Progress in relation to standards of life

Book 6, Chapter 13

This is the last chapter of the book!

§1. So what’s the point of it all?

The term the standard of life is here taken to mean the standard of activities adjusted to wants. Thus a rise in the standard of life implies an increase of intelligence and energy and self-respect; leading to more care and judgment in expenditure, and to an avoidance of food and drink that gratify the appetite but afford no strength, and of ways of living that are unwholesome physically and morally. A rise in the standard of life for the whole population will much increase the national dividend, and the share of it which accrues to each grade and to each trade. A rise in the standard of life for any one trade or grade will raise their efficiency and therefore their own real wages: it will increase the national dividend a little; and it will enable others to obtain their assistance at a cost somewhat less in proportion to its efficiency.

§2. Some short-term methods of raising one’s standard of living exist (e.g., abusing market power or buying cheaper imported goods), but higher productivity is the only long-term method of doing so.

§3. Although tired workers should work fewer hours when they are losing productivity, lower hours increases the cost of labor vis-a-vis capital, which can mean lower wages. (Marshall assumes free markets. Union-supporters would say that they can keep wages high while reducing hours, but that claim relies on them being able to protect jobs from cheaper labor, capital and imports!)

§4. Marshall adds that less but more expensive labor means less output for the rest of society, which can lower the social standard of living (fewer but more costly goods) or productivity (industry cannot correct the labor/capital balance).

§5. Higher wages and lower capital earnings encourages capital, entrepreneurs and companies to leave in search of better living standards and profitable opportunities. Such brain drains don’t just hit “statist” countries like the USSR, Cuba, China and Venezuela. They also hit corrupt countries like Argentina, Italy, Greece, Mexico, India and others. The US and most EU countries are not as bad, but too much intervention (or redistribution to politically important groups) can kill the geese laying golden eggs!

§6. A short-run rise in wages might be justified by competitive, market conditions, but those conditions are not universal or eternal — limiting the value of ideas like “$15 minimum wage for all”.

§7. Unions raise the profile of workers and their pride in working together. Unions can also fight for wage increases, but those increases cannot undermine businesses.

§8. Productivity-based wages do not harm average workers, but they will displace less-productive workers.

§9. Unions that press for the same wages for all workers or wages based on older (less-efficient) practices are likely to harm their least-efficient members, who will not be employed for long if their wages exceed their productivity.

§10. If one branch of industry should lose its market, productivity and employment, then other branches will suffer loses of demand (for goods) and supply (for inputs), thereby creating an unhelpful feedback that can only be reversed by a (slow) return of confidence. These dynamics underlay much of the crippling impacts of the Great Depression that began a decade after Marshall’s book.

§11. Marshall cautions against large-scale or rapid alterations in labor-capital relations, perhaps in response to the Russian Revolution of 1917:

There is therefore strong primâ facie cause for fearing that the collective ownership of the means of production would deaden the energies of mankind, and arrest economic progress; unless before its introduction the whole people had acquired a power of unselfish devotion to the public good which is now relatively rare. And, though this matter cannot be entered upon here, it might probably destroy much that is most beautiful and joyful in the private and domestic relations of life. These are the main reasons which cause patient students of economics generally to anticipate little good and much evil from schemes for sudden and violent reorganization of the economic, social and political conditions of life. p 593

After saying this, Marshall advocates taxing the rich to reduce inequality as it’s better to allow (and then tax) productivity than redistribute the means of production to those less able to produce.

§12. Freedom helps productive, educated, healthy workers, but the “less prepared” might need “German-style” social programs. Marshall doesn’t mind those programs if they are also aimed at helping the children of poorer families escape poverty. (These ideas are still hotly debated, but it’s interesting to see Marshall departing from his earlier eugenic pronouncements (“Nature”) in favor of Nurture.)

§13. Marshall criticises speculators, calling for more “economic chivalry” in which the rich finance the advancement of other citizens (and their children). I am not sure if he favours the rich paying higher taxes or donating to help others. The former is about 50x more effective, in my opinion.

§14. The next generation will not learn much if their parents are struggling. Shorter hours and leisure are essential for rest, flourishing and innovation.

§15. Natura non facit saltum:

Now, as always, noble and eager schemers for the reorganization of society have painted beautiful pictures of life, as it might be under institutions which their imagination constructs easily. But it is an irresponsible imagination, in that it proceeds on the suppressed assumption that human nature will, under the new institutions, quickly undergo changes such as cannot reasonably be expected in the course of a century, even under favourable conditions. If human nature could be thus ideally transformed, economic chivalry would dominate life even under the existing institutions of private property. And private property, the necessity for which doubtless reaches no deeper than the qualities of human nature, would become harmless at the same time that it became unnecessary.

There is then need to guard against the temptation to overstate the economic evils of our own age, and to ignore the existence of similar and worse evils in earlier ages; even though some exaggeration may for the time stimulate others, as well as ourselves, to a more intense resolve that the present evils shall no longer be allowed to exist. But it is not less wrong, and generally it is much more foolish, to palter with truth for a good than for a selfish cause. And the pessimist descriptions of our own age, combined with romantic exaggerations of the happiness of past ages, must tend to the setting aside of methods of progress, the work of which if slow is yet solid; and to the hasty adoption of others of greater promise, but which resemble the potent medicines of a charlatan, and while quickly effecting a little good, sow the seeds of widespread and lasting decay. 

…and that, my friends, is the end of the main book. There are still 13 appendices that I may read (or not). Update next week!

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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