 Appendix B. of Principles of Economics. Principles of Economics by Alfred Marshall. Appendix B. The Growth of Economic Science. Section 1. We have seen how economic freedom has its roots in the past, but is in the main a product of quite recent times. We have next to trace the parallel growth of economic science. The social conditions of the present day have been developed from early Aryan and Semitic institutions by aid of Greek thought and Roman law. But modern economic speculations have been very little under the direct influence of the theories of the ancients. It is true that modern economics had its origin in common with other sciences at the time when the study of classic writers was reviving. But an industrial system which was based on slavery and a philosophy which regarded manufacture and commerce with contempt had little that was congenial to the Hardy Burgers who were as proud of their handicrafts and their trade as they were of their share in governing the state. These strong but uncultured men might have gained much from philosophic temper and the broad interests of the great thinkers of past times. But as it was, they set themselves to work out their own problems for themselves. And modern economics had at its origin a certain rudeness and limitation of scope and a bias towards regarding wealth as an end rather than a means of man's life. Its immediate concern was generally with the public revenue and the effects and yield of taxes. And here the statesmen of the free cities and the great empires alike found their economic problems more urgent and more difficult as trade became broader and war more expensive. In all ages, but especially in the early Middle Ages, statesmen and merchants had busied themselves with endeavors to enrich the state by regulating trade. One chief object of their concern had been the supply of the precious metals which they thought the best indication if not the chief cause of material prosperity whether of the individual or the nation. But the voyages of Basque de Gama and Columbus raised commercial questions from a secondary to a dominating position among the nations of Western Europe. Theories with regard to the importance of the precious metals and the best means of obtaining supplies of them became in some measure the arbiters of public policy, dictating peace and war and determining alliances that issued in the rise and fall of nations. And at times, they largely influenced the migration of peoples over the face of the globe. Regulations as to trade in the precious metals were but one group of a vast body of ordinances which undertook with varying degrees of minuteness and severity to arrange for each individual what he should produce and how he should produce it, what he should earn and how he should spend his earnings. The natural adhesiveness of the Teutons had given custom an exceptional strength in the early Middle Ages. And this strength told on the side of trade guilds, of local authorities and of national governments when they set themselves to cope with the restless tendency to change that sprang directly or indirectly from the trade with the New World. In France, this Teutonic bias was directed by the Roman genius for system and paternal government reached its zenith. The trade regulations of Colbert have become a proverb. It was just at this time that economic theory first took shape. The so-called mercantile system became prominent and regulation was pursued with a masterful rigor that had not been known before. As years went on, there set in a tendency towards economic freedom and those who were opposed to the new ideas claimed on their side the authority of the mercantilists of a past generation. But the spirit of regulation and restriction which is found in their systems belonged to the age. Many of the changes which they set themselves to bring about were in the direction of the freedom of enterprise. In particular they argued, in opposition to those who wished to prohibit absolutely the exportation of the precious metals, that it should be permitted in all cases in which the trade would in the long run bring more gold and silver into the country than it took out. By thus raising the question whether the state would not benefit by allowing the trader to manage his business as he liked in one particular case, they had started a new tendency of thought and this moved on by imperceptible steps in the direction of economic freedom being assisted on its way by the circumstances of the time no less than by the tone and temper of men's minds in Western Europe. The broadening movement did go on till in the later half of the 18th century the time was ripe for the doctrine that the well-being of the community almost always suffers when the state attempts to oppose its own artificial regulations to the natural liberty of every man to manage his own affairs in his own way. Section 2 The first systematic attempt to form an economic science on a broad basis was made in France about the middle of the 18th century by a group of statesmen and philosophers under the leadership of Kinay, the noble-minded physician to Louis XV. The cornerstone of their policy was obedience to nature. They were the first to proclaim the doctrine of free trade as a broad principle of action, going in this respect beyond even such advanced English writers as Sir Dudley North and there was much in the tone and temper of their treatment of political and social questions which was prophetic of a later age. They fell, however, into a confusion of thought which was common even among scientific men of their time but which has been banished after a long struggle from the physical sciences. They confused the ethical principle of conformity to nature which is expressed in the imperative mood and prescribes certain laws of action with those causal laws which science discovers by interrogating nature and which are expressed in the indicative mood. For this and other reasons their work has but little direct value. But its indirect influence on the present position of economics has been very great for firstly the clearness and logical consistency of their arguments have caused them to exercise a great influence on later thought and secondly the chief motive of their study was not as it had been with most of their predecessors to increase the riches of merchants and fill the exchequers of kings it was to diminish the suffering and degradation which was caused by extreme poverty. They thus gave to economics its modern aim of seeking after such knowledge as may help to raise the quality of human life. Section 3 The next great step in advance the greatest step that economics has ever taken was the work, not of a school but of an individual. Adam Smith was not indeed the only great English economist of his time. Shortly before he wrote important additions to economic theory had been made by Hume and Stewart and excellent studies of economic facts had been published by Anderson and Young. But Adam Smith's breath was sufficient to include all that was best in all his contemporaries French and English and though he undoubtedly borrowed much from others yet the more one compares him with those who went before and those who came after him the finer does his genius appear the broader his knowledge and the more well balanced his judgment. He resided a long time in France in personal converse with the physiocrats. He made a careful study of the English and French philosophy of his time and he got to know the world practically by wide travel and by intimate association with scotch men of business. To these advantages he added unsurpassed powers of observation, judgment and reasoning. The result is that wherever he differs from his predecessors he is more nearly right than they. While there is scarcely any economic truth now known of which he did not get some glimpse and since he was the first to write a treatise on wealth in all its chief social respects he might on this ground alone have a claim to be regarded as the founder of modern economics. But the area which he opened up was too vast to be thoroughly surveyed by one man and many truths of which at times he caught sight escaped from his view at other times. It is therefore possible to quote his authority in support of many errors though on examination he is always found to be working his way towards the truth. He developed the physiocratic doctrine of free trade with so much practical wisdom and with so much knowledge of the actual conditions of business as to make it a great force in real life and he is most widely known both here and abroad for his arguments that government generally does harm by interfering in trade. While giving many instances of the ways in which self-interest may lead the individual trader to act injuriously to the community he contended that even when government acted with the best intentions it nearly always served the public worse than the enterprise of the individual trader however selfish he might happen to be. So great an impression did he make on the world by his defense of this doctrine that most German writers have it chiefly in view when they speak of Smithianismus. But after all this was not his chief work. His chief work was to combine and develop the speculations of his French and English contemporaries and predecessors as to value. His highest claim to have made an epic in thought is that he was the first to make a careful and scientific inquiry into the manner in which value measures human motive on the one side measuring the desire of purchasers to obtain wealth and on the other the efforts and sacrifices or real cost of production undergone by its producers. Possibly the full drift of what he was doing was not seen by him certainly it was not perceived by many of his followers but for all that the best economic work which came after the wealth of nations is distinguished from that which went before by a clearer insight into the balancing and weighing by means of money of the desire for the possession of a thing on the one hand and on the other of all the various efforts and self-denials which directly and indirectly contribute towards making it. Important as had been the steps that others had taken in this direction the advance made by him was so great that he really opened out this new point of view and by so doing made an epic. In this he and the economists who went before and came after him were not inventing a new academic notion. They were merely giving definiteness and precision to notions that are familiar in common life. In fact the ordinary man without analytical habits of mind is apt to regard money as measuring motive and happiness more closely and exactly than it actually does and this is partly because he does not think out the manner in which the measurement is affected. Economic language seems technical and less real than that of common life but in truth it is more real because it is more careful and takes more account of differences and difficulties. Section 4 None of Adam Smith's contemporaries and immediate successors had a mind as broad and well balanced as his but they did excellent work each giving himself up to some class of problems to which he was attracted by the natural bent of his genius or the special events of the time in which he wrote. During the remainder of the 18th century the chief economic writings were historical and descriptive and bore upon the condition of the working classes especially in the agricultural districts. Arthur Young continued the inimitable records of his tour. Eden wrote a history of the poor which has served both as a basis and as a model for all succeeding historians of industry while Mathis showed by a careful investigation of history what were the forces which had as a matter of fact controlled the growth of population in different countries and at different times. But on the whole the most influential of the immediate successors of Adam Smith was Bentham. He wrote little on economics himself but he went far towards setting the tone of the rising school of English economists at the beginning of the 19th century. He was an uncompromising logician and averse to all restrictions and regulations for which no clear reason could be given and his pityless demands that they should justify their existence received support from the circumstances of the age. England had won her unique position in the world by her quickness in adapting herself to every new economic movement. While by their adherence to old-fashioned ways the nations of Central Europe had been prevented from turning to account their great natural resources. The businessmen of England therefore were inclined to think that the influence of custom and sentiment in business affairs was harmful that in England at least it had diminished was diminishing and would soon vanish away. And the disciples of Bentham were not slow to conclude that they need not concern themselves much about custom. It was enough for them to discuss the tendencies of man's action on the supposition that everyone was always on the alert to find out what course would best promote his own interest and was free and quick to follow it. There is then some justice in the charges frequently brought against the English economists of the beginning of the last century that they neglected to inquire with sufficient care whether a greater range might not be given to collective as opposed to individual action in social and economic affairs and that they exaggerated the strength of competition and its rapidity of action. And there is some ground, though a very slight one, for the charge that their work is marred by a certain hardness of outline and even harshness of temper. These faults were partly due to Bentham's direct influence, partly to the spirit of the age of which he was an exponent. But they were partly also due to the fact that economic study had again got a good deal into the hands of men whose strength lay in vigorous action rather than in philosophical thought. Section 5. Statesmen and merchants again threw themselves into problems of money and foreign trade with even more energy than they used to do when these questions were first started in the earlier period of the economic change at the end of the Middle Ages. It might at first seem probable that their contact with real life, their wide experience and their vast knowledge of facts would have led them to take a wide survey of human nature and to found their reasonings on a broad basis. But the training of practical life often leads to a too rapid generalization from personal experience. So long as they were well within their own province, their work was excellent. The theory of currency is just that part of economic science in which but little harm is done by neglecting to take much account of any human motives except the desire for wealth and the brilliant school of deductive reasoning which Ricardo led was here on safe ground. The economists next addressed themselves to the theory of foreign trade and cleared away many of the flaws which Adam Smith had left in it. There is no other part of economics except the theory of money which so nearly falls within the range of pure deductive reasoning. It is true that a full discussion of a free trade policy must take account of many considerations that are not strictly economic. But most of these, though important for agricultural countries and especially for new countries, had little bearing in the case of England. During all this time the study of economic facts was not neglected in England. The statistical studies of Petty, Arthur Young, Eden and others were ably continued by Tuke, McCullough and Porter. And though it may be true that an undue prominence is given in their writings to those facts which were of direct interest to merchants and other capitalists, the same cannot be said of the admirable series of parliamentary inquiries into the condition of the working classes which were brought about by the influence of the economists. In fact, the public and private collection of statistics and the economic histories that were produced in England at the end of the 18th century and the beginning of the 19th may fairly be regarded as the origin of systematic historical and statistical studies in economics. Nevertheless, there was a certain narrowness in their work. It was truly historical, but for the greater part it was not comparative. Hume, Adam Smith, Arthur Young and others had been led by their own instinctive genius and the example of Montesquieu occasionally to compare social facts of different ages in different countries and to draw lessons from the comparison. But no one had grasped the notion of comparative study of history on a systematic plan. In consequence, the writers of that time, Abel and Ernest, as they were in their search for the actual facts of life, worked rather at haphazard. They overlooked whole groups of facts which we now see to be of vital importance and they often failed to make the best use of those which they collected. And this narrowness was intensified when they passed from the collection of facts to general reasonings about them. Section 6 For the sake of simplicity of argument, Ricardo and his followers often spoke as though they regarded man as a constant quantity and they never gave themselves enough trouble to study his variations. The people whom they knew most intimately were citymen and they sometimes expressed themselves so carelessly as almost to imply that other Englishmen were very much like those whom they knew in the city. They were aware that the inhabitants of other countries had peculiarities of their own that deserve study, but they seemed to regard such differences as superficial and sure to be removed as soon as other nations had got to know that better way which Englishmen were ready to teach them. The same bent of mind that led our lawyers to impose English civil law on the Hindus led our economists to work out their theories on the tacit supposition that the world was made up of citymen. And though this did little harm so long as they were treating of money and foreign trade it led them astray as to the relations between the different industrial classes. It caused them to speak of labor as a commodity without staying to throw themselves into the point of view of the workmen and without dwelling upon the allowances to be made for his human passions his instincts and habits, his sympathies and antipathies his class jealousies and class adhesiveness his want of knowledge and of the opportunities for free and vigorous action. They therefore attributed to the forces of supply and demand a much more mechanical and regular action than is to be found in real life and they laid down laws with regard to profits and wages that did not really hold even for England in their own time. But their most vital fault was that they did not see how liable to change are the habits and institutions of industry. In particular, they did not see that the poverty of the poor is the chief cause of that weakness and inefficiency which are the causes of their poverty. They had not the faith that modern economists have and the possibility of a vast improvement in the condition of the working classes. The perfect ability of man had indeed been asserted by the socialists but their views were based on little historic and scientific study and were expressed with an extravagance that moved the contempt of the business-like economists of the age. The socialists did not study the doctrines which they attacked and there was no difficulty in showing that they had not understood the nature and efficiency of the existing economic organization of society. The economists therefore did not trouble themselves to examine carefully any of their doctrines and least of all their speculations as to human nature. But the socialists were men who had felt intensely and who knew something about the hidden springs of human action of which the economists took no account. Buried among their wild rhapsodies there were shrewd observations and pregnant suggestions from which philosophers and economists had much to learn and gradually their influence began to tell. Kant's debts to them were very great and the crisis of John Stuart Mill's life as he tells us in his autobiography came to him from reading them. Section 7 When comparing the modern view of the vital problem of the distribution of wealth with that which prevailed at the beginning of the last century we have found that over and above all changes in detail and all improvements in scientific accuracy of reasoning there is a fundamental change in treatment. For while the earlier economists argued as though man's character and efficiency were to be regarded as a fixed quantity modern economists keep constantly in mind the fact that it is a product of the circumstances under which he has lived. This change in the point of view of economics is partly due to the fact that the changes in human nature during the last 50 years have been so rapid as to force themselves on the attention partly to the direct influence of individual writers, socialists and others and partly to the indirect influence of a similar change in some branches of natural science. At the beginning of the last century the mathematical physical group of sciences were in the ascendant and these sciences widely as they differ from one another have this point in common that their subject matter is constant and unchanged in all countries and in all ages. The progress of science was familiar to men's minds but the development of the subject matter of science was strange to them. As the century wore on the biological group of sciences were slowly making way and people were getting clearer ideas as to the nature of organic growth. They were learning that if the subject matter of a science passes through different stages of development the laws which apply to one stage will seldom apply without modification to others. The laws of science must have a development corresponding to that of the things of which they treat. The influence of this new notion gradually spread to the sciences which relate to man and showed itself in the works of Goethe, Hegel, Kant and others. At last the speculations of biology made a great stride forwards. Its discoveries fascinated the attention of the world as those of physics had done in earlier years and there was a marked change in the tone of the moral and historical sciences. Economics has shared in the general movement and is getting to pay every year a greater attention to the pliability of human nature and to the way in which the character of man affects and is affected by the prevalent methods of the production, distribution and consumption of wealth. The first important indication of the new movement was seen in John Stuart Mills admirable principles of political economy. Mills' followers have continued his movement away from the position taken up by the immediate followers of Ricardo and the human as distinguished from the mechanical element is taking a more and more prominent place in economics. Not to mention writers yet living. The new temper is shown in Cliff Leslie's historical inquiries and in the many-sided works of Badget, Cairns, Toinby and others. But above all in that of Jevons which has secured a permanent and notable place in economic history by its rare combination of many various qualities of the highest order. A higher notion of social duty is spreading everywhere. In Parliament, in the press and in the pulpit the spirit of humanity speaks more distinctly and more earnestly. Mills and the economists who have followed him have helped onwards this general movement and they in their turn have been helped onwards by it. Partly for this reason, partly in consequence of the modern growth of historical science their study of facts has been broader and more philosophic. It is true that the historical and statistical work of some of the earlier economists has seldom if ever been surpassed. But much information which was beyond their reach is now accessible to everyone. An economist who have neither McCulloch's familiarity with practical business nor his vast historical learning are enabled to get a view of the relations of economic doctrine to the true facts of life which is both broader and clearer than his. In this they have been helped by the general improvement which has taken place in the methods of all sciences including that of history. Thus in every way economic reasoning is now more exact than it was. The premises assumed in any inquiry are stated with more rigid precision than formally. But this greater exactness of thought is partly destructive in its action. It is showing that many of the older applications of general reasoning were invalid because no care had been taken to think out all the assumptions that were implied and to see whether they could fairly be made in the special cases under discussion. As a result many dogmas have been destroyed which appeared to be simple only because they were loosely expressed but which for that very reason served as an armory with which partisan disputants chiefly of the capitalist class have equipped themselves for the fray. This destructive work might appear at first sight to have diminished the value of processes of general reasoning and economics but really it has had the opposite result. It has cleared the ground for newer and stronger machinery which is being steadily and patiently built up. It has enabled us to take broader views of life to proceed more surely though more slowly to be more scientific and much less dogmatic than those good and great men who bore the first fronts of the battle with the difficulties of economic problems and to whose pioneering work we owe our own more easy course. The change may perhaps be regarded as a passing onward from that early stage in the development of scientific method in which the operations of nature are represented as conventionally simplified for the purpose of enabling them to be described in short and easy sentences to that higher stage in which they are studied more carefully and represented more nearly as they are even at the expense of some loss of simplicity and definiteness and even apparent lucidity. And in consequence general reasoning and economics has made more rapid progress and established a firmer position in this generation in which it is subject to hostile criticism at every step than it was when at the height of its popularity and its authority was seldom challenged. So far we have looked at recent progress from the point of view of England only but progress in England has been only one side of a broader movement which has extended over the whole Western world. Section 8 English economists have had many followers and many critics in foreign countries. The French school has had a continuous development from its own great thinkers in the 18th century and has avoided many errors and confusions particularly with regard to wages which have been common among the second rank of English economists. From the time of say downwards it has done a great deal of useful work. In Cournot it has had a constructive thinker of the highest genius while Fourier, San-Simon, Proudhon and Louis Blanc have made many of the most valuable as well as many of the wildest suggestions of socialism. The greatest relative advance during recent years is perhaps that which has been made by America. A generation ago the American School of Economists was supposed to consist of the group of protectionists who follow Carrie's lead but new schools of vigorous thinkers are now growing up and there are signs that America is on the way to take the same leading position in economic thought that she has already taken in economic practice. Economic sciences showing signs of renewed vigor in two of its old homes, Holland and Italy and more especially is the vigorous analytical work of the Austrian economists attracting much attention in all countries. But on the whole the most important economic work that has been done on the continent in recent times is that of Germany. While recognizing the leadership of Adam Smith the German economists have been irritated more than any others by what they have regarded as the insular narrowness and self-confidence of the Ricardian School. In particular they resented the way in which the English advocates of free trade tacitly assumed that a proposition which had been established with regard to a manufacturing country such as England was could be carried over without modification to agricultural countries. The brilliant genius and national enthusiasm of Liszt overthrew this presumption and showed that the Ricardians had taken but little account of the indirect effects of free trade. No great harm might be done in neglecting them so far as England was concerned because there they were in the main beneficial and thus added to the strength of its direct effects. But he showed that in Germany and still more in America many of its indirect effects were evil and he contended that these evils outweighed its direct benefits. Many of his arguments were invalid but some of them were not and as the English economists scornfully refused them a patient discussion able and public spirited men impressed by the force of those which were sound acquiesced in the use for the purposes of popular agitation of other arguments which were unscientific but which appealed with greater force to the working classes. American manufacturers adopted Liszt as their advocate and the beginning of his fame as well as of the systematic advocacy of protectionist doctrines in America was in the wide circulation by them of a popular treatise which he wrote for them. The Germans are fond of saying that the physiocrats and the school of Adam Smith underrated the importance of national life that they tended to sacrifice it on the one hand to a selfish individualism and on the other to a limp philanthropic cosmopolitanism. They urge that Liszt did great service in stimulating a feeling of patriotism which is more generous than that of individualism and more sturdy and definite than that of cosmopolitanism. It may be doubted whether the cosmopolitan sympathies of the physiocrats and of the English economists have been as strong as the Germans think but there is no question that the recent political history of Germany has influenced the tone of her economists in the direction of nationalism. Surrounded by powerful and aggressive armies Germany can exist only by the aid of an ardent national feeling and German writers have insisted eagerly perhaps too eagerly that altruistic feelings have a more limited scope than the economic relations between countries than in those between individuals. But though national in their sympathies the Germans are nobly international in their studies they have taken the lead in the comparative study of economic as well as general history. They have brought side by side the social and industrial phenomena of different countries and of different ages have so arranged them that they throw light upon and interpret one another and have studied them all in connection with the suggestive history of jurisprudence. The work of a few members of this school is tainted by exaggeration and even by a narrow contempt for the reasonings of the Ricardian school the drift and purpose of which they have themselves failed to understand and this has led to much bitter and dreary controversy. But with scarcely an exception the leaders of the school have been free from this narrowness it would be difficult to overrate the value of the work which they and their fellow workers in other countries have done in tracing and explaining the history of economic habits and institutions. It is one of the great achievements of our age and an important addition to our real wealth. It has done more than almost anything else to broaden our ideas to increase our knowledge of ourselves and to help to understand the evolution of man's moral and social life and of the divine principle of which it is an embodiment. They have given their chief attention to the historical treatment of the science and to its application to the conditions of German social and political life especially to the economic duties of the German bureaucracy. But led by the brilliant genius of Hermann they have made careful and profound analyses which add much to our knowledge and they have greatly extended the boundaries of economic theory. German thought has also given an impetus to the study of socialism and the functions of the state. It is from German writers, some of whom have been of Jewish origin, that the world has received the greater part of the most thorough going of recent propositions for utilizing the property of the world for the benefit of the community with but little reference to the existing incidents of ownership. It is true that on closer investigation their work turns out to be less original as well as less profound than at first sight appears. But it derives great power from its dialectic ingenuity, its brilliant style and in some cases from its wide reaching though distorted historical learning. Besides the revolutionary socialists there is a large body of thinkers in Germany who are setting themselves to insist on the scantiness of the authority which the institution of private property in its present form can derive from history and to urge on broad scientific and philosophic grounds a reconsideration of the rights of society as against the individual. The political and military institutions of the German people have recently increased their natural tendency to rely more on government and less on individual enterprise than Englishmen do. And in all questions bearing on social reforms the English and German nations have much to learn from one another. But amid all the historical learning and reforming enthusiasm of the age there is danger that a difficult but important part of the work of economic science may be neglected. The popularity of economics has tended in some measure to the neglect of careful and rigorous reasoning. The growing prominence of what has been called the biological view of the science has tended to throw the notions of economic law and measurement into the background as though such notions were too hard and rigid to be applied to the living and ever-changing economic organism. But biology itself teaches us that the vertebrate organisms are the most highly developed. The modern economic organism is vertebrate and the science which deals with it should not be invertebrate. It should have that delicacy and sensitiveness of touch which are required for enabling it to adapt itself closely to the real phenomena of the world. But nonetheless must it have a firm backbone of careful reasoning and analysis. End of Appendix B. Recording by Rhonda Fetterman. Appendix C. of Principles of Economics. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org. Recording by Rhonda Fetterman. Principles of Economics by Alfred Marshall. Appendix C. The Scope and Method of Economics. Section 1. There are some who hold with Kant that the scope of any profitable study of man's action in society must be co-existive with the whole of social science. They argue that all the aspects of social life are so closely connected that a special study of any one of them must be futile. And they urge on economists to abandon their distinctive role and to devote themselves to the general advancement of a unified and all embracing social science. But the whole range of man's actions in society is too wide and too various to be analyzed and explained by a single intellectual effort. Kant himself and Herbert Spencer have brought to the task unsurpassed knowledge in Great Genius. They have made epics in thought by their broad surveys and their suggestive hints. But they can hardly be said even to have made a commencement with the construction of a unified social science. The physical sciences made slow progress so long as the brilliant but impatient Greek genius insisted on searching after a single basis for the explanation of all physical phenomena. And their rapid progress in the modern age is due to a breaking up of broad problems into their component parts. Doubtless there is a unity underlying all the forces of nature. But whatever progress has been made towards discovering it has depended on knowledge obtained by persistent specialized study no less than on occasional broad surveys of the field of nature as a whole. And similar patient detailed work is required to supply the materials which may enable future ages to understand better than we can the forces that govern the development of the social organism. But on the other hand it must be fully conceded to Kant that even in the physical sciences it is the duty of those who are giving their chief work to a limited field to keep up close and constant correspondence with those who are engaged in neighboring fields. Specialists who never look beyond their own domain are apt to see things out of true proportion. Much of the knowledge they get together is of comparatively little use. They work away at the details of old problems which have lost most of their significance and have been supplanted by new questions rising out of new points of view. And they fail to gain that large illumination which the progress of every science throws by comparison and analogy on those around it. Kant did good service therefore by insisting that the solidarity of social phenomena must render the work of exclusive specialists even more futile in social than in physical science. Mill conceding this continues, a person is not likely to be a good economist who is nothing else. Social phenomena acting and reacting on one another. They cannot rightly be understood apart. But this by no means proves that the material and industrial phenomena of society are not themselves susceptible of useful generalizations, but only that these generalizations must necessarily be relative to a given form of civilization and a given stage of social advancement. Section 2 It is true that the forces with which economics deals have one advantage for deductive treatment in the fact that their method of combination is, as Mill observed, that of mechanics rather than of chemistry. That is to say, when we know the action of two economic forces separately, as for instance the influences which an increase in the rate of wages and a diminution in the difficulty of the work in a trade will severally exert on the supply of labor in it, we can predict fairly well their conjoint action without waiting for specific experience of it. But even in mechanics long chains of deductive reasoning are directly applicable only to the occurrences of the laboratory. By themselves they are seldom a sufficient guide for dealing with the heterogeneous materials and the complex and uncertain combination of the forces of the real world. For that purpose they need to be supplemented by specific experience and applied in harmony with and often in subordination to a ceaseless study of new facts, a ceaseless search for new inductions. For instance, the engineer can calculate with fair precision the angle at which an ironclad will lose her stability in still water. But before he predicts how she would behave in a storm, he will avail himself of the observations of experienced sailors who have watched her movements in an ordinary sea and the forces of which economics has to take account are more numerous, less definite, less well known and more diverse in character than those of mechanics while the material on which they act is more uncertain and less homogenous. Again the cases in which economic forces combine with more of the apparent arbitrariness of chemistry than of the simple regularity of pure mechanics are neither rare nor unimportant. For instance, a small addition to a man's income will generally increase his purchases a little in every direction, but a large addition may alter his habits, perhaps increase his self-respect and make him cease to care for some things altogether. The spread of a fashion from a higher social grade to a lower may destroy the fashion among the higher grade. And again increased earnestness in our care for the poor may make charity more lavish or may destroy the need for some of its forms altogether. Lastly, the matter with which the chemist deals is the same always. But economics, like biology, deals with the matter of which the inner nature and constitution as well as the outer form are constantly changing. The chemist's predictions all rest on the latent hypothesis that the specimen operated upon is what it is supposed to be, or at least that the impurities in it are only such as may be neglected. But even he, when dealing with living beings, can seldom sell safely any considerable way out of sight of the firm land of specific experience. He must rely mainly on that to tell him how a new drug will affect a person in health and again how it will affect a person with a certain disease. And even after some general experience, he may find unexpected results in its action on persons of different constitutions or in a new combination with other drugs. If, however, we look at the history of such strictly economic relations as those of business credit and banking, of trade unionism or cooperation, we see that modes of working that have been generally successful at some times and places have uniformly failed at others. The difference may sometimes be explained simply as the result of variations in general enlightenment or of moral strength of character and habits of mutual trust, but often the explanation is more difficult. At one time or place, men will go far in trust of one another and in sacrifice of themselves for the common well-being, but only in certain directions. And at another time or place, there will be a similar limitation, but the directions will be different. And every variation of this kind limits the range of deduction in economics. For our present purpose, the pliability of the race is more important than the pliability of the individual. It is true that individual character changes, partly in an apparently arbitrary way, and partly according to well-known rules. It is true, for instance, that the average age of the workmen engaged in a labor dispute is an important element in any forecast of the lines on which it will run. But as generally speaking, young and old, people of a sanguine and despondent temperament are found in about like proportions at one place as at another, and at one time as at another. Individual peculiarities of character and changes of character are a less hindrance to the general application of the deductive method than at first sight appears. Thus by patient interrogation of nature and the progress of analysis the reign of law is being made to invade new fields in both therapeutics and economics. And some sort of prediction, independent of specific experience, is becoming possible as to the separate and combined action of an ever-increasing variety of agencies. Section 3 The function, then, of analysis and deduction in economics is not to forge a few long chains of reasoning, but to forge rightly many short chains and single connecting links. This, however, is no trivial task. If the economist reasons rapidly and with a light heart he is apt to make bad connections at every turn of his work. He needs to make careful use of analysis and deduction because only by their aid can he select the right facts, group them rightly and make them serviceable for suggestions in thought and guidance in practice. And because as surely as every deduction must rest on the basis of inductions so surely does every inductive process involve and include analysis and deduction. Or to put the same thing in another way the explanation of the past and the prediction of the future are not different operations, but the same worked in opposite directions the one from effect to cause and the other from cause to effect. As Schmoller Well says To obtain a knowledge of individual causes we need induction the final conclusion of which is indeed nothing but the inversion of the syllogism which is employed in deduction. Induction and deduction rest on the same tendencies the same beliefs, the same needs of our reason. We can explain an event completely only by first discovering all the events which can have affected it and the ways in which they can severally have done so. Insofar as our analysis of any of these facts or relations is imperfect insofar is our explanation liable to error and the inference latent in it is already on its way to build up an induction which though probably plausible is false. While insofar as our knowledge and analysis are complete we are able by merely inverting our mental process to deduce and predict the future almost as certainly as we could have explained the past on a similar basis of knowledge. It is only when we go beyond a first step that a great difference arises between the certainty of prediction and the certainty of explanation. For any error made in the first step of prediction will be accumulated and intensified in the second while in interpreting the past error is not so likely to be accumulated. For observation or recorded history will probably bring a fresh check at each step. The same processes both inductive and deductive are used in nearly the same way in the explanation of a known fact in the history of the tides and in the prediction of an unknown fact. It must then always be remembered that though observation or history may tell us that one event happened at the same time as another or after it, they cannot tell us whether the first was the cause of the second. That can be done only by reason acting on the facts. When it is said that a certain event in history teaches this or that formal reckoning is never made for all the conditions which were present when the event happened. Some are tacitly, if not unconsciously, assumed to be irrelevant. This assumption may be justifiable in any particular case, but it may not. Wider experience, more careful inquiry, may show that the causes to which the event is attributed could not have produced it unaided. Perhaps even that they hindered the event, which was brought about in spite of them by other causes that have escaped notice. This difficulty has been made prominent by recent controversies as to contemporary events in our own country. Whenever a conclusion is drawn from them that meets with opposition, it has to stand a sort of trial. Rival explanations are offered. New facts are brought to light. The old facts are tested and rearranged, and in some cases shown to support the opposite conclusion from that on behalf of which they were at first invoked. Both the difficulty of analysis and the need for it are increased by the fact that no two economic events are exactly alike in all respects. Of course there may be a close resemblance between two simple incidents. The terms of the leases of two farms may be governed by nearly the same causes. Two references of wages questions to boards of arbitration may raise substantially the same question. But there is no exact repetition even on a small scale. However nearly two cases correspond, we have to decide whether the difference between the two may be neglected as practically unimportant. And this may not be very easy, even if the two cases refer to the same place and time. And if we are dealing with the facts of remote times, we must allow for the changes that have meanwhile come over the whole character of economic life. However closely a problem of today may resemble in its outward incidents another recorded in history. It is probable that a closer examination will detect a fundamental difference between their real characters till this has been made. No valid argument can be drawn from one case to the other. This brings us to consider the relation in which economics stands to the facts of distant times. The study of economic history may have various aims and correspondingly various methods. Regarded as a branch of general history, it may aim at helping us to understand what has been the institutional framework of society at the several periods, what has been the constitution of the various social classes and their relation to one another. It may ask what has been the material basis of social existence. How have the necessities and conveniences of life been produced? By what organization has labor been provided and directed? How have the commodities thus produced been distributed? What have been the institutions resting on this direction and distribution? And so on. And for this work, interesting and important as it is on its own account, not very much analysis is essential. And most of what is needed may be supplied for himself by a man of active and inquiring mind. Saturated with a knowledge of the religious and moral, the intellectual and aesthetic, the political and social environment, the economic historian may extend the boundaries of our knowledge and may suggest new and valuable ideas, even though he may have contended himself with observing those affinities and those causal relations which lie near their surface. But even in spite of himself, his aims will surely run beyond these limits and will include some attempt to discover the inner meaning of economic history, to unveil the mysteries of the growth and decay of custom and other phenomena which we are not any longer contended to take as ultimate and insoluble facts given by nature, nor is he likely altogether to withhold himself from suggesting inferences from the events of the past for guidance in the present. And indeed the human mind abhors a vacuum in its notions of the causal relations between the events that are presented vividly to it. By merely placing things together in a certain order and consciously or unconsciously suggesting post hoc ergo proctor hoc, the historian takes on himself some responsibility as a guide. For example, the introduction of long leases at fixed monthly rents in North Britain was followed by a great improvement in agriculture and in the general condition of the people there. But before inferring that it was the soul or even chief cause of the improvement, we must inquire what other changes were taking place at the same time and how much of the improvement is to be referred to each of them. We must, for instance, allow for the effects of changes in the prices of agricultural produce and of the establishment of civil order in the broader provinces. To do this requires care and scientific method. Until it has been done, no trustworthy inference can be drawn as to the general tendency of the system of long leases. And even when it has been done, we cannot argue from this experience to a proposal for a system of long leases in, say, Ireland now, without allowing for differences in the character of local and world markets for various kinds of agricultural produce, for probable changes in the production and consumption of gold and silver and so on. The history of land tenures is full of antiquarian interest. But until carefully analyzed and interpreted by the aid of economic theory, it throws no trustworthy light on the question what is the best form of land tenure to be adopted now in any country. Thus some argue that since primitive societies usually held their land in common, private property in land must be an unnatural and transitional institution. Others with equal confidence contend that since private property in land has extended its range with the progress of civilization, it is a necessary condition for further progress. But to rest from history her true teaching on the subject requires the effects of the common holding of land in the past to be analyzed so as to discover how far each of them is likely to act always in the same way. How far to be modified by changes in the habits, the knowledge, the wealth, and the social organization of mankind. Even more interesting and instructive is the history of the professions made by guilds and other corporations and combinations in industry and in domestic and foreign trade, that they use their privileges on the whole for the benefit of the public. But to bring in a complete verdict on the question and still more to deduce from its sound guidance for our own time needs not only the wide general knowledge and subtle instincts of the practiced historian, but also a grasp of many of the most difficult analyses and reasonings relating to monopolies, to foreign trade, to the incidents of taxation, etc. If then the economic historian aims at discovering the hidden springs of the economic order of the world and at obtaining light from the past for guidance in the present, he should avail himself of every resource that may help him to detect real differences that are disguised by a similarity of name or outward appearance and real similarities that are obscured by a superficial difference. He should strive to select the true causes of each event and assign to each its proper weight and above all to detect the remotor causes of change. An analogy may be borrowed from naval affairs, the details of a battle with appliances that have passed away may be of great interest to the student of the general history of those times, but they may afford little useful guidance for the naval commander of today who has to deal with a wholly different material of war. And therefore, as Captain Mahan has admirably shown, the naval commander of today will give more attention to the strategy than to the tactics of past times. He will concern himself not so much with the incidents of particular combats as with practical illustrations of those leading principles of action which will enable him to hold his whole force in hand and yet give to each part of it adequate initiative to keep up wide communication and yet be able to concentrate quickly and select a point of attack at which he can bring an overwhelming force. Similarly, a man saturated with the general history of a period may give a vivid picture of the tactics of a battle which will be true in its main outlines and almost harmless even if occasionally wrong for no one is likely to copy tactics, the appliances of which have passed away. But to comprehend the strategy of a campaign, to separate the real from the apparent motives of a great general of past times, a man must be a strategist himself. And if he is to make himself responsible for suggesting, however unobtrusively, the lessons which the strategists of today have to learn from the story which he records, then he is bound to have analyzed thoroughly the naval conditions of today as well as those of the time about which he is writing. And he must neglect no aid for this end that is to be had from the work of many minds in many countries studying the difficult problem of strategy. As it is with naval history, so it is with economic. It is only recently and to a great extent through the wholesome influence of the criticisms of the historical school that prominence has been given to that distinction in economics which corresponds to the distinction between strategy and tactics in warfare. Corresponding to tactics are those outward forms and accidents of economic organization which depend on temporary or local aptitudes, customs and relations of classes, on the influence of individuals or on the changing appliances and needs of production. While to strategy corresponds that more fundamental substance of economic organization which depends mainly on such wants and activities, such preferences and aversions as are found in man everywhere. They are not indeed always the same in form nor even quite the same in substance but yet they have a sufficient element of permanence and universality to enable them to be brought in some measure under general statements whereby the experiences of one time and one age may throw light on the difficulties of another. This distinction is akin to the distinction between the uses of mechanical and biological analogies in economics. It was not sufficiently recognized by economists at the beginning of last century. It is markedly absent from Ricardo's writings and when attention is paid not to the principles which are embodied in his method of working but to particular conclusions which he reaches. When these are converted into dogmas and applied crudely to the conditions of times or places other than his own then no doubt they are almost unmixed evils. His thoughts are like sharp chisels with which it is especially easy to cut one's fingers because they have such awkward handles. But modern economists distilling his crude expressions extracting their essence and adding to it rejecting dogmas but developing principles of analysis and reasoning are finding the many in the one and the one in the many. They are learning, for instance, that the principle of his analysis of rent is inapplicable to much that commonly goes by the name of rent today as well as to a much larger part of those things which are commonly but incorrectly described as rent by historians of the Middle Ages. But yet the application of the principle is being extended and not contracted. For economists are also learning that it is applicable with proper care to a great variety of things in every stage of civilization which do not appear at first sight to be of the nature of rent at all. But of course no student of strategy can ignore tactics and though no one life will reach out to a study in detail of the tactics of every fight which man has waged with his economic difficulties yet no study of the broad problems of economic strategy is likely to be worth much unless it is combined with an intimate knowledge of the tactics as well as the strategy of man's struggles against his difficulties in some particular age and country. And further every student should make by personal observation a minute study of some particular set of details not necessarily for publication but for his own training and this will help him much to interpret and weigh the evidence which he obtains in print or writing whether with regard to the present or past times. Of course every thoughtful and observant man is always obtaining from conversation and current literature a knowledge of the economic facts of his own time and especially in his own neighborhood and the store of facts which he thus imperceptibly gets is sometimes more full and thorough in certain special regards than is to be distilled from all the records in existence as to some classes of facts in remote places and times. But independently of this the direct and formal study of facts perhaps mainly those of his own age will much exceed the study of mere analysis and theory in its demands on the time of any serious economist even though he may be one of those who rank most highly the importance of ideas relatively to facts even though he may think it is not so much the collection of new facts as the better study of those already collected that is our most urgent need now or that will help us most in improving the tactics as well as the strategy of man's contests with his difficulties. Section 5 It is doubtless true that much of this work has less need of elaborate scientific methods than of a shrewd mother wit of a sound sense of proportion and of a large experience of life but on the other hand there is much work that is not easily to be done without such machinery natural instinct will select rapidly and combine justly considerations which are relevant to the issue in hand but it will select chiefly from those which are familiar it will seldom lead a man far below the surface or far beyond the limits of his personal experience and it happens that in economics neither those effects of known causes nor those causes of known effects which are most patent are generally the most important that which is not seen is often better worth studying than that which is seen especially is this the case if we are not dealing with some question of merely local or temporary interest but are seeking guidance in the construction of a far-reaching policy for the public good or if for any other reason we are concerned less with immediate causes than with causes of causes for experience shows as might have been anticipated that common sense and instinct are inadequate for this work that even a business training does not always lead a man to search far for those causes of causes which lie beyond his immediate experience and that it does not always direct that search well even when he makes the attempt for help in doing that everyone must perforce rely on the powerful machinery of thought and knowledge that has been gradually built up by past generations for indeed the part which systematic scientific reasoning plays in the production of knowledge resembles that which machinery plays in the production of goods when the same operation has to be performed over and over again in the same way it generally pays to make a machine to do the work though when there is so much changing variety of detail that it is unprofitable to use machines the goods must be made by hand similarly in knowledge when there are any processes of investigation or reasoning in which the same kind of work has to be done over and over again in the same kind of way then it is worthwhile to reduce the processes to system to organize methods of reasoning and to formulate general propositions to be used as machinery for working on the facts and as vices for holding them firmly in position for the work and though it be true that economic causes are intermingled with others in so many different ways that exact scientific reasoning will seldom bring us very far on the way to the conclusion for which we are seeking yet it would be foolish to refuse to avail ourselves of its aid so far as it will reach just as foolish as would be the opposite extreme of supposing that science alone can do all the work and that nothing will remain to be done by practical instinct and trained common sense an architect whose practical wisdom and aesthetic instincts are undeveloped will build but a poor house however thorough his knowledge of mechanics but one who is ignorant of mechanics will build insecurely or wastefully a brindley without academic instruction may do some engineering work better than a man of inferior mother wit however well he may have been trained a wise nurse who reads her patience by instinctive sympathy may give better counsel on some points than a learned physician but yet the study of analytical mechanics should not be neglected by the engineer nor that of physiology by the medical man for mental faculties like manual dexterity die with those who possess them but the improvement which each generation contributes to the machinery of manufacture or to the organ on of science is handed down to the next there may be no abler sculptors now than those who worked on the Parthenon no thinker with more mother wit than Aristotle but the appliances of thought develop cumulatively as do those of material production ideas whether those of art and science or those embodied in practical appliances are the most real of the gifts that each generation receives from its predecessors the world's material wealth would quickly be replaced if it were destroyed but the ideas by which it was made were retained if however the ideas were lost but not the material wealth then that would dwindle and the world would go back to poverty and most of our knowledge of mere facts could quickly be recovered if it were lost but the constructive ideas of thought remained while if the ideas perished the world would enter again on the dark ages thus the pursuit of ideas is not less real work in the highest sense of the word than is the collection of facts though the latter may in some cases properly be called in German a real studium that is a study especially appropriate to real schulin in the highest use of the word that study of any field of the wide realm of economics is most real in which the collection of facts and the analysis and construction of ideas connecting them are combined in those proportions which are best calculated to increase knowledge and promote progress in that particular field and what this is cannot be settled offhand but only by careful study and by specific experience section six economics has made greater advances than any other branch of the social sciences because it is more definite and exact than any other but every widening of its scope involves some loss of the scientific precision and the question whether that loss is greater or less than the gain resulting from its greater breath of outlook is not to be decided by any hard and fast rule there is a large debatable ground in which economic considerations are of considerable but not dominant importance and each economist may reasonably decide for himself how far he will extend his labors over that ground he will be able to speak with less and less confidence the further he gets away from his central stronghold and the more he concerns himself with conditions of life and with motives of action which cannot be brought to some extent at least within the grasp of scientific method whenever he occupies himself largely with conditions and motives the manifestations of which are not reducible to any definite standard he must forego nearly all aid and support from the observations and the thought of others at home and abroad in this and earlier generations he must depend mainly on his own instincts and conjectures he must speak with all the diffidence that belongs to an individual judgment but if when straying far into less known and less knowable regions of social study he does his work carefully and with a full consciousness of its limitations he will have done excellent service End of Appendix C Recording by Rhonda Fetterman Appendix D of Principles of Economics This is the LibriVox Recording All LibriVox recordings are in the public domain For more information or to volunteer please visit LibriVox.org Recording by Icy Jumbo Principles of Economics by Alfred Marshall Appendix D Usus of Abstract Reasoning in Economics Section 1 Induction aided by analysis and deduction brings together the appropriate classes of facts arranges them, analyzes them and infers from them general statements or laws then for a while deduction plays the chief role 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 formulae 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 marvelously 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 conciliance between correlated statistical tables Section 2 if we shut our eyes to realities we may construct an edifice of pure crystal by imaginations that will throw sidelights 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 endeavor 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 honor 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 everyday life but political services are more frequently rewarded by such honors than in any other way so we have got into the habit of measuring them not in money but in honors 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 a 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 and material things or wealth as it is generally understood but public honors are meted out by graduated tables as rewards for every action that is done for others good if these honors 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 it's taking a material form is practically convenient but is not essential Section 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 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 his discussion 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 civilisation is to be found in Kniece's Politischer Ökonomie and the English reader may be referred to Symes outlines of an industrial science it may be well to give here the chief heads of the analysis of economic motives Motiva im wirtschaftlichen Handeln in the third edition of Wagner's monumental treaties 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 honor and the striving for recognition Geltungsströwen 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 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 knowings of conscience in its pure form this motive appears as the categorical imperative which one follows because one feels in one's soul the commands 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 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 End of Appendix D Appendix E of Principles of Economics This is a LibriVox recording All LibriVox recordings are in the public domain For more information or to volunteer please visit LibriVox.org Principles of Economics by Alfred Marshall Appendix E Definitions of Capital It was observed in Book II, Chapter IV, that economists have no choice but to follow well-established customs as regards the use of the term capital in ordinary business i.e. trade capital The disadvantages of this use are however great and obvious For instance, it compels us to regard as capital the yachts but not the carriage belonging to a yacht builder If therefore he had been hiring a carriage by the year and instead of continuing to do so sold a yacht to a carriage builder who had been hiring it and bought a carriage for his own use The result would be that the total stock of capital in the country would be diminished by a yacht and a carriage and this, though nothing had been destroyed and though they remained the same products of savings themselves productive of as great benefits to the individuals concerned and to the community as before and probably even of greater benefits Nor can we avail ourselves here of the notion that capital is distinguished from other forms of wealth and its superior power of giving employment to labour For in fact, when yachts and carriages are in the hands of dealers and are thus counted as capital less employment is given to labour by a given amount of yachting or carriage driving than when the yachts or carriages are in private hands and are not counted as capital The employment of labour would not be increased but lessened by the substitution of professional cook shops and bakeries where all the appliances are reckoned as capital or private kitchens where nothing is reckoned as capital Under a professional employer the workers may possibly have more personal freedom but they almost certainly have less material comfort and lower wages in proportion to the work they do than under the laxer regime of a private employer But these disadvantages have been generally overlooked and several causes have combined to give vogue to this use of the term One of these causes is that the relations between private employers and their employees seldom enter into the strategical and tactical movements of the conflicts between employers and employed or, as is commonly said, between capital and labour This point has been emphasised by Karl Marx and his followers They have avowedly made the definition of capital turn on it They assert that only that is capital which is a means of production owned by one person or group of persons and used to produce things for the benefit of another generally by means of the hired labour of a third in such wise that the first has the opportunity of plundering or exploiting the others Secondly, this use of the term capital is convenient in the money market as well as in the labour market Trade capital is habitually connected with loans No one hesitates to borrow in order to increase the trade capital at his command He can see a good opening for its use And for doing this he can pledge his own trade capital more easily and more regularly in the ordinary course of business transactions than he could his furniture or his private carriage Lastly, a man makes up the accounts of his trade capital carefully He allows for depreciation as a matter of course and thus he keeps his stock intact Of course, a man who has been hiring a carriage by the year can buy it with the produce of the sale of railway stock yields very much less interest than he has paid as hire If he lets the annual income accumulate till the carriage is worn out it will more than suffice to buy him a new one and thus his total stock of capital will have been increased by the change But there is a chance that he will not do this whereas so long as the carriage was owned by the dealer he provided for replacing it in the ordinary course of his business Let us pass to definitions of capital from the social point of view It has already been indicated that the only strictly logical position is that which has been adopted by most writers on mathematical versions of economics and which regards social capital and social wealth as co-extensive though this course deprives them of a useful term But whatever definition a writer takes at starting he finds that the various elements which he includes in it enter in different ways into the successive problems with which he has to deal If therefore his definition pretended to precision he is compelled to supplement it by an explanation of the bearing of each several element of capital on the point at issue and this explanation is in substance very much like those of other writers Thus ultimately there is a general convergence and readers are brought to very much the same conclusion by whatever route they travel though it may indeed require a little trouble to discern the unity in substance underlying differences in form and in words The divergence at starting turns out to be a less evil than it seemed Further, in spite of these differences in words there is a continuity of tone in the definition of capital by the economists of several generations and many countries It is true that some have laid greater stress on the productivity of capital some on its prospectiveness and that neither of these terms is perfectly precise or points to any hard and fast line of division But though these defects are fatal to precise classification that is a matter of secondary importance Things relating to man's actions never can be classified with precision on any scientific principle Exact lists may be made of things which are to be placed in certain classes for the guidance of the police officer or the collector of import duties but such lists are frankly artificial It is the spirit and not the letter of economic tradition which we should be most careful to preserve And as was suggested at the end of Book II, Chapter IV no intelligent writer has ever left out of the account either the side of prospectiveness or that of productiveness but some have enlarged more on the one side and others on the other while on either side difficulty has been found in drawing a definite line of demarcation Let us then look at the notion of capital as a store of things the result of human efforts and sacrifices devoted mainly to securing benefits in the future rather than in the present The notion itself is definite but it does not lead to a definite classification just as the notion of length is definite but yet does not enable us to divide off long walls from short walls saved by an arbitrary rule The savage shows some prospectiveness when he puts together branches of trees to protect him for a night He shows more when he makes attentive pulls and skins and yet more when he builds a wooden hut The civilized man shows increasing prospectiveness when he substitutes solid houses of brick or stone for wooden shanties A line could be drawn anywhere to mark off those things the production of which shows a great desire for future satisfactions rather than present but it would be artificial and unstable Those who have sought one have found themselves on an inclined plane and have not reached a stable resting place till they have included all accumulated wealth as capital This logical result was faced by many French economists who following the lines laid down by the physiocrats used the term capital very much in the sense in which Adam Smith and his immediate followers used the word stock to include all accumulated wealth value accumulated i.e. all the result of the excessive production over consumption and although in recent years they have shown a decided tendency to use the term in the narrower English sense there is at the same time a considerable movement on the part of some of the profoundest thinkers in Germany and England in the direction of the older and broader French definition especially has this been remarkable in writers who, like Terjeu have been inclined towards mathematical modes of thought among whom Herman, Javons, Walrus and professors Pareto and Fischer are conspicuous The writings of Professor Fischer contain a masterly argument rich infertile suggestion in favor of a comprehensive use of the term Regarded from the abstract and mathematical point of view his position is incontestable but he seems to take too little account of the necessity for keeping realistic discussions in touch with the language of the marketplace and to ignore Beixos' caution against trying to express various meanings on complex things with a scanty vocabulary of fastened uses Most of the attempts to define capital rigidly whether in England or other countries have turned mainly on its productivity to the comparative neglect of its prospectivity They have regarded social capital as a means for acquisition airworks capital or as a stock of the requisites of production productions mittalvorath but this general notion has been treated in different ways According to the older English traditions capital consists of those things which aid or support labor in production or has been said more recently it consists of those things without which production could not be carried on with equal efficiency but which are not free gifts of nature It is from this point of view that the distinction already noticed between consumption capital and auxiliary capital has been made This view of capital has been suggested by the affairs of the labor market but it has never been perfectly consistent for it has been made to include as capital everything which employers directly or indirectly provide in payment for the work of their employees wage capital or remuneratory capital as it is called but yet not to include any of the things needed for their own support or that of architects, engineers and other professional men But to be consistent it should have included the necessaries for efficiency of all classes of workers and it should have excluded the luxuries of the manual labor classes as well as of other workers If however it had been pushed to this logical conclusion it would have played a less prominent part in the discussion of the relations of employers and employed In some countries however and especially in Germany and Austria there has been some tendency to combine capital from the social point of view to auxiliary or instrumental capital It is argued that in order to keep clear the contrast between production and consumption nothing which enters directly into consumption should be regarded as a means to production But there appears no good reason why a thing should not be regarded in twofold capacity It is further argued that those things which render their services to man not directly but through the part which they play in preparing other things for his use, form a compact class because their value is derived from that of the things which they helped to produce There is much to be said for having a name for this group, but there is room for doubt whether capital is a good name for it and also for doubt whether the group is as compact as it appears at first sight Thus we may define instrumental goods so as to exclude tramways and other things which derive their value from the personal services which they render Or we may follow the example of the old use of the phrase productive labour and insist that those things only are properly to be regarded as instrumental goods the work of which is directly embodied in a material product The former definition brings this use of the term rather close to that discussed in the last section and shares with it the demerit of vagueness The latter is a little more definite but seems to make an artificial distinction where nature has made none and to be as unsuitable for scientific purposes as the old definitions of productive labour To conclude From the abstract point of view the French definition advocated by Professor Fischer and others holds the field without arrival A man's coat is a stored up product of past efforts and sacrifices destined as a means to provide him with future gratifications just as much as a factory is while both yield immediate shelter from the weather and if we are seeking a definition that will keep realistic economics in touch with the marketplace then careful account needs to be taken of the aggregate volume of those things which are regarded as capital in the marketplace and do not fall within the limits assigned to intermediate products In case of doubt that course is to be preferred which is most in accordance with tradition These were the considerations which led to the adoption of the two-fold definition of capital from the business from the initial point of view given above End of Appendix E Appendix F of Principles of Economics This is a LibriVox recording All LibriVox recordings are in the public domain For more information or to volunteer please visit LibriVox.org Principles of Economics by Alfred Marshall Appendix F Barter Let us consider the case of two individuals A has, say, a basket of apples B, a basket of nuts A wants some nuts B wants some apples The satisfaction which B would get from one apple would perhaps outweigh that which he would lose by parting with twelve nuts While the satisfaction which A would get from perhaps three nuts would outweigh that which he would lose by parting with one apple The exchange will be started somewhere between these two rates But if it goes on gradually Every apple that A loses will increase the marginal utility of apples to him and make him more unwilling to part with any more While every additional nut that he gets will lower the marginal utility of nuts to him and diminish his eagerness for more and vice versa with B At last A's eagerness for nuts relatively to apples will no longer exceed B's and exchange will cease because any terms that the one is willing to propose would be disadvantageous to the other Up to this point exchange has increased the satisfaction on both sides but it can do so no further Equilibrium has been attained but really it is not the equilibrium it is an accidental equilibrium There is however one equilibrium rate of exchange which has some sort of right to be called the true equilibrium rate because if once hit upon it would be adhered to throughout It is clear that if very many nuts were to be given out for an apple B would be willing to do but little business while if but very few were to be given A would be willing to do but little There must be some intermediate rate at which they would be willing to do business to the same extent Suppose that this rate is six nuts for an apple and that A is willing to give eight apples for forty eight nuts while B is willing to receive eight apples at that rate but that A would not be willing to give a ninth apple for another six nuts while B would not be willing to give another six nuts for a ninth apple This then is the true position of equilibrium but there is no reason to suppose that it will be reached in practice Suppose for instance that A's basket had originally twenty apples in it and B's one hundred nuts and that A at starting induced B to believe that he does not care much to have any nuts and so manages to barter four apples for forty nuts and afterwards two more for seventeen nuts and afterwards one more for eight Equilibrium may now have been reached but there may be no further exchange which is advantageous to both A has sixty five nuts and does not care to give another apple even for eight while B having only thirty five nuts sets a high value on them and will not give as many as eight for another apple On the other hand if B had been the more skillful in bargaining he might have perhaps induced A to give six apples for fifteen nuts and then two more for seven A has now given up eight apples and got twenty two nuts If the terms at starting had been six nuts for an apple and he had got forty eight nuts for his eight apples he would not have given up another apple even for seven nuts but having so few nuts he is anxious to get more and is willing to give two more apples in exchange for eight nuts and then two more for nine nuts and then one more for five and the equilibrium may be reached for B having thirteen apples and fifty six nuts does not perhaps care to give more than five nuts for an apple and A may be unwilling to give up one of his few remaining apples for less than six In both these cases the exchange would have increased the satisfaction of both as far as it went and when it ceased no further exchange would have been possible which would not have diminished the satisfaction of at least one of them In this case an equilibrium rate would have been reached but it would be an arbitrary equilibrium Next suppose that there are a hundred people in a similar position that of A each with about twenty apples and the same desire for nuts as A and an equal number on the other side similarly situated to the original B Then the acutist bargainers in the market would probably be some of them on A's side some of them on B's and whether there was free communication in the market or not the mean of the bargains would not be so likely to differ very widely from the rate of six nuts for an apple as in the case of barter between two people But yet there would be no such strong probability of its adhering very closely to that rate as we saw was the case in the corn market It would be quite possible for those on the A side to get in various degrees the better of those on the B side in bargaining so that after a time sixty five hundred nuts might have been exchanged for seven hundred apples and then those on the A side having so many nuts might be unwilling to do any more trade except at the rate of at least eight nuts for an apple while those on the B side having only thirty five nuts a piece left on the average might probably refuse to part with any more at that rate On the other hand B's might have gotten in various degrees the better of the A's in bargaining with the result that after a time thirteen hundred apples had been exchanged for only forty four hundred nuts the B's having then thirteen hundred apples and fifty six hundred nuts might be unwilling to offer more than five nuts for an apple while the A's having only seven apples a piece left on the average might decline that rate in the one case equilibrium would be found at a rate of eight nuts for an apple and in the other at the rate of five nuts in each case an equilibrium would be attained but not the equilibrium This uncertainty the rate at which equilibrium is reached depends indirectly on the fact that one commodity is being bartered for another instead of being sold for money for since money is a general purchasing medium there are likely to be many dealers who can conveniently take in or give out large supplies of it and this tends to steady the market but where barter prevails apples are likely to be exchanged for nuts in one case for fish in another for arrows in another and so on the seeing influences which hold together a market in which values are set in money are absent and we are obliged to regard the marginal utilities of all commodities as varying it is however true that if nut growing had been a chief industry of our barter district and all the traders on both sides had large stores of nuts while only the A's had apples then the exchange of a few handfuls of nuts would not have visibly affected their stores or changed appreciably the marginal utility of nuts in that case the bargaining would have resembled in all fundamentals the buying and selling in an ordinary corn market thus for instance let a single A with twenty apples bargain with a single B let A be willing to sell five apples for fifteen nuts a sixth for four nuts a seventh for five an eighth for six a ninth for seventh and so on the marginal utility of nuts being always constant to him so that he is just willing to sell the eighth for sixth and so on whether in the earlier part of the trade he has got the better of the bargaining with B or not meanwhile let B be willing to pay fifty nuts for the first five apples rather than go without them nine for a sixth seven for a seventh six for an eighth and only five for a ninth the marginal utility of nuts being constant to him so that he will give just six nuts for the eighth apple whether he has bought the earlier apples deeply or not in this case the bargaining must issue in the transfer of eight apples the eighth apple being given for six nuts but of course if A had got the better of the bargaining at first he might have got fifty or sixty nuts for the first seven apples while if B had got the better of the bargaining at first he might have got the first seven apples for thirty or forty nuts this corresponds to the fact that in the corn market discussed in the text about seven hundred quarters would be sold with a final rate of thirty six shillings but if the sellers had got the best of the bargaining at first the aggregate price paid might be a good deal more than seven hundred times thirty six shillings while if the buyers had got the better of the bargaining at first the aggregate price would be a good deal less than seven hundred times thirty six shillings the real distinction then between the theory of buying and selling in that of barter is that in the former it generally is and in the latter generally is not right to assume that the stock of one of the things which is in the market and ready to be exchanged for the other is very large and in many hands and that therefore its marginal utility is practically constant c-note twelve bis in the mathematical appendix end of appendix