§1. The chapter begins with:
The field of employment which any place offers for labour and capital depends, firstly, on its natural resources; secondly, on the power of turning them to good account, derived from its progress of knowledge and of social and industrial organization; and thirdly, on the access that it has to markets in which it can sell those things of which it has a superfluity. The importance of this last condition is often underrated; but it stands out prominently when we look at the history of new countries.
…and from here, Marshall looks at capital and wages in ex-colonies such as the US and Australia. These places have abundant resources but lack capital and market access. Wages there are high due to tough conditions, and they fall as development brings economies of scale (further increasing wages) and migration (reducing wages). High capital returns for Old World money in the New World also fall as markets develop.
§2. Eighteenth century England’s economy grew as industrialisation multiplied output and trade (often forced, via colonialism) opened new markets. Faster communication and shipping increased competition, thereby lowering prices.
§3. Increased productivity and high trade volumes lowered the cost of manufactured products to English workers, but expensive domestic food sources reduced that surplus. Growing trade in food (e.g., imported US wheat) displaced domestic production (allowing poor soils to be left for pasture) and lowered food prices. (The 1846 repeal of the Corn Laws also matters.)
§4. Profits fell as protectionism hindered trade and cheaper transport, energy, etc. spurred competition, thereby slowing the increase in English prosperity.
§5. Looking back from 1900/1920, Marshall observes that the costs of food, housing, and heating have been “stable” even as quality has increased and that technological innovation (coal, electricity, machines) have brought clean water, meat, heat, light and other “luxuries” to the working classes, opening the possibility of an entire country — rather than just a city (Venice, Athens) — of well-off people.
§6. Although increased trade and repeal of the Corn Laws pushed down the (rental) value of English land, rents rose as land use shifted to higher value crops or trade-advantaged production. Net net, rents doubled over the nineteenth century.
§7. Easy transport and expanding markets bring competition that lowers profits for expensive, long-lived machines. The value of rail, road and canal transit routes depends on trade methods and routes. Values fell as routes went elsewhere but rose as depots and hubs gained traffic.
§8. Marshall observes that people’s lengthening time horizons (falling discount rates) lead them to harder work now to enjoy greater savings later. He also comments that working hours are falling as over-work becomes a thing. (I guess they were way above 40 hours/week in 1920.) That said, he notes that some will work more if earning are high. For more on these topics, see my post on Keynes’s 1930 essay on productivity.
§9. Wages are rising for (the many) workers who bring more more education and skill to working with machines in agriculture and industry but falling for (the few) artisans who formerly did these jobs. For society, average wages and overall productivity (wealth) are rising, but some are losing out, relatively.
§10. The rising wages of women and children are good for them but bad for the “tradition” in which men earn the money, women tend the house, and children obey.
§11. Marshall identifies what is today called the “winner take all” economy (the return to average talents drops while returns to The Best skyrocket), which is driven by (a) great wealth and (b) communication that allows The Best to find clients everywhere. Indeed: “But so long as the number of persons who can be reached by a human voice is strictly limited, it is not very likely that any singer will make an advance on the £10,000…”
NB: “The first radio news program was broadcast August 31, 1920”
§12. Marshall notes a general increase in prosperity for the working and middle classes. He notes that this prosperity can be threatened by loss of work but says such a threat is over-rated compared to the “old days” of piecemeal and sporadic work. With a new normal of year-round employment in large enterprises, workers have better overall job security. The Great Depression tested that conclusion less than a decade later.
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.