Introduction
The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions. It is not difficult in the sense in which mathematical and scientific techniques are difficult; but the fact that its modes of expression are much less precise than these, renders decidedly difficult the task of conveying it correctly to the minds of learners.
Before Adam Smith this apparatus of thought scarcely existed. Between his time and this it has been steadily enlarged and improved. Nor is there any branch of knowledge in the formation of which Englishmen can claim a more predominant part. It is not complete yet, but important improvements in its elements are becoming rare. The main task of the professional economist now consists, either in obtaining a wide knowledge of relevant facts and exercising skill in the application of economic principles to them, or in expounding the elements of his method in a lucid, accurate and illuminating way, so that, through his instruction, the number of those who can think for themselves may be increased.
This Series is directed towards the latter aim. It is intended to convey to the ordinary reader and to the uninitiated student some conception of the general principles of thought which economists now apply to economic problems. The writers are not concerned to make original contributions to knowledge, or even to attempt a complete summary of all the principles of the subject. They have been more anxious to avoid obscure forms of expression than difficult ideas; and their object has been to expound to intelligent readers, previously unfamiliar with the subject, the most significant elements of economic method. Most of the omissions of matter often treated in textbooks are intentional; for as a subject develops, it is important, especially in books meant to be introductory, to discard the marks of the chrysalid stage before thought had wings.
Even on matters of principle there is not yet a complete unanimity of opinion amongst professors. Generally speaking, the writers of these volumes believe themselves to be orthodox members of the Cambridge School of Economics. At any rate, most of their ideas about the subject, and even their prejudices, are traceable to the contact they have enjoyed with the writings and lectures of the two economists who have chiefly influenced Cambridge thought for the past fifty years, Dr. Marshall and Professor Pigou.
J.M. Keynes.
Contents
The Economic World
1. Theory And Fact
2. The Division Of Labor
3. The Existence Of Order
4. Some Reflections Upon Joint Products
5. Some Reflections Upon Capital
6. The Fundamental Character Of Many Economic Laws
The General Laws of Supply and Demand
1. Preliminary Statement Of Three Laws
2. Diagrams And Their Uses
3. Ambiguities Of The Expressions, "Increase In Demand," Etc.
4. Reactions Of Changes In Demand And Supply On Price
5. Some Paradoxical Reactions Of Price Changes On Supply
6. The Disturbances Of Monetary Changes
7. The Trade Cycle
Utility and the Margin of Consumption
1. The Forces Behind Supply And Demand
2. The Law Of Diminishing Utility
3. The Relation Between Price And Marginal Utility
4. The Marginal Purchaser
5. The Business Man As Purchaser
6. The Diminishing Utility Of Money
Cost and the Margin of Production
1. An Illustration From Coal
2. The Various Aspects Of Marginal Cost
3. The Dangers Of Ignoring The Margin
4. A Misinterpretation
5. Some Consequences Of A Higher Price Level
6. General Relation Between Price, Utility And Cost
Joint Demand and Supply
1. Marginal Cost Under Joint Supply
2. Marginal Utility Under Joint Demand
3. A Contrast Between Cotton And Cotton-Seed, And Wool And Mutton
4. The Importance Of Being Unimportant
5. Capital And Labor
6. Conclusions As To Joint Supply And Joint Demand
7. Composite Supply And Composite Demand
8. Ultimate Real Costs
Land
1. The Special Characteristics Of Land
2. The Scarcity Aspect
3. The Differential Aspect
4. The Margin Of Transference
5. The Necessity Of Rent
6. The Question Of Real Costs
7. Rent And Selling Price
Risk-Bearing and Enterprise
1. Profits And Earnings Of Management
2. The Payment For Risk-Bearing
3. Monte Carlo And Insurance
4. Risk Under Large Scale Organization
5. The Entrepreneur
6. Risk-Taking And Control
7. General Analysis Of Profits
Capital
1. A Reference To Marx
2. Waiting For Production
3. Waiting For Consumption
4. Capital Not A Stock Of Consumable Goods
5. The Essence Of Waiting
6. Individual And Social Saving
7. The Necessity Of Interest
8. The Supply Of Capital
9. Involuntary Saving
10. Interest And Distribution
Labor
1. A Retrospect On Laissez-Faire
2. Ideas And Institutions
3. The General Wage-Level
4. The Supply Of Labor In General
5. The Apportionment Of Labor Among Places
6. The Apportionment Of Labor Among Social Grades
7. The Apportionment Of Labor Among Occupations
8. Women's Wages
The Real Costs Of Production
1. Comparative Costs
2. The Allocation Of Resources
3. Utility And Wealth
4. Criteria Of Policy
Supply and Demand
Chapter I
The Economic World
1. Theory and Fact. The controversy between the "Theorist" and the "Practical Man" is common to all branches of human affairs, but it is more than usually prevalent, and perhaps more than usually acrid in the economic sphere. It is always a rather foolish controversy, and I have no intention of entering into it, but its prevalence makes it desirable to emphasize a platitude. Economic theory must be based upon actual fact: indeed, it must be essentially an attempt, like all theory, to describe the actual facts in proper sequence, and in true perspective; and if it does not do this it is an imposture. Moreover, the facts which economic theory seeks to describe are primarily economic facts, facts, that is to say, which emerge in, and are concerned with, the ordinary business world; and it is, therefore, mainly upon such facts that the theory must be based. People sometimes speak as though they supposed the economist to start from a few psychological assumptions (e. g. that a man is actuated mainly by his own self-interest) and to build up his theories upon such foundations by a process of pure reasoning. When, therefore, some advance in the study of psychology throws into apparent disrepute such ancient maxims about human nature, these people are disposed to conclude that the old economic theory is exploded, since its psychological premises have been shown to be untrue. Such an attitude involves a complete misunderstanding not merely of economics, but of the processes of human thought. It is quite true that the various branches of knowledge are interrelated very intimately, and that an advance in one will often suggest a development in another. By all means let the economist and psychologist avoid a pedantic specialism and let each stray into the other's province whenever he thinks fit. But the fact remains that they are primarily concerned with different things: and that each is most to be trusted when he is upon his own ground. When, therefore, the economist indulges in a generalization about psychology, even when he gives it as a reason for an economic proposition, in nine cases out of ten the economics will not depend upon the psychology; the psychology will rather be an inference (and very possibly a crude and hasty one) from the economic facts of which he is tolerably sure.
