Principles of Economics
By Alfred Marshall
Economic conditions are constantly changing, and each generation looks at its own problems in its own way. In England, as well as on the Continent and in America, Economic studies are being more vigorously pursued now than ever before; but all this activity has only shown the more clearly that Economic science is, and must be, one of slow and continuous growth. Some of the best work of the present generation has indeed appeared at first sight to be antagonistic to that of earlier writers; but when it has had time to settle down into its proper place, and its rough edges have been worn away, it has been found to involve no real breach of continuity in the development of the science. The new doctrines have supplemented the older, have extended, developed, and sometimes corrected them, and often have given them a different tone by a new distribution of emphasis; but very seldom have subverted them…. [From the Preface to the First Edition]
First Pub. Date
London: Macmillan and Co., Ltd.
The text of this edition is in the public domain.
- Appendix A
- Appendix B
- Appendix C
- Appendix D
- Appendix E
- Appendix F
- Appendix G
- Appendix H
- Appendix I
- Appendix J
- Appendix K
THE SUBSTANCE OF ECONOMICS.
BOOK I, CHAPTER II
§ 1. Economics is a study of men as they live and move and think in the ordinary business of life. But it concerns itself chiefly with those motives which affect, most powerfully and most steadily, man’s conduct in the business part of his life. Everyone who is worth anything carries his higher nature with him into business; and, there as elsewhere, he is influenced by his personal affections, by his conceptions of duty and his reverence for high ideals. And it is true that the best energies of the ablest inventors and organizers of improved methods and appliances are stimulated by a noble emulation more than by any love of wealth for its own sake. But, for all that, the steadiest motive to ordinary business work is the desire for the pay which is the material reward of work. The pay may be on its way to be spent selfishly or unselfishly, for noble or base ends; and here the variety of human nature comes into play. But the motive is supplied by a definite amount of money: and it is this definite and exact money measurement of the steadiest motives in business life, which has enabled economics far to outrun every other branch of the study of man. Just as the chemist’s fine balance has made chemistry more exact than most other physical sciences; so this economist’s balance, rough and imperfect as it is, has made economics more exact than any other branch of social science. But of course economics cannot be compared with the exact physical sciences: for it deals with the ever changing and subtle forces of human nature
The advantage which economics has over other branches of social science appears then to arise from the fact that its special field of work gives rather larger opportunities for exact methods than any other branch. It concerns itself chiefly with those desires, aspirations and other affections of human nature, the outward manifestations of which appear as incentives to action in such a form that the force or quantity of the incentives can be estimated and measured with some approach to accuracy; and which therefore are in some degree amenable to treatment by scientific machinery. An opening is made for the methods and the tests of science as soon as the force of a person’s motives—
not the motives themselves—can be approximately measured by the sum of money, which he will just give up in order to secure a desired satisfaction; or again by the sum which is just required to induce him to undergo a certain fatigue.
It is essential to note that the economist does not claim to measure any affection of the mind in itself, or directly; but only indirectly through its effect. No one can compare and measure accurately against one another even his own mental states at different times: and no one can measure the mental states of another at all except indirectly and conjecturally by their effects. Of course various affections belong to man’s higher nature and others to his lower, and are thus different in kind. But, even if we confine our attention to mere physical pleasures and pains of the same kind, we find that they can only be compared indirectly by their effects. In fact, even this comparison is necessarily to some extent conjectural, unless they occur to the same person at the same time.
For instance the pleasures which two persons derive from smoking cannot be directly compared: nor can even those which the same person derives from it at different times. But if we find a man in doubt whether to spend a few pence on a cigar, or a cup of tea, or on riding home instead of walking home, then we may follow ordinary usage, and say that he expects from them equal pleasures.
If then we wish to compare even physical gratifications, we must do it not directly, but indirectly by the incentives which they afford to action. If the desires to secure either of two pleasures will induce people in similar circumstances each to do just an hour’s extra work, or will induce men in the same rank of life and with the same means each to pay a shilling for it; we then may say that those pleasures are equal for our purposes, because the desires for them are equally strong incentives to action for persons under similar conditions.
Thus measuring a mental state, as men do in ordinary life, by its motor-force or the incentive which it affords to action, no new difficulty is introduced by the fact that some of the motives of which we have to take account belong to man’s higher nature, and others to his lower.
For suppose that the person, whom we saw doubting between several little gratifications for himself, had thought after a while of a poor invalid whom he would pass on his way home; and had spent some time in making up his mind whether he would choose a physical gratification for himself, or would do a kindly act and rejoice in another’s joy. As his desires turned now towards the one, now the other, there would be change in the quality of his mental states; and the philosopher is bound to study the nature of the change.
But the economist studies mental states rather through their manifestations than in themselves; and if he finds they afford evenly balanced incentives to action, he treats them
primâ facie as for his purpose equal. He follows indeed in a more patient and thoughtful way, and with greater precautions, what everybody is always doing every day in ordinary life. He does not attempt to weigh the real value of the higher affections of our nature against those of our lower: he does not balance the love for virtue against the desire for agreeable food. He estimates the incentives to action by their effects just in the same way as people do in common life. He follows the course of ordinary conversation, differing from it only in taking more precautions to make clear the limits of his knowledge as he goes. He reaches his provisional conclusions by observations of men in general under given conditions without attempting to fathom the mental and spiritual characteristics of individuals. But he does not ignore the mental and spiritual side of life. On the contrary, even for the narrower uses of economic studies, it is important to know whether the desires which prevail are such as will help to build up a strong and righteous character. And in the broader uses of those studies, when they are being applied to practical problems, the economist, like every one else, must concern himself with the ultimate aims of man, and take account of differences in real value between gratifications that are equally powerful incentives to action and have therefore equal economic measures. A study of these measures is only the starting-point of economics: but it is the starting-point
§ 2. There are several other limitations of the measurement of motive by money to be discussed. The first of these arises from the necessity of taking account of the variations in the amount of pleasure, or other satisfaction, represented by the same sum of money to different persons and under different circumstances.
A shilling may measure a greater pleasure (or other satisfaction) at one time than at another even for the same person; because money may be more plentiful with him, or because his sensibility may vary
*6. And persons whose antecedents are similar, and who are outwardly like one another, are often affected in very different ways by similar events. When, for instance, a band of city school children are sent out for a day’s holiday in the country, it is probable that no two of them derive from it enjoyment exactly the same in kind, or equal in intensity. The same surgical operation causes different amounts of pain to different people. Of two parents who are, so far as we can tell, equally affectionate, one will suffer much more than the other from the loss of a favourite son. Some who are not very sensitive generally are yet specially susceptible to particular kinds of pleasure and pain; while differences in nature and education make one man’s total capacity for pleasure or pain much greater than another’s.
It would therefore not be safe to say that any two men with the same income derive equal benefit from its use; or that they would suffer equal pain from the same diminution of it. Although when a tax of £1 is taken from each of two persons having an income of £300 a-year, each will give up that £1 worth of pleasure (or other satisfaction) which he can most easily part with, i.e. each will give up what is measured to him by just £1; yet the intensities of the satisfaction given up may not be nearly equal.
Nevertheless, if we take averages sufficiently broad to cause the personal peculiarities of individuals to counterbalance one another, the money which people of equal incomes will give to obtain a benefit or avoid an injury is a good measure of the benefit or injury. If there are a thousand persons living in Sheffield, and another thousand in Leeds, each with about £100 a-year, and a tax of £1 is levied on all of them; we may be sure that the loss of pleasure or other injury which the tax will cause in Sheffield is of about equal importance with that which it will cause in Leeds: and anything that increased all the incomes by £1 would give command over equivalent pleasures and other benefits in the two towns. This probability becomes greater still if all of them are adult males engaged in the same trade; and therefore presumably somewhat similar in sensibility and temperament, in taste and education. Nor is the probability much diminished, if we take the family as our unit, and compare the loss of pleasure that results from diminishing by £1 the income of each of a thousand families with incomes of £100 a-year in the two places.
Next we must take account of the fact that a stronger incentive will be required to induce a person to pay a given price for anything if he is poor than if he is rich. A shilling is the measure of less pleasure, or satisfaction of any kind, to a rich man than to a poor one. A rich man in doubt whether to spend a shilling on a single cigar, is weighing against one another smaller pleasures than a poor man, who is doubting whether to spend a shilling on a supply of tobacco that will last him for a month. The clerk with £100 a-year will walk to business in a much heavier rain than the clerk with £300 a-year; for the cost of a ride by tram or omnibus measures a greater benefit to the poorer man than to the richer. If the poorer man spends the money, he will suffer more from the want of it afterwards than the richer would. The benefit that is measured in the poorer man’s mind by the cost is greater than that measured by it in the richer man’s mind.
But this source of error also is lessened when we are able to consider the actions and the motives of large groups of people. If we know, for instance, that a bank failure has taken £200,000 from the people of Leeds and £100,000 from those of Sheffield, we may fairly assume that the suffering caused in Leeds has been about twice as great as in Sheffield; unless indeed we have some special reason for believing that the shareholders of the bank in the one town were a richer class than those in the other; or that the loss of employment caused by it pressed in uneven proportions on the working classes in the two towns.
By far the greater number of the events with which economics deals affect in about equal proportions all the different classes of society; so that if the money measures of the happiness caused by two events are equal, it is reasonable and in accordance with common usage to regard the amounts of the happiness in the two cases as equivalent. And, further, as money is likely to be turned to the higher uses of life in about equal proportions, by any two large groups of people taken without special bias from any two parts of the western world, there is even some
primâ facie probability that equal additions to their material resources will make about equal additions to the fullness of life, and the true progress of the human race.
§ 3. To pass to another point. When we speak of the measurement of desire by the action to which it forms the incentive, it is not to be supposed that we assume every action to be deliberate, and the outcome of calculation. For in this, as in every other respect, economics takes man just as he is in ordinary life: and in ordinary life people do not weigh beforehand the results of every action, whether the impulses to it come from their higher nature or their lower
Now the side of life with which economics is specially concerned is that in which man’s conduct is most deliberate, and in which he most often reckons up the advantages and disadvantages of any particular action before he enters on it. And further it is that side of his life in which, when he does follow habit and custom, and proceeds for the moment without calculation, the habits and customs themselves are most nearly sure to have arisen from a close and careful watching the advantages and disadvantages of different courses of conduct. There will not in general have been any formal reckoning up of two sides of a balance-sheet: but men going home from their day’s work, or in their social meetings, will have said to one another, “It did not answer to do this, it would have been better to do that,” and so on. What makes one course answer better than another, will not necessarily be a selfish gain, nor any material gain; and it will often have been argued that “though this or that plan saved a little trouble or a little money, yet it was not fair to others,” and “it made one look mean,” or “it made one feel mean.”
It is true that when a habit or a custom, which has grown up under one set of conditions, influences action under other conditions, there is so far no exact relation between the effort and the end which is attained by it. In backward countries there are still many habits and customs similar to those that lead a beaver in confinement to build himself a dam; they are full of suggestiveness to the historian, and must be reckoned with by the legislator. But in business matters in the modern world such habits quickly die away.
Thus then the most systematic part of people’s lives is generally that by which they earn their living. The work of all those engaged in any one occupation can be carefully observed; general statements can be made about it, and tested by comparison with the results of other observations; and numerical estimates can be framed as to the amount of money or general purchasing power that is required to supply a sufficient motive for them.
The unwillingness to postpone enjoyment, and thus to save for future use, is measured by the interest on accumulated wealth which just affords a sufficient incentive to save for the future. This measurement presents however some special difficulties, the study of which must be postponed.
§ 4. Here, as elsewhere, we must bear in mind that the desire to make money does not itself necessarily proceed from motives of a low order, even when it is to be spent on oneself. Money is a means towards ends, and if the ends are noble, the desire for the means is not ignoble. The lad who works hard and saves all he can, in order to be able to pay his way afterwards at a University, is eager for money; but his eagerness is not ignoble. In short, money is general purchasing power, and is sought as a means to all kinds of ends, high as well as low, spiritual as well as material
Thus though it is true that “money” or “general purchasing power” or “command over material wealth,” is the centre around which economic science clusters; this is so, not because money or material wealth is regarded as the main aim of human effort, nor even as affording the main subject-matter for the study of the economist, but because in this world of ours it is the one convenient means of measuring human motive on a large scale. If the older economists had made this clear, they would have escaped many grievous misrepresentations; and the splendid teachings of Carlyle and Ruskin as to the right aims of human endeavour and the right uses of wealth, would not then have been marred by bitter attacks on economics, based on the mistaken belief that that science had no concern with any motive except the selfish desire for wealth, or even that it inculcated a policy of sordid selfishness
Again, when the motive to a man’s action is spoken of as supplied by the money which he will earn, it is not meant that his mind is closed to all other considerations save those of gain. For even the most purely business relations of life assume honesty and good faith; while many of them take for granted, if not generosity, yet at least the absence of meanness, and the pride which every honest man takes in acquitting himself well. Again, much of the work by which people earn their living is pleasurable in itself; and there is truth in the contention of socialists that more of it might be made so. Indeed even business work, that seems at first sight unattractive, often yields a great pleasure by offering scope for the exercise of men’s faculties, and for their instincts of emulation and of power. For just as a racehorse or an athlete strains every nerve to get in advance of his competitors, and delights in the strain; so a manufacturer or a trader is often stimulated much more by the hope of victory over his rivals than by the desire to add something to his fortune
§ 5. It has indeed always been the practice of economists to take careful account of all the advantages which attract people generally towards an occupation, whether they appear in a money form or not. Other things being equal, people will prefer an occupation in which they do not need to soil their hands, in which they enjoy a good social position, and so on; and since these advantages affect, not indeed every one exactly in the same way, but most people in nearly the same way, their attractive force can be estimated and measured by the money wages to which they are regarded as equivalent.
Again, the desire to earn the approval, to avoid the contempt of those around one is a stimulus to action which often works with some sort of uniformity in any class of persons at a given time and place; though local and temporary conditions influence greatly not only the intensity of the desire for approval, but also the range of persons whose approval is desired. A professional man, for instance, or an artisan will be very sensitive to the approval or disapproval of those in the same occupation, and care little for that of other people; and there are many economic problems, the discussion of which would be altogether unreal, if care were not taken to watch the direction and to estimate pretty closely the force of motives such as these.
As there may be a taint of selfishness in a man’s desire to do what seems likely to benefit his fellow-workers, so there may be an element of personal pride in his desire that his family should prosper during his life and after it. But still the family affections generally are so pure a form of altruism, that their action might have shown little semblance of regularity, had it not been for the uniformity in the family relations themselves. As it is, their action is fairly regular; and it has always been fully reckoned with by economists, especially in relation to the distribution of the family income between its various members, the expenses of preparing children for their future career, and the accumulation of wealth to be enjoyed after the death of him by whom it has been earned.
It is then not the want of will but the want of power, that prevents economists from reckoning in the action of motives such as these; and they welcome the fact that some kinds of philanthropic action can be described in statistical returns, and can to a certain extent be reduced to law, if sufficiently broad averages are taken. For indeed there is scarcely any motive so fitful and irregular, but that some law with regard to it can be detected by the aid of wide and patient observation. It would perhaps be possible even now to predict with tolerable closeness the subscriptions that a population of a hundred thousand Englishmen of average wealth will give to support hospitals and chapels and missions; and, in so far as this can be done, there is a basis for an economic discussion of supply and demand with reference to the services of hospital nurses, missionaries and other religious ministers. It will however probably be always true that the greater part of those actions, which are due to a feeling of duty and love of one’s neighbour, cannot be classed, reduced to law and measured; and it is for this reason, and not because they are not based on self-interest, that the machinery of economics cannot be brought to bear on them.
§ 6. Perhaps the earlier English economists confined their attention too much to the motives of individual action. But in fact economists, like all other students of social science, are concerned with individuals chiefly as members of the social organism. As a cathedral is something more than the stones of which it is made, as a person is something more than a series of thoughts and feelings, so the life of society is something more than the sum of the lives of its individual members. It is true that the action of the whole is made up of that of its constituent parts; and that in most economic problems the best starting-point is to be found in the motives that affect the individual, regarded not indeed as an isolated atom, but as a member of some particular trade or industrial group; but it is also true, as German writers have well urged, that economics has a great and an increasing concern in motives connected with the collective ownership of property, and the collective pursuit of important aims. The growing earnestness of the age, the growing intelligence of the mass of the people, and the growing power of the telegraph, the press, and other means of communication are ever widening the scope of collective action for the public good; and these changes, together with the spread of the co-operative movement, and other kinds of voluntary association are growing up under the influence of various motives besides that of pecuniary gain: they are ever opening to the economist new opportunities of measuring motives whose action it had seemed impossible to reduce to any sort of law.
But in fact the variety of motives, the difficulties of measuring them, and the manner of overcoming those difficulties are among the chief subjects with which we shall be occupied in this treatise. Almost every point touched in the present chapter will need to be discussed in fuller detail with reference to some one or more of the leading problems of economics.
§ 7. To conclude provisionally: economists study the actions of individuals, but study them in relation to social rather than individual life; and therefore concern themselves but little with personal peculiarities of temper and character. They watch carefully the conduct of a whole class of people, sometimes the whole of a nation, sometimes only those living in a certain district, more often those engaged in some particular trade at some time and place: and by the aid of statistics, or in other ways, they ascertain how much money on the average the members of the particular group, they are watching, are just willing to pay as the price of a certain thing which they desire, or how much must be offered to them to induce them to undergo a certain effort or abstinence that they dislike. The measurement of motive thus obtained is not indeed perfectly accurate; for if it were, economics would rank with the most advanced of the physical sciences; and not, as it actually does, with the least advanced.
But yet the measurement is accurate enough to enable experienced persons to forecast fairly well the extent of the results that will follow from changes in which motives of this kind are chiefly concerned. Thus, for instance, they can estimate very closely the payment that will be required to produce an adequate supply of labour of any grade, from the lowest to the highest, for a new trade which it is proposed to start in any place. When they visit a factory of a kind that they have never seen before, they can tell within a shilling or two a week what any particular worker is earning, by merely observing how far his is a skilled occupation and what strain it involves on his physical, mental and moral faculties. And they can predict with tolerable certainty what rise of price will result from a given diminution of the supply of a certain thing, and how that increased price will react on the supply.
And, starting from simple considerations of this kind, economists go on to analyse the causes which govern the local distribution of different kinds of industry, the terms on which people living in distant places exchange their goods with one another, and so on: and they can explain and predict the ways in which fluctuations of credit will affect foreign trade; or again the extent to which the burden of a tax will be shifted from those on whom it is levied, on to those for whose wants they cater; and so on.
In all this they deal with man as he is: not with an abstract or “economic” man; but a man of flesh and blood. They deal with a man who is largely influenced by egoistic motives in his business life to a great extent with reference to them; but who is also neither above vanity and recklessness, nor below delight in doing his work well for its own sake, or in sacrificing himself for the good of his family, his neighbours, or his country; a man who is not below the love of a virtuous life for its own sake. They deal with man as he is: but being concerned chiefly with those aspects of life in which the action of motive is so regular that it can be predicted, and the estimate of the motor-forces can be verified by results, they have established their work on a scientific basis.
For in the first place, they deal with facts which can be observed, and quantities which can be measured and recorded; so that when differences of opinion arise with regard to them, the differences can be brought to the test of public and well-established records; and thus science obtains a solid basis on which to work. In the second place, the problems, which are grouped as economic, because they relate specially to man’s conduct under the influence of motives that are measurable by a money price, are found to make a fairly homogeneous group. Of course they have a great deal of subject-matter in common: that is obvious from the nature of the case. But, though not so obvious
à priori, it will also be found to be true that there is a fundamental unity of form underlying all the chief of them; and that in consequence, by studying them together, the same kind of economy is gained, as by sending a single postman to deliver all the letters in a certain street, instead of each one entrusting his letters to a separate messenger. For the analyses and organized processes of reasoning that are wanted for any one group of them, will be found generally useful for other groups.
The less then we trouble ourselves with scholastic inquiries as to whether a certain consideration comes within the scope of economics, the better. If the matter is important let us take account of it as far as we can. If it is one as to which there exist divergent opinions, such as cannot be brought to the test of exact and well-ascertained knowledge; if it is one on which the general machinery of economic analysis and reasoning cannot get any grip, then let us leave it aside in our purely economic studies. But let us do so simply because the attempt to include it would lessen the certainty and the exactness of our economic knowledge without any commensurate gain; and remembering always that some sort of account of it must be taken by our ethical instincts and our common sense, when they as ultimate arbiters come to apply to practical issues the knowledge obtained and arranged by economics and other sciences.
Prolegomena to Ethics, pp. 165-6.)
It is clearly not the part of economics to appear to take a side in ethical controversy: and since there is a general agreement that all incentives to action, in so far as they are conscious desires at all, may without impropriety be spoken of shortly as desires for “satisfaction,” it may perhaps be well to use this word instead of “pleasure,” when occasion arises for referring to the aims of all desires, whether appertaining to man’s higher or lower nature. The simple antithesis to satisfaction is “dissatisfaction”: but perhaps it may be well to use the shorter and equally colourless word “detriment” in its place.
It may however be noted that some followers of Bentham (though perhaps not Bentham himself) made this large use of “pain and pleasure” serve as a bridge by which to pass from individualistic Hedonism to a complete ethical creed, without recognizing the necessity for the introduction of an independent major premiss; and for such a premiss the necessity would appear to be absolute, although opinions will perhaps always differ as to its form. Some will regard it as the Categorical Imperative; while others will regard it as a simple belief that, whatever be the origin of our moral instincts, their indications are borne out by a verdict of the experience of mankind to the effect that true happiness is not to be had without self-respect, and that self-respect is to be had only on the condition of endeavouring so to live as to promote the progress of the human race.
Some people are of wayward temperament, and could give no good account even to themselves of the motives of their action. But if a man is steadfast and thoughtful, even his impulses are the products of habits which he has adopted more or less deliberately. And, whether these impulses are an expression of his higher nature or not; whether they spring from mandates of his conscience, the pressure of social connection, or the claims of his bodily wants, he yields a certain relative precedence to them without reflection now, because on previous occasions he has decided deliberately to yield that relative precedence. The predominant attractiveness of one course of action over others, even when not the result of calculation at the time, is the product of more or less deliberate decisions made by him before in somewhat similar cases.
The Love of Money. We do indeed hear of people who pursue money for its own sake without caring for what it will purchase, especially at the end of a long life spent in business: but in this as in other cases the habit of doing a thing is kept up after the purpose for which it was originally done has ceased to exist. The possession of wealth gives such people a feeling of power over their fellow-creatures, and insures them a sort of envious respect in which they find a bitter but strong pleasure.