Principles of Economics by Alfred Marshall (1890)
1. We have seen that the economist must be greedy of facts; but that facts by themselves teach nothing. History tells of sequences and coincidences; but reason alone can interpret and draw lessons from them. The work to be done is so various that much of it must be left to be dealt with by trained common sense, which is the ultimate arbiter in every practical problem. Economic science is but the working of common sense aided by appliances of organized analysis and general reasoning, which facilitate the task of collecting, arranging, and drawing inferences from particular facts. Though its scope is always limited, though its work without the aid of common sense is vain, yet it enables common sense to go further in difficult problems than would otherwise be possible.
Economic laws are statements with regard to the tendencies of man's action under certain conditions. They are hypothetical only in the same sense as are the laws of the physical sciences: for those laws also contain or imply conditions. But there is more difficulty in making the conditions clear, and more danger in any failure to do so, in economics than in physics. The laws of human action are not indeed as simple, as definite or as clearly ascertainable as the law of gravitation; but many of them may rank with the laws of those natural sciences which deal with complex subject-matter.
The raison d'etre of economics as a separate science is that it deals chiefly with that part of man's action which is most under the control of measurable motives; and which therefore lends itself better than any other to systematic reasoning and analysis. We cannot indeed measure motives of any kind, whether high or low, as they are in themselves: we can measure only their moving force. Money is never a perfect measure of that force; and it is not even a tolerably good measure unless careful account is taken of the general conditions under which it works, and especially of the riches or poverty of those whose action is under discussion. But with careful precautions money affords a fairly good measure of the moving force of a great part of the motives by which men's lives are fashioned.
The study of theory must go hand in hand with that of facts: and for dealing with most modern problems it is modern facts that are of the greatest use. For the economic records of the distant past are in some respects slight and untrustworthy; and the economic conditions of early times are wholly unlike those of the modern age of free enterprise, of general education, of true democracy, of steam, of the cheap press and the telegraph.
2. Economics has then as its purpose firstly to acquire knowledge for its own sake, and secondly to throw light on practical issues. But though we are bound, before entering on any study, to consider carefully what are its uses, we should not plan out our work with direct reference to them. For by so doing we are tempted to break off each line of thought as soon as it ceases to have an immediate bearing on that particular aim which we have in view at the time: the direct pursuit of practical aims leads us to group together bits of all sorts of knowledge, which have no connection with one another except for the immediate purposes of the moment; and which throw but little light on one another. Our mental energy is spent in going from one to another; nothing is thoroughly thought out; no real progress is made.
The best grouping, therefore, for the purposes of science is that which collects together all those facts and reasonings which are similar to one another in nature: so that the study of each may throw light on its neighbour. By working thus for a long time at one set of considerations, we get gradually nearer to those fundamental unities which are called nature's laws: we trace their action first singly, and then in combination; and thus make progress slowly but surely. The practical uses of economic studies should never be out of the mind of the economist, but his special business is to study and interpret facts and to find out what are the effects of different causes acting singly and in combination.
3. This may be illustrated by enumerating some of the chief questions to which the economist addresses himself. He inquires:
What are the causes which, especially in the modern world, affect the consumption and production, the distribution and exchange of wealth; the organization of industry and trade; the money market; wholesale and retail dealing; foreign trade, and the relations between employers and employed? How do all these movements act and react upon one another? How do their ultimate differ from their immediate tendencies?
Subject to what limitations is the price of anything a measure of its desirability? What increase of wellbeing is prima facie likely to result from a given increase in the wealth of any class of society? How far is the industrial efficiency of any class impaired by the insufficiency of its income? How far would an increase of the income of any class, if once effected, be likely to sustain itself through its effects in increasing their efficiency and earning power?
How far does, as a matter of fact, the influence of economic freedom reach (or how far has it reached at any particular time) in any place, in any rank of society, or in any particular branch of industry? What other influences are most powerful there; and how is the action of all these influences combined? In particular, how far does economic freedom tend of its own action to build up combinations and monopolies, and what are their effects? How are the various classes of society likely to be affected by its action in the long run; what will be the intermediate effects while its ultimate results are being worked out; and, account being taken of the time over which they will spread, what is the relative importance of these two classes of ultimate and intermediate effects? What will be the incidence of any system of taxes? What burdens will it impose on the community, and what revenue will it afford to the State?
4. The above are the main questions with which economic science has to deal directly, and with reference to which its main work of collecting facts, of analysing them and reasoning about them should be arranged. The practical issues which, though lying for the greater part outside the range of economic science, yet supply a chief motive in the background to the work of the economist, vary from time to time, and from place to place, even more than do the economic facts and conditions which form the material of his studies. The following problems seem to be of special urgency now in our own country. --
How should we act so as to increase the good and diminish the evil influences of economic freedom, both in its ultimate results and in the course of its progress? If the first are good and the latter evil, but those who suffer the evil, do not reap the good; how far is it right that they should suffer for the benefit of others?
Taking it for granted that a more equal distribution of wealth is to be desired, how far would this justify changes in the institutions of property, or limitations of free enterprise even when they would be likely to diminish the aggregate of wealth? In other words, how far should an increase in the income of the poorer classes and a diminution of their work be aimed at, even if it involved some lessening of national material wealth? How far could this be done without injustice, and without slackening the energies of the leaders of progress? How ought the burdens of taxation to be distributed among the different classes of society?
Ought we to rest content with the existing forms of division of labour? Is it necessary that large numbers of the people should be exclusively occupied with work that has no elevating character? Is it possible to educate gradually among the great mass of workers a new capacity for the higher kinds of work; and in particular for undertaking co-operatively the management of the business in which they are themselves employed?
What are the proper relations of individual and collective action in a stage of civilization such as ours? How far ought voluntary association in its various forms, old and new, to be left to supply collective action for those purposes for which such action has special advantages? What business affairs should be undertaken by society itself acting through its government, imperial or local? Have we, for instance, carried as far as we should the plan of collective ownership and use of open spaces, of works of art, of the means of instruction and amusement, as well as of those material requisites of a civilized life, the supply of which requires united action, such as gas and water, and railways?
When government does not itself directly intervene, how far should it allow individuals and corporations to conduct their own affairs as they please? How far should it regulate the management of railways and other concerns which are to some extent in a position of monopoly, and again of land and other things the quantity of which cannot be increased by man? Is it necessary to retain in their full force all the existing rights of property; or have the original necessities for which they were meant to provide, in some measure passed away?
Are the prevailing methods of using wealth entirely justifiable? What scope is there for the moral pressure of social opinion in constraining and directing individual action in those economic relations in which the rigidity and violence of government interference would be likely to do more harm than good? In what respect do the duties of one nation to another in economic matters differ from those of members of the same nation to one another?
Economics is thus taken to mean a study of the economic aspects and conditions of man's political, social and private life; but more especially of his social life. The aims of the study are to gain knowledge for its own sake, and to obtain guidance in the practical conduct of life, and especially of social life. The need for such guidance was never so urgent as now; a later generation may have more abundant leisure than we for researches that throw light on obscure points in abstract speculation, or in the history of past times, but do not afford immediate aid in present difficulties.
But though thus largely directed by practical needs, economics avoids as far as possible the discussion of those exigencies of party organization, and those diplomacies of home and foreign politics of which the statesman is bound to take account in deciding what measures that he can propose will bring him nearest to the end that he desires to secure for his country. It aims indeed at helping him to determine not only what that end should be, but also what are the best methods of a broad policy devoted to that end. But it shuns many political issues, which the practical man cannot ignore: and it is therefore a science, pure and applied, rather than a science and an art. And it is better described by the broad term " Economics ', than by the narrower term " Political Economy ".
5. The economist needs the three great intellectual faculties, perception, imaginAtion and reason: and most of all he needs imagination, to put him on the track of those causes of visible events which are remote or lie below the surface, and of those effects of visible causes which are remote or lie below the surface.
The natural sciences and especially the physical group of them have this great advantage as a discipline over all studies of man's action, that in them the investigator is called on for exact conclusions which can be verified by subsequent observation or experiment. His fault is soon detected if he contents himself with such causes and such effects as lie on the surface; or again if he ignores the mutual interaction of the forces of nature, wherein every movement modifies and is modified by all that surround it. Nor does the thorough student of physics rest satisfied with a mere general analysis; he is ever striving to make it quantitative; and to assign its proper proportion to each element in his problem.
In sciences that relate to man exactness is less attainable. The path of least resistance is sometimes the only one open: it is always alluring; and though it is also always treacherous, the temptation is great to follow it even when a more through way can be fought out by resolute work. The scientific student of history is hampered by his inability to experiment and even more by the absence of any objective standard to which his estimates of relative proportion can be referred. Such estimates are latent in almost every stage of his argument: he cannot conclude that one cause or group of causes has been overridden by another without making some implicit estimate of their relative weights. And yet it is only by a great effort that he perceives how dependent he is on his own subjective impressions. The economist also is hampered by this difficulty, but in a less degree than other students of man's action; for indeed he has some share in those advantages which give precision and objectivity to the work of the physicist. So long, at all events, as he is concerned with current and recent events, many of his facts group themselves under classes as to which statements can be made that are definite, and often were approximately accurate numerically: and thus he is at some advantage in seeking for causes and for results which lie below the surface, and are not easily seen; and in analyzing complex conditions into their elements and in reconstructing a whole out of many elements.
In smaller matters, indeed, simple experience will suggest the unseen. It will, for instance, put people in the way of looking for the harm to strength of character and to family life that comes from ill-considered aid to the thriftless; even though what is seen on the surface is almost sheer gain. But greater effort, a larger range of view, a more powerful exercise of the imagination are needed in tracking the true results of, for instance, many plausible schemes for increasing steadiness of employment. For that purpose it is necessary to have learnt how closely connected are changes in credit, in domestic trade, in foreign trade competition, in harvests, in prices; and how all of these affect steadiness of employment for good and for evil. It is necessary to watch how almost every considerable economic event in any part of the Western world affects employment in some trades at least in almost every other part. If we deal only with those causes of unemployment which are near at hand, we are likely to make no good cure of the evils we see; and we are likely to cause evils, that we do not see. And if we are to look for those which are far off and weigh them in the balance, then the work before us is a high discipline for the mind.
Again, when by a "standard rule" or any other device wages are kept specially high in any trade, imagination set a-going will try to track the lives of those who are prevented by the standard rule from doing work, of which they are capable, at a price that people are willing to pay for it. Are they pushed up, or are they pushed down? If some are pushed up and some pushed down, as commonly happens, is it the many that are pushed up and the few that are pushed down, or the other way about? If we look at surface results, we may suppose that it is the many who are pushed up. But if, by the scientific use of the imagination, we think out all the ways in which prohibitions, whether on Trade Union authority or any other, prevent people from doing their best and earning their best, we shall often conclude that it is the many who have been pushed down, and the few who have been pushed up. Partly under English influence, some Australasian colonies are making bold ventures, which hold out specious promise of greater immediate comfort and ease to the workers. Australasia has indeed a great reserve of borrowing power in her vast landed property: and should the proposed short cuts issue in some industrial decadence, the fall may be slight and temporary. But it is already being urged that England should move on similar lines: and a fall for her would be more serious. What is needed, and what we may hope is coming in the near future, is a larger study of such schemes of the same kind and by the same order of minds as are applied to judging a new design for a battleship with reference to her stability in bad weather.
In such problems as this it is the purely intellectual, and sometimes even the critical faculties, which are most in demand. But economic studies call for and develop the faculty of sympathy, and especially that rare sympathy which enables people to put themselves in the place, not only of their comrades, but also of other classes. This class sympathy is, for instance, strongly developed by inquiries, which are becoming every day more urgent, of the reciprocal influences which character and earnings, methods of employment and habits of expenditure exert on one another; of the ways in which the efficiency of a nation is strengthened by and strengthens the confidences and affections which hold together the members of each economic group - the family, employers and employees in the same business, citizens of the same country; of the good and evil that are mingled in the individual unselfishness and the class selfishness of professional etiquette and of trade union customs; and of movements by which our growing wealth and opportunities may best be turned to account for the wellbeing of the present and coming generations.(1*)
6. The economist needs imagination especially in order that he may develop his ideals. But most of all he needs caution and reserve in order that his advocacy of ideals may not outrun his grasp of the future.
After many more generations have passed, our present ideals and methods may seem to belong to the infancy, rather than to the maturity of man. One definite advance has already been made. We have learnt that every one until proved to be hopelessly weak or base is worthy of full economic freedom: but we are not in a position to guess confidently to what goal the advance thus begun will ultimately lead. In the later Middle Ages a rough beginning was made of the study of the industrial organism, regarded as embracing all humanity. Each successive generation has seen further growths of that organism; but none has seen so large a growth as our own. The eagerness with which it has been studied has grown with its growth; and no parallel can be found in earlier times to the breadth and variety of the efforts that have been made to comprehend it. But the chief outcome of recent studies is to make us recognize more fully, than could be done by any previous generation, how little we know of the causes by which progress is being fashioned, and how little we can forecast the ultimate destiny of the industrial organism.
Some harsh employers and politicians, defending exclusive class privileges early in last century, found it convenient to claim the authority of political economy on their side; and they often spoke of themselves as "economists." And even in our own time, that title has been assumed by opponents of generous expenditure on the education of the masses of the people, in spite of the fact that living economists with one consent maintain that such expenditure is a true economy, and that to refuse it is both wrong and bad business from a national point of view. But Carlyle and Ruskin, followed by many other writers who had no part in their brilliant and ennobling poetical visions, have without examination held the great economists responsible for sayings and deeds to which they were really averse; and in consequence there has grown up a popular misconception of their thoughts and character.
The fact is that nearly all the founders of modern economics were men of gentle and sympathetic temper, touched with the enthusiasm of humanity. They cared little for wealth for themselves; they cared much for its wide diffusion among the masses of the people. They opposed antisocial monopolies however powerful. In their several generations they supported the movement against the class legislation which denied to trade unions privileges that were open to associations of employers; or they worked for a remedy against the poison which the old Poor Law was instilling into the hearts and homes of the agricultural and other labourers; or they supported the factory acts, in spite of the strenuous opposition of some politicians and employers who claimed to speak in their name. They were without exception devoted to the doctrine that the wellbeing of the whole people should be the ultimate goal of all private effort and all public policy. But they were strong in courage and caution; they appeared cold, because they would not assume the responsibility of advocating rapid advances on untried paths, for the safety of which the only guarantees offered were the confident hopes of men whose imaginations were eager, but not steadied by knowledge nor disciplined by hard thought.
Their caution was perhaps a little greater than necessary: for the range of vision even of the great seers of that age was in some respects narrower than is that of most educated men in the present time; when, partly through the suggestions of biological study, the influence of circumstances in fashioning character is generally recognized as the dominant fact in social science. Economists have accordingly now learnt to take a larger and more hopeful view of the possibilities of human progress. They have learnt to trust that the human will, guided by careful thought, can so modify circumstances as largely to modify character; and thus to bring about new conditions of life still more favourable to character; and therefore to the economic, as well as the moral, wellbeing of the masses of the people. Now as ever it is their duty to oppose all plausible short cuts to that great end, which would sap the springs of energy and initiative.
The rights of property, as such, have not been venerated by those master minds who have built up economic science; but the authority of the science has been wrongly assumed: by some who have pushed the claims of vested rights to extreme and antisocial uses. It may be well therefore to note that the tendency of careful economic study is to base the rights of private property not on any abstract principle, but on the observation that in the past they have been inseparable from solid progress; and that therefore it is the part of responsible men to proceed cautiously and tentatively in abrogating or modifying even such rights as may seem to be inappropriate to the ideal conditions of social life.
1. This Section is reproduced from a Plea for the creation of a curriculum in economics and associated branches of political science addressed to the University of Cambridge in 1902, and conceded in the following year.