NOTES：

1。Bacon，NovumOrganonIV，saysAdoperanilaliudpotesthomoquamutcorporanaturaliaadmoveatetamoveat，reliquanaturaintusagit(quotedbyBonar，PhilosophyandPoliticalEconomy，p。249)。

2。Production，inthenarrowsense，changestheformandnatureofproducts。Tradeandtransportchangetheirexternalrelations。

3。PoliticalEconomy，p。54。Seniorwouldliketosubstitutetheverbtousefortheverbtoconsume。

4。Thusflourtobemadeintoacakewhenalreadyinthehouseoftheconsumer，istreatedbysomeasaconsumers’good。whilenotonlytheflour，butthecakeitselfistreatedasaproducers’

goodwheninthehandoftheconfectioner。CarlMenger(Volkswirtschaftslehre，ch。I，2)saysbreadbelongstothefirstorder，flourtothesecond，aflourmilltothethirdorderandsoon。Itappearsthatifarailwaytraincarriespeopleonapleasureexcursion，alsosometinsofbiscuits，andmillingmachineryandsomemachinerythatisusedformakingmillingmachinery。thenthetrainisatoneandthesametimeagoodofthefirst，second，thirdandfourthorders。

5。ThisisJevons’definition(TheoryofPoliticalEconomy，ch。

v)，exceptthatheincludesonlypainfulexertions。Buthehimselfpointsouthowpainfulidlenessoftenis。Mostpeopleworkmorethantheywouldiftheyconsideredonlythedirectpleasureresultingfromthework。butinahealthystate，pleasurepredominatesoverpaininagreatpartevenoftheworkthatisdoneforhire。Ofcoursethedefinitioniselastic。anagriculturallabourerworkinginhisgardenintheeveningthinkschieflyofthefruitofhislabours。amechanicreturninghomeafteradayofsedentarytoilfindspositivepleasureinhisgardenwork，buthetoocaresagooddealaboutthefruitofhislabour。whilearichmanworkinginlikemanner，thoughhemaytakeaprideindoingitwell，willprobablycarelittleforanypecuniarysavingthatheeffectsbyit。

6。ThustheMercantilistswhoregardedthepreciousmetals。

partlybecausetheywereimperishable，aswealthinafullersensethananythingelse，regardedasunproductiveorsterile

alllabourthatwasnotdirectedtoproducinggoodsforexportationinexchangeforgoldandsilver。ThePhysiocratsthoughtalllaboursterilewhichconsumedanequalvaluetothatwhichitproduced。andregardedtheagriculturistastheonlyproductiveworker，becausehislabouralone(astheythought)

leftbehinditanetsurplusofstored-upwealth。AdamSmithsofteneddownthePhysiocraticdefinition。butstillheconsideredthatagriculturallabourwasmoreproductivethananyother。Hisfollowersdiscardedthisdistinction。buttheyhavegenerallyadhered，thoughwithmanydifferencesinpointsofdetail，tothenotionthatproductivelabouristhatwhichtendstoincreaseaccumulatedwealth。anotionwhichisimpliedratherthanstatedinthecelebratedchapterofTheWealthofNationswhichbearsthetitle，OntheAccumulationofCapital，oronProductiveandUnproductiveLabour。(Comp。TraversTwiss，ProgressofPoliticalEconomy，Sect。vi，andthediscussionsonthewordProductiveinJ。S。Mill’sEssays，andinhisPrinciplesofPoliticalEconomy。)

7。Amongthemeansofproductionareincludedthenecessariesoflabourbutnotephemeralluxuries。andthemakeroficesisthusclassedasunproductivewhetherheisworkingforapastrycook，orasaprivateservantinacountryhouse。Butabricklayerengagedinbuildingatheatreisclassedasproductive。Nodoubtthedivisionbetweenpermanentandephemeralsourcesofenjoymentisvagueandunsubstantial。Butthisdifficultyexistsinthenatureofthingsandcannotbecompletelyevadedbyanydeviceofwords。Wecanspeakofanincreaseoftallmenrelativelytoshort，withoutdecidingwhetherallthoseabovefivefeetnineinchesaretobeclassedastall，oronlythoseabovefivefeetten。Andwecanspeakoftheincreaseofproductivelabourattheexpenseofunproductivewithoutfixingonanyrigid，andthereforearbitrarylineofdivisionbetweenthem。Ifsuchanartificiallineisrequiredforanyparticularpurpose，itmustbedrawnexplicitlyfortheoccasion。Butinfactsuchoccasionsseldomorneveroccur。

8。AllthedistinctionsinwhichthewordProductiveisusedareverythinandhaveacertainairofunreality。Itwouldhardlybeworthwhiletointroducethemnow：buttheyhavealonghistory。

anditisprobablybetterthattheyshoulddwindlegraduallyoutofuse，ratherthanbesuddenlydiscarded。

Theattempttodrawahardandfastlineofdistinctionwherethereisnorealdiscontinuityinnaturehasoftendonemoremischief，buthasperhapsneverledtomorequaintresults，thanintherigiddefinitionswhichhavebeensometimesgivenofthistermProductive。Someofthemforinstanceleadtotheconclusionthatasingerinanoperaisunproductive，thattheprinteroftheticketsofadmissiontotheoperaisproductive。whiletheusherwhoshowspeopletotheirplacesisunproductive，unlesshehappenstosellprogrammes，andthenheisproductive。Seniorpointsoutthatacookisnotsaidtomakeroastmeatbuttodressit。butheissaidtomakeapudding……Atailorissaidtomakeclothintoacoat，adyerisnotsaidtomakeundyedclothintodyedcloth。Thechangeproducedbythedyerisperhapsgreaterthanthatproducedbythetailor，buttheclothinpassingthroughthetailor’shandschangesitsname。inpassingthroughthedyer’sitdoesnot：thedyerhasnotproducedanewname，norconsequentlyanewthing。Pol。Econ。pp。51-2。

9。CompareCarver，PrinciplesofPoliticalEconomy，p。474。whichcalledmyattentiontoAdamSmith’sobservationthatcustomarydecenciesareineffectnecessaries。

10。ThusintheSouthofEnglandpopulationhasincreasedduringthelasthundredyearsatafairrate，allowancebeingmadeformigration。Buttheefficiencyoflabour，whichinearliertimeswasashighasthatintheNorthofEngland，hassunkrelativelytotheNorth。sothatthelow-wagedlabouroftheSouthisoftendearerthanthemorehighly-paidlabouroftheNorth。WecannotthussaywhetherthelabourersintheSouthhavebeensuppliedwithnecessaries，unlessweknowinwhichofthesetwosensesthewordisused。Theyhavehadthebarenecessariesforexistenceandtheincreaseofnumbers，butapparentlytheyhavenothadthenecessariesforefficiency。ItmusthoweverberememberedthatthestrongestlabourersintheSouthhaveconstantlymigratedtotheNorth。andthattheenergiesofthoseintheNorthhavebeenraisedbytheirlargershareofeconomicfreedomandofthehopeofrisingtoahigherposition。SeeMackayinCharityOrganizationJournal，Feb。1891。

11。Ifweconsideredanindividualofexceptionalabilitiesweshouldhavetotakeaccountofthefactthatthereisnotlikelytobethesameclosecorrespondencebetweentherealvalueofhisworkforthecommunityandtheincomewhichheearnsbyit，thatthereisinthecaseofanordinarymemberofanyindustrialclass。Andweshouldhavetosaythatallhisconsumptionisstrictlyproductiveandnecessary，solongasbycuttingoffanypartofithewoulddiminishhisefficiencybyanamountthatisofmorerealvaluetohimortherestoftheworldthanhesavedfromhisconsumption。IfaNewtonoraWattcouldhaveaddedahundredthparttohisefficiencybydoublinghispersonalexpenditure，theincreaseinhisconsumptionwouldhavebeentrulyproductive。Asweshallseelateron，suchacaseisanalogoustoadditionalcultivationofrichlandthatbearsahighrent：itmaybeprofitablethoughthereturntoitislessthaninproportiontothepreviousoutlay。

12。ComparethedistinctionbetweenPhysicalandPoliticalNecessariesinJamesSteuart’sInquiry，A。D。1767，II，xxi。

13。ThusadishofgreenpeasinMarch，costingperhapstenshillings，isasuperfluousluxury：butyetitiswholesomefood，anddoestheworkperhapsofthreepennyworthofcabbage。oreven，sincevarietyundoubtedlyconducestohealth，alittlemorethanthat。Soitmaybeenteredperhapsatthevalueoffourpenceundertheheadofnecessaries，andatthatofnineshillingsandeightpenceunderthatofsuperfluities。anditsconsumptionmayberegardedasstrictlyproductivetotheextentofonefortieth。

Inexceptionalcases，asforinstancewhenthepeasaregiventoaninvalid，thewholetenshillingsmaybewellspent，andreproducetheirownvalue。

Forthesakeofgivingdefinitenesstotheideasitmaybewelltoventureonestimatesofnecessaries，roughandrandomastheymustbe。Perhapsatpresentpricesthestrictnecessariesforanaverageagriculturalfamilyarecoveredbyfifteenoreighteenshillingsaweek，theconventionalnecessariesbyaboutfiveshillingsmore。Fortheunskilledlabourerinthetownafewshillingsmustbeaddedtothestrictnecessaries。Forthefamilyoftheskilledworkmanlivinginatownwemaytaketwenty-fiveorthirtyshillingsforstrictnecessaries，andtenshillingsforconventionalnecessaries。Foramanwhosebrainhastoundergogreatcontinuousstrainthestrictnecessariesareperhapstwohundredortwohundredandfiftypoundsayearifheisabachelor：butmorethantwiceasmuchifhehasanexpensivefamilytoeducate。Hisconventionalnecessariesdependonthenatureofhiscalling。

Chapter4

Income，Capital1。Inaprimitivecommunityeachfamilyisnearlyself-sufficing，andprovidesmostofitsownfoodandclothingandevenhouseholdfurniture。Onlyaverysmallpartoftheincome，orcomingsin，ofthefamilyisintheformofmoney。

whenonethinksoftheirincomeatall，onereckonsinthebenefitswhichtheygetfromtheircookingutensils，justasmuchasthosewhichtheygetfromtheirplough：onedrawsnodistinctionbetweentheircapitalandtherestoftheiraccumulatedstock，towhichthecookingutensilsandtheploughalikebelong。(1*)

Butwiththegrowthofamoneyeconomytherehasbeenastrongtendencytoconfinethenotionofincometothoseincomingswhichareintheformofmoney。includingpaymentsinkind(suchasthefreeuseofahouse，freecoals，gas，water)，whicharegivenaspartofanemployee’sremuneration，andinlieuofmoneypayments。

InharmonywiththismeaningofIncome，thelanguageofthemarket-placecommonlyregardsaman’scapitalasthatpartofhiswealthwhichhedevotestoacquiringanincomeintheformofmoney。or，moregenerally，toacquisition(Erwerbung)bymeansoftrade。Itmaybeconvenientsometimestospeakofthisashistradecapital。whichmaybedefinedtoconsistofthoseexternalgoodswhichapersonusesinhistrade，eitherholdingthemtobesoldformoneyorapplyingthemtoproducethingsthataretobesoldformoney。Amongitsconspicuouselementsaresuchthingsasthefactoryandthebusinessplantofamanufacturer。thatis，hismachinery，hisrawmaterial，anyfood，clothing，andhouse-roomthathemayholdfortheuseofhisemployees，andthegoodwillofhisbusiness。

Tothethingsinhispossessionmustbeaddedthosetowhichhehasarightandfromwhichheisdrawingincome：includingloanswhichhehasmadeonmortgageorinotherways，andallthecommandovercapitalwhichhemayholdunderthecomplexformsofthemodernmoneymarket。Ontheotherhanddebtsowedbyhimmustbedeductedfromhiscapital。

Thisdefinitionofcapitalfromtheindividualorbusinesspointofviewisfirmlyestablishedinordinaryusage。anditwillbeassumedthroughoutthepresenttreatisewheneverwearediscussingproblemsrelatingtobusinessingeneral，andinparticulartothesupplyofanyparticulargroupofcommoditiesforsaleinopenmarket。Incomeandcapitalwillbediscussedfromthepointofviewofprivatebusinessinthefirsthalfofthechapter。andafterwardsthesocialpointofviewwillbeconsidered。

2。Ifapersonisengagedinbusiness，heissuretohavetoincurcertainoutgoingsforrawmaterial，thehireoflabour，etc。And，inthatcase，histrueornetincomeisfoundbydeductingfromhisgrossincometheoutgoingsthatbelongtoitsproduction。(2*)

Anythingwhichapersondoesforwhichheispaiddirectlyorindirectlyinmoney，swellshisnominalincome。whilenoservicesthatheperformsforhimselfarecommonlyreckonedasaddingtohisnominalincome。But，thoughitisbestgenerallytoneglectthemwhentheyaretrivial，accountshouldforconsistencybetakenofthem，whentheyareofakindwhichpeoplecommonlypayforhavingdoneforthem。Thusawomanwhomakesherownclothesoramanwhodigsinhisowngardenorrepairshisownhouse，isearningincome。justaswouldthedressmaker，gardenerorcarpenterwhomightbehiredtodothework。

Inthisconnectionwemayintroduceatermofwhichweshallhavetomakefrequentusehereafter。Theneedforitarisesfromthefactthateveryoccupationinvolvesotherdisadvantagesbesidesthefatigueoftheworkrequiredinit，andeveryoccupationoffersotheradvantagesbesidesthereceiptofmoneywages。Thetruerewardwhichanoccupationofferstolabourhastobecalculatedbydeductingthemoneyvalueofallitsdisadvantagesfromthatofallitsadvantages。andwemaydescribethistruerewardasthenetadvantagesoftheoccupation。

Thepaymentmadebyaborrowerfortheuseofaloanfor，say，ayearisexpressedastheratiowhichthatpaymentbearstotheloan，andiscalledinterest。Andthistermisalsousedmorebroadlytorepresentthemoneyequivalentofthewholeincomewhichisderivedfromcapital。Itiscommonlyexpressedasacertainpercentageonthecapitalsumoftheloan。Wheneverthisisdonethecapitalmustnotberegardedasastockofthingsingeneral。Itmustberegardedasastockofoneparticularthing，money，whichistakentorepresentthem。Thus？00maybelentatfourpercent。，thatisforaninterestof？

yearly。And，ifamanemploysinbusinessacapitalstockofgoodsofvariouskindswhichareestimatedasworth？0，000inall。then？00ayearmaybesaidtorepresentinterestattherateoffourpercent。onthatcapital，onthesuppositionthattheaggregatemoneyvalueofthethingswhichconstituteithasremainedunchanged。Hewouldnot，however，bewillingtocontinuethebusinessunlessheexpectedhistotalnetgainsfromittoexceedinterestonhiscapitalatthecurrentrate。Thesegainsarecalledprofits。

Thecommandovergoodstoagivenmoneyvalue，whichcanbeappliedtoanypurpose，isoftendescribedasfreeorfloatingcapital。(3*)

Whenamanisengagedinbusiness，hisprofitsfortheyeararetheexcessofhisreceiptsfromhisbusinessduringtheyearoverhisoutlayforhisbusiness。Thedifferencebetweenthevalueofhisstockofplant，material，etc。attheendandatthebeginningoftheyearistakenaspartofhisreceiptsoraspartofhisoutlay，accordingastherehasbeenanincreaseordecreaseofvalue。Whatremainsofhisprofitsafterdeductinginterestonhiscapitalatthecurrentrate(allowing，wherenecessary，forinsurance)isgenerallycalledhisearningsofundertakingormanagement。Theratioinwhichhisprofitsfortheyearstandtohiscapitalisspokenofashisrateofprofits。

Butthisphrase，likethecorrespondingphrasewithregardtointerest，assumesthatthemoneyvalueofthethingswhichconstitutehiscapitalhasbeenestimated：andsuchanestimateisoftenfoundtoinvolvegreatdifficulties。

Whenanyparticularthing，asahouse，apiano，orasewingmachineislentout，thepaymentforitisoftencalledRent。Andeconomistsmayfollowthispracticewithoutinconveniencewhentheyareregardingtheincomefromthepointofviewoftheindividualtrader。But，aswillbearguedpresently，thebalanceofadvantageseemstolieinfavourofreservingthetermRentfortheincomederivedfromthefreegiftsofnature，wheneverthediscussionofbusinessaffairspassesfromthepointofviewoftheindividualtothatofsocietyatlarge。Andforthatreason，thetermQuasirentwillbeusedinthepresentvolumefortheincomederivedfrommachinesandotherappliancesforproductionmadebyman。Thatistosay，anyparticularmachinemayyieldanincomewhichisofthenatureofarent，andwhichissometimescalledaRent。thoughonthewhole，thereseemstobesomeadvantageincallingitaQuasi-rent。Butwecannotproperlyspeakoftheinterestyieldedbyamachine。Ifweusetheterminterestatall，itmustbeinrelationnottothemachineitself，buttoitsmoneyvalue。Forinstanceiftheworkdonebyamachinewhichcost？00iswortb？ayearnet，thatmachineisyieldingaquasi-rentof？whichisequivalenttointerestatfourpercent。onitsoriginalcost：butifthemachineisworthonly？0now，itisyieldingfivepercent。onitspresentvalue。Thishoweverraisessomedifficultquestionsofprinciple，whichwillbediscussedinBookV。

3。Nexttoconsidersomedetailsrelatingtocapital。IthasbeenclassedasConsumptioncapital，andAuxiliaryorInstrumentalcapital：andthoughnocleardistinctioncanbedrawnbetweenthetwoclasses，itmaysometimesbeconvenienttousetheterms，withtheunderstandingthattheyarevague。Wheredefinitenessisnecessary，thetermsshouldbeavoided。andexplicitenumerationsshouldbegiven。Thegeneralnotionofthedistinctionwhichthetermsaredesignedtosuggest，canbegatheredfromthefollowingapproximatedefinitions。

Consumptioncapitalconsistsofgoodsinaformtosatisfywantsdirectly。thatis，goodswhichaffordadirectsustenancetotheworkers，suchasfood，clothes，house-room，etc。

Auxiliary，orinstrumental，capitalissocalledbecauseitconsistsofallthegoodsthataidlabourinproduction。Underthisheadcometools，machines，factories，railways，docks，ships，etc……andrawmaterialsofallkinds。

Butofcourseaman’sclothesassisthiminhisworkandareinstrumentalinkeepinghimwarm。andhederivesadirectbenefitfromtheshelterofhisfactoryashedoesfromtheshelterofhishouse。(4*)

WemayfollowMillindistinguishingcirculatingcapitalwhichfulfilsthewholeofitsofficeintheproductioninwhichitisengaged，byasingleuse，fromfixedcapitalwhichexistsinadurableshapeandthereturntowhichisspreadoveraperiodofcorrespondingduration。(5*)

4。Thecustomarypointofviewofthebusinessmanisthatwhichismostconvenientfortheeconomisttoadoptwhendiscussingtheproductionofgoodsforamarket，andthecauseswhichgoverntheirexchangevalue。Butthereisabroaderpointofviewwhichthebusinessman，nolessthantheeconomist，mustadoptwhenhestudiesthecauseswhichgovernthematerialwellbeingofthecommunityasawhole。Ordinaryconversationmaypassfromonepointofviewtoanotherwithoutanyformalnoteofthechange：forifamisunderstandingarisesitsoonbecomesmanifest。andconfusioniscutshortbyaquestionorbyavolunteeredexplanation。Buttheeconomistmaytakenorisksofthatsort：hemustmakeprominentanychangeinhispointofvieworinhisusesofterms。Hispathmighthaveseemedsmootherforthetime，ifhehadpassedsilentlyfromoneusetoanother：butinthelongrunbetterprogressismadebyaclearindicationofthemeaningattachedtoeachtermineverydoubtfulcase。(6*)

Letusthenduringtheremainderofthischapterdeliberatelyadoptthesocial，incontrastwiththeindividualpointofview：

letuslookattheproductionofthecommunityasawhole，andatitstotalnetincomeavailableforallpurposes。Thatis，letusrevertnearlytothepointofviewofaprimitivepeople，whoarechieflyconcernedwiththeproductionofdesirablethings，andwiththeirdirectuses。andwhoarelittleconcernedwithexchangeandmarketing。

Fromthispointofviewincomeisregardedasincludingallthebenefitswhichmankindderiveatanytimefromtheirefforts，inthepresentandinthepast，toturnnature’sresourcestotheirbestaccount。Thepleasurederivedfromthebeautiesoftherainbow，orthesweettasteofthefreshmorningair，areleftoutofthereckoning，notbecausetheyareunimportant，norbecausetheestimatewouldinanywaybevitiatedbyincludingthem。butsolelybecausereckoningtheminwouldservenogoodpurpose，whileitwouldaddgreatlytothelengthofoursentencesandtheprolixityofourdiscussions。Forasimilarreasonitisnotworthwhiletotakeseparateaccountofthesimpleserviceswhichnearlyeveryonerenderstohimself，suchasputtingonhisclothes。thoughthereareafewpersonswhochoosetopayotherstodosuchthingsforthem。Theirexclusioninvolvesnoprinciple。andtimespentbysomecontroversialwritersondiscussingithasbeenwasted。ItsimplyfollowsthemaximDeminimisnoncuratlex。Adriverwho，notnoticingapoolinhisway，splashesapasserbyisnotheldtohavedonehimlegalinjury。thoughthereisnodistinctioninprinciplebetweenhisactandthatofanother，whobyasimilarlackofattention，didseriousharmtosomeoneelse。

Aman’spresentlabouryieldshimincomedirectly，whendevotedtohisownuse。andhelookstobepaidforitinsomeformoranotherifhedevotesitasamatterofbusinesstotheserviceofothers。Similarlyanyusefulthingwhichhehasmadeoracquiredinthepast，orwhichhasbeenhandeddowntohim，undertheexistinginstitutionsofproperty，byotherswhohavesomadeoracquiredit，isgenerallyasourceofmaterialbenefittohimdirectlyorindirectly。Ifheappliesitinbusiness，thisincomegenerallyappearsintheformofmoney。Butabroaderuseofthistermisoccasionallyneeded，whichembracesthewholeincomeofbenefitsofeverysortwhichapersonderivesfromtheownershipofpropertyhoweverapplied：itincludesforinstancethebenefitswhichhegetsfromtheuseofhisownpiano，equallywiththosewhichapianodealerwouldwinbylettingoutapianoonhire。ThelanguageofcommonlifewhileaversetosobroadauseofthetermIncomeasthisevenwhendiscussingsocialproblems，yethabituallyincludesacertainnumberofformsofincome，otherthanmoneyincome。

TheIncomeTaxCommissionerscountadwelling-houseinhabitedbyitsownerasasourceoftaxableincome，thoughityieldsitsincomeofcomfortdirectly。Theydothis，notonanyabstractprinciple。butpartlybecauseofthepracticalimportanceofhouse-room，partlybecausetheownershipofahouseiscommonlytreatedinabusinessfashion，andpartlybecausetherealincomeaccruingfromitcaneasilybeseparatedoffandestimated。Theydonotclaimtoestablishanyabsolutedistinctioninkindbetweenthethingswhichtheirruleincludes，andthosewhichitexcludes。

Jevons，regardingtheproblemfromapurelymathematicalpointofview，wasjustifiedinclassingallcommoditiesinthehandsofconsumersascapital。Butsomewriters，whiledevelopingthissuggestionwithgreatingenuity，havetreateditasagreatprinciple。andthatappearstobeanerrorinjudgment。Atruesenseofproportionrequiresusnottoburdenourworkwiththeincessantenumerationofdetailsofsecondaryimportance，ofwhichnoaccountistakenincustomarydiscourse，andwhichcannotevenbedescribedwithoutoffendingagainstpopularconventions。

5。Thisbringsustoconsidertheuseofthetermcapitalfromthepointofviewofinquiriesintothematerialwellbeingofsocietyasawhole。AdamSmithsaidthataperson’scapitalisthatpartofhisstockfromwhichheexpectstoderiveanincome。

Andalmosteveryuseofthetermcapital，whichisknowntohistory，hascorrespondedmoreorlesscloselytoaparalleluseofthetermIncome：inalmosteveryuse，capitalhasbeenthatpartofaman’sstockfromwhichheexpectstoderiveanincome。

ByfarthemostimportantuseofthetermCapitalingeneral，i。e。fromthesocialpointofview，isintheinquiryhowthethreeagentsofproduction，land(thatis，naturalagents)，labourandcapital，contributetoproducingthenationalincome(orthenationaldividend，asitwillbecalledlateron)。andhowthatincomeisdistributedamongthethreeagents。AndthisisanadditionalreasonformakingthetermsCapitalandIncomecorrelativefromthesocial，aswedidfromtheindividualpointofview。

Accordinglyitisproposedinthistreatisetocountaspartofcapitalfromthesocialpointofviewallthingsotherthanland，whichyieldincomethatisgenerallyreckonedassuchincommondiscourse。togetherwithsimilarthingsinpublicownership，suchasgovernmentfactories：thetermLandbeingtakentoincludeallfreegiftsofnature，suchasmines，fisheries，etc。，whichyieldincome。

Thusitwillincludeallthingsheldfortradepurposes，whethermachinery，rawmaterialorfinishedgoods。theatresandhotels。homefarmsandhouses：butnotfurnitureorclothesownedbythosewhousethem。Fortheformerareandthelatterarenotcommonlyregardedasyieldingincomebytheworldatlarge，asisshownbythepracticeoftheincometaxcommissioners。

Thisusageofthetermisinharmonywiththecommonpracticeofeconomistsoftreatingsocialproblemsinbroadoutlinetostartwith，andreservingminordetailsforlaterconsideration：

itisinharmonyalsowiththeircommonpracticeoftakingLabourtoincludethoseactivities，andthoseonly，whichareregardedasthesourceofincomeinthisbroaderuseoftheterm。LabourtogetherwithcapitalandlandthusdefinedarethesourcesofallthatincomeofwhichaccountiscommonlytakeninreckoninguptheNationalIncome。(*7)

6。Socialincomemaybeestimatedbyaddingtogethertheincomesoftheindividualsinthesocietyinquestion，whetheritbeanationoranyothergroupofpersons。

Wemusthowevernotcountthesamethingtwice。Ifwehavecountedacarpetatitsfullvalue，wehavealreadycountedthevaluesoftheyarnandthelabourthatwereusedinmakingit。

andthesemustnotbecountedagain。Andfurther，ifthecarpetwasmadeofwoolthatwasinstockatthebeginningoftheyear，thevalueofthatwoolmustbedeductedfromthevalueofthecarpetbeforethenetincomeoftheyearisreached。whilesimilardeductionmustbemadeforthewearandtearofmachineryandotherplantusedinmakingit。Thisisrequiredbythegeneralrule，withwhichwestarted，thattrueornetincomeisfoundbydeductingfromgrossincometheoutgoingsthatbelongtoitsproduction。

Butifthecarpetiscleanedbydomesticservantsoratsteamscouringworks，thevalueofthelabourspentincleaningitmustbecountedinseparately。forotherwisetheresultsofthislabourwouldbealtogetheromittedfromtheinventoryofthosenewly-producedcommoditiesandconvenienceswhichconstitutetherealincomeofthecountry。Theworkofdomesticservantsisalwaysclassedaslabourinthetechnicalsense。andsinceitcanbeassessedenblocatthevalueoftheirremunerationinmoneyandinkindwithoutbeingenumeratedindetail，itsinclusionraisesnogreatstatisticaldifficulty。Thereishoweversomeinconsistencyinomittingtheheavydomesticworkwhichisdonebywomenandothermembersofthehousehold，wherenoservantsarekept。

Again，supposealandownerwithanannualincomeof？0，000

hiresaprivatesecretaryatasalaryof？00，whohiresaservantatwagesof？0。Itmayseemthatiftheincomesofallthesethreepersonsarecountedinaspartofthenetincomeofthecountry，someofitwillbecountedtwiceover，andsomethreetimes。Butthisisnotthecase。Thelandlordtransferstohissecretary，inreturnforhisassistance，partofthepurchasingpowerderivedfromtheproduceofland。andthesecretaryagaintransferspartofthistohisservantinreturnforhisassistance。Thefarmproducethevalueofwhichgoesasrenttothelandlord，theassistancewhichthelandlordderivesfromtheworkofthesecretary，andthatwhichthesecretaryderivesfromtheworkoftheservantareindependentpartsoftherealnetincomeofthecountry。andthereforethe？0，000andthe？00andthe？0whicharetheirmoneymeasures，mustallbecountedinwhenweareestimatingtheincomeofthecountry。Butifthelandlordmakesanallowanceof？00ayeartohisson，thatmustnotbecountedasanindependentincome。becausenoservicesarerenderedforit。AnditwouldnotbeassessedtotheIncometax。

Asthenetpaymentsonaccountofinterestetc。duetoanindividual-net，i。e。afterdeductingthoseduefromhimtoothersarepartofhisincome，sothemoneyandotherthingsreceivednetbyanationfromothercountriesarepartofitsincome。

7。Themoneyincome，orinflow，ofwealthgivesameasureofanation’sprosperity，which，untrustworthyasitis，isyetinsomerespectsbetterthanthataffordedbythemoneyvalueofitsstockofwealth。

Forincomeconsistschieflyofcommoditiesinaformtogivepleasuredirectly。whilethegreaterpartofnationalwealthconsistsofthemeansofproduction，whichareofservicetothenationonlyinsofarastheycontributetoproducingcommoditiesreadyforconsumption。Andfurther，thoughthisisaminorpoint，consumablecommodities，beingmoreportable，havemorenearlyuniformpricesalltheworldoverthanthethingsusedinproducingthem：thepricesofanacreofgoodlandinManitobaandKentdiffermoretbanthoseofabushelofwheatinthetwoplaces。

Butifwelookchieflyattheincomeofacountrywemustallowforthedepreciationofthesourcesfromwhichitisderived。Moremustbedeductedfromtheincomederivedfromahouseifitismadeofwood，thanifitismadeofstone。astonehousecountsformoretowardstherealrichnessofacountrythanawoodenhousewhichgivesequallygoodaccommodation。Again，aminemayyieldforatimealargeincome，butbeexhaustedinafewyears：inthatcase，itmustbecountedasequivalenttoafield，orafishery，whichyieldsamuchsmallerannualincome，butwillyieldthatincomepermanently。

8。Inpurelyabstract，andespeciallyinmathematical，reasoningthetermsCapitalandWealthareusedassynonymousalmostperforce，exceptthatlandpropermayforsomepurposesbeomittedfromCapital。ButthereisacleartraditionthatweshouldspeakofCapitalwhenconsideringthingsasagentsofproduction。andthatweshouldspeakofWealthwhenconsideringthemasresultsofproduction，assubjectsofconsumptionandasyieldingpleasuresofpossession。Thusthechiefdemandforcapitalarisesfromitsproductiveness，fromtheserviceswhichitrenders，forinstance，inenablingwooltobespunandwovenmoreeasilythanbytheunaidedhand，orincausingwatertoflowfreelywhereveritiswantedinsteadofbeingcarriedlaboriouslyinpails。(thoughthereareotherusesofcapital，asforinstancewhenitislenttoaspendthrift，whichcannoteasilybebroughtunderthishead)。Ontheotherhandthesupplyofcapitaliscontrolledbythefactthat，inordertoaccumulateit，menmustactprospectively：theymustwaitandsave，theymustsacrificethepresenttothefuture。

AtthebeginningofthisBookitwasarguedthattheeconomistmustforegotheaidofacompletesetoftechnicalterms。Hemustmakethetermsincommonuseservehispurposeintheexpressionofprecisethought，bytheaidofqualifyingadjectivesorotherindicationsinthecontext。Ifhearbitrarilyassignsarigidexactusetoawordwhichhasseveralmoreorlessvagueusesinthemarketplace，heconfusesbusinessmen，andheisinsomedangerofcommittinghimselftountenablepositions。TheselectionofanormaluseforsuchtermsasIncomeandCapitalmustthereforebetestedbyactuallyworkingwithit。(8*)

NOTES：

1。Thisandsimilarfactshaveledsomepeopletosupposenotonlythatsomepartsofthemodernanalysisofdistributionandexchangeareinapplicabletoaprimitivecommunity。whichistrue：butalsothattherearenoimportantpartsofitthatareapplicable。whichisnottrue。Thisisastrikinginstanceofthedangersthatarisefromallowingourselvestobecometheservantsofwords，avoidingthehardworkthatisrequiredfordiscoveringunityofsubstanceunderlyingvarietyofform。

2。SeeareportofaCommitteeoftheBritishAssociation，1878，ontheIncomeTax。

3。ProfessorClarkhasmadethesuggestiontodistinguishbetweenPureCapitalandCapitalGoods：theformeristocorrespondtoawaterfallwhichremainsstationary。whileCapitalGoodsaretheparticularthingswhichenterandleavethebusiness，asparticulardropspassthroughthewaterfall。Hewouldofcourseconnectinterestwithpurecapital，notwithcapitalgoods。

4。SeeaboveII，iii，sec。1。

5。AdamSmith’sdistinctionbetweenfixedandcirculatingcapitalturnedonthequestionwhetherthegoodsyieldaprofitwithoutchangingmastersornot。Ricardomadeitturnonwhethertheyareofslowconsumptionorrequiretobefrequentlyreproduced。

buthetrulyremarksthatthisisadivisionnotessential，andinwhichthelineofdemarcationcannotbeaccuratelydrawn。

Mill’smodificationisgenerallyacceptedbymoderneconomists。

6。CompareaboveII。i，sec。3。

7。Justasforpracticalpurposesitisbetternottoencumberourselveswithspecifyingtheincomeofbenefitwhichamanderivesfromthelabourofbrushinghishatinthemorning，soitisbettertoignoretheelementofcapitalvestedinhisbrush。

Butnosuchconsiderationarisesinamerelyabstractdiscussion：

andthereforethelogicalsimplicityofJevons’dictumthatcommoditiesinthehandsofconsumersarecapitalhassomeadvantagesandnodisadvantagesformathematicalversionsofeconomicdoctrines。

8。Ashortforecastofsomeofthisworkmaybegivenhere。ItwillbeseenhowCapitalneedstobeconsideredinregardbothtotheembodiedaggregateofthebenefitsderivablefromitsuse，andtotheembodiedaggregateofthecostsoftheeffortsandofthesavingneededforitsproduction：anditwillbeshownhowthesetwoaggregatestendtobalance。ThusinV，IV，whichmaybetakenasinsomesenseacontinuationofthepresentchapter，theywillbeseenbalancingdirectlyintheforecastsofanindividualRobinsonCrusoe。andforthegreaterpartatleastintermsofmoneyintheforecastsofamodernbusinessman。Ineithercasebothsidesoftheaccountmustbereferredtothesamedateoftime。thosethatcomeafterthatdatebeingdiscountedbacktoit。andthosethatcomebeforebeingaccumulateduptoit。

Asimilarbalancinginregardtothebenefitsandthecostsofcapitalatlargewillbefoundtobeachiefcornerstoneofsocialeconomy：althoughitistruethatinconsequenceoftheunequaldistributionofwealth，accountscannotbemadeupfromthesocialpointofviewwiththatclearnessofoutlinethatisattainableinthecaseofanindividual，whetheraRobinsonCrusoe，oramodernbusinessman。Ineverypartofourdiscussionofthecausesthatgoverntheaccumulationandtheapplicationofproductiveresources，itwillappearthatthereisnouniversalrulethattheuseofroundaboutmethodsofproductionismoreefficientthandirectmethods。thattherearesomeconditionsunderwhichtheinvestmentofeffortinobtainingmachineryandinmakingcostlyprovisionagainstfuturewantsiseconomicalinthelongrun，andothersinwhichitisnot：andthatcapitalisaccumulatedinproportiontotheprospectivenessofmanontheonehand，andontheothertotheabsorptionofcapitalbythoseroundaboutmethods，whicharesufficientlyproductivetoremuneratetheiradoption。SeeespeciallyIV，VII，sec，8。V，IV，VI，I，sec。8。andVI，VI，sec。1。

Thebroaderforces，thatgoverntheproductionofcapitalingeneralanditscontributiontothenationalincome，arediscussedinIV，VII，IXXI：theimperfectadjustmentsofthemoneymeasuresofbenefitsandcoststotheirrealvolumearediscussedchieJyinIII，III-V。IV，VII。andVI，IIIVIII。theresultingshareinthetotalproductoflabourandcapital，aidedbynaturalresources，whichgoestocapital，isdiscussedchieJyinVI，I，II，VI-VII，XI，XII。

SomeofthechiefincidentsinthehistoryofthedefinitionsofCapitalaregiveninAppendixE。

ThePrinciplesofEconomicsbyAlfredMarshallBookIII

OnWantsandTheirSatisfactionChapter1

Introductory1。Theolderdefinitionsofeconomicsdescribeditasthesciencewhichisconcernedwiththeproduction，thedistribution，theexchange，andtheconsumptionofwealth。Laterexperiencehasshownthattheproblemsofdistributionandexchangearesocloselyconnected，thatitisdoubtfulwhetheranythingistobegainedbytheattempttokeepthemseparate。Thereishoweveragooddealofgeneralreasoningwithregardtotherelationofdemandandsupplywhichisrequiredasabasisforthepracticalproblemsofvalue，andwhichactsasanunderlyingbackbone，givingunityandconsistencytothemainbodyofeconomicreasoning。Itsverybreadthandgeneralitymarkitofffromthemoreconcreteproblemsofdistributionandexchangetowhichitissubservient。andthereforeitisputtogetherinBookVonTheGeneralTheoryofDemandandSupplywhichpreparesthewayforDistributionandExchange，orValue。

ButfirstcomesthepresentBookIII，astudyofWantsandtheirsatisfaction，i。e。ofdemandandconsumption：andthenBookIV，astudyoftheagentsofproduction，thatis，theagentsbywhosemeanswantsaresatisfied，includingmanhimself，thechiefagentandthesoleaimofproduction。BookIVcorrespondsingeneralcharactertothatdiscussionofproductiontowhichalargeplacehasbeengiveninnearlyallEnglishtreatisesongeneraleconomicsduringthelasttwogenerations。althoughitsrelationtotheproblemsofdemandandsupplyhasnotbeenmadesufficientlyclear。

2。Untilrecentlythesubjectofdemandorconsumptionhasbeensomewhatneglected。Forimportantasistheinquiryhowtoturnourresourcestothebestaccount，itisnotonewhichlendsitself，sofarastheexpenditureofprivateindividualsisconcerned，tothemethodsofeconomics。Thecommonsenseofapersonwhohashadalargeexperienceoflifewillgivehimmoreguidanceinsuchamatterthanhecangainfromsubtleeconomicanalyses。anduntilrecentlyeconomistssaidlittleonthesubject，becausetheyreallyhadnotmuchtosaythatwasnotthecommonpropertyofallsensiblepeople。Butrecentlyseveralcauseshavecombinedtogivethesubjectagreaterprominenceineconomicdiscussions。

ThefirstoftheseisthegrowingbeliefthatharmwasdonebyRicardo’shabitoflayingdisproportionatestressonthesideofcostofproduction，whenanalysingthecausesthatdetermineexchangevalue。Foralthoughheandhischieffollowerswereawarethattheconditionsofdemandplayedasimportantapartasthoseofsupplyindeterminingvalue，yettheydidnotexpresstheirmeaningwithsufficientclearness，andtheyhavebeenmisunderstoodbyallbutthemostcarefulreaders。

Secondly，thegrowthofexacthabitsofthoughtineconomicsismakingpeoplemorecarefultostatedistinctlythepremisesonwhichtheyreason。Thisincreasedcareispartlyduetotheapplicationbysomewritersofmathematicallanguageandmathematicalhabitsofthought。Itisindeeddoubtfulwhethermuchhasbeengainedbytheuseofcomplexmathematicalformulae。

Buttheapplicationofmathematicalhabitsofthoughthasbeenofgreatservice。forithasledpeopletorefusetoconsideraproblemuntiltheyarequitesurewhattheproblemis。andtoinsistonknowingwhatis，andwhatisnotintendedtobeassumedbeforeproceedingfurther。

Thishasinitsturncompelledamorecarefulanalysisofalltheleadingconceptionsofeconomics，andespeciallyofdemand。

forthemereattempttostateclearlyhowthedemandforathingistobemeasuredopensupnewaspectsofthemainproblemsofeconomics。Andthoughthetheoryofdemandisyetinitsinfancy，wecanalreadyseethatitmaybepossibletocollectandarrangestatisticsofconsumptioninsuchawayastothrowlightondifficultquestionsofgreatimportancetopublicwellbeing。

Lastly，thespiritoftheageinducesacloserattentiontothequestionwhetherourincreasingwealthmaynotbemadetogofurtherthanitdoesinpromotingthegeneralwellbeing。andthisagaincompelsustoexaminehowfartheexchangevalueofanyelementofwealth，whetherincollectiveorindividualuse，representsaccuratelytheadditionwhichitmakestohappinessandwellbeing。

WewillbeginthisBookwithashortstudyofthevarietyofhumanwants，consideredintheirrelationtohumaneffortsandactivities。Fortheprogressivenatureofmanisonewhole。Itisonlytemporarilyandprovisionallythatwecanwithprofitisolateforstudytheeconomicsideofhislife。andweoughttobecarefultotaketogetherinoneviewthewholeofthatside。

Thereisaspecialneedtoinsistonthisjustnow，becausethereactionagainstthecomparativeneglectofthestudyofwantsbyRicardoandhisfollowersshowssignsofbeingcarriedtotheoppositeextreme。Itisimportantstilltoassertthegreattruthonwhichtheydweltsomewhattooexclusively。viz。thatwhilewantsaretherulersoflifeamongtheloweranimals，itistochangesintheformsofeffortsandactivitiesthatwemustturnwheninsearchforthekeynotesofthehistoryofmankind。

Chapter2

WantsinRelationtoActivities1。Humanwantsanddesiresarecountlessinnumberandveryvariousinkind：buttheyaregenerallylimitedandcapableofbeingsatisfied。Theuncivilizedmanindeedhasnotmanymorethanthebruteanimal。buteverystepinhisprogressupwardsincreasesthevarietyofhisneedstogetherwiththevarietyinhismethodsofsatisfyingthem。Hedesiresnotmerelylargerquantitiesofthethingshehasbeenaccustomedtoconsume，butbetterqualitiesofthosethings。hedesiresagreaterchoiceofthings，andthingsthatwillsatisfynewwantsgrowingupinhim。

Thusthoughthebruteandthesavagealikehavetheirpreferencesforchoicemorsels，neitherofthemcaresmuchforvarietyforitsownsake。As，however，manrisesincivilization，ashismindbecomesdeveloped，andevenhisanimalpassionsbegintoassociatethemselveswithmentalactivities，hiswantsbecomerapidlymoresubtleandmorevarious。andintheminordetailsoflifehebeginstodesirechangeforthesakeofchange，longbeforehehasconsciouslyescapedfromtheyokeofcustom。Thefirstgreatstepinthisdirectioncomeswiththeartofmakingafire：graduallyhegetstoaccustomhimselftomanydifferentkindsoffoodanddrinkcookedinmanydifferentways。andbeforelongmonotonybeginstobecomeirksometohim，andhefindsitagreathardshipwhenaccidentcompelshimtoliveforalongtimeexclusivelyononeortwokindsoffood。

Asaman’srichesincrease，hisfoodanddrinkbecomemorevariousandcostly。buthisappetiteislimitedbynature，andwhenhisexpenditureonfoodisextravagantitismoreoftentogratifythedesiresofhospitalityanddisplaythantoindulgehisownsenses。

ThisbringsustoremarkwithSeniorthatStrongasisthedesireforvariety，itisweakcomparedwiththedesirefordistinction：afeelingwhichifweconsideritsuniversality，anditsconstancy，thatitaffectsallmenandatalltimes，thatitcomeswithusfromthecradleandneverleavesustillwegointothegrave，maybepronouncedtobethemostpowerfulofhumanpassions。Thisgreathalf-truthiswellillustratedbyacomparisonofthedesireforchoiceandvariousfoodwiththatforchoiceandvariousdress。

2。Thatneedfordresswhichistheresultofnaturalcausesvarieswiththeclimateandtheseasonofyear，andalittlewiththenatureofaperson’soccupations。Butindressconventionalwantsovershadowthosewhicharenatural。ThusinmanyoftheearlierstagesofcivilizationthesumptuarymandatesofLawandCustomhaverigidlyprescribedtothemembersofeachcasteorindustrialgrade，thestyleandthestandardofexpenseuptowhichtheirdressmustreachandbeyondwhichtheymaynotgo。

andpartofthesubstanceofthesemandatesremainsnow，thoughsubjecttorapidchange。InScotland，forinstance，inAdamSmith’stimemanypersonswereallowedbycustomtogoabroadwithoutshoesandstockingswhomaynotdosonow。andmanymaystilldoitinScotlandwhomightnotinEngland。Again，inEnglandnowawell-to-dolabourerisexpectedtoappearonSundayinablackcoatand，insomeplaces，inasilkhat。thoughthesewouldhavesubjectedhimtoridiculebutashorttimeago。Thereisaconstantincreasebothinthatvarietyandexpensivenesswhichcustomrequiresasaminimum，andinthatwhichittoleratesasamaximum。andtheeffortstoobtaindistinctionbydressareextendingthemselvesthroughoutthelowergradesofEnglishsociety。

Butintheuppergrades，thoughthedressofwomenisstillvariousandcostly，thatofmenissimpleandinexpensiveascomparedwithwhatitwasinEuropenotlongago，andisto-dayintheEast。Forthosemenwhoaremosttrulydistinguishedontheirownaccount，haveanaturaldisliketoseemtoclaimattentionbytheirdress。andtheyhavesetthefashion。(1*)

3。Houseroomsatisfiestheimperativeneedforshelterfromtheweather：butthatneedplaysverylittlepartintheeffectivedemandforhouseroom。Forthoughasmallbutwell-builtcabingivesexcellentshelter，itsstiflingatmosphere，itsnecessaryuncleanliness，anditswantofthedecenciesandthequietoflifearegreatevils。Itisnotsomuchthattheycausephysicaldiscomfortasthattheytendtostuntthefaculties，andlimitpeople’shigheractivities。Witheveryincreaseintheseactivitiesthedemandforlargerhouseroombecomesmoreurgent。(2*)

Andthereforerelativelylargeandwell-appointedhouseroomis，eveninthelowestsocialranks，atonceanecessaryforefficiency，(3*)andthemostconvenientandobviouswayofadvancingamaterialclaimtosocialdistinction。Andeveninthosegradesinwhicheveryonehashouseroomsufficientforthehigheractivitiesofhimselfandhisfamily，ayetfurtherandalmostunlimitedincreaseisdesiredasarequisitefortheexerciseofmanyofthehighersocialactivities。

4。Itis，again，thedesirefortheexerciseanddevelopmentofactivities，spreadingthrougheveryrankofsociety，whichleadsnotonlytothepursuitofscience，literatureandartfortheirownsake，buttotherapidlyincreasingdemandfortheworkofthosewhopursuethemasprofessions。Leisureisusedlessandlessasanopportunityformerestagnation。andthereisagrowingdesireforthoseamusements，suchasathleticgamesandtravelling，whichdevelopactivitiesratherthanindulgeanysensuouscraving。(4*)

Forindeedthedesireforexcellenceforitsownsake，isalmostaswideinitsrangeasthelowerdesirefordistinction。

Justasthedesirefordistinctiongraduatesdownfromtheambitionofthosewhomayhopethattheirnameswillbeinmen’smouthsindistantlandsandindistanttimes，tothehopeofthecountrylassthatthenewribbonsheputsonforEastermaynotpassunnoticedbyherneighbours。sothedesireforexcellenceforitsownsakegraduatesdownfromthatofaNewton，oraStradivarius，tothatofthefishermanwho，evenwhennooneislookingandheisnotinahurry，delightsinhandlinghiscraftwell，andinthefactthatsheiswellbuiltandrespondspromptlytohisguidance。Desiresofthiskindexertagreatinfluenceonthesupplyofthehighestfacultiesandthegreatestinventions。andtheyarenotunimportantonthesideofdemand。

Foralargepartofthedemandforthemosthighlyskilledprofessionalservicesandthebestworkofthemechanicalartisan，arisesfromthedelightthatpeoplehaveinthetrainingoftheirownfaculties，andinexercisingthembyaidofthemostdelicatelyadjustedandresponsiveimplements。

Speakingbroadlytherefore，althoughitisman’swantsintheearlieststagesofhisdevelopmentthatgiverisetohisactivities，yetafterwardseachnewstepupwardsistoberegardedasthedevelopmentofnewactivitiesgivingrisetonewwants，ratherthanofnewwantsgivingrisetonewactivities。

Weseethisclearlyifwelookawayfromhealthyconditionsoflife，wherenewactivitiesareconstantlybeingdeveloped。andwatchtheWestIndiannegro，usinghisnewfreedomandwealthnottogetthemeansofsatisfyingnewwants，butinidlestagnationthatisnotrest。oragainlookatthatrapidlylesseningpartoftheEnglishworkingclasses，whohavenoambitionandnoprideordelightinthegrowthoftheirfacultiesandactivities，andspendondrinkwhateversurplustheirwagesaffordoverthebarenecessariesofasqualidlife。

ItisnottruethereforethattheTheoryofConsumptionisthescientificbasisofeconomics。(5*)Formuchthatisofchiefinterestinthescienceofwants，isborrowedfromthescienceofeffortsandactivities。Thesetwosupplementoneanother。eitherisincompletewithouttheother。Butifeither，morethantheother，mayclaimtobetheinterpreterofthehistoryofman，whetherontheeconomicsideoranyother，itisthescienceofactivitiesandnotthatofwants。andMcCullochindicatedtheirtruerelationswhen，discussingtheprogressivenatureofman(6*)hesaid：-Thegratificationofawantoradesireismerelyasteptosomenewpursuit。Ineverystageofhisprogressheisdestinedtocontriveandinvent，toengageinnewundertakings。andwhentheseareaccomplishedtoenterwithfreshenergyuponothers。

Fromthisitfollowsthatsuchadiscussionofdemandasispossibleatthisstageofourwork，mustbeconfinedtoanelementaryanalysisofanalmostpurelyformalkind。Thehigherstudyofconsumptionmustcomeafter，andnotbefore，themainbodyofeconomicanalysis。and，thoughitmayhaveitsbeginningwithintheproperdomainofeconomics，itcannotfinditsconclusionthere，butmustextendfarbeyond。(7*)

NOTES：

1。Awomanmaydisplaywealth，butshemaynotdisplayonlyherwealth，byherdress。orelseshedefeatsherends。Shemustalsosuggestsomedistinctionofcharacteraswellasofwealth。forthoughherdressmayowemoretoherdressmakerthantoherself，yetthereisatraditionalassumptionthat，beinglessbusythanmanwithexternalaffairs，shecangivemoretimetotakingthoughtastoherdress。Evenundertheswayofmodernfashions，tobewelldressed-notexpensivelydressedisareasonableminoraimforthosewhodesiretobedistinguishedfortheirfacultiesandabilities。andthiswillbestillmorethecaseiftheevildominionofthewantonvagariesoffashionshouldpassaway。Fortoarrangecostumesbeautifulinthemselves，variousandwell-adaptedtotheirpurposes，isanobjectworthyofhighendeavour。itbelongstothesameclass，thoughnottothesamerankinthatclass，asthepaintingofagoodpicture。

2。Itistruethatmanyactive-mindedworkingmenprefercrampedlodgingsinatowntoaroomycottageinthecountry。butthatisbecausetheyhaveastrongtasteforthoseactivitiesforwhichacountrylifeofferslittlescope。

3。SeeBookII，ch。III，sec。3。

4。Asaminorpointitmaybenoticedthatthosedrinkswhichstimulatethementalactivitiesarelargelydisplacingthosewhichmerelygratifythesenses。Theconsumptionofteaisincreasingveryfast，whilethatofalcoholisstationary。andthereisinallranksofsocietyadiminishingdemandforthegrosserandmoreimmediatelystupefyingformsofalcohol。

5。ThisdoctrineislaiddownbyBanfield，andadoptedbyJevonsasthekeyofhisposition。ItisunfortunatethathereaselsewhereJevons’delightinstatinghiscasestronglyhasledhimtoaconclusion，whichnotonlyisinaccurate，butdoesmischiefbyimplyingthattheoldereconomistsweremoreatfaultthantheyreallywere。Banfieldsaysthefirstpropositionofthetheoryofconsumptionisthatthesatisfactionofeverylowerwantinthescalecreatesadesireofahighercharacter。Andifthisweretrue，theabovedoctrine，whichhebasesonit，wouldbetruealso。But，asJevonspointsout(Theory，2ndEd。p。59)，itisnottrue：andhesubstitutesforitthestatementthatthesatisfactionofalowerwantpermitsahigherwanttomanifestitself。Thatisatrueandindeedanidenticalproposition：butitaffordsnosupporttotheclaimsoftheTheoryofConsumptiontosupremacy。

6。PoliticalEconomy，ch。II。

7。TheformalclassificationofWantsisatasknotwithoutinterest。butitisnotneededforourpurposes。ThebasisofmostmodernworkinthisdirectionistobefoundinHermann’sStaatswirtschaftlicheUntersuchungen，Ch。II，wherewantsareclassifiedasabsoluteandrelative，higherandlower，urgentandcapableofpostponement，positiveandnegative，directandindirect，generalandparticular，constantandinterrupted，permanentandtemporary，ordinaryandextraordinary，presentandfuture，individualandcollective，privateandpublic。SomeanalysisofwantsanddesiresistobefoundinthegreatmajorityofFrenchandotherContinentaltreatisesoneconomicsevenofthelastgeneration。buttherigidboundarywhichEnglishwritershaveascribedtotheirsciencehasexcludedsuchdiscussions。AnditisacharacteristicfactthatthereisnoallusiontotheminBentham’sManualofPoliticalEconomy，althoughhisprofoundanalysisoftheminthePrinciplesofMoralsandlegislationandintheTableoftheSpringsofHumanActionhasexercisedawide-spreadinfluence。HermannhadstudiedBentham。andontheotherhandBanfield，whoselectureswereperhapsthefirstevergiveninanEnglishUniversitythatowedmuchdirectlytoGermaneconomicthought，acknowledgesspecialobligationstoHermann。InEnglandthewaywaspreparedforJevons’excellentworkonthetheoryofwants，byBenthamhimself。bySenior，whoseshortremarksonthesubjectarepregnantwithfar-reachinghints。byBanfield，andbytheAustralianHearn。Hearn’sPlutologyorTheoryoftheEffortstosatisfyHumanWantsisatoncesimpleandprofound：itaffordsanadmirableexampleofthewayinwhichdetailedanalysismaybeappliedtoaffordatrainingofaveryhighorderfortheyoung，andtogivethemanintelligentacquaintancewiththeeconomicconditionsoflife，withoutforcinguponthemanyparticularsolutionofthosemoredifficultproblemsonwhichtheyarenotyetabletoformanindependentjudgment。AtaboutthesametimeasJevons’Theoryappeared，CarlMengergaveagreatimpetustothesubtleandinterestingstudiesofwantsandutilitiesbytheAustrianschoolofeconomists：theyhadalreadybeeninitiatedbyvonThunen，asisindicatedinthePrefacetothisVolume。

Chapter3

GradationsofConsumers’Demand1。Whenatraderoramanufacturerbuysanythingtobeusedinproduction，orbesoldagain，hisdemandisbasedonhisanticipationsoftheprofitswhichhecanderivefromit。Theseprofitsdependatanytimeonspeculativerisksandonothercauses，whichwillneedtobeconsideredlateron。Butinthelongrunthepricewhichatraderormanufacturercanaffordtopayforathingdependsonthepriceswhichconsumerswillpayforit，orforthethingsmadebyaidofit。Theultimateregulatorofalldemandsisthereforeconsumers’demand。AnditiswiththatalmostexclusivelythatweshallbeconcernedinthepresentBook。

UtilityistakentobecorrelativetoDesireorWant。Ithasbeenalreadyarguedthatdesirescannotbemeasureddirectly，butonlyindirectlybytheoutwardphenomenatowhichtheygiverise：

andthatinthosecaseswithwhicheconomicsischieflyconcernedthemeasureisfoundinthepricewhichapersoniswillingtopayforthefulfilmentorsatisfactionofhisdesire。Hemayhavedesiresandaspirationswhicharenotconsciouslysetforanysatisfaction：butforthepresentweareconcernedchieflywiththosewhichdosoaim。andweassumethattheresultingsatisfactioncorrespondsingeneralfairlywelltothatwhichwasanticipatedwhenthepurchasewasmade。(1*)

Thereisanendlessvarietyofwants，butthereisalimittoeachseparatewant。Thisfamiliarandfundamentaltendencyofhumannaturemaybestatedinthelawofsatiablewantsorofdiminishingutilitythus：-Thetotalutilityofathingtoanyone(thatis，thetotalpleasureorotherbenefitityieldshim)

increaseswitheveryincreaseinhisstockofit，butnotasfastashisstockincreases。Ifhisstockofitincreasesatauniformratethebenefitderivedfromitincreasesatadiminishingrate。

Inotherwords，theadditionalbenefitwhichapersonderivesfromagivenincreaseofhisstockofathing，diminisheswitheveryincreaseinthestockthathealreadyhas。

Thatpartofthethingwhichheisonlyjustinducedtopurchasemaybecalledhismarginalpurchase，becauseheisonthemarginofdoubtwhetheritisworthhiswhiletoincurtheoutlayrequiredtoobtainit。Andtheutilityofhismarginalpurchasemaybecalledthemarginalutilityofthethingtohim。

Or，ifinsteadofbuyingit，hemakesthethinghimself，thenitsmarginalutilityistheutilityofthatpartwhichhethinksitonlyjustworthhiswhiletomake。Andthusthelawjustgivenmaybeworded：-

Themarginalutilityofathingtoanyonediminisheswitheveryincreaseintheamountofithealreadyhas。(2*)

Thereishoweveranimplicitconditioninthislawwhichshouldbemadeclear。Itisthatwedonotsupposetimetobeallowedforanyalterationinthecharacterortastesofthemanhimself。Itisthereforenoexceptiontothelawthatthemoregoodmusicamanhears，thestrongerishistasteforitlikelytobecome。thatavariceandambitionareofteninsatiable。orthatthevirtueofcleanlinessandtheviceofdrunkennessalikegrowonwhattheyfeedupon。Forinsuchcasesourobservationsrangeoversomeperiodoftime。andthemanisnotthesameatthebeginningasattheendofit。Ifwetakeamanasheis，withoutallowingtimeforanychangeinhischaracter，themarginalutilityofathingtohimdiminishessteadilywitheveryincreaseinhissupplyofit。(3*)

2。Nowletustranslatethislawofdiminishingutilityintotermsofprice。Letustakeanillustrationfromthecaseofacommoditysuchastea，whichisinconstantdemandandwhichcanbepurchasedinsmallquantities。Suppose，forinstance，thatteaofacertainqualityistobehadat2s。perlb。Apersonmightbewillingtogive10s。forasinglepoundonceayearratherthangowithoutitaltogether。whileifhecouldhaveanyamountofitfornothinghewouldperhapsnotcaretousemorethan30

lbs。intheyear。Butasitis，hebuysperhaps10lbs。intheyear。thatistosay，thedifferencebetweenthesatisfactionwhichhegetsfrombuying9lbs。andI0lbs。isenoughforhimtobewillingtopay2s。forit：whilethefactthathedoesnotbuyaneleventhpound，showsthathedoesnotthinkthatitwouldbeworthanextra2s。tohim。Thatis，2s。apoundmeasurestheutilitytohimoftheteawhichliesatthemarginorterminusorendofhispurchases。itmeasuresthemarginalutilitytohim。Ifthepricewhichheisjustwillingtopayforanypoundbecalledhisdemandprice，then2s。ishismarginaldemandprice。Andourlawmaybeworded：-

Thelargertheamountofathingthatapersonhastheless，otherthingsbeingequal(i。e。thepurchasingpowerofmoney，andtheamountofmoneyathiscommandbeingequal)，willbethepricewhichhewillpayforalittlemoreofit：orinotherwordshismarginaldemandpriceforitdiminishes。

Hisdemandbecomesefficient，onlywhenthepricewhichheiswillingtoofferreachesthatatwhichothersarewillingtosell。

Thislastsentenceremindsusthatwehaveasyettakennoaccountofchangesinthemarginalutilityofmoney，orgeneralpurchasingpower。Atoneandthesametime，aperson’smaterialresourcesbeingunchanged，themarginalutilityofmoneytohimisafixedquantity，sothatthepricesheisjustwillingtopayfortwocommoditiesaretooneanotherinthesameratioastheutilityofthosetwocommodities。

3。Agreaterutilitywillberequiredtoinducehimtobuyathingifheispoorthanifheisrich。Wehaveseenhowtheclerkwith？00ayearwillwalktobusinessinaheavierrainthantheclerkwith？00ayear。(4*)Butalthoughtheutility，orthebenefit，thatismeasuredinthepoorerman’smindbytwopenceisgreaterthanthatmeasuredbyitinthericherman’smind。yetiftherichermanridesahundredtimesintheyearandthepoorermantwentytimes，thentheutilityofthehundredthridewhichtherichermanisonlyjustinducedtotakeismeasuredtohimbytwopence。andtheutilityofthetwentiethridewhichthepoorermanisonlyjustinducedtotakeismeasuredtohimbytwopence。Foreachofthemthemarginalutilityismeasuredbytwopence。butthismarginalutilityisgreaterinthecaseofthepoorermanthaninthatofthericher。

Inotherwords，thericheramanbecomesthelessisthemarginalutilityofmoneytohim。everyincreaseinhisresourcesincreasesthepricewhichheiswillingtopayforanygivenbenefit。Andinthesamewayeverydiminutionofhisresourcesincreasesthemarginalutilityofmoneytohim，anddiminishesthepricethatheiswillingtopayforanybenefit。(5*)

4。Toobtaincompleteknowledgeofdemandforanything，weshouldhavetoascertainhowmuchofithewouldbewillingtopurchaseateachofthepricesatwhichitislikelytobeoffered。andthecircumstanceofhisdemandfor，say，teacanbebestexpressedbyalistofthepriceswhichheiswillingtopay。thatis，byhisseveraldemandpricesfordifferentamountsofit。(Thislistmaybecalledhisdemandschedule。)

Thusforinstancewemayfindthathewouldbuy6lbs。at50d。perlb。10lbs。at24d。perlb。

7401121

8331219

9281317

Ifcorrespondingpriceswerefilledinforallintermediateamountsweshouldhaveanexactstatementofhisdemand。(6*)Wecannotexpressaperson’sdemandforathingbytheamountheiswillingtobuyorbytheintensityofhiseagernesstobuyacertainamount，withoutreferencetothepricesatwhichhewouldbuythatamountandotheramounts。Wecanrepresentitexactlyonlybylistsofthepricesatwhichheiswillingtobuydifferentamounts。(7*)

Whenwesaythataperson’sdemandforanythingincreases，wemeanthathewillbuymoreofitthanhewouldbeforeatthesameprice，andthathewillbuyasmuchofitasbeforeatahigherprice。Ageneralincreaseinhisdemandisanincreasethroughoutthewholelistofpricesatwhichheiswillingtopurchasedifferentamountsofit，andnotmerelythatheiswillingtobuymoreofitatthecurrentprices。(8*)

5。Sofarwehavelookedatthedemandofasingleindividual。Andintheparticularcaseofsuchathingastea，thedemandofasinglepersonisfairlyrepresentativeofthegeneraldemandofawholemarket：forthedemandforteaisaconstantone。and，sinceitcanbepurchasedinsmallquantities，everyvariationinitspriceislikelytoaffecttheamountwhichhewillbuy。Butevenamongthosethingswhichareinconstantuse，therearemanyforwhichthedemandonthepartofanysingleindividualcannotvarycontinuouslywitheverysmallchangeinprice，butcanmoveonlybygreatleaps。Forinstance，asmallfallinthepriceofhatsorwatcheswillnotaffecttheactionofeveryone。butitwillinduceafewpersons，whowereindoubtwhetherornottogetanewhatoranewwatch，todecideinfavourofdoingso。

Therearemanyclassesofthingstheneedforwhichonthepartofanyindividualisinconstant，fitful，andirregular。

Therecanbenolistofindividualdemandpricesforwedding-cakes，ortheservicesofanexpertsurgeon。Buttheeconomisthaslittleconcernwithparticularincidentsinthelivesofindividuals。Hestudiesratherthecourseofactionthatmaybeexpectedundercertainconditionsfromthemembersofanindustrialgroup，insofarasthemotivesofthatactionaremeasurablebyamoneyprice。andinthesebroadresultsthevarietyandtheficklenessofindividualactionaremergedinthecomparativelyregularaggregateoftheactionofmany。

Inlargemarkets，then-whererichandpoor，oldandyoung，menandwomen，personsofallvarietiesoftastes，temperamentsandoccupationsaremingledtogether，-thepeculiaritiesinthewantsofindividualswillcompensateoneanotherinacomparativelyregulargradationoftotaldemand。Everyfall，howeverslightinthepriceofacommodityingeneraluse，will，otherthingsbeingequal，increasethetotalsalesofit。justasanunhealthyautumnincreasesthemortalityofalargetown，thoughmanypersonsareuninjuredbyit。Andthereforeifwehadtherequisiteknowledge，wecouldmakealistofpricesatwhicheachamountofitcouldfindpurchasersinagivenplaceduring，say，ayear。

Thetotaldemandintheplacefor，say，tea，isthesumofthedemandsofalltheindividualsthere。Somewillbericherandsomepoorerthantheindividualconsumerwhosedemandwehavejustwrittendown。somewillhaveagreaterandothersasmallerlikingforteathanhehas。Letussupposethatthereareintheplaceamillionpurchasersoftea，andthattheiraverageconsumptionisequaltohisateachseveralprice。Thenthedemandofthatplaceisrepresentedbythesamelistofpricesasbefore，ifwewriteamillionpoundsofteainsteadofonepound。(9*)

Thereisthenonegenerallawofdemand：-Thegreatertheamounttobesold，thesmallermustbethepriceatwhichitisofferedinorderthatitmayfindpurchasers。or，inotherwords，theamountdemandedincreaseswithafallinprice，anddiminisheswithariseinprice。Therewillnotbeanyuniformrelationbetweenthefallinpriceandtheincreaseofdemand。A

fallofone-tenthinthepricemayincreasethesalesbyatwentiethorbyaquarter，oritmaydoublethem。Butasthenumbersintheleft-handcolumnofthedemandscheduleincrease，thoseintheright-handcolumnwillalwaysdiminish。(10*)

Thepricewillmeasurethemarginalutilityofthecommoditytoeachpurchaserindividually：wecannotspeakofpriceasmeasuringmarginalutilityingeneral，becausethewantsandcircumstancesofdifferentpeoplearedifferent。

6。Thedemandpricesinourlistarethoseatwhichvariousquantitiesofathingcanbesoldinamarketduringagiventimeandundergivenconditions。Iftheconditionsvaryinanyrespectthepriceswillprobablyrequiretobechanged。andthishasconstantlytobedonewhenthedesireforanythingismateriallyalteredbyavariationofcustom，orbyacheapeningofthesupplyofarivalcommodity，orbytheinventionofanewone。

Forinstance，thelistofdemandpricesforteaisdrawnoutontheassumptionthatthepriceofcoffeeisknown。butafailureofthecoffeeharvestwouldraisethepricesfortea。Thedemandforgasisliabletobereducedbyanimprovementinelectriclighting。andinthesamewayafallinthepriceofaparticularkindofteamaycauseittobesubstitutedforaninferiorbutcheapervariety。(11*)

Ournextstepwillbetoconsiderthegeneralcharacterofdemandinthecasesofsomeimportantcommoditiesreadyforimmediateconsumption。Weshallthusbecontinuingtheinquirymadeintheprecedingchapterastothevarietyandsatiabilityofwants。butweshallbetreatingitfromaratherdifferentpointofview，viz。thatofpricestatistics。(12*)

NOTES：

1。Itcannotbetoomuchinsistedthattomeasuredirectly，orperse，eitherdesiresorthesatisfactionwhichresultsfromtheirfulfilmentisimpossible，ifnotinconceivable。Ifwecould，weshouldhavetwoaccountstomakeup，oneofdesires，andtheotherofrealizedsatisfactions。Andthetwomightdifferconsiderably。For，tosaynothingofhigheraspirations，someofthosedesireswithwhicheconomicsischieflyconcerned，andespeciallythoseconnectedwithemulation，areimpulsive。manyresultfromtheforceofhabit。somearemorbidandleadonlytohurt。andmanyarebasedonexpectationsthatareneverfulfilled。(SeeaboveI，II，sections3，4)Ofcoursemanysatisfactionsarenotcommonpleasures，butbelongtothedevelopmentofman’shighernature，ortouseagoodoldword，tohisbeatification。andsomemayevenpartlyresultfromselfabnegation。(SeeI，II，sec。1)Thetwodirectmeasurementsthenmightdiffer。Butasneitherofthemispossible，wefallbackonthemeasurementwhicheconomicssupplies，ofthemotiveormovingforcetoaction：andwemakeitserve，withallitsfaults，bothforthedesireswhichpromptactivitiesandforthesatisfactionsthatresultfromthem。(CompareSomeremarksonUtilitybyProf。PigouintheEconomicJournalforMarch，1903。)

2。SeeNoteIintheMathematicalAppendixattheendoftheVolume。Thislawholdsapriorityofpositiontothelawofdiminishingreturnfromland。whichhoweverhasthepriorityintime。sinceitwasthefirsttobesubjectedtoarigidanalysisofasemi-mathematicalcharacter。Andifbyanticipationweborrowsomeofitsterms，wemaysaythatthereturnofpleasurewhichapersongetsfromeachadditionaldoseofacommoditydiminishestillatlastamarginisreachedatwhichitisnolongerworthhiswhiletoacquireanymoreofit。

Thetermmarginalutility(Grenz-nutz)wasfirstusedinthisconnectionbytheAustrianWieser。IthasbeenadoptedbyProf。

Wicksteed。ItcorrespondstothetermFinalusedbyJevons，towhomWiesermakeshisacknowledgmentsinthePreface(p。xxiiioftheEnglishedition)。HislistofanticipatorsofhisdoctrineisheadedbyGossen，1854。

3。Itmaybenoticedhere，thoughthefactisofbutlittlepracticalimportance，thatasmallquantityofacommoditymaybeinsufficienttomeetacertainspecialwant。andthentherewillbeamorethanproportionateincreaseofpleasurewhentheconsumergetsenoughofittoenablehimtoattainthedesiredend。Thus，forinstance，anyonewouldderivelesspleasureinproportionfromtenpiecesofwallpaperthanfromtwelve，ifthelatterwould，andtheformerwouldnot，coverthewholeofthewallsofhisroom。Oragainaveryshortconcertoraholidaymayfailofitspurposeofsoothingandrecreating：andoneofdoublelengthmightbeofmorethandoubletotalutility。Thiscasecorrespondstothefact，whichweshallhavetostudyinconnectionwiththetendencytodiminishingreturn，thatthecapitalandlabouralreadyappliedtoanypieceoflandmaybesoinadequateforthedevelopmentofitsfullpowers，thatsomefurtherexpenditureonitevenwiththeexistingartsofagriculturewouldgiveamorethanproportionatereturn。andinthefactthatanimprovementintheartsofagriculturemayresistthattendency，weshallfindananalogytotheconditionjustmentionedinthetextasimpliedinthelawofdiminishingutility。

4。SeeI，II，sec。2。

5。SeeNoteIIintheMathematicalAppendix。

6。Suchademandschedulemaybetranslated，onaplannowcomingintofamiliaruse，intoacurvethatmaybecalledhisdemandcurve。LetOxandOybedrawntheonehorizontally，theothervertically。LetaninchmeasuredalongOxrepresent1olbs。oftea，andaninchmeasuredalongOyrepresent40d。

tenthsoffortiethsofaninch。aninch。

takeOm1=6，anddrawm1p1=50

Om2=7m2p2=40

Om3=8m3p3=33

Om4=9m4p4=28

Om5=10m5p5=24

Om6=11m6p6=21

Om7=12m7p7=19

Om8=13m8p8=17

m1beingonOxandm1p1beingdrawnverticallyfromm1。andsofortheothers。Thenp1p2……p8arepointsonhisdemandcurvefortea。oraswemaysaydemandpoints。Ifwecouldfinddemandpointsinthesamemannerforeverypossiblequantityoftea，weshouldgetthewholecontinuouscurveDD’asshowninthefigure。

Thisaccountofthedemandscheduleandcurveisprovisional。

severaldifficultiesconnectedwithitaredeferredtochapterv。

7。ThusMillsaysthatwemustmeanbytheworddemand，thequantitydemanded，andrememberthatthisisnotafixedquantity，butingeneralvariesaccordingtothevalue。

(Principles，III，II，sec。4)Thisaccountisscientificinsubstance。butitisnotclearlyexpressedandithasbeenmuchmisunderstood。Cairnespreferstorepresentdemandasthedesireforcommoditiesandservices，seekingitsendbyanofferofgeneralpurchasingpower，andsupplyasthedesireforgeneralpurchasingpower，seekingitsendbyanofferofspecificcommoditiesorservices。Hedoesthisinorderthathemaybeabletospeakofaratio，orequality，ofdemandandsupply。Butthequantitiesoftwodesiresonthepartoftwodifferentpersonscannotbecompareddirectly。theirmeasuresmaybecompared，butnottheythemselves。AndinfactCairnesishimselfdriventospeakofsupplyaslimitedbythequantityofspecificcommoditiesofferedforsale，anddemandbythequantityofpurchasingpowerofferedfortheirpurchase。Butsellershavenotafixedquantityofcommoditieswhichtheyofferforsaleunconditionallyatwhateverpricetheycanget：buyershavenotafixedquantityofpurchasingpowerwhichtheyarereadytospendonthespecificcommodities，howevermuchtheypayforthem。

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