1. In the Economics of Industry published by my wife and myself in 1879 an endeavor 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 labor, 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.
2. The term "marginal" increment I borrowed from von Thünen's Der isolirte Staat, 1826-63, and it is now commonly used by German economists. When Jevons' Theory appeared, I adopted his word "final"; but I have been gradually convinced that "marginal" is the better.
Footnotes (Books I-III)
3. They occupy a considerable place in the forthcoming volumes on Industry and Trade.
4. Some remarks on the relation of economics to the sum total of social science will be found in Appendix C, 1, 2.
5. The objections raised by some philosophers to speaking of two pleasures as equal, under any circumstances, seem to apply only to uses of the phrase other than those with which the economist is concerned. It has however unfortunately happened that the customary uses of economic terms have sometimes suggested the belief that economists are adherents of the philosophical system of Hedonism or of Utilitarianism. For, while they have generally taken for granted that the greatest pleasures are those which come with the endeavor to do one's duty, they have spoken of "pleasures" and "pains" as supplying the motives to all action; and they have thus brought themselves under the censure of those philosophers, with whom it is a matter of principle to insist that the desire to do one's duty is a different thing from a desire for the pleasure which, if one happens to think of the matter at all, one may expect from doing it; though perhaps it may be not incorrectly described as a desire for "self-satisfaction" or "the satisfaction of the permanent self." (See for instance T. H. Green, Prolegomena to Ethics, pp. 165-6.)
It is clearly not the part of economics to appear to take a side in ethical controversy: and since there is a general agreement that all incentives to action, in so far as they are conscious desires at all, may without impropriety be spoken of shortly as desires for "satisfaction," it may perhaps be well to use this word instead of "pleasure," when occasion arises for referring to the aims of all desires, whether appertaining to man's higher or lower nature. The simple antithesis to satisfaction is "dissatisfaction": but perhaps it may be well to use the shorter and equally colorless word "detriment" in its place.
It may however be noted that some followers of Bentham (though perhaps not Bentham himself) made this large use of "pain and pleasure" serve as a bridge by which to pass from individualistic Hedonism to a complete ethical creed, without recognizing the necessity for the introduction of an independent major premiss; and for such a premiss the necessity would appear to be absolute, although opinions will perhaps always differ as to its form. Some will regard it as the Categorical Imperative; while others will regard it as a simple belief that, whatever be the origin of our moral instincts, their indications are borne out by a verdict of the experience of mankind to the effect that true happiness is not to be had without self-respect, and that self-respect is to be had only on the condition of endeavoring so to live as to promote the progress of the human race.
6. Compare Edgeworth's Mathematical Physics.
7. This is specially true of that group of gratifications, which is sometimes named "the pleasures of the chase." They include not only the light-hearted emulation of games and pastimes, of hunts and steeplechases, but the more serious contests of professional and business life: and they will occupy a good deal of our attention in discussions of the causes that govern wages and profits, and forms of industrial organization.
Some people are of wayward temperament, and could give no good account even to themselves of the motives of their action. But if a man is steadfast and thoughtful, even his impulses are the products of habits which he has adopted more or less deliberately. And, whether these impulses are an expression of his higher nature or not; whether they spring from mandates of his conscience, the pressure of social connection, or the claims of his bodily wants, he yields a certain relative precedence to them without reflection now, because on previous occasions he has decided deliberately to yield that relative precedence. The predominant attractiveness of one course of action over others, even when not the result of calculation at the time, is the product of more or less deliberate decisions made by him before in somewhat similar cases.
8. See an admirable essay by Cliffe Leslie on The Love of Money. We do indeed hear of people who pursue money for its own sake without caring for what it will purchase, especially at the end of a long life spent in business: but in this as in other cases the habit of doing a thing is kept up after the purpose for which it was originally done has ceased to exist. The possession of wealth gives such people a feeling of power over their fellow-creatures, and insures them a sort of envious respect in which they find a bitter but strong pleasure.
9. In fact a world can be conceived in which there is a science of economics very much like our own, but in it there is no money of any sort. See Appendices B, 8 and D, 2.
10. Some remarks on the large scope of economics as conceived in Germany will be found in Appendix D, 3.
11. Schmoller in the article on Volkswirtschaft in Conrad's Handwörterbuch.
12. The relation of "natural and economic laws," is exhaustively discussed by Neumann (Zeitschrift für die gesamte Staatswissenschaft, 1892) who concludes (p. 464) that there is no other word than Law (Gesetz) to express those statements of tendency, which play so important a part in natural as well as economic science. See also Wagner (Grundlegung, §§ 86-91).
13. They are discussed in Book V, especially chapters III and V.
14. Compare Book II, chapter I.
15. Some parts of economics are relatively abstract or pure, because they are concerned mainly with broad general propositions: for, in order that a proposition may be of broad application it must necessarily contain few details: it cannot adapt itself to particular cases; and if it points to any prediction, that must be governed by a strong conditioning clause in which a very large meaning is given to the phrase "other things being equal."
Other parts are relatively applied, because they deal with narrower questions more in detail; they take more account of local and temporary elements; and they consider economic conditions in fuller and closer relation to other conditions of life. Thus there is but a short step from the applied science of banking in its more general sense, to broad rules or precepts of the general Art of banking: while the step from a particular local problem of the applied science of banking to the corresponding rule of practice or precept of Art may be shorter still.
16. 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.
17. Logic, Bk. IV. ch. VII. Par. 2.
18. Origin of Species, ch. XIV.
19. We ought "to write more as we do in common life, where the context is a sort of unexpressed 'interpretation clause'; only as in Political Economy we have more difficult things to speak of than in ordinary conversation, we must take more care, give more warning of any change; and at times write out 'the interpretation clause' for that page or discussion lest there should be any mistake. I know that this is difficult and delicate work; and all that I have to say in defence of it is that in practice it is safer than the competing plan of inflexible definitions. Any one who tries to express various meanings on complex things with a scanty vocabulary of fastened senses, will find that his style grows cumbrous without being accurate, that he has to use long periphrases for common thoughts, and that after all he does not come out right, for he is half the time falling back into the senses which fit the case in hand best, and these are sometimes one, sometimes another, and almost always different from his 'hard and fast' sense. In such discussions we should learn to vary our definitions as we want, just as we say 'let x, y, z, mean' now this, and now that, in different problems; and this, though they do not always avow it, is really the practice of the clearest and most effective writers." (Bagehot's Postulates of English Political Economy, pp. 78, 9.) Cairnes also (Logical Method of Political Economy, Lect. VI.) combats "the assumption that the attribute on which a definition turns ought to be one which does not admit of degrees"; and argues that "to admit of degrees is the character of all natural facts."
20. When it is wanted to narrow the meaning of a term (that is, in logical language, to diminish its extension by increasing its intension), a qualifying adjective will generally suffice, but a change in the opposite direction cannot as a rule be so simply made. Contests as to definitions are often of this kind:—A and B are qualities common to a great number of things, many of these things have in addition the quality C, and again may the quality D, whilst some have both C and D. It may then be argued that on the whole it will be best to define a term so as to include all things which have the qualities A and B, or only those which have the qualities A, B, C, or only those which have the qualities A, B, D; or only those which have A, B, C, D. The decision between these various courses must rest on considerations of practical convenience, and is a matter of far less importance than a careful study of the qualities A, B, C, D, and of their mutual relations. But unfortunately this study has occupied a much smaller space in English economics than controversies as to definitions; which have indeed occasionally led indirectly to the discovery of scientific truth, but always by roundabout routes, and with much waste of time and labor.
21. For, in the words in which Hermann begins his masterly analysis of wealth, "Some Goods are internal, others external, to the individual. An internal good is that which he finds in himself given to him by nature, or which he educates in himself by his own free action, such as muscular strength, health, mental attainments. Everything that the outer world offers for the satisfaction of his wants is an external good to him."
22. The above classification of goods may be expressed thus:—
Another arrangement is more convenient for some purposes:—
23. That part of the value of the share in a trading company which is due to the personal reputation and connection of those who conduct its affairs ought properly to come under the next head as external personal goods. But this point is not of much practical importance.
24. It is not implied that the owner of transferable goods, if he transferred them, could always realize the whole money value, which they have for him. A well-fitting coat, for instance, may be worth the price charged for it by an expensive tailor to its owner, because he wants it and cannot get it made for less: but he could not sell it for half that sum. The successful financier who has spent £50,000 on having a house and grounds made to suit his own special fancy, is from one point of view right in reckoning them in the inventory of his property at their cost price: but, should he fail, they will not form an asset to his creditors of anything like that value. And in the same way from one point of view we may count the business connection of the solicitor or physician, the merchant or the manufacturer, at the full equivalent of the income he would lose if he were deprived of it; while yet we must recognize that its exchange value, i.e. the value which he could get for it by selling it, is much less than that.
25. Comp. Wealth of Nations, Bk. II. ch. II.
26. "The bodies of men are without doubt the most valuable treasure of a country," said Davenant in the seventeenth century; and similar phrases have been common whenever the trend of political development has made men anxious that the population should increase fast.
27. The value of a business may be to some extent due to its having a monopoly, either a complete monopoly, secured perhaps by a patent; or a partial monopoly, owing to its wares being better known than others which are really equally good; and in so far as this is the case the business does not add to the real wealth of the nation. If the monopoly were broken down, the diminution of national wealth due to the disappearance of its value would generally be more than made up, partly by the increased value of rival businesses, and partly by the increased purchasing power of the money representing the wealth of other members of the community. (It should, however, be added that in some exceptional cases, the price of a commodity may be lowered in consequence of its production being monopolized: but such cases are very rare, and may be neglected for the present.)
Again, business connections and trade reputations add to the national wealth, only in so far as they bring purchasers into relation with those producers who will meet their real wants most fully for a given price; or in other words, only in so far as they increase the extent to which the efforts of the community as a whole meet the wants of the community as a whole. Nevertheless when we are estimating national wealth, not directly but indirectly as the aggregate of individual wealth, we must allow for these businesses at their full value, even though this partly consists of a monopoly which is not used for the public benefit. For the injury they do to rival producers was allowed for in counting up the values of the businesses of those rivals; and the injury done to consumers by raising the price of the produce, which they buy was allowed for in reckoning the purchasing power of their means, so far as this particular commodity is concerned.
A special case of this is the organization of credit. It increases the efficiency of production in the country, and thus adds to national wealth. And the power of obtaining credit is a valuable asset to any individual trader. If, however, any accident should drive him out of business, the injury to national wealth is something less than the whole value of that asset; because some part at least of the business, which he would have done, will now be done by others with the aid of some part at least of the capital which he would have borrowed.
There are similar difficulties as to how far money is to be reckoned as part of national wealth; but to treat them thoroughly would require us to anticipate a good deal of the theory of money.
28. As Cournot points out (Principes Mathématiques de la Théorie des Richesses, ch. II.), we get the same sort of convenience from assuming the existence of a standard of uniform purchasing power by which to measure value, that astronomers do by assuming that there is a "mean sun" which crosses the meridian at uniform intervals, so that the clock can keep pace with it; whereas the actual sun crosses the meridian sometimes before and sometimes after noon as shown by the clock.
29. Bacon, Novum Organon IV., says "Ad opera nil aliud potest homo quam ut corpora naturalia admoveat et amoveat, reliqua natura intus agit" (quoted by Bonar, Philosophy and Political Economy, p. 249).
30. Production, in the narrow sense, changes the form and nature of products. Trade and transport change their external relations.
31. Political Economy, p. 54. Senior would like to substitute the verb "to use" for the verb "to consume."
32. Thus flour to be made into a cake when already in the house of the consumer, is treated by some as a consumers' good; while not only the flour, but the cake itself is treated as a producers' good when in the hand of the confectioner. Carl Menger (Volkswirthschaftslehre, ch. I. § 2) says bread belongs to the first order, flour to the second, a flour mill to the third order and so on. It appears that if a railway train carries people on a pleasure excursion, also some tins of biscuits, and milling machinery and some machinery that is used for making milling machinery; then the train is at one and the same time a good of the first, second, third and fourth orders.
33. This is Jevons' definition (Theory of Political Economy, ch. V.), except that he includes only painful exertions. But he himself points out how painful idleness often is. Most people work more than they would if they considered only the direct pleasure resulting from the work; but in a healthy state, pleasure predominates over pain in a great part even of the work that is done for hire. Of course the definition is elastic; an agricultural laborer working in his garden in the evening thinks chiefly of the fruit of his labors; a mechanic returning home after a day of sedentary toil finds positive pleasure in his garden work, but he too cares a good deal about the fruit of his labor; while a rich man working in like manner, though he may take a pride in doing it well, will probably care little for any pecuniary saving that he effects by it.
34. Thus the Mercantilists who regarded the precious metals, partly because they were imperishable, as wealth in a fuller sense than anything else, regarde...