But it is apt to mislead. And in the broader uses of those studies, when they are being applied to practical problems, the economist, like every one 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 have therefore equal economic measures. And even in those grades in which everyone has house room sufficient for the higher activities of himself and his family, a yet further and almost unlimited increase is desired as a requisite for the exercise of many of the higher social activities. It stands proudly alongside Smith's Wealth of Nations, Paul Samuelson's '48 Economics and others as a work of great historical importance as well as present-day interest. It was there that Marshall began writing what would eventually become his most famous work, the Principles of Economics, using his 1879 tract on domestic values as the kernel to a larger, wide-ranging treatise. Marshall underscored in the text how demand and supply are the prime influences behind the price and output levels of goods. 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; that avarice and ambition are often insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon.
It has been already argued that desires cannot be measured directly, but only indirectly by the outward phenomena to which they give rise: and that in those cases with which economics is chiefly concerned the measure is found in the price which a person is willing to pay for the fulfilment or satisfaction of his desire. Economics, as a study of wealth, received great support from the Father of economics, Adam Smith, in the late eighteenth century. It must be regarded as a stock of one particular thing, money, which is taken to represent them. The ultimate regulator of all demand is therefore consumers' demand. Thus Marshall did not discard the marginal productivity theory of wages but he regarded it as a part of a complete theory of distribution. He systemitized and developed the foundations of partial equilibrium microeconomics.
By far the greater number of the events with which economics deals affect in about equal proportions all the different classes of society; so that if the money measures of 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. Edition used: Alfred Marshall, Principles of Economics London: Macmillan and Co. 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. Again, in England now a well-to-do labourer is expected to appear on Sunday in a black coat and, in some places, in a silk hat; though these would have subjected him to ridicule but a short time ago. When water is supplied by pipes, and charged at a very low rate by meter, many people use as much of it even for washing as they feel at all inclined to do; and when the water is supplied not by meter but at a fixed annual charge, and is laid on in every place where it is wanted, the use of it for every purpose is carried to the full satiety limit.
How far is the industrial efficiency of any class impaired by the insufficiency of its income? In this way, it studies wealth, on one hand and on the other hand, it is a part of the study of man, which is more important. That need for dress which is the result of natural causes varies with the climate and the season of year, and a little with the nature of a person's occupations. 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. In social life, people interact and share thoughts, expertise, mental and physical skills, and wealth to keep the society in balance; the economy is the social science meant to create a balance between all the groups and set of skills, giving the deserved amount of share to everyone who is contributing in the society. The book is in one sense a finished product and in another it is not. One cause of this is that the bearing of economics on the higher wellbeing of man has been overlooked.
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. But it includes his business and professional connections, the organization of his business, and—where such things exist—his property in slaves, in labour dues, etc. 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 to build up a strong and righteous character. If the older economists had made this clear, they would have escaped many grievous misrepresentations; and the splendid teachings of Carlyle and Ruskin as to the right aims of human endeavour and the right uses of wealth, would not then have been marred by bitter attacks on economics, based on the mistaken belief that that science had no concern with any motive except the selfish desire for wealth, or even that it inculcated a policy of sordid selfishness. Edgeworth, who was a brilliant mathematician, bent on providing the mathematical framework needed to further a lot of the concepts that we are flying around. It is a very important, but also difficult task to ascertain the proportions in which the different classes of society distribute their expenditure between necessaries, comforts and luxuries; between things that provide only present pleasure, and those that build up stores of physical and moral strength; and lastly between those which gratify the lower wants and those which stimulate and educate the higher wants.
Marshall contributed many original ideas to the study of economics, including his analysis of consumer surplus, price elasticity, diminishing returns and marginal utility. And almost every use of the term capital, which is known to history, has corresponded more or less closely to a parallel use of the term Income: in almost every use, capital has been that part of a man's stock from which he expects to derive an income. But economics cannot venture to follow this example. The qualities which a breeder or a gardener notices as eminently adapted to enable an animal or a plant to thrive in its environment, are for that very reason likely to have been developed in comparatively recent times. This usage of the term is in harmony with the common practice of economists of treating social problems in broad outline to start with, and reserving minor details for later consideration: it is in harmony also with their common practice of taking Labour to include those activities, and those only, which are regarded as the source of income in this broader use of the term. 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 contests with nature at every turn.
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. For important as is the inquiry how to turn our resources to the best account, it is not one which lends itself, so far as the expenditure of private individuals is concerned, to the methods of economics. 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. 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. But there is a broader point of view which the business man, no less than the economist, must adopt when he studies the causes which govern the material wellbeing of the community as a whole.
It does not constitute profit to the firm. The above difficulties are fundamental: but there are others which do not lie deeper than the more or less inevitable faults of our statistical returns. But it would take a decade to complete. It is true that in religion, in the family affections and in friendship, even the poor may find scope for many of those faculties which are the source of the highest happiness. For instance if the work done by a machine which cost £100 is worth £4 a year net, that machine is yielding a quasi-rent of £4 which is equivalent to interest at four per cent. 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.
When there is no special drought, but water is sold by the pailful, the price may be low enough to enable even the poorer classes to drink as much of it as they are inclined, while for cooking they sometimes use the same water twice over, and they apply it very scantily in washing. But although the utility, or the benefit, that is measured in the poorer man's mind by twopence is greater than that measured by it in the richer man's mind; yet if the richer man rides a hundred times in the year and the poorer man twenty times, then the utility of the hundredth ride which the richer man is only just induced to take is measured to him by twopence; and the utility of the twentieth ride which the poorer man is only just induced to take is measured to him by twopence. 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. Perhaps the earlier English economists confined their attention too much to the motives of individual action. For instance, economics may suggest practical means of substituting capable workers for those who can only do such work as match-box making; as physiology may suggest measures for so modifying the breeds of cattle that they mature early, and carry much flesh on light frames. On the other hand, he suggested many new directions for the future development of economic science. 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 earned.
In fact, Marshall failed to distinguish between reversible and irreversible external economies. Nineteenth-century political economy ended and the new economics began with Marshall's pioneering use of econometrics; his creation of economics as a rigorous discipline with its own content and method; his attempt to unify competitive economic theories and practices; and his belief in the evolutionary nature of economic knowledge. In the end, it was agreed to sell the Principles at a fixed price of 12 s 6 d. He believed that the value of money was a function of demand and supply. The consumers are generally prepared to pay a higher price for a commodity rather than go without it.