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Money as the Measuring Rod - Israel M. Kirzner, The Economic Point of View 
The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).
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Money as the Measuring Rod
A definition of economic activity in terms of money that involves more sophisticated (and perhaps more controversial) considerations is that which sees money as a measuring rod. Economic analysis is concerned with that part of human activity, with that area of human welfare, which can be measured by the yardstick of money. The literature citing this definition reveals some confusion as to its origin. Usually this formulation of economics is ascribed to Pigou. In fact, Pigou seems to have simply taken over this definition from Marshall without much ado. It was Marshall who first most thoroughly expounded the conception of economics in terms of the money measure, and this despite the fact that his conception of economics is almost always presented by exclusive citation of the opening references in his Principles to “the ordinary business of life” and the “material requisites of well-being.”8
Marshall developed his thesis in extenso in his inaugural lecture at Cambridge in 1885.9 It must be emphasized that Marshall did not consider that he was in fundamental disagreement with his fellow economists, but only that he was presenting a more appropriate characterization of the commonly recognized scope of the subject. In the practical world Marshall is content to consider economics as examining
that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being. Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man.10
But Marshall was well aware of the misleading character of such a definition, in so far as the essence of economic activity is concerned. In his inaugural lecture he said:
The outward form of economic theory has been shaped by its connection with material wealth. But it is becoming clear that the true philosophic raison d’être of the theory is that it supplies a machinery to aid us in reasoning about those motives of human action which are measurable. In the world in which we live, money as representing general purchasing power, is so much the best measure of motives that no other can compete with it. But this is, so to speak, an accident...11
Marshall is at pains to explain that it is in the measurability of motives that the homogeneity of economic activity is to be found. That it is money which in real life lends itself to such measurement is merely a convenient accident. In the course of developing this point, Marshall uses the arguments of Cliffe Leslie.
If with Cliffe Leslie we analyse all the infinite variety of motives that are commonly grouped together under the term “love of money,” we see that they are of all kinds. They include many of the highest, the most refined, and the most unselfish elements of our nature. The common link that binds them together is that they can be more or less measured; and in this world they are measured by money.12
Marshall envisages the possibility of an economy in which incentives are in the form, not of money, but of a graduated system of decorations of honor. All this attributes “high and transcendent universality to the central scheme of economic reasoning.”13 Nevertheless, “for practical purposes...” it will be best to go on treating it as chiefly concerned with those motives to “which a money price can be...assigned.”14 In brief, economics deals with the play of measurable motives reinforcing and counteracting one another, “but it also sets out that most complex play of human motives that changes the purchasing power of money, and thus alters the measure of all motives.”15
In his Principles Marshall expresses himself quite frequently in similar terms. “The raison d’être of economics as a separate science is that it deals chiefly with that part of man’s action which is most under the control of measurable motives.” This is a characteristic statement of Marshall’s position.16 It will be noticed that Marshall does not consider this definition to be a watertight one, since he is constantly employing qualifying phrases such as “chiefly,” “more or less,” and the like. This was, indeed, frankly acknowledged by Pigou. In 1912 Pigou had stated that economic welfare arises from that part of the community’s income that enters “easily into relation with the measuring rod of money,”17 and had asserted that the “methodological principle at the basis of economic science, and that which separates it from the other social sciences, is the reference it makes to a measure, namely, money.”18 Later, in his Economics of Welfare, Pigou admits the haziness of such definitions:
It is not, indeed, possible to separate [the economic part of welfare] in any rigid way from other parts, for the part which can be brought into relation with a money measure will be different according as we mean by can, “can easily” or “can with mild straining” or “can with violent straining.” The outline of our territory is, therefore, necessarily vague.19
[]Parsons has minimized the importance to Marshall of his criterion of measurability (Structure of Social Action, p. 134). Robbins consistently associates the criterion of money as a measuring rod with Pigou rather than with Marshall. See also J. N. Tewari, “What Is Economics?” Indian Journal of Economics, April, 1947, for a similar implication of a difference between Marshall and Pigou with regard to the idea of money as a measuring rod.
[]A. Marshall, The Present Position of Economics (London, 1885). Passages from this lecture appear again in the Principles; in particular, several passages having reference to this chapter reappear verbatim in Appendix D (in the 8th edition).
[]A. Marshall, Principles of Economics (8th ed.; Macmillan & Co.), p. 1.
[]A. Marshall, The Present Position of Economics, pp. 22 f.
[]Ibid., p. 28.
[]Ibid., pp. 22–25.
[]Ibid., p. 29.
[]Ibid., p. 31.
[]A. Marshall, Principles, p. 38. Similar passages are to be found on pp. 15, 27, 57.
[]A. C. Pigou, Wealth and Welfare (London: Macmillan & Co., 1912), p. 3.
[]Ibid., p. 8. See also Pigou's inaugural Cambridge lecture, published as Economic Science in Relation to Practice (London, 1908).
[]A. C. Pigou, The Economics of Welfare (4th ed.; London: Macmillan & Co., 1932), p. 11.