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
USES OF ABSTRACT REASONING IN ECONOMICS.
§ 1. Induction, aided by analysis and deduction, brings together appropriate classes of facts, arranges them, analyses them and infers from them general statements or laws. Then for a while deduction plays the chief
rôle: it brings some of these generalizations into association with one another, works from them tentatively to new and broader generalizations or laws and then calls on induction again to do the main share of the work in collecting, sifting and arranging these facts so as to test and “verify” the new law.
It is obvious that there is no room in economics for long trains of deductive reasoning: no economist, not even Ricardo, attempted them. It may indeed appear at first sight that the contrary is suggested by the frequent use of mathematical formulæ in economic studies. But on investigation it will be found that this suggestion is illusory, except perhaps when a pure mathematician uses economic hypotheses for the purpose of mathematical diversions; for then his concern is to show the potentialities of mathematical methods on the supposition that material appropriate to their use had been supplied by economic study. He takes no technical responsibility for the material, and is often unaware how inadequate the material is to bear the strains of his powerful machinery. But a training in mathematics is helpful by giving command over a marvellously terse and exact language for expressing clearly some general relations and some short processes of economic reasoning; which can indeed be expressed in ordinary language, but not with equal sharpness of outline. And, what is of far greater importance, experience in handling physical problems by mathematical methods gives a grasp, that cannot be obtained equally well in any other way, of the mutual interaction of economic changes. The direct application of mathematical reasoning to the discovery of economic truths has recently rendered great services in the hands of master mathematicians to the study of statistical averages and probabilities and in measuring the degree of consilience between correlated statistical tables.
§ 2. If we shut our eyes to realities we may construct an edifice of pure crystal by imaginations, that will throw side lights on real problems; and might conceivably be of interest to beings who had no economic problems at all like our own. Such playful excursions are often suggestive in unexpected ways: they afford good training to the mind: and seem to be productive only of good, so long as their purpose is clearly understood.
For instance, the statement that the dominant position which money holds in economics, results rather from its being a measure of motive than an aim of endeavour, may be illustrated by the reflection that the almost exclusive use of money as a measure of motive is, so to speak, an accident, and perhaps an accident that is not found in other worlds than ours. When we want to induce a man to do anything for us we generally offer him money. It is true that we might appeal to his generosity or sense of duty; but this would be calling into action latent motives that are already in existence, rather than supplying new motives. If we have to supply a new motive we generally consider how much money will just make it worth his while to do it. Sometimes indeed the gratitude, or esteem, or honour which is held out as an inducement to the action may appear as a new motive: particularly if it can be crystallized in some definite outward manifestation; as for instance in the right to make use of the letters C.B., or to wear a star or a garter. Such distinctions are comparatively rare and connected with but few transactions; and they would not serve as a measure of the ordinary motives that govern men in the acts of every-day life. But political services are more frequently rewarded by such honours than in any other way: so we have got into the habit of measuring them not in money but in honours. We say, for instance, that
A‘s exertions for the benefit of his party or of the State, as the case may be, were fairly paid for by knighthood; while knighthood was but shabby pay for
B, he had earned a baronetcy.
It is quite possible that there may be worlds in which no one ever heard of private property in material things, or wealth as it is generally understood; but public honours are meted out by graduated tables as rewards for every action that is done for others’ good. If these honours can be transferred from one to another without the intervention of any external authority they may serve to measure the strength of motives just as conveniently and exactly as money does with us. In such a world there may be a treatise on economic theory very similar to the present, even though there be little mention in it of material things, and no mention at all of money.
It may seem almost trivial to insist on this, but it is not so. For a misleading association has grown up in people’s minds between that measurement of motives which is prominent in economic science, and an exclusive regard for material wealth to the neglect of other and higher objects of desire. The only conditions required in a measure for economic purposes are that it should be something definite and transferable. Its taking a material form is practically convenient, but is not essential.
§ 3. The pursuit of abstractions is a good thing, when confined to its proper place. But the breadth of those strains of human character with which economics is concerned has been underrated by some writers on economics in England and other countries; and German economists have done good service by emphasizing it. They seem however to be mistaken in supposing that it was overlooked by the founders of British economics. It is a British habit to leave much to be supplied by the common sense of the reader; in this case reticence has been carried too far, and has led to frequent misunderstanding at home as well as abroad. It has led people to suppose the foundations of economics to be narrower and less closely in touch with the actual conditions of life than they really are.
Thus prominence has been given to Mill’s statement, that “Political Economy considers man as occupied solely in acquiring and consuming wealth” (
Essays, p. 138, and again,
Logic, Bk. VI. ch. IX. § 3). But it is forgotten that he is there referring to an abstract treatment of economic questions, which he once indeed contemplated; but which he never executed, preferring to write on “Political Economy, with some of its applications to Social Philosophy.” It is forgotten also that he goes on to say, “There is, perhaps, no action of a man’s life in which he is neither under the immediate nor under the remote influence of any impulse but the mere desire of wealth”; and it is forgotten that his treatment of economic questions took constant account of many motives besides the desire for wealth (see above, Appendix B, 7). His discussions of economic motives are, however, inferior both in substance and in method to those of his German contemporaries, and notably Hermann. An instructive argument that non-purchasable, non-measurable pleasures vary at different times and tend to increase with the progress of civilization is to be found in Knies’
Politische Œkonomie, III. 3; and the English reader may be referred to Syme’s
Outlines of an Industrial Science.
It may be well to give here the chief heads of the analysis of economic motives (
Motive im wirthschaftlichen Handeln) in the third edition of Wagner’s monumental treatise. He divides them into Egoistic and Altruistic. The former are four in number. The first and least intermittent in its action is the striving for one’s own economic advantage, and the fear of one’s own economic need. Next comes the fear of punishment, and the hope of reward. The third group consists of the feeling of honour, and the striving for recognition (
Geltungsstreben), including the desire for the moral approbation of others, and the fear of shame and contempt. And the last of the egoistic motives is the craving for occupation, the pleasure of activity; and the pleasure of the work itself and its surroundings, including the “pleasures of the chase.” The altruistic motive is “the impelling force” (
Trieb) of the inward command to moral action, the pressure of the feeling of duty, and the fear of one’s own inward blame, that is, of the gnawings of conscience. In its pure form this motive appears as the ‘Categorical Imperative,’ which one follows because one feels in one’s soul the command to act in this or that manner, and feels the command to be right…. The following of the command is no doubt regularly bound up with feelings of pleasure (
Lustgefühle), and the not following it with feelings of pain. Now it may be, and often is, that these feelings act as strongly as the Categorical Imperative, or even more strongly, in driving us, or in taking part in driving us on to do or to leave undone. And in so far as this is the case this motive also has in it an egoistic element, or at least itself merges into one.”