Principles of Economics by Alfred Marshall (1890)
1. Man cannot create material things. In the mental and moral world indeed he may produce new ideas; but when he is said to produce material things, he really only produces utilities; or in other words, his efforts and sacrifices result in changing the form or arrangement of matter to adapt it better for the satisfaction of wants. All that he can do in the physical world is either to readjust matter so as to make it more useful, as when he makes a log of wood into a table; or to put it in the way of being made more useful by nature, as when he puts seed where the forces of nature will make it burst out into life. (1)
It is sometimes said that traders do not produce: that while the cabinet-maker produces furniture, the furnituredealer merely sells what is already produced. But there is no scientific foundation for this distinction. They both produce utilities, and neither of them can do more: the furniture-dealer moves and rearranges matter so as to make it more serviceable than it was before, and the carpenter does nothing more. The sailor or the railway-man who carries coal above ground produces it, just as much as the miner who carries it underground; the dealer in fish helps to move on fish from where it is of comparatively little use to where it is of greater use, and the fisherman does no more. It is true that there are often more traders than are necessary; and that, whenever that is the case, there is a waste. But there is also waste if there are two men to a plough which can be well worked by one man; in both cases all those who are at work produce, though they may produce but little. Some writers have revived the medieval attacks on trade on the ground that it does not produce. But they have not aimed at the right mark. They should have attacked the imperfect organization of trade, particularly of retail trade.(2)
Consumption may be regarded as negative production. Just as man can produce only utilities, so he can consume nothing more. He can produce services and other immaterial products, and he can consume them. But as his production of material products is really nothing more than a rearrangement of matter which gives it new utilities; so his consumption of them is nothing more than a disarrangement of matter, which diminishes or destroys its utilities. Often indeed when he is said to consume things, he does nothing more than to hold them for his use, while, as Senior says, they "are destroyed by those numerous gradual agents which we call collectively time".(3) As the "producer" of wheat is he who puts seed where nature will make it grow, so the "consumer" of pictures, of curtains, and even of a house or a yacht does little to wear them out himself; but he uses them while time wastes them.
Another distinction to which some prominence has been given, but which is vague and perhaps not of much practical use, is that between consumers' goods (called also consumption goods, or again goods of the first order), such as food, clothes, etc., which satisfy wants directly on the one hand; and, on the other hand, producers' goods (called also production goods, or again instrumental, or again intermediate goods), such as ploughs and looms and raw cotton, which satisfy wants indirectly by contributing towards the production of the first class of goods.(4)
2. All labour is directed towards producing some effect. For though some exertions are taken merely for their own sake, as when a game is played for amusement, they are not counted as labour. We may define labour as any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work.(5) And if we had to make a fresh start it would be best to regard all labour as productive except that which failed to promote the aim towards which it was directed, and so produced no utility. But in all the many changes which the meaning of the word " productive,, has undergone, it has had special reference to stored-up wealth, to the comparative neglect and sometimes even to the exclusion of immediate and transitory enjoyment;(6) and an almost unbroken tradition compels us to regard the central notion of the word as relating to the provision for the wants of the future rather than those of the present. It is true that all wholesome enjoyments, whether luxurious or not, are legitimate ends of action both public and private; and it is true that the enjoyment of luxuries affords an incentive to exertion, and promotes progress in many ways. But if the efficiency and energy of industry are the same, the true interest of a country is generally advanced by the subordination of the desire for transient luxuries to the attainment of those more solid and lasting resources which will assist industry in its future work, and will in various ways tend to make life larger. This general idea has been in solution, as it were, in all stages of economic theory; and has been precipitated by different writers into various hard and fast distinctions by which certain trades have been marked off as productive and certain others as unproductive.
For instance, many writers even of recent times have adhered to Adam Smith's plan of classing domestic servants as unproductive. There is doubtless in many large houses a superabundance of servants, some of whose energies might with advantage to the community be transferred to other. uses. but the same is true of the greater part of those who earn their livelihood by distilling whisky; and yet no economist has proposed to call them unproductive. There is no distinction in character between the work of the baker who provides bread for a family, and that of the cook who boils potatoes. If the baker should be a confectioner, or fancy baker, it is probable that he spends at least as much of his time as the domestic cook does, on labour that is unproductive in the popular sense of providing unnecessary enj oyments.
Whenever we use the word Productive by itself, it is to be understood to mean productive of the means of production, and of durable sources of enjoyment. But it is a slippery term, and should not be used where precision is needed.(7)
If ever we want to use it in a different sense, we must say so: for instance we may speak of labour as productive of necessaries, etc.
Productive consumption, when employed as a technical term, is commonly defined as the use of wealth in the production of further wealth; and it should properly include not all the consumption of productive workers, but only that which is necessary for their efficiency. The term may perhaps be useful in studies of the accumulation of material wealth. But it is apt to mislead. For consumption is the end of production; and all wholesome consumption is productive of benefits, many of the most worthy of which do not directly contribute to the production of material wealth.(8)
3. This brings us to consider the term Necessaries. It is common to distinguish necessaries, comforts, and luxuries; the first class including all things required to meet wants which must be satisfied, while the latter consist of things that meet wants of a less urgent character. But here again there is a troublesome ambiguity. When we say that a want must be satisfied, what are the consequences which we have in view if it is not satisfied? Do they include death? Or do they extend only to the loss of strength and vigour? In other words, are necessaries the things which are necessary for life, or those which are necessary for efficiency?
The term Necessaries, like the term Productive, has been used elliptically, the subject to which it refers being left to be supplied by the reader; and since the implied subject has varied, the reader has often supplied one which the writer did not intend, and thus misunderstood his drift. In this, as in the preceding case, the chief source of confusion can be removed by supplying explicitly in every critical place that which the reader is intended to undsertand.
The older use of the term Necessaries was limited to those things which were sufficient to enable the labourers, taken one with another, to support themselves and their families. Adam Smith and the more careful of his followers observed indeed variations in the standard of comfort and "decency"; and they recognized that differences of climate and differences of custom make things necessary in some cases, which are superfluous in others.(9) But Adam Smith was influenced by reasonings of the Physiocrats: they were based on the condition ofthe French people in the eighteenth century, most of whom had no notion of any necessaries beyond those which were required for mere existence. In happier times, however, a more careful analysis has made it evident that there is for each rank of industry, at any time and place, a more or less clearly defined income which is necessary for merely sustaining its members; while there is another and larger income which is necessary for keeping it in full efficiency.(10)
It may be true that the wages of any industrial class might have sufficed to maintain a higher efficiency, if they had been spent with perfect wisdom. But every estimate of necessaries must be relative to a given place and time; and unless there be a special interpretation clause to the contrary, it may be assumed that the wages will be spent with just that amount of wisdom, forethought, and unselfishness, which prevails in fact among the industrial class under discussion. With this understanding we may say that the income of any class in the ranks of industry is below its necessary level, when any increase in their income would in the course of time produce a more than proportionate increase in their efficiency. Consumption may be economized by a change of habits, but any stinting of necessaries is wasteful.(11)
4. Some detailed study of the necessaries for efficiency of different classes of workers will have to be made, when we come to inquire into the causes that determine the supply of efficient labour. But it will serve to give some definiteness to our ideas, if we consider here what are the necessaries for the efficiency of an ordinary agricultural or of an unskilled town labourer and his family, in England, in this generation. They may be said to consist of a well-drained dwelling with several rooms, warm clothing, with some changes of underclothing, pure water, a plentiful supply of cereal food, with a moderate allowance of meat and milk, and a little tea, etc., some education and some recreation, and lastly, sufficient freedom for his wife from other work to enable her to perform properly her maternal and her household duties. If in any district unskilled labour is deprived of any of these things, its efficiency will suffer in the same way as that of a horse that is not properly tended, or a steam-engine that has an inadequate supply of coals. All consumption up to this limit is strictly productive consumption: any stinting of this consumption is not economical, but wasteful.
In addition, perhaps, some consumption of alcohol and tobacco, and some indulgence in fashionable dress are in many places so habitual, that they may be said to be conventionally necessary, since in order to obtain them the average man and woman will sacrifice some things which are necessary for efficiency. Their wages are therefore less than are practically necessary for efficiency, unless they provide not only for what is strictly necessary consumption, but include also a certain amount of conventional necessaries.(12)
The consumption of conventional necessaries by productive workers is commonly classed as productive consumption; but strictly speaking it ought not to be; and in critical passages a special interpretation clause should be added to say whether or not they are included.
It should however be noticed that many things which are rightly described as superfluous luxuries, do yet, to some extent, take the place of necessaries; and to that extent their consumption is productive when they are consumed by producers.(13)
1. Bacon, Novum Organon IV, says "Ad opera nil aliud potest homo quam ut corpora naturalia admoveat et amoveat, reliqua natura intus agit" (quoted by Bonar, Philosophy and Political Economy, p. 249).
2. Production, in the narrow sense, changes the form and nature of products. Trade and transport change their external relations.
3. Political Economy, p. 54. Senior would like to substitute the verb "to use" for the verb "to consume."
4. Thus flour to be made into a cake when already in the house of the consumer, is treated by some as a consumers' good; while not only the flour, but the cake itself is treated as a producers' good when in the hand of the confectioner. Carl Menger (Volkswirtschaftslehre, ch. I, 2) says bread belongs to the first order, flour to the second, a flour mill to the third order and so on. It appears that if a railway train carries people on a pleasure excursion, also some tins of biscuits, and milling machinery and some machinery that is used for making milling machinery; then the train is at one and the same time a good of the first, second, third and fourth orders.
5. This is Jevons' definition (Theory of Political Economy, ch. v), except that he includes only painful exertions. But he himself points out how painful idleness often is. Most people work more than they would if they considered only the direct pleasure resulting from the work; but in a healthy state, pleasure predominates over pain in a great part even of the work that is done for hire. Of course the definition is elastic; an agricultural labourer working in his garden in the evening thinks chiefly of the fruit of his labours; a mechanic returning home after a day of sedentary toil finds positive pleasure in his garden work, but he too cares a good deal about the fruit of his labour; while a rich man working in like manner, though he may take a pride in doing it well, will probably care little for any pecuniary saving that he effects by it.
6. Thus the Mercantilists who regarded the precious metals; partly because they were imperishable, as wealth in a fuller sense than anything else, regarded as unproductive or "sterile" all labour that was not directed to producing goods for exportation in exchange for gold and silver. The Physiocrats thought all labour sterile which consumed an equal value to that which it produced; and regarded the agriculturist as the only productive worker, because his labour alone (as they thought) left behind it a net surplus of stored-up wealth. Adam Smith softened down the Physiocratic definition; but still he considered that agricultural labour was more productive than any other. His followers discarded this distinction; but they have generally adhered, though with many differences in points of detail, to the notion that productive labour is that which tends to increase accumulated wealth; a notion which is implied rather than stated in the celebrated chapter of The Wealth of Nations which bears the title, "On the Accumulation of Capital, or on Productive and Unproductive Labour." (Comp. Travers Twiss, Progress of Political Economy, Sect. vi, and the discussions on the word Productive in J.S. Mill's Essays, and in his Principles of Political Economy.)
7. Among the means of production are included the necessaries of labour but not ephemeral luxuries; and the maker of ices is thus classed as unproductive whether he is working for a pastry cook, or as a private servant in a country house. But a bricklayer engaged in building a theatre is classed as productive. No doubt the division between permanent and ephemeral sources of enjoyment is vague and unsubstantial. But this difficulty exists in the nature of things and cannot be completely evaded by any device of words. We can speak of an increase of tall men relatively to short, without deciding whether all those above five feet nine inches are to be classed as tall, or only those above five feet ten. And we can speak of the increase of productive labour at the expense of unproductive without fixing on any rigid, and therefore arbitrary line of division between them. If such an artificial line is required for any particular purpose, it must be drawn explicitly for the occasion. But in fact such occasions seldom or never occur.
8. All the distinctions in which the word Productive is used are very thin and have a certain air of unreality. It would hardly be worth while to introduce them now: but they have a long history; and it is probably better that they should dwindle gradually out of use, rather than be suddenly discarded.
The attempt to draw a hard and fast line of distinction where there is no real discontinuity in nature has often done more mischief, but has perhaps never led to more quaint results, than in the rigid definitions which have been sometimes given of this term Productive. Some of them for instance lead to the conclusion that a singer in an opera is unproductive, that the printer of the tickets of admission to the opera is productive; while the usher who shows people to their places is unproductive, unless he happens to sell programmes, and then he is productive. Senior points out that "a cook is not said to make roast meat but to dress it; but he is said to make a pudding.... A tailor is said to make cloth into a coat, a dyer is not said to make undyed cloth into dyed cloth. The change produced by the dyer is perhaps greater than that produced by the tailor, but the cloth in passing through the tailor's hands changes its name; in passing through the dyer's it does not: the dyer has not produced a new name, nor consequently a new thing." Pol. Econ. pp. 51-2.
9. Compare Carver, Principles of Political Economy, p. 474; which called my attention to Adam Smith's observation that customary decencies are in effect necessaries.
10. Thus in the South of England population has increased during the last hundred years at a fair rate, allowance being made for migration. But the efficiency of labour, which in earlier times was as high as that in the North of England, has sunk relatively to the North; so that the low-waged labour of the South is often dearer than the more highly-paid labour of the North. We cannot thus say whether the labourers in the South have been supplied with necessaries, unless we know in which of these two senses the word is used. They have had the bare necessaries for existence and the increase of numbers, but apparently they have not had the necessaries for efficiency. It must however be remembered that the strongest labourers in the South have constantly migrated to the North; and that the energies of those in the North have been raised by their larger share of economic freedom and of the hope of rising to a higher position. See Mackay in Charity Organization Journal, Feb. 1891.
11. If we considered an individual of exceptional abilities we should have to take account of the fact that there is not likely to be the same close correspondence between the real value of his work for the community and the income which he earns by it, that there is in the case of an ordinary member of any industrial class. And we should have to say that all his consumption is strictly productive and necessary, so long as by cutting off any part of it he would diminish his efficiency by an amount that is of more real value to him or the rest of the world than he saved from his consumption. If a Newton or a Watt could have added a hundredth part to his efficiency by doubling his personal expenditure, the increase in his consumption would have been truly productive. As we shall see later on, such a case is analogous to additional cultivation of rich land that bears a high rent: it may be profitable though the return to it is less than in proportion to the previous outlay.
12. Compare the distinction between "Physical and Political Necessaries" in James Steuart's Inquiry, A.D. 1767, II, xxi.
13. Thus a dish of green peas in March, costing perhaps ten shillings, is a superfluous luxury: but yet it is wholesome food, and does the work perhaps of three pennyworth of cabbage; or even, since variety undoubtedly conduces to health, a little more than that. So it may be entered perhaps at the value of fourpence under the head of necessaries, and at that of nine shillings and eightpence under that of superfluities; and its consumption may be regarded as strictly productive to the extent of one fortieth. In exceptional cases, as for instance when the peas are given to an invalid, the whole ten shillings may be well spent, and reproduce their own value.
For the sake of giving definiteness to the ideas it may be well to venture on estimates of necessaries, rough and random as they must be. Perhaps at present prices the strict necessaries for an average agricultural family are covered by fifteen or eighteen shillings a week, the conventional necessaries by about five shillings more. For the unskilled labourer in the town a few shillings must be added to the strict necessaries. For the family of the skilled workman living in a town we may take twenty-five or thirty shillings for strict necessaries, and ten shillings for conventional necessaries. For a man whose brain has to undergo great continuous strain the strict necessaries are perhaps two hundred or two hundred and fifty pounds a year if he is a bachelor: but more than twice as much if he has an expensive family to educate. His conventional necessaries depend on the nature of his calling.
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