Principles of economics
In this edition several chapters have been re-written; chiefly in order to meet the need, which experience has shown to exist, for a fuller explanation on certain points.
The most important change is in the survey of the central problem of distribution and exchange, which occupies the first two chapters of Book vi. (Book VII. of the first edition). In earlier editions, the reader was left to import into them the results of the preceding Books. But I had underrated the difficulty of doing that; as is shown by the fact that able and careful critics both at home and abroad have raised objections to those chapters which had been anticipated in other parts of the volume. It seemed necessary, therefore, to embody in those central chapters a good deal that had been saying before; and to supplement by still further explanations.
The first of these chapters, after reproducing a short historical introduction from the earlier editions, discuss one side of the problem of distribution; namely, that on which the forces of demand work.
The following chapter deals first with the side of supply, and then with the two sides together. Some economists have treated the causes affecting the supply of the agents of production, as exercising an influence in distribution. generally, not co-ordinate with, but only subordinate to that of the forces of demand; and a further attempt is made in this chapter to show that such a treatment, however appropriate to passing movements of distribution, cannot properly be applied to the broad central problem of normal distribution.
The chapter ends with a fuller discussion of general wages than had been given in earlier editions and discusses the relations between different kinds of surpluses. The fifth and sixth chapters of Book i. and the sixth chapter of Book ill. have been somewhat modified and enlarged in order to make more clear how closely the economist adheres in substance to the methods of inference arid judgment of ordinary life; and how thorough are the harmony and the mutual dependence between the analytical and the inductive, or historical, methods of economic study.
The chapters on Capital and Income in Book n. have been combined and re-written (see also Book vi. Ch. I. 10, and Ch. II. 10) in order to give effect to a long-cherished design, from which I have been held back hitherto by the fear of breaking too much with tradition and especially English tradition. I have steadily grown in the conviction that there is, and from the nature of the case, there must be, something artificial in every broad distinction between the capital in general (or " social " capital, i.e. capital not regarded from the point of view of an individual) and other forms of wealth.
For indeed whatever line of division be taken, the attributes assigned to capital are not present in equal degrees in all forms of capital, and they are present in some degree in other forms of wealth: such statements for instance as that capital supports, or aids, or employs labour, are not true without reserve of all things that lie within any line of demarcation that has been proposed for capital; and they are true in a measure of some forms of wealth that lie outside the line.
The discussions of ordinary business life give us Little guidance, and impose on us no restrictions in the matter: for they refer almost exclusively to capital from the point of view of the individual or " trade-capital ": and, when they take a wider scope, they do not draw a firm and clear line between capital and other forms of accumulated wealth.
Economists remain therefore free to choose their standard definition of Capital with a view to their own convenience, and it seems clear that the discussion of the distribution of the national income or dividend is that to which it is most important that their use of the term should be appropriate, and this points to the treatment of " capital " and "income" as correlative terms.
Of course, all wealth is designed to yield what in pure theory may be called "an income " of benefit or gain in some form or other ; but the language of the marketplace refuses to admit so broad a use of the term Income as that. It is however tolerably consistent in commonly including a certain number of forms of income, other than money income; and this consensus may well be turned to account. Labour is already defined by nearly all economists so as to include those activities, and those only, which are commonly regarded as the source of income in this broader use of the term: and most if not all economists glide imperceptibly to a closely corresponding use of capital when they come to discuss the problem of distribution. It is now proposed to do this deliberately and to define capital (from the general point of view) as wealth that yields "income" in forms that are admitted in the broader use of the term in the marketplace
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