1150 REPORT—1885. 
that they were going to do, it is chiefly because their exaggerated phrases have led 
critics of a looser sort to misunderstand and misrepresent the recent progress and 
actual condition of economic thought. I fully recognise that the elaborate and 
careful study of economic facts in all departments, which the historical school has 
encouraged and carried out,is an indispensable aid to the due development of 
general economic theory. In all abstract economic reasoning which aims at quanti~ 
tative precision, there is necessarily a hypothetical element; the facts to which 
the reasonings relate are not contemplated in their actual complexity, but in an 
artificially simplified form; if, therefore, the reasoning is not accompanied and 
checked by a careful study of facts, the required simplification may easily go too 
far or be inappropriate in kind, so that the hypothetical element of the reasoning is 
increased to an extent which prevents the result from having any practical value. 
And this danger is enhanced by the great, though generally gradual, changes 
in economic facts which accompany or constitute industrial development. Thus, 
for instance, a theoretical investigation of the purchasing power of money, which 
assumes for simplicity that coin and hank-notes form the sole medium of exchange, 
might easily lead to serious practical errors in the existing condition of industry ; 
and a theory of capital which ignores the great and growing preponderance of 
auxiliary over remuneratory capital is liable to be similarly delusive. The general 
study of economic history is important as calling attention to this source of error ; 
but for effective protection against it we must look to that patient and systematic 
development of statistical enquiry, which it is one of our main functions here to 
watch and to foster. 
I must observe, however, that the historical economists are apt to insist too one- 
sidedly on the progress in economic theory attained by studying the industrial 
organisation of society in different stages of its development; they do not suffi- 
ciently recognise that other kind of progress which consists in conceiving more 
clearly, accurately, and consistently, the fundamental facts that remain without 
material change. But this latter kind of progress is very palpable to one who 
traces back the history of economic doctrines. Indeed, if our active controversy 
on principles and method has led anyone to think that political economists are 
always wrangling, and never establishing anything, he may easily correct this im- 
pression by turning to the older writers, and noting the confusions they make on 
points that are now clear to all instructed persons, and the inferences they unhe- 
sitatingly draw, which all would now admit to bein whole or in part erroneous. And 
by the ‘ older writers’ I do not mean merely those who lived before Adam Smith: 
what I have just said is no less true of the ‘ Wealth of Nations’ and its most dis- 
tinguished successors. A tiro can now see the fallacy of Adam Smith’s statement, 
that ‘labour never varying in its own value’ is a ‘ universal’ and ‘accurate standard 
of the exchangeable value of all commodities at all times and places’ ; the staunchest 
Ricardian would refuse to follow his master in maintaining that a tax on corn 
would cause labourers ‘no other inconvenience than that which they would suffer 
from any other mode of taxation’; the most faitnful disciple of J.S. Mill would 
not fall into the confusion between ‘ interest’ and ‘ profit’ which seriously impairs 
the value of important parts of his discussions. Much progress, I doubt not, still 
remains to be made, by steadily continuing that labour of reflective analysis through 
which our conception of fundamental economic facts has grown continually fuller 
and more exact; but no one who examines impartially the writings of our most 
eminent predecessors can ignore the progress that has already been made. 
I now pass to consider another old charge against political economists, which 
has been recently revived: the charge of confining their attention too much to the 
special group of phenomena with which they are primarily concerned, and neglect- 
ing the relations of these to other social facts. There have, no doubt, been 
writers—Senior is, perhaps, the most important—in whom such neglect was 
deliberate and systematic ; but their peculiar view of economic method has long 
ceased to have much influence on current thought ; and I hardly think that political 
economists are now more open to the charge of systematic narrowness than any 
other set of students who do not ‘ take all knowledge for their province,’ but accept 
the limitations which the present state of research imposes as the inevitable condi- 
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