This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
The attempt to distinguish between the fields occupied by the various social sciences discloses at once a fundamental unity existing among them. The acts of men are closely related in their lives, but they may be looked at from different sides. The central thought in economics in its social aspect is the business relation, the relation of men in working together, or in exchanging their services and material goods. In pursuing economic inquiries we come into contact with political, legal, and ethical considerations, all of which must be recognized before a final, practical answer can be given to any question. Nevertheless, the province of economics is limited. It is because of the feebleness of our mental power that we divide and subdivide these complex questions and try to answer certain parts before we seek to answer the whole. Whoever attempts this final and more difficult task should rise to the standpoint of the social philosopher.
§ 6. Subdivisions of economics. Economics in its most general sense includes various subdivisions. First is domestic economics (household economics), the modern equivalent of oiko-nomos, first used by Xenophon as the name for a set of rules to help the housekeeper or steward of an estate. The typical Greek household, however, was a large estate with slaves, almost a little state in itself, carrying on nearly all the arts and crafts. The term political economy (as économie politique) was first used in France in the eighteenth century to express the set of rules or principles to guide the king and his counselors in the control of his country, which was thought of much as if it were the king's private estate. Of late the term "economics," as expressing better a broadening conception of the subject, and at the same time as less likely to be confused with politics, has been gradually displacing the term political economy. It is used with various adjectives indicating the field covered; for example, domestic economics, household economics, corporation economics, national economics, political economy, world-economy, etc.
§ 7. Economy in the sense of the subject studied. We have chosen for our purpose to define economics as a " study," a body of knowledge, a science. But as in the case of various other sciences, its name is used also to indicate the body of facts and group of persons which are studied. One person (like Robinson Crusoe, on his desert island) constitutes an individual economy. There are, in such a case, no personal relations to study, but only the relations of man to his environment. A group of persons thought of together with all their material environment and in their relations with each other, forming something of an economic unity, constitute a social economy. The economic affairs of a family constitute a family or domestic economy, and those of a nation a political, or a national, economy.
§ 8. Economy not parsimony. It should hardly be necessary to warn against giving to the word "economy" the meaning of (the act or the quality of) parsimony. Economy implies good management, making the best of whatever means one has, and this is not stinginess, tho the thriftless and the self-seeking are always prone to impute it as such to others. Economy as a mode of action is parallel to economics as the science that seeks to arrive at such general rules and principles as will lead to the best results in the use of the resources and services of individuals, families, and nations.
It is true that there are different standards by which to judge what is "best"; sometimes a merely pecuniary standard of business profit to the individual is taken, and this may come close to mere avarice. Again, a standard of true welfare for the nation or for the race may be taken. These two views may be, and often are, in conflict, and it is a part of the task in this study to keep before the mind as clearly as possible the difference between these standards. The one standard is that of individual - pecuniary, acquisitive economics; the other that of public - industrial, productive economics.1
§ 9. Social aims of economics. Economics is often defined as the science of wealth. Partly because of this, and partly because of the unfortunate confusion of the individual and of the social points of view, it has been characterized as a "gospel of Mammon." But, in the main, economics must be understood as a social study for social ends, not a selfish study for individual advantage. The individual interest must be recognized, but treated as within, and subordinate to, the larger social interests. Certainly some of the lessons of economics may be of practical value to men in active business, and training in economics is increasingly deemed a helpful preparation for many special callings. Many economic "principles" are but the general statement of those ideas that have been approved by the experience of business men, of statesmen, and of the masses of men. Economics is not dreamed out by the closet philosopher, but more and more it is the attempt to describe and comprehend the interests and the action of the practical world in which men must live. Many men are working together to develop this study - those who collect statistics and facts bearing on all kinds of practical affairs, and those who search through the records of the past for illustrations of experiments and experiences that may help us in our life to-day.
§ 10. Economics in a democracy. With the growth of the modern state, with the increasing importance of business, and of industrial and commercial interests, as compared with changes of dynasty or the personal rivalries of rulers, economic questions have grown in relative importance. In our own country, particularly since the subjects of slavery and of States' rights ceased to absorb the attention of our people, economic questions have pushed rapidly into the foreground. Indeed, it has of late been more clearly seen that many of the older political questions, such as the American Revolution and slavery, formerly discussed almost entirely in their political and constitutional aspects, were at bottom largely questions of economic rivalry and of economic welfare. The remarkable increase in the attention given to this study in colleges and universities since the beginning of the last quarter of the nineteenth century is but the index of the greatly increased interest and attention given to it by citizens generally.
1 This distinction is developed in Part VI, especially in ch. 39.
The conception of political economy as the term was first used, has been modified wherever unlimited monarchy has given way to the rule of the people. In a democracy there is need for a general diffusion of knowledge, if the economic policy and legislation of the State is to be intelligent. The power now rests not with the king and a few counselors, but in the last resort with the people, and therefore the people must be acquainted with the experiences of the past, must so far as possible have economic knowledge to enlighten them in their choice of men and of measures.
Economic laws and other terms. In the science of economics some general ideas and statements are attained, and are called variously laws, principles, theories, hypotheses, and doctrines. These terms are used somewhat loosely, and we may note the general meaning that we are to attach to them.
Law originally meant (1) the binding custom or practice of a community; then came to mean (2) a rule laid down and enforced by some authority, as the State (acting through the political law-making body), or as divine will; (3) a statement of an order or relation of phenomena which appears to hold under the given conditions. Economic laws have this last meaning; they are not made and enforced by man, but are discovered as the true order inherent in things. Often in the physical sciences law in this sense suggests a pretty definite arithmetic statement (i.e., Newton's law of gravitation, Kepler's law, etc.), but it is used generally of an orderly recurrence. In economics the term is frequently applied, as in the phrases, law of diminishing returns, Gresham's law of money, etc.
Principle meant (1) beginning; then (2) source, or origin; (3) a fundamental truth; (4) an elementary proposition. Law and principle are used almost interchangeably, tho it would seem better to speak of principle when a more elementary statement is meant, and a law when the statement is more complex. Throughout this book the preference is generally given to the word principle rather than law in cases where there is good usage favorable to both.
Theory meant (1) contemplation; then (2) the general explanation of a body of facts, or group of phenomena; in other words, a plan or scheme of thought constructed to fit the facts so far as they are known. The popular use of the term theory to mean some plan of action, especially a poorly thought out plan sure to fail, should have no place in our discussion. It is an error to contrast theory and practice as the impracticable versus the practical. They should be contrasted only as idea, or explanation, versus action, or execution. Good theory then, usually goes with good practice and bad theory with poor practice. Usually when it is said that a thing is true in theory but false in practice, what is meant is that the theory is untrue, based on purely imaginary conditions and hence will not work. Science has to do with theory; art has to do with practice.
Hypothesis, often used interchangeably with theory, may be distinguished from it; it is a provisional conjecture regarding the relations of certain phenomena, whereas a theory is a hypothesis which has undergone a large measure of verification.
Doctrine meant originally (1) that which is taught, usually by a group of thinkers; hence (2 a body of principles. In such expressions as the law of rent, the theory of rent, and the doctrine of rent, the terms are well nigh synonymous, and the preference for the use of "doctrine" in certain cases rather than theory or principle, resulted more or less from the historical accident that a theory became connected in thought with a group of thinkers (that is, was taught by them, as Malthusian doctrine, the Ricardian rent doctrine, the free-trade doctrine of the Manchester School, etc.).