Political Economy

POLITICAL ECONOMY. - As many definitions of political economy have been given as there have been phases in its doctrinal development; indeed, the nature of every definition derives from the entire conception that prevails at a given moment regarding political economy. The first systematic definitions all proved unsatisfactory, either because they were not sufficiently comprehensive or because of their erroneous foundation. A decisive step was taken when it became possible to express the complex characteristics of political economy in terms of a "science that studies the adaptation of limited means to human ends." This formulation is much broader and more precise than it appears at first sight, since it brings into focus the very constitutive elements of the economic problem: on the one hand, the existence of different ends that economic agents, individuals and social groups, propose to attain, and on the other, the limitedness of the means available for achieving those same ends.

Of fundamental importance for the formulation of political economy is the evaluation of ends. By assuming among the terms of the economic problem that of the attainment of human ends, and given the essentially ethical nature of these, it follows that political economy is undoubtedly connected to ethics and, in particular, according to a relationship of subordination to the latter (Vito). This conception represents the most modern phase of the doctrinal development of political economy. Indeed, the opinion prevailing until a few decades ago maintained the absolute separation of economics from ethics or, at least, the neutrality of the former with respect to the latter. From the first point of view, a distinction was drawn between "pure economics" or "economic science," theoretical in character and having the exclusive purpose of studying phenomena, and "applied economics" or "economic policy," normative in character and having the task of directing practical economic activity; pure economics would be completely independent of ethics, since it limits itself to reconstructing economic phenomenology as it actually occurs, whereas dependence on ethics was admitted for applied economics, inasmuch as the application of economic activity can never be contrary to moral dictates. This would be correct, however, only if the presumed distinction between economic science and economic policy had a conceptual justification and did not derive from the simple expediency of scientific specialization (on the basis of which a statistics and an economic history and the science of finance are also distinguished). In support of the thesis advocating the neutrality of economics with respect to ethics, it is observed that, because of the abstract character of economic science, it is indifferent whether the hypotheses from which the logical-deductive process starts are or are not in accord with ethical principles; what matters is that the process be exact (Pantaleoni). But in this case one can only share the opinion of those who object that there are limits to be respected even in the assumption of hypotheses (Vito). One must conclude that in fact between economics and ethics there is a relationship of dependence of the former upon the latter, without being compelled to deny the possibility of autonomy of economics with regard to ethics. It suffices to attribute to ethics the meaning of "science of ends" and to economics that of "science of means"; within its own sphere each remains autonomous, having a specific object of inquiry (Toniolo, Vito).

Not all ends have economic relevance; only those that are more precisely defined by the name of "needs" should be considered as such, for whose attainment limited means or means capable of alternative use are available. In other words, only those ends are needs before which a problem of choice arises; if means indeed existed in unlimited measure and were susceptible of a single use, there could not even be any problem at all. Similarly, not all means have economic relevance, but only those that are found in limited quantity and are capable of alternative use, that is, those means regarding which a problem of choice still imposes itself. These are given the general name of "goods," which belongs in the strict sense to means of a material nature, while those that, although of an immaterial nature such as individual services, etc., serve in the same manner for the satisfaction of needs, are given the name of "services."

In the division of all sciences between physical or natural sciences and social sciences, it is beyond dispute that political economy belongs to the latter, which in turn can be distinguished into historical and theoretical. Political economy has all the characteristics of the theoretical ones; its laws therefore generally have those same characteristics that qualify natural laws. The principal differences lie in the fact that, since economic phenomena are essentially human phenomena, economic laws tend not to have that degree of absolute determinacy that other laws have, and moreover they are not susceptible of a precise inductive verification, given that economic phenomena are not experimentally reproducible.

The scientific development of political economy is very recent and coincides with the opening of the modern age. Until this period there were only fragmentary treatises; it is only in the Middle Ages that the study of economic subjects appears with some frequency, since the Christian conception of life that dominated all its sectors naturally led to discussing also its exclusively economic aspects; themes of notable practical as well as doctrinal interest, such as the just price, the just wage and usury, were the object of extensive analyses and discussions. The first autonomous treatise, which runs precisely from the beginning of the modern age to the first half of the 18th century, was carried out by the mercantilist school, whose concern, however, was limited to providing empirical norms of good economic governance. Its position was summarized by the maxim "pecunia nervus rei publicae," with which it was intended to establish that all the activity of the responsible organs should be directed toward increasing the mass of money, since this would measure the wealth of a country. Criticism of this conception was advanced first of all by physiocracy, which realizes the first attempt to treat economics on the basis of a rational criterion, even if that criterion proves to be entirely inconsistent. In fact, the physiocrats subordinate the sound functioning of economic life to the observance of a natural order immanent in society, and, since the economic activity that conforms to nature is agriculture, the entire system should be built upon it. It is to the physiocrats that the merit belongs of having been the first to seek to reconnect all the particular elements of the economic system to a single ordering factor, and of having thus opened the path of scientific treatment on which English scholars of the classical school decisively set out. With this school, political economy enters the phase of systematic analysis. The classics (Smith, Malthus, Ricardo, Stuart Mill, etc.) began to identify certain fundamental connections among economic phenomena; they arrived at the formulation of various propositions of a general character having the value of laws, and they finally grasped the importance of the function of price as the central element of the economic system. Their greatest interest was in fact directed toward the resolution of the problem of the formation of value and of price, which would also subsequently constitute the fundamental problem of economic science. The value of goods is interpreted as being constituted by the cost of production, which in turn would represent the labor incorporated in the goods themselves (from this enunciation the Marxist theory would take its start). Because of its recourse to objective factors, such as the cost of production and incorporated labor, the classical school is also defined as "objectivistic in orientation." Its premises include the typical conceptions founded on utilitarianism, individualism and liberalism. The "historical school," chiefly through the work of German scholars (List, Bücher, Schmoller, etc.), instead sets out to deny the possibility of economic laws in the name of the asserted character of contingency of every phenomenon and every economic system; their attempt, however, proves unfruitful. With the "Austrian school" the scientific character of political economy was reconfirmed, and from then on investigations were always oriented in this direction; this school is called "psychological" because its followers (Menger, Böhm-Bawerk, von Wieser, etc.) explained the value of goods on the basis of the value attributed to them by subjects (a subjectivistic criterion). With this formulation, the definitive explanation of value was made possible for the most modern economic science, inasmuch as today it is held to be formed by the synthesis of the objective element and the subjective one. The last school that can be classified from a systematic point of view is the "mathematical" one, which is distinguished from the preceding ones not only by having adopted the mathematical approach on methodological ground, but above all by having replaced the causal investigation of economic phenomena with functional inquiry. It is to the mathematical economists (Cournot, Walras and above all Pareto) that the merit belongs of having enunciated the principle of the interdependence of economic phenomena and the notion of the "general equilibrium" of the system, to the realization of which all economic data simultaneously contribute. It would be rather difficult to attempt to give a judgment concerning contemporary currents; what is certain, however, is that all of them differ from the preceding ones in recognizing that at the basis of economic life it is not possible to admit utilitarian or hedonistic elements, which must instead be replaced by the conception of social ends of an ethical nature, while from the point of view of premises the postulates are assumed of the primacy of labor over the other factors of production, of the necessity of State intervention in economic life, and of the obligation to safeguard the human personality above every other economic consideration.

Ercole Calcaterra