 Preffis i'r first edition of Principles of Economics. Ys is a LibriVox recording. All LibriVox recordings are in the public domain, for more information or to volunteer visit LibriVox.org, this reading by Carl Manchester 2007. Principles of Economics, an introductory volume, by Alfred Marshall. Natura non facid sultum Preffis to the first edition. Economic conditions are constantly changing, and each generation looks at its own problems in its own way. In England, as well as on the continent and in America, economic studies are being more vigorously pursued now than ever before, but all this activity has only shown the more clearly that economic science is and must be one of slow and continuous growth. Some of the best work of the present generation has indeed appeared at first sight to be antagonistic to that of earlier writers, but when it has had time to settle down into its proper place and its rough edges have been worn away, it has been found to involve no real breach of continuity in the development of the science. The new doctrines have supplemented the older, have extended, developed and sometimes corrected them, and often have given them a different tone by a new distribution of emphasis, but very seldom have subverted them. The present treatise is an attempt to present a modern version of old doctrines with the aid of the new work and with reference to the new problems of our own age. Its general scope and purpose are indicated in Book 1, at the end of which a short account is given of what are taken to be the chief subjects of economic inquiry and the chief practical issues on which that inquiry has a bearing. In accordance with the English traditions, it is held that the function of the science is to collect, arrange and analyse economic facts and to apply the knowledge gained by observation and experience in determining what are likely to be the immediate and ultimate effects of various groups of causes, and it is held that the laws of economics are statements of tendencies expressed in the indicative mood and not ethical precepts in the imperative. Economic laws and reasonings, in fact, are merely a part of the material which conscience and common sense have to turn to account in solving practical problems and in laying down rules which may be a guide in life. But ethical forces are among those of which the economist has to take account. Attempts have indeed been made to construct an abstract science with regard to the actions of an economic man who is under no ethical influences and who pursues pecuniary gain warily and energetically but mechanically and selfishly. But they have not been successful nor even are thoroughly carried out, for they have never really treated the economic man as perfectly selfish. No one could be relied on better to endure toil and sacrifice with the unselfish desire to make provision for his family and his normal motives have always been tacitly assumed to include the family affections. But if they include these, why should they not include all other altruistic motives? The action of which is so far uniform in any class, at any time and place that it can be reduced to a general rule. There seems to be no reason and in the present book normal action is taken to be that which may be expected under certain conditions from the members of an industrial group and no attempt is made to exclude the influence of any motives the action of which is regular merely because they are altruistic. If the book has any special character of its own that may perhaps be said to lie in the prominence which it gives to this and other applications of the principle of continuity. This principle is applied not only to the ethical quality of the motives by which a man may be influenced in choosing his ends but also to the sagacity, the energy and the enterprise with which he pursues those ends. Thus stress is laid on the fact that there is a continuous graduation from the actions of city men which are based on deliberate and far-reaching calculations and are executed with vigour and ability to those of ordinary people who have neither the power nor the will to conduct their affairs in a business-like way. The normal willingness to save the normal willingness to undergo a certain exertion for a certain pecuniary reward or the normal alertness to seek the best markets in which to buy and sell or to search out the most advantageous occupation for oneself or for one's children all these and similar phrases must be relative to the members of a particular class at a given place and time but when that is once understood the theory of normal value is applicable to the actions of the unbusiness-like classes in the same way though not with the same precision of detail as those of the merchant or banker and there is no sharp line of division between the conduct which is normal and that which has to be provisionally neglected as abnormal so there is none between normal values and current or market or occasional values the latter are those values in which the accidents of the moment exert a preponderating influence while normal values are those which would be ultimately attained if the economic conditions under view had time to work out undisturbed their full effect but there is no impassable gulf between these two they shade into one another by continuous gradations the values which we may regard as normal if we were thinking of the changes from hour to hour on a produce exchange do but indicate current variations with regard to the years history and the normal values with reference to the years history are but current values with reference to the history of the century for the element of time which is the centre of the chief difficulty of almost every economic problem is itself absolutely continuous nature knows no absolute partition of time into long periods and short but the two shade into one another by imperceptible gradations and what is a short period for one problem or a long period for another thus for instance the greater part though not the whole of the distinction between rent and interest on capital turns on the length of the period which we have in view that which is rightly regarded as interest on free or floating capital or on new investments of capital is more properly treated as a sort of rent a quasi-rent it is called below on old investments of capital and there is no sharp line of division between floating capital and that which has been sunk for a special branch of production nor between new and old investments of capital each group shades into the other gradually and thus even the rent of land is seen not as a thing by itself but as the leading species of a large genus though indeed it has peculiarities of its own which are of vital importance from the point of view of theory as well as of practice again though there is a sharp line of division between man himself and the appliances which he uses and though the supply of and the demand for human efforts and sacrifices have peculiarities of their own which do not attach to the supply of and the demand for material goods yet after all these material goods are themselves generally the result of human efforts and sacrifices the theories of the values of labour and of the things made by it cannot be separated they are parts of one great whole and what differences there are between them even in matters of detail turn out on inquiry to be for the most part differences of degree rather than of kind as in spite of the general differences in form between birds and quadrupeds there is one fundamental idea running through all their frames so the general theory of the equilibrium of demand and supply is a fundamental idea running through the frames of all the various parts of the central problems of distribution and exchange footnote in the economics of industry published by my wife and myself in 1879 an endeavour was made to show the nature of this fundamental unity a short provisional account of the relations of demand and supply was given before the theory of distribution and then this one scheme of general reasoning was applied in succession to the earnings of labour the interest on capital and the earnings of management but the drift of this arrangement was not made sufficiently clear and on Professor Nicholson's suggestion more prominence has been given to it in the present volume end footnote another application of the principle of continuity is to the use of terms there has always been a temptation to classify economic goods in clearly defined groups about which a number of short and sharp propositions could be made to gratify at once the students desire for logical precision and the popular liking for dogmas that have the air of being profound and are yet easily handled but great mischief seems to have been done by yielding to this temptation and drawing broad artificial lines of division where nature has made none the more simple and absolute an economic doctrine is the greater will be the confusion which it brings into attempts to apply economic doctrines to practice if the dividing lines to which it refers cannot be found in real life there is not in real life a clear line of division between things that are and are not capital or that are and are not necessaries or again between labour that is and is not productive the notion of continuity with regard to development is common to all modern schools of economic thought whether the chief influences acting on them are those of biology as represented by the writings of Herbert Spencer or of history and philosophy as represented by Hegel's philosophy of history and by more recent ethical historical studies on the continent and elsewhere these two kinds of influences have affected more than any other the substance of the views expressed in the present book but their form has been most affected by mathematical conceptions of continuity as represented in Cournot's principe mathématique de la théorie des richesses he taught that it is necessary to face the difficulty of regarding the various elements of an economic problem not as determining one another in a chain of causation be determining B, be determining C and so on but as mutually determining one another nature's action is complex and nothing is gained in the long run by pretending that it is simple and trying to describe it in a series of elementary propositions under the guidance of Cournot and in a less degree of Von Thunan I was led to attach great importance to the fact that our observations of nature in the moral as in the physical world relate not so much to aggregate quantities as to increments of quantities and in particular that the demand for a thing is a continuous function of which the marginal increment is in stable equilibrium balanced against the corresponding increment of its cost of production Footnote the term marginal increment I borrowed from Von Thunan's to isolate a start 1826-63 and is now commonly used by German economists when Jeven's theory appeared I adopted his word final but I have been gradually convinced that marginal is the better end footnote it is not easy to get a clear full view of continuity in this aspect without the aid either of mathematical symbols or of diagrams the use of the latter requires no special knowledge and they often express the conditions of economic life more accurately as well as more easily than do mathematical symbols and therefore they have been applied as the supplementary illustrations in the footnotes of the present volume the argument in the text is never dependent on them and they may be omitted but experience seems to show that they give a firmer grasp of many important principles but without their aid and that there are many problems of pure theory which no one who has once learnt to use diagrams will willingly handle in another way the chief use of pure mathematics in economic questions seems to be in helping a person to write down quickly, shortly and exactly some of his thoughts for his own use and to make sure that he has enough and only enough premises for his conclusions i.e. that his equations are neither more nor less in number than his unknowns but when a great many symbols have to be used they become very laborious to anyone but the writer himself and though cornos genius must give a new mental activity to everyone who passes through his hands and mathematicians of calibre similar to his may use their favourite weapons in clearing away for themselves to the centre of some of those difficult problems of economic theory that only the outer fringe has yet been touched yet it seems doubtful whether anyone spends his time well in reading lengthy translations of economic doctrines into mathematics that have not been made by himself a few specimens of those applications of mathematical language which have proved most useful for my own purposes have however been added in an appendix September 1890 end of the preface to the first edition preface to the 8th edition of principles of economics book 1 this is the LibriVox recording all LibriVox recordings are in the public domain for more information or to volunteer please visit LibriVox.org principles of economics book 1 preface to the 8th edition this edition is a reprint of the 7th which was almost a reprint of the 6th the only changes being in small matters of detail the preface is almost the same as in the 7th edition it is now 30 years since the first edition of this book implied a promise that a second volume completing the treatise would appear within a reasonable time but I had laid my plan on too large a scale and it's scope widened especially on the realistic side with every pulse of that industrial revolution of the present generation which has far outdone the changes of a century ago in both rapidity and breadth of movement so ere long I was compelled to abandon my hope of completing the work in two volumes my subsequent plans were changed more than once partly by the course of advance partly by my other engagements and the decline of my strength industry and trade published in 1919 is in effect a continuation of the present volume a third on trade, finance and the industrial future is far advanced the three volumes are designed to deal with the chief problems of economics so far as the writer's power extends the present volume therefore remains as a general introduction to the study of economic science similar in some respects, though not all to that of volumes on foundations Gran Lagan, which Roger and some other economists have put in the forefront of groups of semi-independent volumes on economics it avoids such special topics as currency and the organization of markets and in regards to such matters as structure of industry, employment and the problem of wages it deals mainly with normal conditions economic evolution is gradual its progress is sometimes arrested or reversed by political catastrophes but its forward movements are never sudden for even in the western world and in Japan it is based on habit partly conscious, partly unconscious and though an inventor or an organizer or a financier of genius may seem to have modified the economic structure of a people almost at a stroke yet that part of his influence which has not been merely superficial and transitory is found on enquiry to have done little more than bring to head a broad constructive movement which had long been in preparation those manifestations of nature which occur most frequently and are so orderly that they can be closely watched and narrowly studied are the basis of economic as of most other scientific work while those that are spasmatic infrequent and difficult of observation are commonly reserved for special examination at a later stage and the motto natura non facit seldom is especially appropriate to a volume on economic foundations in illustration of this contrast may be taken from the distribution of the study of large businesses between the present volume and that on industry and trade when any branch of industry offers an open field for new firms which rise to the first rank and perhaps after a time decay the normal cost of production in it can be estimated with reference to a representative firm which enjoys a fair share both of those internal economies which belong to a well organized individual business and those general or external economies which arise out of the collective organization of the district as a whole a study of such a firm belongs properly in a volume on foundations so also does a study of the principles on which a firmly established monopoly in the hands of a government department or large railway regulates its prices with main reference indeed to its own revenue but also with a more or less consideration for the well-being of its customers but normal action falls into the background when trusts are striving for the mastery of a large market when communities of interest are being made and unmade and above all when the policy of any particular establishment is likely to be governed not with a single eye to its own business success but in subordination of some large stock exchange maneuver or some campaign for the control of markets such matters cannot be fitly discussed in a volume on foundations they belong to a volume dealing with some part of the superstructure the mech of the economist lies in economic biology rather than in economic dynamics but biological conceptions are more complex than those of mechanics a volume on foundations must therefore give a relatively large place to mechanical analogies and frequent uses made of the term equilibrium which suggests something of a statical analogy this fact combined with the predominant attention paid in the present volume to the normal conditions of life in the modern age has suggested the notion that its central idea is statical rather than dynamical but in fact it is conserved throughout with the forces that cause movement and its keynote is that of dynamics rather than statics the forces to be dealt with are however so numerous that it is best to take a few at a time and to work out a number of partial solutions as auxiliaries to our main study thus we begin by isolating the primary relations of supply, demand and price in regard to a particular commodity we reduce to inaction all other forces by the phrase other things being equal we do not suppose that they are inert but for the time we ignore their activity this scientific device is a great deal older than science it is the method by which consciously or unconsciously sensible men have dealt from time immemorial with every difficult problem of ordinary life in the second stage more forces are released from the hypothetical slumber that had been imposed on them changes in the conditions of demand for and supply of particular groups of commodities come into play and their complex mutual interactions begin to be observed gradually the area of the dynamical problem becomes larger the area covered by provisional statical assumptions becomes smaller and at last is reached the greater central problem of the distribution of the national dividend among a vast number of different agents of production meanwhile the dynamical principle of substitution is seen ever at work causing the demand for and the supply of any one set of agents of production to be influenced through indirect channels by the movements of demand and supply in relation to other agents even though situated in far remote fields of the industry the main concern of economics is thus with human beings who are impelled for good and evil to change and progress fragmentary statical hypothesis are used as temporary auxiliaries to dynamical or rather biological conceptions but the central idea of economics even when its foundations alone are under discussion must be that of living force and movement there have been stages in social history in which the special features of the income yielded by the ownership of land have dominated human relations and perhaps they may again assert a preeminence but in the present age the opening out of new countries aided by low transport charges on land and sea has almost suspended the tendency to diminishing return in that sense in which the term was used by Malthus and Ricardo when English laborers weekly wages were often less than the price of half a bushel of good wheat and yet if the growth of the growth of population should continue for very long even at a quarter of its present rate the aggregate rental values of land for all its uses assumed to be as free as now from restraint by public authority may again exceed the aggregate of incomes derived from all other forms of material property even though that may then embody 20 times as much labor as now increasing stress has been laid in successive additions up to the present on these facts and also on the correlated fact that in every branch of production and trade there is margin up to which an increased application of any agent will be profitable under given conditions but beyond which its further application will yield a diminishing return unless there be some increase of demand accompanied by an appropriate increase of other agents of production needed to cooperate with it and a similar increasing stress has been laid on the complementary fact that this notion of a margin is not uniform and absolute it varies with the conditions of the problem in hand and in particular with the period of time to which references being made the rules are universal that 1. Marginal costs do not govern price 2. It is only at the margin that the actions of those forces which do govern price can be made to stand out in clear light and 3. The margin which must be studied in reference to long periods and enduring results differs in character as well as in extent from that which must be studied in reference to short periods and to passing fluctuations. Variations in the nature of marginal costs are indeed largely responsible for the well-known fact that those effects of an economic cause which are not easily traced are frequently more important than and in opposite direction to those which lie on the surface and attract the eye of the casual observer. This is one of those fundamental difficulties which have underlaid and troubled the economic analysis of past times its full significance is perhaps not yet generally recognized and much more work may need to be done before it is fully mastered. The new analysis is endeavouring gradually and tentatively to bring over into economics as far as the widely different nature of the material will allow those methods of the science of small increments commonly called the differential calculus to which man owes directly or indirectly the greater part of control that he has obtained in recent times over physical nature. It is still in its infancy. It has no dogma and no standard of orthodoxy. It has not yet had time to obtain a perfectly settled terminology and some of the differences as to the best use of terms and other subordinate matters are but a sign of healthy life. In fact, however, there is a remarkable harmony and agreement on essentials among those who are working constructively by the new method and especially among such of them that have served in the simpler and more definite and therefore more advanced problems of physics. There another generation has passed. It's dominion over that limited but important field of economic inquiry to which it is appropriate will probably be no longer in dispute. My wife has aided and advised me at every stage of successive editions of this volume. Each one of them owes a great deal to her suggestion and her care and her judgment. Dr Keynes and Mr L L Price read through the proofs of the first edition and helped me greatly. And Mr A W Flux has done much for me. Among the many who have helped me on special points, in some cases in regard to more than one edition, I would specially mention Professors Ashley, Canon, Edgeworth, Haverfield, Pigu and Tossig. Dr Barry, Mr C R Fay and the late Professor Sigwick. End of the Preface to the 8th edition, Principles of Economics, Book 1 by Alfred Marshall. Chapter 1 of Principles of Economics, Book 1. 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, Book 1. By Alfred Marshall. Chapter 1 Introduction 1. Political Economy or Economics is a study of mankind and the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being. Thus, it is on the one side a study of wealth and on the other, and more important side, a part of the study of man. For man's character has been molded by his everyday work and the material resources which he thereby procures, molded by any other influence unless it be that of his religious ideals. And the two great forming agencies of the world's history have been the religious and the economic. Here and there the art of the military or the artistic spirit has been for a while predominant, but religious and economic influences have nowhere been displaced from the front rank, even for a time. And they have nearly always been more important than all others put together. Religious motives are more intense than economic, but their direct action seldom extends over so large a part of life. For the business by which a person earns his livelihood generally fills his thoughts during by far the greater part of those hours in which his mind is at its best. During them his character is being formed by the way in which he uses his faculties in his work, by the thoughts and the feelings which it suggests, and by his relations to his associates and work, his employers or his employees. And very often the influence exerted on a person's character by the amount of his income is hardly less if it is less than that exerted by the way in which it is earned It may make little difference to the fullness of life of a family whether it's yearly income is £1,000 or £5,000 but it makes a very great difference whether the income is £30 or £150 for with £150 the family has with £30 it has not the material conditions of a complete life. It is true that in religion in the family of factions even the poor may find scope for many of those faculties which are the source of the highest happiness but the conditions which surround extreme poverty especially in densely crowded places tend to deaden the higher faculties. Those who have been called the residuum of our large towns have little opportunity for friendship they know nothing of the decencies and the quiet and very little even of the unity of family life and religion often fails to reach them no doubt their physical mental and moral ill health is partly due to other causes than poverty but this is the chief cause and in addition to the residuum there are vast numbers of people both in town and country who are brought up with insufficient food clothing and house room whose education is broken off early in order that they may go to work for wages engaged during long hours in exhausting toil with imperfectly nourished bodies and have therefore no chance of developing their higher mental faculties. Their life is not necessarily unhealthy or unhappy rejoicing in their affections towards God and man and perhaps even possessing some natural refinement of feeling they may lead lives that are far less incomplete than those of many who have more material wealth but for all that their poverty is a great and almost unmixed evil to them even when they are well their wariness often amounts to pain while their pleasures are few and when sickness comes the suffering caused by poverty increases tenfold and though a contented spirit may go far towards reconciling them to these evils there are others to which it ought not to reconcile them overworked and undertaught by poverty and care-warn without quiet and without leisure they have no chance of making the best of their mental faculties although then some of the evils which commonly go with poverty are not its necessary consequences yet broadly speaking the destruction of the poor is their poverty and the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind two was regarded by Aristotle as an ordinance of nature and so probably was it by the slaves themselves in olden time the dignity of man was proclaimed by the Christian religion it has been asserted with increasing vehemence during the last hundred years but only through the spread of education during quite recent times are we beginning to feel the full import of the phrase now at last we are setting ourselves seriously to inquire whether it is necessary that there should be any so-called lower classes at all that is whether there need be large numbers of people doomed from their birth to hard work in order to provide for others the requisites of a refined and cultured life while they themselves are prevented by their poverty and toil from having any share or part in that life the hope that poverty and ignorance may gradually be extinguished derives indeed much support from the steady progress of the working classes during the 19th century the steam engine has relieved them of much exhausting and degrading toil wages have risen education has been improved and become more general the railway and the printing press have enabled members of the same trade in different parts of the country to communicate easily with one another and to undertake and carry out broad and far-seeing lines of policy while the growing demand for intelligent work has caused the artisan classes to increase so rapidly that the labour is entirely unskilled a great part of the artisans have ceased to belong to the lower classes in the sense in which the term was originally used and some of them already lead a more refined and noble life than to the majority of the upper classes even a century ago this progress has done more than anything else to give practical interest to the question whether it is really impossible that all should start in the world with a fair chance of leading a cultured life free from the pains of poverty and the stagnating influences of excessive mechanical toil and this question is being pressed to the front by the growing earnestness of the age the question cannot be fully answered by economic science for the answer depends partly on the moral and political capabilities of human nature and on these matters the economist has no special means of information he must do as others do and guess as best he can but the answer depends in a great measure upon facts and inferences which are within the province of economics and this it is which gives to economic studies their chief and their highest interest three it might have been expected that a science which deals with questions so vital for the well-being of mankind would have engaged the attention of many of the ableist thinkers of every age and be now well advanced towards majority but the fact is that the number of scientific economists has always been small relatively to the difficulty of the work to be done so that the science is still almost in its infancy one cause of this is that the bearing of economics on the higher well-being of man has been overlooked indeed a science which has wealth for its subject matter is often repugnant at first sight to many students for those who do most to advance the boundaries of knowledge seldom care much about the possession of wealth for its own sake but a more important cause is that many of those conditions of industrial life and of those methods of production distribution and consumption with which modern economic science is concerned are themselves only of recent date it is indeed true that the change in substance is in some respects not so great as the change in outward form and much more of modern economic theory than at first appears can be adapted to the conditions of backward races that unity in substance underlying many varieties of form is not easy to detect and changes in form have had the effect of making writers in all ages profit less than they otherwise might have done by the work of their predecessors the economic conditions of modern life though more complex are in many ways more definite than those of earlier times businesses more clearly marked off from other concerns the rights of individuals is against others and is against the community are more sharply defined and above all the emancipation from custom and the growth of free activity of constant forethought and restless enterprise have given a new precision and a new prominence to the causes that govern the relative values of different things and different kinds of labour 4 it said that the modern forms of industrial life are distinguished from the earlier by being more competitive but this account is not quite satisfactory the strict meaning of competition seems to be the racing of one person against another with special reference to bidding for the sale or purchase of anything this kind of racing is no doubt both more intense and more widely extended than it used to be but it is only a secondary and one might almost say a mental consequence from the fundamental characteristics of modern industrial life there is no one term that will express these characteristics adequately they are, as we shall presently see a certain independence in the habit of choosing one's own course for oneself a self-reliance a deliberation and yet a promptness of choice and judgement and a habit of forecasting the future and of shaping one's course they may and often do cost people to compete with one another but on the other hand they may tend and just now indeed they are tending in the direction of cooperation in combination of all kinds good and evil but these tendencies towards collective ownership and collective action are quite different from those of earlier times because they are the result not of custom not of any passive drifting into association with one's neighbours but a free choice by each individual which after careful deliberation seems to him the best student for attaining his ends whether they are selfish or unselfish the term competition has gathered about an evil saver and has come to imply a certain selfishness and a difference to the well-being of others now it is true that there is less deliberate selfishness in early than in modern forms of industry but there is also less deliberate unselfishness it is deliberateness not selfishness that is the characteristic of the modern age for instance while custom in a primitive society extends the limits of the family and prescribes certain duties to one's neighbours which fall into disuse in a later civilization it also prescribes an attitude of hostility to strangers in a modern society the obligations of family kindness become more intense though they are concentrated on a narrower area and neighbours are put more nearly on the same footing with strangers an ordinary dealings with both of them the standard of fairness and honesty is lower than in some of the dealings of a primitive people with their neighbours but it is much higher than in their dealings with strangers thus it is the ties of neighbourhood alone that have been relaxed the ties of family are in many ways stronger than before family affection leads to much more self-sacrifice and devotion than it used to do and sympathy with those who are strangers to us is a growing source of a kind of deliberate unselfishness that never existed before the modern age that country which is the birthplace of modern competition devotes a larger part of its income than any other to charitable uses and spent 20 millions on purchasing the freedom of the slaves in the west Indies in every age poets and social reformers have tried to stimulate the people of their own time to a nobler life by enchanting stories of the virtues of the heroes of old but neither the records of history nor the contemporary observation of backward races when carefully studied give any support to the doctrine that man is on the whole harder and harsher than he was or that he was ever more willing than he is now to sacrifice his own happiness for the benefit of others in cases where custom and law have left him free to choose his own course among races whose intellectual capacity seems not to have developed in any other direction and who have none of the originating power of the modern businessman there will be found many who show an evil sagacity in driving a hard bargain in a market even with their neighbors no traders are more unscrupulous in taking advantage of the necessities of the unfortunate than are the corn dealers and money lenders of the east again the modern era has undoubtedly given new openings for dishonesty and trade the advance of knowledge has discovered new ways of making things appear other than they are and has rendered possible many new forms of adulteration the producer is now far removed from the ultimate consumer and his wrongdoings are not visited with the prompt and sharp punishment which falls on the head of a person who being bound to live and die in his native village plays a dishonest trick on one of his neighbors the opportunities for navery are certainly more numerous than they were but there is no reason for thinking that people have failed themselves of a larger proportion of such opportunities than they used to do on the contrary modern methods of trade imply habits of trustfulness on the one side and a power of resisting temptation to dishonesty on the other which do not exist among the backward people instances of simple truth and personal fidelity are met with under all social conditions but those who have tried to establish a business of modern type in a backward country find that they can scarcely ever depend on the native population for filling posts of trust it is even more difficult to dispense with important assistance for work which calls for a strong moral character than for that which requires great skill and mental ability adulteration and fraud and trade were rampant in the middle ages to an extent that is very astonishing when we consider the difficulties of wrongdoing without detection at that time in every stage of civilization in which the power of money has been prominent poets in verse and prose have delighted to depict a past truly golden age before the pressure of mere material gold had been felt their idyllic pictures have been beautiful and have stimulated noble imaginations and results but they have had very little historical truth small communities with simple wants for which the bounty of nature has made abundant provision have indeed sometimes been nearly free from care about their material needs and have not been tempted to sordid ambitions but whenever we can penetrate to the inner life of a crowded population under primitive conditions in our own time we find more want, more nearness and more hardness than was manifest at a distance and we never find a more widely diffused comfort alloyed by less suffering in the western world today we ought therefore not to brand the forces which have made modern civilization by a name which suggests evil it is perhaps not reasonable that such a suggestion should attach to the term competition but in fact it does in fact when competition is arraind its antisocial forms are made prominent and care is seldom taken to inquire whether there are not other forms of it which are so essential to the maintenance of energy and spontaneity that their cessation might probably be injurious on the balance to social well-being the traders or producers who find that a rival is offering goods at a lower price than will yield them a good profit are angered at his intrusion and complain of being wronged even though it may be true that those who buy the cheaper goods are being wronged even though it may be true that those who buy the cheaper goods of their rival is a social gain in many cases the regulation of competition is a misleading term that fails the formation of a privileged class of producers who often use their combined force to frustrate the attempts of an able man to rise from a lower class than their own under the pretext of repressing antisocial competition they deprive him of the liberty of carving out for himself a new career where the services rendered by him to the consumers of the commodity would be greater than the injuries that he inflicts on the relatively small group which objects to his competition if competition is contrasted with energetic cooperation in unselfish work for the public good then even the best forms of competition are relatively evil while it's harsher and meaner forms are hateful and in a world in which all men were perfectly virtuous competition would be out of place but so also would be private property and every form of private right men would think only of their duties and no one would desire to have a larger share of the comforts and luxuries of life than his neighbors strong producers could easily bear a touch of hardship so they would wish that their weaker neighbors while producing less should consume more happy in this thought they would work for the general good with all the energy, the inventiveness and the eager initiative that belonged to them and mankind would be victorious in contest with nature at every turn such as the golden age to which poets and dreamers may look forward but in the responsible conduct of affairs it is worse than folly to ignore the imperfections which still cling to human nature history in general and especially the history of socialistic ventures shows that ordinary men are seldom capable of pure ideal altruism for any considerable time together and that the exceptions are to be found only when the masterful fervor of a small band of religious enthusiasts makes material concerns to count for nothing in comparison with the higher faith no doubt men, even now are capable of much more unselfish service than they generally render and the supreme aim of the economist is to discover how this latent social asset can be developed most quickly and turn to account most wisely but he must not to cry competition in general without analysis he is bound to retain a neutral attitude towards any particular manifestation of it until he is sure that human nature being what it is the restraint of competition would not be more antisocial in its working than the competition itself we may conclude then that the term competition is not well suited to describe the special characteristics of industrial life in the modern age we need a term that does not imply any moral qualities whether good or evil but which indicates the undisputed fact that modern business and industry are characterized by more self-reliant habits more forethought more deliberate and free choice there is not any one-term adequate for this purpose but freedom of industry and enterprise or more shortly economic freedom points in the right direction and it may be used in the absence of a better of course this deliberate and free choice may lead to a certain departure from individual freedom when cooperation or combination seems to offer the best route to the desired end the questions how far these deliberate forms of association are likely to destroy the freedom in which they had their origin and how far they are likely to be conducive to the public wheel lie beyond the scope of the present volume five this introductory chapter was followed in earlier editions by two short sketches the one related to the growth of free enterprise and generally of economic freedom and the other to the growth of economic science they have no claim to be systematic histories however compressed they aim only at indicating some landmarks on the routes by which economic structure and economic thought have travelled to their present position they are now transferred to appendices A and B at the end of this volume partly because their full drift can best be seen after some acquaintance has been made with the subject matter of economics and partly because in the 20 years which have elapsed since they were first written public opinion is to the position which the study of economic and social science should hold in a liberal education has greatly developed there is less need now than formerly to insist that the economic problems of the present generation derive much of their subject matter from technical and social changes that are of recent date and that their form as well as their urgency assume throughout the effect of economic freedom of the mass of the people the relations of many ancient Greeks and Romans with the slaves of their households were genial and humane but even in Attica the physical and moral well-being of the great body of the inhabitants was not accepted as a chief aim of the citizen ideals of life were high but they concerned only a few and the doctrine of value which is full of complexities in the modern age could then have been worked out on a plan such as could be conceived today only if nearly all manual work were superseded by automatic machines which required merely a definite allowance of steam power and materials and had no concern with the requirements of a full citizen's life much of modern economics might indeed have been anticipated in the towns of the middle ages in which an intelligent and daring spirit was for the first time combined with patient industry but they were not left to work out their career in peace and the world had to wait for the dawn of economic error till a whole nation was ready for the ordeal of economic freedom England especially was gradually prepared for the task but towards the end of the 18th century the changes which had so far been slow and gradual suddenly became rapid and violent mechanical interventions the concentration of industries and a system of manufacturing on a large scale for distant markets broke up the old traditions of industry everyone to bargain for himself as best he might and at the same time they stimulated an increase of population for which no provision had been made beyond standing room in factories and workshops thus free competition or rather freedom of industry and enterprise was set loose to run like a huge untrained monster its wayward course the abuse of their new power by able but uncultured businessmen every side it unfitted mothers for their duties it weighed down the children with overwork and disease and in many places it degraded the race meanwhile the kindly meant recklessness of the poor law did even more to lower the moral and physical energy of Englishmen than the hard-hearted recklessness of the manufacturing discipline for by depriving the people of those qualities which would fit them for the new order of things and increase the evil of free enterprise and yet the time at which free enterprise was showing itself in an unnaturally harsh form was the very time in which economists were most lavish in their praises of it this was partly because they saw clearly what way of this generation having a great measure forgotten the cruelty of the yoke of custom and rigid ordinance which it had displaced and partly because the general tendency of Englishmen at the time was to hold that freedom that matters political and social was worth having at every cost except the loss of security but partly also it was that the productive forces which free enterprise was giving to the nation were the only means by which it could offer a successful resistance to Napoleon economists therefore treated free enterprise not indeed as an unmixed good but as a less evil than such regulation as was practicable at the time adhering to the lines of thought that had been started chiefly by medieval traders and continued by French and English philosophers in the latter half of the 18th century Ricardo and his followers developed a theory of the action of free enterprise or as they said free competition which contained many truths that will be probably important so long as the world exists their work was wonderfully complete within the narrow area which it covered but much of the best of it consists of problems relating to rent and the value of corn problems on the solution of which the fate of England just then seemed to depend but many of which in the particular form in which they were worked out by Ricardo have very little direct bearing on the present state of things a good deal of the rest of their work was narrowed by its regarding too exclusively the peculiar condition of England at that time and this narrowness has caused a reaction so that now when more experience more leisure and greater material resources have enabled us to bring free enterprise somewhat under control to diminish its power of doing evil and increase its power of doing good there was growing up among many economists a sort of spite against it some even inclined to exaggerate its evils and attribute to it the ignorance and suffering which are the results either of tyranny and the oppression in past ages or of the misunderstanding and mismanagement of economic freedom the intermediate between these two extremes are the great body of economists too working on parallel lines in many different countries are bringing to their studies an unbiased desire to ascertain the truth and a willingness to go through with the long and heavy work by which alone scientific results of any value can be obtained varieties of mind, of temper of training and of opportunities lead them to work in different ways and to give their chief attention to different parts of the problem all around more or less to collect and arrange facts and statistics relating to past and present times and all around to occupy themselves more or less with analysis and reasoning on the basis of those facts which are ready at hand but some find the former task the more attractive and absorbing and others the latter this division of labour however implies not opposition but harmony of purpose the work of all adds something rather to that knowledge which enables us to understand the influences exerted on the quality and tone of man's life by the manner in which he earns his livelihood and by the character of that livelihood End of Chapter 1 Chapter 2 of the principle of economics Book 1 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 Nikki Sullivan Principle of Economics Book 1 by Alfred Marshall Chapter 2 The Substance of Economics Economics is the study of men as they live and move and think in the ordinary business of life but it concerns itself chiefly with those motives which affect most powerfully and steadily man's conduct in the business part of his life Everyone who is worth anything carries his higher nature with him into business and there is elsewhere he is influenced by his personal affections by his conceptions of duty and his reverence for high ideals and it is true that the best energies of the ableist inventors and organizers of improved methods and appliances are stimulated by a noble emulation more than by any love of wealth for its own sake but for all that the steadiest motive to ordinary business work is the desire for pay which is the material reward of work The pay may be on its way to be spent selfishly or uns selfishly for noble or base ends and here the variety of human nature comes into play but the motive is supplied by a definite amount of money and it is this definite and exact measurement of the steadiest motives in business life which has enabled economics far to outrun every other branch of the study of man just as the chemists find balance has made chemistry more exact than most other physical sciences so this economics balance rough and imperfect as it is has made economics more exact than any other branch of social science but of course economics cannot be compared with the exact physical sciences for it deals with the ever changing and subtle forces of human nature the advantage which economics has over other branches of social science appears then to arise from the fact that its special field of work gives rather larger opportunities for exact methods than any other branch it concerns itself chiefly with those desires, aspirations and other affections of human nature that would manifestations of which appear as incentives to action in such a form that the force or quantity of the incentive can be estimated and measured by the search to accuracy in which therefore are in some degree amenable to treatment by scientific machinery an opening is made for the methods and the tests of science as soon as the force of the person's motives not the motives themselves can be approximately measured by the sum of money which he will just give up in order to secure a desired satisfaction or again by the sum which is just required to induce him to take it is essential to note that the economist does not claim to measure any affection of the mind itself or directly but only indirectly through its effect no one can compare and measure accurately against one another even his own mental states at different times and no one can measure the mental states of another at all except indirectly and conjecturally by their effects of course various affections belong to man's higher nature and others to his lower and are thus different in kind but even if we can find our attention to mere physical pleasures and pains of the same kind we find that they can only be compared indirectly by their effects in fact even this comparison is necessarily to some extent conjectural unless they occur to the same person at the same time for instance the pleasures drive from smoking cannot be directly compared nor can even those which the same person drives from it at different times but if we may find a man in doubt whether to spend a few pints on a cigar or a cup of tea or on riding home instead of walking home then we may follow ordinary usage and say that he expects from them equal pleasures if then we wish to compare even physical gratifications we must do it not directly but indirectly by the incentives which they afford to action if the desires to secure either of two pleasures will induce people in similar circumstances each to do just an hours extra work or will induce men in the same rank of life and with the same means each to pay a shilling for it we then may say that those pleasures are equal for our purposes because the desires for them are equally strong incentives to action for persons under similar conditions thus measuring a mental state as men do an ordinary life by its motor force or the incentive which it affords to action no new difficulty is introduced by the fact that some of the motives of which we have to take account belong to man's higher nature and others to his lower for suppose that a person whom we saw doubting between several little gratifications for himself had thought after a while a poor invalid whom he would pass on his way home and had spent some time in making up his mind whether he would choose a physical gratification for himself or would do a kindly act and rejoice in another's joy as his desires turned now towards the one now to the other there would be change in the quality of his mental states and the philosopher is bound to study the nature of the change but the economist studies mental states rather through their manifestations than in themselves and if he finds they afford evenly balanced incentives to action he treats them prima facie as for his purpose equal he follows indeed in a more patient and thoughtful way and with greater precautions what everybody is doing every day in ordinary life he does not attempt to weigh the real value of the higher affections of our nature against those of our lower balance the love for virtue against the desire for agreeable food he estimates the incentives to action by their effects just in the same way as people do in common life he follows the course of ordinary conversation differing from it only in taking more precautions to make clear the limits of his knowledge as he goes he reaches his provisional conclusions by observations of men in general under given conditions without attempting to fathom the mental and spiritual characteristics of individuals but he does not ignore the mental and spiritual side of life on the contrary even for the narrower uses of economic studies it is important to know whether the desires which prevail are such as will help build a strong and righteous character and in the broader uses of those studies when they are being applied to practical problems the economist like everyone else must concern himself with the ultimate aims of man and take account of differences in real value between gratifications that are equally powerful incentives to action and to therefore equal economic measures a study of these measures is only the starting point of economics but it is the starting point there are several other limitations of the measurement of motive by money to be discussed because money arises from the necessity of taking account of the variations in the amount of pleasure or other satisfaction represented by the same sum of money to different persons and under different circumstances a shelling may be a measure of greater pleasure or other satisfaction at one time than at another even for the same person because money may be more plentiful with him or because his sensibility may vary and person whose antecedents are similar and who are outwardly like one another are often affected in very different ways by similar events when for instance a band of city school children are sent out for a day's holiday in the country it is probable that no two of them derive from it enjoyment exactly the same in kind or equal in intensity the same surgical operation causes different amounts of pain to different people of two parents who are so far as we can tell equally affectionate one will suffer much more than the other from loss of a favorite son some who are not very sensitive generally are yet specially susceptible to particular kinds of pleasure and pain while differences in nature and education make one man's total capacity for pleasure or pain much greater than another's it would therefore not be safe to say that any two men with the same income derive equal benefit from it's use or that they would suffer equal pain from the same diminution of although when a tax of one pound is taken from each of the two persons having an income of 300 pounds a year each will give up that one pound worth of pleasure or other satisfaction that is each will give up what is measured to him by just one pound yet the intensities of the satisfaction given up may not be nearly equal nevertheless if we take averages sufficiently broad to cause the personal peculiarities of individuals to counter balance one another the money which people of equal incomes will give to obtain a benefit or avoid an injury is a good measure of the benefit or injury if there are a thousand persons living in Sheffield and another thousand in Leeds each with about 100 pounds a year and a tax of one pound is levied on all of them we may be sure that the loss of pleasure or other injury which the tax will cause in Sheffield is of about equal importance with that which it will cause in Leeds and anything that increased all the incomes by one pound would give command over equivalent pleasures and other benefits in the two towns the probability becomes greater still if all of them are adult males engaged in the same trade and therefore presumably somewhat similar insensibility and temperament and taste and education nor is the probability much diminished if we take the family as a unit and compare the loss of pleasure that results from diminishing by one pound the income of each of a thousand families with incomes of 100 pounds a year in the two places but this source of error is also lessened when we are able to consider the actions and the motives of large groups of people if we know for instance that a bank failure has taken 200,000 pounds from the people of Leeds and 100,000 pounds from those of Sheffield we may fairly assume that the suffering caused in Leeds has been about twice as great as in Sheffield unless indeed we have some special reason for believing that the shareholders of the bank in the one town were a richer class than those in the other or that the loss of employment caused by it pressed in uneven proportions on the working classes in the two towns by far the greater number of events with which economics deals affect in about equal proportions all the different classes of society so that if the money measures and the happiness caused by two events are equal it is reasonable and in accordance with common usage to regard the amounts of the happiness in the two cases as equivalent and further as money is likely to be turned to the higher uses of life in about equal proportions by any two large groups of people taken without special bias from any two parts of the western world there is even some prima facie probability that the equal additions to their material resources will make about equal additions to the fullness of life and the true progress of the human race to pass to another point when we speak of the measurement of desire by the action to which it forms the incentive it is not to be supposed that we assume every action to be deliberate in the outcome of calculation for in this as in every other respect economics takes man just as he is in ordinary life people do not weigh beforehand the results of every action whether their impulses to it come from their higher nature or their lower now the side of life with which economics is specially concerned is that in which man's conduct is most deliberate and in which he most often reckons up the advantages and disadvantages of any particular action before he enters on it and further it is that side of his life in which he does follow habit in custom and proceeds for the moment without calculation a habits and customs themselves are most nearly sure to have arisen from a close and careful watching the advantages and disadvantages of different courses of conduct there were not in general have been any formal reckoning up of two sides of a balance sheet but men going home from their day's work or in their social meetings will have said to one another it did not answer to this it would have been better to do that and so on what makes one course better than the other will not necessarily be a selfish gain nor any material gain and it would often have been argued that though this or that plan saved a little trouble or a little money yet it was not fair to others and it made one look mean or it made one feel mean it is true that when a habit or custom has grown up under one side of conditions influences action under other conditions there is so far no exact relation between the effort and the end which is attained by it in backward countries there are so many habits and customs similar to those that lead a beaver in confinement to build itself a dam they are full of suggestiveness to the historian and must be reckoned with by their legislator but in business matters in the modern world such habits quickly die away thus then the most systematic part of people's lives is generally that by which they earn their living the work of all those engaged in any one occupation can be carefully observed general statements can be made about it and tested by comparison with the results of other observations and numerical estimates can be framed as to the amount of money or general purchasing power that is required to supply a sufficient motive for them the unwillingness to postpone enjoyment and thus to save for future use is measured by the interest on accumulated wealth which just affords a sufficient incentive to save for the future this measurement presents however some special difficulties the study of which must be postponed here is elsewhere we must bear in mind that the desire to make money does not itself necessarily proceed from motives of a low order and when it is to be spent on oneself money is a means towards ends and if the ends are noble the desire for the means is not ignoble the lad who works hard and saves all he can in order to pay his way afterward at university is eager for money but his eagerness is not ignoble in short money is general purchasing power and is sought as a means to all kinds of ends high as well as low spiritual as well as material thus though it is true that money or general purchasing power or command over material wealth is the centre around which economic science clusters this is so not because money or material wealth is regarded as the main aim of human effort nor even as affording the main subject matter of the study of the economist but because in this world of ours it is the one convenient means of measuring human motive on a large scale if the older economists had made this clear they would have escaped many grievous misrepresentations and the splendid teachings of Carlisle and Ruskin as to the right aims of human endeavor and the right uses of wealth would not then have been marred by bitter attacks on economics based on the mistaken belief that the science had no concern with any motive except the selfish desire for wealth or even that it inculcated a policy of sordid selfishness again when the motive to amian's action is spoken of as supplied by the money which he will earn it is not meant that his mind is closed to all other considerations save those of gain for even the most purely business relations of life assume honesty and good faith while many of them take for granted if not generosity yet at least the absence of meanness and the pride which every honest man takes in acquitting himself wealth again much of the work by which people earn their living is pleasurable in itself and there is truth in the contention of socialist that more of it might be made so indeed even business work that at first seems sight unattractive often yields a great pleasure by offering scope for the exercise of men's faculties and for their instincts of emulation and of power for just as a racehorse or an athlete strains every nerve to get in advance of his competitors in the strain so a manufacturer or a trader is often stimulated much more by the hope of victory over his rivals than by the desire to add something to his fortune it has indeed always been the practice of economists to take careful account of the advantages which attract people generally towards an occupation whether they appear in a money form or not other things being equal people will prefer an occupation in which they do not need to swell their hands in which they enjoy a good social position and so on and since these advantages affect not indeed everyone exactly in the same way but most people in nearly the same way their attractive force can be estimated and measured by the money wages to which they are regarded as equivalent again the desire to earn approval to avoid the contempt of those around one is a stimulus to action which often works with some sort of uniformity in any class of persons at any given time and place though local and temporary conditions influence greatly not only the intensity of the desire for approval but also the range of persons whose approval is desired a professional man for instance or an artisan will be very sensitive to the approval or disapproval of those in the same occupation and care little for that of other people and there are many economic problems a discussion of which would be altogether unreal if care were not taken to watch the direction and to estimate pretty closely the force of motives such as these as there may be a taint of selfishness in a man's desire to do what seems likely to benefit his fellow workers so there may be an element of personal pride in his desire that his family should prosper during his life and after it but still the family affections generally are so pure a form of altruism that their action might have shown little semblance of regularity had it not been for the uniformity in the family relations themselves as it is their action is fairly regular and it has always been fully reckoned with by economists especially in relation to the distribution of the family income between its various members the expenses of preparing children for their future career and the accumulation of wealth to be enjoyed after the death of him by whom it has been armed it is then not the one of will but the one of power that prevents economists from reckoning in the action of motives such as these and they welcome the fact that some kinds of philanthropic action can be described in statistical returns and can to a certain extent be reduced to law if sufficiently broad averages are taken for indeed there is scarcely any motive so fitful and irregular but that some law with regard to it can be detected by the aid of wide and patient observation it would perhaps be possible even now to predict with tolerable closeness the subscriptions that a population of 100,000 Englishmen of average wealth will give to support hospitals in chapels in missions and in so far as this can be done there is a basis for an economic discussion of supply and demand with reference to the services of hospital nurses missionaries and other religious ministers it will however probably always be true that the greater part of those actions which are due to a feeling of duty and love of one's neighbor cannot be classed, reduced to law and measured and it is for this reason and not because they are not based on self-interest that the machinery of economics cannot be brought to bear on them perhaps the earlier English economists can find their attention too much to the motives of individual action but in fact economists like all other students of social science are concerned with individuals chiefly as members of the social organism as a cathedral is sometimes more than the stones of which it is made as a person is something more than a series of thoughts and feelings so the life of society is something more than the sum of the lives of its individual members it is true that the action of the whole is made up of that of its constituent parts and that in most economic problems the best starting point is to be found in the motives that affect the individual and that in most economic problems the best starting point is to be found in the motives that affect the individual regarded not indeed as an isolated atom but as a member of some particular trade or industrial group but it is also true as German writers have well argued that economics is a great and an increasing concern in motives connected with the collective ownership of property and the collective pursuit of important aims the growing earnestness of the age, the growing intelligence of the mass of people and the growing power of the telegraph the press and other means of communication are ever widening this group of collective action for the public good and these changes together with the spread of the cooperative movement and other kinds of voluntary association are growing up under the influence of various motives besides that of pecuniary gain they are ever opening to the economists new opportunities of measuring motives whose action it has seemed impossible to reduce to any sort of law but in fact the variety of motives the difficulties of measuring them and the manner of overcoming those difficulties are among the chief subjects with which we shall be occupied in this treatise almost every point touched in the present chapter will need to be discussed in further detail in reference to some one or more of the leading problems of economics to conclude provisionally economists study the actions of individuals but study them in relation to social rather than individual life and therefore concern themselves but little with personal peculiarities of temper and character they watch carefully the conduct of a whole class of people sometimes the whole of a nation sometimes only those living in a certain district and then those engaged in some particular trade at some time and place and by the aid of statistics or in other ways they ascertain how much money on the average the members of a particular group they are watching are just willing to pay as the price of a certain thing which they desire or how much must be offered to them to induce them to undergo a certain effort or abstinence that they dislike the measurement of motive thus obtained is not indeed perfectly accurate for if it were economics would rank with the most advanced of the physical sciences and not as it actually does with the least advanced but yet the measurement is accurate enough to enable experienced persons to forecast fairly well the extent of the results that will follow from changes in which motives of this kind are chiefly concerned thus for instance they can estimate very closely the payment that will be required to produce an adequate supply of labour of any grade below us to the highest for a new trade which is proposed to start in any place when they visited a factory of a kind that they have never seen before they can tell within a shilling or two a week what any particular worker is earning by merely observing how far his is a skilled occupation and what strain it involves on his physical, mental and moral faculties and they can predict with tolerable certainty what rise of price will result from a given diminution of the supplies and how that increased price will react on the supply and starting from simple considerations of this kind, economists go on to analyse the causes which govern the local distribution of different kinds of industry the terms of which people living in distant places exchange their goods with one another and so on and they can explain and predict the ways in which fluctuations of credit will affect foreign trade or again the extent to which the burden of tax comes from those on whom it is levied on to those for whose once they cater and so on in all this they deal with man as he is not with an abstract or economic man but a man of flesh and blood they deal with a man who is largely influenced by egoistic motives in his business life to a great extent with reference to them but who is also neither above vanity or recklessness nor below delight in doing work well for his own sake or in sacrificing himself for the good of his family his neighbors or his country a man who is not below the love of virtuous life for its own sake they deal with man as he is but being concerned chiefly with those aspects of life in which the action of motive is so regular that it can be predicted and the estimate of motor forces can be verified by results they have established their work on a scientific basis for in the first place they deal with facts which can be observed and quantities which can be measured and recorded so that when differences of opinion arise with regard to them the differences can be brought to the test of public and well established records and thus science obtains a solid basis on which to work in the second place the problems which are grouped as economic because they relate specially to man's conduct under the influence of motives that are measured by a money price are found to make a fairly homogenous group of course they have a great deal of subject matter in common that is obvious from the nature of the case but they're not so obvious a priori it will also be found to be true that there is a fundamental unity of form underlying all the chief of them and that in consequence by studying them together the same kind of economy is gained as by sending a single postman to deliver all three letters in a certain street instead of each one entrusting his letter to a separate messenger the less than we trouble ourselves with scholastic inquiries as to whether a certain consideration comes within the scope of economics the better if the matter is important let us take account of it as far as we can if it is one as to which there exist divergent opinions such as cannot be brought to the test of exact and well ascertained knowledge if it is one which the general machinery of economic analysis and reasoning cannot get any grip then let us leave it aside in our purely economic studies but let us do so simply because the attempt to include it would lessen the certainty and the exactness of our economic knowledge without any commensure at gain and remembering always that some sort of account of it must be taken by our ethical instincts and our common sense when they as ultimate arbiters to apply to practical issues the knowledge obtained and arranged by economics and other sciences End of Chapter 2 Recorded by Nikki Sullivan, Chicago by Alfred Marshall Chapter 3 Economic Generalizations or Laws 1. It is the business of economics as of almost every other science to collect facts to arrange and interpret them and to draw inferences from them Observation and Description Definition and Classification are their preparatory activities but what we desire to reach thereby is a knowledge of the interdependence of economic phenomena Induction and deduction are both needed for scientific thought as the right and left foot are both needed for walking The methods required for this two-fold work are not peculiar to economics they are the common property of all sciences all the devices for the discovery of the relations between cause and effect which are described in treatises but every method have to be used in their term by the economist there is not any one method of investigation which can properly be called the method of economics but every method must be made serviceable in its proper place either singly or in combination with others and as the number of combinations that can be made on the chess board is so great that probably no two games exactly alike were ever played two games which the student plays with nature to rest from her her hidden truths which were worth playing at all ever made use of quite the same methods in quite the same way but in some branches of economic inquiry and for some purposes it is more urgent to ascertain new facts than to trouble ourselves with the mutual relations and explanations of those which we already have while in other branches there is still so much uncertainty as to whether those causes of any event which lie on the surface and suggest themselves at first are both true causes of it and the only causes of it that it is even more urgently needed to scrutinize our reasoning about facts which we already know than to seek for more facts for this and other reasons there always has been and there probably always will be a need for the existence side by side of workers with different aptitudes and different aims some of whom give their chief attention to the ascertainment of facts while others give their chief attention to scientific analysis that is taking to pieces complex facts and studying the relations of the several parts to one another and to cognate facts it is to be hoped that these two schools will always exist each doing its own work thoroughly and each making use of the work of the other thus best may we obtain sound generalizations as to the past and trustworthy guidance from it for the future two those physical sciences which have progressed most beyond the points to which they were brought by the brilliant genius of the Greeks are not all of them strictly speaking exact sciences but they all aim at exactness that is precipitating the result of a multitude of observations into provisional statements which are sufficiently definite to be brought under test by other observations of nature these statements when first put forth seldom claim a high authority but after they have been tested by many independent observations and especially after they have been applied successfully in the prediction of coming events or of the results of new experiments they graduate as laws a science progresses by increasing the number and exactness of its laws by submitting them to test of ever increasing severity and by enlarging their scope to a single broad law contains and supersedes a number of narrower laws which have been shown to be special instances of it in so far as this is done by any science a student of it can in certain cases say with authority greater than his own greater perhaps than that of any thinker however able who relies on his own resources and neglects the results obtained by previous workers what results are to be expected from certain conditions or what are the true causes of a certain known event although the subject matter of some progressive physical sciences is not at present at least capable of perfectly exact measurement yet their progress depends on the multitudinist's cooperation of armies of workers they measure their facts and define their statements as closely as they can so that each investigator may start as nearly as possible where those before him left off economics aspires to a place in this group of sciences because both its measurements are seldom exact and are never final yet it is ever working to make them more exact and thus to enlarge the range of matters on which the individual student may speak with the authority of his science three let us consider more closely the nature of economic laws and their limitations every cause has a tendency to produce some definite result if nothing occurs to hinder it thus gravitation tends to make things fall to the ground but when a balloon is full of gas lighter than air the pressure of the air will make it rise in spite of the tendency of gravitation to make it fall the law of gravitation states how any two things attract one another how they tend to move towards one another and will move towards one another if nothing interferes to prevent them the law of gravitation is therefore a statement of tendencies it is a very exact statement so exact that mathematicians can calculate a nautical almanac which will show the movements at which each satellite of Jupiter will hide itself behind Jupiter they make this calculation for many years beforehand and navigators take it to sea and use it in finding out where they are now there are no economic tendencies which act as steadily and can be measured as exactly as gravitation can and consequently there are no laws of economics which can be compared for precision with the law of gravitation but let us look at a science less exact than astronomy the science of the tides explains how the tide rises and falls twice a day under the action of the sun and moon how there are strong tides at new and full moon and weak tides at the moon's first and third quarter and how the tide running up into a closed channel like that of the Severn will be very high and so on thus having studied the lie of the land and the water all around the British Isles people can calculate beforehand when the tide will probably be at its highest on any day at London Bridge or at Glauchester or how high it will be there they have to use the word probably which the astronomers do not need to use when talking about the eclipses of Jupiter satellites for though many forces act upon Jupiter and his satellites each one of them acts in a definite manner which can be predicted beforehand but no one knows enough about the weather to be able to say beforehand how it will act a heavy downpour of rain in the upper Thames valley or a strong northeast wind in the German ocean the tides at London Bridge differ a good deal from what had been expected the laws of economics are to be compared with the laws of the tides rather than with the simple and exact law of gravitation for the actions of men are so various and uncertain that the best statement of tendencies which we can make in a science of human conduct must needs be inexact and faulty this might be urged as a reason against making any statements at all on the subject but that would be almost to abandon life life is human conduct and the thoughts and emotions that grow up around it by the fundamental impulses of our nature we all high and low, learned and unlearned are in our several degrees constantly striving to understand the courses of human action and to shape them for our purposes whether selfish or unselfish whether noble or ignoble and since we must form to ourselves some notions of the tendencies of human action our choice is between forming those notions carelessly and forming them carefully the harder the task the greater the need for steady patient inquiry for turning to account the experience that has been reaped by the more advanced physical sciences and for framing as best we can well thought out estimates or provisional laws of the tendencies of human action four the term law means then nothing more than a general proposition of statement of tendencies more or less certain more or less definite many such statements are made in every science but we do not indeed we cannot give to all of them a formal character and name them as laws we must select and the selection is directed less by purely scientific considerations than by practical convenience if there is any general statement which we want to bring to bear so often that the trouble of quoting it at length when needed is greater than that of burdening the discussion with an additional formal statement and an additional technical name then it receives a special name otherwise not thus a law of social science or a social law is a statement of social tendencies that is a statement that a certain course of action may be expected under certain conditions from the members of a social group economic laws or statements of economic tendencies are those social laws which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price there is thus no hard and sharp line of division between those social laws which are and those which are not to be regarded also as economic laws for there is a continuous gradation from social laws concerned almost exclusively with motives that can be measured by price to social laws in which such motives have little place and which are therefore generally as much less precise and exact than economic laws as those are than the laws of the more exact physical sciences corresponding to the substantive law is the adjective legal but this term is used only in connection with law in the sense of an ordinance of government not in connection with law the sense of a statement of relation between cause and effect the adjective used for this purpose is derived from norma a term which is nearly equivalent to law and might perhaps with advantage be substituted for it in scientific discussions and following our definition of an economic law we may say that the course of action which may be expected under certain conditions from the members of an industrial group is the normal action of the members of that group relatively to those conditions this use of the term normal has been misunderstood and it may be well to say something as to the unity and difference which underlies various uses of the term when we talk of a good man or a strong man re-refer to excellence or strength of those particular physical, mental or moral qualities which are indicated in the context a strong judge has seldom the same qualities as a strong rower a good jockey is not always of exceptional virtue in the same way every use of the term normal is the predominance of certain tendencies which appear likely to be more or less steadfast and persistent in their action over those which are relatively exceptional and intermittent illness is an abnormal condition of man but a long life passed without any illness is abnormal during the melting of the snows the rine rises above its normal level but in a cold dry spring when it is less than usual above the normal level it is said to be abnormally low for that time of year in all these cases normal results are those which may be expected as the outcome of those tendencies which the context suggests or in other words which are in accordance with those statements of tendency those laws or norms which are appropriate to the context this is the point of view from which it is said that normal economic action which may be expected in the long run under certain conditions provided those conditions are persistent from the members of an industrial group it is normal that the bricklayers in most parts of England are willing to work for ten pence an hour but refuse to work for seven pence in Johannesburg it may be normal that a bricklayer should refuse work at much less than one pound a day the normal price of bonafide fresh laid eggs may be taken to be a penny when nothing is said as to the time of the year and yet three pence may be the normal price in town during January and two pence may be an abnormally low price then caused by unseasonable warmth another misunderstanding to be guarded against arises from the notion that only those economic results are normal which are due to the undisturbed action of free competition but the term has often to be applied to conditions in which perfectly free competition does not exist and can hardly even be supposed to exist and even where free competition is most dominant the normal conditions of every fact and tendency will include vital elements that are not a part of competition nor even akin to it thus for instance the normal arrangement of many transactions in retail in wholesale trade and on stock and cotton exchanges rest on the assumption that verbal contracts made without witnesses will be honorably discharged and in countries in which this assumption cannot legitimately be made some parts of the western doctrine of normal value are inapplicable again the prices of various stock exchange securities are affected normally by the patriotic feelings not only of the ordinary purchasers but of the brokers themselves and so on lastly it is sometimes erroneously supposed that normal action in economics is that which is right morally but that is to be understood only when the context implies that the action is being judged from the ethical point of view when we are considering the facts of the world as they are and not as they ought to be we shall have to regard as normal to the circumstances in view much action which we should use our utmost efforts to stop for instance the normal condition of many of the very poorest inhabitants of a large town is to be devoid of enterprise and unwilling to avail themselves of the opportunities that may offer for a healthier and less squalid life elsewhere they have not the strength physical, mental and moral required for working their way out of their miserable surroundings the existence of a considerable supply of labor ready to make matchboxes at a very low rate is normal in the same way that a contortion of the limbs is a normal result of taking strychnine it is one result a deplorable result of those tendencies the laws of which we have to study this illustrates one peculiarity which economics shares with a few other sciences the material of which can be modified by human effort science may suggest a moral or practical precept to modify that nature and thus modify the action of laws of nature for instance economics may suggest practical means of substituting capable workers for those who can only do such work as matchbox making as physiology may suggest measures for so modifying the breeds of cattle that they mature early and carry much flesh on light frames the laws of the fluctuation of credit and prices have been much altered by increased powers of prediction again when normal prices are contrasted with temporary or market prices the term refers to the dominance in the long run of certain tendencies under given conditions but this raises some difficult questions which may be postponed five it is sometimes said that the laws of economics are hypothetical of course like every other science it undertakes to study the effects which will be produced by certain causes not absolutely but subject to the condition that other things are equal and that the causes are able to work out their effects undisturbed almost every scientific doctrine when carefully and formally stated will be found to contain some pervisio to the effect that other things are equal the action of the cause in question is supposed to be isolated certain effects are attributed to them but only on the hypothesis that no cause is permitted to enter except those distinctly allowed for it is true however that the condition that time must be allowed for causes to produce their effects is a source of great difficulty in economics for meanwhile the material on which they work and perhaps even the causes themselves may have changed and the tendencies which are being described will not have a sufficiently long run in which to work themselves out fully this difficulty will occupy our attention later on the condition and clauses implied in a law are not continually repeated but the common sense of the reader supplies them for himself in economics is necessary to repeat them often or then elsewhere because its doctrines are more apt than those of any other science to be quoted by persons who have had no scientific training and to perhaps have heard them only at second hand and without their context one reason why ordinary conversation is simpler in form than a scientific treatise is that in conversation we can safely omit conditioning clauses because if the hearer does not supply them for himself we quickly detect the misunderstanding and set it right Adam Smith and many of the earlier writers on economics attained seeming simplicity by following the usages of conversation and omitting conditioning clauses but this has caused them to be constantly misunderstood and has led to much waste of time and trouble in profitless controversy they purchased apparent ease at too great a cost even for that gain though economic analysis and general reasoning are of wide application yet every age in every country has its own problems and every change in social conditions is likely to require a new development of economic doctrines