INTRODUCTION
So far I have been putting down the elements of Economics just as one might put down the elements of Arithmetic. But Economics have, just like Arithmetic, a practical application: if it were not for this, there would be no real use in studying Economics at all.
For instance: we find out, when we do the elements of Arithmetic, that solid bodies vary with the cube of their linear measurements. That is the general abstract principle; but the use of it is in real life when we come (for instance) to measuring boats. We learn there from Arithmetic that, with boats of similar shape, a boat twice as long as another will be eight times as big; it is also by using the elements of Arithmetic that we can keep household accounts and do all the rest of our work.
It is precisely the same with Economics. We are perpetually coming upon political problems which Economics illustrate and to which economic science furnishes the answer—or part of the answer—and that is where the theoretical elements of Economics have practical importance.
For instance: once we know the elementary economic principle that rent is a surplus, we appreciate that it does not enter into cost of production. We do not try to make things cheaper by compulsorily lowering rent. Or, again, when we have learned the nature of money we can appreciate the dangers that come from using false money.
In these political applications of Economics we also come upon what is much more important than mere politics, and that is the question of right and wrong. We see that such and such a thing ought to be so as a matter of justice; but we may blunder, as many great reformers have blundered, in trying to do the right thing and failing to do it, because we have not made a proper application of our economic science. And the opposite is also true: that is, a knowledge of Economics prevents their being wrongly applied by those who desire evil. Many men take refuge in the excuse that, with the best will in the world, they cannot work such and such a social reform because economic science prevents their doing what they know to be right. If we know our Economics properly we can refute these false arguments, to the great advantage of our own souls and of our fellow-men.
For instance: it is clearly our duty to-day to alleviate the fearful poverty in which most Englishmen live. A great many people who ought to know better say, or pretend, that economic laws prevent our doing this act of justice. Economic laws have no such effect; and an understanding of Economics clears us in this matter, as we shall see later on.
We have hitherto been following the statement and examination of economic laws: that is, the theoretical part of our study and its necessary foundation. Now we go on to the practical part, or “Applied Economics,” which is the effect of those laws on the lives of men.
Before leaving this Introduction I think it is important to get quite clear the difference between what is called “theoretical” study and the practical application of such study. People are very often muddle-headed about this, and the more clearly we think about it the better.
A theoretical statement is a statement following necessarily and logically from some one or more known first principles. Thus, we know that two sides of a triangle are longer than the third, so we say it follows theoretically that a straight road from London to Brighton is quicker motoring than going round by Lewes. But the number of first principles at work in the actual world is indefinitely large. Therefore one must test any one theoretical conclusion by practice: by seeing how it works. Because, side by side with the one or two first principles upon which our theory is built, there are an indefinitely large number of other first principles which come into play in the real world. Thus there is, in motoring, the principle that speed varies with road surface. So the way round by Lewes may be quicker than the straight road if it has a better surface. There is yet another principle that speed is checked by turnings in the road, and it may prove that on trial the two ways are about equal.
Or again: we know that the tidal wave is raised on either side of the earth, and that there is, therefore, about twelve hours of even ebb and flow, six hours each on the average and taking the world as a whole: because the earth takes twenty-four hours to go round.
But if you were to act upon that first principle only in any one part of the world, and to say without testing the thing in practice, “I can calculate the tide theoretically,” you would very often wreck your ship. For many other principles come into play in the matter of the tide besides this twelve-hour period. In one case the tide will be delayed by shoals or by the current of a river. In another there may be two or three tides meeting. In a third the sea will be so locked that there will be hardly any tide for many hours, and then a rush at the end—and so on.
Now it is just the same with Economics. Your economic first principle makes you come to such and such a theoretical conclusion. But there are a lot of other first principles at work, and they may modify the effect in practice to any extent. When people object to “theoretical dreaming,” as they call it, they mean the bad habit of thinking that one conclusion from one particular set of first principles is sufficient and will apply to any set of circumstances. It never does. One has always to watch the thing in practice, and see what other forces come in.
In the political applications of economic science we have to deal with the effect of human society upon economic law. For instance: economic law tells us that, given a certain standard of living for labour—the “worth while” of labour—and a certain minimum profit without which capital will not accumulate—the “worth while” of capital—there is, as we have seen, a lowest limit of production; a set of conditions below which production will not take place. Land which is below a certain standard of fertility will not be farmed; a vein of metal below a certain standard of yield will not be mined under such and such social conditions. But all circumstances in which production has greater advantages than this lowest limit produce a surplus value called “Rent.” That is an economic law, and it is always true.
But it does not follow that the owner of the land, for instance, will get the full economic rent of the land. There may be customs in society, or laws, by which he is compelled to share with the tenant. The theoretical economic rent is there all right, but one cannot deduce from this truth that the landlord will necessarily and always get the whole of it. And so it is with every other political application.
Having said so much by way of Preface, let us turn to the particular problems, and first of all consider the idea which underlies all practical economic conclusions, the idea of Property.
The very first governing condition of economic production and distribution in the real world is the condition of control. Who controls the process of production in any particular Society? Who in it owns (that is, has the right and power to use or leave idle, to distribute or withhold) the means of production, the stores of food and clothing, and houses and machinery? On the answer to that question depends the economic structure of a society. This control is called Property, and as the first thing we have to study in practical Economics is the character of Property, we will make that the first division of our political applications.