Book 2, Chapter 2 — Wealth

This chapter begins with the definition of wealth as part of the set of desirable things, which Marshall labels as goods, which are divided into material (wealth) and non-material, which include internal goods such as professional skills, and external goods such a relations with others. (Today, these are called human capital and social capital, respectively.)

Goods can be transferable, and most non-material goods (Marshall mentioned advantages of climate or rights of citizenship here) are not. Marshall then discusses how some goods are free but not always, e.g., some Brazilian trees but not all. Here, Marshall is working with the idea of excludable (private goods) versus non-excludable (common pool goods) without using those distinctions. Importantly, he distinguishes between the fish that are free to catch from the commons, and how those fish are converted into private goods as the application of labor displaces them from the commons into one’s private boat.

§2. Marshall defines wealth as consisting of material and non-material goods (e.g., business connection) that have money value or can be used to acquire money. Moving along, he describes economic goods as those that are held by one person (a private good) and valued in terms of money. These criteria exclude not only club goods (jointly held) but non-excludable public and common-pooled goods — goods that I consider “economic” in the sense of their value as well as the need to manage their scarcity. Marshall’s definition might explain some economists’ myopia with respect to those other important goods.

On a related note, Marshall requires the goods have money values. This criterion perhaps explains economists’ ignorance of valuable “goods” such as the environment. The entire study of “ecosystem services” and attempts to quantify their value is, at its root, an attempt to integrate those goods into the narrow “economic sciences” that Marshall espoused.

§3. Marshall notes how internal goods such as skills that are part of personal wealth can confuse discussions (or measurement) of wealth.

§4. Marshall then defines and declares the value of collective goods:

…the benefits which he derives from living in a certain place at a certain time, and being a member of a certain state or community; they include civil and military security, and the right and opportunity to make use of public property and institutions of all kinds, such as roads, gaslight, etc., and rights to justice or to a free education… one person has more real wealth in its broadest sense than another, if the place in which the former lives has a better climate, better roads, better water, more wholesome drainage; and again better newspapers, books, and places of amusement and instruction.

§5. Aware of those non-private goods, Marshall then notes how a nation’s wealth consists of more than the sum of individual wealth. He then adds that some national wealth must be counted as global wealth, as ideas (for example) cannot be kept within boundaries.

[In Footnote 1 on page 50, Marshall notes that monopolies resulting from legal protections or missing information are not a source of wealth as much as a transfer from others; national wealth probably increases when monopolies fail.]

§6. Marshall quotes Adam Smith declaring that an object’s value can derive from its utility but also its price in monetary exchange. Marshall prefers to focus on exchange values, which are quantified in monetary prices that are equivalent to purchasing power.

Marshall ends with “if inventions have increased man’s power over nature very much, then the real value of money is better measured for some purposes in labour than in commodities.” This parting thought seems to echo Marx’s Labor Theory of Value, but only with the assumption that inventions have lowered the cost of commodities (effectively) to zero, leaving labor as the scarce input that must be purchased with scarce money. Interesting.

Author: David Zetland

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

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