Uploaded: ‘The role of money in economic theory’ by Wesley Claire Mitchell (1916)

Is economics basically about measured monetary variables like GDP or wages (recount that ‘total wage income’ is part of GDP)? Or is it, as neoclassical economists assume, mainly about what Thorstein Veblen called ‘hedonistic’ variables like ‘utility’? This discussion is still waging. Look here. It’s an old discussion. According to a man who decisively contributed to the way we measure the ‘money economy’, Wesley ClaireMitchell, economics is about measuring the ‘money economy’ (Mitchell (1916))‘ – even when we want to know about the psychological variables. Not because money is all that matters. But as (on the practical side) monetary relations and transactions are inherently measurable. While (on the theoretical side) the development of monetary variables like wages, loans or profits, show but also shape our behavior. We don’t have to assume ‘wages’. We can measure them. We don’t have to assume ‘wage labor’. We can measure it. Mitchell chided the tendency of economists to focus on crude a- empirical ‘pain and pleasure’ psychology:

  Economic life may be regarded also as a process of making efforts and gaining satisfactions; or better, the activities of getting and using goods, of making and spending money, have a subjective aspect upon which attention may be focused. In this dim inner realm of consciousness it is difficult to make out the technique; there are no technical experts, no labor forces, no material appliances, and no capital in any sense, except by virtue of fanciful analogies.

Alas, this kind of thinking still pervades modern economics (read this 2016 Ljundqvist/Sargent piece closely and you will see that it boils down to crude pain and pleasure psychology or what Mitchell called ‘the dark subjective realm’). About economics and the money economy Mitchell stated:

its successful prosecution on a scientific basis presupposes considerable knowledge of how economic processes actually work at present. While the understanding of these processes has been the chief aim of economic investigation for a century, no one fancies that this fundamental task has yet been adequately performed. In the interests of social welfare itself we need clearer insight into the industrial process of making goods, the business process of making money, and the way in which both sets of activities are related to each other and to the individual’s inner life. Into our conjoint attack upon these problems a clear recognition of the role played by money promises to bring more definite order and more effective cooperation. It helps us to formulate our tasks in ways that suggest definite things to try next. For example, to find the basis of economic rationality in the development of a social institution directs our attention away from that dark subjective realm, where so many economists have groped, to an objective realm, where behavior can be studied in the light of common day

Nowadays, people tend to focus on wellness and related psychological variables. Does this mean Mitchell was wrong. Not really. An interesting study about how wage labour (more precisely: working relations in a wage labor defined production entity) negatively affects our ‘inner life’ well-being can be found here. Money and monetary variables like wages, profits or debts define us and our relations. Homo monetarius, instead of homo economicus. It is possible to state that a man as well-read as Mitchell should have given a bit more attention to ideas like ‘commodification’ and ‘exploitation’ and the like. But even when we want to say something interesting about such concepts, we do have to investigate and measure the money economy. Mitchell was right. And he still is.