonance with this quasi-evolutionary tone of the neo-classical political 
economy, or as an expression of it, comes the further clarified sense that 
nowadays attaches to the terms "normal" and economic "laws." The laws have 
gained in colorlessness, until it can no longer be said that the concept of 
normality implies approval of the phenomena to which it is applied.(20*) They 
are in an increasing degree laws of conduct, though they still continue to 
formulate conduct in hedonistic terms; that is to say, conduct is construed in 
terms of its sensuous effect, not in terms of its teleological content. The 
light of the science is a drier light than it was, but it continues to be shed 
upon the accessories of human action rather than upon the process itself. The 
categories employed for the purpose of knowing this economic conduct with which 
the scientists occupy themselves are not the categories under which the men at 
whose hands the action takes place themselves apprehend their own action at the 
instant of acting. Therefore, economic conduct still continues to be somewhat 
mysterious to the economists; and they are forced to content themselves with 
adumbrations whenever the discussion touches this central, substantial fact.
All this, of course, is intended to convey no dispraise of the work done, nor in 
any way to disparage the theories which the passing generation of economists 
have elaborated, or the really great and admirable body of knowledge which they 
have brought under the hand of the science; but only to indicate the direction 
in which the inquiry in its later phases - not always with full consciousness - 
is shifting as regards its categories and its point of view. The discipline of 
life in a modern community, particularly the industrial life, strongly 
reinforced by the modern sciences, has divested our knowledge of non-human 
phenomena of that fullness of self-directing life that was once imputed to them, 
and has reduced this knowledge to terms of opaque causal sequence. It has 
thereby narrowed the range of discretionary, teleological action to the human 
agent alone; and so it is compelling our knowledge of human conduct, in so far 
as it is distinguished from the non-human, to fall into teleological terms. 
Foot-pounds, calories, geometrically progressive procreation, and doses of 
capital, have not been supplanted by the equally uncouth denominations of 
habits, propensities, aptitudes, and conventions, nor does there seem to be any 
probability that they will be; but the discussion which continues to run in 
terms of the former class of concepts is in an increasing degree seeking support 
in concepts of the latter class.
NOTES:
1. So, e.g., Roscher, Comte, the early socialists, J. S. Mill, and later Spencer, 
Schaeffle, Wagner.
2. "Let us not confound the statement that human interests are at one with the 
statement that class interests are at one. The latter I believe to be as false 
as the former is true ... But accepting the major premises of the syllogism, that 
the interests of human beings are fundamentally the same, how as to the minor? - 
how as to the assumption that people know their interests in the sense in which 
they are identical with the interests of others, and that they spontaneously 
follow them in this sense?" - Cairnes, Essays in Political Economy (London, 
1873), p. 245. This question cannot consistently be asked by an adherent of the 
stricter hedonism.
3. Bastiat, quoted by Cairnes, Essays, p. 319.
4. It may be remarked, by the way, that the use of the differential calculus and 
similar mathematical expedients in the discussion of marginal utility and the 
like, proceeds on the psychological ground, and that the theoretical results so 
arrived at are valid to the full extent only if this hedonistic psychology is 
accepted.
5. See, e.g., Cairnes, Character and Logical Method (New York), p. 71.
6. Character and Logical Method, p. 62.
7. Essays in Political Economy, pp. 260-264.
8. See especially Essays, pp. 263, 264.
9. It may be interesting to point out that the like identification of the 
categories of normality and right gives the dominant note of Mr. Spencer's 
ethical and social philosophy, and that later economists of the classical and 
social philosophy to be Spencerians.
10. "Normal value (called by Adam Smith and Ricardo "natural value," and by Mill 
"necessary value," but best expressed, it seems to me, by the term which I have 
used)." Leading Principles (New York), p. 45.
11. Leading Principles, p. 45.
12. Scope and Method of Political Economy (London, 1891), chaps. i and ii.
13. Character and Logical Method; e.g., Lecture II, especially pp. 53, 54, 71.
14. Scope and Method of Political Economy, chap. iii, particularly p. 97.
15. "Interest" is, of course, here used in the sense which it has in modern 
psychological discussion.
16. Scope and Method of Political Economy, p. 46.
17. Principles of Economics, Vol. 1, Book 1, chap. vi, sect. 6, especially p. 
105 (3rd edition).
18. See, e.g., Professor Marshall's "Reply" to Professor Cunningham in the 
Economic Journal for 1892, pp. 508-513.
19. This is well illustrated by what Professor Marshall says of the Ricardian 
law of rent in his "Reply" cited above.
20. See, e.g., Marshall, Principles, Book I, chap. vi, sect. 6, pp. 105-108. The 
like dispassionateness is visible in most other modern writers on theory; as, 
e.g., Clark, Cannan, and the Austrians.
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