General view of distribution

Book 6, Chapter 11

§1. Marshall’s summary of the book just past is really interesting to read; I don’t think I can summarise it, except to say that his consideration of scale and time is as necessary and insightful as the typical (modern) textbook is superfluous and opaque. Consider this:

Again, since human beings grow up slowly and are slowly worn out, and parents in choosing an occupation for their children must as a rule look forward a whole generation, changes in demand take a longer time to work out their full effects on supply in the case of human agents than of most kinds of material appliances for production; and a specially long period is required in the case of labour to give full play to the economic forces which tend to bring about a normal adjustment between demand and supply. Thus on the whole the money cost of any kind of labour to the employer corresponds in the long run fairly well to the real cost of producing that labour [p 550].

§2. Another interesting summary (worth a read) includes this:

A chief function of business enterprise is to facilitate the free action of this great principle of substitution. Generally to the public benefit, but sometimes in opposition to it, business men are constantly comparing the services of machinery, and of labour, and again of unskilled and skilled labour, and of extra foremen and managers; they are constantly devising and experimenting with new arrangements which involve the use of different factors of production, and selecting those most profitable for themselves [p 551].

§3. Managers and management have their role:

On the whole the work of business management is done cheaply—not indeed as cheaply as it may be in the future when men’s collective instincts, their sense of duty and their public spirit are more fully developed; when society exerts itself more to develop the latent faculties of those who are born in a humble station of life, and to diminish the secrecy of business; and when the more wasteful forms of speculation and of competition are held in check. But yet it is done so cheaply as to contribute to production more than the equivalent of its pay. For the business undertaker, like the skilled artisan, renders services which society needs, and which it would probably have to get done at a higher cost if he were not there to do them [p 552].

Marshall was no promoter of laissez faire. He often writes of abilities and effort rather than station or class. The excerpt above, followed by reminders of the risks capitalists take and the general rule that talent is rewarded, are meritocratic in the broadest sense (“society exerts…” translates easily as anti-discrimination).

§4 & §5. Capital(s) and labor(s), within and between, are competing and complementing, with each productivity gain “freeing” one input to find its use in other fields, thereby opening opportunities. People — as workers, managers and capitalists — will earn in direct proportion to their contribution to production and national wealth, with some random variations. Marshall’s optimistic vision here is unlikely to hold if/when transactions costs (delay) are high, market power inhibits entry and exit, and/or inputs do not have adequate buffers to absorb risks. Nevertheless, this feasible vision offers a benchmark for market promoters and regulators.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Author: David Zetland

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

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