From one of the outstanding theorists in the field of economics to-day, Professor Pigou himself, we have the statement that, if economics is to be more than “merely an amusing toy”, it must be “realistic”, in the sense that its “interest is concentrated upon the world known in experience”, and “fruit-bearing”, in the sense that its ultimate objective is to contribute to the attainment of “practical results in social improvement”. Few will disagree with a general statement of this sort; yet none of us can fail to be conscious of the difficulties involved in maintaining a really close and useful relationship between our theoretical analyses and the most urgent practical problems of the economic world around us. It is with these difficulties and with the effect upon them of recent theoretical developments that this paper is primarily concerned.