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
EARNINGS OF LABOUR, CONTINUED.
BOOK VI, CHAPTER IV
§ 1. The action of demand and supply with regard to labour was discussed in the last chapter with reference to the difficulties of ascertaining the real as opposed to the nominal price of labour. But some peculiarities in this action remain to be studied, which are of a more vital character. For they affect not merely the form, but also the substance of the action of the forces of demand and supply; and to some extent they limit and hamper the free action of those forces. We shall find that the influence of many of them is not at all to be measured by their first and most obvious effects: and that those effects which are cumulative are generally far more important in the long run than those which are not, however prominent the latter may appear.
The problem has thus much in common with that of tracing the economic influence of custom. For it has already been noticed, and it will become more clear as we go on, that the direct effects of custom in causing a thing to be sold for a price sometimes a little higher and sometimes a little lower than it would otherwise fetch, are not really of very great importance, because any such divergence does not, as a rule, tend to perpetuate and increase itself; but on the contrary, if it becomes considerable, it tends itself to call into action forces that counteract it. Sometimes these forces break down the custom altogether; but more often they evade it by gradual and imperceptible changes in the character of the thing sold, so that the purchaser really gets a new thing at the old price under the old name. These direct effects then are obvious, but they are not cumulative. On the other hand, the indirect effects of custom in hindering the methods of production and the character of producers from developing themselves freely are not obvious; but they generally are cumulative, and therefore exert a deep and controlling influence over the history of the world. If custom checks the progress of one generation, then the next generation starts from a lower level than it otherwise would have done; and any retardation which it suffers itself is accumulated and added to that of its predecessor, and so on from generation to generation
And so it is with regard to the action of demand and supply on the earnings of labour. If at any time it presses hardly on any individuals or class, the direct effects of the evils are obvious. But the sufferings that result are of different kinds: those, the effects of which end with the evil by which they were caused, are not generally to be compared in importance with those that have the indirect effect of lowering the character of the workers or of hindering it from becoming stronger. For these last cause further weakness and further suffering, which again in their turn cause yet further weakness and further suffering, and so on cumulatively. On the other hand, high earnings, and a strong character, lead to greater strength and higher earnings, which again lead to still greater strength and still higher earnings, and so on cumulatively.
§ 2. The first point to which we have to direct our attention is the fact that human agents of production are not bought and sold as machinery and other material agents of production are. The worker sells his work, but he himself remains his own property: those who bear the expenses of rearing and educating him receive but very little of the price that is paid for his services in later years
Whatever deficiencies the modern methods of business may have, they have at least this virtue, that he who bears the expenses of production of material goods, receives the price that is paid for them. He who builds factories or steam-engines or houses, or rears slaves, reaps the benefit of all net services which they render so long as he keeps them for himself; and when he sells them he gets a price which is the estimated net value of their future services; and therefore he extends his outlay until there seems to him no good reason for thinking that the gains resulting from any further investment would compensate him. He must do this prudently and boldly, under the penalty of finding himself worsted in competition with others who follow a broader and more far-sighted policy, and of ultimately disappearing from the ranks of those who direct the course of the world’s business. The action of competition, and the survival in the struggle for existence of those who know best how to extract the greatest benefits for themselves from the environment, tend in the long run to put the building of factories and steam-engines into the hands of those who will be ready and able to incur every expense which will add more than it costs to their value as productive agents. But the investment of capital in the rearing and early training of the workers of England is limited by the resources of parents in the various grades of society, by their power of forecasting the future, and by their willingness to sacrifice themselves for the sake of their children.
This evil is indeed of comparatively small importance with regard to the higher industrial grades. For in those grades most people distinctly realize the future, and “discount it at a low rate of interest.” They exert themselves much to select the best careers for their sons, and the best trainings for those careers; and they are generally willing and able to incur a considerable expense for the purpose. The professional classes especially, while generally eager to save some capital
for their children, are even more on the alert for opportunities of investing it
in them. And whenever there occurs in the upper grades of industry a new opening for which an extra and special education is required, the future gains need not be very high relatively to the present outlay, in order to secure a keen competition for the post.
But in the lower ranks of society the evil is great. For the slender means and education of the parents, and the comparative weakness of their power of distinctly realizing the future, prevent them from investing capital in the education and training of their children with the same free and bold enterprise with which capital is applied to improving the machinery of any well-managed factory. Many of the children of the working-classes are imperfectly fed and clothed; they are housed in a way that promotes neither physical nor moral health; they receive a school education which, though in modern England it may not be very bad so far as it goes, yet goes only a little way; they have few opportunities of getting a broader view of life or an insight into the nature of the higher work of business, of science or of art; they meet hard and exhausting toil early on the way, and for the greater part keep to it all their lives. At least they go to the grave carrying with them undeveloped abilities and faculties; which, if they could have borne full fruit, would have added to the material wealth of the country—to say nothing of higher considerations—many times as much as would have covered the expense of providing adequate opportunities for their development.
But the point on which we have specially to insist now is that this evil is cumulative. The worse fed are the children of one generation, the less will they earn when they grow up, and the less will be their power of providing adequately for the material wants of their children; and so on to following generations. And again, the less fully their own faculties are developed, the less will they realize the importance of developing the best faculties of their children, and the less will be their power of doing so. And conversely any change that awards to the workers of one generation better earnings, together with better opportunities of developing their best qualities, will increase the material and moral advantages which they have the power to offer to their children: while by increasing their own intelligence, wisdom and forethought, such a change will also to some extent increase their willingness to sacrifice their own pleasures for the wellbeing of their children; though there is much of that willingness now even among the poorest classes, so far as their means and the limits of their knowledge will allow.
§ 3. The advantages which those born in one of the higher grades of society have over those born in a lower, consist in a great measure of the better introductions and the better start in life which they receive from their parents; and the importance of this good start in life is nowhere seen more clearly than in a comparison of the fortunes of the sons of artisans and of unskilled labourers. There are not many skilled trades to which the son of an unskilled labourer can get easy access; and in the large majority of cases the son follows the father’s calling. In the old-fashioned domestic industries this was almost a universal rule; and, even under modern conditions, the father has often great facilities for introducing his son to his own trade. Employers and their foremen generally give to a lad whose father they already know and trust, a preference over one for whom they would have to incur the entire responsibility. And in many trades a lad, even after he has got entrance to the works, is not very likely to make good progress and obtain a secure footing, unless he is able to work by the side of his father, or some friend of his father’s, who will take the trouble to teach him and to let him do work that requires careful supervision, but has an educational value.
And the son of the artisan has further advantages. He generally lives in a better and cleaner house, and under material surroundings that are more consistent with refinement than those with which the ordinary labourer is familiar. His parents are likely to be better educated, and to have a higher notion of their duties to their children; and, last but not least, his mother is likely to be able to give more of her time to the care of her family.
If we compare one country of the civilized world with another, or one part of England with another, or one trade in England with another, we find that the degradation of the working-classes varies almost uniformly with the amount of rough work done by women. The most valuable of all capital is that invested in human beings; and of that capital the most precious part is the result of the care and influence of the mother, so long as she retains her tender and unselfish instincts, and has not been hardened by the strain and stress of unfeminine work.
This draws our attention to another aspect of the principle already noticed, that in estimating the cost of production of efficient labour, we must often take as our unit the family. At all events we cannot treat the cost of production of efficient men as an isolated problem; it must be taken as part of the broader problem of the cost of production of efficient men together with the women who are fitted to make their homes happy, and to bring up their children vigorous in body and mind, truthful and cleanly, gentle and brave
§ 4. As the youth grows up, the influence of his parents and his schoolmaster declines; and thenceforward to the end of his life his character is moulded chiefly by the nature of his work and the influence of those with whom he associates for business, for pleasure and for religious worship.
A good deal has already been said of the technical training of adults, of the decadence of the old apprenticeship system, and of the difficulty of finding anything to take its place. Here again we meet the difficulty that whoever may incur the expense of investing capital in developing the abilities of the workman, those abilities will be the property of the workman himself: and thus the virtue of those who have aided him must remain for the greater part its own reward.
It is true that high-paid labour is really cheap to those employers who are aiming at leading the race, and whose ambition it is to turn out the best work by the most advanced methods. They are likely to give their men high wages and to train them carefully; partly because it pays them to do so, and partly because the character that fits them to take the lead in the arts of production is likely also to make them take a generous interest in the wellbeing of those who work for them. But though the number of such employers is increasing, they are still comparatively few. And even they cannot always afford to carry the investment of capital in the training of their men as far as they would have done, if the results of the investment accrued to them in the same way as the results of any improvements they might make in their machinery. Even they are sometimes checked by the reflection that they are in a similar position to that of a farmer who, with an uncertain tenure and no security of compensation for his improvements, is sinking capital in raising the value of his landlord’s property.
Again, in paying his workpeople high wages and in caring for their happiness and culture, the liberal employer confers benefits which do not end with his own generation. For the children of his workpeople share in them, and grow up stronger in body and in character than otherwise they would have done. The price which he has paid for labour will have borne the expenses of production of an increased supply of high industrial faculties in the next generation: but these faculties will be the property of others, who will have the right to hire them out for the best price they will fetch: neither he nor even his heirs can reckon on reaping much material reward for this part of the good that he has done.
§ 5. The next of those characteristics of the action of demand and supply peculiar to labour, which we have to study, lies in the fact that when a person sells his services, he has to present himself where they are delivered. It matters nothing to the seller of bricks whether they are to be used in building a palace or a sewer: but it matters a great deal to the seller of labour, who undertakes to perform a task of given difficulty, whether or not the place in which it is to be done is a wholesome and a pleasant one, and whether or not his associates will be such as he cares to have. In those yearly hirings which still remain in some parts of England, the labourer inquires what sort of a temper his new employer has, quite as carefully as what rate of wages he pays.
This peculiarity of labour is of great importance in many individual cases, but it does not often exert a broad and deep influence of the same nature as that last discussed. The more disagreeable the incidents of an occupation, the higher of course are the wages required to attract people into it: but whether these incidents do lasting and widespreading harm depends on whether they are such as to undermine men’s physical health and strength or to lower their character. When they are not of this sort, they are indeed evils in themselves, but they do not generally cause other evils beyond themselves; their effects are seldom cumulative.
Since however no one can deliver his labour in a market in which he is not himself present, it follows that the mobility of labour and the mobility of the labourer are convertible terms: and the unwillingness to quit home, and to leave old associations, including perhaps some loved cottage and burial-ground, will often turn the scale against a proposal to seek better wages in a new place. And when the different members of a family are engaged in different trades, and a migration, which would be advantageous to one member would be injurious to others, the inseparability of the worker from his work considerably hinders the adjustment of the supply of labour to the demand for it. But of this more hereafter.
§ 6. Again, labour is often sold under special disadvantages, arising from the closely connected group of facts that labour power is “perishable,” that the sellers of it are commonly poor and have no reserve fund, and that they cannot easily withhold it from the market.
Perishableness is an attribute common to the labour of all grades: the time lost when a worker is thrown out of employment cannot be recovered, though in some cases his energies may be refreshed by rest
*51. It must however be remembered that much of the working power of material agents of production is perishable in the same sense; for a great part of the income, which they also are prevented from earning by being thrown out of work, is completely lost. There is indeed some saving of wear-and-tear on a factory, or a steam-ship, when it is lying idle: but this is often small compared with the income which its owners have to forego: they get no compensation for their loss of interest on the capital invested, or for the depreciation which it undergoes from the action of the elements or from its tendency to be rendered obsolete by new inventions.
Again, many vendible commodities are perishable. In the strike of dock labourers in London in 1889, the perishableness of the fruit, meat, etc. on many of the ships told strongly on the side of the strikers.
The want of reserve funds and of the power of long withholding their labour from the market is common to nearly all grades of those whose work is chiefly with their hands. But it is especially true of unskilled labourers, partly because their wages leave very little margin for saving, partly because when any group of them suspends work, there are large numbers who are capable of filling their places. And, as we shall see presently when we come to discuss trade combinations, it is more difficult for them than for skilled artisans to form themselves into strong and lasting combinations; and so to put themselves on something like terms of equality in bargaining with their employers. For it must be remembered that a man who employs a thousand others, is in himself an absolutely rigid combination to the extent of one thousand units among buyers in the labour market.
But these statements do not apply to all kinds of labour. Domestic servants though they have not large reserve funds, and seldom any formal trades-union, are sometimes better able than their employers to act in concert. The total real wages of domestic servants of fashionable London are very high in comparison with other skilled trades in which equal skill and ability are required. But on the other hand those domestic servants who have no specialized skill, and who hire themselves to persons with very narrow means, have not been able to make even tolerably good terms for themselves: they work very hard for very low wages.
Turning next to the highest grades of industry, we find that as a rule they have the advantage in bargaining over the purchaser of their labour. Many of the professional classes are richer, have larger reserve funds, more knowledge and resolution, and much greater power of concerted action with regard to the terms on which they sell their services, than the greater number of their clients and customers.
If further evidence were wanted that the disadvantages of bargaining under which the vendor of labour commonly suffers, depend on his own circumstances and qualities, and not on the fact that the particular thing which he has to sell is labour; such evidence could be found by comparing the successful barrister or solicitor or physician, or opera singer or jockey with the poorer independent producers of vendible goods. Those, for instance, who in remote places collect shell-fish to be sold in the large central markets, have little reserve funds and little knowledge of the world, and of what other producers are doing in other parts of the country: while those to whom they sell, are a small and compact body of wholesale dealers with wide knowledge and large reserve funds; and in consequence the sellers are at a great disadvantage in bargaining. And much the same is true of the women and children who sell hand-made lace, and of the garret masters of East London who sell furniture to large and powerful dealers.
It is however certain that manual labourers as a class are at a disadvantage in bargaining; and that the disadvantage wherever it exists is likely to be cumulative in its effects. For though, so long as there is any competition among employers at all, they are likely to bid for labour something not very much less than its real value to them, that is, something not very much less than the highest price they would pay rather than go on without it; yet anything that lowers wages tends to lower the efficiency of the labourer’s work, and therefore to lower the price which the employer would rather pay than go without that work. The effects of the labourer’s disadvantage in bargaining are therefore cumulative in two ways. It lowers his wages; and as we have seen, this lowers his efficiency as a worker, and thereby lowers the normal value of his labour. And in addition it diminishes his efficiency as a bargainer, and thus increases the chance that he will sell his labour for less than its normal value
Essai, Part I. chap. XI., and again by Adam Smith,
Wealth of Nations, Book I. ch. VIII.: and in more recent times by Dr Engel, in his brilliant Essay
Der Preis der Arbeit, and by Dr Farr and others. Many estimates have been made of the addition to the wealth of a country caused by the arrival of an immigrant whose cost of rearing in his early years was defrayed elsewhere, and who is likely to produce more than he consumes in the country of his adoption. The estimates have been made on many plans, all of them rough, and some apparently faulty in principle: but most of them find the average value of an immigrant to be about £200. It would seem that, if we might neglect provisionally the difference between the sexes, we should calculate the value of the immigrant on the lines of the argument of V. IV. 2. That is, we should “discount” the probable value of all the future services that he would render; add them together, and deduct from them the sum of the “discounted” values of all the wealth and direct services of other persons that he would consume: and it may be noted that in thus calculating each element of production and consumption at its probable value, we have incidentally allowed for the chances of his premature death and sickness, as well as of his failure or success in life. Or again we might estimate his value at the money cost of production which his native country had incurred for him; which would in like manner be found by adding together the “accumulated” values of all the several elements of his past consumption and deducting from them the sum of the “accumulated” values of all the several elements of his past production.
So far we have taken no account of the difference between the sexes. But it is clear that the above plans put the value of the male immigrants too high and that of the female too low: unless allowance is made for the service which women render as mothers, as wives and as sisters, and the male immigrants are charged with having consumed these services, while the female immigrants are credited with having supplied them. (See Mathematical Note XXIV.)
Many writers assume, implicitly at least, that the net production of an average individual and the consumption during the whole of his life are equal; or, in other words, that he would neither add to nor take from the material well-being of a country, in which he stayed all his life. On this assumption the above two plans of estimating his value would be convertible; and then of course we should make our calculations by the latter and easier method. We may, for instance, guess that the total amount spent on bringing up an average child of the lower half of the labouring classes, say two-fifths of the population, is £100; for the next fifth we may put the sum at £175; for the next fifth at £300; for the next tenth at £500, and the remaining tenth at £1200: or an average of £300. But of course some of the population are very young and have had but little spent on them; others have got nearly to their life’s end; and therefore, on these assumptions, the average value of an individual is perhaps £200.
Conflicts of Capital and Labour.