Ingram, History of the Early Austrian School of Economics

Source: From Ingram's A History of Political Economy. New and Enlarged Edition with a Supplementary Chapter by William A. Scott and an Introduction by Richard T. Ely (London: A. and C. Black, 1915).

CHAPTER VII. THE AUSTRIAN SCHOOL AND RECENT DEVELOPMENTS

In the early seventies in Austria began a noteworthy series of attempts to reconstruct some of the leading doctrines of political economy on a basis in many respects different from that on which the classical economists built. These were accompanied by an equally noteworthy reaction against the historical school.

A pioneer and leader in both these directions was Karl Menger, of Vienna. In 1871 he published Grundsätze der Volkswirthschaftslehre, in which some of the fundamental concepts and doctrines of the science were treated in a new and original manner, and in 1883 he published Unter-suchungen über die Methode der Socialwissenschaften und der Politischen Oekonomie inbesondere, in which the nature of the science and the methods appropriate to its various parts were discussed with a considerable degree of elaboration and detail. The criticism passed upon the German historical school in this book brought a reply from Professor Schmoller of the University of Berlin in a review published in the Jahrbuch für Gesetzgebung, Verwaltung und Volks-wirthschaft im deutschcn Reich, under the title Zur Methodologie der Stoats- und Sozialwissenschaften. To this Menger replied in the form of a series of letters published in Vienna in 1884 under the title Die Irrthumer des Historismus in der deutschen Nationalökonomie. Again in 1889 the same ideas were expressed in an article entitled Grundziige einer Klassifikation der Wirthschaftswssenschaften, published in the Jahrbuch fur Nationalökonomie und Statistik.

According to Menger, instead of one several sciences are1 concerned with the study of economic activities and these he classifies as historical, theoretical, and practical. Under the first head he places economic history and statistics; under the second, economic theory; and under the third economic politics, public finance, and private economics.

The field of the historical economic sciences is the stud} of individual phenomena in both their static and dynamic aspects; that of the theoretical, the study of the general aspects of economic phenomena, of their types and typical relations; and that of the practical economic sciences, the study of the regulations suitable to the attainment of specific ends or aims.

The historical method is appropriate to the first group only and more particularly to one member of that group, economic history. In the study of the second group of sciences the abstract method is absolutely necessary since here we are dealing not with individual but with general phenomena, which in the very nature of the case can only be discovered by the process of abstraction. Induction, or what Menger prefers to call the empirical form of abstraction, may be here employed, but its results are less reliable than those produced by what he calls the exact method, that is the analysis of phenomena into their simplest elements and the separate study of each element both in isolation from and in combination with other elements.

The several groups of economic sciences are interrelated and all are related to practice. The historical sciences supply aids and helps to the other two, and are, therefore, properly termed Hilfswissenschaften. However, they do not supply all the materials which these other groups must use. General observation and the common experiences of life must supplement them. The practical economic sciences use materials supplied by both the others, and the theoretical sciences also furnish guides for the economic historian and the statistician. The private and public practitioner will derive aid from all, but most, perhaps, from those belonging to the practical group, though these will not solve his problems for him. It is not their purpose to supply precepts for action, but to show how certain ends can be attained under different supposed or possible circumstances. The means for the attainment of a given end will vary with the different circumstances supposed, and these may never correspond exactly with actuality.

The controversy with Schmoller revealed certain fundamentals which were common to the two men and which have been widely, if not universally, accepted by economists. These are: that historical and statistical investigation as well as abstract methods of study, in the forms both of induction and of the isolated study of the simplest elements of economic life, not only have their place in the science of political economy but are essential to its development. In contrast with these points of agreement the differences between the two men appear relatively unimportant.

Schmoller emphasises the importance of historical and statistical studies as means for the supply of materials for theorists to work upon, and thinks that existing materials, or at any rate the materials that existed in the time of the older classical economists, have yielded all the results of which they are capable. Menger admits the value of history and statistics, but denies that they are the only sources of materials and insists that the data available to the classical economists were only imperfectly or partially worked and are capable of yielding valuable results to those who subject them to the right kind of analysis and study. Schmoller probably attaches less importance to theory per se than does Menger, and does not seem to agree with him regarding the character of what the latter calls the practical economic sciences and their relation to practice, but these are mainly differences of emphasis due to radical temperamental differences between the two men. The value of economic theories which cannot be directly applied in the solution of practical problems is difficult to estimate, and one's attitude towards them is certain to depend in no small degree upon temperament. There is unquestionably danger of their underestimation on account partly of the youth of the science and partly of differences between the character of the data from which they are derived and that of analogous theories in the physical sciences, the importance of which time has demonstrated.

Some of the apparent differences between the two men vanish or are reduced to small compass when the substance of their thoughts, rather than the forms in which they are expressed, is analysed. This is notably the case in their use of the term the historical method. As Schmoller uses it this method obviously involves the use of abstraction, analysis, and induction, and its results include much that Menger would classify as economic theory, while Menger assigns to the term a much narrower meaning, one which involves little more than mere description and the analysis which it implies.

As Schmoller rightly says in the final summary of his estimate of Monger's contribution to methodology, the value of his methods must be judged by their results. The chief of these are embodied in his Grundsdtze, which belongs in the group of the theoretical economic sciences as he has defined it. In this book Menger has used what he calls the exact method, namely, that of isolating the simplest elements of economic Hie and subjecting them to exhaustive study.

The elements with which he starts are human wants, goods, and the law of cause and effect. Goods are causes of the satisfaction of wants and are themselves related to each other as causes and effects, those which he classifies as belonging to the first rank being effects of which those of the second rank are causes; these in turn being effects of which those of the third rank are causes, &c. &c. Goods belonging to any given rank above the first he further classifies into groups called complementary, since their combined or co-operative action is required for the production of the goods in the rank below them.

In the transformation of goods of one rank into those of another time is a necessary element, the amount varying greatly in different cases. In the production of a forest, for example, a hundred years or more may be required, while in that of some of the simplest forms of food, only a minute. An element of uncertainty is also present in most cases, likewise variable in amount. It is due to the fact that certain parts of the productive process are outside the range of human knowledge or beyond human control. The progress of science, however, is gradually reducing the magnitude of this element by extending the range of our knowledge and increasing our power of control.

The happiness and welfare of men result from the satisfaction of wants, and this satisfaction is conditioned upon the acquisition of goods, which in turn is conditioned on the knowledge and manipulation of these causal relations between goods and wants on the one hand and between goods of various ranks on the other hand. To these ends care, thought, and effort are requisite because goods in the forms suitable for the satisfaction of wants are not gratuitously supplied by nature in adequate quantities. The economic activities which result are social as well as individual in character because co-operation between men is essential to the attainment of anything beyond the most meagre satisfactions. Each man's goods thus become but a part of the means by which he satisfies his own wants and serve equally as a part of the means by which other men's wants are satisfied. The economy of a nation, therefore, is a complex in which each man's possessions and powers stand in causal relations with other men's.

The fact that nature does not gratuitously supply in adequate quantities goods suitable for the immediate satisfaction of wants, accounts also for the phenomena of value, since in every case of this sort a certain amount of satisfaction is dependent upon each unit of the supply, the withdrawal of a unit resulting in a lessening of the satisfaction by a definite amount and the addition of a unit in the increase of the satisfaction by a definite amount. The amount of satisfaction thus dependent upon a unit of the supply of a commodity measures its economic importance or value. This amount depends upon the importance of the want which the good in question satisfies and upon the magnitude of the supply, varying directly with the former and inversely with the latter. Thus in the case of goods of any class a single unit will have a higher value if the supply is a hundred units than it will if the supply is a thousand units, because the amount of satisfaction dependent upon it in the first case is greater than in the second. If we call the amount of satisfaction dependent upon a single unit of the supply its marginal utility, we may say that the value of a good is determined by its marginal utility which varies inversely with the supply. Since the various categories of wants which we at any time experience possess different degrees of importance in relation to our wellbeing and happiness, those high up in the scale have greater value-creating power than those lower down.

In their relation to the satisfaction of wants upon which their value depends, there is an important difference between goods of the first and of higher ranks, the former producing these satisfactions directly and the latter indirectly through their causal relation to the goods of the rank below them. Bread, for example, directly satisfies hunger, while flour satisfies it only indirectly through its causal relation to bread, wheat through its causal relation to flour, and land and labour through their causal relations to wheat. In the chain of causation upon which value depends, therefore, goods of the first rank stand in direct relation to wants and serve as a medium through which value is conducted to goods of the higher ranks. This principle reveals a relation between costs and value the opposite of that traced by the classical economists, the value of cost goods being derived from that of the products into which they enter instead of being the cause of the latter.

Cost goods usually act co-operatively instead of independently in the production of goods of the next lower rank, and the unit of valuation in such cases, therefore, seems to be a group instead of a single good. However, since each cost good enters into a great variety of combinations with others in the production of many different kinds and qualities of other goods, the results of its co-operation become apparent, and the basis of its independent valuation is established. In every case the law is that the value of the cost good is measured by the value of the product for the existence of which experience proves it to be indispen-sible. For example, if X, Y, and Z represent respectively the final units of cost goods, A, B, and C, experience will indicate such a disposition of them in the work of production that the transfer of any one from one combination to another will result in loss and each one will be the indispen-sible condition of the addition of a certain amount to the supply of the consumer's good into the production of which it enters. The value of this amount will determine the value of the unit in question. Since land, capital and labour and all the varieties of each are simply cost goods, this law is the key to the problem of the distribution of wealth.

The motive to exchange like that to production is the satisfaction or the better satisfaction of wants. A exchanges commodities with B provided the goods received render greater satisfaction than those parted with. An essential condition for an exchange, therefore, is the assignment of different valuations to goods by the persons between whom exchanges are possible, and these differences in a given case also mark the limits of the possible ratios at which the exchanges may take place. For example, if A places a valuation of 20 upon commodity X and of 5 upon commodity Y, and B places a valuation of 3 upon X and of 15 upon Y, in an exchange between these persons the maximum and minimum limits of the possible exchange price of X would be 20 and 3 respectively, and that of Y 15 and 5. If there were several buyers and sellers of these two commodities with valuations ranging between these points, the difference between the maximum and minimum price at which the exchange might take place would be narrowed by competition, and possibly to a very small amount. By this analysis the law of demand and supply is given a meaning and an interpretation which add greatly to its precision and usefulness.

In 1888 Menger published in the Jahrbücher für National-ökonomie und Statistik a thoroughgoing analysis and criticism of the capital concept in political economy under the title Zur Theorie des Kapitals, but he did not extend his analysis of the problem of interest much, if at all, beyond the point at which he left it in his Grundsdtze. In both places he insisted that the valuation of cost goods, according to the principle above explained, is the basis upon which the explanation of interest must be built, the only problem remaining being that of determining why the value of such goods never reach the total of the value of the goods into the production of which they enter as that principle seems to require. His own explanation of this phenomenon is that, on account of the time element involved in the process of production, the disposition over cost goods for a period of time is essential, and that on account of its scarcity this disposition becomes itself an object of valuation and must be counted with the cost goods themselves as one of the essentials of the production process.

More than a decade passed after the publication of Monger's Grundsdtze before public evidence of any considerable support of the theories therein expounded appeared. The dominance of the historical school in Germany was probably partly responsible for this tardy recognition. At any rate it was not until after the publication of Menger's criticism of the historical school in 1883 that books and monographs expounding, expanding and developing these theories appeared. Among them the most important were: Friedrich von Wieser's Über den Ursprung und die Haupt-gesetze des Wirtschaftlichen Werthes and Der Naturliche Werth, 1883; Eugen von Bohm-Bawerk's Geschichte und Kritik der Kapitalzins Theorien, 1884; Grundziige der Theorie des Wirthschaftlichen Güterwerths, Jahrbücher für Nationalökonomie und Statistik, 1886, and Positive Theorie des Kapitales, 1888; and Emil Sax' Grundlegung der theoretischen Staatswirthschaft, 1887. In these works substantial additions were made to the body of doctrine contained in the Grundsätze.

Von Wieser's chief contributions concerned the valuation of cost and complementary goods and the application of these doctrines to the explanation of the distribution of wealth. Starting with the doctrine expounded by Menger that production goods derive their value from their products, he elaborated its corollary, namely, that of several products resulting from the same production good or goods, it is the marginal or least valuable one which transmits its value to the said goods, and he proceeds to point out the precise relation which this doctrine bears to the doctrine of costs of the older economists. In this connection he develops the proposition that the value thus conferred upon productive or cost goods is transmitted by them to their supramarginal products.1 The value of these products, therefore, in a sense, may be said to be determined by their costs, as the older economists claimed. The weakness of the treatment of this subject by these economists consisted in their apparent failure to recognize the necessity for an adequate explanation of the value of the cost goods themselves and in their failure to supply such an explanation.

Von Wieser's argument is identical with that employed by Menger in the demonstration of the proposition that the value of consumption goods, or goods of the first rank, is determined by their marginal utility. The essence of that argument is the dependence of certain kinds and amounts of satisfaction upon the possession of certain goods. Once this dependence is established the reason for the valuation of those goods and the amount of value they possess are determined. In the case of cost or production goods this dependence can be established only through their marginal products, since it is only such products that depend for their existence upon the possession of specified amounts of the cost goods, economical action requiring that the loss resulting from the withdrawals of a portion of the supply of such goods be shifted to the least important point and that is always the least valuable of the products of such goods. The value of cost goods once being fixed, however, it becomes a determining factor in the supply of their supramarginal products, since such supplies will be increased until the marginal utilities of these goods are reduced to the point fixed by the value of said cost goods.

This argument may be illustrated in the following manner: Suppose that the production of consumers goods X, Y, and Z, single units of which are valued respectively at 20, 18, and 16, constitute the possible uses of cost good A of which 6 units, and only 6, are available. Suppose, further, that i unit of A will produce a unit of X, Y, or Z, and that every unit added to the supply of X, Y, or Z will reduce its value 2 points. That is to say, if 2 units of X are put upon the market instead of I, its value per unit will be 18 instead of 20, and if 3 units are marketed, its value will be 16 instead of 18, and so on.

We have first to consider the most economical uses to which the 6 available units of A may be put. Obviously all of them may be used for the production of 6 units of either X, Y, or Z, or some of them may be used for the production of one of these commodities and the remaining ones for the others.- Of these possible alternative uses that will be most profitable which will result in the aggregate product having the highest value.

If all 6 units are employed in the production of X, the total value of the product will be 60, since each unit of X in that case will be valued at 10. If all are used in the production of Y, the total value will be 48, and if all are used in the production of Z, the total value will be 36. It is clear, therefore, that if only one of these commodities is produced it will be X. By using 3 units of A in the production of 3 units of X, and 2 in the production of 2 units of Y and i in the production of i unit of Z, however, a total product valued at 96 will result, since with a supply of each commodity of the amount indicated the value of the final unit of each will be 16, and there will be, all told, 6 units for sale.

No other disposition could be made of the 6 units of A that would produce a result so valuable as this. If, for example, the I unit devoted to the production of Z should be withdrawn and applied to the production of an additional unit of either X or Y a loss of value would result. If the additional unit produced were of Y, we should then have 3 units of X valued at 16 each, making a total of 48 and 3 units of Y valued at 14 each, making a total of 42. The grand total is 48 plus 42 or 90, 6 less than when i unit of Z was produced. If the additional unit produced were of X instead of Y, the result would be 4 units of X valued at 14 each, or 56 and 2 units of Y valued at 16 each or 32, making a grand total of only 88.

The most economical use of cost good A then will require the production of i unit of Z, the least important of the three consumers'goods in the production of which it could be used, and, therefore, properly termed the marginal product. X and Y may be called A's supramarginal products.

Under these circumstances, the value of A will be 16, that is the value of its marginal product, since it is this product for the existence of which a single unit of A, added to a previous supply of 5 units, is indispensable. It is this valuation, however, that determines the number of units of X and Y that can profitably be produced, and hence their marginal utility and value. In this sense, therefore, the value of X and Y may be said to be determined by their costs, that is by the value of cost good A. It must not be forgotten, however, that the value which cost good A conferred upon its supramarginal products X and Y was itself derived from the value of its marginal product Z.

In the explanation of the valuation of complementary goods, Von Wieser differs with Menger. In the determination of such valuation the latter followed the method of measuring the loss that would result in each case from the withdrawal from the combination of each of the complementary goods or of a portion of each in turn, and assigned to each a value equal to such loss. In the following manner, Von Weiser describes and criticises Menger's method (Der Natiirliche Werth, Smart's translation, p. 83):

“Suppose three productive elements, employed in the most rational plan of production possible, promise in combination a product whose value amounts to 10 units of value. If the three elements were to be employed otherwise, in combination with other groups, they would certainly raise the return of these groups, but it is against our hypothesis—which is that of the most rational plan of production—that the return can be raised by 10 units; otherwise the first combination chosen would not after all have been the best. There is always an infinite number of ways in which the elements in question can be grouped, but there is always one plan, and that the best, which should be carried out: if this be given up in favour of another, the result must be smaller, even if only to a trifling extent.

“Suppose, again, that the three elements are employed in some plan other than the best—which, be it remembered, demanded their being combined with one another in a distinct group. Say that, by being each separately employed in some other group, the return of each of these three groups is raised by 3 units, and the three elements accordingly now produce a return amounting to 9 units of value.

“How in this case will the value of each single item be reckoned according to Menger's principle? By the decrease in return which ensues in the case of loss. In this case (the decrease amounts to 10 units—the full return of the best combination now broken up—of which, however, 6 can be recovered by the new employment of the two remaining elements. The loss, therefore, amounts finally to 4, and this is true indifferently of any of the three goods. Twelve, then, is the value of the three taken together. But this is impossible, since, when most profitably employed, they can give only a return of 10.”

According to Von Wieser, Menger erred in his method of procedure, and he suggests another, namely, that of determining the exact contribution of each complementary good through a series of algebraic equations, each of which would exactly represent the character and results of each combination into which it enters. For example, suppose a, b, c enter as complementary goods in the following proportions into the production of three commodities, X, Y, and Z, valued respectively at 145, 160, and 260; into X, 2a, 3b, and 40; into Y, 33, 6b, and 2c; and into Z, 73, 2b, and 8c. Then the following algebraic equations may be formed: 2a + 3b + 4c = 145; 3a + 6b + 2c = 160; and /a + 2b + 8c = 260. The solution of these equations yields the following results: a = 10; b = 15, and c = 20. Since complementary goods actually enter into a great number of different combinations in the processes of production all the time in progress, ordinary accounting methods enable business men to form the necessary number of equations and thus readily to impute to each productive good its contribution to the product, not, of course, its physical contribution, since that is inseparable from the physical contributions of the other co-operating factors, but is contribution in value.

In Der Natürliche Werth, Von Wieser develops the laws in accordance with which value is imputed to factors of production under different conditions of supply, demand and quality. In the first place he shows that, in the case of production goods which are available in stocks rather than individually, imputation follows the marginal law, that is, “to each single item or quantity is imputed the smallest contribution which, under the circumstances, can be economically aimed at by the employment of this particular item or quantity.” Consequently an increase in the supply of a cost good will decrease the amount of value imputed to it, since it will lower its marginal product, and a decrease in its supply will have the opposite effect. Changes in the demand for such a good, through an increase or decrease in the number and kinds of productive combinations in which it is required, will in like manner change the value imputed to it. Goods of the same kind, but differing in quality, will have different values attributed to them according to their degrees of superiority, since a superior quality of good will bring an increased product to the combination of productive goods into which it enters, and such increase can only be imputed to its superiority.

Applied to land, capital and labour, these laws, Menger claims, explain rent, gross profits, and wages. According to them a share in the product must be imputed to land of any particular quality as soon as it becomes relatively scarce and to all lands as soon as they become relatively scarce. The amounts imputed to lands of different qualities will vary according to their degrees of superiority in substantial accord with the differential law expounded by Ricardo, but marginal lands will also yield rent as soon as they become relatively scarce. According to his view, therefore, the Ricardian doctrine that rent is due to monopoly is true only in the sense that wages and profits are also due to monopoly, i.e. in the sense that a share in the joint product is imputed to any of the co-operating factors of production only when its supply is limited relatively to the demand for it. In the same manner the shares of labour and capital in the joint product of the three factors of production is determined by the laws of imputation as well as the differences in the wages of different classes of labourers. Through its influence on supply monopoly affects the imputation of value and thus the distribution of wealth.

The explanation of interest presents an additional problem. The laws of the imputation of value would seem to explain why a share in the product is imputed to capital, but not why the amount impated is always in excess of the value of the capital goods themselves. This problem does not arise in the case of land and labour because they are original and not produced factors. Von Wieser's treatment of this problem can hardly be regarded as satisfactory. It amounts to little more than an appeal to experience. “There is no doubt,” he says (bk. iii, pt. iii, ch. xvii) “that the total return of all three productive factors, land, capital, and labour, taken together, is large enough to replace the capital consumed, and give a net return. This is a notorious economic fact, and as little in need of proof as the fact that there are such things as goods, or such a thing as production. Of course, now and then, a productive undertaking may be unsuccessful, and fail to cover its outlay; indeed, many undertakings furnish no usable product whatever. But these are exceptions. The rule is that net returns are obtained; indeed, net returns of such enormous magnitude that not only can the millions of human beings be supported, but capital can go on accumulating out of the surpluses.

“There remains, therefore, but one thing to ask—whether a share in this undoubted net return can be imputed to the factor capital. But the question cannot be put seriously. Why to capital alone should no such share be imputed? Once understood and granted that capital is one of the economic factors of production, to which, with the others, the productive return is ascribed, it is also understood and granted that to it belongs by right a share in the net return in which the productive return first embodies itself. Are we to suppose that capital is always in a position to produce only somewhat less than [enough to] replace itself? This would obviously be an arbitrary supposition. Are we, then, to suppose it capable only of replacing its own loss, however various the success of production may be? This supposition would clearly be no less arbitrary. Whoever denies net return to capital can only do so by denying it any return.”

A masterly treatment of this topic together with all others connected with the subject of interest is the special contribution of Bohm-Bawerk. In his Geschichte und Kritik der Kapitalzins-Theorien, he explains the problem of interest, classifies previous attempts at its solution and subjects them to thoroughgoing and exhaustive criticism. With the ground thus cleared he develops his own solution in the Positive Theorie des Kapitals. (These books were published as vols. i and 2 of a work entitled Kapital und Kapitalzins. Both were translated into English by Wm. Smart, of Glasgow, and published by Macmillan and Co., the former in 1890 under the title Capital and Interest, and the latter in 1891 under the title The Positive Theory of Capital.)

The most important explanations of interest examined in his historical and critical survey are classified as productivity, use, abstinence, labour and exploitation theories. As a class he finds the productivity theories deficient in explanatory power. The authors of some of them failed to grasp the real problem of interest and none of them satisfactorily explained it. Some of them were content with attempts to demonstrate the physical productivity of capital; others attempted to prove as well that capital produces value; but none of them explained why the value of the product attributed or imputed to capital uniformly exceeds the value of the capital itself.

The common feature of the use theories is the explanation of interest as the payment for the uses or services of capital. Some of them distinguish between these services or uses and the consumption of the capital itself, but others do not. Only the former offer an explanation of the real phenomena of interest, but these are defective according to Bohm-Bawerk, in that they fail to demonstrate the existence of the uses they allege. His conclusion is that “all material goods are of use to mankind through the action of the material powers that reside in them,” and that, therefore, “the function of goods can consist in nothing else than in the giving off, or rendering up, or putting forth of power.” Therefore “it is by the passing of available energy into work that the ‘use’ of goods is obtained by man.” The valuation of the uses of capital goods, therefore, is simply the valuation of the goods themselves, and its explanation does not account for the surplus value which constitutes interest.

The abstinence theory of interest, according to Bohm-Bawerk, is based upon that form of the cost of production theory of value which explains costs in terms of sacrifice, the labour sacrifice involved in the production of the capital goods themselves explaining their value and the sacrifice of abstinence involved in their accumulation explaining interest. In his opinion the substitution of the marginal utility for the cost of production theory of value in itself involves the overthrow of this theory of interest, but he also adopts another line of criticism, namely, that of attempting to prove that the advocates of this theory are guilty of double counting when they count in the total amount of sacrifice involved in the accumulation of a fund of capital the sacrifices of labour plus the sacrifices of abstinence involved. His contention is that these must be regarded as alternative, not cumulative, forms of sacrifice; that is, that we may estimate the sacrifices involved in the accumulation of a fund of capital either in the form of the labour required in the production of the capital goods themselves, or in the form of the satisfactions sacrificed through the use of the labour in this manner rather than in the production of goods or the rendering of services that would have brought immediate satisfaction, but not in both combined.

“By way of illustration,” he says, “take the case of a man living in the country who is considering in what kind of labour he should employ his day. There are, perhaps, a hundred different courses open to him. To name only some of the simplest—he could fish, or shoot, or gather fruit. All three kinds of employment agree in this, that their result follows immediately—even by the evening of the same work-day. Suppose that our country friend decides on fishing, and brings home at night three fish. What sacrifice has it cost him to obtain them?

“If we leave out of account the trifling wear and tear of the fishing-gear, it has cost him evidently one day's work, and nothing else. It is possible, however, that he looks at this sacrifice from another point of view. It is possible that he measures it by the gratification he might have got if he had spent his work-day otherwise, which gratification he must now do without. He may calculate thus: If I had spent to-day in shooting instead of fishing I might have shot three hares, and I must now do without the gratification obtainable from these.”

He then makes use of the following imaginary case: “I work for a whole day at the planting of fruit-trees in the expectation that they will bear fruit for me in ten years. In the night following comes a storm and entirely destroys the whole plantation. How great is the sacrifice which I have made, as it happens, in vain? I think every one will say, a lost day of work, and nothing more. And now I put the question, Is my sacrifice in any way greater that the storm does not come, and that the trees, without any further exertion on my part, bear fruit in ten years? If I do a day's work and have to wait ten years to get a return from it, do I sacrifice more than if I do a day's work, and, by reason of the destructive storm, must wait to all eternity for its return? It is impossible to make such an assertion.”

The various labour theories agree in explaining interest as the wages of labour performed by the capitalist. They differ greatly in the manner in which the capitalist's claim to such wages are based, and they cannot, therefore, be met by a single line of criticism. Bohm submits each to analysis and criticism and finds that in some cases justification of interest has been confused with explanation, and that in no case has the explanation presented been adequate. He concludes with the following words: “Thus the labour theory of interest in all its varieties is seen to be incapable of giving a theoretical explanation that will stand examination. No unbiased person, indeed, could expect any other result. No one but a person who takes particular delight in far-fetched explanations could for a moment doubt that the economic power of capital has some other ground behind it than a ‘capacity for labour’ on the part of the capitalist. It is impossible to doubt that interest, not in name only but in reality, is something different from a wage of labour.”

His criticism of the exploitation theories cannot be adequately summarised in a paragraph. It covers exhaustively the different lines of argument followed by Rodbertus and Marx. At two points it applies equally to both men and may be presented here. The first is the claim that, economically considered, goods must be regarded as the products of labour and labour alone. He meets this in the following statement: “Now this is simply false. Even purely natural goods have a place in economic consideration, provided only they are scarce as compared with the need for them. If a lump of solid gold in the shape of a meteoric stone falls on a man's field, is it not to be economically considered? Or if a silver-mine is discovered by chance on his estate, is the silver not to be economically considered? Will the owner of the field really pay no attention to the gold and silver given him by nature, or give them away, or waste them, simply because they were bestowed on him by nature without exertion on his part? Will he not preserve them just as carefully as he would gold and silver that he had earned by the labour of his hands; place them in security from the greed of others; cautiously convert them into money in the market—in short, treat them economically? And, again, is it true that economy has regard to those goods which have cost labour only in so far as labour has completed the work of nature? If that were the case, men acting economically would have to put a cask of the most exquisite Rhine wine on the same level with a cask of well-made but naturally inferior country wine, for human labour has done pretty much the same for both. That, notwithstanding this, the Rhine wine is often valued economically at ten times the amount of the other, is a striking confutation of Rodbertus's theorem at the hands of everyday experience.”

The second point which he vigorously attacks is the deduction Rodbertus and Marx made from this proposition, namely, that labour ought to receive the full value of its product. He describes this deduction in the following passage: “The perfectly just proposition that the labourer should receive the entire value of his product may be understood to mean, either that the labourer should now receive the entire present value of his product, or should receive the entire future value of his product in the future. But Rodbertus and the socialists expound it as if it meant that the labourer should now receive the entire future value of his product, and they speak as if this were quite self-evident, and indeed the only possible explanation of the proposition.”

Böhm-Bawerk's contention is that present goods have a higher value than future goods of the same kind and quality, and that in this fact, entirely overlooked by Rod-bertus, Marx and the other socialists, is to be found the explanation of interest. To the demonstration of these propositions his second volume, Positive Theorie des Kapitals, is devoted.

He begins with the definition of capital and the explanation of its functions, since interest is a phenomenon primarily connected with this factor of production. After a critical historical review of the various concepts of capital, preceded by a lucid and illuminating account of the nature of goods and production and of the relations between man and nature, he formulates the following definition:

“Capital in general we shall call a group of Products which serve as means to the Acquisition of Goods. Under this general conception we shall put that of Social Capital as a narrower conception. Social Capital we shall call a group of Products, which serve as means to the socio-economical Acquisition of Goods; or, as this acquisition is only possible through production, we shall call it a group of Products destined to serve towards further production; or, briefly, a group of Intermediate Products. Synonymous with the wider of the two conceptions, the term Acquisitive Capital may be very suitably used, or, less suitably but more in accordance with usage, the term Private Capital. Social Capital, again, the narrower of the two conceptions, may be well and concisely called Productive Capital.”

The function of capital is to enable labour to employ in production those powers of nature which can only be made available through the sacrifice of considerable amounts of time. It is, therefore, not an original, but an intermediate, factor in production. In order to satisfy his wants man must manipulate the forces of nature, some of which are easily and quickly available, while others can only be made to serve him through the mediation of machines, tools, and other contrivances, the construction and use of which require time. Furthermore, the complete utilisation of nature's powers in any form requires time-consuming processes, the rule being that the longer, and consequently the more time consuming, these processes are, the higher the yield to man's manipulative energies. The goods which in any way serve in this process of mediation between man and nature are capital. They are the result both of production and of saving, the saving, however, being practised not on goods, which can only accomplish their purpose by being consumed, but on the original productive energies, nature and labour, which by this process are devoted to remote instead of immediate ends.

Capital goods are future goods in the sense that they can yield satisfaction to human wants only in the future. They are consumptive goods in the making and ripen out into the completed product, only after the lapse of a period of time. When exchanged for consumers goods, which may be called present goods, since they are capable of yielding immediate satisfaction, they are undervalued or discounted, partly because most people expect, or at least hope, that the provisions for their wants in the future will be more ample than they are at present, or because the future is uncertain and cannot be fully anticipated and appreciated by most people, or because present are technically superior to future goods, since they enable producers to undertake longer and, therefore, more productive processes, or because of a combination of the first two of these causes.

This lower valuation of capital goods accounts for interest in all its forms. When one man loans another a hundred dollars for a year, he is exchanging present for future goods, and the interest he is to receive represents the discount under present market conditions placed on goods to be available a year hence. When a manufacturer buys raw materials, machinery, labour, land, &c., for transformation into goods which can only be available for use in the future, he is exchanging present for future goods, and a similar process of discounting takes place. Interest is thus the result of a process of valuation based upon the nature of man and of economic action in production, a process which would take place even in a socialistic state or in any form of society in which the satisfaction of human wants requires economical action with reference to nature's forces.

The exchange of present for future goods takes place on the markets for land and labour as well as on that for capital, since economically considered these are also future goods. In their valuation, therefore, the same process of undervaluation or discount takes place as in the case of capital.

The application of the laws of valuation or, as Von Wieser calls them, the laws of natural value, to collective economies, including that of the state is the task undertaken by Emil Sax in his Grundlegung der theoretischcn Staatswirthzchaft. Since all economical action takes place in accordance with these laws the state as well as private individuals should be subject to them. For example, in the distribution of the total income of society between the state and private economies the principle, fundamental in all valuation processes, that goods should be devoted to those employments in which they are most important, that is, in which they yield the maximum returns in satisfaction of wants, should be followed. That is to say, goods should not be taken for the use of the state which would yield larger returns if left in the possession of individuals. This Sax calls the “principle of proportionate provision for the wants of the individual and the wants of the government.”

He also finds all the principal requirements of the theory of taxation in the doctrines of wants, goods, economy, and value developed by Menger and Von Wieser. The individual citizen estimates the value of the services of the state as he does goods, and the taxes he pays should not in his estimate exceed the value of these services. On account of the unequal distribution of riches and the differences between the wants of individual citizens, estimates of the value of these services as measured by units of income will differ widely, and hence the. amounts paid in taxes by each should differ accordingly. In determining what these amounts should be the state should, therefore, be guided by the circumstances of wealth, income and want of each person.

The Austrian school gave a new impetus to theoretical studies and raised them to a higher plane. Instead of mere criticism and attempts to modify the old classical doctrines, in recent years there has been a considerable amount of real constructive work. The criticisms to which the new doctrines have been subjected have stimulated thought and investigation, and noteworthy attempts have been made to combine elements derived from both the old doctrines and the new into essentially new theoretical systems.

The continued influence of the historical school is evident in the large output each year of historical, statistical and descriptive works and in the large proportion of time and energy devoted by economists to studies of this kind. The research work of students of economics in colleges and universities is chiefly devoted to these fields, as is also that of organizations for the promotion of research along economic lines. The economist who devotes most of his time to such studies, however, constantly uses theory and is conscious of its importance. His attitude toward theoretical studies is at least tolerant, sometimes encouraging. He is less apt to be an extremist than were the earlier adherents of the historical school.

Most economists of the present day cannot be classified as adherents of any school. They recognize the importance of both historical and theoretical studies and their place in the development of the science, and many of them divide their energies between the two. They also recognize the importance of both induction and deduction and of the abstract and empirical methods. They are open-minded to new doctrines, but at the same time critical. They are synthetic as well as analytical.

Economic studies of all kinds have received stimulus from the rapid development of our economic life and from the difficult problems which that development has presented for solution. The increase in the size of business units, the development of combinations, trusts and monopolies, the growth of international competition, the increase in the production of gold and the fall in its value and the consequent rise in prices, the rise in the cost of living, the growth of organizations of labourers and employers and the increasing hostility between the two have made new demands upon the science of economics and have increased the amount of attention devoted to it. The urgency of the problems continually before us for solution has not only stimulated economists to increased activity and brought new recruits to their ranks, but has made them open-minded to suggestions from all quarters and tolerant of all methods of procedure which promise relief.

To summarise the results of the literary activity which these different stimuli have produced is a huge task beyond the scope of this work. We shall attempt simply to sketch in outline some of the features of the development in the chief countries of the world.1

Germany

The influence of the historical school is still dominant in Germany, and her output of monographs of a statistical, historical and descriptive character continues to be large. Most of these have appeared in such periodicals as Conrad's Jahrbücher für Nationalökonomie und Statistik, Schmoller's Jahrbüch für Gesetzgebung, Verwaltung und Volkswirthschaft im Deutschen Reich, Schäffle's Zeitschrift für die gesamte Staatswissenschaft, Braun's Archiv für soziale Gesetzgebung und Statistik, Schanz' Finanzarchiv, and Hirth's Annalen des norddeutschen Bundes und des deutschen Zollvereins (later, Annalen des Deutschen Reichs fiir Gesetzgebung, Verwaltung und Volkswirtschaff), and in the publications of Der Verein fiir Sozialpolitik and other organizations and in those of statistical bureaus and university seminars. Notable among the latter are Professor Schmoller's, of Berlin, which include a noteworthy series of volumes published under the title, Stoats- und sozialwissenschaftliche Forschungen. Mention should also be made in this connection of various statistical periodicals and of special organs devoted to the interests of foreign trade, colonial politics, insurance, labour problems, &c.

This literature has laid the foundations for the economic history of Europe and has constructed a part of the superstructure. It has also added greatly to our knowledge of the character and operations of existing institutions. The number of contributors has been large. Prominent among them besides Professor Schmoller are Lujo Brentano, A. Wagner, J. J. Helfferich, G. V. Schönberg, K. Bücher, M. Stiede, T. Geering, G. F. Knapp, M. Weber, G. Schanz, A. Held, M. Sering, G. Cohn, W. Lexis, E. Nasse, O. Arendt, J. B. Busch, and A. Soetbeer. The economic history and institutions of Germany and England have received the largest amount of the attention of these investigators, but other countries, including the United States, have had a portion of it. As illustrative of the scope and character of this literature may be mentioned the following: Schmöller's Zur Geschichte der deutschen Kleingewerbe in 19 Jahrhundert, 1870; Die Strassburger Tucker und Weberzunft, 1879; Die Thatsachen der Arbeitsteilung, 1889; Das Wesen der Arbeits-teilung und der socialen Klassenbildung, 1889; Die geschicht-liche Entwickelung der Unternehmung, 1890–93; Zur Social-und Gewerbepolitik der Gegenwart, 1890; Ueber einige Grundfragen der Socialpolitik und der Volkswirthschaftslehre, 1898; and Umrisse und Untersuchungen zur Verfassungs-Verwaltungs- und Wirthschaftsgeschichte; Schonberg's Finanz-verhaltnisse der Stadt Basel in 14 und 15 Jahrhundert, 1879; Biicher's Lie Aufstänle der unfreien Arbeiter 143–129 v Christ, 1874; Die Bevölkerung von Frankfurt a.m. in 14 and 15 Jahrhundert, 1886; Die Entstehung der Volkswirthschaft; Vortrage und Versuche, 1893; Stieda's Zur Entstehung des deutschen Zunftwesens, 1874; Geering's Handel und Industrie der Stadt Basel, 1886; Knapp's Die Bauernbefreiung undder Ursprung der Landarbeiter in den älteren Theilen Preussens, 1887; Brentano's Die Arbeitergilden der Gegenwart, 1877; Das Arbeitsverhdltnis gemdss dem heutigen Recht, 1877; Die Arbeiterversicherung gemdss der heutigen Wirtschaflsordnung, 1879; Agrarpolitik, 1897; Schanz's Die englische Handelspolitik gegen Ende des Mittelalters, 1881; Held's Zwei Biicher zur socialen Geschichte Englands, 1881; Cohn's Ueber parlamentarische Untersuchungen in England, 1875; Hasbach's Das englische Arbeiterversicherungswesen, 1883; Die englischen Landarbeiter in den letzen 100 Jdhren und die Einhegungen, 1894; and Lexis' Die franzosischen Ausfuhrprdmien, 1870; and Gewerkvereine und Unternehmerverbdnde in Frankreich, 1870.

Pari passu with the collection of historical and statistical data, the writing of history and the analysis and description of present-day institutions has proceeded the making of hand-books and treatises. The most noteworthy of these are Wagner's Lehr- und Handbuch der politischen Oekonomie, Schonberg's Handbuch der Politischen Oekonomie, and Schmoller's Grundriss der Allgemeinen Volkswirtschaftslehre.

The first volume in Wagner's treatise appeared in 1876 in the form of a revision of Rau's Lehrbuch. A second edition appeared in 1879 as an independent work, and a third in 1892. A comprehensive plan, embracing the entire field of political economy with Professor Edwin Nasse of Bonn as collaborator, was announced, the complete execution of which, however, has not yet been realised. The death of Professor Nasse in 1890 resulted in a modification of the plan and the announcement of K. Biicher and H Dietzel as collaborators. Some years later the latter withdrew and Professor Pohle of Frankfurt was selected to take his place. The final plan announced in the third edition of the Grundlegung embraced: Part I, Grundlegung, by Wagner, in two volumes; Part II, Theoretische Volkswirtschaftslehre, by Dietzel; Part III, Practische Volkswirt-schaftlehre in four parts: Verkehrswesen und Verkehrspolitik, by Wagner; Agrarwesen und Agrarpolitik, by Buchenberger; Fortswesen und Forstpolitik, by Biicher und Buchenberger; and Gewerbe- und Handelswesen und- Politik, by Biicher; Part IV, Finanzwissenschaft in four volumes, by Wagner; and Part V, Litteraturgeschichte der Politischen Oekonomie. Still incomplete are the second part to which Professor Dietzel contributed in 1895, the introduction and first book, the first, third, and fourth divisions of the third part, and all the fifth part. As a partial substitute for the second part and the first division of the third may perhaps be regarded the publication in two volumes in 1907–1909 of an expanded outline of Wagner's lectures on these subjects in the University of Berlin under the title, Attgemeine und theoretische Volkswirthschaftslehre oder Sozialökonomik.

In the Grundlegung Wagner expressed the opinion that the classical political economy of England, which he in common with many other German economists characterised as Smithianismus or Okonomische Individualismus und Liberalismus, had been undermined by the attacks of critics, among whom the socialists were the most destructive, and that a re-examination of the fundamentals of the science and its reconstruction from the foundations up were, therefore, necessary. In the performance of this task the necessary preliminary work was undertaken in the Grundlegung, in which he made an exhaustive critical examination of the premises and methods of the classical economists and of the socialists, and investigations of such characteristic features of modern society as legal rights and relations, the organization of national economies, the relation between private and public economies, and freedom and property in their economic and social aspects. On the basis of these criticisms and investigations he constructed what he called a true social economy, giving special attention to three problems, namely: (a) The interrelations and interaction of psychological and purely economic and technical forces, of moral and religious influences and of habit and custom in the formation of human motives and of the motive forces of economic life; (V) the distinction between purely economic and historical-legal points of view, and between absolute, purely economic categories, and those of a variable, historical legal character; and (c) the distinctions and the relations between the problems of production and those of distribution and the dependence of these problems and of the methods of their correct solution upon different social conditions due to differences in legal relations, in the treatment of personal freedom, in the relations between private and public property, in the law of contracts, &c. &c.

Between the classical economists and the socialists, Wagner steers a middle course. In political economy, he says, everything turns on the relation between the individual and the community. The truth in regard to this relation, he believes, leads neither to socialism nor to individualism, but to a compromise between the two. True science and rational practice, he says, will avoid both extremes, but “sie haben doch… anzuerkennen dass das Social-princip das vorherrschende ist und sein muss und soil “(Grundkgung, 3d ed., p. 23). Neither did he agree with the historical school in its attitude towards the classical political economy. He claimed that the mistakes of the latter were due not so much to the methods employed as to the imperfect character of its premises, and that what is needed is not so much a change of methods as a better use of them. He believed in the use of the historical method and sympathised with the work of the historical school, but he did not believe that the search for principles needs to wait for the collection of the materials to which that work was devoted. With the reaction against the historical school led by the Austrians he sympathised to the extent of closely approximating the views of the latter regarding methods, but he never belittled the importance of the work of the historical school nor ceased to co-operate with it.

In 1882 was published the first edition of the Handbuch der Politischen Oekonomie, edited by Professor Schonberg of the University of Tubingen, and produced by him in co-operation with twenty-five other economists. A second edition, considerably enlarged, was published in 1885 and a third in 1890. The purpose of this work was a complete exposition of political economy in all its branches according to the state of development it had attained at that time. On account of the large number of collaborators it was possible to publish it in completed form, in two large volumes at the time of the first edition and subsequently in three, and it has, therefore, had an advantage over Wagner's treatise, which has appeared slowly in parts throughout a generation and is not yet completed. However, it lacks the exhaustiveness and unity of treatment of Wagner's work, and is not to the same extent dominated by a particular view of the nature, scope, foundations and principles of the science. It is a collection of monographs by specialists, selected with a view to covering the entire field, rather than a single treatise.

Its three grand divisions are entitled Volkswirtschaftslehrc, Finanzwissenschaft, and Verwallungslehre. Volkswirth-schaftslehre is subdivided into Part I, General, the thirteen chapters of which are entitled: National Economy, by Schönberg; Political Economy as a Science, by Von Scheel; Socialism and Communism, by Von Scheel; Economic Concepts, by Neumann; Economic Production in General, by Kleinwächter; The Formation of Prices, by Neumann; Weights and Measures, by Jolly; Money and Coinage, by Nasse; Credit and Banks, by Wagner; Transportation and Communication, by Sax; Distribution, by Mithoff; Consumption, by Lexis; and The Doctrine of Population, by Riimelin; Part II, Special, subdivided into fourteen chapters entitled: Agriculture, in three chapters, the first by Von der Goltz, the second by Meitzen, and the third by Conrad; Forestry, by Helferich; Hunting, by Lorey and Jolly; Fisheries, by Buchenberger; Mining, by Schenkel; Industry, in three chapters, the first two by Schonberg, and the last by Kohler; Commerce, by Lexis; Insurance, by Wagner; Personal Services, by Schonberg; and Population Policies, by Geffcken. Finanzwissenschaft is subdivided into eleven chapters as follows: The Nature, Problems and History of Finance, by Geffcken; State Expenses, by Geffcken; Income Derived from Self-Conducted Enterprises, by Von Scheel; Fees, by Schall; Taxes, in five chapters, by Helferich, Wagner, Lehr, Riecke, and Schall respectively; The Organisation of Public Finance and Public Credit, by Wagner; and Local Finance, by Von Reitzenstein. V'erwaltungslehre is subdivided into seven chapters as follows: The Fundamental Concepts, Nature and Problems of the Science of Administration, by Meyer; Statistics, by Riimelin; Organisation of the Administration of the Interior, by Meyer; Security Police, by Seydel; Public Health, by Jolly; Poor Relief, by Loning; Moral Police, by Löning; and Education, by Jolly.

On account of Professor Schmoller's prominence in the historical school, one of the early tenets of which was that general treatises should be deferred until a much broader basis for generalisation be laid by detailed investigations and descriptions of facts, special interest attaches to his Grundriss dcr Allgemeinen Volkswirthschaftslehre, the publication of which began in 1900. In the introduction Professor Schmoller says that he was induced to undertake this work by several circumstances, among which was the desire, after many years of labour in the archives, to grapple with the great general questions of the science. “I feel,” he says, “that I must achieve clearness on these matters in order to attain the best results from detailed investigations in the archives.” His old predilection for philosophical and psychological studies, the broad foundation laid for such an undertaking by the nature of his previous work, and especially the fact that for thirty-six years he had been lecturing on these subjects to students in the University of Berlin also influenced him. This work, probably better than any other, represents what the leading members of the historical school regard as possible in the form of a general treatise in the present state of our knowledge, and to a degree at least indicates what they consider such a treatise ought to be.

It consists of an introduction and four books. The introduction includes a discussion of the nature and definitions of the science, its psychological and moral foundations and its literature and methods. The first book is entitled, Land, People, and Technique; the second, The Social Constitution of National Economy; the third, The Social Process of the Circulation of Goods and the Distribution of Income; and the fourth, The Development of National Economic Life in General.

The second part of the introduction includes nine chapters, which are broadly sociological in character. The topics discussed are: the purposes and means of social life; the psycho-physical means of promoting mutual understanding between men, that is language and writing; the sphere of spiritual consciousness and the collective powers; the individual feelings and needs; the human impulses; the acquisitive impulses and the economic virtues; the nature of morality, the ethical ordinances of social life, custom, justice, and morals; and the general connections between economic and moral life.

The four chapters of the first book treat respectively: the dependence of the economy of a people upon external nature; races and people; the elements and movements of population; and the economic significance of the development of technique. In the second book are discussed: family economy; the settlement and manner of living of the social groups—city and country; the economy of the state and the other political units; the social and economic division of labour; the nature of property and the characteristic features of its distribution; the formation of social classes; and the development of the forms of business enterprise and activity. Book III is subdivided into nine chapters which treat respectively: Exchange, markets, and commerce; economic competition; measures, weights, coins and money; value and price; property, capital and credit, including rent and interest; the organs of credit and their recent development, including banking; labour relations, labour laws, the labour contract and wages; the most important of the newer social institutions embracing those pertaining to the care of the poor, insurance, employment, labour unions and courts of arbitration; and income and its distribution with the sub-heads, profits and rent and income from property and from labour. Book IV treats: the oscillations and crises of national economies; class conflicts, class domination and its suppression by means of the state, law and reform; the economic relations and conflicts between states, including commercial policies; and the economic and general development of mankind and of individual nations, including their rise, progress, and decline.

The characteristic features of Professor Schmoller's treatment of this very extensive range of topics are comprehensiveness, objectiveness, clearness, and fairness. With the exception of the field of special economics, which he did not attempt to cover, he has included in his treatment every topic which may properly be said to have a bearing on the subject of political economy, and he has handled each in such a manner as to indicate precisely what that bearing is. He has not merely called attention to the fact that sociology, law, psychology, &c., are related to political economy, but he has actually included in his exposition the portions of these sciences upon which political economy is based, or which in his judgment are parts of it.

His attitude towards nearly all the topics treated is that of an expositor and historian rather than that of a partisan or sponsor for any particular view or theory. On controverted questions he is fair even in those cases in which he himself has been a party to the controversy. To Mengei and the other Austrians he not only accords recognition, but in many cases he actually adopts their views. His judgments as a rule are conservative and lack finality. They clearly indicate that in his opinion the science is in process of change and that open-mindedness is necessary to him who would attain the truth. The organization and arrangement of the subject-matter are logical, and clearness characterises the treatment throughout.

As an exemplification of the sociological and historical points of view this treatise is a model. Schmoller never loses sight of the fact that man is a social being and that association with.his fellow-men influences his feelings, actions, and judgments. The character, evolution and operation of social institutions are expounded with amplitude and clearness, and their influence is constantly kept in the foreground. The fact that the national economies of the present day are products of a long process of evolution, which is still in progress, is made equally prominent not by frequent mention or historical digressions, but by the manner of treatment of every topic and by the character of the conclusions drawn.

The publication of this treatise left little ground for controversy between the historical school and other groups of economists. Only extremists could find fault with the attitude of Professor Schmoller towards the fundamental problems of the science or with his method of dealing with them. The differences between him and other prominent economists now appear relatively small and the points of agreement much more important.

In the list of hand-books and treatises must also be included Gustav Cohn's System der Nationalokonomie, of which the first volume entitled Grundlegung der Nationalökonomie appeared in 1885, and the second entitled Finanzwissenschaft in 1889. An English translation of the latter was published in the United States in 1895.

The influence of German economists has been greatly increased by the positions they have held in the universities—institutions which attract students from all parts of the world, and in which the men of influence and high position in the Empire itself are trained. Wagner, Schmoller, Cohn, Brentano, and many others are great teachers as well as great investigators and writers.

Brentano's fundamental conception is individualistic. He believes ardently in social reform, but he expects that reform from the activities of the conscientious and intelligent individual, not from the compulsion of the state.

As the state in the past has often been misused by interested persons who took advantage of their power for furthering their private ends while professing to further the interests of the Commonwealth, Brentano distrusts direct state legislation. That was his deepest reason for preferring the quasi-private activities of the trade unions for the solution of insurance problems to the organization of state insurance. That is the reason, too, why he is a free trader. He acknowledges, of course, the great changes which could be brought about by a systematic tariff policy, but he realises clearly that the call for protectionism is due to sectional rather than to national aspirations, and he is afraid of the creation of privileged classes by means of tariffs.

Brentano's greatest achievement is not his books and his articles, but his lectures. He has been the foremost lecturer in Germany for many years, teaching enormous numbers of students from all parts of the world. Many of them are his intimate pupils, closely collaborating with him and spreading his ideas all over the world.

The following is a list of his chief publications: Die Arbeitergilden der Gegenwart, 1871–72; Uber die Verhält-nisse von Arbeitslohn und Arbeitszeit zur Arbeitsleistung, 2d ed., 1893; Die Arbeiterversicherung gemäss der hcutigen Wirtshaftsordnung, 1879; Der Arbeiterversicherungszwang, 1881; Die Gewerbliche Arbeiterfrage, 1882; Die Christlich-soziale Bewegung in England, 1883; Die Klassische National-okonomie, 1888; Öber die Ursachen der heutigen sozialen Not, 1889; Die Stellung der Gebildeten zur sozialen Frage, 1890; Arbeitseinstellungen und Fortbildung des Arbcits-vertrags, 1890; Agrarpolitik, 1897; Die Grundlage der deutschen Wehrkraft, 1897; GesammeUe Aufsdtze, Bd. I, 1899; Der Schutz der Arbeitswilligen, 1899 and 1912; Reaktion oder Reform? 1899; Der Freihandelsargument, 1900; Die Schrecken des uberwiegenden Industriestaats, 1901; Ethik und Volkswirthschaft in der Geschichtc, 1901; Die wirthschaftlichen Lehren des Christlichen Altertums, 1902; Die Getreidezölle als Mittel gegen die Not der Landwirte, 1903; Wohnungs-Zustdnde und Wohnungs-Reform in Mönchen, 1904; Die Entwickelung der Wertkhre, 1908; Versuch einer Theorie der Bedürfnisse, 1908; Die Malthussche Lehre und die Bevölkerungsbewegungen der letzen Dezenien, 1909; Die deutschen Getreidezölle, 1911; Öber Syndikalismus und Lohnminimum, 1913.

Great Britain

The development of political economy in Great Britain during the last quarter of a century has been influenced by both the historical and the Austrial schools, but it has not been dominated by either. A few writers, among whom may be mentioned Mr. Wicksteed and Mr. Smart, may be classified as belonging to the latter, and a few, like Mr. Ashley and Mr. Cunningham, to the former, but the majority cannot be classified, and the influence of the classical economists has continued to be great.

Mr. Smart, of the University of Glasgow, made the writings of Bohm-Bawerk more accessible to the English-speaking world through his translations in 1890 and 1891 respectively of the former's Geschichte und Kritik der Kapital-zins Theorien and his Positive Theorie des Kapitals. In 1891 he also published an exposition of the Austrian theory of value in the form of a little book entitled An Introduction to the Theory of Value. In 1895 he published Studies in Economics, and in 1899 The Distribution of Income. The former is a collection of essays on wages, currency and consumption, most of which had previously appeared in periodicals; and the latter is an attempt accurately and concretely to define the national income, both from the goods and the money point of view, and to describe the methods of its distribution. His discussion throws light upon the merits of present processes and leads to the conclusion that the distribution of wealth at the present time is not so bad as it is ordinarily, or at least often, supposed to be. In the introduction to his Studies he announced his adherence to the Austrian school in the following words: “My pleasant task of late years in presenting to English readers the work of the Austrian school has made me entirely a convert to its fundamental doctrine that the theory of value is the beginning of economic science, and compelled me to revise all my conclusions in the searching light of that theory.”

Other books by Professor Smart are: Taxation of LandValues and the Single Tax, 1900; The Return to Protection, 1904, 2d ed., 1906; and Economic Annals of the Nineteenth Century, 1910.

Mr. Wicksteed has also done much to popularise the doctrines of Jevons and the Austrians among English-speaking peoples. In 1888 he began the publication of The Alphabet of Economic Science, in which the fundamental doctrines of these men were forcibly expounded, and in 1910 he published an even more noteworthy exposition of the science from their point of view, entitled The Common Sense of Political Economy, including a study of the human basis of economic law. He begins this book with a discussion of what he calls the psychology of choice and defends the thesis that the marginal utility principle “is not exclusively applicable to industrial or commercial affairs, but runs as a universal and vital force through the administration of all our resources.” He devotes the remainder of Book I to the application of this principle to commercial and industrial life in eight chapters, entitled: Margins— Diminishing Psychic Returns; Economical Administration and its Difficulties; Money and Exchange; Business and the Economic Nexus; Markets, in three chapters, of which the first is general, the second is devoted to the discussion of Interest, Tools, and Land, and the third to Earnings and Distribution.

The method of exposition in the first book is calculated to meet the needs of persons who know nothing of political economy, while in Book II many of the same topics are treated in a more technical manner by means of diagrams, curves, &c., and critical discussions of some of the older economic theories, notably those pertaining to increasing and decreasing returns, to the relation between money and prices, to international trade and to certain phases of banking, are added.

In Book III Mr. Wicksteed has endeavoured to show “that the principles elaborated in the first two books will furnish the student of political and social reform with something like an instrument of precision, by which he may be able to analyse both the familiar phenomena of public life and the various movements and suggestions which are put forward with a view to social amelioration.” His method in this book is the presentation of sample analyses on the topics: “gambling; the housing problem; unemployment; depression and crisis; the immediate and permanent effects of attempts to relieve distress, or of changes in expenditure; the meaning of the national income and the legitimacy of inferring from it the average command of commodities and services which would accrue to each individual if wealth were more evenly distributed”; “the general nature of taxation”; “the meaning of borrowing for unproductive expenditure”; “schemes for communalis-ing the instruments of production generally or land in particular; and Trade Unionism.”

Mr. F. G. Edgeworth, the successor of Thorold Rogers at Oxford University, who is chiefly noted as a mathematical economist on account of his publications, Mathematical Psychics, 1885, and On the Application of Mathematics to Political Economy (Journal of the Royal Statistical Society, 1889), has also been classed as an adherent of the Austrian school.

During the last quarter of a century English economists have also made noteworthy contributions to economic history. Professor W. J. Ashley of Birmingham, and Professor W. Cunningham of Cambridge University, already mentioned as adherents of the historical school, are leaders in this field. The former's An Introduction to English Economic History and Theory in two parts, entitled respectively, The Middle Ages (first edition, 1888; second, 1892, and third, 1894) and The End of the Middle Ages (1893), is a collection of illuminating and scholarly studies on the following topics: The Manor and Village Community; Merchant and Craft Gilds; Economic Theories and Legislation (in the period the eleventh to the fourteenth centuries); The Supremacy of the Towns; The Crafts; The Woollen Industry; The Agrarian Revolution; The Relief of the Poor; and the Canonist Doctrine. Other publications by Professor Ashley are: The Early History of the English Woollen Industry, 1887; Edward III and his Wars, 1327–1360, 1887; The English Manor, 1891; Surveys, Historic and Economic, 1900; Feudalism, 1901; The Adjustment of Wages; a Study in the Coal and Iron Industries of Great Britain and America, 1903; The Tariff Problem, 3d ed., enlarged 1911; The Progress of the German Working Classes in the Last Quarter of a Century, 1904; The Rise in Prices, 1912; and Gold and Prices, 1912.

Professor Cunningham's chief work is his Growth of English Industry and Commerce, the publication of which began in 1882. A second and greatly enlarged edition of the first volume, concerning the Early and Middle Ages, was published in 1890. The second volume covering modern times was published in 1892. The plan and purpose of Professor Cunningham's treatise is indicated in the following passage from the preface of the first edition of volume one: “I have endeavoured to give such an account of the growth of English industry and commerce as may easily be followed by readers who are but slightly acquainted with the history of the country, and who have no knowledge of political economy; in the notes will be found matter of more importance for students, as they contain, not only full references to the authorities used, but brief discussions of disputed points, and allusions to interesting analogies in the experience of other peoples. To introduce more than a passing reference to such matters might distract attention from the continuity which exists between the earliest and the latest stages of our national life, and from the interdependence between our industrial and our political history.”

Other publications by Professor Cunningham are: The Path Towards Knowledge, 1891; The Use and Abuse of Money, 1891 (in the series of University Extension Manuals, edited by Professor Knight); Modern Civilisation in some of its Economic Aspects, 1896; Essay on Western Civilisation in its Economic Aspects, 1901; and The Rise and Decline of Free Trade, 1904.

Other noteworthy contributions by Englishmen to economic history, which have appeared during the period here under discussion, are: Frederick Seebohm's The English Village Community, Examined in its Relations to the Manorial and Tribal Systems, and to the Common or Open Field System of Husbandry, 1883; Russel M. Garnier's Annals of the British Peasantry, 1895; Frederick William Maitland's Doomsday Book and Beyond, 1897; R. E. Prothero's The Pioneers and Progress of English Farming, 1888; R. Whateley Cooke Taylor's Introduction to a History of the Factory System, 1886; The Modern Factory System, 1891; and The Factory System and the Factory Acts, 1894; Sidney and Beatrice Webb's The History of Trade Unionism, 1894; and Industrial Democracy, 1897; John A. Hobson's The Evolution of Modern Capitalism, 1894; The Crisis of Liberalism: New Issues of Democracy, 1909; and G. Unwin's Industrial Organisation in the Sixteenth and Seventeenth Centuries, 1904. In this connection should also be mentioned The Economic Review and the Economic Journal, both of which were started in 1891, the former by the Oxford University branch of the Christian Social Union, and the latter as the organ of the British Economic Association. Both have been the media for the publication of important articles on all phases of economic science; and especially of those in the field of economic history.

If the development of political economy in England be compared to a river, during the last quarter-century the main stream must be traced in the writings of such men as Alfred Marshall, J. Shield Nicholson, James Bonar, and Edward Cannan, rather than in those of the men already mentioned which constitute the chief affluents. This is the same stream, the previous course of which was marked by The Wealth of Nations and Ricardo's and Mill's Principles. In the preface to the first edition of his Principles of Economics, Professor Marshall described the connection between the work of the classical school and that of his generation in the following passage: “Some of the best work of the present generation has indeed appeared at first sight to be antagonistic to that of earlier writers; but when it has had time to settle down into its proper place and its rough edges have been worn away, it has been found to involve no real breach of continuity in the development of the science. The new doctrines have supplemented the older, have extended, developed, and sometimes corrected them, and have often given them a different turn by a new distribution of emphasis; but very seldom have subverted them.” The purpose of his own book he described as follows: “The present treatise is an attempt to present a modern version of old doctrines with the aid of the new work, and with reference to the new problems, of our own age.”

The earliest results of Professor Marshall's attempt to adapt the old economics to the new conditions of his age were given to the world in 1879 in a little volume entitled The Economics of Industry, in the preparation of which his wife collaborated with him. It was written at the request of Extension lecturers of the University of Cambridge and covered the subjects of value, wages and profits, it being the intention at the time to have banking, foreign trade and taxation treated in a companion volume. A new edition entitled Elements of Economics of Industry, vol. i. of Elements of Economics, appeared in 1899. The first edition of vol. i. of the larger treatise entitled Principles of Economics was published in 1890. Other editions followed in 1891 and 1898. The volume or volumes which were evidently planned to follow this one have not yet appeared.

The key to most of those features of Professor Marshall's work which are peculiar and characteristic is what he calls the principle of continuity, that is, the operation of a single principle or law (usually one developed by the classical economists) in different groups of phenomena which at first sight appear to be unrelated and to be subject to different laws. For example he shows that ethical forces influence all classes of men including “the economic man”; that “the theory of normal value is applicable to the actions of the unbusinesslike classes in the same way, though not with the same precision of detail, as to those of the merchant or banker”; and that “as there is no sharp line of division between conduct which is normal and that which has to be provisionally neglected as abnormal, so there is none between normal values and ‘current’ or ‘market’ or ‘occasional’ values.”

This principle explains the plan of his book and his method of treatment of the chief topics. After a preliminary survey in Book I, in which he discusses the growth of free industry and enterprise, the growth of economic science, the scope of economics, the nature of economic law and methods of procedure, followed in a second book by a discussion of the fundamental concepts, wealth, production, consumption, labour, necessaries, capital and income, the arrangement of his subject-matter is dictated by the doctrine of demand and supply. Book III is entitled Demand and Consumption; Book IV, Supply or Production; and Book V, The Theory of the Equilibrium of Demand and Supply. While Book VI is entitled Value, or Distribution and Exchange, its subdivisions are determined by the law of demand and supply, the principal chapters treating of demand and supply of labour, demand and supply of capital, demand and supply of land, &c.

Professor Marshall's controlling idea is well expressed in the preface to the second edition of his Economics of Industry in the following statement: “There is a unity underlying all the different parts of the theory of prices, wages, and profits. The remuneration of every kind of work, the interest on capital and the prices of commodities are determined in the long run by competition according to what is fundamentally the same law. This law of Normal Value has many varieties of detail and takes many different forms. But in every form it exhibits value as determined by certain relations of demand and supply; and the Cost of Production as taking the chief place among the causes that determine supply.”

In his exposition Professor Marshall finds it possible to utilise and to defend in some form nearly all the leading doctrines of the classical economists and those of the Austrian school as well. In fundamentals he considers these schools of thought to be complementary rather than antagonistic, most of the contributions of the one belonging to the field of supply and most of those of the other to that of demand. Where irreconcilable antagonisms really exist, Professor Marshall is more inclined as a rule towards the classical than the Austrian side, but he is fair-minded and catholic in his sympathies and habits of thought, and exhibits great skill in distinguishing between the essentials and the non-essentials of principles and theories, and in tracing their applications throughout the entire realm of economic phenomena.

Professor Marshall has not been completely successful in overcoming a difficulty which is inherent in his method. In attempting to restate old doctrines in such a manner as to make them fit the conditions of modern life, and harmonise with newer theories, he has deprived them of a part of their vitality and considerably diminished their usefulness. In some instances also he has avoided fundamental issues and the difficulties they involve by simply omitting to discuss them. For example, it may be questioned whether much light has been thrown upon the difficulties of the science by Professor Marshall's attempt to interpret everything by means of the doctrine of demand and supply. In this attempt he has accomplished little more than more clearly to reveal the interrelations between large groups of phenomena and the difficulties in finding the clue to their explanation. He has rarely discovered the clue itself or helped much towards its discovery by others. In a lesser degree, but nevertheless to some extent, the same comment will apply to his use of the doctrines of normal value and cost of production. With the fundamental differences between the classical economists and the Austrians relative to the latter doctrine he has failed to grapple. His nearest approach to that problem was made in the discussion of wants in their relation to activities in the second chapter of Book III, in which, however, the word wants is given such a narrow meaning as to obscure rather than illuminate the points at issue.

Professor Joseph Shield Nicholson, sometime examiner in the Universities of Cambridge, London and Victoria, and now Professor of Political Economy in the University of Edinburgh, is noteworthy as an interpreter of the classical political economy to the present generation. While he admits having been deeply “impressed with the value of the historical method as exemplified in England by Thorold Rogers and Cliffe Leslie, and in Germany by Held, Knies, Roscher, Nasse, and Brentano,” and wrote his first book (The Effects of Machinery on Wages, 1878; 2d ed., 1892) under the inspiration of these men, he has remained true to the old school, in particular to Adam Smith and John Stuart Mill.

Most of his writings are popular in character (Historical Progress and Ideal Socialism, 1894; Strikes and Social Problems, 1896; A Treatise on Money and Essays on Monetary Problems, 1901; The Tariff Question with Special Reference to Wages and Employment, 1903; The History of the English Corn Laws, 1904; Rates and Taxes as Affecting Agriculture, 1905; and The Relations of Rents, Wages and Profits in Agriculture, and their Bearing on Rural Depopulation, 1906), but his Principles of Political Economy in three volumes (1893–1901, and 2d ed., 1902–1908) and A Project of Empire, A Critical Study of the Economics of Imperialism, with Especial Reference to the Ideas of Adam Smith, 1909, appeal to specialists as well.

His Principles of Political Economy is based upon Mill's treatise of the same title, and follows it closely not only in the arrangement of the subject-matter, but in the principles and theories expounded. The deviations from Mill are too great and too important, however, to warrant its being described as a revised edition of Mill's Principles, but hardly sufficient to justify its being considered as a new and independent work. In this respect it is in marked contrast to Marshall's Principles, which must be ranked as a new and important contribution to the science. Like Marshall, however, Professor Nicholson has made use of the newer theories and taken cognisance of the new conditions which have developed since Mill's time.

As the title implies, A Project of Empire is an attempt to apply the ideas of Adam Smith expressed in the Theory of Moral Sentiments and the Wealth of Nations to the problem of the reconstruction of the British Empire. Of Smith in this connection he says: “No other writer has approached him in the breadth of view and in the appreciation of the different elements involved in the economics of imperialism.” The most important of these elements are the significance of nationalism and of national defence; the functions of labour and capital in a nation's economy and their relation to each other; the relative importance of the different employments of capital; the real advantages of foreign trade; the meaning of protection to native industries; the relations between producers and consumers, and the relation of the state to commerce. Professor Nicholson maintains that Smith's views on these and other allied topics were fundamentally sound, and that they furnish the key to the solution of the problems now confronting the British people.

In the course of his treatment of this subject Professor Nicholson undertakes to correct what he regards as erroneous popular ideas regarding Smith's views on the subjects, particularly of nationalism and of protection and free trade. He claims that the so-called nationalists grossly misrepresented Smith by describing him as a cosmopolitan, and that “he emphasises more than any subsequent writer the importance of the home market, and the advantage of the employment of the capital of the country within the country.” He also makes use of what he calls “the lost ideas of Adam Smith,” of which the most important are: that only surplus capital should be sent abroad, all home requirements being first met; and “that foreign trade can only be carried on by sending a certain amount of capital out of the country.”

In 1885 James Bonar performed a valuable service to political economy through his book entitled Malthus and His Work, in which he described the evolution of the Essay on Population and presented a critical discussion of Malthus' ideas on this and other subjects as well as an account of his life. Two years later he published David Ricardo's Letters to Thomas Robert Malthus. Still later, in 1899, he collaborated with Professor Jacob H. Hollander of Johns Hopkins University, Baltimore, Md., in the publication of David Ricardo's Letters to Hutches Trower and Others. The relations of philosophy to political economy throughout their history were traced by him in an able manner in a book published in 1893 entitled Philosophy and Political Economy in some of their Historical Relations. In 1903 appeared his Political Economy and in 1911 his Disturbing Elements in Political Economy.

Professor Edwin Cannan, a critical and discriminating theorist and reviewer, whose work is based on that of the classical school, is the author of: Political Economy, 1888; A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848 (1893, 2d ed., 1903); The History of the Local Rates in England (1896, 2d ed., 1912); and The Economic Outlook, 1912.

Other noteworthy British contributors to political economy during the last quarter of a century are: Professor C. F. Bastable, of the University of Dublin, who published Public Finance (1892, 2d ed., 1895); The Commerce of Nations (1899), and The Theory of International Trade (3d ed., 1900); L. L. Price (Industrial Peace: Its Advantages, Methods and Difficulties, 1887; West Barbary: or Notes on the System of Work and Wages in the Cornish Mints, 1891; A Short History of Political Economy in England, 1891; Money and its Relation to Prices, 1896, and Economic Science and Practice, 1899; A Short History of English Commerce and Industry, 1900; The Present Position and Future Prospects of the Study of Economic History, 1908); R. H. Inglis Palgrave (The Local Taxation of Great Britian and Ireland, 1871; Notes on Banking in Great Britain and Ireland, Sweden, Denmark, and Hamburg, 1873; An Analysis of the Transactions of the Bank of England for the Years 1844–72, 1874; The Bank Rate in England, France, and Germany, 1844–78,1880; Bank Acts and Bank Rate, 1845–91, 1892; and editor of Dictionary of Political Economy, An Inquiry into the Economic Condition of the Country, 1904); John A. Hobson, who besides his contributions to economic history, already noted, in co-operation with A. F. Mummery, published in 1889 The Physiology of Industry; in 1891 Problems of Poverty; in 1896 The Problem of the Unemployed; in 1898 John Ruskin, Social Reformer; in 1900 The War in South Africa and The Economics of Distribution; in 1901 The Social Problem; in 1904 International Trade; in 1909 The Industrial System; in 1911 The Science of Wealth; and in 1913 Gold, Prices and Wages.

The United States

In the earliest stages of its development the course of economic thought in the United States seems to have been determined chiefly by the peculiar characteristics of the nation's economy. On account of the vast extent and richness of its natural resources, the vigour, intelligence and optimism of its population and the scope for individual initiative and freedom from interference guaranteed by its political institutions, the per capita production of wealth increased steadily almost from the beginning, and the future seemed to promise a continuation of this prosperity for an unlimited period. Under these conditions it is not surprising that some of the fundamental tenets of the Ricardian political economy were criticised. The law of diminishing returns, the Malthusian doctrine of population, the law of the tendency of profits towards a minimum, the wages fund doctrine, &c., seemed to have no application to this country. Indeed, as Carey, Raymond, List, and others attempted to prove, very nearly, if not quite their opposites more nearly represented the true state of affairs in this country.

In the late seventies and early eighties a new impetus was given to the development of the science, and the direction of that development was considerably modified by a group of young men who had studied political economy in Germany and who were installed as teachers of the subject in the leading Universities. Prominent among these were Professors Richard T. Ely, John B. Clark, Simon N. Patten, Edmund J. James, and Henry C. Adams. These men were not only broadly and scientifically trained, but they were imbued with the spirit of research and in sympathy with the methods and aspirations of the historical school. Under their leadership and inspiration the American Economic Association was formed in 1885, which supplied a forum for discussion and a medium for the publication and dissemination of ideas. Many of the older economists joined this organization and co-operated with it from the beginning, Francis A. Walker, the most noted of them, serving as its first president. The opposition to it, which appeared in some quarters on account of the alleged radicalism of its promoters and probably in some cases on account of their youthfulness and unbridled enthusiasm, gradually disappeared and it soon became, and has continued to be, a national and a thoroughly representative body.

Its work has been supplemented on the publication side by the Quarterly Journal of Economics, published by Harvard University since 1886; the Political Science Quarterly, published by the faculty of political science of Columbia University since 1886; the Annals of the American Academy of Political and Social Science, published at Philadelphia since 1890; The Yale Review, published since 1892; The Journal of Political Economy, published by the University of Chicago from 1892 to 1913, and since then by the Western Economic Society and by a number of quarterly or more frequent publications of several universities, notably among which are the Johns Hopkins University publications which cover the fields of history and political science as well as that of political economy. The Western Economic Society of Chicago and the American Academy of Political and Social Science of Philadelphia also hold meetings for the discussion of economic topics, but are in no sense rivals of the larger and more representative national organization.

The leaders of the Austrian school, and especially Böhm-Bawerk, have also exerted a strong influence in this country. In the late seventies and early eighties, Professor John B. Clark, fresh from his studies in Germany and especially inspired by his teacher, Karl Knies, contributed to the New England Review a series of articles in which he outlined a theory of value in essentials like that of Menger. Professor Patten's early publications (The Premises of Political Economy, 1885; The Consumption of Wealth, 1889; and The Theory of Dynamic Economics, 1892) were in harmony with the same doctrine. Böhm-Bawerk's Kapital und Kapitahins, and especially Smart's translation of it, was widely read hi this country and its contents communicated to students hi the lecture-rooms of colleges and universities. Similar ideas had been expressed at about the same time by Professors Clark and Patten and Mr. S. N. Macvane (see Clark's Capital and its Earnings, 1888, and later articles in the Quarterly Journal of Economics, the Annals of the American Academy, July 1890, and The Yale Review, November 1893; Patten's The Fundamental Idea of Capital, Quarterly Journal of Economics, January 1889; Macvane's Analysis of Cost of Production in the Quarterly Journal of Economics, July 1887, and later articles in the same periodical for October 1890, and January 1892), and the agio1 theory was thoroughly discussed in the journals. With modifications and shades of difference it has been widely adopted and incorporated hi the leading text-books.

Under the influence of these stimuli and of the difficult economic problems created by the rapid development of the country the output of economic literature has been large. A considerable portion of it has been popular and devoted to national issues, but a good part has had a wider appeal and has contributed substantially to the progress of the science.

Some of the principal contributors belong to the group of men mentioned above as the founders of the American Economic Association. Professor Ely's most important publications are the following: French and German Socialism in Modern Times, 1883; Monopolies and Trusts, 1883; Labour Movement in America, 1883; Taxation in American States and Cities, 1888; Socialism and Social Reform, 1894; Outlines of Economics (in various editions, revised and enlarged in 1908 with the collaboration of Professors T. S. Adams, A. A. Young, and Dr. M. O. Lorenz); Studies in the Evolution of Industrial Society, 1903; and Property and Contract in their Relations to the Distribution of Wealth, 1914. Through these books and his contact with several generations of students in the Johns Hopkins University and the University of Wisconsin, Professor Ely has contributed much towards the formation of a sound public opinion regarding the economic problems which have confronted the people of the United States during the last quarter of a century and towards the popularisation and progress of the science. Particularly noteworthy are his writings concerning monopolies and trusts and socialism and his latest book on property and contract. The former have revealed the essential characteristics of monopolistic industries, the laws of monopoly price and the strength and the weakness of socialism, and the latter presents the most complete discussion of the economic significance and relations of property and contract that has yet appeared in the English language. It emphasises in particular those forces and influences in the distribution of wealth which have been almost entirely neglected by American and English economists and reveals, as does no other American or English writing, the more fundamental aspects of the subject.

In addition to the articles already mentioned, Professor John B. Clark published The Philosophy of Wealth in 1885 and The Distribution of Wealth in 1899. The former included in revised form the articles in the New Englander, to which reference has already been made, together with a study of the nature of production and distribution. The Distribution of Wealth represents the culmination pf his previous work in theoretical economics. For its completion, however, a second volume on the dynamics of distribution is required which has not yet appeared.

“It is the purpose of this work,” says the author in the preface, “to show that the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent created.” In the process of reasoning by which he attempts to demonstrate the existence of this law, he conceives of labour and capital as perpetual, homogeneous, social funds and applies to them the law of diminishing returns. For example, if the social fund of labour be applied in successive increments to the total fund of social capital, he maintains that the returns assignable to each increment would progressively decrease and that the product of the last increment would determine the rate of wages. The surplus produced by preceding increments would constitute the total interest fund. In like manner the social fund of capital is conceived as applied in successive increments to the total social fund of labour. In this case as in the other the returns assignable to each increment diminish, the product of the last increment determines the rate of interest, and the surplus produced by preceding increments constitute the total wages fund. The products of the final units of labour and capital thus determine respectively the rate of wages and the rate of interest, and the total wage and interest funds are measured according to the principle of rent as the sum of the surpluses above the margin. In this reasoning land is regarded as one of the concrete forms in which the social fund of capital is embodied.

There is a marked resemblance between certain features of Professor Clark's doctrine and Von Thünen's final-productivity theory of wages and interest, but the differences are also great and both were independently developed.

Professor Clark's recent work has followed more practical lines. In 1901 he published The Control of Trusts and in 1904 The Problem of Mono-poly. Since 1911 he has been director of the division of economics and history of the Carnegie Endowment for International Peace.

Professor Patten's later work has extended beyond the field of political economy into that of sociology. In 1896 he published Theory of Social Forces; in 1899, Development of English Thought; in 1902, Theory of Prosperity; in 1903, Heredity and Social Progress; in 1907, The New Basis of Civilisation; in 1909, Product and Climax; in 1911, The Social Basis of Religion; and in 1914, The Reconstruction of Economic Theory. Among his earlier works should be mentioned The Economic Basis of Protection, published in 1890.

Professor Patten is a unique figure among American economists. He is a keen and incisive critic and is noted for bold and original generalisations and theories which, however, he produces in such profusion that few people are able to keep pace with the progress cf his thinking or to discern the thread of continuity which probably runs through it. He is extremely suggestive and stimulating, but has never succeeded in winning a large following for his constructive ideas.

Professor Henry C. Adams and E. R. A. Seligman have made noteworthy contributions to the literature of public finance, the former in books entitled Public Debts (1887) and the Science of Finance (1888), and the latter in Shifting and Incidence of Taxation (3d ed., 1910); Progressive Taxation in Theory and Practice (26. ed., 1908); Essays in Taxation (8th ed., 1913); and The Income Tax, 1911. Professor Adams is also the author of The State in Relation to Industrial Action, published in 1887; Statistics of Railways, 1888–1910, and Economics and Jurisprudence, 1897. In addition to his books on public finance, Professor Seligman is the author of the following: Two Chapters on the Mediaval Guilds of England, 1887; The Economic Interpretation of History (2d ed., 1907), and Principles of Economics (6th ed., 1914).

Professor Frank W. Taussig of Harvard University, President Arthur T. Hadley of Yale University, and Professor J. Laurence Laughlin of the University of Chicago should be considered in connection with the group of writers already discussed. They belong to the same generation as these, but are slightly more conservative and somewhat more inclined to follow the lines of development indicated by the classical school. All three have made contributions to economic history, the former through his Tariff History of the United States (1888, 6th ed., 1914) and The Silver Situation in the United States (1892), President Hadley through his Railroad Transportation, its History and Laws (1885), and Professor Laughlin through his History of Bimetallism in the United States (1886). In addition Professor Taussig has published Wages and Capital (1896) and Principles of Economics (1911); President Hadley, Economics: An Account of the Relations between Private Property and Public Welfare (1896); and Professor Laughlin, Elements of Political Economy (1887); Gold and Prices since 1873 (1887), and Principles of Money (1902).

In Wages and Capital Professor Taussig presents a critical history of the wages-fund doctrine. He believes that this doctrine contains important truths which it is his purpose to reveal and to restate in valid form. In the Principles of Economics he has made a noteworthy contribution to the interpretation of economic principles and to their application to public welfare and present-day problems. He adds little or nothing to the body of economic doctrine, but he has made it possible for the ordinary educated person to add much to his knowledge and appreciation of those economic principles which have best endured the test of time and criticism. Professor Taussig's attitude towards the newer theories is critical and conservative. President Hadley's Economics is also a successful attempt to combine theory and practice, but it is better adapted to the use of students than to the needs of the general reader. The author's purpose was not the presentation of new truth, but, as he stated in the preface, “to do for the readers of to-day that which Mill did with such signal success for those of half a century ago,” that is, to deal comprehensively with the problems of modern economics. Like Professor Taussig he built directly upon the doctrines of the classical school and is conservative in his attitude towards new theories.

Professor Laughlin's chief contributions to political economy have been in the field of money. He is one of the leading opponents of the quantitative theory of prices and of bimetallism, both of which subjects he has treated exhaustively in his books. He has also played a leading role in the reform of the monetary and banking systems of the United States. He was a member of the monetary commission of the Indianapolis Monetary Conference of 1897 and prepared its report and was otherwise instrumental in securing the enactment of the gold standard act of 1900. He was chairman of the executive committee and director of the National Citizens' League for the Promotion of a Sound Banking System, which was one of the chief agencies responsible for the reform of the banking system of the United States through the Federal Reserve Act of 1913.

A large group of younger men, nearly all of whom have been students of those already mentioned, must be included among the American economists of the present day whose work is noteworthy. The following is a partial list:

Edward W. Bemis (Municipal Ownership of Gas-Works in the United States, 1891; Municipal Monopolies, 1899) Charles Bullock (The Finances of the United States, 1775–89, 1895; Introduction to the Study of Economics, 1900; Essays on the Monetary History of the United States, 1900; Finances of Massachusetts, 1780–1905, 1907); Thomas N. Carver (The Distribution of Wealth, 1904; Sociology and Social Progress, 1905; and Principles of Rural Economics, 1911); John R. Commons (The Distribution of Wealth, 1893; Social Reform and the Church, 1893; Proportional Representation, 1896, 2d ed., 1907; Trade Unionism and Labour Problems, 1905; Races and Immigrants in America, 1907); Herbert J. Davenport (Outlines of Economic Theory, 1896; Elementary Economic Theory, 1898; Value and Distribution, 1908; The Economics of Enterprise, 1913); Davis R. Dewey (Financial History of the United States, 1902; Employees and Wages Special Report, 12th Census, 1902); Frank A. Fetter (Versuch einer Bevölkerungslehre, 1894; Relations between Rent and Interest, 1904; The Principles of Economics, 1904); Irving Fisher (Mathematical Investigations in the Theory of Value and Prices, 1892; The Nature of Capital and Income, 1906; The Rate of Interest, 1907; The Purchasing Power of Money, 1911); Jacob H. Hollander (The Cincinnati Southern Railway—A Study in Municipal Activity, 1894; The Financial History of Baltimore, 1899; Editor, Letters of David Ricardo to J. R. McCulloch, and with James Bonar of Letters of David Ricardo to Hutches Trower; Studies in State Taxation—with particular reference to the Southern States, 1900; Report on Taxation in the Indian Territory, 1904; Report on the Debt of San Domingo, 1906; David Ricardo, A Centenary Estimate, 1911); Joseph French Johnson (Money and Currency, 1905; Report on the Canadian Banking System, 1910); Alvin S. Johnson (Rent in Modern Economic Theory, 1903; Introduction to Economics, 1909); David Kinley (The Independent Treasury of the United States, 1893; Money, 1904); William A. Scott (Repudiation of State Debts, 1893; Money and Banking, 1903, revised edition, 1910; Bdhm-Bawerk's Recent Literature on Interest in collaboration with Siegmund Feilbogen, translated with introduction, 1903; Money, 1914; Banking, 1914); Henry R. Seager (Introduction to Economics, 1904; Social Insurance, 1910); Oliver M. W. Sprague (History of Crises under the National Banking System, 1910); and Henry Parker Willis (History of the Latin Monetary Union, 1901).

France1

For about a decade after the Franco-Prussian War the so-called Liberal school held almost undisputed sway among the economists of France. This school traced its origin back to the physiocrats and Adam Smith, and through the influence chiefly of Bastiat and his followers had developed optimistic features which distinguished it from the classical school of England. Its chief organ was the Journal des Economises; it dominated the great publishing firm of Guillaumin et Cie; and controlled the Institute of France so far as it was concerned with matters pertaining to political economy and allied subjects.

Its chief representatives in this period were Frédéric Passy (Leçons d'économie politique, 1861; Mélanges economiques, 1857; Conférence sur la paix et la guerre, 1867; Pour la Paix, 1909) who vigorously defended the right of private property, championed the cause of universal peace, and laboured earnestly towards the spread of instruction in political economy among the people; Gustave de Molinari (Cours d'économie politique, 1855–63; Questions d'économie politique et de droit public, 1861; L'évolution économique au 19emesiecle, 1881; Les lois naturelles de I'économie poliiique, 1887; Notions fondamentales d'économie politique, 1891; Les bourses du travail, 1893; Comment se resoudra la question sociale, 1896; Grandeur et décadence de la guerre, 1898; Esquisse de I'organization politique et iconomique de la socièle future, 1899; Les problemes du XXimes siècle, 1901; Questions économiques d I'ordre du jour, 1906; and Théorie de évolution, 1908), who edited the Journal des Economistes from 1882 to 1909 and for more than half a century was the leader of the defenders of individualism in its most extreme form and of the champions of the optimistic features introduced into the science by Carey and Bastiat; and Emile Levasseur (Précis d'économie politique, 1867, 4th ed., 1883; Histoire des classes ouvrieres en France dcpuis la conquêtc de Jules Cesar jusqu'à la revolution, 1859, 2d ed., 1900–1901, with altered title, Histoire des classes ouvrieres et de I'industrie en France avant 1789; Histoire des classes ouvrieres et de I'industrie en France de 1789 à 1870, 2d ed., 1903; La population française, 1889–92; Aperçu de I'histoire économique de la valeur et du revenu de la terre en France du XIIIe à la fin du XVIIIe siècle, 1893; L'ouwier Americain, 1898; and Comparaison du travail a la mainet du travail a la machine, 1900), a student primarily of economic history, geography and statistics, and a noted lecturer in the College de France.

The introduction in 1878 of political economy as an optional, and later as a required, subject of study and examination in the law faculties of the Universities of France was an event of prime importance in the history of the science in that country. Previously to that time instruction in this subject had been confined to a few institutions, chief among which were the Conservatoire des Arts et M6tiers, the licole des Fonts et Chaussées, and the College de France. The leaders of the liberal school were unable to control the appointment to these new chairs, chiefly because their candidates did not possess the necessary legal qualifications (See an article by Charles Gide in Political Science Quarterly, vol. v, pp. 603–635, on The Economic Schools and the Teaching of Political Economy in France). The new appointees were comparatively young men whose training had been primarily legal, but who felt that the progress of political economy in France had fallen behind that of Germany and the other leading countries, and who were ambitious again to give it the place it obviously deserved to occupy in the country which had taken so prominent a part in its early development.

Unlike other young men who desired to become economists, they were not dependent upon the institutions controlled by the liberal school for access to the public ear and consequently for the opportunity to gain a livelihood and a reputation. Their positions were secure, and they had the best audience possible, the young men who were being trained for the public service and for the other positions of responsibility and power in the country. They could, therefore, be independent and open-minded.

This independence and open-mindedness has not resulted in the development of a new school or of a group of men who are in essential agreement with each other regarding doctrinal or other matters, but it has infused new life into the science and inaugurated an era of activity and of great promise.

As leaders and typical representatives of this new epoch may be cited Paul Cauwès and Charles Gide. The former had an excellent legal and historical training and was favourably disposed towards the German historical school and the ideas of Frederick List. He repudiated the doctrines of laissez-faire and free trade and strongly favoured intervention by the state in economic and social matters. From his vantage ground in the law faculty of the University of Paris, he was able to create a stir in orthodox circles and to exert strong influence in the direction of the modification of prevailing ideas. His chief publication in book form is Précis du cours d'économie politique, 2 vols., 1878–80, and 4th ed., 4 vols., 1894.

Charles Gide began his career in the south of France, but for a number of years has also been a professor in the law faculty at Paris. From the standpoint of orthodox economists he is also considered a radical, and has even been accused of socialistic tendencies. His work has attracted attention outside as well as inside of France and merits a place among the best of the productions of the economists of the present generation. In 1884 he published a text-book (Principes d'économie politique], which has passed through several editions and has been translated into many languages, and in 1909, in collaboration with Charles Rist, he published one of the best histories of economic doctrine extant in any language (Histoire des doctrines économiques depuis ks physiocrates jusqu'd nos jours). He is a strong believer in co-operation and has written a volume on that subject (La co-opération), also one on the condition of social legislation in France, published in connection with the Exposition of 1900 (L'économie sociale, 3d ed., 1907). In his writings he has also attempted to apply Christianity to the solution of economic problems.

Since 1887 Cauwès and Gide, associated with Léon Dugout of Bordeaux, and later with Henri St. Mare, also of Bordeaux, Raoul Joy of Paris, Auguste Souchon of Lyon, Germain Martin of Dijon, and Eugen Schwiedland of Vienna, have edited and published the Revue d'Économie Politique, an excellent journal, open to meritorious writers of all shades of opinion and devoted to the progress of the science in all its branches.

Associated with these men as members of the University group, though by no means in complete agreement with them or with each other on matters of theory or policy, may be mentioned: Alfred Jourdan of Aix and Marseilles, who died in 1890 (Cows analytique d'économie politique, 1882, 2d ed., 1890); Edmund Villey of Caen (Principes d'dconomie politique, 3d ed., 1905); Joseph Rambaud of the catholic faculty of law at Lyon (Histoire des doctrines économiques, 1898); and A. Dubois of Poitiers (Precis de I'histoire des doctrines Economiques dans leurs rapports avec les faits et avec les institutions, 1903).

Since it was made a subject of University study, the history of economic doctrine has attracted an unusual amount of attention in France. Since 1908 a special journal has been devoted to it (Revue d'Histoire des Doctrines Economiques et Sociales), edited by A. Deschamps of the law faculty of Paris and A. Dubois, mentioned above. Associated with them since 1911 are Edgard Depitre of Paris and A. Schatz of the law faculty of the University of Lille. Besides the above-mentioned books in this field should be noted several others by H. Denis (Histoire des systemes économiques et socialistes, vol. i. 1904; vol. ii., 1907); Bedet (Frédéric Bastiat); G. Schelle (Du Pont de Nemours et l'école physiocratique, 1888; Vincent de Gournay, 1897; Le Docteur Quesnay, chirurgien, médecin de Madame de Pompadour et de Louis XV, physiocrate, 1907; and Turgot, 1909); J. Desmars (Un précurseur d'Adam Smith en France, 1900), and Schatz (L'aeuvre économique de David Hume, 1902).

In the stimulating atmosphere of the new epoch the old classical school has developed and produced some noteworthy writers. Chief among them is Paul Leroy-Beaulieu, the brilliant editor of L'Economiste Français, lecturer in the Collège de France and author of a long list of important books: Traité de la science des finances, 1877, 3 vols., new ed., 1892; Essai sur la repartition des richesses, 1881, 3d ed., 1887; Le cottectivisme, 1884, ad ed., 1885; Précis d'économie politique, 1888; L'état moderne et ses fonctions, 1890; Traité thiorique et pratique d'economie politique, 1896; De la colonisation chez les peupks modernes; and L'art de placer et girer sa fortune, 1907.

Others are: Yves Guyot, the successor of Molinari as editor of the Journal des Economistes (La science économique, ses lois inductives, 3d ed., 1907; La democratic indi-vidualiste; Sophismes socialistes et fails economiques, 1907; Les chemins de fer et la greve; L'A B C du libre-échange; and La gestion par Vital et les municipalités); Alfred de Foville, eminent particularly as a statistician (La France économique, an annual published for a number of years preceding 1889; and La monnaie); Alfred Neymarck, editor of Le Rentier (Finances contemporaines, 5 vols., 1871–1907; Vocabulaire manual d'économie politique); and Raphael Georges LeVy, an eminent authority on topics pertaining to banking and the money market (Melanges financièrs).

Present-day French economists have done especially noteworthy work in the field of money and banking. Besides the writers already mentioned should be noted: A E. Sayous (Les banques de dépôt, les banques de crédit et les socéités financières, 1901; and La crise allemande de 1900— 1902); M. Patron (La Banque de France et le credit national et international, 1908); B. Nogaro (Le role de la monnaie dans le commerce international et la theorie quantitative, 1904; and L'arbitrage obligatoire, etude economique et juridique, 1906); A. Liesse (Portraits de financiers, 1908); J. Favre (Les changes dépréciés, Etudes theoriques et pratiques, 1906); G. Diouritch (L'expansion des banques allemandes à I'élranger, 1909); E. Depitre (Les caisses de liquidation des opérations a terme sur marchandises, 1907); E. Bridrey (La theorie de la monnaie au XIV siecle, Nicole Oresme, 1906); Barety (L'evolution des banques locales en France et en Allemague, 1908); and A. Aupetit (Essai sur la théorie générale de la monnaie, 1901).

Economic theory has been neglected in France. The writers of the Austrian school have exerted almost no influence. Of them, Charles Gide wrote (Histoire des doctrines économiques, p. 615): “To the present time France has been obstinately closed to them. Not only was the dean of this school, M. Walras, obliged to exile himself from France in order to find in a foreign land a more propitious atmosphere for his teachings, but even hi these latter days it would be impossible to cite a book or a course inside or outside a university in which those doctrines are expounded or even criticised.” While Adolphe Laundry's L'intiret du capital and Manuel d'economie, C. Colson's elaborate treatise (Cours d'tconomie politique, 6 vols., 1901–1908), and Gide's own books render some modification of this statement necessary, it still remains true that the economists of France have been singularly unappreciative of this important episode in the history of the science.

Italy

During the last quarter of a century Italian economists have contributed their full share to the literature of the science. As in previous periods they have been open-minded to foreign influences and have readily assimilated new ideas from whatever source derived. Accordingly, both the historical and the Austrian schools have had a part in the direction of the thought and activities of the present generation. The influence of the latter is especially discernible in the work of Graziani (Storia critica della theoria del valore in Italia; Istituzioni di economia politica, 1904; Istituzioni di scienza delle finanze, 2d ed., 1911); M. Pantaleoni (Manuele di economia; and Scritti varii di economia in three series, published respectively in 1904, 1910, and 1912); G. Ricca-Salerno (Scienza delle Finanze, 1890); C. Conigliani (Teoria generale degli effetti economici dette imposte, 1890); U, Mazzola (I. dati statistici della finanza publica, 1890); and G. Mon-temartini (La teoria dette produttivitd marginali 1900)

One of the most original and forceful, as well as one of the most extreme and radical, of present-day Italian economists is Achille Loria, Professor of Political Economy at Padua. He has written voluminously on a wide range of topics (La rendita fondiaria e la sua elisions naturale, 1880; Le legge di popolazione ed il sistema sociale, 1882; Carlo Darwin e I'economia politica, 1884; Analisi della proprietd capitalista, 1889; Studi sul valore della moneta, 1891; La terra ed il sistema sociale, 1892; La sociologia, 1900; La costituzione economica odierna, 1900; // capitalismo et la scienza, studii e polemiche, 1901; Le basi economiche della costituzione sociale, 3d ed., 1902; Marx e la sua dottrina, 1902; // movimento operaio, 1903; La morphologic sociale, Paris, 1905; Verso la guistizia sociale, 1904; la sintesi economica, 1909), but his principal thesis is the influence of land and its distribution in the evolution of society and in the creation of the economic, social and political problems of the present day. He believes that the right of every man to a portion of the soil should be recognized by the laws of every country, and in a proper distribution of landed property he finds the remedy for the most serious of our social ills.

Among other present-day writers worthy of mention are: A. Agnelli (// problema economico della disoccupazione operaia, 1909); Barone (Principi di economia politica; L'espansione commercial e coloniale degli stati moderni, 1906); L. Fontana-Russo (Trattato di politica commerciale, 1907); Nitti (Scienza delle finanze, 1904; L'ltalia all' alba del Secolo XX, 1901); C. Supino (Le crisi economiche, 1907; Principii di economia politica, 3d ed., 1908); G. Toniolo (Trattato di economia sociale}; and Valenti (Principii di scienza economica, 2d ed., 1909).

The principal economic journal of Italy is the Giornale degli Economisti, begun in 1875 and published continuously since 1886.

[1]This chapter, written by Professor William A. Scott, of the University Of Wisconsin, appears for the first time in this edition.

[1]The products that r.nk in importance above the marginal produce See pp. 243–244 for illustration.

[1]In the selection of the countries to be treated the author has been guided by the desire to trace to the present time the history of economic thought in the United States, and by the plan followed by Dr. Ingram throughout the book, namely, to devote attention chiefly to England, Germany, and France. The selection of these countries has been dictated, naturally, by the fact that the book is designed primarily for the use of readers in England and the United States.

[1]The theory which finds the explanation of interest in the superior value of present over future goods.

[1]In this review of recent developments in France the author has been greatly assisted by the excellent articles by Siegmund Feilbogen of Vienna in the Revue d'Histoire des Doctrines Economiques et Societies, vol. iii, pp. 1–40 and 347–372, entitled L'Evolution des Ides Economiques et Sociales en France depuis 1870.