History of Economic Analysis part 57 doc

belonged to the middle class and lived in the mid-Victorian era. 7 But there is, besides much pure ideology, also something behind those recommendations that is analytic in nature and admits of the application of a scientific method. Only, this scientific method is not the one we might expect. Mill’s problem is not to explain, historically and sociologically, the origin and the various forms of the institution of inheritance. This, as he said in so many words in the case of the institution of property ( 2 of Book II, ch. 1), is no concern of ‘social philosophy.’ What does concern the latter is the problem of social expediency, though not the expediency of any institution as it actually is, but as a community that is unhampered by any tradition or ‘prejudice’ might introduce it—under advice, I suppose, of the social philosopher. This is perhaps not the most scientific way of putting the matter but it indicates Mill’s method of analyzing social institutions clearly enough: expediency of an institution turns upon its effect on, or role in, the economic organism—in practice upon the effects to be expected from given changes of a given pattern—and these effects Mill then proceeded to analyze. In doing so this fighter against prejudice proves himself indeed the most defenseless victim of prejudice against anything that is very far removed from his own mode of life or thought—displaying in this a deplorable narrowness of outlook 8 —but in themselves both the task and the method are scientific (analytic) in nature. (b) The State in ‘Classic’ Economics. In Chapter 2 of this Part we learned a number of facts about the ‘politics’ of the period’s economists and about the meaning and limitations of what has been called the System of Natural Liberty. In Chapter 3, we made the acquaintance of several types of political sociology, among them the Marxist Theory of the State. In Chapter 4, we had the opportunity to notice, here and there, the positions taken by individual economists with respect to the role of the state in economic affairs. In this section, we shall disregard all this, and all philosophies, ideologies, and political preferences—which were in part simply the philosophies, ideologies, and preferences of the business class that, standing on its own feet economically, did not want anything from the state except legal protection and low taxes—including the political recommendations associated with them. Instead we shall concentrate on one question only: how did all this affect economic analysis? Or, since all this enters or influences economic analysis by way of the assumptions economists make about the nature of the state (governments, parliaments, bureaucracies) and its normal functions and efficiency: how far were the assumptions made by economists realistic, considering the historical conditions to which their analytic propositions were to apply? 7 From Mill’s essay on Utilitarianism it is clear that he was not blind to the doubtful standing of the concept of ‘justice.’ Yet he was no more able to do without it than were (or are) other economists. Even Ricardo occasionally finds some things ‘just’ and others ‘unjust.’ In Mill’s case we cannot help discovering—perhaps with a wry smile—a marked association between what he thought right and proper and the modest privileges that he enjoyed himself. Socrates—an intellectual—should really have a moderately larger allowance than should a fool, he argued (as had his father), and if anything is certain, it is that J.S.Mill did not identify himself with the latter. The emphasis above upon ‘moderate independence’ points in the same direction. For only to the middle-class bourgeois is the desirability of anyone’s ‘moderate independence’ as evident as it was to him. 8 If the reader refer to Mill’s text, he will presumably not agree with me. But this is only because he shares Mill’s prejudices. However, our own prejudices are still prejudices. History of economic analysis 522 My answer is that these assumptions reproduced tolerably well the actualities of the time in those economists’ countries. Practically all economists believed—no matter what they desired—that, as J.S.Mill put it, laissez-faire was the general rule for the administration of a nation’s economic affairs and that what was significantly called state ‘interference’ was the exception. And, though for different reasons in different countries, this was so in actual practice not only as a matter of fact but also as a matter of practical necessity: no responsible administrator could have held then, and no responsible historian should hold now, that, social and economic conditions and the organs of public administration being what they were, any ambitious ventures in regulation and control could have issued in anything but failure. For the rest, wide differences existed between the economists of different countries with regard to what public administration could and ‘should’ do. But, as has been pointed out in Chapter 2, they are largely accounted for by differences, not in economic principles, but in the actual conditions of different countries. 9 And practically all of them—so far as professional economists are concerned—come within the range covered by the phrase, ‘differences of opinion as to the extent of the exceptions—necessary or only desirable, approved or disapproved—to the laissez-faire rule.’ The special case of England will illustrate this. 10 There, no revolution had occurred to sweep away the top-heavy structure of eighteenth-century bureaucracy, which was inefficient, wasteful, littered with sinecures, associated with unpopular mercantilist policy and even with political corruption. Before a new and more efficient structure could be erected, the old one had in any case—I mean, irrespective of what, if anything, one 9 Of course this was not all of it, and one of the reasons why it was not is that different historical developments had, in different countries, induced different political doc- trines about state and bureaucracy that led economists to ‘absolutize’ their nationally conditioned opinions, i.e. to exalt them into eternal truths. The situation was complicated by migration of ideas, such as the migration of ‘Smithianism’ to Germany, where it conquered not only many economists but also most leading bureaucrats. We cannot stay to analyze the consequences. 10 It will be seen that what I am going to say applies to no other country. But it is not possible, in the available space, to do more than indicate the point of view from which such problems should be seen. General economics 523 wished to put in its place—to be pulled down bit by bit in order to clear the ground. And until this had been done, the existing machinery of public administration was simply not up to any of those complicated tasks that modern regulation or Sozialpolitik involves. It is to the credit of J.S.Mill’s judgment that he was aware of this. He was not on principle averse to a large amount of government activity. He had no illusions about any philosophically determined ‘necessary minimum’ of state functions. But he realized the superiority, which was in the circumstances simply not open to doubt, of the businessman’s administration of the productive resources over what could possibly have been expected from the public official of his day. He realized more than that. No careful reader of his treatise can fail to notice the number of times he, after arriving at the result that something or other (for example, restriction of the income tax to consumers’ expenditure) is ‘desirable,’ refuses to turn this value judgment into a recommendation because of insuperable administrative difficulties: they actually were insuperable then. It is true that the other English ‘classics’—not to mention the anti-étatiste monomaniacs, whom that social situation produced, especially in France—not only failed to see that those conditions were essentially transitional but also advocated, as a matter of course, that the red tape that was being eliminated should never be replaced by anything: that government and bureaucracy should ‘naturally’ be confined to a certain minimum of functions. But even this, representing as it did a real tendency, does not so far as it was an assumption about part of the institutional frame of the economic process impair the value of their economic analysis. But we can go a step further. From our argument it might seem to follow that, if ‘classic’ analysis, in the respect under discussion, was valid because its assumptions about the role of the state were realistic though time-bound, it must be invalid for any other period because those assumptions were time-bound though realistic. This is in fact true for a large number of propositions in applied economics—still more so for recommendations. But it is not so for the ‘classic’ analysis itself. We always need to understand whatever it is we wish to regulate or control. This means that, however comprehensive the economic tasks of government may be at any time, we always need theory of the ‘classic’ type as long as it is a question of regulation and control only—in socialism we need of course a different type of theory. We do not go to ‘classic’ economics for information about, say, the factors that account for unemployment because of its analytic defects. But the fact that its assumptions about the role of legislation and public administration do not fit the conditions of our time does not in itself constitute a valid reason for our refusing to do so. Of course, the reader will understand how difficult it must have been to accept this for later historians of economic thought, who were interested in little else but ideas, social doctrines or philosophies, and political recommendations, and who were in no position to decide which ‘classic’ propositions must, and which need not, be dropped when we drop any given element of their institutional frame. (c) The Nation and the Classes. In concluding this section, I wish to ad-vert to two of the many lacunae in our survey of the institutional aspects of ‘classic’ economics: we have not dealt with the manner in which the economists of that period handled the social phenomenon that we call Nation History of economic analysis 524 or Country; and we have not dealt with their conception of the class structure of society. The former is relevant for economic analysis in three ways. First of all, it is a factor— some would say the dominant factor—in the general sociology or social philosophy of many economists: of this all that needs to be said for the purposes of this book, has been said in Chapter 3 (especially under the heading Romanticism). From this we distinguish, second, the national viewpoint in economic policy, about which we have learned something in Chapter 4 (Carey, List), but which will be touched upon again in the section below that deals with foreign trade (ch. 6, sec. 3). Third, it is a question of considerable interest to ask how far the economists of that period took account of national differences of economic behavior and of consciousness of nationality as a motive of economic behavior: this question will be treated below (ch. 6, sec. 1). The subject of Social Classes offers a convenient transition from this to the next section. In economics, as in all the social sciences, the term Class denotes two different things that, in strict logic, have nothing to do with one another. When we speak of Social Classes or of the Class Structure of Society, we mean to denote a real phenomenon that exists independently of the activity of research workers: actually or metaphorically, we may hold that a social class is an entity that thinks and feels and acts. But we also speak of classes when we mean nothing but categories that owe their existence to the classifying activity of research workers. Thus, when we speak of working-class movements, we are indeed referring to masses of individuals but of individuals that rally around a group standard and form, as it were, a psychological corporation, a social class. When we consider the group of all the people who derive their incomes from selling services (personal efforts), we find that we are combining social types that have very little in common and hardly ever feel and act in unison—such as street sweepers and movie stars, manual workers and executives, charwomen and generals: in short, we are considering a category that we have formed ourselves. If this were all, we should have merely to advert to the existence of another source of confusion in economic discussion and to make sure in each individual case what it is we mean or a given writer means when using the term Class—social classes that are red-blooded realities, or categories of participants in the economic process that are pale abstractions. 11 But associated with this simple distinction is an important issue that may as well be noticed at once. Marx’s two ‘classes of participants in the economic process,’ 12 capitalists and proletarians, are not mere categories but social classes. This feature is essential to the Marxist system. It unifies his sociology and his economics by making the same class concept fundamental for both. On the one hand, the social classes of sociology are ipso facto the categories of economic theory; on the other hand, the categories of economic theory are ipso facto the social classes. The importance of this feature becomes particularly clear when we observe its bearing upon class antagonism, which in this 11 Some modern economists call these abstractions Functional Classes. We ourselves shall, for greater clearness, use the term Categories, however objectionable it may be in some respects. 12 Unfortunately, there is no good English equivalent for the German Wirtschaftssubjekt. General economics 525 system is at the same time an exclusively economic phenomenon and the all important fact about all pre-socialist human history. We shall understand that from this standpoint any attempt to form economic categories other than social classes is bound to appear as an attempt to leave out or obscure the very essence of the capitalist process or, to use a phrase current among Marxists, to ‘rob economic theory of its social content’ Such an attempt is not only tainted with ‘apologetics’: it is futile and cannot produce solutions of the real problems of economics. But non-Marxist economics was not less bound to take, with increasing emphasis, the opposite view, and to look upon the very feature Marxists took (and take) pride in, as a blemish due to the survival of prescientific patterns of thought. This was the inevitable consequence of analytic advance that made more and more for a clear distinction of the purely economic relations from others with which they are associated in reality. In analyzing economic phenomena, categories other than those suggested by the class structure of society have proved more useful, as well as more satisfactory, logically. This does not involve overlooking any relevant class-struggle aspects, or simply class aspects, of the relations investigated. 13 All it does involve is greater freedom for all the various aspects of reality to assert their rights. As we shall presently see, the economists of the period under survey did take a great stride toward an economic analysis in terms of categories of economic types and away from economic analysis in terms of social classes. But they did not proceed in the logical way; that is, they did not work out a theory of social classes, insert it into their economic sociology, and then construct economic categories for use in economic analysis: this procedure would have required an awareness of the problems involved from which they were far removed. Instead, they took a short cut: they simply turned, with little modification, the social groupings that are known to the popular mind into categories of economic analysis. With the exception of Marx, whose analysis of social classes, however defective, is still analysis, they made no analytic effort. And the need for such an effort never occurred to them because, as a matter of fact, the social groupings of the man in the street were sufficiently drenched with economic meanings to make them adequate for the rough purposes of ‘classic’ economic analysis. The man in the street always had been greatly impressed by the landed aristocracy that towered over the rest of society. Hardly less distinctive and impossible to overlook was the position, on the other end of the scale, of the agricultural and industrial ‘poor.’ For the rest, the man in the street saw farmers, artisans, manufacturers, moneyed men, bankers, merchants and so on, rather than a single business class, and he would certainly have reserved other special positions for the professions. In the latter respect, ‘classic’ economists agreed with him more or less. 14 But for the rest of those groups, they (the ‘classic’ economists) did perform the modest service to analysis that consists in throwing them together, for some though not all purposes, into a single economic category, for which the label ‘capitalists’ soon came to be generally used in economic literature. 15 Thus Marx, alone of all leading analysts, retained the class connotation of the categories of economic types, consciously and as a matter of principle. The prevailing tendency to get away from it, which he did 13 The proof of this pudding is, of course, in the eating. No general professions of faith or general arguments about the impossibility of analyzing, e.g., distribution of income in terms other than the terms of social classes can settle the matter. Of course, the question is complicated by another, viz., History of economic analysis 526 the question of the validity of the Marxist theory of classes. But, in this connection, this is a side issue. Even if it were valid, the methodological necessity of a conceptualization adapted to the special tasks of economic analysis would still remain. Most modern socialists, by using modern theory, testify to their agreement with the view taken in this book. Much more important is it that Marx himself, in his analytic practice, agrees with us. For he uses his classes only for the purpose of interpreting the results that the capitalist economy produces; as will be seen presently, he does not introduce his classes as actors in his basic analytic work. He emphasizes indeed the social-class aspect whenever he can. But, except in the political sphere, his classes do not struggle with each other as classes. 14 The analytic difficulty which the ‘classic’ wage analysis opposed to the inclusion of the professions in the labor category was in part avoided by those authors who described the professions as unproductive and thus excluded them from the economic society to which their propositions primarily applied. Those who counted skills as capital could also include them with capitalists. 15 The public did not adopt it to any great extent until after 1900. But while the term Capitalist gained citizenship in the economist’s lingo, the term Capitalism was, throughout the nineteenth century, hardly used except by Marxists and writers directly influenced by Marxism. There is no article under this heading in Palgrave’s Dictionary. not fail to notice, he simply put down as one of the symptoms of the degeneration of bourgeois economics that, so he held, had no longer the courage and honesty to face the real issues. By the same token, he noticed with approval those vestiges of the popular confusion of the two aspects that may be found in the earlier ‘classics,’ especially in Ricardo. The existence of such vestiges is what we should expect in a process of analytic development that was not only slow but also subconscious. But how important were they? It is true that Ricardo spoke of distribution of the ‘produce of the earth’ as a process of distribution between ‘three classes of the community’ (Preface). This does seem to imply class connotation. If, however, we wish to take this phrase literally, we must take the whole sentence literally—and this would make a physiocrat of Ricardo. Further, it is true that his theory of wages, so far as it fits any part of reality at all, fits only the wages of manual labor—of the proletarian class. And finally Ricardo, according to traditional interpretation, emphasized antagonism of class interests—the interests of the landlords, in particular, being held to be ‘always opposed’ to those of the rest of society. This, of course, is what Marx liked best and what other economists who also took it for an essential feature of Ricardo’s economics, such as Carey and Bastiat, liked least. But as regards the old wage theory that Ricardo adopted, it is very obvious that he did not impart to it any class-struggle twist. And it seems much more realistic to see in its very partial validity the inevitable result of a defective analytic apparatus than of any intention to emphasize class aspects. As regards his general handling of class interests, two things must be carefully General economics 527 distinguished. Like most ‘classics’ Ricardo was much alive to political implications. Being one of the champions of free trade in corn, he thought of it as a political measure that was to be carried against the economic interest of a social class—which in this case would understandably merge in his mind. And this happened, of course, every time there was a political issue on the anvil. But this is all right—the political viewpoint brings in party strife and party brings the social-class element: nothing is further from my thought than any wish to argue for a treatment of political questions that neglects this class element and reasons in terms of an imaginary common good. But quite another question is the significance of the opposition of class interests in Ricardo’s economic analysis per se. This reduces to propositions about the long-run tendencies of relative distributive shares (see below, ch. 6, sec. 6). He held, for example, that the landlord’s share tends to increase at the expense, primarily, of the capitalist’s share. This, however, does not constitute class antagonism either in the Marxist or in the usual sense. Marx, recognizing two classes only, saw class ‘struggle,’ economic and political, only between these two and thereby testified to his belief that opposition of interests in the Ricardian sense does not constitute class antagonism. In the usual sense, class antagonism means antagonism between social classes—a reality that manifests itself, for example, in the political arena. For this phenomenon to arise, the Ricardian antagonistic tendency in distributive shares is neither a necessary nor a sufficient condition. This seems to establish our thesis, namely, that the class connotations of Ricardo’s categories are in fact no more than survivals and nonessential to his system; and that, in particular, Carey and Bastiat and all the writers who took similar lines were in error when, believing that the Ricardian tendencies in distributive shares spelled social warfare, they set about disproving them. 5. THE ‘CLASSIC’ SCHEMA OF THE ECONOMIC PROCESS Into the sociological frame just sketched, the ‘classics’ fitted a schema of the economic process, the general features of which it is our next task to describe. In itself this task is simple enough. But it is rendered more difficult by the facts that the form the schema took in the classic (in our sense) work of the period, J.S.Mill’s Principles, is of course not more than ‘representative’ of a large number of schemata that more or less differed from it; that even so it was the outcome of long discussions that were in part pointless, sometimes merely verbal, but which loom large to the backward glance; and that the state of analytic work looked very different at different stages. The very proposition that there was anything like progress toward clarification of the issues and improvement of the results of analysis will be voted a misrepresentation by readers who either forget, or on principle disapprove of, the aim and viewpoint of a history of analysis. History of economic analysis 528 (a) The Actors. Any schema of the economic process must first of all settle the question of the dramatis personae to be admitted to the scene and thereby prejudge many of its features. These actors were, of course, firms and households and not social classes, or else there could not have been competition: this also applies to Marx’s theory. As we know, these actors were classified by means of turning the social groups known to common experience into the three categories of economic types (or ‘functional’ classes): landowners, laborers, and capitalists. 1 Of course, this merely continued an old practice that had been sanctioned by A.Smith. Since the three were mere categories, each defined by an economic trait, it was recognized without difficulty that an individual was capable of belonging to two (for example, if he was an artisan) or to all three of them (for example, if he was a peasant, tilling his own soil). Marx, as we also know, substituted his two-class schema for this tripartite division of types. 2 In one respect, however, there was significant, if halting, advance. A fourth category or type eventually received explicit recognition, the entrepreneur. Not that economists had ever accomplished the impossible feat of overlooking the most colorful figure in the capitalist process. The scholastic doctors, at least since the times of St. Antonine of Florence, had distinguished the businessman’s industria from the workman’s labor. Seventeenth-century economists had displayed an unmistakable, if inarticulate, understanding of the type. Cantillon was, so far as I know, the first to use the term entrepreneur. But these suggestions petered out without coming to fruition. A.Smith glanced at the type occasionally—he speaks occasionally of the undertaker, the master, the merchant—and, if pressed, would not have denied that no business runs by itself. Nevertheless this is exactly the over-all impression his readers get. The merchant or master accumulates ‘capital’—this is really his essential function—and with this ‘capital’ he hires ‘industrious people,’ that is, workmen, who do the rest. In doing so he exposes these means of production to risk of loss; but beyond this, all he does is to supervise his concern in order to make sure that the profits find their way to his pocket. J.B.Say, moving along in the French (Cantillon) tradition, was the first to assign to the entrepreneur—per se and as distinct from the capitalist—a definite position in the schema of the economic process. His contribution is summed up in the pithy statement that the entrepreneur’s function is to combine the factors of production into a producing organism. Such a statement 3 may indeed mean much or little. He certainly failed to make 1 Subgroups were, of course, introduced when desirable. But in dealing with the general pattern of economic theory, we may neglect this fact. 2 Sismondi was the only other economist of major importance to do the same thing. But he did so only for purposes of simplification, not as a matter of principle. 3 Lest the reader feel inclined to read this either into Cantillon or into A.Smith, let me further explain my reasons for believing that Say’s formulation should be considered a distinct step in analysis. Cantillon said indeed that the entrepreneur acquires means of production at certain prices with a view to selling at uncertain (expected) prices. This describes one of the aspects of the businessman’s activity very well; but it does not describe (or, at any rate, emphasize) its essence. A.Smith considers indeed the case of the capitalist who lends his capital to other people and thus seems to recognize the distinct function of those people who take the trouble and risk of employing it. But the businessman who borrows from the capitalist still remains a vicarious capitalist, i.e. an intermediary between the owner of capital and the labor force; and to provide the latter with tools, General economics 529 means of subsistence, and raw materials is still all he does. It might be said that the distinctive function that Say made explicit is implied both by Cantillon and Smith. But analytic progress—not only in economics—hinges in great part on making things explicit that have been implied or implicitly recognized for ages. A.Smith also knew that we pay for goods because we want them, but this does not make him a marginal utility theorist. full use of it and presumaby did not see all its analytic possibilities. He did realize, to some extent, that a greatly improved theory of the economic process might be derived by making the entrepreneur in the analytic schema what he is in capitalist reality, the pivot on which everything turns. But he failed to realize that the phrase ‘combining factors,’ when applied to a going concern, denotes little more than routine management; and that the task of combining factors becomes a distinctive one only when applied not to the current administration of a going concern but to the organization of a new one. In any case, however, he turned a popular notion into a scientific tool. In Germany, the concept of the entrepreneur was a familiar element of the ‘cameralist’ tradition. And so was the corresponding term, Unternehmer, which the economists of the period continued to use—it occurs, for example, in Rau’s textbook. The analysis of the entrepreneurial function developed steadily if slowly, culminating in the work of Mangoldt. 4 How much of it, if anything, is due to influence from Say, I feel unable to tell. But in England this influence shows more clearly. Ricardo, the Ricardians, and also Senior took indeed no notice of Say’s suggestion and in fact almost accomplished what I have described as an impossible feat, namely, the exclusion of the figure of the entrepreneur completely. For them—as well as for Marx 5 —the business process runs substantially by itself, the one thing needful to make it run being an adequate supply of capital. But some of the non-Ricardian and anti-Ricardian writers of the late 1820’s and the 1830’s did take it up, Read and Ramsay—the latter used the term ‘master’ rather than entrepreneur, though he spoke of enterprise—deserving special mention. The decisive step was taken by J.S.Mill, who brought the term entrepreneur into general use among English economists and, in analyzing the entrepreneurial function, went from ‘superintendence’ to ‘control’ and even to ‘direction,’ which, he admitted, required ‘often no ordinary skill.’ But this defines the function of management and not anything distinct from mere administration. If this were all, he might as well have been content with the good English term, manager—which was in fact adopted later on by A.Marshall—and have spared himself all regrets about there being no good English word for entrepreneur. A reason why he did not do so was possibly that managers are frequently salaried employees and they do not necessarily share in business risks, whereas J.S.Mill, like all the authors of that period and most authors of the next one, wished to make risk-bearing an entrepreneurial function alongside of ‘direction.’ But this only served to push the car still further on the wrong track. 6 And there 4 See above, ch. 4, sec. 5 and below, ch. 6, sec. 6a. The work marks in this respect the most important advance since Say. 5 In his case this stands out particularly because he went into so much detail about the process of accumulation. Accumulated capital, with him, invests itself in a wholly automatic manner. All the phenomena and mechanisms in the emergence of mechanized large-scale enterprise that hinge upon the personal element are completely shut out from his range of vision. A famous passage in the Communist Manifesto (concerning the ‘wonders’ that the ‘bourgeoisie’ has accomplished) seems to contradict this, since mere investment of accumulated capital could hardly be said to be productive History of economic analysis 530 of ‘wonders.’ But this conception of entrepreneurial achievement—for what else could be responsible for the bourgeois miracles?—entirely failed to influence his basic analysis. 6 Since many modern economists also include risk-bearing among entrepreneurial functions, it may be well to point out at once the objection to the idea. It should be obvious, so soon as we have realized that the entrepreneur’s function is distinct from the capitalist’s function, that an entrepreneur, when he employs his own capital in an unsuccessful enterprise, loses as a capitalist and not as an entrepreneur. It has been said that if he borrows at a fixed rate of interest, the capitalist being entitled to repayment plus interest irrespective of results, it is the entrepreneur who bears the risk. But this is a typical instance of a very common confusion of economic and legal aspects. If the borrowing entrepreneur has no means of his own, it is obviously the lending capitalist who stands to lose, his legal rights notwithstanding. If the borrowing entre- it stuck. There were various attempts at improvement and development during that period and the subsequent one. Substantially, however, J.S.Mill’s conception of the entrepreneurial function prevailed throughout the century, which means that, after all, Say’s suggestion came to very little. We shall presently return to the subject. (b) The Agents. The reader is requested to observe how very short, simple, and natural the step is from the recognition of the three categories of participants in the economic process—landowners, workmen, and ‘capitalists’—to a general schema of this process. The categories are characterized by a purely economic trait: they are respectively the suppliers of services of land, of labor, and of a stock of goods that is labeled ‘capital.’ This seems to settle their role in production and, quite unbidden, the famous triad presents itself, the triad of agents, or factors, or requisites—or instruments (Senior)—of pro duction. And, not less easily, a triad of incomes emerges to correspond to the triad of factors—rents, wages, and ‘profits.’ Surely nothing could seem more useful and more simple or more obviously in accord with fact to any person not influenced by previous acquaintance with economic controversy. This is the first point about the triad of factors that I want the reader to realize. The second point to be borne in mind is that the triad is, nevertheless, not popular with modern economists. It established itself, more or less, around the middle of the nineteenth century and took a new lease of life through A.Marshall’s sponsorship of it. 7 And it still survives, owing to its handiness in elementary teaching. Beyond this, however, modern economists do not like it particularly: some look upon it as a relic of bygone stages of preneur has means by which to effect discharge of his debt, he too is a capitalist and, in case of failure, the loss again falls upon him as a capitalist and not as an entrepreneur. 7 Marshall had indeed a fourth factor or agent of production, Organization. But this is only a label for a compound of topics—such as division of labor and machinery—of which business management is only one. It is not an agent in the same sense as are land, labor, and capital. General economics 531 . question of considerable interest to ask how far the economists of that period took account of national differences of economic behavior and of consciousness of nationality as a motive of economic. terms of social classes can settle the matter. Of course, the question is complicated by another, viz., History of economic analysis 526 the question of the validity of the Marxist theory of classes and viewpoint of a history of analysis. History of economic analysis 528 (a) The Actors. Any schema of the economic process must first of all settle the question of the dramatis personae to