‘Wants’ and ‘Activities’ in ‘Organic Growth’
Marshall discussed the connection between progress and standards of life as part of his discussion on wants and activities. As mentioned in Section 3.2, ‘Progress in Relation to Standards of Life’ was in the line of thought on ‘Wants in Relation to Activities’ in Principles’ Book III on ‘Wants and Their Satisfaction’.
The chapter on ‘Wants in Relation to Activities’ was a response to the increased prominence given to the study of consumption and demand by Jevons. There was a special need to insist on this, because the reaction against the comparative neglect of the study of wants by Ricardo and his followers showed signs of being carried to the opposite extreme. Marshall asserted ‘the great truth', that is, ‘while wants are the rulers of life among the lower animals, it is to changes in the forms of efforts and activities that we must turn when in search for the keynote of the history of mankind' (1961a, 85).Following an argument made by Talcott Parsons on ‘wants' and ‘activities', Stefan Collini emphasized that by confining itself to the study of the satisfaction of given wants, ‘the material requisites of wellbeing', a Utilitarian conception of economics would cut the subject off from ‘the high theme of economic progress'. By making activities and their dominant influence on the formation of character and ideals the central concern of economics, it could become the guiding discipline in any ‘study of man' (Collini et al. 1983, 321). Marshall indeed thought his vision of social science as ‘the reasoned history of man' (1897, 299; see ch. 4 and ch. 7 in Shionoya and Nishizawa 2008).
For ‘the high theme of economic progress', in a concluding paragraph of Book V (ch. 12), introducing Book VI, Marshall wrote:
We are here verging on the high theme of economic progress; and here therefore it is especially needful to remember that economic problems are imperfectly presented when they are treated as problems of statical equilibrium, and not of organic growth.
For though the statical treatment alone can give us definiteness and precision of thought, and is therefore a necessary introduction to a more philosophic treatment of society as an organism; it is yet only an introduction. (1961a, 461)Despite devoting Book III to ‘Wants and Their Satisfaction', in its second chapter on ‘Wants in Relation to Activities', Marshall played down the importance of consumption and demand by stressing ‘human efforts and activities'.The new marginal utility theory provided away of showing that the earnings of any agent of production depended on the value of the products they produce. Yet once more it was on the supply side of the market for factors that Marshall was keen to place his emphasis (Winch 2009, 273). Marshall separated the new generation of economists from their predecessors, but in making human efforts and activities so much a part of the agenda and method of economics, he also separated himself from those contemporaries, chiefly Jevons, Sidgwick, and Edgeworth, who preserved a closer relationship between economics and Utilitarianism (Collini et al. 1983, 318).
According to Marshall, the theory of wants can claim no supremacy over the theory of efforts. It is not true that ‘the Theory of Consumption is the scientific basis of economics'. For much that is of chief interest in the science of wants, is borrowed from the science of efforts and activities. These two supplement one another; either is incomplete without the other. But if either, more than the other, may claim to be the interpreter of the history of man, whether on the economic side or any other, it is the science of activities and not that of wants. J. R. McCulloch indicated their true relations when, discussing ‘the progressive nature of man', said: ‘The gratification of a want or a desire is merely a step to some new pursuit. In every stage of his progress he is destined to contrive and invent, to engage in new undertakings; and when these are accomplished to enter with fresh energy upon others’ (quoted in 1961a, 90).20
Donald Winch summed up the argument that the adjustment of wants to activities and the creation of new wants as a result of new activities was the foundation on which Marshall wished to build his own scientific edifice rather than on any theory of consumption alone.
Character formation then ‘lay at the centre of Marshall’s contribution to a subject’. Marshall was more ambitious in the inclusiveness of his conception of what he called the ‘economic organon’: his preference was to be regarded as someone who had redrawn the boundaries of economics sufficiently generously to make these larger ‘organic’ (‘biological’ as opposed to ‘mechanical’) themes part of the most advanced of the social sciences (Winch 2009, 273).Given that wants and activities were so important, why had there been such a focus on consumers’ demand? Marshall believed that it could be attributed to ‘mathematical habits of thought’ and to the making use of statistical evidence on consumption to throw light on questions of public wellbeing. Marshall wrote in Book III about ‘Gradations of Consumers’ Demand’ (total utility, marginal utility, demand price) and ‘the elasticity of wants (demand)’. Then in chapter vi ‘Value and Utility’, he discussed ‘consumers’ surplus’ - a concept that would enable the academic economist to estimate the size of the gap between welfare and wealth produced by a wide range of policy choices. If consumers’ surplus could be measured, it could be used to gauge how much welfare could be increased by policies such as taxes or bounties that shifted the demand and supply schedules in a direction that increased the amount of surplus available (Winch 2009, 272).
Marshall wrote of the ‘high practical interest of consumer’s surplus’: if the money measures of the happiness caused by two events are equal, there is not any very great difference between the amounts of the happiness in the two cases. It is on account of this fact that ‘the exact measurement of the
20 For ‘Rehabilitation of Ricardo’, Marshall had ‘an excursus of eight pages’ on ‘Ricardo’s Theory of Cost of Production in Relation to Value’ at the end of Book V, that is ‘Note on Ricardo’s Theory of Value’, in the second to the fourth editions of the Principles, which became Appendix I in the fifth edition (Ashley 1891, 476; Marshall 1961b, 545).
consumers’ surplus in a market has already much theoretical interest, and may become of high practical interest’. However, he noted here: ‘the task of adding together the total utilities of all commodities, so as to obtain the aggregate of the total utility of all wealth, is beyond the range of any but the most elaborate mathematical formulae’. An attempt to treat it convinced Marshall that ‘even if the task be theoretically feasible, the result would be encumbered by so many hypotheses as to be practically useless’ (1961a, 131). Marshall indicated the limitation of doctrine of consumer’s surplus: ‘Our list of demand prices is highly conjectural except in the neighbourhood of the customary price; and the best estimates we can form of the whole amount of the utility of anything are liable to large error’ (1961a, 133).
Guillebaud recalled Marshall’s recollection that a major disappointment in his life had been the recognition, which gradually forced itself on him, that his concept of consumer’s surplus was devoid of important practical application, because it was not capable of being quantified in a meaningful way. At the outset he had high hopes that it could have practical applications, and for many years he had wrestled with it, but had finally reached the conclusion that ‘it was a theoretical and not a practical tool in the economist’s workbox’ (Guillebaud 1971, 96: Groenewegen 2010).
As Marco Dardi indicated, Marshall was aware of the very rough character of a social welfare index based on consumer surplus, and realized that its shortcomings rendered the scope of welfare policies rather narrow. He was also aware that all utilitarian social indexes had the defect of being unresponsive to the potential evolutionary impact of changes in the quality and distribution of welfare (Dardi 2010, 409). Marshall’s welfare economics had little to do beyond waiting for evolution or progress to do its job. Marshall’s conviction was progress and evolution rather than welfare policies. Welfare policies should refrain from making a substantial impact on the present social conditions until natural development of industrial and social structure has brought about a major change also in mental habits and moral attitudes (Dardi 2010 406, 409).
3.4