The Hedonists - Hedonist Definition

The Hedonists, Hedonist Definition

The Pseudo – Renaissance Of The Classical School


If we are to give this new doctrine its true setting we must return for a moment to our study of the Historical school. The criticism of that school, as we have already seen, was directed chiefly against the method of the Classical writers. The faith which their predecessors had placed in the permanence and universality of natural law was scornfully rejected, and the possibility of ever founding a science upon a chain of general propositions emphatically denied. Political economy, so it was decreed, was henceforth to be concerned merely with the classification of observed facts.

It would not have been difficult to foretell that the swing of the pendulum—in accordance with that strange rhythm which is such a feature of the history of thought—would at the opportune moment cause a reversion to the abstract method. That is exactly what hap­pened. Just at the moment when Historical study seemed to be triumphantly forging ahead—that is, about the years 1872-74—several eminent economists in Austria, England, Switzerland, and America suddenly and simultaneously made their appearance with an emphatic demand that political economy should be regarded as an independent science. They brought forward the claims of what they called pure economics. Naturally enough there ensued the keenest controversy between the champions of the two schools, notably between Professors Schmoller and Karl Menger.

The new school had one distinctive characteristic. In its search for a basis upon which to build the new theory it hit upon the general principle that man always seeks pleasure and avoids pain, getting as much of the former with as slight a dilution of the latter as he possibly can. A fact of such great importance and one that was not confined to the field of economic activities, but seemed present everywhere throughout nature in the guise of the principle of least resistance, could scarcely have escaped the notice of the Classical theorists. They had referred to it simply as "personal interest," but to-day we speak of it as Hedonism, from the Greek (pleasure or agreeableness).

Hence the name Hedonists, by which we have chosen to designate these two schools.

The elimination of all motives affecting human action except one does not imply any desire on the part of these writers to deny the existence of others. They simply lay claim to the right of abstraction, without which no exact science could ever be constituted. In other words, they demand the right of eliminating from the field of research every element other than the one which they wish to examine. The study of the other motives belongs to the province of other social sciences. The homo economicus of the Classicals which has been the object of so much derision has been replaced on its pedestal. But it has in the meantime undergone such a process of simplification that it is scarcely better than a mere abstraction. Men are again to be treated as forces and represented by curves or figures as in treatises on mechanics. The object of the study is to determine the interaction of men among themselves, and their reaction upon the external world.

We shall also find that the new schools arrive at an almost identical conclusion with the old, namely, that absolutely free competition alone gives the maximum of satisfaction to everybody. Allowing for the differences in their respective points of view, to which we shall refer later on, what is this but simply a revival of the great Classical tradition?
Little wonder, then, that we find a good deal of sympathy shown for the old Classical school. Indeed, it is throughout regarded with almost filial piety.

This does not mean that the Classical doctrine is treated as being wholly beyond reproach, although it does mean that the new school could scarcely accuse it of being in error, seeing that it comes to simi­lar conclusions itself. But what it does lay to the charge of the older writers is a failure to prove what they assumed to be true and a tendency to be satisfied with a process of reasoning which too often meant wandering round in a hopeless circle. Especially was this the case with their study of causal relations, forgetting that as often as not cause was effect and effect cause. The attempt to determine which is cause and which effect is clearly futile, and the science must rest content with the discovery of uniformities either of sequence or of coexistence.

This applies especially to the three great laws which form the frame work of economic science, namely, the law of demand and supply, the law of cost of production, and the law of distribution, none of which is independent of the others. Let us review them briefly.

The law stating that "price varies directly with demand and in­versely with supply" possessed just that degree of mathematical precision necessary to attract the attention of the new writers. In fact, it just served for the passage from the old to the new economics. But no sooner was the crossing effected than the bridge was destroyed. Little difficulty was experienced in pointing out that this so-called law which had been considered to be one of the axioms of political economy, the quid inconcussum upon which had been raised all the superstructure of economic theory, was an excellent example of that circular reason­ing of which we have just spoken. There was a considerable flutter among the economists of the mid-nineteenth century when they found themselves forced to recognize this. However true it may be that price is determined by demand and supply, it is equally true that demand and supply are each in their turn determined by the price, so that it is impossible to tell which is cause or which is effect. Stuart Mill had already noted this contradiction, and had attempted correction in the way already described (p. 364). But he was ignorant of the fact that Gournot had completely demolished the formula by setting up another in its place, namely, that 'demand is a function of price.'1 The substitution of that formula marks the inauguration of the Hedonistic calculus. Demand is now shown to be connected with price by a kind of see-saw movement, falling when prices rise and rising when prices fall. Supply is equally a function of price, but it operates in the opposite fashion, moving pari passu with it—rising as it rises and falling as it falls. Thus price, demand, and supply are like three sections of one mechanism, none of which can move in isolation, and the problem is to determine the law of their interdependence.

This does not by any means imply that there is no longer any place in economics for the law of demand and supply. It has merely been given a new significance, and the usual way of expressing it nowadays is by means of a supply and demand curve, which simply involves translating Gournot's dictum into figures.

The same is true of the law stating that cost of production deter­mines value. There is the same petitio principii here. It is easy enough to see, on the contrary, that the entrepreneur regulates his cost of produc­tion according to price.. The Classical school had realized this as far as one of the elements in the cost of production was concerned, for it was quite emphatic in its teaching that price determined rent, but that rent did not determine price. It is just as true of the other elements. In other words, the second law is just as fallible as the first. It is obviously imperative that the vain quest for causal relations should be abandoned and that economists should be content with the statement that between cost of production and price there exists a kind of equilibrating action in virtue not of any mysterious solidarity which subsists between them, but because the mere absence of equili­brium due either to a diminution or an increase in the quantity of products immediately sets up forces which tend to bring it back to a position of equilibrium. This interdependent relation, which is extremely important in itself and upon which the Hedonists lay great store, is simply one example taken from among many where the value of one thing is just a function of another.

Similar criticism applies to the law of distribution, to the Classical doctrine of wages, interest, and rent. The way the Classical writers treated of these questions was extraordinarily naive. Take the question of rent. You just subtract from the total value of the product wages, interest, and profit, and you are left with rent. Or take the question of profit. In this case you will have to subtract rent, if there is any, then wages and interest, the other component elements, and what remains is profit. Bohm-Bawerk wittily remarks that the saying that wages are determined by the product of labour apparently only amounts to this—that what remains (if any) after the other co-operators have had their share is wages. Each co-partner in turn becomes a residual claimant, and the amount of the residuum is determined by assuming that we already know the share of the other claimants I

The new school refuses any longer to pay honour to this ancient trinity. It is impossible to treat each factor separately because of the intimate connexion between them, and their productive work, as the Hedonists point out, must necessarily be complementary. In any case, before we can determine the relative shares of each we must be certain that our unknown x is not reckoned among the known. This naturally leads them on to the realm of mathematical formulae and equations.

All the Hedonists, however, do not employ mathematics. The Psychological school, especially the Austrian section of it, seems to think that little can be gained by the employment of mathematical formulae. Some of the Mathematical economists, on the other hand, are equally convinced of the futility of psychology, especially of the famous principle of final utility, which is the corner-stone of the Austrian theory.

For the sake of clearness it may be better to take the two branches —the Psychological and the Mathematical—separately.