This chapter on “the order and aims of economic studies” begins with:
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.
This paragraph is interesting for its emphasis on common sense — much against the popular interpretation of Friedman’s 1953 positivist argument that assumptions do not matter if predictions are accurate.
Marshall goes on to qualify economics as a science in terms of how it can predict actions in response to “measurable motives” such as the motive of money. Marshall thus limits the predictive power of economics in areas where motives are not clear or reflect different institutions, i.e., in places lacking “free enterprise, of general education, of true democracy, of steam, of the cheap press and the telegraph” [p 33]. These caveats were lost in the decades after Principles was published, as economists sought to generalize their theories to all times, places and peoples, an imperialism that has often overreached.
§2. Marshall then cautions against assembling facts in the quest for a “silver bullet” explanation, as such practice prevents one from understanding the situation as it is. He therefore recommends assembling all related “facts and reasonings” to see how they interact and thus reveal “nature’s laws.” To me, this passage emphasizes inductive reasoning.
§§3-4. Marshall then gives a veritable laundry list of questions worthy of economists’ attention. For example:
- “Subject to what limitations is the price of anything a measure of its desirability?
- 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?
- Is it necessary that large numbers of the people should be exclusively occupied with work that has no elevating character?
- Have we 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?
- 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?” [pp 33-35]
Marshall ends §4 calling for an emphasis on the study of man’s social life, and turn from studying politics. Thus, economics `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”‘ [p36]. Wow. This “narrow-broad” characterization flips my use of “political economy,” so I am a bit confused here. At the moment, my interpretation is that Marshall sees politics (“the art of the possible”) as a limited sphere in negotiation and strategy, whereas economics is concerned with the larger realm of how humans interact in markets, social settings, etc.
§5. Marshall then calls for economists to use their perception, imagination and reason to study the underlying influences on actions and the interactions that affect society. This perspective contradicts assertions of cause-effect via lazy shallow assumptions that are worse than making no assumptions at all. To understand these deeper relations, “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” [p 38]. It is clear (from other examples in this chapter) that Marshall is concerned with the working classes that have been roiled and displaced by the Industrial Revolution.
§6. Marshall ends the chapter with some perspective on “recent” developments of the 19th century, i.e., that economic freedom has been helpful for the majority of mankind while the complex impacts of the “industrial organism” are still surfacing.
He then condemns “economists” pushing narrow (upper) class interests:
And even in our own time, that title [“economist”] 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… 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.
This passage, even if self-serving, rings true, as “good” economists are indeed more interested in the wealth of nations and advance of society over the wealth of the elites and their grip on power. We oppose abuse of market power, and thus support unions as a countervailing force. We support education, and thus oppose the exploitation of ignorance or limits on the spread of knowledge. We (if I may) see our role as one of furthering our collective advance and prosperity.
Marshall ends the chapter with a note of “new hope” based on the biological sciences, i.e., the idea that the evolution of species (Darwin published in 1859 and was influenced by Adam Smith source1 source2) meant that man was not “doomed by his circumstances” (nurture) but also influenced by the evolutionary results of prior generations (nature). From this claim he pivots to saying that the “rights of property” do not deserve automatic priority, except as they contribute to progress — for all.