Book 1, Chapter 1

Chapter 1 begins with (p 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.

Note two things. Marshall defines economics as political economy and then says economics examines “individual and social action.” This broader definition has been narrowed by individual action (methodological individualism) while leaving social/political actions to political scientists. I regret this division when most topics mix economic, social and political dynamics.

Marshall then says that our actions reflect our work habits and religious beliefs, which is why economics  studies both wealth and humanity. He then  prioritizes the study of helping the poor gain wealth over helping the comfortable get rich because poverty is much worse. This observation is often (rightly) used to justify taxing the rich to help the poor, since the poor gain much more from $1 than the rich lose by paying it. (Economists frown on “interpersonal comparisons of utility” class comparisons are easier to justify due to falling marginal utility of income.)

Marshall explains that such progress is new, relative to those (beginning with Aristotle?) who accepted poverty and slavery as “natural.” Marshall thinks that the Industrial Revolution (a term that does not appear in the book) has reduced “poverty and ignorance” among the British working classes (p 3):

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.

Marshall says the recent need for studying economics (“concerned with the wellbeing of mankind”) arises from the Industrial Revolution (p 4):

…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.

Thus, it is the increase in free choices, whether selfish or unselfish, that has changed the nature of competition and created a paradox in which people are less generous with neighbors but more trusting with strangers who occupy a larger share of their economic lives. Such changes in relations upset fans of small-scale, self-reliant communities (e.g., Gandhi), but not those who see the advantages of using prices and markets to maximize the benefits from a given basket of resources.

Marshall points out that this trend is more humanitarian than critics might assume, since “the backwards races” have no shortage of sharp dealing. (Money lenders in poor villages are still quite dodgy.) Marshall defends the new norm of competitive trade among strangers because it leads to better deals but also because it rewards truth and honesty. (He also implies that wealth encourages generosity, e.g., taxpayers agreeing to pay millions of pounds to slave owners for their slaves, who were then freed.)

Marshall then explains how it would be nice to have selfless cooperation displace competition, but that “…the history of socialistic ventures, shows that ordinary men are seldom capable of pure ideal altruism for any considerable time together” [p 7]. And that’s why the nice things we have are the result of more “competition,” i.e., “more self-reliant habits, more forethought, more deliberate and free choice,” which Marshall calls “economic freedom” [p 8].

When did economic freedom become so important? Only after the Industrial Revolution blew apart (“like a wayward monster”) social and economic traditions. In the early years, these changes were terrible for many people, but they saved the British from Napoleon and helped a growing share of the working classes achieve greater economic, political and social freedom.

Marshall then notes how “economic science” needs to increase “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” [p 11].

…and that’s how the chapter ends: with a promise to explain and magnify the economic freedom that has disrupted and (more than) improved the lives of so many people.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

5 thoughts on “Book 1, Chapter 1”

  1. > And that’s why the nice things we have are the result of more “competition,” i.e., “more self-reliant habits, more forethought, more deliberate and free choice,” which Marshall calls “economic freedom” [p 8].

    Actually, Marshall contrasts competition with economic freedom.
    P.4

    > It is often said that the modern forms of industrial life are distinguished from the earlier by being more competitive. But this account is not quite satisfactory.

    And the next paragraph:

    > There is no one term that will express these characteristics adequately. They are, as we shall presently see, a certain independence and habit of choosing one’s own course for oneself, a self-reliance; a deliberation and yet a promptness of choice and judgment, and a habit of forecasting the future and of shaping one’s course with reference to distant aims.

    P. 8

    > 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…

    On p. 4 Marshall says that the current trend (as of 1920) is toward combination and cooperation rather than competition. The difference with the past is that previously people were compelled to cooperate, whereas now they choose cooperation. His point is that people have the freedom to choose competition or cooperation and he doesn’t position one as more desirable than the other. He gives examples of the good and bad aspects of both. What he thought made his time different from the past was the exercise of choice in the context of economic freedom.

    This matters for policy. If you prioritize competition, then you want to break up large firms that dominate markets in order to increase competition. On the other hand, if your values are self-reliance, deliberation, and free choice, large firms are fine as long as they don’t raise prices or constrain consumer choice. In fact, if large firms are better at establishing reputations, they may be preferred because reputation helps consumers make better choices.

    1. @Bob — thanks for the clarification. I put competition in “” because, as you note, he was redefining the results of competition (a derogatory term for some) as the results of economic freedom.

      You’re right about freedom vs force, as forced competition (“a race to the bottom”) and forced cooperation (“slavery”) are both antithetical to social wellbeing and economic exchange.

      I’m looking forward to more discussion on the form of the market and the social value of its outcomes.

  2. I had assumed that “>” would create a block quote. I’ll stick with double apostrophes in the future.

  3. I have a very minimal knowledge of Marshall’s intellectual’s heritage, besides what is found on his Wikipedia’s page. He was influenced by schools of utilitarian thought, but also studied philosophy more generally. Given that disclaimer let me speculate. What strikes me in the pages (2-5) after his description of how 4000 pounds doesn’t do much for someone who has 1000 pounds compared to 120 more pounds for a family who only has 30, is that the story is one of the improvement in human actualization as opposed to just the satisfaction of preferences (the standard of economic thinking like methodological individualism). I think in this context the discussion of Aristotle makes some sense.

    First, Marshall points out for those of lower means, “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.” (pg 2) I can’t help but think of the present day debate on the subject of life satisfaction surveys and levels of income across countries. If these individuals are possibly happy, but poor why bother? Poverty is an “unmixed evil” he replies. He then lists a number of factors that describe this evil, but the last he listed caught my eye, “they have no chance of making the best of their mental faculties.” (pg 3) Later on the same page, he mentions “poverty and ignorance being gradually extinguished” based on the improvement of the working classes. On the bottom of the page continuing onto to page 4 he mentions artisans have now a “more refined noble life than did the majority of the upper classes even a century ago.” On 5 he says the question is whether all in the world can have a “cultured life, free from the pains of poverty and the stagnating influences of excessive mechanical toil.” I detect a hint of Adam Smith’s concern that factory work can degrade the human mind. I wonder what Marshall would consider a noble and cultured life?

    Here is my interpretation of the above. The improvement caused by economic growth that lowers poverty is more than just a subjective improvement, which you can model via an increase in utility that is a further satisfaction of preferences, but instead an objective improvement in human beings fulfilling their purpose or end. Why Aristotle’s consideration of natural slavery? In the Politics Aristotle states, “those who are as different [from other men] as the soul from the body or man from beast—and they are in this state if their work is the use of the body, and if this is the best that can come from them—are slaves by nature. For them it is better to be ruled in accordance with this sort of rule, if such is the case for the other things mentioned.[6]” https://en.wikipedia.org/wiki/Natural_slavery According to Aristotle, man is a rational animal. Rationality is what distinguishes a man from an animal. For a person to lack that capacity would make him different from other men in the way that men are different from animals. Useful as beasts of burden, but not participants in the life of the mind. According to Marshall, Christianity was opposed to this view, but it wasn’t until the recent the improvements more forcefully brought the question forward, “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[.]” To some extent, I think Marshall might have in mind a certain type of person the wider development gives rise to.

    1. Hi Jim — Thanks for your thoughts. I think that Marshall diverged from Aristotle in claiming that all people could improve their lot (thus, slavery was not a natural condition), which then brought him to the idea of addressing “wretched” poverty. Thus, the “utility of income” can be increased by a transfer from rich to poor. I think this is also what you are saying?

      On factory work and cultured minds, I think that neither Smith nor Marshall were against factories per se, as long as they contributed to the prosperity of workers, consumers (and manufacturers).

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