Principles of Economics by Alfred Marshall (1890)
1. The older definitions of economics described it as the science which is concerned with the production, the distribution, the exchange, and the consumption of wealth. Later experience has shown that the problems of distribution and exchange are so closely connected, that it is doubtful whether anything is to be gained by the attempt to keep them separate. There is however a good deal of general reasoning with regard to the relation of demand and supply which is required as a basis for the practical problems of value, and which acts as an underlying backbone, giving unity and consistency to the main body of economic reasoning. Its very breadth and generality mark it off from the more concrete problems of distribution and exchange to which it is subservient; and therefore it is put together in Book V on "The General Theory of Demand and Supply" which prepares the way for "Distribution and Exchange, or Value."
But first comes the present Book III, a study of Wants and their satisfaction, i.e. of demand and consumption: and then Book IV, a study of the agents of production, that is, the agents by whose means wants are satisfied, including man himself, the chief agent and the sole aim of production. Book IV corresponds in general character to that discussion of production to which a large place has been given in nearly all English treatises on general economics during the last two generations; although its relation to the problems of demand and supply has not been made sufficiently clear.
2. Until recently the subject of demand or consumption has been somewhat neglected. For important as is the inquiry how to turn our resources to the best account, it is not one which lends itself, so far as the expenditure of private individuals is concerned, to the methods of economics. The common sense of a person who has had a large experience of life will give him more guidance in such a matter than he can gain from subtle economic analyses; and until recently economists said little on the subject, because they really had not much to say that was not the common property of all sensible people. But recently several causes have combined to give the subject a greater prominence in economic discussions.
The first of these is the growing belief that harm was done by Ricardo's habit of laying disproportionate stress on the side of cost of production, when analysing the causes that determine exchange value. For although he and his chief followers were aware that the conditions of demand played as important a part as those of supply in determining value, yet they did not express their meaning with sufficient clearness, and they have been misunderstood by all but the most careful readers.
Secondly, the growth of exact habits of thought in economics is making people more careful to state distinctly the premises on which they reason. This increased care is partly due to the application by some writers of mathematical language and mathematical habits of thought. It is indeed doubtful whether much has been gained by the use of complex mathematical formulae. But the application of mathematical habits of thought has been of great service; for it has led people to refuse to consider a problem until they are quite sure what the problem is; and to insist on knowing what is, and what is not intended to be assumed before proceeding further.
This has in its turn compelled a more careful analysis of all the leading conceptions of economics, and especially of demand; for the mere attempt to state clearly how the demand for a thing is to be measured opens up new aspects of the main problems of economics. And though the theory of demand is yet in its infancy, we can already see that it may be possible to collect and arrange statistics of consumption in such a way as to throw light on difficult questions of great importance to public wellbeing.
Lastly, the spirit of the age induces a closer attention to the question whether our increasing wealth may not be made to go further than it does in promoting the general wellbeing; and this again compels us to examine how far the exchange value of any element of wealth, whether in collective or individual use, represents accurately the addition which it makes to happiness and wellbeing.
We will begin this Book with a short study of the variety of human wants, considered in their relation to human efforts and activities. For the progressive nature of man is one whole. It is only temporarily and provisionally that we can with profit isolate for study the economic side of his life; and we ought to be careful to take together in one view the whole of that side. There is a special need to insist on this just now, because the reaction against the comparative neglect of the study of wants by Ricardo and his followers shows signs of being carried to the opposite extreme. It is important still to assert the great truth on which they dwelt somewhat too exclusively; viz. that 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 keynotes of the history of mankind.