CLEAR THINKING ON ECONOMIC PROBLEMS.*
Ma. Caurarm, who has already produced two very thoughtful books on economic subjects, namely, The Evolution of Money and Economic Method and Economic Fallacies, has now published a third volume called Monetary Economics. This last book, like Mr. Carlile's previous work, is distinguished by the qualities of independence and clear thinking. The author declines to accept as verbally inspired all the writings of the professors of political economy, and devotes much energy to pointing out bow in many cases the academic economist only confuses thought instead of clarifying it. A. large part of the volume under review is devoted to an extremely effective plea for the use of words in their common acceptation. This in a • Monetary Economics. By W. W. carnal. London: Edward Araald. [103. 6d. not.]
matter on which many political economists sin greatly. Several very prominent writers appear to imagine that they are entitled to give any meaning they choose to a word, pro- vided that they adhere to that meaning rigidly throughout their argument.. Mr. Carlile points out that this is an impossible position to take up, and is bound to break down in practice; for in the discussion of economic problems the words themselves have a value which clings to them, whatever definition the academic economist may choose to give. This is not due to any special peculiarity of economic argument, but is a necessary consequence of the working of the human mind, which identifies abstract ideas with the words popularly u sed to denote them. In this respect, as Mr. Carlile neatly remarks, the abstract idea differs fundamentally from the concrete thing.
"We have re-christened, for instance, the shift as the chemise, the stays as the corset, and the bustle as the dross improver. It needs only sufficient authority in the matter of costume to go on with such re-christening to any extent. But let anyone conceive the idea of re-christening a psychological phenomenon, say the emotion of Hope, and he will find himself altogether at a loss to know how even to begin."
Another subject to which Mr. Carlile devotes his logical power is the theory of value put forward by writers of the Austrian school, and to some extent approved by Professor Marshall. All this part of Mr. Carlile's book is well worth study, for he brings the marginal theory of value, so dear to certain academic economists and to Fabian Socialists, down to the test of common sense. Mr. Carlile also attacks the
attempt to treat mathematically economic conceptions which by their very nature are incapable of precise measurement. One amusing illustration of the lengths to which these mathe-
matical economists are prepared to go is quoted from the Austrian writer, Von ThUnen. Herr von Thimen's rule for finding the net wage of a workman is "to multiply the indis- pensable needs of the labourer by the product of his work, and extract the square root." This may be regarded as a retinal° ad absurdum of the mathematical method ; but it is necessary to add that Professor Marshall's insistence on the value of the work produced by the "marginal labourer" is almost equally removed from the real facts of life.
On the more general problem of value as determined by the law of supply and demand Mr. Carlile makes several com- ments which, if not entirely new, are certainly interesting. He points out, for example, that cases occur where the increase in the supply actually raises prices by stimulating a new demand. He also lays special emphasis on the importance which the desire for distinction has in determining demand. This is a point which was too much ignored by earlier economists, many of whom argued as if the only ambition of human beings was to satisfy their elementary wants for the necessaries of life. As a matter of fact, even among the
poorest people, the desire for distinction will sometimes super- sede the desire for the necessaries of life, as is shown by the well-known fact that the East-end factory girl will go short of
food in order to buy a big feather. In the wealthier classes of society the desire for distinction accounts for the fact that a rise in price sometimes leads, not to a reduction, but to an increase in demand—wealthy people bidding against one another for the possession of an article just because it is dear. The following passage sums up the general argument :—
"In our dress, our housing, and in everything on which we spend our incomes, there is always in our thoughts some more or less veiled reference to the manner in which our neighbours are dressed and housed and live generally. The universality of the reference is at bottom the reason for the fact that supply, as it increases and takes new forme, so constantly makes demand increase along with it."
Coming to the question of money, Mr. Carlile definitely
challenges the view of the academic economists that it is possible to think of value independently of price. He contends that the whole conception of value is dependent
u pon the recognition of some substance called money which
serves as a universal standard. Until human beings have passed beyond the practice of barter in its crudest form—say, an armful of fruit for a couple of fish—no general conception
of value can arise. Nor is there at the present day any practical advantage whatever in arguing about value apart from price. What all the world is interested in is price, i.e.,. value referred to money, and only confusion results from arguing about the purely artificial conception of value in the abstract, a thing which no one is able clearly to define. But though Mr. Carlile insists that the existence of money is essential to any clear conception of value, he denies that_ prices are determined, as Mill too emphatically stated, by the quantity of money available, using money in the sense of coin. Mill's proposition may conceivably have been approxi- mately true when commercial transactions were largely dependent on the actual exchange of coin or bullion, but at the present time the world, while still retaining gold as the basis of credit, because gold is the one ultimate substance which everyone will accept, conducts its commerce by means of paper credits which do all the work of money. This paper money, which can be manufactured indefinitely, and is in fact daily manufactured by our banks, has no constant relation to the amount of gold in the country, and still leas to the amount of gold in the world ; for the only connexion which can be traced is between an increase in the gold deposit in the Bank of England and the current rate of discount. When the Bank of England has an excess supply of gold it lowers its rate of discount in order to attract borrowers. This, in turn, affects the market rate of discount, with the result that business firms are able to borrow at a lower rate, and therefore- to expand their operations. The resulting increase in the demand for goods may send up prices. On the other hand, if manufacturers by borrowing cheaply are able to produce more cheaply, the prices of manufactured goods may fall aS a result of the increased supply of gold. Without dogmatizing on the point, it is safe to say that the whole subject of the effect of gold upon prices needs to be carefully reconsidered. It is only necessary to add that Mr. Carlile incidentally deals. with a number of other current problems. He insists, for example, that the position of London as the banking centre' of the world is largely dependent upon the world's belief that London is safe, and that belief in turn depends upon the strength of the British Navy. He also usefully criticises several Socialist theories, and devotes his keen power of destructive analysis to the Henry Georgian theory of unearned increment in land. Though somewhat discursive in the later chapters, the book as a whole is most stimulating and deserves the careful attention of all students of economics.
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