On Quantitative Thinking In Economics

ON QUANTITATIVE THINKING IN ECONOMICS BY GUSTAV CASSEL OXFORD AT THE CLARENDON PRESS 1935 OXFORD UNIVERSITY PRESS AMEN HOUSE, E. C. 4 London Edinburgh Glasgow New York Toronto Melbourne Capetown Bombay Calcutta Madras Shanghai HUMPHREY MILFORD PUBLISHER TO THE UNIVERSITY PRINTED IN GREAT BRITAIN PREFACE THOROUGH reconstruction of economics as a quantitative science is urgently needed and, indeed, long overdue. In no other branch of modern science would such a general lack of quantitative definiteness as still prevails in economics be tolerated. The aim of the reconstruction must be to present the actual facts and problems of economic life in the most distinct form and, as far as possible, in measurable terms. To succeed in this work, economists must relieve themselves of the oppressive burden of withered notions and barren dogmas, inherited from the highly theoretical and scholastic controversies of a past cen tury, and face with youthful vigour and up-to-date scientific equipment the problems of their own age. Such reconstruction is of great interest to the steadily growing circle of those who, in their lifes practical work, are confronted with economic ques tions and social relations of a more and more complex nature. What such people naturally demand, and are entitled to demand, is a clear exposition of the ele ments of economics, detached from old dogmatic controversies, free from contradictions and unneces sary complications, and so generally accepted that it can serve as a reliable basis for a profitable discussion of present-day problems. The task is great it involves in fact a general raising PREFACE of the standard of quantitative thinking in economics. In the following pages Ican only hope to indicate the principal lines of the work required and to illustrate its nature by discussing some few important points relating to the basic concepts and methods of econo mic science. This discussion, however, will touch and, as I hope, throw some fresh light upon several practical problems of social economy that stand at present in the centre of public interest. Thus, this little book may perhaps contribute to a more general understanding of the fundamental and indissoluble connexion between theory and practice, and of the truth that there is, in the long run, nothing more practical than sound theory. G. C. DJURSHOLM, June 1935. VI CONTENTS I. ECONOMICS AS A QUANTITATIVE SCIENCE i II. PRODUCTION . . . . .13 III. VALUE AND MONEY . . . .29 IV. INCOME AND ITS USE . . . .61 V. GRADUAL APPROXIMATION . . .90 VI. QUANTITATIVE RELATIONS BETWEEN PRO DUCT AND FACTORS OF PRODUCTION . 119 VII. THE EQUILIBRIUM THEORY OF PRICES . 151 Vll ECONOMICS AS A QUANTITATIVE SCIENCE IN its knowledge of actual facts as well as of historical development economic science has made wonder ful progress during the last generation. Theoretical exposition, however, has hardly kept pace with this progress, and the foundations of economic theory have been especially neglected. Economics must essentially be a quantitative science dealing with quantities and their relations to one another and with conditions of equilibrium between forces that must be conceived quantitatively. A scientific study of economics, therefore, requires a certain acquaintance with the first principles of quantitative research. Most economists, however, have been brought up on other lines, and their equip ment for quantitativethinking has often been defec tive. The result is that economic science has suffered at every stage of its growth from serious defects in quantitative thinking. The present state of the science offers clear evidence of this weakness. The mathematical form widely used nowadays in the discussion of economic problems is no guarantee of a deeper understanding of the quantitative nature of the problems...