Economic Terms.
Introductory Note:-
Let us consider Malthus and his four rules for formulating definitions. The first of these rules is that when people use words they should expect others to interpret them in their ordinary sense, or dictionary meaning. The second rule -- given that some distinction is required -- is to adopt the meaning as used by the "most celebrated writers." It would be helpful, I think, to set these rules out in full.
With these rules firmly in mind let us consider, a few economic terms.
[TOC]
1 Definitions in Political Economy (1827), p. 4.
2 Friedrich A. Hayek, The Fatal Conceit (University of Chicago Press, 1989) p. 98.
3 Henry George, Progress and Poverty (1879), p. 42. George, incidentally, was of the view that the "fundamental remedy for poverty was a 'single tax' levied on the value of land exclusive of improvements, and the abolition of all taxes which fall upon industry and thrift." (Chambers Biographical Dictionary.)
4 The OED gives as a source, "Emanc. Colonies Wks. 1843 IV. 412."
5 Heilbroner is one, see The Worldly Philosophers (New York: Simon & Schuster, 1953) p. 50.
6 Even if complexity could some how defeat market forces, advances in communications and in computers have brought us closer to free market conditions, I suggest, than has ever existed before.
8 Economics in One Lesson (New York: Arlington House Publishers, 1979) pp. 17,18.
9 I. vi. 78.
10 Just check the index in Keynes' General Theory ...
11 Marshall describes it: "We may say that the elasticity of demand is 1, if a small fall in price will cause an equal proportionate increase in the amount demanded: or as we may say roughly, if a fall of 1 per cent in price will increase the sales by 1 per cent; that is 2 or ½, if a fall of 1 per cent in prices makes an increase of 2 per cent or ½ per cent respectively in the amount demanded; and so on."
12 Henry Hazlitt, The Failure of the New Economics (D. Van Nostrand, 1959) p. 304. In this work, Hazlitt enumerates the "serious drawbacks to the term elasticity," including: "The mechanical analogy on which it rests is some what forced and far fetched ..." and that it "has led to a literature of mock precision ..." (see pp. 304-5.)
13 The OED cites "Hist. Inst., xiii, 399."
14 Liberty, Equality, Fraternity (1873); (University of Chicago Press, 1991) at p. 220.
15 Trevelyan, British History in the Nineteenth Century p. 12.
16 Economic Philosophy (1962) (Pelican, 1966) p. 48.
17 The Fatal Conceit, pp. 98-99.
18 Progress and Poverty (1879), p. 38.
19 The only lasting monopolies that anyone has seen in the last, say, thirty years, in the market place, have come about not on account of a free market, but rather because of interventionist governments. It is, indeed, government measures that "have promoted the concentration of industry and the growth of large enterprises." [Friedman, "On Curing the British Disease" (Vancouver: The Fraser Institute, 1977) p. 39.] When government, by their actions, grant monopolist control to particular groups, it causes much harm to the economy, invariably, too, in the very areas of the economy which are the most important to us, as for example, in the areas of education and medicine.
20 "Montaigne," Representative Men at p. 136.
21 Adam Smith. See Seldon's Capitalism (Oxford: Blackwell, 1991) at pp. 139-42 where he lists eight political advantages of pricing things: how pricing teaches; how it brings goods into being without compulsion; how it distributes theses goods in a fair and thus peaceful way; how it preserves our scarce resources and best preserves our environment.
22 Bertrand de Jouvenel in his essay contained the book edited by Hayek, Capitalism and the Historians (University of Chicago Press, 1963) p. 113.
23 The Judicial Opinions of Oliver Wendell Holmes (Buffalo: Dennis & Co., 1940) as quoted by Biddle in his forward at p. viii.
24 Principles of Political Economy.
[Essays, First Series]
2013 (2024)
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"Under these circumstances, it may be desirable
to consider what seem to be the most obvious and
natural rules for our guidance in defining and
applying the terms used in the science of
political economy. The object to be kept in view
should evidently be such a definition and
application of these terms, as will enable us
most clearly and conveniently to explain the
nature and causes of the wealth of nations; and the
rules chiefly to be attended to may, perhaps, be
nearly included in the four following:-
These rules for the definitions in political economy are as good today as they were two hundred years ago when set by Malthus; indeed, they are timeless and are applicable to other areas of study such as the interpretation of statutes and other legal documents.
First. When we employ terms which are of
daily occurrence in the common conversation of
educated persons, we should define and apply
them, so as to agree with the sense in which they
are understood in this ordinary use of them. This
is the best and more desirable authority for the
meaning of words.
Secondly. When the sanction of this authority
is not attainable, on account of further
distinctions being required, the next best authority
is that of some of the most celebrated writers in
the science, particularly if any one of them has,
by common consent, been considered as the
principal founder of it. In this case, whether the
term be a new one, born with the science, or an
old one used in a new sense, it will not be strange
to the generality of readers, nor liable to be often
misunderstood.
But it may be observed, that we shall not be
able to improve the science if we are thus
to be bound down by past authority. This is
unquestionably true and I [Malthus] should be by no means
inclined to propose to political economists
jurare in verba magistri, whenever it can be
clearly made out that a change would be
beneficial, and decidedly contribute to the
advancement of the science. But it must be
allowed, that in the less strict sciences there are
few definitions to which some plausible, nay,
even real, objections are not to be made; and, if
we determine to have a new one in
every case where the old one is not quite
complete, the chances are, that we shall subject
the science to all the very serious disadvantages
of a frequent change of terms, without finally
accomplishing our object.
It is, acknowledged, however, that a change
may sometimes be necessary; and when it is, the
natural rules to be attended to seem to be.
Thirdly. That the alteration proposed
should not only remove the immediate objections
which may have been made to the terms
as before applied, but should be shown to be
free from other equal or greater objections,
and on the whole be obviously more useful in
facilitating the explanation and improvement of
the science. A change which is a1ways itself an evil,
can alone be warranted by superior utility taken
in the most enlarged sense.
Fourthly. That any new definitions adopted
should be consistent, with those which are
allowed to remain, and that the same terms
should always be applied in the same sense,
except where inveterate custom has established
different meanings of the same word; in which
case the sense in which the word is used, if not
marked by the context, which it generally is,
should be particularly specified.
I [Malthus] cannot help thinking that these rules for the
definitions in political economy must be allowed
to be obviously natural and proper, and that if
changes are made without attention to them, we
must necessarily run a great risk of impeding,
instead of promoting, the progress of the science.
Yet, although these rules appear to be so
obvious and natural, as to make one think it
almost impossible that they should escape
attention, it must be acknowledged that they have
been too often overlooked by political
economists; and it may tend to illustrate their use
and importance, and possibly excite a little more
attention to them in future, to notice some of the
most striking deviations from them in the works
of writers of the highest reputation."1
Adam Smith described how the market delivers that which people want, in an amazing variety and in the right quantities, - without the "cost" of a command and control centre. Further, Smith described what it was that held the "greedy" in check, whether they be producers, distributors, or consumers; - it was competition.
Some,5 assert that the world of Adam Smith, unlike the world of today, was competitive; it was a world of "atomistic competition." The question then comes to be posed, - Does the market mechanism, as described by Adam Smith, work in the modern world of today? And the answer, is: that it can and it does, - though not as well as it might. And the market mechanism does not work as well as it might, not because of the complexity of modern life,6 but more likely because of government intervention in legitimate businesses (taxes and regulation), its monopolistic running of certain businesses (e.g., schools and hospitals), and its lack of intervention in illegitimate businesses (monopolistic unions of all type, including big business and big labour).
[See Commentary, "On Competition & The Market"; and see, Commentary, "The Competitive Nature of Man".]
Subject to the conditions where charity applies, all people proceed in their dealings with others in life on the basis of contract; it is the metabolic process of society. It is the very nature of business, usually continually, to be making agreements for the supply of certain articles or the performance of specified work at a certain price, rate, or commission. Indeed, the "society of our day is mainly distinguished by the largeness of the sphere which is occupied by contract."7
Byron: "Childe Harold."
With such dreadful consequences it is easy to see why governments down through the ages have attempted to get a hold of inflation, usually through price controls. Such attempts go back a long time. A price control regime was introduced by the Roman Emperor, Diocletian. His edict of 301 A.D. represented the most comprehensive system of wage and price controls adopted in the ancient period. Despite the fact that the penalty for violating this price control law was often summary execution, - it did not work. Such attempts can never work: it's like trying to get at a disease by treating the symptoms. Though, it should be noted -- inflation is something that is totally controllable by government action, by the actions of the central bank, viz. to limit currency and credit. If ever there is runaway inflation in a country, it is, every time, because the leaders of that country have brought it on through an inept monetary policy.
[See blupete's essay, "Shooting The Central Banker."]
[See Commentary, "On Competition & The Market".]
[See blupete's essay, "Property Rights."]
NOTES:
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