New Tracks for Economic Theory, 1926–1939

In order to survive, to live enjoyably, to add to their possessions, men must use their circumstances according to reason. Some formal rules must be obeyed in their choices of conduct. To ignore these will be to get less far towards some goal than their circumstances would have allowed. When the conduct in question can be summed up in the word exchange, the renouncing or parting with one thing in order to possess another, the formal rules may take a prominent place. They can be seen as the architectural principles of a system where men of extremely diverse desires and endowments can do the best for themselves that is possible when all alike enjoy an equal freedom with each other from force and fraud. Reason, in this light, seems to show how men should act. Cannot the analyst of their conduct then assume that they will thus act, and so claim, given details of their tastes and endowments, not only to understand but to predict their conduct? This is the claim made by the Theory of Value, which was established by the end of the nineteenth century as the central doctrine of political economy. It can be summarised by saying that self-interest induces men to live by reason, and that by doing his own reasoning from the tastes and circumstances of individuals, could he know them precisely, the analyst could know what they would do. Let us however inquire what we must mean here by circumstances.