these are the only sources, but that they are the most fundamental and far-reaching. The movement for restriction of immigration, for smaller families and for higher standards of living is directly in line with this teaching, if not directly inspired by it. So also is the movement for greater efficiency in production, and there is little doubt that the tendency on the part of intelligent trade union leaders to abandon restrictive practices and to coöperate in increasing the efficiency of labor is a result of better knowledge of economic forces on their part. Economic theory affords a basis for discriminating between earned and unearned incomes and its principles are seriously considered in the levying of taxes and the formulation of programs of social reform. A fair-minded consideration of the problem of inequality must lead to the conclusion that the economic theory of distribution can and will contribute much toward its solution. Although not all economists are agreed upon the best policy of international trade for a nation, the theorists on both sides have strongly influenced tariff legislation in many countries. The free trade policy of Great Britain is partly attributable to the teachings of Adam Smith without doubt; while protection in Germany and the United States has borrowed support from such economists as List and Carey. The disastrous situation of international trade in Europe to-day would be much less serious had its statesmen been more willing to heed the advice of economic theorists. To the distressing problem of German reparations and international indebtedness economics alone can present an answer; the ignoring of the economics of the situation that has characterized the policy of some of the nations has led to conditions which only emphasize this fact more clearly. The substantiation of the predictions of Keynes and other economists as to the probable effects of the Versailles treaty furnish remarkable evidence that the operation of international economic forces is well understood by economic theorists. The ease with which the United States has swung from a debtor to a creditor position, and the general understanding of the nature of the change on the part of the community is also not a little due to the knowledge of international trade processes furnished by economic theory. Finally, economic theory contributes to an understanding of the social organization as a whole, and to our knowledge of means for its improvement. By instructing us as to the underlying forces which direct and govern economic processes without any consciously arranged central plan, it gives us the knowledge necessary to judge of it merits as well as its defects. Liberalism as a philosophy of social organization draws its arguments chiefly from economic theory. Single Tax, Anarchism and Socialism as proposals for the reconstruction of the social organization do likewise. If we can be said to have any conscious general social policy to-day, or any program of progressive evolution, it is based on the teachings of economics in so far as it deals with economic affairs. The laissez-faire doctrine of Adam Smith and his followers permeates the thought of many political philosophers and more vaguely, perhaps, business men of to-day. To a great extent modern constitutions and governmental policies are based upon it. If in the future there is a continuance of the present trend toward greater collective control and coöperative industrial organization, it will be largely because of defects in the bases of our present structure revealed by economic theory. In carrying out the details of any such collective organization, moreover, economic theory will have to be drawn upon as a guide. 9. DIRECTIONS OF PROGRESS The foregoing analysis of recent developments in economic theory has tended to demonstrate the soundness of the point of view expressed at its beginning. The survey has shown how economic theory is now undergoing a progressive development toward greater completeness and accuracy, not by being re-created from entirely new. beginnings, but by gradual elaboration and modification of its original conceptions. The improvements resulting from this process that have been outlined may here be reviewed briefly. In the theory of value the crude cost doctrines of the classicists and the extreme hedonistic marginal utility analysis of the subjective economists are giving way to a more objective representation of the forces of supply and demand freed from faulty psychology. Values are shown to be fixed on the one hand, by the law of demand, resting in the choices and purchasing powers of consumers, and, on the other, by costs of production, resting in scarcity of the means of production. Distribution, likewise, is no longer viewed exclusively from the side of demand or supply, but the two explanations are brought together, each share of income being fixed by marginal productivity of the agent, which in turn depends on the scarcity of that agent in proportion to the other means of production. The erroneous physical and ethical implications of the phrase specific productivity are being discarded. Alongside of the deductive method of older economic theory the growth of statistics is making available a new means of approach to economic analysis which is being made good use of in a number of inductive studies, and is producing facts with which to correct economic theory and to make possible its application to con crete problems. There is manifest an excellent tendency to separate the purely descriptive aspects of economics from its ethical, welfare aspects, making for more unbiased and accurate statement of economic principles and laying the foundations for a more scientific applied economics. Some progress is also being made in bringing the terminology of economic theory into harmony with the language of business, but much confusion in the use of terms among economists still prevails. These developments represent real progress, notwithstanding the opinion of some critics to the contrary. That they have given us a science of economics of real usefulness appears evident from the sketch that was given of its practical achievements and possibilities. It is to be expected and desired that a further progressive development of economic theory along similar lines will take place in the future. That which is good in the older theory should be retained, but additions to it are needed which will fill in some of the gaps and overcome some of the difficulties now manifest. Value and distribution must retain their important place as the center of theory, because of the universality of exchange in all phases of economic life; but other branches of economics should be further developed, such as a detailed study of the principles underlying many of our economic institutions as yet not fully understood, as well as a more satisfactory analysis of consumption. The somewhat hazy relationship between costs and distributive shares is the phase of value and distribution theory most in need of further light. Better organization of statisticsgathering facilities is an important work containing great possibilities for increasing the usefulness of economics. From it may come many excellent inductive studies to supplement the deductive reasoning of theorists. Also the knowledge of facts about employment, efficiency, income shares, prices, and other phenomena that it gives us will afford the material for an applied science of economics that is not now possible. Nothing gives greater promise for the science in the immediate future than this. This applied economics must be developed parallel with but distinct from pure economics as a merely descriptive science. Merging ethical considerations with the formulation of general principles is to be avoided as unscientific and dangerous to the finding of truth. A much needed measure of reform is the standardization of the economist's vocabulary along the lines suggested, and it is to be hoped that such a work can be undertaken by a competent body which will command the respect of all. These are some of the directions in which it seems possible that progress in the further development of economic science can now be made. If the foregoing discussion has defended many of the past achievements of economic theory, it nevertheless has frankly recognized the existence of many things still needed, and pointed a way of approach to their attainment. Economics is not a finished, dead product whose perfection leaves no new paths for the eager seeker to find. There is opportunity for much valuable constructive work, but it is to be done not by destroying what has been built by years of careful workers' endeavor, but by building on the sound foundations which they have laid. THE ORGANIZATION AND CONTROL by SUMNER H. SLICHTER 1. Introduction 303 2. The Control of Economic Activity under Free Enterprise 3. Free Capitalistic Enterprise and Incentives 307 328 4. Free Capitalistic Enterprise and Costs 5. Economic Conflicts under Free Capitalistic Enterprise 6. Conclusions 340 347 350 |