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THE

ECONOMICS OF INDUSTRY

BY

ALFRED MARSHALL,

PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF CAMBRIDGE;
FELLOW OF ST JOHN'S COLLEGE, CAMBRIDGE;

SOMETIME FELLOW OF BALLIOL COLLEGE, Oxford.

AND

MARY PALEY MARSHALL,

LECTURER AT NEWNHAM COLLEGE, CAMBRIDGE.

THIRD EDITION.

London:

MACMILLAN AND CO.

1885

[The Right of Translation is reserved.]

Cambridge:

PRINTED BY C. J. CLAY, M.A. & SON,

AT THE UNIVERSITY PRESS.

736-42

PREFACE.

THIS book was undertaken at the request of a meeting of Cambridge University Extension lecturers, and is designed to meet a want which they have felt.

It is an attempt to construct on the lines laid down in Mill's Political Economy a theory of Value, Wages and Profits, which shall include the chief results of the work of the present generation of Economists. The main outlines of this theory have been tested during many years in lectures at Cambridge, and more recently at Bristol.

An inquiry into the subjects of Banking, Foreign Trade and Taxation is deferred to a companion volume on the "Economics of Trade and Finance."

The authors wish to acknowledge their obligations to Mr H. Sidgwick, Mr H. S. Foxwell and the Rev. W. Moore Ede for suggestions and aid in preparing the book for the press.

PREFACE TO THE SECOND EDITION.

THE present volume contains an outline of the theory of Value, Wages and Profits. This theory, as it was left by English Economists of the last generation, made too great pretensions to finality; and by a natural reaction their work has been severely criticised. But on the whole the progress of inquiry has tended to vindicate it, and to show that while most of it is very incomplete, there is but little in the careful exposition of it given by John Stuart Mill which is not, when properly interpreted, true as far as it goes.

It seems however necessary to go a good way apart from Mill with regard to one important question. He never worked out fully the applications of his own principles to the problem of Distribution: his last utterance on the question in his review of Thornton, left part of it avowedly in an unsatisfactory state; he gave indeed some hints as to the direction in which a solution was to be looked for, but he did not pretend to work it out himself. In this volume an attempt is made to supply the solution, and to show that there is a unity underlying all the different parts of the theory of prices, wages and profits. The remuneration of every kind of work, the interest on capital, and the prices of commodities, are determined in the long run by competition according to what is fundamentally the same law. This law of Normal Value has many varieties of detail, and takes many different forms. But in every form it exhibits value as determined by certain relations of demand and supply; and Cost of Production as taking the chief place among the causes that determine supply. The Second Book begins with a general statement of this law as applied to commodities. This is followed by a discussion of some peculiarities that are found in the laws of supply of unskilled

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