Divisions of Modern Economic Science. It seems
fitting at this point to turn from history to outline the
content of modern analytical economics in terms of
its pivotal ideas. This content happens, like the history,
to fall naturally into four parts, forming a cross dichot-
omy; i.e., there are two main divisions, each with two
subdivisions, which may be schematized as I-A, I-B,
and II-A and II-B. The first main division deals with
the economic conduct of an individual, first (I-A) under
fixed general conditions, and second (I-B) with these
subject to change through economic conduct by the
acting person. The two together are introductory to
the main subject matter, which fills the second major
division. This describes the social organization of eco-
nomic conduct (a national economy), as worked out
under mutual freedom, through exchange of goods and
services in markets. The second main part has similar
subdivisions, the first assuming fixed general conditions,
the second dealing with economic activity partly
directed to changing these. The given conditions in
question are wants and the resources available to the
person or persons acting for satisfying them; the re-
sources used are internal or external to the persons.
They include a stock of technical knowledge (and
“know-how”), which may either be considered as an
internal resource or treated as a third main datum.
(Economic conduct which changes basic conditions
presumably causes progress, here meaning fuller satis-
faction of given wants; action to improve wants—one's
own or another's—does not fit the general concept of
economy.)
The task of the first main division (two sub-parts)
is to analyze the economic conduct of an isolated
person (a “Crusoe” economy), abstracting from all
social interests and relations. This is necessary in order
to avoid serious fallacies that pervade economic dis-
cussion, particularly of economic progress, achieved
through saving and investing. A full treatment would
require much explanation and qualification. Economic
analysis is abstract; it says nothing about “what” wants
are felt or what concrete means are used to gratify
them—except for the triad of personal capacity, exter-
nal means and materials, and “technology” (if this is
distinguished from “labor-power,” which there are
good reasons for doing). Nonhuman agents call for most
comment, first because the tradition has made a false
distinction between “land” and other “capital goods,”
and secondly because of failure to relate these clearly
to “capital.”
The first subhead—the Crusoe economy under given
conditions—can be treated briefly. Differences be-
tween different forms of productive capacity as to
conditions of maintaining a constant supply do not
justify the recognition of productive factors but some
differences cannot be ignored; this would not be too
unrealistic for labor-power and technology; but non-
human agents present the same problem of choice for
maintenance as for growth, and the two will best be
considered together, later. Much of what is commonly
called production of such indirect goods is not capital
creation but maintenance of an existing stock, hence
is assumed with stationary conditions. To begin with,
productive capacity might, for simplicity, be arbitrarily
treated as a unit, making it Crusoe's problem to appor-
tion it among the uses known to him so as to achieve
maximum total want-satisfaction. The relevant general
principles have been stated above. They are summed
up in (a) diminishing “marginal utility” and (b) appor-
tionment so that equal units (of negligible size) make
equal additions to total satisfaction in all uses. The
name comes from an early translation of the German
Grenz (meaning boundary). The three discoverers used
other names: Jevons had called it “final degree of
utility,” Menger simply “importance” or “meaning”
(Wichtigkeit or Bedeutung), and Walras “scarcity”
(rareté).
The precise meaning and conditions of validity have
been controversial; subtleties may be ignored here, but
the discovery was pivotal for the transition from polit-
ical economy to analytical economics, and (as also
noted before) it was later recognized that parallel
principles hold for apportioning productive resources—
diminishing marginal productivity and equalization for
final units in all uses. The principles hold for the al-
location of any single kind of good—added to a com-
plex of others, assuming “correct” combination, recog-
nizing complementarities and antagonisms. In social
life analysis of consumption is much simplified by the
intervention of money, an income as a fluid resource
to be apportioned in purchasing various consumables
available, at their prices. More precisely, that part of
a person's income that is devoted to consumption—for
the whole is commonly divided between this use and
investment for future increase. Treatment of this ap-
portionment belongs under the next heading.
