and certain economists have tried to read them out of the market.1 By way of explanation it has been urged that these items would be eliminated, if all property were held by a single owner; hence they are not "social" wealth. But this is a curious defense for those who insist that competition and multiple ownership are "normal." For the present purpose it is important to remember in this connection that the bulk of civil law is a set of precedents delimiting the conflicting property and civil rights that enter into exchange. To assume that a formal legal change, such as transference of titles to the state, would eliminate not merely these intangible forms of property but also all the conflicts in the great complex fabric of human interests in our highly specialized society is to join hands with the state socialists. And yet it seems to be just this assumption that has enabled economic theorists to overlook the conflicts of interest that are the essence of modern economic problems and hypothecate for the pure science a pre-established harmony. That it is

1 A. Marshall, op. cit., 60-61, 76ff. Marshall classifies wealth and capital as individual and social or cosmopolitan. But "By far the most important usage of the term Capital in general, i. e. from the social point of view, is in the inquiry how the three agents of production . . . contribute to producing the national income . . . and how that income is distributed among the three agents," 78. (Italics are the present writer's). Taussig eliminates all gains by one enterprise at some one else's expense from the class "productive activities" by asking "whether the labor adds to the sum of utilities" (yours being added to mine apparently). Op. cit., chap. II, secs. 3, 4. On capital he applies a cancellation of inter-individual claims to distinguish individual from social. "For the purposes of economic study, we shall disregard the individual's point of view. . . In speaking of capital we shall have in mind real things, and not the right to things. . ., the community's apparatus of production" (83-84). But how can non-predacious labor and social capital be used to explain actual competitive prices? For Ely, intangibles cancel from the social point of view. But good-will, etc., must be included in a pecuniary estimate even of social wealth, op. cit., 109-111. Some writers discuss only the elimination of inter-individual debts. For this it is only necessary to conceive physical objects to which titles attach as held unencumbered by debt. It is not clear what disposal is to be made of the public debt. Fisher, op. cit., 51ff., especially 56; Fetter, op. cit., 265. (But see 282–3 on intangibles.) Seligman, op. cit., 20.

Comparing the present situation with "natural value" in an imaginary Crusoe or collectivist economy is another way of eliminating intangibles and conflicts of interests from consideration. Cf. Davenport, Value and Distribution, 358ff. H. G. Brown appears to use this method, Economic Science and Modern Welfare, 1923, II, 14-15. He recognizes immaterial and predatory capital (82-83) as things which might be prohibited (167)-minor discrepancies in our organization-but adheres on the whole to a productivity rather than a profitivity analysis.

not merely a materialistic bias that is involved would seem to be attested by the omission from consideration of certain tangible goods as well,-shyster lawyers' libraries, bill boards, adulterated products, etc.

If property rights attach to other things than physical objects and processes, so also pecuniary value attaches to property by virtue of other than technological performance. Making money is broader than making goods,-it includes creating a market as well. One can adapt a man's desires to one's product as well as adapt the product to the man's desires; 1 economic guidance is a part of "value production." Business includes much beside industry. It is important not only to use little and produce much, but to buy cheap and sell dear, especially under conditions of inadequate information, partial monopolies and trade ethics, economic friction in entering into alternative transactions, differences of skill in bargaining and persuasion, differences in ability to wait or to avoid the transaction altogether, in ability to take the matter to court and in the importance of the transaction as a precedent, variability of human tastes, overhead and joint costs. For making profit it is more important to bombard the consumer with an admixture of information and persuasion, establish advantageous business connections, make the most of the worker's weaknesses in bargaining, and hire lawyers to stretch one's legal rights for all they are worth, than to produce efficiently. It is a commonplace that the factors which play the major part in determining the policies of business management are exceptions to the (physical) productivity theory.

Thus far we have seen how the materialistic conception of economic goods and processes has led to an economic theory in which imperfections in the competitive functioning of leaderless exchange coördination are viewed as abnormal. A profitivity theory, as distinguished from such a productivity theory, accounts for coördina- (

1 J. M. Clark, "Economics and Modern Psychology, II", Journal of Political Economy, xxvi, 138.

2 Veblen, Theory of Business Enterprise, 24; The Engineers and the Price System, 1921, 34ff.

3 It is significant that the generally recognized exceptions to the purely industrial conception of production suggest no breach in the harmony of specialist interests:-(1) human services, (2) risk-assumption, (3) discovering the best bids and offers, (4) locating buyer and seller for each other and altering the size of units dealt in, (5) specializing on (2) (3) and (4) in the loan market, (6) anticipating market fluctuations and discounting them, etc. Where specific business operations are excluded from "production," description and appraisal become hopelessly confused. Taussig, op. cit., 20ff, 24, 25-6

tion and coincidence of interests insofar as maximizing net profit involves as by-products both turning out goods for consumption and economizing on the materials, equipment, and labor-sacrifice required, and only insofar. It also accounts for conflicts of interests and rights, for one man's gaining a merely differential advantage1 at some one else's expense. Thus it reconciles the classical conflict between the economist's explanation of leaderless coördination and the socialist's desire to explain economic "illfare." But we have yet to inquire:-Just what sorts of discrepancies in price as a measure of social welfare, as an incentive to and reward for productive services to others, as a distributor of the power to call on others for service, arise from these conflicts of interests? What sort of standard of welfare can we apply to these discrepancies, that will indicate the direction in which a remedy should lie?

It is clear that money, price, and exchange, while they accomplish a rough, approximate coördination of specialists, often lead people not only to profit at the expense of others, but also to get themselves into difficulties. Each, seeking his own greatest gain, helps to bring about a result which was no part of his intention. But that result is not always the common good of the self-seeking parties; 2 it may be a common misfortune,-cut-throat competition, a business depression, a war among the nations of which they are subjects, or waste of the national resources. Because there are imperfections in the pecuniary standard, because making money does not necessarily mean making goods nor making goods always mean making money, each seeking his own differential pecuniary advantage may help to get himself as well as everyone else into trouble.

If our property and other civil-economic rights were such that each person or organization, in entering or refraining from any

(Also Carver, op. cit., 37ff., 193ff., unless he means to confine his efforts purely to formulating a standard of appraisal.)

For our present purpose it is merely a nominal alteration of a productivity theory to insist on measurement of product in pecuniary terms. "Value productivity rendered" to the consumer is hardly better to confuse with gross revenue or net profit as the item to be distributed or to be maximized with respect to the size of the firm and the proportion of factors than is service rendered. Production and acquisition need to be distinguished.

1 For the concept of "differential advantage" cf. Veblen, Place of Science. 361; Theory of Business Enterprise, 126.

2 Cf. Veblen, Place of Science, 292–3; Theory of Business Enterprise, 27, 301; Walton H. Hamilton, "The Price System and Social Policy," Jour. Pol. Econ. xxvi, 66, 1918; S. and B. Webb, The Decay of Capitalist Civilization, 1923, 183; Carver, op. cit., 359.

transaction, had to bear all the costs and could reap all the gains of so doing, we should probably be safe in assuming the coincidence of individual interests and the common welfare. This would imply that each independent fiscal unit, family, business enterprise, state, municipality, etc., could increase the volume of services it received from others only by increasing its money payments to them, could decrease its money payments only by decreasing the burden on them, could increase its money receipts only by increasing the service rendered, and could decrease its service rendered only by suffering a fall in money receipts-save only for lending and borrowing. In other words money-and the commercial banking system-would be performing perfectly the function of keeping score in the great game of getting a living,-the function of a social cost-accounting system.1 Under such circumstances consumer's demand might shape business policy rather than conversely, and technological efficiency might be the chief task of business management.

But it is obvious that things are far otherwise today. Thus, in spite of the pronouncements of economic theorists, under the present system of civil-economic rights, it pays differentially to make the work go around. Laborers "go slow," and business men are concerned to create as big a market as they can-to get as much business as possible. A "favorable balance of trade" helps to make the work go around, and differentially is advantageous, perhaps to everyone in the country-it helps to start the upward swing of the

1 To those whose theory has rested on the assumption that this is the current state of affairs (or what comes to the same thing on the confusion of making money with making goods in a physical sense) it has seemed that any government interference with exchange coördination was uneconomical, because it led to an incorrect reckoning of costs and gains and so to discrepancies in our social cost accounting. Thus the Law of Comparative Cost underlies the chief argument for free trade. Doubtless this cost accounting bias has had somewhat to do with the persistence of the Laissez-faire theory, and more recently, through the recognition of discrepancies already present, with its gradual dismemberment, particularly in "applied economics." This cost accounting bias may be taken as one of the strands of more permanent value woven temporarily into the fabric of Laissez-faire.

As instances of fairly explicit commitments on the perfection of functioning of our social cost-accounting institutions we may cite the following. (It is usual to qualify the statement by making it a "tendency," since, with economic friction, it requires time for a dynamic society to attain the points of static equilibrium). J. B. Clark, op. cit., 75–78; Taylor, op. cit., 322, 76, 81; Seligman, op. cit., 34. Cf. also Fisher, op. cit., 73ff. His definition of interaction (production) states that the giver of the benefit is always credited with it and the recipient is debited with it as a cost. It is distinctly a cost-accounting conception.

business cycle. There is more truth in Mercantilism than most economists have been prepared to admit, and hence it survives all their protests. For the proper functioning of exchange coördination in the country it is often important to "keep the dollar circulating at home.” The classical refutation of the Mercantilist contentions, more explicitly than the contentions themselves, runs in terms of a long-time trend, and it confuses the common welfare with differential advantage. What is required is an investigation in the light of a differential profitivity theory of the bearing of the Mercantilist contentions on the cyclical deviations from the secular trend. To recognize such imperfections in the functioning of exchange coördination is to recognize (1) that it pays differentially to do many things that are at best of doubtful advantage to the community and (2) that undertakings in the common interest do not necessarily pay any of the independent fiscal units acting in severalty. Frequently one is in a position to acquire or dispose of legal rights, when their exchange-value or exchange cost to him offers a sufficient pecuniary inducement, but when to do so conflicts with the economic interests of others who are unable under our present legal and economic institutions to command appropriate compensation. Or, one's legal rights may offer only an inadequate pecuniary inducement to perform a service for others, because existing law and practice does not enable one to collect from all of those who benefit by it.

But if we are to be able to get any general agreement as to how a case of differential advantage should be handled, we shall have to carry our analysis farther than this. In the first place we must be able to specify the parties whose interests are affected adversely or favorably, but do not affect the decision of the party to whose differential advantage it is to enter or refrain from a particular transaction, the party in discretion. We may designate those whose welfare is involved but not considered as the non-discretionary parties. In some cases they may be parties to the transaction which affects them for better or worse, in some cases they may be competing for the transaction, and again they may be only remotely related to the market in which it takes place. Another aspect of differential advantage, which is of importance by virtue of the limits which it imposes on precision, is the kind of interest of the nondiscretionary parties affected. The cases which should be capable of a fairly accurate treatment are those in which the money income or outlays of the non-discretionary parties are affected, or perhaps