POLITICAL ECONOMY. — As many definitions have been given of p. e. as there have been phases in its doctrinal development; indeed, the nature of every definition derives from the overall conception of p. e. prevailing at a given moment. 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 p. e. in the terms of a “science that studies the adaptation of limited means to human ends.” This formulation is far broader and more precise than it might seem at first sight, since it brings into focus the very constituent elements of the economic problem: on the one hand, the existence of different ends that economic subjects, individuals and social groups, set themselves to achieve and, on the other, the limited nature of the means available for attaining those ends.
The evaluation of ends is of fundamental importance for the formulation of p. e. By assuming among the terms of the economic problem that of the attainment of human ends, and given their essentially ethical nature, it follows that p. e. is undoubtedly connected with ethics and, in particular, stands in a relationship of subordination to the latter (Vito). This conception represents the most modern phase in the doctrinal development of p. e. Indeed, until a few decades ago the prevailing view maintained the absolute separation of economics from ethics or, at the very least, the neutrality of the former with respect to the latter. From the first point of view, a distinction was made 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 entrusted with the task of directing practical economic activity; pure economics would be completely independent of ethics, since it merely reconstructs economic phenomenology as it occurs, whereas its dependence is acknowledged in the case of applied economics, since the application of economic activity can never run contrary to moral precepts. This would nevertheless be correct only if the presumed distinction between economic science and economic policy had a conceptual justification and did not derive merely from the expediency of scientific specialization (on the basis of which one also distinguishes between economic statistics and economic history, and the science of public finance). 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 immaterial whether or not the hypotheses from which the deductive logical process begins accord with ethical principles; what matters is that the process be exact (Pantaleoni). In this case, however, one can only share the opinion of those who object that there are limits to be respected even in the adoption of hypotheses (Vito). One must conclude that there is indeed a relationship of dependence between economics and ethics, the former being subordinate to the latter, without being forced to deny the possibility of economics’ autonomy with regard to ethics. It is enough to assign ethics the meaning of “science of ends” and 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 more precisely defined by the name “needs” are to be considered as such, where limited means or means capable of alternative uses are available for their attainment. In other words, needs are exclusively those ends in relation to which a problem of choice arises; if the means existed in unlimited quantity or were capable of only one use, there could in fact be no problem at all. Similarly, not all means have economic relevance, but only those that exist in limited quantity and are capable of alternative uses, that is, those means with regard to which a problem of choice once again arises. These are given the general name of “goods,” which in the strict sense applies to means of a material nature, whereas those which, although immaterial in nature, such as individual services, etc., serve in the same ways to satisfy needs are called “services.”
In the division of all the sciences into physical or natural sciences and social sciences, there can be no question that p. e. belongs to the latter, which in turn may be divided into historical and theoretical sciences. P. e. possesses all the characteristics of the theoretical sciences; its laws therefore generally have the 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 possess the same degree of absolute determinacy as the others, and moreover are not susceptible to precise inductive verification, given that economic phenomena cannot be reproduced experimentally.
The scientific development of p. e. is very recent and coincides with the opening of the modern age. Until that period there had been only fragmentary treatments; it was only in the Middle Ages that the study of economic subjects appeared with some frequency, since the Christian conception of life that dominated every sphere naturally led to discussion of their exclusively economic aspects as well; topics of considerable 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 treatment, extending precisely from the beginning of the modern age to the first half of the eighteenth century, was developed by the mercantilist school, whose concern, however, was limited to providing empirical rules for sound economic government. Its position was summarized in the maxim “pecania nerbus rei publicae,” by which it was intended to establish that all the activity of the responsible authorities should be directed toward increasing the quantity of money, since this was held to measure a country’s wealth. The critique of this conception was first advanced by physiocracy, which made the first attempt to treat economics on the basis of an
according to a rational criterion, even though such a criterion proves entirely inconsistent. Indeed, the physiocrats subordinate the sound functioning of economic life to adherence to a natural order immanent in society and, since the economic activity conforming to nature is agriculture, the entire system should be constructed upon II. The physiocrats deserve credit for having been the first to seek to relate all the particular elements of the economic system to a single ordering factor, and thus for having opened the way to the scientific treatment along which English scholars of the classical school were decisively to proceed. With the latter, political economy entered the phase of systematic analysis. The classical economists (Smith, Malthus, Ricardo, Stuart Mill, etc.) began to identify certain fundamental connections among economic phenomena; they arrived at the formulation of various general propositions having the force of laws, and finally grasped the importance of the function of price as the central element of the economic system. Their chief interest was in fact directed toward solving the problem of the formation of value and price, which would subsequently also constitute the fundamental problem of economic science. The value of goods was interpreted as constituted by the cost of production, which in turn was held to represent the labor incorporated in the goods themselves (from this proposition Marxist theory would take its point of departure). Because of its recourse to objective factors, such as the cost of production and incorporated labor, the classical school is also defined as having an “objectivist orientation.” Its premises include the characteristic conceptions founded on utilitarianism, individualism, and liberalism. The “historical school,” led above all by German scholars (List, Bücher, Schmoller, etc.), instead set out to deny the possibility of economic laws in the name of the asserted contingent character of every phenomenon and every economic system; their attempt, however, proved unfruitful. With the “Austrian school,” the scientific character of economic science was reaffirmed, and from then on research was consistently directed along these lines; 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 (the subjectivist criterion). This formulation made possible the definitive explanation of value by the more modern economic science, since today value is held to be formed by the synthesis of the objective and subjective elements. The last school that can be classified from a systematic point of view is the “mathematical” school, which differs from its predecessors not only in having adopted a mathematical orientation methodologically, but above all in having replaced the causal investigation of economic phenomena with functional analysis. Mathematical economists (Cournet, Walras, and above all Pareto) deserve credit for having formulated the principle of the interdependence of economic phenomena and the notion of the “general equilibrium” of the system, toward the realization of which all economic data contribute simultaneously. It would be rather difficult to attempt to pass judgment on contemporary currents; what is certain, however, is that they all differ from their predecessors in recognizing that at the basis of economic life it is impossible to admit utilitarian or hedonistic motives, which must instead be replaced by the conception of social ends of an ethical nature, while, from the point of view of their premises, they adopt the postulates of the primacy of labor over the other factors of production, the necessity of State intervention in economic life, and the obligation to safeguard the human personality above every other economic consideration.
