418 SECTIONAL TRANSACTIONS.—F. 
2. The definition of the problem. 
Pure economic theory relates to the actions of man as manifested in the processes 
of exchange and production of goods. As a first step, the static problem can be 
distinguished from the more general dynamic problem and the process of exchange 
can be separated from production. 
Adopting the unique method common to all sciences, the rational branch of 
economics must be connected with the empirical branch. The connection is made 
by the choice of the initial propositions, assumptions and definitions, on which the 
rational theory is based. If pure economic theory is to be ‘ true,’ i.e. if it is to explain 
and connect the empirical laws obtained from observation, the initial propositions 
must be translations of empirical facts reduced by abstraction to their simplest 
elements. The initial propositions must be precise and rigorously formulated ; 
observed phenomena are confused and complex, and give only vague ideas and 
representations. The problem is to translate the latter into the former. 
The assumptions and definitions, serving as premises for the construction of a 
general theory of exchange equilibrium, can be specified under two heads :— 
(1) Those relating to the action of the free individual. 
(2) Those relating to the mutual relationship of individuals on a market. 
In addition it is necessary to specify :— 
(3) Further assumptions required for the discussion and development of the 
equilibrium position but not for its construction. 
3. The action of the free individual. 
Definition of economic actions and economic goods, their quantitative expression 
and their geometrical and analytical representation. 
Definition of indifference loci and lines of preference, and the assumptions relating 
to them. Method of obtaining their differential equations. The preferential force 
vector and its components, the marginal or specific utilities. 
It is not necessary to adopt the hedonistic hypothesis or to make any assumption 
as to the measurability of utility. 
An analogy with mechanics and other mathematical sciences is instructive ; wants 
and exchange movements in economics correspond to force and motion in mechanics. 
For the static problem of exchange equilibrium the ratios of the marginal utilities 
are required only ; the dynamic problem requires the actual magnitudes. This is 
illustrated by an analogy with mechanics. 
4. The mutual relationship of individuals on a market. 
Definition of a market; the liaisons or restrictions imposed upon free individual 
action by market conditions. Definition of price and of price units. 
The various problems of man’s economic activities differ only as to the liaisons 
imposed by the problem ; the assumptions relating to the action of the free individual 
apply to all problems. The liaisons under competition and under monopoly. 
Equilibrium is attained by the interaction of the individuals’ preference forces 
and the restrictions imposed by the market, by the conflict of wants and limitations. 
Asin mechanics, the interaction of these forces is expressed by a system of simultaneous 
equations. 
5. Further assumptions necessary for the discussion of the equilibrium position. 
Assumptions relating to the integrability of the differential equations for the lines 
of preference and the orthogonal indifference loci. Total utility and function indices ; 
individual action considered as a problem of relative maximum. 
Assumptions relating to the marginal utilities, the components of the preferential 
force vector. The shape of the indifference curves and surfaces. Collective 
indifference loci and+the assumption of continuity. The classification of economic 
goods as independent, competing and completing goods. 
Appendix. 
References and mathematical notes. 
Tuesday, September 29. 
Mr. Maurice Doss.—Current Economic Theory and the Five-Year Plan wn 
Russia. 
The unique background of economic problems in U.S.S.R. is composed of three — 
leading features; (1) a Planned Economy ; (2) a Socialist Economy ; (3) an abnor- 
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