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Alfred
Marshall Biography
1843
- Born in Bermondsey, a district of southeast London near
Tower Bridge. Had his early education with his father, who
wanted him to attend Oxford and study religion for the
ministry, but instead he went to Cambridge to study math
(Buchholz wonders whether that rebellion subconsciously caused
him to place his math in footnotes).
1865
- Graduated in math and developed an interest in philosophy,
and that led him to moral philosophy - Economics
1885
- Appointed professor of political economy at Cambridge, where
he established a more rigorous curriculum and trained a
generation of economists, including J.M. Keynes and A.C.
Pigou, and remained until his retirement in 1908.
1890
- Published Principles of Economics, which became,
arguably, the most successful textbook before Paul Samuelson's
book with the same name after World War II.
1924
- Died in Cambridge.
Belief
about the use of math in economics (written in a letter to a
friend).
"(1)
Use mathematics as shorthand language, rather than as an
engine of inquiry. (2) Keep to them till you have done. (3)
Translate into English. (4) Then illustrate by examples that
are important in real life (5) Burn the mathematics. (6) If
you can't succeed in 4, burn 3. This I do often."
Principles
of Economics:
An Introductory Volume
by Alfred Marshall
1890
Preface to the First Edition
...[E]thical
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
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
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...
Under
the guidance of Cournot, and in a less degree of von Thünen, 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 that in particular 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. 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 supplementary illustrations in the
footnotes of the present volume. .
BOOK I
Chapter 1
Introduction
p. 1a
1. Political economy or economics is a study of mankind in 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 wellbeing. . .
p. 2c
[T]here 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; who thenceforth
are 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 weariness often
amounts to pain, while their pleasures are few; and
when sickness comes,
the suffering caused by poverty increases tenfold. . .
p. 3b
2. Slavery
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 . . .
The hope
that poverty and ignorance may gradually be extinguished,
derives indeed much support from the steady progress of the
working classes during the nineteenth 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 . . .
p. 13a
Intermediate between these two extremes are
the great body of economists who, working on parallel lines in
many different countries, are bringing to their studies an
unbiassed 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 are bound more or less to
collect and arrange facts and
statistics relating to past and present times; and
all are bound 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 or other 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.
Book I
Chapter 4
The Order and Aims of Economic
Studies
p. 38b
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. . .
p. 41b
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? . . .
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?
. . .
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?
P. 43c
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. . .
In
sciences that relate to man exactness is less attainable.
. . 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. . . 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. . .
p. 44c
In smaller matters, indeed, simple experience will suggest the
unseen. . . 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.
p. 47a
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.
Book II
Chapter 3
Production, Consumption, Labor,
Necessaries
p. 63a
1. Man cannot create
material things. In the mental and moral world indeed he may
produce new ideas; but when he is said to produce material
things, he really only produces utilities; . . .
It is
sometimes said that traders do not produce: that
while the cabinet-maker produces furniture, the furniture
dealer merely sells what is already produced. But there is no scientific foundation for this
distinction. They
both produce utilities, and neither of them can do more:
the furniture-dealer moves and rearranges matter so as to make
it more serviceable than it was before, and the carpenter does
nothing more.
Gardner
Note: Starting, at least, with Aristotle and Plato,
and following through Adam Smith and Karl Marx, there had
been the idea that people who produced services were somehow
less productive than those who produced physical goods, and
that bias was reflected in the national income accounts of
the Soviet Union and other countries it influenced. Here,
Marshall give the basic argument that all workers produce
utility/value, and thus GDP is the final value of all goods
and SERVICES produced in a year.
Book III
Chapter 3
Gradations of Consumers' Demand
p. 93a
There is an endless variety of wants, but
there is a limit to each separate want. This familiar and
fundamental tendency of human nature may be stated in the law of satiable wants or of
diminishing utility thus:-The total utility of a
thing to anyone (that is, the total pleasure or other benefit
it yields him) increases with every increase in his stock of
it, but not as fast as his stock increases. If his stock of it
increases at a uniform rate the benefit derived from it
increases at a diminishing rate. In other words, the additional
benefit which a person derives from a given increase of his
stock of a thing, diminishes with every increase in the
stock that he already has. . .
p. 94a
There is however an implicit
condition in this law which should be made clear. It
is that we do not suppose
time to be allowed for any alteration in the character or
tastes of the man himself. It is therefore no
exception to the law that the more good music a man hears, the
stronger is his taste for it likely to become; . . .
p. 94b
2. Now let us translate this
law of diminishing utility into terms of price. Let
us take an illustration from the case of a commodity such as tea, which is in constant
demand and which can be purchased in small quantities.
Suppose, for instance, that tea of a certain quality is to be
had at 2s. per lb. A person might be willing to give 10s. for
a single pound once a year rather than go without it
altogether; while if he could have any amount of it for
nothing he would perhaps not care to use more than 30 lbs. in
the year. But as it is, he buys perhaps 10 lbs. in the year;
that is to say, the difference between the satisfaction which
he gets from buying 9 lbs. and I 0 lbs. is enough for him to
be willing to pay 2s. for it: while the fact that he does not
buy an eleventh pound, shows that he does not think that it
would be worth an extra 2s. to him. That is, 2s.
a pound measures the utility to him of the tea which lies at
the margin or terminus or end of his purchases; it measures
the marginal utility to him. If the price which he is
just willing to pay for any pound be called his demand price,
then 2s. is his marginal demand price. And our law may be
worded:-
The larger the amount of a thing that a
person has the less, other things being equal (i.e. the
purchasing power of money, and the amount of money at his
command being equal), will be the price which he will pay for
a little more of it: or in other words his marginal demand
price for it diminishes.
His demand becomes efficient, only when the
price which he is willing to offer reaches that at which
others are willing to sell.
This last sentence reminds us that we
have as yet taken no account of changes in the marginal
utility of money, or general purchasing power. At one
and the same time, a person's material resources being
unchanged, the marginal
utility of money to him is a fixed quantity, so that the
prices he is just willing to pay for two commodities are to
one another in the same ratio as the utility of those two
commodities.
p. 96b
4. To obtain complete
knowledge of demand for anything, we should have to
ascertain how much of it he
would be willing to purchase at each of the prices at
which it is likely to be offered; and the circumstance of his
demand for, say, tea can be best expressed by a list of the
prices which he is willing to pay; . . .
p. 97a
When we say that a person's demand for
anything increases, we mean that he will buy more of it than
he would before at the same price, and that he will buy as
much of it as before at a higher price. A
general increase in his demand is an increase throughout the
whole list of prices at which he is willing to purchase
different amounts of it, and not merely that he is
willing to buy more of it at the current prices.
p. 99a
The total demand in the place for, say, tea, is the sum of the
demands of all the individuals there. Some will be richer and
some poorer than the individual consumer whose demand we have
just written down; some will have a greater and others a
smaller liking for tea than he has. Let us suppose that there
are in the place a million purchasers of tea, and that their
average consumption is equal to his at each several price. . .
There is then one
general law of demand: -The greater the amount to be
sold, the smaller must be the price at which it is offered in
order that it may find purchasers; or, in other words, the
amount demanded increases with a fall in price, and diminishes
with a rise in price. . .
BOOK III
Chapter 4
The Elasticity of Wants
p. 102c
The elasticity (or responsiveness) of
demand in a market is great or small according as the amount
demanded increases much or little for a given fall in price,
and diminishes much or little for a given rise in price.
2. The price which is so high relatively to
the poor man as to be almost prohibitive, may be scarcely felt
by the rich; the poor man, for instance, never tastes wine,
but the very rich man may drink as much of it as he has a
fancy for, without giving himself a thought of its cost. We
shall therefore get the
clearest notion of the law of the elasticity of demand by
considering one class of society at a time. . .
When the price of a thing is very high
relatively to any class, they will buy but little of it; and
in some cases custom and habit may prevent them from using it
freely even after its price has fallen a good deal. . . The
elasticity of demand is great for high prices, and great, or
at least considerable, for medium prices; but it declines as
the price falls; and gradually fades away if the fall goes so
far that satiety level is reached.
p. 105a
3. There are some things the current prices
of which in this country are very low relatively even to the
poorer classes; such are for instance salt, and many kinds of
savours and flavours, and also cheap medicines. It is doubtful
whether any fall in price would induce a considerable increase
in the consumption of these.
p. 106b
4. The case of necessaries is exceptional. When the price of
wheat is very high, and again when it is very low, the demand
has very little elasticity: at all events if we assume that
wheat, even when scarce, is the cheapest food for man; and
that, even when most plentiful, it is not consumed in any
other way.
p. 107c
The demand for things of a higher quality
depends much on sensibility. some people care little for a
refined flavour in their wine provided they can get plenty of
it: others crave a high quality, but are easily satiated. . .
The effective demand for first-rate music is elastic only in
large towns; for second-rate music it is elastic both in large
and small towns.
P. 110
6. Next, allowance must be made for changes
in fashion, and taste and habit, for the opening out of new
uses of a commodity, for the discovery
or improvement or cheapening of other things that can
be applied to the same uses with it. In all these cases there
is great difficulty in allowing for the time that elapses
between the economic cause and its effect. For time is
required to enable a rise in the price of a commodity to exert
its full influence on consumption. Time is required for
consumers to become familiar
with substitutes that can be used instead of it, and
perhaps for producers to get into the habit of producing them
in sufficient quantities. Time may be also wanted for the growth of habits of familiarity
with the new commodities and the
discovery of methods of economizing them.
For instance when
wood and charcoal became dear in England, familiarity with
coal as a fuel grew slowly, fireplaces were but
slowly adapted to its use, and an organized traffic in it did
not spring up quickly even to places to which it could be
easily carried by water. The invention of processes by which
it could be used as a substitute for charcoal in manufacture
went even more slowly, and is indeed hardly yet complete. . .
p. 111b
Another difficulty of the same kind arises from the fact that
there are many purchases
which can easily be put off for a short time, but not for a
long time. This is often the case with regard to
clothes and other things which are worn out gradually, and
which can be made to serve a little longer than usual under
the pressure of high prices.
BOOK III
Chapter 6
Value and Utility
p. 124a
1. We may now turn to consider how far the price which is
actually paid for a thing represents the benefit that arises
from its possession. This is a wide subject on which economic
science has very little to say, but that little is of some
importance.
We have already seen that the
price which a person pays for a thing can never exceed, and
seldom comes up to that which he would be willing to pay
rather than go without it: so that the satisfaction
which he gets from its purchase generally exceeds
that which he gives up in paying away its price; and
he thus derives from the purchase a surplus of satisfaction.
The excess of the price which he would be willing to pay
rather than go without the thing, over that which he actually
does pay, is the economic measure
of this surplus satisfaction. It may
be called consumer's surplus.
It is obvious that the consumer's surpluses
derived from some commodities are much greater than from
others. There are many comforts and
luxuries of which the prices are very much below those which
many people would pay rather than go entirely without them;
and which therefore afford a very great consumer's surplus.
Good instances are matches, salt, a penny newspaper, or a
postage-stamp. . .
2. In order to give definiteness to our
notions, let us consider the case of tea purchased for
domestic consumption. Let us take the case of a man, who, if
the price of tea were 20s. a pound, would just be induced to
buy one pound annually; who would just be induced to buy two
pounds if the price were 14s., three pounds if the price were
10s., four pounds if the price were 6s., five pounds if the price were 4s., six pounds
if the price were 3s., and who, the price being actually 2s.,
does purchase seven pounds. We have to investigate the
consumer's surplus which he deri ves from
his power of purchasing tea at 2s. a pound. . .
When at last the price has fallen to 2s. he buys seven pounds,
which are severally worth to him not less than 20, 14, 10, 6,
4, 3, and 2s. or 59s. in all. This sum measures their total
utility to him, and his consumer's surplus is (at least) the
excess of this sum over the 14s. he actually does pay for
them, i.e. 45s. This is the excess value of the satisfaction
he gets from buying the tea over that which he could have got
by spending the 14s. in extending a little his purchase of
other commodities, of which he had just not thought it worth
while to buy more at their current prices; and any further
purchases of which at those prices would not yield him any
consumer's surplus. In other words, he derives this 45s. worth
of surplus enjoyment from his conjuncture, from the adaptation
of the environment to his wants in the particular matter of
tea.
p. 132a
4. The substance of our argument would not be affected if we took
account of the fact that, the
more a person spends on anything the less power he retains
of purchasing more of it or of other things, and the greater
is the value of money to him (in the technical
language every fresh expenditure increases the marginal value
of money to him). But though its substance would not be
altered, its form would be made more intricate without any
corresponding gain; for there are very few practical problems,
in which the corrections to be made under this head would be
of any importance.
There are however some exceptions. For
instance, as Sir R. Giffen has pointed out, a rise in the
price of bread makes so large a drain on the resources of the
poorer labouring families and raises so much the marginal
utility of money to them, that they are forced to curtail
their consumption of meat and the more expensive farinaceous
foods: and, bread being still the cheapest food which they can
get and will take, they consume more, and not less of it. But
such cases are rare; when they are met with, each must be
treated on its own merits.
p. 136a
In every civilized country there have been
some followers of the Buddhist doctrine that a placid serenity
is the highest ideal of life; that it is the part of the wise
man to root out of his nature as many wants and desires as he
can; that real riches
consist not in the abundance of goods but in the paucity of
wants. At the other extreme are those who maintain
that the growth of new wants and desires is always beneficial
because it stimulates people to increased exertions. They seem
to have made the mistake, as Herbert Spencer says, of
supposing that life is for working, instead of working for
life.
The truth seems to be that as human nature
is constituted, man rapidly
degenerates unless he has some hard work to do, some
difficulties to overcome; and that some strenuous exertion is
necessary for physical and moral health. The fulness of life
lies in the development and activity of as many and as high
faculties as possible. . .
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