Part 20

In all this the significant innovation lies not so much in the character of the details. They are for the most part commonplace enough as details of the sciences from which they are borrowed. They are shrewdly chosen and handled in such a way as to bring out their bearing upon the ulterior questions about which the economist's interest centers; but there is, as might be expected, little attempt to go back of the returns given by specialists in the several lines of research that are laid under contribution. But the significance of it all lies rather in the fact that material of this kind should have been drawn upon for a foundation for economic theory, and that it should have seemed necessary to Professor Schmoller to make this introductory survey so comprehensive and so painstaking as it is. Its meaning is that these features of human nature and these forces of nature and circumstances of environment are the agencies out of whose interaction the economic situation has arisen by a cumulative process of change, and that it is this cumulative process of development, and its complex and unstable outcome, that are to be the economist's subject-matter. The theoretical outcome for which such a foundation is prepared is necessarily of a genetic kind. It necessarily seeks to know and explain the structure and functions of economic society in terms of how and why they have come to be what they are, not, as so many economic writers have explained them, in terms of what they are good for and what they ought to be. It means, in other words, a deliberate attempt to substitute an inquiry into the efficient causes of economic life in the place of empirical generalisations, on the one hand, and speculations as to the eternal fitness of things, on the other hand.

It follows from the nature of the case that an economics of this genetic character, working on grounds of the kind indicated, comprises nothing in the way of advice or admonition, no maxims of expediency, and no economic, political, or cultural creed. How nearly Professor Schmoller conforms to this canon of continence is another question. The above indicates the scope of such doctrines as are consistently derivable from the premises with which the work under review starts out, not the scope of its writer's speculations on economic matters.

The second book, by the help of prehistoric and ethnographic material as well as history, deals with the evolution of the methods of social organisation,--the growth of institutions in so far as this growth shapes or is shaped by the exigencies of economic life. The "organs," or social-economic institutions, whose life history is passed in review are: the family; the methods of settlement and domicile, in town and country; the political units of control and administration; differentiation of functions between industrial and other classes and groups; ownership, its growth and distribution; social classes and associations; business enterprise, industrial organisations and corporations.

As regards the singleness of purpose with which Professor Schmoller has carried out the scheme of economic theory for which he has sketched the outlines and pointed the way, it is not possible to speak with the same confidence as of his preliminary work. It goes without saying that this further work of elaboration is excellent after its kind; and this excellence, which was to be looked for at Professor Schmoller's hands, may easily divert the reader's attention from the shortcomings of the work in respect of kind rather than of quality. Now, while a broad generalisation on this head may be hazardous and is to be taken with a large margin, still, with due allowance, the following generalisation will probably stand, so far as regards this first volume. So long as the author is occupied with the life-history of institutions down to contemporary developments, so long his discussion proceeds by the dry light of the scientific interest, simply, as the term "scientific" is understood among the modern adepts of the natural sciences; but so soon as he comes to close quarters with the situation of to-day, and reaches the point where a dispassionate analysis and exposition of the causal complex at work in contemporary institutional changes should begin, so soon the scientific light breaks up into all the colors of the rainbow, and the author becomes an eager and eloquent counselor, and argues the question of what ought to be and what modern society must do to be saved. The argument at this point loses the character of a genetic explanation of phenomena, and takes on the character of appeal and admonition, urged on grounds of expediency, of morality, of good taste, of hygiene, of political ends, and even of religion. All this, of course, is what we are used to in the common run of writers of the historical school; but those students whose interest centers in the science rather than in the ways and means of maintaining the received cultural forms of German society have long fancied they had ground to hope for something more to the purpose when Professor Schmoller came to put forth his great systematic work. Brilliant and no doubt valuable in its way and for its end, this digression into homiletics and reformatory advice means that the argument is running into the sands just at the stage where the science can least afford it. It is precisely at this point, where men of less years and breadth and weight would find it difficult to hold tenaciously to the course of cause and effect through the maze of jarring interests and sentiments that make up the contemporary situation,--it is precisely at this point that a genetic theory of economic life most needs the guidance of the firm, trained, dispassionate hand of the master. And at this point his guidance all but fails us.

What has just been said applies generally to Professor Schmoller's treatment of contemporary economic development, and it should be added that it applies at nearly all points with more or less of qualification. But the qualifications required are not large enough to belie the general characterisation just offered. It would be asking too large an indulgence to follow the point up in this place through all the discussions of the volume that fairly come under this criticism. The most that may be done is to point for illustration to the handling which two or three of the social-economic "organs" receive. So, for instance, Book II. opens with an account of the family and its place and function in the structure of economic society. The discussion proceeds along the beaten paths of ethnographic research, with repeated and well-directed recourse to the psychological knowledge that Professor Schmoller always has well in hand. Coming down into recent times, the discussion still proceeds to show how the large economic changes of late mediaeval and early modern times acted to break down the patriarchal regime of the earlier culture; but at the same time there comes into sight (pp. 245-249) a bias in favor of the recent as against the earlier form of the household. The author is no longer content to show the exigencies which set the earlier patriarchal household aside in favor of the modified patriarchal household of more recent times. He also offers reasons why the later, modified form is intrinsically the more desirable; reasons, it should perhaps be said, which may be well taken, but which are beside the point so far as regards a scientific explanation of the changes under discussion.

The closing paragraphs of the section (91) dwell with a kindly insistence on the many elements of strength and beauty possessed by the form of household organisation handed down from the past generation to the present. The facts herewith recited by the author are, no doubt, of weight, and must be duly taken account of by any economist who ventures on a genetic discussion of the present situation and the changing fortunes of the received household. But Professor Schmoller has failed even to point out in what manner these elements of strength and beauty have in the recent past or may in the present and immediate future causally affect the fortunes of the institution. The failure to turn the material in question to scientific account becomes almost culpable in Professor Schmoller, since there are few, if any, who are in so favorable a position to outline the argument which a theoretical account of the situation at this point must take. Plainly, as shown by Professor Schmoller's argument, economic exigencies are working an incessant cumulative change in the form of organisation of the modern household; but he has done little towards pointing out in what manner and with what effect these exigencies come into play. Neither has he gone at all into the converse question, equally grave as a question of economic theory, of how the persistence, even though qualified, of the patriarchal family has modified and is modifying economic structure and function at other points and qualifying or accentuating the very exigencies themselves to which the changes wrought in the institution are to be traced. Plainly, too, the strength and beauty of the traditionally received form of the household--that is to say, the habits of life and of complacency which are bound up with this household--are elements of importance in the modern situation as affects the degree of persistence and the direction of change which this institution shows under modern circumstances. They are psychological facts, facts of habit and propensity and spiritual fitness, the efficiency of which as live forces making for survival or variation is in this connection probably second to that of no other factors that could be named. We had, therefore, almost a right to expect that Professor Schmoller's profound and comprehensive erudition in the fields of psychology and cultural growth should turn these facts to better ends than a preachment concerning an intrinsically desirable consummation.

Regarding the present visible disintegration of the family, and the closely related "woman question," Professor Schmoller's observations are of much the same texture. He notes the growing disinclination to the old-fashioned family life on the part of the working population, and shows that there are certain economic causes for this growth or deterioration of sentiment. What he has to offer is made up of the commonplaces of latter-day social-economic discussion, and is charged with a strong undertone of deprecation. What the trend of the causes at work to alter or fortify this body of sentiment may be, counts for very little in what he says on the present movement or on the immediate future of the institution. The best he has to offer on the "woman question" is an off-hand reference of the ground of sentiment on which it rests to a recrudescence of the eighteenth century spirit of egalite. This notion of the equality of the sexes he refutes in graceful and affecting terms, and he pleads for the unbroken preservation of woman's sphere and man's primacy; as if the matter of superiority or inferiority between the sexes could conceivably be anything more than a conventional outcome of the habits of life imposed upon the community by the circumstances under which they live. How it has come to pass that under the economic exigencies of the past the physical and temperamental diversity between the sexes has been conventionally construed into a superiority of the man and an inferiority of the woman,--on this head he has no more to say or to suggest than on the correlate question of why this conventional interpretation of the facts has latterly not been holding its ancient ground. The discussion of the family and of the relation of the sexes, in modern culture, is marked throughout by unwillingness or inability to penetrate behind the barrier of conventional finality.

The discussion of the family just cited occupies the opening chapter of Book II. For a further instance of Professor Schmoller's handling of a modern economic problem, reference may be had to the closing chapter of Book I., on the "Development of Technological Expedients and its Economic Significance," but more particularly the sections (84-86) on the modern machine industry (pp. 211-228). In this discussion, also, the point of interest is the attention given to the latter-day phenomena of machine industry, and the author's method and animus in dealing with them. There is (pp. 211-218) a condensed and competent presentation of the main characteristics of the modern "machine age," followed (pp. 218-228) by a critical discussion of its cultural value. The customary eulogy, but with more than the customary discrimination, is given to the advantages of the regime of the machine in point of economy, creature comforts, and intellectual sweep; and it is pointed out how the regime of the machine has brought about a redistribution of wealth and of population and a reorganisation and redistribution of social and economic structures and functions. It is pointed out (p. 223) that the gravest social effect of the machine industry has been the creation of a large class of wage laborers. The material circumstances into which this class has been thrown, particularly in point of physical comfort, are dealt with in a sober and discriminating way; and it is shown (p. 224) that in the days of its fuller development the machine's regime has evolved a class of trained laborers who not only live in comfort, but are sound and strong in mind and body. But with the citation of these facts the pursuit of the chain of cause and effect in this modern machine situation comes to an end. The remainder of the space given to the subject is occupied with extremely sane and well-advised criticism, moral and aesthetic, and indications of what the proper ideals and ends of endeavor should be.

Professor Schmoller misses the opportunity he here has of dealing with this material in a scientific spirit and with some valuable results for economic theory. He could, it is not too bold to assume, have sketched for us an effective method and line of research to be pursued, for instance, in following up the scientific question of what may be the cultural, spiritual effects of the machine's regime upon this large body of trained workmen, and what this body of trained workmen in its turn counts for as a factor in shaping the institutional growth of the present and the economic and cultural situation of to-morrow. Work of this kind, there is reason to believe, Professor Schmoller could have done with better effect than any of his colleagues in the science; for he is, as already noticed above, possessed of the necessary qualifications in the way of psychological training, broad knowledge of the play of cause and effect in cultural growth, and an ability to take a scientific point of view. Instead of this he harks back again to the dreary homiletical waste of the traditional Historismus. It seems as if a topic which he deals with as an objective matter so long as it lies outside the sphere of every-day humanitarian and social solicitude, becomes a matter to be passed upon by conventional standards of taste, dignity, morality, and the like, so soon as it comes within the sweep of latter-day German sentiment.

This habit of treating a given problem from these various and shifting points of view at times gives a kaleidoscopic effect that is not without interest. So in the matter of the technically trained working population in the machine industry, to which reference has already been made, something of an odd confusion appears when expressions taken from diverse phases of the discussion are brought side by side. He speaks of this class at one point (p. 224) as "sound, strong, spiritually and morally advancing," superior in all these virtues to the working classes of other times and places. At another point (pp. 250-253) he speaks of the same popular element, under the designation of "socialists," as perverse, degenerate, and reactionary. This latter characterisation may be substantially correct, but it proceeds on grounds of taste and predilection, not on grounds of scientifically determinable cause and effect. And the two characterisations apply to the same elements of population; for the substantial core and tone-giving factor of the radical socialistic element in the German community is, notoriously, just this technically trained population of the industrial towns where the discipline of the machine industry has been at work with least mitigation. The only other fairly isolable element of a radical socialistic complexion is found among the students of modern science. Now, further, in his speculations on the relation of technological knowledge to the advance of culture, Professor Schmoller points out (e.g., p. 226) that a high degree of culture connotes, on the whole, a high degree of technological efficiency, and conversely. In this connection he makes use of the terms Halbkulturvoelker and Ganskulturvoelker to designate different degrees of cultural maturity. It is curious to reflect, in the light of what he has to say on these several heads, that if the socialistically affected, technically trained population of the industrial towns, together with the radical-socialistic men of science, were abstracted from the German population, leaving substantially the peasantry, the slums, and the aristocracy great and small, the resulting German community would unquestionably have to be classed as a Halbkulturvoelk in Professor Schmoller's scheme. Whereas the elements abstracted, if taken by themselves, would as unquestionably be classed among the Ganskulturvoelker.

In conclusion, one may turn to the concluding chapter (Book II., Chapter vii.) of the present volume for a final illustration of Professor Schmoller's method and animus in handling a modern economic problem. All the more so as this chapter on business enterprise better sustains that scientific attitude which the introductory outline leads the reader to look for throughout. It shows how modern business enterprise is in the main an outgrowth of commercial activity, as also that it has retained the commercial spirit down to the present. The motive force of business enterprise is the self-seeking quest of dividends; but Professor Schmoller shows, with more dispassionate insight than many economists, that this self-seeking motive is hemmed in and guided at all points in the course of its development by considerations and conventions that are not of a primarily self-seeking kind. He is not content to point to the beneficent working of a harmony of interests, but sketches the play of forces whereby a self-seeking business traffic has come to serve the interests of the community. Business enterprise has gradually emerged and come into its present central and dominant position in the community's industry as a concomitant of the growth of individual ownership and pecuniary discretion in modern life. It is therefore a phase of the modern cultural situation; and its survival and the direction of its further growth are therefore conditioned by the exigencies of the modern cultural situation. What this modern cultural situation is and what are the forces, essentially psychological, which shape the further growth of the situation, no one is better fitted to discuss than Professor Schmoller; and he has also given valuable indications (pp. 428-457) of what these factors are and how the inquiry into their working must be conducted. But even here, where a dispassionate tracing-out of the sequence of cause and effect should be easier to undertake, because less readily blurred with sentiment, than in the case, e.g., of the family, the work of tracing the developmental sequence tapers off into advice and admonition proceeding on the assumption that the stage now reached is, or at least should be, final. The attention in the later pages diverges from the process of growth and its conditioning circumstances, to the desirability of maintaining the good results attained and to the ways and means of holding fast that which is good in the outcome already achieved. The question to which an answer is sought in discussing the present phase of the development is not a question as to what is taking place as respects the institution of business enterprise, but rather a question as to what form should be given to an optimistic policy of fostering business enterprise and turning it to account for the common good. At this point, as elsewhere, though perhaps in a less degree than elsewhere, the existing form of the institution is accepted as a finality. All this is disappointing in view of the fact that at no other point do modern economic institutions bear less of an air of finality than in the forms and conventions of business organisations and relations. As Professor Schmoller remarks (p. 455), the scope and character of business undertakings necessarily conform to the circumstances of the time, not to any logical scheme of development from small to great or from simple to complex. So also, one might be tempted to say, the expediency and the chance of ultimate survival of business enterprise is itself an open question, to be answered by a scrutiny of the forces that make for its survival or alteration, not by advice as to the best method of sustaining and controlling it.

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What has here been said in criticism of Professor Schmoller's work, particularly as regards his departure from the path of scientific research in dealing with present-day phenomena, may, of course, have to be qualified, if not entirely set aside, when his work is completed with the promised genetic survey of modern institutions to be set forth in the concluding fourth book. Perhaps it may even be said that there is fair hope, on general grounds, of such a consummation; but the present volume does not afford ground for a confident expectation of this kind. It is perhaps needless, perhaps gratuitous, to add that the strictures offered indicate, after all, but relatively slight shortcomings in a work of the first magnitude.

FOOTNOTES:

Reprinted by permission from The Quarterly Journal of Economics, Vol. XVI, Nov., 1901.

Grundriss der allgemeinen Volkswirtschaftslehre. Erster Teil. Leipzig, 1900.

E.g., K. Buecher's Entstehung der Volkswirtschaft, and Arbeit und Rythmus; R. Hildebrand's Recht und Sitte; Knapp's Grundherrschaft und Rittergut; Ehrenberg's Zeitalter der Fugger; R. Mucke's various works.

A physiological conception of society, or of the community, had been employed before,--e.g., by the Physiocrats,--and such a concept was reached also by English speculators--e.g., Herbert Spencer--during Roscher's lifetime; but these physiological conceptions of society are reached by a different line of approach from that which led up to the late-Hegelian physiological or biological conception of human culture as a spiritual structure and process. The outcome is also a different one, both as regards the use made of the analogy and as regards the theoretical results reached by its aid.

It may be remarked, by the way, that neo-Hegelianism, of the "Left," likewise gave rise to a theory of a self-determining cultural exfoliation; namely, the so-called "Materialistic Conception of History" of the Marxian socialists. This Marxian conception, too, had much of a physiological air; but Marx and his coadjutors had an advantage over Roscher and his following, in that they were to a greater extent schooled in the Hegelian philosophy, instead of being uncritical receptacles of the Romantic commonplaces left by Hegelianism as a residue in popular thought. They were therefore more fully conscious of the bearing of their postulates and less naive in their assumptions of self-sufficiency.

E.g., in his controversy with Treitschke. See Grundfragen der Socialpolitik und der Volkswirtschaftslehre, particularly pp. 24, 25.

E.g., Grundriss, pp. 225, 409, 411.

INDUSTRIAL AND PECUNIARY EMPLOYMENTS

For purposes of economic theory, the various activities of men and things about which economists busy themselves were classified by the early writers according to a scheme which has remained substantially unchanged, if not unquestioned, since their time. This scheme is the classical three-fold division of the factors of production under Land, Labor, and Capital. The theoretical aim of the economists in discussing these factors and the activities for which they stand has not remained the same throughout the course of economic discussion, and the three-fold division has not always lent itself with facility to new points of view and new purposes of theory, but the writers who have shaped later theory have, on the whole, not laid violent hands on the sacred formula. These facts must inspire the utmost reserve and circumspection in any one who is moved to propose even a subsidiary distinction of another kind between economic activities or agents. The terminology and the conceptual furniture of economics are complex and parti-colored enough without gratuitous innovation.

It is accordingly not the aim of this paper to set aside the time-honored classification of factors, or even to formulate an iconoclastic amendment, but rather to indicate how and why this classification has proved inadequate for certain purposes of theory which were not contemplated by the men who elaborated it. To this end a bit of preface may be in place as regards the aims which led to its formulation and the uses which the three-fold classification originally served.

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The economists of the late eighteenth and early nineteenth centuries were believers in a Providential order, or an order of Nature. How they came by this belief need not occupy us here; neither need we raise a question as to whether their conviction of its truth was well or ill grounded. The Providential order or order of Nature is conceived to work in an effective and just way toward the end to which it tends; and in the economic field this objective end is the material welfare of mankind. The science of that time set itself the task of interpreting the facts with which it dealt, in terms of this natural order. The material circumstances which condition men's life fall within the scope of this natural order of the universe, and as members of the universal scheme of things men fall under the constraining guidance of the laws of Nature, who does all things well. As regards their purely theoretical work, the early economists are occupied with bringing the facts of economic life under natural laws conceived somewhat after the manner indicated; and when the facts handled have been fully interpreted in the light of this fundamental postulate the theoretical work of the scientist is felt to have been successfully done.

The economic laws aimed at and formulated under the guidance of this preconception are laws of what takes place "naturally" or "normally," and it is of the essence of things so conceived that in the natural or normal course there is no wasted or misdirected effort. The standpoint is given by the material interest of mankind, or, more concretely, of the community or "society" in which the economist is placed; the resulting economic theory is formulated as an analysis of the "natural" course of the life of the community, the ultimate theoretical postulate of which might, not unfairly, be stated as in some sort a law of the conservation of economic energy. When the course of things runs off naturally or normally, in accord with the exigencies of human welfare and the constraining laws of nature, economic income and outgo balance one another. The natural forces at play in the economic field may increase indefinitely through accretions brought in under man's dominion and through the natural increase of mankind, and, indeed, it is of the nature of things that an orderly progress of this kind should take place; but within the economic organism, as within the larger organism of the universe, there prevails an equivalence of expenditure and returns, an equilibrium of flux and reflux, which is not broken over in the normal course of things. So it is, by implication, assumed that the product which results from any given industrial process or operation is, in some sense or in some unspecified respect, the equivalent of the expenditure of forces, or of the effort, or what not, that has gone into the process out of which the product emerges.

This theorem of equivalence is the postulate which lies at the root of the classical theory of distribution, but it manifestly does not admit of proof--or of disproof either, for that matter; since neither the economic forces which go into the process nor the product which emerges are, in the economic respect, of such a tangible character as to admit of quantitative determination. They are in fact incommensurable magnitudes. To this last remark the answer may conceivably present itself that the equivalence in question is an equivalence in utility or in exchange value, and that the quantitative determination of the various items in terms of exchange value or of utility is, theoretically, not impossible; but when it is called to mind that the forces or factors which go to the production of a given product take their utility or exchange value from that of the product, it will easily be seen that the expedient will not serve. The equivalence between the aggregate factors of production in any given case and their product remains a dogmatic postulate whose validity cannot be demonstrated in any terms that will not reduce the whole proposition to an aimless fatuity, or to metaphysical grounds which have now been given up.