Principles of Political Economy
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Title: Principles of Political Economy
Author: John Stuart Mill
Editor: J. Laurence Laughlin
Release date: September 27, 2009 [eBook #30107]
Most recently updated: June 16, 2020
Language: English
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*** START OF THE PROJECT GUTENBERG EBOOK PRINCIPLES OF POLITICAL ECONOMY ***
Principles Of Political Economy
By
John Stuart Mill
Abridged, with Critical, Bibliographical,
and Explanatory Notes, and a Sketch
of the History of Political Economy,
By
J. Laurence Laughlin, Ph. D.
Assistant Professor of Political Economy in Harvard University
A Text-Book For Colleges.
New York:
D. Appleton And Company,
1, 3, and 5 Bond Street.
1885
CONTENTS
Preface.
Introductory.
A Sketch Of The History Of Political Economy.
Books For Consultation (From English, French, And German Authors).
Preliminary Remarks.
Book I. Production.
Chapter I. Of The Requisites Of Production.
§ 1. The requisites of production.
§ 2. The Second Requisite of Production, Labor.
§ 3. Of Capital as a Requisite of Production.
Chapter II. Of Unproductive Labor.
§ 1. Definition of Productive and Unproductive Labor.
§ 2. Productive and Unproductive Consumption.
§ 3. Distinction Between Labor for the Supply of Productive
Consumption and Labor for the Supply of Unproductive Consumption.
Chapter III. Of Capital.
§ 1. Capital is Wealth Appropriated to Reproductive Employment.
§ 2. More Capital Devoted to Production than Actually Employed in
it.
§ 3. Examination of Cases Illustrative of the Idea of Capital.
Chapter IV. Fundamental Propositions Respecting Capital.
§ 1. Industry is Limited by Capital.
§ 2. Increase of Capital gives Increased Employment to Labor,
Without Assignable Bounds.
§ 3. Capital is the result of Saving, and all Capital is Consumed.
§ 4. Capital is kept up by Perpetual Reproduction, as shown by the
Recovery of Countries from Devastation.
§ 5. Effects of Defraying Government Expenditure by Loans.
§ 6. Demand for Commodities is not Demand for Labor.
Chapter V. On Circulating And Fixed Capital.
§ 1. Fixed and Circulating Capital.
§ 2. Increase of Fixed Capital, when, at the Expense of Circulating,
might be Detrimental to the Laborers.
§ 3. —This seldom, if ever, occurs.
Chapter VI. Of Causes Affecting The Efficiency Of Production.
§ 1. General Causes of Superior Productiveness.
§ 2. Combination and Division of Labor Increase Productiveness.
§ 3. Advantages of Division of Labor.
§ 4. Production on a Large and Production on a Small Scale.
Chapter VII. Of The Law Of The Increase Of Labor.
§ 1. The Law of the Increase of Production Depends on those of Three
Elements—Labor. Capital, and Land.
§ 2. The Law of Population.
§ 3. By what Checks the Increase of Population is Practically
Limited.
Chapter VIII. Of The Law Of The Increase Of Capital.
§ 1. Means for Saving in the Surplus above Necessaries.
§ 2. Motive for Saving in the Surplus above Necessaries.
§ 3. Examples of Deficiency in the Strength of this Desire.
§ 4. Examples of Excess of this Desire.
Chapter IX. Of The Law Of The Increase Of Production From Land.
§ 1. The Law of Production from the Soil, a Law of Diminishing
Return in Proportion to the Increased Application of Labor and
Capital.
§ 2. Antagonist Principle to the Law of Diminishing Return; the
Progress of Improvements in Production.
§ 3. —In Railways.
§ 4. —In Manufactures.
§ 5. Law Holds True of Mining.
Chapter X. Consequences Of The Foregoing Laws.
§ 1. Remedies for Weakness of the Principle of Accumulation.
§ 2. Even where the Desire to Accumulate is Strong, Population must
be Kept within the Limits of Population from Land.
§ 3. Necessity of Restraining Population not superseded by Free
Trade in Food.
§ 4. —Nor by Emigration.
Book II. Distribution.
Chapter I. Of Property.
§ 1. Individual Property and its opponents.
§ 2. The case for Communism against private property presented.
§ 3. The Socialists who appeal to state-help.
§ 4. Of various minor schemes, Communistic and Socialistic.
§ 5. The Socialist objections to the present order of Society
examined.
§ 6. Property in land different from property in Movables.
Chapter II. Of Wages.
§ 1. Of Competition and Custom.
§ 2. The Wages-fund, and the Objections to it Considered.
§ 3. Examination of some popular Opinions respecting Wages.
§ 4. Certain rare Circumstances excepted, High Wages imply
Restraints on Population.
§ 5. Due Restriction of Population the only Safeguard of a
Laboring-Class.
Chapter III. Of Remedies For Low Wages.
§ 1. A Legal or Customary Minimum of Wages, with a Guarantee of
Employment.
§ 2. —Would Require as a Condition Legal Measures for Repression of
Population.
§ 3. Allowances in Aid of Wages and the Standard of Living.
§ 4. Grounds for Expecting Improvement in Public Opinion on the
Subject of Population.
§ 5. Twofold means of Elevating the Habits of the Laboring-People;
by Education, and by Foreign and Home Colonization.
Chapter IV. Of The Differences Of Wages In Different Employments.
§ 1. Differences of Wages Arising from Different Degrees of
Attractiveness in Different Employments.
§ 2. Differences arising from Natural Monopolies.
§ 3. Effect on Wages of the Competition of Persons having other
Means of Support.
§ 4. Wages of Women, why Lower than those of Men.
§ 5. Differences of Wages Arising from Laws, Combinations, or
Customs.
Chapter V. Of Profits.
§ 1. Profits include Interest and Risk; but, correctly speaking, do
not include Wages of Superintendence.
§ 2. The Minimum of Profits; what produces Variations in the Amount
of Profits.
§ 3. General Tendency of Profits to an Equality.
§ 4. The Cause of the Existence of any Profit; the Advances of
Capitalists consist of Wages of Labor.
§ 5. The Rate of Profit depends on the Cost of Labor.
Chapter VI. Of Rent.
§ 1. Rent the Effect of a Natural Monopoly.
§ 2. No Land can pay Rent except Land of such Quality or Situation
as exists in less Quantity than the Demand.
§ 3. The Rent of Land is the Excess of its Return above the Return
to the worst Land in Cultivation.
§ 4. —Or to the Capital employed in the least advantageous
Circumstances.
§ 5. Opposing Views of the Law of Rent.
§ 6. Rent does not enter into the Cost of Production of Agricultural
Produce.
Book III. Exchange.
Chapter I. Of Value.
§ 1. Definitions of Value in Use, Exchange Value, and Price.
§ 2. Conditions of Value: Utility, Difficulty of Attainment, and
Transferableness.
§ 3. Commodities limited in Quantity by the law of Demand and
Supply: General working of this Law.
§ 4. Miscellaneous Cases falling under this Law.
§ 5. Commodities which are Susceptible of Indefinite Multiplication
without Increase of Cost. Law of their Value Cost of Production.
§ 6. The Value of these Commodities confirm, in the long run, to
their Cost of Production through the operation of Demand and Supply.
Chapter II. Ultimate Analysis Of Cost Of Production.
§ 1. Of Labor, the principal Element in Cost of Production.
§ 2. Wages affect Values, only if different in different
employments; “non-competing groups.”
§ 3. Profits an element in Cost of Production.
§ 4. Cost of Production properly represented by sacrifice, or cost,
to the Laborer as well as to the Capitalist; the relation of this
conception to the Cost of Labor.
§ 5. When profits vary from Employment to Employment, or are spread
over unequal lengths of Time, they affect Values accordingly.
§ 6. Occasional Elements in Cost of Production; taxes and
ground-rent.
Chapter III. Of Rent, In Its Relation To Value.
§ 1. Commodities which are susceptible of indefinite Multiplication,
but not without increase of Cost. Law of their Value, Cost of
Production in the most unfavorable existing circumstances.
§ 2. Such commodities, when Produced in circumstances more
favorable, yield a Rent equal to the difference of Cost.
§ 3. Rent of Mines and Fisheries and ground-rent of Buildings, and
cases of gain analogous to Rent.
§ 4. _Résumé_ of the laws of value of each of the three classes of
commodities.
Chapter IV. Of Money.
§ 1. The three functions of Money—a Common Denominator of Value, a
Medium of Exchange, a “Standard of Value”.
§ 2. Gold and Silver, why fitted for those purposes.
§ 3. Money a mere contrivance for facilitating exchanges, which does
not affect the laws of value.
Chapter V. Of The Value Of Money, As Dependent On Demand And Supply.
§ 1. Value of Money, an ambiguous expression.
§ 2. The Value of Money depends on its quantity.
§ 3. —Together with the Rapidity of Circulation.
§ 4. Explanations and Limitations of this Principle.
Chapter VI. Of The Value Of Money, As Dependent On Cost Of Production.
§ 1. The value of Money, in a state of Freedom, conforms to the
value of the Bullion contained in it.
§ 2. —Which is determined by the cost of production.
§ 3. This law, how related to the principle laid down in the
preceding chapter.
Chapter VII. Of A Double Standard And Subsidiary Coins.
§ 1. Objections to a Double Standard.
§ 2. The use of the two metals as money, and the management of
Subsidiary Coins.
§ 3. The experience of the United States with a double standard from
1792 to 1883.
Chapter VIII. Of Credit, As A Substitute For Money.
§ 1. Credit not a creation but a Transfer of the means of
Production.
§ 2. In what manner it assists Production.
§ 3. Function of Credit in economizing the use of Money.
§ 4. Bills of Exchange.
§ 5. Promissory Notes.
§ 6. Deposits and Checks.
Chapter IX. Influence Of Credit On Prices.
§ 1. What acts on prices is Credit, in whatever shape given.
§ 2. Credit a purchasing Power, similar to Money.
§ 3. Great extensions and contractions of Credit. Phenomena of a
commercial crisis analyzed.
§ 4. Influence of the different forms of Credit on Prices.
§ 5. On what the use of Credit depends.
§ 6. What is essential to the idea of Money?
Chapter X. Of An Inconvertible Paper Currency.
§ 1. What determines the value of an inconvertible paper money?
§ 2. If regulated by the price of Bullion, as inconvertible Currency
might be safe, but not Expedient.
§ 3. Examination of the doctrine that an inconvertible Current is
safe, if representing actual Property.
§ 4. Experiments with paper Money in the United States.
§ 5. Examination of the gain arising from the increase and issue of
paper Currency.
§ 6. _Résumé_ of the subject of money.
Chapter XI. Of Excess Of Supply.
§ 1. The theory of a general Over-Supply of Commodities stated.
§ 2. The supply of commodities in general can not exceed the power
of Purchase.
§ 3. There can never be a lack of Demand arising from lack of Desire
to Consume.
§ 4. Origin and Explanation of the notion of general Over-Supply.
Chapter XII. Of Some Peculiar Cases Of Value.
§ 1. Values of commodities which have a joint cost of production.
§ 2. Values of the different kinds of agricultural produce.
Chapter XIII. Of International Trade.
§ 1. Cost of Production not a regulator of international values.
Extension of the word “international.”
§ 2. Interchange of commodities between distance places determined
by differences not in their absolute, but in the comparative, costs
of production.
§ 3. The direct benefits of commerce consist in increased Efficiency
of the productive powers of the World.
§ 4. —Not in a Vent for exports, nor in the gains of Merchants.
§ 5. Indirect benefits of Commerce, Economical and Moral; still
greater than the Direct.
Chapter XIV. Of International Values.
§ 1. The values of imported commodities depend on the Terms of
international interchange.
§ 2. The values of foreign commodities depend, not upon Cost of
Production, but upon Reciprocal Demand and Supply.
§ 3. —As illustrated by trade in cloth and linen between England and
Germany.
§ 4. The conclusion states in the Equation of International Demand.
§ 5. The cost to a country of its imports depends not only on the
ratio of exchange, but on the efficiency of its labor.
Chapter XV. Of Money Considered As An Imported Commodity.
§ 1. Money imported on two modes; as a Commodity, and as a medium of
Exchange.
§ 2. As a commodity, it obeys the same laws of Value as other
imported Commodities.
Chapter XVI. Of The Foreign Exchanges.
§ 1. Money passes from country to country as a Medium of Exchange,
through the Exchanges.
§ 2. Distinction between Variations in the Exchanges which are
self-adjusting and those which can only be rectified through Prices.
Chapter XVII. Of The Distribution Of The Precious Metals Through The
Commercial World.
§ 1. The substitution of money for barter makes no difference in
exports and imports, nor in the Law of international Values.
§ 2. The preceding Theorem further illustrated.
§ 3. The precious metals, as money, are of the same Value, and
distribute themselves according to the same Law, with the precious
metals as a Commodity.
§ 4. International payments entering into the “financial account.”
Chapter XVIII. Influence Of The Currency On The Exchanges And On
Foreign Trade.
§ 1. Variations in the exchange, which originate in the Currency.
§ 2. Effect of a sudden increase of a metallic Currency, or of the
sudden creation of Bank-Notes or other substitutes for Money.
§ 3. Effect of the increase of an inconvertible paper Currency. Real
and nominal exchange.
Chapter XIX. Of The Rate Of Interest.
§ 1. The Rate of Interest depends on the Demand and Supply of Loans.
§ 2. Circumstances which Determine the Permanent Demand and Supply
of Loans.
§ 3. Circumstances which Determine the Fluctuations.
§ 4. The Rate of Interest not really Connected with the value of
Money, but often confounded with it.
§ 5. The Rate of Interest determines the price of land and of
Securities.
Chapter XX. Of The Competition Of Different Countries In The Same
Market.
§ 1. Causes which enable one Country to undersell another.
§ 2. High wages do not prevent one Country from underselling
another.
§ 3. Low wages enable a Country to undersell another, when Peculiar
to certain branches of Industry.
§ 4. —But not when common to All.
§ 5. Low profits as affecting the carrying Trade.
Chapter XXI. Of Distribution, As Affected By Exchange.
§ 1. Exchange and money make no Difference in the law of Wages.
§ 2. In the law of Rent.
§ 3. —Nor in the law of Profits.
Book IV. Influence Of The Progress Of Society On Production And
Distribution.
Chapter I. Influence Of The Progress Of Industry And Population On
Values And Prices.
§ 1. Tendency of the progress of society toward increased Command
over the powers of Nature; increased Security, and increased
Capacity of Co-Operation.
§ 2. Tendency to a Decline of the Value and Cost of Production of
all Commodities.
§ 3. —except the products of Agriculture and Mining, which have a
tendency to Rise.
§ 4. —that tendency from time to time Counteracted by Improvements
in Production.
§ 5. Effect of the Progress of Society in moderating fluctuations of
Value.
Chapter II. Influence Of The Progress Of Industry And Population On
Rents, Profits, And Wages.
§ 1. Characteristic features of industrial Progress.
§ 2. First two cases, Population and Capital increasing, the arts of
production stationary.
§ 3. The arts of production advancing, capital and population
stationary.
§ 4. Theoretical results, if all three Elements progressive.
§ 5. Practical Results.
Chapter III. Of The Tendency Of Profits To A Minimum.
§ 1. Different Theories as to the fall of Profits.
§ 2. What determines the minimum rate of Profit?
§ 3. In old and opulent countries, profits habitually near to the
minimum.
§ 4. —prevented from reaching it by commercial revulsions.
§ 5. —by improvements in Production.
§ 6. —by the importation of cheap Necessaries and Implements.
§ 7. —by the emigration of Capital.
Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And
The Stationary State.
§ 1. Abstraction of Capital not necessarily a national loss.
§ 2. In opulent countries, the extension of machinery not
detrimental but beneficial to Laborers.
§ 3. Stationary state of wealth and population dreaded by some
writers, but not in itself undesirable.
Chapter V. On The Possible Futurity Of The Laboring-Classes.
§ 1. The possibility of improvement while Laborers remain merely
receivers of Wages.
§ 2.—through small holdings, by which the landlord’s gain is shared.
§ 3. —through co-operation, by which the manager’s wages are shared.
§ 4. Distributive Co-operation.
§ 5. Productive Co-Operation.
§ 6. Industrial Partnership.
§ 7. People’s Banks.
Book V. On The Influence Of Government.
Chapter I. On The General Principles Of Taxation.
§ 1. Four fundamental rules of Taxation.
§ 2. Grounds of the principle of Equality of Taxation.
§ 3. Should the same percentage be levied on all amounts of Income?
§ 4. Should the same percentage be levied on Perpetual and on
Terminable Incomes?
§ 5. The increase of the rent of land from natural causes a fit
subject of peculiar Taxation.
§ 6. Taxes falling on Capital not necessarily objectionable.
Chapter II. Of Direct Taxes.
§ 1. Direct taxes either on income or expenditure.
§ 2. Taxes on rent.
§ 3. —on profits.
§ 4. —on Wages.
§ 5. —on Income.
§ 6. A House-Tax.
Chapter III. Of Taxes On Commodities, Or Indirect Taxes.
§ 1. A Tax on all commodities would fall on Profits.
§ 2. Taxes on particular commodities fall on the consumer.
§ 3. Peculiar effects of taxes on Necessaries.
§ 4. —how modified by the tendency of profits to a minimum.
§ 5. Effects of discriminating Duties.
§ 6. Effects produced on international Exchange by Duties on Exports
and on Imports.
Chapter IV. Comparison Between Direct And Indirect Taxation.
§ 1. Arguments for and against direct Taxation.
§ 2. What forms of indirect taxation are most eligible?
§ 3. Practical rules for indirect taxation.
§ 4. Taxation systems of the United States and other Countries.
§ 5. A _Résumé_ of the general principles of taxation.
Chapter V. Of A National Debt.
§ 1. Is it desirable to defray extraordinary public expenses by
loans?
§ 2. Not desirable to redeem a national Debt by a general
Contribution.
§ 3. In what cases desirable to maintain a surplus revenue for the
redemption of Debt.
Chapter VI. Of An Interference Of Government Grounded On Erroneous
Theories.
§ 1. The doctrine of Protection to Native Industry.
§ 2. —had its origin in the Mercantile System.
§ 3. —supported by pleas of national subsistence and national
defense.
§ 4. —on the ground of encouraging young industries; colonial
policy.
§ 5. —on the ground of high wages.
§ 6. —on the ground of creating a diversity of industries.
§ 7. —on the ground that it lowers prices.
Appendix I. Bibliographies.
Appendix II. Examination Questions.
Footnotes
PREFACE.
An experience of five years with Mr. Mill’s treatise in the class-room not
only convinced me of the great usefulness of what still remains one of the
most lucid and systematic books yet published which cover the whole range
of the study, but I have also been convinced of the need of such additions
as should give the results of later thinking, without militating against
the general tenor of Mr. Mill’s system; of such illustrations as should
fit it better for American students, by turning their attention to the
application of principles in the facts around us; of a bibliography which
should make it easier to get at the writers of other schools who offer
opposing views on controverted questions; and of some attempts to lighten
those parts of his work in which Mr. Mill frightened away the reader by an
appearance of too great abstractness, and to render them, if possible,
more easy of comprehension to the student who first approaches Political
Economy through this author. Believing, also, that the omission of much
that should properly be classed under the head of Sociology, or Social
Philosophy, would narrow the field to Political Economy alone, and aid,
perhaps, in clearer ideas, I was led to reduce the two volumes into one,
with, of course, the additional hope that the smaller book would tempt
some readers who might hesitate to attack his larger work. In consonance
with the above plan, I have abridged Mr. Mill’s treatise, yet have always
retained his own words; although it should be said that they are not
always his consecutive words. Everything in the larger type on the page is
taken literally from Mr. Mill, and, whenever it has been necessary to use
a word to complete the sense, it has been always inserted in square
brackets. All additional matter introduced by me has been printed in a
smaller but distinctive type. The reader can see at a glance which part of
the page is Mr. Mill’s and which my own.
It has seemed necessary to make the most additions to the original
treatise under the subjects of the Wages Question; of Wages of
Superintendence; of Socialism; of Cost of Production; of Bimetallism; of
the Paper Money experiments in this country; of International Values; of
the Future of the Laboring-Classes (in which the chapter was entirely
rewritten); and of Protection. The treatment of Land Tenures has not been
entirely omitted, but it does not appear as a separate subject, because it
has at present less value as an elementary study for American students.
The chapters on Land Tenures, the English currency discussion, and much of
Book V, on the Influence of Government, have been simply omitted. In one
case I have changed the order of the chapters, by inserting Chap. XV of
Book III, treating of a standard of value, under the chapter treating of
money and its functions. In other respects, the same order has been
followed as in the original work.
Wherever it has seemed possible, American illustrations have been inserted
instead of English or Continental ones.
To interest the reader in home problems, twenty-four charts have been
scattered throughout the volume, which bear upon our own conditions, with
the expectation, also, that the different methods of graphic
representation here presented would lead students to apply them to other
questions. They are mainly such as I have employed in my class-room. The
use and preparation of such charts ought to be encouraged. The earlier
pages of the volume have been given up to a “Sketch of the History of
Political Economy,” which aims to give the story of how we have arrived at
our present knowledge of economic laws. The student who has completed Mill
will then have a very considerable bibliography of the various schools and
writers from which to select further reading, and to select this reading
so that it may not fall wholly within the range of one class of writers.
But, for the time that Mill is being first studied, I have added a list of
the most important books for consultation. I have also collected, in
Appendix I, some brief bibliographies on the Tariff, on Bimetallism, and
on American Shipping, which may be of use to those who may not have the
means of inquiring for authorities, and in Appendix II a number of
questions and problems for the teacher’s use.
In some cases I have omitted Mr. Mill’s statement entirely, and put in its
stead a simpler form of the same exposition which I believed would be more
easily grasped by a student. Of such cases, the argument to show that
Demand for Commodities is not Demand for Labor, the Doctrine of
International Values, and the Effect of the Progress of Society on wages,
profits, and rent, are examples. Whether I have succeeded or not, must be
left for the experience of the teacher to determine. Many small figures
and diagrams have been used throughout the text, in order to suggest the
concrete means of getting a clear grasp of a principle.
In conclusion, I wish to acknowledge my indebtedness to several friends
for assistance in the preparation of this volume, among whom are Professor
Charles F. Dunbar, Dr. F. W. Taussig, Dr. A. B. Hart, and Mr. Edward
Atkinson.
J. LAURENCE LAUGHLIN.
HARVARD UNIVERSITY, CAMBRIDGE, MASSACHUSETTS,
_September, 1884._
[Illustration: Population Map of eastern United States, 1830]
Chart I
[Illustration: Population Map of United States, 1880]
Chart II
INTRODUCTORY.
A Sketch Of The History Of Political Economy.
GENERAL BIBLIOGRAPHY.—There is no satisfactory general history of
political economy in English. Blanqui’s “Histoire de l’économie
politique en Europe” (Paris, 1837) is disproportioned and
superficial, and he labors under the disadvantage of not
understanding the English school of economists. He studies to give
the history of economic facts, rather than of economic laws. The
book has been translated into English (New York, 1880).
Villeneuve-Bargemont, in his “Histoire de l’économie politique”
(Paris, 1841), aims to oppose a “Christian political economy” to
the “English” political economy, and indulges in religious
discussions.
Travers Twiss, “View of the Progress of Political Economy in
Europe since the Sixteenth Century” (London, 1847), marked an
advance by treating the subject in the last four centuries, and by
separating the history of principles from the history of facts. It
is brief, and only a sketch. Julius Kautz has published in German
the best existing history, “Die geschichtliche Entwickelung der
National-Oekonomie und ihrer Literatur” (Vienna, 1860). (See
Cossa, “Guide to the Study of Political Economy,” page 80.) Cossa
in his book has furnished a vast amount of information about
writers, classified by epochs and countries, and a valuable
discussion of the divisions of political economy by various
writers, and its relation to other sciences. It is a very
desirable little hand-book. McCulloch, in his “Introduction to the
Wealth of Nations,” gives a brief sketch of the growth of economic
doctrine. The editor begs to acknowledge his great indebtedness
for information to his colleague, Professor Charles F. Dunbar, of
Harvard University.
Systematic study for an understanding of the laws of political economy is
to be found no farther back than the sixteenth century. The history of
political economy is not the history of economic institutions, any more
than the history of mathematics is the history of every object possessing
length, breadth, and thickness. Economic history is the story of the
gradual evolution in the thought of men of an understanding of the laws
which to-day constitute the science we are studying. It is essentially
modern.(1)
Aristotle(2) and Xenophon had some comprehension of the theory of money,
and Plato(3) had defined its functions with some accuracy. The economic
laws of the Romans were all summed up in the idea of enriching the
metropolis at the expense of the dependencies. During the middle ages no
systematic study was undertaken, and the nature of economic laws was not
even suspected.
It is worth notice that the first glimmerings of political economy came to
be seen through the discussions on money, and the extraordinary movements
of gold and silver. About the time of Charles V, the young study was born,
accompanied by the revival of learning, the Reformation, the discovery of
America, and the great fall in the value of gold and silver. Modern
society was just beginning, and had already brought manufactures into
existence—woolens in England, silks in France, Genoa, and Florence; Venice
had become the great commercial city of the world; the Hanseatic League
was carrying goods from the Mediterranean to the Baltic; and the Jews of
Lombardy had by that time brought into use the bill of exchange. While the
supply of the precious metals had been tolerably constant hitherto, the
steady increase of business brought about a fall of prices. From the
middle of the fourteenth to the end of the fifteenth century the
purchasing power of money increased in the ratio of four to ten. Then into
this situation came the great influx of gold and silver from the New
World. Prices rose unequally; the trading and manufacturing classes were
flourishing, while others were depressed. In the sixteenth century the
price of wheat tripled, but wages only doubled; the laboring-classes of
England deteriorated, while others were enriched, producing profound
social changes and the well-known flood of pauperism, together with the
rise of the mercantile classes. Then new channels of trade were opened to
the East and West. Of course, men saw but dimly the operation of these
economic causes; although the books now began to hint at the right
understanding of the movements and the true laws of money.
Even before this time, however, Nicole Orêsme, Bishop of Lisieux (died
1382), had written intelligently on money;(4) but, about 1526, the
astronomer Copernicus gave a very good exposition of some of the functions
of money. But he, as well as Latimer,(5) while noticing the economic
changes, gave no correct explanation. The Seigneur de Malestroit, a
councilor of the King of France, however, by his errors drew out Jean
Bodin(6) to say that the rise of prices was due to the abundance of money
brought from America. But he was in advance of his time, as well as
William Stafford,(7) the author of the first English treatise on money,
which showed a perfect insight into the subject. Stafford distinctly
grasped the idea that the high prices brought no loss to merchants, great
gain to those who held long leases, and loss to those who did not buy and
sell; that, in reality, commodities were exchanged when money was passed
from hand to hand.
Such was the situation(8) which prefaced the first general system destined
to be based on supposed economic considerations, wrongly understood, to be
sure, but vigorously carried out. I refer to the well-known mercantile
system which over-spread Europe.(9) Spain, as the first receiver of
American gold and silver, attributed to it abnormal power, and by heavy
duties and prohibitions tried to keep the precious metals to herself. This
led to a general belief in the tenets of the mercantile system, and its
adoption by all Europe. 1. It was maintained that, where gold and silver
abounded, there would be found no lack of the necessaries of life; 2.
Therefore governments should do all in their power to secure an abundance
of money. Noting that commerce and political power seemed to be in the
hands of the states having the greatest quantity of money, men wished
mainly to create such a relation of exports and imports of goods as would
bring about an importation of money. The natural sequence of this was, the
policy of creating a favorable “balance of trade” by increasing exports
and diminishing imports, thus implying that the gain in international
trade was not a mutual one. The error consisted in supposing that a nation
could sell without buying, and in overlooking the instrumental character
of money. The errors even went so far as to create prohibitory
legislation, in the hope of shutting out imported goods and keeping the
precious metals at home. The system spread over Europe, so that France
(1544) and England (1552) forbade the export of specie. But, with the more
peaceful conditions at the end of the sixteenth century, the expansion of
commerce, the value of money became steadier, and prices advanced more
slowly.
Italian writers were among the first to discuss the laws of money
intelligently,(10) but a number of acute Englishmen enriched the
literature of the subject,(11) and it may be said that any modern study of
political economy received its first definite impulse from England and
France.
The prohibition of the export of coin was embarrassing to the East India
Company and to merchants; and Mun tried to show that freedom of
exportation would increase the amount of gold and silver in a country,
since the profits in foreign trade would bring back more than went out. It
probably was not clear to them, however, that the export of bullion to the
East was advantageous, because the commodities brought back in return were
more valuable in England than the precious metals. The purpose of the
mercantilists was to increase the amount of gold and silver in the
country. Mun, with some penetration, had even pointed out that too much
money was an evil; but in 1663 the English Parliament removed the
restriction on the exportation of coin. The balance-of-trade heresy, that
exports should always exceed imports (as if merchants would send out goods
which, when paid for in commodities, should be returned in a form of less
value than those sent out!), was the outcome of the mercantile system, and
it has continued in the minds of many men to this day. The policy which
aimed at securing a favorable balance of trade, and the plan of protecting
home industries, had the same origin. If all consumable goods were
produced at home, and none imported, that would increase exports, and
bring more gold and silver into the country. As all the countries of
Europe had adopted the mercantile theory after 1664, retaliatory and
prohibitory tariffs were set up against each other by England, France,
Holland, and Germany. Then, because it was seen that large sums were paid
for carrying goods, in order that no coin should be required to pay
foreigners in any branch of industry, navigation laws were enacted, which
required goods to be imported only in ships belonging to the importing
nation. These remnants of the mercantile system continue to this day in
the shipping laws of this and other countries.(12)
A natural consequence of the navigation acts, and of the mercantile
system, was the so-called colonial policy, by which the colonies were
excluded from all trade except with the mother-country. A plantation like
New England, which produced commodities in competition with England, was
looked upon with disfavor for her enterprise; and all this because of the
fallacy, at the foundation of the mercantile system, that the gain in
international trade is not mutual, but that what one country gains another
must lose.(13)
An exposition of mercantilism would not be complete without a statement of
the form it assumed in France under the guidance of Colbert,(14) the great
minister of Louis XIV, from 1661 to 1683. In order to create a favorable
balance of trade, he devoted himself to fostering home productions, by
attempts to abolish vexatious tolls and customs within the country, and by
an extraordinary system of supervision in manufacturing establishments
(which has been the stimulus to paternal government from which France has
never since been able to free herself). Processes were borrowed from
England, Germany, and Sweden, and new establishments for making tapestries
and silk goods sprang up; even the sizes of fabrics were regulated by
Colbert, and looms unsuitable for these sizes destroyed. In 1671
wool-dyers were given a code of detailed instructions as to the processes
and materials that might be used. Long after, French industry felt the
difficulty of struggling with stereotyped processes. His system, however,
naturally resulted in a series of tariff measures (in 1664 and 1667).
Moderate duties on the exportation of raw materials were first laid on,
followed by heavy customs imposed on the importation of foreign goods. The
shipment of coin was forbidden; but Colbert’s criterion of prosperity was
the favorable balance of trade. French agriculture was overlooked. The
tariff of 1667 was based on the theory that foreigners must of necessity
buy French wines, lace, and wheat; that the French could sell, but not
buy; but the act of 1667 cut off the demand for French goods, and
Portuguese wines came into the market. England and Holland retaliated and
shut off the foreign markets from France. The wine and wheat growers of
the latter country were ruined, and the rural population came to the verge
of starvation. Colbert’s last years were full of misfortune and
disappointment; and a new illustration was given of the fallacy that the
gain from international trade was not mutual.
From this time, economic principles began to be better apprehended. It is
to be noted that the first just observations arose from discussions upon
money, and thence upon international trade. So far England has furnished
the most acute writers: now France became the scene of a new movement.
Marshal Vauban,(15) the great soldier, and Boisguillebert(16) both began
to emphasize the truth that wealth really consists, not in money alone,
but in an abundance of commodities; that countries which have plenty of
gold and silver are not wealthier than others, and that money is only a
medium of exchange. It was not, however, until 1750 that evidences of any
real advance began to appear; for Law’s famous scheme (1716-1720) only
served as a drag upon the growth of economic truth. But in the middle of
the eighteenth century an intellectual revival set in: the “Encyclopædia”
was published, Montesquieu wrote his “l’Ésprit des Lois,” Rousseau was
beginning to write, and Voltaire was at the height of his power. In this
movement political economy had an important share, and there resulted the
first school of Economists, termed the Physiocrats.
The founder and leader of this new body of economic thinkers was François
Quesnay,(17) a physician and favorite at the court of Louis XV. Passing by
his ethical basis of a natural order of society, and natural rights of
man, his main doctrine, in brief, was that the cultivation of the soil was
the only source of wealth; that labor in other industries was sterile; and
that freedom of trade was a necessary condition of healthy distribution.
While known as the “Economists,” they were also called the
“Physiocrats,”(18) or the “Agricultural School.” Quesnay and his followers
distinguished between the creation of wealth (which could only come from
the soil) and the union of these materials, once created, by labor in
other occupations. In the latter case the laborer did not, in their
theory, produce wealth. A natural consequence of this view appeared in a
rule of taxation, by which all the burdens of state expenditure were laid
upon the landed proprietors alone, since they alone received a surplus of
wealth (the famous _net produit_) above their sustenance and expenses of
production. This position, of course, did not recognize the old mercantile
theory that foreign commerce enriched a nation solely by increasing the
quantity of money. To a physiocrat the wealth of a community was increased
not by money, but by an abundant produce from its own soil. In fact,
Quesnay argued that the right of property included the right to dispose of
it freely at home or abroad, unrestricted by the state. This doctrine was
formulated in the familiar expression, “_Laissez faire, laissez
passer_.”(19) Condorcet and Condillac favored the new ideas. The
“Economists” became the fashion in France; and even included in their
number Joseph II of Austria, the Kings of Spain, Poland, Sweden, Naples,
Catharine of Russia, and the Margrave of Baden.(20) Agriculture,
therefore, received a great stimulus.
Quesnay had many vigorous supporters, of whom the most conspicuous was the
Marquis de Mirabeau(21) (father of him of the Revolution), and the
culmination of their popularity was reached about 1764. A feeling that the
true increase of wealth was not in a mere increase of money, but in the
products of the soil, led them naturally into a reaction against
mercantilism, but also made them dogmatic and overbearing in their
one-sided system, which did not recognize that labor in all industries
created wealth. As the mercantile system found a great minister in Colbert
to carry those opinions into effect on a national scale, so the
Physiocrats found in Turgot(22) a minister, under Louis XVI, who gave them
a national field in which to try the doctrines of the new school.
Benevolently devoted to bettering the condition of the people while
Intendant of Limoges (1751), he was made comptroller-general of the
finances by Louis XVI in 1774. Turgot had the ability to separate
political economy from politics, law, and ethics. His system of freeing
industry from governmental interference resulted in abolishing many
abuses, securing a freer movement of grain, and in lightening the
taxation. But the rigidity of national prejudices was too strong to allow
him success. He had little tact, and raised many difficulties in his way.
The proposal to abolish the _corvées_ (compulsory repair of roads by the
peasants), and substitute a tax on land, brought his king into a costly
struggle (1776), and attempts to undermine Turgot’s power were successful.
With his downfall ended the influence of the Economists. The last of them
was Dupont de Nemours,(23) who saw a temporary popularity of the
Physiocrats in the early years of the French Revolution, when the
Constituent Assembly threw the burden of taxes on land. But the fire
blazed up fitfully for a moment, only to die away entirely.
All this, however, was the slow preparation for a newer and greater
movement in political economy than had yet been known, and which laid the
foundation of the modern study as it exists to-day. The previous
discussions on money and the prominence given to agriculture and economic
considerations by the Economists made possible the great achievements of
Adam Smith and the English school. A reaction in England against the
mercantile system produced a complete revolution in political economy.
Vigorous protests against mercantilism had appeared long before,(24) and
the true functions of money had come to be rightly understood.(25) More
than that, many of the most important doctrines had been either discussed,
or been given to the public in print. It is at least certain that hints of
much that made so astonishing an effect in Adam Smith’s “Wealth of
Nations” (1776) had been given to the world before the latter was written.
To what sources, among the minor writers, he was most indebted, it is hard
to say. Two, at least, deserve considerable attention, David Hume and
Richard Cantillon. The former published his “Economic Essays” in 1752,
which contained what even now would be considered enlightened views on
money, interest, balance of trade, commerce, and taxation; and a personal
friendship existed between Hume and Adam Smith dating back as far as 1748,
when the latter was lecturing in Edinburgh on rhetoric. The extent of
Cantillon’s acquirements and Adam Smith’s possible indebtedness to him
have been but lately recognized. In a recent study(26) on Cantillon, the
late Professor Jevons has pointed out that the former anticipated many of
the doctrines later ascribed to Adam Smith, Malthus, and Ricardo. Certain
it is that the author of the “Wealth of Nations” took the truth wherever
he found it, received substantial suggestions from various sources, but,
after having devoted himself in a peculiarly successful way to collecting
facts, he wrought out of all he had gathered the first rounded system of
political economy the world had yet known; which pointed out that labor
was at the basis of production, not merely in agriculture, as the French
school would have it, but in all industries; and which battered down all
the defenses of the mediæval mercantile system. In a marked degree Adam
Smith(27) combined a logical precision and a power of generalizing results
out of confused data with a practical and intuitive regard for facts which
are absolutely necessary for great achievements in the science of
political economy. At Glasgow (1751-1764) Adam Smith gave lectures on
natural theology, ethical philosophy, jurisprudence, and political
economy, believing that these subjects were complementary to each other.
A connected and comprehensive grasp of principles was the great
achievement of Adam Smith;(28) for, although the “Wealth of Nations” was
naturally not without faults, it has been the basis of all subsequent
discussion and advance in political economy. In Books I and II his own
system is elucidated, while Book IV contains his discussion of the
Agricultural School and the attacks on the mercantile system. Seeing
distinctly that labor was the basis of all production (not merely in
agriculture), he shows (Books I and II) that the wealth of a country
depends on the skill with which its labor is applied, and upon the
proportion of productive to unproductive laborers. The gains from division
of labor are explained, and money appears as a necessary instrument after
society has reached such a division. He is then led to discuss prices
(market price) and value; and, since from the price a distribution takes
place among the factors of production, he is brought to wages, profit, and
rent. The functions of capital are explained in general; the separation of
fixed from circulating capital is made; and he discusses the influence of
capital on the distribution of productive and unproductive labor; the
accumulation of capital, money, paper money, and interest. He, therefore,
gets a connected set of ideas on production, distribution, and exchange.
On questions of production not much advance has been made since his day;
and his rules of taxation are now classic. He attacked vigorously the
balance-of-trade theory, and the unnatural diversion of industry in
England by prohibitions, bounties, and the arbitrary colonial system. In
brief, he held that a plan for the regulation of industry by the
Government was indefensible, and that to direct private persons how to
employ their capital was either hurtful or useless. He taught that a
country will be more prosperous if its neighbors are prosperous, and that
nations have no interest in injuring each other. It was, however, but
human that his work should have been somewhat defective.(29) A new period
in the history of political economy, however, begins with Adam Smith. As
Roscher says, he stands in the center of economic history.
New writers now appear who add gradually stone after stone to the good
foundation already laid, and raise the edifice to fairer proportions. The
first considerable addition comes from a contribution by a country
clergyman, Thomas Robert Malthus,(30) in his “Essay on the Principles of
Population” (1798). Against the view of Pitt that “the man who had a large
family was a benefactor to his country,” Malthus argued conclusively that
“a perfectly happy and virtuous community, by physical law, is constrained
to increase very rapidly.... By nature human food increases in a slow
arithmetical ratio; man himself increases in a quick geometrical ratio,
unless want and vice stop him.” In his second edition (1803), besides the
positive check of vice and want, he gave more importance to the negative
check of “self-restraint, moral and prudential.” The whole theory was
crudely stated at first; and it raised the cry that such a doctrine was
inconsistent with the belief in a benevolent Creator. In its essence, the
law of population is simply that a tendency and ability exist in mankind
to increase its numbers faster than subsistence, and that this result
actually will happen unless checks retard it, or new means of getting
subsistence arise. If an undue increase of population led to vice and
misery, in Malthus’s theory, he certainly is not to be charged with
unchristian feelings if he urged a self-restraint by which that evil
result should be avoided. Malthus’s doctrines excited great discussion:
Godwin says that by 1820 thirty or forty answers to the essay had been
written; and they have continued to appear. The chief contributions have
been by A. H. Everett, “New Ideas on Population” (1823), who believed that
an increase of numbers increased productive power; by M. T. Sadler, “Law
of Population” (1830), who taught that human fertility varied inversely
with numbers, falling off with density of population; by Sir Archibald
Alison, “Principles of Population” (1840), who reasoned inductively that
the material improvement of the human race is a proof that man can produce
more than he consumes, or that in the progress of society preventive
checks necessarily arise; by W. R. Greg, “Enigmas of Life” (1873); and by
Herbert Spencer, “Westminster Review” (April, 1852), and “Principles of
Biology,” (part vi, ch. xii and xiii), who worked out a physiological
check, in that with a mental development out of lower stages there comes
an increased demand upon the nervous energy which causes a diminution of
fertility. Since Darwin’s studies it has been very generally admitted that
it is the innate _tendency_ of all organic life to increase until numbers
press upon the limit of food-production; not that population has always
done so in every country.(31) Malthus’s teachings resulted in the modern
poor-house system, beginning with 1834 in England, and they corrected some
of the abuses of indiscriminate charity.
While Adam Smith had formulated very correctly the laws of production, in
his way Malthus was adding to the means by which a better knowledge of the
principles of distribution was to be obtained; and the next advance, owing
to the sharp discussions of the time on the corn laws, was, by a natural
progress, to the law of diminishing returns and rent. An independent
discovery of the law of rent is to be assigned to no less than four
persons,(32) but for the full perception of its truth and its connection
with other principles of political economy the credit has been rightly
given to David Ricardo,(33) next to Adam Smith without question the
greatest economist of the English school. Curiously enough, although Adam
Smith was immersed in abstract speculations, his “homely sagacity” led him
to the most practical results; but while Ricardo was an experienced and
successful man of business, he it was, above all others, who established
the abstract political economy, in the sense of a body of scientific laws
to which concrete phenomena, in spite of temporary inconsistencies, must
in the end conform. His work, therefore, supplemented that of Adam Smith;
and there are very few doctrines fully worked out to-day of which hints
have not been found in Ricardo’s wonderfully compact statements. With no
graces of exposition, his writings seem dry, but are notwithstanding mines
of valuable suggestions.
In the field of distribution and exchange Ricardo made great additions.
Malthus and West had shown that rent was not an element in cost of
production; but both Malthus and Ricardo seemed to have been familiar with
the doctrine of rent long before the former published his book. Ricardo,
however, saw into its connection with other parts of a system of
distribution.(34) The Malthusian doctrine of a pressure of population on
subsistence naturally forced a recognition of the law of diminishing
returns from land;(35) then as soon as different qualities of land were
simultaneously cultivated, the best necessarily gave larger returns than
the poorest; and the idea that the payment of rent was made for a superior
instrument, and in proportion to its superiority over the poorest
instrument which society found necessary to use, resulted in the law of
rent. Ricardo, moreover, carried out this principle as it affected wages,
profits, values, and the fall of profits; but did not give sufficient
importance to the operation of forces in the form of improvements acting
in opposition to the tendency toward lessened returns. The theory of rent
still holds its place, although it has met with no little opposition.(36)
A doctrine, quite as important in its effects on free exchange, was
clearly established by Ricardo, under the name of the doctrine of
“Comparative Cost,” which is the reason for the existence of any and all
international trade.
The work of Adam Smith was soon known to other countries, apart from
translations. A most lucid and attractive exposition was given to the
French by J. B. Say, “Traité d’économie politique” (1803), followed, after
lecturing in Paris from 1815-1830, by a more complete treatise,(37) “Cours
complète d’économie politique” (1828). While not contributing much that
was new, Say did a great service by popularizing previous results in a
happy and lively style, combined with good arrangement, and many
illustrations. The theory that general demand and supply are identical is
his most important contribution to the study. Although he translated
Ricardo’s book, he did not grasp the fact that rent did not enter into
price. Say’s work was later supplemented by an Italian, Pellegrino
Rossi,(38) who, in his “Cours d’économie politique” (1843-1851),
naturalized the doctrines of Malthus and Ricardo on French soil. His work
is of solid value, and he and Say have given rise to an active school of
political economy in France. In Switzerland, Sismondi expounded Adam
Smith’s results in his “De la richesse commerciale” (1803), but was soon
led into a new position, explained in his “Nouveaux principes d’économie
politique” (1819). This has made him the earliest and most distinguished
of the humanitarian economists. Seeing the sufferings caused by
readjustments of industries after the peace, and the warehouses filled
with unsold goods, he thought the excess of production over the power of
consumption was permanent, and attacked division of labor, labor-saving
machinery, and competition. Discoveries which would supersede labor he
feared would continue, and the abolition of patents, together with the
limitation of population,(39) was urged. These arguments furnished
excellent weapons to the socialistic agitators. Heinrich Storch(40) aimed
to spread the views of Adam Smith(41) in Russia, by his “Cours d’économie
politique” (1815). Without further developing the theory of political
economy, he produced a book of exceptional merit by pointing out the
application of the principles to Russia, particularly in regard to the
effect of a progress of wealth on agriculture and manufactures; to the
natural steps by which a new country changes from agriculture to a
manufacturing _régime_; and to finance and currency, with an account of
Russian depreciated paper since Catharine II.
For the next advance, we must again look to England. Passing by
McCulloch(42) and Senior, a gifted writer, the legitimate successor of
Ricardo is John Stuart Mill.(43) His father, James Mill,(44) introduced
him into a circle of able men, of which Bentham was the ablest, although
his father undoubtedly exercised the chief influence over his training.
While yet but twenty-three, in his first book, “Essays on some Unsettled
Questions of Political Economy” (1829-1830), he gained a high position as
an economist. In one form or another, all his additions to the study are
to be found here in a matured condition. The views on productive and
unproductive consumption, profits, economic methods, and especially his
very clever investigation on international values, were there presented.
His “Logic” (1843) contains (Book VI) a careful statement of the relation
of political economy to other sciences, and of the proper economic method
to be adopted in investigations. Through his “Principles of Political
Economy” (1848) he has exercised a remarkable influence upon men in all
lands; not so much because of great originality, since, in truth, he only
put Ricardo’s principles in better and more attractive form, but chiefly
by a method of systematic treatment more lucid and practical than had been
hitherto reached, by improving vastly beyond the dry treatises of his
predecessors (including Ricardo, who was concise and dull), by infusing a
human element into his aims, and by illustrations and practical
applications. Even yet, however, some parts of his book show the tendency
to too great a fondness for abstract statement, induced probably by a
dislike to slighting his reasons (due to his early training), and by the
limits of his book, which obliged him to omit many possible illustrations.
With a deep sympathy for the laboring-classes, he was tempted into the
field of sociology in this book, although he saw distinctly that political
economy was but one of the sciences, a knowledge of which was necessary to
a legislator in reaching a decision upon social questions. Mill shows an
advance beyond Ricardo in this treatise, by giving the study a more
practical direction. Although it is usual to credit Mill with originating
the laws of international values, yet they are but a development of
Ricardo’s doctrine of international trade, and Mill’s discussions of the
progress of society toward the stationary state were also hinted at,
although obscurely, by Ricardo. In the volumes of Mr. Mill the subject is
developed as symmetrically as a proof in geometry. While he held strongly
to free trade,(45) he gave little space to the subject in his book. All in
all, his book yet remains the best systematic treatise in the English
language, although much has been done since his day.(46)
He who has improved upon previous conceptions, and been the only one to
make any very important advance in the science since Mill’s day, is J. E.
Cairnes,(47) in his “Leading Principles of Political Economy newly
expounded” (1874). Scarcely any previous writer has equaled him in logical
clearness, originality, insight into economic phenomena, and lucidity of
style. He subjected value, supply and demand, cost of production, and
international trade, to a rigid investigation, which has given us actual
additions to our knowledge of the study. The wages-fund theory was
re-examined, and was stated in a new form, although Mr. Mill had given it
up. Cairnes undoubtedly has given it its best statement. His argument on
free trade (Part III, chapter iv) is the ablest and strongest to be found
in modern writers. This volume is, however, not a systematic treatise on
all the principles of political economy; but no student can properly pass
by these great additions for the right understanding of the science. His
“Logical Method of Political Economy” (1875) is a clear and able statement
of the process to be adopted in an economic investigation, and is a book
of exceptional merit and usefulness, especially in view of the rising
differences in the minds of economists as to method.
A group of English writers of ability in this period have written in such
a way as to win for them mention in connection with Cairnes and Mill.
Professor W. Stanley Jevons(48) put himself in opposition to the methods
of the men just mentioned, and applied the mathematical process to
political economy, but without reaching new results. His most serviceable
work has been in the study of money, which appears in an excellent form,
“The Money and Mechanism of Exchange” (1875), and in an investigation
which showed a fall of the value of gold since the discoveries of 1849. In
this latter he has furnished a model for any subsequent investigator. Like
Professor Jevons, T. E. Cliffe Leslie(49) opposed the older English school
(the so-called “orthodox”), but in the different way of urging with great
ability the use of the historical method, of which more will be said in
speaking of later German writers.(50) He also distinguished himself by a
study of land tenures, in his “Land Systems and Industrial Economy of
Ireland, England, and Continental Countries” (1870), which was a brilliant
exposition of the advantages of small holdings.
By far the ablest of the group, both by reason of his natural gifts and
his training as a banker and financial editor, was Walter Bagehot.(51) In
his “Economic Studies” (1880) he has discussed with a remarkable economic
insight the postulates of political economy, and the position of Adam
Smith, Ricardo, and Malthus; in his “Lombard Street” (fourth edition,
1873), the money market is pictured with a vivid distinctness which
implies the possession of rare qualities for financial writing; indeed, it
is in this practical way also, as editor of the London “Economist,”(52)
that he made his great reputation.
Of living English economists, Professor Henry Fawcett,(53) in his “Manual
of Political Economy” (1865; sixth edition, 1883), is a close follower of
Mill, giving special care to co-operation, silver, nationalization of
land, and trades-unions. He is an exponent of the strict wages-fund
theory, and a vigorous free-trader. Professor J. E. Thorold Rogers, of
Oxford, also holds aloof from the methods of the old school. His greatest
contribution has been a “History of Agriculture and Prices in England,”
from 1255 to 1793, in four volumes(54) (1866-1882).
Of all the writers(55) since Cairnes, it may be said that, while adding to
the data with which political economy has to do, and putting principles to
the test of facts, they have made no actual addition to the existing body
of principles; although questions of distribution and taxation are
certainly not yet fully settled, as is seen by the wide differences of
opinion expressed on subjects falling within these heads by writers of
to-day.
It now remains to complete this sketch of the growth of political economy
by a brief account of the writers on the Continent and in the United
States, beginning with France. About the time of the founding of the
London “Economist” (1844) and “The Statistical Journal” (1839) in England,
there was established in Paris the “Journal des Économistes” (1842), which
contains many valuable papers. On the whole, the most popular writer since
J. B. Say has been Bastiat,(56) who aspired to be the French Cobden. He
especially urged a new(57) view of value, which he defined as the relation
established by an exchange of services; that nature’s products are
gratuitous, so that man can not exact anything except for a given service.
Chiefly as a foe of protection, which he regarded as qualified socialism,
he has won a reputation for popular and clever writing; and he was led to
believe in a general harmony of interests between industrial classes; but
in general he can not be said to have much influenced the course of French
thought. On value, rent, and population, he is undoubtedly unsound. A
writer of far greater depth than Bastiat, with uncommon industry and wide
knowledge, was Michel Chevalier,(58) easily the first among modern French
economists. He has led in the discussion upon the fall of gold,
protection, banking, and particularly upon money; an ardent free-trader,
he had influence enough to induce France to enter into the commercial
treaty of 1860 with England. One of the ablest writers on special topics
is Levasseur,(59) who has given us a history of the working-classes before
and since the Revolution, and the best existing monograph on John Law. The
most industrious and reliable of the recent writers is the well-known
statistician, Maurice Block,(60) while less profound economists were J. A.
Blanqui(61) and Wolowski.(62) The latter devoted himself enthusiastically
to banks of issue, and bimetallism. A small group gave themselves up
chiefly to studies on agriculture and land-tenures—H. Passy,(63) Laveleye,
and Lavergne.(64) The latter is by far the most important, as shown by his
“L’économie rurale de la France depuis 1789” (1857), which gives a means
of comparing recent French agriculture with that before the Revolution, as
described in Arthur Young’s “Travels in France” (1789). The best
systematic treatise in French is the “Précis de la science économique”
(1862), by Antoine-Élise Cherbuliez,(65) a Genevan. The French were the
first to produce an alphabetical encyclopædia of economics, by Coquelin
and Guillaumin, entitled the “Dictionnaire de l’économie politique”
(1851-1853, third edition, 1864). Courcelle-Seneuil,(66) by his “Traité
théorique et pratique d’économie politique” (second edition, 1867); and
Baudrillart, by a good compendium. Joseph Garnier, Dunoyer,(67) Paul
Leroy-Beaulieu,(68) Reybaud,(69) De Parieu,(70) Léon Say,(71) Boiteau, and
others, have done excellent work in France, and Walras(72) in Switzerland.
As Cobden had an influence on Bastiat, so both had an influence in Germany
in creating what has been styled by opponents the “Manchester school,” led
by Prince-Smith (died 1874). They have worked to secure complete liberty
of commerce and industry, and include in their numbers many men of ability
and learning. Yearly congresses have been organized for the purpose of
disseminating liberal ideas, and an excellent review, the
“Vierteljahrschrift für Volkswirthschaft, Politik, und
Kulturgeschichte,”(73) has been established. They have devoted themselves
successfully to reforms of labor-laws, interest, workingmen’s dwellings,
the money system, and banking, and strive for the abolition of protective
duties. Schulze-Delitzsch has acquired a deserved reputation for the
creation of people’s banks, and other forms of co-operation. The
translator of Mill into German, Adolph Soetbeer,(74) is the most eminent
living authority on the production of the precious metals, and a vigorous
monometallist. The school is represented in the “Handwörterbuch der
Volkswirthschaftslehre” (1865) of Reutzsch. The other writers of this
group are Von Böhmert,(75) Faucher, Braun, Wolff, Michaelis,
Emminghaus,(76) Wirth,(77) Hertzka, and Von Holtzendorf. The best known of
the German protectionists is Friedrich List, the author of “Das nationale
System der politischen Oekonomie” (1841), whose doctrines are very similar
to those of H. C. Carey in this country.(78) An able writer on
administrative functions and finance(79) is Lorenz Stein, of Vienna.
But German economists are of interest, inasmuch as they have established a
new school who urge the use of the historical method in political economy,
and it is about the question of method that much of the interest of to-day
centers. In 1814 Savigny introduced this method into jurisprudence, and
about 1850 it was applied to political economy. The new school claim that
the English “orthodox” writers begin by an _a priori_ process, and by
deductions reach conclusions which are possibly true of imaginary cases,
but are not true of man as he really acts. They therefore assert that
economic laws can only be truly discovered by induction, or a study of
phenomena first, as the means of reaching a generalization. To them
Bagehot(80) answers that scientific bookkeeping, or collections of facts,
in themselves give no results ending in scientific laws; for instance,
since the facts of banking change and vary every day, no one can by
induction alone reach any laws of banking; or, for example, the study of a
panic from the concrete phenomena would be like trying to explain the
bursting of a boiler without a theory of steam. More lately,(81) since it
seems that the new school claim that induction does not preclude
deduction, and as the old school never intended to disconnect themselves
from “comparing conclusions with external facts,” there is not such a
cause of difference as has previously appeared. Doubtless the insistence
upon the merits of induction will be fruitful of good to “orthodox”
writers, in the more general resort to the collection of statistics and
means of verification. It is suggestive also that the leaders of the new
school in Germany and England have reached no different results by their
new method, and in the main agree with the laws evolved by the old English
school. The economist does not pretend that his assumptions are
descriptions of economic conditions existing at a given time; he simply
considers them as forces (often acting many on one point or occasion) to
be inquired into separately, inasmuch as concrete phenomena are the
resultants of several forces, not to be known until we know the separate
operation of each of the conjoined forces.
The most prominent of the new school is Wilhelm Roscher,(82) of Leipsic,
who wrote a systematic treatise, “System der Volkswirthschaft” (1854,
sixteenth edition, 1883), in the first division of which the notes contain
a marvelous collection of facts and authorities. He agrees in results with
Adam Smith, Ricardo, Malthus, and Mill, but does not seem to have known
much of Cairnes. This book, however, is only a first of four treatises
eventually intended to include the political economy of (2) agriculture,
(3) industry and commerce, and (4) the state and commune. The ablest
contemporary of Roscher, who was probably the first to urge the historical
method, is Karl Knies,(83) in “Die politische Oekonomie vom Standpunkte
der geschichtlichen Methode” (1853, second edition, 1881-1883). The third
of the group who founded the historical school is Bruno Hildebrand,(84) of
Jena, author of “Die Nationalökonomie der Gegenwart und Zukunft” (1848).
The German mind has always been familiar with the interference of the
state, and a class of writers has arisen, not only advocating the
inductive method, but strongly imbued with a belief in a close connection
of the state with industry; and, inasmuch as the essence of modern
socialism is a resort to state-help, this body of men, with Wagner at
their head, has received the name of “Socialists(85) of the Chair,” and
now wield a wide influence in Germany. Of these writers,(86) Wagner,
Engel, Schmoller, Von Scheel, Brentano, Held, Schönberg, and Schäffle are
the most prominent.
The historical school has received the adhesion of Émile de Laveleye,(87)
in Belgium, and other economists in England and the United States. While
Cliffe Leslie has been the most vigorous opponent of the methods of the
old school, there have been many others of less distinction. Indeed, the
period, the close of which is marked by J. R. McCulloch’s book, was one in
which the old school had seemingly come to an end of its progress, from
too close an adhesion to deductions from assumed premises. Mill’s great
merit was that he began the movement to better adapt political economy to
society as it actually existed; and the historical school will probably
give a most desirable impetus to the same results, even though its
exaggerated claims as to the true method(88) can not possibly be admitted.
Italian writers have not received hitherto the attention they deserve.
After 1830, besides Rossi, who went to France, there was Romagnosi, who
dealt more with the relations of economics to other studies; Cattanes, who
turned to rural questions and free trade (combating the German, List);
Scialoja, at the University of Turin; and Francesco Ferrara, also at Turin
from 1849 to 1858. The latter was a follower of Bastiat and Carey, as
regards value and rent, and at the same time was a radical believer in
_laissez-faire_. Since the union of Italy there has been a new interest in
economic study, as with us after our war. The most eminent living Italian
economist is said to be Angelo Messedaglia, holding a chair at Padua since
1858. He has excelled in statistical and financial subjects, and is now
engaged on a treatise on money, “Moneta,” of which one part has been
issued (1882). Marco Minghetti and Fedele Lampertico stand above others,
the former for a study of the connection of political economy with morals,
and for his public career as a statesman; the latter for his studies on
paper money and other subjects. Carlo Ferrais presented a good monograph
on “Money and the Forced Currency” (1879); and Boccardo issued a library
of selected works of the best economists, and a large Dictionary of
Political Economy, “Dizionario universale di Economia Politica e di
Commercio” (2 vols., second edition, 1875). Luigi Luzzati is a vigorous
advocate of co-operation; and Elia Lattes has made a serious study of the
early Venetian banks.
Political economy has gained little from American writers. Of our
statesmen none have made any additions to the science, and only Hamilton
and Gallatin can properly be called economists. Hamilton, in his famous
“Report on Manufactures” (1791), shared in some of the erroneous
conceptions of his day; but this paper, together with his reports on a
national bank and the public credit, are evidences of a real economic
power. Gallatin’s “Memorial in Favor of Tariff Reform” (1832) is as able
as Hamilton’s report on manufactures, and a strong argument against
protection. Both men made a reputation as practical financiers.
“With few exceptions, the works produced in the United States have been
prepared as text-books(89) by authors engaged in college instruction, and
therefore chiefly interested in bringing principles previously worked out
by others within the easy comprehension of undergraduate students.”(90) Of
these exceptions, Alexander H. Everett’s “New Ideas on Population”(91)
(1822), forms a valuable part in the discussion which followed the
appearance of Malthus’s “Essay.” The writer, however, who has drawn most
attention, at home and abroad, for a vigorous attack on the doctrines of
Ricardo is Henry Charles Carey.(92) Beginning with “The Rate of Wages”
(1835), he developed a new theory of value (see “Principles of Political
Economy,” 1837-1840), “which he defined as a measure of the resistance to
be overcome in obtaining things required for use, or the measure of the
power of nature over man. In simpler terms, value is measured by the cost
of reproduction. The value of every article thus declines as the arts
advance, while the general command of commodities constantly increases.
This causes a constant fall in the value of accumulated capital as
compared with the results of present labor, from which is inferred a
tendency toward harmony rather than divergence of interests between
capitalist and laborer.” This theory of value(93) he applied to land, and
even to man, in his desire to give it universality. He next claimed to
have discovered a law of increasing production from land in his “Past,
Present, and Future” (1848), which was diametrically opposed to Ricardo’s
law of diminishing returns. His proof was an historical one, that in fact
the poorer, not the richer lands, were first taken into cultivation. This,
however, did not explain the fact that different grades of land are
simultaneously under cultivation, on which Ricardo’s doctrine of rent is
based. The constantly increasing production of land naturally led Carey to
believe in the indefinite increase of population. He, however, was
logically brought to accept the supposed law of an ultimate limit to
numbers suggested by Herbert Spencer, based on a diminution of human
fertility. He tried to identify physical and social laws, and fused his
political economy in a system of “Social Science” (1853), and his “Unity
of Law” (1872). From about 1845 he became a protectionist, and his
writings were vigorously controversial. In his doctrines on money he is
distinctly a mercantilist;(94) but, by his earnest attacks on all that has
been gained in the science up to his day, he has done a great service in
stimulating inquiry and causing a better statement of results. While
undoubtedly the best known of American writers, yet, because of a prolix
style and an illogical habit of mind, he has had no extended influence on
his countrymen.(95)
The effect of the civil war is now beginning to show itself in an
unmistakable drift toward the investigation of economic questions, and
there is a distinctly energetic tone which may bring new contributions
from American writers. General Francis A. Walker,(96) in his study on “The
Wages Question” (1876), has combated the wages-fund theory, and proposed
in its place a doctrine that wages are paid out of the product, and not
out of accumulated capital. Professor W. G. Sumner(97) is a vigorous
writer in the school of Mill and Cairnes, and has done good work in the
cause of sound money doctrines. Both General Walker and Professor Sumner
hold to the method of economic investigation as expounded by Mr. Cairnes;
although several younger economists show the influence of the German
school. Professor A. L. Perry,(98) of Williams College, adopted Bastiat’s
theory of value. He also accepts the wages-fund theory, rejects the law of
Malthus, and, although believing in the law of diminishing returns from
land, regards rent as the reward for a service rendered. Another writer,
Henry George,(99) has gained an abnormal prominence by a plausible book,
“Progress and Poverty” (1880), which rejects the doctrine of Malthus, and
argues that the increase of production of any kind augments the demand for
land, and so raises its value. His conclusions lead him to advocate the
nationalization of land. Although in opposition to almost all that
political economy has yet produced, his writing has drawn to him very
unusual notice. The increasing interest in social questions, and the
general lack of economic training, which prevents a right estimate of his
reasoning by people in general, sufficiently account for the wide
attention he has received.
Of late, however, new activity has been shown in the establishment of
better facilities for the study of political economy in the principal
seats of learning—Harvard, Yale, Cornell, Columbia, Michigan, and
Pennsylvania: and a “Cyclopædia of Political Science” (1881-1884, three
volumes) has been published by J. J. Lalor, after the example of the
French dictionaries.
Books For Consultation (From English, French, And German Authors).
GENERAL TREATISES FORMING A PARALLEL COURSE OF READING WITH MILL.
Professor Fawcett’s “Manual of Political Economy” (London, sixth edition,
1883) is a brief statement of Mill’s book, with additional matter on the
precious metals, slavery, trades-unions, co-operation, local taxation,
etc.
Antoine-Élise Cherbuliez’s “Précis de la science économique” (Paris, 1862,
2 vols.) follows the same arrangement as Mill, and is considered the best
treatise on economic science in the French language. He is methodical,
profound, and clear, and separates pure from applied political economy.
Other excellent books in French are: Courcelle-Seneuil’s “Traité théorique
et pratique d’économie politique” (1858), (Paris, second edition, 1867, 2
vols.), and a compendium by Henri Baudrillart, “Manuel d’économie
politique” (third edition, 1872).
Roscher’s “Principles of Political Economy” is a good example of the
German historical method; its notes are crowded with facts; but the
English translation (New York, 1878) is badly done. There is an excellent
translation of it into French by Wolowski.
A desirable elementary work, “The Economics of Industry” (London, 1879),
was prepared by Mr. and Mrs. Marshall.
Professor Jevons wrote a “Primer of Political Economy” (1878), which is a
simple, bird’s-eye view of the subject in a very narrow compass.
IMPORTANT GENERAL WORKS.
Adam Smith’s “Wealth of Nations” (1776). The edition of McCulloch is
perhaps more serviceable than that of J. E. T. Rogers.
Ricardo’s “Principles of Political Economy and Taxation” (1817).
J. S. Mill’s “Principles of Political Economy” (2 vols., 1848—sixth
edition, 1865).
Schönberg’s “Handbuch der politischen Oekonomie” (1882). This is a large
co-operative treatise by twenty-one writers from the historical school.
Cairnes’s “Leading Principles of Political Economy” (1874); “Logical
Method” (1875), lectures first delivered in Dublin in 1857.
Carey’s “Social Science” (1877). This has been abridged in one volume by
Kate McKean.
F. A. Walker’s “Political Economy” (1883). This author differs from other
economists, particularly on wages and questions of distribution.
H. George’s “Progress and Poverty” (1879). In connection with this, read
F. A. Walker’s “Land and Rent” (1884).
TREATISES ON SPECIAL SUBJECTS.
W. T. Thornton’s “On Labor” (1869).
McLeod’s “Theory and Practice of Banking” (second edition, 1875-1876).
M. Block’s “Traité théorique et pratique de statistique” (1878).
Goschen’s “Theory of Foreign Exchanges” (eighth edition, 1875).
J. Caird’s “Landed Interest” (fourth edition, 1880), treating of English
land and the food-supply.
W. G. Sumner’s “History of American Currency” (1874).
John Jay Knox’s “United States Notes” (1884).
Jevons’s “Money and the Mechanism of Exchange” (1875).
Tooke and Newmarch’s “History of Prices” (1837-1856), in six volumes.
Leroy-Beaulieu’s “Traité de la science des finances” (1883). This is an
extended work, in two volumes, on taxation and finance; “Essai sur la
répartition des richesses” (second edition, 1883).
F. A. Walker’s “The Wages Question” (1876); “Money” (1878).
L. Reybaud’s “Études sur les réformateurs contemporains, ou socialistes
modernes” (seventh edition, 1864).
DICTIONARIES.
McCulloch’s “Commercial Dictionary” (new and enlarged edition, 1882).
Lalor’s “Cyclopædia of Political Science” (1881-84) is devoted to articles
on political science, political economy, and American history.
Coquelin and Guillaumin’s “Dictionnaire de l’économie politique”
(1851-1853, third edition, 1864), in two large volumes.
REPORTS AND STATISTICS.
The “Compendiums of the Census” for 1840, 1850, 1860, and 1870, are
desirable. The volumes of the tenth census (1880) are of great value for
all questions; as is also F. A. Walker’s “Statistical Atlas” (1874).
The United States Bureau of Statistics issues quarterly statements; and
annually a report on “Commerce and Navigation,” and another on the
“Internal Commerce of the United States.”
The “Statistical Abstract” is an annual publication, by the same
department, compact and useful. It dates only from 1878.
The Director of the Mint issues an annual report dealing with the precious
metals and the circulation. Its tables are important.
The Comptroller of the Currency (especially during the administration of
J. J. Knox) has given important annual reports upon the banking systems of
the United States.
The reports of the Secretary of the Treasury deal with the general
finances of the United States. These, with the two last mentioned, are
bound together in the volume of “Finance Reports,” but often shorn of
their tables.
There are valuable special reports to Congress of commissioners on the
tariff, shipping, and other subjects, published by the Government.
The report on the “International Monetary Conference of 1878” contains a
vast quantity of material on monetary questions.
The British parliamentary documents contain several annual “Statistical
Abstracts” of the greatest value, of which the one relating to other
European states is peculiarly convenient and useful. These can always be
purchased at given prices.
A. R. Spofford’s “American Almanac” is an annual of great usefulness.
Preliminary Remarks.
Writers on Political Economy profess to teach, or to investigate, the
nature of Wealth, and the laws of its production and distribution;
including, directly or remotely, the operation of all the causes by which
the condition of mankind, or of any society of human beings, in respect to
this universal object of human desire, is made prosperous or the reverse.
It will be noticed that political economy does not include ethics,
legislation, or the science of government. The results of
political economy are offered to the statesman, who reaches a
conclusion after weighing them in connection with moral and
political considerations. Political Economy is distinct from
Sociology; although it is common to include in the former
everything which concerns social life. Some writers distinguish
between the pure, or abstract science, and the applied art, and we
can speak of a science of political economy only in the sense of a
body of abstract laws or formulas. This, however, does not make
political economy less practical than physics, for, after a
principle is ascertained, its operation is to be observed in the
same way that we study the force of gravitation in a falling
stone, even when retarded by opposing forces. An economic force,
or tendency, can be likewise distinctly observed, although other
influences, working at the same time, prevent the expected effect
from following its cause. It is, in short, the aim of political
economy to investigate the laws which govern the phenomena of
material wealth. (Cf. Cossa, “Guide,” chap. iii.)
While the [Mercantile] system prevailed, it was assumed, either expressly
or tacitly, in the whole policy of nations, that wealth consisted solely
of money; or of the precious metals, which, when not already in the state
of money, are capable of being directly converted into it. According to
the doctrines then prevalent, whatever tended to heap up money or bullion
in a country added to its wealth.
More correctly the Mercantilists (in the sixteenth and seventeenth
centuries) held that where money was most plentiful, there would
be found the greatest abundance of the necessaries of life.(100)
Whatever sent the precious metals out of a country impoverished it. If a
country possessed no gold or silver mines, the only industry by which it
could be enriched was foreign trade, being the only one which could bring
in money. Any branch of trade which was supposed to send out more money
than it brought in, however ample and valuable might be the returns in
another shape, was looked upon as a losing trade. Exportation of goods was
favored and encouraged (even by means extremely onerous to the real
resources of the country), because, the exported goods being stipulated to
be paid for in money, it was hoped that the returns would actually be made
in gold and silver. Importation of anything, other than the precious
metals, was regarded as a loss to the nation of the whole price of the
things imported; unless they were brought in to be re-exported at a
profit, or unless, being the materials or instruments of some industry
practiced in the country itself, they gave the power of producing
exportable articles at smaller cost, and thereby effecting a larger
exportation. The commerce of the world was looked upon as a struggle among
nations, which could draw to itself the largest share of the gold and
silver in existence; and in this competition no nation could gain
anything, except by making others lose as much, or, at the least,
preventing them from gaining it.
The Mercantile Theory could not fail to be seen in its true character when
men began, even in an imperfect manner, to explore into the foundations of
things. Money, as money, satisfies no want; its worth to any one consists
in its being a convenient shape in which to receive his incomings of all
sorts, which incomings he afterwards, at the times which suit him best,
converts into the forms in which they can be useful to him. The difference
between a country with money, and a country altogether without it, would
be only one of convenience; a saving of time and trouble, like grinding by
water instead of by hand, or (to use Adam Smith’s illustration) like the
benefit derived from roads; and to mistake money for wealth is the same
sort of error as to mistake the highway, which may be the easiest way of
getting to your house or lands, for the house and lands themselves.
Money, being the instrument of an important public and private purpose, is
rightly regarded as wealth; but everything else which serves any human
purpose, and which nature does not afford gratuitously, is wealth also. To
be wealthy is to have a large stock of useful articles, or the means of
purchasing them. Everything forms, therefore, a part of wealth, which has
a power of purchasing; for which anything useful or agreeable would be
given in exchange. Things for which nothing could be obtained in exchange,
however useful or necessary they may be, are not wealth in the sense in
which the term is used in Political Economy. Air, for example, though the
most absolute of necessaries, bears no price in the market, because it can
be obtained gratuitously; to accumulate a stock of it would yield no
profit or advantage to any one; and the laws of its production and
distribution are the subject of a very different study from Political
Economy. It is possible to imagine circumstances in which air would be a
part of wealth. If it became customary to sojourn long in places where the
air does not naturally penetrate, as in diving-bells sunk in the sea, a
supply of air artificially furnished would, like water conveyed into
houses, bear a price: and, if from any revolution in nature the atmosphere
became too scanty for the consumption, or could be monopolized, air might
acquire a very high marketable value. In such a case, the possession of
it, beyond his own wants, would be, to its owner, wealth; and the general
wealth of mankind might at first sight appear to be increased, by what
would be so great a calamity to them. The error would lie in not
considering that, however rich the possessor of air might become at the
expense of the rest of the community, all persons else would be poorer by
all that they were compelled to pay for what they had before obtained
without payment.
Wealth, then, may be defined, all useful or agreeable things which possess
exchangeable value; or, in other words, all useful or agreeable things
except those which can be obtained, in the quantity desired, without labor
or sacrifice.
This is the usual definition of wealth. Henry George (see
“Progress and Poverty,” pp. 34-37) regards wealth as consisting
“of natural products that have been secured, moved, combined,
separated, or in other ways _modified by human exertion_, so as to
fit them for the gratification of human desires.... Nothing which
Nature supplies to man without his labor is wealth.... All things
which have an exchange value are, therefore, not wealth. Only such
things can be wealth the production of which increases and the
destruction of which decreases the aggregate of wealth....
Increase in land values does not represent increase in the common
wealth, for what land-owners gain by higher prices the tenants or
purchasers who must pay them will lose.” Jevons (“Primer,” p. 13)
defines wealth very properly as what is transferable, limited in
supply, and useful. F. A. Walker defines wealth as comprising “all
articles of value and nothing else” (“Political Economy,” p. 5).
Levasseur’s definition (“Précis,” p. 15) is, “all material objects
possessing utility” (i.e., the power to satisfy a want). (Cf.
various definitions in Roscher’s “Political Economy,” section 9,
note 3.) Perry (“Political Economy,” p. 99) rejects the term
_wealth_ as a clog to progress in the science, and adopts
_property_ in its stead, defining it as that “which can be bought
or sold.” Cherbuliez (“Précis,” p. 70) defines wealth as the
material product of nature appropriated by labor for the wants of
man. Carey (“Social Science,” i, 186) asserts that wealth consists
in the power to command Nature’s services, including in wealth
such intangible things as mental qualities.
BOOK I. PRODUCTION.
Chapter I. Of The Requisites Of Production.
§ 1. The Requisites of Production are Two: Labor, and Appropriate Natural
Objects.
There is a third requisite of production, capital (see page 58).
Since the limitation to only two requisites applies solely to a
primitive condition of existence, so soon as the element of _time_
enters into production, then a store of capital becomes necessary;
that is, so soon as production requires such a term that during
the operation the laborer can not at the same time provide himself
with subsistence, then capital is a requisite of production. This
takes place also under any general division of labor in a
community. When one man is making a pin-head, he must be supplied
with food by some person until the pins are finished and
exchanged.
Labor is either bodily or mental; or, to express the distinction more
comprehensively, either muscular or nervous; and it is necessary to
include in the idea, not solely the exertion itself, but all feelings of a
disagreeable kind, all bodily inconvenience or mental annoyance, connected
with the employment of one’s thoughts, or muscles, or both, in a
particular occupation.
The word “sacrifice” conveys a just idea of what the laborer
undergoes, and it corresponds to the abstinence of the capitalist.
Of the other requisite—appropriate natural objects—it is to be remarked
that some objects exist or grow up spontaneously, of a kind suited to the
supply of human wants. There are caves and hollow trees capable of
affording shelter; fruits, roots, wild honey, and other natural products,
on which human life can be supported; but even here a considerable
quantity of labor is generally required, not for the purpose of creating,
but of finding and appropriating them.
Of natural powers, some are unlimited, others limited in quantity. By an
unlimited quantity is of course not meant literally, but practically
unlimited: a quantity beyond the use which can in any, or at least in
present circumstances, be made of it. Land is, in some newly settled
countries, practically unlimited in quantity: there is more than can be
used by the existing population of the country, or by any accession likely
to be made to it for generations to come. But, even there, land favorably
situated with regard to markets, or means of carriage, is generally
limited in quantity: there is not so much of it as persons would gladly
occupy and cultivate, or otherwise turn to use. In all old countries, land
capable of cultivation, land at least of any tolerable fertility, must be
ranked among agents limited in quantity. Coal, metallic ores, and other
useful substances found in the earth, are still more limited than land.
For the present I shall only remark that, so long as the quantity of a
natural agent is practically unlimited, it can not, unless susceptible of
artificial monopoly, bear any value in the market, since no one will give
anything for what can be obtained gratis. But as soon as a limitation
becomes practically operative—as soon as there is not so much of the thing
to be had as would be appropriated and used if it could be obtained for
asking—the ownership or use of the natural agent acquires an exchangeable
value.
Rich lands in our Western Territories a few years ago could be had
practically for the asking; but now, since railways and an
increase of population have brought them nearer to the markets,
they have acquired a distinct exchange value. The value of a
commodity (it may be anticipated) is the quantity of other things
for which it can be exchanged.
When more water-power is wanted in a particular district than there are
falls of water to supply it, persons will give an equivalent for the use
of a fall of water. When there is more land wanted for cultivation than a
place possesses, or than it possesses of a certain quality and certain
advantages of situation, land of that quality and situation may be sold
for a price, or let for an annual rent.
§ 2. The Second Requisite of Production, Labor.
It is now our purpose to describe the second requisite of
production, labor, and point out that it can be either direct or
indirect. This division and subdivision can be seen from the
classification given below. Under the head of indirect labor are
to be arranged all the many employments subsidiary to the
production of any one article, and which, as they furnish but a
small part of labor for the one article (e.g., bread), are
subsidiary to the production of a vast number of other articles;
and hence we see the interdependence of one employment on another,
which comes out so conspicuously at the time of a commercial
depression.
“We think it little to sit down to a table covered with articles
from all quarters of the globe and from the remotest isles of the
sea—with tea from China, coffee from Brazil, spices from the East,
and sugar from the West Indies; knives from Sheffield, made with
iron from Sweden and ivory from Africa; with silver from Mexico
and cotton from South Carolina; all being lighted with oil brought
from New Zealand or the Arctic Circle. Still less do we think of
the great number of persons whose united agency is required to
bring any one of these finished products to our homes—of the
merchants, insurers, sailors, ship-builders, cordage and sail
makers, astronomical-instrument makers, men of science, and
others, before a pound of tea can appear in our market.”(101)
The labor(102) which terminates in the production of an article fitted for
some human use is either employed directly about the thing, or in previous
operations destined to facilitate, perhaps essential to the possibility
of, the subsequent ones. In making bread, for example, the labor employed
about the thing itself is that of the baker; but the labor of the miller,
though employed directly in the production not of bread but of flour, is
equally part of the aggregate sum of labor by which the bread is produced;
as is also the labor of the sower, and of the reaper. Some may think that
all these persons ought to be considered as employing their labor directly
about the thing; the corn, the flour, and the bread being one substance in
three different states. Without disputing about this question of mere
language, there is still the plowman, who prepared the ground for the
seed, and whose labor never came in contact with the substance in any of
its states; and the plow-maker, whose share in the result was still more
remote. We must add yet another kind of labor; that of transporting the
produce from the place of its production to the place of its destined use:
the labor of carrying the corn to market, and from market to the miller’s,
the flour from the miller’s to the baker’s, and the bread from the baker’s
to the place of its final consumption.
Besides the two classes of indirect laborers here mentioned, those
engaged in producing materials and those in transportation, there
are several others who are paid fractions out of the bread.
Subsidiary to the direct labor of the bread-maker is the labor of
all those who make the instruments employed in the process (as,
e.g., the oven). Materials are completely changed in character by
one use, as when the coal is burned, or the flour baked into
bread; while an instrument, like an oven, is capable of remaining
intact throughout many operations. The producer of materials and
the transporter are paid by the bread-maker in the price of his
coal and flour when left at his door, so that the price of the
loaf is influenced by these payments. Those persons, moreover,
who, like the police and officers of our government, act to
protect property and life, are also to be classed as laborers
indirectly aiding in the production of the given article, bread
(and by his taxes the bread-maker helps pay the wages of these
officials). Shading off into a more distant, although essential,
connection is another class—that of those laborers who train human
beings in the branches of knowledge necessary to the attainment of
proper skill in managing the processes and instruments of an
industry. The acquisition of the rudiments of education, and, in
many cases, the most profound knowledge of chemistry, physics and
recondite studies, are essential to production; and teachers are
indirect laborers in producing almost every article in the market.
In this country, especially, are inventors a class of indirect
laborers essential to all ultimate production as it now goes on.
The improvements in the instruments of production are the results
of an inventive ability which has made American machinery known
all over the world. They, too, as well as the teacher, are paid (a
small fraction, of course) out of the ultimate result, by an
indirect path, and materially change the ease or difficulty,
cheapness or dearness, of production in nearly every branch of
industry. In the particular illustration given they have improved
the ovens, ranges, and stoves, so that the same or better articles
are produced at a less cost than formerly. All these indirect
laborers receive, in the way of remuneration, a fraction, some
more, some less (the farther they are removed from the direct
process), of the value of the final result.
§ 3. Of Capital as a Requisite of Production.
But another set of laborers are to be placed in distinct contrast
with these, so far as the grounds on which they receive their
remuneration is concerned. These are the men engaged previously in
providing the subsistence, and articles by which the former
classes of labor can carry on their operations.
The previous employment of labor is an indispensable condition to every
productive operation, on any other than the very smallest scale. Except
the labor of the hunter and fisher, there is scarcely any kind of labor to
which the returns are immediate. Productive operations require to be
continued a certain time before their fruits are obtained. Unless the
laborer, before commencing his work, possesses a store of food, or can
obtain access to the stores of some one else, in sufficient quantity to
maintain him until the production is completed, he can undertake no labor
but such as can be carried on at odd intervals, concurrently with the
pursuit of his subsistence.
The possession of capital is thus a third requisite of production,
together with land and labor, as noted above. Henry George
(“Progress and Poverty,” chap. iv) holds an opposite opinion: “The
subsistence of the laborers who built the Pyramids was drawn, not
from a previously hoarded stock” (does he not forget the story of
Joseph’s store of corn?), “but from the constantly recurring crops
of the Nile Valley.”
He can not obtain food itself in any abundance; for every mode of so
obtaining it requires that there be already food in store. Agriculture
only brings forth food after the lapse of months; and, though the labors
of the agriculturist are not necessarily continuous during the whole
period, they must occupy a considerable part of it. Not only is
agriculture impossible without food produced in advance, but there must be
a very great quantity in advance to enable any considerable community to
support itself wholly by agriculture. A country like England or the United
States is only able to carry on the agriculture of the present year
because that of past years has provided, in those countries or somewhere
else, sufficient food to support their agricultural population until the
next harvest. They are only enabled to produce so many other things
besides food, because the food which was in store at the close of the last
harvest suffices to maintain not only the agricultural laborers, but a
large industrious population besides.
The claim to remuneration founded on the possession of food, available for
the maintenance of laborers, is of another kind; remuneration for
abstinence, not for labor. If a person has a store of food, he has it in
his power to consume it himself in idleness, or in feeding others to
attend on him, or to fight for him, or to sing or dance for him. If,
instead of these things, he gives it to productive laborers to support
them during their work, he can, and naturally will, claim a remuneration
from the produce. He will not be content with simple repayment; if he
receives merely that, he is only in the same situation as at first, and
has derived no advantage from delaying to apply his savings to his own
benefit or pleasure. He will look for some equivalent for this
forbearance:(103) he will expect his advance of food to come back to him
with an increase, called, in the language of business, a profit; and the
hope of this profit will generally have been a part of the inducement
which made him accumulate a stock, by economizing in his own consumption;
or, at any rate, which made him forego the application of it, when
accumulated, to his personal ease or satisfaction.
Chapter II. Of Unproductive Labor.
§ 1. Definition of Productive and Unproductive Labor.
Labor is indispensable to production, but has not always production for
its effect. There is much labor, and of a high order of usefulness, of
which production is not the object. Labor has accordingly been
distinguished into Productive and Unproductive. Productive labor means
labor productive of wealth. We are recalled, therefore, to the question
touched upon in our [Preliminary Remarks], what Wealth is.
By Unproductive Labor, on the contrary, will be understood labor which
does not terminate in the creation of material wealth. And all labor,
according to our present definition, must be classed as unproductive,
which terminates in a permanent benefit, however important, provided that
an increase of material products forms no part of that benefit. The labor
of saving a friend’s life is not productive, unless the friend is a
productive laborer, and produces more than he consumes.
The principle on which the distinction is made is perfectly clear,
but in many cases persons may be misled chiefly in regard to
matters of fact. A clergyman may at first sight be classed as an
unproductive laborer; but, until we know the facts, we can not
apply the principle of our definition. Unless we know that no
clergyman, by inculcating rules of morality and self-control, ever
caused an idler or wrong-doer to become a steady laborer, we can
not say that a clergyman is a laborer unproductive of material
wealth. Likewise the army, or the officers of our government at
Washington, may or may not have aided in producing material wealth
according as they do or do not, in fact, accomplish the protective
purposes for which they exist. So with teachers. There is,
however, no disparagement implied in the word unproductive; it is
merely an economic question, and has to do only with forces
affecting the production of wealth.
Unproductive may be as useful as productive labor; it may be more useful,
even in point of permanent advantage; or its use may consist only in
pleasurable sensation, which when gone leaves no trace; or it may not
afford even this, but may be absolute waste. In any case, society or
mankind grow no richer by it, but poorer. All material products consumed
by any one while he produces nothing are so much subtracted, for the time,
from the material products which society would otherwise have possessed.
To be wasted, however, is a liability not confined to unproductive labor.
Productive labor may equally be waste, if more of it is expended than
really conduces to production. If defect of skill in laborers, or of
judgment in those who direct them, causes a misapplication of productive
industry, labor is wasted. Productive labor may render a nation poorer, if
the wealth it produces, that is, the increase it makes in the stock of
useful or agreeable things, be of a kind not immediately wanted: as when a
commodity is unsalable, because produced in a quantity beyond the present
demand; or when speculators build docks and warehouses before there is any
trade.
§ 2. Productive and Unproductive Consumption.
The distinction of Productive and Unproductive is applicable to
Consumption as well as to Labor. All the members of the community are not
laborers, but all are consumers, and consume either unproductively or
productively. Whoever contributes nothing directly or indirectly to
production is an unproductive consumer. The only productive consumers are
productive laborers; the labor of direction being of course included, as
well as that of execution. But the consumption even of productive laborers
is not all of it Productive Consumption. There is unproductive consumption
by productive consumers. What they consume in keeping up or improving
their health, strength, and capacities of work, or in rearing other
productive laborers to succeed them, is Productive Consumption. But
consumption on pleasures or luxuries, whether by the idle or by the
industrious, since production is neither its object nor is in any way
advanced by it, must be reckoned Unproductive: with a reservation,
perhaps, of a certain quantum of enjoyment which may be classed among
necessaries, since anything short of it would not be consistent with the
greatest efficiency of labor. That alone is productive consumption which
goes to maintain and increase the productive powers of the community;
either those residing in its soil, in its materials, in the number and
efficiency of its instruments of production, or in its people.
I grant that no labor really tends to the enrichment of society, which is
employed in producing things for the use of unproductive consumers. The
tailor who makes a coat for a man who produces nothing is a productive
laborer; but in a few weeks or months the coat is worn out, while the
wearer has not produced anything to replace it, and the community is then
no richer by the labor of the tailor than if the same sum had been paid
for a stall at the opera. Nevertheless, society has been richer by the
labor while the coat lasted. These things also [such as lace and
pine-apples] are wealth until they have been consumed.
§ 3. Distinction Between Labor for the Supply of Productive Consumption
and Labor for the Supply of Unproductive Consumption.
We see, however, by this, that there is a distinction more important to
the wealth of a community than even that between productive and
unproductive labor; the distinction, namely, between labor for the supply
of productive, and for the supply of unproductive, consumption; between
labor employed in keeping up or in adding to the productive resources of
the country, and that which is employed otherwise. Of the produce of the
country, a part only is destined to be consumed productively; the
remainder supplies the unproductive consumption of producers, and the
entire consumption of the unproductive class. Suppose that the proportion
of the annual produce applied to the first purpose amounts to half; then
one half the productive laborers of the country are all that are employed
in the operations on which the permanent wealth of the country depends.
The other half are occupied from year to year and from generation to
generation in producing things which are consumed and disappear without
return; and whatever this half consume is as completely lost, as to any
permanent effect on the national resources, as if it were consumed
unproductively. Suppose that this second half of the laboring population
ceased to work, and that the government maintained them in idleness for a
whole year: the first half would suffice to produce, as they had done
before, their own necessaries and the necessaries of the second half, and
to keep the stock of materials and implements undiminished: the
unproductive classes, indeed, would be either starved or obliged to
produce their own subsistence, and the whole community would be reduced
during a year to bare necessaries; but the sources of production would be
unimpaired, and the next year there would not necessarily be a smaller
produce than if no such interval of inactivity had occurred; while if the
case had been reversed, if the first half of the laborers had suspended
their accustomed occupations, and the second half had continued theirs,
the country at the end of the twelvemonth would have been entirely
impoverished. It would be a great error to regret the large proportion of
the annual produce, which in an opulent country goes to supply
unproductive consumption. That so great a surplus should be available for
such purposes, and that it should be applied to them, can only be a
subject of congratulation.
This principle may be seen by the following classification:
(A) Idlers; or unproductive laborers—e.g., actors.
(B) Productive laborers—e.g., farmers.
(C) Producing wealth for productive consumption, one half the annual
produce.
(D) Producing wealth for unproductive consumption (A), one half the
annual produce.
Group D are productive laborers, and their _own necessaries_ are
productively consumed, but they are supplied by C, who keep themselves and
D in existence. So long as C work, both C and D can go on producing. If D
stopped working, they could be still subsisted as before by C; but A would
be forced to produce for themselves. But, if C stopped working, D and C
would be left without the necessaries of life, and would be obliged to
cease their usual work. In this way it may be seen how much more important
to the increase of material wealth C are than D, who labor “for the supply
of unproductive consumption.” Of course, group D are desirable on other
than economic grounds, because their labor represents what can be enjoyed
beyond the necessities of life.
Chapter III. Of Capital.
§ 1. Capital is Wealth Appropriated to Reproductive Employment.
It has been seen in the preceding chapters that besides the primary and
universal requisites of production, labor and natural agents, there is
another requisite without which no productive operations beyond the rude
and scanty beginnings of primitive industry are possible—namely, a stock,
previously accumulated, of the products of former labor. This accumulated
stock of the produce of labor is termed Capital. What capital does for
production is, to afford the shelter, protection, tools, and materials
which the work requires, and to feed and otherwise maintain the laborers
during the process. These are the services which present labor requires
from past, and from the produce of past, labor. Whatever things are
destined for this use—destined to supply productive labor with these
various prerequisites—are Capital.
Professor Fawcett, “Manual” (chap. ii), says: “Since the laborer
must be fed by previously accumulated food, ... some of the
results of past labor are required to be set aside to sustain the
laborer while producing. The third requisite of production,
therefore, is a fund reserved from consumption, and devoted to
sustain those engaged in future production.... Capital is not
confined to the food which feeds the laborers, but includes
machinery, buildings, and, in fact, every product due to man’s
labor which can be applied to assist his industry” (chap. iv).
General Walker (“Political Economy,” pages 68-70) defines capital
as that portion of wealth (excluding unimproved land and natural
agents) which is employed in the production of new forms of
wealth. Henry George (“Progress and Poverty,” page 41) returns to
Adam Smith’s definition: “That part of a man’s stock which he
expects to yield him a revenue is called his capital.” Cherbuliez
(“Précis,” page 70) points out the increasing interdependence of
industrial operations as society increases in wealth, and that
there is not a single industry which does not demand the use of
products obtained by previous labor. “These auxiliary products
accumulated with a view to the production to which they are
subservient” form what is called capital. Carey (“Social Science,”
iii, page 48) regards as capital all things which in any way form
the machinery by which society obtains wealth. Roscher’s
definition is, “Every product laid by for purposes of further
production.” (“Political Economy,” section 42.) By some, labor is
regarded as capital.(104)
A manufacturer, for example, has one part of his capital in the form of
buildings, fitted and destined for carrying on this branch of manufacture.
Another part he has in the form of machinery. A third consists, if he be a
spinner, of raw cotton, flax, or wool; if a weaver, of flaxen, woolen,
silk, or cotton thread; and the like, according to the nature of the
manufacture. Food and clothing for his operatives it is not the custom of
the present age that he should directly provide; and few capitalists,
except the producers of food or clothing, have any portion worth
mentioning of their capital in that shape. Instead of this, each
capitalist has money, which he pays to his work-people, and so enables
them to supply themselves. What, then, is his capital? Precisely that part
of his possessions, whatever it be, which he designs to employ in carrying
on fresh production. It is of no consequence that a part, or even the
whole of it, is in a form in which it can not directly supply the wants of
laborers.
Care should be taken to distinguish between wealth, capital, and
money. Capital may be succinctly defined as _saved wealth devoted
to reproduction_, and the relations of the three terms mentioned
may be illustrated by the following figure: The area of the
circle, A, represents the wealth of a country; the area of the
inscribed circle, B, the quantity out of the whole wealth which is
saved and devoted to reproduction and called capital. But money is
only one part of capital, as shown by the area of circle C.
Wherefore, it can be plainly seen that not all capital, B, is
money; that not all wealth, A, is capital, although all capital is
necessarily wealth as included within it. It is not always
understood that money is merely a convenient article by which
other forms of wealth are exchanged against each other, and that a
man may have capital without ever having any actual money in his
possession. In times of commercial depression, that which is
capital to-day may not to-morrow satisfy any desires (i.e., not be
in demand), and so for the time it may, so to speak, drop entirely
out of our circles above. For the moment, not having an exchange
value, it can not be wealth, and so can the less be capital.
[Illustration. Outer circle A, enclosing inner circle B, with small circle
C overlapping edge of circle B.]
Suppose, for instance, that the capitalist is a hardware manufacturer, and
that his stock in trade, over and above his machinery, consists at present
wholly in iron goods. Iron goods can not feed laborers. Nevertheless, by a
mere change of the destination of the iron goods, he can cause laborers to
be fed. Suppose that [the capitalist changed into wages what he had before
spent] in buying plate and jewels; and, in order to render the effect
perceptible, let us suppose that the change takes place on a considerable
scale, and that a large sum is diverted from buying plate and jewels to
employing productive laborers, whom we shall suppose to have been
previously, like the Irish peasantry, only half employed and half fed. The
laborers, on receiving their increased wages, will not lay them out in
plate and jewels, but in food. There is not, however, additional food in
the country; nor any unproductive laborers or animals, as in the former
case, whose food is set free for productive purposes. Food will therefore
be imported if possible; if not possible, the laborers will remain for a
season on their short allowance: but the consequence of this change in the
demand for commodities, occasioned by the change in the expenditure of
capitalists from unproductive to productive, is that next year more food
will be produced, and less plate and jewelry. So that again, without
having had anything to do with the food of the laborers directly, the
conversion by individuals of a portion of their property, no matter of
what sort, from an unproductive destination to a productive, has had the
effect of causing more food to be appropriated to the consumption of
productive laborers. The distinction, then, between Capital and
Not-capital, does not lie in the kind of commodities, but in the mind of
the capitalist—in his will to employ them for one purpose rather than
another; and all property, however ill adapted in itself for the use of
laborers, is a part of capital, so soon as it, or the value to be received
from it, is set apart for productive reinvestment.
§ 2. More Capital Devoted to Production than Actually Employed in it.
As whatever of the produce of the country is devoted to production is
capital, so, conversely, the whole of the capital of the country is
devoted to production. This second proposition, however, must be taken
with some limitations and explanations. (1) A fund may be seeking for
productive employment, and find none adapted to the inclinations of its
possessor: it then is capital still, but unemployed capital. (2) Or the
stock may consist of unsold goods, not susceptible of direct application
to productive uses, and not, at the moment, marketable: these, until sold,
are in the condition of unemployed capital.
This is not an important distinction. The goods are doubtless
marketable at some price, if offered low enough. If no one wants
them, then, by definition, they are not wealth so long as that
condition exists.
(3) [Or] suppose that the Government lays a tax on the production in one
of its earlier stages, as, for instance, by taxing the material. The
manufacturer has to advance the tax, before commencing the manufacture,
and is therefore under a necessity of having a larger accumulated fund
than is required for, or is actually employed in, the production which he
carries on. He must have a larger capital to maintain the same quantity of
productive labor; or (what is equivalent) with a given capital he
maintains less labor. (4) For another example: a farmer may enter on his
farm at such a time of the year that he may be required to pay one, two,
or even three quarters’ rent before obtaining any return from the produce.
This, therefore, must be paid out of his capital.
(5) Finally, that large portion of the productive capital of a country
which is employed in paying the wages and salaries of laborers, evidently
is not, all of it, strictly and indispensably necessary for production. As
much of it as exceeds the actual necessaries of life and health (an excess
which in the case of skilled laborers is usually considerable) is not
expended in supporting labor, but in remunerating it, and the laborers
could wait for this part of their remuneration until the production is
completed.
The previous accumulation of commodities requisite for production
must inevitably be large enough to cover necessaries, but need not
be more, if the laborer is willing to wait for the additional
amount of his wages (the amount of his unproductive consumption)
until the completion of the industrial operation. In fact,
however, the accumulation must be sufficient to pay the laborer
all his wages from week to week, by force of custom (wherever
there is any considerable division of labor), and also sufficient
to purchase tools and materials. The various elements of capital
are materials, instruments, and subsistence, giving “instruments”
its wide signification which includes money (the tool of
exchange), and other necessary appliances of each special kind of
production.
In truth, it is only after an abundant capital had already been
accumulated that the practice of paying in advance any remuneration of
labor beyond a bare subsistence could possibly have arisen: since whatever
is so paid is not really applied to production, but to the unproductive
consumption of productive laborers, indicating a fund for production
sufficiently ample to admit of habitually diverting a part of it to a mere
convenience.
It will be observed that I have assumed that the laborers are always
subsisted from capital:(105) and this is obviously the fact, though the
capital need not necessarily be furnished by a person called a capitalist.
The peasant does not subsist this year on the produce of this year’s
harvest, but on that of the last. The artisan is not living on the
proceeds of the work he has in hand, but on those of work previously
executed and disposed of. Each is supported by a small capital of his own,
which he periodically replaces from the produce of his labor. The large
capitalist is, in like manner, maintained from funds provided in advance.
§ 3. Examination of Cases Illustrative of the Idea of Capital.
That which is virtually capital to the individual is or is not capital to
the nation, according as the fund which by the supposition he has not
dissipated has or has not been dissipated by somebody else.
Let the reader consider, in the four following suppositions,
whether or not the given capital has wholly dropped out of the
circle in the diagram, page 67. In (3) and (4) the wealth is
entirely dissipated; as it can not longer be in circle A, it can
not, of course, be in circle B.
(1.) For example, let property of the value of ten thousand pounds,
belonging to A, be lent to B, a farmer or manufacturer, and employed
profitably in B’s occupation. It is as much capital as if it belonged to
B. A is really a farmer or manufacturer, not personally, but in respect of
his property. Capital worth ten thousand pounds is employed in
production—in maintaining laborers and providing tools and materials—which
capital belongs to A, while B takes the trouble of employing it, and
receives for his remuneration the difference between the profit which it
yields and the interest he pays to A. This is the simplest case.
(2.) Suppose next that A’s ten thousand pounds, instead of being lent to
B, are lent on mortgage to C, a landed proprietor, by whom they are
employed in improving the productive powers of his estate, by fencing,
draining, road-making, or permanent manures. This is productive
employment. The ten thousand pounds are sunk, but not dissipated. They
yield a permanent return; the land now affords an increase of produce,
sufficient in a few years, if the outlay has been judicious, to replace
the amount, and in time to multiply it manifold. Here, then, is a value of
ten thousand pounds, employed in increasing the produce of the country.
This constitutes a capital, for which C, if he lets his land, receives the
returns in the nominal form of increased rent; and the mortgage entitles A
to receive from these returns, in the shape of interest, such annual sum
as has been agreed on.
(3.) Suppose, however, that C, the borrowing landlord, is a spendthrift,
who burdens his land not to increase his fortune but to squander it,
expending the amount in equipages and entertainments. In a year or two it
is dissipated, and without return. A is as rich as before; he has no
longer his ten thousand pounds, but he has a lien on the land, which he
could still sell for that amount. C, however, is ten thousand pounds
poorer than formerly; and nobody is richer. It may be said that those are
richer who have made profit out of the money while it was being spent. No
doubt if C lost it by gaming, or was cheated of it by his servants, that
is a mere transfer, not a destruction, and those who have gained the
amount may employ it productively. But if C has received the fair value
for his expenditure in articles of subsistence or luxury, which he has
consumed on himself, or by means of his servants or guests, these articles
have ceased to exist, and nothing has been produced to replace them: while
if the same sum had been employed in farming or manufacturing, the
consumption which would have taken place would have been more than
balanced at the end of the year by new products, created by the labor of
those who would in that case have been the consumers. By C’s prodigality,
that which would have been consumed with a return is consumed without
return. C’s tradesmen may have made a profit during the process; but, if
the capital had been expended productively, an equivalent profit would
have been made by builders, fencers, tool-makers, and the tradespeople who
supply the consumption of the laboring-classes; while, at the expiration
of the time (to say nothing of an increase), C would have had the ten
thousand pounds or its value replaced to him, which now he has not. There
is, therefore, on the general result, a difference, to the disadvantage of
the community, of at least ten thousand pounds, being the amount of C’s
unproductive expenditure. To A, the difference is not material, since his
income is secured to him, and while the security is good, and the market
rate of interest the same, he can always sell the mortgage at its original
value. To A, therefore, the lien of ten thousand pounds on C’s estate is
virtually a capital of that amount; but is it so in reference to the
community? It is not. A had a capital of ten thousand pounds, but this has
been extinguished—dissipated and destroyed by C’s prodigality. A now
receives his income, not from the produce of his capital, but from some
other source of income belonging to C, probably from the rent of his land,
that is, from payments made to him by farmers out of the produce of
_their_ capital.
(4.) Let us now vary the hypothesis still further, and suppose that the
money is borrowed, not by a landlord, but by the state. A lends his
capital to Government to carry on a war: he buys from the state what are
called government securities; that is, obligations on the Government to
pay a certain annual income. If the Government employed the money in
making a railroad, this might be a productive employment, and A’s property
would still be used as capital; but since it is employed in war, that is,
in the pay of officers and soldiers who produce nothing, and in destroying
a quantity of gunpowder and bullets without return, the Government is in
the situation of C, the spendthrift landlord, and A’s ten thousand pounds
are so much national capital which once existed, but exists no
longer—virtually thrown into the sea, as wealth or production is
concerned; though for other reasons the employment of it may have been
justifiable. A’s subsequent income is derived, not from the produce of his
own capital, but from taxes drawn from the produce of the remaining
capital of the community; to whom his capital is not yielding any return,
to indemnify them for the payment; it is all lost and gone, and what he
now possesses is a claim on the returns to other people’s capital and
industry.
The breach in the capital of the country was made when the Government
spent A’s money: whereby a value of ten thousand pounds was withdrawn or
withheld from productive employment, placed in the fund for unproductive
consumption, and destroyed without equivalent.
The United States had borrowed in the late civil war, by August
31, 1865, $2,845,907,626; and, to June 30, 1881, the Government
had paid in interest on its bonds, “from taxes drawn from the
produce of the remaining capital,” $1,270,596,784, as an income to
bondholders. From this can be seen the enormous waste of wealth to
the United States during the war, and consequently the less
existing capital to-day in this country; since, under the same
inducements to save, the smaller the outside circle (wealth), the
less the inside circle (capital) must be.
Chapter IV. Fundamental Propositions Respecting Capital.
§ 1. Industry is Limited by Capital.
The first of these propositions is, that industry is limited by capital.
To employ labor in a manufacture is to invest capital in the manufacture.
This implies that industry can not be employed to any greater extent than
there is capital to invest. The proposition, indeed, must be assented to
as soon as it is distinctly apprehended. The expression “applying capital”
is of course metaphorical: what is really applied is labor; capital being
an indispensable condition. The food of laborers and the materials of
production have no productive power; but labor can not exert its
productive power unless provided with them. There can be no more industry
than is supplied with materials to work up and food to eat. Self-evident
as the thing is, it is often forgotten that the people of a country are
maintained and have their wants supplied, not by the produce of present
labor, but of past.
Therefore, as capital increases, more labor can be employed. When
the Pittsburg rioters, in 1877, destroyed property, or the product
of past labor, they did not realize then that that property might,
but now could never again, be employed for productive purposes,
and thereby support laborers.
They consume what has been produced, not what is about to be produced.
Now, of what has been produced, a part only is allotted to the support of
productive labor; and there will not and can not be more of that labor
than the portion so allotted (which is the capital of the country) can
feed, and provide with the materials and instruments of production.
Because industry is limited by capital, we are not, however, to infer that
it always reaches that limit. There may not be as many laborers obtainable
as the capital would maintain and employ. This has been known to occur in
new colonies, where capital has sometimes perished uselessly for want of
labor.
In the farming districts of our Middle and Western States, in
harvest-time, crops have been often of late years ruined because
farm-hands could not be obtained. In earlier days, President John
Adams was unable to hire a man in Washington to cut wood in the
surrounding forests with which to warm the White House.
The unproductive consumption of productive laborers, the whole of which is
now supplied by capital, might cease, or be postponed, until the produce
came in; and additional productive laborers might be maintained with the
amount.
[Governments] can create capital. They may lay on taxes, and employ the
amount productively. They may do what is nearly equivalent: they may lay
taxes on income or expenditure, and apply the proceeds toward paying off
the public debts. The fund-holder, when paid off, would still desire to
draw an income from his property, most of which, therefore, would find its
way into productive employment, while a great part of it would have been
drawn from the fund for unproductive expenditure, since people do not
wholly pay their taxes from what they would have saved, but partly, if not
chiefly, from what they would have spent.
§ 2. Increase of Capital gives Increased Employment to Labor, Without
Assignable Bounds.
While, on the one hand, industry is limited by capital, so, on the other,
every increase of capital gives, or is capable of giving, additional
employment to industry; and this without assignable limit. I do not mean
to deny that the capital, or part of it, may be so employed as not to
support laborers, being fixed in machinery, buildings, improvement of
land, and the like. In any large increase of capital a considerable
portion will generally be thus employed, and will only co-operate with
laborers, not maintain them.
It will be remembered, however, that subsistence is but one part
or element of capital; that instruments and materials form a large
part of capital. But still the question of mere maintenance is
rightfully discussed, because it is asserted to-day that, while
the rich are growing richer, the poor lack even the food to keep
them alive; and throughout this discussion Mr. Mill has in view
the fact that laborers may exist in the community either “half fed
or unemployed.”
What I do intend to assert is, that the portion which is destined to their
maintenance may (supposing no alteration in anything else) be indefinitely
increased, without creating an impossibility of finding the employment: in
other words, that if there are human beings capable of work, and food to
feed them, they may always be employed in producing something. It is very
much opposed to common doctrines.(106) There is not an opinion more
general among mankind than this, that the unproductive expenditure of the
rich is necessary to the employment of the poor.
It is to be noticed that, in fact, after the arts have so far
advanced in a community that mankind can obtain by their exertion
more than the amount of the mere necessaries of life sufficient on
the average for the subsistence of all, any further production
rendered possible to the human race by new discoveries and
processes is naturally unproductively consumed, and that
consequently a demand for labor for unproductive consumption is
essential for the employment of all existing laborers. This,
however, can be done, because enough capital has been brought into
existence to create the demand for the labor. Yet it is clear that
it is not _expenditure_, but capital, by which employment is given
to the poor.
Suppose that every capitalist came to be of opinion that, not being more
meritorious than a well-conducted laborer, he ought not to fare better;
and accordingly laid by, from conscientious motives, the surplus of his
profits; unproductive expenditure is now reduced to its lowest limit: and
it is asked, How is the increased capital to find employment? Who is to
buy the goods which it will produce? There are no longer customers even
for those which were produced before. The goods, therefore (it is said),
will remain unsold; they will perish in the warehouses, until capital is
brought down to what it was originally, or rather to as much less as the
demand of the customers has lessened. But this is seeing only one half of
the matter. In the case supposed, there would no longer be any demand for
luxuries on the part of capitalists and land-owners. But, when these
classes turn their income into capital, they do not thereby annihilate
their power of consumption; they do but transfer it from themselves to the
laborers to whom they give employment. Now, there are two possible
suppositions in regard to the laborers: either there is, or there is not,
an increase of their numbers proportional to the increase of capital. (1.)
If there is, the case offers no difficulty. The production of necessaries
for the new population takes the place of the production of luxuries for a
portion of the old, and supplies exactly the amount of employment which
has been lost. (2.) But suppose that there is no increase of population.
The whole of what was previously expended in luxuries, by capitalists and
landlords, is distributed among the existing laborers, in the form of
additional wages. We will assume them to be already sufficiently supplied
with necessaries.
What follows? That the laborers become consumers of luxuries; and the
capital previously employed in the production of luxuries is still able to
employ itself in the same manner; the difference being, that the luxuries
are shared among the community generally, instead of being confined to a
few, supposing that the power of their labor were physically sufficient to
produce all this amount of indulgences for their whole number. Thus the
limit of wealth is never deficiency of consumers, but of producers and
productive power. Every addition to capital gives to labor either
additional employment or additional remuneration.
That laborers should get more (_a_) by capitalists abstaining from
unproductive expenditure than (_b_) by expenditure in articles
unproductively consumed is a question difficult for many to
comprehend, and needs all the elucidation possible. To start with,
no one ever knew of a community all of whose wants were satisfied:
in fact, civilization is constantly leading us into new fields of
enjoyment, and results in a constant differentiation of new
desires. To satisfy these wants is the spring to nearly all
production and industry. There can, therefore, be no stop to
production arising from lack of desire for commodities. “The limit
of wealth is never deficiency of consumers,” but of productive
power.
Now, in supposition (2) of the text, remember that the laborers
are supposed not to be employed up to their full productive power.
If all capitalists abstain from unproductive consumption, and
devote that amount of wealth to production, then, since there can
be no production without labor, the same number of laborers have
offered to them in the aggregate a larger sum of articles for
their exertions, which is equivalent to saying they receive
additional wages.
But some persons want to see the process in the concrete, and the
same principle may be illustrated by a practical case. It is
supposed that all laborers have the necessaries of life only, but
none of the comforts, decencies, and luxuries. Let A be a farmer
in New York, who can also weave carpets, and B a lumberman in
Maine. A begins to want a better house, and B wishes a carpet,
both having food, clothing, and shelter. One of the capitalists
abstaining from unproductive consumption, as above, is X, who,
knowing the two desires of A and B, presents himself as a
middle-man (i.e., he gives a market for both men, as is found in
every center of trade, as well as in a country store), furnishing
A the tools, materials, etc., and giving him the promise of lumber
if he will create the carpet, and promising B the carpet if he
will likewise produce the additional lumber. To be more matter of
fact, X buys the carpet of A, and sells it to B for the lumber.
Thus two new articles have been created, and for their exertions A
has received additional wages (either in the form of lumber, or of
the money paid him for the carpet), and B has received additional
wages (either in the form of a carpet, or the money paid him by X
for the lumber). If A and B are regarded as typifying all the
laborers, and X all the above capitalists, in the multiplicity of
actual exchanges, it will be seen that A and B are creating new
articles to satisfy their own demand, instead of meeting the
demands of X. If their primary wants are already supplied, then
they take their additional wages in the form of comforts and
decencies. When Class X forego their consumption, but add that
amount to capital, they do not give up their title to that
capital, but they transfer the use of it, or their consuming
power, to others for the time being. This question will be more
fully discussed in § 6.
§ 3. Capital is the result of Saving, and all Capital is Consumed.
A second fundamental theorem respecting capital relates to the source from
which it is derived. It is the result of saving.
If all persons were to expend in personal indulgences all that they
produce, and all the income that they receive from what is produced by
others, capital could not increase. Some saving, therefore, there must
have been, even in the simplest of all states of economical relations;
people must have produced more than they used, or used less than they
produced. Still more must they do so before they can employ other
laborers, or increase their production beyond what can be accomplished by
the work of their own hands. If it were said, for instance, that the only
way to accelerate the increase of capital is by increase of saving, the
idea would probably be suggested of greater abstinence and increased
privation. But it is obvious that whatever increases the productive power
of labor, creates an additional fund to make savings from, and enables
capital to be enlarged, not only without additional privation, but
concurrently with an increase of personal consumption. Nevertheless, there
is here an increase of saving, in the scientific sense. Though there is
more consumed, there is also more spared. There is a greater excess of
production over consumption. To consume less than is produced is saving;
and that is the process by which capital is increased; not necessarily by
consuming less, absolutely.
The economic idea of saving involves, of course, the intention of
using the wealth in reproduction. Saving, without this meaning,
results only in hoarding of wealth, and while hoarded this amount
is not capital. To explain the process by which capital comes into
existence, Bastiat has given the well-known illustration of the
plane in his “Sophisms of Protection.”(107)
A fundamental theorem respecting capital, closely connected with the one
last discussed, is, that although saved, and the result of saving, it is
nevertheless consumed. The word saving does not imply that what is saved
is not consumed, nor even necessarily that its consumption is deferred;
but only that, if consumed immediately, it is not consumed by the person
who saves it. If merely laid by for future use, it is said to be hoarded;
and, while hoarded, is not consumed at all. But, if employed as capital,
it is all consumed, though not by the capitalist. Part is exchanged for
tools or machinery, which are worn out by use; part for seed or materials,
which are destroyed as such by being sown or wrought up, and destroyed
altogether by the consumption of the ultimate product. The remainder is
paid in wages to productive laborers, who consume it for their daily
wants; or if they in their turn save any part, this also is not, generally
speaking, hoarded, but (through savings-banks, benefit clubs, or some
other channel) re-employed as capital, and consumed. To the vulgar, it is
not at all apparent that what is saved is consumed. To them, every one who
saves appears in the light of a person who hoards. The person who expends
his fortune in unproductive consumption is looked upon as diffusing
benefits all around, and is an object of so much favor, that some portion
of the same popularity attaches even to him who spends what does not
belong to him; who not only destroys his own capital, if he ever had any,
but, under pretense of borrowing, and on promise of repayment, possesses
himself of capital belonging to others, and destroys that likewise.
This popular error comes from attending to a small portion only of the
consequences that flow from the saving or the spending; all the effects of
either, which are out of sight, being out of mind. There is, in the one
case, a wearing out of tools, a destruction of material, and a quantity of
food and clothing supplied to laborers, which they destroy by use; in the
other case, there is a consumption, that is to say, a destruction, of
wines, equipages, and furniture. Thus far, the consequence to the national
wealth has been much the same; an equivalent quantity of it has been
destroyed in both cases. But in the spending, this first stage is also the
final stage; that particular amount of the produce of labor has
disappeared, and there is nothing left; while, on the contrary, the saving
person, during the whole time that the destruction was going on, has had
laborers at work repairing it; who are ultimately found to have replaced,
with an increase, the equivalent of what has been consumed.
Almost all expenditure being carried on by means of money, the money comes
to be looked upon as the main feature in the transaction; and since that
does not perish, but only changes hands, people overlook the destruction
which takes place in the case of unproductive expenditure. The money being
merely transferred, they think the wealth also has only been handed over
from the spendthrift to other people. But this is simply confounding money
with wealth. The wealth which has been destroyed was not the money, but
the wines, equipages, and furniture which the money purchased; and, these
having been destroyed without return, society collectively is poorer by
the amount. In proportion as any class is improvident or luxurious, the
industry of the country takes the direction of producing luxuries for
their use; while not only the employment for productive laborers is
diminished, but the subsistence and instruments which are the means of
such employment do actually exist in smaller quantity.
§ 4. Capital is kept up by Perpetual Reproduction, as shown by the
Recovery of Countries from Devastation.
To return to our fundamental theorem. Everything which is produced is
consumed—both what is saved and what is said to be spent—and the former
quite as rapidly as the latter. All the ordinary forms of language tend to
disguise this. When people talk of the ancient wealth of a country, of
riches inherited from ancestors, and similar expressions, the idea
suggested is, that the riches so transmitted were produced long ago, at
the time when they are said to have been first acquired, and that no
portion of the capital of the country was produced this year, except as
much as may have been this year added to the total amount. The fact is far
otherwise. The greater part, in value, of the wealth now existing [in the
United States] has been produced by human hands within the last twelve
months.
“In the State of Massachusetts it is estimated that the capital,
on the average, belonging to each individual does not exceed $600,
and that the average annual product _per capita_ is about $200; so
that the total capital is the product of only two or three years’
labor.”(108)
The land subsists, and the land is almost the only thing that subsists.
Everything which is produced perishes, and most things very quickly. Most
kinds of capital are not fitted by their nature to be long preserved.
Westminster Abbey has lasted many centuries, with occasional repairs; some
Grecian sculptures have existed above two thousand years; the Pyramids
perhaps double or treble that time. But these were objects devoted to
unproductive use. Capital is kept in existence from age to age not by
preservation, but by perpetual reproduction; every part of it is used and
destroyed, generally very soon after it is produced, but those who consume
it are employed meanwhile in producing more. The growth of capital is
similar to the growth of population. Every individual who is born, dies,
but in each year the number born exceeds the number who die; the
population, therefore, always increases, though not one person of those
composing it was alive until a very recent date.
This perpetual consumption and reproduction of capital afford the
explanation of what has so often excited wonder, the great rapidity with
which countries recover from a state of devastation. The possibility of a
rapid repair of their disasters mainly depends on whether the country has
been depopulated. If its effective population have not been extirpated at
the time, and are not starved afterward, then, with the same skill and
knowledge which they had before, with their land and its permanent
improvements undestroyed, and the more durable buildings probably
unimpaired, or only partially injured, they have nearly all the requisites
for their former amount of production. If there is as much of food left to
them, or of valuables to buy food, as enables them by any amount of
privation to remain alive and in working condition, they will, in a short
time, have raised as great a produce, and acquired collectively as great
wealth and as great a capital, as before, by the mere continuance of that
ordinary amount of exertion which they are accustomed to employ in their
occupations. Nor does this evince any strength in the principle of saving,
in the popular sense of the term, since what takes place is not
intentional abstinence, but involuntary privation.
The world has at any given period the power, under existing
conditions of production and skill, to create a certain amount of
wealth, as represented by the inner rectangle, W. Each increased
power of production arising from conquests over Nature’s forces,
as the use of steam and labor-saving machinery, permits the total
wealth to be enlarged, as, in the figure, to rectangle W’. For the
production of wealth are required labor, capital, and land;
therefore, if the labor and land are not destroyed by war, there
need not necessarily be in existence all the previous capital. If
there are the necessaries for all, and only sufficient tools to
accomplish the work, they will, in a few years, again recreate all
the wealth that formerly existed, regain the same position as
before, and go on slowly increasing the total wealth just as fast
as improvements in the arts of production render it possible.
[Illustration. Inner rectangle W, surrounded by rectangle W’.]
§ 5. Effects of Defraying Government Expenditure by Loans.
[An application of this truth has been made to the question of raising
government supplies for war purposes.] Loans, being drawn from capital (in
lieu of taxes, which would generally have been paid from income, and made
up in part or altogether by increased economy), must, according to the
principles we have laid down, tend to impoverish the country: yet the
years in which expenditure of this sort has been on the greatest scale
have often been years of great apparent prosperity: the wealth and
resources of the country, instead of diminishing, have given every sign of
rapid increase during the process, and of greatly expanded dimensions
after its close.
During our civil war, at the same time that wealth was being
destroyed on an enormous scale, there was a very general feeling
that trade was good, and large fortunes were made. At the close of
the war a period of speculation and overtrading continued until it
was brought to a disastrous close by the panic of 1873. Much of
this speculation, however, was due to an inflated paper currency.
We will suppose the most unfavorable case possible: that the whole amount
borrowed and destroyed by the Government was abstracted by the lender from
a productive employment in which it had actually been invested. The
capital, therefore, of the country, is this year diminished by so much.
But, unless the amount abstracted is something enormous, there is no
reason in the nature of the case why next year the national capital should
not be as great as ever. The loan can not have been taken from that
portion of the capital of the country which consists of tools, machinery,
and buildings. It must have been wholly drawn from the portion employed in
paying laborers: and the laborers will suffer accordingly. But if none of
them are starved, if their wages can bear such an amount of reduction, or
if charity interposes between them and absolute destitution, there is no
reason that their labor should produce less in the next year than in the
year before. If they produce as much as usual, having been paid less by so
many millions sterling, these millions are gained by their employers. The
breach made in the capital of the country is thus instantly repaired, but
repaired by the privations and often the real misery of the
laboring-class.
As Mr. Mill points out, during the Napoleonic wars, in France the
withdrawal of laborers from industry into the army was so large
that it caused a rise of wages, and a fall in the profits of
capital; while in England, inasmuch as capital, rather than men,
was sent to the Continent in the war, the very reverse took place:
the diversion of “hundreds of millions of capital from productive
employment” caused a fall of wages, and the prosperity of the
capitalist class, while the permanent productive resources did not
fall off.
This leads to the vexed question to which Dr. Chalmers has very
particularly adverted: whether the funds required by a government for
extraordinary unproductive expenditure are best raised by loans, the
interest only being provided by taxes, or whether taxes should be at once
laid on to the whole amount; which is called, in the financial vocabulary,
raising the whole of the supplies within the year. Dr. Chalmers is
strongly for the latter method. He says the common notion is that, in
calling for the whole amount in one year, you require what is either
impossible, or very inconvenient; that the people can not, without great
hardship, pay the whole at once out of their yearly income; and that it is
much better to require of them a small payment every year in the shape of
interest, than so great a sacrifice once for all. To which his answer is,
that the sacrifice is made equally in either case. Whatever is spent can
not but be drawn from yearly income. The whole and every part of the
wealth produced in the country forms, or helps to form, the yearly income
of somebody. The privation which it is supposed must result from taking
the amount in the shape of taxes is not avoided by taking it in a loan.
The suffering is not averted, but only thrown upon the laboring-classes,
the least able, and who least ought, to bear it: while all the
inconveniences, physical, moral, and political, produced by maintaining
taxes for the perpetual payment of the interest, are incurred in pure
loss. Whenever capital is withdrawn from production, or from the fund
destined for production, to be lent to the state and expended
unproductively, that whole sum is withheld from the laboring-classes: the
loan, therefore, is in truth paid off the same year; the whole of the
sacrifice necessary for paying it off is actually made: only it is paid to
the wrong persons, and therefore does not extinguish the claim; and paid
by the very worst of taxes, a tax exclusively on the laboring-class. And,
after having, in this most painful and unjust of ways, gone through the
whole effort necessary for extinguishing the debt, the country remains
charged with it, and with the payment of its interest in perpetuity.
The United States, for example, borrows capital from A, with which
it buys stores from B. If the loan all comes from within the
country, A’s capital is _borrowed_, when the United States should
have taken that amount outright by taxation. When the money is
borrowed of A, the laborers undergo the sacrifice, the title to
the whole sum remains in A’s hands, and the claim against the
Government by A still exists; while, if the amount were taken by
taxation, the title to the sum raised is in the state, and it is
paid to the right person.
The experience of the United States during the civil war is an
illustration of this principle. It is asserted that, as a matter
of fact, the total expenses of the war were defrayed by the
Northern States, during the four years of its continuance, out of
surplus earnings; and yet at the close of the conflict a debt of
$2,800,000,000 was saddled on the country.
The United States borrowed $2,400,000,000
Revenue during that time 1,700,000,000
Total cost of the war $4,100,000,000
In reality we borrowed only about $1,500,000,000 instead of
$2,400,000,000, since (1) the Government issued paper which
depreciated, and yet received it at par in subscriptions for
loans. Moreover, the total cost would have been much reduced had
we issued no paper and (2) thereby not increased the prices of
goods to the state, and (3) if no interest account had been
created by borrowing. But could the country have raised the whole
sum each year by taxation? In the first fiscal year after the war
the United States paid in war taxes $650,000,000. At the beginning
of the struggle, to June 30, 1862, the expenditure was
$515,000,000, and by June 30, 1863, it had amounted to
$1,098,000,000; so that $600,000,000 of taxes a year would have
paid the war expenses, and left us free of debt at the close.
A confirmatory experience is that of England during the
Continental wars, 1793-1817:
Total war expenditures £1,060,000,000
Interest charge on the existing debt 235,000,000
Total amount required £1,295,000,000
Revenue for that period 1,145,000,000
Deficit £150,000,000
To provide for this deficit, the Government actually increased its
debt by £600,000,000. A slight additional exertion would have
provided £150,000,000 more of revenue, and saved £450,000,000 to
the taxpayers.(109)
The practical state of the case, however, seldom exactly corresponds with
this supposition. The loans of the less wealthy countries are made chiefly
with foreign capital, which would not, perhaps, have been brought in to be
invested on any less security than that of the Government: while those of
rich and prosperous countries are generally made, not with funds withdrawn
from productive employment, but with the new accumulations constantly
making from income, and often with a part of them which, if not so taken,
would have migrated to colonies, or sought other investments abroad.
§ 6. Demand for Commodities is not Demand for Labor.
Mr. Mill’s statement of the theorem respecting capital, discussed
in the argument that “demand for commodities is not demand for
labor,” needs some simplification. For this purpose represent by
the letters of the alphabet, A, B, C, ... X, Y, Z, the different
kinds of commodities produced in the world which are exchanged
against each other in the process of reaching the consumers. This
exchange of commodities for each other, it need hardly be said,
does not increase the number or quantity of commodities already in
existence; since their production, as we have seen, requires labor
and capital in connection with natural agents. Mere exchange does
not alter the quantity of commodities produced.
To produce a plow, for example, the maker must have capital (in
the form of subsistence, tools, and materials) of which some one
has foregone the use by a process of saving in order that
something else, in this case a plow, may be produced. This saving
must be accomplished first to an amount sufficient to keep
production going on from day to day. This capital is all consumed,
but in a longer or shorter term (depending on the particular
industrial operation) it is reproduced in new forms adapted to the
existing wants of man. Moreover, without any new exertion of
abstinence, this amount of capital may be again consumed and
reproduced, and so go on forever, after once being saved (if never
destroyed in the mean while, thereby passing out of the category
not only of capital, but also of wealth). The total capital of the
country, then, is not the sum of one year’s capital added to that
of another; but that of last year reproduced in a new form this
year, plus a fractional increase arising from new savings. But,
once saved, capital can go on constantly aiding in production
forever. This plow when made is exchanged (if a plow is wanted,
and the production is properly adjusted to meet desires) for such
other products, food, means for repairing tools, etc., as give
back to the plow-maker all the commodities consumed in its
manufacture (with an increase, called profit).
Returning to our illustration of the alphabet, it is evident that
a certain amount of capital united with labor (constituting what
may be called a productive engine) lies behind the production of A
(such as the plow, for example), and to which its existence is
due. The same is true of Z. Suppose that 5,000 of Z is produced,
of which 4,000 is enough to reimburse the capital used up by labor
in the operation, and that the owner of commodity Z spends the
remaining 1,000 Z in exchange for 1,000 of commodity A. It is
evident (no money being used as yet) that this exchange of goods
is regulated entirely by the desires of the two parties to the
transaction. No more goods are created simply by the exchange; the
simple process of exchange does not keep the laborers engaged on A
occupied. And yet the owner of Z had a demand for commodity A; his
demand was worthless, except through the fact of his production,
which gave him actual wealth, or purchasing power, in the form of
Z. His demand for commodity A was not the thing which employed the
laborers engaged in producing A, although the demand (if known
beforehand) would cause them to produce A rather than some other
article—that is, the demand of one quantity of wealth for a
certain thing determines the _direction_ taken by the owner of
capital A. But, since the exchange is merely the form in which the
demand manifests itself, it is clear that the demand does not add
to production, and so of itself does not employ labor. Of course,
if there were no desires, there would be no demand, and so no
production and employment of labor. But we may conclude by
formulating the proposition, that wealth (Z) offered for
commodities (A) necessitates the use of other wealth (than Z) as
capital to support the operation by which those commodities (A)
are produced. It makes no difference to the existing employment of
labor what want is supplied by the producers of A, whether it is
velvet (intended for unproductive consumption) or plows (intended
for productive consumption). Even if Z is no longer offered in
exchange for A, and if then A is no longer to be made, the
laborers formerly occupied in producing A—if warning is given of
the coming change; if not, loss results—having the plant, can
produce something else wanted by the owner of Z.
Now into a community, as here pictured, all laborers supposed to
be occupied, and all capital employed in producing A, B, C, ... X,
Y, Z, imagine the coming of a shipwrecked crew. Instead of
exchanging Z for A, as before, the owner of Z may offer his wealth
to the crew to dance for him. The essential question is, Is more
employment offered to labor by this action than the former
exchange for A? That is, it is a question merely of distribution
of wealth among the members of a community. The labor engaged on A
is not thrown out of employment (if they have warning). There is
no more wealth in existence, but it is differently distributed
than before: the crew, instead of the former owner, now have 1,000
of Z. So far as the question of employment is concerned, it makes
no difference on what terms the crew got it: they might have been
hired to stand in a row and admire the owner of Z when he goes
out. But yet it may naturally be assumed that the crew were
employed productively. In this case, after they have consumed the
wealth Z, they have brought into existence articles in the place
of those they consumed. But, although this last operation is
economically more desirable for the future growth of wealth, yet
no more laborers for the time were employed than if the crew had
merely danced. The advantages or disadvantages of productive
consumption are not to be discussed here. It is intended, however,
to establish the proposition that _wealth paid out in wages, or
advanced to producers, itself supports labor_; that wealth offered
directly to laborers in this way employs more labor than when
merely offered in exchange for other goods, or, in other words, by
a demand for commodities; that an increased demand for commodities
does not involve an increased demand for labor, since this can
only be created by capital. The essential difference is, that the
owner of Z in one case, by exchanging goods for A, did not forego
his consuming power; in the other case, by giving Z to the
unemployed crew, he actually went through the process of saving by
foregoing his personal consumption, and handing it over to the
crew. If the crew use it unproductively, it is in the end the same
as if the owner of Z had done it; but meanwhile the additional
laborers were employed. If the crew be employed productively, then
the saving once made will go on forever, as explained above, and
the world will be the richer by the wealth this additional capital
can create.
It may now be objected that, if A is no longer in demand, the
laborers in that industry will be thrown out of employment. Out of
that employment certainly, but not out of every other. One
thousand of Z was able to purchase certain results of labor and
capital in industry A, when in the hands of its former owner; and
now when in the hands of the crew it will control, as purchasing
power, equivalent results of labor and capital. The crew may not
want the same articles as the former owner of Z, but they will
want the equivalents of 1,000 of Z in something, and that
something will be produced now instead of A. The whole process may
be represented by this diagram.
[Illustration, showing interrelationships between A, Z, and Crew.]
1. Z is exchanged against A, and the crew remain unemployed.
2. Here the crew possess Z, and they themselves exchange Z for
whatever A may produce in satisfaction of their wants, and the
crew are then employed.
It is possible that the intervention of money blinds some minds to
a proper understanding of the operations described above. The
supposition, as given, applies to a condition of barter, but is
equally true if money is used.(110) Imagine a display of all the
industries of the world, A, B, C, ... X, Y, Z, presented within
sight on one large field, and at the central spot the producer of
gold and silver. When Z is produced, it is taken to the
gold-counter, and exchanged for money; when A is produced, the
same is done. Then the former money is given for A, and the latter
for Z, so that in truth A is exchanged against Z through the
medium of money, just as before money was considered. Now, it may
be said by an objector, “If A is not wanted, after it is produced,
and can not be sold, because the demand from Z has been withdrawn,
then the capital used for A will not be returned, and the laborers
in A will be thrown out of employment.” The answer is, of course,
that the state of things here contemplated is a permanent and
normal one wherein production is correctly adapted to human
desires. If A is found not to be wanted, after the production of
it, an industrial blunder has been committed, and wealth is wasted
just as when burned up. It is ill-assorted production. The trouble
is not in a lack of demand for what A may produce (of something
else), but with the producers of A in not making that for which
there were desires, from ignorance or lack of early information of
the disposition of wealth Z. In practice, however, it will be
found that most goods are made upon “orders,” and, except under
peculiar circumstances, not actually produced unless a market is
foreseen. Indeed, as every man knows, the most important function
of a successful business man is the adaptation of production to
the market, that is, to the desires of consumers.
One other form of this question needs brief mention. It is truly
remarked that a large portion of industrial activity is engaged
to-day, not in supplying productive consumption, such as food,
shelter, and clothing, but in supplying the comforts and luxuries
of low and high alike, or unproductive consumption; now, if there
were not a demand for luxuries and comforts, many vast industries
would cease to exist, and labor would be thrown out of employment.
Is not a demand for such commodities, then, a cause of the present
employment of labor? No, it is not. Luxuries and comforts are of
course the objects of human wants; but a desire alone, without
purchasing power, can not either buy or produce these commodities.
To obtain a piano, one must produce goods, and this implies the
possession of capital, by which to bring into existence goods, or
purchasing power, to be offered for a piano. Nor is this
sufficient. Even after a man, A, for example, offers purchasing
power, he will not get a piano unless there exists an accumulation
of unemployed capital, together with labor ready to manufacture
the instrument. If capital were all previously occupied, no piano
could be made, although A stood offering an equivalent in valuable
goods. It may be said that A himself has the means. He has the
_wealth_, and if he is willing to forego the use of this wealth,
or, in other words, save it by devoting it to reproduction in the
piano industry—that is, create the capital necessary for the
purpose—then the piano can be made. But this shows again that, not
a mere desire, but the existence of capital, is necessary to the
production, and so to the employment of labor. An increased demand
for commodities, therefore, does not give additional employment to
labor, unless there be capital to support the labor.
Some important corollaries result from this proposition: (_a._)
When a country by legislation creates a home demand for
commodities, that does not of itself give additional employment to
labor. If the goods had before been purchased abroad, under free
discretion, then if produced at home they must require more
capital and labor, or they would not have been brought from
foreign countries. If produced at home, it would require, to
purchase them, more of what was formerly sent abroad; or some must
do without. The legislation can not, _ipso facto_, create capital,
and only by an increase of capital can more employment result. It
is possible, however, that legislation might cause a more
effective use of existing capital; but that must be a question of
fact, to be settled by circumstances in each particular case. It
is not a thing to be governed by principles.
(_b._) It follows from the above proposition also that taxes
levied on the rich, and paid by a saving from their consumption of
luxuries, do not fall on the poor because of a lessened demand for
commodities; since, as we have seen, that demand does not create
or diminish the demand for labor. But, if the taxes levied on the
rich are paid by savings from what the rich would have expended in
wages, then if the Government spends the amount of revenue thus
taken in the direct purchase of labor, as of soldiers and sailors,
the tax does not fall on the laboring-class taken as a whole. When
the Government takes that wealth which was formerly capital, burns
it up, or dissipates it in war, it ceases to exist any longer as a
means of again producing wealth, or of employing labor.
Chapter V. On Circulating And Fixed Capital.
§ 1. Fixed and Circulating Capital.
Of the capital engaged in the production of any commodity, there is a part
which, after being once used, exists no longer as capital; is no longer
capable of rendering service to production, or at least not the same
service, nor to the same sort of production. Such, for example, is the
portion of capital which consists of materials. The tallow and alkali of
which soap is made, once used in the manufacture, are destroyed as alkali
and tallow. In the same division must be placed the portion of capital
which is paid as the wages, or consumed as the subsistence, of laborers.
That part of the capital of a cotton-spinner which he pays away to his
work-people, once so paid, exists no longer as his capital, or as a
cotton-spinner’s capital. Capital which in this manner fulfills the whole
of its office in the production in which it is engaged, by a single use,
is called Circulating Capital. The term, which is not very appropriate, is
derived from the circumstance that this portion of capital requires to be
constantly renewed by the sale of the finished product, and when renewed
is perpetually parted with in buying materials and paying wages; so that
it does its work, not by being kept, but by changing hands.
Another large portion of capital, however, consists in instruments of
production, of a more or less permanent character; which produce their
effect not by being parted with, but by being kept; and the efficacy of
which is not exhausted by a single use. To this class belong buildings,
machinery, and all or most things known by the name of implements or
tools. The durability of some of these is considerable, and their function
as productive instruments is prolonged through many repetitions of the
productive operation. In this class must likewise be included capital sunk
(as the expression is) in permanent improvements of land. So also the
capital expended once for all, in the commencement of an undertaking, to
prepare the way for subsequent operations: the expense of opening a mine,
for example; of cutting canals, of making roads or docks. Other examples
might be added, but these are sufficient. Capital which exists in any of
these durable shapes, and the return to which is spread over a period of
corresponding duration, is called Fixed Capital.
Of fixed capital, some kinds require to be occasionally or periodically
renewed. Such are all implements and buildings: they require, at
intervals, partial renewal by means of repairs, and are at last entirely
worn out. In other cases the capital does not, unless as a consequence of
some unusual accident, require entire renewal. A dock or a canal, once
made, does not require, like a machine, to be made again, unless purposely
destroyed. The most permanent of all kinds of fixed capital is that
employed in giving increased productiveness to a natural agent, such as
land.
To return to the theoretical distinction between fixed and circulating
capital. Since all wealth which is destined to be employed for
reproduction comes within the designation of capital, there are parts of
capital which do not agree with the definition of either species of it;
for instance, the stock of finished goods which a manufacturer or dealer
at any time possesses unsold in his warehouses. But this, though capital
as to its destination, is not yet capital in actual exercise; it is not
engaged in production, but has first to be sold or exchanged, that is,
converted into an equivalent value of some other commodities, and
therefore is not yet either fixed or circulating capital, but will become
either one or the other, or be eventually divided between them.
§ 2. Increase of Fixed Capital, when, at the Expense of Circulating, might
be Detrimental to the Laborers.
There is a great difference between the effects of circulating and those
of fixed capital, on the amount of the gross produce of the country.
Circulating capital being destroyed as such, the result of a single use
must be a reproduction equal to the whole amount of the circulating
capital used, and a profit besides. This, however, is by no means
necessary in the case of fixed capital. Since machinery, for example, is
not wholly consumed by one use, it is not necessary that it should be
wholly replaced from the product of that use. The machine answers the
purpose of its owner if it brings in, during each interval of time, enough
to cover the expense of repairs, and the deterioration in value which the
machine has sustained during the same time, with a surplus sufficient to
yield the ordinary profit on the entire value of the machine.
From this it follows that all increase of fixed capital, when taking place
at the expense of circulating, must be, at least temporarily, prejudicial
to the interests of the laborers. This is true, not of machinery alone,
but of all improvements by which capital is sunk; that is, rendered
permanently incapable of being applied to the maintenance and remuneration
of labor.
It is highly probable that in the twenty-five years preceding the
panic of 1873, owing to the progress of invention, those
industries in the United States employing much machinery were
unduly stimulated in comparison with other industries, and that
the readjustment was a slow and painful process. After the
collapse vast numbers left the manufacturing to enter the
extractive industries.
The argument relied on by most of those who contend that machinery can
never be injurious to the laboring-class is, that by cheapening production
it creates such an increased demand for the commodity as enables, ere
long, a greater number of persons than ever to find employment in
producing it. The argument does not seem to me to have the weight commonly
ascribed to it. The fact, though too broadly stated, is, no doubt, often
true. The copyists who were thrown out of employment by the invention of
printing were doubtless soon outnumbered by the compositors and pressmen
who took their place; and the number of laboring persons now employed in
the cotton manufacture is many times greater than were so occupied
previously to the inventions of Hargreaves and Arkwright, which shows
that, besides the enormous fixed capital now embarked in the manufacture,
it also employs a far larger circulating capital than at any former time.
But if this capital was drawn from other employments, if the funds which
took the place of the capital sunk in costly machinery were supplied not
by any additional saving consequent on the improvements, but by drafts on
the general capital of the community, what better are the laboring-classes
for the mere transfer?
There is a machine used for sizing the cotton yarn to prepare it
for weaving, by which it is dried over a steam cylinder, the wages
for attendance on which were only two dollars per day, as compared
with an expenditure for labor of fourteen dollars per day to
accomplish the same ends before the machine was invented.
All attempts to make out that the laboring-classes as a collective body
_can not_ suffer temporarily by the introduction of machinery, or by the
sinking of capital in permanent improvements, are, I conceive, necessarily
fallacious.(111) That they would suffer in the particular department of
industry to which the change applies is generally admitted, and obvious to
common sense; but it is often said that, though employment is withdrawn
from labor in one department, an exactly equivalent employment is opened
for it in others, because what the consumers save in the increased
cheapness of one particular article enables them to augment their
consumption of others, thereby increasing the demand for other kinds of
labor. This is plausible, but, as was shown in the last chapter, involves
a fallacy; demand for commodities being a totally different thing from
demand for labor. It is true, the consumers have now additional means of
buying other things; but this will not create the other things, unless
there is capital to produce them, and the improvement has not set at
liberty any capital, even if it has not absorbed some from other
employments.
If the improvement has lowered the cost of production, it has
often required less capital (as well as less labor) to produce the
same quantity of goods; or, what is the same thing, an increased
product with the same capital.
§ 3. —This seldom, if ever, occurs.
Nevertheless, I do not believe that, as things are actually transacted,
improvements in production are often, if ever, injurious, even
temporarily, to the laboring-classes in the aggregate. They would be so if
they took place suddenly to a great amount, because much of the capital
sunk must necessarily in that case be provided from funds already employed
as circulating capital. But improvements are always introduced very
gradually, and are seldom or never made by withdrawing circulating capital
from actual production, but are made by the employment of the annual
increase. I doubt if there would be found a single example of a great
increase of fixed capital, at a time and place where circulating capital
was not rapidly increasing likewise.
In the United States, while the cost per yard of the manufactured
goods has decreased, and so made accessible to poorer classes than
before, the capital engaged in manufactures has increased so as to
allow a vastly greater number of persons to be employed, as will
be seen by the following comparison of 1860 with 1880 taken from
the last census returns. (Compendium, 1880, pp. 928, 930.)
Number of Capital Average Total amount
establishments. (Thousands). number of paid in
hands wages during
employed. the year.
1860 140,433 $1,009,855 1,311,246 $378,878,966
1880 253,852 2,790,272 2,732,595 947,953,795
“A hundred years ago, one person in every family of five or six
must have been absolutely needed to spin and weave by hand the
fabrics required for the scanty clothing of the people; now one
person in two hundred or two hundred and fifty only need work in
the factory to produce the cotton and woolen fabrics of the most
amply clothed nation of the world.”(112)
To these considerations must be added, that, even if improvements did for
a time decrease the aggregate produce and the circulating capital of the
community, they would not the less tend in the long run to augment both.
This tendency of improvements in production to cause increased
accumulation, and thereby ultimately to increase the gross produce, even
if temporarily diminishing it, will assume a still more decided character
if it should appear that there are assignable limits both to the
accumulation of capital and to the increase of production from the land,
which limits once attained, all further increase of produce must stop; but
that improvements in production, whatever may be their other effects, tend
to throw one or both of these limits farther off. Now, these are truths
which will appear in the clearest light in a subsequent stage of our
investigation. It will be seen that the quantity of capital which will, or
even which can, be accumulated in any country, and the amount of gross
produce which will, or even which can, be raised, bear a proportion to the
state of the arts of production there existing; and that every
improvement, even if for the time it diminish the circulating capital and
the gross produce, ultimately makes room for a larger amount of both than
could possibly have existed otherwise. It is this which is the conclusive
answer to the objections against machinery; and the proof thence arising
of the ultimate benefit to laborers of mechanical inventions, even in the
existing state of society, will hereafter be seen to be conclusive.(113)
Chapter VI. Of Causes Affecting The Efficiency Of Production.
§ 1. General Causes of Superior Productiveness.
The most evident cause of superior productiveness is what are called
natural advantages. These are various. Fertility of soil is one of the
principal. The influence of climate [is another advantage, and] consists
in lessening the physical requirements of the producers.
In spinning very fine cotton thread, England’s natural climate
gives in some parts of the country such advantages in proper
moisture and electric conditions that the operation can be carried
on out-of-doors; while in the United States it is generally
necessary to create an artificial atmosphere. In ordinary spinning
in our country more is accomplished when the wind is in one
quarter than in another. The dry northwest wind in New England
reduces the amount of product, while the dry northeast wind in
England has a similar effect, and it is said has practically
driven the cotton-spinners from Manchester to Oldham, where the
climate is more equably moist. The full reasons for these facts
are not yet ascertained.
Experts in the woolen industry, also, explain that the quality and
fiber of wool depend upon the soil and climate where the sheep are
pastured. When Ohio sheep are transferred to Texas, in a few years
their wool loses the distinctive quality it formerly possessed,
and takes on a new character belonging to the breeds of Texas. The
wool produced by one set of climatic conditions is quite different
from that of another set, and is used by the manufacturers for
different purposes.
In hot regions, mankind can exist in comfort with less perfect housing,
less clothing; fuel, that absolute necessary of life in cold climates,
they can almost dispense with, except for industrial uses. They also
require less aliment. Among natural advantages, besides soil and climate,
must be mentioned abundance of mineral productions, in convenient
situations, and capable of being worked with moderate labor. Such are the
coal-fields of Great Britain, which do so much to compensate its
inhabitants for the disadvantages of climate; and the scarcely inferior
resource possessed by this country and the United States, in a copious
supply of an easily reduced iron-ore, at no great depth below the earth’s
surface, and in close proximity to coal-deposits available for working it.
But perhaps a greater advantage than all these is a maritime situation,
especially when accompanied with good natural harbors; and, next to it,
great navigable rivers. These advantages consist indeed wholly in saving
of cost of carriage. But few, who have not considered the subject, have
any adequate notion how great an extent of economical advantage this
comprises.
As the second of the [general] causes of superior productiveness, we may
rank the greater energy of labor. By this is not to be understood
occasional, but regular and habitual energy. The third element which
determines the productiveness of the labor of a community is the skill and
knowledge therein existing, whether it be the skill and knowledge of the
laborers themselves or of those who direct their labor. That the
productiveness of the labor of a people is limited by their knowledge of
the arts of life is self-evident, and that any progress in those arts, any
improved application of the objects or powers of nature to industrial
uses, enables the same quantity and intensity of labor to raise a greater
produce. One principal department of these improvements consists in the
invention and use of tools and machinery.(114)
The deficiency of practical good sense, which renders the majority of the
laboring-class such bad calculators—which makes, for instance, their
domestic economy so improvident, lax, and irregular—must disqualify them
for any but a low grade of intelligent labor, and render their industry
far less productive than with equal energy it otherwise might be. The
moral qualities of the laborers are fully as important to the efficiency
and worth of their labor as the intellectual. Independently of the effects
of intemperance upon their bodily and mental faculties, and of flighty,
unsteady habits upon the energy and continuity of their work (points so
easily understood as not to require being insisted upon), it is well
worthy of meditation how much of the aggregate effect of their labor
depends on their trustworthiness.
Among the secondary causes which determine the productiveness of
productive agents, the most important is Security. By security I mean the
completeness of the protection which society affords to its members.
§ 2. Combination and Division of Labor Increase Productiveness.
In the enumeration of the circumstances which promote the productiveness
of labor, we have left one untouched, which is co-operation, or the
combined action of numbers. Of this great aid to production, a single
department, known by the name of Division of Labor, has engaged a large
share of the attention of political economists; most deservedly, indeed,
but to the exclusion of other cases and exemplifications of the same
comprehensive law. In the lifting of heavy weights, for example, in the
felling of trees, in the sawing of timber, in the gathering of much hay or
corn during a short period of fine weather, in draining a large extent of
land during the short season when such a work may be properly conducted,
in the pulling of ropes on board ship, in the rowing of large boats, in
some mining operations, in the erection of a scaffolding for building, and
in the breaking of stones for the repair of a road, so that the whole of
the road shall always be kept in good order: in all these simple
operations, and thousands more, it is absolutely necessary that many
persons should work together, at the same time, in the same place, and in
the same way. [But] in the present state of society, the breeding and
feeding of sheep is the occupation of one set of people; dressing the wool
to prepare it for the spinner is that of another; spinning it into thread,
of a third; weaving the thread into broadcloth, of a fourth; dyeing the
cloth, of a fifth; making it into a coat, of a sixth; without counting the
multitude of carriers, merchants, factors, and retailers put in
requisition at the successive stages of this progress.
Without some separation of employments, very few things would be produced
at all. Suppose a set of persons, or a number of families, all employed
precisely in the same manner; each family settled on a piece of its own
land, on which it grows by its labor the food required for its own
sustenance, and, as there are no persons to buy any surplus produce where
all are producers, each family has to produce within itself whatever other
articles it consumes. In such circumstances, if the soil was tolerably
fertile, and population did not tread too closely on the heels of
subsistence, there would be, no doubt, some kind of domestic manufactures;
clothing for the family might, perhaps, be spun and woven within it, by
the labor, probably, of the women (a first step in the separation of
employments); and a dwelling of some sort would be erected and kept in
repair by their united labor. But beyond simple food (precarious, too,
from the variations of the seasons), coarse clothing, and very imperfect
lodging, it would be scarcely possible that the family should produce
anything more.
Suppose that a company of artificers, provided with tools, and with food
sufficient to maintain them for a year, arrive in the country and
establish themselves in the midst of the population. These new settlers
occupy themselves in producing articles of use or ornament adapted to the
taste of a simple people; and before their food is exhausted they have
produced these in considerable quantity, and are ready to exchange them
for more food. The economical position of the landed population is now
most materially altered. They have an opportunity given them of acquiring
comforts and luxuries. Things which, while they depended solely upon their
own labor, they never could have obtained, because they could not have
produced, are now accessible to them if they can succeed in producing an
additional quantity of food and necessaries. They are thus incited to
increase the productiveness of their industry. The new settlers constitute
what is called a _market_ for surplus agricultural produce; and their
arrival has enriched the settlement, not only by the manufactured articles
which they produce, but by the food which would not have been produced
unless they had been there to consume it.
There is no inconsistency between this doctrine and the proposition we
before maintained,(115) that a market for commodities does not constitute
employment for labor. The labor of the agriculturists was already provided
with employment; they are not indebted to the demand of the new-comers for
being able to maintain themselves. What that demand does for them is to
call their labor into increased vigor and efficiency; to stimulate them,
by new motives, to new exertions.
From these considerations it appears that a country will seldom have a
productive agriculture unless it has a large town population, or, the only
available substitute, a large export trade in agricultural produce to
supply a population elsewhere. I use the phrase “town population” for
shortness, to imply a population non-agricultural.
It is found that the productive power of labor is increased by carrying
the separation further and further; by breaking down more and more every
process of industry into parts, so that each laborer shall confine himself
to an ever smaller number of simple operations. And thus, in time, arise
those remarkable cases of what is called the division of labor, with which
all readers on subjects of this nature are familiar. Adam Smith’s
illustration from pin-making, though so well known, is so much to the
point that I will venture once more to transcribe it: “The business of
making a pin is divided into about eighteen distinct operations. One man
draws out the wire, another straights it, a third cuts it, a fourth points
it, a fifth grinds it at the top for receiving the head; to make the head
requires two or three distinct operations; to put it on, is a peculiar
business; to whiten the pins is another; it is even a trade by itself to
put them into the paper.... I have seen a small manufactory where ten men
only were employed, and where some of them, consequently, perf
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