produce of industry badly, but that it would have so much less to divide."

Prima facie, a more equal distribution would increase happiness. It would, in short, be more economic. But it might indirectly diminish happiness by causing a decrease in saving, a decrease in the efficiency of capital, through its greater diffusion in small amounts, an excessive increase in population and a check to the growth of culture. A judicious and gradual advance in a Socialistic direction is not, however, opposed to sound economic theory.2

Many policies, by which Government seeks to equalise distribution, are rightly intended also to increase production, so that the whole community may be benefited and not one part only at the expense of the rest. Examples of such policies are public expenditure on education, State-aided land purchase, and cheap, or even free, medical attendance for the poorer classes. The limits of governmental interference of this kind should be partly determined by the efficiency of individual effort and existing private enterprise.3

It is comparatively unimportant, though unfortunate, that Sidgwick should have considered the whole argument of his Book III to be outside his formal theory of distribution. On the other hand, it is important that he should have considered it to be within the scope of the Principles of Political Economy."

His work has received much less attention than it deserves. He has been overshadowed by Marshall, who, writing only seven years later, rather curiously makes no reference to Sidgwick's Principles. A little more of Sidgwick's spirit would have done no harm to some of Marshall's followers, but his influence is clearly traceable in the work of Professor Pigou and, to a less degree, in • Ibid, pp. 537 ff.

1 Ibid, pp. 519 ff.

2 Ibid, pp. 527 fi.

that of Professor Cannan. His excellence as an economist is the more remarkable, when we remember the range and versatility of his intellectual activity and published writings.1

"

1 Morley (Recollections, I., p. 124) writes aptly if any Englishman ever belonged to the household of Socrates, Sidgwick was he. As a writer, his method made him difficult, and his contribution as a whole is not easy to grasp, even by people as painstaking as himself. Yet in nobody did rationalism clothe itself in more ingenious, subtle, or effective forms He left a world of affectionate admirers, but he founded no school; and if he had, nobody would have been so competent as himself to reduce the pretensions of its scholars to a nullity."

CHAPTER VII

SIXTH PERIOD: 1890-1911.

§1. From this point onwards we shall be chiefly concerned with living men, whose work is still incomplete, and of whom, therefore, our judgment must be in some degree provisional.

The condition of economic science in 1890, when Marshall published his Principles, was considerably more advanced than it had been in 1871. Jevons, Walker, and the Austrian school had made important contributions to economic truth, and Sidgwick had done much to fuse the new truths with the old. Corresponding to these two lines of advance, two elements may be roughly distinguished in Marshall's Principles, first, work of an original and constructive kind, and second, the work of interpreting and endeavouring to reconcile with truth the doctrines of certain of his predecessors. The second element is less important than the first. For it is doubtful whether any good purpose is served by "the creation of a mythical Ricardo and Malthus, who never wrote anything which cannot be limited and explained' till it ceases to be in conflict either with recognised fact or accepted modern opinion."

The Principles was intended to be only the first of a series of volumes, which together should cover the whole field of economics, theoretical and applied. The book is concerned mainly with foundations, and is intended to

2

I Cannan, Theories of Production and Distribution, p. viii. Twenty-nine years elapsed before the publication in 1919 of Industry and Trade, the second volume in this series.

prepare the way for more realistic studies. This explains why the theory of value occupies so large, at first sight so disproportionately large, a place. In Jevons' Theory there is an apparent disproportion of the same kind, which disappears only when Jevons' economic writings are viewed as a whole. It is the joint achievement of Marshall and Jevons to have elaborated the theory of value, which lies at the core of modern economic science. But it seems just to say that modern economists as a body have spent too much time on unsubstantial refinements of this branch of theory and too little on other branches.

§2. The greater part of Marshall's most original and characteristic thought is contained in Books IV and V of the Principles, which deal respectively with the agents of production and with value. With these Books we are not here directly concerned. Book VI on distribution contains less which is original. In the theory of value Marshall clears up many confusions by emphasising the idea of mutual causation. Demand, supply, and price determine one another, just as three balls lying in a bowl mutually determine one another's position.1 Marginal uses on the one hand, marginal costs on the other, indicate but do not govern value; they are governed, together with value, by the general relations of demand and supply." "The uses of each agent of production are governed by the general conditions of demand in relation to supply," but "we must watch the marginal uses and the marginal efficiency of each agent, simply because it is only at the margin that any of those shiftings can occur by which changed relations of supply and demand manifest themselves." Marginal efficiency is measured by marginal net product, but "the doctrine that the earnings of a worker tend to be equal to the net

"

Principles, p. 818.

2 Ibid, p. 522.

product of his work, is not a theory of wages, since, in order to estimate net product, we have to take for granted all the expenses of production of the commodity on which he works. But the doctrine is a useful part of

a theory of wages."

Both in Adam Smith's and in Marshall's theory of value, wages per head, profits (or interest) per cent. and rent per acre occupy central positions. But, whereas Adam Smith regards these three quantities as component parts of price, Marshall regards them as the marginal net products of the three chief factors of production. For a supply of labour is most conveniently, if not most scientifically, measured in workers, of capital in hundred pounds' worth, and of land in acres. The doctrine of payment according to marginal efficiency is fatal to the various "residual theories" of distribution, which have been put forward from time to time as regards particular factors of production.

112

Like Sidgwick, Marshall regarded "the problems of distribution and exchange as so closely connected that it is doubtful whether anything is to be gained by the attempt to keep them separate. But he introduces an important verbal change into his discussion of distribution. The term interest,' he says, "is properly applicable only to 'free' or 'floating capital the income from investments is of the nature of a rent." All income, therefore, which is derived from an instrument of production made by man, as distinguished from land and other natural resources, Marshall calls "quasi-rent."

1 Ibid, pp. 518-9.

Ibid, p. 83. In 1879 Marshall published a little book, now withdrawn from circulation, on the Economics of Industry. In this book, not to be confused with a later book bearing the same title, which is merely a summary of the Principles, he logically follows out the opinion quoted in the text, and includes all discussion of distribution under the general title of Normal Value."

3 Ibid, p. xi.