On simple recognition, from which all attempts at clarification of the place of the economy in society must start, it is a fact that the term economic, as commonly used to describe a type of human activity, is a compound of two meanings. These have separate roots, independent of one another. It is not difficult to identify them, even though a number of broadly synonymous words are available for each. The first meaning, the formal, springs from the logical character of the means-ends relationship, as in economizing or economical; from this meaning springs the scarcity definition of economic. The second, the substantive meaning, points to the elemental fact that human beings, like all other living things, cannot exist for any length of time without a physical environment that sustains them; this is the origin of the substantive definition of economic. The two meanings, the formal and the substantive, have nothing in common.
The current concept of economic is, then, a compound of two meanings. While hardly anyone would seriously deny this fact, its implications for the social sciences (always excepting economics) are rarely touched upon. Whenever sociology, anthropology, or history deals with matters pertaining to human livelihood, the term economic is taken for granted. It is employed loosely, relying for a frame of reference now on its scarcity connotation, now on its substantive connotation, thus oscillating between two unrelated poles of meaning.
The substantive meaning stems, in brief, from man's patent dependence for his livelihood upon nature and his fellows. He survives by virtue of an institutionalized interaction between himself and his natural surroundings. That process is the economy, which supplies him with the means of satisfying his material wants. This phrase should not be taken to signify that the wants to be satisfied are exclusively bodily needs, such as food and shelter, however essential these may be for his survival, for such a restriction would absurdly restrict the realm of the economy. The means, not the wants, are material. Whether the useful objects are required to avert starvation or are needed for educational, military, or religious purposes is irrelevant. So long as the wants depend for their fulfillment on material objects, the reference is economic. Economic here denotes nothing else than “bearing reference to the process of satisfying material wants.” To study human livelihood is to study the economy in this substantive sense of the term, and this is the sense in which economic is used throughout this book.
The formal meaning has an entirely different origin. Stemming from the means–ends relationship, it is a universal whose referents are not restricted to any one field of human interest. Logical or mathematical terms of this sort are called formal in contrast to the specific areas to which they are applied. Such a meaning underlies the verb maximizing, more popularly economizing or – less technically, yet perhaps most precisely of all – “making the best of one's means.”
A merger of two meanings into a unified concept is, of course, unexceptionable, so long as one remains conscious of the limitations of the concept thus constituted. To link the satisfaction of material wants with scarcity plus economizing and weld them into one concept may be both justified and reasonable under a market system, when and where it prevails. However, to accept the compound concept of “scarce material means and economizing” as a generally valid one must greatly increase the difficulty of dislodging the economistic fallacy from the strategic position it still holds in our thinking.
The reasons for this are obvious. The economistic fallacy, as we called it, consists in a tendency to equate the human economy with its market form. Accordingly, to eliminate this bias, a radical clarification of the meaning of the word economic is required. Again, this cannot be achieved unless all ambiguity is removed and the formal and substantive meanings are separately established. Telescoping them into a term of common usage, as in the compound concept, must buttress the double meaning and render that fallacy almost impregnable.
How solidly the two meanings were joined can be inferred from the ironic fate of that most controversial of modern mythological figures – economic man. The postulates underlying this creation of scientific lore were contested on all conceivable grounds – psychological, moral, and methodological, yet the meaning of the attribute economic was never seriously doubted. Arguments clashed on the concept man, not on the term economic. No question was raised as to which of the two series of attributes the epithet was meant to convey – those of an entity of nature, dependent for its existence on the favor of environmental conditions as are plant and beast, or those of an entity of the mind, subject to the norm of maximum results at minimum expense, as are angels or devils, infants or philosophers, insofar as they are credited with reason. Rather, it was taken for granted that economic man, that authentic representative of nineteenth-century rationalism, dwelt in a world of discourse where brute existence and the principle of maximization were mystically compounded. Our hero was both attacked and defended as a symbol of an ideal – material unity which, on those grounds, would be upheld or discarded, as the case might be. At no time was the secular debate deflected to even a passing consideration of which of the two meanings of economic, the formal or the substantive, economic man was supposed to represent.
Recognition of the twofold roots of the term economic is, of course, by no means new. It may be said that neoclassical economic theory was formed, in about 1870, out of the distinction between the scarcity and the substantive definitions of economic. Neoclassical economics was established on Carl Menger's premise (Grundsätze [Principles], 1871) that the appropriate concern of economics was the allocation of insufficient means to provide for man's livelihood. This was the first statement of the postulate of scarcity or maximization. As a succinct formulation of the logic of rational action with reference to the economy, this statement ranks high among the achievements of the human mind. Its importance was enhanced by a superb relevance to the actual operation of the market institutions which, because of their maximizing effects in day-to-day activities, were by their very nature amenable to such an approach.
Later, Menger wished to supplement his Principles so as not to appear to ignore the primitive, archaic, or other early societies that were beginning to be studied by the social sciences. Cultural anthropology revealed a variety of non-gainful motivations that induced man to take part in production; sociology refuted the myth of an all-pervading utilitarian bias; ancient history told of high cultures of great wealth that had no market systems. Menger himself seems to have held that economizing attitudes are restricted to utilitarian value scales in a sense that we should regard today as setting an undue limitation on the logic of the ends-means relationship. This may have been one of the reasons why he hesitated to embark on theorizing about other than “advanced” countries, where such value scales can be assumed.
Menger became anxious to limit the strict application of his Principles to the modern exchange economy (Verkehrswirtschaft). He refused to permit either a reprint or a translation of the first edition, which he deemed in need of completion. He resigned his chair at the University of Vienna in order to devote himself exclusively to that task. After an effort of fifty years, during which he seems to have again and again reverted to the task, he left a revised manuscript behind him which was published posthumously in Vienna in 1923. This second edition abounds with references to the distinction between the exchange or market economy for which the Principles was designed, on the one hand, and nonmarket or “backward” economies, on the other. Menger uses several words to designate those “backward” economies: zurückgeblieben, unzivilisiert, unentwickelt.
The posthumous edition of the Grundsätze included four fully completed new chapters. At least one of these is of prime theoretical importance for the problems of definition and method that exercise the minds of contemporary scholars in this field. As Menger explained it, the economy has two “elemental directions,” one of which was the economizing direction stemming from the insufficiency of means, while the other was the “technoeconomic” direction, as he called it, derived from physical requirements of production regardless of the sufficiency or insufficiency of means:
I shall designate the two directions in which the human economy may point – the technical and the economizing – as elemental, for this reason. Although in the actual economy these two directions as presented in the two previous sections occur as a rule [my italics] together, and indeed almost [my italics] never found separately, they nevertheless spring from essentially different and mutually independent sources [Menger's italics]. In some fields of economic activity the two occur, in fact, separately, and in some not inconceivable types of economies either of them may in fact regularly appear without the other. […] The two directions in which the human economy may point are not mutually dependent upon one another; both are primary and elemental. Their regular joint occurrence in the actual economy results merely from the circumstance that the causative factors that give rise to each of them almost [my italics] without exception happen to coincide.1
Menger's discussion of these elementary facts has, however, been forgotten. The posthumous edition, where the distinction between the two directions of the economy was made, has never been translated into English. No presentation of neoclassical economics (including Lionel Robbins’ Essay, 1935)2 deals with the “two directions.” The London School of Economics edition of the Principles in its rare book series (1933) chose the first edition (1871). F. A. Hayek, in a preface to this “replica” edition, helped to remove the posthumous Menger from the consciousness of economists by passing over the manuscript as “fragmentary and disordered.” “For the present, at any rate,” Professor Hayek concluded, “The results of the work of Menger‘s later years must be regarded as lost.” Some seventeen years later, when the Principles, with F. H. Knight's preface was translated into English (1950), the first edition – half the size of the second – was once more selected. Moreover, throughout the book, the translation rendered the term wirtschaftend (literally: engaged in economic activity) as economizing.3 Yet, according to Menger himself, economizing was the equivalent not of wirtschaftend, but of sparend, a term he expressly introduced in the posthumous edition in order to distinguish the allocation of insufficient means from another direction of the economy that does not necessarily imply insufficiency.
Because of the brilliant and formidable achievements of price theory opened up by Menger, the new economizing or formal meaning of economic became the meaning, and the more traditional, but seemingly pedestrian, meaning of materiality, which was not necessarily scarcity-bound, lost academic status and was eventually forgotten. Neoclassical economics was founded on the new meaning, while at the same time the old, material or substantive meaning faded from consciousness and lost its identity for economic thought.
The stress on theoretical analysis thus brought in its wake a complete disregard for the requirements of other economic disciplines, such as the sociology of economic institutions, primitive economics, or economic history, that were also engaged in the study of human livelihood. No sooner had the irreducible distinction between the two meanings been discovered than the substantive meaning was discarded in favor of the formal, thus producing the economic analysts’ insistence, at least by implication, that all disciplines dealing with the economy have for their true subject not some aspect of the satisfaction of material wants, but the choices among the uses of scarce means. The compound concept was admitted on sufferance, on the assumption that its substantive ingredients could safely be forgotten, thus reducing the concept to the formal elements of choice and scarcity which alone were supposed to matter.
The difficulty of our task now becomes apparent. A clarification of the way the compound concept harbors two independent meanings is not enough, for as soon as we are within striking distance of that aim, showing the ambiguity of the compound concept so readily employed by layman and scholar alike, it turns out to be merely a screen for the scarcity definition, while the substantive aspect of the economy, on which we had wished to focus, is disdainfully relegated to oblivion.
Let us survey then the prima facie grounds on which a semantic monopoly of the term economic is so confidently claimed for the scarcity definition. An attempt to develop the substantive definition will follow. We will start from a formulation of the scarcity definition that is as broad as possible, yet sufficiently articulated in its applicability to be subjected to operational testing.
To make the best of one's means, which logically is the norm implied in the formal meaning of economic, refers to situations where choice is induced by an insufficiency of means, a condition of affairs which is justly described as a scarcity situation. The terms choice, insufficiency and scarcity as they occur in this context should be carefully viewed in their mutual relationship, for economic analysts’ claims take on varied forms. We are told sometimes that economics has for its subject acts of choice, sometimes that choice involves insufficiency of means, at other times that insufficiency of means involves choice, at still other times that insufficient means are scarce means, and even that scarce means are economic ones.
Such assertions appear to establish the range of the formal meaning as compromising the economy in all its manifestations. For the economy, however instituted, would then consist of scarce means under conditions that induce acts of choice among the different uses of the insufficient means and, consequently, be capable of description in the formal terms of the scarcity definition. It could then be rightly claimed that the substantive definition of economic was superfluous, or at least of negligible importance, since all conceivable economies would fall under the scarcity definition. However, strictly speaking, none of these claims is valid.
To start with the broadest term, choice, it may occur whether means are sufficient or not. Moral choice is indicated by the intent of the agent to do what is right; such a crossroads of good and evil is the subject of ethics. A purely operational crossroads, on the other hand, would be this: a man, travelling along a road, reaches the foot of a mountain when two paths branch off, both leading by different ways to his destination. Assuming there is nothing to choose between them – same length, same amenities, same steepness – he is still called upon to decide upon either one or the other of the paths or else relinquish his aim altogether. At neither the moral nor the operational crossroads, it appears, is an insufficiency of means postulated. Indeed, ample means may make it rather more difficult, though no less necessary, to choose. If it is often awkward, sometimes even painful, to make a choice, this may be caused as much by an abundance of means as by their insufficiency.
Choice, then, does not necessarily imply insufficiency of means. But neither does insufficiency of means imply either choice or scarcity. To begin with the latter case: for a scarcity situation to arise, not only an insufficiency of means but also choice induced by that insufficiency must exist. Now, insufficiency of means does not induce choice unless at least two fundamental conditions are given: more than one use for the means, otherwise there would be nothing to choose from; and more than one end, with an indication of which of them is preferred, otherwise there would be nothing to choose by. For a scarcity situation to arise, then, a number of conditions must be given, over and above the insufficiency of the means.
Yet – the point is vital – even if these conditions were satisfied, there would be still no more than an accidental connection between a scarcity situation and the economy. The rules of choice, as we saw, apply to all fields of means–ends relationships, factual and conventional, actual or imaginary. For means are anything that is serviceable, whether by virtue of natural qualities, like coal for heating, or by virtue of the conventional rules, like dollar bills to pay debts. It is also unimportant whether the grades of preference in regard to ends are based on technological, moral, scientific, superstitious, or purely arbitrary scales.
Thus the task of attaining the greatest satisfaction through the rational use of insufficient means is in no way restricted to the human economy. It is set whether a general is disposing his troops for battle, a chess player is scheming to sacrifice a pawn, a lawyer is marshalling evidence to defend a client, an artist is husbanding his effects, a believer is earmarking prayers and good works to attain the best grade of salvation in his reach, or, to come closer to the point, a thrifty housewife is planning the week's purchases. Whether troops, pawns, evidence, artistic highlights, pious acts, or week's pay, the insufficient means can be employed in different ways, but once used in one way, they cannot be employed in another; also the choosers have more than one end in view and are required to employ the means so as to attain those most preferred.
Examples could be multiplied indefinitely, but the more instances are adduced, the more apparent it becomes that scarcity situations exist in any number of fields, and that the formal meaning of economic bears in fact only an accidental reference to the substantive meaning. The “material” character of the want satisfaction is given whether there is maximizing or not; and maximizing is given whether the means and ends are material or not.
As to the rules of behavior, they are of equally universal validity. There are altogether two. The one, “Relate means to ends”, covers the whole range of the logic of rational action. The second rule sums up formal economics, i.e., that part of the logic of rational action which is concerned with scarcity situations. It runs: “Allocate scarce means in such a way that no end with a lower order of rank on the preference scale is provided for while an end with a higher rank remains unprovided for.” In plain English, “Do not act like a fool.” Still, formal economics has for its content no more than exactly that.
Thus the two root meanings of economic are worlds apart; the formal meaning can in no way substitute for the substantive meaning. Economical or economizing refers to choice between the alternative uses of insufficient means. The substantive meaning, on the other hand, implies neither choice nor insufficiency. Man's livelihood may or may not involve the need for a choice. Custom and tradition, as a rule, eliminate choice, and if choice there be, it need not be induced by limiting effects of any “scarcity” of means. Some of the most important natural and social conditions of life, such as the availability of air and water or a loving mother's devotion to her infant, are not, as a rule, so limiting. The cogency at play in the one case, in the other differs as the power of syllogism differs from the force of gravitation. The laws of the first are those of nature, the laws of the other are those of the mind.
But how then does formal economics apply to empirical situations at all? If means are not inherently insufficient, how can their insufficiency be tested? And, since “scarcity” was shown to be distinct from insufficiency of means, how in turn can the presence of scarcity be ascertained?
Means are insufficient if the following test is negative. Lay out the ends in a sequence and cover each of the ends in that sequence with a unit of the means; if the means are exhausted before the last end is reached, the means are insufficient. Should the performance of the test be inconvenient or physically impossible, “earmarking” will do – perform this same operation in thought and “allocate” each unit of the means to an end. If you run out of means before the last end is reached, the means are insufficient.
To speak in this instance of scarce means, instead of merely insufficient ones – a general practice today – lacks precision and only creates confusion. Means that have been found insufficient can be allocated only in the same way they would have been allocated if found sufficient, namely, to the given end. To call them scarce would imply that a choice had been induced by the insufficiency of the means, which is not so. To ignore this operational criterion is to lose the point of the definition of scarcity altogether – to create the illusion that there exists some distinctive way of allocating insufficient means, “a more economical one”, so to speak. But insufficiency of means does not in itself create a scarcity situation. If you have not got enough, you must go without. For a choice to be set, the means, besides being insufficient, must also have an alternative use; and there must be more than one end, as well as a scale of preferences attached to them.
Each of these conditions – insufficiency of means, alternativity of means, multiplicity of ends, scales of preference – is subject to empirical testing. Whether in a given instance the term “scarce” applies to the means or not, is therefore a question of fact. It sets the limit to the applicability of the formal or scarcity definition of economic in any field – including the economy.
The current compound concept of economics, in fusing the satisfaction of material wants with scarcity, postulates no less than the insufficiency of all things material. The first pronouncement was that of Hobbes in the Leviathan. He deduced the need for absolute power in the state in order to prevent humans from tearing one another to pieces like a pack of famished wolves. Actually, his aim was to prevent religious wars through the strong arm of secular government. Yet that metaphor may have reflected a world in which the medieval commonwealth was giving way to the forces released by the Commercial Revolution and predatory competition among the engrossing wealthy was devouring chunks of the communal village lands. A century later the market began to organize the economy in a framework that actually operated through scarcity situations, and Hume echoed the Hobbesian adage. An omnipresent necessity for choice arose from the insufficiency of the means universally employed – money. Whether the things money could buy were insufficient was not here being tested. Undeniably, given each individual's culturally determined needs and the scope of money, these means were insufficient to satisfy all the needs. Actually, this situation was no more than an organizational feature of our economy.
Now, the universal belief that of no thing is there enough to go around was urged, sometimes as common-sense proposition about the limited nature of the supply, sometimes as a philosophically reckless postulate of the unlimited nature of individual wants and needs. Yet in either case, while the statement claimed to be empirical, it was no more than a dogmatic assertion covering up an arbitrary definition and a specific historical circumstance. Once a human being was circumscribed as an “individual in the market,” the proposition, as we hinted, was easy to substantiate. Of his wants and needs, only those mattered that money could satisfy through the purchase of things offered in markets; the wants and needs themselves were restricted to those of isolated individuals. Therefore, by definition, no wants and needs other than those supplied in the market were to be recognized, and no person other than the individual in isolation was to be accepted as a human being. It is easy to see that what was being tested here was not the nature of human wants and needs but only the description of a market situation as a scarcity situation. In other words, since market situations do not, in principle, know wants and needs other than those expressed by individuals, and wants and needs are here restricted to things that can be supplied in a market, any discussion of the nature of human wants and needs in general was without substance. In terms of wants and needs, only utilitarian value scales of isolated individuals operating in markets were considered.
Once before we have encountered a famed discussion which, at closer view, revealed itself as a mere verbalization of undefined issues: Was economic man real man? But the meaning of economic was taken for granted, which excluded the possibility of any relevant answer.
Yet at the very dawn of formulated thought on the subject, Aristotle rejected the scarcity definition. Some of his argument, such as his views on the sources of trading profits, seems misplaced or distorted by the context; at other points, as on slavery, his thinking is out of tune with present convictions. All the more astounding is his penetration of a problem which up to our days has baffled the mind.
Aristotle starts his Politics by denying that man's livelihood as such raises a problem of scarcity. Solon's verse proclaimed falsely of the urge for riches, “there is no limit set among men.” On the contrary, wrote Aristotle, the true riches of the household, or of a state, are the necessities of life that can be stored and will keep. And they are nothing more than means to an end, and like all means they are intrinsically limited and determined by their ends. In the household, they are means to life; in the polis, they are means to the good life. Human wants and needs are therefore not boundless, as Solon's saying implied. This fallacy is Aristotle's main target. Do not animals, from their birth, find their natural sustenance waiting for them in their environment? And do not men, too, find sustenance in their mother's milk and, eventually, in their environment, whether they be hunters, herdsmen, or tillers of the soil? Even trade fits into this natural pattern, so long as it is practiced as exchange in kind. No need is considered natural save that for sustenance. Insofar as scarcity seems to spring “from the demand side,” Aristotle puts this down to a misconceived notion of the good life, twisted into a desire for more and more physical goods and enjoyments. The elixir of the good life – the thrill and elevation of day-long theatre, mass jury service, electioneering and holding office, and great festivals, but also of battles and naval combats – can be neither hoarded nor physically possessed. True, the good life requires, “this is generally admitted,” that the citizen have leisure in order to devote himself to the service of the polis. As we saw, meeting this requirement entails in part slavery and in part the payment of citizens for the performance of their public duties (or otherwise not admitting artisans to citizenship at all). But, for yet another reason, the problem of scarcity does not arise for Aristotle. The economy – in the first place a matter of the domestic household – concerns the relationship of the persons who make up such institutions as the household or other “natural” units like the polis. His concept of the economy then, denotes an institutionalized process through which sustenance is ensured. He could, therefore, put down the misconception of unlimited human wants and needs to two circumstances: the first, the acquisition of foodstuffs by commercial traders which thus linked the unlimited activity of moneymaking to the otherwise limited requirements of family and polis; the second, the misinterpretation of the good life in the novel notion of a utilitarian accumulation of physical pleasure. Given the right institutions, such as oikos and polis, and the traditional understanding of the good life, Aristotle saw no room for the scarcity factor in the human economy. He did not himself fail to connect this fact with the institutions of slavery and infanticide and his own violent aversion to the comfort of life. But for this realistic fact, his negation of scarcity might have been as dogmatic and as unfavourable to empirical research as to the economic formalism of our times. As it is, the first of realist thinkers was also the first to recognize that an inquiry into the role of scarcity in the human economy presupposes an adherence to the substantive meaning of economic.4
The claim of the scarcity definition to be the sole legitimate representative of the meaning of economic does not stand scrutiny. It leaves the sociologist, the anthropologist, the economic historian helpless in confronting the task of penetrating the economy of any time or place. For the accomplishment of that task, the social sciences must turn to the substantive meaning of economic.
The economy as an instituted process of interaction serving the satisfaction of material wants forms a vital part of every human community. Without an economy in this sense, no society could exist for any length of time.
The substantive economy must be understood as being constituted on two levels: one is the interaction between man and his surroundings; the other is the institutionalization of that process. In actuality, the two are inseparable; we will, however, treat of them separately.
Interaction accounts for the material result in terms of survival. It can be broken down into two kinds of changes, locational and appropriational, which may go together or not. The first consists in a change of place; the second in a change of “hands.”
In a locational movement, as the term implies, things move spatially; in an appropriational movement either the person (or persons) at whose disposal things are, or the extent to which they have rights of disposal over them, changes. The locational movement is most clearly illustrated by transportation and production; the appropriational by transactions and dispositions.
Human beings play a prime part: they expend effort in labor; they themselves move about and they dispose of their possessions and activities in a process that eventually serves the end of their survival. Production represents what is perhaps the most spectacular economic feat, namely, the ordered advance of all material means towards the consumption stage of livelihood. Together the two kinds of movement complete the economy as a process.
Locational movements comprise hunts, expeditions and raids, hewing wood and drawing water, the international system of shipping, railroads, and air transportation. Carrying may, in early times, loom larger than production; and even later it plays a preponderant part in production itself. It has been asserted before that production can be reduced to locational movements of objects, large and small, from the biggest to the minutest particles of matter. The growth of grain from seed is a movement of matter through space, as is the upsurge of skyscraper in a boom. However, as we will see, the economic character of production is derived from the fact that the locational movement involves labor combined in a specific way with other goods. Of this later on.
Appropriation was turned into a broad factual term by Max Weber.5 Its original meaning, that of legal acquisition of property, was extended to include de facto disposal over anything worth possessing, wholly or partly, whether physical object, right, prestige, or the mere chance of exploiting advantageous situations. Appropriational change may take place as between “hands,” where “hand” denotes any person or group of persons capable of possessing. This forcibly brings out the shifts in the property sphere that accompany the interactional process. Things and persons pass partly or totally from one appropriational sphere to another. Management and administration, circulation of goods, distribution of income, tribute and taxation, all are equally fields of appropriation. That which changes “hands” need not be an object as a whole, it may be no more than its partial use.
Appropriational movements differ not only in regard to what is moved but also in the character of the movement. Transactional movements are two-sided and occur as between “hands”; dispositional movements are one-sided actions of a “hand” to which custom or law attaches definite legal effects. In the past, the distinction could be mostly related to the type of “hand” in question: private persons or firms were deemed to be making appropriational changes through transactions, while the public “hand” was credited with making dispositions. This distinction tends to be ignored in our day by corporations and government alike. The state buys and sells, while private corporations administer and dispose.
Combination of goods seems an odd term to employ for that part of the interaction commonly called production. Yet it is a basic fact of the substantive economy that things are useful because they serve a need either directly or indirectly through their combinations. This distinction between goods of a “lower” and a “higher” order, introduced by Carl Menger, is at the root of production.6 Even in a state of general scarcity, no production ensues in the absence of goods of a “higher” order, foremostly labor. On the other hand, if “labor” is given, production will take place, whether labor is in an abundance or not, so long as no goods of a “lower” order are available that can satisfy the needs. It is therefore misleading, as was made manifest in Menger's posthumous work, to attribute the phenomenon of production to some general scarcity of goods; rather, production stems from the difference between the goods of a “lower” order and those of “higher” order – a technological fact of the substantive economy. In this line of thought, the pre-eminence of labor as a factor of production is due to the circumstance that labor is the most general agent among all goods of the “higher order.”
On an interactional level then, the economy comprises man as a collector, grower, carrier, and maker of useful things, as well as nature as the silent obstructor and furtherer; also their interpenetration in a sequence of physical, chemical, physiological, psychological, and social events occurring from the smallest to the largest scale. The process is empirical, its parts are capable of operational definition and direct observation.
Yet such a process has no separate existence. The thread of interaction may branch off, interlock, form a web; but whether the mesh of cause and effect is simple or complex, it can no more be physically detached from the ecological, technological, and societal tissue which forms its background than can the life process from the animal organism.
In order to achieve the manifold coherence of the actual economy, the bare process of interaction must acquire a further set of properties, without which the economy could hardly be said to exist. If the material survival of man were the result of a mere fleeting chain causation – possessing neither definite location in time or space (that is, unity and stability), nor permanent points of reference (that is, structure), nor definite modes of action in regard to the whole (that is, function), nor ways of being influenced by societal goals (that is, policy relevance) – it could never have attained the dignity and importance of the human economy. The properties of unity and stability, structure and function, history and policy accrue to the economy though its institutional vestment.
This lays down the foundation for the concept of the human economy as an institutionalized process of interaction which functions to provide material means in society.