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Equilibrium and Wealth: A Word of Encouragement to Economists

Published online by Cambridge University Press:  07 November 2014

K. E. Boulding
K. E. Boulding*
Affiliation:
Colgate University
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Extract

When the founder of the science which has become Economics came to write the title-page of his immortal work, he wrote boldly An Enquiry into the Nature and Causes of the Wealth of Nations. From this it might be thought that Economics was the science of wealth; that it would tell us what are the conditions which make one society wealthy and one poor, or which make for the growth and decline of wealth, in general or in particular. In fact, however, the science has not developed primarily along these lines, in spite of many interesting and important observations on this subject on the part of the standard writers. Especially in these days we seem to be interested not in Plutology—the science of wealth—but in Economy—the science of management, of budgeting, of the distribution of given resources. In other words, our interest has shifted from the study of the Nature and Causes of the Wealth of Nations to the study of equilibrium and disequilibrium.

In many ways this shift of emphasis is regrettable, in spite of the undoubted achievements of equilibrium theory. Part of the loss of prestige from which Economics has suffered is undoubtedly due to this very point. To the general public, equilibrium seems to be a vague and irrelevant ideal. Most governments, and most individuals, would rather be in chronic disequilibrium, and be rich, than be in glorious equilibrium, and be poor. The assumption which frequently underlies economic homiletics—that equilibrium is synonymous with riches and disequilibrium with poverty—is not one which can be long maintained.

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Articles
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Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 5 , Issue 1 , February 1939 , pp. 1 - 18
Copyright
Copyright © Canadian Political Science Association 1939

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References

1 Economic Journal, Sept., 1938, p. 383 Google Scholar, and Dec, 1938, p. 635.

2 Review of Economic Studies, Feb., 1935, p. 99.Google Scholar

3 Robbins, , “Interpersonal Comparisons of Utility” (Economic Journal, Dec., 1938, p. 638).Google Scholar

4 By “wealth” I mean, of course, wealth in the sense of income, not in the sense of a stock or aggregation of commodities, though these two concepts are likely to be related. With given techniques a society or country which has the larger stock of valuable things will also have the larger wealth-income. It is possible, however, for an improvement in the technique of income-production, to go hand in hand with a reduction in the quantity or value of the things used in production.

5 It is interesting to note that this concept opens up the possibility of statistical comparisons of the wealth of widely different cultures and civilizations. “Luxuries” differ very greatly from culture to culture; consequently it is virtually impossible to construct any “price level” or “real income” concept which will cover both, shall we say, the Hottentot and the New Yorker. Necessities, on the other hand, differ much less from age to age and from civilization to civilization; the olives and wheat of the classical world are much the same commodities that they are today, while the chariots and nightingales' tongues cannot be compared with the Packards and paté de fois gras of today. If, therefore, between any two cultures we can prepare a list of basic necessities which are common to both, and find what proportion the expenditure on these necessities bore to the total expenditure of the society, in terms either of money or of man-time, we shall have an index of the relative wealth of the two cultures which is perhaps as good as we can hope to get, for we may assume that a society which spends a small proportion of its total resources on basic necessities is rich, no matter what strange forms its luxuries take.

6 If we relax the assumption that the consumption of necessities is absolutely inelastic our results are slightly modified, but not substantially affected. Thus we now have:

where μ n is the elasticity of consumption of necessities with respect to the coefficient of transformation of man-time into necessities, and μ x is the elasticity of consumption of necessities with respect to the coefficient of transformation of man-time into luxuries. We may reasonably expect that in general μ n will be greater than λ x = λ n consequently when s x = s n , instead of having s x =s n as we had before, we will have sx <s n . That is, the point where an improvement in the technique of production of necessities ceases to have a greater effect on wealth than a similar improvement in the technique of production of luxuries will take place at a rather “poorer” level of wealth than before. It should be noticed that it is only the very richest societies which, in fact, fall into the second category of theorem III. If we take agriculture as representative of the necessities industry, and manufactures as representative of the luxuries industry, very few societies indeed have achieved a state of wealth where the proportion of resources devoted to necessities has fallen to one-half of the total. In fact, it is probable that western capitalism is about the only society in history which has achieved even this moderate degree of wealth.

7 Adam Smith, Wealth of Nations, book III, chap, I (vol. I, p. 356 of Cannan's edition): “As subsistence is, in the nature of things, prior to conveniency and luxury, so the industry which procures the former, must necessarily be prior to that which ministers to the latter. The cultivation and improvement of the country, therefore, which affords subsistence, must, necessarily, be prior to the increase of the town, which furnishes only the means of conveniency and luxury. It is the surplus produce of the country only, or what is over and above the maintenance of the cultivators, that constitutes the subsistence of the town, which can increase only with the increase of this surplus produce.”

Davenport, , Economics of Enterprise, p. 201 Google Scholar: “The growth of the city is not ultimately to be explained by the improvement of industrial processes. Only such men can work in manufacturing as the falling prices of food products relatively to manufacturing products dismiss from the processes of food production. So long as the food product from one man's labor sufficed for the food requirement of only one man, the entire population was compelled to occupy itself with agriculture: now, when one man's labor will feed three men, two thirds of the population may be urban.”

8 Davenport, , Economics of Enterprise, p. 202 Google Scholar: “Improving transportation, then, so far as it is not at the same time to be regarded as improving agriculture, has had its effect, not in emphasising the growth of urban as against rural population, but in fostering the growth of the small city as against the village, and of the great city as against the small city. Looked at from a more distinctly technological point of view, this truth would read that transportation has fostered the giant industry as over against many small competing industrial units.”