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The study of economics affords an unusual opportunity for discipline in the art of inductive logic. It fixes attention on those problems which meet us in everyday life, problems which must be met, not by any rule of thumb, but by practical judgment. In all lines of activity "the principle of choice is always the same, namely, the relative worth of the two courses of action. The analysis of this process of choice has been worked out by the economists more fully than by any other body of scientists."
The study of economics, like the stern contact with the problems of the actual world, does foster the calculating habit of mind. But the calculating habit of mind does not presumptively forbid or preclude ethical conduct. It does tend to take up often a re-examination of merely traditional views and opinions. For its disregard of ethical considerations Carlyle and Ruskin heaped their scorn upon the old classical political economy of their day. But the old classical economy was not by any means wholly unethical or non-ethical in the effects of its teachings. It tended to develop a large faith in the utility of prudent and farsighted conduct; this position taken by itself is not necessarily construed as positively ethical. The new economics, however, directs attention more and more to the general welfare, and undertakes to show that progressive and continuous individual welfare is conditioned upon the recognition and the guarding of the interest of the social whole, just as in biology in the ultimate analysis the life of the individual must be subordinated to the survival of the species. The words ethic and ethnic are from the same root, meaning custom. The desire for a knowledge of the phenomena of the industrial world
challenge the highest powers of mind. On the other hand, though it is a science, not an art, its truths touch every human life. Among a great deal else of obvious importance which acquaintance with economics incidentally makes clear, may be mentioned: (1) the fallacy of many prevalent notions about wealth; (2) the failure and even positive cruelty of much intended charity; (3) the sure and widespread effects of waste; (4) the inevitable interdependence of individuals, classes, and nations; and (5) striking evidence of intelligence and beneficent law as reigning in the universe. A time comes in the history of every cultivated people when social comfort, to say nothing of social progress, depends absolutely upon knowledge of economic principles. Europe is at this point already; we shall soon be" (p. 28).
See Sidney Sherwood, "The Philosophic Basis of Economics," Annals of the American Academy of Political and Social Science, X, No. 2.
is universal. Campaign literature, the newspapers, and other popular attempts to give an account of things industrial, and what measures and policies will promote and guard the interest of society as a social whole, the only ethically sound economic ends, perchance are, or may possibly be, as far removed from economic science as astrology from astronomy. The school should always endeavor to furnish the genuine article. But the schools must be re-enforced by practical tests, experimentation, and the actual experiences of life in a real world, or instructors and professors alike will be mere Chinese mandarins for the guidance of man.
3. Division III: Applied economics.-This division of economics includes a group of economic subsciences which arise from an application of principles of economic theory, or pure economics, to administration, finance, social economy, and social politics. These semi-independent sciences lie in the borderland between pure economics and pure politics. Applied economics, considered as economic policies, and socio-politico-economic principles of social legislation, as applied in public administration and public finance, have been in existence since the foundation of states. But they were not formally developed until the rise of the modern mercantilist and cameralist schools of economics. Anticipations of these subdivisions of applied economics had, however, come even much earlier, as for example, in Xenophon's Economist, or management of an estate, and in Xenophon's pamphlet on Athenian Revenues.
a) Administration: In Germany and Austria, under the name of Verwaltung, administration appears as a division, or subdivision, of economics in all the great handbooks (Lese-Bücher für Studierenden); there, long before the nineteenth century, the science of administration was studied assiduously by the cameralists, who were students both of governments and of economic life. By them the latter was undifferentiated from politics. The cameralists deserve to be better understood.' Contemporary economists should give, and are giving, both the cameralists and the historical economists a revaluation.
The recent essay on The Cameralists by Albion W. Small makes this a more easily discharged obligation.
Since the later decades of the nineteenth century the activity of a new group of writers of all advanced states has given a new significance and a new impulse to the science of administration. This new class of writers and students includes both university and non-university men who are profoundly interested in broadening the scope of economic inquiry and economic investigation by bringing the entire field of commerce and industry under the sway of a scientifically proved and tested body of economic principles. With this movement and its scientific grounding the science of administration is now in a new era of cultivation and development by the economists. Harvard University recognized the worthiness and significance of this new movement in economics by organizing a graduate school of business administration in 1906. In case anyone should undertake to deny that this new movement sustains any relation to the older science of administration (Verwaltung), he will have to take the untenable position that private business and public business rest upon different premises and on a different set of underlying principles. This unfortunately too often has been the assumption of the so-called practical politicians from Aristophanes to our day.
The practical and substantial identity in the scientific principles of public and private business administration may be assumed.
The Wharton School of the University of Pennsylvania was founded in 1881. The pioneer college in America which organized on similar lines was Dartmouth in its foundation of the Amos Tuck School of Administration and Finance. Specialization in the Tuck School could from the first begin in the Senior year of Dartmouth College, but preparation for socialization could begin earlier. This preparation has worked downward so that now a considerable degree of preparation for specialization in many American universities can begin very much downward; but carrying down this preparation and specialization too far will simply result in the establishment of specialized secondary schools of commerce and industry by the side of the Gymnasium or high school. Even if such a course is denominated a university course, it does not follow that the name is given correctly; it may be simply a secondary- or high-school course, although offered in a university. In distinguishing between university or higher education and secondary education, the Gymnasium or high school, it is well to remember that the proper dividing line by European standards falls between the Sophomore and Junior year of a fully standard American liberal-arts college. Too much cannot be said in favor of yielding not more than the Senior year from the liberal-arts course for the beginning of professional and higher techinal training.
Cf. my Economic History: Foundations of Economics, sec. 20, a citation from Aristophanes.
In a recent paper submitted to the American Economic Association' for discussion of the principles of administration I said:
I believe, however, that we must regard administration as a branch of economics. We should, moreover, make the twofold distinction between administration as public and private, just as we distinguish between public finance and private finance. The great principles underlying public and private finance on the one hand and public and private administration on the other hand are the same in each case. When public officers get too far away from those common principles underlying both public and private finance and administration, signs of corruption or perversion of the functions of public office appear; political incompetence and inefficiency displace or replace economic competence and efficiency.
Administration is undoubtedly a branch of economic science and a part of the historical development of economics. For the first broad recognition of this fact we must turn to the cameralists. In the writings of Justi and Sonnenfels, for example, we may find principles of administration elaborated, as well as principles of finance. Wherever we have a high degree of economic organization in public or private economy, there we have a theory and an art of administration. A scientific study of economic history will demonstrate this proposition.
Administration must be related to economics both in its generalized and specialized aspects. In its general aspects administration must be related to economics both through a course in general economic history and through the course which we usually describe as the course in principles. Through these two courses the student should acquire that knowledge of—that is, a general introduction to the general principles of administration. In its specialized aspects administration may be given as a separate course. In this aspect the study of administration may be offered in the Junior or Senior year, after the courses above noted have been set up as prerequisites. These prerequisite courses should be supplemented as far as possible by general courses in history, mathematics, and science, and the incidental knowledge of biography and history which the various literary courses of the high school and earlier years of the college offer. When the student enters upon the formal study of administration, he should enter upon it as a specialized branch of economic science. . . . . I would venture to urge that in seeking the bases of efficiency we must add to the physical factors which give us the mechanics of administration a study of the mental and moral factors which will give us the dynamics of administration. And in this search for the bases of efficiency I would insist on the necessity of two side studies, two corrective disciplines-methods we should perhaps call them rather than sciences. (Logical methods we must regard as themselves parts of every concrete science.) These two methods or disciplines which cannot be ignored or dispensed with in any thoroughgoing system of administration are: (1) accounting or accountancy, (2) statistics. 1 American Economic Review, Supplement, March, 1915.
The latter of these items in the form of managerial statistics must lie at the basis of any system of cost accounting which must invariably be made the basis of any workable system of efficient administration.
b) Finance, or Public Finance: So absolutely imperative were the demands of European princes in the dawning modern period to be financed on a basis which would comport with the growing respect for the decency of an honorable business relation with their subjects that as early as the fifteenth century the formal beginnings were made of a scientific public finance in its three branches or parts, namely, public expenditure (in distinction from the private expenditure of princes), public loans, and taxation. During the next three centuries this subdivision of applied economics received an altogether estimable stage of development at the hands of mercantilist and cameralist economics.1
c) Social Economy and Social Politics: The economic policy of every state must be worked out concretely in some form and in some measure with respect to both of these topics. An absolute laissez faire on these subjects is impossible. This was seen by Adam Smith, and the radical advocates of economic freedom in the Smithian sense have also accepted certain limitations set up by Smith himself to the policy of non-interference on the part of the state. Nevertheless the value of the maxim of laissez faire in the development of economic theory has been invaluable because it has held economic theory to the task of finding the reason, or stating a reason, for every state function that was, or was to be, exercised.
The present tendency in the use of the terms social economy, social legislation, and social politics is in the direction of bringing the term social economy into service as the name of a specialized discipline or branch of sociology which deals with the problems of charities and correction, problems which are somewhat removed from, or somewhat indirectly related to, the problems of the immediate workaday business world. But the latter is now urged to keep in hand, or immediately and forthwith take in hand, through
For a brief notice of the literature of public finance during the formative period and after see Bullock, Selected Readings in Public Finance, chap. i.