12 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK 
REA 
of particular kinds of raw materials, and excessive industrial 
equipment in some lines, with inadequate equipment in others. 
A crisis comes and corrects these abnormalities, restoring 
equilibrium—roughly and approximately. Throughout his 
analysis of the business cycle it is clear that he is judging the 
phenomena that he describes in terms of the static norms. 
It is, therefore, an occasion for comment that in his presidential 
address before the American Economic Association in December 
of 1924, he should have taken occasion to scrap the “static state” 
and the general body of economic theory to which the term, 
statics, properly applies. That many elements in the older 
economics may be discarded I grant cheerfully, and I would go 
all the way with Professor Mitchell in dropping studies of 
“utilities and disutilities . . . in the individual economy.” We 
need modern social psychology rather than the individualistic 
psychology of David Hume and Bentham as the basis of present- 
day economic theory. But a modern theory of value resting on 
present-day sociology and psychology, so far from throwing out 
of court the great generalizations based on the notions of supply 
and demand, cost of production, the laws of wages, interest, rent, 
and profits, the capitalization theory, the laws of marginal 
equilibrium among the factors of production, and of the factors 
of production in different industries, rather strengthens them 
by giving them a solid foundation. The static-dynamic contrast 
seems to me particularly to gain rather than to lose by being 
reformulated in terms of a social theory of value.” 
Professor Mitchell says: “In recent years many members of 
our Association have come to fear that economics may disinte- 
grate into a number of specialties. This danger they combat by 
insisting that every young economist must receive a thorough 
grounding in theory. The remedy seems inefficient, because the 
qualitative theory, in which we are commonly grounded, plays 
so small a réle in our work as specialists in public finance and 
banking, in accountancy and transportation, in economic history 
and insurance, in business cycles, marketing, and labor prob- 
lems.” 
I wish to enter a caveat. The student of public finance who 
does not understand the static theory of the incidence of taxation 
' T venture to refer here to the chapter on “The Reconcilation of Statics 
and Dynamics” in my Value of Money.