The Principles of Political Economy

Henry Sidgwick


Chapter 3

The Method of Economic Science

§3. To illustrate the necessary place of Induction even in connexion with the ordinary reasonings of the deductive Political Economy, it may be convenient to examine briefly the fundamental assumptions of the latter. The first and most fundamental is, that all persons engaged in industry will, in selling or lending goods or contracting to render services, endeavour ceteris paribus to get as much wealth as they can in return for the commodity they offer. This is often more briefly expressed by saying that Political Economy assumes the universality and unlimitedness of the desire for wealth. Against this assumption it has been urged that men do not, for the most part, desire wealth in general, but this or that particular kind of wealth: in fact, that ``the desire of wealth is an abstraction, confounding a great variety of different and heterogeneous motives which have been mistaken for a single homogeneous in force''. {Ref} It does not, however, appear that there is necessarily any such mistake as Mr Cliffe Leslie here supposes. For so far as the objects of these different and heterogeneous desires are all exchangeable and commensurable in value, they all admit of being regarded as definite quantities of one thing---wealth; and it is just because the ``desire of wealth'' may, for this reason, be used to include ``all the needs, appetites, passions, tastes'', aims, and ideas which the various things comprehended under ``the word wealth satisfy'', that we are able to assume, to the extent required in deductive political economy, its practical universality and unlimitedness. There is no particular species of wealth of which it would be approximately true to say that every one desires as much of it as he can get. But there is no class of persons engaged in industry of whom it can not be said with approximate truth that they would always like more of some kind of wealth if they could get it without the least sacrifice. Even the richest capitalists and landowners, who are merely connected with industry as lenders of wealth, are found to have a desire of wealth sufficiently strong to prevent them from letting indifferent persons have the use of their property at less than the market rate.

At the same time it is equally true that there are other things obtainable by labour, besides wealth, which mankind generally, if not universally, desire; such as power, and reputation: and it is further undeniable that men are largely induced to render services of various kinds by family affection, friendship, compassion, national and local patriotism and other kinds of esprit de corps, and by other motives. The amount of unpaid work that is done from such motives, in modern civilised society, forms a substantial part of the whole: and political economists are perhaps fairly chargeable with an omission in making no express reference to such work---with the exception of the mutual services rendered by husbands and wives, and by parents and children. It is however to be said that services altogether unremunerated by money occupy no important place in the organization of industry; they belong chiefly to the exercise of governmental or literary functions, or the management of property (trust-funds), or to some part of that complex system of eleemosynary labour and expenditure, which actually supplements the deficiencies of the industrial distribution. And so far as paid services are concerned, all economists, from Adam Smith downwards, have recognised the operation of other motives---as for instance the love of reputation---as a cause of the difference of remuneration in different employments. All therefore that they have explicitly assumed is that, other things being equal, a man will prefer a larger price or remuneration to a smaller. This qualification includes, of course, disagreeable things that have to be borne, as well as desirable things that may be acquired; indeed Adam Smith draws express attention to the differences in the agreeableness and disagreeableness of different employments as a cause of diversity in wages.

Among the disagreeable things that have to be borne Labour itself generally occupies a prominent place, in the view of the deductive economists. Mill, for instance, speaks of ``aversion to labour'' as a ``perpetually antagonizing principle'' to the desire of wealth: and it has been customary to attribute to it an equal degree of universality; it being affirmed not merely that ``every one desires to obtain as much wealth as possible'', but that he also desires to obtain it by ``the least possible amount of labour''. This proposition, however, is open to the obvious objection that many persons get more happiness out of their work than they do out of a good deal of their expenditure. And in fact it does not appear to me necessary, in ordinary economic reasonings on problems of distribution, to assume that mankind are ``averse to labour'' generally. The assumption usually required is merely that every man will require payment for his work if he can get it; but this immediately follows from the desire of wealth, if he has no special inducement for performing gratuitously the particular work in question; since the fact that a man likes his work is not a reason why he should consent to do it for nothing, if he can get something that he desires by his labour. {Note}

At the same time it is no doubt important in justifying, as against communism, the existing individualistic organization of industry, to show that men in general are not likely to work---to the extent required for the satisfaction of the wants of society---without the powerful motive supplied by their desire of wealth for themselves and their families. And certainly we seem able to infer, from observation of the manner in which even the respectable rich employ their time, that no important part of the labour required for the production of wealth is likely to be carried on to an adequate extent, with adequate perseverance throughout the day and from day to day, by such beings as men now are, except under the influence of some motive more powerful than an average man's liking for work. Whether any communistic scheme can be expected to supply such motives adequately is a question which we may afterwards take occasion to discuss. Meanwhile, for ordinary economic reasonings, we may accept the proposition ``that every one desires as much wealth as possible at the least possible sacrifice'', without necessarily adding that he always regards as a sacrifice the labour by which he is able to produce or earn wealth.

From this fundamental assumption we may immediately infer, that so far as freedom of contract exists, similar exchanges will be made on approximately similar terms, at least within the limits of the same market; meaning by a market a body of persons in such commercial relations that each can easily acquaint himself with the rates at which certain kinds of exchanges of goods or services are from time to time made by the others. For it is obvious that, if A prefers a greater gain to a smaller, he will not sell his goods or his services to B at a rate lower than what he thinks he could obtain from C or D; allowance being made for any trouble, expense, or other sacrifice that he would incur in getting the more favourable terms. This inference is often broadly expressed by the statement that ``where there is open competition, there cannot be two prices in one market for the same commodity.'' Such a statement, as ordinarily understood, implies that the market-price is determined by the unconcerted action of individual exchangers. We have, however, no ground for assuming à priori that the uncontrolled action of enlightened persons seeking each his own greatest pecuniary gain may not under certain circumstances result in a deliberate combination of sellers or buyers to dictate terms of exchange. And I shall afterwards show that the question what price enlightened self-interest will prompt such a combined body to demand is not outside the range of the deductive method; it is only a special case of the determination of the value of a monopolized article, which may be made the subject of abstract reasoning as suitably as any other determination of value. But it is convenient and customary to use the term `competition' to imply the absence of such combination; and I shall so use it.

The operation of competition above described, by which the terms of similar exchanges are kept approximately similar, should be carefully distinguished from that other action of competition, by which certain inequalities in the remuneration of dissimilar services tend to be continually removed, though more slowly and indirectly. In this latter case we have to consider the influence exercised by the desire of wealth, and the knowledge of current rates of remuneration, not on the terms of particular bargains, but on men's choice of---or adhesion to---their respective trades or professions. The existence of this influence may be inferred from the assumptions already made as immediately and cogently as the influence of competition on similar exchanges. That is, we may infer that persons considering what trade or profession to select among those open to them will, other things being equal, select those that they (or their advisers) believe to be best remunerated; and further that persons will leave a badly remunerated trade when they think that they can obtain elsewhere a remuneration sufficiently higher to compensate for the trouble and annoyance---and in most cases extra risk---involved in the change.

To complete our list of the assumptions ordinarily made by English political economists we should have to include other propositions relating to several different social facts, such as Population, Agriculture and Government. But the principles of competition above given are certainly the chief and cardinal axioms of deductive economics: and perhaps they will serve for our present purpose. As I have stated them, they seem to me incontrovertibly legitimate as corresponding broadly to the facts of modern industrial societies. But I see no adequate ground for assuming these principles à priori, except with the qualifications above given; and as so qualified, they do not enable us confidently to explain or predict the economic phenomena of any actual society without additional data, which can only be obtained by induction. We may affirm à priori that men will prefer a greater gain to a less, other things being equal; but we can draw no positive inferences from this without ascertaining how far other things are equal: and we can only learn by a careful study of facts the force of the other motives, of which all economists admit the existence and importance; especially of the powerful but unobtrusive impulses which lead a man to do what other people do, and what he himself has done before. Similarly we may affirm that in a perfectly organized market, in which the terms of all bargains may be ascertained without more trouble than average exchangers are able and willing to take, the price of similar commodities will be approximately the same, allowance being made for the trouble and expense of conveying the commodity; but we can only learn by a study of facts how far in any given society at any given time the conditions of sale of any particular commodity approximate to those of a perfectly organized market. With what degree of precision the required knowledge can be obtained, what exertions, intellectual or physical, are needed to obtain it, what the probability is of these exertions being made by average sellers or buyers of the commodity in question, are all points that can only be determined empirically. So again, it may be granted that competition tends to equalise the remunerations, so far as they are known, of dissimilar services, involving equal sacrifices and rendered by persons with equal natural qualifications and opportunities. But before we can apply this principle in any concrete case, we have obviously to ascertain bow the different persons. or classes of persons concerned estimate particular sacrifices, and what their qualifications and opportunities are; that is, to what extent, and by what expenditure of time and means, they are really able to fit themselves for each of the different careers that they are legally free to enter.

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