The Character and Logical Method of Political Economy

This, then, being the character of Political Economy, we have to consider by what means the end which it proposes—the discovery of the laws of the production and distribution of wealth—may be most effectually promoted. To the question here indicated, the answer most commonly given by those who take an interest in economic speculation is:—by the inductive method of inquiry; but this, without more explanation than is usually given, affords us little practical help. For what are we to understand by the inductive method? What are the logical processes intended to be included under this form of words? That is a question to which not many of those who talk of studying Political Economy ‘inductively ‘ have troubled themselves to find an answer. The truth is, the expression ‘inductive method’ is one used with much latitude of meaning even by writers on inductive logic—latitude of meaning which it will be very necessary, before determining whether induction be applicable or inapplicable to economic investigation, to clear up. In its more restricted, and, as I conceive, its proper sense, induction is thus defined by Mr. Mill:—”That operation of the mind by which we infer that what we know to be true in a particular case or cases will be true in all cases which resemble the former in certain assignable respects. In other words, induction is the process by which we conclude that what is true of certain individuals of a class is true of the whole class, or that what is true at certain times will be true in similar circumstances at all times.”
*23 The characteristic of induction, as thus defined, is that it involves an ascent from particulars to generals, from individual facts to laws. But the word is frequently used, and by writers of authority, in a sense much wider than this. For example, in his History of the Inductive Sciences, Dr. Whewell invariably speaks of laws of nature, both ultimate and secondary, as being established by induction, and as being ‘inductions;’ though from his own account of their discovery it is evident that this has frequently been accomplished quite as much by reasoning downwards from general principles, as by reasoning upwards from particular facts. Sir John Herschel, too, not unfrequently uses the term with the same extended meaning, as embracing all the logical processes of whatever kind by which the truths of physical science are established.
*24 And Mr. Mill, in speaking of the inductive logic, describes it as comprising not merely the question—’how to ascertain the laws of nature,’ but also—’how, after having ascertained them, to follow them to their results.’ Such being the large sense in which ‘induction’ has been employed by authoritative writers, it is obvious that, as thus understood, the inductive method cannot properly be contrasted with the ‘deductive,’ since it includes amongst its processes this latter mode of reasoning. The proper antithesis to induction, in this wider meaning of the word, would be, not deduction, but rather that method of speculation which is known as the ‘metaphysical,’ in obedience to which the inquirer, disdaining to be guided by experience, aims at reaching nature by transcending phenomena through the aid of the intuitions, real or supposed, of the human mind. If this latter mode of reasoning has ever been followed in economic speculation, it has, at least, been long laid aside by all writers of any mark (with the possible exception of Mr. Ruskin); and therefore the question really at issue, as regards the logical method proper to Political Economy, is not as to the suitability for economic investigation of the inductive method as understood by such writers as Herschel and Whewell—this we may take as generally agreed upon—but the more specific problem as to the suitability, for the purpose in hand, of the several processes included under that comprehensive sense of the phrase; in other words, to ascertain the place, order, and importance which induction (in the narrower meaning of the term), deduction, verification, observation and experiment, ought to hold in economic inquiry.

The question being reduced to this issue, the answer of not a few people would still, I apprehend, be, that induction (in the narrower sense, as distinguished from deduction), in combination with observation and experiment, constitutes the true path of economic inquiry. The student, according to this view, ought to commence by collecting and classifying the phenomena of wealth, prices, wages, rents, profits, exports, imports, increase or decline of production, changes in modes of distribution; in a word, as far as they admit of determination, all the facts of wealth as presented in actual experience in different countries; and having done so, should employ the results thus obtained as data by which to rise, by direct or indirect inference, to the causes and laws which govern them. Now, to perceive the utter futility, the necessary impotence of such a method of proceeding as a means of solving economic problems, one has only to consider what the nature of those problems is. The phenomena of wealth, as they present themselves to our observation, are amongst the most complicated with which speculative inquiry has to deal. They are the result of a great variety of influences, all operating simultaneously, reinforcing, counteracting, and in various ways modifying each other. Consider, for example, the number of influences that go to determine so simple a phenomenon as the selling price of a commodity—the great number and variety of conditions comprised under the expression, ‘the demand for it,’ the not less numerous and varied circumstances on which the ‘supply’ depends, any change in any of which, if not accompanied by a compensating change in some of the co-existing conditions, must result in a change in the actual phenomenon. Now, when this high degree of complexity characterizes phenomena; when they are liable to be influenced by a multiplicity of causes all in action at the same time; in order to establish inductively—that is to say, by arguing upwards from particular facts—the connection of such phenomena with their causes and laws, one condition is entirely indispensable: there must be the power of experimentation in the rigorously scientific sense of that word.
*25 But this is a resource from which the student of social and economic problems is absolutely debarred. If any one doubt this, he has only to consider what an experiment, such as would in physical science be accounted a sufficient ground for a sound induction, really implies; that it implies the possibility of finding or producing a set of known conditions as the medium in which the experiment is performed, and which, shall remain constant during its performance. A chemist, for example, seeking to discover the character of a new substance, places it under the receiver of an air-pump, or in a solution carefully prepared beforehand, all the constituents of which are accurately known to him; and submits it, thus circumstanced, to certain influences—say to some known changes in temperature, or to electrical or galvanic action. Having taken these precautions, he is justified in attributing the changes which result to the causes which have been put in operation; and the mode in which the given substance may be affected by the agencies brought to bear upon it, is thus ascertained. Where procedure of this kind is practicable—and it is practicable over the greater portion of the field of physical inquiry—’the plurality of causes’ and ‘the intermixture of effects.’ do not offer any insuperable obstacle to the interpretation of nature by induction properly so-called: it has in fact been by this method that many of the most important discoveries in physical science have been made.
*26 But from anything in the least tantamount or comparable to this, the political economist is, I need scarcely say, necessarily excluded. The subject matter of his inquiries is human beings and their interests, and with these he has no power to deal after the arbitrary fashion permissible in the other case. He must take economic phenomena as they are presented to him in the world without in all their complexity and ever-changing variety; but from facts as thus presented, if he declines to avail himself of any other path than that of strict induction, he may reason till the crack of doom without arriving at any conclusion of the slightest value. Beyond the merest empirical generalizations, advance from such data is plainly impossible. No economic or social truth, meriting the name of scientific, ever has been discovered by such means, and it may be safely asserted, none ever will be. What leads people to imagine the contrary, is that in their reasoning on social and political facts they are constantly in the habit of combining with their knowledge of phenomena motives and principles of conduct so familiar that their use of them as premisses in their argument escapes their notice: they employ, that is to say, quite unconsciously to themselves, their knowledge of human nature, or of physical or political conditions, as a guide in their interpretation of the facts supplied to them by the statistician, and by this means, no doubt, conclusions more or less important are sometimes arrived at; but then this is not to reason inductively in the strict sense of that expression, but, so far as such reasoning admits of logical analysis, to combine the two processes of induction and deduction. It so happens, however, that the deductive portion of the operation, resting as it does on familiar assumptions of which no, proof is given or needed, escapes notice, while the inductive, which generally has to deal with new and perhaps striking facts, strongly arrests attention; and the opinion thus gains ground, that purely inductive reasoning suffices for the establishment of truths which are really reached by a very different path.

“The vulgar notion,” says Mr. Mill, “that the safe methods on political subjects are those of Baconian induction, that the true guide is not general reasoning, but specific experience, will one day be quoted as among the most unequivocal marks of a low state of the speculative faculties in any age in which it is accredited. Nothing can be more ludicrous than the sort of parodies on experimental reasoning which one is accustomed to meet with, not in popular discussion only, but in grave treatises, when the affairs of nations are the theme. ‘How,’ it is asked, ‘can an institution be bad, when the country has prospered under it?’ ‘How can such or such causes have contributed to the prosperity of one country, when another has prospered without them?’ Whoever makes use of an argument of this kind, not intending to deceive, should be sent back to learn the elements of some one of the more easy physical sciences. Such reasoners ignore the fact of plurality of causes in the very case which affords the most signal example of it. So little could be concluded, in such a case, from any possible collation of individual instances, that even the impossibility, to social phenomena, of making artificial experiments, a circumstance otherwise so prejudicial to directly inductive inquiry, hardly affords, in this case, additional reason of regret. For even if we could try experiments upon a nation or upon the human race, with as little scruple as M. Majendie tries them upon dogs or rabbits, we should never succeed in making two instances identical in every respect except the presence or absence of some one indefinite circumstance. The nearest approach to an experiment in the philosophical sense, which takes place in politics, is the introduction of a new operative element into national affairs by some special and assignable measure of Government, such as the enactment or repeal of a particular law. But where there are so many influences at work, it requires some time for the influence of any new cause upon national phenomena to become apparent; and as the causes operating in so extensive a sphere are not only infinitely numerous, but in a state of perpetual alteration, it is always certain that before the effect of the new cause becomes conspicuous enough to be a subject of induction, so many of the other influencing circumstances will have changed as to vitiate the experiment.”
*27

The foregoing considerations suffice to show the utter inadequacy of the inductive method, in the narrower sense of that expression, as a means of solving the class of problems with which Political Economy has to deal, arising from the impossibility of employing experiment in economic inquiries under those rigorous conditions which are indispensable to give cogency to our inductions. But if Political Economy and social studies generally are placed at this serious disadvantage as compared with the various branches of physical research; on the other hand, as I shall now proceed to show, the former studies enjoy in their turn advantages peculiar to themselves,—advantages which, if duly turned to account, may perhaps be found to go some considerable way towards redressing the balance.

§2. Let us endeavour to realize the position of a speculator on the physical universe at the outset of physical inquiry. The most striking feature of the situation would be the extraordinary variety and complexity of the phenomena presented to his gaze, contrasted with the absence of any clear indication of the causes at work, or the laws of their operation. He would find himself in the midst of a mighty maze, possibly not without a plan, but offering to the student no apparent clue by which to thread its intricacies. No wonder that in presence of such a problem the primitive thinker should have yearned for some comprehensive and all-explaining principle, and should have directed his efforts at once and by whatever means to supply this capital requirement. “For the human mind,” says Bacon, “strangely strains after and pants for this, that it may not remain in suspense, but obtain something fixed and immovable, on which as on a firmament it may rest in its excursions and disquisitions”
*28—some ultimate force, some paramount and all-pervading principle, by intellectual deductions from which light may be let in among the confused and jarring elements of the world. Accordingly, it was to the attainment of some such ‘Atlas for their thoughts,’ that the efforts of the earliest thinkers were invariably directed. Nor were they wrong in the importance they attached to the possession of such a stand-point: only unfortunately they mistook the means of securing it, and instead of proceeding by sap and mine, endeavoured to carry the position by a
coup de main. Each thinker made his guess. According to one, the ultimate principle was water; according to another, air; according to a third, number; and so the game went on through long ages; till at length the truth began to dawn that, as our knowledge of physical causes and laws—even of their existence—comes to us exclusively through observation of their physical effects, it is by way of those effects—through the study of physical phenomena—that the approach to the former must be made, if made at all; in other words, it began to be seen that the inductive method was the only method suitable, at all events at the outset of inquiry, to physical investigation. This truth, recognised and acted on at intervals by a few here and there, was at length proclaimed by Bacon in language which arrested the attention of the scientific world, and has become a portion of the heritage of mankind. But the point to be attended to here is that the necessity for the method of induction as the path to physical discovery arose entirely from the fact that
mankind have no direct knowledge of ultimate physical principles. The law of gravitation and the laws of motion are amongst the best established and most certain of such principles; but what is the evidence on which they rest? We do not find them in our consciousness, by reflecting on what passes in our minds; nor can they be made apparent to our senses. That every particle of matter in the universe gravitates, each towards the rest, with a force which is directly according to the mass, and inversely according to the square of the distance;—or that a body once set in motion will, if unimpeded by some counter force, continue for ever in motion in the same direction and with unimpaired velocity,—-these are propositions which can only be established by an appeal to the intellect; the proof of all such laws ultimately resolving itself into this, that assuming them to exist, they account for the phenomena. They are not the statement of any actual experiences, but, in the words of Mr. Herbert Spencer, ‘truths drawn from our actual experiences, but never presented to us in any of them.’ “Men culled,” says Dr. Whewell, “the abstract rule out of the concrete experiment; although the rule was in every case mixed with other rules, and each rule could be collected from the experiment only by supposing the others known.”
*29 And what is true of the laws of gravitation and of motion is true equally of all the ultimate principles of physical knowledge. Thus the undulatory theory of light, the theory of the molecular constitution of matter, the doctrine of
vis inertiæ, all alike elude direct observation, and are only known to us through their physical effects.

The inductive method, therefore, in the narrower sense of the expression, formed the necessary and inevitable path by which, having regard to the limitation of the human faculties, physical investigation was bound, in the outset of its career, to proceed. I say in the outset of its career; because, so soon as any of the ultimate laws governing physical phenomena were established, a new path by which to approach physical problems would at once be opened. The inquirer would have secured that ‘Atlas for his thoughts’ for which the earlier speculators sighed; and the method of deduction—incomparably, when conducted under the proper checks, the most powerful instrument of discovery ever wielded by human intelligence—would now become possible. What, accordingly, we find in the history of the most important physical sciences, is this:—a long period of laborious inductive research, during which the ground is prepared and the seed sown, terminating at length in the discovery,—most frequently made at nearly the same time by several independent inquirers,—of some one or two great physical truths; and then a period of harvest, in which, by the application of deductive reasoning, the fruits of the great discovery in the form of numerous intermediate principles connecting the higher principles with the facts of experience are rapidly gathered in. Thus the progress of mechanical science was slow, notwithstanding what had been done by Archimedes and the ancients, till the primary dynamical principles were established by Galileo and his contemporaries; but these once firmly seized and the deductive process applied to the premisses thus obtained, a crowd of minor discoveries in mechanics, hydrostatics, and pneumatics, all involved in the more fundamental principles, followed in rapid succession.
*30 It is thus that most of those middle principles, the
axiomata media of physical science, have been arrived at. But it is not in the discovery of
axiomata media only that the potency of the deductive process has been exemplified. In combination with induction it has frequently been the means by which the highest physical generalizations have been reached. Of this the most eminent example is the law of gravitation itself, arrived at by Newton in the main by way of deduction from the dynamical premisses supplied by the discoveries of Galileo. In effect the problem, as it came to the hands of Newton, had assumed nearly this form—to find a force which, in conjunction and in conformity with the laws of motion, will produce the planetary movements, already generalized by Kepler.
*31 The law of gravitation, indeed, illustrates the potency of the deductive method in a double sense. It is at once its richest fruit, and its most fruitful source. It was, as I have just intimated, a deduction from the laws of dynamics brought to the interpretation of the phenomena of the planetary movements; and, once established, it became the great generative principle, from which, always in connection with the data furnished by observation, all the later discoveries of astronomy have been derived.

“As the discovery itself was great beyond former example, the features of the natural sequel to the discovery were also on a gigantic scale; and many vast and laborious trains of research, each of which might, in itself, be considered as forming a wide science, and several of which have occupied many profound and zealous inquirers from that time to our own day, come before us as parts only of the verification of Newton’s theory. Almost everything that has been done, and is doing, in astronomy, falls inevitably under this description; and it is only when the astronomer travels to the very limits of his vast field of labour, that he falls in with phenomena which do not acknowledge the jurisdiction of the Newtonian legislation.”
*32

It appears, then, that the path of induction was only exclusively followed in physical research pending the discovery of ultimate laws. So soon as the first great physical generalization was established, deduction came at once into play, leading, in combination with induction and the means of verification it afforded, to a rapid extension of physical knowledge. Of course, as new physical generalizations of the higher order were established, the scope for the employment of the deductive process would be enlarged; and the effect would be a gradual change in the logical character of the physicist’s problem, and by consequence in his method. At the outset of investigation the problem was—given the phenomena, to find the causes and laws, and the only feasible course of procedure was induction; but, as more and more principles were discovered, the problem came gradually to assume another form, namely this—given the phenomena
and certain causes and laws affecting them, to find the other causes and laws implicated in the results. The student was gradually getting possession of both ends of the chain, and his task was being narrowed to determining the intervening links.

§3. I have been at pains to bring clearly before your minds the logical nature of the physical problem as it presented itself at the outset of speculation to the investigator of physical nature, and as it
now presents itself, in order that you may fairly appreciate in what degree the analogy holds between physical investigation and the class of inquiries with which we are here concerned. Some pages back I remarked that if the economist was at a disadvantage as compared with the physical investigator in being excluded from experiment, he had also some compensating circumstances on his side. The nature of these compensating circumstances will now become apparent.
The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise, in the position which the physicist only attains after ages of laborious research. If anyone doubts this, he has only to consider what the ultimate principles governing economic phenomena are. As explained in my last lecture, they consist of such facts as the following—certain mental feelings and certain animal propensities in human beings; the physical conditions under which production takes place; political institutions; the state of industrial art: in other words, the premisses of Political Economy are the conclusions and proximate phenomena of other branches of knowledge. These are the sources from which the phenomena of wealth take their rise, precisely as the phenomena of the solar system take their rise from the physical forces and dynamical laws of the physical universe; precisely as the phenomena of optical science are the necessary consequences of the waves of the luciferous medium striking on the nerves of the eye. For the discovery of such premisses no elaborate process of induction is needed. In order to know,
e.g., why a farmer engages in the production of corn, why he cultivates his land up to a certain point, and why he does not cultivate it further, it is not necessary that we should derive our knowledge from a series of generalizations proceeding upwards from the statistics of corn and cultivation, to the mental feelings which stimulate the industry of the farmer on the one hand, and, on the other, to the physical qualities of the soil on which the productiveness of that industry depends. It is not necessary to do this—to resort to this circuitous process—for this reason, that we have, or may have if we choose to turn our attention to the subject, direct knowledge of these causes in our consciousness of what passes in our own minds, and in the information which our senses convey, or at least are capable of conveying, to us of external facts. Everyone who embarks in any industrial pursuit is conscious of the motives which actuate him in doing so.. He knows that he does so from a desire, for whatever purpose, to possess himself of wealth; he knows that, according to his lights, he will proceed towards his end in the shortest way open to him; that, if not prevented by artificial restrictions, he will buy such materials as he requires in the cheapest market, and sell the commodities which he produces in the dearest. Everyone feels that in selecting an industrial pursuit, where the advantages are equal in other respects, he will select that in which he may hope to obtain the largest remuneration in proportion to the sacrifices he undergoes; or that in seeking for an investment for what he has realized, he will, where the security is equal, choose those stocks in which the rate of interest to be obtained is highest. With respect to the other causes on which the production and distribution of wealth depend—the physical properties of natural agents, and the physiological character of human beings in regard to their capacity for increase—for these also direct proof, though of a different kind, is available; proof which appeals not indeed to our consciousness, but to our senses. Thus,
e.g., the law of the diminishing productiveness of the soil to repeated applications of capital, if seriously questioned, is capable of being established by direct physical experiment upon the soil, of the result of which our senses may be the judges. If political economists do not perform this experiment themselves in order to establish the fact, it is only because every practical farmer performs it for them. In the case of the physical premisses, therefore, of Political Economy, equally with the mental, we are entirely independent of those refined inductive processes by which the ultimate truths of physical science are established.

§4. The economist may thus be considered at the outset of his researches as already in possession of those ultimate principles governing the phenomena which form the subject of his study, the discovery of which in the case of physical investigation constitutes for the inquirer his most arduous task; but, on the other hand, he is excluded from the use of experiment. There is, however, an inferior substitute for this powerful instrument at his disposal, on which it may be worth while here to say a few words. I refer to the employment of hypothetical cases framed with a view to the purpose of economic inquiry. For, although precluded from actually producing the conditions suited to his purpose, there is nothing to prevent the economist from bringing such conditions before his mental vision, and from reasoning as if these only were present, while some agency comes into operation—whether it be a human feeling, a material object, or a political institution—the economic character of which he desires to examine. If, for example, his purpose be to ascertain the relation subsisting between the quantity of money in circulation in any given area of exchange transactions and its value, he might make some such supposition as this:—1, in a given state of productive industry a certain number and amount of exchange transactions to be performed; 2, a certain amount of money in circulation; 3, a certain degree of efficiency (in the sense explained by Mr. Mill
*33) in the discharge of its functions by this money; lastly, a certain addition made to the money already in circulation. These conditions being supposed, and being also supposed to remain constant, the scene of the experiment would be prepared. It is true the action of the added money cannot be made apparent to the senses of the economist, or to those of his hearers or readers, but from his knowledge of the purposes for which money is, used, and of the motives of human beings in the production and exchange of wealth, it will be in his power to trace the consequences which in the assumed circumstances would ensue. These he would find to be, an advance in the prices of commodities in proportion to the augmentation of the monetary circulation;—a result from which he would be justified in formulating the doctrine that, other things being the same, the value of money is inversely as its quantity. Or again, supposing the object be to ascertain the law governing agricultural rent, the economist might take as his hypothesis the following conditions:—1, a certain state of agricultural skill; 2, a capacity of the soil to yield certain returns on the application of capital and labour in certain proportions; 3, a tendency in the soil to yield diminished proportional returns after a certain point in cultivation has been reached; 4, different degrees of fertility in different soils; lastly, the land owned by one class of persons, while another, in possession of capital, desires to occupy it for the purpose of cultivation. These suppositions being made, he would then take account of the known motives on the one hand of farmers, on the other of landlords in their dealings concerning rent, and would deduce from these, in connection with the supposed circumstances, the amount of rent which the latter would be content to receive and the former to pay. The conditions determining agricultural rent would thus be ascertained. It is true the conclusion arrived at would represent hypothetical truth merely—that is to say, would express a law true only in the absence of disturbing causes; but, as I have already explained,
*34 so much qualification as this must be understood of all scientific laws whatever. Putting aside mere empirical generalizations, no law of nature, it matters not whether the sphere of inquiry be physical, mental, or economic, is true otherwise than hypothetically—than in the absence of disturbing causes. The process, then, which I have been describing is one mode by which a knowledge of economic laws may be reached; and I think you will perceive that it is in the nature of an experiment conducted mentally. I am far indeed from saying that it is not very inferior, as an agency for the discovery of truth, to the sensible physical process for which it is the substitute; since, while the actual operations of nature cannot err, there is in a hypothetical experiment always the danger, not only that some of the conditions supposed to be present may, in the course of ratiocination, be overlooked, but also of a flaw in the reasoning by which the action of the particular cause under consideration is established. And this renders it expedient that the process in question should as far as possible be supplemented by such sorts of verification as economical inquiry admits of. For example, it is open to the economist, having worked out his problem in the manner described, to look out for some actual instance which approximates in as many of its principal circumstances as possible to those of his hypothesis. Having found one, he can observe how far the results realized in the actual case correspond with his hypothetical conclusions; and in case, as would usually happen, the correspondence was not complete, he would have to consider how far the discrepancy admitted of being explained by reference to the presence of known disturbing causes. Unfortunately, for reasons already indicated, verification can never, in economic inquiry, be otherwise than very imperfectly performed; but this notwithstanding, if carefully conducted it is often capable of furnishing sufficient corroboration to the processes of deductive reasoning to justify a high degree of confidence in the conclusions thus obtained.

In this way may hypothesis be made to serve as in some sort a substitute for experiment in economic investigation; and in point of fact it has been by this means that not a few important doctrines of the science have been worked out. The writer who has employed this particular resource most freely and with most effect is Ricardo; nor could a more decisive proof be given of the ignorance generally prevailing on the subject of method in Political Economy than is furnished by the flippant attacks which have been made upon this eminent thinker from so many quarters on this account. In employing the method of reasoning on hypothetical cases, Ricardo, in effect, employed, as far as the nature of his problem and the circumstances of the case permitted, that experimental method which those who would disparage his great achievements affect to extol, but the real nature of which, as their criticisms show, they so little understand. Here is an example of the manner in which he could wield this instrument of economic research.
The question under consideration was the fundamental principle of international trade, and Ricardo wished to show that it might be the interest of a country to import an article from another, even though it were in its power to produce the imported article itself at less cost than it was produced at in the country from which it came. This, at first view, paradoxical position, Ricardo thus by means of a simple hypothesis (which, while it divested the problem of all its accidental complications, brought into clear light the few essential conditions on which its solution depended) was enabled to establish; it being evident that, under the supposed circumstances, the known motives of men in the pursuit of wealth could only lead to the very result asserted. “Two men,” he says, “can both make shoes and hats, and one is superior to the other in both employments; but in making hats he can only exceed his competitor by one-fifth or 20 per cent., while in making shoes he can excel him by one-third or 33 per cent.; will it not be for the interest of both that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?”
*35

In further confirmation of what I have said as to the nature of the ultimate premisses of the physical sciences in contrast with those of Political Economy, I would ask you now to consider the different use to which hypothesis is put in the former department of knowledge. In Political Economy, as we have just seen, hypothesis is used in order to supply the reasoner mentally with those known and constant conditions which are essential to the development deductively of the fundamental assumptions of the science, but from the production of which in actual existence he is precluded by the nature of the case; and in this way, as I have explained, it may be regarded as a substitute for experiment: in physical investigation, on the other hand, as the required conditions can actually be produced, there is no need to assume them hypothetically, and accordingly this is never done. For what purpose then is hypothesis used in physical research? Always as a means of arriving at ultimate causes and laws. Such causes and laws not being susceptible of direct proof, through an appeal to the consciousness or senses; conjecture, guess, hypothesis, is the natural, as it is in truth the only possible, path by which they may be reached. Accordingly, the physicist frames an hypothesis as to the nature of those causes and laws, and having done so, proceeds to bring together conditions fitted to test the correctness of his guesses—that is to say, he institutes experiments to verify his hypothesis. Such a course would be obviously unsuitable in the analogous case in economic investigation. No one thinks of framing an hypothesis as to the motives which induce men to engage in industry, to prefer remunerative to unremunerative occupations, or to embark their earnings in investments which,
ceteris paribus, promise the best returns; or, again, as to the causes which, in a given state of agricultural knowledge and skill, set a permanent limit to the application of capital and labour to the soil; any more than as to those on which depend the continuance and growth of population. Conjecture here would manifestly be out of place, inasmuch as we possess in our consciousness and in the testimony of our senses, as I have already shown, direct and easy proof of that which we desire to know. In Political Economy, accordingly, hypothesis is never used as a help towards the discovery of ultimate causes and laws; just as in physical investigation it is never used as a substitute for experiment.
*36

Such then are the positions respectively of the economist and of the physical philosopher with reference to the logical nature of the problem with which each has to deal. And this being so, what can argue greater ignorance of the conditions of the case—at once of the real nature of the precedents furnished by the physical sciences, and of the character of the economic problem, than to appeal to the former, as is constantly done, in justification of the exclusive use of the purely inductive method in economical research. It is to overlook alike the peculiar weakness and the peculiar strength of the economist’s position. It is to advocate for Political Economy a method which is only powerful in physical investigation, because the physicist can employ it in connection with conditions from the realization of which the economist is from the nature of his inquiry precluded; and to refuse to employ an engine of discovery ready to our hands, which the physicist has spent centuries of laborious speculation in his efforts to attain, and which, once possessed, has proved the most potent of all his appliances. What the precedents of physical science, rightly understood, teach the economist is to regard deduction as his principal resource; the facts furnished by observation and experience being employed, so far as circumstances permit, as the means of verifying the conclusions thus obtained, as well as, where discrepancies are found to occur between facts and his theoretical reasonings, for ascertaining the nature of the disturbing causes to which such discrepancies are due. It is in this way, and in this way only, that the appeal to experience is made in those physical sciences which have reached the deductive stage— that is to say, which in the logical character of their problems present any real analogy to economic science.

§5. In connection with the processes just referred to of verification and the discovery of disturbing causes, or (to express the same idea differently) the discovery of the minor influences affecting economic phenomena, we find the proper place of statistics in economic reasoning. Statistics are collections of facts arranged and classified with a view to particular inquiries; and it is by availing ourselves of this systematized method of observation that we can most effectually check and verify the accuracy of our reasoning from the fundamental assumptions of the science; while the same expedient offers also by much the most efficacious means of bringing into view the action of those minor or disturbing agencies which modify, sometimes so extensively, the actual course of events. The mode in which these latter influences affect the phenomena of wealth is, in general, unobvious, and often intricate, so that their existence does not readily discover itself to a reasoner engaged in the development of the more capital economic doctrines. In order to their detection, therefore, attention must be drawn to the effects which they produce; and this, as I have said, can be best done by the use of statistics in constant connection with deductive ratiocination.

It is important to observe that the relation of statistics to Political Economy is in no respect different from that in which they stand to other sciences which have reached the deductive stage. The registered observations of the astronomer are the statistics of astronomy, which it is his business to compare with the conclusions theoretically evolved from the dynamical principles constituting the premisses of his science; and for purposes strictly analogous to those which have just been described.
*37 In those sciences, indeed, which admit of experiment, as
e.g. chemistry, formal statistics, are little used. Statistics here are unnecessary, because experiment affords, only in a more efficacious way, the means of instituting the same comparison. But what are known by the chemist as ‘residual phenomena’ are precisely analogous to those discrepancies between the conclusions of the economist and the facts of the statistician to which I have been adverting, and lead in the same way to the discovery of new elements or principles before overlooked.

Such is the method of investigation which the nature of the evidence available in economic inquiry, as well as the analogy of the physical sciences, so far as they correspond with it in the logical character of their problems, suggest, as proper to be followed in Political Economy; and such also is the method which has in fact been followed, whether it has been distinctly stated or not, by all those writers, from Turgot and Adam Smith to Mr. Mill, who have contributed most effectually to the advancement of economic knowledge. The detailed evidence for this statement, however, may be fitly reserved for another lecture.