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1 90 9



J A NU A R Y 22, 1 9 08


New York
1 909

WH E N P ro fes sor Cram pto n nished his lecture on ' oolo gy

a few w ks ago an d i t w as un dersto od that the social

s ci e n ce s woul d ne xt be tak e n u p some one in thi s audi ence ,

sa id Now they wi ll begin to talk abo ut what they don t


kn ow . Whether my imm ediate p ed ece ssor overheard r

this remark I ca nnot say If h e di d he r e plied to it in a

, .

way that it would b e vain to try to imitate by showin g

that to hear about what i s not known may be quite a s in
structive and eve n more entertaining than to hear about
what is With P rofessor Ro binson s revelations in regard

to the deciencies of H isto ry stil l rin ging in my ears like a ,

call to the confess i onal I have no desire to make xt a a

, e r v

gant claims for my subj ect We ec nomists do still talk . o

abo ut what we don t know We have reached a stage


however when with clear utilitarian purpose we talk more


and more about what we shoul d like to know a good deal ,

abo ut what we hope to know and a little a saving little , ,

abo ut what we think we do know .

E conomi cs or P olitical E conomy is the s oci al sc ience

, ,

whi ch tre ats of all of the interests and activi ties connected
wi th the mun dan e ta sk of earning a li ving It is the social .

science of busin ess Thi s d enition acce pte d in substan ce

, ,

i f not in form by all pr esent day economi sts was reached


only afte r prolonged di scus sion Pas s in g over th e rst .

beginni ngs of economi c speculation in oriental an d classi cal

literature w e nd that in E uro pe in th M iddle Ages th
e e

subject was cultivated as a branch not of poli ti cal scienc , e,

but of ethics The questions most actively di scussed by

me di aeval thinkers turned not on the explanation of

economic phenomena but on their j ustication Thus

the inquiry was not as to why the rate of interest charged

at the time was high but as to whether th ere was moral

j ustication for charging any interest .

As the medi aeval restraints on trade and industry were

relaxed the discussion of economic phenomena passed from
theologians to merchants and govern ment ofcials Taxa .

tion the control of monetary systems and the r e gul ation

, ,

of comm erce were th e pri ncipal matters considered in the

fteenth sixteenth and seventeenth centuries and some
, ,

progress was mad e toward an understandi ng of these

subj ects .

In the latter part of th is p e ri od e conomi c questions be

gan to be approached from the standpoint of the whole
people rather than from that of kings or the rul in g classes '
a change that was at rst j ustied mor e o n the ground that
an impoverished people means an impoverished sovereign ,

uvres s ans auvre R oyaume p auvre R oyaume

p a p ay , p , ,

p auvre as V auban
R oi , wri ting in 1 7 1 7 expressed it
than because the welfare of th e people was squarely recog
n i ed as of primary importance
z When Adam Smith pub .

lish ed his Wealth of N ations i n 1 7 7 6 this broader con


ceptio n was rml y established but Adam Smi th himself ,

still thought of P olitical Economy as the art of makin g na

tions wealthy and pros p erous rather than as the science of

explaining wealth and prosperity .

It was not un til the rst quarter of the ni neteenth

century when P olitical Economy had be e n digni ed in

England by recognition as a college discipli ne that the ,

subj ect began to be dened and treate d as a science The .

materials for the new science had all or nearly all been

brought together earlier but i t required R icardo s com


bination of bus iness experience an d talen t for abstract

r easoni ng Jame s Mill s passion for clear and logical expo

s i tio n and the leisure for academi c ren ements of analysis


enj oyed by Malthus and Seni or to bri ng the d iff erent

parts of the subj ect to gether i nto what is now design ated
as the classica l or orthodo x syst em That syste m has in

uen ced so profoun dl y th e co urs e of eco nomic thought

even down to the pres ent day that a bri e f exposition of its
leading principles mus t be given .

To understand the cl assica l system i t is nece ssary to

study it in co nn ection with the industri al s itua tion in E ng
land at the tim e th at i t was formul ate d Though ex .

h aus ted and impov e ri sh e d by th e N apo l eoni c wars tha t ,

co untry was throbb ing with the gr eat eco nomi c changes
brought about by the in ventions an d disco ve ri es of the last
half of th e e igh teenth ce ntury M anufac turin g indus tri es

wer e growin g at a n un prece dented rate P opul ation was


beginni n g to be conc entrate d in Y orkshi re and L ancashire

wh e re the coal and water powe r called for by th e new p ro
cesses were to be had abun dantly The capitalist e mployer

was comi ng forward as the di recting sp iri t in the new in

d ustries and the opposit i on between his interests and those
of the landhold ing aristocracy which still dominated

P arliament was beginning to stand out cl e arly F inally

, .

i n consequence of the war and of the partial suspension of

the country s foreign commerce high prices prevailed for

agr i cultural products and not only did the landlords of


the co untry enjoy un usually high rents from their estates ,

but a cons iderable extension of agriculture to lands that

had before been deemed un t for cultivation was ob
servable The interest of landlords in a continuance of

these high prices was as clear as was the interest of oth e r

classes in brin ging abo ut their r e duction .

It was on the b ackground form e d by these i ndus trial

conditions that R icardo and h i s d i sci ples combining subtle

reasoning with heroic abstraction fro m the complex facts

of li fe sk e tch e d the close ly related theories whi ch for a

t ime seem e d to r ai s e eco no mies to th e po sition of an ex act

science .

The factors in th e production of w ealth which th e class i

ca l economists distingui shed land labo r and capi tal ,

corresponded to the thr ee great soci al cl a ss es of the period ,

landlords wage earners and capitali st employers E ach


of these factors was supposed to rece iv e a shar e i n the pro

ducts of industry the fami liar rent wages and prots To
, , .

e x plain these shares was as R icardo declared i n h i s ep o ch


maki ng treatis e the principal p robl em in P oliti cal Econ


o my .

R e nt, the share of the landowner was explained ve ry ,

simply as a di fferential return due to th e superio r fertility

or th e superior location of th e better pieces of land as com
pared with the poorer .

The explanation of wages was more complex since two ,

di fferent and supplementary theories one apply in g to , ,

short the other to long periods were advance d O ver

, , .

short periods wag es were believed to depend upon the pro

portion between the accumulated fun d of capital and the
n umbe r of wage earners This was the famous wages fund

th eory which was still condently held by John Stuart Mill

when he wrote hi s P olitical Economy in 1 8 4 8 As stated

by Mill the theory is th at wage s depend not only upo n


the relative amoun t of capital an d population but cannot ,

be affecte d by an ything else Wages (meaning of course .

, ,

the genera l rate ' cannot rise but by an increase of th e

aggregate funds employed in hiring laborers or in a ,

dimi nution of the number of competitors for hire ' nor

f all except either by a d im in ut i on of the fun ds devoted to

paying labo r or by a n in crease of th e number of laborers


to be paid This th eo ry of the rigi d dependence of wages


u pon c a pital wi th the practical co nclusion deduce d from it


th a t nei th e r l abo r o rg aniz atio ns no r f acto ry acts could do

anything to improve materially the lot of wage earners -

s erved more than any o ther part of the clas sical system to

earn for economics the title of disma l science That this '

theory at one time universally accepted is now universally

, ,

condemned may be cited as a solemn warning agains t


over co n d en t generalization touchi ng phenomena to o


comple x to be e x plained by any s imple formula .

To acco un t for th e cour se of wages over long periods

th e classical econom ists reli ed on the Malthusian doctrine
o f pop ul ation P opulation they thought is constantly
, ,

pressing on the food supply Any increase i n th e wages .

fun d tends to encourage an in cre ase of po pul ation In th e .

long run wa ges tend to correspond with the standard of li v

ing of th e wage earning masses the standard of subsist

e nce th a t i s which wage e arners insist on having in th e

, ,

s ense that when wages fall below this level th e growth of

pop ul ation will be checked until they are brought again u p

to it Malthus at rst thought that this mi ni mum standard

was no more than the subsistence absolutely necess a ry to

e nable th e wage earner t o rear a fami ly an d that mi se ry

an d vice were the divinely ordai n e d m e ans of m ain taining

the necessary balance be tw een population and the food

supply Further though t convinced h im an d th e oth e r

classical writers that the standard of livin g is elas tic and

that wage s dete rmi ned by what later ca me to be called
their iron law were not nec essarily low wages They

continued however to think of wages in t e rms of food and

, ,

t o make little real a llowance for th e dev elopment of higher

wants on the part of the masses .

R i cardo s explanation of prots th e third an d l a s t share

, ,

was th e l ea s t satisf actory pa rt of hi s P olitical Economy


I nstead of attacking th e problem of th e reason for prots

dire ctly be h ad reco urse to the me thod of di ff erence for his

e x pl anation H aving asserte d that all wealth annually


p rod u c e d i s d i v i d e d in to thre e p a r t s an d havi n g ex plained ,

how the parts ca lled rent and wages are determi ned it ,

seemed to him sufcient to declare that whatever w as left

over m ust co nstitute prots It remained for Senior to .

attempt to ex plain the why of prots on in d ep endent

grounds and he did this by formulating clearly the so
call ed abstinence theory hint s of which are to be found in

th e di scus sions of earlier writers According to th is theory .

th e ab st inence of the capitalist be ars the sam e relation to

p rots as do e s the e ffort of the laborer to wages Both are .

e lements in th e cost of production and bo th must b e ,

recognized as ult imate factors in the d ete rmina tion of

e conomi c relations .

In the completed form to which it was brought by the

work of Senior th e classical system had at least the merit

of simplicity The production and distribution of wealth


seemed to be comple te ly explained by half a dozen clear

cu t pro positions From them seemed to follow by in exo r

abl e logic the principle that governmental in terference

with in dus t rial relations must prove futile e ve n when not ,

positively h armful An d so persuaded w ere the classical


writers of the co rrectness of their doctrines that during th e

fty years from 1 820 to 1 870 most of their attention was
devoted to the task of winning disciples .

Already in 1 82 1 James Mill brought out an Elements


of P olitical Economy based on lectures rst deli v e r e d in


camera to John S tu art wh en in h i s t welfth year About

. .

the same t ime a more ambitious e ffort to popularize

e conomics w as mad e by a Mrs Marcet th e author of a suc .

cess ful
Conv ersations on Chemistry H er Conversa .

tions on P olitica l Economy a treatise i n which a Mrs


B gravely expounds all the mysteries of the classical


system in reply to queries propounded by an ingenuous

you g mai den Caro e was received wi th approval by
n , li n ,

the leading economists of the d ay Even J R M cCullo ch . . .


the narrowest most dogmatic and most p rol i c of th e


clas sica l writers condescended to say that the little Work
, ,

though puer il e in its form and from a female pen is not ,

wan tin g in manly e x cellence .

But perhaps the clearest proof of the condence wi th

which the teachings of R ica rdo were accepted is the part
which our o wn broadly cultured P rofessor McV ickar
played i n this e ffort to popul ariz e economi cs In 1 835 he .

w as move d to bring out a F irst L essons in P oli tical Econ


o my for the Us e of P rimary and Common Schools and ,

to introduce th e work with the following signi cant sen

ten ces :
Th e rst prin ciples of P oli ti ca l Economy are truisms
which a chi ld may unders tand an d which children should ,

therefore be taught In the last century they were among


the speculations of th e learn ed ' they have now beco me the

heritage of the n ursery ' and the only difculty in te ach ing
them in after life arise s from a suspicion excited by their
very simpli city .

To the modern re ade r another possible e x planation of the

su spicion to which P rofessor M cV ickar alludes suggests

itself when he di scovers that among the truisms which '

had become the heritage of the nursery are the labor


theory of value and the laissez faire theory of government -


Much more fruitful than these attempts to popularize

eco nomics were the applications that were made of the
classical theories to the eco nomic and poli tical problems of
the day For however inadequate these theories may seem

as a basis for solvi ng the world problems of the twentieth

century it cann ot be denied that they supplied a veritable

arsenal of arguments for attacking the problems which

confronted England during the period of their greatest
inuence In f act the inadequacy of the classica l th eories

if we except the wages fund theory the most serious not

, ,

to say vicious error of the older writers came from their

being only half true rather than un true For the most

part they have bee n sup p lemented rath e r than superseded
by the th e orie s form ul ated since 1 870 Among th e practi .

cal reforms in England whi ch should in j ustice be cre dited

to the classical economists and their discipl e s were the
establi shment of the gold standard the reform of Parli a ,

me nt th e r e form of th e poor law the abo lit ion o f sl avery

, ,

and the r e p e al of th e corn laws It w as not until these


reforms were accomplished that any se ous e ffort was '

made to re examin e the accepted th eo riesn d adapt them


to changing i ndustrial conditions .

The argum ents which served at length to di scredi t th e

theories of th e classical syst em w ere advance d by at least

v e di fferent types of thi nkers First ther e were th e

moralists who attacked the system on the ground that the

i ndustrial society to wh i ch i ts theor i es app li e d st ood self
condemn e d They ridi cul ed e conomics as the dismal

science and insiste d that the economi c man of whom th e

economi sts p rated ex i sted only in the imagin ations of th e se

closet philosophers Not a little enco uragement to thi s

lin e of crit ici sm ca me from the economi sts themselve s .

Thus John Stua rt M ill brok e so completely wi th the


prin ciples that he had h imself e x poun ded that before his
death h e became an avowed sociali st Even Cairn es who .

made a n e ffort as late as 1 874 to rehabilitate the classical

theorie s showed so li ttle enthusiasm for his task that he

declares that co operation offers the sole escape from a


hopeless situation With such damagin g admi ss ion s com


ing from the leaders i t was not surpri s in g that ther e was
d i ssatisfaction in the ranks .

The se cond group of criti cs w ere the soci ali sts le d by ,

K arl Mar x .They professed to accept the teachings of

R ic a rdo and asked onl y th at h i s theories be followed to
their logi cal concl us ion For them thi s was summed up in

the p roposition that all incom e s ex cept wa ge s ar e th e re

sult of l e gal ized robb e ry .
More importan t w as the th ird li ne of attack the accu ,

mulatio n of f acts both past and pre se nt by disci ples of the

G e rman H i sto ri cal School These showed not only that

the pr em ise s whi ch the economists advance d as universally

true applied o nly to a few coun tries and to them only at

parti cul ar periods of th e ir historical dev elopment but also ,

that the conclus ions whi ch the economi sts deduced from
these prem ise s failed to correspo nd with experience .

The fourth inuence was the progr ess of biologica l

studies and the growing appreciation of the importance of
change i n connec tion with all forms of organic life From .

thinki ng of human nature an d social institutions as rela

tiv ely x ed all studen ts of social phenomena were led to

thi nk of them as undergoing a gradual evolution This .

n ew conception was obviously inconsistent with the hard

and fast pr inciples of cl as si cal economi cs .

Finally and most impo rtant of all was the more search
ing examination to whi ch th e economi sts subjecte d their
o wn theories Th ornton an d others attacked the wages

fun d theo ry and succeed ed in s ecuring a formal re ca ntation

from John Stu art M ill u po n whose authority much of the

later day vogu e of the th e ory had depended Menger in .

Austria and Jevons in England showed the in adequacy of

the cost o f pr oduction theory of value and proposed in its
- -

place th e margin al utility theory now very gen erally


accepte d O ur own Walker and others showed the n eces


s ity of recogni z in g other shares in di stribution than the

traditional rent wages and prots an d thus prepared the

, ,

way for a more accur ate analysis S imi l arly the Mal

th usian doctr ine of population and th e abstin ence theory

of interest were shown to be untenable in the forms in
which th e classical writers had advanced them and less ,

simple theories having more regard to the compl exities of

the subj ect were pro posed to take their places .

Through the combin e d op eration of all of th e se in u

e mees the in adequacy of the classical syst em was proved
both inductively and deductively and the way was pre

pared for the more careful and scientic if less condent


and sweeping theories of economics which are now ac

p ted .

In turnin g from this brief survey of the h istory of th e

science of economics to an account of present day princi -

ples and problems I am lled with renewed admir ation for


my predecessors who hav e succe eded in tellin g so much

abo ut their subj ects in the limi ted t ime allott e d to them .

Although it is one of the newest of the sciences eco ,

n o mics has alr e ady bee n su b di vi ded i nto many special

bran ches to any one of which a lecture such as this might


protably be devoted S ta tisti cs math e matical e conomics

, ,

e conomi c theory publi c nanc e pr actical economi cs eco

, , ,

nomi c history and social e conomy ar e the branches at


pres e nt represented through sp eci al cours e s or series of

co urses o ff ered at thi s University In each of th e se notabl e

progress is being made Not only is our mastery of the


essential facts in regard to indus trial conditions in this

and other lands becomin g every year more complete but ,

gre ater care is co nstantly being ex ercised in the formula

tion of the premi ses to be us e d in economi c reasoni ng and
in the application of theoretical conclus ions to practic al
p roblems No twi thstand ing th i s progress th e present

state of development of the sci ence is still one of transitio n .

The dogmatic orthodoxy of the past has b ee n succeeded by

an exuberant heterodoxy which gives so great promin ence
to the disagreements among economists that the agre e
ments are easily overlooked Th i s disputatious period is

gradually passing in its turn and a new body of principles

is emerging which entitles economi cs still to be regarded as
the most exact of the relatively in e x act social sciences .

O ne of the chief difculties with which economi sts hav e

all along contended is the inex actness of their terminology .
th eory Acco rdin g to thi s th eory as it applies for ex am

ple to the shar e of the annual p roduce th at goes to wage


e arners it is not th e fun d of w ea lth th at h as alre ady been


accumulate d th at dete rmin es w a ges ( as h eld by the wages

fun d th eori sts ' bu t rather the ow of w ealth which is be

in g currently p roduce d Emp loyers wh e n decid i ng what


wages they ca n a o rd to p ay consid e r not the cap i tal which


they happe n to have but the p rob abl e value of what th e ir


employ ee s wi ll produce H avin g d ec id ed what their em


p lo y ees are worth to th e m or wh a t i s th e same

, thing,what ,

the part of the product attr ibutable to their labor is

worth th ey of course try to secur e the ir se rvice s for less
, , , .

If competition i s pe rf ect ly fr ee however and employee s , ,

a r e alert to th eir own in te r e st and willin g to shift from

one employer to another for the sake of higher wages th e ,

compet itive dem an d for labor among employers will force

wages u p until th ere is li ttle margin betwe en the wages
paid and the value of what labor produce s .

I n th e sa m e way that i t tends to assign to w a ge earners -

th e share of th e product that i s imputable to their labo r th e ,

fre e p l ay of competitive forces tends to assign to lan d and

th e other i nstruments of production their respect ive shares
of the j oint product This does not mean of course that th e
, ,

tend ency of free competition i s to deprive employers of the i r

prots Th e productivity theory makes full allowance for

ordinary prots or wages of management and also for the

, ,

additional prot or loss which falls to the employer becaus e

he assumes the risks of business It asserts merely that .

competition tends to cause all th e di fferent shares i n dis

tributio n to correspond to the part s of the product that
are economi cally im pu table to the servi ce s which the cor
respondi ng factors r end e r in p roduction The e xplanation .

of the process by whi ch th i s economi c i m pu tation is carried

out amidst the complexitie s of modern business relations i s

one of th e most dif cult tasks of economi c an alys i s For .

p roof that it is ca rried out I m ust re fer you to the technica l

manua ls of whi ch as P re sid ent Butler once said of small

, ,

colleges thr ee are su ppli ed by Columbia

, .

In acce pting the p roduct ivity th eory of competi tive dis

tributio n economi sts do n o t i gn or e th e fact th at th e as

s umed s ta t e of pe rf e ctly fr ee comp e ti t ion i s v e ry far from

be ing re a liz ed in actu al in d ustrial society They r eco gnize .

fully that monopoly to mention only on e complicating


factor plays an e qually important r ole with competition in


determi ning actual d istribution Thus the laws of com .

p e t i ti v e distr i bution are merely a point of departure for

studying the problems of actual distribution To under .

s tand the latt e r allowance mus t be m ade for th e e lem e nt of


friction in economic life in somewhat th e same way that

such allowance is made in physics i n applying the laws of
motion to the actual movements of falling bo dies The .

chief di fference is that in eco nomi cs th e element of friction

i s often of such dominating importance that the utili ty of
the explanation of what would happen i f comp e tition w e re
free is sometimes questionable .

R ecognizing full y the limited applica tion of the pro

d uctiv ity th eory I nevertheless beli eve that acc eptance

of it has been an important factor in changing economics

from a dismal science to a science ful l of promise for

the future of industrial society Merely to assert that .

wages depend fundamentally upon what the wage earner -

produces is to make an appeal to th e ambitio n and enter

p r i se o f the work ing masses If wages .are low a certa i n ,

w ay to raise them is to make labor more efficient Th us .

the interest of wage earners becomes identical with the


i nterest of the whole communi ty R is in g wage s mean an .

increasing output of wealth on the part of wage earners - .

They are not opposed to the interest of a ny other cl ass

to that of employers of capitalists or of land own e rs O n
, ,
- .

th e contrary the in cre a sing we llbein g of wage ea rners


means in cre a sed wellbeing for all cl asses Thus all should

unite in promoting plan s for the be tter educa tion and

training of the world s workers an d th e benets which

wi ll ow from such e fforts will be cumul ative becaus e the ,

higher earnings of the more efficient workers of one gen

cration will almost inevitably be used in p art for th e be net
of th e workers of the next .

The acceptance of this th eory has also led to a clearer

analysi s of the part which capital plays in production The .

classical economi sts when they spoke of capital habitually

thought of the imaginary wages fund The principal -

function of capital to them was to feed and support the

laboring masses while they were devoting themselves to
the production of unnished forms of wealth To modern .

analysis th e pri ncipal function of ca pital is to supply the

tools machi nes railroads facto ries and other instrument s
, , , ,

which so enormously increase the productiveness of indus

try While denying the existence of a special wages fund

economists do not of co urse ignore the fact that it is a

second function of capital to make possible the elaborate
division of labor and the roundabout methods of production ,

which in their turn contribute so largely to the productive

ness of industry In order that production distribution

and cons um ption may go on regul arly and continuously a ,

vast accumulation of wealth in the form of raw materials

and partially nished and nished commodities is meces
sary By recognizing that it is the fun ction of capital to

supply the instrum ent s of production as well as this fund

of materials economists n ow dene the rel ation between

labor and capital in a way that neither humiliates the

workman nor belittles the i mportance of the part which
ca pital plays in pr oduction .

A th i rd important co nsequence of accepta nce of the

th eory th at w ages tend to equal what labor produces is
that economi sts h av e come to f ee l th at this is th e lowest
standard of remun erati on that is compatible with j ustice .

The worker is entitled at least to the full e qui valent of

what he produces Thi s is the moral principle which

economists now very generally apply to the labor situa

tions on which they have to pass judgment V ery often .

perhaps more often than not the ideal standard of the pro

d uctivity theory is not real iz ed in practice Wages fall .

below sometimes far below the fair equivalent of what


labor produces This may be due to the fact that a given


branch of industry is controlled by a monopoly ' to an open

or tacit combination among employers not to S poil the
labor market by bidding up wages ' to the ignorance in ,

ertia or t i midity of wage earners thems elves ' or to the fact


that the advantages of industrial progress redound rst to

the benet of employers and that it takes time for wages to
be advanced so that the workers get their share R eco gni .

tion that some or all of these inuences may prevent work

men from getting the wages to whi ch according to the ,

productivity theory they are economically entitled has

, ,

made economists much more sympathetic toward labor

organiz ations than they used to be From condemning .

them as useless if not harmful they have changed to ap

, ,

proving them as necessary means of putting wage earners -

i n a position to bargain on equal terms with their em

p ylo ers Wh
. e n the latt er a re giant s e mi monopolis,t ic -

corporations as i s so commonly the case today it is clear

, ,

that the workmen stand little chance of getting a fair com

etiti e wage unless they organize to oppose combination
p v

on the side of capital with combination on the side of labor .

Thus in place of the older conception of a competitive


labor market in which isolated employers competed agains t

one another in bargaining to se cure the services of iso lated
and competin g wage ea rners the pre sent co nception of a

desirable labor situation is one in which honestly and intel

ligen tly di rected labor org a nizations ent e r into collectiv e
bargains with honestly and intelligently dir ected em
o ye s combinations It is believed that s u ch a si tu ation

p l r .

will not only resul t In fairer rates of wages but that i t will

serve as an e ff ective restraint on the embittered coni ct be

tween capital and labo r whi ch is now such a menace to
c ontinuous prosperity .

The s ame considerations that have led economists to ap

prove o f labor organiz ations have made them advocates of
legislative interference to control the condi tions of the
labor contract R easo nable laws regu lating the working

hours of women and ch ildren and prescribing standards of

sanitati on and safety for the benet of all em ployees are
t oday un iversally ap proved by economi sts The legal .

regu lation of the hours of labor of adult men is less gen

erally deman ded but the industrial development of pro

essiv e countries is so clearly away from the situation in

g r

which e ffective individual liberty results from a policy of

non interference on the part of the government that the

a rgument for protective labor laws for all classes is steadily

gaining adherents The obj ect and tend ency of such laws

as economi sts now recognize ar e not to repress individual


i nitiative and enterprise but rather to determ ine the plane


on which initiative and e nterpri se shall act Enterprise .

which spends itself in devi sing new methods for sweating

the last oun ce of producti ve po we r out of underpaid and
ill fed employee s serv e s no useful purpose It is much

better that the s a me en ergy and ing e nuity be directed

toward in troducin g more efcient tools and mac hinery or
a better di vi sion of labo r wag e earners mean time being

protected from ove r work un d e r unwholesome conditions


by de ni te legal p re scri ptions .

Eco nomi sts a pp rove of tra d e uni ons and labor laws ,

beca use they r ecognize that the i r ass i stan ce is needed to

prot e ct wage ea rne rs from the destru ctive e ff ect s of an

un f air be cau s e une qua l comp etiti on

, , B ut the ir p rogram

on behalf of wage ea rners does not stop here Side by
- .

side wi th th e principle that wage earners are entitled at -

least to the full equival ent of what their labo r produce s ,

most economi sts would now put the furth e r princi ple that
wage earners should be prote cted from losin g through ac

ei dent or misfortune the ca p aci ty to mainta i n th e standards

of living to whi ch they have become accustomed .

Among the co ntingencies which frequently prevent the

fami lies of in dependent and se lf respectin g wage earners
- -

from pre se rvi ng their standards of li vin g th e princi pal

sickness accident unemployment prematur e death an d
, , ,

old age O ne way of provi di ng against these evils and the


way on which the classica l economists r e li ed is for every

wage e arner to accumulate an indepe nd ent fund of ca pital
- .

' es irabl e as woul d be such a dev e lopment no one can deny ,

that the progress which wage e arners hav e mad e in this


direction is ex ceedingly sli ght Moreove r it i s not the


most economi cal an d inte lli gent way to mee t th e se con

tin gen cies to wh i ch all a r e li able but wh ich the great ma

j o rity e scape in whol e or in part A be tter way i s through


the machi n e ry of in suran ce by whi ch a commo n fund is


created for th e benet of those who su ff er from these evils

at a minim um of expense to th e larger n umbe r who are
e x posed to th em .

Insurance ag ainst acc iden ts p rematur e de ath and old


age and eve n aga inst s ickne ss h ave long been furni shed
, ,

by commerci al i nsur ance compani es The trouble is that .

those who would be most beneted by this ins urance are

either indi fferent to it or un able to bear the e x pense of
securing it Under these circumstances some plan of

un iversal insurance a t th e e x pense either of the wage

earn ers to be benete d of the ir employers or of the state
, ,

seems alone sui ted to the nece ssities of the situation .

T ime wi ll permit only the briefest reference to the dif

f erent plans of un iversal i n surance agai ns t these evil s
which are b eing tri e d G e rmany as is well kn own has
, ,

developed a system of uni versal compulsory insurance

against all of them except unemployment Th e Unite d .

K ingdom has recently e x tended its system of workmen s

compensation for industrial accidents until it in cludes not

only practically all employments but also certain diseases

contracted in connection with the occupation ' enmark .


New ' ealand and New South Wales have establi shed old
age pensions and it appears probable that the United

K ingdom and France will also establish them so soo n as

the additional revenues which they necessitate can be pro
v id ed. F i nally certain G erman and Swiss cities have e x

rimen ted with systems of muni cipal insurance agai ns t

p e

losses due to unemployment .

The point I wish to em ph asize i s that these measur es ,

which to the cl a ssical e conomi sts would have seem ed o p

posed to all of th e pr inciples of economics and sound
statesmanship are now approv e d in substance b y a large

and growi ng bo dy of the youn ge r ge n eration of eco n om

i sts
. Mor e ca r e ful analysis and completer knowledge of
the facts o f in dus trial life have discredited many of the
argu ments which th e older economists urged against such
measures and exp erien ce of the actual results that follow

from th em has shown how groun dless was the f e ar that

th e y would prove subvers ive of public ord e r and good
governme n t .

The reasons for this change in the attitude of economi sts

may be ill ustrated by taking up in a mor e concrete w ay
one of thes e contingencies which it is proposed to pro
vide against by some plan of un iversal state controll e d ,

insurance The chang e i n opinion in reference for ex


ample to industri al accidents i s instructiv e Th e older

, .

economists thought that competition would cause wages to

be sufficiently higher in dange rous trades to compensate
workmen for the risks they run Wage statistics prov e

day are un doub tedly more sociali sti c than were the eco no m
ists of thirty or even ten years ago Most economists how

ever would draw a sharp di stinction betwe en the wi d


en e d eld of activity on whi ch th ey des ire to see the state

enter and socialism To eager soci ali sts eve ry ste p i n th e

di r ection of a broader social poli cy appe ars to be a step

toward th e ir cherished goal But it i s a long ro ad that

has no turning The road whi ch progressive countri e s a re


n ow traversing is undoubtedly away from th e narrow in di

v id ualis m of the p ast ' but th e nov e l social p oli c ie s wh i ch

are being trie d in thi s co untry and i n th at m ay p rov e no t

advances to ward socialism but rather bulw arks a ga inst

the revoluti onary changes in our fun damental institutions

of private property and freedom of contract wh ich social
i sts advocate It was w ith this deli be rate purpo se in view

that G ermany took the lead in this eld of soci al legi sla
tion in th e early eighties An d it i s wi th th i s e x pectation

that most economis ts have li ned themselves on the sid e of

such legi slation But i t is a rash p rophet who wo uld at

temp t to say j ust how far the ex tensi on of governmental

funct ions may go without narrowing inste ad of wi deni ng
, ,

the eld of e ff ective i ndividual liberty O ne great chan ge .

that has certainly occurred is that the cry of soc i ali sm has
ceased to weigh with inte lligent people as an argument
against any proposed policy The question which interests

present day economists is not whether a given measur e is


socialistic or individualistic but rather whether co n sid

, ,

ering all its e ffects di rect and indirect it is soc ially e x pedi

ent In this spirit they welcome experiments along


socialistic line s ' but with a caution born of knowledge of

past failures they prefer that the more radical of these
e x periments be tr ied by other coun tries rst This change .

i s only part of the larger change that has occurred in all

elds of thought In desir ing to see the contentions of

soc i ali sts submi tt e d to expe ri men t al proof rath e r than ,

2 41
silenced by ci p riori objections economists merely e xhibit

their kinship with scientists in other elds Th e y also dis .

trust the absolutis t tempe r and pre fer th e Ope n mind .

In th e se lectures it h a s be com e the cus to m to say so me

thi ng about the motiv e s whi ch domi nate sp eci ali sts in the
d i eren t elds of knowl e dge that are p asse d in review A s


regards economics the principal incentive of thos e who


have most distingui shed themselve s in the science h as ce r

tainly not been mere love of t ruth Economists love truth

I hope as ardently as the natural scientists They also n d

, .

outlet for their play i nstinct in the intellectual e x ercises

afforded by the problems which they ar e endeavoring to
solve Were it not how eve r th at they hope d to contribute
, ,

ever so little to the progress of in dus trial soc iety toward

a more satisfactory adj ustm e nt of it s burdens an d r ewards ,

few would continue to devote themse lves to a sp e cialty

which presents so many baling and discouraging fe atures


While not insensible to the ide als of scienti c accur acy and
delity to truth which ins pire all hon e st scholarshi p ,

economists are there fore frankly utilitarian in th eir mo

, ,

tives and aims .

L ooking back over the development of their science d ur

in g the last on e hundred years eco nomists have many

reasons for satisfaction That the science itself should


have made progress is a matter of course What was not .

so inevitable is its increasing inuence on other elds of

thought and o n practical polici e s H istorians who used
, .

to stigmatize i nsistenc e on the importance of industrial

history as narrow and doctrinaire are now willing to con

cede ev erythin g that reasonable economi sts woul d cla im

for this special branch of investigation A s economists

have grown more modest and more truly scientic prac ,

tical business m en have become less prone to brush aside

their arguments as mere th eo ry and more ready to recog

nize th a t the social asp ects of bus in ess a lso meri t co nsidera
tion Even more gratifying is the increasing part which

economists are being allowed to play in th e draftin g of

legislation and in the administration of laws whose en act
ment they have help e d to secure The appoi ntment of .

economists on tax commissions industrial commissions , ,

trust commissions and labor commissions has b ecome so

common as now to be taken for granted e ven in the United
States where it is a very rec e nt development I n fact the
, .

appreciation in which economi c stu dies are held is growing

so general that ther e seems just now danger that too
much rather than too little importance may be attached to
, ,

th e v iews of academic economi sts When as recently in .


a nei ghboring state a judg e of one of our highest courts


sol emn ly declares that the time is at hand when the co urts
of last app e al will ci te th e writ ings of economi sts rather
than legal prec ed ents in j ustica tion of their decisions the ,

sen se of el ation th at economists cannot but feel i s tempered

by mi sgi vings a s to their preparedness for this serious
responsib ili ty The on e re a ssur in g thought which en

courages them whe n th ey contemplate the exte nt of their

ignorance is th at which P rofessor R obinson threw out as
a life preserv e r to sup p ort his hi sto rica l colleagu es through
th e ood of hi s d e structive cri ti cism L ittle as economists .

know abo ut eco nomi cs th ey at le a st do not know less than


anybo dy els e .

But the chief reason for th e economi st s satisfaction is

after all the change in hi s own attitude in reference to


soci al progr ess The wages fun d theory and the M althu

si an doctrin e of popul ation made economi cs seem a disma l

science to the idealists of the rst half of the nin eteenth
ce ntury The th eory of distribution that is now accepted

an d th e practi c al m e asures whi ch follow from it have

ch ange d economi cs i n to a science full of hopefulness for
th e future ' isagreeing still on some fundamental prob

lems and o n m an y of the practical applicat ions of eco

no mics the economists o f today are nevertheless gradually

comi n g to agreement Moreover out of the clash of their


co ni cting O pinions a de nite program of economic re

form is emerging which promi ses to make th e m as e ective

in promoting a broad and liberal poli cy of soc ial better

ment in the future as they have been in some peri ods of
the past in sincerely but mi stakenly opposing every de
, ,

parture from a strict laisscz faire po licy E conomi cs still


lacks the charm for the scientic mind that comes from
precision of statement and e x actness of reasoning from
premises to conclusion but no one need now be deterred

from studying it from the fear that it deals with co lorless

abstractions or leads to a j aun di ced view of li fe It is in

tensely human in its interest and the goal of progress


toward which it points is as full of promise of wellbein g

for mankin d upon this earth as have been the dreams of
poe ts or th e asp ir ations of philoso phers in any by gon e age