Alfred Marshall, on whose Principles of Economics the education of all contemporary English economists has been based, took particular pains to call special attention to the relationship of his thought to that of Ricardo. His work consisted for the most part in stuffing the law of limited use [Grenznutzen] and the law of substitution into the Ricardo tradition, and his theory of production and of consumption as a wholecontrary to his theory of producing and distributing a given productionhas never been laid open. I am not certain whether he himself ever perceived the need for such a theory. but his immediate successors and disciples surely have abandoned it and evidently never perceived its absence. I was educated in this atmosphere. I have taught these doctrines myself and it was only in the course of the last decade that I became aware of their inadequacy. In my own thought and development, this book, therefore, presents a reaction, a transition and a disengagement from the classical English (or orthodox) tradition. How I have stressed this and the points in which I deviate from the recognized doctrine has been regarded by certain circles in England as extremely controversial. But how could someone educated in English economic orthodoxy, who was even once a priest of that faith, avoid some controversial emphasis, if he becomes a protestant for the first time?
I can, however, imagine that all this may concern the German readers somewhat differently. The orthodox tradition which reigned in the England of the 19th century never had such a strong influence on German thought. In Germany there have always been important schools of economics which strongly questioned the adequacy of classical theory for the analysis of contemporary events. The Manchester School as well as Marxism, have, after all, stemmed from Ricardoa conclusion that need cause surprise only when superficially considered. But in Germany there has always been a majority of opinion which adhered neither to one school nor the other.
However, it can hardly be contended that this school of thought ever established a theoretical counter-structure, nor did it ever attempt to do this. It has been skeptical and realistic, satisfied with historical and empirical methods and results which reject a formal analysis. The most important unorthodox discussion on the theoretical level has been that of Wicksell. His books (until recently not available in English) were available in the German language; one of his most important was in fact written in German. His successors, however, were mainly Swedes and Austrians; the latter linked his ideas in with a substantially Austrian theory, and thus in reality actually brought them back to the classical tradition. Germany thus hasin contrast to her custom in most fields of sciencecontented herself for a whole century without a dominant and generally recognized formal theory of economics.
I may, therefore, perhaps expect to meet with less resistance on the part of German readers than from English, when I submit to them a theory of employment and production as a whole which deviates in important particulars from the orthodox tradition. But could I hope to overcome the economic agnosticism of Germany? Could I convince German economists that methods of formal analysis constitute an important contribution to the interpretation of contemporary events and to the shaping of contemporary policy? It is, after all, a feature of German character to find satisfaction in a theory. How hungry and thirsty German economists must feel having lived all these years without one! It is certainly worthwhile for me to make the effort. And if I can contribute a single morsel to a full meal prepared by German economists, particularly adjusted to German conditions, I will be satisfied. For I must confess that much in the following book has been mainly set forth and illustrated in relation to conditions in the Anglo-Saxon countries.
The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions. Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interestall these basic ideas also remain under such conditions necessary parts of our plan of thought.
I would like to take this opportunity to thank my translator, Mr. Waeger, for his excellent effort (I hope that his vocabulary at the end of this book will prove useful beyond its immediate purpose), as well as my publishers, Messrs. Duncker & Humblot, whose enterprising spirit ever since the days sixteen years ago when they published my Economic Consequences of the Peace has made it possible for me to maintain my contact with German readers.