R.G. Collingwood, “Economics as a Philosophical Science” International Journal of Ethics 36, no. 2 (Jan. 1926): 162-185.
Collingwood begins by stating his thesis that “[the presupposed conceptions of economic science] are various aspects of, or attempts to describe, a certain form of action which. . . .we shall call economic action” (162). By presupposed conceptions, Collingwood refers to a priori propositions. Economics can encompass both philosophical economics, concerning economic action, while empirical economics concerns the substance of human conduct, or psychology. According to him, if we accept the utility of philosophical economics, we must also accept “abandoning any attempt to solve them empirically or inductively” in favor of philosophical methods, such as deduction (164). Collingwood perceives that while economic action may entail a moral element, these implications can, and must, be separated from the science of economic action in order to examine whether a given action will bring about a given result (165). Indeed, part of the action’s morality may include whether or not the action is calculated to bring about the moral end.
In his essay, Collingwood distinguishes between three categories of action in order to clarify the concept of action:
First, the doing something because it is what we want to do; secondly, the doing it because it is expedient; thirdly, the doing it because it is right. The first is the sphere of impulsive action; the second, of economic; the third, of moral. . . .In economic action impulse is, though present, subordinated to utility, much as in moral action utility is subordinated to duty (166).
Next, he reveals that all action “assert[s] a relation of a peculiar kind between two things,” which “is the characteristic feature of economic action” (167). Thus, there is a distinction between means and ends, with the means designed to bring about the ends: there is intentionality, or purposefulness in human action. This “mediate” effect is, essentially, a “foregoing” of what one wants immediately in order to realize that want later on (169). He then goes on to describe exchange as a transfer between an individual and himself, since what is given up by one individual--subjectively speaking--is not the same thing as what is received by the other individual. If I give up a head of cabbage, what I give up is my own satisfaction I receive from the cabbage, while what the other party receives in return is his satisfaction from the cabbage. Subjective satisfactions, then, cannot be interpersonally transferred, only the physical good which has different subjective relations to each individual; value is a relation between the good and an individual’s psychic satisfaction. Hence, values cannot be transferred: “The reality concealed behind the mythological idea of wealth is the enjoyment of a desired activity; and this cannot be transferred from person to person” (170). Yet, in exchange we each forego what each of us wants in order that we may each have something else we want more greatly. It is through this “reciprocal relation of means to other people’s ends” that we find the benefits of cooperation arise, which is “the root of all economic organizations” (170).
He also notes the spatial-temporal dimension of exchange, meaning that an exchange is dependent upon the specific time and circumstances of an exchange. When we exchange, we do not trade, for instance, for “milk in general, nor even a specified quantity of milk, but this milk; and not even this milk in any circumstances, but here and now, with this particular thirst upon me,” giving up the particular piece of bread I happen to own here and now (172). Unfortunately, conventional economists elide this distinction by homogenizing economic acts according to similar characteristics that ought to be considered unique events. Building upon this faulty premise, the empirical economists create quantitative scales of goods and services that of right ought to be qualitative (173). Each act of exchange--or every action generally--alters conditions and thus creates new relations between individuals and the things they desire, affecting their willingness to both buy and sell goods and hence their ability to come to terms on a price (173).
Every such act is a determination of value; and value in the economic sense of the word cannot be determined in any other way. When a man who owns certain goods puts a price on them he is simply forecasting what, in the given circumstances, someone will think it worth his while to pay; and when the circumstances change, he must price his wares afresh (173).
Collingwood proceeds to bring up the seeming contradiction underlying exchange--something the Marxists have been fond of critiquing--namely the mutual desire to sell goods high and buy them cheaply. While Marxists see this as a flaw in capitalism and the market economy, Collingwood realizes that this is the basis of all economic action, namely that we try to choose means that will be most efficient in bringing about our ends, and substitute means when we find more suitable ones that arise. If this were not so, if man did not act purposefully and apply what he feels is the most suitable means to his achieving his highest ranked end, the idea of economic life would be incomprehensible (174). As a result, the idea that relations could in any way be fixed is preposterous:
It is, therefore, impossible for prices to be fixed by any reference to the idea of justice or any other moral conception. A just price, a just wage, a just rate of interest, is a contradiction in terms. The question what a person ought -to get in return for his goods and labor is a question absolutely devoid of meaning. The only valid questions are what he can get in return for his goods or labor, and whether he ought to sell them at all (174).
Collingwood, though, then takes the stance that, from a moral perspective, we ought to be able to question not whether a price is just, for the voluntary act of exchange by both parties show that it is, but “whether the circumstances which induce a given person to pay a given price for a given commodity ought to exist” (175). He gives the example of the poor man willing to work for low wages and asks whether it might be morally valid to question the circumstances that induce him to accept such a low wage, as well as whether, instead of receiving a wage for labor, ought to instead receive a gift.
Nevertheless, he moves on to criticize the demand for a just wage “by any standard other than the act of exchange itself” (176). Demands for a living wage, for example, are little more than requests for more, with no real concept of what the just wage is. And, in fact, “Because every exchange consists of buying cheap and selling dear, every exchange is accompanied by a more-or-less explicit wish that one had bought cheaper and sold dearer. Everyone is in some degree dissatisfied with every bargain he makes, and wishes he could have made a more advantageous bargain” (177). Such is the nature of economic life, and to think that any system or wage can alter this primordial fact is a “utopian dream”:
It is mere sophistry to argue that, because co-operation is necessary to any economic system, competition is wasteful or economically undesirable; for the presence of these two opposites together is essential to an economic system. . . .They are both foolish and vicious if they proceed from a desire to enjoy wealth without winning it in the open market. If people who cannot get as high a price as they want for their goods or labor complain that only a ruthless competitive system prevents them from getting more, they are merely throwing a cloak of hypocritical moralizing over their own disappointed greed. The competitive system of which they complain is just the fact that they, and people like them, want all they can get (177).
Collingwood moves on to describing the essential features of money, calling it the means of exchange whose value derives from others desire to have it in order to use it in exchange. He describes the advantage of a money that also has a use as a commodity, namely that it can be diverted into consumption whenever it becomes desirable to do so, such as in emergencies. As economies become more advanced and emergencies become few and far between, we seem to sacrifice money’s ability to be used as a commodity to convenience and efficiency.
Gresham’s Law is the law that bad money drives out good; although seemingly paradoxical, he explains that it happens because monies with a commodity value will revert to their commodity use when currency comes onto the market that does not have commodity uses (or at least commodity uses equal to its face value), due to the economic waste of using a commodity as money and preventing its use in consumption or the structure of production (182).* It is also important for money to have constant value, Collingwood says, for “if people do not believe that the money they accept will remain approximately stable in value till they have spent it, they will not accept it, and it ceases to be money” (184), which is the second characteristic of a sound currency. He goes on to take the Friedmanite position, then, that “the only sound currency is one which is ‘manipulated’ so as to maintain a constant ratio with the amount of goods on the market.” Hence, paradoxically, he arrives at the final conclusion that paper money is the only sound currency, and should not be denied to the government!
*The praxeologist, or adherent to Austrian economics, would say here that bad money need not necessarily drive out good money on a fully free market; it is only when the value of the bad currency is artificially propped up by things like legal tender and counterfeiting laws that the good money is hoarded by market participants. While Collingwood is implicitly referring to this when he says that good money is money that has a commodity value equal to its face value, while bad money is money whose face value is greater than its commodity value, it is useful to remind ourselves of this, especially since Collingwood goes on to assert that the perfect currency is one whose “commodity value. . . .[is] so small in proportion to its face value that no case is likely to arise to which anyone in using it thinks of its commodity value at all” (183).