Page:The New International Encyclopædia 1st ed. v. 16.djvu/225

* POLITICAL ECONOMY. 189 POLITICAL ECONOMY. ui)on any other science, and indeed an extreme wing of the Historical School, of which Schnioller is the most prominent example, holds that until a larger store of historical results is accumulated it is of little use to attempt broad theoretical generalizations; thus confining economics for the present to the phi- losophy of economic history. This position seems untenable because of the evident logical defi- ciencies of the historical method when used alone, and because new problems are constantly arising upon which histoiy throws little light. (See Deductive Method, below.) While the great majority of economists refuse to admit that political economy is merely history, the im- portance and necessity of economic history are now universally conceded. Dr. Keynes classifies the functions of economic history in connection with economic theory as follows: "First, to illustrate and test conclusions not themselves resting on historical evidence: secondly, to teach the limits of the actual applicability of economic doctrines; thirdly, to afford a basis for the direct attainment of economic truths of a theoretical nature." The connection with psychology is particularly intimate. As a study beginning with human effort and ending with the satisfaction of human wants, economics really has its beginning and end in psychology. The theory of value, par- ticularly, takes its fundamental axioms from psychology (e.g. that the satisfaction afforded by commodities decreases per unit as the amount consumed increases). The difference between economics and psychology is. however, clear: the one deals with man in society, the other with man as an individual. The Deductive Method. What is known in economics as the deductive method consists usually of three stages, the first and last of which are inductive. In the preliminary stage, either from common observation or more complex induction, the postulates of the deductive science are secured. In the English economic theory prevalent from Ricardo to Cairnes these pos- tulates were excessively simplified. Ricardo, like Adam Smith, was fond of drawing his premises from an imaginary state of primitive industry. Senior reduced the postulates of political econ- omy to four general propositions: "(1) That every man desires to obtain additional wealth with as little sacrifice as possible. (2) That the population of the world is limited only by moral or physical evil, or by fear of a deficiency of those articles of wealth which the habits of the individuals of each class of its inhabit- ants lead them to require. ( 3 I That the powers of labor, and of the other instruments which prodiice wealth, may be indefinitely increased by using their products as a means of future production. (4) That, agricultural skill remain- ing the same, additional labor employed on the land within a given district produces in general a less proportionate return." It is impossible to give a list of the [jostulates which have been assumed by different writers, but it is evident that they must vary widely in different branches of the science, and that almost every deductive writer has unconsciously assumed many pos- tulates not specifically stated. In the ordinary deductive treatment of value and distribution there are usually postulated the propositions that men not only desire, but know how in general to obtain the maximum satisfaction with the minimum efl'ort ; that certain industries are subject to the law of increasing rather than diminishing returns; that the satisfaction afl'oi-ded by a commodity decreases (per unit) as the amount consumed increases; that exist- ing law, public opinion, and ethical standards, in general remain constant. It is the inter- mediate stage which is most appropriately called deductive. Here the familiar processes of the deductive logic are employed. It is evident, however, that the results obtained from the artificially simplified premises of ordinary de- ductive theory are of doubtful value. If the postulates be absolutely true and the deduction faultless, the conclusions express abstract ten- dencies which will be modified in real life by the action of secondary forces not taken into account in the premises. This, however, is the character of the pure theory of all sciences. If, on the other hand, the premises practically cover the predominant forces in any domain of economies, they may yield results capable of explaining actual economic conditions, and capa- ble of affording the basis of prevision. In actual usage, however, these postulates have been some- times untrue, often ambiguous, and always more numerous than was explicitly stated, so that Cliff' Leslie and other writers of the Historical School have characterized the conclusions of Eng- lish theory as utterly inapplicable in any sense cither to the explanation of existing conditions or the solution of practical problems. This ex- treme antipathy to deductive theory is. however, plainly illogical. Whatever the necessity of studying the past, no one denies that the present and the future furnish the ultimate and principal proldems of the science. And many of these jjroblems are new ; to solve them we must isolate the factors at work, calculate separately their effects, and try to estimate the net results. This process must be largely deductive, and it is strange that those who insist most strenuously that the science is a practical one should attack a method necessary in the solution of practical problems. The historical method alone is helpless in the face of such a problem as the proposition to introduce compulsory arbitra- tion. Of the third stage in the deductive process, that of verification by observation, little need be said. In practice it is exceedingly difficult, as was shown when Jlill attempted to "apply" the Ricardian theories, but it is essentially a species of induction subject to all the limitations of the inductive method in general. The IXDiCTivE !Mi:thod. The ultimate aim of the inductive method is by systematic analysis and comparison of concrete economic phenomena "to observe the effects of a cause coming singly into action while all other forces remain un- altered." The attempt to do this gives rise to two inductive processes: the method of differ- ence and the method of agreement. In the method of difference we compare circumstances exactly similar with the exception of one factor, in order to discover the effect of that factor. Thus, in 1S9.3. ]Iessrs. Mather and Piatt, of the Salford Iron Works, attempted to discover the effect of the eight-hour day on their profits and the general welfare of their workmen. Strictlv speaking, their experiment required that, with the exception of the hours of labor, every causal