A Reverend Discusses Marginal Economics

What follows is a verbose and typically over-literate description of the marginal theory in micro-economics. The Rev. Wicksteed states in effect that marginal utility (the last item of a quantity one consumes or produces - as he considers the business person) determines satisfaction and price, and via some classical learning drivel about Caesar and soldiers comes to say eventually that this utility is ultimately a psychological value for study (like even a lover has a price!) to therefore humanise economics. Well, via this verbose presentation, he seems to reject the psychological and the laws of economics (!), only to reinstate the psychological via some collective impetus working back to the individual. In fact the theory is wholly individualist and remains so, and the psychology of utility is individualist.

The theory states that distribution is determined by marginal utility and the average utility (the price) that someone is determined to pay, although he refers to the "most" people are prepared to pay and so who gets the item. He should have said the people who get the items are those for whom the marginal satisfaction or utility is higher or equal to the average utility or price.

The use of 'differential' for marginal is interesting, given the later replacement of marginal utility by 'indifference curves' (of marginal utility in comparison of different competing items and price relationships - the distribution set where the indifference curve and the price line angle are tangential).

What we do not know is the accuracy of the journalism in The Inquirer, whether it was only as heard or with the benefit of original notes.

THE Rev. P. H. Wicksteed, President of the Section of Economics at the Birmingham meeting of the British Association last week, discussed in his presidential address the scope and method of political economy in the light of the “marginal” or “differential” theory of distribution.

In the course of a summary exposition of the theory, he said when we were considering whether we would contract or enlarge our expenditure upon this or that object, we were normally engaged in considering the difference to our satisfaction which differences in our several supplies would make. We were normally engaged, then, not in the consideration of totals, either of supplies or of satisfactions, but of differences of satisfaction dependent upon differences of supplies. According to this theory, what a person was willing to give for an increase in his supply of anything was determined by the difference it would make to his satisfaction; but what he would have to give for it was determined by the difference it would make to the satisfaction of certain other people, for, if there was any one to whom it would make more difference than it would to him, this other person would be ready to give more for it, and would get it.

Proceeding to consider the theory of distribution, Mr. Wicksteed said the economic organism of an industrial society represented the instrumentality by which every man by doing what he could for some of his fellows got what he wanted from others. The manager of a business was constantly engaged in considering, for instance, how much labour such-and-such a machine would save; how much raw material a man of such-and-such character would save; what equivalent an expansion of his premises would yield in ease and smoothness in the conduct of business; and so on. This was considering differential significances and their equivalences as they affected his business. And all the time he was also considering the prices at which he could obtain these several factors, dependent upon their differential signficances to other people in other businesses. His skill consisted, like that of the housewife in the market, in expanding and contracting his expenditure on the several factors of production so as to bring their differential significances to himself into coincidence with their market prices. Here, then, they had a firm theoretical basis for the study of distribution, independent of the particular form of organisation of a business. Each person in the economic scale was engaged in considering differences. This “differential” method in economics (on the “maginal” method, as it was usually called) must, he conceived, tend to enlarge and to harmonise their conception of the scope of the study, and to keep it in constant touch with the wider ethical, social, and sociological problems and aspirations from which it must always draw its inspiration and derive its interest.

If they really understood and accepted the principle of differential significance, they would realise that their conduct it business was but a phase or part of their conduct in life, both being determined by the sense, such as it was, of differential significances and their changing weight as the integrals of which they were the differences expanded or contracted. Caesar, “that day he overcame the Nervii,” being surprised by the enemy, contracted his exhortation to the troops, but did not omit it. In his distribution of the time at his disposal the differential significance of prompt movement was higher than usual in relation to the differential significance of stirring words from their beloved and trusted commander addressed to the soldiers as they entered upon action. An ardent lover might decline a business interview in order to keep an appointment with his lady-love, but there would, be a point at which its estimated bearing upon his prospects of an early settlement, would make him break his appointment with the lady in favour of the business interview. Such people therefore were making selections and choosing between alternatives on precisely the same principle and under precisely the same law as those which dominated the transactions of the housewife in the market, or the management of a great factory or ironworks, or the business of a bill-broker.

A full realisation of this would produce two effects. In the first place, it would put an end to all attempts to find “laws” proper to their conduct in economic relations. There were none. Hitherto economists for the most part had been vaguely conscious that the ultimate laws of economic conduct must be psychological, and, feeling the necessity of determining some defining boundaries of their study, had sought to make a selection of the motives and aims that were to be recognised by it. Hence the simplified psychology of the “economic man” now generally abandoned - but abandoned grudgingly, by piecemeal, under pressure, and with constant attempts to patch up what ought to be cast away. There was no occasion to define the economic motive, or the psychology of the economic man, for economics studied a type of relation, not a type of motive, and the psychological law that dominated economics dominated life.

In the second place, they would understand that the proper field of economic study was, in the first instance, the type of relationship into which men spontaneously entered, when they found that they could best further their own purposes by approaching them indirectly. There was seldom a direct line by which a man could make his faculties and his specialised possessions minister continuously to all his purposes, or even the the greater part or the most importunate part of them. He must find someone else to whose purposes he could directly devote his powers or lend his resources. Thus in our industrial relations the thing we were doing was indeed an end, but it was some one else’s end, not ours; and, as far as the relation was really economic, the significance to us of what we were doing was measured not by its importance to the man for whom it was done, but by the degree to which it furthered our own ends. These and other such considerations would profoundly aflect the spirit in which they approached their investigation of the market. For they would not only know but would always feel that the economic machine was constructed, and moved by individuals for individual ends, and that its social effect was incidental. It was a means and its whole value consisted in the nature of the ends it subserved, and its efficacy in subserving them. For this reason the sanity of men’s desires mattered more than the abundance of their means of accomplishing them, and the final goal of education and of legislation alike must be to thwart corrupt and degrading ends, to stimulate worthy desires to infect the mind with a whole-some seheme of values, and to direct means into the channels where they were likeliest to conduce to worthy ends. The economic laws, therefore, must not be sought and could not be found on the properly economic field. It was on the vital that the must be discovered and studied, and the data of economics interpreted. To recognise this would be to humanise economics.

A Reverend Discusses Marginal Economics

MEETINGS AND GENERAL NEWS. THE BRITISH ASSOCIATION. ADDRESS BY REV. P. H. WICKSTEED AT BIRMINGHAM.

MEETINGS AND GENERAL NEWS.
THE BRITISH ASSOCIATION.
ADDRESS BY REV. P. H. WICKSTEED AT BIRMINGHAM.