§ 2. Economics is then the science which investigates man's action in the ordinary business of life. It pursues the inquiries: Questions to be investigated. How does economic freedom tend, so far as its influence reaches, to arrange the demand for wealth and its production, distribution and exchange? What organization of industry and trade does economic freedom tend to bring about; what forms of division of labour; what arrangements of the money market, of wholesale and retail dealing, and what relations between employer and employed? How does it tend to adjust values, that is, the prices of material things whether produced on the spot or brought from a distance, rents of all kinds, interest on capital and the earnings of all forms of work, including that of undertaking and managing business enterprises? How does it affect the course of foreign trade? Subject to what limitations is the price of anything a measure of its real utility? What increase of happiness is prima facie likely to result from a given increase in the wealth of any class of society? How far is the industrial efficiency of any class impaired by the insufficiency of its income? How far would an increase of the income of any class, if once effected, be likely to sustain itself through its effects in increasing their efficiency and earning power? How far does, as a matter of fact, the influence of economic freedom reach (or how far has it reached at any particular time) in any place, in any rank of society, or in any particular branch of industry? What other influences are most powerful there; and how is the action of all these influences combined? In particular, how far does economic freedom tend of its own action to build up combinations and monopolies, and what are their effects? How are the various classes of society likely to be affected by its action in the long run; what will be the intermediate effects while its ultimate results are being worked out; and, account being taken of the time over which they will spread, what is the relative importance of these two classes of ultimate and intermediate effects? What will be the incidence of any system of taxes? What burdens will it impose on the community, and what revenue will it afford to the State? The above are the main questions with which economic science has to deal directly, and with reference to which its main work of collecting facts, of analysing them and reasoning about them should be arranged. This work supplies part of the material which conscience and common sense have to turn to account in solving practical problems. Practical issues lying partly within the range of § 3. The practical issues which, though lying for the greater part outside the range of economic science, yet supply a chief motive in the background to the work of the economist, vary from time to time, and from place to place, even more than do the economic facts and conditions which form the material of his studies. The following problems seem to be of special urgency now in our own country : economics. How should we act so as to increase the good and diminish the evil influences of economic freedom, both in its ultimate results and in the course of its progress? If the first are good and the latter evil, but those who suffer the evil, do not reap the good; how far is it right that they should suffer for the benefit of others? Taking it for granted that a more equal distribution of wealth is to be desired, how far would this justify changes in the institutions of property, or limitations of free enterprise even when they would be likely to diminish the aggregate of wealth? In other words, how far should an increase in the income of the poorer classes and a diminution of their work be aimed at, even if it involved some lessening of national material wealth? How far could this be done without injustice, and without slackening the energies of the leaders of progress? How ought the burdens of taxation to be distributed among the different classes of society? Ought we to rest content with the existing forms of division of labour? Is it necessary that large numbers of the people should be exclusively occupied with work that has no elevating character? Is it possible to educate gradually among the great mass of workers a new capacity for the higher kinds of work; and in particular for undertaking co-operatively the management of the businesses in which they are themselves employed? What are the proper relations of individual and collective action in a stage of civilization such as ours? How far ought voluntary association in its various forms, old and new, to be left to supply collective action for those purposes for which such action has special advantages? What business affairs should be undertaken by society itself acting through its Government, imperial or local? Have we, for instance, carried as far as we should the plan of collective ownership and use of open spaces, of works of art, of the means of instruction and amusement, as well as of those material requisites of a civilized life, the supply of which requires united action, such as gas and water, and railways? When Government does not itself directly intervene, how far should it allow individuals and corporations to conduct their own affairs as they please? How far should it regulate the management of railways and other concerns which are to some extent in a position of monopoly, and again of land and other things the quantity of which cannot be increased by man? Is it necessary to retain in their full force all the existing rights of property; or have the original necessities for which they were meant to provide, in some measure passed away? Are the prevailing methods of using wealth entirely justifiable? What scope is there for the moral pressure of social opinion in constraining and directing individual action in those economic relations in which the rigidity and violence of Government interference would be likely to do more harm than good? In what respect do the duties of one nation to another in economic matters differ from those of members of the same nation to one another1? 1 This chapter is reproduced with but little change, except the omission of a summary of Book I., from Principles I. vII. BOOK II. SOME FUNDAMENTAL NOTIONS. CHAPTER I. INTRODUCTORY. economics. § 1. SINCE Economics is the study of man's actions in the ordinary affairs of life, it needs to borrow more Difficulties of than other sciences do from the experiences and definition in suggestions of those who are not professed students. Its reasonings must therefore be expressed in language that is intelligible to the general public; it must endeavour to conform itself to the familiar terms of everyday life, and, so far as possible, to use them as they are commonly used. But unfortunately in common use almost every word has many shades of meaning, and therefore needs to be interpreted by the context: this difficulty, however, is not a very great one in practice; provided only it is faced boldly, and explanatory clauses are introduced freely whenever they are wanted. We must then analyse carefully the real characteristics of the various things with which we have to deal; and we shall thus generally find that there is some use of each term which has distinctly greater claims than any other to be called its leading use, on the ground that it represents a distinction that is more important for the purposes of modern |