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.