and the other things which the building and upkeep of railways necessitate, then it is impossible to make them the subject
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of economic calculation. We can make systematic economic plans only when all the commodities which we have to take into account can be assimilated to money. True, money calculations are incomplete. True, they have profound deficiencies. But we have nothing better to put in their place. And under sound monetary conditions they suffice for practical purposes. If we abandon them, economic calculation becomes absolutely impossible.
This is not to say that the socialist community would be entirely at a loss. It would decide for or against the proposed undertaking and issue an edict. But, at best, such a decision would be based on vague valuations. It could not be based on exact calculations of value.
A stationary society could, indeed, dispense with these calculations. For there, economic operations merely repeat themselves. So that, if we assume that the socialist system of production were based upon the last state of the system of economic freedom which it superseded, and that no changes were to take place in the future, we could indeed conceive a rational and economic Socialism. But only in theory. A stationary economic system can never exist. Things are continually changing, and the stationary state, although necessary as an aid to speculation, is a theoretical assumption to which there is no counterpart in reality. And, quite apart from this, the maintenance of such a connection with the last state of the exchange economy would be out of the question, since the transition to Socialism with its equalization of incomes would necessarily transform the whole “set” of consumption and production. And then we have a socialist community which must cross the whole ocean of possible and imaginable economic permutations without the compass of economic calculation.
All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.
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The terms “Capitalism” and “Capitalistic Production” are political catchwords. They were invented by socialists, not to extend knowledge, but to carp, to criticize, to condemn. Today, they have only to be uttered to conjure up a picture of the relentless exploitation of wage-slaves by the pitiless rich.
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They are scarcely ever used save to imply a disease in the body-politic. From a scientific point of view, they are so obscure and ambiguous that they have no value whatever. Their users agree only in this, that they indicate the characteristics of the modern economic system. But wherein these characteristics consist is always a matter of dispute. Their use, therefore, is entirely pernicious, and the proposal to extrude them altogether from economic terminology, and to leave them to the matadors of popular agitation, deserves serious consideration.10
If, nevertheless, we do desire to discover for them a precise application, we should start from the idea of capital calculations. And since we are concerned only with the analysis of actual economic phenomena, and not with economic theory—where “capital” is often used in a sense specially extended for particular purposes—we must first ask what significance is attached to the term in business practice. There we find it used only for purposes of economic calculation. It serves to bring the original properties of a concern under one denomination, whether they consisted of money or were only expressed in money.11 The object of its computations is to enable us to ascertain how much the value of this property has altered in the course of business operations. The concept of capital is derived from economic calculation. Its true home is accountancy—the chief instrument of commercial rationality. Calculation in terms of money is an essential element of the concept of capital.12
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If the term capitalism is used to designate an economic system in which production is governed by capital calculations, it acquires a special significance for defining economic activity. Understood thus, it is by no means misleading to speak of Capitalism and capitalistic methods of production, and expressions such as the capitalistic spirit and the anti-capitalistic disposition acquire a rigidly circumscribed connotation. Capitalism is better suited to be the antithesis of Socialism than Individualism, which is often used in this way. As a rule those who contrast Socialism with Individualism proceed on the tacit assumption that there is a contradiction between the interests of the individual and the interest of society, and that, while Socialism takes the public welfare as its object, individualism serves the interests of particular people. And since this is one of the gravest sociological fallacies
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we must avoid carefully any form of expression which might allow it secretly to creep in.
According to Passow, where the term Capitalism is used correctly, the association it is intended to convey is usually bound up with the development and spread of large scale undertakings.13 We may admit this—even if it is rather difficult to reconcile with the fact that people customarily speak of “Grosskapital” and “Grosskapitalist” and then of “Kleinkapitalisten.” But, if we recollect that only capital calculation made the growth of giant enterprise and undertakings possible, this does not in any way invalidate the definitions we propose.
The Narrower Concept of the “Economic”
The common habit of economists of distinguishing between “economic” or “purely economic” and “non-economic” action is just as unsatisfactory as the old distinction between ideal and material goods. For willing and acting are unitary. All ends conflict among themselves and it is this conflict which ranges them in one scale. Not only the satisfaction of wishes, desires and impulses that can be attained through interaction with the external world, but the satisfaction also of ideal needs must be judged by one criterion. In life we have to choose between the “ideal” and the “material.” It is, therefore, just as essential to make the former subject to a unitary criterion of values as the latter. In choosing between bread and honour, faith and wealth, love and money, we submit both alternatives to one test.
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It is, therefore, illegitimate to regard the “economic” as a definite sphere of human action which can be sharply delimited from other spheres of action. Economic activity is rational activity. And since complete satisfaction is impossible, the sphere of economic activity is coterminous with the sphere of rational action. It consists firstly in valuation of ends, and then in the valuation of the means leading to these ends. All economic activity depends, therefore, upon the existence of ends. Ends dominate economy and alone give it meaning.
Since the economic principle applies to all human action, it is necessary to be very careful when distinguishing, within its sphere, between “purely
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economic” and other kinds of action. Such a division is indeed indispensable for many scientifc purposes. It singles out one particular end and contrasts it with all others. This end—at this point we need not discuss whether it is ultimate or not—is the attainment of the greatest possible product
