TO THE RIGHT WITH THE ECONOMISTS
Classical philosophy does not yield a helpful method
of obtaining information about the world outside.
Classical economics does not yield a helpful method
of explaining how men acquire food, clothing and shelter.
Initially, one expects better results from economics,
because it deals with homely things like wheat, onions
and parlour furniture. It wastes little effort in
tracking down the Good, the True and the Beautiful.
But on closer examination it appears that unwarranted
identifications and high-order abstractions run riot
here, as in philosophy. Just because it seems to be
a more practical study, the results are perhaps even
Says Hogben in this connexion:
Instead of inventing a scientific nomenclature
free from extraneous associations, economics, like
theology, borrows its terms from common speech, defines
them in a sense different from and often opposite
to their accepted meaning, erects a stone wall of
logic on concealed verbal foundations, and defies
the plain man to scale it. The part of the real world
with which economics is concerned is bounded above
and below by the two covers of the dictionary.
Hogben finds a sample in the works of Professor Lionel
Robbins of the London School of Economics. Robbins
states the 'law' of supply and demand as a well-known
generalization of price theory. When some outside
body fixes a price below the market-price, demand
will exceed supply. Robbins then asks upon what foundations
this statement rests. Not upon any appeal to history,
he says. Not upon the results of controlled experiment.
'In the last analysis our proposition rests upon deductions
which are implicit in our initial definition of the
subject matter of economic science.'
Hogben, the biologist, is scandalized. Such stuff,
he says, is the astrology of the Power Age. The law
of supply and demand rests on a manipulation of words
rather than on verified observation. The process is
like a game of chess which depends on knowing the
initial definition of the moves.
A subject which admits to the dignity of law, statements
solely based on logical manipulation of verbal assertions
forfeits any right to be regarded as a science. In
science the final arbiter is not the self-evidence
of the initial statement, nor the facade of flawless
logic which conceals it.
Final validity in science rests on doing, on performing
an operation, not on talking.
A semantic analysis of economic theory would fill
a book in itself. It would be a volume both instructive
and depressing. Here we have space but for a few examples.
The economists are as far from agreement among themselves
as are the philosophers. This strongly suggests that
extrapolation and shaky assumptions dominate the field,
with the scientific method undeveloped. It is a safe
rule that any study where students cannot agree upon
what they are talking about is outside the scientific
I employ a skilled mechanic to mow my meadow and
cultivate my garden. He used to be employed in a Connecticut
mill, but a new machine was installed and he and some
others lost their work. So he is keeping himself and
his family alive as best he can at a fraction of his
former income. He was a victim of what is termed 'technological
unemployment.' A machine took his work from him, and
for a considerable period he could find no other work
to do. He might have left town, but he had bought
a house, his children were in school, his wife liked
the neighbourhood and to take to the road was a risky
venture with machinists out of work on every hand.
Now what do the classical economists do with my friend
They prove by irrefutable logic that technological
unemployment is impossible. I know what I am saying,
for I have debated the matter in public with classical
economists and can tick off the arguments with my
eyes shut. The logic proceeds like this: A new machine
is put into a pin factory to take the place of men.
The cost of making pins is lowered. Presently competition
lowers the price of pins as the machine is generally
adopted. Therefore housewives spend less money for
pins and have more money to spend for silk stockings.
Therefore the factories making stockings employ more
help and no unemployment results. On the other hand,
if the first factory has a monopoly of the new machine
and does not choose to lower the price of pins, the
owner of the factory takes in more money. This money
he either spends, let us say for a private aeroplane,
or invests in a new pin factory. Workers have to build
the aeroplane or the factory, giving more employment.
On purely logical grounds, you cannot get round it.
Employment shifts, but does not decline and the same
amount of money continues in circulation. Q.E.D.
How do you get round it? You look steadily at Roy
Thompson, at scores of still less fortunate Roy Thompsons.
You adopt the operational approach, disregard the
logic in your head and observe what is happening outside.
You are careful not to generalize from one or two
cases. In the world of fact, you find that men and
women frequently lose their jobs to machines, to stop-watch
efficiency methods, photo-electric cells, to improvements
in agricultural methods. You can count them if you
have the heart, leaving their benches and their tools
and going out upon the street.
You can examine the curves of output per man-hour
for this commodity and that and note how they have
been rising for fifty years. You can halt any working
man and ask him to tell you how he or his friends
have lost their work from time to time because of
new inventions. It is not hard to check and recheck
the facts of technological unemployment. Referents
for the term are very plentiful. Very good or rather,
very bad. Millions of Roys have suffered for a greater
or lesser period. Do they find other work? Many of
them do. Often like Roy, they learn new trades at
inferior pay. But the increasing obstinacy of unemployment
in the modern world indicates that many do not. Whether
they do or do not, certain relevant human factors
must be brought into the concept. Can Roy1,
after twenty years of working at a lathe shift his
skill to qualify as a linesman if men are wanted in
that field? Can Roy2, after living forty
years in Middletown with his roots driven deep pick
up his family and move to Seattle if men are wanted
on the docks? Can Roy3 now unemployed hibernate
like a woodchuck and live without eating because a
year hence there is to be a demand for machinists
in the television industry? Can Roy4 change
from man's work in a machine shop to women's work
in a rayon factory? What kind of employment awaits
him? Where does it await him? When does it await him?
It is two very different things to talk about 'technological
unemployment' as a net statistical effect and to observe
Roy in his perplexity and discouragement. If new inventions
speeds up, it is obvious that more men and women per
thousand are in transit from a job lost to a job hopefully
to be found. And what happens if the owner of the
factory does not care to buy a private aeroplane or
to invest in a new pin plant? Suppose he just puts
his money in the bank, and the bank just lets it stay
there? For the last eight years new investments in
private industry have been pitifully small compared
with earlier periods. What if we have as many pin
factories as prospects for profitable investment warrant?
These considerations by no means exhaust the question.
But perhaps I have given enough to show that knowledge
about technological unemployment, or indeed any kind
of employment, is not advanced by the syllogisms of
classical economists. The classicists treat the term
as thing-in-itself without finding the referents which
give it meaning. Most characteristics are left out.
Observe the brutality of the result. If one can prove
by logic that there can be no such thing as technological
unemployment, then any apparent idleness must he due
to human cussedness Roy must have been a slack worker,
improvident and wrong-headed and one can lean comfortably
back in one's chair with no need to do anything about
it. More, one can violently object to anybody's doing
anything about it, for this would interfere with the
functioning of 'economic law.'
'Unemployment' is not a thing. You cannot prove its
existence or nonexistence except as a word. The validity
of the concept rests on the shoulders of millions
of your fellow citizens. Are they suffering because
they have no work? Are their families suffering? Are
the children without shoes with which to go to school?
In March, 1937, I visited WPA kitchens in Savannah,
Georgia, where 4,500 schoolchildren certified as underweight
from malnutrition, were being fed. Savannah is neither
a large city nor a city of slums. If you cannot see
through the word 'unemployrnent' to ragged children
standing patiently in line with bowl and spoon, you
have no business hanging out your shingle as an economist.
Let us inspect another favorite abstraction of the
economic faculty: 'The function of business is to
supply the consumer with what he wants.' Translating
this to lower levels: The function of the radio business
is to supply Adam1 with a serviceable radio at a price
consistent with the cost of producing it. In the fall
of 1936, a leading radio trade journal made the following
The ear of the average consumer is
notoriously cauliflower when it comes to distinguishing
between good radio reception and bad. Since original
boorn-boom dynamic speakers superseded early high-pitched
magnetics, few improvements impinging upon the auditory
organs have been sufficiently obvious to nudge obsolete
receivers into oblivion without the aid of vocal mesmerisms
by some retail salesman. The public eye, on the other
hand, appears to be readily impressed, and we predict
the best year since 1929. Design for selling.
In short, do not build radios for the ear, because
there have been no recent improvements to warrant
new models; build them to sell an elegant Circassian
walnut cabinet. Here are some assorted vocal mesmerisms:
Vibracoustic Floating Sound Boards
Automatic Flash Tuner
What the radio industry does in the economic textbooks
is one thing; what it actually does is another. The
observation holds for most industries which can make
more goods in a year than people buy in a year, or
in more learned language, where capacity exceeds demand.
What a remarkable term is 'business', especially
in America! How is business? not your business,
but business-in-general. Statisticians toil over composite
graphs and charts to answer this mythological question.
If there is no such entity as 'business' and by
now we know there is not it seems a little superfluous
to be constantly taking its temperature. Business
says. Business speaks. Business recovers its voice.
Business views with alarm. Business is jubilant when
the Supreme Court votes down the NRA. Business is
sick. Business is terrible. Business runs through
a cycle charming image. Business has recovered:
Look at the chart there it is, as plain as the nose
on your face. Back to 1929. The curve says we are
all right, therefore we must be all right. What, eight
million unemployed; farmers in the Dust Bowl down
and out; share-croppers reach new depths of misery?
Forget it. Keep your eye on the chart.
This is pure hocus-pocus. Not only are there no dependable
referents to which we can hitch the chart, but those
to which it has been hitched 'carloadings', 'bank
loans', 'lumber production', 'cotton-mill consumption' cannot he combined into any composite curve which
does not violate mathematical sanity. A great mathematician,
Ivar Fredholm, calls such omnibus index numbers 'hermaphrodite
arithmetic monsters devoid of all sense'. At this
point we note a curious perversion of the scientific
attitude. Opinions as to the health of 'business'
are based on figures, rather than on hearsay
and hunches. We are looking, we believe, at cold facts.
We are scientific as hell. But the 'facts and figures'
we look at have been mutilated beyond meaning. Some
day we must give up prostrations before a phantom
'business', though the charts reach from Wall Street
to the moon. The term 'business' and its faithful
follower 'service', often prevent us from observing
what useful or useless things businessmen are actually
Many economists and statisticians believe it legitimate
to argue that industrial prosperity after a slump
will inevitably return, because their charts show
ups and downs in the past. They point to the scientific
nature of the 'proof'. But the graphs a real scientist
draws describe the conditions of an experiment arranged
by him. They can be used safely for drawing conclusions
only if similar conditions can he arranged.
The humps and hollows on the economists' charts refer
to changing conditions. There is no similar
arrangement and few valid conclusions are possible.
The context has changed and the result must be guesswork.
'Introducing graphs of supply and demand,' says Hogben,
'in a fictitious free-exchange economy does not make
economics an exact science.'
A business executive with whom I am associated asked
me the other day, 'What will be the reaction of the
public to the new laws for retail price maintenance?'
This was an important question, for as manufacturer,
wholesaler and retailer of a commodity he had to decide
a policy covering costs, prices, possible injunctions,
court orders, notification to retailers and so on.
Yet my colleague was trying to settle this critical
matter with the aid of a ghost.
There is no 'public' which is a useful concept in
the premises. Calling it 'John Q. Public' does not
help. Between us, we had to break down 'public' into
a series of interested groups New York retailers,
retailers in the West, jobbing houses, customers of
various kinds before we could know what we were
talking about and arrive at a valid decision. Observe
that in this case no theory was involved. As businessmen,
we had to determine, by the following Saturday morning,
a specific course of action involving the stability
and the jobs of a considerable business enterprise.
Formal economics wanders in a veritable jungle of
abstract terms. Here is a sample of the flora:
wages; the iron law of wages
interest; the long-term interest rate
profit the profit system
money: the gold standard
credit; debt; savings; securities
inflation; deflation; reflation
the law of diminishing returns
the economic man
free competition; the free market
the law of supply and demand
monopoly; the trusts
socialism; public ownership
the consumer; the producer
the standard of living
Some of these terms are useful short cuts provided
one does not objectify them. But if one employs them
without being conscious of abstracting, they acquire
a fictitious existence. Some have no discoverable
referents. 'Value', for instance, is as elusive as
'the Omnipotent'. Some have referents very difficult
to locate: 'capitalism', 'individualism', 'inflation',
'credit', 'money', 'business'. Some have referents
easier to locate, provided one makes the rare effort
to find them.
Following Bridgman, we might prepare a list of meaningless
questions in economics:
1. Does capital produce wealth?
2. Is the consumer more important than the producer?
3. What is a reasonable profit?
4. Is man by nature co-operative or competitive?
5. Is fascism a kind of capitalism?
6. What is a classless society?
7. What is the American standard of living?
8. Are capital and labour partners?
9. Are we headed for inflation?
10. Is decentralization better than centralization?
These questions are either completely meaningless,
or meaningless as they stand. Given a position in
time and space with further description of the terms
employed, qualified answers might be found for some.
For instance, Margaret Mead studied a tribe in New
Guinea where habits of co-operation were very strong.
A hundred miles over the mountains she studied another
tribe where competition was so ferocious that it threatened
survival. On the basis of these observations we might
venture a qualified answer to question 4. For question
8, one can say that capital and labour are partners
in the same sense that Castor and Pollux are brothers
mythological matters both.
Korzybski observes that any study to become a science
must begin with the lowest abstractions available,
which means descriptions of happenings on the level
of sense impressions. Economic literature usually
reverses this procedure, starting with high-order
terms and working down. Thus you will find in Chapter
I of Dr. Blank's Principles of Economics elaborate
definitions of 'land', 'labour', 'capital', 'wealth',
'profit', 'money', 'credit', 'property', 'marginal
utility'. As any two economists have great difficulty
in agreeing upon the precise meaning of these terms,
the treatise begins with shaky assumptions. Worse
follows when the shaky assumptions are woven into
elaborate systems by deductive logic. The best fun
which a professor of economics apparently gets out
of his academic life is to demolish the theories of
his confrères. The single time to my knowledge
that American economists were in general agreement
was when they objected to the Smoot-Hawley tariff
bill in 1930, by a joint memorandum of more than a
thousand signers. That was a red-letter day in the
history of economic thought.
To extend agreement and make the study of economics
conform to the scientific method, it is necessary
to lay aside abstract definitions and apply the operational
approach, What is Rufus1 doing on his farm?
What is Roy1 doing at his factory bench?
What is Junius1 doing in his bank? (A bank
studied on the basis of what is going on inside without
recourse to abstractions like 'credit', 'liquidity',
'soundness', is a pretty whimsical thing.) What is
Sylvia1 doing at her desk? Observe and
record what a great number of men and women are actually
doing in furnishing themselves and the community with
food, clothing, and shelter. Then proceed to inferences.
Then proceed to general rules governing economic behaviour if any can be found. Then check the rules with more
first-hand observation. Never forget Adam1
acting, the date at which he acts, the place where
he acts. Fortunately some economists and sociologists
are beginning to follow this programme. We find it
in the studies of Middletown by the Lynds, in Ogburn's
Social Change, in Economic Behaviour
and Recent Social Trends, in the studies of
the National Resources Committee.
Inferences drawn by Adam Smith about the England
of 1770, or by Karl Marx about the England, France
and Germany of the 1850's, are obviously worthless
for the America of today. Some deductions may still
he sound, but all are suspect pending operational
check in modern America. To criticize American economic
behaviour today, or to prescribe for its improvement
because Adam Smith said thus and Marx said so, is
as foolish as believing that a fly has eight legs
because Aristotle said so. Both Smith and Marx used
their eyes and ears more than their fellow theorists.
Ricardo, for instance, might have been born blind,
so pure a theorist was he.
Economic laws became in the hands of
the classical school just laws in themselves. Often
they were merely logical exercises. So it was that
classical theory stood triumphantly symmetrical, an
absolute! And so it is still too much taught. By a
series of assumptions and with the use of certain
chosen illustrations it can be worked up to climactically.
And when the thing is complete there you are! But
the student goes away from the demonstration unsatisfied,
frustrated, angry, feeling as though a logical trick
had been played upon him. And why? Well, because for
one thing, in the twentieth century the truth must
be useful and this is not.
So says R. G. Tugwell. Meanwhile Dr. Wesley C. Mitchell
observes that it is impossible to prove or disprove
the classical laws.
The laws and principles were developed with the industrial
revolution. The Wealth of Nations was published
in the same year that Watt made a steam engine which
would really work the same year, incidentally, that
the American Declaration of Independence was drafted
and signed. The classicists were much influenced by
notions about science, but they did not adopt the
scientific method. They tried to erect economic laws
like Newton's laws of gravitation, but they did not
copy Newton's operational technique. It was like a
little boy making himself a choo-choo after seeing
Editorial writers today are still infatuated with
these 'laws' of a make-believe science. They pull
them out of their heads with pontifical finality whenever
reformers or Congressmen propose a measure which editors
do not like. 'Economic law cannot so cavalierly be
set aside,' they say. 'We cannot circumvent the law
of supply and demand any more than we can circumvent
the law of gravitation.' 'Only crackpots would seek
to outwit the immutable principles of economics.'
Classical economics not only was largely innocent
of the scientific method; it also became a kind of
theology selling indulgences to businessmen. As factories
expanded after Watt's steam engine, a philosophy was
needed to give respectability and prestige to the
rising class of manufacturers. The philosophy was
first identified with the 'natural laws' of Newton.
Then it twined itself like a boa constrictor (yes,
I am conscious of abstracting) around Darwin's hypothesis
of the 'survival of the fittest'. What a handout!
The greatest good for the greatest number, so ran
the dogma, arises from the unimpeded competitive activities
of enlightened self-interest. The faster the stragglers
are bankrupted and undone, the stronger the economic
frame. What appears as competitive anarchy is not
really anarchy at all, but a beneficent system of
control by natural forces. The big fish eats the little
fish, the strong businessman eats the weak. It is
all very gratifying and lovely, and as remote from
reality as the labours of Hercules.
In 1798, Malthus published his famous essay on population,
one of the grandest examples of extrapolation on record.
The essay was in part designed to answer William Godwin's
argument to the effect that mankind could achieve
happiness through the use of reason. Malthus wanted
to scotch the dangerous idea that happiness was in
prospect for the mass of the people. (The principle
of 'original sin' again). So by study of the exceedingly
unreliable statistics of the time, he laid down two
postulates: first, that population tends to grow at
a geometrical rate; second that the food supply tends
to grow at an arithmetical rate. The population of
England was then 7,000,000; in a hundred years if
the curve was followed it would be, he said, 112,000,000.
If food was sufficient for the 7,000,000 in 1800,
by 1900 the supply would expand to feed only 35,000,000 'which would leave a population of 77,000,000 totally
This fantastic hypothesis was then solemnly applied
to the problem of poverty. As population was destined
to leap ahead of food supply, restrained only by pestilence,
war, and famine, it followed that measures to improve
the living-standards of the mass of the people were
futile. 'It is, undoubtedly, a most disheartening
reflection, that the great obstacle in the way of
any extraordinary improvement in society, is of a
nature that we can never hope to overcome.' That stopped
the fellow Godwin in his tracks. The essay was also
used for decades as conclusive proof that reform laws
were pernicious. In the second edition of his essay,
in 1803, Malthus relented to the point where a new
element was introduced into his equations. It the
poor would employ 'moral restraint' in their procreational
activities, they might possibly gain a notch or two
on the food supply. It was very cheering news to the
well-to-do. The poor had themselves to blame for their
poverty and even if moral restraint was widely practised,
poverty was largely inevitable anyhow.
Malthus's iron law of population was paralleled by
Ricardo's iron law of wages. This great principle
put poor people in another vice. Since labour is a
commodity, said Ricardo, its price goes up and down
with demand. When demand for labour is slack, wages
will remain at the bare-subsistence level. If demand
becomes brisk, wages will rise, workers will have
more money. They will then produce more children and
presently the addition to the population will bring
the price of labour back to bare-subsistence level
again. So what is the use of trying to improve the
condition of the workers?
Nassau Senior 'proved' that hours of labour could
not be reduced, because the employer's profit came
out of the last hour of operation. A 68-hour week
was common at the time. Eliminate that last hour,
he said, and industrial profits would be eliminated
and the business of the nation ruined. Thus if children
in factories worked 67 hours rather than 68, panic
would replace prosperity. Senior's analysis was derived
from theoretical examples where the arithmetic was
correct but the assumptions untenable.
Senior's contribution to economic theory proved that
hours could not be reduced. John Stuart Mill and other
classicists proved that wages could not be raised,
by the famous 'wage-fund doctrine'. Workers joined
unions and struck for a raise. Pure madness, said
the economists. Why? Because there was a certain fund
set aside out of capital for the payment of wages.
There was a certain number of wage-earners. Divide
the first by the second. It was all arranged by Heaven
and arithmetic and trade unions could do nothing about
it. The wage-fund theory was the stock answer of the
manufacturer and editor to the claims of organized
workmen. It had been blessed by economists and must
Observe how these 'laws' were put to tangible use,
holding back improvements in working-conditions for
scores of years. The philosophers produced nonsense
which was at least disinterested. Many of these classical
economists had an axe to grind and cruelly sharp they
ground it. Not until 1876 was the wage-fund theory
exploded by an American economist, Francis Walker.
He argued that wages were paid not out of a fund of
stored capital, but out of current earnings a theory
which came closer to the facts. It is a pleasure to
note that John Stuart Mill who first popularized the
wage-fund hypothesis in his Principles of Political
Economy in 1848, published the following statement
years later: 'The doctrine hitherto taught by most
economists (including myself) which denied it to be
possible that trade combinations can raise wages...
is deprived of its scientific foundation, and must
be thrown aside.' A brave, fine statement. But working
people in England and elsewhere for fifty years had
paid a bitter price for a 'law' that had no scientific
Orthodox economists have had a particularly bad time
of it since 1929. Governments all over the world have
been indulging in financial operations of a shockingly
unorthodox character. As Chester T. Crowell points
out in the New Republic, the learned faculty
stands on the sidelines shouting: 'No! You can't do
that!' And while they shout, it is done. The economically
impossible is performed again and again. For instance:
1. Mussolini simply could not carry on his vast operations
in Ethiopia with a gold reserve of only $3,000,000,000.
It was unthinkable. The reserve was a mere drop in
the bucket; it would be gone in a month. But Mussolini
did it. Ethiopia was brought to heel, and Italy is
still afloat financially.
2. If a nation has a gold coverage of less than 2
per cent, obviously it has no currency worthy of the
name. Panic and chaos are inevitable. It cannot hope
to carry on foreign trade; its citizens will fly from
their native money standard. In terms of respectable
economic theory, the German financial system today
is a corpse. But the corpse does not fall down. It
goes right on acting as if it were alive.
3. We were all brought up on the fundamental idea
that if the British Treasury ever repudiated a government
debt, it would be the end of the pound sterling and
of world trade. The financial backbone of the planet
would be broken. Well, the British Treasury owes the
American Treasury some billions of dollars, and the
latter can whistle for its money. The pound remains
firm, and ships still sail the seas. Because of the
repudiation, Congress passed the Johnson Act, forbidding
loans to warring nations, and so giving the American
people one of the sturdiest defences against being
dragged into war that it was ever our good fortune
to secure. England's perfidy has been our blessing.
4. A nation, we were taught, could not go off the
gold standard in fact, no matter how many proclamations
its statesmen made. If it devalued, prices would shoot
up, and gold would still be master. The United States
went off the gold standard by proclamation and most
domestic prices hardly fluttered. France, which clung
nobly to gold, suffered a much more severe depression
than the reprobates who abandoned it.
Yes, the orthodox economists are having difficulties
on the sidelines. Is the trouble with the wicked world
which pays little attention to their 'laws', or is
the trouble with the laws themselves? How valid are
'natural laws' which can be violated right and left?