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+*** START OF THE PROJECT GUTENBERG EBOOK 12004 ***
+
+ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY
+
+by
+
+JOHN STUART MILL
+
+
+1844
+
+
+
+
+PREFACE.
+
+
+Of these Essays, which were written in 1829 and 1830, the fifth alone
+has been previously printed. The other four have hitherto remained in
+manuscript, because, during the temporary suspension of public interest
+in the species of discussion to which they belong, there was no
+inducement to their publication.
+
+They are now published (with a few merely verbal alterations) under the
+impression, that the controversies excited by Colonel Torrens' _Budget_
+have again called the attention of political economists to the
+discussions of the abstract science: and from the additional
+consideration, that the first paper relates expressly to the point upon
+which the question at issue between Colonel Torrens and his antagonists
+has principally turned.
+
+From that paper it will be seen that opinions identical in principle
+with those promulgated by Colonel Torrens (there would probably be
+considerable difference as to the extent of their practical application)
+have been held by the writer for more than fifteen years: although he
+cannot claim to himself the original conception, but only the
+elaboration, of the fundamental doctrine of the Essay.
+
+A prejudice appears to exist in many quarters against the theory in
+question, on the supposition of its being opposed to one of the most
+valuable results of modern political philosophy, the doctrine of Freedom
+of Trade between nation and nation. The opinions now laid before the
+reader are presented as corollaries necessarily following from the
+principles upon which Free Trade itself rests. The writer has also been
+careful to point out, that from these opinions no justification can be
+derived for any _protecting_ duty, or other preference given to domestic
+over foreign industry. But in regard to those duties on foreign
+commodities which do not operate as protection, but are maintained
+solely for revenue, and which do not touch either the necessaries of
+life or the materials and instruments of production, it is his opinion
+that any relaxation of such duties, beyond what may be required by the
+interest of the revenue itself, should in general be made contingent
+upon the adoption of some corresponding degree of freedom of trade with
+this country, by the nation from which the commodities are imported.
+
+
+
+
+CONTENTS.
+
+
+ESSAY I.
+
+Of the Laws of Interchange between Nations; and the Distribution of the
+Gains of Commerce among the Countries of the Commercial World
+
+ESSAY II.
+
+Of the Influence of Consumption upon Production
+
+ESSAY III.
+
+On the Words Productive and Unproductive
+
+ESSAY IV.
+
+On Profits, and Interest
+
+ESSAY V.
+
+On the Definition of Political Economy; and on the Method of
+Investigation proper to it
+
+
+
+
+ESSAY I.
+
+OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THE
+GAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD.
+
+
+Of the truths with which political economy has been enriched by Mr.
+Ricardo, none has contributed more to give to that branch of knowledge
+the comparatively precise and scientific character which it at present
+bears, than the more accurate analysis which he performed of the nature
+of the advantage which nations derive from a mutual interchange of their
+productions. Previously to his time, the benefits of foreign trade were
+deemed, even by the most philosophical enquirers, to consist in
+affording a vent for surplus produce, or in enabling a portion of the
+national capital to replace itself with a profit. The futility of the
+theory implied in these and similar phrases, was an obvious consequence
+from the speculations of writers even anterior to Mr. Ricardo. But it
+was he who first, in the chapter on Foreign Trade, of his immortal
+_Principles of Political Economy and Taxation_, substituted for the
+former vague and unscientific, if not positively false, conceptions with
+regard to the advantage of trade, a philosophical exposition which
+explains, with strict precision, the nature of that advantage, and
+affords an accurate measure of its amount.
+
+He shewed, that the advantage of an interchange of commodities between
+nations consists simply and solely in this, that it enables each to
+obtain, with a given amount of labour and capital, a greater quantity of
+all commodities taken together. This it accomplishes by enabling each,
+with a quantity of one commodity which has cost it so much labour and
+capital, to purchase a quantity of another commodity which, if produced
+at home, would have required labour and capital to a greater amount.
+To render the importation of an article more advantageous than its
+production, it is not necessary that the foreign country should be able
+to produce it with less labour and capital than ourselves. We may even
+have a positive advantage in its production: but, if we are so far
+favoured by circumstances as to have a still greater positive advantage
+in the production of some other article which is in demand in the
+foreign country, we may be able to obtain a greater return to our labour
+and capital by employing none of it in producing the article in which
+our advantage is least, but devoting it all to the production of that in
+which our advantage is greatest, and giving this to the foreign country
+in exchange for the other. It is not a difference in the _absolute_ cost
+of production, which determines the interchange, but a difference in the
+_comparative_ cost. It may be to our advantage to procure iron from
+Sweden in exchange for cottons, even although the mines of England as
+well as her manufactories should be more productive than those of
+Sweden; for if we have an advantage of one-half in cottons, and only an
+advantage of a quarter in iron, and could sell our cottons to Sweden at
+the price which Sweden must pay for them if she produced them herself,
+we should obtain our iron with an advantage of one-half, as well as our
+cottons. We may often, by trading with foreigners, obtain their
+commodities at a smaller expense of labour and capital than they cost
+to the foreigners themselves. The bargain is still advantageous to the
+foreigner, because the commodity which he receives in exchange, though
+it has cost us less, would have cost him more. As often as a country
+possesses two commodities, one of which it can produce with less labour,
+comparatively to what it would cost in a foreign country, than the
+other; so often it is the interest of the country to export the first
+mentioned commodity and to import the second; even though it might be
+able to produce both the one and the other at a less expense of labour
+than the foreign country can produce them, but not less in the same
+degree; or might be unable to produce either except at a greater
+expense, but not greater in the same degree.
+
+On the contrary, if it produces both commodities with greater facility,
+or both with greater difficulty, and greater in exactly the same degree,
+there will be no motive to interchange.
+
+"If the cloth and the corn, each of which required 100 days' labour in
+Poland, required each 150 days' labour in England; it would follow, that
+the cloth of 150 days' labour in England, if sent to Poland, would be
+equal to the cloth of 100 days' labour in Poland: if exchanged for corn,
+therefore, it would exchange for the corn of only 100 days' labour. But
+the corn of 100 days' labour in Poland, was supposed to be the same
+quantity with that of 150 days' labour in England. With 150 days' labour
+in cloth, therefore, England would only get as much corn in Poland as
+she could raise with 150 days' labour at home; and she would, in
+importing it, have the cost of carriage besides. In these circumstances
+no exchange would take place.
+
+"If, on the other hand, while the cloth produced with 100 days' labour
+in Poland was produced with 150 days' labour in England, the corn which
+was produced in Poland with 100 days' labour could not be produced in
+England with less than 200 days' labour; an adequate motive to exchange
+would immediately arise. With a quantity of cloth which England produced
+with 150 days' labour, she would be able to purchase as much corn in
+Poland as was there produced with 100 days' labour; but the quantity,
+which was there produced with 100 days' labour, would be as great as the
+quantity produced in England with 200 days' labour.
+
+"The power of Poland would be reciprocal. With a quantity of corn which
+cost her 100 days' labour, equal to the quantity produced in England by
+200 days' labour, she could in the supposed case purchase in England the
+produce of 200 days' labour in cloth." But "the produce of 150 days'
+labour in England in the article of cloth would be equal to the produce
+of 100 days' labour in Poland [1]."
+
+The remainder of what Mr. Ricardo has done for the philosophical
+exposition of the principles of foreign trade, is to shew, that the
+truth of the propositions now recapitulated is not affected by the
+introduction of money as a medium of exchange; the precious metals
+always tending to distribute themselves in such a manner throughout the
+commercial world, that every country shall import all that it would have
+imported, and export all that it would have exported, if exchanges had
+taken place, as in the example above supposed, by barter.
+
+To this branch of the subject we shall, in the sequel of this essay,
+return. At present it will be more convenient that we should continue to
+suppose, that exchanges take place by the direct trucking of one
+commodity against another.
+
+It is established, that the advantage which two countries derive from
+trading with each other, results from the more advantageous employment
+which thence arises, of the labour and capital--for shortness let us say
+the labour--of both jointly. The circumstances are such, that if each
+country confines itself to the production of one commodity, there is a
+greater total return to the labour of both together; and this increase
+of produce forms the whole of what the two countries taken together gain
+by the trade.
+
+It is the purpose of the present essay to inquire, in what proportion
+the increase of produce, arising from the saving of labour, is divided
+between the two countries.
+
+This question was not entered into by Mr. Ricardo, whose attention was
+engrossed by far more important questions, and who, having a science to
+create, had not time, or room, to occupy himself with much more than the
+leading principles. When he had done enough to enable any one who came
+after him, and who took the necessary pains, to do all the rest, he was
+satisfied. He very rarely followed out the principles of the science
+into the ramifications of their consequences. But we believe that to no
+one, who has thoroughly entered into the spirit of his discoveries, will
+even the minutiae of the science offer any difficulty but that which is
+constituted by the necessity of patience and circumspection in tracing
+principles to their results.
+
+Mr. Ricardo, while intending to go no further into the question of the
+advantage of foreign trade than to show what it consisted of, and under
+what circumstances it arose, unguardedly expressed himself as if each of
+the two countries making the exchange separately gained the whole of the
+difference between the comparative costs of the two commodities in one
+country and in the other. But, the whole gain of both countries
+together, consisting in the saving of labour; and the saving of labour
+being exactly equal to the difference between the costs, in the two
+countries, of the one commodity as compared with the other; the two
+countries taken together gain no more than this difference: and if
+either country gains the whole of it, the other country derives no
+advantage from the trade.
+
+Suppose, for example, that 10 yards of broad cloth cost in England as
+much labour as 15 yards of linen, and in Germany as much as 20. If
+England sends 10 yards of broad cloth to Germany, and is able to
+exchange them for linen according to the German cost of production, she
+will get 20 yards of linen, with a quantity of labour with which she
+could not have produced more than 15; and will gain, therefore, 5 yards
+on every 15, or 33-1/3 per cent. But in this case Germany would obtain
+only 10 yards of cloth for 20 of linen. Now, 10 yards of cloth cost
+exactly the same quantity of labour in Germany as 20 of linen; Germany,
+therefore, derives no advantage from the trade, more than she would
+possess if it did not exist.
+
+So, on the other hand, if Germany sends 15 yards of linen to England,
+and finding the relative value of the two articles in that country
+determined by the English costs of production, is enabled to purchase
+with 35 yards of linen 10 yards of cloth; Germany now gains 5 yards,
+just as England did before,--for with 15 yards of linen she purchases 10
+yards of cloth, when to produce these 10 yards she must have employed as
+much labour as would have enabled her to produce 20 yards of linen. But
+in this case England would gain nothing: she would only obtain, for her
+10 yards of cloth, 15 yards of linen, which is exactly the comparative
+cost at which she could have produced them.
+
+This, which was not an error, but a mere oversight of Mr. Ricardo,
+arising from his having left the question of the division of the
+advantage entirely unnoticed, was first corrected in the third edition
+of Mr. Mill's _Elements of Political Economy_. It can hardly, however,
+be said that Mr. Mill has prosecuted the inquiry any further; which,
+indeed, would have been quite as inconsistent with the nature of his
+plan as of Mr. Ricardo's.
+
+1. When the trade is established between the two countries, the two
+commodities will exchange for each other at the same rate of interchange
+in both countries--bating the cost of carriage, of which, for the present,
+it will be more convenient to omit the consideration. Supposing, therefore,
+for the sake of argument, that the carriage of the commodities from one
+country to another could be effected without labour and without cost, no
+sooner would the trade be opened than, it is self-evident, the value of
+the two commodities, estimated in each other, would come to a level in
+both countries.
+
+If we knew what this level would be, we should know in what proportion
+the two countries would share the advantage of the trade.
+
+When each country produced both commodities for itself, 10 yards of
+broad cloth exchanged for 15 yards of linen in England, and for 20 in
+Germany. They will now exchange for the same number of yards of linen in
+both. For what number? If for 15 yards, England will be just as she was,
+and Germany will gain all. If for 20 yards, Germany will be as before,
+and England will derive the whole of the benefit. If for any number
+intermediate between 15 and 20, the advantage will be shared between the
+two countries. If, for example, 10 yards of cloth exchange for 18 of
+linen, England will gain an advantage of 3 yards on every 15, Germany
+will save 2 out of every 20.
+
+The problem is, what are the causes which determine the proportion in
+which the cloth of England and the linen of Germany will exchange for
+each other?
+
+This, therefore, is a question concerning exchangeable value. There must
+be something which determines how much of one commodity another
+commodity will purchase; and there is no reason to suppose that the law
+of exchangeable value is more difficult of ascertainment in this case
+than in other cases.
+
+The law, however, cannot be precisely the same as in the common cases.
+When two articles are produced in the immediate vicinity of one another,
+so that, without expatriating himself, or moving to a distance, a
+capitalist has the choice of producing one or the other, the quantities
+of the two articles which will exchange for each other will be, on the
+average, those which are produced by equal quantities of labour. But
+this cannot be applied to the case where the two articles are produced
+in two different countries; because men do not usually leave their
+country, or even send their capital abroad, for the sake of those small
+differences of profit which are sufficient to determine their choice of
+a business, or of an investment, in their own country and neighbourhood.
+
+The principle, that value is proportional to cost of production, being
+consequently inapplicable, we must revert to a principle anterior to
+that of cost of production, and from which this last flows as a
+consequence,--namely, the principle of demand and supply.
+
+In order to apply this principle, with any advantage, to the solution of
+the question which now occupies us, the principle itself, and the idea
+attached to the term demand, must be conceived with a precision, which
+the loose manner in which the words are used generally prevents.
+
+It is well known that the quantity of any commodity which can be
+disposed of, varies with the price. The higher the price, the fewer will
+be the purchasers, and the smaller the quantity sold. The lower the
+price, the greater will in general be the number of purchasers, and the
+greater the quantity disposed of. This is true of almost all commodities
+whatever: though of some commodities, to diminish the consumption in any
+given degree would require a much greater rise of price than of others.
+
+Whatever be the commodity--the supply in any market being given, there
+is some price at which the whole of the supply exactly will find
+purchasers, and no more. That, whatever it be, is the price at which, by
+the effect of competition, the commodity will be sold. If the price be
+higher, the whole of the supply will not be disposed of, and the
+sellers, by their competition, will bring down the price. If the price
+be lower, there will be found purchasers for a larger supply, and the
+competition of these purchasers will raise the price.
+
+This, then, is what we mean, when we say that price, or exchangeable
+value, depends on demand and supply. We should express the principle
+more accurately, if we were to say, the price so regulates itself that
+the demand shall be exactly sufficient to carry off the supply.
+
+Let us now apply the principle of demand and supply, thus understood, to
+the interchange of broadcloth and linen between England and Germany.
+
+As exchangeable value in this case, as in every other, is proverbially
+fluctuating, it does not matter what we suppose it to be when we begin;
+we shall soon see whether there be any fixed point about which it
+oscillates--which it has a tendency always to approach to, and to remain
+at.
+
+Let us suppose, then, that by the effect of what Adam Smith calls the
+higgling of the market, 10 yards of cloth, in both countries, exchange
+for 17 yards of linen.
+
+The demand for a commodity, that is, the quantity of it which can find a
+purchaser, varies, as we have before remarked, according to the price.
+In Germany, the price of 10 yards of cloth is now 17 yards of linen; or
+whatever quantity of money is equivalent in Germany to 17 yards of
+linen. Now, that being the price, there is some particular number of
+yards of cloth, which will be in demand, or will find purchasers, at
+that price. There is some given quantity of cloth, more than which could
+not be disposed of at that price,--less than which, at that price, would
+not fully satisfy the demand. Let us suppose this quantity to be, 1000
+times 10 yards.
+
+Let us now turn our attention to England. There, the price of 17 yards
+of linen is 10 yards of cloth, or whatever quantity of money is
+equivalent in England to 10 yards of cloth. There is some particular
+number of yards of linen, which, at that price, will exactly satisfy the
+demand, and no more. Let us suppose that this number is 1000 times 17
+yards.
+
+As 17 yards of linen are to 30 yards of cloth, so are 1000 times 17
+yards to 1000 times 10 yards. At the existing exchangeable value, the
+linen which England requires, will exactly pay for the quantity of cloth
+which, on the same terms of interchange, Germany requires. The demand on
+each side is precisely sufficient to carry off the supply on the other.
+The conditions required by the principle of demand and supply are
+fulfilled, and the two commodities will continue to be interchanged, as
+we supposed them to be, in the ratio of 17 yards of linen for 10 yards
+of cloth.
+
+But our supposition might have been different. Suppose that, at the
+assumed rate of interchange, England had been disposed to consume no
+greater quantity of linen than 800 times 17 yards; it is evident that,
+at the rate supposed, this would not have sufficed to pay for the 1000
+times 10 yards of cloth, which we have supposed Germany to require at
+the assumed value. Germany would be able to procure no more than 800
+times 10 yards, at that price. To procure the remaining 200, which she
+would have no means of doing but by bidding higher for them, she would
+offer more than 17 yards of linen in exchange for 10 yards of cloth; let
+us suppose her to offer 18. At that price, perhaps, England would be
+inclined to purchase a greater quantity of linen. She could consume,
+possibly, at that price, 900 times 18 yards. On the other hand, cloth
+having risen in price, the demand of Germany for it would, probably,
+have diminished. If, instead of 1000 times 10 yards, she is now
+contented with 900 times ten yards, these will exactly pay for the 900
+times 18 yards of linen which England is willing to take at the altered
+price: the demand on each side will again exactly suffice to take off
+the corresponding supply; and 10 yards for 18 will be the rate at which,
+in both countries, cloth will exchange for linen.
+
+The converse of all this would have happened if instead of 800 times 17
+yards, we had supposed that England, at the rate of 10 for 17, would
+have taken 1200 times 17 yards of linen. In this case, it is England
+whose demand is not fully supplied; it is England who, by bidding for
+more linen, will alter the rate of interchange to her own disadvantage;
+and 10 yards of cloth will fall, in both countries, below the value of
+17 yards of linen. By this fall of cloth, or what is the same thing,
+this rise of linen, the demand of Germany for cloth will increase, and
+the demand of England for linen will diminish, till the rate of
+interchange has so adjusted itself that the cloth and the linen will
+exactly pay for another; and when once this point is attained, values
+will remain as they are.
+
+It may be considered, therefore, as established, that when two countries
+trade together in two commodities, the exchangeable value of these
+commodities relatively to each other will adjust itself to the
+inclinations and circumstances of the consumers on both sides, in such
+manner that the quantities required by each country, of the article
+which it imports from its neighbour, shall be exactly sufficient to pay
+for one another. As the inclinations and circumstances of consumers
+cannot be reduced to any rule, so neither can the proportions in which
+the two commodities will be interchanged. We know that the limits within
+which the variation is confined are the ratio between their costs of
+production in the one country, and the ratio between their costs of
+production in the other. Ten yards of cloth cannot exchange for more
+than 20 yards of linen, nor for less than 15. But they may exchange for
+any intermediate number. The ratios, therefore, in which the advantage
+of the trade may be divided between the two nations, are various. The
+circumstances on which the proportionate share of each country more
+remotely depends, admit only of a very general indication.
+
+It is even possible to conceive an extreme case, in which the whole of
+the advantage resulting from the interchange would be reaped by one
+party, the other country gaining nothing at all. There is no absurdity
+in the hypothesis, that of some given commodity a certain quantity is
+all that is wanted at any price, and that when that quantity is
+obtained, no fall in the exchangeable value would induce other consumers
+to come forward, or those who are already supplied to take more. Let us
+suppose that this is the case in Germany with cloth. Before her trade
+with England commenced, when 10 yards of cloth cost her as much labour
+as 20 yards of linen, she nevertheless consumed as much cloth as she
+wanted under any circumstances, and if she could obtain it at the rate
+of 10 yards of cloth for 15 of linen, she would not consume more. Let
+this fixed quantity be 1000 times 10 yards. At the rate, however, of 10
+for 20, England would want more linen than would be equivalent to this
+quantity of cloth. She would consequently offer a higher value for
+linen; or, what is the same thing, she would offer her cloth at a
+cheaper rate. But as by no lowering of the value could she prevail on
+Germany to take a greater quantity of cloth, there would be no limit to
+the rise of linen, or fall of cloth, until the demand of England for
+linen was reduced by the rise of its value, to the quantity which one
+thousand times ten yards of cloth would purchase. It might be, that to
+produce this diminution of the demand, a less fall would not suffice,
+than one which would make 10 yards of cloth exchange for 15 of linen.
+Germany would then gain the whole of the advantage, and England would be
+exactly as she was before the trade commenced. It would be for the
+interest, however, of Germany herself, to keep her linen a little below
+the value at which it could be produced in England, in order to keep
+herself from being supplanted by the home producer. England, therefore,
+would always benefit in some degree by the existence of the trade,
+though it might be in a very trifling one.
+
+But in general there will not be this extreme inequality in the degree
+in which the demand in the two countries varies with variations in the
+price. The advantage will probably be divided equally, oftener than in
+any one unequal ratio that can be named; though the division will be
+much oftener, on the whole, unequal than equal.
+
+2. We shall now examine whether the same law of interchange, which we
+have shown to apply upon the supposition of barter, holds good after the
+introduction of money. Mr. Ricardo found that his more general
+proposition stood this test; and as the proposition which we have just
+demonstrated is only a further developement of his principle, we shall
+probably find that it suffers a little, by a mere change in the mode
+(for it is no more) in which one commodity is exchanged against another.
+
+We may at first make whatever supposition we will with respect to the
+value of money. Let us suppose, therefore, that before the opening of
+the trade, the price of cloth is the same in both countries, namely, six
+shillings per yard [2]. As 10 yards of cloth were supposed to exchange in
+England for 5 yards of linen, in Germany for 20, we must suppose that
+linen is sold in England at four shillings per yard, in Germany at
+three. Cost of carriage and importer's profit are left as before, out of
+consideration.
+
+In this state of prices, cloth, it is evident, cannot yet be exported
+from England into Germany. But linen can be imported from Germany into
+England. It will be so, and, in the first instance, the linen will be
+paid for in money.
+
+The efflux of money from England, and its influx into Germany, will
+raise money prices in the latter country, and lower them in the former.
+Linen will rise in Germany above three shillings per yard, and cloth
+above six shillings. Linen in England being imported from Germany, will
+(since cost of carriage is not reckoned) sink to the same price as in
+that country, while cloth will fall below six shillings. As soon as the
+price of cloth is lower in England than in Germany, it will begin to be
+exported, and the price of cloth in Germany will fall to what it is in
+England. As long As the cloth exported does not suffice to pay for the
+linen imported, money will continue to flow from England into Germany,
+and prices generally will continue to fall in England, and rise in
+Germany. By the fall, however, of cloth in England, cloth will fall in
+Germany also, and the demand for it will increase. By the rise of linen
+in Germany, linen must rise in England also, and the demand for it will
+diminish. Although the increased exportation of cloth takes place at a
+lower price, and the diminished importation of linen at a higher, yet
+the total money value of the exportation would probably increase, that
+of the importation diminish. As cloth fell in price and linen rose,
+there would be some particular price of both articles at-which the cloth
+exported, and the linen imported, would exactly pay for each other. At
+this point prices would remain, because money would then cease to move
+out of England into Germany. What this point might be, would entirely
+depend upon the circumstances and inclinations of the purchasers on both
+sides. If the fall of cloth did not much increase the demand for it in
+Germany, and the rise of linen did not diminish very rapidly the demand
+for it in England, much money must pass before the equilibrium is
+restored; cloth would fall very much, and linen would rise, until
+England, perhaps, had to pay nearly as much for it as when she produced
+it for herself. But if, on the contrary, the fall of cloth caused a very
+rapid increase of the demand for it in Germany, and the rise of linen in
+Germany reduced very rapidly the demand in England from what it was
+under the influence of the first cheapness produced by the opening of
+the trade; the cloth would very soon suffice to pay for the linen,
+little money would pass between the two countries, and England would
+derive a large portion of the benefit of the trade. We have thus arrived
+at precisely the same conclusion, in supposing the employment of money,
+which we found to hold under the supposition of barter.
+
+In what shape the benefit accrues to the two nations from the trade, is
+clear enough. Germany, before the commencement of the trade, paid six
+shillings per yard for broad-cloth. She now obtains it at a lower price.
+This, however, is not the whole of her advantage. As the money prices of
+all her other commodities have risen, the money incomes of all her
+producers have increased. This is no advantage to them in buying from
+each other; because the price of what they buy has risen in the same
+ratio with their means of paying for it: but it is an advantage to them
+in buying any thing which has not risen; and still more, any thing which
+has fallen. They therefore benefit as consumers of cloth, not merely to
+the extent to which cloth has fallen, but also to the extent to which
+other prices have risen. Suppose that this is one-tenth. The same
+proportion of their money incomes as before, will suffice to supply
+their other wants, and the remainder, being increased one-tenth in
+amount, will enable them to purchase one-tenth more cloth than before,
+even though cloth had not fallen. But it has fallen: so that they are
+doubly gainers. If they do not choose to increase their consumption of
+cloth, this does not prevent them from being gainers. They purchase the
+same quantity with less money, and have more to expend upon their other
+wants.
+
+In England, on the contrary, general money-prices have fallen. Linen,
+however, has fallen more than the rest; having been lowered in price, by
+importation from a country where it was cheaper, whereas the others have
+fallen only from the consequent efflux of money. Notwithstanding,
+therefore, the general fall of money-prices, the English producers will
+be exactly as they were in all other respects, while they will gain as
+purchasers of linen.
+
+The greater the efflux of money required to restore the equilibrium, the
+greater will be the gain of Germany; both by the fall of cloth, and by
+the rise of her general prices. The less the efflux of money requisite,
+the greater will be the gain of England; because the price of linen will
+continue lower, and her general prices will not be reduced so much. It
+must not, however, be imagined that high money-prices are a good, and
+low money-prices an evil, in themselves. But the higher the general
+money-prices in any country, the greater will be that country's means
+of purchasing those commodities which, being imported from abroad, are
+independent of the causes which keep prices high at home.
+
+3. We have hitherto supposed the carriage to be performed without labour
+or expense. If we abandon this supposition, we must correct the
+statement of the case in a slight degree. The prices of the two articles
+will no longer, when the trade is opened, be the same in both countries,
+nor will the articles exchange for one another at the same rate in both.
+Ten yards of cloth will purchase in Germany a quantity of linen greater
+than in England by a per-centage equal to the entire cost of conveyance
+both of the cloth to Germany and of the linen to England. The
+money-price of linen will be higher in England than in Germany, by the
+cost of carriage of the linen. The money-price of cloth will be higher
+in Germany than in England, by the cost of carriage of the cloth.
+
+The expense of the carriage is evidently a deduction _pro tanto_ from
+the saving of labour produced by the establishment of the trade. The two
+countries together, therefore, have their gains by the trade diminished,
+by the amount of the cost of carriage of both commodities. But here the
+question arises, which of the two countries bears this deduction, or in
+what proportion it is divided between them.
+
+At the first inspection it would appear that each country bears its own
+cost of carriage, that is, that each country pays the carriage of the
+commodity which it imports. Upon this supposition, each country would
+gain whatever share of the joint saving of labour would otherwise fall
+to its lot, _minus_ the cost of bringing from the other country the
+commodity which it imports. This solution is rendered plausible by the
+circumstance just now mentioned, that the price of the commodity will be
+higher in the country which imports it, than in the country which
+exports it, by the amount of the cost of carriage. If linen is sold in
+England at a higher price than in Germany, by a per-centage equal to the
+cost of carriage of the linen, it appears obvious that England pays for
+the carriage of the linen, and Germany, by parity of reason, for that of
+the cloth.
+
+But if we apply to these questions the principles already explained, we
+shall see that this is not by any means a universal law: the fact may
+correspond with it, or it may not.
+
+For suppose that the prices have adjusted themselves, no matter how, and
+that the imports and exports balance one another, each commodity, of
+course, being dearer by the cost of carriage, in the country which
+imports than in that which exports it: and suppose now that the cost of
+carriage, both of the one and of the other, were suddenly and
+miraculously annihilated, and that the commodities could pass from
+country to country without expense. If each country bore its own cost of
+carriage before, each country will save its own cost of carriage now.
+Cloth, in Germany, will in that case fall exactly to what it is in
+England; linen in England, to what it is in Germany.
+
+Now this fall of price, supposing it to happen, will probably affect the
+demand on both sides; and it will either affect it alike in both
+countries, or it will affect it unequally. It will affect it alike, if
+the fall of price does not affect the demand at all, or if it affects it
+equally in both countries. If either of these results should take place,
+the cloth and the linen would continue to balance each other as before:
+no money would pass from one country to the other; prices in both would
+continue at the point to which they had fallen, and each country would
+exactly save the cost of carriage on the commodity which it imports from
+the other.
+
+But the result might be, that the fall of price might not have an effect
+exactly equal, on the demand in the two countries. Suppose, for
+instance, that the fall of cloth in Germany owing to the saving of the
+cost of carriage, did not increase the demand for cloth in Germany; but
+that the fall of linen in England from a like cause, did increase the
+demand for linen in England. The linen imported would be more than could
+be paid for by the cloth exported: the difference must be paid in money:
+the change in the distribution of the precious metals between the two
+countries would lower the price of cloth in England, (and consequently
+in Germany), while it would raise the price of linen in Germany, (and
+consequently in England). Germany, therefore, by the annihilation of
+cost of carriage, would save in price more than the cost of carriage of
+the cloth; England would save less in price than the cost of carriage of
+the linen. But if by the miraculous annihilation of cost of carriage,
+England would not _save_ the whole of the carriage of her imports, it
+follows that England did not previously _pay_ the whole of that cost of
+carriage.
+
+Thus, the division of the cost of trade, and the division of the
+advantage of trade, are governed by precisely the same principles; and
+the only general proposition which can be affirmed respecting the cost
+is, that it is _pro tanto_ a deduction from the advantage. It cannot
+even be maintained that the cost is shared in the same proportion as the
+advantage is; because the increase of the demand for a commodity as its
+price falls, is not governed by any fixed law. Suppose, for instance,
+that the advantage happened to be divided equally: this must be because
+the greater cheapness arising from the establishment of the trade,
+either did not affect the demand at all, or affected it in an equal
+proportion on both sides. Now, because such is the effect of the degree
+of increased cheapness resulting from importation burthened with cost of
+carriage, it would not follow that the still greater degree of
+cheapness, produced by the additional saving of the cost of carriage
+itself, would also affect the demand of both countries in precisely an
+equal degree. But we cannot be said to bear an expense, which, if saved,
+would be saved to somebody else, and not to us. Two countries may have
+equal shares of the clear benefit of the trade, while, if the cost of
+carriage were saved, they would divide that saving unequally. If so,
+they divide the gross gain in one unequal ratio, the cost in another
+unequal ratio, though their shares of the cost being deducted from their
+shares of the gain leave equal remainders.
+
+4. The question naturally suggests itself, whether any country, by its
+own legislative policy, can engross to itself a larger share of the
+benefits of foreign commerce, than would fall to it in the natural or
+spontaneous course of trade.
+
+The answer is, it can. By taxing exports, for instance, we may, under
+certain circumstances, produce a division of the advantage of the trade
+more favourable to ourselves. In some cases, we may draw into our
+coffers, at the expense of foreigners, not only the whole tax, but more
+than the tax: in other cases, we should gain exactly the tax,--in
+others, less than the tax. In this last case, a part of the tax is borne
+by ourselves: possibly the whole, possibly even, as we shall show, more
+than the whole.
+
+Suppose that England taxes her export of cloth: the tax not being
+supposed high enough to induce Germany to produce cloth for herself. The
+price at which cloth can be sold in Germany is augmented by the tax.
+This will probably diminish the quantity consumed. It may diminish it so
+much, that even at the increased price, there will not be required so
+great a money value as before. It may diminish it in such a ratio, that
+the money value of the quantity consumed will be exactly the same as
+before. Or it may not diminish it at all, or so little, that, in
+consequence of the higher price, a greater money value will be purchased
+than before. In this last case, England will gain, at the expense of
+Germany, not only the whole amount of the duty, but more. For the money
+value of her exports to Germany being increased, while her imports
+remain the same, money will flow into England from Germany. The price of
+cloth will rise in England, and consequently in Germany; but the price
+of linen will fall in Germany, and consequently in England, We shall
+export less cloth, and import more linen, till the equilibrium is
+restored. It thus appears, what is at first sight somewhat remarkable,
+that, by taxing her exports, England would, under some conceivable
+circumstances, not only gain from her foreign customers the whole amount
+of the tax, but would also get her imports cheaper. She would get them
+cheaper in two ways,--for she would obtain them for less money, and
+would have more money to purchase them with. Germany, on the other hand,
+would suffer doubly: she would have to pay for her cloth a price
+increased not only by the duty, but by the influx of money into England,
+while the same change in the distribution of the circulating medium
+would leave her less money to purchase it with.
+
+This, however, is only one of three possible cases. If, after the
+imposition of the duty, Germany requires so diminished a quantity of
+cloth, that its total money value is exactly the same as before, the
+balance of trade will be undisturbed; England will gain the duty,
+Germany will lose it, and nothing more. If, again, the imposition of the
+duty occasions such a falling off in the demand, that Germany requires a
+less pecuniary value than before, our exports will no longer pay for our
+imports, money must pass from England into Germany, and Germany's share
+of the advantage of the trade will be increased. By the change in the
+distribution of money, cloth will fall in England; and therefore it
+will, of course, fall in Germany. Thus Germany will not pay the whole of
+the tax. From the same cause, linen will rise in Germany, and
+consequently in England. When this alteration of prices has so adjusted
+the demand, that the cloth and the linen again pay for one another, the
+result is, that Germany has paid only a part of the tax, and the
+remainder of what has been received into our treasury has come
+indirectly out of the pockets of our own consumers of linen, who pay a
+higher price for that imported commodity, in consequence of the tax on
+our exports, which at the same time they, in consequence of the efflux
+of money and consequent fall of prices, have smaller money incomes
+wherewith to pay for the linen at that advanced price.
+
+It is not an impossible supposition that, by taxing our exports, we
+might not only gain nothing from the foreigner, the tax being paid out
+of our own pockets, but might even compel our own people to pay a second
+tax to the foreigner. Suppose, as before, that the demand of Germany for
+cloth falls off so much on the imposition of the duty, that she requires
+a smaller money value than before, but that the case is so different
+with linen in England, that when the price rises the demand either does
+not fall off at all, or so little that the money value required is
+greater than before. The first effect of laying on the duty is, as
+before, that the cloth exported will no longer pay for the linen
+imported. Money will, therefore, flow out of England into Germany. One
+effect is to raise the price of linen in Germany, and, consequently, in
+England. But this, by the supposition, instead of stopping the efflux of
+money, only makes it greater, because the higher the price, the greater
+the money value of the linen consumed. The balance, therefore, can only
+be restored by the other effect, which is going on at the same time,
+namely, the fall of cloth in the English, and, consequently, in the
+German market. Even when cloth has fallen so low that its price with the
+duty is only equal to what its price without the duty was at first, it
+is not a necessary consequence that the fall will stop; for the same
+amount of exportation as before will not now suffice to pay the
+increased money value of the imports; and although the German consumers
+have now not only cloth at the old price, but likewise increased money
+incomes, it is not certain that they will be inclined to employ the
+increase of their incomes in increasing their purchases of cloth. The
+price of cloth, therefore, must perhaps fall, to restore the
+equilibrium, more than the whole amount of the duty; Germany may be
+enabled to import cloth at a lower price when it is taxed, than when it
+was untaxed: and this gain she will acquire at the expense of the
+English consumers of linen, who, in addition, will be the real payers of
+the whole of what is received at their own custom-house under the name
+of duties on the export of cloth.
+
+Such are the extremely various effects which may result to ourselves,
+and to our customers, from the imposition of taxes on our exports [3]:
+and the determining circumstances are of a nature so imperfectly
+ascertainable, that it must be almost impossible to decide with any
+certainty, even after the tax has been imposed, whether we have been
+gainers by it or losers. It is certain, however, that whatever we gain,
+is lost by somebody else, and there is the expense of the collection
+besides: if international morality, therefore, were rightly understood
+and acted upon, such taxes, as being contrary to the universal weal,
+would not exist. Moreover, the imposition of such a tax frequently will,
+and always may, expose a country to lose this branch of its trade
+altogether, or to carry it on with diminished advantage, in consequence
+of the competition of untaxed exporters from other countries, or of the
+domestic producers in the country to which it exports. Even on the most
+selfish principles, therefore, the benefit of such a tax is always
+extremely precarious.
+
+5. We have had an example of a tax on exports, that is, on foreigners,
+falling in part on ourselves. We shall, therefore, not be surprised if
+we find a tax on imports, that is, on ourselves, partly falling upon
+foreigners.
+
+Instead of taxing the cloth which we export, suppose that we tax the
+linen which we import. The duty which we are now supposing must not be
+what is termed a protecting duty, that is, a duty sufficiently high to
+induce us to produce the article at home. If it had this effect, it
+would destroy entirely the trade both in cloth and in linen, and both
+countries would lose the whole of the advantage which they previously
+gained by exchanging those commodities with one another. We suppose a
+duty which might diminish the consumption of the article, but which
+would not prevent us from continuing to import, as before, whatever
+linen we did consume.
+
+The equilibrium of trade would be disturbed if the imposition of the tax
+diminished in the slightest degree the quantity of linen consumed. For,
+as the tax is levied at our own custom-house, the German exporter only
+receives the same price as formerly, though the English consumer pays a
+higher one. If, therefore, there be any diminution of the quantity
+bought, although a larger sum of money may be actually laid out in the
+article, a smaller one will be due from England to Germany: this sum
+will no longer be an equivalent for the sum due from Germany to England
+for cloth, the balance therefore must be paid in money. Prices will fall
+in Germany, and rise in England; linen will fall in the German market;
+cloth will rise in the English. The Germans will pay higher price for
+cloth, and will have smaller money incomes to buy it with; while the
+English will obtain linen cheaper, that is, its price will exceed what
+it previously was by less than the amount of the duty, while their means
+of purchasing it will be increased by the increase of their money
+incomes.
+
+If the imposition of the tax does not diminish the demand, it will leave
+the trade exactly as it was before. We shall import as much, and export
+as much; the whole of the tax will be paid out of our own pockets.
+
+But the imposition of a tax on a commodity, almost always diminishes the
+demand more or less; and it can never, or scarcely ever increase the
+demand. It may, therefore, be laid down as a principle, that a tax on
+imported commodities, when it really operates as a tax, and not as a
+prohibition, either total or partial, almost always falls in part upon
+the foreigners who consume our goods: and that this is a mode in which a
+nation may be almost sure of appropriating to itself, at the expense of
+foreigners, a larger share than would otherwise belong to it of the
+increase in the general productiveness of the labour and capital of the
+world, which results from the interchange of commodities among nations.
+
+It is scarcely necessary to observe, that no such advantage can result
+from the duty, if it operate as a protecting duty; if it induce the
+country which imposes it, to produce for herself that which she would
+otherwise have imported. The saving of labour--the increase in the
+general productiveness of the capital of the world--which is the effect
+of commerce, and which a non-protecting duty would enable the country
+imposing it to engross, could not be engrossed by a protecting duty,
+because such a duty prevents any such increased production from
+existing.
+
+With a view to practical legislation, therefore, duties on importation
+may be divided into two classes: those which have the effect of
+encouraging some particular branch of domestic industry, and those which
+have not.
+
+The former are purely mischievous, both to the country imposing them,
+and to those with whom it trades. They prevent a saving of labour and
+capital, which, if permitted to be made, would be divided in some
+proportion or other between the importing country and the countries
+which buy what that country does or might export.
+
+The other class of duties are those which do not encourage one mode of
+procuring an article at the expense of another, but allow interchange to
+take place just as if the duty did not exist--and to produce the saving
+of labour which constitutes the motive to international as to all other
+commerce. Of this kind, are duties on the importation of any commodity
+which could not by any possibility be produced at home; and duties not
+sufficiently high to counterbalance the difference of expense between
+the production of the article at home, and its importation. Of the money
+which is brought into the treasury of any country by taxes of this last
+description, a part only is paid by the people of that country; the
+remainder by the foreign consumers of their goods.
+
+Nevertheless, this latter kind of taxes are in principle as ineligible
+as the former, although not precisely on the same ground. A protecting
+duty can never be a cause of gain, but always and necessarily of loss,
+to the country imposing it, just so far as it is efficacious to its end.
+A non-protecting duty on the contrary would, in most cases, be a source
+of gain to the country imposing it, in so far as throwing part of the
+weight of its taxes upon other people is a gain; but it would be a means
+of gain which it could seldom be advisable to adopt, being so easily
+counteracted by a precisely similar proceeding on the other side.
+
+If England, in the case already supposed, sought to obtain for herself
+more than her natural share of the advantage of the trade with Germany,
+by imposing a duty upon cloth, Germany would only have to impose a duty
+upon linen, sufficient to diminish the demand for that article about as
+much as the demand for cloth had been diminished in England by the tax.
+Things would then be as before, and each country would pay its own tax.
+Unless, indeed, the sum of the two duties exceeded the entire advantage
+of the trade; for in that case the trade, and its advantage, would cease
+entirely.
+
+There would be no advantage, therefore, in imposing duties of this kind,
+with a view to gain by them, in the manner which has been pointed out.
+But so long as any other kind of taxes on commodities are retained, as a
+source of revenue, these may often be as unobjectionable as the rest. It
+is evident, moreover, that considerations of reciprocity, which are
+quite unessential when the matter in debate is a protecting duty, are of
+material importance when the repeal of duties of this other description
+is discussed. A country cannot be expected to renounce the power of
+taxing foreigners, unless foreigners will in return practise towards
+itself the same forbearance. The only mode in which a country can save
+itself from being a loser by the duties imposed by other countries on
+its commodities, is to impose corresponding duties on theirs. Only it
+must take care that these duties be not so high as to exceed all that
+remains of the advantage of the trade, and put an end to importation
+altogether; causing the article to be either produced at home, or
+imported from another and a dearer market.
+
+It is not necessary to apply the principles which we have stated to the
+case of bounties on exportation or importation. The application is easy,
+and the conclusions present nothing of particular interest or
+importance.
+
+6. Any cause which alters the exports or imports from one country into
+another, alters the division of the advantage of interchange between
+those two countries. Suppose the discovery of a new process, by which
+some article of export, or some article not previously exported, can be
+produced so cheap as to occasion a great demand for it in other
+countries. This of course produces a great influx of money from other
+countries, and lowers the prices of all articles imported from them,
+until the increase of importation produced by this cause has restored
+the equilibrium. Thus, the country which acquires a new article of
+export gets its imports cheaper. This is not a case of mere alteration
+in the division of the advantage; it is a new advantage created by the
+discovery.
+
+But suppose that the invention, to which the nation is indebted for this
+increase of the return to its industry, comes into use also in the other
+country, and that the process is one which can be as perfectly and as
+cheaply performed in the one country as in the other. The new
+exportation will cease; trade will revert to its old channels, the money
+which flowed in will again flow out, and the country which invented the
+process will lose that increase of its gain by trade, which it had
+derived from the discovery.
+
+Now the exportation of machinery comes within the case which we have
+just described.
+
+If the fact be, that by allowing to foreigners a participation in our
+machinery, we enable them to produce any of our leading articles of
+export, at a lower money price than we can sell those articles, it is
+certain that unless we possess as great an advantage in the production
+of the machinery itself as we have in the production of other articles
+by means of machinery, the permitting of its exportation would alter to
+our disadvantage the division of the benefit of trade. Our exports being
+diminished, we should have to pay a balance in money. This would raise,
+in foreign countries, the price of everything which we import from
+thence: while our incomes, being reduced in money value, would render
+us less able to buy those articles even if they had not risen. The
+equilibrium of exports and imports would only be restored, when either
+some of the latter became so dear that we could produce them cheaper at
+home, or some articles not previously exported became exportable from
+the fall of prices. In the one case, we lose the benefit of importation
+altogether, and are obliged to produce at home, at a greater cost. In
+the other case, we continue to import, but pay dearer for our imports.
+
+Notwithstanding what has now been observed, restrictions on the
+exportation of machinery are not, in our opinion, justifiable, either on
+the score of international morality or of sound policy. It is evidently
+the common interest of all nations that each of them should abstain from
+every measure by which the aggregate wealth of the commercial world
+would be diminished, although of this smaller sum total it might thereby
+be enabled to attract to itself a larger share. And the time will
+certainly come when nations in general will feel the importance of this
+rule, and will so direct their approbation and disapprobation as to
+enforce observance of it. Moreover, a country possessing machines should
+consider that if a similar advantage were extended to other countries,
+they would employ it above all in the production of those articles, in
+which they had already the greatest natural advantages; and if the
+former country would be a loser by their improvements in the production
+of articles which it sells, it would gain by their improvements in those
+which it buys. The exportation of machinery may, however, be a proper
+subject for adjustment with other nations, on the principle of
+reciprocity. Until, by the common consent of nations, all restrictions
+upon trade are done away, a nation cannot be required to abolish those
+from which she derives a real advantage, without stipulating for an
+equivalent.
+
+7. The case which we have just examined, is an example in how remarkable
+a manner every cause which materially influences exports, operates upon
+the prices of imports. According to the ancient theory of the balance of
+trade, and to the associations of the generality of what are termed
+practical men to this day, the sole benefit derived from commerce
+consists in the exports, and imports are rather an evil than otherwise.
+Political economists, seeing the folly of these views, and clearly
+perceiving that the advantage of commerce consists and must consist
+solely of the imports, have occasionally suffered themselves to employ
+language evincing inattention to the fact, that exports, though
+unimportant in themselves, are important by their influence on imports.
+So real and extensive is this influence, that every new market which is
+opened for any of our goods, and every increase in the demand for our
+commodities in foreign countries, enables us to supply ourselves with
+foreign commodities at a smaller cost.
+
+Let us revert to our earliest and simplest example, but which displays
+the real law of interchange more luminously than any formula into which
+money enters; the case of simple barter. We showed, that if at the rate
+of 10 yards of cloth for 17 of linen, the demand of Germany amounted to
+1000 times 10 yards of cloth, the two nations will trade together at
+that rate of interchange, provided that the linen required in England be
+exactly 1000 times 17 yards, neither more nor less. For the cloth and
+the linen will then exactly pay for one another, and nobody on either
+side will be obliged to offer what he has to sell at a lower rate, in
+order to procure what he wants to buy.
+
+Now if the increase of wealth and population in Germany should greatly
+increase the demand in that country for cloth, the demand for linen in
+England not increasing in the same ratio,--if, for instance, Germany
+became willing, at the above rate, to take 1500 times 10 yards; is it
+not evident, that to induce England to take in exchange for this the
+only article which Germany by supposition has to give, the latter must
+offer it at a rate more advantageous to England--at 18, or perhaps 19
+yards, for 10 of cloth? So that the division of the advantage becomes
+more and more favourable to a country, in proportion as the demand for
+its commodities increases in foreign countries.
+
+It is not even necessary that the country which takes its goods, should
+supply it with any commodity whatever. Suppose that a country should be
+opened to our merchants, disposed to buy from us in abundance, but which
+can sell to us scarcely anything, as every commodity which it affords
+could be got cheaper by us from some other quarter. Nevertheless, our
+trade with this country will enable us to obtain from all other
+countries their commodities at a lower price. At the first opening of
+this commerce of mere exportation, we must have received in payment a
+large quantity of money; for which our customer will have been
+indemnified by other countries, in exchange for her commodities. Prices
+must consequently be lower in all other countries, and higher with us,
+than before the opening of the new branch of trade; and we therefore
+obtain the commodities of other countries at a less cost, both as we pay
+less money for them, and as that money is lower in value.
+
+8. Another obvious application of the same principle will enable us to
+explain, and to bring within the dominion of strict science, the
+rivality of one exporting nation and another, or what is called, in the
+language of the mercantile system, _underselling_: a subject which
+political economists have taken little trouble to elucidate, from the
+habit before alluded to of disregarding almost entirely, in their purely
+scientific inquiries, those circumstances which affect the trade of a
+country by operating immediately upon the exports.
+
+Let us revert to our old example, and to our old figures. Suppose that
+the trade between England and Germany in cloth and linen is established,
+and that the rate of interchange is 10 yards of cloth for 17 of linen.
+Now suppose that there arises in another country, in Flanders, for
+example, a linen manufacture; and that the same causes, the working of
+which in England and Germany has made 10 yards exchange for 17, would in
+England and Flanders, putting Germany out of the question, have made the
+rate of interchange 10 for 18. It is evident that Germany also must give
+18 yards of linen for 10 of cloth, and so carry on the trade with a
+diminished share of the advantage, or lose it altogether. If the play of
+demand in England and Flanders had made the rate of interchange not 10
+for 18 but 10 for 21, (10 to 20 being in Germany the comparative cost of
+production,) it is evident that Germany could not have maintained the
+competition, and would have lost, not part of her share of the
+advantage, but all advantage, and the trade itself.
+
+It would be no answer to say, that Germany could probably still have
+found the means of importing cloth from England, by exporting something
+else. If she had purchased cloth with anything else, she would have
+purchased it dearer: as is proved by the fact, that having free choice,
+she found it most advantageous to purchase it with linen. When she could
+get 10 yards of cloth for 17 of linen, that was the mode in which she
+could get it with least labour. Being pressed by competition, she gave
+successively 17, 18, 18; but rather than give 19 yards of linen, she
+perhaps would prefer to give, as costing her rather less labour, 10
+yards of silk, (which we will suppose to be the quantity which in
+England will purchase 10 yards of cloth.) It is obvious that, although
+Germany has found the means of supplying herself with cloth, by
+exporting a different article from that in which she was undersold, yet
+the advantage of the trade between her and England is now shared in a
+proportion much less favourable to Germany.
+
+There is no difficulty in showing that the same series of consequences
+takes place in exactly the same manner through the agency of money. The
+trade in cloth and linen between England and Germany being supposed to
+exist as before, Flanders produces linen at a lower price than that at
+which Germany has hitherto afforded it. The exportation from Germany is
+suspended; and Germany, continuing to import cloth, pays for it in
+money. By so doing she lowers her own prices, and raises those in
+England: she has to pay more money for cloth, and to pay it in a
+currency of higher value. She thus suffers more and more as a consumer
+of cloth, until by the fall of her prices she can either afford to sell
+linen as cheap as Flanders, or to export some other commodity which she
+could not export before. In either case, her trade resumes its course,
+but with diminished advantage on her side. [4]
+
+It is in the mode just described, that those countries which formerly
+supplied Europe with manufactures, but which owed their power of doing
+so not to any natural and permanent advantages, but to their more
+advanced state of civilization as compared with other countries, have
+lost their pre-eminence as other countries successively attained an
+equal degree of civilization. Lombardy and Flanders, in the middle ages,
+produced some descriptions of clothing and ornament for all Europe:
+Holland, at a much later period, supplied ships, and almost all articles
+which came in ships, to most other parts of the world. All these
+countries have probably at this moment a much larger amount of capital
+than ever they had, but having been undersold by other countries, they
+have lost by far the greater part of the share which they had engrossed
+to themselves of the benefit which the world derives from commerce; and
+their capital yields to them in consequence a smaller proportional
+return. We are aware that other causes have contributed to the same
+effect, but we cannot doubt that this is a principal one.
+
+As much as is really true of the great returns alleged to have been made
+to capital during the last war, must have arisen from a similar cause.
+Our exclusive command of the sea excluded from the market all by whom we
+should have been undersold.
+
+The adoption by France, Russia, the Netherlands, and the United States,
+of a more severely restrictive commercial policy, subsequently to 1815,
+has done great injury undoubtedly to those countries; for the duties
+which they have established are intended to be, and really are, of the
+class termed _protecting_; that is to say, such as force the production
+of commodities by more costly processes at home, instead of suffering
+them to be imported from abroad. But these duties, though chiefly
+injurious to the countries imposing them, have also been highly
+injurious to England. By diminishing her exportation, or preventing it
+from increasing as it would otherwise have done, they have kept up the
+prices of all imported commodities in England, above what those prices
+would have fallen to if trade had been left free.
+
+By another obvious application of the same reasoning, it will be seen,
+that there is a real foundation for the notion, that a country may be
+benefited by receiving from another country the concession of what used
+to be termed commercial advantages, or by restraining its colonies from
+purchasing goods of any country except itself. In the figured
+illustration last used (p. 34) [not available, M.D.], it is evident,
+that if England had been bound by a treaty with Germany to buy linen
+exclusively from her, Germany would have retained the trade which we
+supposed her to lose, and would have continued to purchase cloth at a
+comparatively cheap rate from England, instead of producing it by a more
+costly process at home. Suppose that England had been a colony of
+Germany, and we see that by compelling colonies to deal at her shop, she
+may obtain a real advantage, though of a nature which we may hazard the
+assertion that the founders of our colonial policy little dreamt of.
+
+Such an advantage, however, being gained at the expense of another
+country, is, at the least, simply equivalent to a tax, or tribute. Now,
+if a country has just grounds, or deems superiority of power a
+sufficient ground, for exacting a tribute from another country, the most
+direct mode is the best. First, because it is the most intelligible, and
+has least of trick or disguise. Secondly, because it allows the people
+of the country paying the tribute, to raise the money in whatever way
+they consider least oppressive to themselves. Thirdly, because the
+indirect mode of taxing a country, by restrictions on its commerce,
+disturbs the distribution of industry most advantageous to the world at
+large, and occasions a greater loss to the restricted country, and to
+the other countries with which that country would have traded, than gain
+to the country in whose favour the restrictions are imposed. And lastly,
+because a country never could obtain such privileges from an independent
+nation, and has seldom been so undisguised an oppressor as to demand
+them even from its colonies, without subjecting itself to restrictions
+in some degree equivalent, for the benefit of those whom it has thus
+taxed. Each country, therefore, usually pays tribute to the other; and
+to produce this fruitless reciprocity of exaction, the industry and
+trade of both countries are diverted from the most advantageous
+channels, and the return to the labour and capital of both is
+diminished, in pure loss.
+
+9. The same principles which have led to the above conclusions, also
+suggest a remark of some importance with respect to the probable effect
+of a change from a restricted to a comparatively free trade.
+
+There is no doubt that our prohibiting the importation of a particular
+article, which, but for the prohibition, would have been imported,
+enables us to obtain our other imports at smaller cost. The article for
+which we have the greatest demand, and for which our demand is most
+increased by cheapness, is that which we should naturally import
+preferably to any other; now of this article we should import the
+quantity necessary to pay for our exports, on terms of interchange less
+advantageous to us than in the case of any other commodity. If our
+legislature prohibits this commodity, the other country will be obliged
+to offer any other article on easier terms, in order to force a
+sufficient demand for it to be an equivalent to what she purchases from
+us.
+
+The steps of the process, money being used, would be these:--We prohibit
+the importation of linen. The exportation of cloth continues, but is
+paid for in money. Our prices rise, those in Germany fall, until silk,
+or some other article, can be imported from Germany cheaper than it can
+be produced at home, and in sufficient abundance to balance the export
+of cloth. Thus by sacrificing the cheapness of one commodity, we gain
+the cheapness of another: but we sacrifice a greater cheapness to gain a
+less, and we sacrifice cheapness in the article which we most want, and
+would import by preference, while our compensation is cheapness in an
+article which we either could produce more advantageously at home, or
+which we have so little desire for, that it requires a species of bounty
+on the article to create a demand.
+
+Restrictions on importation do, however, tend to keep down the value and
+price of our remaining imports, and to keep up the nominal or money
+prices of all our other commodities, by retaining a greater quantity of
+money in the country than would otherwise be there. From this it
+obviously follows, that if the restrictions were removed, we should have
+to pay rather more for some of the articles which we now import, while
+those which we are now prevented from importing would cost us more than
+might be inferred from their _present_ price in the foreign market. And
+general prices would fall; to the benefit of those who have fixed sums
+to receive; to the disadvantage of those who have fixed sums to pay; and
+giving rise, as a general fall of prices always does, to an appearance,
+though a temporary and fallacious one, of general distress. [5]
+
+It is right to observe that the measures of the British Legislature
+which have been falsely characterised as measures of free trade, must,
+from their extremely insignificant extent, have produced far too little
+effect in increasing our importation, to have actually led, in any
+degree worth mentioning, to the results specified above.
+
+It is of greater importance to take notice, that these effects may be
+entirely obviated, if foreign countries can be prevailed upon
+simultaneously to relax their restrictive systems, so as to create an
+immediate increase of demand for our exports at the present prices. It
+is true that exports and imports must, in the end, balance one another,
+and if we increase our imports, our exports will of necessity increase
+too. But it is a forced increase, produced by an efflux of money and
+fall of prices; and this fall of prices being permanent, although it
+would be no evil at all in a country where credit is unknown, it may be
+a very serious one where large classes of persons, and the nation
+itself, are under engagements to pay fixed sums of money of large
+amount.
+
+10. The only remaining application of the principle set forth in this
+essay, which we think it of importance to notice specially, is the
+effect produced upon a country by the annual payment of a tribute or
+subsidy to a foreign power, or by the annual remittance of rents to
+absentee landlords, or of any other kind of income to its absent owners.
+Remittances to absentees are often very incorrectly likened in their
+general character to the payment of a tribute; from which they differ in
+this very material circumstance, that tribute, if not paid to a foreign
+country, is not paid at all, whereas rents are paid to the landlord, and
+consumed by him, even if he resides at home. The two kinds of payment,
+however, have a perfect resemblance to each other in such parts of their
+effects as we are about to point out.
+
+The tribute, subsidy, or remittance, is always in goods; for, unless the
+country possesses mines of the precious metals, and numbers those metals
+among its regular articles of export, it cannot go on, year after year,
+parting with them, and never receiving them back. When a nation has
+regular payments to make in a foreign country, for which it is not to
+receive any return, its exports must annually exceed its imports by the
+amount of the payments which it is bound so to make. In order to force a
+demand for its exports greater than its imports will suffice to pay for,
+it must offer them at a rate of interchange more favourable to the
+foreign country, and less so to itself, than if it had no payments to
+make beyond the value of its imports. It therefore carries on the trade
+with less advantage, in consequence of the obligations to which it is
+subject towards persons resident in foreign countries.
+
+The steps of the process are these. The exports and imports being in
+equilibrium, suppose a treaty to be concluded, by which the country
+binds itself to pay in tribute to another country, a certain sum
+annually. It makes, perhaps, the first payment by a remittance of money.
+This lowers prices in the paying country, and raises them in the
+receiving one: the exports of the tributary country increase, its
+imports diminish. When the efflux of money has altered prices in the
+requisite degree, the exports exceed the imports annually, by the amount
+of the tribute; and the latter, being added to the sum of the payments
+due, restores the balance of payments between the two countries. The
+result to the tributary country is a diminution of her share in the
+advantage of foreign trade. She pays dearer for her imports, in two
+ways, because she pays more money, and because that money is of higher
+value, the money incomes of her inhabitants being of smaller amount.
+
+Thus the imposition of a tribute is a double burthen to the country
+paying it, and a double gain to that which receives it. The tributary
+country pays to the other, first, the tax, whatever be its amount, and
+next, something more, which the one country loses in the increased cost
+of its imports, the other gains in the diminished cost of its own.
+
+Absenteeism, moreover, though not burthensome in the former of these
+ways, since the money is paid whether the receiver be an absentee or
+not, is yet disadvantageous in the second of the two modes which have
+been mentioned. Ireland pays dearer for her imports in consequence of
+her absentees; a circumstance which the assailants of Mr. M'Culloch,
+whether political economists or not, have not, we believe, hitherto
+thought of producing against him.
+
+11. If the question be now asked, which of the countries of the world
+gains most by foreign commerce, the following will be the answer.
+
+If by gain be meant advantage, in the most enlarged sense, that country
+will generally gain the most, which stands most in need of foreign
+commodities.
+
+But if by gain be meant saving of labour and capital in obtaining the
+commodities which the country desires to have, whatever they may be; the
+country will gain, not in proportion to its own need of foreign
+articles, but to the need which foreigners have of the articles which
+itself produces.
+
+Let us take, as an illustration of our meaning, the case of France and
+England. Those two nations, in consequence of the restrictions with
+which they have loaded their commercial intercourse, carry on so little
+trade with each other, as may almost, regard being had to the wealth and
+population of the two countries, be called none at all. If these fetters
+were at once taken off, which of the two countries would be the greatest
+gainer? England without doubt. There would instantly arise in France an
+immense demand for the cottons, woollens, and iron of England; while
+wines, brandies, and silks, the staple articles of France, are less
+likely to come into general demand here, nor would the consumption of
+such productions, it is probable, be so rapidly increased by the fall of
+price. The fall would probably be very great before France could obtain
+a vent in England for so much of her exports as would suffice to pay for
+the probable amount of her imports. There would be a considerable flow
+of the precious metals out of France into England. The English consumer
+of French wine would not merely save the amount of the duty which that
+wine now pays, but would find the wine itself falling-in prime cost,
+while his means of purchasing it would be increased by the augmentation
+of his own money income. The French consumer of English cottons, on the
+contrary, would not long continue to be able to purchase them at the
+price they now sell for in England. He would gain less, as the English
+would gain more, than might appear from a mere comparison between the
+present prices of commodities in the two countries.
+
+Various consequences would flow from opening the trade between France
+and England, which are not expected, either by the friends or by the
+opponents of the present restrictive system. The wine-growers of France,
+who imagine that free trade would relieve their distress by raising the
+price of their wine, might not improbably find that price actually
+lowered. On the other hand, our silk manufacturers would be surprised if
+they were told that the free admission of our cottons and hardware into
+the French market, would endanger _their_ branch of manufacture: yet
+such might very possibly be the effect. France, it is likely, could most
+advantageously pay us in silks for a portion of the large amount of
+cottons and hardware which we should sell to her; and though our silk
+manufacturers may now be able to compete advantageously, in some
+branches of the manufacture, with their French rivals, it by no means
+follows that they could do so when the efflux of money from France, and
+its influx into England, had lowered the price of silk goods in the
+French market, and increased all the expenses of production here.
+
+On the whole, England probably, of all the countries of Europe, draws to
+herself the largest share of the gains of international commerce:
+because her exportable articles are in universal demand, and are of such
+a kind that the demand increases rapidly as the price falls. Countries
+which export food, have the former advantage, but not the latter. But
+our own colonies, and the countries which supply us with the materials
+of our manufactures, maintain a hard struggle with us for an equal share
+of the advantages of their trade; for _their_ exports are also of a kind
+for which there exists a most extensive demand here, and a demand
+capable of almost indefinite extension by a fall of price. Contrary,
+therefore, to common opinion, it is probable that our trade with the
+colonies, and with the countries which send us the raw materials of our
+national industry, is not more but less advantageous to us, in
+proportion to its extent, than our trade with the continent of Europe.
+We mean in respect to the mere amount of the return to the labour and
+capital of the country; considered abstractedly from the usefulness or
+agreeableness of the particular articles on which the receivers may
+choose to expend it.
+
+
+NOTES:
+
+[1] _Elements of Political Economy_, by James Mill, Esq., 3rd
+edit., pp. 120-1.
+
+[2] The figures used are of course arbitrary, having no
+reference to any existing prices.
+
+[3] We have not deemed it necessary to enter minutely into all
+the circumstances which might modify the results mentioned in the text.
+For example, let us revert to the first case, that in which the demand
+for cloth in Germany is so little affected by the rise of price in
+consequence of the tax, that the quantity bought exceeds in pecuniary
+value what it was before. As the German consumers lay out more money in
+cloth, they have less to lay out in other things; other money prices
+will fall; among the rest that of linen; and this may so increase the
+demand for linen in England as to restore the equilibrium of exports and
+imports without any passage of money. But England's treasury will still
+gain from Germany the whole of the tax, and the English people will buy
+their linen cheaper besides. Again, in the opposite case, where the tax
+so diminishes the demand, that a smaller pecuniary value is required
+than before. The German consumers have, therefore, more to expend in
+other things; these, and among the rest linen, will rise; and this may
+so diminish the demand for linen in England, as to restore the
+equilibrium without the transmission of money. But the effect, as
+respects the division of the advantage, is still as stated in the text.
+
+[4] The world at large, sellers and buyers taken together, is
+always a gainer by underselling. If, in the case supposed, England were
+compelled by a commercial treaty to exclude the linen of Flanders from
+her market, the total wealth of the world, if affected at all, would be
+diminished.
+
+For, what is the cause which enables Flanders to undersell Germany? That
+Flanders, if she had the trade, would exchange linen for cloth at a rate
+of interchange more advantageous to England. And why can Flanders do so?
+It must be either because Flanders can produce the article with a less
+comparative quantity of labour than Germany, and therefore the total
+advantage to be divided between the two countries is greater in the case
+of Flanders than of Germany; or else because, though the total advantage
+is not greater, Flanders obtains a less share of it, her demand for
+cloth being greater, at the same rate of interchange, than that of
+Germany. In the former case, to exclude Flemish linen from England would
+be to prevent the world at large from making a greater saving of labour
+instead of a less. In the latter, the exclusion would be inefficacious
+for the only end it could be intended for, viz., the benefit of Germany,
+unless Flemish money were excluded from England as well as Flemish
+linen. For Flanders would buy English cloth, paying for it in money,
+until the fall of her prices enabled her to pay for it with something
+else: and the ultimate result would be that, by the rise of prices in
+England, Germany must pay a higher price for her cloth, and so lose a
+part of the advantage in spite of the treaty; while England would pay
+for German linen the same price indeed, but as the money incomes of her
+own people would be increased, the same money price would imply a
+smaller sacrifice.
+
+[5] This last possible effect of a sudden introduction of free
+trade, was pointed out in an able article on the Silk question, in a
+work of too short duration, the _Parliamentary Review_.
+
+
+
+
+ESSAY II.
+
+OF THE INFLUENCE OF CONSUMPTION ON PRODUCTION.
+
+
+Before the appearance of those great writers whose discoveries have
+given to political economy its present comparatively scientific
+character, the ideas universally entertained both by theorists and by
+practical men, on the causes of national wealth, were grounded upon
+certain general views, which almost all who have given any considerable
+attention to the subject now justly hold to be completely erroneous.
+
+Among the mistakes which were most pernicious in their direct
+consequences, and tended in the greatest degree to prevent a just
+conception of the objects of the science, or of the test to be applied
+to the solution of the questions which it presents, was the immense
+importance attached to consumption. The great end of legislation in
+matters of national wealth, according to the prevalent opinion, was to
+create consumers. A great and rapid consumption was what the producers,
+of all classes and denominations, wanted, to enrich themselves and the
+country. This object, under the varying names of an extensive demand, a
+brisk circulation, a great expenditure of money, and sometimes _totidem
+verbis_ a large consumption, was conceived to be the great condition of
+prosperity.
+
+It is not necessary, in the present state of the science, to contest
+this doctrine in the most flagrantly absurd of its forms or of its
+applications. The utility of a large government expenditure, for the
+purpose of encouraging industry, is no longer maintained. Taxes are not
+now esteemed to be "like the dews of heaven, which return again in
+prolific showers." It is no longer supposed that you benefit the
+producer by taking his money, provided you give it to him again in
+exchange for his goods. There is nothing which impresses a person of
+reflection with a stronger sense of the shallowness of the political
+reasonings of the last two centuries, than the general reception so long
+given to a doctrine which, if it proves anything, proves that the more
+you take from the pockets of the people to spend on your own pleasures,
+the richer they grow; that the man who steals money out of a shop,
+provided he expends it all again at the same shop, is a benefactor to
+the tradesman whom he robs, and that the same operation, repeated
+sufficiently often, would make the tradesman's fortune.
+
+In opposition to these palpable absurdities, it was triumphantly
+established by political economists, that consumption never needs
+encouragement. All which is produced is already consumed, either for the
+purpose of reproduction or of enjoyment. The person who saves his income
+is no less a consumer than he who spends it: he consumes it in a
+different way; it supplies food and clothing to be consumed, tools and
+materials to be used, by productive labourers. Consumption, therefore,
+already takes place to the greatest extent which the amount of
+production admits of; but, of the two kinds of consumption, reproductive
+and unproductive, the former alone adds to the national wealth, the
+latter impairs it. What is consumed for mere enjoyment, is gone; what is
+consumed for reproduction, leaves commodities of equal value, commonly
+with the addition of a profit. The usual effect of the attempts of
+government to encourage consumption, is merely to prevent saving; that
+is, to promote unproductive consumption at the expense of reproductive,
+and diminish the national wealth by the very means which were intended
+to increase it.
+
+What a country wants to make it richer, is never consumption, but
+production. Where there is the latter, we may be sure that there is no
+want of the former. To produce, implies that the producer desires to
+consume; why else should he give himself useless labour? He may not wish
+to consume what he himself produces, but his motive for producing and
+selling is the desire to buy. Therefore, if the producers generally
+produce and sell more and more, they certainly also buy more and more.
+Each may not want more of what he himself produces, but each wants more
+of what some other produces; and, by producing what the other wants,
+hopes to obtain what the other produces. There will never, therefore, be
+a greater quantity produced, of commodities in general, than there are
+consumers for. But there may be, and always are, abundance of persons
+who have the inclination to become consumers of some commodity, but are
+unable to satisfy their wish, because they have not the means of
+producing either that, or anything to give in exchange for it. The
+legislator, therefore, needs not give himself any concern about
+consumption. There will always be consumption for everything which can
+be produced, until the wants of all who possess the means of producing
+are completely satisfied, and then production will not increase any
+farther. The legislator has to look solely to two points: that no
+obstacle shall exist to prevent those who have the means of producing,
+from employing those means as they find most for their interest; and
+that those who have not at present the means of producing, to the extent
+of their desire to consume, shall have every facility afforded to their
+acquiring the means, that, becoming producers, they may be enabled to
+consume.
+
+These general principles are now well understood by almost all who
+profess to have studied the subject, and are disputed by few except
+those who ostentatiously proclaim their contempt for such studies. We
+touch upon the question, not in the hope of rendering these fundamental
+truths clearer than they already are, but to perform a task, so useful
+and needful, that it is to be wished it were oftener deemed part of the
+business of those who direct their assaults against ancient prejudices,
+--that of seeing that no scattered particles of important truth are
+buried and lost in the ruins of exploded error. Every prejudice, which
+has long and extensively prevailed among the educated and intelligent,
+must certainly be borne out by some strong appearance of evidence; and
+when it is found that the evidence does not prove the received
+conclusion, it is of the highest importance to see what it does prove.
+If this be thought not worth inquiring into, an error conformable to
+appearances is often merely exchanged for an error contrary to
+appearances; while, even if the result be truth, it is paradoxical
+truth, and will have difficulty in obtaining credence while the false
+appearances remain.
+
+Let us therefore inquire into the nature of the appearances, which gave
+rise to the belief that a great demand, a brisk circulation, a rapid
+consumption (three equivalent expressions), are a cause of national
+prosperity.
+
+If every man produced for himself, or with his capital employed others
+to produce, everything which he required, customers and their wants
+would be a matter of profound indifference to him. He would be rich, if
+he had produced and stored up a large supply of the articles which he
+was likely to require; and poor, if he had stored up none at all, or not
+enough to last until he could produce more.
+
+The case, however, is different after the separation of employments. In
+civilized society, a single producer confines himself to the production
+of one commodity, or a small number of commodities; and his affluence
+depends, not solely upon the quantity of his commodity which he has
+produced and laid in store, but upon his success in finding purchasers
+for that commodity.
+
+It is true, therefore, of every particular producer or dealer, that
+a great demand, a brisk circulation, a rapid consumption, of the
+commodities which he sells at his shop or produces in his manufactory,
+is important to him. The dealer whose shop is crowded with customers,
+who can dispose of a product almost the very moment it is completed,
+makes large profits, while his next neighbour, with an equal capital
+but fewer customers, gains comparatively little.
+
+It was natural that, in this case, as in a hundred others, the analogy
+of an individual should be unduly applied to a nation: as it has been
+concluded that a nation generally gains in wealth by the conquest of a
+province, because an individual frequently does so by the acquisition of
+an estate; and as, because an individual estimates his riches by the
+quantity of money which he can command, it was long deemed an excellent
+contrivance for enriching a country, to heap up artificially the
+greatest possible quantity of the precious metals within it.
+
+Let us examine, then, more closely than has usually been done, the case
+from which the misleading analogy is drawn. Let us ascertain to what
+extent the two cases actually resemble; what is the explanation of the
+false appearance, and the real nature of the phenomenon which, being
+seen indistinctly, has led to a false conclusion.
+
+       *       *       *       *       *
+
+We shall propose for examination a very simple case, but the explanation
+of which will suffice to clear up all other cases which fall within the
+same principle. Suppose that a number of foreigners with large incomes
+arrive in a country, and there expend those incomes: will this operation
+be beneficial, as respects the national wealth, to the country which
+receives these immigrants? Yes, say many political economists, if they
+save any part of their incomes, and employ them reproductively; because
+then an addition is made to the national capital, and the produce is a
+clear increase of the national wealth. But if the foreigner expends all
+his income unproductively, it is no benefit to the country, say they,
+and for the following reason.
+
+If the foreigner had his income remitted to him in bread and beef, coats
+and shoes, and all the other articles which he was desirous to consume,
+it would not be pretended that his eating, drinking, and wearing them,
+on our shores rather than on his own, could be of any advantage to us in
+point of wealth. Now, the case is not different if his income is
+remitted to him in some one commodity, as, for instance, in money. For
+whatever takes place afterwards, with a view to the supply of his wants,
+is a mere exchange of equivalents; and it is impossible that a person
+should ever be enriched by merely receiving an equal value in exchange
+for an equal value.
+
+When it is said that the purchases of the foreign consumer give
+employment to capital which would otherwise yield no profit to its
+owner, the same political economists reject this proposition as
+involving the fallacy of what has been called a "general glut." They
+say, that the capital, which any person has chosen to produce and to
+accumulate, can always find employment, since the fact that he has
+accumulated it proves that he had an unsatisfied desire; and if he
+cannot find anything to produce for the wants of other consumers, he can
+for his own.
+
+It is impossible to contest these propositions as thus stated. But there
+is one consideration which clearly shews, that there is something more
+in the matter than is here taken into the account; and this is, that the
+above reasoning tends distinctly to prove, that it does a tradesman no
+good to go into his shop and buy his goods. How can he be enriched? it
+might be asked. He merely receives a certain value in money, for an
+equivalent value in goods. Neither does this give employment to his
+capital; for there never exists more capital than can find employment,
+and if one person does not buy his goods another will; or if nobody
+does, there is over-production in that business, he can remove his
+capital, and find employment for it in another trade.
+
+Every one sees the fallacy of this reasoning as applied to individual
+producers. Every one knows that as applied to them it has not even the
+semblance of plausibility; that the wealth of a producer does in a great
+measure depend upon the number of his customers, and that in general
+every additional purchaser does really add to his profits. If the
+reasoning, which would be so absurd if applied to individuals, be
+applicable to nations, the principle on which it rests must require much
+explanation and elucidation.
+
+Let us endeavour to analyse with precision the real nature of the
+advantage which a producer derives from an addition to the number of his
+customers.
+
+For this purpose, it is necessary that we should premise a single
+observation on the meaning of the word capital. It is usually defined,
+the food, clothing, and other articles set aside for the consumption of
+the labourer, together with the materials and instruments of production.
+This definition appears to us peculiarly liable to misapprehension; and
+much vagueness and some narrow views have, we conceive, occasionally
+resulted from its being interpreted with too mechanical an adherence to
+the literal meaning of the words.
+
+The capital, whether of an individual or of a nation, consists, we
+apprehend, of all matters possessing exchangeable value, which the
+individual or the nation has in his or in its possession for the purpose
+of reproduction, and not for the purpose of the owner's unproductive
+enjoyment. All unsold goods, therefore, constitute a part of the
+national capital, and of the capital of the producer or dealer to whom
+they belong. It is true that tools, materials, and the articles on which
+the labourer is supported, are the only articles which are directly
+subservient to production: and if I have a capital consisting of money,
+or of goods in a warehouse, I can only employ them as means of
+production in so far as they are capable of being exchanged for the
+articles which conduce directly to that end. But the food, machinery,
+&c, which will ultimately be purchased with the goods in my warehouse,
+may at this moment not be in the country, may not be even in existence.
+If, after having sold the goods, I hire labourers with the money, and
+set them to work, I am surely employing capital, though the corn, which
+in the form of bread those labourers may buy with the money, may be now
+in warehouse at Dantzic, or perhaps not yet above ground.
+
+Whatever, therefore, is destined to be employed reproductively, either
+in its existing shape, or indirectly by a previous (or even subsequent)
+exchange, is capital. Suppose that I have laid out all the money I
+possess in wages and tools, and that the article I produce is just
+completed: in the interval which elapses before I can sell the article,
+realize the proceeds, and lay them out again in wages and tools, will it
+be said that I have no capital? Certainly not: I have the same capital
+as before, perhaps a greater, but it is locked up, as the expression is,
+and not disposable.
+
+When we have thus seen accurately what really constitutes capital, it
+becomes obvious, that of the capital of a country, there is at all times
+a very large proportion lying idle. The annual produce of a country is
+never any thing approaching in magnitude to what it might be if all the
+resources devoted to reproduction, if all the capital, in short, of the
+country, were in full employment.
+
+If every commodity on an average remained unsold for a length of time
+equal to that required for its production, it is obvious that, at any
+one time, no more than half the productive capital of the country would
+be really performing the functions of capital. The two halves would
+relieve one another, like the semichori in a Greek tragedy; or rather
+the half which was in employment would be a fluctuating portion,
+composed of varying parts; but the result would be, that each producer
+would be able to produce every year only half as large a supply of
+commodities, as he could produce if he were sure of selling them the
+moment the production was completed.
+
+This, or something like it, is however the habitual state, at every
+instant, of a very large proportion of all the capitalists in the world.
+
+The number of producers, or dealers, who turn over their capital, as the
+expression is, in the shortest possible time, is very small. There are
+few who have so rapid a sale for their wares, that all the goods which
+their own capital, or the capital which they can borrow, enables them to
+supply, are carried off as fast as they can be supplied. The majority
+have not an _extent of business_, at all adequate to the amount of the
+capital they dispose of. It is true that, in the communities in which
+industry and commerce are practised with greatest success, the
+contrivances of banking enable the possessor of a larger capital than he
+can employ in his own business, to employ it productively and derive a
+revenue from it notwithstanding. Yet even then, there is, of necessity,
+a great quantity of capital which remains fixed in the shape of
+implements, machinery, buildings, &c, whether it is only half employed,
+or in complete employment: and every dealer keeps a stock in trade, to
+be ready for a possible sudden demand, though he probably may not be
+able to dispose of it for an indefinite period.
+
+This perpetual non-employment of a large proportion of capital, is the
+price we pay for the division of labour. The purchase is worth what it
+costs; but the price is considerable.
+
+Of the importance of the fact which has just been noticed there are
+three signal proofs. One is, the large sum often given for the goodwill
+of a particular business. Another is, the large rent which is paid for
+shops in certain situations, near a great thoroughfare for example,
+which have no advantage except that the occupier may expect a larger
+body of customers, and be enabled to turn over his capital more quickly.
+Another is, that in many trades, there are some dealers who sell
+articles of an equal quality at a lower price than other dealers. Of
+course, this is not a voluntary sacrifice of profits: they expect by the
+consequent overflow of customers to turn over their capital more
+quickly, and to be gainers by keeping the whole of their capital in more
+constant employment, though on any given operation their gains are less.
+
+The reasoning cited in the earlier part of this paper, to show the
+uselessness of a mere purchaser or customer, for enriching a nation or
+an individual, applies only to the case of dealers who have already as
+much business as their capital admits of, and as rapid a sale for their
+commodities as is possible. To such dealers an additional purchaser is
+really of no use; for, if they are sure of selling all their commodities
+the moment those commodities are on sale, it is of no consequence whether
+they sell them to one person or to another. But it is questionable
+whether there be any dealers in whose case this hypothesis is exactly
+verified; and to the great majority it is not applicable at all. An
+additional customer, to most dealers, is equivalent to an increase of
+their productive capital. He enables them to convert a portion of their
+capital which was lying idle (and which could never have become
+productive in their hands until a customer was found) into wages and
+instruments of production; and if we suppose that the commodity, unless
+bought by him, would not have found a purchaser for a year after, then
+all which a capital of that value can enable men to produce during a
+year, is clear gain--gain to the dealer, or producer, and to the
+labourers whom he will employ, and thus (if no one sustains any
+corresponding loss) gain to the nation. The aggregate produce of the
+country for the succeeding year is, therefore, increased; not by the
+mere exchange, but by calling into activity a portion of the national
+capital, which, had it not been for the exchange, would have remained
+for some time longer unemployed.
+
+Thus there are actually at all times producers and dealers, of all, or
+nearly all classes, whose capital is lying partially idle, because they
+have not found the means of fulfilling the condition which the division
+of labour renders indispensable to the full employment of capital,--viz.,
+that of exchanging their products with each other. If these persons
+could find one another out, they could mutually relieve each other from
+this disadvantage. Any two shopkeepers, in insufficient employment, who
+agreed to deal at each other's shops so long as they could there
+purchase articles of as good a quality as elsewhere, and at as low a
+price, would render the nation a service. It may be said that they must
+previously have dealt, to the same amount, with some other dealers; but
+this is erroneous, since they could only have obtained the means of
+purchasing by being previously enabled to sell. By their compact, each
+would gain a customer, who would call his capital into fuller employment;
+each therefore would obtain an increased produce; and they would thus be
+enabled to become better customers to each other than they could be to
+third parties.
+
+It is obvious that every dealer who has not business sufficient fully to
+employ his capital (which is the case with all dealers when they commence
+business, and with many to the end of their lives), is in this
+predicament simply for want of some one with whom to exchange his
+commodities; and as there are such persons to about the same degree
+probably in all trades, it is evident that if these persons sought one
+another out, they have their remedy in their own hands, and by each
+other's assistance might bring their capital into more full employment.
+
+We are now qualified to define the exact nature of the benefit which a
+producer or dealer derives from the acquisition of a new customer. It is
+as follows:--
+
+1. If any part of his own capital was locked up in the form of unsold
+goods, producing (for a longer period or a shorter) nothing at all;
+a portion of this is called into greater activity, and becomes more
+constantly productive. But to this we must add some further advantages.
+
+2. If the additional demand exceeds what can be supplied by setting at
+liberty the capital which exists in the state of unsold goods; and if
+the dealer has additional resources, which were productively invested
+(in the public funds, for instance), but not in his own trade; he is
+enabled to obtain, on a portion of these, not mere interest, but profit,
+and so to gain that difference between the rate of profit and the rate
+of interest, which may be considered as "wages of superintendance."
+
+3. If all the dealer's capital is employed in his own trade, and no part
+of it locked up as unsold goods, the new demand affords him additional
+encouragement to save, by enabling his savings to yield him not merely
+interest, but profit; and if he does not choose to save (or until he
+shall have saved), it enables him to carry on an additional business
+with borrowed capital, and so gain the difference between interest and
+profit, or, in other words, to receive wages of superintendance on a
+larger amount of capital.
+
+This, it will be found, is a complete account of all the gains which a
+dealer in any commodity can derive from an accession to the number of
+those who deal with him: and it is evident to every one, that these
+advantages are real and important, and that they are the cause which
+induces a dealer of any kind to desire an increase of his business.
+
+It follows from these premises, that the arrival of a new unproductive
+consumer (living on his own means) in any place, be that place a
+village, a town, or an entire country, is beneficial to that place, if
+it causes to any of the dealers of the place any of the advantages above
+enumerated, without withdrawing an equal advantage of the same kind from
+any other dealer of the same place.
+
+This accordingly is the test by which we must try all such questions,
+and by which the propriety of the analogical argument, from dealing with
+a tradesman to dealing with a nation, must be decided.
+
+Let us take, for instance, as our example, Paris, which is much
+frequented by strangers from various parts of the world, who, as
+sojourners there, live unproductively upon their means. Let us consider
+whether the presence of these persons is beneficial, in an _industrial_
+point of view, to Paris.
+
+We exclude from the consideration that portion of the strangers' incomes
+which they pay to natives as direct remuneration for service, or labour
+of any description. This is obviously beneficial to the country. An
+increase in the funds expended in employing labour, whether that labour
+be productive or unproductive, tends equally to raise wages. The
+condition of the whole labouring class is, so far, benefited. It is true
+that the labourers thus employed by sojourners are probably, in part or
+altogether, withdrawn from productive employment. But this is far from
+being an evil; for either the situation of the labouring classes is
+improved, which is far more than an equivalent for a diminution in mere
+production, or the rise of wages acts as a stimulus to population, and
+then the number of productive labourers becomes as great as before.
+
+To this we may add, that what the sojourners pay as wages of labour or
+service (whether constant or casual), though expended unproductively by
+the first possessor, may, when it passes into the hands of the receivers,
+be by them saved, and invested in a productive employment. If so, a direct
+addition is made to the national capital.
+
+All this is obvious, and is sufficiently allowed by political economists;
+who have invariably set apart the gains of all persons coming under the
+class of domestic servants, as real advantages arising to a place from
+the residence there of an increased number of unproductive consumers.
+
+We have only to examine whether the purchases of commodities by these
+unproductive consumers, confer the same kind of benefit upon the
+village, town, or nation, which is bestowed upon a particular tradesman
+by dealing at his shop.
+
+Now it is obvious that the sojourners, on their arrival, confer the
+benefit in question upon some dealers, who did not enjoy it before. They
+purchase their food, and many other articles, from the dealers in the
+place. They, therefore, call the capital of some dealers, which was
+locked up in unsold goods, into more active employment. They encourage
+them to save, and enable them to receive wages of superintendance upon a
+larger amount of capital. These effects being undeniable, the question
+is, whether the presence of the sojourners deprives any others of the
+Paris dealers of a similar advantage.
+
+It will be seen that it does; and nothing will then remain but a
+comparison of the amounts.
+
+It is obvious to all who reflect (and was shown in the paper which
+precedes this) that the remittances to persons who expend their incomes
+in foreign countries are, after a slight passage of the precious metals,
+defrayed in commodities: and that the result commonly is, an increase of
+exports and a diminution of imports, until the latter fall short of the
+former by the amount of the remittances.
+
+The arrival, therefore, of the strangers (say from England), while it
+creates at Paris a market for commodities equivalent in value to their
+funds, displaces in the market other commodities to an equal value. To
+the extent of the increase of exports from England into France in the
+way of remittance, it introduces additional commodities which, by their
+cheapness, displace others formerly produced in that country. To the
+extent of the diminution of imports into England from France,
+commodities which existed or which were habitually produced in that
+country are deprived of a market, or can only find one at a price not
+sufficient to defray the cost.
+
+It must, therefore, be a matter of mere accident, if by arriving in a
+place, the new unproductive consumer causes any net advantage to its
+industry, of the kind which we are now examining. Not to mention that
+this, like any other change in the channels of trade, may render useless
+a portion of fixed capital, and so far injure the national wealth.
+
+A distinction, however, must here be made.
+
+The place to which the new unproductive consumers have come, may be a
+town or village, as well as a country. If a town or village, it may
+either be or not be a place having an export trade.
+
+If the place had no previous trade except with the immediate
+neighbourhood, there are no exports and imports, by the new arrangement
+of which, the remittance can be made. There is no capital, formerly
+employed in manufacturing for the foreign market, which is now brought
+into less full employment.
+
+Yet the remittance evidently is still made in commodities, but in this
+case without displacing any which were produced before. To shew this, it
+is necessary to make the following remarks.
+
+The reason why towns exist, is that _ceteris paribus_ it is convenient,
+in order to save cost of carriage, that the production of commodities
+should take place as far as practicable in the immediate vicinity of the
+consumer. Capital finds its way so easily from town to country and from
+country to town, that the amount of capital in the town will be regulated
+wholly by the amount which can be employed there more conveniently than
+elsewhere. Consequently the capital of a place will be such as is
+sufficient
+
+1st. To produce all commodities which from local circumstances can be
+produced there at less cost than elsewhere: and if this be the case to
+any great extent, it will be an exporting town. When we say _produced_,
+we may add, or _stored_.
+
+2nd. To produce and retail the commodities which are consumed by the
+inhabitants of the town, and the place of whose production is in other
+respects a matter of indifference. To the inhabitants of the town must
+be added such dwellers in the adjoining country, as are nearer to that
+place than to any other equally well furnished market.
+
+Now, if new unproductive consumers resort to the place, it is clear that
+for the latter of these two purposes, more capital will be required than
+before. Consequently, if less is not required for the former purpose,
+more capital will establish itself at the place.
+
+Until this additional capital has arrived, the producers and dealers
+already on the spot will enjoy great advantages. Every particle of their
+own capital will be called into the most active employment. What their
+capital does not enable them to supply, will be got from others at a
+distance, who cannot supply it on such favourable terms; consequently
+they will be in the predicament of possessing a partial monopoly
+--receiving for every thing a price regulated by a higher cost of
+production than they are compelled to pay. They also, being in possession
+of the market, will be enabled to make a large portion of the new capital
+pass through their hands, and thus to earn wages of superintendance upon
+it.
+
+If, indeed, the place from whence the strangers came, previously traded
+with that where they have taken up their abode, the effect of their
+arrival is, that the exports of the town will diminish, and that it will
+be supplied from abroad with something which it previously produced at
+home. In this way an amount of capital will be set free equal to that
+required, and there will be no increase on the whole. The removal of the
+court from London to Birmingham would not necessarily, though it would
+probably [6], increase the amount of capital in the latter place. The
+afflux of money to Birmingham, and its efflux from London, would render
+it cheaper to make some articles in London for Birmingham consumption;
+and to make others in London for home consumption, which were formerly
+brought from Birmingham.
+
+But instead of Birmingham, an exporting town, suppose a village, or a
+town which only produced and retailed for itself and its immediate
+vicinity. The remittances must come thither in the shape of money; and
+though the money would not remain, but would be sent away in exchange
+for commodities, it would, however, first pass through the hands of the
+producers and dealers in the place, and would by them be exported in
+exchange for the articles which they require--viz. the materials, tools,
+and subsistence necessary for the increased production now required of
+them, and articles of foreign luxury for their own increased unproductive
+consumption. These articles would not displace any formerly made in the
+place, but on the contrary, would forward the production of more.
+
+Hence we may consider the following propositions as established:
+
+1. The expenditure of absentees (the case of domestic servants excepted,)
+is not necessarily any loss to the _country_ which they leave, or gain to
+the _country_ which they resort to (save in the manner shown in Essay I.):
+for almost every _country_ habitually exports and imports to a much
+greater value than the incomes of its absentees, or of the foreign
+sojourners within it.
+
+2. But sojourners often do much good to the _town_ or village which they
+resort to, and absentees harm to that which they leave. The capital of
+the petty tradesman in a small town near an absentee's estate, is
+deprived of the market for which it is conveniently situated, and must
+resort to another to which other capitals lie nearer, and where it is
+consequently outbid, and gains less; obtaining only the same price, with
+greater expenses. But this evil would be equally occasioned, if, instead
+of going abroad, the absentee had removed to his own capital city.
+
+If the tradesman could, in the latter case, remove to the metropolis, or
+in the former, employ himself in producing increased exports, or in
+producing for home consumption articles now no longer imported, each in
+the place most convenient for that operation; he would not be a loser,
+though the place which he was obliged to leave might be said to lose.
+
+Paris undoubtedly gains much by the sojourn of foreigners, while the
+counteracting loss by diminution of exports from France is suffered by
+the great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c,
+which also suffer the principal part of the loss by importation of
+articles previously produced at home. The capital thus set free, finds
+its most convenient seat to be Paris, since the business to which it
+must turn is the production of articles to be unproductively consumed by
+the sojourners.
+
+The great trading towns of France would undoubtedly be more flourishing,
+if France were not frequented by foreigners.
+
+Rome and Naples are perhaps purely benefited by the foreigners
+sojourning there: for they have so little external trade, that their
+case may resemble that of the village in our hypothesis.
+
+Absenteeism, therefore, (except as shown in the first Essay,) is a
+local, not a national evil; and the resort of foreigners, in so far as
+they purchase for unproductive consumption, is not, in any commercial
+country, a national, though it may be a local good.
+
+From the considerations which we have now adduced, it is obvious what
+is meant by such phrases as a _brisk demand_, and a rapid circulation.
+There is a brisk demand and a rapid circulation, when goods, generally
+speaking, are sold as fast as they can be produced. There is slackness,
+on the contrary, and stagnation, when goods, which have been produced,
+remain for a long time unsold. In the former case, the capital which has
+been locked up in production is disengaged as soon as the production is
+completed; and can be immediately employed in further production. In the
+latter case, a large portion of the productive capital of the country is
+lying in temporary inactivity.
+
+From what has been already said, it is obvious that periods of "brisk
+demand" are also the periods of greatest production: the national
+capital is never called into full employment but at those periods. This,
+however, is no reason for desiring such times; it is not desirable that
+the whole capital of the country should be in full employment. For, the
+calculations of producers and traders being of necessity imperfect,
+there are always some commodities which are more or less in excess, as
+there are always some which are in deficiency. If, therefore, the whole
+truth were known, there would always be some classes of producers
+contracting, not extending, their operations. If _all_ are endeavouring
+to extend them, it is a certain proof that some general delusion is
+afloat. The commonest cause of such delusion is some general, or very
+extensive, rise of prices (whether caused by speculation or by the
+currency) which persuades all dealers that they are growing rich. And
+hence, an increase of production really takes place during the progress
+of depreciation, as long as the existence of depreciation is not
+suspected; and it is this which gives to the fallacies of the currency
+school, principally represented by Mr. Attwood, all the little
+plausibility they possess. But when the delusion vanishes and the truth
+is disclosed, those whose commodities are relatively in excess must
+diminish their production or be ruined: and if during the high prices
+they have built mills and erected machinery, they will be likely to
+repent at leisure.
+
+In the present state of the commercial world, mercantile transactions
+being carried on upon an immense scale, but the remote causes of
+fluctuations in prices being very little understood, so that
+unreasonable hopes and unreasonable fears alternately rule with
+tyrannical sway over the minds of a majority of the mercantile public;
+general eagerness to buy and general reluctance to buy, succeed one
+another in a manner more or less marked, at brief intervals. Except
+during short periods of transition, there is almost always either great
+briskness of business or great stagnation; either the principal
+producers of almost all the leading articles of industry have as many
+orders as they can possibly execute, or the dealers in almost all
+commodities have their warehouses full of unsold goods.
+
+In this last ease, it is commonly said that there is a general
+superabundance; and as those economists who have contested the
+possibility of general superabundance, would none of them deny the
+possibility or even the frequent occurrence of the phenomenon which we
+have just noticed, it would seem incumbent on them to show, that the
+expression to which they object is not applicable to a state of things
+in which all or most commodities remain unsold, in the same sense in
+which there is said to be a superabundance of any one commodity when it
+remains in the warehouses of dealers for want of a market.
+
+This is merely a question of naming, but an important one, as it seems
+to us that much apparent difference of opinion has been produced by a
+mere difference in the mode of describing the same facts, and that
+persons who at bottom were perfectly agreed, have considered each other
+as guilty of gross error, and sometimes oven misrepresentation, on this
+subject.
+
+In order to afford the explanations, with which it is necessary to take
+the doctrine of the impossibility of an excess of all commodities, we
+must advert for a moment to the argument by which this impossibility is
+commonly maintained.
+
+There can never, it is said, be a want of buyers for all commodities;
+because whoever offers a commodity for sale, desires to obtain a
+commodity in exchange for it, and is therefore a buyer by the mere fact
+of his being a seller. The sellers and the buyers, for all commodities
+taken together, must, by the metaphysical necessity of the case, be an
+exact equipoise to each other; and if there be more sellers than buyers
+of one thing, there must be more buyers than sellers for another.
+
+This argument is evidently founded on the supposition of a state of
+barter; and, on that supposition, it is perfectly incontestable. When
+two persons perform an act of barter, each of them is at once a seller
+and a buyer. He cannot sell without buying. Unless he chooses to buy
+some other person's commodity, he does not sell his own.
+
+If, however, we suppose that money is used, these propositions cease to
+be exactly true. It must be admitted that no person desires money for
+its own sake, (unless some very rare cases of misers be an exception,)
+and that he who sells his commodity, receiving money in exchange, does
+so with the intention of buying with that same money some other commodity.
+Interchange by means of money is therefore, as has been often observed,
+ultimately nothing but barter. But there is this difference--that in the
+case of barter, the selling and the buying are simultaneously confounded
+in one operation; you sell what you have, and buy what you want, by one
+indivisible act, and you cannot do the one without doing the other. Now
+the effect of the employment of money, and even the utility of it, is,
+that it enables this one act of interchange to be divided into two
+separate acts or operations; one of which may be performed now, and the
+other a year hence, or whenever it shall be most convenient. Although he
+who sells, really sells only to buy, he needs not buy at the same moment
+when he sells; and he does not therefore necessarily add to the
+_immediate_ demand for one commodity when he adds to the supply of
+another. The buying and selling being now separated, it may very well
+occur, that there may be, at some given time, a very general inclination
+to sell with as little delay as possible, accompanied with an equally
+general inclination to defer all purchases as long as possible. This is
+always actually the case, in those periods which are described as
+periods of general excess. And no one, after sufficient explanation,
+will contest the possibility of general excess, in this sense of the
+word. The state of things which we have just described, and which is of
+no uncommon occurrence, amounts to it.
+
+For when there is a general anxiety to sell, and a general
+disinclination to buy, commodities of all kinds remain for a long time
+unsold, and those which find an immediate market, do so at a very low
+price. If it be said that when all commodities fall in price, the fall
+is of no consequence, since mere money price is not material while the
+relative value of all commodities remains the same, we answer that this
+would be true if the low prices were to last for ever. But as it is
+certain that prices will rise again sooner or later, the person who is
+obliged by necessity to sell his commodity at a low money price is
+really a sufferer, the money he receives sinking shortly to its ordinary
+value. Every person, therefore, delays selling if he can, keeping his
+capital unproductive in the mean time, and sustaining the consequent
+loss of interest. There is stagnation to those who are not obliged to
+sell, and distress to those who are.
+
+It is true that this state can be only temporary, and must even be
+succeeded by a reaction of corresponding violence, since those who have
+sold without buying will certainly buy at last, and there will then be
+more buyers than sellers. But although the general over-supply is of
+necessity only temporary, this is no more than may be said of every
+partial over-supply. An overstocked state of the market is always
+temporary, and is generally followed by a more than common briskness of
+demand.
+
+In order to render the argument for the impossibility of an excess of
+all commodities applicable to the case in which a circulating medium is
+employed, money must itself be considered as a commodity. It must,
+undoubtedly, be admitted that there cannot be an excess of all other
+commodities, and an excess of money at the same time.
+
+But those who have, at periods such as we have described, affirmed that
+there was an excess of all commodities, never pretended that money was
+one of these commodities; they held that there was not an excess, but
+a deficiency of the circulating medium. What they called a general
+superabundance, was not a superabundance of commodities relatively to
+commodities, but a superabundance of all commodities relatively to
+money. What it amounted to was, that persons in general, at that
+particular time, from a general expectation of being called upon to meet
+sudden demands, liked better to possess money than any other commodity.
+Money, consequently, was in request, and all other commodities were in
+comparative disrepute. In extreme cases, money is collected in masses,
+and hoarded; in the milder cases, people merely defer parting with their
+money, or coming under any new engagements to part with it. But the
+result is, that all commodities fall in price, or become unsaleable.
+When this happens to one single commodity, there is said to be a
+superabundance of that commodity; and if that be a proper expression,
+there would seem to be in the nature of the case no particular
+impropriety in saying that there is a superabundance of all or most
+commodities, when all or most of them are in this same predicament.
+
+It is, however, of the utmost importance to observe that excess of all
+commodities, in the only sense in which it is possible, means only a
+temporary fall in their value relatively to money. To suppose that the
+markets for all commodities could, in any other sense than this, be
+overstocked, involves the absurdity that commodities may fall in value
+relatively to themselves; or that, of two commodities, each can fall
+relatively to the other, A becoming equivalent to B-_x_, and B to A-_x_,
+at the same time. And it is, perhaps, a sufficient reason for not using
+phrases of this description, that they suggest the idea of excessive
+production. A want of market for one article may arise from excessive
+production of that article; but when commodities in general become
+unsaleable, it is from a very different cause; there cannot be excessive
+production of commodities in general.
+
+The argument against the possibility of general over-production is quite
+conclusive, so far as it applies to the doctrine that a country may
+accumulate capital too fast; that produce in general may, by increasing
+faster than the demand for it, reduce all producers to distress. This
+proposition, strange to say, was almost a received doctrine as lately as
+thirty years ago; and the merit of those who have exploded it is much
+greater than might be inferred from the extreme obviousness of its
+absurdity when it is stated in its native simplicity. It is true that if
+all the wants of all the inhabitants of a country were fully satisfied,
+no further capital could find useful employment; but, in that case, none
+would be accumulated. So long as there remain any persons not possessed,
+we do not say of subsistence, but of the most refined luxuries, and who
+would work to possess them, there is employment for capital; and if the
+commodities which these persons want are not produced and placed at
+their disposal, it can only be because capital does not exist, disposable
+for the purpose of employing, if not any other labourers, those very
+labourers themselves, in producing the articles for their own consumption.
+Nothing can be more chimerical than the fear that the accumulation of
+capital should produce poverty and not wealth, or that it will ever take
+place too fast for its own end. Nothing is more true than that it is
+produce which constitutes the market for produce, and that every increase
+of production, if distributed without miscalculation among all kinds of
+produce in the proportion which private interest would dictate, creates,
+or rather constitutes, its own demand.
+
+This is the truth which the deniers of general over-production have
+seized and enforced; nor is it pretended that anything has been added
+to it, or subtracted from it, in the present disquisition. But it is
+thought that those who receive the doctrine accompanied with the
+explanations which we have given, will understand, more clearly than
+before, what is, and what is not, implied in it; and will see that, when
+properly understood, it in no way contradicts those obvious facts which
+are universally known and admitted to be not only of possible, but of
+actual and even frequent occurrence. The doctrine in question only
+appears a paradox, because it has usually been so expressed as
+apparently to contradict these well-known facts; which, however, were
+equally well known to the authors of the doctrine, who, therefore, can
+only have adopted from inadvertence any form of expression which could
+to a candid person appear inconsistent with it. The essentials of the
+doctrine are preserved when it is allowed that there cannot be permanent
+excess of production, or of accumulation; though it be at the same time
+admitted, that as there may be a temporary excess of any one article
+considered separately, so may there of commodities generally, not in
+consequence of over-production, but of a want of commercial confidence.
+
+
+NOTE:
+
+[6] Probably; because most articles of an ornamental description being
+still required from the same makers, these makers, with their capital,
+would probably follow their customers, Besides, from place to place
+within the same country, most persons will lather change their
+habitation than their employment. But the moving on this score would be
+reciprocal.
+
+
+
+
+ESSAY III.
+
+ON THE WORDS PRODUCTIVE AND UNPRODUCTIVE.
+
+
+It would probably be difficult to point out any two words, respecting
+the proper use of which political economists have been more divided,
+than they have been concerning the two words _productive_ and
+_unproductive_; whether considered as applied to _labour_, to
+_consumption_, or to _expenditure_.
+
+Although this is a question solely of nomenclature, it is one of
+sufficient importance to be worth another attempt to settle it
+satisfactorily. For, although writers on political economy have not
+agreed in the ideas which they were accustomed to annex to these terms,
+the terms have generally been employed to denote ideas of very great
+importance, and it is impossible that some vagueness should not have
+been thrown upon the ideas themselves by looseness in the use of the
+words by which they are habitually designated. Further, so long as the
+pedantic objection to the introduction of new technical terms continues,
+accurate thinkers on moral and political subjects are limited to a very
+scanty vocabulary for the expression of their ideas. It therefore is of
+great importance that the words with which mankind are familiar, should
+be turned to the greatest possible advantage as instruments of thought;
+that one word should not be used as the sign of an idea which is already
+sufficiently expressed by another word; and that words which are
+required to denote ideas of great importance, should not be usurped for
+the expression of such as are comparatively insignificant.
+
+The phrases _productive labour_, and _productive consumption_, have been
+employed by some writers on political economy with very great latitude.
+They have considered, and classed, as productive labour and productive
+consumption, all labour which serves any _useful_ purpose--all
+consumption which is not _waste_. Mr. M'Culloch has asserted, _totidem
+verbis_, that the labour of Madame Pasta was as well entitled to be
+called productive labour as that of a cotton spinner.
+
+Employed in this sense, the words _productive_ and _unproductive_ are
+superfluous, since the words _useful_ and _agreeable_ on the one hand,
+_useless_ and _worthless_ on the other, are quite sufficient to express
+all the ideas to which the words _productive_ and _unproductive_ are
+here applied.
+
+This use of the terms, therefore, is subversive of the ends of language.
+
+Those writers who have employed the words in a more limited sense, have
+usually understood by productive or unproductive labour, labour which is
+productive of wealth, or unproductive of wealth. But what is wealth? And
+here the words productive and unproductive have been affected with
+additional ambiguities, corresponding to the different extension which
+different writers have given to the term wealth.
+
+Some have given the name of wealth to _all things_ which tend to the use
+or enjoyment of mankind, and which possess exchangeable value. This last
+clause is added to exclude air, the light of the sun, and any other
+things which can be obtained in unlimited quantity without labour or
+sacrifice; together with all such things as, though produced by labour,
+are not held in sufficient general estimation to command any price in
+the market.
+
+But when this definition came to be explained, many persons were
+disposed to interpret "_all things_ which tend to the use or enjoyment
+of man," as implying only all _material_ things. _Immaterial_ products
+they refused to consider as wealth; and labour or expenditure which
+yielded nothing but immaterial products, they characterised as
+unproductive labour and unproductive expenditure.
+
+To this it was, or might have been, answered, that according to this
+classification, a carpenter's labour at his trade is productive labour,
+but the same individual's labour in learning his trade was unproductive
+labour. Yet it is obvious that, on both occasions, his labour tended
+exclusively to what is allowed to be production: the one was equally
+indispensable with the other, to the ultimate result. Further, if we
+adopted the above definition, we should be obliged to say that a nation
+whose artisans were twice as skilful as those of another nation, was
+not, _ceteris paribus_, more wealthy; although it is evident that every
+one of the results of wealth, and everything for the sake of which
+wealth is desired, would be possessed by the former country in a higher
+degree than by the latter.
+
+Every classification according to which a basket of cherries, gathered
+and eaten the next minute, are called wealth, while that title is denied
+to the acquired skill of those who are acknowledged to be productive
+labourers, is a purely arbitrary division, and does not conduce to the
+ends for which classification and nomenclature are designed.
+
+In order to get over all difficulties, some political economists seem
+disposed to make the terms express a distinction sufficiently definite
+indeed, but more completely arbitrary, and having less foundation in
+nature, than any of the former. They will not allow to any labour or to
+any expenditure the name of productive, unless the produce which it
+yields returns into the hands of the very person who made the outlay.
+Hedging and ditching they term productive labour, though those
+operations conduce to production only indirectly, by protecting the
+produce from destruction; but the necessary expenses incurred by a
+government for the protection of property are, they insist upon it,
+consumed unproductively: though, as has been well pointed out by Mr.
+M'Culloch, these expenses, in their relation to the national wealth, are
+exactly analogous to the wages of a hedger or a ditcher. The only
+difference is, that the farmer, who pays for the hedging and ditching,
+is the person to whom the consequent increase of production accrues,
+while the government, which is at the expense of police officers and
+courts of justice, does not, as a necessary consequence, get back into
+its own coffers the increase of the national wealth resulting from the
+security of property.
+
+It would be endless to point out the oddities and incongruities which
+result from this classification. Whether we take the words wealth and
+production in the largest, or in the most restricted sense in which they
+have ever yet been employed, nobody will dispute that roads, bridges,
+and canals, contribute in an eminent degree, and in a very direct
+manner, to the increase of production and wealth. The labour and
+pecuniary resources employed in their construction would, according to
+the above theory, be considered productive, if every occupier of land
+were compelled by law to construct so much of the road, or canal, as
+passes through his own farm. If, instead of this, the government makes
+the road, and throws it open to the public toll-free, the labour and
+expenditure would be, on the above system, clearly unproductive. But if
+the government, or an association of individuals, made the road, and
+imposed a toll to defray the expense, we do not see how these writers
+could refuse to the outlay the title of productive expenditure. It would
+follow, that the very same labour and expense, if given gratuitously,
+must be called unproductive, which, if a charge had been made for it,
+would have been called productive.
+
+When these consequences of the purely arbitrary classification to which
+we allude have been pointed out and complained of, the only answer which
+we have ever seen made to the objection is, that the line of demarcation
+must be drawn somewhere, and that in every classification there are
+intermediate cases, which might have been included, with almost equal
+propriety, either in the one class or in the other.
+
+This answer appears to us to indicate the want of a sufficiently
+accurate and discriminating perception, what is the kind of inaccuracy
+which generally cannot be avoided in a classification, and what is that
+other kind of inaccuracy, from which it always may be, and should be,
+exempt.
+
+The classes themselves may be, mentally speaking, perfectly definite,
+though it may not always be easy to say to which of them a particular
+object belongs. When it is uncertain in which of two classes an object
+should be placed, if the classification be properly made, and properly
+expressed, the uncertainty can turn only upon a matter of fact. It is
+uncertain to which class the object belongs, because it is doubtful
+whether it possesses in a greater degree the characteristics of the one
+class or those of the other. But the characteristics themselves may be
+defined and distinguished with the nicest exactness, and always ought to
+be so. Especially ought they in a case like the present, because here it
+is only the distinction between the ideas which is of any importance.
+That we should be able with ease to portion out all employments between
+the two classes, does not happen to be of any particular consequence.
+
+It is frequently said that classification is a mere affair of
+convenience. This assertion is true in one sense, but not if its meaning
+be, that the most proper classification is that in which it is easiest
+to say whether an object belongs to one class or to the other. The use
+of classification is, to fix attention upon the distinctions which exist
+among things; and that is the best classification, which is founded upon
+the most important distinctions, whatever be the facilities which it may
+afford of ticketing and arranging the different objects which exist in
+nature. In fixing, therefore, the meaning of the words productive and
+unproductive, we ought to endeavour to render them significative of the
+most important distinctions which, without too glaring a violation of
+received usage, they can be made to express.
+
+We ought further, when we are restricted to the employment of old words,
+to endeavour as far as possible that it shall not be necessary to
+struggle against the old associations with those words. We should, if
+possible, give the words such a meaning, that the propositions in which
+people are accustomed to use them, shall as far as possible still be
+true; and that the feelings habitually excited by them, shall be such as
+the things to which we mean to appropriate them ought to excite.
+
+We shall endeavour to unite these conditions in the result of the
+following enquiry.
+
+In whatever manner political economists may have settled the definition
+of productive and unproductive labour or consumption, the consequences
+which they have drawn from the definition are nearly the same. In
+proportion to the amount of the productive labour and consumption of
+a country, the country, they all allow, is enriched: in proportion to
+the amount of the unproductive labour and consumption, the country is
+impoverished. Productive expenditure they are accustomed to view as
+a gain; unproductive expenditure, however useful, as a sacrifice.
+Unproductive expenditure of what was destined to be expended
+productively, they always characterise as a squandering of resources,
+and call it profusion and prodigality. The productive expenditure of
+that which might, without encroaching upon capital, be expended
+unproductively, is called saving, economy, frugality. Want, misery, and
+starvation, are described as the lot of a nation which annually employs
+less and less of its labour and resources in production; growing comfort
+and opulence as the result of an annual increase in the quantity of
+wealth so employed.
+
+Let us then examine what qualities in expenditure, and in the employment
+of labour, are those from which all the consequences above mentioned
+really flow.
+
+The end to which all labour and all expenditure are directed, is
+twofold. Sometimes it is _enjoyment_ immediately; the fulfilment of
+those desires, the gratification of which is wished for on its own
+account. Whenever labour or expense is not incurred _immediately_ for
+the sake of enjoyment, and is yet not absolutely wasted, it must be
+incurred for the purpose of enjoyment _indirectly_ or mediately; by
+either repairing and perpetuating, or adding, to the _permanent sources_
+of enjoyment.
+
+Sources of enjoyment may be accumulated and stored up; enjoyment itself
+cannot. The wealth of a country consists of the sum total of the
+permanent sources of enjoyment, whether material or immaterial, contained
+in it: and labour or expenditure which tends to augment or to keep up
+these permanent sources, should, we conceive, be termed productive.
+
+Labour which is employed for the purpose of directly affording
+enjoyment, such as the labour of a performer on a musical instrument, we
+term unproductive labour. Whatever is consumed by such a performer, we
+consider as unproductively consumed: the accumulated total of the
+sources of enjoyment which the nation possesses, is diminished by the
+amount of what he has consumed: whereas, if it had been given to him in
+exchange for his services in producing food or clothing, the total of
+the permanent sources of enjoyment in the country might have been not
+diminished but increased.
+
+The performer on the musical instrument then is, so far as respects that
+act, not a productive, but an unproductive labourer. But what shall we
+say of the workman who made the musical instrument? He, most persons
+would say, is a productive labourer; and with reason; because the
+musical instrument is a permanent source of enjoyment, which does not
+begin and end with the enjoying, and therefore admits of being
+accumulated.
+
+But the _skill_ of the musician is a permanent source of enjoyment, as
+well as the instrument which he plays upon: and although skill is not a
+material object, but a quality of an object, viz., of the hands and mind
+of the performer; nevertheless skill possesses exchangeable value, is
+acquired by labour and capital, and is capable of being stored and
+accumulated. Skill, therefore, must be considered as wealth; and the
+labour and funds employed in acquiring skill in anything tending to the
+advantage or pleasure of mankind, must be considered to be productively
+employed and expended.
+
+The skill of a productive labourer is analogous to the machinery he
+works with: neither of them is enjoyment, nor conduces directly to it,
+but both conduce indirectly to it, and both in the same way. If a
+spinning-jenny be wealth, the spinner's skill is also wealth. If the
+mechanic who made the spinning-jenny laboured productively, the spinner
+also laboured productively when he was learning his trade: and what they
+both consumed was consumed productively, that is to say, its consumption
+did not tend to diminish, but to increase the sum of the permanent
+sources of enjoyment in the country, by effecting a new creation of
+those sources, more than equal to the amount of the consumption.
+
+The skill of a tailor, and the implements he employs, contribute in the
+same way to the convenience of him who wears the coat, namely, a remote
+way: it is the coat itself which contributes immediately. The skill of
+Madame Pasta, and the building and decorations which aid the effect of
+her performance, contribute in the same way to the enjoyment of the
+audience, namely, an immediate way, without any intermediate
+instrumentality. The building and decorations are consumed
+unproductively, and Madame Pasta labours and consumes unproductively;
+for the building is used and worn out, and Madame Pasta performs,
+immediately for the spectators' enjoyment, and without leaving, as a
+consequence of the performance, any permanent result possessing
+exchangeable value: consequently the epithet unproductive must be
+equally applied to the gradual wearing out of the bricks and mortar, the
+nightly consumption of the more perishable "properties" of the theatre,
+the labour of Madame Pasta in acting, and of the orchestra in playing.
+But notwithstanding this, the architect who built the theatre was a
+productive labourer; so were the producers of the perishable articles;
+so were those who constructed the musical instruments; and so, we must
+be permitted to add, were those who instructed the musicians, and all
+persons who, by the instructions which they may have given to Madame
+Pasta, contributed to the formation of her talent. All these persons
+contributed to the enjoyment of the audience in the same way, and that
+a remote way, viz., by the production of a _permanent source of
+enjoyment_.
+
+The difference between this case, and the case of the cotton spinner
+already adverted to, is this. The spinning-jenny, and the skill of the
+cotton spinner, are not only the result of productive labour, but are
+themselves productively consumed. The musical instrument and the skill
+of the musician are equally the result of productive labour, but are
+themselves unproductively consumed.
+
+Let us now consider what kinds of labour, and of consumption or
+expenditure, will be classed as productive, and what as unproductive,
+according to this rule.
+
+The following are always productive:
+
+Labour and expenditure, of which the direct object or effect is the
+creation of some material product useful or agreeable to mankind.
+
+Labour and expenditure, of which the direct effect and object are, to
+endow human or other animated beings with faculties or qualities useful
+or agreeable to mankind, and possessing exchangeable value.
+
+Labour and expenditure, which without having for their direct object the
+creation of any useful material product or bodily or mental faculty or
+quality, yet tend indirectly to promote one or other of those ends, and
+are exerted or incurred solely for that purpose.
+
+The following are partly productive and partly unproductive, and cannot
+with propriety be ranged decidedly with either class:
+
+Labour or expenditure which does indeed create, or promote the creation
+of, some useful material product or bodily or mental faculty or quality,
+but which is not incurred or exerted for that sole end; having also for
+another, and perhaps its principal end, enjoyment, or the promotion of
+enjoyment.
+
+Such are the labour of the judge, the legislator, the police-officer,
+the soldier; and the expenditure incurred for their support. These
+functionaries protect and secure mankind in the exclusive possession of
+such material products or acquired faculties as belong to them; and by
+the security which they so confer, they indirectly increase production
+in a degree far more than equivalent to the expense which is necessary
+for their maintenance. But this is not the only purpose for which they
+exist; they protect mankind, not merely in the possession of their
+permanent resources, but also in their actual enjoyments; and so far,
+although highly useful, they cannot, conformably to the distinction
+which we have attempted to lay down, be considered productive labourers.
+
+Such, also, are the labour and the wages of domestic servants. Such
+persons are entertained mainly as subservient to mere enjoyment; but
+most of them occasionally, and some habitually, render services which
+must be considered as of a productive nature; such as that of cookery,
+the last stage in the manufacture of food; or gardening, a branch of
+agriculture.
+
+The following are wholly unproductive:
+
+Labour exerted, and expenditure incurred, directly and exclusively for
+the purpose of enjoyment, and not calling into existence anything,
+whether substance or quality, but such as begins and perishes in the
+enjoyment.
+
+Labour exerted and expenditure incurred uselessly, or in pure waste, and
+yielding neither direct enjoyment nor permanent sources of enjoyment.
+
+It may be objected, that expenditure incurred even for pure enjoyment
+promotes production indirectly, by inciting to exertion. Thus the view
+of the splendour of a rich establishment is supposed by some writers to
+produce upon the mind of an indigent spectator an earnest desire of
+enjoying the same luxuries, and a consequent purpose of working with
+vigour and diligence, and saving from his earnings, thus increasing the
+productive capital of the country.
+
+It is true that mankind are, for the most part, excited to productive
+industry solely by the desire of subsequently consuming the result of
+their labour and accumulation. The consumption called unproductive,
+viz., that of which the direct result is enjoyment, is in reality the
+end, to which production is only the means; and a desire for the end,
+is what alone impels any one to have recourse to the means.
+
+But, notwithstanding this, it is of the greatest importance to mark the
+distinction between the labour and the consumption which have enjoyment
+for their immediate end, and the labour and the consumption of which the
+immediate end is reproduction. Though the sight of the former may still
+further stimulate that desire for the enjoyments afforded by wealth,
+which the mere knowledge, without the immediate view, would suffice to
+excite (and without dwelling on the consideration that if the example
+of a large expenditure excites one individual to accumulation, it
+encourages two to prodigal expense); still, if we look only to the
+effects which are intended, or to those which immediately follow from
+the consumption, and whose connexion with it can be distinctly traced,
+it evidently renders a country poorer in the permanent sources of
+enjoyment; while reproductive consumption leaves the country richer in
+these same sources. Besides, if what is spent for mere pleasure promotes
+indirectly the increase of wealth, it can only be by inducing others
+_not_ to expend on mere pleasure.
+
+Before quitting the subject, one more observation should be added. It
+must not be supposed that what is expended upon unproductive labourers
+is necessarily, the whole of it, unproductively consumed. The
+unproductive labourers may save part of their wages, and invest them in
+a productive employment.
+
+It is not unusual to speak of what is paid in wages to a labourer as
+being thereby _consumed_, as if all profit and loss to the nation were
+to be seen in the capitalist's account-book. What is paid for productive
+labour is said to be productively consumed; what is paid for
+unproductive labour is said to be consumed unproductively. It would be
+proper to say, not that it is productively or unproductively _consumed_,
+but productively or unproductively _expended_; otherwise, we shall be
+obliged to say that it is consumed twice over; the first time
+unproductively, perhaps, and the second, it may be, productively.
+
+To pronounce in which way the wages of the labourer are consumed, we
+must follow them into the labourer's own hands. As much as is necessary
+to keep the productive labourer in perfect health and fitness for his
+employment, may be said to be consumed productively. To this should be
+added what he expends in rearing children to the age at which they
+become capable of productive industry. If the state of the market for
+labour be such as to afford him more, this he may either save, or, as
+the common expression is, he may spend it. If he saves any portion, this
+(unless it be merely hoarded) he intends to employ productively, and it
+will be productively consumed. If he spends it, the consumption is for
+enjoyment immediately, and is therefore unproductive.
+
+This suggests another correction in the established language. Political
+economists generally define the "net produce" to be that portion of the
+gross annual produce of a country which remains after replacing the
+capital annually consumed. This, as they proceed to explain, consists of
+profits and rent; wages being included in the other portion of the gross
+produce, that which goes to replace capital. After this definition, they
+usually proceed to tell us that the net produce, and that alone,
+constitutes the fund from which a nation can accumulate, and add to its
+capital, as also that which it can, without retrograding in wealth,
+expend unproductively, or for enjoyment. Now, it is impossible that both
+the above propositions can be true. If the net produce is that which
+remains after replacing capital, then net produce is not the only fund
+out of which accumulation may be made: for accumulation may be made from
+wages; this is in all countries one of the great sources, and in countries
+like America perhaps the greatest source of accumulation. If, on the other
+hand, it is desirable to reserve the name of net produce to denote the
+fund available for accumulation or for unproductive consumption, we must
+define net produce differently. The definition which appears the best
+adapted to render the ordinary doctrines relating to net produce true,
+would be this:
+
+The net produce of a country is whatever is annually produced beyond
+what is necessary for maintaining the stock of materials and implements
+unimpaired, for keeping all productive labourers alive and in condition
+for work, and for just keeping up their numbers without increase. What
+is required for these purposes, or, in other words, for keeping up the
+productive resources of the country, cannot be diverted from its
+destination without rendering the nation as a whole poorer. But all
+which is produced beyond this, whether it be in the hands of the
+labourer, of the capitalist, or of any of the numerous varieties of
+rent-owners, may be taken for immediate enjoyment, without prejudice to
+the productive resources of the community; and whatever part of it is
+not so taken, constitutes a clear addition to the national capital, or
+to the permanent sources of enjoyment.
+
+
+
+
+ESSAY IV.
+
+ON PROFITS, AND INTEREST.
+
+
+The profits of stock are the surplus which remains to the capitalist
+after replacing his capital: and the ratio which that surplus bears to
+the capital itself, is the _rate_ of profit.
+
+This being the definition of profits, it might seem natural to adopt, as
+a sufficient theory in regard to the rate of profit, that it depends
+upon the productive power of capital. Some countries are favoured beyond
+others, either by nature or art, in the means of production. If the
+powers of the soil, or of machinery, enable capital to produce what is
+necessary for replacing itself, and twenty per cent more, profits will
+be twenty per cent; and so on.
+
+This, accordingly, is a popular mode of speaking on the subject of
+profits; but it has only the semblance, not the reality, of an
+explanation. The "productive power of capital," though a common, and,
+for some purposes, a convenient expression, is a delusive one. Capital,
+strictly speaking, has no productive power. The only productive power is
+that of labour; assisted, no doubt, by tools, and acting upon materials.
+That portion of capital which consists of tools and materials, may be
+said, perhaps, without any great impropriety, to have a productive
+power, because they contribute, along with labour, to the accomplishment
+of production. But that portion of capital which consists of wages, has
+no productive power of its own. Wages have no productive power; they are
+the price of a productive power. Wages do not contribute, along with
+labour, to the production of commodities, no more than the price of
+tools contributes along with the tools themselves. If labour could be
+had without purchase, wages might be dispensed with. That portion of
+capital which is expended in the wages of labour, is only the means by
+which the capitalist procures to himself, in the way of purchase, the
+use of that labour in which the power of production really resides.
+
+The proper view of capital is, that anything whatever, which a person
+possesses, constitutes his capital, provided he is able, and intends,
+to employ it, not in consumption for the purpose of enjoyment, but in
+possessing himself of the means of production, with the intention of
+employing those means productively. Now the means of production are
+labour, implements, and materials. The only productive power which
+anywhere exists, is the productive power of labour, implements, and
+materials.
+
+We need not, on this account, altogether proscribe the expression,
+"productive power of capital;" but we should carefully note, that it can
+only mean the quantity of real productive power which the capitalist,
+by means of his capital, can command. This may change, though the
+productive power of labour remains the same. Wages, for example, may
+rise; and then, although all the circumstances of production remain
+exactly as they were before, the same capital will yield a less return,
+because it will set in motion a less quantity of productive labour.
+
+We may, therefore, consider the capital of a producer as measured by the
+means which he has of possessing himself of the different essentials of
+production: namely, labour, and the various articles which labour
+requires as materials, or of which it avails itself as aids.
+
+The ratio between the price which he has to pay for these means of
+production, and the produce which they enable him to raise, is the
+_rate_ of his _profit_. If he must give for labour and tools four-fifths
+of what they will produce, the remaining fifth will constitute his
+profit, and will give him a rate of one in four, or twenty-five per
+cent, on his outlay.
+
+It is necessary here to remark, what cannot indeed by any possibility be
+misunderstood, but might possibly be overlooked in cases where attention
+to it is indispensable, viz., that we are speaking now of the _rate_ of
+profit, not the gross profit. If the capital of the country is very
+great, a profit of only five per cent upon it may be much more ample,
+may support a much larger number of capitalists and their families in
+much greater affluence, than a profit of twenty-five per cent on the
+comparatively small capital of a poor country. The _gross_ profit of a
+country is the actual amount of necessaries, conveniences, and luxuries,
+which are divided among its capitalists: but whether this be large or
+small, the rate of profit may be just the same. The rate of profit is
+the proportion which the profit bears to the capital; which the surplus
+produce after replacing the outlay, bears to the outlay. In short, if we
+compare the _price paid_ for labour and tools with what that labour and
+those tools will _produce_, from this ratio we may calculate the rate of
+profit.
+
+As the gross profit may be very different though the rate of profit be
+the same; so also may the absolute price paid for labour and tools be
+very different, and yet the proportion between the price paid and the
+produce obtained may be just the same. For greater clearness, let us
+omit, for the present, the consideration of tools, materials, &c, and
+conceive production as the result solely of labour. In a certain
+country, let us suppose, the wages of each labourer are one quarter of
+wheat per year, and 100 men can produce, in one year, 120 quarters. Here
+the price paid for labour is to the produce of that labour as 100 to
+120, and profits are 20 per cent. Suppose now that, in another country,
+wages are just double what they are in the country before supposed;
+namely, two quarters of wheat per year, for each labourer. But suppose,
+likewise, that the productive power of labour is double what it is in
+the first country; that by the greater fertility of the soil, 100 men
+can produce 240 quarters, instead of 120 as before. Here it is obvious,
+that the real price paid for labour is twice as great in the one country
+as in the other; but the produce being also twice as great, the ratio
+between the price of labour and the produce of labour is still exactly
+the same: an outlay of 200 quarters gives a return of 240 quarters, and
+profits, as before, are 20 per cent.
+
+Profits, then (meaning not gross profits, but the rate of profit),
+depend (not upon the price of labour, tools, and materials--but) upon
+the ratio between the price of labour, tools, and materials, and the
+produce of them: upon the proportionate share of the produce of industry
+which it is necessary to offer, in order to purchase that industry and
+the means of setting it in motion.
+
+       *       *       *       *       *
+
+We have hitherto spoken of tools, buildings, and materials, as
+essentials of production, co-ordinate with labour, and equally
+indispensable with it. This is true; but it is also true that tools,
+buildings, and materials, are themselves the produce of labour; and that
+the only cause (cases of monopoly excepted) of their having any value,
+is the labour which is required for their production.
+
+If tools, buildings, and materials were the spontaneous gifts of nature,
+requiring no labour either in order to produce or to appropriate them;
+and if they were thus bestowed upon mankind in indefinite quantity, and
+without the possibility of being monopolized; they would still be as
+useful, as indispensable as they now are; but since they could, like air
+and the light of the sun, be obtained without cost or sacrifice, they
+would form no part of the expenses of production, and no portion of the
+produce would be required to be set aside in order to replace the outlay
+made for these purposes. The whole produce, therefore, after replacing
+the wages of labour, would be clear profit to the capitalist.
+
+Labour alone is the primary means of production; "the original
+purchase-money which has been paid for everything." Tools and materials,
+like other things, have originally cost nothing but labour; and have a
+value in the market only because wages have been paid for them. The
+labour employed in making the tools and materials being added to the
+labour afterwards employed in working up the materials by aid of the
+tools, the sum total gives the whole of the labour employed in the
+production of the completed commodity. In the ultimate analysis,
+therefore, labour appears to be the only essential of production. To
+replace capital, is to replace nothing but the wages of the labour
+employed. Consequently, the whole of the surplus, after replacing wages,
+is profits. From this it seems to follow, that the ratio between the
+wages of labour and the produce of that labour gives the rate of profit.
+And thus we arrive at Mr. Ricardo's principle, that profits depend upon
+wages; rising as wages fall, and falling as wages rise.
+
+To protect this proposition (the most perfect form in which the law of
+profits seems to have been yet exhibited) against misapprehension, one
+or two explanatory remarks are required.
+
+If by wages, be meant what constitutes the real affluence of the
+labourer, the _quantity_ of produce which he receives in exchange for
+his labour; the proposition that profits vary inversely as wages, will
+be obviously false. The rate of profit (as has been already observed and
+exemplified) does not depend upon the price of labour, but upon the
+proportion between the price of labour and the produce of it. If the
+produce of labour is large, the price of labour may also be large
+without any diminution of the rate of profit: and, in fact, the rate of
+profit is highest in those countries (as, for instance, North America)
+where the labourer is most largely remunerated. For the wages of labour,
+though so large, bear a less proportion to the abundant _produce_ of
+labour, there than elsewhere.
+
+But this does not affect the truth of Mr. Ricardo's principle as he
+himself understood it; because an increase of the labourer's real
+comforts was not considered by him as a rise of wages. In his language
+wages were only said to rise, when they rose not in mere quantity but in
+_value_. To the labourer himself (he would have said) the _quantity_ of
+his remuneration is the important circumstance: but its _value_ is the
+only thing of importance to the person who purchases his labour.
+
+The rate of profits depends not upon absolute or real wages, but upon
+the _value_ of wages.
+
+If, however, by value, Mr. Ricardo had meant _exchangeable_ value, his
+proposition would still have been remote from the truth. Profits depend
+no more upon the exchangeable value of the labourer's remuneration, than
+upon its quantity. The truth is, that by the exchangeable value is meant
+the quantity of commodities which the labourer can purchase with his
+wages; so that when we say the exchangeable value of wages, we say their
+quantity, under another name.
+
+Mr. Ricardo, however, did not use the word value in the sense of
+exchangeable value.
+
+Occasionally, in his writings, he could not avoid using the word as
+other people use it, to denote value in exchange. But he more frequently
+employed it in a sense peculiar to himself, to denote cost of
+production; in other words, the _quantity of labour_ required to produce
+the article; that being his criterion of cost of production. Thus, if a
+hat could be made with ten days' labour in France and with five days'
+labour in England, he said that the value of a hat was double in France
+of what it was in England. If a quarter of corn could be produced a
+century ago with half as much labour as is necessary at present, Mr.
+Ricardo said that the value of a quarter of corn had doubled.
+
+Mr. Ricardo, therefore, would not have said that wages had risen,
+because a labourer could obtain two pecks of flour instead of one, for a
+day's labour; but if last year he received, for a day's labour,
+something which required eight hours' labour to produce it, and this
+year something which requires nine hours, then Mr. Ricardo would say
+that wages had risen. A rise of wages, with Mr. Ricardo, meant an
+increase in the cost of production of wages; an increase in the number
+of hours' labour which go to produce the wages of a day's labour; an
+increase in the _proportion_ of the fruits of labour which the labourer
+receives for his own share; an increase in the ratio between the wages
+of his labour and the produce of it. This is the theory: the reasoning,
+of which it is the result, has been given in the preceding paragraphs.
+
+Some of Mr. Ricardo's followers, or more properly, of those who have
+adopted in most particulars the views of political economy which his
+genius was the first to open up, have given explanations of Mr.
+Ricardo's doctrine to nearly the same effect as the above, but in rather
+different terms. They have said that profits depend not on _absolute_,
+but on _proportional_ wages: which they expounded to mean the proportion
+which the labourers _en masse_ receive of the total produce of the
+country.
+
+It seems, however, to be rather an unusual and inconvenient use of
+language to speak of anything as depending upon the wages of labour, and
+then to explain that by wages of labour you do not mean the wages of an
+individual labourer, but of all the labourers in the country
+collectively. Mankind will never agree to call anything a rise of wages,
+except a rise of the wages of individual labourers, and it is therefore
+preferable to employ language tending to fix attention upon the wages of
+the individual. The wages, however, on which profits are said to depend,
+are undoubtedly _proportional_ wages, namely, the proportional wages of
+one labourer: that is, the ratio between the wages of one labourer, and
+(not the whole produce of the country, but) the amount of what one
+labourer can produce; the amount of that portion of the collective
+produce of the industry of the country, which may be considered as
+corresponding to the labour of one single labourer. Proportional wages,
+thus understood, may be concisely termed the cost of production of
+wages; or, more concisely still, the cost of wages, meaning their cost
+in the "original purchase money," labour.
+
+We have now arrived at a distinct conception of Mr. Ricardo's theory of
+profits in its most perfect state. And this theory we conceive to be the
+basis of the true theory of profits. All that remains to do is to clear
+it from certain difficulties which still surround it, and which, though
+in a greater degree apparent than real, are not to be put aside as
+wholly imaginary.
+
+Though it is true that tools, materials, and buildings (it is to be
+wished that there were some compact designation for all these essentials
+of production taken together,) are themselves the produce of labour, and
+are only on that account to be ranked among the expenses of production;
+yet the _whole_ of their value is not resolvable into the wages of the
+labourers by whom they were produced. The wages of those labourers were
+paid by a capitalist, and that capitalist must have the same profit upon
+his advances as any other capitalist; when, therefore, he sells the
+tools or materials, he must receive from the purchaser not only the
+reimbursement of the wages he has paid, but also as much more as will
+afford him the ordinary rate of profit. And when the producer, after
+buying the tools and employing them in his own occupation, comes to
+estimate his gains, he must set aside a portion of the produce to
+replace not only the wages paid both by himself and by the tool-maker,
+but also the profits of the tool-maker, advanced by himself out of his
+own capital.
+
+It is not correct, therefore, to state that all which the capitalist
+retains after replacing wages forms his profit. It is true the whole
+return to capital is either wages or profits; but profits do not compose
+merely the surplus after replacing the outlay; they also enter into the
+outlay itself. Capital is expended partly in paying or reimbursing
+wages, and partly in paying the profits of other capitalists, whose
+concurrence was necessary in order to bring together the means of
+production.
+
+If any contrivance, therefore, were devised by which that part of the
+outlay which consists of previous profits could be either wholly or
+partially dispensed with, it is evident that more would remain as the
+profit of the immediate producer; while, as the quantity of _labour_
+necessary to produce a given quantity of the commodity would be
+unaltered, as well as the quantity of produce paid for that labour, it
+seems that the ratio between the price of labour and its produce would
+be the same as before; that the cost of production of wages would be the
+same, proportional wages the same, and yet profits different.
+
+To illustrate this by a simple instance, let it be supposed that
+one-third of the produce is sufficient to replace the wages of the
+labourers who have been immediately instrumental in the production; that
+another third is necessary to replace the materials used and the fixed
+capital worn out in the process; while the remaining third is clear
+gain, being a profit of 50 per cent. Suppose, for example, that 60
+agricultural labourers, receiving 60 quarters of corn for their wages,
+consume fixed capital and seed amounting to the value of 60 quarters
+more, and that the result of their operations is a produce of 180
+quarters. When we analyse the price of the seed and tools into its
+elements, we find that they must have been the produce of the labour of
+40 men: for the wages of those 40, together with profit at the rate
+previously supposed (50 per cent) make up 60 quarters. The produce,
+therefore, consisting of 180 quarters is the result of the labour
+altogether of 100 men: namely, the 60 first mentioned, and the 40 by
+whose labour the fixed capital and the seed were produced.
+
+Let us now suppose, by way of an extreme case, that some contrivance is
+discovered, whereby the purposes to which the second third of the
+produce had been devoted, may be dispensed with altogether: that some
+means are invented by which the same amount of produce may be procured
+without the assistance of any fixed capital, or the consumption of any
+seed or material sufficiently valuable to be worth calculating. Let us,
+however, suppose that this cannot be done without taking on a number of
+additional labourers, equal to those required for producing the seed and
+fixed capital; so that the saving shall be only in the profits of the
+previous capitalists. Let us, in conformity with this supposition,
+assume that in dispensing with the fixed capital and seed, value 60
+quarters, it is necessary to take on 40 additional labourers, receiving
+a quarter of corn each, as before.
+
+The rate of profit has evidently risen. It has increased from 50 per
+cent to 60 per cent. A return of 180 quarters could not before be
+obtained but by an outlay of 120 quarters; it can now be obtained by an
+outlay of no more than 100.
+
+Here, therefore, is an undeniable rise of profits. Have wages, in the
+sense above attached to them, fallen or not? It would seem not.
+
+The produce (180 quarters) is still the result of the same quantity of
+labour as before, namely, the labour of 100 men. A quarter of corn,
+therefore, is still, as before, the produce of 10/18 of a man's labour
+for a year. Each labourer receives, as before, one quarter of corn;
+each, therefore, receives the produce of 10\18 of a year's labour of one
+man, that is, the same cost of production; each receives 10/18 of the
+produce of his own labour, that is, the same proportional wages; and the
+labourers collectively still receive the same proportion, namely 10/18,
+of the whole produce.
+
+The conclusion, then, cannot be resisted, that Mr. Ricardo's theory is
+defective: that the rate of profits does _not_ exclusively depend upon
+the value of wages, in his sense, namely, the quantity of labour of
+which the wages of a labourer are the produce; that it does _not_
+exclusively depend upon proportional wages, that is, upon the proportion
+which the labourers collectively receive of the whole produce, or the
+ratio which the wages of an individual labourer bear to the produce of
+his individual labour.
+
+Those political economists, therefore, who have always dissented from
+Mr. Ricardo's doctrine, or who, having at first admitted, ended by
+discarding it, were so far in the right; but they committed a serious
+error in this, that, with the usual one-sidedness of disputants, they
+knew no medium between admitting absolutely and dismissing entirely;
+and saw no other course than utterly to reject what it would have been
+sufficient to modify.
+
+It is remarkable how very slight a modification will suffice to render
+Mr. Ricardo's doctrine completely true. It is even doubtful whether he
+himself, if called upon to adapt his expressions to this peculiar case,
+would not have so explained his doctrine as to render it entirely
+unobjectionable.
+
+It is perfectly true, that, in the example already made use of, a rise
+of profits takes place, while wages, considered in respect to the
+quantity of labour of which they are the produce, have not varied at
+all. But though wages are still the produce of the same _quantity of
+labour_ as before, the _cost of production_ of wages has nevertheless
+fallen; for into cost of production there enters another element besides
+labour.
+
+We have already remarked (and the very example out of which the
+difficulty arose presupposes it) that the cost of production of an
+article consists generally of two parts,--the _wages_ of the labour
+employed, and the _profits_ of those who, in any antecedent stage of
+the production, have advanced any portion of those wages. An article,
+therefore, may be the produce of the same quantity of labour as before,
+and yet, if any portion of the profits which the last producer has to
+make good to previous producers can be economized, the cost of
+production of the article is diminished.
+
+Now, in our example, a diminution of this sort is supposed to have taken
+place in the cost of production of corn. The production of that article
+has become less costly, in the ratio of six to five. A quantity of corn,
+the means of producing which could not previously have been secured but
+at an expense of 120 quarters, can now be produced by means which 100
+quarters are sufficient to purchase.
+
+But the labourer is supposed to receive the same quantity of corn as
+before. He receives one quarter. The cost of production of wages has,
+therefore, fallen one-sixth. A quarter of corn, which is the
+remuneration of a single labourer, is indeed the produce of the same
+quantity of labour as before; but its cost of production is nevertheless
+diminished. It is now the produce of 10/18 of a man's labour, and
+nothing else; whereas formerly it required for its production the
+conjunction of that quantity of labour with an expenditure, in the form
+of reimbursement of profit, amounting to one-fifth more.
+
+If the cost of production of wages had remained the same as before,
+profits could not have risen. Each labourer received one quarter of
+corn; but one quarter of corn at that time was the result of the same
+cost of production, as 1 1/5 quarter now. In order, therefore, that each
+labourer should receive the same cost of production, each must now
+receive one quarter of corn, _plus_ one-fifth. The labour of 100 men
+could not be purchased at this price for less than 120 quarters; and the
+produce, 180 quarters, would yield only 50 per cent, as first supposed [7].
+
+It is, therefore, strictly true, that the rate of profits varies
+inversely as the cost of production of wages. Profits cannot rise,
+unless the cost of production of wages falls exactly as much; nor fall,
+unless it rises.
+
+The proof of this position has been stated in figures, and in a
+particular case: we shall now state it in general terms, and for all
+cases.
+
+We have supposed, for simplicity, that wages are paid in the finished
+commodity. The agricultural labourers, in our example, were paid in
+corn, and if we had called them weavers, we should have supposed them to
+be paid in cloth. This supposition is allowable, for it is obviously of
+no consequence, in a question of value, or cost of production, what
+precise article we assume as the medium of exchange. The supposition
+has, besides, the recommendation of being conformable to the most
+ordinary state of the facts; for it is by the sale of his own finished
+article that each capitalist obtains the means of hiring labourers to
+renew the production; which is virtually the same thing as if, instead
+of selling the article for money and giving the money to his labourers,
+he gave the article itself to the labourers, and they sold it for their
+daily bread.
+
+Assuming, therefore, that the labourer is paid in the very article he
+produces, it is evident that, when any saving of expense takes place in
+the production of that article, if the labourer still receives the same
+cost of production as before, he must receive an increased quantity, in
+the very same ratio in which the productive power of capital has been
+increased. But, if so, the outlay of the capitalist will bear exactly
+the same proportion to the return as it did before; and profits will not
+rise.
+
+The variations, therefore, in the rate of profits, and those in the cost
+of production of wages, go hand in hand, and are inseparable. Mr.
+Ricardo's principle, that profits cannot rise unless wages fall, is
+strictly true, if by low wages be meant not merely wages which are the
+produce of a smaller quantity of labour, but wages which are produced at
+less cost, reckoning labour and previous profits together. But the
+interpretation which some economists have put upon Mr. Ricardo's
+doctrine, when they explain it to mean that profits depend upon the
+proportion which the labourers collectively receive of the aggregate
+produce, will not hold at all; for that, in our first example, remained
+the same, and yet profits rose.
+
+The only expression of the law of profits, which seems to be correct,
+is, that they depend upon the cost of production of wages. This must be
+received as the ultimate principle.
+
+From this may be deduced all the corollaries which Mr. Ricardo and
+others have drawn from his theory of profits as expounded by himself.
+The cost of production of the wages of one labourer for a year, is the
+result of two concurrent elements or factors,--viz., 1st, the quantity
+of commodities which the state of the labour market affords to him;
+2ndly, the cost of production of each of those commodities. It follows,
+that the rate of profits can never rise but in conjunction with one or
+other of two changes,--1st, a diminished remuneration of the labourer;
+or, 2ndly, an improvement in production, or an extension of commerce, by
+which any of the articles habitually consumed by the labourer may be
+obtained at smaller cost. (If the improvement be in any article which is
+not consumed by the labourer, it merely lowers the price of that article,
+and thereby benefits capitalists and all other people so far as they are
+consumers of that particular article, and may be said to increase gross
+profit, but not the rate of profit.)
+
+So, on the other hand, the rate of profit cannot fall, unless
+concurrently with one of two events: 1st, an improvement in the
+labourer's condition; or, 2ndly, an increased difficulty of producing
+or importing some article which the labourer habitually consumes. The
+progress of population and cultivation has a tendency to lower profits
+through the latter of these two channels, owing to the well known law
+of the application of capital to land, that a double capital does not
+_caeteris paribus_ yield a double produce. There is, therefore, a
+tendency in the rate of profits to fall with the progress of society.
+But there is also an antagonist tendency of profits to rise, by the
+successive introduction of improvements in agriculture, and in the
+production of those manufactured articles which the labourers consume.
+Supposing, therefore, that the actual comforts of the labourer remain
+the same, profits will fall or rise, according as population, or
+improvements in the production of food and other necessaries, advance
+fastest.
+
+The rate of profits, therefore, tends to _fall_ from the following
+causes:--1. An increase of capital beyond population, producing
+increased competition for labour; 2. An increase of population,
+occasioning a demand for an increased quantity of food, which must be
+produced at a greater cost. The rate of profits tends to _rise_ from
+the following causes:--1. An increase of population beyond capital,
+producing increased competition for employment; 2. Improvements
+producing increased cheapness of necessaries, and other articles
+habitually consumed by the labourer.
+
+       *       *       *       *       *
+
+The circumstances which regulate the rate of interest have usually been
+treated, even by professed writers on political economy, in a vague,
+loose, and unscientific manner. It has, however, been felt that there is
+some connexion between the rate of interest and the rate of profit; that
+(to use the words of Adam Smith) much will be given for money, when much
+can be made of it. It has been felt, also, that the fluctuations in the
+market-rate of interest from day to day, are determined, like other
+matters of bargain and sale, by demand and supply. It has, therefore,
+been considered as an established principle, that the rate of interest
+varies from day to day according to the quantity of capital offered or
+called for on loan; but conforms on the average of years to a standard
+determined by the rate of profits, and bearing some proportion to that
+rate--but a proportion which few attempts have been made to define.
+
+In consequence of these views, it has been customary to judge of the
+general rate of profits at any time or place, by the rate of interest at
+that time and place: it being supposed that the rate of interest, though
+liable to temporary fluctuations, can never vary for any long period of
+time unless profits vary; a notion which appears to us to be erroneous.
+
+It was observed by Adam Smith, that profits may be considered as divided
+into two parts, of which one may properly be considered as the
+remuneration for the use of the capital itself, the other as the reward
+of the labour of superintending its employment; and that the former of
+these will correspond with the rate of interest. The producer who
+borrows capital to employ it in his business, will consent to pay, for
+the use of it, all that remains of the profits he can make by it, after
+reserving what he considers reasonable remuneration for the trouble and
+risk which he incurs by borrowing and employing it.
+
+This remark is just; but it seems necessary to give greater precision to
+the ideas which it involves.
+
+The difference between the profit which can be made by the use of
+capital, and the interest which will be paid for it, is rightly
+characterized as wages of superintendance. But to infer from this that
+it is regulated by entirely the same principles as other wages, would be
+to push the analogy too far. It is wages, but wages paid by a commission
+upon the capital employed. If the general rate of profit is 10 per cent,
+and the rate of interest 5 per cent, the wages of superintendance will
+be 5 per cent; and though one borrower employ a capital of 100,000_l_.,
+another no more than 100_l_., the labour of both will be rewarded with
+the same per centage, though, in the one ease, this symbol will
+represent an income of 5_l_., in the other case, of 5000_l_. Yet it
+cannot be pretended that the labour of the two borrowers differs in this
+proportion. The rule, therefore, that equal quantities of labour of
+equal hardness and skill are equally remunerated, does not hold of this
+kind of labour. The wages of any other labour are here an inapplicable
+criterion.
+
+The wages of superintendance are distinguished from ordinary wages by
+another peculiarity, that they are not paid in advance out of capital,
+like the wages of all other labourers, but merge in the profit, and are
+not realized until the production is completed. This takes them entirely
+out of the ordinary law of wages. The wages of labourers who are paid in
+advance, are regulated by the number of competitors compared with the
+amount of capital; the labourers can consume no more than what has been
+previously accumulated. But there is no such limit to the remuneration
+of a kind of labour which is not paid for out of wealth previously
+accumulated, but out of that produce which it is itself employed in
+calling into existence.
+
+When these circumstances are duly weighed, it will be perceived, that
+although profit may be correctly analyzed into interest and wages of
+superintendance, we ought not to lay it down as the law of interest,
+that it is profits _minus_ the wages of superintendance. Of the two
+expressions, it would be decidedly the more correct, that the wages of
+superintendance are regulated by the rate of interest, or are equal to
+profits _minus_ interest. In strict, propriety, neither expression would
+be allowable. Interest, and the wages of superintendance, can scarcely
+be said to depend upon one another. They are to one another in the same
+relation as wages and profits are. They are like two buckets in a well:
+when one rises, the other descends, but neither of the two motions is
+the cause of the other; both are simultaneous effects of the same cause,
+the turning of the windlass.
+
+       *       *       *       *       *
+
+There are among the capitalists of every country a considerable number
+who are habitually, and almost necessarily, lenders; to whom scarcely
+any difference between what they could receive for their money and what
+could be made by it, would be an equivalent for incurring the risk and
+labour of carrying on business. In this predicament is the property of
+widows and orphans; of many public bodies; of charitable institutions;
+most property which is vested in trustees; and the property of a great
+number of persons unused to business, and who have a distaste for it,
+or whose other occupations prevent their engaging in it. How large a
+proportion of the property lent to the nation comes under this
+description, has been pointed out in Mr. Tooke's _Considerations on the
+State of the Currency._
+
+There is another large class, consisting of bankers, bill-brokers, and
+others, who are money-lenders by profession; who enter into that
+profession with the intention of making such gains as it will yield
+them, and who would not be induced to change their business by any but
+a very strong pecuniary inducement.
+
+There is, therefore, a large class of persons who are habitually
+lenders. On the other hand, all persons in business may be considered
+as habitually borrowers. Except in times of stagnation, they are all
+desirous of extending their business beyond their own capital, and are
+never desirous of lending any portion of their capital except for very
+short periods, during which they cannot advantageously invest it in
+their own trade.
+
+There is, in short, a productive class, and there is, besides, a class
+technically styled the monied class, who live upon the interest of their
+capital, without engaging personally in the work of production.
+
+The class of borrowers may be considered as unlimited. There is no
+quantity of capital that could be offered to be lent, which the
+productive classes would not be willing to borrow, at any rate of
+interest which would afford them the slightest excess of profit above a
+bare equivalent for the additional risk, incurred by that transaction,
+of the evils attendant on insolvency. The only assignable limit to the
+inclination to borrow, is the power of giving security: the producers
+would find it difficult to borrow more than an amount equal to their own
+capital. If more than half the capital of the country were in the hands
+of persons who preferred lending it to engaging personally in business,
+and if the surplus were greater than could be invested in loans to
+Government, or in mortgages upon the property of unproductive consumers;
+the competition of lenders would force down the rate of interest very
+low. A certain portion of the monied class would be obliged either to
+sacrifice their predilections by engaging in business, or to lend on
+inferior security; and they would accordingly accept, where they could
+obtain good security, an abatement of interest equivalent to the
+difference of risk.
+
+This is an extreme case. Let us put an extreme case of a contrary kind.
+Suppose that the wealthy people of any country, not relishing an idle
+life, and having a strong taste for gainful labour, were generally
+indisposed to accept of a smaller income in order to be relieved from
+the labour and anxiety of business. Every producer in flourishing
+circumstances would be eager to borrow, and few willing to lend. Under
+these circumstances the rate of interest would differ very little from
+the rate of profit. The trouble of managing a business is not
+proportionally increased by an increase of the magnitude of the
+business; and a very small surplus profit above the rate of interest,
+would therefore be a sufficient inducement to capitalists to borrow.
+
+We may even conceive a people whose habits were such, that in order to
+induce them to lend, it might be necessary to offer them a rate of
+interest fully equal to the ordinary rate of profit. In that case, of
+course, the productive classes would scarcely ever borrow. But
+government, and the unproductive classes, who do not borrow in order to
+make a profit by the loan, but from the pressure of a real or supposed
+necessity, might still be ready to borrow at this high rate.
+
+Although the inclination to borrow has no _fixed_ or _necessary_ limit
+except the power of giving security, yet it always, in point of fact,
+stops short of this; from the uncertainty of the prospects of any
+individual producer, which generally indisposes him to involve himself
+to the full extent of his means of payment. There is never any permanent
+want of market for things in general; but there may be so for the
+commodity which any one individual is producing; and even if there is a
+demand for the commodity, people may not buy it of him but of some other.
+There are, consequently, never more than a portion of the producers, the
+state of whose business encourages them to add to their capital by
+borrowing; and even these are disposed to borrow only as much as they
+see an _immediate_ prospect of profitably employing. There is, therefore,
+a practical limit to the demands of borrowers at any given instant; and
+when these demands are all satisfied, any additional capital offered on
+loan can find an investment only by a reduction of the rate of interest.
+
+The amount of borrowers being given, (and by the amount of borrowers is
+here meant the aggregate sum which people are willing to borrow at some
+given rate,) the rate of interest will depend upon the quantity of
+capital owned by people who are unwilling or unable to engage in trade.
+The circumstances which determine this, are, on the one hand, the degree
+in which a taste for business, or an aversion to it, happens to be
+prevalent among the classes possessed of property; and on the other
+hand, the amount of the annual accumulation from the earnings of labour.
+Those who accumulate from their wages, fees, or salaries, have, of
+course, (speaking generally) no means of investing their savings except
+by lending them to others: their occupations prevent them from personally
+superintending any employment.
+
+Upon these circumstances, then, the rate of interest depends, the amount
+of borrowers being given. And the counter-proposition equally holds,
+that, the above circumstances being given, the rate of interest depends
+upon the amount of borrowers.
+
+Suppose, for example, that when the rate of interest has adjusted itself
+to the existing state of the circumstances which affect the disposition
+to borrow and to lend, a war breaks out, which induces government, for
+a series of years, to borrow annually a large sum of money. During the
+whole of this period, the rate of interest will remain considerably
+above what it was before, and what it will be afterwards.
+
+Before the commencement of the supposed war, all persons who were
+disposed to lend at the then rate of interest, had found borrowers, and
+their capital was invested. This may be assumed; for if any capital had
+been seeking for a borrower at the existing rate of interest, and unable
+to find one, its owner would have offered it at a rate slightly below
+the existing rate. He would, for instance, have bought into the funds,
+at a slight advance of price; and thus set at liberty the capital of
+some fundholder, who, the funds yielding a lower interest, would have
+been obliged to accept a lower interest from individuals.
+
+Since, then, all who were willing to lend their capital at the market
+rate, have already lent it, Government will not be able to borrow unless
+by offering higher interest. Though, with the existing habits of the
+possessors of disposable capital, an increased number cannot be found
+who are willing to lend at the existing rate, there are doubtless some
+who will be induced to lend by the temptation of a higher rate. The same
+temptation will also induce some persons to invest, in the purchase of
+the new stock, what they would otherwise have expended unproductively in
+increasing their establishments, or productively, in improving their
+estates. The rate of interest will rise just sufficiently to call forth
+an increase of lenders to the amount required.
+
+This we apprehend to be the cause why the rate of interest in this
+country was so high as it is well known to have been during the last
+war. It is, therefore, by no means to be inferred, as some have done,
+that the general rate of profits was unusually high during the same
+period, because interest was so. Supposing the rate of profits to have
+been precisely the same during the war, as before or after it, the rate
+of interest would nevertheless have risen, from the causes and in the
+manner above described.
+
+The practical use of the preceding investigation is, to moderate the
+confidence with which inferences are frequently drawn with respect to
+the rate of profit from evidence regarding the rate of interest; and to
+shew that although the rate of profit is one of the elements which
+combine to determine the rate of interest, the latter is also acted upon
+by causes peculiar to itself, and may either rise or fall, both
+temporarily and permanently, while the general rate of profits remains
+unchanged.
+
+       *       *       *       *       *
+
+The introduction of banks, which perform the function of lenders and
+loan-brokers, with or without that of issuers of paper-money, produces
+some further anomalies in the rate of interest, which have not, so far
+as we are aware, been hitherto brought within the pale of exact science.
+
+If bankers were merely a class of middlemen between the lender and the
+borrower; if they merely received deposits of capital from those who had
+it lying unemployed in their hands, and lent this, together with their
+own capital, to the productive classes, receiving interest for it, and
+paying interest in their turn to those who had placed capital in their
+hands; the effect of the operations of banking on the rate of interest
+would be to lower it in some slight degree. The banker receives and
+collects together sums of money much too small, when taken individually,
+to render it worth while for the owners to look out for an investment,
+but which in the aggregate form a considerable amount. This amount may
+be considered a clear addition to the productive capital of the country;
+at least, to the capital in activity at any moment. And as this addition
+to the capital accrues wholly to that part of it which is not employed
+by the owners, but lent to other producers, the natural effect is a
+diminution of the rate of interest.
+
+The banker, to the extent of his own private capital, (the expenses of
+his business being first paid,) is a lender at interest. But, being
+subject to risk and trouble fully equal to that which belongs to most
+other employments, he cannot be satisfied with the mere interest even
+of his whole capital: he must have the ordinary profits of stock, or he
+will not engage in the business: the state of banking must be such as to
+hold out to him the prospect of adding, to the interest of what remains
+of his own capital after paying the expenses of his business, interest
+upon capital deposited with him, in sufficient amount to make up, after
+paying the expenses, the ordinary profit which could be derived from his
+own capital in any productive employment. This will be accomplished in
+one of two ways.
+
+1. If the circumstances of society are such as to furnish a ready
+investment of disposable capital; (as for instance in London, where the
+public funds and other securities, of undoubted stability, and affording
+great advantages for receiving the interest without trouble and
+realizing the principal without difficulty when required, tempt all
+persons who have sums of importance lying idle, to invest them on their
+own account without the intervention of any middleman;) the deposits
+with bankers consist chiefly of small sums likely to be wanted in a very
+short period for current expenses, and the interest on which would
+seldom be worth the trouble of calculating it. Bankers, therefore, do
+not allow any interest on their deposits. After paying the expenses of
+their business, all the rest of the interest they receive is clear gain.
+But as the circumstances of banking, as of all other modes of employing
+capital, will on the average be such as to afford to a person entering
+into the business a prospect of realizing the ordinary, and no more than
+the ordinary, profits upon his own capital; the gains of each banker by
+the investment of his deposits, will not on the average exceed what is
+necessary to make up his gains on his own capital to the ordinary rate.
+It is, of course, competition, which brings about this limitation.
+Whether competition operates by lowering the rate of interest, or by
+dividing the business among a larger number, it is difficult to decide.
+Probably it operates in both ways; but it is by no means impossible that
+it may operate in the latter way alone: just as an increase in the
+number of physicians does not lower the fees, though it diminishes an
+average competitor's chance of obtaining them.
+
+It is not impossible that the disposition of the lenders might be such,
+that they would cease to lend rather than acquiesce in any reduction of
+the rate of interest. If so, the arrival of a new lender, in the person
+of a banker of deposit, would not lower the rate of interest in any
+considerable degree. A slight fall would take place, and with that
+exception things would be as before, except that the capital in the
+hands of the banker would have put itself into the place of an equal
+portion of capital belonging to other lenders, who would themselves have
+engaged in business (e.g., by subscribing to some joint-stock company,
+or entering into commandite). Bankers' profits would then be limited to
+the ordinary rate chiefly by the division of the business among many
+banks, so that each on the average would receive no more interest on his
+deposits than would suffice to make up the interest on his own capital
+to the ordinary rate of profit after paying all expenses.
+
+2. But if the circumstances of society render it difficult and
+inconvenient for persons who wish to live upon the interest of their
+money, to seek an investment for themselves, the bankers become agents
+for this specific purpose: large as well as small sums are deposited
+with them, and they allow interest to their customers. Such is the
+practice of the Scotch banks, and of most of the country banks in
+England. Their customers, not living at any of the great seats of money
+transactions, prefer entrusting their capital to somebody on the spot,
+whom they know, and in whom they confide. He invests their money on the
+best terms he can, and pays to them such interest as he can afford to
+give; retaining a compensation for his own risk and trouble. This
+compensation is fixed by the competition of the market. The rate of
+interest is no further lowered by this operation, than inasmuch as it
+brings together the lender and the borrower in a safe and expeditious
+manner. The lender incurs less risk, and a larger proportion, therefore,
+of the holders of capital are willing to be lenders.
+
+When a banker, in addition to his other functions, is also an issuer of
+paper money, he gains an advantage similar to that which the London
+bankers derive from their deposits. To the extent to which he can put
+forth his notes, he has so much the more to lend, without himself having
+to pay any interest for it.
+
+If the paper is convertible, it cannot get into circulation permanently
+without displacing specie, which goes abroad and brings back an
+equivalent value. To the extent of this value, there is an increase of
+the capital of the country; and the increase accrues solely to that part
+of the capital which is employed in loans.
+
+If the paper is inconvertible, and instead of displacing specie
+depreciates the currency, the banker by issuing it levies a tax on every
+person who has money in his hands or due to him. He thus appropriates to
+himself a portion of the capital of other people, and a portion of their
+revenue. The capital might have been intended to be lent, or it might
+have been intended to be employed by the owner: such part of it as was
+intended to be employed by the owner now changes its destination, and is
+lent. The revenue was either intended to be accumulated, in which case
+it had already become capital, or it was intended to be spent: in this
+last case, revenue is converted into capital: and thus, strange as it
+may appear, the depreciation of the currency, when effected in this way,
+operates to a certain extent as a forced accumulation. This, indeed, is
+no palliation of its iniquity. Though A might have spent his property
+unproductively, B ought not to be permitted to rob him of it because B
+will expend it on productive labour.
+
+In any supposable case, however, the issue of paper money by bankers
+increases the proportion of the whole capital of the country which is
+destined to be lent. The rate of interest must therefore fall, until
+some of the lenders give over lending, or until the increase of
+borrowers absorbs the whole.
+
+But a fall of the rate of interest, sufficient to enable the money
+market to absorb the whole of the paper-loans, may not be sufficient to
+reduce the profits of a lender who lends what costs him nothing, to the
+ordinary rate of profit upon his capital. Here, therefore, competition
+will operate chiefly by dividing the business. The notes of each bank
+will be confined within so narrow a district, or will divide the supply
+of a district with so many other banks, that on the average each will
+receive no larger amount of interest on his notes than will make up the
+interest on his own capital to the ordinary rate of profit.
+
+Even in this way, however, the competition has the effect, to a certain
+limited extent, of lowering the rate of interest; for the power of
+bankers to receive interest on more than their capital attracts a
+greater amount of capital into the banking business than would otherwise
+flow into it; and this greater capital being all lent, interest will
+fall in consequence.
+
+
+NOTE:
+
+[7] It would be easy to go over in the same manner any other case. For
+instance, we may suppose, that, instead of dispensing with the _whole_
+of the fixed capital, material, &c, and taking on labourers in equal
+number to those by whom these were produced, _half_ only of the fixed
+capital and material is dispensed with; so that, instead of 60 labourers
+and a fixed capital worth 6O quarters of corn, we have 80 labourers and
+a fixed capital worth 30. The numerical statement of this case is more
+intricate than that in the text, but the result is not different.
+
+
+
+
+
+ESSAY V.
+
+ON THE DEFINITION OF POLITICAL ECONOMY; AND ON THE METHOD OF
+INVESTIGATION PROPER TO IT.
+
+
+It might be imagined, on a superficial view of the nature and objects of
+definition, that the definition of a science would occupy the same place
+in the chronological which it commonly does in the didactic order. As a
+treatise on any science usually commences with an attempt to express, in
+a brief formula, what the science is, and wherein it differs from other
+sciences, so, it might be supposed, did the framing of such a formula
+naturally precede the successful cultivation of the science.
+
+This, however, is far from having been the case. The definition of a
+science has almost invariably not preceded, but followed, the creation
+of the science itself. Like the wall of a city, it has usually been
+erected, not to be a receptacle for such edifices as might afterwards
+spring up, but to circumscribe an aggregation already in existence.
+Mankind did not measure out the ground for intellectual cultivation
+before they began to plant it; they did not divide the field of human
+investigation into regular compartments first, and then begin to collect
+truths for the purpose of being therein deposited; they proceeded in a
+less systematic manner. As discoveries were gathered in, either one by
+one, or in groups resulting from the continued prosecution of some
+uniform course of inquiry, the truths which were successively brought
+into store cohered and became agglomerated according to their individual
+affinities. Without any intentional classification, the facts classed
+themselves. They became associated in the mind, according to their
+general and obvious resemblances; and the aggregates thus formed, having
+to be frequently spoken of as aggregates, came to be denoted by a common
+name. Any body of truths which had thus acquired a collective
+denomination, was called a _science_. It was long before this fortuitous
+classification was felt not to be sufficiently precise. It was in a more
+advanced stage of the progress of knowledge that mankind became sensible
+of the advantage of ascertaining whether the facts which they had thus
+grouped together were distinguished from all other facts by any common
+properties, and what these were. The first attempts to answer this
+question were commonly very unskilful, and the consequent definitions
+extremely imperfect.
+
+And, in truth, there is scarcely any investigation in the whole body of
+a science requiring so high a degree of analysis and abstraction, as the
+inquiry, what the science itself is; in other words, what are the
+properties common to all the truths composing it, and distinguishing
+them from all other truths. Many persons, accordingly, who are
+profoundly conversant with the details of a science, would be very much
+at a loss to supply such a definition of the science itself as should
+not be liable to well-grounded logical objections. From this remark, we
+cannot except the authors of elementary scientific treatises. The
+definitions which those works furnish of the sciences, for the most part
+either do not fit them--some being too wide, some too narrow--or do not
+go deep enough into them, but define a science by its accidents, not its
+essentials; by some one of its properties which may, indeed, serve the
+purpose of a distinguishing mark, but which is of too little importance
+to have ever of itself led mankind to give the science a name and rank
+as a separate object of study.
+
+The definition of a science must, indeed, be placed among that class of
+truths which Dugald Stewart had in view, when he observed that the first
+principles of all sciences belong to the philosophy of the human mind.
+The observation is just; and the first principles of all sciences,
+including the definitions of them, have consequently participated
+hitherto in the vagueness and uncertainty which has pervaded that most
+difficult and unsettled of all branches of knowledge. If we open any
+book, even of mathematics or natural philosophy, it is impossible not to
+be struck with the mistiness of what we find represented as preliminary
+and fundamental notions, and the very insufficient manner in which the
+propositions which are palmed upon us as first principles seem to be
+made out, contrasted with the lucidity of the explanations and the
+conclusiveness of the proofs as soon as the writer enters upon the
+details of his subject. Whence comes this anomaly? Why is the admitted
+certainty of the results of those sciences in no way prejudiced by the
+want of solidity in their premises? How happens it that a firm
+superstructure has been erected upon an unstable foundation? The
+solution of the paradox _is_, that what are called first principles,
+are, in truth, _last_ principles. Instead of being the fixed point from
+whence the chain of proof which supports all the rest of the science
+hangs suspended, they are themselves the remotest link of the chain.
+Though presented as if all other truths were to be deduced from them,
+they are the truths which are last arrived at; the result of the last
+stage of generalization, or of the last and subtlest process of
+analysis, to which the particular truths of the science can be
+subjected; those particular truths having previously been ascertained
+by the evidence proper to their own nature.
+
+Like other sciences, Political Economy has remained destitute of a
+definition framed on strictly logical principles, or even of, what is
+more easily to be had, a definition exactly co-extensive with the thing
+defined. This has not, perhaps, caused the real bounds of the science to
+be, in this country at least, practically mistaken or overpassed; but
+it has occasioned--perhaps we should rather say it is connected with
+--indefinite, and often erroneous, conceptions of the mode in which the
+science should be studied.
+
+We proceed to verify these assertions by an examination of the most
+generally received definitions of the science.
+
+1. First, as to the vulgar notion of the nature and object of Political
+Economy, we shall not be wide of the mark if we state it to be something
+to this effect:--That Political Economy is a science which teaches, or
+professes to teach, in what manner a nation may be made rich. This
+notion of what constitutes the science, is in some degree countenanced
+by the title and arrangement which Adam Smith gave to his invaluable
+work. A systematic treatise on Political Economy, he chose to call an
+_Inquiry into the Nature and Causes of the Wealth of Nations_; and the
+topics are introduced in an order suitable to that view of the purpose
+of his book.
+
+With respect to the definition in question, if definition it can be
+called which is not found in any set form of words, but left to be
+arrived at by a process of abstraction from a hundred current modes of
+speaking on the subject; it seems liable to the conclusive objection,
+that it confounds the essentially distinct, though closely connected,
+ideas of _science_ and _art_. These two ideas differ from one another as
+the understanding differs from the will, or as the indicative mood in
+grammar differs from the imperative. The one deals in facts, the other
+in precepts. Science is a collection of _truths_; art, a body of
+_rules_, or directions for conduct. The language of science is, This is,
+or, This is not; This does, or does not, happen. The language of art is,
+Do this; Avoid that. Science takes cognizance of a _phenomenon_, and
+endeavours to discover its _law_; art proposes to itself an _end_, and
+looks out for _means_ to effect it.
+
+If, therefore, Political Economy be a science, it cannot be a collection
+of practical rules; though, unless it be altogether a useless science,
+practical rules must be capable of being founded upon it. The science of
+mechanics, a branch of natural philosophy, lays down the laws of motion,
+and the properties of what are called the mechanical powers. The art of
+practical mechanics teaches how we may avail ourselves of those laws and
+properties, to increase our command over external nature. An art would
+not be an art, unless it were founded upon a scientific knowledge of the
+properties of the subject-matter: without this, it would not be
+philosophy, but empiricism; [Greek: empeiria,] not [Greek: technae,] in
+Plato's sense. Rules, therefore, for making a nation increase in wealth,
+are not a science, but they are the results of science. Political
+Economy does not of itself instruct how to make a nation rich; but
+whoever would be qualified to judge of the means of making a nation
+rich, must first be a political economist.
+
+2. The definition most generally received among instructed persons, and
+laid down in the commencement of most of the professed treatises on the
+subject, is to the following effect:--That Political Economy informs us
+of the laws which regulate the production, distribution, and consumption
+of wealth. To this definition is frequently appended a familiar
+illustration. Political Economy, it is said, is to the state, what
+domestic economy is to the family.
+
+This definition is free from the fault which we pointed out in the
+former one. It distinctly takes notice that Political Economy is a
+science and not an art; that it is conversant with laws of nature,
+not with maxims of conduct, and teaches us how things take place of
+themselves, not in what manner it is advisable for us to shape them,
+in order to attain some particular end.
+
+But though the definition is, with regard to this particular point,
+unobjectionable, so much can scarcely be said for the accompanying
+illustration; which rather sends back the mind to the current loose
+notion of Political Economy already disposed of. Political Economy is
+really, and is stated in the definition to be, a science: but domestic
+economy, so far as it is capable of being reduced to principles, is an
+art. It consists of rules, or maxims of prudence, for keeping the family
+regularly supplied with what its wants require, and securing, with any
+given amount of means, the greatest possible quantity of physical
+comfort and enjoyment. Undoubtedly the beneficial _result_, the great
+practical _application_ of Political Economy, would be to accomplish
+for a nation something like what the most perfect domestic economy
+accomplishes for a single household: but supposing this purpose
+realised, there would be the same difference between the rules by which
+it might be effected, and Political Economy, which there is between the
+art of gunnery and the theory of projectiles, or between the rules of
+mathematical land-surveying and the science of trigonometry.
+
+The definition, though not liable to the same objection as the
+illustration which is annexed to it, is itself far from unexceptionable.
+To neither of them, considered as standing at the head of a treatise,
+have we much to object. At a very early stage in the study of the
+science, anything more accurate would be useless, and therefore
+pedantic. In a merely initiatory definition, scientific precision is not
+required: the object is, to insinuate into the learner's mind, it is
+scarcely material by what means, some general preconception of what are
+the uses of the pursuit, and what the series of topics through which he
+is about to travel. As a mere anticipation or _ébauche_ of a definition,
+intended to indicate to a learner as much as he is able to understand
+before he begins, of the nature of what is about to be taught to him,
+we do not quarrel with the received formula. But if it claims to be
+admitted as that complete _definitio_ or boundary-line, which results
+from a thorough exploring of the whole extent of the subject, and is
+intended to mark the exact place of Political Economy among the
+sciences, its pretension cannot be allowed.
+
+"The science of the laws which regulate the production, distribution,
+and consumption of wealth." The term wealth is surrounded by a haze of
+floating and vapoury associations, which will let nothing that is seen
+through them be shewn distinctly. Let us supply its place by a
+periphrasis. Wealth is defined, all objects useful or agreeable to
+mankind, except such as can be obtained in indefinite quantity without
+labour. Instead of all objects, some authorities say, all material
+objects: the distinction is of no moment for the present purpose.
+
+To confine ourselves to production: If the laws of the production of all
+objects, or even of all material objects, which are useful or agreeable
+to mankind, were comprised in Political Economy, it would be difficult
+to say where the science would end: at the least, all or nearly all
+physical knowledge would be included in it. Corn and cattle are material
+objects, in a high degree useful to mankind. The laws of the production
+of the one include the principles of agriculture; the production of the
+other is the subject of the art of cattle-breeding, which, in so far as
+really an art, must be built upon the science of physiology. The laws of
+the production of manufactured articles involve the whole of chemistry
+and the whole of mechanics. The laws of the production of the wealth
+which is extracted from the bowels of the earth, cannot be set forth
+without taking in a large part of geology.
+
+When a definition so manifestly surpasses in extent what it professes to
+define, we must suppose that it is not meant to be interpreted literally,
+though the limitations with which it is to be understood are not stated.
+
+Perhaps it will be said, that Political Economy is conversant with such
+only of the laws of the production of wealth as are applicable to _all_
+kinds of wealth: those which relate to the details of particular trades
+or employments forming the subject of other and totally distinct
+sciences.
+
+If, however, there were no more in the distinction between Political
+Economy and physical science than this, the distinction, we may venture
+to affirm, would never have been made. No similar division exists in any
+other department of knowledge. We do not break up zoology or mineralogy
+into two parts; one treating of the properties common to all animals, or
+to all minerals; another conversant with the properties peculiar to each
+particular species of animals or minerals. The reason is obvious; there
+is no distinction _in kind_ between the general laws of animal or of
+mineral nature and the peculiar properties of particular species. There
+is as close an analogy between the general laws and the particular ones,
+as there is between one of the general laws and another: most commonly,
+indeed, the particular laws are but the complex result of a plurality of
+general laws modifying each other. A separation, therefore, between the
+general laws and the particular ones, merely because the former are
+general and the latter particular, would run counter both to the
+strongest motives of convenience and to the natural tendencies of the
+mind. If the case is different with the laws of the production of
+wealth, it must be because, in this case, the general laws differ in
+kind from the particular ones. But if so, the difference in kind is the
+radical distinction, and we should find out what that is, and found our
+definition upon it.
+
+But, further, the recognised boundaries which separate the field of
+Political Economy from that of physical science, by no means correspond
+with the distinction between the truths which concern all kinds of
+wealth and those which relate only to some kinds. The three laws of
+motion, and the law of gravitation, are common, as far as human
+observation has yet extended, to all matter; and these, therefore, as
+being among the laws of the production of all wealth, should form part
+of Political Economy. There are hardly any of the processes of industry
+which do not partly depend upon the properties of the lever; but it
+would be a strange classification which included those properties among
+the truths of Political Economy. Again, the latter science has many
+inquiries altogether as special, and relating as exclusively to
+particular sorts of material objects, as any of the branches of physical
+science. The investigation of some of the circumstances which regulate
+the price of corn, has as little to do with the laws common to the
+production of all wealth, as any part of the knowledge of the
+agriculturist. The inquiry into the rent of mines or fisheries, or into
+the value of the precious metals, elicits truths which have immediate
+reference to the production solely of a peculiar kind of wealth; yet
+these are admitted to be correctly placed in the science of Political
+Economy.
+
+The real distinction between Political Economy and physical science must
+be sought in something deeper than the nature of the subject-matter;
+which, indeed, is for the most part common to both. Political Economy,
+and the scientific grounds of all the useful arts, have in truth one and
+the same subject-matter; namely, the objects which conduce to man's
+convenience and enjoyment: but they are, nevertheless, perfectly
+distinct branches of knowledge.
+
+3. If we contemplate the whole field of human knowledge, attained or
+attainable, we find that it separates itself obviously, and as it were
+spontaneously, into two divisions, which stand so strikingly in
+opposition and contradistinction to one another, that in all
+classifications of our knowledge they have been kept apart. These are,
+_physical_ science, and _moral_ or psychological science. The difference
+between these two departments of our knowledge does not reside in the
+subject-matter with which they are conversant: for although, of the
+simplest and most elementary parts of each, it may be said, with an
+approach to truth, that they are concerned with different subject-
+matters--namely, the one with the human mind, the other with all things
+whatever except the mind; this distinction does not hold between the
+higher regions of the two. Take the science of politics, for instance,
+or that of law: who will say that these are physical sciences? and yet
+is it not obvious that they are conversant fully as much with matter as
+with mind? Take, again, the theory of music, of painting, of any other
+of the fine arts, and who will venture to pronounce that the facts they
+are conversant with belong either wholly to the class of matter, or
+wholly to that of mind?
+
+The following seems to be the _rationale_ of the distinction between
+physical and moral science.
+
+In all the intercourse of man with nature, whether we consider him as
+acting upon it, or as receiving impressions from it, the effect or
+phenomenon depends upon causes of two kinds: the properties of the
+object acting, and those of the object acted upon. Everything which can
+possibly happen in which man and external things, are jointly concerned,
+results from the joint operation of a law or laws of matter, and a law
+or laws of the human mind. Thus the production of corn by human labour
+is the result of a law of mind, and many laws of matter. The laws of
+matter are those properties of the soil and of vegetable life which
+cause the seed to germinate in the ground, and those properties of the
+human body which render food necessary to its support. The law of mind
+is, that man desires to possess subsistence, and consequently wills the
+necessary means of procuring it.
+
+Laws of mind and laws of matter are so dissimilar in their nature, that
+it would be contrary to all principles of rational arrangement to mix
+them up as part of the same study. In all scientific methods, therefore,
+they are placed apart. Any compound effect or phenomenon which depends
+both on the properties of matter and on those of mind, may thus become
+the subject of two completely distinct sciences, or branches of science;
+one, treating of the phenomenon in so far as it depends upon the laws of
+matter only; the other treating of it in so far as it depends upon the
+laws of mind.
+
+The physical sciences are those which treat of the laws of matter, and
+of all complex phenomena in so far as dependent upon the laws of matter.
+The mental or moral sciences are those which treat of the laws of mind,
+and of all complex phenomena in so far as dependent upon the laws of
+mind.
+
+Most of the moral sciences presuppose physical science; but few of the
+physical sciences presuppose moral science. The reason is obvious. There
+are many phenomena (an earthquake, for example, or the motions of the
+planets) which depend upon the laws of matter exclusively; and have
+nothing whatever to do with the laws of mind. Many, therefore, of the
+physical sciences may be treated of without any reference to mind, and
+as if the mind existed as a recipient of knowledge only, not as a cause
+producing effects. But there are no phenomena which depend exclusively
+upon the laws of mind; even the phenomena of the mind itself being
+partially dependent upon the physiological laws of the body. All the
+mental sciences, therefore, not excepting the pure science of mind, must
+take account of a great variety of physical truths; and (as physical
+science is commonly and very properly studied first) may be said to
+presuppose them, taking up the complex phenomena where physical science
+leaves them.
+
+Now this, it will be found, is a precise statement of the relation in
+which Political Economy stands to the various sciences which are
+tributary to the arts of production.
+
+The laws of the production of the objects which constitute wealth, are
+the subject-matter both of Political Economy and of almost all the
+physical sciences. Such, however, of those laws as are purely laws of
+matter, belong to physical science, and to that exclusively. Such of
+them as are laws of the human mind, and no others, belong to Political
+Economy, which finally sums up the result of both combined.
+
+Political Economy, therefore, presupposes all the physical sciences; it
+takes for granted all such of the truths of those sciences as are
+concerned in the production of the objects demanded by the wants of
+mankind; or at least it takes for granted that the physical part of the
+process takes place somehow. It then inquires what are the phenomena of
+_mind_ which are concerned in the production and distribution [8] of
+those same objects; it borrows from the pure science of mind the laws of
+those phenomena, and inquires what effects follow from these mental
+laws, acting in concurrence with those physical one. [9]
+
+From the above considerations the following seems to come out as the
+correct and complete definition of Political Economy:--"The science
+which treats of the production and distribution of wealth, so far as
+they depend upon the laws of human nature." Or thus--science relating to
+the moral or psychological laws of the production and distribution of
+wealth."
+
+For popular use this definition is amply sufficient, but it still falls
+short of the complete accuracy required for the purposes of the
+philosopher. Political Economy does not treat of the production and
+distribution of wealth in all states of mankind, but only in what is
+termed the social state; nor so far as they depend upon the laws of
+human nature, but only so far as they depend upon a certain portion of
+those laws. This, at least, is the view which must be taken of Political
+Economy, if we mean it to find any place in an encyclopedical division
+of the field of science. On any other view, it either is not science at
+all, or it is several sciences. This will appear clearly, if, on the one
+hand, we take a general survey of the moral sciences, with a view to
+assign the exact place of Political Economy among them; while, on the
+other, we consider attentively the nature of the methods or processes by
+which the truths which are the object of those sciences are arrived at.
+
+Man, who, considered as a being having a moral or mental nature, is the
+subject-matter of all the moral sciences, may, with reference to that
+part of his nature, form the subject of philosophical inquiry under
+several distinct hypotheses. We may inquire what belongs to man
+considered individually, and as if no human being existed besides
+himself; we may next consider him as coming into contact with other
+individuals; and finally, as living in a state of _society_, that is,
+forming part of a body or aggregation of human beings, systematically
+co-operating for common purposes. Of this last state, political
+government, or subjection to a common superior, is an ordinary
+ingredient, but forms no necessary part of the conception, and, with
+respect to our present purpose, needs not be further adverted to.
+
+Those laws or properties of human nature which appertain to man as a
+mere individual, and do not presuppose, as a necessary condition, the
+existence of other individuals (except, perhaps, as mere instruments or
+means), form a part of the subject of pure mental philosophy. They
+comprise all the laws of the mere intellect, and those of the purely
+self-regarding desires.
+
+Those laws of human nature which relate to the feelings called forth in
+a human being by other individual human or intelligent beings, as such;
+namely, the _affections_, the _conscience_, or feeling of duty, and the
+love of _approbation_; and to the conduct of man, so far as it depends
+upon, or has relation to, these parts of his nature--form the subject of
+another portion of pure mental philosophy, namely, that portion of it on
+which _morals_, or _ethics_, are founded. For morality itself is not a
+science, but an art; not truths, but rules. The truths on which the
+rules are founded are drawn (as is the case in all arts) from a variety
+of sciences; but the principal of them, and those which are most nearly
+peculiar to this particular art, belong to a branch of the science of
+mind.
+
+Finally, there are certain principles of human nature which are
+peculiarly connected with the ideas and feelings generated in man by
+living in a state of _society_, that is, by forming part of a union or
+aggregation of human beings for a common purpose or purposes. Few,
+indeed, of the elementary laws of the human mind are peculiar to this
+state, almost all being called into action in the two other states. But
+those simple laws of human nature, operating in that wider field, give
+rise to results of a sufficiently universal character, and even (when
+compared with the still more complex phenomena of which they are the
+determining causes) sufficiently simple, to admit of being called,
+though in a somewhat looser sense, _laws_ of society, or laws of human
+nature in the social state. These laws, or general truths, form the
+subject of a branch of science which may be aptly designated from the
+title of _social economy_; somewhat less happily by that of _speculative
+politics_, or the _science_ of politics, as contradistinguished from the
+art. This science stands in the same relation to the social, as anatomy
+and physiology to the physical body. It shows by what principles of his
+nature man is induced to enter into a state of society; how this feature
+in his position acts upon his interests and feelings, and through them
+upon his conduct; how the association tends progressively to become
+closer, and the co-operation extends itself to more and more purposes;
+what those purposes are, and what the varieties of means most generally
+adopted for furthering them; what are the various relations which
+establish themselves among human beings as the ordinary consequence of
+the social union; what those which are different in different states of
+society; in what historical order those states tend to succeed one
+another; and what are the effects of each upon the conduct and character
+of man.
+
+This branch of science, whether we prefer to call it social economy,
+speculative politics, or the natural history of society, presupposes the
+whole science of the nature of the individual mind; since all the laws
+of which the latter science takes cognizance are brought into play in a
+state of society, and the truths of the social science are but
+statements of the manner in which those simple laws take effect in
+complicated circumstances. Pure mental philosophy, therefore, is an
+essential part, or preliminary, of political philosophy. The science of
+social economy embraces every part of man's nature, in so far as
+influencing the conduct or condition of man in society; and therefore
+may it be termed speculative politics, as being the scientific
+foundation of practical politics, or the art of government, of which the
+art of legislation is a part. [10]
+
+It is to _this_ important division of the field of science that one of
+the writers who have most correctly conceived and copiously illustrated
+its nature and limits,--we mean M. Say,--has chosen to give the name
+Political Economy. And, indeed, this large extension of the
+signification of that term is countenanced by its etymology. But the
+words "political economy" have long ceased to have so large a meaning.
+Every writer is entitled to use the words which are his tools in the
+manner which he judges most conducive to the general purposes of the
+exposition of truth; but he exercises this discretion under liability to
+criticism: and M. Say seems to have done in this instance, what should
+never be done without strong reasons; to have altered the meaning of a
+name which was appropriated to a particular purpose (and for which,
+therefore, a substitute must be provided), in order to transfer it to an
+object for which it was easy to find a more characteristic denomination.
+
+What is now commonly understood by the term "Political Economy" is not
+the science of speculative politics, but a branch of that science. It
+does not treat of the whole of man's nature as modified by the social
+state, nor of the whole conduct of man in society. It is concerned with
+him solely as a being who desires to possess wealth, and who is capable
+of judging of the comparative efficacy of means for obtaining that end.
+It predicts only such of the phenomena of the social state as take place
+in consequence of the pursuit of wealth. It makes entire abstraction of
+every other human passion or motive; except those which may be regarded
+as perpetually antagonizing principles to the desire of wealth, namely,
+aversion to labour, and desire of the present enjoyment of costly
+indulgences. These it takes, to a certain extent, into its calculations,
+because these do not merely, like other desires, occasionally conflict
+with the pursuit of wealth, but accompany it always as a drag, or
+impediment, and are therefore inseparably mixed up in the consideration
+of it. Political Economy considers mankind as occupied solely in
+acquiring and consuming wealth; and aims at showing what is the course
+of action into which mankind, living in a state of society, would be
+impelled, if that motive, except in the degree in which it is checked by
+the two perpetual counter-motives above adverted to, were absolute ruler
+of all their actions. Under the influence of this desire, it shows
+mankind accumulating wealth, and employing that wealth in the production
+of other wealth; sanctioning by mutual agreement the institution of
+property; establishing laws to prevent individuals from encroaching upon
+the property of others by force or fraud; adopting various contrivances
+for increasing the productiveness of their labour; settling the division
+of the produce by agreement, under the influence of competition
+(competition itself being governed by certain laws, which laws are
+therefore the ultimate regulators of the division of the produce); and
+employing certain expedients (as money, credit, &c.) to facilitate the
+distribution. All these operations, though many of them are really the
+result of a plurality of motives, are considered by Political Economy as
+flowing solely from the desire of wealth. The science then proceeds to
+investigate the laws which govern these several operations, under the
+supposition that man is a being who is determined, by the necessity of
+his nature, to prefer a greater portion of wealth to a smaller in all
+cases, without any other exception than that constituted by the two
+counter-motives already specified. Not that any political economist was
+ever so absurd as to suppose that mankind are really thus constituted,
+but because this is the mode in which science must necessarily proceed.
+When an effect depends upon a concurrence of causes, those causes must
+be studied one at a time, and their laws separately investigated, if we
+wish, through the causes, to obtain the power of either predicting or
+controlling the effect; since the law of the effect is compounded of the
+laws of all the causes which determine it. The law of the centripetal
+and that of the tangential force must have been known before the motions
+of the earth and planets could be explained, or many of them predicted.
+The same is the case with the conduct of man in society. In order to
+judge how he will act under the variety of desires and aversions which
+are concurrently operating upon him, we must know how he would act under
+the exclusive influence of each one in particular. There is, perhaps, no
+action of a man's life in which he is neither under the immediate nor
+under the remote influence of any impulse but the mere desire of wealth.
+With respect to those parts of human conduct of which wealth is not even
+the principal object, to these Political Economy does not pretend that
+its conclusions are applicable. But there are also certain departments
+of human affairs, in which the acquisition of wealth is the main and
+acknowledged end. It is only of these that Political Economy takes
+notice. The manner in which it necessarily proceeds is that of treating
+the main and acknowledged end as if it were the sole end; which, of all
+hypotheses equally simple, is the nearest to the truth. The political
+economist inquires, what are the actions which would be produced by this
+desire, if, within the departments in question, it were unimpeded by any
+other. In this way a nearer approximation is obtained than would
+otherwise be practicable, to the real order of human affairs in those
+departments. This approximation is then to be corrected by making proper
+allowance for the effects of any impulses of a different description,
+which can be shown to interfere with the result in any particular case.
+Only in a few of the most striking cases (such as the important one of
+the principle of population) are these corrections interpolated into the
+expositions of Political Economy itself; the strictness of purely
+scientific arrangement being thereby somewhat departed from, for the
+sake of practical utility. So far as it is known, or may be presumed,
+that the conduct of mankind in the pursuit of wealth is under the
+collateral influence of any other of the properties of our nature than
+the desire of obtaining the greatest quantity of wealth with the least
+labour and self-denial, the conclusions of Political Economy will so far
+fail of being applicable to the explanation or prediction of real
+events, until they are modified by a correct allowance for the degree of
+influence exercised by the other cause.
+
+Political Economy, then, may be defined as follows; and the definition
+seems to be complete:--
+
+"The science which traces the laws of such of the phenomena of society
+as arise from the combined operations of mankind for the production of
+wealth, in so far as those phenomena are not modified by the pursuit of
+any other object."
+
+But while this is a correct definition of Political Economy as a portion
+of the field of science, the didactic writer on the subject will
+naturally combine in his exposition, with the truths of the pure
+science, as many of the practical modifications as will, in his
+estimation, be most conducive to the usefulness of his work.
+
+       *       *       *       *       *
+
+The above attempt to frame a stricter definition of the science than
+what are commonly received as such, may be thought to be of little use;
+or, at best, to be chiefly useful in a general survey and classification
+of the sciences, rather than as conducing to the more successful pursuit
+of the particular science in question. We think otherwise, and for this
+reason; that, with the consideration of the definition of a science, is
+inseparably connected that of the _philosophic method_ of the science;
+the nature of the process by which its investigations are to be carried
+on, its truths to be arrived at.
+
+Now, in whatever science there are systematic differences of opinion
+--which is as much as to say, in all the moral or mental sciences, and
+in Political Economy among the rest; in whatever science there exist,
+among those who have attended to the subject, what are commonly called
+differences of principle, as distinguished from differences of
+matter-of-fact or detail,--the cause will be found to be, a difference
+in their conceptions of the philosophic method of the science. The
+parties who differ are guided, either knowingly or unconsciously, by
+different views concerning the nature of the evidence appropriate to the
+subject. They differ not solely in what they believe themselves to see,
+but in the quarter whence they obtained the light by which they think
+they see it.
+
+The most universal of the forms in which this difference of method is
+accustomed to present itself, is the ancient feud between what is called
+theory, and what is called practice or experience. There are, on social
+and political questions, two kinds of reasoners: there is one portion
+who term themselves practical men, and call the others theorists; a
+title which the latter do not reject, though they by no means recognise
+it as peculiar to them. The distinction between the two is a very broad
+one, though it is one of which the language employed is a most incorrect
+exponent. It has been again and again demonstrated, that those who are
+accused of despising facts and disregarding experience build and profess
+to build wholly upon facts and experience; while those who disavow
+theory cannot make one step without theorizing. But, although both
+classes of inquirers do nothing but theorize, and both of them consult
+no other guide than experience, there is this difference between them,
+and a most important difference it is: that those who are called
+practical men require _specific_ experience, and argue wholly _upwards_
+from particular facts to a general conclusion; while those who are
+called theorists aim at embracing a wider field of experience, and,
+having argued upwards from particular facts to a general principle
+including a much wider range than that of the question under discussion,
+then argue _downwards_ from that general principle to a variety of
+specific conclusions.
+
+Suppose, for example, that the question were, whether absolute kings
+were likely to employ the powers of government for the welfare or for
+the oppression of their subjects. The practicals would endeavour to
+determine this question by a direct induction from the conduct of
+particular despotic monarchs, as testified by history. The theorists
+would refer the question to be decided by the test not solely of our
+experience of kings, but of our experience of men. They would contend
+that an observation of the tendencies which human nature has manifested
+in the variety of situations in which human beings have been placed, and
+especially observation of what passes in our own minds, warrants us in
+inferring that a human being in the situation of a despotic king will
+make a bad use of power; and that this conclusion would lose nothing of
+its certainty even if absolute kings had never existed, or if history
+furnished us with no information of the manner in which they had
+conducted themselves.
+
+The first of these methods is a method of induction, merely; the last a
+mixed method of induction and ratiocination. The first may be called the
+method _à posteriori;_ the latter, the method _à priori_. We are aware
+that this last expression is sometimes used to characterize a supposed
+mode of philosophizing, which does not profess to be founded upon
+experience at all. But we are not acquainted with any mode of
+philosophizing, on political subjects at least, to which such a
+description is fairly applicable. By the method _à posteriori_ we mean
+that which requires, as the basis of its conclusions, not experience
+merely, but specific experience. By the method _à priori_ we mean (what
+has commonly been meant) reasoning from an assumed hypothesis; which is
+not a practice confined to mathematics, but is of the essence of all
+science which admits of general reasoning at all. To verify the
+hypothesis itself _à posteriori_, that is, to examine whether the facts
+of any actual case are in accordance with it, is no part of the business
+of science at all, but of the _application_ of science.
+
+In the definition which we have attempted to frame of the science of
+Political Economy, we have characterized it as essentially an _abstract_
+science, and its method as the method _à priori_. Such is undoubtedly
+its character as it has been understood and taught by all its most
+distinguished teachers. It reasons, and, as we contend, must necessarily
+reason, from assumptions, not from facts. It is built upon hypotheses,
+strictly analogous to those which, under the name of definitions, are
+the foundation of the other abstract sciences. Geometry presupposes an
+arbitrary definition of a line, "that which has length but not breadth."
+Just in the same manner does Political Economy presuppose an arbitrary
+definition of man, as a being who invariably does that by which he may
+obtain the greatest amount of necessaries, conveniences, and luxuries,
+with the smallest quantity of labour and physical self-denial with which
+they can be obtained in the existing state of knowledge. It is true that
+this definition of man is not formally prefixed to any work on Political
+Economy, as the definition of a line is prefixed to Euclid's Elements;
+and in proportion as by being so prefixed it would be less in danger of
+being forgotten, we may see ground for regret that this is not done. It
+is proper that what is assumed in every particular case, should once for
+all be brought before the mind in its full extent, by being somewhere
+formally stated as a general maxim. Now, no one who is conversant with
+systematic treatises on Political Economy will question, that whenever a
+political economist has shown that, by acting in a particular manner, a
+labourer may obviously obtain higher wages, a capitalist larger profits,
+or a landlord higher rent, he concludes, as a matter of course, that
+they will certainly act in that manner. Political Economy, therefore,
+reasons from _assumed_ premises--from premises which might be totally
+without foundation in fact, and which are not pretended to be
+universally in accordance with it. The conclusions of Political Economy,
+consequently, like those of geometry, are only true, as the common
+phrase is, _in the abstract_; that is, they are only true under certain
+suppositions, in which none but general causes--causes common to the
+_whole class_ of cases under consideration--are taken into the account.
+
+This ought not to be denied by the political economist. If he deny it,
+then, and then only, he places himself in the wrong. The _à priori_
+method which is laid to his charge, as if his employment of it proved
+his whole science to be worthless, is, as we shall presently show, the
+only method by which truth can possibly be attained in any department of
+the social science. All that is requisite is, that he be on his guard
+not to ascribe to conclusions which are grounded upon an hypothesis a
+different kind of certainty from that which really belongs to them. They
+would be true without qualification, only in a case which is purely
+imaginary. In proportion as the actual facts recede from the hypothesis,
+he must allow a corresponding deviation from the strict letter of his
+conclusion; otherwise it will be true only of things such as he has
+arbitrarily supposed, not of such things as really exist. That which is
+true in the abstract, is always true in the concrete with proper
+_allowances_. When a certain cause really exists, and if left to itself
+would infallibly produce a certain effect, that same effect, _modified_
+by all the other concurrent causes, will correctly correspond to the
+result really produced.
+
+The conclusions of geometry are not strictly true of such lines, angles,
+and figures, as human hands can construct. But no one, therefore,
+contends that the conclusions of geometry are of no utility, or that it
+would be better to shut up Euclid's Elements, and content ourselves with
+"practice" and "experience."
+
+No mathematician ever thought that his definition of a line corresponded
+to an actual line. As little did any political economist ever imagine
+that real men had no object of desire but wealth, or none which would
+not give way to the slightest motive of a pecuniary kind. But they were
+justified in assuming this, for the purposes of their argument; because
+they had to do only with those parts of human conduct which have
+pecuniary advantage for their direct and principal object; and because,
+as no two individual cases are exactly alike, no _general_ maxims could
+ever be laid down unless _some_ of the circumstances of the particular
+case were left out of consideration.
+
+But we go farther than to affirm that the method _à priori_ is a
+legitimate mode of philosophical investigation in the moral sciences: we
+contend that it is the only mode. We affirm that the method _à
+posteriori_, or that of specific experience, is altogether inefficacious
+in those sciences, as a means of arriving at any considerable body of
+valuable truth; though it admits of being usefully applied in aid of the
+method _à priori_, and even forms an indispensable supplement to it.
+
+There is a property common to almost all the moral sciences, and by
+which they are distinguished from many of the physical; this is, that it
+is seldom in our power to make experiments in them. In chemistry and
+natural philosophy, we can not only observe what happens under all the
+combinations of circumstances which nature brings together, but we may
+also try an indefinite number of new combinations. This we can seldom do
+in ethical, and scarcely ever in political science. We cannot try forms
+of government and systems of national policy on a diminutive scale in
+our laboratories, shaping our experiments as we think they may most
+conduce to the advancement of knowledge. We therefore study nature under
+circumstances of great disadvantage in these sciences; being confined to
+the limited number of experiments which take place (if we may so speak)
+of their own accord, without any preparation or management of ours; in
+circumstances, moreover, of great complexity, and never perfectly known
+to us; and with the far greater part of the processes concealed from our
+observation.
+
+The consequence of this unavoidable defect in the materials of the
+induction is, that we can rarely obtain what Bacon has quaintly, but not
+unaptly, termed an _experimentum crucis_.
+
+In any science which admits of an unlimited range of arbitrary
+experiments, an _experimentum crucis_ may always be obtained. Being able
+to vary all the circumstances, we can always take effectual means of
+ascertaining which of them are, and which are not, material. Call the
+effect B, and let the question be whether the cause A in any way
+contributes to it. We try an experiment in which all the surrounding
+circumstances are altered, except A alone: if the effect B is
+nevertheless produced, A is the cause of it. Or, instead of leaving A,
+and changing the other circumstances, we leave all the other
+circumstances and change A: if the effect B in that case does _not_ take
+place, then again A is a necessary condition of its existence. Either of
+these experiments, if accurately performed, is an _experimentum crucis_;
+it converts the presumption we had before of the existence of a
+connection between A and B into proof, by negativing every other
+hypothesis which would account for the appearances.
+
+But this can seldom be done in the moral sciences, owing to the immense
+multitude of the influencing circumstances, and our very scanty means of
+varying the experiment. Even in operating upon an individual mind, which
+is the case affording greatest room for experimenting, we cannot often
+obtain a _crucial_ experiment. The effect, for example, of a particular
+circumstance in education, upon the formation of character, may be tried
+in a variety of cases, but we can hardly ever be certain that any two of
+those cases differ in all their circumstances except the solitary one of
+which we wish to estimate the influence. In how much greater a degree
+must this difficulty exist in the affairs of states, where even the
+_number_ of recorded experiments is so scanty in comparison with the
+variety and multitude of the circumstances concerned in each. How, for
+example, can we obtain a crucial experiment on the effect of a
+restrictive commercial policy upon national wealth? We must find two
+nations alike in every other respect, or at least possessed, in a degree
+exactly equal, of everything which conduces to national opulence, and
+adopting exactly the same policy in all their other affairs, but
+differing in this only, that one of them adopts a system of commercial
+restrictions, and the other adopts free trade. This would be a decisive
+experiment, similar to those which we can almost always obtain in
+experimental physics. Doubtless this would be the most conclusive
+evidence of all if we could get it. But let any one consider how
+infinitely numerous and various are the circumstances which either
+directly or indirectly do or may influence the amount of the national
+wealth, and then ask himself what are the probabilities that in the
+longest revolution of ages two nations will be found, which agree, and
+can be shown to agree, in all those circumstances except one?
+
+Since, therefore, it is vain to hope that truth can be arrived at,
+either in Political Economy or in any other department of the social
+science, while we look at the facts in the concrete, clothed in all the
+complexity with which nature has surrounded them, and endeavour to
+elicit a general law by a process of induction from a comparison of
+details; there remains no other method than the _à priori_ one, or that
+of "abstract speculation."
+
+Although sufficiently ample grounds are not afforded in the field of
+politics, for a satisfactory induction by a comparison of the effects,
+the causes may, in all cases, be made the subject of specific
+experiment. These causes are, laws of human nature, and external
+circumstances capable of exciting the human will to action. The desires
+of man, and the nature of the conduct to which they prompt him, are
+within the reach of our observation. We can also observe what are the
+objects which excite those desires. The materials of this knowledge
+every one can principally collect within himself; with reasonable
+consideration of the differences, of which experience discloses to him
+the existence, between himself and other people. Knowing therefore
+accurately the properties of the substances concerned, we may reason
+with as much certainty as in the most demonstrative parts of physics
+from any assumed set of circumstances. This will be mere trifling if the
+assumed circumstances bear no sort of resemblance to any real ones; but
+if the assumption is correct as far as it goes, and differs from the
+truth no otherwise than as a part differs from the whole, then the
+conclusions which are correctly deduced from the assumption constitute
+_abstract_ truth; and when completed by adding or subtracting the effect
+of the non-calculated circumstances, they are true in the concrete, and
+may be applied to practice.
+
+Of this character is the science of Political Economy in the writings of
+its best teachers. To render it perfect as an abstract science, the
+combinations of circumstances which it assumes, in order to trace their
+effects, should embody all the circumstances that are common to all
+cases whatever, and likewise all the circumstances that are common to
+any important class of cases. The conclusions correctly deduced from
+these assumptions, would be as true in the abstract as those of
+mathematics; and would be as near an approximation as abstract truth can
+ever be, to truth in the concrete.
+
+When the principles of Political Economy are to be applied to a
+particular ease, then it is necessary to take into account all the
+individual circumstances of that case; not only examining to which of
+the sets of circumstances contemplated by the abstract science the
+circumstances of the case in question correspond, but likewise what
+other circumstances may exist in that case, which not being common to it
+with any large and strongly-marked class of cases, have not fallen under
+the cognizance of the science. These circumstances have been called
+_disturbing causes_. And here only it is that an element of uncertainty
+enters into the process--an uncertainty inherent in the nature of these
+complex phenomena, and arising from the impossibility of being quite
+sure that all the circumstances of the particular case are known to us
+sufficiently in detail, and that our attention is not unduly diverted
+from any of them.
+
+This constitutes the only uncertainty of Political Economy; and not of
+it alone, but of the moral sciences in general. When the disturbing
+causes are known, the allowance necessary to be made for them detracts
+in no way from scientific precision, nor constitutes any deviation from
+the _à priori_ method. The disturbing causes are not handed over to be
+dealt with by mere conjecture. Like _friction_ in mechanics, to which
+they have been often compared, they may at first have been considered
+merely as a non-assignable deduction to be made by guess from the result
+given by the general principles of science; but in time many of them are
+brought within the pale of the abstract science itself, and their effect
+is found to admit of as accurate an estimation as those more striking
+effects which they modify. The disturbing causes have their laws, as the
+causes which are thereby disturbed have theirs; and from the laws of the
+disturbing causes, the nature and amount of the disturbance may be
+predicted _à priori_, like the operation of the more general laws which
+they are said to modify or disturb, but with which they might more
+properly be said to be concurrent. The effect of the special causes is
+then to be added to, or subtracted from, the effect of the general ones.
+
+These disturbing causes are sometimes circumstances which operate upon
+human conduct through the same principle of human nature with which
+Political Economy is conversant, namely, the desire of wealth, but which
+are not general enough to be taken into account in the abstract science.
+Of disturbances of this description every political economist can
+produce many examples. In other instances the disturbing cause is some
+other law of human nature. In the latter case it never can fall within
+the province of Political Economy; it belongs to some other science; and
+here the mere political economist, he who has studied no science but
+Political Economy, if he attempt to apply his science to practice, will
+fail. [11]
+
+As for the other kind of disturbing causes, namely those which operate
+through the same law of human nature out of which the general principles
+of the science arise, these might always be brought within the pale of
+the abstract science if it were worth while; and when we make the
+necessary allowances for them in practice, if we are doing anything but
+guess, we are following out the method of the abstract science into
+minuter details; inserting among its hypotheses a fresh and still more
+complex combination of circumstances, and so adding _pro hác vice_ a
+supplementary chapter or appendix, or at least a supplementary theorem,
+to the abstract science.
+
+Having now shown that the method _à priori_ in Political Economy, and
+in all the other branches of moral science, is the only certain or
+scientific mode of investigation, and that the _à posteriori_ method,
+or that of specific experience, as a means of arriving at truth, is
+inapplicable to these subjects, we shall be able to show that the latter
+method is notwithstanding of great value in the moral sciences; namely,
+not as a means of discovering truth, but of verifying it, and reducing
+to the lowest point that uncertainty before alluded to as arising from
+the complexity of every particular case, and from the difficulty (not to
+say impossibility) of our being assured _à priori_ that we have taken
+into account all the material circumstances.
+
+If we could be quite certain that we knew all the facts of the
+particular case, we could derive little additional advantage from
+specific experience. The causes being given, we may know what will be
+their effect, without an actual trial of every possible combination;
+since the causes are human feelings, and outward circumstances fitted to
+excite them: and, as these for the most part are, or at least might be,
+familiar to us, we can more surely judge of their combined effect from
+that familiarity, than from any evidence which can be elicited from the
+complicated and entangled circumstances of an actual experiment. If the
+knowledge what are the particular causes operating in any given instance
+were revealed to us by infallible authority, then, if our abstract
+science were perfect, we should become prophets. But the causes are not
+so revealed: they are to be collected by observation; and observation in
+circumstances of complexity is apt to be imperfect. Some of the causes
+may lie beyond observation; many are apt to escape it, unless we are on
+the look-out for them; and it is only the habit of long and accurate
+observation which can give us so correct a preconception what causes we
+are likely to find, as shall induce us to look for them in the right
+quarter. But such is the nature of the human understanding, that the
+very fact of attending with intensity to one part of a thing, has a
+tendency to withdraw the attention from the other parts. We are
+consequently in great danger of adverting to a portion only of the
+causes which are actually at work. And if we are in this predicament,
+the more accurate our deductions and the more certain our conclusions in
+the abstract, (that is, making abstraction of all circumstances except
+those which form part of the hypothesis,) the less we are likely to
+suspect that we are in error: for no one can have looked closely into
+the sources of fallacious thinking without being deeply conscious that
+the coherence, and neat concatenation of our philosophical systems, is
+more apt than we are commonly aware to pass with us as evidence of their
+truth.
+
+We cannot, therefore, too carefully endeavour to verify our theory, by
+comparing, in the particular cases to which we have access, the results
+which it would have led us to predict, with the most trustworthy
+accounts we can obtain of those which have been actually realized. The
+discrepancy between our anticipations and the actual fact is often the
+only circumstance which would have drawn our attention to some important
+disturbing cause which we had overlooked. Nay, it often discloses to us
+errors in thought, still more serious than the omission of what can with
+any propriety be termed a disturbing cause. It often reveals to us that
+the basis itself of our whole argument is insufficient; that the data,
+from which we had reasoned, comprise only a part, and not always the
+most important part, of the circumstances by which the result is really
+determined. Such oversights are committed by very good reasoners, and
+even by a still rarer class, that of good observers. It is a kind of
+error to which those are peculiarly liable whose views are the largest
+and most philosophical: for exactly in that ratio are their minds more
+accustomed to dwell upon those laws, qualities, and tendencies, which
+are common to large classes of cases, and which belong to all place and
+all time; while it often happens that circumstances almost peculiar to
+the particular case or era have a far greater share in governing that
+one case.
+
+Although, therefore, a philosopher be convinced that no general truths
+can be attained in the affairs of nations by the _à posteriori_ road,
+it does not the less behove him, according to the measure of his
+opportunities, to sift and scrutinize the details of every specific
+experiment. Without this, he may be an excellent professor of abstract
+science; for a person may be of great use who points out correctly what
+effects will follow from certain combinations of possible circumstances,
+in whatever tract of the extensive region of hypothetical cases those
+combinations may be found. He stands in the same relation to the
+legislator, as the mere geographer to the practical navigator; telling
+him the latitude and longitude of all sorts of places, but not how to
+find whereabouts he himself is sailing. If, however, he does no more
+than this, he must rest contented to take no share in practical
+politics; to have no opinion, or to hold it with extreme modesty, on
+the applications which should be made of his doctrines to existing
+circumstances.
+
+No one who attempts to lay down propositions for the guidance of
+mankind, however perfect his scientific acquirements, can dispense with
+a practical knowledge of the actual modes in which the affairs of the
+world are carried on, and an extensive personal experience of the actual
+ideas, feelings, and intellectual and moral tendencies of his own
+country and of his own age. The true practical statesman is he who
+combines this experience with a profound knowledge of abstract political
+philosophy. Either acquirement, without the other, leaves him lame and
+impotent if he is sensible of the deficiency; renders him obstinate and
+presumptuous if, as is more probable, he is entirely unconscious of it.
+
+Such, then, are the respective offices and uses of the _à priori_ and
+the _à posteriori_ methods--the method of abstract science, and that of
+specific experiment--as well in Political Economy, as in all the other
+branches of social philosophy. Truth compels us to express our
+conviction that whether among those who have written on, these subjects,
+or among those for whose use they wrote, few can be pointed out who have
+allowed to each of these methods its just value, and systematically kept
+each to its proper objects and functions. One of the peculiarities of
+modern times, the separation of theory from practice--of the studies of
+the closet, from the outward business of the world--has given a wrong
+bias to the ideas and feelings both of the student and of the man of
+business. Each undervalues that part of the materials of thought with
+which he is not familiar. The one despises all comprehensive views, the
+other neglects details. The one draws his notion of the universe from
+the few objects with which his course of life has happened to render him
+familiar; the other having got demonstration on his side, and forgetting
+that it is only a demonstration _nisi_--a proof at all times liable to
+be set aside by the addition of a single new fact to the hypothesis
+--denies, instead of examining and sifting, the allegations which are
+opposed to him. For this he has considerable excuse in the worthlessness
+of the testimony on which the facts brought forward to invalidate the
+conclusions of theory usually rest. In these complex matters, men see
+with their preconceived opinions, not with their eyes: an interested or
+a passionate man's statistics are of little worth; and a year seldom
+passes without examples of the astounding falsehoods which large bodies
+of respectable men will back each other in publishing to the world as
+facts within their personal knowledge. It is not because a thing is
+_asserted_ to be true, but because in its nature it _may_ be true, that
+a sincere and patient inquirer will feel himself called upon to
+investigate it. He will use the assertions of opponents not as evidence,
+but indications leading to evidence; suggestions of the most proper
+course for his own inquiries.
+
+But while the philosopher and the practical man bandy half-truths with
+one another, we may seek far without finding one who, placed on a higher
+eminence of thought, comprehends as a whole what they see only in
+separate parts; who can make the anticipations of the philosopher guide
+the observation of the practical man, and the specific experience of the
+practical man warn the philosopher where something is to be added to his
+theory.
+
+The most memorable example in modern times of a man who united the
+spirit of philosophy with the pursuits of active life, and kept wholly
+clear from the partialities and prejudices both of the student and of
+the practical statesman, was Turgot; the wonder not only of his age, but
+of history, for his astonishing combination of the most opposite, and,
+judging from common experience, almost incompatible excellences.
+
+Though it is impossible to furnish any test by which a speculative
+thinker, either in Political Economy or in any other branch of social
+philosophy, may know that he is competent to judge of the application of
+his principles to the existing condition of his own or any other country,
+indications may be suggested by the absence of which he may well and
+surely know that he is not competent. His knowledge must at least enable
+him to explain and account for what _is_, or he is an insufficient judge
+of what ought to be. If a political economist, for instance, finds
+himself puzzled by any recent or present commercial phenomena; if there
+is any mystery to him in the late or present state of the productive
+industry of the country, which his knowledge of principle does not
+enable him to unriddle; he may be sure that something is wanting to
+render his system of opinions a safe guide in existing circumstances.
+Either some of the facts which influence the situation of the country
+and the course of events are not known to him; or, knowing them, he
+knows not what ought to be their effects. In the latter case his system
+is imperfect even as an abstract system; it does not enable him to trace
+correctly all the consequences even of assumed premises. Though he
+succeed in throwing doubts upon the reality of some of the phenomena
+which he is required to explain, his task is not yet completed; even
+then he is called upon to show how the belief, which he deems unfounded,
+arose; and what is the real nature of the appearances which gave a
+colour of probability to allegations which examination proves to be
+untrue.
+
+When the speculative politician has gone through this labour--has gone
+through it conscientiously, not with the desire of finding his system
+complete, but of making it so--he may deem himself qualified to apply
+his principles to the guidance of practice: but he must still continue
+to exercise the same discipline upon every new combination of facts as
+it arises; he must make a large allowance for the disturbing influence
+of unforeseen causes, and must carefully watch the result of every
+experiment, in order that any residuum of facts which his principles did
+not lead him to expect, and do not enable him to explain, may become the
+subject of a fresh analysis, and furnish the occasion for a consequent
+enlargement or correction of his general views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,
+--and have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether him to expect, and do not enable him to
+explain, may become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction of his general
+views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,--and
+have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether exempt, to admit the reality or relevancy of
+any facts which they have not previously either taken into, or left a
+place open for in, their systems.
+
+If indeed every phenomenon was generally the effect of no more than one
+cause, a knowledge of the law of that cause would, unless there was a
+logical error in our reasoning, enable us confidently to predict all the
+circumstances of the phenomenon. We might then, if we had carefully
+examined our premises and our reasoning, and found no flaw, venture to
+disbelieve the testimony which might be brought to show that matters had
+turned out differently from what we should have predicted. If the causes
+of erroneous conclusions were always patent on the face of the
+reasonings which lead to them, the human understanding would be a far
+more trustworthy instrument than it is. But the narrowest examination of
+the process itself will help us little towards discovering that we have
+omitted part of the premises which we ought to have taken into our
+reasoning. Effects are commonly determined by a _concurrence_ of causes.
+If we have overlooked any one cause, we may reason justly from all the
+others, and only be the further wrong. Our premises will be true, and
+our reasoning correct, and yet the result of no value in the particular
+case. There is, therefore, almost always room for a modest doubt as to
+our practical conclusions. Against false premises and unsound reasoning,
+a good mental discipline may effectually secure us; but against the
+danger of _overlooking_ something, neither strength of understanding nor
+intellectual cultivation can be more than a very imperfect protection.
+A person may be warranted in feeling confident, that whatever he has
+carefully contemplated with his mind's eye he has seen correctly; but no
+one can be sure that there is not something in existence which he has
+not seen at all. He can do no more than satisfy himself that he has seen
+all that is visible to any other persons who have concerned themselves
+with the subject. For this purpose he must endeavour to place himself at
+their point of view, and strive earnestly to see the object as they see
+it; nor give up the attempt until he has either added the appearance
+which is floating before them to his own stock of realities, or made out
+clearly that it is an optical deception.
+
+       *       *       *       *       *
+
+The principles which we have now stated are by no means alien to common
+apprehension: they are not absolutely hidden, perhaps, from any one, but
+are commonly seen through a mist. We might have presented the latter
+part of them in a phraseology in which they would have seemed the most
+familiar of truisms: we might have cautioned inquirers against too
+extensive _generalization_, and reminded them that there are _exceptions_
+to all rules. Such is the current language of those who distrust
+comprehensive thinking, without having any clear notion why or where it
+ought to be distrusted. We have avoided the use of these expressions
+purposely, because we deem them superficial and inaccurate. The error,
+when there is error, does _not_ arise from generalizing too extensively;
+that is, from including too wide a range of particular cases in a single
+proposition. Doubtless, a man often asserts of an entire class what is
+only true of a part of it; but his error generally consists not in making
+too wide an assertion, but in making the wrong _kind_ of assertion: he
+predicated an actual result, when he should only have predicated a
+_tendency_ to that result--a power acting with a certain intensity in that
+direction. With regard to _exceptions_; in any tolerably ably advanced
+science there is properly no such thing as an exception. What is thought
+to be an exception to a principle is always some other and distinct
+principle cutting into the former: some other force which impinges against
+the first force, and deflects it from its direction. There are not a _law_
+and an _exception_ to that law--the law acting in ninety-nine cases, and
+the exception in one. There are two laws, each possibly acting in the
+whole hundred cases, and bringing about a common effect by their conjunct
+operation. If the force which, being the less conspicuous of the two, is
+called the disturbing force, prevails sufficiently over the other force
+in some one case, to constitute that case what is commonly called an
+exception, the same disturbing force probably acts as a modifying cause
+in many other cases which no one will call exceptions.
+
+Thus if it were stated to be a law of nature, that all heavy bodies fall
+to the ground, it would probably be said that the resistance of the
+atmosphere, which prevents a balloon from falling, constitutes the
+balloon an exception to that pretended law of nature. But the real law
+is, that all heavy bodies _tend_ to fall; and to this there is no
+exception, not even the sun and moon; for even they, as every astronomer
+knows, tend towards the earth, with a force exactly equal to that with
+which the earth tends towards them. The resistance of the atmosphere
+might, in the particular case of the balloon, from a misapprehension of
+what the law of gravitation is, be said to _prevail_ over the law; but
+its disturbing effect is quite as real in every other case, since though
+it does not prevent, it retards the fall of all bodies whatever. The
+rule, and the so-called exception, do not divide the cases between them;
+each of them is a comprehensive rule extending to all cases. To call one
+of these concurrent principles an exception to the other, is
+superficial, and contrary to the correct principles of nomenclature and
+arrangement. An effect of precisely the same kind, and arising from the
+same cause, ought not to be placed in two different categories, merely
+as there does or does not exist another cause preponderating over it.
+
+It is only in art, as distinguished from science, that we can with
+propriety speak of exceptions. Art, the immediate end of which is
+practice, has nothing to do with causes, except as the means of bringing
+about effects. However heterogeneous the causes, it carries the effects
+of them all into one single reckoning, and according as the sum-total is
+_plus_ or _minus_, according as it falls above or below a certain line,
+Art says, Do this, or Abstain from doing it. The exception does not run
+by insensible degrees into the rule, like what are called exceptions in
+science. In a question of practice it frequently happens that a certain
+thing is either fit to be done, or fit to be altogether abstained from,
+there being no medium. If, in the majority of cases, it is fit to be
+done, that is made the rule. When a case subsequently occurs in which
+the thing ought not to be done, an entirely new leaf is turned over; the
+rule is now done with, and dismissed: a new train of ideas is introduced,
+between which and those involved in the rule there is a broad line of
+demarcation; as broad and _tranchant_ as the difference between Ay and
+No. Very possibly, between the last case which comes within the rule and
+the first of the exception, there is only the difference of a shade: but
+that shade probably makes the whole interval between acting in one way
+and in a totally different one. We may, therefore, in talking of art,
+unobjectionably speak of the _rule_ and the _exception_; meaning by the
+rule, the cases in which there exists a preponderance, however slight,
+of inducements for acting in a particular way; and by the exception, the
+cases in which the preponderance is on the contrary side.
+
+
+THE END.
+
+
+NOTES:
+
+[8] We say, the _production_ and _distribution_, not, as is usual with
+writers on this science, the production, distribution, and _consumption_.
+For we contend that Political Economy, as conceived by those very
+writers, has nothing to do with the consumption of wealth, further than
+as the consideration of it is inseparable from that of production, or
+from that of distribution. We know not of any _laws_ of the _consumption_
+of wealth as the subject of a distinct science: they can be no other
+than the laws of human enjoyment. Political economists have never treated
+of consumption on its own account, but always for the purpose of the
+inquiry in what manner different kinds of consumption affect the production
+and distribution of wealth. Under the head of Consumption, in professed
+treatises on the science, the following are the subjects treated of: 1st,
+The distinction between _productive_ and _unproductive_ consumption; 2nd,
+The inquiry whether it is possible for _too much_ wealth to be _produced_,
+and for too great a portion of what has been produced to be applied to the
+purpose of further _production_; 3rd, The theory of taxation, that is to
+say, the following two questions--by whom each particular tax is paid
+(a question of _distribution_), and in what manner particular taxes affect
+_production_.
+
+[9] The physical laws of the production of useful objects are all
+equally presupposed by the science of Political Economy: most of them,
+however, it presupposes in the gross, seeming to say nothing about them.
+A few (such, for instance, as the decreasing ratio in which the produce
+of the soil is increased by an increased application of labour) it is
+obliged particularly to specify, and thus seems to borrow those truths
+from the physical sciences to which they properly belong, and include
+them among its own.
+
+[10] The _science_ of legislation is an incorrect and misleading
+expression. Legislation is _making laws_. We do not talk of the
+_science_ of _making_ anything. Even the _science of government_ would
+be an objectionable expression, were it not that _government_ is often
+loosely taken to signify, not the act of governing, but the state or
+condition of _being governed_, or of living under a government. A
+preferable expression would be, the science of _political society_; a
+principal branch of the more extensive science of society, characterized
+in the text.
+
+[11] One of the strongest reasons for drawing the line of separation
+clearly and broadly between science and art is the following:--That the
+principle of classification in science most conveniently follows the
+classification of _causes_, while arts must necessarily be classified
+according to the classification of the _effects_, the production of
+which is their appropriate end. Now an effect, whether in physics or
+morals, commonly depends upon a concurrence of causes, and it frequently
+happens that several of these causes belong to different sciences. Thus
+in the construction of engines upon the principles of the science of
+_mechanics_, it is necessary to bear in mind the _chemical_ properties
+of the material, such as its liability to oxydize; its electrical and
+magnetic properties, and so forth. From this it follows that although
+the necessary foundation of all art is science, that is, the knowledge
+of the properties or laws of the objects upon which, and with which, the
+art dons its work; it is not equally true that every art corresponds to
+one particular science. Each art presupposes, not one science, but
+science in general; or, at least, many distinct sciences.
+
+
+
+(Editor's note:)
+
+Essays on some Unsettled Questions of Political Economy
+
+These five essays represent Mill's earliest thoughts on economic matters
+and were first composed in 1829 and 1830 before his reputation had been
+established by the publication of _Logic_ in 1843. Their successful
+reception no doubt hastened the composition of his comprehensive work
+the _Principles of Political Economy_ (1848).
+
+
+
+
+
+
+
+
+
+End of the Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
+
+*** END OF THE PROJECT GUTENBERG EBOOK 12004 ***
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+<div>*** START OF THE PROJECT GUTENBERG EBOOK 12004 ***</div>
+
+<h1>ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY</h1>
+
+<h3>by</h3>
+
+<h2>John Stuart Mill</h2>
+<br>
+
+<h3>1844</h3>
+
+
+
+<hr style="width: 65%;">
+<a name="PREFACE"></a><h2>PREFACE.</h2>
+<br>
+
+<p>Of these Essays, which were written in 1829 and
+1830, the fifth alone has been previously printed.
+The other four have hitherto remained in manuscript,
+because, during the temporary suspension of public
+interest in the species of discussion to which they
+belong, there was no inducement to their publication.</p>
+
+<p>They are now published (with a few merely verbal
+alterations) under the impression, that the controversies
+excited by Colonel Torrens' <i>Budget</i> have again
+called the attention of political economists to the discussions
+of the abstract science: and from the additional
+consideration, that the first paper relates expressly
+to the point upon which the question at issue
+between Colonel Torrens and his antagonists has principally
+turned.</p>
+
+<p>From that paper it will be seen that opinions
+identical in principle with those promulgated by
+Colonel Torrens (there would probably be considerable
+difference as to the extent of their practical application)
+have been held by the writer for more than
+fifteen years: although he cannot claim to himself the
+original conception, but only the elaboration, of the
+fundamental doctrine of the Essay.</p>
+
+<p>A prejudice appears to exist in many quarters
+against the theory in question, on the supposition of
+its being opposed to one of the most valuable results
+of modern political philosophy, the doctrine of Freedom
+of Trade between nation and nation. The
+opinions now laid before the reader are presented as
+corollaries necessarily following from the principles
+upon which Free Trade itself rests. The writer has
+also been careful to point out, that from these opinions
+no justification can be derived for any <i>protecting</i>
+duty, or other preference given to domestic over
+foreign industry. But in regard to those duties on
+foreign commodities which do not operate as protection,
+but are maintained solely for revenue, and which
+do not touch either the necessaries of life or the
+materials and instruments of production, it is his
+opinion that any relaxation of such duties, beyond
+what may be required by the interest of the revenue
+itself, should in general be made contingent upon the
+adoption of some corresponding degree of freedom of
+trade with this country, by the nation from which the
+commodities are imported.</p>
+
+
+
+<hr style="width: 65%;">
+<a name="CONTENTS"></a><h2>CONTENTS.</h2>
+
+<!-- Autogenerated TOC. Modify or delete as required. -->
+<a href="#PREFACE">PREFACE.</a><br>
+ <a href="#CONTENTS">CONTENTS.</a><br>
+ <a href="#ESSAY_I">ESSAY I.</a><br>
+ <a href="#ESSAY_II">ESSAY II.</a><br>
+ <a href="#ESSAY_III">ESSAY III.</a><br>
+ <a href="#ESSAY_IV">ESSAY IV.</a><br>
+ <a href="#ESSAY_V">ESSAY V.</a><br>
+
+<!-- End Autogenerated TOC. -->
+
+
+<br>
+
+<p>ESSAY I.</p>
+
+<p><b>Of the Laws of Interchange between Nations; and the Distribution
+of the Gains of Commerce among the Countries
+of the Commercial World</b></p>
+
+<p>ESSAY II.</p>
+
+<p><b>Of the Influence of Consumption upon Production</b></p>
+
+<p>ESSAY III.</p>
+
+<p><b>On the Words Productive and Unproductive</b></p>
+
+<p>ESSAY IV.</p>
+
+<p><b>On Profits, and Interest</b></p>
+
+<p>ESSAY V.</p>
+
+<p><b>On the Definition of Political Economy; and on the Method
+of Investigation proper to it</b></p>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_I"></a><h2>ESSAY I.</h2>
+
+<h2>OF THE LAWS OF INTERCHANGE BETWEEN NATIONS;
+AND THE DISTRIBUTION OF THE GAINS OF COMMERCE
+AMONG THE COUNTRIES OF THE
+COMMERCIAL WORLD.</h2>
+<br>
+
+<p>Of the truths with which political economy has been
+enriched by Mr. Ricardo, none has contributed more
+to give to that branch of knowledge the comparatively
+precise and scientific character which it at present bears,
+than the more accurate analysis which he performed of
+the nature of the advantage which nations derive from
+a mutual interchange of their productions. Previously
+to his time, the benefits of foreign trade were deemed,
+even by the most philosophical enquirers, to consist in
+affording a vent for surplus produce, or in enabling a
+portion of the national capital to replace itself with a
+profit. The futility of the theory implied in these
+and similar phrases, was an obvious consequence from
+the speculations of writers even anterior to Mr.
+Ricardo. But it was he who first, in the chapter
+on Foreign Trade, of his immortal <i>Principles of
+Political Economy and Taxation</i>, substituted for the
+former vague and unscientific, if not positively false,
+conceptions with regard to the advantage of trade,
+a philosophical exposition which explains, with strict
+precision, the nature of that advantage, and affords an
+accurate measure of its amount.</p>
+
+<p>He shewed, that the advantage of an interchange
+of commodities between nations consists simply and
+solely in this, that it enables each to obtain, with a
+given amount of labour and capital, a greater quantity
+of all commodities taken together. This it accomplishes
+by enabling each, with a quantity of one commodity
+which has cost it so much labour and capital,
+to purchase a quantity of another commodity which,
+if produced at home, would have required labour and
+capital to a greater amount. To render the importation
+of an article more advantageous than its production,
+it is not necessary that the foreign country
+should be able to produce it with less labour and
+capital than ourselves. We may even have a positive
+advantage in its production: but, if we are so far
+favoured by circumstances as to have a still greater
+positive advantage in the production of some other
+article which is in demand in the foreign country, we
+may be able to obtain a greater return to our labour and
+capital by employing none of it in producing the article
+in which our advantage is least, but devoting it all to the
+production of that in which our advantage is greatest,
+and giving this to the foreign country in exchange for
+the other. It is not a difference in the <i>absolute</i> cost
+of production, which determines the interchange, but
+a difference in the <i>comparative</i> cost. It may be to our
+advantage to procure iron from Sweden in exchange
+for cottons, even although the mines of England as well
+as her manufactories should be more productive than
+those of Sweden; for if we have an advantage of one-half
+in cottons, and only an advantage of a quarter in
+iron, and could sell our cottons to Sweden at the price
+which Sweden must pay for them if she produced them
+herself, we should obtain our iron with an advantage
+of one-half, as well as our cottons. We may often, by
+trading with foreigners, obtain their commodities at a
+smaller expense of labour and capital than they cost
+to the foreigners themselves. The bargain is still
+advantageous to the foreigner, because the commodity
+which he receives in exchange, though it has cost us
+less, would have cost him more. As often as a
+country possesses two commodities, one of which it
+can produce with less labour, comparatively to what it
+would cost in a foreign country, than the other; so
+often it is the interest of the country to export the
+first mentioned commodity and to import the second;
+even though it might be able to produce both the one
+and the other at a less expense of labour than the
+foreign country can produce them, but not less in the
+same degree; or might be unable to produce either
+except at a greater expense, but not greater in the
+same degree.</p>
+
+<p>On the contrary, if it produces both commodities
+with greater facility, or both with greater difficulty,
+and greater in exactly the same degree, there will be
+no motive to interchange.</p>
+
+<p>&quot;If the cloth and the corn, each of which required
+100 days' labour in Poland, required each 150 days'
+labour in England; it would follow, that the cloth of
+150 days' labour in England, if sent to Poland, would
+be equal to the cloth of 100 days' labour in Poland: if
+exchanged for corn, therefore, it would exchange for
+the corn of only 100 days' labour. But the corn of
+100 days' labour in Poland, was supposed to be the
+same quantity with that of 150 days' labour in
+England. With 150 days' labour in cloth, therefore,
+England would only get as much corn in Poland as
+she could raise with 150 days' labour at home; and
+she would, in importing it, have the cost of carriage
+besides. In these circumstances no exchange would
+take place.</p>
+
+<p>&quot;If, on the other hand, while the cloth produced
+with 100 days' labour in Poland was produced with
+150 days' labour in England, the corn which was produced
+in Poland with 100 days' labour could not be
+produced in England with less than 200 days' labour;
+an adequate motive to exchange would immediately
+arise. With a quantity of cloth which England produced
+with 150 days' labour, she would be able to
+purchase as much corn in Poland as was there produced
+with 100 days' labour; but the quantity, which
+was there produced with 100 days' labour, would be
+as great as the quantity produced in England with
+200 days' labour.</p>
+
+<p>&quot;The power of Poland would be reciprocal.
+With a quantity of corn which cost her 100 days'
+labour, equal to the quantity produced in England by
+200 days' labour, she could in the supposed case purchase
+in England the produce of 200 days' labour in
+cloth.&quot; But &quot;the produce of 150 days' labour in
+England in the article of cloth would be equal to the
+produce of 100 days' labour in Poland <a name="FNanchor1"></a><a href="#Footnote_1"><sup>[1]</sup></a>.&quot;</p>
+
+<p>The remainder of what Mr. Ricardo has done for
+the philosophical exposition of the principles of foreign
+trade, is to shew, that the truth of the propositions
+now recapitulated is not affected by the introduction
+of money as a medium of exchange; the precious
+metals always tending to distribute themselves in such
+a manner throughout the commercial world, that every
+country shall import all that it would have imported,
+and export all that it would have exported, if exchanges
+had taken place, as in the example above
+supposed, by barter.</p>
+
+<p>To this branch of the subject we shall, in the
+sequel of this essay, return. At present it will be
+more convenient that we should continue to suppose,
+that exchanges take place by the direct trucking of
+one commodity against another.</p>
+
+<p>It is established, that the advantage which two
+countries derive from trading with each other, results
+from the more advantageous employment which thence
+arises, of the labour and capital&mdash;for shortness let us
+say the labour&mdash;of both jointly. The circumstances are
+such, that if each country confines itself to the production
+of one commodity, there is a greater total
+return to the labour of both together; and this increase
+of produce forms the whole of what the two
+countries taken together gain by the trade.</p>
+
+<p>It is the purpose of the present essay to inquire, in
+what proportion the increase of produce, arising from
+the saving of labour, is divided between the two
+countries.</p>
+
+<p>This question was not entered into by Mr. Ricardo,
+whose attention was engrossed by far more important
+questions, and who, having a science to create, had not
+time, or room, to occupy himself with much more than
+the leading principles. When he had done enough to
+enable any one who came after him, and who took the
+necessary pains, to do all the rest, he was satisfied.
+He very rarely followed out the principles of the
+science into the ramifications of their consequences.
+But we believe that to no one, who has thoroughly
+entered into the spirit of his discoveries, will even
+the minutiae of the science offer any difficulty but
+that which is constituted by the necessity of patience
+and circumspection in tracing principles to their results.</p>
+
+<p>Mr. Ricardo, while intending to go no further
+into the question of the advantage of foreign trade
+than to show what it consisted of, and under what
+circumstances it arose, unguardedly expressed himself
+as if each of the two countries making the exchange
+separately gained the whole of the difference between
+the comparative costs of the two commodities in one
+country and in the other. But, the whole gain of both
+countries together, consisting in the saving of labour;
+and the saving of labour being exactly equal to the
+difference between the costs, in the two countries, of
+the one commodity as compared with the other; the
+two countries taken together gain no more than this
+difference: and if either country gains the whole of it,
+the other country derives no advantage from the trade.</p>
+
+<p>Suppose, for example, that 10 yards of broad cloth
+cost in England as much labour as 15 yards of linen,
+and in Germany as much as 20. If England sends 10
+yards of broad cloth to Germany, and is able to exchange
+them for linen according to the German cost
+of production, she will get 20 yards of linen, with a
+quantity of labour with which she could not have produced
+more than 15; and will gain, therefore, 5 yards
+on every 15, or 33-1/3 per cent. But in this case Germany
+would obtain only 10 yards of cloth for 20 of
+linen. Now, 10 yards of cloth cost exactly the same
+quantity of labour in Germany as 20 of linen; Germany,
+therefore, derives no advantage from the trade,
+more than she would possess if it did not exist.</p>
+
+<p>So, on the other hand, if Germany sends 15 yards of
+linen to England, and finding the relative value of the
+two articles in that country determined by the English
+costs of production, is enabled to purchase with 35
+yards of linen 10 yards of cloth; Germany now gains
+5 yards, just as England did before,&mdash;for with 15 yards
+of linen she purchases 10 yards of cloth, when to produce
+these 10 yards she must have employed as much labour
+as would have enabled her to produce 20 yards of
+linen. But in this case England would gain nothing:
+she would only obtain, for her 10 yards of cloth, 15
+yards of linen, which is exactly the comparative cost at
+which she could have produced them.</p>
+
+<p>This, which was not an error, but a mere oversight
+of Mr. Ricardo, arising from his having left the question
+of the division of the advantage entirely unnoticed,
+was first corrected in the third edition of Mr. Mill's
+<i>Elements of Political Economy</i>. It can hardly, however,
+be said that Mr. Mill has prosecuted the inquiry any
+further; which, indeed, would have been quite as
+inconsistent with the nature of his plan as of Mr.
+Ricardo's.</p>
+
+<p>1. When the trade is established between the two
+countries, the two commodities will exchange for each
+other at the same rate of interchange in both countries&mdash;bating
+the cost of carriage, of which, for the
+present, it will be more convenient to omit the consideration.
+Supposing, therefore, for the sake of argument,
+that the carriage of the commodities from one
+country to another could be effected without labour
+and without cost, no sooner would the trade be opened
+than, it is self-evident, the value of the two commodities,
+estimated in each other, would come to a level
+in both countries.</p>
+
+<p>If we knew what this level would be, we should
+know in what proportion the two countries would
+share the advantage of the trade.</p>
+
+<p>When each country produced both commodities for
+itself, 10 yards of broad cloth exchanged for 15 yards
+of linen in England, and for 20 in Germany. They
+will now exchange for the same number of yards of
+linen in both. For what number? If for 15 yards,
+England will be just as she was, and Germany will
+gain all. If for 20 yards, Germany will be as before,
+and England will derive the whole of the benefit. If
+for any number intermediate between 15 and 20, the
+advantage will be shared between the two countries.
+If, for example, 10 yards of cloth exchange for 18
+of linen, England will gain an advantage of 3 yards
+on every 15, Germany will save 2 out of every 20.</p>
+
+<p>The problem is, what are the causes which determine
+the proportion in which the cloth of England
+and the linen of Germany will exchange for each other?</p>
+
+<p>This, therefore, is a question concerning exchangeable
+value. There must be something which determines
+how much of one commodity another commodity will
+purchase; and there is no reason to suppose that the
+law of exchangeable value is more difficult of ascertainment
+in this case than in other cases.</p>
+
+<p>The law, however, cannot be precisely the same as
+in the common cases. When two articles are produced
+in the immediate vicinity of one another, so that, without
+expatriating himself, or moving to a distance, a
+capitalist has the choice of producing one or the other,
+the quantities of the two articles which will exchange
+for each other will be, on the average, those which are
+produced by equal quantities of labour. But this cannot
+be applied to the case where the two articles are
+produced in two different countries; because men do
+not usually leave their country, or even send their
+capital abroad, for the sake of those small differences
+of profit which are sufficient to determine their choice
+of a business, or of an investment, in their own country
+and neighbourhood.</p>
+
+<p>The principle, that value is proportional to cost of
+production, being consequently inapplicable, we must
+revert to a principle anterior to that of cost of production,
+and from which this last flows as a consequence,&mdash;namely,
+the principle of demand and supply.</p>
+
+<p>In order to apply this principle, with any advantage,
+to the solution of the question which now occupies us,
+the principle itself, and the idea attached to the term
+demand, must be conceived with a precision, which the
+loose manner in which the words are used generally
+prevents.</p>
+
+<p>It is well known that the quantity of any commodity
+which can be disposed of, varies with the price.
+The higher the price, the fewer will be the purchasers,
+and the smaller the quantity sold. The lower the
+price, the greater will in general be the number of
+purchasers, and the greater the quantity disposed of.
+This is true of almost all commodities whatever:
+though of some commodities, to diminish the consumption
+in any given degree would require a much
+greater rise of price than of others.</p>
+
+<p>Whatever be the commodity&mdash;the supply in any
+market being given, there is some price at which the
+whole of the supply exactly will find purchasers, and
+no more. That, whatever it be, is the price at which,
+by the effect of competition, the commodity will be
+sold. If the price be higher, the whole of the supply
+will not be disposed of, and the sellers, by their competition,
+will bring down the price. If the price be
+lower, there will be found purchasers for a larger supply,
+and the competition of these purchasers will raise
+the price.</p>
+
+<p>This, then, is what we mean, when we say that
+price, or exchangeable value, depends on demand and
+supply. We should express the principle more accurately,
+if we were to say, the price so regulates itself
+that the demand shall be exactly sufficient to carry off
+the supply.</p>
+
+<p>Let us now apply the principle of demand and
+supply, thus understood, to the interchange of broadcloth
+and linen between England and Germany.</p>
+
+<p>As exchangeable value in this case, as in every
+other, is proverbially fluctuating, it does not matter
+what we suppose it to be when we begin; we shall
+soon see whether there be any fixed point about which
+it oscillates&mdash;which it has a tendency always to approach
+to, and to remain at.</p>
+
+<p>Let us suppose, then, that by the effect of what
+Adam Smith calls the higgling of the market, 10 yards
+of cloth, in both countries, exchange for 17 yards of
+linen.</p>
+
+<p>The demand for a commodity, that is, the quantity
+of it which can find a purchaser, varies, as we have
+before remarked, according to the price. In Germany,
+the price of 10 yards of cloth is now 17 yards of
+linen; or whatever quantity of money is equivalent
+in Germany to 17 yards of linen. Now, that being
+the price, there is some particular number of yards
+of cloth, which will be in demand, or will find purchasers,
+at that price. There is some given quantity
+of cloth, more than which could not be disposed of at
+that price,&mdash;less than which, at that price, would not
+fully satisfy the demand. Let us suppose this quantity
+to be, 1000 times 10 yards.</p>
+
+<p>Let us now turn our attention to England. There,
+the price of 17 yards of linen is 10 yards of cloth, or
+whatever quantity of money is equivalent in England
+to 10 yards of cloth. There is some particular number
+of yards of linen, which, at that price, will exactly
+satisfy the demand, and no more. Let us suppose
+that this number is 1000 times 17 yards.</p>
+
+<p>As 17 yards of linen are to 30 yards of cloth,
+so are 1000 times 17 yards to 1000 times 10 yards.
+At the existing exchangeable value, the linen which
+England requires, will exactly pay for the quantity
+of cloth which, on the same terms of interchange,
+Germany requires. The demand on each side is
+precisely sufficient to carry off the supply on the
+other. The conditions required by the principle of
+demand and supply are fulfilled, and the two commodities
+will continue to be interchanged, as we supposed
+them to be, in the ratio of 17 yards of linen for
+10 yards of cloth.</p>
+
+<p>But our supposition might have been different.
+Suppose that, at the assumed rate of interchange,
+England had been disposed to consume no greater
+quantity of linen than 800 times 17 yards; it is
+evident that, at the rate supposed, this would not
+have sufficed to pay for the 1000 times 10 yards of
+cloth, which we have supposed Germany to require
+at the assumed value. Germany would be able to
+procure no more than 800 times 10 yards, at that
+price. To procure the remaining 200, which she
+would have no means of doing but by bidding higher
+for them, she would offer more than 17 yards of linen in
+exchange for 10 yards of cloth; let us suppose her
+to offer 18. At that price, perhaps, England would
+be inclined to purchase a greater quantity of linen.
+She could consume, possibly, at that price, 900 times
+18 yards. On the other hand, cloth having risen
+in price, the demand of Germany for it would, probably,
+have diminished. If, instead of 1000 times 10 yards,
+she is now contented with 900 times ten yards, these
+will exactly pay for the 900 times 18 yards of linen
+which England is willing to take at the altered price:
+the demand on each side will again exactly suffice to
+take off the corresponding supply; and 10 yards for
+18 will be the rate at which, in both countries, cloth
+will exchange for linen.</p>
+
+<p>The converse of all this would have happened if
+instead of 800 times 17 yards, we had supposed that
+England, at the rate of 10 for 17, would have taken
+1200 times 17 yards of linen. In this case, it is
+England whose demand is not fully supplied; it is
+England who, by bidding for more linen, will alter the
+rate of interchange to her own disadvantage; and 10
+yards of cloth will fall, in both countries, below the
+value of 17 yards of linen. By this fall of cloth, or
+what is the same thing, this rise of linen, the demand
+of Germany for cloth will increase, and the demand
+of England for linen will diminish, till the rate of
+interchange has so adjusted itself that the cloth and
+the linen will exactly pay for another; and when
+once this point is attained, values will remain as they
+are.</p>
+
+<p>It may be considered, therefore, as established,
+that when two countries trade together in two commodities,
+the exchangeable value of these commodities
+relatively to each other will adjust itself to the inclinations
+and circumstances of the consumers on both
+sides, in such manner that the quantities required by
+each country, of the article which it imports from its
+neighbour, shall be exactly sufficient to pay for one
+another. As the inclinations and circumstances of consumers
+cannot be reduced to any rule, so neither can
+the proportions in which the two commodities will
+be interchanged. We know that the limits within
+which the variation is confined are the ratio between
+their costs of production in the one country, and the
+ratio between their costs of production in the other. Ten
+yards of cloth cannot exchange for more than 20 yards
+of linen, nor for less than 15. But they may exchange
+for any intermediate number. The ratios, therefore,
+in which the advantage of the trade may be divided
+between the two nations, are various. The circumstances
+on which the proportionate share of each country
+more remotely depends, admit only of a very general
+indication.</p>
+
+<p>It is even possible to conceive an extreme case, in
+which the whole of the advantage resulting from the
+interchange would be reaped by one party, the other
+country gaining nothing at all. There is no absurdity
+in the hypothesis, that of some given commodity a
+certain quantity is all that is wanted at any price, and
+that when that quantity is obtained, no fall in the exchangeable
+value would induce other consumers to
+come forward, or those who are already supplied to
+take more. Let us suppose that this is the case in
+Germany with cloth. Before her trade with England
+commenced, when 10 yards of cloth cost her as much
+labour as 20 yards of linen, she nevertheless consumed
+as much cloth as she wanted under any circumstances,
+and if she could obtain it at the rate of 10
+yards of cloth for 15 of linen, she would not consume
+more. Let this fixed quantity be 1000 times
+10 yards. At the rate, however, of 10 for 20, England
+would want more linen than would be equivalent
+to this quantity of cloth. She would consequently
+offer a higher value for linen; or, what is the same
+thing, she would offer her cloth at a cheaper rate. But
+as by no lowering of the value could she prevail on
+Germany to take a greater quantity of cloth, there
+would be no limit to the rise of linen, or fall of cloth,
+until the demand of England for linen was reduced
+by the rise of its value, to the quantity which one
+thousand times ten yards of cloth would purchase. It
+might be, that to produce this diminution of the demand,
+a less fall would not suffice, than one which would
+make 10 yards of cloth exchange for 15 of linen.
+Germany would then gain the whole of the advantage,
+and England would be exactly as she was before the
+trade commenced. It would be for the interest, however,
+of Germany herself, to keep her linen a little
+below the value at which it could be produced in
+England, in order to keep herself from being supplanted
+by the home producer. England, therefore, would
+always benefit in some degree by the existence of the
+trade, though it might be in a very trifling one.</p>
+
+<p>But in general there will not be this extreme inequality
+in the degree in which the demand in the two
+countries varies with variations in the price. The
+advantage will probably be divided equally, oftener
+than in any one unequal ratio that can be named;
+though the division will be much oftener, on the whole,
+unequal than equal.</p>
+
+<p>2. We shall now examine whether the same law of
+interchange, which we have shown to apply upon the
+supposition of barter, holds good after the introduction
+of money. Mr. Ricardo found that his more general proposition
+stood this test; and as the proposition which we
+have just demonstrated is only a further developement
+of his principle, we shall probably find that it suffers a
+little, by a mere change in the mode (for it is no
+more) in which one commodity is exchanged against
+another.</p>
+
+<p>We may at first make whatever supposition we
+will with respect to the value of money. Let us suppose,
+therefore, that before the opening of the trade,
+the price of cloth is the same in both countries, namely,
+six shillings per yard <a name="FNanchor2"></a><a href="#Footnote_2"><sup>[2]</sup></a>. As 10 yards of cloth were supposed
+to exchange in England for 5 yards of linen,
+in Germany for 20, we must suppose that linen is sold
+in England at four shillings per yard, in Germany at
+three. Cost of carriage and importer's profit are left
+as before, out of consideration.</p>
+
+<p>In this state of prices, cloth, it is evident, cannot
+yet be exported from England into Germany. But
+linen can be imported from Germany into England.
+It will be so, and, in the first instance, the linen will be
+paid for in money.</p>
+
+<p>The efflux of money from England, and its influx
+into Germany, will raise money prices in the latter
+country, and lower them in the former. Linen will
+rise in Germany above three shillings per yard, and
+cloth above six shillings. Linen in England being
+imported from Germany, will (since cost of carriage is
+not reckoned) sink to the same price as in that country,
+while cloth will fall below six shillings. As soon as the
+price of cloth is lower in England than in Germany, it
+will begin to be exported, and the price of cloth in
+Germany will fall to what it is in England. As long
+As the cloth exported does not suffice to pay for the
+linen imported, money will continue to flow from
+England into Germany, and prices generally will continue
+to fall in England, and rise in Germany. By
+the fall, however, of cloth in England, cloth will fall in
+Germany also, and the demand for it will increase.
+By the rise of linen in Germany, linen must rise in
+England also, and the demand for it will diminish.
+Although the increased exportation of cloth takes place
+at a lower price, and the diminished importation of
+linen at a higher, yet the total money value of the
+exportation would probably increase, that of the importation
+diminish. As cloth fell in price and linen rose,
+there would be some particular price of both articles
+at-which the cloth exported, and the linen imported,
+would exactly pay for each other. At this point prices
+would remain, because money would then cease to
+move out of England into Germany. What this point
+might be, would entirely depend upon the circumstances
+and inclinations of the purchasers on both sides. If
+the fall of cloth did not much increase the demand for
+it in Germany, and the rise of linen did not diminish
+very rapidly the demand for it in England, much money
+must pass before the equilibrium is restored; cloth would
+fall very much, and linen would rise, until England,
+perhaps, had to pay nearly as much for it as when she
+produced it for herself. But if, on the contrary, the
+fall of cloth caused a very rapid increase of the demand
+for it in Germany, and the rise of linen in Germany
+reduced very rapidly the demand in England from
+what it was under the influence of the first cheapness
+produced by the opening of the trade; the cloth would
+very soon suffice to pay for the linen, little money would
+pass between the two countries, and England would
+derive a large portion of the benefit of the trade. We
+have thus arrived at precisely the same conclusion, in
+supposing the employment of money, which we found
+to hold under the supposition of barter.</p>
+
+<p>In what shape the benefit accrues to the two nations
+from the trade, is clear enough. Germany,
+before the commencement of the trade, paid six shillings
+per yard for broad-cloth. She now obtains it at
+a lower price. This, however, is not the whole of her
+advantage. As the money prices of all her other commodities
+have risen, the money incomes of all her producers
+have increased. This is no advantage to them in
+buying from each other; because the price of what they
+buy has risen in the same ratio with their means of
+paying for it: but it is an advantage to them in
+buying any thing which has not risen; and still more,
+any thing which has fallen. They therefore benefit as
+consumers of cloth, not merely to the extent to which
+cloth has fallen, but also to the extent to which other
+prices have risen. Suppose that this is one-tenth.
+The same proportion of their money incomes as before,
+will suffice to supply their other wants, and the remainder,
+being increased one-tenth in amount, will enable
+them to purchase one-tenth more cloth than before,
+even though cloth had not fallen. But it has fallen:
+so that they are doubly gainers. If they do not choose
+to increase their consumption of cloth, this does not
+prevent them from being gainers. They purchase the
+same quantity with less money, and have more to
+expend upon their other wants.</p>
+
+<p>In England, on the contrary, general money-prices
+have fallen. Linen, however, has fallen more than the
+rest; having been lowered in price, by importation from
+a country where it was cheaper, whereas the others
+have fallen only from the consequent efflux of money.
+Notwithstanding, therefore, the general fall of money-prices,
+the English producers will be exactly as they
+were in all other respects, while they will gain as purchasers
+of linen.</p>
+
+<p>The greater the efflux of money required to restore
+the equilibrium, the greater will be the gain of
+Germany; both by the fall of cloth, and by the rise of
+her general prices. The less the efflux of money
+requisite, the greater will be the gain of England;
+because the price of linen will continue lower, and her
+general prices will not be reduced so much. It must
+not, however, be imagined that high money-prices
+are a good, and low money-prices an evil, in themselves.
+But the higher the general money-prices in
+any country, the greater will be that country's means
+of purchasing those commodities which, being imported
+from abroad, are independent of the causes which keep
+prices high at home.</p>
+
+<p>3. We have hitherto supposed the carriage to be
+performed without labour or expense. If we abandon
+this supposition, we must correct the statement of the
+case in a slight degree. The prices of the two articles
+will no longer, when the trade is opened, be the same
+in both countries, nor will the articles exchange for
+one another at the same rate in both. Ten yards of
+cloth will purchase in Germany a quantity of linen
+greater than in England by a per-centage equal to the
+entire cost of conveyance both of the cloth to Germany
+and of the linen to England. The money-price
+of linen will be higher in England than in Germany,
+by the cost of carriage of the linen. The money-price
+of cloth will be higher in Germany than in England,
+by the cost of carriage of the cloth.</p>
+
+<p>The expense of the carriage is evidently a deduction
+<i>pro tanto</i> from the saving of labour produced by the
+establishment of the trade. The two countries together,
+therefore, have their gains by the trade diminished, by
+the amount of the cost of carriage of both commodities.
+But here the question arises, which of the two countries
+bears this deduction, or in what proportion it is divided
+between them.</p>
+
+<p>At the first inspection it would appear that each
+country bears its own cost of carriage, that is, that each
+country pays the carriage of the commodity which it
+imports. Upon this supposition, each country would
+gain whatever share of the joint saving of labour would
+otherwise fall to its lot, <i>minus</i> the cost of bringing from
+the other country the commodity which it imports.
+This solution is rendered plausible by the circumstance
+just now mentioned, that the price of the commodity
+will be higher in the country which imports it, than in
+the country which exports it, by the amount of the
+cost of carriage. If linen is sold in England at a
+higher price than in Germany, by a per-centage equal
+to the cost of carriage of the linen, it appears obvious
+that England pays for the carriage of the linen, and
+Germany, by parity of reason, for that of the cloth.</p>
+
+<p>But if we apply to these questions the principles
+already explained, we shall see that this is not by any
+means a universal law: the fact may correspond with
+it, or it may not.</p>
+
+<p>For suppose that the prices have adjusted themselves,
+no matter how, and that the imports and exports
+balance one another, each commodity, of course, being
+dearer by the cost of carriage, in the country which imports
+than in that which exports it: and suppose now
+that the cost of carriage, both of the one and of the
+other, were suddenly and miraculously annihilated, and
+that the commodities could pass from country to country
+without expense. If each country bore its own cost of
+carriage before, each country will save its own cost of
+carriage now. Cloth, in Germany, will in that case fall
+exactly to what it is in England; linen in England, to
+what it is in Germany.</p>
+
+<p>Now this fall of price, supposing it to happen, will
+probably affect the demand on both sides; and it will
+either affect it alike in both countries, or it will affect
+it unequally. It will affect it alike, if the fall of price
+does not affect the demand at all, or if it affects it
+equally in both countries. If either of these results
+should take place, the cloth and the linen would continue
+to balance each other as before: no money would pass
+from one country to the other; prices in both would
+continue at the point to which they had fallen, and
+each country would exactly save the cost of carriage
+on the commodity which it imports from the other.</p>
+
+<p>But the result might be, that the fall of price might
+not have an effect exactly equal, on the demand in the
+two countries. Suppose, for instance, that the fall of
+cloth in Germany owing to the saving of the cost of
+carriage, did not increase the demand for cloth in Germany;
+but that the fall of linen in England from a
+like cause, did increase the demand for linen in England.
+The linen imported would be more than could
+be paid for by the cloth exported: the difference must
+be paid in money: the change in the distribution of
+the precious metals between the two countries would
+lower the price of cloth in England, (and consequently
+in Germany), while it would raise the price of linen in
+Germany, (and consequently in England). Germany,
+therefore, by the annihilation of cost of carriage, would
+save in price more than the cost of carriage of the
+cloth; England would save less in price than the cost
+of carriage of the linen. But if by the miraculous
+annihilation of cost of carriage, England would not <i>save</i>
+the whole of the carriage of her imports, it follows that
+England did not previously <i>pay</i> the whole of that cost
+of carriage.</p>
+
+<p>Thus, the division of the cost of trade, and the
+division of the advantage of trade, are governed by
+precisely the same principles; and the only general
+proposition which can be affirmed respecting the cost
+is, that it is <i>pro tanto</i> a deduction from the advantage.
+It cannot even be maintained that the cost is shared
+in the same proportion as the advantage is; because
+the increase of the demand for a commodity as its
+price falls, is not governed by any fixed law. Suppose,
+for instance, that the advantage happened to be
+divided equally: this must be because the greater
+cheapness arising from the establishment of the trade,
+either did not affect the demand at all, or affected it
+in an equal proportion on both sides. Now, because
+such is the effect of the degree of increased cheapness
+resulting from importation burthened with cost of carriage,
+it would not follow that the still greater degree
+of cheapness, produced by the additional saving of the
+cost of carriage itself, would also affect the demand of
+both countries in precisely an equal degree. But we
+cannot be said to bear an expense, which, if saved,
+would be saved to somebody else, and not to us. Two
+countries may have equal shares of the clear benefit of
+the trade, while, if the cost of carriage were saved,
+they would divide that saving unequally. If so, they
+divide the gross gain in one unequal ratio, the cost in
+another unequal ratio, though their shares of the cost
+being deducted from their shares of the gain leave
+equal remainders.</p>
+
+<p>4. The question naturally suggests itself, whether
+any country, by its own legislative policy, can engross
+to itself a larger share of the benefits of foreign commerce,
+than would fall to it in the natural or spontaneous
+course of trade.</p>
+
+<p>The answer is, it can. By taxing exports, for
+instance, we may, under certain circumstances, produce
+a division of the advantage of the trade more
+favourable to ourselves. In some cases, we may draw
+into our coffers, at the expense of foreigners, not only
+the whole tax, but more than the tax: in other cases,
+we should gain exactly the tax,&mdash;in others, less than
+the tax. In this last case, a part of the tax is borne
+by ourselves: possibly the whole, possibly even, as we
+shall show, more than the whole.</p>
+
+<p>Suppose that England taxes her export of cloth:
+the tax not being supposed high enough to induce
+Germany to produce cloth for herself. The price at
+which cloth can be sold in Germany is augmented by
+the tax. This will probably diminish the quantity
+consumed. It may diminish it so much, that even at
+the increased price, there will not be required so great
+a money value as before. It may diminish it in such
+a ratio, that the money value of the quantity consumed
+will be exactly the same as before. Or it may not
+diminish it at all, or so little, that, in consequence of
+the higher price, a greater money value will be purchased
+than before. In this last case, England will
+gain, at the expense of Germany, not only the whole
+amount of the duty, but more. For the money value
+of her exports to Germany being increased, while her
+imports remain the same, money will flow into England
+from Germany. The price of cloth will rise in England,
+and consequently in Germany; but the price of
+linen will fall in Germany, and consequently in England,
+We shall export less cloth, and import more
+linen, till the equilibrium is restored. It thus appears,
+what is at first sight somewhat remarkable, that, by
+taxing her exports, England would, under some conceivable
+circumstances, not only gain from her foreign
+customers the whole amount of the tax, but would also
+get her imports cheaper. She would get them cheaper
+in two ways,&mdash;for she would obtain them for less
+money, and would have more money to purchase them
+with. Germany, on the other hand, would suffer
+doubly: she would have to pay for her cloth a price
+increased not only by the duty, but by the influx
+of money into England, while the same change in the
+distribution of the circulating medium would leave
+her less money to purchase it with.</p>
+
+<p>This, however, is only one of three possible cases.
+If, after the imposition of the duty, Germany requires
+so diminished a quantity of cloth, that its total money
+value is exactly the same as before, the balance of
+trade will be undisturbed; England will gain the duty,
+Germany will lose it, and nothing more. If, again,
+the imposition of the duty occasions such a falling off
+in the demand, that Germany requires a less pecuniary
+value than before, our exports will no longer pay for
+our imports, money must pass from England into
+Germany, and Germany's share of the advantage of the
+trade will be increased. By the change in the distribution
+of money, cloth will fall in England; and therefore
+it will, of course, fall in Germany. Thus Germany
+will not pay the whole of the tax. From the same
+cause, linen will rise in Germany, and consequently in
+England. When this alteration of prices has so adjusted
+the demand, that the cloth and the linen again
+pay for one another, the result is, that Germany has
+paid only a part of the tax, and the remainder of what
+has been received into our treasury has come indirectly
+out of the pockets of our own consumers of
+linen, who pay a higher price for that imported commodity,
+in consequence of the tax on our exports, which
+at the same time they, in consequence of the efflux of
+money and consequent fall of prices, have smaller
+money incomes wherewith to pay for the linen at that
+advanced price.</p>
+
+<p>It is not an impossible supposition that, by taxing
+our exports, we might not only gain nothing from
+the foreigner, the tax being paid out of our own
+pockets, but might even compel our own people to
+pay a second tax to the foreigner. Suppose, as before,
+that the demand of Germany for cloth falls off so
+much on the imposition of the duty, that she requires
+a smaller money value than before, but that the case
+is so different with linen in England, that when the
+price rises the demand either does not fall off at all, or
+so little that the money value required is greater than
+before. The first effect of laying on the duty is, as
+before, that the cloth exported will no longer pay for
+the linen imported. Money will, therefore, flow out
+of England into Germany. One effect is to raise the
+price of linen in Germany, and, consequently, in England.
+But this, by the supposition, instead of stopping
+the efflux of money, only makes it greater, because the
+higher the price, the greater the money value of the
+linen consumed. The balance, therefore, can only be
+restored by the other effect, which is going on at the
+same time, namely, the fall of cloth in the English,
+and, consequently, in the German market. Even
+when cloth has fallen so low that its price with the
+duty is only equal to what its price without the duty
+was at first, it is not a necessary consequence that the
+fall will stop; for the same amount of exportation as
+before will not now suffice to pay the increased money
+value of the imports; and although the German consumers
+have now not only cloth at the old price, but
+likewise increased money incomes, it is not certain
+that they will be inclined to employ the increase of
+their incomes in increasing their purchases of cloth.
+The price of cloth, therefore, must perhaps fall, to
+restore the equilibrium, more than the whole amount
+of the duty; Germany may be enabled to import
+cloth at a lower price when it is taxed, than when it
+was untaxed: and this gain she will acquire at the
+expense of the English consumers of linen, who, in
+addition, will be the real payers of the whole of what
+is received at their own custom-house under the name
+of duties on the export of cloth.</p>
+
+<p>Such are the extremely various effects which may
+result to ourselves, and to our customers, from the imposition
+of taxes on our exports <a name="FNanchor3"></a><a href="#Footnote_3"><sup>[3]</sup></a>: and the determining
+circumstances are of a nature so imperfectly ascertainable,
+that it must be almost impossible to decide
+with any certainty, even after the tax has been imposed,
+whether we have been gainers by it or losers.
+It is certain, however, that whatever we gain, is lost
+by somebody else, and there is the expense of the
+collection besides: if international morality, therefore,
+were rightly understood and acted upon, such taxes,
+as being contrary to the universal weal, would not
+exist. Moreover, the imposition of such a tax frequently
+will, and always may, expose a country to lose
+this branch of its trade altogether, or to carry it on with
+diminished advantage, in consequence of the competition
+of untaxed exporters from other countries, or
+of the domestic producers in the country to which it
+exports. Even on the most selfish principles, therefore,
+the benefit of such a tax is always extremely precarious.</p>
+
+<p>5. We have had an example of a tax on exports,
+that is, on foreigners, falling in part on ourselves. We
+shall, therefore, not be surprised if we find a tax on
+imports, that is, on ourselves, partly falling upon
+foreigners.</p>
+
+<p>Instead of taxing the cloth which we export, suppose
+that we tax the linen which we import. The
+duty which we are now supposing must not be what is
+termed a protecting duty, that is, a duty sufficiently
+high to induce us to produce the article at home. If
+it had this effect, it would destroy entirely the trade
+both in cloth and in linen, and both countries would
+lose the whole of the advantage which they previously
+gained by exchanging those commodities with one
+another. We suppose a duty which might diminish
+the consumption of the article, but which would not
+prevent us from continuing to import, as before, whatever
+linen we did consume.</p>
+
+<p>The equilibrium of trade would be disturbed if
+the imposition of the tax diminished in the slightest
+degree the quantity of linen consumed. For, as the
+tax is levied at our own custom-house, the German
+exporter only receives the same price as formerly,
+though the English consumer pays a higher one. If,
+therefore, there be any diminution of the quantity
+bought, although a larger sum of money may be
+actually laid out in the article, a smaller one will be
+due from England to Germany: this sum will no
+longer be an equivalent for the sum due from Germany
+to England for cloth, the balance therefore must
+be paid in money. Prices will fall in Germany, and
+rise in England; linen will fall in the German market;
+cloth will rise in the English. The Germans will pay
+higher price for cloth, and will have smaller money
+incomes to buy it with; while the English will obtain
+linen cheaper, that is, its price will exceed what it
+previously was by less than the amount of the duty,
+while their means of purchasing it will be increased
+by the increase of their money incomes.</p>
+
+<p>If the imposition of the tax does not diminish the
+demand, it will leave the trade exactly as it was
+before. We shall import as much, and export as
+much; the whole of the tax will be paid out of our
+own pockets.</p>
+
+<p>But the imposition of a tax on a commodity,
+almost always diminishes the demand more or less;
+and it can never, or scarcely ever increase the demand.
+It may, therefore, be laid down as a principle, that a
+tax on imported commodities, when it really operates
+as a tax, and not as a prohibition, either total or
+partial, almost always falls in part upon the foreigners
+who consume our goods: and that this is a mode in
+which a nation may be almost sure of appropriating to
+itself, at the expense of foreigners, a larger share than
+would otherwise belong to it of the increase in the
+general productiveness of the labour and capital of
+the world, which results from the interchange of
+commodities among nations.</p>
+
+<p>It is scarcely necessary to observe, that no such
+advantage can result from the duty, if it operate as a
+protecting duty; if it induce the country which imposes
+it, to produce for herself that which she would
+otherwise have imported. The saving of labour&mdash;the
+increase in the general productiveness of the capital
+of the world&mdash;which is the effect of commerce,
+and which a non-protecting duty would enable the
+country imposing it to engross, could not be engrossed
+by a protecting duty, because such a duty prevents
+any such increased production from existing.</p>
+
+<p>With a view to practical legislation, therefore,
+duties on importation may be divided into two classes:
+those which have the effect of encouraging some particular
+branch of domestic industry, and those which
+have not.</p>
+
+<p>The former are purely mischievous, both to the
+country imposing them, and to those with whom it
+trades. They prevent a saving of labour and capital,
+which, if permitted to be made, would be divided in
+some proportion or other between the importing
+country and the countries which buy what that
+country does or might export.</p>
+
+<p>The other class of duties are those which do not
+encourage one mode of procuring an article at the
+expense of another, but allow interchange to take place
+just as if the duty did not exist&mdash;and to produce the
+saving of labour which constitutes the motive to international
+as to all other commerce. Of this kind, are
+duties on the importation of any commodity which
+could not by any possibility be produced at home;
+and duties not sufficiently high to counterbalance the
+difference of expense between the production of the
+article at home, and its importation. Of the money
+which is brought into the treasury of any country by
+taxes of this last description, a part only is paid by
+the people of that country; the remainder by the
+foreign consumers of their goods.</p>
+
+<p>Nevertheless, this latter kind of taxes are in principle
+as ineligible as the former, although not precisely
+on the same ground. A protecting duty can never be
+a cause of gain, but always and necessarily of loss, to
+the country imposing it, just so far as it is efficacious
+to its end. A non-protecting duty on the contrary
+would, in most cases, be a source of gain to the
+country imposing it, in so far as throwing part of the
+weight of its taxes upon other people is a gain; but
+it would be a means of gain which it could seldom
+be advisable to adopt, being so easily counteracted by
+a precisely similar proceeding on the other side.</p>
+
+<p>If England, in the case already supposed, sought to
+obtain for herself more than her natural share of the
+advantage of the trade with Germany, by imposing a
+duty upon cloth, Germany would only have to impose
+a duty upon linen, sufficient to diminish the demand
+for that article about as much as the demand for cloth
+had been diminished in England by the tax. Things
+would then be as before, and each country would pay
+its own tax. Unless, indeed, the sum of the two duties
+exceeded the entire advantage of the trade; for in that
+case the trade, and its advantage, would cease entirely.</p>
+
+<p>There would be no advantage, therefore, in imposing
+duties of this kind, with a view to gain by
+them, in the manner which has been pointed out.
+But so long as any other kind of taxes on commodities
+are retained, as a source of revenue, these may often
+be as unobjectionable as the rest. It is evident, moreover,
+that considerations of reciprocity, which are
+quite unessential when the matter in debate is a protecting
+duty, are of material importance when the
+repeal of duties of this other description is discussed.
+A country cannot be expected to renounce the power
+of taxing foreigners, unless foreigners will in return
+practise towards itself the same forbearance. The
+only mode in which a country can save itself from
+being a loser by the duties imposed by other countries
+on its commodities, is to impose corresponding duties
+on theirs. Only it must take care that these duties
+be not so high as to exceed all that remains of the
+advantage of the trade, and put an end to importation
+altogether; causing the article to be either produced
+at home, or imported from another and a dearer
+market.</p>
+
+<p>It is not necessary to apply the principles which
+we have stated to the case of bounties on exportation
+or importation. The application is easy, and the
+conclusions present nothing of particular interest or
+importance.</p>
+
+<p>6. Any cause which alters the exports or imports
+from one country into another, alters the division of
+the advantage of interchange between those two countries.
+Suppose the discovery of a new process, by
+which some article of export, or some article not previously
+exported, can be produced so cheap as to
+occasion a great demand for it in other countries. This
+of course produces a great influx of money from other
+countries, and lowers the prices of all articles imported
+from them, until the increase of importation
+produced by this cause has restored the equilibrium.
+Thus, the country which acquires a new article of
+export gets its imports cheaper. This is not a case of
+mere alteration in the division of the advantage; it is
+a new advantage created by the discovery.</p>
+
+<p>But suppose that the invention, to which the
+nation is indebted for this increase of the return to
+its industry, comes into use also in the other country,
+and that the process is one which can be as perfectly
+and as cheaply performed in the one country as in the
+other. The new exportation will cease; trade will
+revert to its old channels, the money which flowed in
+will again flow out, and the country which invented
+the process will lose that increase of its gain by trade,
+which it had derived from the discovery.</p>
+
+<p>Now the exportation of machinery comes within
+the case which we have just described.</p>
+
+<p>If the fact be, that by allowing to foreigners a
+participation in our machinery, we enable them to
+produce any of our leading articles of export, at a
+lower money price than we can sell those articles, it
+is certain that unless we possess as great an advantage
+in the production of the machinery itself as we have
+in the production of other articles by means of machinery,
+the permitting of its exportation would alter
+to our disadvantage the division of the benefit of
+trade. Our exports being diminished, we should have
+to pay a balance in money. This would raise, in
+foreign countries, the price of everything which we
+import from thence: while our incomes, being reduced
+in money value, would render us less able to buy those
+articles even if they had not risen. The equilibrium
+of exports and imports would only be restored, when
+either some of the latter became so dear that we
+could produce them cheaper at home, or some articles
+not previously exported became exportable from the
+fall of prices. In the one case, we lose the benefit of
+importation altogether, and are obliged to produce at
+home, at a greater cost. In the other case, we continue
+to import, but pay dearer for our imports.</p>
+
+<p>Notwithstanding what has now been observed,
+restrictions on the exportation of machinery are not,
+in our opinion, justifiable, either on the score of
+international morality or of sound policy. It is evidently
+the common interest of all nations that each
+of them should abstain from every measure by which
+the aggregate wealth of the commercial world would
+be diminished, although of this smaller sum total it
+might thereby be enabled to attract to itself a larger
+share. And the time will certainly come when nations
+in general will feel the importance of this rule,
+and will so direct their approbation and disapprobation
+as to enforce observance of it. Moreover, a
+country possessing machines should consider that if a
+similar advantage were extended to other countries,
+they would employ it above all in the production of
+those articles, in which they had already the greatest
+natural advantages; and if the former country would
+be a loser by their improvements in the production of
+articles which it sells, it would gain by their improvements
+in those which it buys. The exportation of
+machinery may, however, be a proper subject for
+adjustment with other nations, on the principle of
+reciprocity. Until, by the common consent of nations,
+all restrictions upon trade are done away, a nation
+cannot be required to abolish those from which she
+derives a real advantage, without stipulating for an
+equivalent.</p>
+
+<p>7. The case which we have just examined, is an
+example in how remarkable a manner every cause
+which materially influences exports, operates upon
+the prices of imports. According to the ancient
+theory of the balance of trade, and to the associations
+of the generality of what are termed practical
+men to this day, the sole benefit derived from commerce
+consists in the exports, and imports are rather
+an evil than otherwise. Political economists, seeing
+the folly of these views, and clearly perceiving that
+the advantage of commerce consists and must consist
+solely of the imports, have occasionally suffered themselves
+to employ language evincing inattention to the
+fact, that exports, though unimportant in themselves,
+are important by their influence on imports. So real
+and extensive is this influence, that every new market
+which is opened for any of our goods, and every
+increase in the demand for our commodities in foreign
+countries, enables us to supply ourselves with foreign
+commodities at a smaller cost.</p>
+
+<p>Let us revert to our earliest and simplest example,
+but which displays the real law of interchange more
+luminously than any formula into which money enters;
+the case of simple barter. We showed, that if at the
+rate of 10 yards of cloth for 17 of linen, the demand
+of Germany amounted to 1000 times 10 yards of
+cloth, the two nations will trade together at that rate
+of interchange, provided that the linen required in
+England be exactly 1000 times 17 yards, neither
+more nor less. For the cloth and the linen will then
+exactly pay for one another, and nobody on either
+side will be obliged to offer what he has to sell at a
+lower rate, in order to procure what he wants to buy.</p>
+
+<p>Now if the increase of wealth and population in
+Germany should greatly increase the demand in that
+country for cloth, the demand for linen in England
+not increasing in the same ratio,&mdash;if, for instance, Germany
+became willing, at the above rate, to take 1500
+times 10 yards; is it not evident, that to induce
+England to take in exchange for this the only article
+which Germany by supposition has to give, the
+latter must offer it at a rate more advantageous to
+England&mdash;at 18, or perhaps 19 yards, for 10 of cloth?
+So that the division of the advantage becomes more
+and more favourable to a country, in proportion as
+the demand for its commodities increases in foreign
+countries.</p>
+
+<p>It is not even necessary that the country which
+takes its goods, should supply it with any commodity
+whatever. Suppose that a country should be opened
+to our merchants, disposed to buy from us in abundance,
+but which can sell to us scarcely anything, as
+every commodity which it affords could be got cheaper
+by us from some other quarter. Nevertheless, our
+trade with this country will enable us to obtain from
+all other countries their commodities at a lower price.
+At the first opening of this commerce of mere exportation,
+we must have received in payment a large
+quantity of money; for which our customer will have
+been indemnified by other countries, in exchange for
+her commodities. Prices must consequently be lower
+in all other countries, and higher with us, than before
+the opening of the new branch of trade; and we
+therefore obtain the commodities of other countries at
+a less cost, both as we pay less money for them, and
+as that money is lower in value.</p>
+
+<p>8. Another obvious application of the same principle
+will enable us to explain, and to bring within
+the dominion of strict science, the rivality of one
+exporting nation and another, or what is called, in the
+language of the mercantile system, <i>underselling</i>: a subject
+which political economists have taken little
+trouble to elucidate, from the habit before alluded to
+of disregarding almost entirely, in their purely scientific
+inquiries, those circumstances which affect the trade
+of a country by operating immediately upon the
+exports.</p>
+
+<p>Let us revert to our old example, and to our old
+figures. Suppose that the trade between England
+and Germany in cloth and linen is established, and
+that the rate of interchange is 10 yards of cloth for
+17 of linen. Now suppose that there arises in another
+country, in Flanders, for example, a linen manufacture;
+and that the same causes, the working of
+which in England and Germany has made 10 yards
+exchange for 17, would in England and Flanders,
+putting Germany out of the question, have made the
+rate of interchange 10 for 18. It is evident that
+Germany also must give 18 yards of linen for 10 of
+cloth, and so carry on the trade with a diminished
+share of the advantage, or lose it altogether. If the
+play of demand in England and Flanders had made
+the rate of interchange not 10 for 18 but 10 for 21,
+(10 to 20 being in Germany the comparative cost
+of production,) it is evident that Germany could not
+have maintained the competition, and would have
+lost, not part of her share of the advantage, but all
+advantage, and the trade itself.</p>
+
+<p>It would be no answer to say, that Germany could
+probably still have found the means of importing cloth
+from England, by exporting something else. If she
+had purchased cloth with anything else, she would
+have purchased it dearer: as is proved by the fact,
+that having free choice, she found it most advantageous
+to purchase it with linen. When she could
+get 10 yards of cloth for 17 of linen, that was the
+mode in which she could get it with least labour.
+Being pressed by competition, she gave successively
+17, 18, 18; but rather than give 19 yards of linen,
+she perhaps would prefer to give, as costing her rather
+less labour, 10 yards of silk, (which we will suppose
+to be the quantity which in England will purchase 10
+yards of cloth.) It is obvious that, although Germany
+has found the means of supplying herself with
+cloth, by exporting a different article from that in
+which she was undersold, yet the advantage of the
+trade between her and England is now shared in a
+proportion much less favourable to Germany.</p>
+
+<p>There is no difficulty in showing that the same
+series of consequences takes place in exactly the same
+manner through the agency of money. The trade in
+cloth and linen between England and Germany being
+supposed to exist as before, Flanders produces linen at
+a lower price than that at which Germany has hitherto
+afforded it. The exportation from Germany is suspended;
+and Germany, continuing to import cloth, pays
+for it in money. By so doing she lowers her own
+prices, and raises those in England: she has to pay more
+money for cloth, and to pay it in a currency of higher
+value. She thus suffers more and more as a consumer
+of cloth, until by the fall of her prices she can either
+afford to sell linen as cheap as Flanders, or to export
+some other commodity which she could not export
+before. In either case, her trade resumes its course,
+but with diminished advantage on her side. <a name="FNanchor4"></a><a href="#Footnote_4"><sup>[4]</sup></a></p>
+
+<p>It is in the mode just described, that those countries
+which formerly supplied Europe with manufactures,
+but which owed their power of doing so not to
+any natural and permanent advantages, but to their
+more advanced state of civilization as compared with
+other countries, have lost their pre-eminence as other
+countries successively attained an equal degree of
+civilization. Lombardy and Flanders, in the middle
+ages, produced some descriptions of clothing and ornament
+for all Europe: Holland, at a much later
+period, supplied ships, and almost all articles which
+came in ships, to most other parts of the world. All
+these countries have probably at this moment a much
+larger amount of capital than ever they had, but
+having been undersold by other countries, they have
+lost by far the greater part of the share which they
+had engrossed to themselves of the benefit which the
+world derives from commerce; and their capital yields
+to them in consequence a smaller proportional return.
+We are aware that other causes have contributed to
+the same effect, but we cannot doubt that this is a
+principal one.</p>
+
+<p>As much as is really true of the great returns
+alleged to have been made to capital during the last
+war, must have arisen from a similar cause. Our
+exclusive command of the sea excluded from the
+market all by whom we should have been undersold.</p>
+
+<p>The adoption by France, Russia, the Netherlands,
+and the United States, of a more severely restrictive
+commercial policy, subsequently to 1815, has
+done great injury undoubtedly to those countries; for
+the duties which they have established are intended
+to be, and really are, of the class termed <i>protecting</i>;
+that is to say, such as force the production of commodities
+by more costly processes at home, instead
+of suffering them to be imported from abroad. But
+these duties, though chiefly injurious to the countries
+imposing them, have also been highly injurious to
+England. By diminishing her exportation, or preventing
+it from increasing as it would otherwise have
+done, they have kept up the prices of all imported
+commodities in England, above what those prices
+would have fallen to if trade had been left free.</p>
+
+<p>By another obvious application of the same reasoning,
+it will be seen, that there is a real foundation
+for the notion, that a country may be benefited
+by receiving from another country the concession of
+what used to be termed commercial advantages, or
+by restraining its colonies from purchasing goods of
+any country except itself. In the figured illustration
+last used (p. 34) [not available, M.D.], it is evident, that if England had
+been bound by a treaty with Germany to buy linen
+exclusively from her, Germany would have retained
+the trade which we supposed her to lose, and would
+have continued to purchase cloth at a comparatively
+cheap rate from England, instead of producing it by a
+more costly process at home. Suppose that England
+had been a colony of Germany, and we see that by
+compelling colonies to deal at her shop, she may obtain
+a real advantage, though of a nature which we
+may hazard the assertion that the founders of our
+colonial policy little dreamt of.</p>
+
+<p>Such an advantage, however, being gained at the
+expense of another country, is, at the least, simply
+equivalent to a tax, or tribute. Now, if a country has
+just grounds, or deems superiority of power a sufficient
+ground, for exacting a tribute from another
+country, the most direct mode is the best. First,
+because it is the most intelligible, and has least of
+trick or disguise. Secondly, because it allows the
+people of the country paying the tribute, to raise the
+money in whatever way they consider least oppressive
+to themselves. Thirdly, because the indirect mode of
+taxing a country, by restrictions on its commerce, disturbs
+the distribution of industry most advantageous
+to the world at large, and occasions a greater loss to
+the restricted country, and to the other countries
+with which that country would have traded, than
+gain to the country in whose favour the restrictions
+are imposed. And lastly, because a country never
+could obtain such privileges from an independent
+nation, and has seldom been so undisguised an oppressor
+as to demand them even from its colonies,
+without subjecting itself to restrictions in some degree
+equivalent, for the benefit of those whom it has
+thus taxed. Each country, therefore, usually pays
+tribute to the other; and to produce this fruitless
+reciprocity of exaction, the industry and trade of both
+countries are diverted from the most advantageous
+channels, and the return to the labour and capital of
+both is diminished, in pure loss.</p>
+
+<p>9. The same principles which have led to the
+above conclusions, also suggest a remark of some
+importance with respect to the probable effect of a
+change from a restricted to a comparatively free
+trade.</p>
+
+<p>There is no doubt that our prohibiting the importation
+of a particular article, which, but for the prohibition,
+would have been imported, enables us to
+obtain our other imports at smaller cost. The article
+for which we have the greatest demand, and for
+which our demand is most increased by cheapness, is
+that which we should naturally import preferably to
+any other; now of this article we should import the
+quantity necessary to pay for our exports, on terms of
+interchange less advantageous to us than in the case
+of any other commodity. If our legislature prohibits
+this commodity, the other country will be obliged to
+offer any other article on easier terms, in order to
+force a sufficient demand for it to be an equivalent to
+what she purchases from us.</p>
+
+<p>The steps of the process, money being used, would
+be these:&mdash;We prohibit the importation of linen.
+The exportation of cloth continues, but is paid for in
+money. Our prices rise, those in Germany fall, until
+silk, or some other article, can be imported from
+Germany cheaper than it can be produced at home,
+and in sufficient abundance to balance the export of
+cloth. Thus by sacrificing the cheapness of one commodity,
+we gain the cheapness of another: but we
+sacrifice a greater cheapness to gain a less, and we
+sacrifice cheapness in the article which we most want,
+and would import by preference, while our compensation
+is cheapness in an article which we either could
+produce more advantageously at home, or which we
+have so little desire for, that it requires a species of
+bounty on the article to create a demand.</p>
+
+<p>Restrictions on importation do, however, tend to
+keep down the value and price of our remaining imports,
+and to keep up the nominal or money prices
+of all our other commodities, by retaining a greater
+quantity of money in the country than would otherwise
+be there. From this it obviously follows, that if
+the restrictions were removed, we should have to pay
+rather more for some of the articles which we now
+import, while those which we are now prevented from
+importing would cost us more than might be inferred
+from their <i>present</i> price in the foreign market. And
+general prices would fall; to the benefit of those who
+have fixed sums to receive; to the disadvantage of
+those who have fixed sums to pay; and giving rise, as
+a general fall of prices always does, to an appearance,
+though a temporary and fallacious one, of general
+distress <a name="FNanchor5"></a><a href="#Footnote_5"><sup>[5]</sup></a>.</p>
+
+<p>It is right to observe that the measures of the
+British Legislature which have been falsely characterised
+as measures of free trade, must, from their extremely
+insignificant extent, have produced far too
+little effect in increasing our importation, to have
+actually led, in any degree worth mentioning, to the
+results specified above.</p>
+
+<p>It is of greater importance to take notice, that these
+effects may be entirely obviated, if foreign countries
+can be prevailed upon simultaneously to relax their
+restrictive systems, so as to create an immediate increase
+of demand for our exports at the present prices.
+It is true that exports and imports must, in the end,
+balance one another, and if we increase our imports,
+our exports will of necessity increase too. But it is a
+forced increase, produced by an efflux of money and fall
+of prices; and this fall of prices being permanent,
+although it would be no evil at all in a country where
+credit is unknown, it may be a very serious one where
+large classes of persons, and the nation itself, are under
+engagements to pay fixed sums of money of large
+amount.</p>
+
+<p>10. The only remaining application of the principle
+set forth in this essay, which we think it of importance
+to notice specially, is the effect produced upon a country
+by the annual payment of a tribute or subsidy to a
+foreign power, or by the annual remittance of rents to
+absentee landlords, or of any other kind of income to
+its absent owners. Remittances to absentees are often
+very incorrectly likened in their general character to
+the payment of a tribute; from which they differ in this
+very material circumstance, that tribute, if not paid to
+a foreign country, is not paid at all, whereas rents
+are paid to the landlord, and consumed by him, even
+if he resides at home. The two kinds of payment,
+however, have a perfect resemblance to each other in
+such parts of their effects as we are about to point
+out.</p>
+
+<p>The tribute, subsidy, or remittance, is always in
+goods; for, unless the country possesses mines of the
+precious metals, and numbers those metals among its
+regular articles of export, it cannot go on, year after
+year, parting with them, and never receiving them
+back. When a nation has regular payments to make
+in a foreign country, for which it is not to receive any
+return, its exports must annually exceed its imports by
+the amount of the payments which it is bound so to
+make. In order to force a demand for its exports
+greater than its imports will suffice to pay for, it must
+offer them at a rate of interchange more favourable to
+the foreign country, and less so to itself, than if it had
+no payments to make beyond the value of its imports.
+It therefore carries on the trade with less advantage, in
+consequence of the obligations to which it is subject
+towards persons resident in foreign countries.</p>
+
+<p>The steps of the process are these. The exports and
+imports being in equilibrium, suppose a treaty to be
+concluded, by which the country binds itself to pay in
+tribute to another country, a certain sum annually. It
+makes, perhaps, the first payment by a remittance of
+money. This lowers prices in the paying country, and
+raises them in the receiving one: the exports of the
+tributary country increase, its imports diminish. When
+the efflux of money has altered prices in the requisite
+degree, the exports exceed the imports annually, by the
+amount of the tribute; and the latter, being added to
+the sum of the payments due, restores the balance of
+payments between the two countries. The result to
+the tributary country is a diminution of her share in
+the advantage of foreign trade. She pays dearer for
+her imports, in two ways, because she pays more
+money, and because that money is of higher value,
+the money incomes of her inhabitants being of smaller
+amount.</p>
+
+<p>Thus the imposition of a tribute is a double burthen
+to the country paying it, and a double gain to
+that which receives it. The tributary country pays to
+the other, first, the tax, whatever be its amount, and
+next, something more, which the one country loses in
+the increased cost of its imports, the other gains in the
+diminished cost of its own.</p>
+
+<p>Absenteeism, moreover, though not burthensome
+in the former of these ways, since the money is paid
+whether the receiver be an absentee or not, is yet
+disadvantageous in the second of the two modes which
+have been mentioned. Ireland pays dearer for her imports
+in consequence of her absentees; a circumstance
+which the assailants of Mr. M'Culloch, whether political
+economists or not, have not, we believe, hitherto
+thought of producing against him.</p>
+
+<p>11. If the question be now asked, which of the
+countries of the world gains most by foreign commerce,
+the following will be the answer.</p>
+
+<p>If by gain be meant advantage, in the most enlarged
+sense, that country will generally gain the most,
+which stands most in need of foreign commodities.</p>
+
+<p>But if by gain be meant saving of labour and
+capital in obtaining the commodities which the country
+desires to have, whatever they may be; the country
+will gain, not in proportion to its own need of foreign
+articles, but to the need which foreigners have of the
+articles which itself produces.</p>
+
+<p>Let us take, as an illustration of our meaning, the
+case of France and England. Those two nations, in
+consequence of the restrictions with which they have
+loaded their commercial intercourse, carry on so little
+trade with each other, as may almost, regard being had
+to the wealth and population of the two countries,
+be called none at all. If these fetters were at once
+taken off, which of the two countries would be the
+greatest gainer? England without doubt. There would
+instantly arise in France an immense demand for the
+cottons, woollens, and iron of England; while wines,
+brandies, and silks, the staple articles of France, are
+less likely to come into general demand here, nor would
+the consumption of such productions, it is probable, be
+so rapidly increased by the fall of price. The fall would
+probably be very great before France could obtain a
+vent in England for so much of her exports as would
+suffice to pay for the probable amount of her imports.
+There would be a considerable flow of the precious
+metals out of France into England. The English
+consumer of French wine would not merely save the
+amount of the duty which that wine now pays, but
+would find the wine itself falling-in prime cost, while
+his means of purchasing it would be increased by the
+augmentation of his own money income. The French
+consumer of English cottons, on the contrary, would
+not long continue to be able to purchase them at the
+price they now sell for in England. He would gain
+less, as the English would gain more, than might
+appear from a mere comparison between the present
+prices of commodities in the two countries.</p>
+
+<p>Various consequences would flow from opening the
+trade between France and England, which are not expected,
+either by the friends or by the opponents of the
+present restrictive system. The wine-growers of France,
+who imagine that free trade would relieve their distress
+by raising the price of their wine, might not improbably
+find that price actually lowered. On the other
+hand, our silk manufacturers would be surprised if they
+were told that the free admission of our cottons and
+hardware into the French market, would endanger
+<i>their</i> branch of manufacture: yet such might very possibly
+be the effect. France, it is likely, could most
+advantageously pay us in silks for a portion of the large
+amount of cottons and hardware which we should sell
+to her; and though our silk manufacturers may now
+be able to compete advantageously, in some branches
+of the manufacture, with their French rivals, it by no
+means follows that they could do so when the efflux of
+money from France, and its influx into England, had
+lowered the price of silk goods in the French market,
+and increased all the expenses of production here.</p>
+
+<p>On the whole, England probably, of all the countries
+of Europe, draws to herself the largest share of
+the gains of international commerce: because her exportable
+articles are in universal demand, and are of
+such a kind that the demand increases rapidly as the
+price falls. Countries which export food, have the
+former advantage, but not the latter. But our own
+colonies, and the countries which supply us with the
+materials of our manufactures, maintain a hard struggle
+with us for an equal share of the advantages of their
+trade; for <i>their</i> exports are also of a kind for which
+there exists a most extensive demand here, and a demand
+capable of almost indefinite extension by a fall
+of price. Contrary, therefore, to common opinion, it is
+probable that our trade with the colonies, and with the
+countries which send us the raw materials of our national
+industry, is not more but less advantageous to
+us, in proportion to its extent, than our trade with the
+continent of Europe. We mean in respect to the mere
+amount of the return to the labour and capital of the
+country; considered abstractedly from the usefulness
+or agreeableness of the particular articles on which the
+receivers may choose to expend it.</p>
+
+<p class="NO"><b>NOTES:</b></p>
+
+<p><a name="Footnote_1"></a><a href="#FNanchor1">[1]</a><div class=note> <i>Elements of Political Economy</i>, by James Mill, Esq., 3rd
+edit., pp. 120-1.</div><br>
+
+<p><a name="Footnote_2"></a><a href="#FNanchor2">[2]</a><div class=note> The figures used are of course arbitrary, having no reference
+to any existing prices.</div><br>
+
+<p><a name="Footnote_3"></a><a href="#FNanchor3">[3]</a><div class=note> We have not deemed it necessary to enter minutely into all the
+circumstances which might modify the results mentioned in the
+text. For example, let us revert to the first case, that in which
+the demand for cloth in Germany is so little affected by the rise of
+price in consequence of the tax, that the quantity bought exceeds
+in pecuniary value what it was before. As the German consumers
+lay out more money in cloth, they have less to lay out in other things;
+other money prices will fall; among the rest that of linen; and this
+may so increase the demand for linen in England as to restore the
+equilibrium of exports and imports without any passage of money.
+But England's treasury will still gain from Germany the whole of
+the tax, and the English people will buy their linen cheaper
+besides. Again, in the opposite case, where the tax so diminishes
+the demand, that a smaller pecuniary value is required than before.
+The German consumers have, therefore, more to expend in other
+things; these, and among the rest linen, will rise; and this may
+so diminish the demand for linen in England, as to restore the
+equilibrium without the transmission of money. But the effect, as
+respects the division of the advantage, is still as stated in the text.</div><br>
+
+<p><a name="Footnote_4"></a><a href="#FNanchor4">[4]</a><div class=note> The world at large, sellers and buyers taken together, is
+always a gainer by underselling. If, in the case supposed, England
+were compelled by a commercial treaty to exclude the linen of
+Flanders from her market, the total wealth of the world, if affected
+at all, would be diminished.
+<br><br>
+For, what is the cause which enables Flanders to undersell
+Germany? That Flanders, if she had the trade, would exchange
+linen for cloth at a rate of interchange more advantageous to
+England. And why can Flanders do so? It must be either
+because Flanders can produce the article with a less comparative
+quantity of labour than Germany, and therefore the total advantage
+to be divided between the two countries is greater in the case
+of Flanders than of Germany; or else because, though the total
+advantage is not greater, Flanders obtains a less share of it, her
+demand for cloth being greater, at the same rate of interchange,
+than that of Germany. In the former case, to exclude Flemish
+linen from England would be to prevent the world at large from
+making a greater saving of labour instead of a less. In the latter,
+the exclusion would be inefficacious for the only end it could be
+intended for, viz., the benefit of Germany, unless Flemish money
+were excluded from England as well as Flemish linen. For
+Flanders would buy English cloth, paying for it in money, until
+the fall of her prices enabled her to pay for it with something
+else: and the ultimate result would be that, by the rise of prices
+in England, Germany must pay a higher price for her cloth, and
+so lose a part of the advantage in spite of the treaty; while England
+would pay for German linen the same price indeed, but as
+the money incomes of her own people would be increased, the
+same money price would imply a smaller sacrifice.</div><br>
+
+<p><a name="Footnote_5"></a><a href="#FNanchor5">[5]</a><div class=note> This last possible effect of a sudden introduction of free trade,
+was pointed out in an able article on the Silk question, in a work
+of too short duration, the <i>Parliamentary Review</i>.</div><br>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_II"></a><h2>ESSAY II.</h2>
+
+<h2>OF THE INFLUENCE OF CONSUMPTION ON
+PRODUCTION.</h2>
+<br>
+
+<p>Before the appearance of those great writers whose
+discoveries have given to political economy its present
+comparatively scientific character, the ideas universally
+entertained both by theorists and by practical men, on
+the causes of national wealth, were grounded upon
+certain general views, which almost all who have given
+any considerable attention to the subject now justly
+hold to be completely erroneous.</p>
+
+<p>Among the mistakes which were most pernicious
+in their direct consequences, and tended in the greatest
+degree to prevent a just conception of the objects
+of the science, or of the test to be applied to the
+solution of the questions which it presents, was the
+immense importance attached to consumption. The
+great end of legislation in matters of national wealth,
+according to the prevalent opinion, was to create consumers.
+A great and rapid consumption was what
+the producers, of all classes and denominations, wanted,
+to enrich themselves and the country. This object,
+under the varying names of an extensive demand, a
+brisk circulation, a great expenditure of money, and
+sometimes <i>totidem verbis</i> a large consumption, was conceived
+to be the great condition of prosperity.</p>
+
+<p>It is not necessary, in the present state of the science,
+to contest this doctrine in the most flagrantly
+absurd of its forms or of its applications. The utility
+of a large government expenditure, for the purpose of
+encouraging industry, is no longer maintained. Taxes
+are not now esteemed to be &quot;like the dews of heaven,
+which return again in prolific showers.&quot; It is no longer
+supposed that you benefit the producer by taking his
+money, provided you give it to him again in exchange
+for his goods. There is nothing which impresses a
+person of reflection with a stronger sense of the shallowness
+of the political reasonings of the last two centuries,
+than the general reception so long given to a doctrine
+which, if it proves anything, proves that the more you
+take from the pockets of the people to spend on your
+own pleasures, the richer they grow; that the man
+who steals money out of a shop, provided he expends
+it all again at the same shop, is a benefactor to the
+tradesman whom he robs, and that the same operation,
+repeated sufficiently often, would make the
+tradesman's fortune.</p>
+
+<p>In opposition to these palpable absurdities, it was
+triumphantly established by political economists, that
+consumption never needs encouragement. All which
+is produced is already consumed, either for the purpose
+of reproduction or of enjoyment. The person who
+saves his income is no less a consumer than he who
+spends it: he consumes it in a different way; it supplies
+food and clothing to be consumed, tools and
+materials to be used, by productive labourers. Consumption,
+therefore, already takes place to the greatest
+extent which the amount of production admits of;
+but, of the two kinds of consumption, reproductive
+and unproductive, the former alone adds to the national
+wealth, the latter impairs it. What is consumed
+for mere enjoyment, is gone; what is consumed
+for reproduction, leaves commodities of equal value,
+commonly with the addition of a profit. The usual
+effect of the attempts of government to encourage
+consumption, is merely to prevent saving; that is, to
+promote unproductive consumption at the expense of
+reproductive, and diminish the national wealth by the
+very means which were intended to increase it.</p>
+
+<p>What a country wants to make it richer, is never
+consumption, but production. Where there is the latter,
+we may be sure that there is no want of the former.
+To produce, implies that the producer desires to consume;
+why else should he give himself useless labour?
+He may not wish to consume what he himself produces,
+but his motive for producing and selling is the
+desire to buy. Therefore, if the producers generally
+produce and sell more and more, they certainly also
+buy more and more. Each may not want more of
+what he himself produces, but each wants more of what
+some other produces; and, by producing what the other
+wants, hopes to obtain what the other produces. There
+will never, therefore, be a greater quantity produced, of
+commodities in general, than there are consumers for.
+But there may be, and always are, abundance of persons
+who have the inclination to become consumers of
+some commodity, but are unable to satisfy their wish,
+because they have not the means of producing either
+that, or anything to give in exchange for it. The
+legislator, therefore, needs not give himself any concern
+about consumption. There will always be consumption
+for everything which can be produced, until
+the wants of all who possess the means of producing
+are completely satisfied, and then production will not
+increase any farther. The legislator has to look solely
+to two points: that no obstacle shall exist to prevent
+those who have the means of producing, from employing
+those means as they find most for their interest;
+and that those who have not at present the means of
+producing, to the extent of their desire to consume,
+shall have every facility afforded to their acquiring the
+means, that, becoming producers, they may be enabled
+to consume.</p>
+
+<p>These general principles are now well understood
+by almost all who profess to have studied the subject,
+and are disputed by few except those who ostentatiously
+proclaim their contempt for such studies.
+We touch upon the question, not in the hope of rendering
+these fundamental truths clearer than they
+already are, but to perform a task, so useful and needful,
+that it is to be wished it were oftener deemed part
+of the business of those who direct their assaults
+against ancient prejudices,&mdash;that of seeing that no
+scattered particles of important truth are buried and
+lost in the ruins of exploded error. Every prejudice,
+which has long and extensively prevailed among the
+educated and intelligent, must certainly be borne out
+by some strong appearance of evidence; and when
+it is found that the evidence does not prove the received
+conclusion, it is of the highest importance to
+see what it does prove. If this be thought not worth
+inquiring into, an error conformable to appearances
+is often merely exchanged for an error contrary to
+appearances; while, even if the result be truth, it is
+paradoxical truth, and will have difficulty in obtaining
+credence while the false appearances remain.</p>
+
+<p>Let us therefore inquire into the nature of the
+appearances, which gave rise to the belief that a great
+demand, a brisk circulation, a rapid consumption (three
+equivalent expressions), are a cause of national prosperity.</p>
+
+<p>If every man produced for himself, or with his capital
+employed others to produce, everything which he
+required, customers and their wants would be a matter
+of profound indifference to him. He would be rich, if
+he had produced and stored up a large supply of the
+articles which he was likely to require; and poor, if he
+had stored up none at all, or not enough to last until
+he could produce more.</p>
+
+<p>The case, however, is different after the separation
+of employments. In civilized society, a single producer
+confines himself to the production of one commodity,
+or a small number of commodities; and his affluence
+depends, not solely upon the quantity of his commodity
+which he has produced and laid in store, but upon
+his success in finding purchasers for that commodity.</p>
+
+<p>It is true, therefore, of every particular producer
+or dealer, that a great demand, a brisk circulation, a
+rapid consumption, of the commodities which he sells
+at his shop or produces in his manufactory, is important
+to him. The dealer whose shop is crowded
+with customers, who can dispose of a product almost
+the very moment it is completed, makes large profits,
+while his next neighbour, with an equal capital but
+fewer customers, gains comparatively little.</p>
+
+<p>It was natural that, in this case, as in a hundred
+others, the analogy of an individual should be unduly
+applied to a nation: as it has been concluded that a
+nation generally gains in wealth by the conquest of a
+province, because an individual frequently does so by
+the acquisition of an estate; and as, because an individual
+estimates his riches by the quantity of money
+which he can command, it was long deemed an excellent
+contrivance for enriching a country, to heap up
+artificially the greatest possible quantity of the precious
+metals within it.</p>
+
+<p>Let us examine, then, more closely than has usually
+been done, the case from which the misleading analogy
+is drawn. Let us ascertain to what extent the two cases
+actually resemble; what is the explanation of the false
+appearance, and the real nature of the phenomenon
+which, being seen indistinctly, has led to a false conclusion.</p>
+
+<hr style="width: 45%;">
+
+<p>We shall propose for examination a very simple
+case, but the explanation of which will suffice to clear
+up all other cases which fall within the same principle.
+Suppose that a number of foreigners with large incomes
+arrive in a country, and there expend those incomes:
+will this operation be beneficial, as respects the national
+wealth, to the country which receives these immigrants?
+Yes, say many political economists, if they save any
+part of their incomes, and employ them reproductively;
+because then an addition is made to the national
+capital, and the produce is a clear increase of the national
+wealth. But if the foreigner expends all his
+income unproductively, it is no benefit to the country,
+say they, and for the following reason.</p>
+
+<p>If the foreigner had his income remitted to him in
+bread and beef, coats and shoes, and all the other
+articles which he was desirous to consume, it would
+not be pretended that his eating, drinking, and wearing
+them, on our shores rather than on his own, could
+be of any advantage to us in point of wealth. Now,
+the case is not different if his income is remitted to
+him in some one commodity, as, for instance, in money.
+For whatever takes place afterwards, with a view to
+the supply of his wants, is a mere exchange of equivalents;
+and it is impossible that a person should ever
+be enriched by merely receiving an equal value in
+exchange for an equal value.</p>
+
+<p>When it is said that the purchases of the foreign
+consumer give employment to capital which would
+otherwise yield no profit to its owner, the same political
+economists reject this proposition as involving the
+fallacy of what has been called a &quot;general glut.&quot; They
+say, that the capital, which any person has chosen to
+produce and to accumulate, can always find employment,
+since the fact that he has accumulated it proves
+that he had an unsatisfied desire; and if he cannot
+find anything to produce for the wants of other consumers,
+he can for his own.</p>
+
+<p>It is impossible to contest these propositions as
+thus stated. But there is one consideration which
+clearly shews, that there is something more in the
+matter than is here taken into the account; and this
+is, that the above reasoning tends distinctly to prove,
+that it does a tradesman no good to go into his shop
+and buy his goods. How can he be enriched? it might
+be asked. He merely receives a certain value in money,
+for an equivalent value in goods. Neither does this
+give employment to his capital; for there never exists
+more capital than can find employment, and if one person
+does not buy his goods another will; or if nobody
+does, there is over-production in that business, he can
+remove his capital, and find employment for it in
+another trade.</p>
+
+<p>Every one sees the fallacy of this reasoning as
+applied to individual producers. Every one knows
+that as applied to them it has not even the semblance
+of plausibility; that the wealth of a producer does in a
+great measure depend upon the number of his customers,
+and that in general every additional purchaser
+does really add to his profits. If the reasoning, which
+would be so absurd if applied to individuals, be applicable
+to nations, the principle on which it rests
+must require much explanation and elucidation.</p>
+
+<p>Let us endeavour to analyse with precision the
+real nature of the advantage which a producer derives
+from an addition to the number of his customers.</p>
+
+<p>For this purpose, it is necessary that we should
+premise a single observation on the meaning of the
+word capital. It is usually defined, the food, clothing,
+and other articles set aside for the consumption of the
+labourer, together with the materials and instruments
+of production. This definition appears to us peculiarly
+liable to misapprehension; and much vagueness and
+some narrow views have, we conceive, occasionally
+resulted from its being interpreted with too mechanical
+an adherence to the literal meaning of the
+words.</p>
+
+<p>The capital, whether of an individual or of a nation,
+consists, we apprehend, of all matters possessing
+exchangeable value, which the individual or the nation
+has in his or in its possession for the purpose of reproduction,
+and not for the purpose of the owner's
+unproductive enjoyment. All unsold goods, therefore,
+constitute a part of the national capital, and of the
+capital of the producer or dealer to whom they belong.
+It is true that tools, materials, and the articles on
+which the labourer is supported, are the only articles
+which are directly subservient to production: and if I
+have a capital consisting of money, or of goods in
+a warehouse, I can only employ them as means of
+production in so far as they are capable of being
+exchanged for the articles which conduce directly
+to that end. But the food, machinery, &amp;c, which
+will ultimately be purchased with the goods in my
+warehouse, may at this moment not be in the country,
+may not be even in existence. If, after having sold
+the goods, I hire labourers with the money, and set
+them to work, I am surely employing capital, though
+the corn, which in the form of bread those labourers
+may buy with the money, may be now in warehouse
+at Dantzic, or perhaps not yet above ground.</p>
+
+<p>Whatever, therefore, is destined to be employed
+reproductively, either in its existing shape, or indirectly
+by a previous (or even subsequent) exchange, is
+capital. Suppose that I have laid out all the money
+I possess in wages and tools, and that the article
+I produce is just completed: in the interval which
+elapses before I can sell the article, realize the proceeds,
+and lay them out again in wages and tools, will
+it be said that I have no capital? Certainly not: I
+have the same capital as before, perhaps a greater,
+but it is locked up, as the expression is, and not
+disposable.</p>
+
+<p>When we have thus seen accurately what really
+constitutes capital, it becomes obvious, that of the
+capital of a country, there is at all times a very
+large proportion lying idle. The annual produce of
+a country is never any thing approaching in magnitude
+to what it might be if all the resources devoted to
+reproduction, if all the capital, in short, of the country,
+were in full employment.</p>
+
+<p>If every commodity on an average remained unsold
+for a length of time equal to that required for its
+production, it is obvious that, at any one time, no
+more than half the productive capital of the country
+would be really performing the functions of capital.
+The two halves would relieve one another, like the
+semichori in a Greek tragedy; or rather the half which
+was in employment would be a fluctuating portion,
+composed of varying parts; but the result would
+be, that each producer would be able to produce
+every year only half as large a supply of commodities,
+as he could produce if he were sure of
+selling them the moment the production was completed.</p>
+
+<p>This, or something like it, is however the habitual
+state, at every instant, of a very large proportion of all
+the capitalists in the world.</p>
+
+<p>The number of producers, or dealers, who turn
+over their capital, as the expression is, in the shortest
+possible time, is very small. There are few who
+have so rapid a sale for their wares, that all the
+goods which their own capital, or the capital which
+they can borrow, enables them to supply, are carried
+off as fast as they can be supplied. The majority
+have not an <i>extent of business</i>, at all adequate
+to the amount of the capital they dispose of. It is
+true that, in the communities in which industry and
+commerce are practised with greatest success, the
+contrivances of banking enable the possessor of a
+larger capital than he can employ in his own business,
+to employ it productively and derive a revenue from
+it notwithstanding. Yet even then, there is, of necessity,
+a great quantity of capital which remains fixed
+in the shape of implements, machinery, buildings, &amp;c,
+whether it is only half employed, or in complete employment:
+and every dealer keeps a stock in trade, to
+be ready for a possible sudden demand, though he probably
+may not be able to dispose of it for an indefinite
+period.</p>
+
+<p>This perpetual non-employment of a large proportion
+of capital, is the price we pay for the division of
+labour. The purchase is worth what it costs; but
+the price is considerable.</p>
+
+<p>Of the importance of the fact which has just been
+noticed there are three signal proofs. One is, the
+large sum often given for the goodwill of a particular
+business. Another is, the large rent which is paid
+for shops in certain situations, near a great thoroughfare
+for example, which have no advantage except
+that the occupier may expect a larger body of customers,
+and be enabled to turn over his capital more
+quickly. Another is, that in many trades, there are
+some dealers who sell articles of an equal quality at a
+lower price than other dealers. Of course, this is not
+a voluntary sacrifice of profits: they expect by the
+consequent overflow of customers to turn over their
+capital more quickly, and to be gainers by keeping
+the whole of their capital in more constant employment,
+though on any given operation their gains are
+less.</p>
+
+<p>The reasoning cited in the earlier part of this paper,
+to show the uselessness of a mere purchaser or customer,
+for enriching a nation or an individual, applies
+only to the case of dealers who have already as much
+business as their capital admits of, and as rapid a sale
+for their commodities as is possible. To such dealers
+an additional purchaser is really of no use; for, if they
+are sure of selling all their commodities the moment
+those commodities are on sale, it is of no consequence
+whether they sell them to one person or to another.
+But it is questionable whether there be any dealers
+in whose case this hypothesis is exactly verified; and to
+the great majority it is not applicable at all. An additional
+customer, to most dealers, is equivalent to an
+increase of their productive capital. He enables them
+to convert a portion of their capital which was lying
+idle (and which could never have become productive in
+their hands until a customer was found) into wages
+and instruments of production; and if we suppose that
+the commodity, unless bought by him, would not have
+found a purchaser for a year after, then all which a
+capital of that value can enable men to produce during
+a year, is clear gain&mdash;gain to the dealer, or producer,
+and to the labourers whom he will employ, and thus
+(if no one sustains any corresponding loss) gain to the
+nation. The aggregate produce of the country for the
+succeeding year is, therefore, increased; not by the
+mere exchange, but by calling into activity a portion
+of the national capital, which, had it not been for the
+exchange, would have remained for some time longer
+unemployed.</p>
+
+<p>Thus there are actually at all times producers and
+dealers, of all, or nearly all classes, whose capital is
+lying partially idle, because they have not found the
+means of fulfilling the condition which the division of
+labour renders indispensable to the full employment of
+capital,&mdash;viz., that of exchanging their products with
+each other. If these persons could find one another
+out, they could mutually relieve each other from this
+disadvantage. Any two shopkeepers, in insufficient
+employment, who agreed to deal at each other's shops
+so long as they could there purchase articles of as good
+a quality as elsewhere, and at as low a price, would
+render the nation a service. It may be said that they
+must previously have dealt, to the same amount, with
+some other dealers; but this is erroneous, since they
+could only have obtained the means of purchasing by
+being previously enabled to sell. By their compact,
+each would gain a customer, who would call his capital
+into fuller employment; each therefore would obtain
+an increased produce; and they would thus be enabled
+to become better customers to each other than
+they could be to third parties.</p>
+
+<p>It is obvious that every dealer who has not business
+sufficient fully to employ his capital (which is the case
+with all dealers when they commence business, and with
+many to the end of their lives), is in this predicament
+simply for want of some one with whom to exchange his
+commodities; and as there are such persons to about the
+same degree probably in all trades, it is evident that if
+these persons sought one another out, they have their
+remedy in their own hands, and by each other's
+assistance might bring their capital into more full
+employment.</p>
+
+<p>We are now qualified to define the exact nature of
+the benefit which a producer or dealer derives from
+the acquisition of a new customer. It is as follows:&mdash;</p>
+
+<p>1. If any part of his own capital was locked up in
+the form of unsold goods, producing (for a longer
+period or a shorter) nothing at all; a portion of this
+is called into greater activity, and becomes more constantly
+productive. But to this we must add some
+further advantages.</p>
+
+<p>2. If the additional demand exceeds what can be
+supplied by setting at liberty the capital which exists in
+the state of unsold goods; and if the dealer has additional
+resources, which were productively invested (in
+the public funds, for instance), but not in his own trade;
+he is enabled to obtain, on a portion of these, not mere
+interest, but profit, and so to gain that difference between
+the rate of profit and the rate of interest, which
+may be considered as &quot;wages of superintendance.&quot;</p>
+
+<p>3. If all the dealer's capital is employed in his own
+trade, and no part of it locked up as unsold goods, the
+new demand affords him additional encouragement to
+save, by enabling his savings to yield him not merely
+interest, but profit; and if he does not choose to save
+(or until he shall have saved), it enables him to carry
+on an additional business with borrowed capital, and
+so gain the difference between interest and profit, or,
+in other words, to receive wages of superintendance on
+a larger amount of capital.</p>
+
+<p>This, it will be found, is a complete account of all
+the gains which a dealer in any commodity can derive
+from an accession to the number of those who deal
+with him: and it is evident to every one, that these
+advantages are real and important, and that they are
+the cause which induces a dealer of any kind to desire
+an increase of his business.</p>
+
+<p>It follows from these premises, that the arrival of a
+new unproductive consumer (living on his own means)
+in any place, be that place a village, a town, or an
+entire country, is beneficial to that place, if it causes
+to any of the dealers of the place any of the advantages
+above enumerated, without withdrawing an equal
+advantage of the same kind from any other dealer of
+the same place.</p>
+
+<p>This accordingly is the test by which we must try
+all such questions, and by which the propriety of the
+analogical argument, from dealing with a tradesman to
+dealing with a nation, must be decided.</p>
+
+<p>Let us take, for instance, as our example, Paris,
+which is much frequented by strangers from various
+parts of the world, who, as sojourners there, live
+unproductively upon their means. Let us consider
+whether the presence of these persons is beneficial, in
+an <i>industrial</i> point of view, to Paris.</p>
+
+<p>We exclude from the consideration that portion of
+the strangers' incomes which they pay to natives as
+direct remuneration for service, or labour of any description.
+This is obviously beneficial to the country.
+An increase in the funds expended in employing
+labour, whether that labour be productive or unproductive,
+tends equally to raise wages. The condition
+of the whole labouring class is, so far, benefited. It
+is true that the labourers thus employed by sojourners
+are probably, in part or altogether, withdrawn from productive
+employment. But this is far from being an
+evil; for either the situation of the labouring classes is
+improved, which is far more than an equivalent for a
+diminution in mere production, or the rise of wages
+acts as a stimulus to population, and then the number
+of productive labourers becomes as great as before.</p>
+
+<p>To this we may add, that what the sojourners pay
+as wages of labour or service (whether constant or
+casual), though expended unproductively by the first
+possessor, may, when it passes into the hands of the
+receivers, be by them saved, and invested in a productive
+employment. If so, a direct addition is made
+to the national capital.</p>
+
+<p>All this is obvious, and is sufficiently allowed by
+political economists; who have invariably set apart
+the gains of all persons coming under the class of
+domestic servants, as real advantages arising to a place
+from the residence there of an increased number of
+unproductive consumers.</p>
+
+<p>We have only to examine whether the purchases of
+commodities by these unproductive consumers, confer
+the same kind of benefit upon the village, town, or
+nation, which is bestowed upon a particular tradesman
+by dealing at his shop.</p>
+
+<p>Now it is obvious that the sojourners, on their arrival,
+confer the benefit in question upon some dealers,
+who did not enjoy it before. They purchase their food,
+and many other articles, from the dealers in the place.
+They, therefore, call the capital of some dealers, which
+was locked up in unsold goods, into more active employment.
+They encourage them to save, and enable
+them to receive wages of superintendance upon a larger
+amount of capital. These effects being undeniable, the
+question is, whether the presence of the sojourners
+deprives any others of the Paris dealers of a similar
+advantage.</p>
+
+<p>It will be seen that it does; and nothing will then
+remain but a comparison of the amounts.</p>
+
+<p>It is obvious to all who reflect (and was shown in
+the paper which precedes this) that the remittances to
+persons who expend their incomes in foreign countries
+are, after a slight passage of the precious metals, defrayed
+in commodities: and that the result commonly
+is, an increase of exports and a diminution of imports,
+until the latter fall short of the former by the amount
+of the remittances.</p>
+
+<p>The arrival, therefore, of the strangers (say from
+England), while it creates at Paris a market for commodities
+equivalent in value to their funds, displaces in
+the market other commodities to an equal value. To
+the extent of the increase of exports from England
+into France in the way of remittance, it introduces
+additional commodities which, by their cheapness, displace
+others formerly produced in that country. To
+the extent of the diminution of imports into England
+from France, commodities which existed or which
+were habitually produced in that country are deprived
+of a market, or can only find one at a price not sufficient
+to defray the cost.</p>
+
+<p>It must, therefore, be a matter of mere accident, if
+by arriving in a place, the new unproductive consumer
+causes any net advantage to its industry, of the kind
+which we are now examining. Not to mention that
+this, like any other change in the channels of trade,
+may render useless a portion of fixed capital, and so
+far injure the national wealth.</p>
+
+<p>A distinction, however, must here be made.</p>
+
+<p>The place to which the new unproductive consumers
+have come, may be a town or village, as well
+as a country. If a town or village, it may either be or
+not be a place having an export trade.</p>
+
+<p>If the place had no previous trade except with the
+immediate neighbourhood, there are no exports and
+imports, by the new arrangement of which, the remittance
+can be made. There is no capital, formerly
+employed in manufacturing for the foreign market,
+which is now brought into less full employment.</p>
+
+<p>Yet the remittance evidently is still made in
+commodities, but in this case without displacing any
+which were produced before. To shew this, it is necessary
+to make the following remarks.</p>
+
+<p>The reason why towns exist, is that <i>ceteris paribus</i> it
+is convenient, in order to save cost of carriage, that the
+production of commodities should take place as far as
+practicable in the immediate vicinity of the consumer.
+Capital finds its way so easily from town to country and
+from country to town, that the amount of capital in the
+town will be regulated wholly by the amount which
+can be employed there more conveniently than elsewhere.
+Consequently the capital of a place will be
+such as is sufficient</p>
+
+<p>1st. To produce all commodities which from local
+circumstances can be produced there at less cost than
+elsewhere: and if this be the case to any great extent,
+it will be an exporting town. When we say <i>produced</i>,
+we may add, or <i>stored</i>.</p>
+
+<p>2nd. To produce and retail the commodities which
+are consumed by the inhabitants of the town, and the
+place of whose production is in other respects a matter
+of indifference. To the inhabitants of the town must
+be added such dwellers in the adjoining country, as
+are nearer to that place than to any other equally well
+furnished market.</p>
+
+<p>Now, if new unproductive consumers resort to the
+place, it is clear that for the latter of these two purposes,
+more capital will be required than before. Consequently,
+if less is not required for the former purpose,
+more capital will establish itself at the place.</p>
+
+<p>Until this additional capital has arrived, the producers
+and dealers already on the spot will enjoy great
+advantages. Every particle of their own capital will
+be called into the most active employment. What
+their capital does not enable them to supply, will be
+got from others at a distance, who cannot supply it on
+such favourable terms; consequently they will be in the
+predicament of possessing a partial monopoly&mdash;receiving
+for every thing a price regulated by a higher cost of
+production than they are compelled to pay. They also,
+being in possession of the market, will be enabled to
+make a large portion of the new capital pass through
+their hands, and thus to earn wages of superintendance
+upon it.</p>
+
+<p>If, indeed, the place from whence the strangers
+came, previously traded with that where they have
+taken up their abode, the effect of their arrival is, that
+the exports of the town will diminish, and that it will
+be supplied from abroad with something which it previously
+produced at home. In this way an amount of
+capital will be set free equal to that required, and there
+will be no increase on the whole. The removal of the
+court from London to Birmingham would not necessarily,
+though it would probably <a name="FNanchor6"></a><a href="#Footnote_6"><sup>[6]</sup></a>, increase the amount
+of capital in the latter place. The afflux of money to
+Birmingham, and its efflux from London, would render
+it cheaper to make some articles in London for Birmingham
+consumption; and to make others in London
+for home consumption, which were formerly brought
+from Birmingham.</p>
+
+<p>But instead of Birmingham, an exporting town,
+suppose a village, or a town which only produced and
+retailed for itself and its immediate vicinity. The
+remittances must come thither in the shape of money;
+and though the money would not remain, but would be
+sent away in exchange for commodities, it would, however,
+first pass through the hands of the producers and
+dealers in the place, and would by them be exported in
+exchange for the articles which they require&mdash;viz. the
+materials, tools, and subsistence necessary for the increased
+production now required of them, and articles
+of foreign luxury for their own increased unproductive
+consumption. These articles would not displace any
+formerly made in the place, but on the contrary, would
+forward the production of more.</p>
+
+<p>Hence we may consider the following propositions
+as established:</p>
+
+<p>1. The expenditure of absentees (the case of domestic
+servants excepted,) is not necessarily any loss to the
+<i>country</i> which they leave, or gain to the <i>country</i> which
+they resort to (save in the manner shown in Essay I.):
+for almost every <i>country</i> habitually exports and imports
+to a much greater value than the incomes of its absentees,
+or of the foreign sojourners within it.</p>
+
+<p>2. But sojourners often do much good to the <i>town</i>
+or village which they resort to, and absentees harm to
+that which they leave. The capital of the petty
+tradesman in a small town near an absentee's estate,
+is deprived of the market for which it is conveniently
+situated, and must resort to another to which other
+capitals lie nearer, and where it is consequently outbid,
+and gains less; obtaining only the same price, with
+greater expenses. But this evil would be equally
+occasioned, if, instead of going abroad, the absentee
+had removed to his own capital city.</p>
+
+<p>If the tradesman could, in the latter case, remove
+to the metropolis, or in the former, employ himself
+in producing increased exports, or in producing for
+home consumption articles now no longer imported,
+each in the place most convenient for that operation;
+he would not be a loser, though the place which he
+was obliged to leave might be said to lose.</p>
+
+<p>Paris undoubtedly gains much by the sojourn of
+foreigners, while the counteracting loss by diminution
+of exports from France is suffered by the great
+trading and manufacturing towns, Rouen, Bordeaux,
+Lyons, &amp;c, which also suffer the principal part of the
+loss by importation of articles previously produced
+at home. The capital thus set free, finds its most convenient
+seat to be Paris, since the business to which
+it must turn is the production of articles to be unproductively
+consumed by the sojourners.</p>
+
+<p>The great trading towns of France would undoubtedly
+be more flourishing, if France were not frequented
+by foreigners.</p>
+
+<p>Rome and Naples are perhaps purely benefited by
+the foreigners sojourning there: for they have so little
+external trade, that their case may resemble that of the
+village in our hypothesis.</p>
+
+<p>Absenteeism, therefore, (except as shown in the first
+Essay,) is a local, not a national evil; and the resort of
+foreigners, in so far as they purchase for unproductive
+consumption, is not, in any commercial country, a national,
+though it may be a local good.</p>
+
+<p>From the considerations which we have now
+adduced, it is obvious what is meant by such phrases
+as a <i>brisk demand</i>, and a rapid circulation. There is a
+brisk demand and a rapid circulation, when goods,
+generally speaking, are sold as fast as they can be
+produced. There is slackness, on the contrary, and
+stagnation, when goods, which have been produced,
+remain for a long time unsold. In the former case,
+the capital which has been locked up in production is
+disengaged as soon as the production is completed;
+and can be immediately employed in further production.
+In the latter case, a large portion of the
+productive capital of the country is lying in temporary
+inactivity.</p>
+
+<p>From what has been already said, it is obvious that
+periods of &quot;brisk demand&quot; are also the periods of
+greatest production: the national capital is never called
+into full employment but at those periods. This,
+however, is no reason for desiring such times; it is not
+desirable that the whole capital of the country should
+be in full employment. For, the calculations of producers
+and traders being of necessity imperfect, there
+are always some commodities which are more or less
+in excess, as there are always some which are in
+deficiency. If, therefore, the whole truth were known,
+there would always be some classes of producers contracting,
+not extending, their operations. If <i>all</i> are
+endeavouring to extend them, it is a certain proof
+that some general delusion is afloat. The commonest
+cause of such delusion is some general, or very
+extensive, rise of prices (whether caused by speculation
+or by the currency) which persuades all dealers
+that they are growing rich. And hence, an increase of
+production really takes place during the progress of
+depreciation, as long as the existence of depreciation
+is not suspected; and it is this which gives to the fallacies
+of the currency school, principally represented by
+Mr. Attwood, all the little plausibility they possess. But
+when the delusion vanishes and the truth is disclosed,
+those whose commodities are relatively in excess must
+diminish their production or be ruined: and if during
+the high prices they have built mills and erected
+machinery, they will be likely to repent at leisure.</p>
+
+<p>In the present state of the commercial world,
+mercantile transactions being carried on upon an
+immense scale, but the remote causes of fluctuations
+in prices being very little understood, so that unreasonable
+hopes and unreasonable fears alternately rule
+with tyrannical sway over the minds of a majority of
+the mercantile public; general eagerness to buy and
+general reluctance to buy, succeed one another in a
+manner more or less marked, at brief intervals. Except
+during short periods of transition, there is almost
+always either great briskness of business or great stagnation;
+either the principal producers of almost all the
+leading articles of industry have as many orders as they
+can possibly execute, or the dealers in almost all commodities
+have their warehouses full of unsold goods.</p>
+
+<p>In this last ease, it is commonly said that there is a
+general superabundance; and as those economists who
+have contested the possibility of general superabundance,
+would none of them deny the possibility or even
+the frequent occurrence of the phenomenon which we
+have just noticed, it would seem incumbent on them to
+show, that the expression to which they object is not
+applicable to a state of things in which all or most commodities
+remain unsold, in the same sense in which
+there is said to be a superabundance of any one commodity
+when it remains in the warehouses of dealers
+for want of a market.</p>
+
+<p>This is merely a question of naming, but an important
+one, as it seems to us that much apparent
+difference of opinion has been produced by a mere
+difference in the mode of describing the same facts,
+and that persons who at bottom were perfectly agreed,
+have considered each other as guilty of gross error, and
+sometimes oven misrepresentation, on this subject.</p>
+
+<p>In order to afford the explanations, with which it
+is necessary to take the doctrine of the impossibility
+of an excess of all commodities, we must advert for a
+moment to the argument by which this impossibility
+is commonly maintained.</p>
+
+<p>There can never, it is said, be a want of buyers
+for all commodities; because whoever offers a commodity
+for sale, desires to obtain a commodity in
+exchange for it, and is therefore a buyer by the mere
+fact of his being a seller. The sellers and the buyers,
+for all commodities taken together, must, by the metaphysical
+necessity of the case, be an exact equipoise
+to each other; and if there be more sellers than
+buyers of one thing, there must be more buyers than
+sellers for another.</p>
+
+<p>This argument is evidently founded on the supposition
+of a state of barter; and, on that supposition, it
+is perfectly incontestable. When two persons perform
+an act of barter, each of them is at once a seller
+and a buyer. He cannot sell without buying. Unless
+he chooses to buy some other person's commodity, he
+does not sell his own.</p>
+
+<p>If, however, we suppose that money is used, these
+propositions cease to be exactly true. It must be
+admitted that no person desires money for its own
+sake, (unless some very rare cases of misers be an
+exception,) and that he who sells his commodity,
+receiving money in exchange, does so with the intention
+of buying with that same money some other commodity.
+Interchange by means of money is therefore,
+as has been often observed, ultimately nothing but
+barter. But there is this difference&mdash;that in the case
+of barter, the selling and the buying are simultaneously
+confounded in one operation; you sell what
+you have, and buy what you want, by one indivisible
+act, and you cannot do the one without doing the
+other. Now the effect of the employment of money,
+and even the utility of it, is, that it enables this
+one act of interchange to be divided into two separate
+acts or operations; one of which may be performed
+now, and the other a year hence, or whenever
+it shall be most convenient. Although he who
+sells, really sells only to buy, he needs not buy at
+the same moment when he sells; and he does not
+therefore necessarily add to the <i>immediate</i> demand for
+one commodity when he adds to the supply of another.
+The buying and selling being now separated, it may
+very well occur, that there may be, at some given
+time, a very general inclination to sell with as little
+delay as possible, accompanied with an equally general
+inclination to defer all purchases as long as possible.
+This is always actually the case, in those periods which
+are described as periods of general excess. And no one,
+after sufficient explanation, will contest the possibility
+of general excess, in this sense of the word. The state
+of things which we have just described, and which is
+of no uncommon occurrence, amounts to it.</p>
+
+<p>For when there is a general anxiety to sell, and a
+general disinclination to buy, commodities of all kinds
+remain for a long time unsold, and those which find an
+immediate market, do so at a very low price. If it be
+said that when all commodities fall in price, the fall is
+of no consequence, since mere money price is not
+material while the relative value of all commodities
+remains the same, we answer that this would be true
+if the low prices were to last for ever. But as it is
+certain that prices will rise again sooner or later, the
+person who is obliged by necessity to sell his commodity
+at a low money price is really a sufferer, the
+money he receives sinking shortly to its ordinary
+value. Every person, therefore, delays selling if he
+can, keeping his capital unproductive in the mean
+time, and sustaining the consequent loss of interest.
+There is stagnation to those who are not obliged to
+sell, and distress to those who are.</p>
+
+<p>It is true that this state can be only temporary,
+and must even be succeeded by a reaction of
+corresponding violence, since those who have sold
+without buying will certainly buy at last, and there
+will then be more buyers than sellers. But although
+the general over-supply is of necessity only temporary,
+this is no more than may be said of every partial
+over-supply. An overstocked state of the market is
+always temporary, and is generally followed by a more
+than common briskness of demand.</p>
+
+<p>In order to render the argument for the impossibility
+of an excess of all commodities applicable to the
+case in which a circulating medium is employed,
+money must itself be considered as a commodity. It
+must, undoubtedly, be admitted that there cannot be
+an excess of all other commodities, and an excess of
+money at the same time.</p>
+
+<p>But those who have, at periods such as we have
+described, affirmed that there was an excess of all
+commodities, never pretended that money was one
+of these commodities; they held that there was not
+an excess, but a deficiency of the circulating medium.
+What they called a general superabundance, was
+not a superabundance of commodities relatively to
+commodities, but a superabundance of all commodities
+relatively to money. What it amounted to was,
+that persons in general, at that particular time, from a
+general expectation of being called upon to meet
+sudden demands, liked better to possess money than
+any other commodity. Money, consequently, was in
+request, and all other commodities were in comparative
+disrepute. In extreme cases, money is collected
+in masses, and hoarded; in the milder cases,
+people merely defer parting with their money, or
+coming under any new engagements to part with it.
+But the result is, that all commodities fall in price,
+or become unsaleable. When this happens to one
+single commodity, there is said to be a superabundance
+of that commodity; and if that be a proper expression,
+there would seem to be in the nature of the case
+no particular impropriety in saying that there is a
+superabundance of all or most commodities, when all
+or most of them are in this same predicament.</p>
+
+<p>It is, however, of the utmost importance to observe
+that excess of all commodities, in the only sense in
+which it is possible, means only a temporary fall in
+their value relatively to money. To suppose that the
+markets for all commodities could, in any other sense
+than this, be overstocked, involves the absurdity that
+commodities may fall in value relatively to themselves;
+or that, of two commodities, each can fall
+relatively to the other, A becoming equivalent to
+B-<i>x</i>, and B to A-<i>x</i>, at the same time. And it is,
+perhaps, a sufficient reason for not using phrases of this
+description, that they suggest the idea of excessive production.
+A want of market for one article may arise
+from excessive production of that article; but when
+commodities in general become unsaleable, it is from
+a very different cause; there cannot be excessive production
+of commodities in general.</p>
+
+<p>The argument against the possibility of general
+over-production is quite conclusive, so far as it applies
+to the doctrine that a country may accumulate capital
+too fast; that produce in general may, by increasing
+faster than the demand for it, reduce all producers to
+distress. This proposition, strange to say, was almost a
+received doctrine as lately as thirty years ago; and
+the merit of those who have exploded it is much
+greater than might be inferred from the extreme
+obviousness of its absurdity when it is stated in its
+native simplicity. It is true that if all the wants of
+all the inhabitants of a country were fully satisfied, no
+further capital could find useful employment; but, in
+that case, none would be accumulated. So long as
+there remain any persons not possessed, we do not
+say of subsistence, but of the most refined luxuries,
+and who would work to possess them, there is employment
+for capital; and if the commodities which these
+persons want are not produced and placed at their disposal,
+it can only be because capital does not exist,
+disposable for the purpose of employing, if not any other
+labourers, those very labourers themselves, in producing
+the articles for their own consumption. Nothing can
+be more chimerical than the fear that the accumulation
+of capital should produce poverty and not wealth, or
+that it will ever take place too fast for its own end.
+Nothing is more true than that it is produce which
+constitutes the market for produce, and that every
+increase of production, if distributed without miscalculation
+among all kinds of produce in the proportion
+which private interest would dictate, creates, or rather
+constitutes, its own demand.</p>
+
+<p>This is the truth which the deniers of general over-production
+have seized and enforced; nor is it pretended
+that anything has been added to it, or subtracted from
+it, in the present disquisition. But it is thought that
+those who receive the doctrine accompanied with the
+explanations which we have given, will understand,
+more clearly than before, what is, and what is not,
+implied in it; and will see that, when properly understood,
+it in no way contradicts those obvious facts
+which are universally known and admitted to be not
+only of possible, but of actual and even frequent occurrence.
+The doctrine in question only appears a paradox,
+because it has usually been so expressed as
+apparently to contradict these well-known facts;
+which, however, were equally well known to the
+authors of the doctrine, who, therefore, can only have
+adopted from inadvertence any form of expression
+which could to a candid person appear inconsistent
+with it. The essentials of the doctrine are preserved
+when it is allowed that there cannot be permanent
+excess of production, or of accumulation; though it be
+at the same time admitted, that as there may be a
+temporary excess of any one article considered separately,
+so may there of commodities generally, not in
+consequence of over-production, but of a want of
+commercial confidence.</p>
+
+<p class="NO"><b>NOTE:</b></p>
+
+<p><a name="Footnote_6"></a><a href="#FNanchor6">[6]</a><div class=note> Probably; because most articles of an ornamental description
+being still required from the same makers, these makers,
+with their capital, would probably follow their customers, Besides,
+from place to place within the same country, most persons
+will lather change their habitation than their employment. But
+the moving on this score would be reciprocal.</div><br>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_III"></a><h2>ESSAY III.</h2>
+
+<h2>ON THE WORDS PRODUCTIVE AND
+UNPRODUCTIVE.</h2>
+<br>
+
+<p>It would probably be difficult to point out any two
+words, respecting the proper use of which political
+economists have been more divided, than they have
+been concerning the two words <i>productive</i> and <i>unproductive</i>;
+whether considered as applied to <i>labour</i>, to
+<i>consumption</i>, or to <i>expenditure</i>.</p>
+
+<p>Although this is a question solely of nomenclature,
+it is one of sufficient importance to be worth another
+attempt to settle it satisfactorily. For, although writers
+on political economy have not agreed in the ideas which
+they were accustomed to annex to these terms, the terms
+have generally been employed to denote ideas of very
+great importance, and it is impossible that some vagueness
+should not have been thrown upon the ideas themselves
+by looseness in the use of the words by which
+they are habitually designated. Further, so long as
+the pedantic objection to the introduction of new
+technical terms continues, accurate thinkers on moral
+and political subjects are limited to a very scanty
+vocabulary for the expression of their ideas. It therefore
+is of great importance that the words with which
+mankind are familiar, should be turned to the greatest
+possible advantage as instruments of thought; that one
+word should not be used as the sign of an idea which
+is already sufficiently expressed by another word; and
+that words which are required to denote ideas of great
+importance, should not be usurped for the expression
+of such as are comparatively insignificant.</p>
+
+<p>The phrases <i>productive labour</i>, and <i>productive consumption</i>,
+have been employed by some writers on
+political economy with very great latitude. They have
+considered, and classed, as productive labour and productive
+consumption, all labour which serves any <i>useful</i>
+purpose&mdash;all consumption which is not <i>waste</i>. Mr.
+M'Culloch has asserted, <i>totidem verbis</i>, that the labour
+of Madame Pasta was as well entitled to be called productive
+labour as that of a cotton spinner.</p>
+
+<p>Employed in this sense, the words <i>productive</i> and
+<i>unproductive</i> are superfluous, since the words <i>useful</i> and
+<i>agreeable</i> on the one hand, <i>useless</i> and <i>worthless</i> on the
+other, are quite sufficient to express all the ideas to
+which the words <i>productive</i> and <i>unproductive</i> are here
+applied.</p>
+
+<p>This use of the terms, therefore, is subversive of
+the ends of language.</p>
+
+<p>Those writers who have employed the words in a
+more limited sense, have usually understood by productive
+or unproductive labour, labour which is productive
+of wealth, or unproductive of wealth. But
+what is wealth? And here the words productive
+and unproductive have been affected with additional
+ambiguities, corresponding to the different extension
+which different writers have given to the term
+wealth.</p>
+
+<p>Some have given the name of wealth to <i>all things</i>
+which tend to the use or enjoyment of mankind, and
+which possess exchangeable value. This last clause is
+added to exclude air, the light of the sun, and any other
+things which can be obtained in unlimited quantity
+without labour or sacrifice; together with all such
+things as, though produced by labour, are not held in
+sufficient general estimation to command any price in
+the market.</p>
+
+<p>But when this definition came to be explained,
+many persons were disposed to interpret &quot;<i>all things</i>
+which tend to the use or enjoyment of man,&quot; as implying
+only all <i>material</i> things. <i>Immaterial</i> products they
+refused to consider as wealth; and labour or expenditure
+which yielded nothing but immaterial products,
+they characterised as unproductive labour and unproductive
+expenditure.</p>
+
+<p>To this it was, or might have been, answered, that
+according to this classification, a carpenter's labour at
+his trade is productive labour, but the same individual's
+labour in learning his trade was unproductive labour.
+Yet it is obvious that, on both occasions, his labour
+tended exclusively to what is allowed to be production:
+the one was equally indispensable with the other, to
+the ultimate result. Further, if we adopted the above
+definition, we should be obliged to say that a nation
+whose artisans were twice as skilful as those of another
+nation, was not, <i>ceteris paribus</i>, more wealthy;
+although it is evident that every one of the results of
+wealth, and everything for the sake of which wealth is
+desired, would be possessed by the former country in a
+higher degree than by the latter.</p>
+
+<p>Every classification according to which a basket
+of cherries, gathered and eaten the next minute, are
+called wealth, while that title is denied to the acquired
+skill of those who are acknowledged to be productive
+labourers, is a purely arbitrary division, and does not
+conduce to the ends for which classification and
+nomenclature are designed.</p>
+
+<p>In order to get over all difficulties, some political
+economists seem disposed to make the terms express a
+distinction sufficiently definite indeed, but more completely
+arbitrary, and having less foundation in nature,
+than any of the former. They will not allow to any
+labour or to any expenditure the name of productive,
+unless the produce which it yields returns into the
+hands of the very person who made the outlay.
+Hedging and ditching they term productive labour,
+though those operations conduce to production only indirectly,
+by protecting the produce from destruction; but
+the necessary expenses incurred by a government for
+the protection of property are, they insist upon it, consumed
+unproductively: though, as has been well pointed
+out by Mr. M'Culloch, these expenses, in their relation
+to the national wealth, are exactly analogous to the
+wages of a hedger or a ditcher. The only difference is,
+that the farmer, who pays for the hedging and ditching,
+is the person to whom the consequent increase of production
+accrues, while the government, which is at the
+expense of police officers and courts of justice, does
+not, as a necessary consequence, get back into its own
+coffers the increase of the national wealth resulting
+from the security of property.</p>
+
+<p>It would be endless to point out the oddities and
+incongruities which result from this classification.
+Whether we take the words wealth and production in
+the largest, or in the most restricted sense in which
+they have ever yet been employed, nobody will dispute
+that roads, bridges, and canals, contribute in an
+eminent degree, and in a very direct manner, to the
+increase of production and wealth. The labour and
+pecuniary resources employed in their construction
+would, according to the above theory, be considered
+productive, if every occupier of land were compelled by
+law to construct so much of the road, or canal, as
+passes through his own farm. If, instead of this, the
+government makes the road, and throws it open to the
+public toll-free, the labour and expenditure would be,
+on the above system, clearly unproductive. But if the
+government, or an association of individuals, made the
+road, and imposed a toll to defray the expense, we do
+not see how these writers could refuse to the outlay
+the title of productive expenditure. It would follow,
+that the very same labour and expense, if given gratuitously,
+must be called unproductive, which, if a
+charge had been made for it, would have been called
+productive.</p>
+
+<p>When these consequences of the purely arbitrary
+classification to which we allude have been pointed
+out and complained of, the only answer which we have
+ever seen made to the objection is, that the line of
+demarcation must be drawn somewhere, and that in
+every classification there are intermediate cases, which
+might have been included, with almost equal propriety,
+either in the one class or in the other.</p>
+
+<p>This answer appears to us to indicate the want of
+a sufficiently accurate and discriminating perception,
+what is the kind of inaccuracy which generally cannot
+be avoided in a classification, and what is that other
+kind of inaccuracy, from which it always may be, and
+should be, exempt.</p>
+
+<p>The classes themselves may be, mentally speaking,
+perfectly definite, though it may not always be easy to
+say to which of them a particular object belongs.
+When it is uncertain in which of two classes an object
+should be placed, if the classification be properly
+made, and properly expressed, the uncertainty can turn
+only upon a matter of fact. It is uncertain to which
+class the object belongs, because it is doubtful whether
+it possesses in a greater degree the characteristics of
+the one class or those of the other. But the characteristics
+themselves may be defined and distinguished
+with the nicest exactness, and always ought to be
+so. Especially ought they in a case like the present,
+because here it is only the distinction between the
+ideas which is of any importance. That we should be
+able with ease to portion out all employments between
+the two classes, does not happen to be of any particular
+consequence.</p>
+
+<p>It is frequently said that classification is a mere
+affair of convenience. This assertion is true in one
+sense, but not if its meaning be, that the most proper
+classification is that in which it is easiest to say whether
+an object belongs to one class or to the other.
+The use of classification is, to fix attention upon the
+distinctions which exist among things; and that is the
+best classification, which is founded upon the most
+important distinctions, whatever be the facilities which
+it may afford of ticketing and arranging the different
+objects which exist in nature. In fixing, therefore, the
+meaning of the words productive and unproductive, we
+ought to endeavour to render them significative of the
+most important distinctions which, without too glaring
+a violation of received usage, they can be made to
+express.</p>
+
+<p>We ought further, when we are restricted to the
+employment of old words, to endeavour as far as
+possible that it shall not be necessary to struggle
+against the old associations with those words. We
+should, if possible, give the words such a meaning, that
+the propositions in which people are accustomed to use
+them, shall as far as possible still be true; and that the
+feelings habitually excited by them, shall be such as the
+things to which we mean to appropriate them ought
+to excite.</p>
+
+<p>We shall endeavour to unite these conditions in the
+result of the following enquiry.</p>
+
+<p>In whatever manner political economists may have
+settled the definition of productive and unproductive
+labour or consumption, the consequences which they
+have drawn from the definition are nearly the same.
+In proportion to the amount of the productive labour
+and consumption of a country, the country, they all
+allow, is enriched: in proportion to the amount of the
+unproductive labour and consumption, the country is
+impoverished. Productive expenditure they are accustomed
+to view as a gain; unproductive expenditure,
+however useful, as a sacrifice. Unproductive expenditure
+of what was destined to be expended productively,
+they always characterise as a squandering of resources,
+and call it profusion and prodigality. The productive
+expenditure of that which might, without encroaching
+upon capital, be expended unproductively, is called
+saving, economy, frugality. Want, misery, and starvation,
+are described as the lot of a nation which annually
+employs less and less of its labour and resources
+in production; growing comfort and opulence as the
+result of an annual increase in the quantity of wealth
+so employed.</p>
+
+<p>Let us then examine what qualities in expenditure,
+and in the employment of labour, are those from
+which all the consequences above mentioned really
+flow.</p>
+
+<p>The end to which all labour and all expenditure are
+directed, is twofold. Sometimes it is <i>enjoyment</i> immediately;
+the fulfilment of those desires, the gratification
+of which is wished for on its own account. Whenever
+labour or expense is not incurred <i>immediately</i> for the
+sake of enjoyment, and is yet not absolutely wasted, it
+must be incurred for the purpose of enjoyment <i>indirectly</i>
+or mediately; by either repairing and perpetuating,
+or adding, to the <i>permanent sources</i> of enjoyment.</p>
+
+<p>Sources of enjoyment may be accumulated and
+stored up; enjoyment itself cannot. The wealth of a
+country consists of the sum total of the permanent
+sources of enjoyment, whether material or immaterial,
+contained in it: and labour or expenditure which tends
+to augment or to keep up these permanent sources,
+should, we conceive, be termed productive.</p>
+
+<p>Labour which is employed for the purpose of
+directly affording enjoyment, such as the labour of a
+performer on a musical instrument, we term unproductive
+labour. Whatever is consumed by such a performer,
+we consider as unproductively consumed: the
+accumulated total of the sources of enjoyment which
+the nation possesses, is diminished by the amount of
+what he has consumed: whereas, if it had been given
+to him in exchange for his services in producing food or
+clothing, the total of the permanent sources of enjoyment
+in the country might have been not diminished
+but increased.</p>
+
+<p>The performer on the musical instrument then is,
+so far as respects that act, not a productive, but an unproductive
+labourer. But what shall we say of the
+workman who made the musical instrument? He, most
+persons would say, is a productive labourer; and with
+reason; because the musical instrument is a permanent
+source of enjoyment, which does not begin and end
+with the enjoying, and therefore admits of being accumulated.</p>
+
+<p>But the <i>skill</i> of the musician is a permanent source
+of enjoyment, as well as the instrument which he plays
+upon: and although skill is not a material object, but
+a quality of an object, viz., of the hands and mind of
+the performer; nevertheless skill possesses exchangeable
+value, is acquired by labour and capital, and is
+capable of being stored and accumulated. Skill, therefore,
+must be considered as wealth; and the labour and
+funds employed in acquiring skill in anything tending
+to the advantage or pleasure of mankind, must be
+considered to be productively employed and expended.</p>
+
+<p>The skill of a productive labourer is analogous to
+the machinery he works with: neither of them is enjoyment,
+nor conduces directly to it, but both conduce
+indirectly to it, and both in the same way. If a spinning-jenny
+be wealth, the spinner's skill is also wealth.
+If the mechanic who made the spinning-jenny laboured
+productively, the spinner also laboured productively
+when he was learning his trade: and what they both
+consumed was consumed productively, that is to say, its
+consumption did not tend to diminish, but to increase
+the sum of the permanent sources of enjoyment in the
+country, by effecting a new creation of those sources,
+more than equal to the amount of the consumption.</p>
+
+<p>The skill of a tailor, and the implements he employs,
+contribute in the same way to the convenience of him
+who wears the coat, namely, a remote way: it is the
+coat itself which contributes immediately. The skill
+of Madame Pasta, and the building and decorations
+which aid the effect of her performance, contribute in
+the same way to the enjoyment of the audience, namely,
+an immediate way, without any intermediate instrumentality.
+The building and decorations are consumed
+unproductively, and Madame Pasta labours and
+consumes unproductively; for the building is used and
+worn out, and Madame Pasta performs, immediately
+for the spectators' enjoyment, and without leaving,
+as a consequence of the performance, any permanent
+result possessing exchangeable value: consequently the
+epithet unproductive must be equally applied to the
+gradual wearing out of the bricks and mortar, the
+nightly consumption of the more perishable &quot;properties&quot;
+of the theatre, the labour of Madame Pasta in
+acting, and of the orchestra in playing. But notwithstanding
+this, the architect who built the theatre
+was a productive labourer; so were the producers of
+the perishable articles; so were those who constructed
+the musical instruments; and so, we must be permitted
+to add, were those who instructed the musicians, and
+all persons who, by the instructions which they may
+have given to Madame Pasta, contributed to the formation
+of her talent. All these persons contributed
+to the enjoyment of the audience in the same way, and
+that a remote way, viz., by the production of a <i>permanent
+source of enjoyment</i>.</p>
+
+<p>The difference between this case, and the case of
+the cotton spinner already adverted to, is this. The
+spinning-jenny, and the skill of the cotton spinner, are
+not only the result of productive labour, but are themselves
+productively consumed. The musical instrument
+and the skill of the musician are equally the
+result of productive labour, but are themselves unproductively
+consumed.</p>
+
+<p>Let us now consider what kinds of labour, and of
+consumption or expenditure, will be classed as productive,
+and what as unproductive, according to this
+rule.</p>
+
+<p>The following are always productive:</p>
+
+<p>Labour and expenditure, of which the direct object
+or effect is the creation of some material product useful
+or agreeable to mankind.</p>
+
+<p>Labour and expenditure, of which the direct effect
+and object are, to endow human or other animated
+beings with faculties or qualities useful or agreeable to
+mankind, and possessing exchangeable value.</p>
+
+<p>Labour and expenditure, which without having for
+their direct object the creation of any useful material
+product or bodily or mental faculty or quality, yet
+tend indirectly to promote one or other of those
+ends, and are exerted or incurred solely for that purpose.</p>
+
+<p>The following are partly productive and partly
+unproductive, and cannot with propriety be ranged
+decidedly with either class:</p>
+
+<p>Labour or expenditure which does indeed create,
+or promote the creation of, some useful material product
+or bodily or mental faculty or quality, but which
+is not incurred or exerted for that sole end; having
+also for another, and perhaps its principal end, enjoyment,
+or the promotion of enjoyment.</p>
+
+<p>Such are the labour of the judge, the legislator,
+the police-officer, the soldier; and the expenditure
+incurred for their support. These functionaries protect
+and secure mankind in the exclusive possession of
+such material products or acquired faculties as belong
+to them; and by the security which they so confer,
+they indirectly increase production in a degree far
+more than equivalent to the expense which is necessary
+for their maintenance. But this is not the only
+purpose for which they exist; they protect mankind,
+not merely in the possession of their permanent resources,
+but also in their actual enjoyments; and so
+far, although highly useful, they cannot, conformably
+to the distinction which we have attempted to lay
+down, be considered productive labourers.</p>
+
+<p>Such, also, are the labour and the wages of domestic
+servants. Such persons are entertained mainly as
+subservient to mere enjoyment; but most of them
+occasionally, and some habitually, render services
+which must be considered as of a productive nature;
+such as that of cookery, the last stage in the manufacture
+of food; or gardening, a branch of agriculture.</p>
+
+<p>The following are wholly unproductive:</p>
+
+<p>Labour exerted, and expenditure incurred, directly
+and exclusively for the purpose of enjoyment, and not
+calling into existence anything, whether substance or
+quality, but such as begins and perishes in the enjoyment.</p>
+
+<p>Labour exerted and expenditure incurred uselessly,
+or in pure waste, and yielding neither direct
+enjoyment nor permanent sources of enjoyment.</p>
+
+<p>It may be objected, that expenditure incurred even
+for pure enjoyment promotes production indirectly, by
+inciting to exertion. Thus the view of the splendour
+of a rich establishment is supposed by some
+writers to produce upon the mind of an indigent
+spectator an earnest desire of enjoying the same
+luxuries, and a consequent purpose of working with
+vigour and diligence, and saving from his earnings,
+thus increasing the productive capital of the country.</p>
+
+<p>It is true that mankind are, for the most part, excited
+to productive industry solely by the desire of
+subsequently consuming the result of their labour and
+accumulation. The consumption called unproductive,
+viz., that of which the direct result is enjoyment, is in
+reality the end, to which production is only the means;
+and a desire for the end, is what alone impels any one
+to have recourse to the means.</p>
+
+<p>But, notwithstanding this, it is of the greatest
+importance to mark the distinction between the labour
+and the consumption which have enjoyment for their
+immediate end, and the labour and the consumption of
+which the immediate end is reproduction. Though
+the sight of the former may still further stimulate that
+desire for the enjoyments afforded by wealth, which
+the mere knowledge, without the immediate view,
+would suffice to excite (and without dwelling on the
+consideration that if the example of a large expenditure
+excites one individual to accumulation, it
+encourages two to prodigal expense); still, if we look
+only to the effects which are intended, or to those
+which immediately follow from the consumption, and
+whose connexion with it can be distinctly traced, it
+evidently renders a country poorer in the permanent
+sources of enjoyment; while reproductive consumption
+leaves the country richer in these same sources.
+Besides, if what is spent for mere pleasure promotes
+indirectly the increase of wealth, it can only be by
+inducing others <i>not</i> to expend on mere pleasure.</p>
+
+<p>Before quitting the subject, one more observation
+should be added. It must not be supposed that
+what is expended upon unproductive labourers is necessarily,
+the whole of it, unproductively consumed.
+The unproductive labourers may save part of their
+wages, and invest them in a productive employment.</p>
+
+<p>It is not unusual to speak of what is paid in wages
+to a labourer as being thereby <i>consumed</i>, as if all
+profit and loss to the nation were to be seen in the
+capitalist's account-book. What is paid for productive
+labour is said to be productively consumed; what
+is paid for unproductive labour is said to be consumed
+unproductively. It would be proper to say, not that
+it is productively or unproductively <i>consumed</i>, but productively
+or unproductively <i>expended</i>; otherwise, we
+shall be obliged to say that it is consumed twice over;
+the first time unproductively, perhaps, and the second,
+it may be, productively.</p>
+
+<p>To pronounce in which way the wages of the labourer
+are consumed, we must follow them into the labourer's
+own hands. As much as is necessary to keep the
+productive labourer in perfect health and fitness for
+his employment, may be said to be consumed productively.
+To this should be added what he expends
+in rearing children to the age at which they become
+capable of productive industry. If the state of the
+market for labour be such as to afford him more, this
+he may either save, or, as the common expression is,
+he may spend it. If he saves any portion, this (unless
+it be merely hoarded) he intends to employ productively,
+and it will be productively consumed. If he
+spends it, the consumption is for enjoyment immediately,
+and is therefore unproductive.</p>
+
+<p>This suggests another correction in the established
+language. Political economists generally define the
+&quot;net produce&quot; to be that portion of the gross annual
+produce of a country which remains after replacing
+the capital annually consumed. This, as they proceed
+to explain, consists of profits and rent; wages being
+included in the other portion of the gross produce,
+that which goes to replace capital. After this definition,
+they usually proceed to tell us that the net
+produce, and that alone, constitutes the fund from
+which a nation can accumulate, and add to its capital,
+as also that which it can, without retrograding in
+wealth, expend unproductively, or for enjoyment.
+Now, it is impossible that both the above propositions
+can be true. If the net produce is that which remains
+after replacing capital, then net produce is not the
+only fund out of which accumulation may be made: for
+accumulation may be made from wages; this is in all
+countries one of the great sources, and in countries
+like America perhaps the greatest source of accumulation.
+If, on the other hand, it is desirable to reserve
+the name of net produce to denote the fund available
+for accumulation or for unproductive consumption, we
+must define net produce differently. The definition
+which appears the best adapted to render the ordinary
+doctrines relating to net produce true, would be
+this:</p>
+
+<p>The net produce of a country is whatever is annually
+produced beyond what is necessary for maintaining
+the stock of materials and implements unimpaired,
+for keeping all productive labourers alive and in condition
+for work, and for just keeping up their numbers
+without increase. What is required for these purposes,
+or, in other words, for keeping up the productive
+resources of the country, cannot be diverted from
+its destination without rendering the nation as a whole
+poorer. But all which is produced beyond this, whether
+it be in the hands of the labourer, of the capitalist, or
+of any of the numerous varieties of rent-owners, may
+be taken for immediate enjoyment, without prejudice
+to the productive resources of the community; and
+whatever part of it is not so taken, constitutes a clear
+addition to the national capital, or to the permanent
+sources of enjoyment.</p>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_IV"></a><h2>ESSAY IV.</h2>
+
+<h2>ON PROFITS, AND INTEREST.</h2>
+<br>
+
+<p>The profits of stock are the surplus which remains to
+the capitalist after replacing his capital: and the ratio
+which that surplus bears to the capital itself, is the <i>rate</i>
+of profit.</p>
+
+<p>This being the definition of profits, it might seem
+natural to adopt, as a sufficient theory in regard to the
+rate of profit, that it depends upon the productive
+power of capital. Some countries are favoured beyond
+others, either by nature or art, in the means of production.
+If the powers of the soil, or of machinery,
+enable capital to produce what is necessary for replacing
+itself, and twenty per cent more, profits will
+be twenty per cent; and so on.</p>
+
+<p>This, accordingly, is a popular mode of speaking on
+the subject of profits; but it has only the semblance,
+not the reality, of an explanation. The &quot;productive
+power of capital,&quot; though a common, and, for some
+purposes, a convenient expression, is a delusive one.
+Capital, strictly speaking, has no productive power.
+The only productive power is that of labour; assisted,
+no doubt, by tools, and acting upon materials. That
+portion of capital which consists of tools and materials,
+may be said, perhaps, without any great impropriety,
+to have a productive power, because they contribute,
+along with labour, to the accomplishment of production.
+But that portion of capital which consists of
+wages, has no productive power of its own. Wages
+have no productive power; they are the price of a productive
+power. Wages do not contribute, along with
+labour, to the production of commodities, no more than
+the price of tools contributes along with the tools
+themselves. If labour could be had without purchase,
+wages might be dispensed with. That portion of
+capital which is expended in the wages of labour, is
+only the means by which the capitalist procures to
+himself, in the way of purchase, the use of that labour
+in which the power of production really resides.</p>
+
+<p>The proper view of capital is, that anything whatever,
+which a person possesses, constitutes his capital,
+provided he is able, and intends, to employ it, not in
+consumption for the purpose of enjoyment, but in
+possessing himself of the means of production, with the
+intention of employing those means productively. Now
+the means of production are labour, implements, and
+materials. The only productive power which anywhere
+exists, is the productive power of labour, implements,
+and materials.</p>
+
+<p>We need not, on this account, altogether proscribe
+the expression, &quot;productive power of capital;&quot; but we
+should carefully note, that it can only mean the quantity
+of real productive power which the capitalist, by means
+of his capital, can command. This may change, though
+the productive power of labour remains the same.
+Wages, for example, may rise; and then, although all
+the circumstances of production remain exactly as they
+were before, the same capital will yield a less return,
+because it will set in motion a less quantity of productive
+labour.</p>
+
+<p>We may, therefore, consider the capital of a producer
+as measured by the means which he has of possessing
+himself of the different essentials of production:
+namely, labour, and the various articles which labour
+requires as materials, or of which it avails itself as aids.</p>
+
+<p>The ratio between the price which he has to pay for
+these means of production, and the produce which they
+enable him to raise, is the <i>rate</i> of his <i>profit</i>. If he
+must give for labour and tools four-fifths of what they
+will produce, the remaining fifth will constitute his
+profit, and will give him a rate of one in four, or twenty-five
+per cent, on his outlay.</p>
+
+<p>It is necessary here to remark, what cannot indeed
+by any possibility be misunderstood, but might possibly
+be overlooked in cases where attention to it is
+indispensable, viz., that we are speaking now of the
+<i>rate</i> of profit, not the gross profit. If the capital of
+the country is very great, a profit of only five per
+cent upon it may be much more ample, may support
+a much larger number of capitalists and their
+families in much greater affluence, than a profit of
+twenty-five per cent on the comparatively small
+capital of a poor country. The <i>gross</i> profit of a
+country is the actual amount of necessaries, conveniences,
+and luxuries, which are divided among its
+capitalists: but whether this be large or small, the
+rate of profit may be just the same. The rate of
+profit is the proportion which the profit bears to the
+capital; which the surplus produce after replacing
+the outlay, bears to the outlay. In short, if we compare
+the <i>price paid</i> for labour and tools with what
+that labour and those tools will <i>produce</i>, from this ratio
+we may calculate the rate of profit.</p>
+
+<p>As the gross profit may be very different though
+the rate of profit be the same; so also may the absolute
+price paid for labour and tools be very different, and
+yet the proportion between the price paid and the produce
+obtained may be just the same. For greater
+clearness, let us omit, for the present, the consideration
+of tools, materials, &amp;c, and conceive production as the
+result solely of labour. In a certain country, let us
+suppose, the wages of each labourer are one quarter of
+wheat per year, and 100 men can produce, in one year,
+120 quarters. Here the price paid for labour is to
+the produce of that labour as 100 to 120, and profits
+are 20 per cent. Suppose now that, in another
+country, wages are just double what they are in the
+country before supposed; namely, two quarters of
+wheat per year, for each labourer. But suppose, likewise,
+that the productive power of labour is double
+what it is in the first country; that by the greater
+fertility of the soil, 100 men can produce 240 quarters,
+instead of 120 as before. Here it is obvious, that the
+real price paid for labour is twice as great in the one
+country as in the other; but the produce being also
+twice as great, the ratio between the price of labour
+and the produce of labour is still exactly the same: an
+outlay of 200 quarters gives a return of 240 quarters,
+and profits, as before, are 20 per cent.</p>
+
+<p>Profits, then (meaning not gross profits, but the
+rate of profit), depend (not upon the price of labour,
+tools, and materials&mdash;but) upon the ratio between the
+price of labour, tools, and materials, and the produce
+of them: upon the proportionate share of the produce
+of industry which it is necessary to offer, in order to
+purchase that industry and the means of setting it in
+motion.</p>
+
+<hr style="width: 45%;">
+
+<p>We have hitherto spoken of tools, buildings, and
+materials, as essentials of production, co-ordinate with
+labour, and equally indispensable with it. This is true;
+but it is also true that tools, buildings, and materials, are
+themselves the produce of labour; and that the only cause
+(cases of monopoly excepted) of their having any value,
+is the labour which is required for their production.</p>
+
+<p>If tools, buildings, and materials were the spontaneous
+gifts of nature, requiring no labour either in
+order to produce or to appropriate them; and if they
+were thus bestowed upon mankind in indefinite quantity,
+and without the possibility of being monopolized; they
+would still be as useful, as indispensable as they now
+are; but since they could, like air and the light of the
+sun, be obtained without cost or sacrifice, they would
+form no part of the expenses of production, and no
+portion of the produce would be required to be set
+aside in order to replace the outlay made for these
+purposes. The whole produce, therefore, after replacing
+the wages of labour, would be clear profit to
+the capitalist.</p>
+
+<p>Labour alone is the primary means of production;
+&quot;the original purchase-money which has been paid for
+everything.&quot; Tools and materials, like other things,
+have originally cost nothing but labour; and have a
+value in the market only because wages have been
+paid for them. The labour employed in making the
+tools and materials being added to the labour afterwards
+employed in working up the materials by aid of
+the tools, the sum total gives the whole of the labour
+employed in the production of the completed commodity.
+In the ultimate analysis, therefore, labour
+appears to be the only essential of production. To replace
+capital, is to replace nothing but the wages of
+the labour employed. Consequently, the whole of the
+surplus, after replacing wages, is profits. From this it
+seems to follow, that the ratio between the wages of
+labour and the produce of that labour gives the rate of
+profit. And thus we arrive at Mr. Ricardo's principle,
+that profits depend upon wages; rising as wages
+fall, and falling as wages rise.</p>
+
+<p>To protect this proposition (the most perfect form
+in which the law of profits seems to have been yet
+exhibited) against misapprehension, one or two explanatory
+remarks are required.</p>
+
+<p>If by wages, be meant what constitutes the real
+affluence of the labourer, the <i>quantity</i> of produce
+which he receives in exchange for his labour; the proposition
+that profits vary inversely as wages, will be
+obviously false. The rate of profit (as has been
+already observed and exemplified) does not depend upon
+the price of labour, but upon the proportion between
+the price of labour and the produce of it. If the
+produce of labour is large, the price of labour may
+also be large without any diminution of the rate of
+profit: and, in fact, the rate of profit is highest in
+those countries (as, for instance, North America)
+where the labourer is most largely remunerated. For
+the wages of labour, though so large, bear a less
+proportion to the abundant <i>produce</i> of labour, there
+than elsewhere.</p>
+
+<p>But this does not affect the truth of Mr. Ricardo's
+principle as he himself understood it; because an
+increase of the labourer's real comforts was not considered
+by him as a rise of wages. In his language
+wages were only said to rise, when they rose not in
+mere quantity but in <i>value</i>. To the labourer himself
+(he would have said) the <i>quantity</i> of his remuneration
+is the important circumstance: but its <i>value</i> is
+the only thing of importance to the person who purchases
+his labour.</p>
+
+<p>The rate of profits depends not upon absolute or
+real wages, but upon the <i>value</i> of wages.</p>
+
+<p>If, however, by value, Mr. Ricardo had meant
+<i>exchangeable</i> value, his proposition would still have
+been remote from the truth. Profits depend no more
+upon the exchangeable value of the labourer's remuneration,
+than upon its quantity. The truth is, that
+by the exchangeable value is meant the quantity of
+commodities which the labourer can purchase with
+his wages; so that when we say the exchangeable
+value of wages, we say their quantity, under another
+name.</p>
+
+<p>Mr. Ricardo, however, did not use the word value
+in the sense of exchangeable value.</p>
+
+<p>Occasionally, in his writings, he could not avoid
+using the word as other people use it, to denote value
+in exchange. But he more frequently employed it in
+a sense peculiar to himself, to denote cost of production;
+in other words, the <i>quantity of labour</i> required
+to produce the article; that being his criterion of cost
+of production. Thus, if a hat could be made with
+ten days' labour in France and with five days' labour
+in England, he said that the value of a hat was
+double in France of what it was in England. If a
+quarter of corn could be produced a century ago with
+half as much labour as is necessary at present, Mr.
+Ricardo said that the value of a quarter of corn
+had doubled.</p>
+
+<p>Mr. Ricardo, therefore, would not have said that
+wages had risen, because a labourer could obtain two
+pecks of flour instead of one, for a day's labour; but
+if last year he received, for a day's labour, something
+which required eight hours' labour to produce it, and
+this year something which requires nine hours, then
+Mr. Ricardo would say that wages had risen. A rise
+of wages, with Mr. Ricardo, meant an increase in the
+cost of production of wages; an increase in the number
+of hours' labour which go to produce the wages of a
+day's labour; an increase in the <i>proportion</i> of the
+fruits of labour which the labourer receives for his
+own share; an increase in the ratio between the wages
+of his labour and the produce of it. This is the
+theory: the reasoning, of which it is the result, has
+been given in the preceding paragraphs.</p>
+
+<p>Some of Mr. Ricardo's followers, or more properly,
+of those who have adopted in most particulars
+the views of political economy which his genius
+was the first to open up, have given explanations
+of Mr. Ricardo's doctrine to nearly the same effect
+as the above, but in rather different terms. They
+have said that profits depend not on <i>absolute</i>, but
+on <i>proportional</i> wages: which they expounded to mean
+the proportion which the labourers <i>en masse</i> receive of
+the total produce of the country.</p>
+
+<p>It seems, however, to be rather an unusual and
+inconvenient use of language to speak of anything as
+depending upon the wages of labour, and then to
+explain that by wages of labour you do not mean the
+wages of an individual labourer, but of all the
+labourers in the country collectively. Mankind will
+never agree to call anything a rise of wages, except a
+rise of the wages of individual labourers, and it is
+therefore preferable to employ language tending to fix
+attention upon the wages of the individual. The
+wages, however, on which profits are said to depend,
+are undoubtedly <i>proportional</i> wages, namely, the proportional
+wages of one labourer: that is, the ratio
+between the wages of one labourer, and (not the
+whole produce of the country, but) the amount of
+what one labourer can produce; the amount of that
+portion of the collective produce of the industry of
+the country, which may be considered as corresponding
+to the labour of one single labourer. Proportional
+wages, thus understood, may be concisely termed
+the cost of production of wages; or, more concisely
+still, the cost of wages, meaning their cost in the
+&quot;original purchase money,&quot; labour.</p>
+
+<p>We have now arrived at a distinct conception of
+Mr. Ricardo's theory of profits in its most perfect
+state. And this theory we conceive to be the basis
+of the true theory of profits. All that remains to
+do is to clear it from certain difficulties which still
+surround it, and which, though in a greater degree
+apparent than real, are not to be put aside as wholly
+imaginary.</p>
+
+<p>Though it is true that tools, materials, and buildings
+(it is to be wished that there were some compact
+designation for all these essentials of production
+taken together,) are themselves the produce of
+labour, and are only on that account to be ranked
+among the expenses of production; yet the <i>whole</i> of
+their value is not resolvable into the wages of the
+labourers by whom they were produced. The wages
+of those labourers were paid by a capitalist, and that
+capitalist must have the same profit upon his advances
+as any other capitalist; when, therefore, he sells the tools
+or materials, he must receive from the purchaser not
+only the reimbursement of the wages he has paid, but
+also as much more as will afford him the ordinary rate
+of profit. And when the producer, after buying the
+tools and employing them in his own occupation,
+comes to estimate his gains, he must set aside a portion
+of the produce to replace not only the wages
+paid both by himself and by the tool-maker, but also
+the profits of the tool-maker, advanced by himself out
+of his own capital.</p>
+
+<p>It is not correct, therefore, to state that all which
+the capitalist retains after replacing wages forms his
+profit. It is true the whole return to capital is
+either wages or profits; but profits do not compose
+merely the surplus after replacing the outlay; they
+also enter into the outlay itself. Capital is expended
+partly in paying or reimbursing wages, and partly in
+paying the profits of other capitalists, whose concurrence
+was necessary in order to bring together the
+means of production.</p>
+
+<p>If any contrivance, therefore, were devised by which
+that part of the outlay which consists of previous
+profits could be either wholly or partially dispensed
+with, it is evident that more would remain as the
+profit of the immediate producer; while, as the
+quantity of <i>labour</i> necessary to produce a given
+quantity of the commodity would be unaltered, as well
+as the quantity of produce paid for that labour, it
+seems that the ratio between the price of labour and
+its produce would be the same as before; that the
+cost of production of wages would be the same, proportional
+wages the same, and yet profits different.</p>
+
+<p>To illustrate this by a simple instance, let it be
+supposed that one-third of the produce is sufficient to
+replace the wages of the labourers who have been
+immediately instrumental in the production; that
+another third is necessary to replace the materials used
+and the fixed capital worn out in the process; while
+the remaining third is clear gain, being a profit of
+50 per cent. Suppose, for example, that 60 agricultural
+labourers, receiving 60 quarters of corn for their
+wages, consume fixed capital and seed amounting
+to the value of 60 quarters more, and that the result
+of their operations is a produce of 180 quarters.
+When we analyse the price of the seed and tools
+into its elements, we find that they must have been
+the produce of the labour of 40 men: for the wages
+of those 40, together with profit at the rate previously
+supposed (50 per cent) make up 60 quarters.
+The produce, therefore, consisting of 180 quarters
+is the result of the labour altogether of 100 men:
+namely, the 60 first mentioned, and the 40 by
+whose labour the fixed capital and the seed were
+produced.</p>
+
+<p>Let us now suppose, by way of an extreme case,
+that some contrivance is discovered, whereby the purposes
+to which the second third of the produce had
+been devoted, may be dispensed with altogether: that
+some means are invented by which the same amount
+of produce may be procured without the assistance of
+any fixed capital, or the consumption of any seed or
+material sufficiently valuable to be worth calculating.
+Let us, however, suppose that this cannot be done
+without taking on a number of additional labourers,
+equal to those required for producing the seed and
+fixed capital; so that the saving shall be only in the
+profits of the previous capitalists. Let us, in conformity
+with this supposition, assume that in dispensing
+with the fixed capital and seed, value 60
+quarters, it is necessary to take on 40 additional
+labourers, receiving a quarter of corn each, as before.</p>
+
+<p>The rate of profit has evidently risen. It has
+increased from 50 per cent to 60 per cent. A return
+of 180 quarters could not before be obtained but by
+an outlay of 120 quarters; it can now be obtained by
+an outlay of no more than 100.</p>
+
+<p>Here, therefore, is an undeniable rise of profits.
+Have wages, in the sense above attached to them,
+fallen or not? It would seem not.</p>
+
+<p>The produce (180 quarters) is still the result of
+the same quantity of labour as before, namely, the
+labour of 100 men. A quarter of corn, therefore, is
+still, as before, the produce of 10/18 of a man's labour for
+a year. Each labourer receives, as before, one quarter
+of corn; each, therefore, receives the produce of 10\18
+of a year's labour of one man, that is, the same cost of
+production; each receives 10/18 of the produce of his
+own labour, that is, the same proportional wages; and
+the labourers collectively still receive the same proportion,
+namely 10/18, of the whole produce.</p>
+
+<p>The conclusion, then, cannot be resisted, that
+Mr. Ricardo's theory is defective: that the rate of
+profits does <i>not</i> exclusively depend upon the value of
+wages, in his sense, namely, the quantity of labour
+of which the wages of a labourer are the produce;
+that it does <i>not</i> exclusively depend upon proportional
+wages, that is, upon the proportion which the labourers
+collectively receive of the whole produce, or the ratio
+which the wages of an individual labourer bear to the
+produce of his individual labour.</p>
+
+<p>Those political economists, therefore, who have
+always dissented from Mr. Ricardo's doctrine, or who,
+having at first admitted, ended by discarding it, were
+so far in the right; but they committed a serious
+error in this, that, with the usual one-sidedness of disputants,
+they knew no medium between admitting
+absolutely and dismissing entirely; and saw no other
+course than utterly to reject what it would have been
+sufficient to modify.</p>
+
+<p>It is remarkable how very slight a modification will
+suffice to render Mr. Ricardo's doctrine completely
+true. It is even doubtful whether he himself, if called
+upon to adapt his expressions to this peculiar case,
+would not have so explained his doctrine as to render
+it entirely unobjectionable.</p>
+
+<p>It is perfectly true, that, in the example already
+made use of, a rise of profits takes place, while wages,
+considered in respect to the quantity of labour of which
+they are the produce, have not varied at all. But
+though wages are still the produce of the same
+<i>quantity of labour</i> as before, the <i>cost of production</i>
+of wages has nevertheless fallen; for into cost of
+production there enters another element besides
+labour.</p>
+
+<p>We have already remarked (and the very example
+out of which the difficulty arose presupposes it) that
+the cost of production of an article consists generally
+of two parts,&mdash;the <i>wages</i> of the labour employed, and
+the <i>profits</i> of those who, in any antecedent stage of
+the production, have advanced any portion of those
+wages. An article, therefore, may be the produce
+of the same quantity of labour as before, and yet,
+if any portion of the profits which the last producer
+has to make good to previous producers can be
+economized, the cost of production of the article is
+diminished.</p>
+
+<p>Now, in our example, a diminution of this sort is
+supposed to have taken place in the cost of production
+of corn. The production of that article has become
+less costly, in the ratio of six to five. A quantity of
+corn, the means of producing which could not previously
+have been secured but at an expense of 120
+quarters, can now be produced by means which 100
+quarters are sufficient to purchase.</p>
+
+<p>But the labourer is supposed to receive the same
+quantity of corn as before. He receives one quarter.
+The cost of production of wages has, therefore, fallen
+one-sixth. A quarter of corn, which is the remuneration
+of a single labourer, is indeed the produce of the
+same quantity of labour as before; but its cost of production
+is nevertheless diminished. It is now the
+produce of 10/18 of a man's labour, and nothing else;
+whereas formerly it required for its production the
+conjunction of that quantity of labour with an expenditure,
+in the form of reimbursement of profit, amounting
+to one-fifth more.</p>
+
+<p>If the cost of production of wages had remained
+the same as before, profits could not have risen. Each
+labourer received one quarter of corn; but one quarter
+of corn at that time was the result of the same cost of
+production, as 1 1/5 quarter now. In order, therefore,
+that each labourer should receive the same cost of
+production, each must now receive one quarter of corn,
+<i>plus</i> one-fifth. The labour of 100 men could not be
+purchased at this price for less than 120 quarters; and
+the produce, 180 quarters, would yield only 50 per
+cent, as first supposed <a name="FNanchor7"></a><a href="#Footnote_7"><sup>[7]</sup></a>.</p>
+
+<p>It is, therefore, strictly true, that the rate of profits
+varies inversely as the cost of production of wages.
+Profits cannot rise, unless the cost of production of
+wages falls exactly as much; nor fall, unless it rises.</p>
+
+<p>The proof of this position has been stated in figures,
+and in a particular case: we shall now state it in general
+terms, and for all cases.</p>
+
+<p>We have supposed, for simplicity, that wages are
+paid in the finished commodity. The agricultural
+labourers, in our example, were paid in corn, and if we
+had called them weavers, we should have supposed
+them to be paid in cloth. This supposition is allowable,
+for it is obviously of no consequence, in a question
+of value, or cost of production, what precise article we
+assume as the medium of exchange. The supposition
+has, besides, the recommendation of being conformable
+to the most ordinary state of the facts; for it is by the
+sale of his own finished article that each capitalist
+obtains the means of hiring labourers to renew the production;
+which is virtually the same thing as if, instead
+of selling the article for money and giving the money
+to his labourers, he gave the article itself to the
+labourers, and they sold it for their daily bread.</p>
+
+<p>Assuming, therefore, that the labourer is paid in
+the very article he produces, it is evident that, when
+any saving of expense takes place in the production of
+that article, if the labourer still receives the same cost
+of production as before, he must receive an increased
+quantity, in the very same ratio in which the productive
+power of capital has been increased. But, if so,
+the outlay of the capitalist will bear exactly the same
+proportion to the return as it did before; and profits
+will not rise.</p>
+
+<p>The variations, therefore, in the rate of profits, and
+those in the cost of production of wages, go hand in
+hand, and are inseparable. Mr. Ricardo's principle,
+that profits cannot rise unless wages fall, is strictly
+true, if by low wages be meant not merely wages
+which are the produce of a smaller quantity of labour,
+but wages which are produced at less cost, reckoning
+labour and previous profits together. But the
+interpretation which some economists have put upon
+Mr. Ricardo's doctrine, when they explain it to mean
+that profits depend upon the proportion which the
+labourers collectively receive of the aggregate produce,
+will not hold at all; for that, in our first example,
+remained the same, and yet profits rose.</p>
+
+<p>The only expression of the law of profits, which
+seems to be correct, is, that they depend upon the cost
+of production of wages. This must be received as the
+ultimate principle.</p>
+
+<p>From this may be deduced all the corollaries which
+Mr. Ricardo and others have drawn from his theory of
+profits as expounded by himself. The cost of production
+of the wages of one labourer for a year, is the
+result of two concurrent elements or factors,&mdash;viz., 1st,
+the quantity of commodities which the state of the
+labour market affords to him; 2ndly, the cost of production
+of each of those commodities. It follows, that
+the rate of profits can never rise but in conjunction
+with one or other of two changes,&mdash;1st, a diminished
+remuneration of the labourer; or, 2ndly, an improvement
+in production, or an extension of commerce, by
+which any of the articles habitually consumed by the
+labourer may be obtained at smaller cost. (If the
+improvement be in any article which is not consumed
+by the labourer, it merely lowers the price of that
+article, and thereby benefits capitalists and all other
+people so far as they are consumers of that particular
+article, and may be said to increase gross profit, but
+not the rate of profit.)</p>
+
+<p>So, on the other hand, the rate of profit cannot fall,
+unless concurrently with one of two events: 1st, an
+improvement in the labourer's condition; or, 2ndly, an
+increased difficulty of producing or importing some
+article which the labourer habitually consumes. The
+progress of population and cultivation has a tendency
+to lower profits through the latter of these two
+channels, owing to the well known law of the application
+of capital to land, that a double capital does
+not <i>caeteris paribus</i> yield a double produce. There is,
+therefore, a tendency in the rate of profits to fall with
+the progress of society. But there is also an antagonist
+tendency of profits to rise, by the successive introduction
+of improvements in agriculture, and in the
+production of those manufactured articles which the
+labourers consume. Supposing, therefore, that the
+actual comforts of the labourer remain the same, profits
+will fall or rise, according as population, or improvements
+in the production of food and other necessaries,
+advance fastest.</p>
+
+<p>The rate of profits, therefore, tends to <i>fall</i> from
+the following causes:&mdash;1. An increase of capital beyond
+population, producing increased competition for
+labour; 2. An increase of population, occasioning a
+demand for an increased quantity of food, which
+must be produced at a greater cost. The rate of
+profits tends to <i>rise</i> from the following causes:&mdash;1.
+An increase of population beyond capital, producing
+increased competition for employment; 2. Improvements
+producing increased cheapness of necessaries,
+and other articles habitually consumed by the labourer.</p>
+
+<hr style="width: 45%;">
+
+<p>The circumstances which regulate the rate of
+interest have usually been treated, even by professed
+writers on political economy, in a vague, loose, and
+unscientific manner. It has, however, been felt that
+there is some connexion between the rate of interest
+and the rate of profit; that (to use the words of
+Adam Smith) much will be given for money, when
+much can be made of it. It has been felt, also, that
+the fluctuations in the market-rate of interest from
+day to day, are determined, like other matters of
+bargain and sale, by demand and supply. It has,
+therefore, been considered as an established principle,
+that the rate of interest varies from day to day
+according to the quantity of capital offered or called
+for on loan; but conforms on the average of years to a
+standard determined by the rate of profits, and bearing
+some proportion to that rate&mdash;but a proportion
+which few attempts have been made to define.</p>
+
+<p>In consequence of these views, it has been customary
+to judge of the general rate of profits at any time or
+place, by the rate of interest at that time and place: it
+being supposed that the rate of interest, though liable
+to temporary fluctuations, can never vary for any long
+period of time unless profits vary; a notion which
+appears to us to be erroneous.</p>
+
+<p>It was observed by Adam Smith, that profits
+may be considered as divided into two parts, of
+which one may properly be considered as the remuneration
+for the use of the capital itself, the other as
+the reward of the labour of superintending its employment;
+and that the former of these will correspond
+with the rate of interest. The producer who borrows
+capital to employ it in his business, will consent to
+pay, for the use of it, all that remains of the profits he
+can make by it, after reserving what he considers
+reasonable remuneration for the trouble and risk
+which he incurs by borrowing and employing it.</p>
+
+<p>This remark is just; but it seems necessary to give
+greater precision to the ideas which it involves.</p>
+
+<p>The difference between the profit which can be
+made by the use of capital, and the interest which will
+be paid for it, is rightly characterized as wages of
+superintendance. But to infer from this that it is
+regulated by entirely the same principles as other
+wages, would be to push the analogy too far. It is
+wages, but wages paid by a commission upon the
+capital employed. If the general rate of profit is 10
+per cent, and the rate of interest 5 per cent, the
+wages of superintendance will be 5 per cent; and
+though one borrower employ a capital of 100,000<i>l</i>.,
+another no more than 100<i>l</i>., the labour of both will
+be rewarded with the same per centage, though, in the
+one ease, this symbol will represent an income of 5<i>l</i>.,
+in the other case, of 5000<i>l</i>. Yet it cannot be pretended
+that the labour of the two borrowers differs in
+this proportion. The rule, therefore, that equal quantities
+of labour of equal hardness and skill are equally
+remunerated, does not hold of this kind of labour.
+The wages of any other labour are here an inapplicable
+criterion.</p>
+
+<p>The wages of superintendance are distinguished
+from ordinary wages by another peculiarity, that they
+are not paid in advance out of capital, like the wages
+of all other labourers, but merge in the profit, and are
+not realized until the production is completed. This
+takes them entirely out of the ordinary law of wages.
+The wages of labourers who are paid in advance, are
+regulated by the number of competitors compared
+with the amount of capital; the labourers can consume
+no more than what has been previously accumulated.
+But there is no such limit to the remuneration of a
+kind of labour which is not paid for out of wealth
+previously accumulated, but out of that produce which
+it is itself employed in calling into existence.</p>
+
+<p>When these circumstances are duly weighed, it
+will be perceived, that although profit may be correctly
+analyzed into interest and wages of superintendance,
+we ought not to lay it down as the law of
+interest, that it is profits <i>minus</i> the wages of superintendance.
+Of the two expressions, it would be
+decidedly the more correct, that the wages of superintendance
+are regulated by the rate of interest, or
+are equal to profits <i>minus</i> interest. In strict, propriety,
+neither expression would be allowable. Interest, and
+the wages of superintendance, can scarcely be said to
+depend upon one another. They are to one another in
+the same relation as wages and profits are. They are
+like two buckets in a well: when one rises, the other
+descends, but neither of the two motions is the cause
+of the other; both are simultaneous effects of the
+same cause, the turning of the windlass.</p>
+
+<hr style="width: 45%;">
+
+<p>There are among the capitalists of every country a
+considerable number who are habitually, and almost
+necessarily, lenders; to whom scarcely any difference
+between what they could receive for their money and
+what could be made by it, would be an equivalent for
+incurring the risk and labour of carrying on business.
+In this predicament is the property of widows and
+orphans; of many public bodies; of charitable institutions;
+most property which is vested in trustees; and
+the property of a great number of persons unused to
+business, and who have a distaste for it, or whose
+other occupations prevent their engaging in it. How
+large a proportion of the property lent to the nation
+comes under this description, has been pointed out
+in Mr. Tooke's <i>Considerations on the State of the
+Currency.</i></p>
+
+<p>There is another large class, consisting of bankers,
+bill-brokers, and others, who are money-lenders by
+profession; who enter into that profession with the
+intention of making such gains as it will yield them,
+and who would not be induced to change their business
+by any but a very strong pecuniary inducement.</p>
+
+<p>There is, therefore, a large class of persons who
+are habitually lenders. On the other hand, all persons
+in business may be considered as habitually borrowers.
+Except in times of stagnation, they are all
+desirous of extending their business beyond their own
+capital, and are never desirous of lending any portion
+of their capital except for very short periods, during
+which they cannot advantageously invest it in their
+own trade.</p>
+
+<p>There is, in short, a productive class, and there is,
+besides, a class technically styled the monied class,
+who live upon the interest of their capital, without
+engaging personally in the work of production.</p>
+
+<p>The class of borrowers may be considered as unlimited.
+There is no quantity of capital that could
+be offered to be lent, which the productive classes
+would not be willing to borrow, at any rate of interest
+which would afford them the slightest excess of profit
+above a bare equivalent for the additional risk, incurred
+by that transaction, of the evils attendant on
+insolvency. The only assignable limit to the inclination
+to borrow, is the power of giving security: the
+producers would find it difficult to borrow more than
+an amount equal to their own capital. If more than
+half the capital of the country were in the hands of
+persons who preferred lending it to engaging personally
+in business, and if the surplus were greater than
+could be invested in loans to Government, or in mortgages
+upon the property of unproductive consumers;
+the competition of lenders would force down the rate
+of interest very low. A certain portion of the monied
+class would be obliged either to sacrifice their predilections
+by engaging in business, or to lend on
+inferior security; and they would accordingly accept,
+where they could obtain good security, an abatement
+of interest equivalent to the difference of risk.</p>
+
+<p>This is an extreme case. Let us put an extreme
+case of a contrary kind. Suppose that the wealthy
+people of any country, not relishing an idle life, and
+having a strong taste for gainful labour, were generally
+indisposed to accept of a smaller income in order
+to be relieved from the labour and anxiety of business.
+Every producer in flourishing circumstances would
+be eager to borrow, and few willing to lend. Under
+these circumstances the rate of interest would differ
+very little from the rate of profit. The trouble of
+managing a business is not proportionally increased
+by an increase of the magnitude of the business; and
+a very small surplus profit above the rate of interest,
+would therefore be a sufficient inducement to capitalists
+to borrow.</p>
+
+<p>We may even conceive a people whose habits
+were such, that in order to induce them to lend, it
+might be necessary to offer them a rate of interest
+fully equal to the ordinary rate of profit. In that
+case, of course, the productive classes would scarcely
+ever borrow. But government, and the unproductive
+classes, who do not borrow in order to make a profit
+by the loan, but from the pressure of a real or supposed
+necessity, might still be ready to borrow at this
+high rate.</p>
+
+<p>Although the inclination to borrow has no <i>fixed</i>
+or <i>necessary</i> limit except the power of giving security,
+yet it always, in point of fact, stops short of this; from
+the uncertainty of the prospects of any individual
+producer, which generally indisposes him to involve
+himself to the full extent of his means of payment.
+There is never any permanent want of market for
+things in general; but there may be so for the commodity
+which any one individual is producing; and
+even if there is a demand for the commodity, people
+may not buy it of him but of some other. There are,
+consequently, never more than a portion of the producers,
+the state of whose business encourages them to
+add to their capital by borrowing; and even these are
+disposed to borrow only as much as they see an <i>immediate</i>
+prospect of profitably employing. There is,
+therefore, a practical limit to the demands of borrowers
+at any given instant; and when these demands
+are all satisfied, any additional capital offered on loan
+can find an investment only by a reduction of the rate
+of interest.</p>
+
+<p>The amount of borrowers being given, (and by the
+amount of borrowers is here meant the aggregate
+sum which people are willing to borrow at some
+given rate,) the rate of interest will depend upon
+the quantity of capital owned by people who are
+unwilling or unable to engage in trade. The circumstances
+which determine this, are, on the one hand,
+the degree in which a taste for business, or an aversion
+to it, happens to be prevalent among the classes
+possessed of property; and on the other hand, the
+amount of the annual accumulation from the earnings
+of labour. Those who accumulate from their wages,
+fees, or salaries, have, of course, (speaking generally)
+no means of investing their savings except by lending
+them to others: their occupations prevent them from
+personally superintending any employment.</p>
+
+<p>Upon these circumstances, then, the rate of interest
+depends, the amount of borrowers being given. And
+the counter-proposition equally holds, that, the above
+circumstances being given, the rate of interest depends
+upon the amount of borrowers.</p>
+
+<p>Suppose, for example, that when the rate of interest
+has adjusted itself to the existing state of the circumstances
+which affect the disposition to borrow and to
+lend, a war breaks out, which induces government, for
+a series of years, to borrow annually a large sum of
+money. During the whole of this period, the rate of
+interest will remain considerably above what it was
+before, and what it will be afterwards.</p>
+
+<p>Before the commencement of the supposed war,
+all persons who were disposed to lend at the then
+rate of interest, had found borrowers, and their capital
+was invested. This may be assumed; for if any
+capital had been seeking for a borrower at the existing
+rate of interest, and unable to find one, its owner
+would have offered it at a rate slightly below the
+existing rate. He would, for instance, have bought
+into the funds, at a slight advance of price; and thus
+set at liberty the capital of some fundholder, who, the
+funds yielding a lower interest, would have been
+obliged to accept a lower interest from individuals.</p>
+
+<p>Since, then, all who were willing to lend their
+capital at the market rate, have already lent it,
+Government will not be able to borrow unless by
+offering higher interest. Though, with the existing
+habits of the possessors of disposable capital, an
+increased number cannot be found who are willing to
+lend at the existing rate, there are doubtless some who
+will be induced to lend by the temptation of a higher
+rate. The same temptation will also induce some persons
+to invest, in the purchase of the new stock, what
+they would otherwise have expended unproductively
+in increasing their establishments, or productively, in
+improving their estates. The rate of interest will
+rise just sufficiently to call forth an increase of lenders
+to the amount required.</p>
+
+<p>This we apprehend to be the cause why the rate
+of interest in this country was so high as it is well
+known to have been during the last war. It is, therefore,
+by no means to be inferred, as some have done,
+that the general rate of profits was unusually high
+during the same period, because interest was so. Supposing
+the rate of profits to have been precisely the
+same during the war, as before or after it, the rate
+of interest would nevertheless have risen, from the
+causes and in the manner above described.</p>
+
+<p>The practical use of the preceding investigation is,
+to moderate the confidence with which inferences are
+frequently drawn with respect to the rate of profit
+from evidence regarding the rate of interest; and to
+shew that although the rate of profit is one of the
+elements which combine to determine the rate of
+interest, the latter is also acted upon by causes peculiar
+to itself, and may either rise or fall, both temporarily
+and permanently, while the general rate of
+profits remains unchanged.</p>
+
+<hr style="width: 45%;">
+
+<p>The introduction of banks, which perform the
+function of lenders and loan-brokers, with or without
+that of issuers of paper-money, produces some further
+anomalies in the rate of interest, which have not, so
+far as we are aware, been hitherto brought within the
+pale of exact science.</p>
+
+<p>If bankers were merely a class of middlemen
+between the lender and the borrower; if they merely
+received deposits of capital from those who had it lying
+unemployed in their hands, and lent this, together
+with their own capital, to the productive classes,
+receiving interest for it, and paying interest in their
+turn to those who had placed capital in their hands;
+the effect of the operations of banking on the rate of
+interest would be to lower it in some slight degree.
+The banker receives and collects together sums of
+money much too small, when taken individually, to
+render it worth while for the owners to look out
+for an investment, but which in the aggregate form
+a considerable amount. This amount may be considered
+a clear addition to the productive capital of the
+country; at least, to the capital in activity at any
+moment. And as this addition to the capital accrues
+wholly to that part of it which is not employed by
+the owners, but lent to other producers, the natural
+effect is a diminution of the rate of interest.</p>
+
+<p>The banker, to the extent of his own private
+capital, (the expenses of his business being first paid,)
+is a lender at interest. But, being subject to risk and
+trouble fully equal to that which belongs to most
+other employments, he cannot be satisfied with the
+mere interest even of his whole capital: he must have
+the ordinary profits of stock, or he will not engage
+in the business: the state of banking must be such
+as to hold out to him the prospect of adding, to
+the interest of what remains of his own capital after
+paying the expenses of his business, interest upon
+capital deposited with him, in sufficient amount to
+make up, after paying the expenses, the ordinary
+profit which could be derived from his own capital
+in any productive employment. This will be accomplished
+in one of two ways.</p>
+
+<p>1. If the circumstances of society are such as to
+furnish a ready investment of disposable capital; (as
+for instance in London, where the public funds and
+other securities, of undoubted stability, and affording
+great advantages for receiving the interest without
+trouble and realizing the principal without difficulty
+when required, tempt all persons who have sums of
+importance lying idle, to invest them on their own
+account without the intervention of any middleman;)
+the deposits with bankers consist chiefly of small sums
+likely to be wanted in a very short period for current
+expenses, and the interest on which would seldom be
+worth the trouble of calculating it. Bankers, therefore,
+do not allow any interest on their deposits. After
+paying the expenses of their business, all the rest of
+the interest they receive is clear gain. But as the
+circumstances of banking, as of all other modes of
+employing capital, will on the average be such as
+to afford to a person entering into the business a
+prospect of realizing the ordinary, and no more than
+the ordinary, profits upon his own capital; the gains
+of each banker by the investment of his deposits, will
+not on the average exceed what is necessary to make
+up his gains on his own capital to the ordinary rate.
+It is, of course, competition, which brings about this
+limitation. Whether competition operates by lowering
+the rate of interest, or by dividing the business
+among a larger number, it is difficult to decide. Probably
+it operates in both ways; but it is by no means
+impossible that it may operate in the latter way
+alone: just as an increase in the number of physicians
+does not lower the fees, though it diminishes an average
+competitor's chance of obtaining them.</p>
+
+<p>It is not impossible that the disposition of the lenders
+might be such, that they would cease to lend rather
+than acquiesce in any reduction of the rate of interest.
+If so, the arrival of a new lender, in the person of a
+banker of deposit, would not lower the rate of interest
+in any considerable degree. A slight fall would take
+place, and with that exception things would be as before,
+except that the capital in the hands of the banker
+would have put itself into the place of an equal portion
+of capital belonging to other lenders, who would
+themselves have engaged in business (<i>e.g.</i>, by subscribing
+to some joint-stock company, or entering into
+commandite). Bankers' profits would then be limited
+to the ordinary rate chiefly by the division of the
+business among many banks, so that each on the
+average would receive no more interest on his deposits
+than would suffice to make up the interest on
+his own capital to the ordinary rate of profit after
+paying all expenses.</p>
+
+<p>2. But if the circumstances of society render it
+difficult and inconvenient for persons who wish to live
+upon the interest of their money, to seek an investment
+for themselves, the bankers become agents for
+this specific purpose: large as well as small sums are
+deposited with them, and they allow interest to their
+customers. Such is the practice of the Scotch banks,
+and of most of the country banks in England. Their
+customers, not living at any of the great seats of
+money transactions, prefer entrusting their capital to
+somebody on the spot, whom they know, and in whom
+they confide. He invests their money on the best
+terms he can, and pays to them such interest as he can
+afford to give; retaining a compensation for his own
+risk and trouble. This compensation is fixed by the
+competition of the market. The rate of interest is no
+further lowered by this operation, than inasmuch as it
+brings together the lender and the borrower in a safe
+and expeditious manner. The lender incurs less risk,
+and a larger proportion, therefore, of the holders of
+capital are willing to be lenders.</p>
+
+<p>When a banker, in addition to his other functions,
+is also an issuer of paper money, he gains an advantage
+similar to that which the London bankers derive from
+their deposits. To the extent to which he can put
+forth his notes, he has so much the more to lend,
+without himself having to pay any interest for it.</p>
+
+<p>If the paper is convertible, it cannot get into circulation
+permanently without displacing specie, which
+goes abroad and brings back an equivalent value.
+To the extent of this value, there is an increase of
+the capital of the country; and the increase accrues
+solely to that part of the capital which is employed in
+loans.</p>
+
+<p>If the paper is inconvertible, and instead of displacing
+specie depreciates the currency, the banker by
+issuing it levies a tax on every person who has money
+in his hands or due to him. He thus appropriates to
+himself a portion of the capital of other people, and a
+portion of their revenue. The capital might have
+been intended to be lent, or it might have been intended
+to be employed by the owner: such part of it
+as was intended to be employed by the owner now
+changes its destination, and is lent. The revenue
+was either intended to be accumulated, in which case
+it had already become capital, or it was intended to
+be spent: in this last case, revenue is converted into
+capital: and thus, strange as it may appear, the depreciation
+of the currency, when effected in this way,
+operates to a certain extent as a forced accumulation.
+This, indeed, is no palliation of its iniquity. Though
+A might have spent his property unproductively, B
+ought not to be permitted to rob him of it because
+B will expend it on productive labour.</p>
+
+<p>In any supposable case, however, the issue of
+paper money by bankers increases the proportion of
+the whole capital of the country which is destined to
+be lent. The rate of interest must therefore fall, until
+some of the lenders give over lending, or until the
+increase of borrowers absorbs the whole.</p>
+
+<p>But a fall of the rate of interest, sufficient to
+enable the money market to absorb the whole of the
+paper-loans, may not be sufficient to reduce the profits
+of a lender who lends what costs him nothing, to the
+ordinary rate of profit upon his capital. Here, therefore,
+competition will operate chiefly by dividing the
+business. The notes of each bank will be confined
+within so narrow a district, or will divide the supply
+of a district with so many other banks, that on the
+average each will receive no larger amount of interest
+on his notes than will make up the interest on his
+own capital to the ordinary rate of profit.</p>
+
+<p>Even in this way, however, the competition has
+the effect, to a certain limited extent, of lowering the
+rate of interest; for the power of bankers to receive
+interest on more than their capital attracts a greater
+amount of capital into the banking business than would
+otherwise flow into it; and this greater capital being
+all lent, interest will fall in consequence.</p>
+
+<p class="NO"><b>NOTE:</b></p>
+
+<p><a name="Footnote_7"></a><a href="#FNanchor7">[7]</a><div class=note> It would be easy to go over in the same manner
+any other case. For instance, we may suppose, that, instead
+of dispensing with the <i>whole</i> of the fixed capital, material, &amp;c,
+and taking on labourers in equal number to those by whom
+these were produced, <i>half</i> only of the fixed capital and material is
+dispensed with; so that, instead of 60 labourers and a fixed capital
+worth 60 quarters of corn, we have 80 labourers and a fixed capital
+worth 30. The numerical statement of this case is more intricate
+than that in the text, but the result is not different.</div><br>
+
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_V"></a><h2>ESSAY V.</h2>
+
+<h2>ON THE DEFINITION OF POLITICAL ECONOMY; AND ON
+THE METHOD OF INVESTIGATION PROPER TO IT.</h2>
+<br>
+
+<p>It might be imagined, on a superficial view of the
+nature and objects of definition, that the definition of
+a science would occupy the same place in the chronological
+which it commonly does in the didactic order.
+As a treatise on any science usually commences with
+an attempt to express, in a brief formula, what the
+science is, and wherein it differs from other sciences,
+so, it might be supposed, did the framing of such a
+formula naturally precede the successful cultivation of
+the science.</p>
+
+<p>This, however, is far from having been the case.
+The definition of a science has almost invariably not
+preceded, but followed, the creation of the science
+itself. Like the wall of a city, it has usually been
+erected, not to be a receptacle for such edifices as
+might afterwards spring up, but to circumscribe an
+aggregation already in existence. Mankind did not
+measure out the ground for intellectual cultivation
+before they began to plant it; they did not divide the
+field of human investigation into regular compartments
+first, and then begin to collect truths for the
+purpose of being therein deposited; they proceeded
+in a less systematic manner. As discoveries were
+gathered in, either one by one, or in groups resulting
+from the continued prosecution of some uniform course
+of inquiry, the truths which were successively brought
+into store cohered and became agglomerated according
+to their individual affinities. Without any intentional
+classification, the facts classed themselves. They
+became associated in the mind, according to their
+general and obvious resemblances; and the aggregates
+thus formed, having to be frequently spoken of as
+aggregates, came to be denoted by a common name.
+Any body of truths which had thus acquired a collective
+denomination, was called a <i>science</i>. It was long
+before this fortuitous classification was felt not to be
+sufficiently precise. It was in a more advanced stage
+of the progress of knowledge that mankind became
+sensible of the advantage of ascertaining whether the
+facts which they had thus grouped together were distinguished
+from all other facts by any common properties,
+and what these were. The first attempts to
+answer this question were commonly very unskilful,
+and the consequent definitions extremely imperfect.</p>
+
+<p>And, in truth, there is scarcely any investigation in
+the whole body of a science requiring so high a degree
+of analysis and abstraction, as the inquiry, what the
+science itself is; in other words, what are the properties
+common to all the truths composing it, and distinguishing
+them from all other truths. Many persons,
+accordingly, who are profoundly conversant with the
+details of a science, would be very much at a loss to
+supply such a definition of the science itself as should
+not be liable to well-grounded logical objections.
+From this remark, we cannot except the authors of
+elementary scientific treatises. The definitions which
+those works furnish of the sciences, for the most part
+either do not fit them&mdash;some being too wide, some too
+narrow&mdash;or do not go deep enough into them, but
+define a science by its accidents, not its essentials; by
+some one of its properties which may, indeed, serve
+the purpose of a distinguishing mark, but which is of
+too little importance to have ever of itself led mankind
+to give the science a name and rank as a separate
+object of study.</p>
+
+<p>The definition of a science must, indeed, be placed
+among that class of truths which Dugald Stewart had
+in view, when he observed that the first principles of
+all sciences belong to the philosophy of the human
+mind. The observation is just; and the first principles
+of all sciences, including the definitions of them, have
+consequently participated hitherto in the vagueness
+and uncertainty which has pervaded that most difficult
+and unsettled of all branches of knowledge. If we
+open any book, even of mathematics or natural philosophy,
+it is impossible not to be struck with the mistiness
+of what we find represented as preliminary and
+fundamental notions, and the very insufficient manner
+in which the propositions which are palmed upon us
+as first principles seem to be made out, contrasted
+with the lucidity of the explanations and the conclusiveness
+of the proofs as soon as the writer enters
+upon the details of his subject. Whence comes this
+anomaly? Why is the admitted certainty of the
+results of those sciences in no way prejudiced by the
+want of solidity in their premises? How happens it
+that a firm superstructure has been erected upon an
+unstable foundation? The solution of the paradox <i>is</i>,
+that what are called first principles, are, in truth,
+<i>last</i> principles. Instead of being the fixed point from
+whence the chain of proof which supports all the rest
+of the science hangs suspended, they are themselves
+the remotest link of the chain. Though presented as
+if all other truths were to be deduced from them, they
+are the truths which are last arrived at; the result of
+the last stage of generalization, or of the last and
+subtlest process of analysis, to which the particular
+truths of the science can be subjected; those particular
+truths having previously been ascertained by
+the evidence proper to their own nature.</p>
+
+<p>Like other sciences, Political Economy has remained
+destitute of a definition framed on strictly
+logical principles, or even of, what is more easily to be
+had, a definition exactly co-extensive with the thing
+defined. This has not, perhaps, caused the real bounds
+of the science to be, in this country at least, practically
+mistaken or overpassed; but it has occasioned&mdash;perhaps
+we should rather say it is connected with&mdash;indefinite,
+and often erroneous, conceptions of the
+mode in which the science should be studied.</p>
+
+<p>We proceed to verify these assertions by an examination
+of the most generally received definitions of
+the science.</p>
+
+<p>1. First, as to the vulgar notion of the nature and
+object of Political Economy, we shall not be wide of
+the mark if we state it to be something to this effect:&mdash;That
+Political Economy is a science which teaches,
+or professes to teach, in what manner a nation may
+be made rich. This notion of what constitutes the
+science, is in some degree countenanced by the title
+and arrangement which Adam Smith gave to his invaluable
+work. A systematic treatise on Political
+Economy, he chose to call an <i>Inquiry into the Nature
+and Causes of the Wealth of Nations</i>; and the topics
+are introduced in an order suitable to that view of the
+purpose of his book.</p>
+
+<p>With respect to the definition in question, if definition
+it can be called which is not found in any set
+form of words, but left to be arrived at by a process of
+abstraction from a hundred current modes of speaking
+on the subject; it seems liable to the conclusive objection,
+that it confounds the essentially distinct, though
+closely connected, ideas of <i>science</i> and <i>art</i>. These two
+ideas differ from one another as the understanding
+differs from the will, or as the indicative mood in
+grammar differs from the imperative. The one deals in
+facts, the other in precepts. Science is a collection of
+<i>truths</i>; art, a body of <i>rules</i>, or directions for conduct.
+The language of science is, This is, or, This is not;
+This does, or does not, happen. The language of art
+is, Do this; Avoid that. Science takes cognizance of
+a <i>phenomenon</i>, and endeavours to discover its <i>law</i>; art
+proposes to itself an <i>end</i>, and looks out for <i>means</i> to
+effect it.</p>
+
+<p>If, therefore, Political Economy be a science, it
+cannot be a collection of practical rules; though,
+unless it be altogether a useless science, practical
+rules must be capable of being founded upon it.
+The science of mechanics, a branch of natural philosophy,
+lays down the laws of motion, and the properties
+of what are called the mechanical powers. The art of
+practical mechanics teaches how we may avail ourselves
+of those laws and properties, to increase our
+command over external nature. An art would not be
+an art, unless it were founded upon a scientific knowledge
+of the properties of the subject-matter: without
+this, it would not be philosophy, but empiricism;
+[Greek: empeiria,] not [Greek: technae,] in Plato's sense. Rules, therefore,
+for making a nation increase in wealth, are not a
+science, but they are the results of science. Political
+Economy does not of itself instruct how to make a
+nation rich; but whoever would be qualified to judge
+of the means of making a nation rich, must first be a
+political economist.</p>
+
+<p>2. The definition most generally received among
+instructed persons, and laid down in the commencement
+of most of the professed treatises on the subject,
+is to the following effect:&mdash;That Political Economy
+informs us of the laws which regulate the production,
+distribution, and consumption of wealth. To this
+definition is frequently appended a familiar illustration.
+Political Economy, it is said, is to the state,
+what domestic economy is to the family.</p>
+
+<p>This definition is free from the fault which we
+pointed out in the former one. It distinctly takes
+notice that Political Economy is a science and not an
+art; that it is conversant with laws of nature, not with
+maxims of conduct, and teaches us how things take
+place of themselves, not in what manner it is advisable
+for us to shape them, in order to attain some particular
+end.</p>
+
+<p>But though the definition is, with regard to this
+particular point, unobjectionable, so much can scarcely
+be said for the accompanying illustration; which
+rather sends back the mind to the current loose
+notion of Political Economy already disposed of.
+Political Economy is really, and is stated in the
+definition to be, a science: but domestic economy, so
+far as it is capable of being reduced to principles, is
+an art. It consists of rules, or maxims of prudence,
+for keeping the family regularly supplied with what
+its wants require, and securing, with any given amount
+of means, the greatest possible quantity of physical
+comfort and enjoyment. Undoubtedly the beneficial
+<i>result</i>, the great practical <i>application</i> of Political Economy,
+would be to accomplish for a nation something
+like what the most perfect domestic economy accomplishes
+for a single household: but supposing this
+purpose realised, there would be the same difference
+between the rules by which it might be effected, and
+Political Economy, which there is between the art of
+gunnery and the theory of projectiles, or between the
+rules of mathematical land-surveying and the science
+of trigonometry.</p>
+
+<p>The definition, though not liable to the same objection
+as the illustration which is annexed to it, is
+itself far from unexceptionable. To neither of them,
+considered as standing at the head of a treatise, have
+we much to object. At a very early stage in the
+study of the science, anything more accurate would be
+useless, and therefore pedantic. In a merely initiatory
+definition, scientific precision is not required: the
+object is, to insinuate into the learner's mind, it is
+scarcely material by what means, some general preconception
+of what are the uses of the pursuit, and what
+the series of topics through which he is about to travel.
+As a mere anticipation or <i>&eacute;bauche</i> of a definition, intended
+to indicate to a learner as much as he is able
+to understand before he begins, of the nature of what
+is about to be taught to him, we do not quarrel with
+the received formula. But if it claims to be admitted
+as that complete <i>definitio</i> or boundary-line, which results
+from a thorough exploring of the whole extent
+of the subject, and is intended to mark the exact place
+of Political Economy among the sciences, its pretension
+cannot be allowed.</p>
+
+<p>&quot;The science of the laws which regulate the production,
+distribution, and consumption of wealth.&quot; The
+term wealth is surrounded by a haze of floating and
+vapoury associations, which will let nothing that is
+seen through them be shewn distinctly. Let us supply
+its place by a periphrasis. Wealth is defined, all objects
+useful or agreeable to mankind, except such as
+can be obtained in indefinite quantity without labour.
+Instead of all objects, some authorities say, all material
+objects: the distinction is of no moment for the
+present purpose.</p>
+
+<p>To confine ourselves to production: If the laws of
+the production of all objects, or even of all material
+objects, which are useful or agreeable to mankind, were
+comprised in Political Economy, it would be difficult
+to say where the science would end: at the least, all
+or nearly all physical knowledge would be included in
+it. Corn and cattle are material objects, in a high
+degree useful to mankind. The laws of the production
+of the one include the principles of agriculture; the
+production of the other is the subject of the art of
+cattle-breeding, which, in so far as really an art, must
+be built upon the science of physiology. The laws of
+the production of manufactured articles involve the
+whole of chemistry and the whole of mechanics. The
+laws of the production of the wealth which is extracted
+from the bowels of the earth, cannot be set
+forth without taking in a large part of geology.</p>
+
+<p>When a definition so manifestly surpasses in extent
+what it professes to define, we must suppose that
+it is not meant to be interpreted literally, though the
+limitations with which it is to be understood are not
+stated.</p>
+
+<p>Perhaps it will be said, that Political Economy is
+conversant with such only of the laws of the production
+of wealth as are applicable to <i>all</i> kinds of wealth:
+those which relate to the details of particular trades
+or employments forming the subject of other and
+totally distinct sciences.</p>
+
+<p>If, however, there were no more in the distinction
+between Political Economy and physical science than
+this, the distinction, we may venture to affirm, would
+never have been made. No similar division exists in
+any other department of knowledge. We do not
+break up zoology or mineralogy into two parts; one
+treating of the properties common to all animals, or to
+all minerals; another conversant with the properties
+peculiar to each particular species of animals or minerals.
+The reason is obvious; there is no distinction
+<i>in kind</i> between the general laws of animal or of
+mineral nature and the peculiar properties of particular
+species. There is as close an analogy between
+the general laws and the particular ones, as there is
+between one of the general laws and another: most
+commonly, indeed, the particular laws are but the
+complex result of a plurality of general laws modifying
+each other. A separation, therefore, between the
+general laws and the particular ones, merely because
+the former are general and the latter particular, would
+run counter both to the strongest motives of convenience
+and to the natural tendencies of the mind.
+If the case is different with the laws of the production
+of wealth, it must be because, in this case, the general
+laws differ in kind from the particular ones. But if
+so, the difference in kind is the radical distinction,
+and we should find out what that is, and found our
+definition upon it.</p>
+
+<p>But, further, the recognised boundaries which
+separate the field of Political Economy from that of
+physical science, by no means correspond with the
+distinction between the truths which concern all kinds
+of wealth and those which relate only to some kinds.
+The three laws of motion, and the law of gravitation,
+are common, as far as human observation has yet extended,
+to all matter; and these, therefore, as being
+among the laws of the production of all wealth, should
+form part of Political Economy. There are hardly
+any of the processes of industry which do not partly
+depend upon the properties of the lever; but it would
+be a strange classification which included those properties
+among the truths of Political Economy. Again,
+the latter science has many inquiries altogether as
+special, and relating as exclusively to particular sorts
+of material objects, as any of the branches of physical
+science. The investigation of some of the circumstances
+which regulate the price of corn, has as little
+to do with the laws common to the production of all
+wealth, as any part of the knowledge of the agriculturist.
+The inquiry into the rent of mines or fisheries,
+or into the value of the precious metals, elicits truths
+which have immediate reference to the production
+solely of a peculiar kind of wealth; yet these are
+admitted to be correctly placed in the science of
+Political Economy.</p>
+
+<p>The real distinction between Political Economy
+and physical science must be sought in something
+deeper than the nature of the subject-matter; which,
+indeed, is for the most part common to both. Political
+Economy, and the scientific grounds of all the
+useful arts, have in truth one and the same subject-matter;
+namely, the objects which conduce to man's
+convenience and enjoyment: but they are, nevertheless,
+perfectly distinct branches of knowledge.</p>
+
+<p>3. If we contemplate the whole field of human
+knowledge, attained or attainable, we find that it
+separates itself obviously, and as it were spontaneously,
+into two divisions, which stand so strikingly in
+opposition and contradistinction to one another, that
+in all classifications of our knowledge they have been
+kept apart. These are, <i>physical</i> science, and <i>moral</i> or
+psychological science. The difference between these
+two departments of our knowledge does not reside in
+the subject-matter with which they are conversant:
+for although, of the simplest and most elementary
+parts of each, it may be said, with an approach to
+truth, that they are concerned with different subject-matters&mdash;namely,
+the one with the human mind, the
+other with all things whatever except the mind; this
+distinction does not hold between the higher regions
+of the two. Take the science of politics, for instance,
+or that of law: who will say that these are physical
+sciences? and yet is it not obvious that they are conversant
+fully as much with matter as with mind?
+Take, again, the theory of music, of painting, of any
+other of the fine arts, and who will venture to pronounce
+that the facts they are conversant with belong
+either wholly to the class of matter, or wholly to that
+of mind?</p>
+
+<p>The following seems to be the <i>rationale</i> of the distinction
+between physical and moral science.</p>
+
+<p>In all the intercourse of man with nature, whether
+we consider him as acting upon it, or as receiving impressions
+from it, the effect or phenomenon depends
+upon causes of two kinds: the properties of the object
+acting, and those of the object acted upon. Everything
+which can possibly happen in which man and
+external things, are jointly concerned, results from the
+joint operation of a law or laws of matter, and a law
+or laws of the human mind. Thus the production of
+corn by human labour is the result of a law of mind,
+and many laws of matter. The laws of matter are
+those properties of the soil and of vegetable life which
+cause the seed to germinate in the ground, and those
+properties of the human body which render food
+necessary to its support. The law of mind is, that
+man desires to possess subsistence, and consequently
+wills the necessary means of procuring it.</p>
+
+<p>Laws of mind and laws of matter are so dissimilar
+in their nature, that it would be contrary to all principles
+of rational arrangement to mix them up as part
+of the same study. In all scientific methods, therefore,
+they are placed apart. Any compound effect or
+phenomenon which depends both on the properties of
+matter and on those of mind, may thus become the
+subject of two completely distinct sciences, or branches
+of science; one, treating of the phenomenon in so far
+as it depends upon the laws of matter only; the other
+treating of it in so far as it depends upon the laws of
+mind.</p>
+
+<p>The physical sciences are those which treat of the
+laws of matter, and of all complex phenomena in so
+far as dependent upon the laws of matter. The mental
+or moral sciences are those which treat of the laws of
+mind, and of all complex phenomena in so far as
+dependent upon the laws of mind.</p>
+
+<p>Most of the moral sciences presuppose physical
+science; but few of the physical sciences presuppose
+moral science. The reason is obvious. There are
+many phenomena (an earthquake, for example, or the
+motions of the planets) which depend upon the laws
+of matter exclusively; and have nothing whatever to
+do with the laws of mind. Many, therefore, of the
+physical sciences may be treated of without any reference
+to mind, and as if the mind existed as a recipient
+of knowledge only, not as a cause producing effects.
+But there are no phenomena which depend exclusively
+upon the laws of mind; even the phenomena of the
+mind itself being partially dependent upon the physiological
+laws of the body. All the mental sciences,
+therefore, not excepting the pure science of mind,
+must take account of a great variety of physical
+truths; and (as physical science is commonly and very
+properly studied first) may be said to presuppose them,
+taking up the complex phenomena where physical
+science leaves them.</p>
+
+<p>Now this, it will be found, is a precise statement
+of the relation in which Political Economy stands to
+the various sciences which are tributary to the arts of
+production.</p>
+
+<p>The laws of the production of the objects which
+constitute wealth, are the subject-matter both of
+Political Economy and of almost all the physical
+sciences. Such, however, of those laws as are purely
+laws of matter, belong to physical science, and to that
+exclusively. Such of them as are laws of the human
+mind, and no others, belong to Political Economy,
+which finally sums up the result of both combined.</p>
+
+<p>Political Economy, therefore, presupposes all the
+physical sciences; it takes for granted all such of the
+truths of those sciences as are concerned in the production
+of the objects demanded by the wants of
+mankind; or at least it takes for granted that the
+physical part of the process takes place somehow. It
+then inquires what are the phenomena of <i>mind</i> which
+are concerned in the production and distribution <a name="FNanchor8"></a><a href="#Footnote_8"><sup>[8]</sup></a> of
+those same objects; it borrows from the pure science
+of mind the laws of those phenomena, and inquires
+what effects follow from these mental laws, acting in
+concurrence with those physical one. <a name="FNanchor9"></a><a href="#Footnote_9"><sup>[9]</sup></a></p>
+
+<p>From the above considerations the following seems
+to come out as the correct and complete definition of
+Political Economy:&mdash;&quot;The science which treats of the
+production and distribution of wealth, so far as they
+depend upon the laws of human nature.&quot; Or thus&mdash;science
+relating to the moral or psychological
+laws of the production and distribution of wealth.&quot;</p>
+
+<p>For popular use this definition is amply sufficient,
+but it still falls short of the complete accuracy required
+for the purposes of the philosopher. Political
+Economy does not treat of the production and distribution
+of wealth in all states of mankind, but only
+in what is termed the social state; nor so far as they
+depend upon the laws of human nature, but only so
+far as they depend upon a certain portion of those
+laws. This, at least, is the view which must be taken
+of Political Economy, if we mean it to find any place
+in an encyclopedical division of the field of science.
+On any other view, it either is not science at all, or
+it is several sciences. This will appear clearly, if, on
+the one hand, we take a general survey of the moral
+sciences, with a view to assign the exact place of
+Political Economy among them; while, on the other,
+we consider attentively the nature of the methods or
+processes by which the truths which are the object of
+those sciences are arrived at.</p>
+
+<p>Man, who, considered as a being having a moral
+or mental nature, is the subject-matter of all the
+moral sciences, may, with reference to that part of his
+nature, form the subject of philosophical inquiry under
+several distinct hypotheses. We may inquire what
+belongs to man considered individually, and as if no
+human being existed besides himself; we may next
+consider him as coming into contact with other individuals;
+and finally, as living in a state of <i>society</i>,
+that is, forming part of a body or aggregation of
+human beings, systematically co-operating for common
+purposes. Of this last state, political government,
+or subjection to a common superior, is an ordinary
+ingredient, but forms no necessary part of the conception,
+and, with respect to our present purpose,
+needs not be further adverted to.</p>
+
+<p>Those laws or properties of human nature which
+appertain to man as a mere individual, and do not
+presuppose, as a necessary condition, the existence of
+other individuals (except, perhaps, as mere instruments
+or means), form a part of the subject of pure
+mental philosophy. They comprise all the laws of the
+mere intellect, and those of the purely self-regarding
+desires.</p>
+
+<p>Those laws of human nature which relate to the
+feelings called forth in a human being by other individual
+human or intelligent beings, as such; namely,
+the <i>affections</i>, the <i>conscience</i>, or feeling of duty, and the
+love of <i>approbation</i>; and to the conduct of man, so
+far as it depends upon, or has relation to, these parts
+of his nature&mdash;form the subject of another portion of
+pure mental philosophy, namely, that portion of it on
+which <i>morals</i>, or <i>ethics</i>, are founded. For morality
+itself is not a science, but an art; not truths, but
+rules. The truths on which the rules are founded are
+drawn (as is the case in all arts) from a variety of
+sciences; but the principal of them, and those which
+are most nearly peculiar to this particular art, belong
+to a branch of the science of mind.</p>
+
+<p>Finally, there are certain principles of human
+nature which are peculiarly connected with the ideas
+and feelings generated in man by living in a state of
+<i>society</i>, that is, by forming part of a union or aggregation
+of human beings for a common purpose or
+purposes. Few, indeed, of the elementary laws of the
+human mind are peculiar to this state, almost all
+being called into action in the two other states. But
+those simple laws of human nature, operating in that
+wider field, give rise to results of a sufficiently universal
+character, and even (when compared with the
+still more complex phenomena of which they are the
+determining causes) sufficiently simple, to admit of
+being called, though in a somewhat looser sense, <i>laws</i>
+of society, or laws of human nature in the social
+state. These laws, or general truths, form the subject
+of a branch of science which may be aptly designated
+from the title of <i>social economy</i>; somewhat less happily
+by that of <i>speculative politics</i>, or the <i>science</i> of politics,
+as contradistinguished from the art. This science
+stands in the same relation to the social, as anatomy
+and physiology to the physical body. It shows by
+what principles of his nature man is induced to enter
+into a state of society; how this feature in his position
+acts upon his interests and feelings, and through them
+upon his conduct; how the association tends progressively
+to become closer, and the co-operation extends
+itself to more and more purposes; what those purposes
+are, and what the varieties of means most generally
+adopted for furthering them; what are the various
+relations which establish themselves among human
+beings as the ordinary consequence of the social
+union; what those which are different in different
+states of society; in what historical order those states
+tend to succeed one another; and what are the effects
+of each upon the conduct and character of man.</p>
+
+<p>This branch of science, whether we prefer to call
+it social economy, speculative politics, or the natural
+history of society, presupposes the whole science of
+the nature of the individual mind; since all the laws
+of which the latter science takes cognizance are
+brought into play in a state of society, and the truths
+of the social science are but statements of the manner
+in which those simple laws take effect in complicated
+circumstances. Pure mental philosophy, therefore, is
+an essential part, or preliminary, of political philosophy.
+The science of social economy embraces every
+part of man's nature, in so far as influencing the conduct
+or condition of man in society; and therefore
+may it be termed speculative politics, as being the
+scientific foundation of practical politics, or the art
+of government, of which the art of legislation is a
+part <a name="FNanchor10"></a><a href="#Footnote_10"><sup>[10]</sup></a>.</p>
+
+<p>It is to <i>this</i> important division of the field of
+science that one of the writers who have most correctly
+conceived and copiously illustrated its nature
+and limits,&mdash;we mean M. Say,&mdash;has chosen to give
+the name Political Economy. And, indeed, this large
+extension of the signification of that term is countenanced
+by its etymology. But the words &quot;political
+economy&quot; have long ceased to have so large a meaning.
+Every writer is entitled to use the words which are
+his tools in the manner which he judges most conducive
+to the general purposes of the exposition of
+truth; but he exercises this discretion under liability
+to criticism: and M. Say seems to have done in this
+instance, what should never be done without strong
+reasons; to have altered the meaning of a name
+which was appropriated to a particular purpose (and
+for which, therefore, a substitute must be provided),
+in order to transfer it to an object for which it was
+easy to find a more characteristic denomination.</p>
+
+<p>What is now commonly understood by the term
+&quot;Political Economy&quot; is not the science of speculative
+politics, but a branch of that science. It does not
+treat of the whole of man's nature as modified by the
+social state, nor of the whole conduct of man in
+society. It is concerned with him solely as a being
+who desires to possess wealth, and who is capable
+of judging of the comparative efficacy of means for
+obtaining that end. It predicts only such of the
+phenomena of the social state as take place in consequence
+of the pursuit of wealth. It makes entire
+abstraction of every other human passion or motive;
+except those which may be regarded as perpetually
+antagonizing principles to the desire of wealth, namely,
+aversion to labour, and desire of the present enjoyment
+of costly indulgences. These it takes, to a
+certain extent, into its calculations, because these
+do not merely, like other desires, occasionally conflict
+with the pursuit of wealth, but accompany it
+always as a drag, or impediment, and are therefore
+inseparably mixed up in the consideration of it. Political
+Economy considers mankind as occupied solely
+in acquiring and consuming wealth; and aims at showing
+what is the course of action into which mankind,
+living in a state of society, would be impelled, if that
+motive, except in the degree in which it is checked by
+the two perpetual counter-motives above adverted to,
+were absolute ruler of all their actions. Under the
+influence of this desire, it shows mankind accumulating
+wealth, and employing that wealth in the production
+of other wealth; sanctioning by mutual agreement
+the institution of property; establishing laws to
+prevent individuals from encroaching upon the property
+of others by force or fraud; adopting various
+contrivances for increasing the productiveness of their
+labour; settling the division of the produce by agreement,
+under the influence of competition (competition
+itself being governed by certain laws, which laws are
+therefore the ultimate regulators of the division of the
+produce); and employing certain expedients (as money,
+credit, &amp;c.) to facilitate the distribution. All these
+operations, though many of them are really the result
+of a plurality of motives, are considered by Political
+Economy as flowing solely from the desire of wealth.
+The science then proceeds to investigate the laws
+which govern these several operations, under the supposition
+that man is a being who is determined, by
+the necessity of his nature, to prefer a greater portion
+of wealth to a smaller in all cases, without any other
+exception than that constituted by the two counter-motives
+already specified. Not that any political
+economist was ever so absurd as to suppose that
+mankind are really thus constituted, but because this
+is the mode in which science must necessarily proceed.
+When an effect depends upon a concurrence of causes,
+those causes must be studied one at a time, and their
+laws separately investigated, if we wish, through the
+causes, to obtain the power of either predicting or
+controlling the effect; since the law of the effect is
+compounded of the laws of all the causes which determine
+it. The law of the centripetal and that of the
+tangential force must have been known before the
+motions of the earth and planets could be explained,
+or many of them predicted. The same is the case
+with the conduct of man in society. In order to
+judge how he will act under the variety of desires and
+aversions which are concurrently operating upon him,
+we must know how he would act under the exclusive
+influence of each one in particular. There is, perhaps,
+no action of a man's life in which he is neither under
+the immediate nor under the remote influence of any
+impulse but the mere desire of wealth. With respect
+to those parts of human conduct of which wealth is
+not even the principal object, to these Political Economy
+does not pretend that its conclusions are applicable.
+But there are also certain departments of
+human affairs, in which the acquisition of wealth is
+the main and acknowledged end. It is only of these
+that Political Economy takes notice. The manner in
+which it necessarily proceeds is that of treating the
+main and acknowledged end as if it were the sole end;
+which, of all hypotheses equally simple, is the nearest
+to the truth. The political economist inquires, what
+are the actions which would be produced by this
+desire, if, within the departments in question, it were
+unimpeded by any other. In this way a nearer approximation
+is obtained than would otherwise be practicable,
+to the real order of human affairs in those
+departments. This approximation is then to be corrected
+by making proper allowance for the effects of
+any impulses of a different description, which can be
+shown to interfere with the result in any particular
+case. Only in a few of the most striking cases (such
+as the important one of the principle of population)
+are these corrections interpolated into the expositions
+of Political Economy itself; the strictness of purely
+scientific arrangement being thereby somewhat departed
+from, for the sake of practical utility. So far
+as it is known, or may be presumed, that the conduct
+of mankind in the pursuit of wealth is under the collateral
+influence of any other of the properties of
+our nature than the desire of obtaining the greatest
+quantity of wealth with the least labour and self-denial,
+the conclusions of Political Economy will so
+far fail of being applicable to the explanation or prediction
+of real events, until they are modified by a
+correct allowance for the degree of influence exercised
+by the other cause.</p>
+
+<p>Political Economy, then, may be defined as follows;
+and the definition seems to be complete:&mdash;</p>
+
+<p>&quot;The science which traces the laws of such of the
+phenomena of society as arise from the combined
+operations of mankind for the production of wealth,
+in so far as those phenomena are not modified by the
+pursuit of any other object.&quot;</p>
+
+<p>But while this is a correct definition of Political
+Economy as a portion of the field of science, the
+didactic writer on the subject will naturally combine
+in his exposition, with the truths of the pure science,
+as many of the practical modifications as will, in his
+estimation, be most conducive to the usefulness of his
+work.</p>
+
+<hr style="width: 45%;">
+
+<p>The above attempt to frame a stricter definition
+of the science than what are commonly received as
+such, may be thought to be of little use; or, at best,
+to be chiefly useful in a general survey and classification
+of the sciences, rather than as conducing to the
+more successful pursuit of the particular science in
+question. We think otherwise, and for this reason;
+that, with the consideration of the definition of a
+science, is inseparably connected that of the <i>philosophic
+method</i> of the science; the nature of the process by
+which its investigations are to be carried on, its
+truths to be arrived at.</p>
+
+<p>Now, in whatever science there are systematic
+differences of opinion&mdash;which is as much as to say,
+in all the moral or mental sciences, and in Political
+Economy among the rest; in whatever science there
+exist, among those who have attended to the subject,
+what are commonly called differences of principle,
+as distinguished from differences of matter-of-fact or
+detail,&mdash;the cause will be found to be, a difference in
+their conceptions of the philosophic method of the
+science. The parties who differ are guided, either
+knowingly or unconsciously, by different views concerning
+the nature of the evidence appropriate to the
+subject. They differ not solely in what they believe
+themselves to see, but in the quarter whence they
+obtained the light by which they think they see it.</p>
+
+<p>The most universal of the forms in which this difference
+of method is accustomed to present itself, is the
+ancient feud between what is called theory, and what
+is called practice or experience. There are, on social
+and political questions, two kinds of reasoners: there
+is one portion who term themselves practical men, and
+call the others theorists; a title which the latter do not
+reject, though they by no means recognise it as peculiar
+to them. The distinction between the two is a very
+broad one, though it is one of which the language employed
+is a most incorrect exponent. It has been again
+and again demonstrated, that those who are accused of
+despising facts and disregarding experience build and
+profess to build wholly upon facts and experience; while
+those who disavow theory cannot make one step without
+theorizing. But, although both classes of inquirers
+do nothing but theorize, and both of them consult no
+other guide than experience, there is this difference
+between them, and a most important difference it is:
+that those who are called practical men require <i>specific</i>
+experience, and argue wholly <i>upwards</i> from particular
+facts to a general conclusion; while those who are
+called theorists aim at embracing a wider field of experience,
+and, having argued upwards from particular
+facts to a general principle including a much wider
+range than that of the question under discussion, then
+argue <i>downwards</i> from that general principle to a variety
+of specific conclusions.</p>
+
+<p>Suppose, for example, that the question were, whether
+absolute kings were likely to employ the powers
+of government for the welfare or for the oppression of
+their subjects. The practicals would endeavour to
+determine this question by a direct induction from the
+conduct of particular despotic monarchs, as testified
+by history. The theorists would refer the question
+to be decided by the test not solely of our experience
+of kings, but of our experience of men. They would
+contend that an observation of the tendencies which
+human nature has manifested in the variety of situations
+in which human beings have been placed, and
+especially observation of what passes in our own minds,
+warrants us in inferring that a human being in the
+situation of a despotic king will make a bad use of
+power; and that this conclusion would lose nothing of
+its certainty even if absolute kings had never existed,
+or if history furnished us with no information of the
+manner in which they had conducted themselves.</p>
+
+<p>The first of these methods is a method of induction,
+merely; the last a mixed method of induction and
+ratiocination. The first may be called the method <i>&agrave;
+posteriori;</i> the latter, the method <i>&agrave; priori</i>. We are
+aware that this last expression is sometimes used to
+characterize a supposed mode of philosophizing, which
+does not profess to be founded upon experience at all.
+But we are not acquainted with any mode of philosophizing,
+on political subjects at least, to which such a
+description is fairly applicable. By the method <i>&agrave; posteriori</i>
+we mean that which requires, as the basis of its
+conclusions, not experience merely, but specific experience.
+By the method <i>&agrave; priori</i> we mean (what has
+commonly been meant) reasoning from an assumed
+hypothesis; which is not a practice confined to mathematics,
+but is of the essence of all science which admits
+of general reasoning at all. To verify the hypothesis
+itself <i>&agrave; posteriori</i>, that is, to examine whether the
+facts of any actual case are in accordance with it, is no
+part of the business of science at all, but of the <i>application</i>
+of science.</p>
+
+<p>In the definition which we have attempted to frame
+of the science of Political Economy, we have characterized
+it as essentially an <i>abstract</i> science, and its
+method as the method <i>&agrave; priori</i>. Such is undoubtedly
+its character as it has been understood and taught by
+all its most distinguished teachers. It reasons, and, as
+we contend, must necessarily reason, from assumptions,
+not from facts. It is built upon hypotheses, strictly
+analogous to those which, under the name of definitions,
+are the foundation of the other abstract sciences.
+Geometry presupposes an arbitrary definition of a line,
+&quot;that which has length but not breadth.&quot; Just in the
+same manner does Political Economy presuppose an
+arbitrary definition of man, as a being who invariably
+does that by which he may obtain the greatest amount
+of necessaries, conveniences, and luxuries, with the
+smallest quantity of labour and physical self-denial
+with which they can be obtained in the existing state
+of knowledge. It is true that this definition of man
+is not formally prefixed to any work on Political Economy,
+as the definition of a line is prefixed to Euclid's
+Elements; and in proportion as by being so prefixed it
+would be less in danger of being forgotten, we may see
+ground for regret that this is not done. It is proper
+that what is assumed in every particular case, should
+once for all be brought before the mind in its full
+extent, by being somewhere formally stated as a general
+maxim. Now, no one who is conversant with systematic
+treatises on Political Economy will question,
+that whenever a political economist has shown that, by
+acting in a particular manner, a labourer may obviously
+obtain higher wages, a capitalist larger profits, or a
+landlord higher rent, he concludes, as a matter of
+course, that they will certainly act in that manner.
+Political Economy, therefore, reasons from <i>assumed</i>
+premises&mdash;from premises which might be totally without
+foundation in fact, and which are not pretended to
+be universally in accordance with it. The conclusions
+of Political Economy, consequently, like those of geometry,
+are only true, as the common phrase is, <i>in the
+abstract</i>; that is, they are only true under certain suppositions,
+in which none but general causes&mdash;causes
+common to the <i>whole class</i> of cases under consideration&mdash;are
+taken into the account.</p>
+
+<p>This ought not to be denied by the political economist.
+If he deny it, then, and then only, he places
+himself in the wrong. The <i>&agrave; priori</i> method which is
+laid to his charge, as if his employment of it proved his
+whole science to be worthless, is, as we shall presently
+show, the only method by which truth can possibly be
+attained in any department of the social science. All
+that is requisite is, that he be on his guard not to
+ascribe to conclusions which are grounded upon an
+hypothesis a different kind of certainty from that which
+really belongs to them. They would be true without
+qualification, only in a case which is purely imaginary.
+In proportion as the actual facts recede from the hypothesis,
+he must allow a corresponding deviation from
+the strict letter of his conclusion; otherwise it will be
+true only of things such as he has arbitrarily supposed,
+not of such things as really exist. That which is true
+in the abstract, is always true in the concrete with
+proper <i>allowances</i>. When a certain cause really exists,
+and if left to itself would infallibly produce a certain
+effect, that same effect, <i>modified</i> by all the other concurrent
+causes, will correctly correspond to the result
+really produced.</p>
+
+<p>The conclusions of geometry are not strictly true
+of such lines, angles, and figures, as human hands can
+construct. But no one, therefore, contends that the
+conclusions of geometry are of no utility, or that it
+would be better to shut up Euclid's Elements, and
+content ourselves with &quot;practice&quot; and &quot;experience.&quot;</p>
+
+<p>No mathematician ever thought that his definition
+of a line corresponded to an actual line. As little did
+any political economist ever imagine that real men had
+no object of desire but wealth, or none which would not
+give way to the slightest motive of a pecuniary kind.
+But they were justified in assuming this, for the purposes
+of their argument; because they had to do only
+with those parts of human conduct which have pecuniary
+advantage for their direct and principal object;
+and because, as no two individual cases are exactly
+alike, no <i>general</i> maxims could ever be laid down unless
+<i>some</i> of the circumstances of the particular case
+were left out of consideration.</p>
+
+<p>But we go farther than to affirm that the method
+<i>&agrave; priori</i> is a legitimate mode of philosophical investigation
+in the moral sciences: we contend that it is the
+only mode. We affirm that the method <i>&agrave; posteriori</i>, or
+that of specific experience, is altogether inefficacious in
+those sciences, as a means of arriving at any considerable
+body of valuable truth; though it admits of being
+usefully applied in aid of the method <i>&agrave; priori</i>, and
+even forms an indispensable supplement to it.</p>
+
+<p>There is a property common to almost all the moral
+sciences, and by which they are distinguished from
+many of the physical; this is, that it is seldom in our
+power to make experiments in them. In chemistry
+and natural philosophy, we can not only observe what
+happens under all the combinations of circumstances
+which nature brings together, but we may also try an
+indefinite number of new combinations. This we can
+seldom do in ethical, and scarcely ever in political science.
+We cannot try forms of government and systems
+of national policy on a diminutive scale in our
+laboratories, shaping our experiments as we think they
+may most conduce to the advancement of knowledge.
+We therefore study nature under circumstances of
+great disadvantage in these sciences; being confined
+to the limited number of experiments which take place
+(if we may so speak) of their own accord, without any
+preparation or management of ours; in circumstances,
+moreover, of great complexity, and never perfectly
+known to us; and with the far greater part of the
+processes concealed from our observation.</p>
+
+<p>The consequence of this unavoidable defect in the
+materials of the induction is, that we can rarely obtain
+what Bacon has quaintly, but not unaptly, termed an
+<i>experimentum crucis</i>.</p>
+
+<p>In any science which admits of an unlimited range
+of arbitrary experiments, an <i>experimentum crucis</i> may
+always be obtained. Being able to vary all the circumstances,
+we can always take effectual means of
+ascertaining which of them are, and which are not,
+material. Call the effect B, and let the question be
+whether the cause A in any way contributes to it.
+We try an experiment in which all the surrounding
+circumstances are altered, except A alone: if the effect
+B is nevertheless produced, A is the cause of it. Or,
+instead of leaving A, and changing the other circumstances,
+we leave all the other circumstances and
+change A: if the effect B in that case does <i>not</i> take
+place, then again A is a necessary condition of its
+existence. Either of these experiments, if accurately
+performed, is an <i>experimentum crucis</i>; it converts the
+presumption we had before of the existence of a connection
+between A and B into proof, by negativing
+every other hypothesis which would account for the
+appearances.</p>
+
+<p>But this can seldom be done in the moral sciences,
+owing to the immense multitude of the influencing
+circumstances, and our very scanty means of varying
+the experiment. Even in operating upon an individual
+mind, which is the case affording greatest room for
+experimenting, we cannot often obtain a <i>crucial</i> experiment.
+The effect, for example, of a particular circumstance
+in education, upon the formation of character,
+may be tried in a variety of cases, but we can
+hardly ever be certain that any two of those cases
+differ in all their circumstances except the solitary
+one of which we wish to estimate the influence. In
+how much greater a degree must this difficulty exist in
+the affairs of states, where even the <i>number</i> of recorded
+experiments is so scanty in comparison with the variety
+and multitude of the circumstances concerned in each.
+How, for example, can we obtain a crucial experiment
+on the effect of a restrictive commercial policy upon
+national wealth? We must find two nations alike in
+every other respect, or at least possessed, in a degree
+exactly equal, of everything which conduces to national
+opulence, and adopting exactly the same policy in all
+their other affairs, but differing in this only, that one
+of them adopts a system of commercial restrictions, and
+the other adopts free trade. This would be a decisive experiment,
+similar to those which we can almost always
+obtain in experimental physics. Doubtless this would
+be the most conclusive evidence of all if we could get
+it. But let any one consider how infinitely numerous
+and various are the circumstances which either directly
+or indirectly do or may influence the amount of the
+national wealth, and then ask himself what are the
+probabilities that in the longest revolution of ages two
+nations will be found, which agree, and can be shown
+to agree, in all those circumstances except one?</p>
+
+<p>Since, therefore, it is vain to hope that truth can
+be arrived at, either in Political Economy or in any
+other department of the social science, while we look
+at the facts in the concrete, clothed in all the complexity
+with which nature has surrounded them, and
+endeavour to elicit a general law by a process of induction
+from a comparison of details; there remains no
+other method than the <i>&agrave; priori</i> one, or that of &quot;abstract
+speculation.&quot;</p>
+
+<p>Although sufficiently ample grounds are not afforded
+in the field of politics, for a satisfactory induction by a
+comparison of the effects, the causes may, in all cases,
+be made the subject of specific experiment. These
+causes are, laws of human nature, and external circumstances
+capable of exciting the human will to action.
+The desires of man, and the nature of the conduct to
+which they prompt him, are within the reach of our
+observation. We can also observe what are the objects
+which excite those desires. The materials of
+this knowledge every one can principally collect within
+himself; with reasonable consideration of the differences,
+of which experience discloses to him the existence,
+between himself and other people. Knowing
+therefore accurately the properties of the substances
+concerned, we may reason with as much certainty as in
+the most demonstrative parts of physics from any
+assumed set of circumstances. This will be mere trifling
+if the assumed circumstances bear no sort of resemblance
+to any real ones; but if the assumption is correct
+as far as it goes, and differs from the truth no
+otherwise than as a part differs from the whole, then
+the conclusions which are correctly deduced from the
+assumption constitute <i>abstract</i> truth; and when completed
+by adding or subtracting the effect of the non-calculated
+circumstances, they are true in the concrete,
+and may be applied to practice.</p>
+
+<p>Of this character is the science of Political Economy
+in the writings of its best teachers. To render it perfect
+as an abstract science, the combinations of circumstances
+which it assumes, in order to trace their effects,
+should embody all the circumstances that are common
+to all cases whatever, and likewise all the circumstances
+that are common to any important class of cases.
+The conclusions correctly deduced from these assumptions,
+would be as true in the abstract as those of
+mathematics; and would be as near an approximation
+as abstract truth can ever be, to truth in the
+concrete.</p>
+
+<p>When the principles of Political Economy are to
+be applied to a particular ease, then it is necessary to
+take into account all the individual circumstances of
+that case; not only examining to which of the sets of
+circumstances contemplated by the abstract science
+the circumstances of the case in question correspond,
+but likewise what other circumstances may exist in
+that case, which not being common to it with any large
+and strongly-marked class of cases, have not fallen
+under the cognizance of the science. These circumstances
+have been called <i>disturbing causes</i>. And here
+only it is that an element of uncertainty enters into
+the process&mdash;an uncertainty inherent in the nature
+of these complex phenomena, and arising from the
+impossibility of being quite sure that all the circumstances
+of the particular case are known to us sufficiently
+in detail, and that our attention is not unduly
+diverted from any of them.</p>
+
+<p>This constitutes the only uncertainty of Political
+Economy; and not of it alone, but of the moral sciences
+in general. When the disturbing causes are known,
+the allowance necessary to be made for them detracts
+in no way from scientific precision, nor constitutes any
+deviation from the <i>&agrave; priori</i> method. The disturbing
+causes are not handed over to be dealt with by mere
+conjecture. Like <i>friction</i> in mechanics, to which they
+have been often compared, they may at first have been
+considered merely as a non-assignable deduction to be
+made by guess from the result given by the general
+principles of science; but in time many of them are
+brought within the pale of the abstract science itself,
+and their effect is found to admit of as accurate an
+estimation as those more striking effects which they
+modify. The disturbing causes have their laws, as the
+causes which are thereby disturbed have theirs; and
+from the laws of the disturbing causes, the nature and
+amount of the disturbance may be predicted <i>&agrave; priori</i>,
+like the operation of the more general laws which they
+are said to modify or disturb, but with which they
+might more properly be said to be concurrent. The
+effect of the special causes is then to be added to, or
+subtracted from, the effect of the general ones.</p>
+
+<p>These disturbing causes are sometimes circumstances
+which operate upon human conduct through
+the same principle of human nature with which Political
+Economy is conversant, namely, the desire of
+wealth, but which are not general enough to be taken
+into account in the abstract science. Of disturbances
+of this description every political economist can produce
+many examples. In other instances the disturbing
+cause is some other law of human nature. In the
+latter case it never can fall within the province of
+Political Economy; it belongs to some other science;
+and here the mere political economist, he who has
+studied no science but Political Economy, if he attempt
+to apply his science to practice, will fail. <a name="FNanchor11"></a><a href="#Footnote_11"><sup>[11]</sup></a></p>
+
+<p>As for the other kind of disturbing causes, namely
+those which operate through the same law of human
+nature out of which the general principles of the
+science arise, these might always be brought within
+the pale of the abstract science if it were worth while;
+and when we make the necessary allowances for them
+in practice, if we are doing anything but guess, we are
+following out the method of the abstract science into
+minuter details; inserting among its hypotheses a
+fresh and still more complex combination of circumstances,
+and so adding <i>pro h&aacute;c vice</i> a supplementary
+chapter or appendix, or at least a supplementary
+theorem, to the abstract science.</p>
+
+<p>Having now shown that the method <i>&agrave; priori</i> in
+Political Economy, and in all the other branches of
+moral science, is the only certain or scientific mode
+of investigation, and that the <i>&agrave; posteriori</i> method, or
+that of specific experience, as a means of arriving at
+truth, is inapplicable to these subjects, we shall be
+able to show that the latter method is notwithstanding
+of great value in the moral sciences; namely, not as a
+means of discovering truth, but of verifying it, and
+reducing to the lowest point that uncertainty before
+alluded to as arising from the complexity of every
+particular case, and from the difficulty (not to say
+impossibility) of our being assured <i>&agrave; priori</i> that we
+have taken into account all the material circumstances.</p>
+
+<p>If we could be quite certain that we knew all the
+facts of the particular case, we could derive little additional
+advantage from specific experience. The causes
+being given, we may know what will be their effect,
+without an actual trial of every possible combination;
+since the causes are human feelings, and outward circumstances
+fitted to excite them: and, as these for
+the most part are, or at least might be, familiar to us,
+we can more surely judge of their combined effect
+from that familiarity, than from any evidence which
+can be elicited from the complicated and entangled
+circumstances of an actual experiment. If the knowledge
+what are the particular causes operating in any
+given instance were revealed to us by infallible authority,
+then, if our abstract science were perfect, we
+should become prophets. But the causes are not so
+revealed: they are to be collected by observation; and
+observation in circumstances of complexity is apt to
+be imperfect. Some of the causes may lie beyond
+observation; many are apt to escape it, unless we are
+on the look-out for them; and it is only the habit of
+long and accurate observation which can give us so
+correct a preconception what causes we are likely to
+find, as shall induce us to look for them in the right
+quarter. But such is the nature of the human understanding,
+that the very fact of attending with intensity
+to one part of a thing, has a tendency to withdraw
+the attention from the other parts. We are consequently
+in great danger of adverting to a portion only
+of the causes which are actually at work. And if we
+are in this predicament, the more accurate our deductions
+and the more certain our conclusions in the
+abstract, (that is, making abstraction of all circumstances
+except those which form part of the hypothesis,)
+the less we are likely to suspect that we are
+in error: for no one can have looked closely into the
+sources of fallacious thinking without being deeply
+conscious that the coherence, and neat concatenation
+of our philosophical systems, is more apt than we are
+commonly aware to pass with us as evidence of their
+truth.</p>
+
+<p>We cannot, therefore, too carefully endeavour to
+verify our theory, by comparing, in the particular cases
+to which we have access, the results which it would
+have led us to predict, with the most trustworthy
+accounts we can obtain of those which have been
+actually realized. The discrepancy between our anticipations
+and the actual fact is often the only circumstance
+which would have drawn our attention to some
+important disturbing cause which we had overlooked.
+Nay, it often discloses to us errors in thought, still
+more serious than the omission of what can with any
+propriety be termed a disturbing cause. It often
+reveals to us that the basis itself of our whole argument
+is insufficient; that the data, from which we had
+reasoned, comprise only a part, and not always the
+most important part, of the circumstances by which
+the result is really determined. Such oversights are
+committed by very good reasoners, and even by a still
+rarer class, that of good observers. It is a kind of
+error to which those are peculiarly liable whose views
+are the largest and most philosophical: for exactly in
+that ratio are their minds more accustomed to dwell
+upon those laws, qualities, and tendencies, which are
+common to large classes of cases, and which belong to
+all place and all time; while it often happens that
+circumstances almost peculiar to the particular case
+or era have a far greater share in governing that one
+case.</p>
+
+<p>Although, therefore, a philosopher be convinced
+that no general truths can be attained in the affairs
+of nations by the <i>&agrave; posteriori</i> road, it does not the less
+behove him, according to the measure of his opportunities,
+to sift and scrutinize the details of every
+specific experiment. Without this, he may be an
+excellent professor of abstract science; for a person
+may be of great use who points out correctly what
+effects will follow from certain combinations of possible
+circumstances, in whatever tract of the extensive
+region of hypothetical cases those combinations may
+be found. He stands in the same relation to the
+legislator, as the mere geographer to the practical
+navigator; telling him the latitude and longitude of
+all sorts of places, but not how to find whereabouts
+he himself is sailing. If, however, he does no more
+than this, he must rest contented to take no share in
+practical politics; to have no opinion, or to hold it
+with extreme modesty, on the applications which
+should be made of his doctrines to existing circumstances.</p>
+
+<p>No one who attempts to lay down propositions
+for the guidance of mankind, however perfect his
+scientific acquirements, can dispense with a practical
+knowledge of the actual modes in which the affairs of
+the world are carried on, and an extensive personal
+experience of the actual ideas, feelings, and intellectual
+and moral tendencies of his own country and of
+his own age. The true practical statesman is he who
+combines this experience with a profound knowledge
+of abstract political philosophy. Either acquirement,
+without the other, leaves him lame and impotent if he
+is sensible of the deficiency; renders him obstinate and
+presumptuous if, as is more probable, he is entirely
+unconscious of it.</p>
+
+<p>Such, then, are the respective offices and uses of
+the <i>&agrave; priori</i> and the <i>&agrave; posteriori</i> methods&mdash;the method
+of abstract science, and that of specific experiment&mdash;as
+well in Political Economy, as in all the other
+branches of social philosophy. Truth compels us to
+express our conviction that whether among those who
+have written on, these subjects, or among those for
+whose use they wrote, few can be pointed out who
+have allowed to each of these methods its just value,
+and systematically kept each to its proper objects and
+functions. One of the peculiarities of modern times,
+the separation of theory from practice&mdash;of the studies
+of the closet, from the outward business of the world&mdash;has
+given a wrong bias to the ideas and feelings both
+of the student and of the man of business. Each
+undervalues that part of the materials of thought with
+which he is not familiar. The one despises all comprehensive
+views, the other neglects details. The one
+draws his notion of the universe from the few objects
+with which his course of life has happened to render
+him familiar; the other having got demonstration on his
+side, and forgetting that it is only a demonstration <i>nisi</i>&mdash;a
+proof at all times liable to be set aside by the addition
+of a single new fact to the hypothesis&mdash;denies, instead
+of examining and sifting, the allegations which are
+opposed to him. For this he has considerable excuse
+in the worthlessness of the testimony on which the facts
+brought forward to invalidate the conclusions of theory
+usually rest. In these complex matters, men see with
+their preconceived opinions, not with their eyes: an
+interested or a passionate man's statistics are of little
+worth; and a year seldom passes without examples of
+the astounding falsehoods which large bodies of respectable
+men will back each other in publishing to
+the world as facts within their personal knowledge. It
+is not because a thing is <i>asserted</i> to be true, but because
+in its nature it <i>may</i> be true, that a sincere and
+patient inquirer will feel himself called upon to investigate
+it. He will use the assertions of opponents not
+as evidence, but indications leading to evidence; suggestions
+of the most proper course for his own inquiries.</p>
+
+<p>But while the philosopher and the practical man
+bandy half-truths with one another, we may seek far
+without finding one who, placed on a higher eminence
+of thought, comprehends as a whole what they see only
+in separate parts; who can make the anticipations of
+the philosopher guide the observation of the practical
+man, and the specific experience of the practical man
+warn the philosopher where something is to be added
+to his theory.</p>
+
+<p>The most memorable example in modern times of
+a man who united the spirit of philosophy with the
+pursuits of active life, and kept wholly clear from the
+partialities and prejudices both of the student and of
+the practical statesman, was Turgot; the wonder not
+only of his age, but of history, for his astonishing combination
+of the most opposite, and, judging from common
+experience, almost incompatible excellences.</p>
+
+<p>Though it is impossible to furnish any test by which
+a speculative thinker, either in Political Economy or in
+any other branch of social philosophy, may know that
+he is competent to judge of the application of his
+principles to the existing condition of his own or any
+other country, indications may be suggested by the
+absence of which he may well and surely know that he
+is not competent. His knowledge must at least enable
+him to explain and account for what <i>is</i>, or he is
+an insufficient judge of what ought to be. If a political
+economist, for instance, finds himself puzzled by
+any recent or present commercial phenomena; if there
+is any mystery to him in the late or present state of
+the productive industry of the country, which his knowledge
+of principle does not enable him to unriddle; he
+may be sure that something is wanting to render his
+system of opinions a safe guide in existing circumstances.
+Either some of the facts which influence
+the situation of the country and the course of events
+are not known to him; or, knowing them, he knows
+not what ought to be their effects. In the latter case
+his system is imperfect even as an abstract system; it
+does not enable him to trace correctly all the consequences
+even of assumed premises. Though he succeed
+in throwing doubts upon the reality of some of
+the phenomena which he is required to explain, his
+task is not yet completed; even then he is called upon
+to show how the belief, which he deems unfounded,
+arose; and what is the real nature of the appearances
+which gave a colour of probability to allegations which
+examination proves to be untrue.</p>
+
+<p>When the speculative politician has gone through
+this labour&mdash;has gone through it conscientiously, not
+with the desire of finding his system complete, but
+of making it so&mdash;he may deem himself qualified to
+apply his principles to the guidance of practice: but
+he must still continue to exercise the same discipline
+upon every new combination of facts as it arises; he
+must make a large allowance for the disturbing influence
+of unforeseen causes, and must carefully watch
+the result of every experiment, in order that any
+residuum of facts which his principles did not lead
+him to expect, and do not enable him to explain, may
+become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction
+of his general views.</p>
+
+<p>The method of the practical philosopher consists,
+therefore, of two processes; the one analytical, the
+other synthetical. He must <i>analyze</i> the existing state
+of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience
+of individual man to learn the <i>law</i> of each of
+these elements, that is, to learn what are its natural
+effects, and how much of the effect follows from so
+much of the cause when not counteracted by any
+other cause, there remains an operation of <i>synthesis</i>;
+to put all these effects together, and, from what
+they are separately, to collect what would be the
+effect of all the causes acting at once. If these
+various operations could be correctly performed, the
+result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness,
+mankind can never predict with absolute certainty,
+but only with a less or greater degree of probability;
+according as they are better or worse apprised
+what the causes are,&mdash;have learnt with more or less
+accuracy from experience the law to which each of
+those causes, when acting separately, conforms,&mdash;and
+have summed up the aggregate effect more or less
+carefully.</p>
+
+<p>With all the precautions which have been indicated
+there will still be some danger of falling into partial
+views; but we shall at least have taken the best securities
+against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories,
+and to free ourselves, as far as we are able, from that
+reluctance from which few inquirers are altogether
+him to expect, and do not enable him to explain, may
+become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction
+of his general views.</p>
+
+<p>The method of the practical philosopher consists,
+therefore, of two processes; the one analytical, the
+other synthetical. He must <i>analyze</i> the existing state
+of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience
+of individual man to learn the <i>law</i> of each of
+these elements, that is, to learn what are its natural
+effects, and how much of the effect follows from so
+much of the cause when not counteracted by any
+other cause, there remains an operation of <i>synthesis</i>;
+to put all these effects together, and, from what
+they are separately, to collect what would be the
+effect of all the causes acting at once. If these
+various operations could be correctly performed, the
+result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness,
+mankind can never predict with absolute certainty,
+but only with a less or greater degree of probability;
+according as they are better or worse apprised
+what the causes are,&mdash;have learnt with more or less
+accuracy from experience the law to which each of
+those causes, when acting separately, conforms,&mdash;and
+have summed up the aggregate effect more or less
+carefully.</p>
+
+<p>With all the precautions which have been indicated
+there will still be some danger of falling into partial
+views; but we shall at least have taken the best securities
+against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories,
+and to free ourselves, as far as we are able, from that
+reluctance from which few inquirers are altogether
+exempt, to admit the reality or relevancy of any
+facts which they have not previously either taken into,
+or left a place open for in, their systems.</p>
+
+<p>If indeed every phenomenon was generally the
+effect of no more than one cause, a knowledge of the
+law of that cause would, unless there was a logical
+error in our reasoning, enable us confidently to predict
+all the circumstances of the phenomenon. We
+might then, if we had carefully examined our premises
+and our reasoning, and found no flaw, venture
+to disbelieve the testimony which might be brought to
+show that matters had turned out differently from
+what we should have predicted. If the causes of
+erroneous conclusions were always patent on the face
+of the reasonings which lead to them, the human understanding
+would be a far more trustworthy instrument
+than it is. But the narrowest examination of
+the process itself will help us little towards discovering
+that we have omitted part of the premises which
+we ought to have taken into our reasoning. Effects
+are commonly determined by a <i>concurrence</i> of causes.
+If we have overlooked any one cause, we may reason
+justly from all the others, and only be the further
+wrong. Our premises will be true, and our reasoning
+correct, and yet the result of no value in the particular
+case. There is, therefore, almost always room
+for a modest doubt as to our practical conclusions.
+Against false premises and unsound reasoning, a good
+mental discipline may effectually secure us; but against
+the danger of <i>overlooking</i> something, neither strength
+of understanding nor intellectual cultivation can be
+more than a very imperfect protection. A person
+may be warranted in feeling confident, that whatever
+he has carefully contemplated with his mind's eye he
+has seen correctly; but no one can be sure that there
+is not something in existence which he has not seen
+at all. He can do no more than satisfy himself that
+he has seen all that is visible to any other persons
+who have concerned themselves with the subject.
+For this purpose he must endeavour to place himself
+at their point of view, and strive earnestly to see the
+object as they see it; nor give up the attempt until
+he has either added the appearance which is floating
+before them to his own stock of realities, or made out
+clearly that it is an optical deception.</p>
+
+<hr style="width: 45%;">
+
+<p>The principles which we have now stated are by no
+means alien to common apprehension: they are not
+absolutely hidden, perhaps, from any one, but are
+commonly seen through a mist. We might have presented
+the latter part of them in a phraseology in
+which they would have seemed the most familiar of
+truisms: we might have cautioned inquirers against
+too extensive <i>generalization</i>, and reminded them that
+there are <i>exceptions</i> to all rules. Such is the current
+language of those who distrust comprehensive thinking,
+without having any clear notion why or where it
+ought to be distrusted. We have avoided the use of
+these expressions purposely, because we deem them
+superficial and inaccurate. The error, when there is
+error, does <i>not</i> arise from generalizing too extensively;
+that is, from including too wide a range of particular
+cases in a single proposition. Doubtless, a man often
+asserts of an entire class what is only true of a part of
+it; but his error generally consists not in making too
+wide an assertion, but in making the wrong <i>kind</i> of
+assertion: he predicated an actual result, when he
+should only have predicated a <i>tendency</i> to that result&mdash;a
+power acting with a certain intensity in that
+direction. With regard to <i>exceptions</i>; in any tolerably
+ably advanced science there is properly no such thing
+as an exception. What is thought to be an exception
+to a principle is always some other and distinct
+principle cutting into the former: some other force
+which impinges against the first force, and deflects it
+from its direction. There are not a <i>law</i> and an <i>exception</i>
+to that law&mdash;the law acting in ninety-nine cases,
+and the exception in one. There are two laws, each
+possibly acting in the whole hundred cases, and bringing
+about a common effect by their conjunct operation.
+If the force which, being the less conspicuous
+of the two, is called the disturbing force, prevails
+sufficiently over the other force in some one case, to
+constitute that case what is commonly called an exception,
+the same disturbing force probably acts as a
+modifying cause in many other cases which no one
+will call exceptions.</p>
+
+<p>Thus if it were stated to be a law of nature, that
+all heavy bodies fall to the ground, it would probably
+be said that the resistance of the atmosphere, which
+prevents a balloon from falling, constitutes the balloon
+an exception to that pretended law of nature. But
+the real law is, that all heavy bodies <i>tend</i> to fall; and
+to this there is no exception, not even the sun and
+moon; for even they, as every astronomer knows,
+tend towards the earth, with a force exactly equal to
+that with which the earth tends towards them. The
+resistance of the atmosphere might, in the particular
+case of the balloon, from a misapprehension of what
+the law of gravitation is, be said to <i>prevail</i> over the
+law; but its disturbing effect is quite as real in every
+other case, since though it does not prevent, it retards
+the fall of all bodies whatever. The rule, and the
+so-called exception, do not divide the cases between
+them; each of them is a comprehensive rule extending
+to all cases. To call one of these concurrent
+principles an exception to the other, is superficial,
+and contrary to the correct principles of nomenclature
+and arrangement. An effect of precisely the same
+kind, and arising from the same cause, ought not to
+be placed in two different categories, merely as there
+does or does not exist another cause preponderating
+over it.</p>
+
+<p>It is only in art, as distinguished from science, that
+we can with propriety speak of exceptions. Art, the
+immediate end of which is practice, has nothing to do
+with causes, except as the means of bringing about
+effects. However heterogeneous the causes, it carries
+the effects of them all into one single reckoning, and
+according as the sum-total is <i>plus</i> or <i>minus</i>, according
+as it falls above or below a certain line, Art says, Do
+this, or Abstain from doing it. The exception does
+not run by insensible degrees into the rule, like what
+are called exceptions in science. In a question of
+practice it frequently happens that a certain thing is
+either fit to be done, or fit to be altogether abstained
+from, there being no medium. If, in the majority
+of cases, it is fit to be done, that is made the rule.
+When a case subsequently occurs in which the thing
+ought not to be done, an entirely new leaf is turned
+over; the rule is now done with, and dismissed: a new
+train of ideas is introduced, between which and those
+involved in the rule there is a broad line of demarcation;
+as broad and <i>tranchant</i> as the difference between
+Ay and No. Very possibly, between the last case
+which comes within the rule and the first of the exception,
+there is only the difference of a shade: but
+that shade probably makes the whole interval between
+acting in one way and in a totally different one. We
+may, therefore, in talking of art, unobjectionably speak
+of the <i>rule</i> and the <i>exception</i>; meaning by the rule,
+the cases in which there exists a preponderance, however
+slight, of inducements for acting in a particular
+way; and by the exception, the cases in which the
+preponderance is on the contrary side.</p>
+
+<p class="NO"><b>NOTES:</b></p>
+
+<p><a name="Footnote_8"></a><a href="#FNanchor8">[8]</a><div class=note> We say, the <i>production</i> and <i>distribution</i>, not, as is usual
+with writers on this science, the production, distribution, and <i>consumption</i>.
+For we contend that Political Economy, as conceived
+by those very writers, has nothing to do with the consumption of
+wealth, further than as the consideration of it is inseparable from
+that of production, or from that of distribution. We know not of
+any <i>laws</i> of the <i>consumption</i> of wealth as the subject of a distinct
+science: they can be no other than the laws of human enjoyment.
+Political economists have never treated of consumption on its own
+account, but always for the purpose of the inquiry in what manner
+different kinds of consumption affect the production and distribution
+of wealth. Under the head of Consumption, in professed
+treatises on the science, the following are the subjects treated of:
+1st, The distinction between <i>productive</i> and <i>unproductive</i> consumption;
+2nd, The inquiry whether it is possible for <i>too much</i> wealth
+to be <i>produced</i>, and for too great a portion of what has been produced
+to be applied to the purpose of further <i>production</i>; 3rd,
+The theory of taxation, that is to say, the following two questions&mdash;by
+whom each particular tax is paid (a question of <i>distribution</i>),
+and in what manner particular taxes affect <i>production</i>.</div><br>
+
+<p><a name="Footnote_9"></a><a href="#FNanchor9">[9]</a><div class=note> The physical laws of the production of useful objects are all
+equally presupposed by the science of Political Economy: most of
+them, however, it presupposes in the gross, seeming to say nothing
+about them. A few (such, for instance, as the decreasing ratio in
+which the produce of the soil is increased by an increased application
+of labour) it is obliged particularly to specify, and thus
+seems to borrow those truths from the physical sciences to which
+they properly belong, and include them among its own.</div><br>
+
+<p><a name="Footnote_10"></a><a href="#FNanchor10">[10]</a><div class=note> The <i>science</i> of legislation is an incorrect and misleading expression.
+Legislation is <i>making laws</i>. We do not talk of the
+<i>science</i> of <i>making</i> anything. Even the <i>science of government</i> would
+be an objectionable expression, were it not that <i>government</i> is often
+loosely taken to signify, not the act of governing, but the state or
+condition of <i>being governed</i>, or of living under a government. A
+preferable expression would be, the science of <i>political society</i>; a
+principal branch of the more extensive science of society, characterized
+in the text.</div><br>
+
+<p><a name="Footnote_11"></a><a href="#FNanchor11">[11]</a><div class=note> One of the strongest reasons for drawing the line of separation
+clearly and broadly between science and art is the following:&mdash;That
+the principle of classification in science most
+conveniently follows the classification of <i>causes</i>, while arts must
+necessarily be classified according to the classification of the <i>effects</i>,
+the production of which is their appropriate end. Now an effect,
+whether in physics or morals, commonly depends upon a concurrence
+of causes, and it frequently happens that several of these
+causes belong to different sciences. Thus in the construction of
+engines upon the principles of the science of <i>mechanics</i>, it is
+necessary to bear in mind the <i>chemical</i> properties of the material,
+such as its liability to oxydize; its electrical and magnetic properties,
+and so forth. From this it follows that although the
+necessary foundation of all art is science, that is, the knowledge
+of the properties or laws of the objects upon which, and with
+which, the art dons its work; it is not equally true that every art
+corresponds to one particular science. Each art presupposes, not
+one science, but science in general; or, at least, many distinct
+sciences.</div><br><br>
+
+
+
+<p>THE END.</p>
+<br><br>
+<p>(Editor's note)</p>
+
+<p><b>Essays on some Unsettled.
+Questions of Political
+Economy</b></p>
+
+<p>These five essays represent Mill's
+earliest thoughts on economic matters
+and were first composed in 1829 and
+1830 before his reputation had been
+established by the publication of <i>Logic</i>
+in 1843. Their successful reception no
+doubt hastened the composition of his
+comprehensive work the <i>Principles of
+Political Economy</i> (1848).</p>
+
+<div>*** END OF THE PROJECT GUTENBERG EBOOK 12004 ***</div>
+</body>
+</html>
+
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+
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+Project Gutenberg (https://www.gutenberg.org) public repository for
+eBook #12004 (https://www.gutenberg.org/ebooks/12004)
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+The Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
+
+This eBook is for the use of anyone anywhere at no cost and with
+almost no restrictions whatsoever.  You may copy it, give it away or
+re-use it under the terms of the Project Gutenberg License included
+with this eBook or online at www.gutenberg.org
+
+
+Title: Essays on some unsettled Questions of Political Economy
+
+Author: John Stuart Mill
+
+Release Date: April 9, 2004 [EBook #12004]
+
+Language: English
+
+Character set encoding: ISO Latin-1
+
+*** START OF THIS PROJECT GUTENBERG EBOOK ESSAYS ON SOME UNSETTLED ***
+
+
+
+
+Produced by Avinash Kothare and Marc D'Hooghe
+
+
+
+
+
+
+ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY
+
+by
+
+JOHN STUART MILL
+
+
+1844
+
+
+
+
+PREFACE.
+
+
+Of these Essays, which were written in 1829 and 1830, the fifth alone
+has been previously printed. The other four have hitherto remained in
+manuscript, because, during the temporary suspension of public interest
+in the species of discussion to which they belong, there was no
+inducement to their publication.
+
+They are now published (with a few merely verbal alterations) under the
+impression, that the controversies excited by Colonel Torrens' _Budget_
+have again called the attention of political economists to the
+discussions of the abstract science: and from the additional
+consideration, that the first paper relates expressly to the point upon
+which the question at issue between Colonel Torrens and his antagonists
+has principally turned.
+
+From that paper it will be seen that opinions identical in principle
+with those promulgated by Colonel Torrens (there would probably be
+considerable difference as to the extent of their practical application)
+have been held by the writer for more than fifteen years: although he
+cannot claim to himself the original conception, but only the
+elaboration, of the fundamental doctrine of the Essay.
+
+A prejudice appears to exist in many quarters against the theory in
+question, on the supposition of its being opposed to one of the most
+valuable results of modern political philosophy, the doctrine of Freedom
+of Trade between nation and nation. The opinions now laid before the
+reader are presented as corollaries necessarily following from the
+principles upon which Free Trade itself rests. The writer has also been
+careful to point out, that from these opinions no justification can be
+derived for any _protecting_ duty, or other preference given to domestic
+over foreign industry. But in regard to those duties on foreign
+commodities which do not operate as protection, but are maintained
+solely for revenue, and which do not touch either the necessaries of
+life or the materials and instruments of production, it is his opinion
+that any relaxation of such duties, beyond what may be required by the
+interest of the revenue itself, should in general be made contingent
+upon the adoption of some corresponding degree of freedom of trade with
+this country, by the nation from which the commodities are imported.
+
+
+
+
+CONTENTS.
+
+
+ESSAY I.
+
+Of the Laws of Interchange between Nations; and the Distribution of the
+Gains of Commerce among the Countries of the Commercial World
+
+ESSAY II.
+
+Of the Influence of Consumption upon Production
+
+ESSAY III.
+
+On the Words Productive and Unproductive
+
+ESSAY IV.
+
+On Profits, and Interest
+
+ESSAY V.
+
+On the Definition of Political Economy; and on the Method of
+Investigation proper to it
+
+
+
+
+ESSAY I.
+
+OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THE
+GAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD.
+
+
+Of the truths with which political economy has been enriched by Mr.
+Ricardo, none has contributed more to give to that branch of knowledge
+the comparatively precise and scientific character which it at present
+bears, than the more accurate analysis which he performed of the nature
+of the advantage which nations derive from a mutual interchange of their
+productions. Previously to his time, the benefits of foreign trade were
+deemed, even by the most philosophical enquirers, to consist in
+affording a vent for surplus produce, or in enabling a portion of the
+national capital to replace itself with a profit. The futility of the
+theory implied in these and similar phrases, was an obvious consequence
+from the speculations of writers even anterior to Mr. Ricardo. But it
+was he who first, in the chapter on Foreign Trade, of his immortal
+_Principles of Political Economy and Taxation_, substituted for the
+former vague and unscientific, if not positively false, conceptions with
+regard to the advantage of trade, a philosophical exposition which
+explains, with strict precision, the nature of that advantage, and
+affords an accurate measure of its amount.
+
+He shewed, that the advantage of an interchange of commodities between
+nations consists simply and solely in this, that it enables each to
+obtain, with a given amount of labour and capital, a greater quantity of
+all commodities taken together. This it accomplishes by enabling each,
+with a quantity of one commodity which has cost it so much labour and
+capital, to purchase a quantity of another commodity which, if produced
+at home, would have required labour and capital to a greater amount.
+To render the importation of an article more advantageous than its
+production, it is not necessary that the foreign country should be able
+to produce it with less labour and capital than ourselves. We may even
+have a positive advantage in its production: but, if we are so far
+favoured by circumstances as to have a still greater positive advantage
+in the production of some other article which is in demand in the
+foreign country, we may be able to obtain a greater return to our labour
+and capital by employing none of it in producing the article in which
+our advantage is least, but devoting it all to the production of that in
+which our advantage is greatest, and giving this to the foreign country
+in exchange for the other. It is not a difference in the _absolute_ cost
+of production, which determines the interchange, but a difference in the
+_comparative_ cost. It may be to our advantage to procure iron from
+Sweden in exchange for cottons, even although the mines of England as
+well as her manufactories should be more productive than those of
+Sweden; for if we have an advantage of one-half in cottons, and only an
+advantage of a quarter in iron, and could sell our cottons to Sweden at
+the price which Sweden must pay for them if she produced them herself,
+we should obtain our iron with an advantage of one-half, as well as our
+cottons. We may often, by trading with foreigners, obtain their
+commodities at a smaller expense of labour and capital than they cost
+to the foreigners themselves. The bargain is still advantageous to the
+foreigner, because the commodity which he receives in exchange, though
+it has cost us less, would have cost him more. As often as a country
+possesses two commodities, one of which it can produce with less labour,
+comparatively to what it would cost in a foreign country, than the
+other; so often it is the interest of the country to export the first
+mentioned commodity and to import the second; even though it might be
+able to produce both the one and the other at a less expense of labour
+than the foreign country can produce them, but not less in the same
+degree; or might be unable to produce either except at a greater
+expense, but not greater in the same degree.
+
+On the contrary, if it produces both commodities with greater facility,
+or both with greater difficulty, and greater in exactly the same degree,
+there will be no motive to interchange.
+
+"If the cloth and the corn, each of which required 100 days' labour in
+Poland, required each 150 days' labour in England; it would follow, that
+the cloth of 150 days' labour in England, if sent to Poland, would be
+equal to the cloth of 100 days' labour in Poland: if exchanged for corn,
+therefore, it would exchange for the corn of only 100 days' labour. But
+the corn of 100 days' labour in Poland, was supposed to be the same
+quantity with that of 150 days' labour in England. With 150 days' labour
+in cloth, therefore, England would only get as much corn in Poland as
+she could raise with 150 days' labour at home; and she would, in
+importing it, have the cost of carriage besides. In these circumstances
+no exchange would take place.
+
+"If, on the other hand, while the cloth produced with 100 days' labour
+in Poland was produced with 150 days' labour in England, the corn which
+was produced in Poland with 100 days' labour could not be produced in
+England with less than 200 days' labour; an adequate motive to exchange
+would immediately arise. With a quantity of cloth which England produced
+with 150 days' labour, she would be able to purchase as much corn in
+Poland as was there produced with 100 days' labour; but the quantity,
+which was there produced with 100 days' labour, would be as great as the
+quantity produced in England with 200 days' labour.
+
+"The power of Poland would be reciprocal. With a quantity of corn which
+cost her 100 days' labour, equal to the quantity produced in England by
+200 days' labour, she could in the supposed case purchase in England the
+produce of 200 days' labour in cloth." But "the produce of 150 days'
+labour in England in the article of cloth would be equal to the produce
+of 100 days' labour in Poland [1]."
+
+The remainder of what Mr. Ricardo has done for the philosophical
+exposition of the principles of foreign trade, is to shew, that the
+truth of the propositions now recapitulated is not affected by the
+introduction of money as a medium of exchange; the precious metals
+always tending to distribute themselves in such a manner throughout the
+commercial world, that every country shall import all that it would have
+imported, and export all that it would have exported, if exchanges had
+taken place, as in the example above supposed, by barter.
+
+To this branch of the subject we shall, in the sequel of this essay,
+return. At present it will be more convenient that we should continue to
+suppose, that exchanges take place by the direct trucking of one
+commodity against another.
+
+It is established, that the advantage which two countries derive from
+trading with each other, results from the more advantageous employment
+which thence arises, of the labour and capital--for shortness let us say
+the labour--of both jointly. The circumstances are such, that if each
+country confines itself to the production of one commodity, there is a
+greater total return to the labour of both together; and this increase
+of produce forms the whole of what the two countries taken together gain
+by the trade.
+
+It is the purpose of the present essay to inquire, in what proportion
+the increase of produce, arising from the saving of labour, is divided
+between the two countries.
+
+This question was not entered into by Mr. Ricardo, whose attention was
+engrossed by far more important questions, and who, having a science to
+create, had not time, or room, to occupy himself with much more than the
+leading principles. When he had done enough to enable any one who came
+after him, and who took the necessary pains, to do all the rest, he was
+satisfied. He very rarely followed out the principles of the science
+into the ramifications of their consequences. But we believe that to no
+one, who has thoroughly entered into the spirit of his discoveries, will
+even the minutiae of the science offer any difficulty but that which is
+constituted by the necessity of patience and circumspection in tracing
+principles to their results.
+
+Mr. Ricardo, while intending to go no further into the question of the
+advantage of foreign trade than to show what it consisted of, and under
+what circumstances it arose, unguardedly expressed himself as if each of
+the two countries making the exchange separately gained the whole of the
+difference between the comparative costs of the two commodities in one
+country and in the other. But, the whole gain of both countries
+together, consisting in the saving of labour; and the saving of labour
+being exactly equal to the difference between the costs, in the two
+countries, of the one commodity as compared with the other; the two
+countries taken together gain no more than this difference: and if
+either country gains the whole of it, the other country derives no
+advantage from the trade.
+
+Suppose, for example, that 10 yards of broad cloth cost in England as
+much labour as 15 yards of linen, and in Germany as much as 20. If
+England sends 10 yards of broad cloth to Germany, and is able to
+exchange them for linen according to the German cost of production, she
+will get 20 yards of linen, with a quantity of labour with which she
+could not have produced more than 15; and will gain, therefore, 5 yards
+on every 15, or 33-1/3 per cent. But in this case Germany would obtain
+only 10 yards of cloth for 20 of linen. Now, 10 yards of cloth cost
+exactly the same quantity of labour in Germany as 20 of linen; Germany,
+therefore, derives no advantage from the trade, more than she would
+possess if it did not exist.
+
+So, on the other hand, if Germany sends 15 yards of linen to England,
+and finding the relative value of the two articles in that country
+determined by the English costs of production, is enabled to purchase
+with 35 yards of linen 10 yards of cloth; Germany now gains 5 yards,
+just as England did before,--for with 15 yards of linen she purchases 10
+yards of cloth, when to produce these 10 yards she must have employed as
+much labour as would have enabled her to produce 20 yards of linen. But
+in this case England would gain nothing: she would only obtain, for her
+10 yards of cloth, 15 yards of linen, which is exactly the comparative
+cost at which she could have produced them.
+
+This, which was not an error, but a mere oversight of Mr. Ricardo,
+arising from his having left the question of the division of the
+advantage entirely unnoticed, was first corrected in the third edition
+of Mr. Mill's _Elements of Political Economy_. It can hardly, however,
+be said that Mr. Mill has prosecuted the inquiry any further; which,
+indeed, would have been quite as inconsistent with the nature of his
+plan as of Mr. Ricardo's.
+
+1. When the trade is established between the two countries, the two
+commodities will exchange for each other at the same rate of interchange
+in both countries--bating the cost of carriage, of which, for the present,
+it will be more convenient to omit the consideration. Supposing, therefore,
+for the sake of argument, that the carriage of the commodities from one
+country to another could be effected without labour and without cost, no
+sooner would the trade be opened than, it is self-evident, the value of
+the two commodities, estimated in each other, would come to a level in
+both countries.
+
+If we knew what this level would be, we should know in what proportion
+the two countries would share the advantage of the trade.
+
+When each country produced both commodities for itself, 10 yards of
+broad cloth exchanged for 15 yards of linen in England, and for 20 in
+Germany. They will now exchange for the same number of yards of linen in
+both. For what number? If for 15 yards, England will be just as she was,
+and Germany will gain all. If for 20 yards, Germany will be as before,
+and England will derive the whole of the benefit. If for any number
+intermediate between 15 and 20, the advantage will be shared between the
+two countries. If, for example, 10 yards of cloth exchange for 18 of
+linen, England will gain an advantage of 3 yards on every 15, Germany
+will save 2 out of every 20.
+
+The problem is, what are the causes which determine the proportion in
+which the cloth of England and the linen of Germany will exchange for
+each other?
+
+This, therefore, is a question concerning exchangeable value. There must
+be something which determines how much of one commodity another
+commodity will purchase; and there is no reason to suppose that the law
+of exchangeable value is more difficult of ascertainment in this case
+than in other cases.
+
+The law, however, cannot be precisely the same as in the common cases.
+When two articles are produced in the immediate vicinity of one another,
+so that, without expatriating himself, or moving to a distance, a
+capitalist has the choice of producing one or the other, the quantities
+of the two articles which will exchange for each other will be, on the
+average, those which are produced by equal quantities of labour. But
+this cannot be applied to the case where the two articles are produced
+in two different countries; because men do not usually leave their
+country, or even send their capital abroad, for the sake of those small
+differences of profit which are sufficient to determine their choice of
+a business, or of an investment, in their own country and neighbourhood.
+
+The principle, that value is proportional to cost of production, being
+consequently inapplicable, we must revert to a principle anterior to
+that of cost of production, and from which this last flows as a
+consequence,--namely, the principle of demand and supply.
+
+In order to apply this principle, with any advantage, to the solution of
+the question which now occupies us, the principle itself, and the idea
+attached to the term demand, must be conceived with a precision, which
+the loose manner in which the words are used generally prevents.
+
+It is well known that the quantity of any commodity which can be
+disposed of, varies with the price. The higher the price, the fewer will
+be the purchasers, and the smaller the quantity sold. The lower the
+price, the greater will in general be the number of purchasers, and the
+greater the quantity disposed of. This is true of almost all commodities
+whatever: though of some commodities, to diminish the consumption in any
+given degree would require a much greater rise of price than of others.
+
+Whatever be the commodity--the supply in any market being given, there
+is some price at which the whole of the supply exactly will find
+purchasers, and no more. That, whatever it be, is the price at which, by
+the effect of competition, the commodity will be sold. If the price be
+higher, the whole of the supply will not be disposed of, and the
+sellers, by their competition, will bring down the price. If the price
+be lower, there will be found purchasers for a larger supply, and the
+competition of these purchasers will raise the price.
+
+This, then, is what we mean, when we say that price, or exchangeable
+value, depends on demand and supply. We should express the principle
+more accurately, if we were to say, the price so regulates itself that
+the demand shall be exactly sufficient to carry off the supply.
+
+Let us now apply the principle of demand and supply, thus understood, to
+the interchange of broadcloth and linen between England and Germany.
+
+As exchangeable value in this case, as in every other, is proverbially
+fluctuating, it does not matter what we suppose it to be when we begin;
+we shall soon see whether there be any fixed point about which it
+oscillates--which it has a tendency always to approach to, and to remain
+at.
+
+Let us suppose, then, that by the effect of what Adam Smith calls the
+higgling of the market, 10 yards of cloth, in both countries, exchange
+for 17 yards of linen.
+
+The demand for a commodity, that is, the quantity of it which can find a
+purchaser, varies, as we have before remarked, according to the price.
+In Germany, the price of 10 yards of cloth is now 17 yards of linen; or
+whatever quantity of money is equivalent in Germany to 17 yards of
+linen. Now, that being the price, there is some particular number of
+yards of cloth, which will be in demand, or will find purchasers, at
+that price. There is some given quantity of cloth, more than which could
+not be disposed of at that price,--less than which, at that price, would
+not fully satisfy the demand. Let us suppose this quantity to be, 1000
+times 10 yards.
+
+Let us now turn our attention to England. There, the price of 17 yards
+of linen is 10 yards of cloth, or whatever quantity of money is
+equivalent in England to 10 yards of cloth. There is some particular
+number of yards of linen, which, at that price, will exactly satisfy the
+demand, and no more. Let us suppose that this number is 1000 times 17
+yards.
+
+As 17 yards of linen are to 30 yards of cloth, so are 1000 times 17
+yards to 1000 times 10 yards. At the existing exchangeable value, the
+linen which England requires, will exactly pay for the quantity of cloth
+which, on the same terms of interchange, Germany requires. The demand on
+each side is precisely sufficient to carry off the supply on the other.
+The conditions required by the principle of demand and supply are
+fulfilled, and the two commodities will continue to be interchanged, as
+we supposed them to be, in the ratio of 17 yards of linen for 10 yards
+of cloth.
+
+But our supposition might have been different. Suppose that, at the
+assumed rate of interchange, England had been disposed to consume no
+greater quantity of linen than 800 times 17 yards; it is evident that,
+at the rate supposed, this would not have sufficed to pay for the 1000
+times 10 yards of cloth, which we have supposed Germany to require at
+the assumed value. Germany would be able to procure no more than 800
+times 10 yards, at that price. To procure the remaining 200, which she
+would have no means of doing but by bidding higher for them, she would
+offer more than 17 yards of linen in exchange for 10 yards of cloth; let
+us suppose her to offer 18. At that price, perhaps, England would be
+inclined to purchase a greater quantity of linen. She could consume,
+possibly, at that price, 900 times 18 yards. On the other hand, cloth
+having risen in price, the demand of Germany for it would, probably,
+have diminished. If, instead of 1000 times 10 yards, she is now
+contented with 900 times ten yards, these will exactly pay for the 900
+times 18 yards of linen which England is willing to take at the altered
+price: the demand on each side will again exactly suffice to take off
+the corresponding supply; and 10 yards for 18 will be the rate at which,
+in both countries, cloth will exchange for linen.
+
+The converse of all this would have happened if instead of 800 times 17
+yards, we had supposed that England, at the rate of 10 for 17, would
+have taken 1200 times 17 yards of linen. In this case, it is England
+whose demand is not fully supplied; it is England who, by bidding for
+more linen, will alter the rate of interchange to her own disadvantage;
+and 10 yards of cloth will fall, in both countries, below the value of
+17 yards of linen. By this fall of cloth, or what is the same thing,
+this rise of linen, the demand of Germany for cloth will increase, and
+the demand of England for linen will diminish, till the rate of
+interchange has so adjusted itself that the cloth and the linen will
+exactly pay for another; and when once this point is attained, values
+will remain as they are.
+
+It may be considered, therefore, as established, that when two countries
+trade together in two commodities, the exchangeable value of these
+commodities relatively to each other will adjust itself to the
+inclinations and circumstances of the consumers on both sides, in such
+manner that the quantities required by each country, of the article
+which it imports from its neighbour, shall be exactly sufficient to pay
+for one another. As the inclinations and circumstances of consumers
+cannot be reduced to any rule, so neither can the proportions in which
+the two commodities will be interchanged. We know that the limits within
+which the variation is confined are the ratio between their costs of
+production in the one country, and the ratio between their costs of
+production in the other. Ten yards of cloth cannot exchange for more
+than 20 yards of linen, nor for less than 15. But they may exchange for
+any intermediate number. The ratios, therefore, in which the advantage
+of the trade may be divided between the two nations, are various. The
+circumstances on which the proportionate share of each country more
+remotely depends, admit only of a very general indication.
+
+It is even possible to conceive an extreme case, in which the whole of
+the advantage resulting from the interchange would be reaped by one
+party, the other country gaining nothing at all. There is no absurdity
+in the hypothesis, that of some given commodity a certain quantity is
+all that is wanted at any price, and that when that quantity is
+obtained, no fall in the exchangeable value would induce other consumers
+to come forward, or those who are already supplied to take more. Let us
+suppose that this is the case in Germany with cloth. Before her trade
+with England commenced, when 10 yards of cloth cost her as much labour
+as 20 yards of linen, she nevertheless consumed as much cloth as she
+wanted under any circumstances, and if she could obtain it at the rate
+of 10 yards of cloth for 15 of linen, she would not consume more. Let
+this fixed quantity be 1000 times 10 yards. At the rate, however, of 10
+for 20, England would want more linen than would be equivalent to this
+quantity of cloth. She would consequently offer a higher value for
+linen; or, what is the same thing, she would offer her cloth at a
+cheaper rate. But as by no lowering of the value could she prevail on
+Germany to take a greater quantity of cloth, there would be no limit to
+the rise of linen, or fall of cloth, until the demand of England for
+linen was reduced by the rise of its value, to the quantity which one
+thousand times ten yards of cloth would purchase. It might be, that to
+produce this diminution of the demand, a less fall would not suffice,
+than one which would make 10 yards of cloth exchange for 15 of linen.
+Germany would then gain the whole of the advantage, and England would be
+exactly as she was before the trade commenced. It would be for the
+interest, however, of Germany herself, to keep her linen a little below
+the value at which it could be produced in England, in order to keep
+herself from being supplanted by the home producer. England, therefore,
+would always benefit in some degree by the existence of the trade,
+though it might be in a very trifling one.
+
+But in general there will not be this extreme inequality in the degree
+in which the demand in the two countries varies with variations in the
+price. The advantage will probably be divided equally, oftener than in
+any one unequal ratio that can be named; though the division will be
+much oftener, on the whole, unequal than equal.
+
+2. We shall now examine whether the same law of interchange, which we
+have shown to apply upon the supposition of barter, holds good after the
+introduction of money. Mr. Ricardo found that his more general
+proposition stood this test; and as the proposition which we have just
+demonstrated is only a further developement of his principle, we shall
+probably find that it suffers a little, by a mere change in the mode
+(for it is no more) in which one commodity is exchanged against another.
+
+We may at first make whatever supposition we will with respect to the
+value of money. Let us suppose, therefore, that before the opening of
+the trade, the price of cloth is the same in both countries, namely, six
+shillings per yard [2]. As 10 yards of cloth were supposed to exchange in
+England for 5 yards of linen, in Germany for 20, we must suppose that
+linen is sold in England at four shillings per yard, in Germany at
+three. Cost of carriage and importer's profit are left as before, out of
+consideration.
+
+In this state of prices, cloth, it is evident, cannot yet be exported
+from England into Germany. But linen can be imported from Germany into
+England. It will be so, and, in the first instance, the linen will be
+paid for in money.
+
+The efflux of money from England, and its influx into Germany, will
+raise money prices in the latter country, and lower them in the former.
+Linen will rise in Germany above three shillings per yard, and cloth
+above six shillings. Linen in England being imported from Germany, will
+(since cost of carriage is not reckoned) sink to the same price as in
+that country, while cloth will fall below six shillings. As soon as the
+price of cloth is lower in England than in Germany, it will begin to be
+exported, and the price of cloth in Germany will fall to what it is in
+England. As long As the cloth exported does not suffice to pay for the
+linen imported, money will continue to flow from England into Germany,
+and prices generally will continue to fall in England, and rise in
+Germany. By the fall, however, of cloth in England, cloth will fall in
+Germany also, and the demand for it will increase. By the rise of linen
+in Germany, linen must rise in England also, and the demand for it will
+diminish. Although the increased exportation of cloth takes place at a
+lower price, and the diminished importation of linen at a higher, yet
+the total money value of the exportation would probably increase, that
+of the importation diminish. As cloth fell in price and linen rose,
+there would be some particular price of both articles at-which the cloth
+exported, and the linen imported, would exactly pay for each other. At
+this point prices would remain, because money would then cease to move
+out of England into Germany. What this point might be, would entirely
+depend upon the circumstances and inclinations of the purchasers on both
+sides. If the fall of cloth did not much increase the demand for it in
+Germany, and the rise of linen did not diminish very rapidly the demand
+for it in England, much money must pass before the equilibrium is
+restored; cloth would fall very much, and linen would rise, until
+England, perhaps, had to pay nearly as much for it as when she produced
+it for herself. But if, on the contrary, the fall of cloth caused a very
+rapid increase of the demand for it in Germany, and the rise of linen in
+Germany reduced very rapidly the demand in England from what it was
+under the influence of the first cheapness produced by the opening of
+the trade; the cloth would very soon suffice to pay for the linen,
+little money would pass between the two countries, and England would
+derive a large portion of the benefit of the trade. We have thus arrived
+at precisely the same conclusion, in supposing the employment of money,
+which we found to hold under the supposition of barter.
+
+In what shape the benefit accrues to the two nations from the trade, is
+clear enough. Germany, before the commencement of the trade, paid six
+shillings per yard for broad-cloth. She now obtains it at a lower price.
+This, however, is not the whole of her advantage. As the money prices of
+all her other commodities have risen, the money incomes of all her
+producers have increased. This is no advantage to them in buying from
+each other; because the price of what they buy has risen in the same
+ratio with their means of paying for it: but it is an advantage to them
+in buying any thing which has not risen; and still more, any thing which
+has fallen. They therefore benefit as consumers of cloth, not merely to
+the extent to which cloth has fallen, but also to the extent to which
+other prices have risen. Suppose that this is one-tenth. The same
+proportion of their money incomes as before, will suffice to supply
+their other wants, and the remainder, being increased one-tenth in
+amount, will enable them to purchase one-tenth more cloth than before,
+even though cloth had not fallen. But it has fallen: so that they are
+doubly gainers. If they do not choose to increase their consumption of
+cloth, this does not prevent them from being gainers. They purchase the
+same quantity with less money, and have more to expend upon their other
+wants.
+
+In England, on the contrary, general money-prices have fallen. Linen,
+however, has fallen more than the rest; having been lowered in price, by
+importation from a country where it was cheaper, whereas the others have
+fallen only from the consequent efflux of money. Notwithstanding,
+therefore, the general fall of money-prices, the English producers will
+be exactly as they were in all other respects, while they will gain as
+purchasers of linen.
+
+The greater the efflux of money required to restore the equilibrium, the
+greater will be the gain of Germany; both by the fall of cloth, and by
+the rise of her general prices. The less the efflux of money requisite,
+the greater will be the gain of England; because the price of linen will
+continue lower, and her general prices will not be reduced so much. It
+must not, however, be imagined that high money-prices are a good, and
+low money-prices an evil, in themselves. But the higher the general
+money-prices in any country, the greater will be that country's means
+of purchasing those commodities which, being imported from abroad, are
+independent of the causes which keep prices high at home.
+
+3. We have hitherto supposed the carriage to be performed without labour
+or expense. If we abandon this supposition, we must correct the
+statement of the case in a slight degree. The prices of the two articles
+will no longer, when the trade is opened, be the same in both countries,
+nor will the articles exchange for one another at the same rate in both.
+Ten yards of cloth will purchase in Germany a quantity of linen greater
+than in England by a per-centage equal to the entire cost of conveyance
+both of the cloth to Germany and of the linen to England. The
+money-price of linen will be higher in England than in Germany, by the
+cost of carriage of the linen. The money-price of cloth will be higher
+in Germany than in England, by the cost of carriage of the cloth.
+
+The expense of the carriage is evidently a deduction _pro tanto_ from
+the saving of labour produced by the establishment of the trade. The two
+countries together, therefore, have their gains by the trade diminished,
+by the amount of the cost of carriage of both commodities. But here the
+question arises, which of the two countries bears this deduction, or in
+what proportion it is divided between them.
+
+At the first inspection it would appear that each country bears its own
+cost of carriage, that is, that each country pays the carriage of the
+commodity which it imports. Upon this supposition, each country would
+gain whatever share of the joint saving of labour would otherwise fall
+to its lot, _minus_ the cost of bringing from the other country the
+commodity which it imports. This solution is rendered plausible by the
+circumstance just now mentioned, that the price of the commodity will be
+higher in the country which imports it, than in the country which
+exports it, by the amount of the cost of carriage. If linen is sold in
+England at a higher price than in Germany, by a per-centage equal to the
+cost of carriage of the linen, it appears obvious that England pays for
+the carriage of the linen, and Germany, by parity of reason, for that of
+the cloth.
+
+But if we apply to these questions the principles already explained, we
+shall see that this is not by any means a universal law: the fact may
+correspond with it, or it may not.
+
+For suppose that the prices have adjusted themselves, no matter how, and
+that the imports and exports balance one another, each commodity, of
+course, being dearer by the cost of carriage, in the country which
+imports than in that which exports it: and suppose now that the cost of
+carriage, both of the one and of the other, were suddenly and
+miraculously annihilated, and that the commodities could pass from
+country to country without expense. If each country bore its own cost of
+carriage before, each country will save its own cost of carriage now.
+Cloth, in Germany, will in that case fall exactly to what it is in
+England; linen in England, to what it is in Germany.
+
+Now this fall of price, supposing it to happen, will probably affect the
+demand on both sides; and it will either affect it alike in both
+countries, or it will affect it unequally. It will affect it alike, if
+the fall of price does not affect the demand at all, or if it affects it
+equally in both countries. If either of these results should take place,
+the cloth and the linen would continue to balance each other as before:
+no money would pass from one country to the other; prices in both would
+continue at the point to which they had fallen, and each country would
+exactly save the cost of carriage on the commodity which it imports from
+the other.
+
+But the result might be, that the fall of price might not have an effect
+exactly equal, on the demand in the two countries. Suppose, for
+instance, that the fall of cloth in Germany owing to the saving of the
+cost of carriage, did not increase the demand for cloth in Germany; but
+that the fall of linen in England from a like cause, did increase the
+demand for linen in England. The linen imported would be more than could
+be paid for by the cloth exported: the difference must be paid in money:
+the change in the distribution of the precious metals between the two
+countries would lower the price of cloth in England, (and consequently
+in Germany), while it would raise the price of linen in Germany, (and
+consequently in England). Germany, therefore, by the annihilation of
+cost of carriage, would save in price more than the cost of carriage of
+the cloth; England would save less in price than the cost of carriage of
+the linen. But if by the miraculous annihilation of cost of carriage,
+England would not _save_ the whole of the carriage of her imports, it
+follows that England did not previously _pay_ the whole of that cost of
+carriage.
+
+Thus, the division of the cost of trade, and the division of the
+advantage of trade, are governed by precisely the same principles; and
+the only general proposition which can be affirmed respecting the cost
+is, that it is _pro tanto_ a deduction from the advantage. It cannot
+even be maintained that the cost is shared in the same proportion as the
+advantage is; because the increase of the demand for a commodity as its
+price falls, is not governed by any fixed law. Suppose, for instance,
+that the advantage happened to be divided equally: this must be because
+the greater cheapness arising from the establishment of the trade,
+either did not affect the demand at all, or affected it in an equal
+proportion on both sides. Now, because such is the effect of the degree
+of increased cheapness resulting from importation burthened with cost of
+carriage, it would not follow that the still greater degree of
+cheapness, produced by the additional saving of the cost of carriage
+itself, would also affect the demand of both countries in precisely an
+equal degree. But we cannot be said to bear an expense, which, if saved,
+would be saved to somebody else, and not to us. Two countries may have
+equal shares of the clear benefit of the trade, while, if the cost of
+carriage were saved, they would divide that saving unequally. If so,
+they divide the gross gain in one unequal ratio, the cost in another
+unequal ratio, though their shares of the cost being deducted from their
+shares of the gain leave equal remainders.
+
+4. The question naturally suggests itself, whether any country, by its
+own legislative policy, can engross to itself a larger share of the
+benefits of foreign commerce, than would fall to it in the natural or
+spontaneous course of trade.
+
+The answer is, it can. By taxing exports, for instance, we may, under
+certain circumstances, produce a division of the advantage of the trade
+more favourable to ourselves. In some cases, we may draw into our
+coffers, at the expense of foreigners, not only the whole tax, but more
+than the tax: in other cases, we should gain exactly the tax,--in
+others, less than the tax. In this last case, a part of the tax is borne
+by ourselves: possibly the whole, possibly even, as we shall show, more
+than the whole.
+
+Suppose that England taxes her export of cloth: the tax not being
+supposed high enough to induce Germany to produce cloth for herself. The
+price at which cloth can be sold in Germany is augmented by the tax.
+This will probably diminish the quantity consumed. It may diminish it so
+much, that even at the increased price, there will not be required so
+great a money value as before. It may diminish it in such a ratio, that
+the money value of the quantity consumed will be exactly the same as
+before. Or it may not diminish it at all, or so little, that, in
+consequence of the higher price, a greater money value will be purchased
+than before. In this last case, England will gain, at the expense of
+Germany, not only the whole amount of the duty, but more. For the money
+value of her exports to Germany being increased, while her imports
+remain the same, money will flow into England from Germany. The price of
+cloth will rise in England, and consequently in Germany; but the price
+of linen will fall in Germany, and consequently in England, We shall
+export less cloth, and import more linen, till the equilibrium is
+restored. It thus appears, what is at first sight somewhat remarkable,
+that, by taxing her exports, England would, under some conceivable
+circumstances, not only gain from her foreign customers the whole amount
+of the tax, but would also get her imports cheaper. She would get them
+cheaper in two ways,--for she would obtain them for less money, and
+would have more money to purchase them with. Germany, on the other hand,
+would suffer doubly: she would have to pay for her cloth a price
+increased not only by the duty, but by the influx of money into England,
+while the same change in the distribution of the circulating medium
+would leave her less money to purchase it with.
+
+This, however, is only one of three possible cases. If, after the
+imposition of the duty, Germany requires so diminished a quantity of
+cloth, that its total money value is exactly the same as before, the
+balance of trade will be undisturbed; England will gain the duty,
+Germany will lose it, and nothing more. If, again, the imposition of the
+duty occasions such a falling off in the demand, that Germany requires a
+less pecuniary value than before, our exports will no longer pay for our
+imports, money must pass from England into Germany, and Germany's share
+of the advantage of the trade will be increased. By the change in the
+distribution of money, cloth will fall in England; and therefore it
+will, of course, fall in Germany. Thus Germany will not pay the whole of
+the tax. From the same cause, linen will rise in Germany, and
+consequently in England. When this alteration of prices has so adjusted
+the demand, that the cloth and the linen again pay for one another, the
+result is, that Germany has paid only a part of the tax, and the
+remainder of what has been received into our treasury has come
+indirectly out of the pockets of our own consumers of linen, who pay a
+higher price for that imported commodity, in consequence of the tax on
+our exports, which at the same time they, in consequence of the efflux
+of money and consequent fall of prices, have smaller money incomes
+wherewith to pay for the linen at that advanced price.
+
+It is not an impossible supposition that, by taxing our exports, we
+might not only gain nothing from the foreigner, the tax being paid out
+of our own pockets, but might even compel our own people to pay a second
+tax to the foreigner. Suppose, as before, that the demand of Germany for
+cloth falls off so much on the imposition of the duty, that she requires
+a smaller money value than before, but that the case is so different
+with linen in England, that when the price rises the demand either does
+not fall off at all, or so little that the money value required is
+greater than before. The first effect of laying on the duty is, as
+before, that the cloth exported will no longer pay for the linen
+imported. Money will, therefore, flow out of England into Germany. One
+effect is to raise the price of linen in Germany, and, consequently, in
+England. But this, by the supposition, instead of stopping the efflux of
+money, only makes it greater, because the higher the price, the greater
+the money value of the linen consumed. The balance, therefore, can only
+be restored by the other effect, which is going on at the same time,
+namely, the fall of cloth in the English, and, consequently, in the
+German market. Even when cloth has fallen so low that its price with the
+duty is only equal to what its price without the duty was at first, it
+is not a necessary consequence that the fall will stop; for the same
+amount of exportation as before will not now suffice to pay the
+increased money value of the imports; and although the German consumers
+have now not only cloth at the old price, but likewise increased money
+incomes, it is not certain that they will be inclined to employ the
+increase of their incomes in increasing their purchases of cloth. The
+price of cloth, therefore, must perhaps fall, to restore the
+equilibrium, more than the whole amount of the duty; Germany may be
+enabled to import cloth at a lower price when it is taxed, than when it
+was untaxed: and this gain she will acquire at the expense of the
+English consumers of linen, who, in addition, will be the real payers of
+the whole of what is received at their own custom-house under the name
+of duties on the export of cloth.
+
+Such are the extremely various effects which may result to ourselves,
+and to our customers, from the imposition of taxes on our exports [3]:
+and the determining circumstances are of a nature so imperfectly
+ascertainable, that it must be almost impossible to decide with any
+certainty, even after the tax has been imposed, whether we have been
+gainers by it or losers. It is certain, however, that whatever we gain,
+is lost by somebody else, and there is the expense of the collection
+besides: if international morality, therefore, were rightly understood
+and acted upon, such taxes, as being contrary to the universal weal,
+would not exist. Moreover, the imposition of such a tax frequently will,
+and always may, expose a country to lose this branch of its trade
+altogether, or to carry it on with diminished advantage, in consequence
+of the competition of untaxed exporters from other countries, or of the
+domestic producers in the country to which it exports. Even on the most
+selfish principles, therefore, the benefit of such a tax is always
+extremely precarious.
+
+5. We have had an example of a tax on exports, that is, on foreigners,
+falling in part on ourselves. We shall, therefore, not be surprised if
+we find a tax on imports, that is, on ourselves, partly falling upon
+foreigners.
+
+Instead of taxing the cloth which we export, suppose that we tax the
+linen which we import. The duty which we are now supposing must not be
+what is termed a protecting duty, that is, a duty sufficiently high to
+induce us to produce the article at home. If it had this effect, it
+would destroy entirely the trade both in cloth and in linen, and both
+countries would lose the whole of the advantage which they previously
+gained by exchanging those commodities with one another. We suppose a
+duty which might diminish the consumption of the article, but which
+would not prevent us from continuing to import, as before, whatever
+linen we did consume.
+
+The equilibrium of trade would be disturbed if the imposition of the tax
+diminished in the slightest degree the quantity of linen consumed. For,
+as the tax is levied at our own custom-house, the German exporter only
+receives the same price as formerly, though the English consumer pays a
+higher one. If, therefore, there be any diminution of the quantity
+bought, although a larger sum of money may be actually laid out in the
+article, a smaller one will be due from England to Germany: this sum
+will no longer be an equivalent for the sum due from Germany to England
+for cloth, the balance therefore must be paid in money. Prices will fall
+in Germany, and rise in England; linen will fall in the German market;
+cloth will rise in the English. The Germans will pay higher price for
+cloth, and will have smaller money incomes to buy it with; while the
+English will obtain linen cheaper, that is, its price will exceed what
+it previously was by less than the amount of the duty, while their means
+of purchasing it will be increased by the increase of their money
+incomes.
+
+If the imposition of the tax does not diminish the demand, it will leave
+the trade exactly as it was before. We shall import as much, and export
+as much; the whole of the tax will be paid out of our own pockets.
+
+But the imposition of a tax on a commodity, almost always diminishes the
+demand more or less; and it can never, or scarcely ever increase the
+demand. It may, therefore, be laid down as a principle, that a tax on
+imported commodities, when it really operates as a tax, and not as a
+prohibition, either total or partial, almost always falls in part upon
+the foreigners who consume our goods: and that this is a mode in which a
+nation may be almost sure of appropriating to itself, at the expense of
+foreigners, a larger share than would otherwise belong to it of the
+increase in the general productiveness of the labour and capital of the
+world, which results from the interchange of commodities among nations.
+
+It is scarcely necessary to observe, that no such advantage can result
+from the duty, if it operate as a protecting duty; if it induce the
+country which imposes it, to produce for herself that which she would
+otherwise have imported. The saving of labour--the increase in the
+general productiveness of the capital of the world--which is the effect
+of commerce, and which a non-protecting duty would enable the country
+imposing it to engross, could not be engrossed by a protecting duty,
+because such a duty prevents any such increased production from
+existing.
+
+With a view to practical legislation, therefore, duties on importation
+may be divided into two classes: those which have the effect of
+encouraging some particular branch of domestic industry, and those which
+have not.
+
+The former are purely mischievous, both to the country imposing them,
+and to those with whom it trades. They prevent a saving of labour and
+capital, which, if permitted to be made, would be divided in some
+proportion or other between the importing country and the countries
+which buy what that country does or might export.
+
+The other class of duties are those which do not encourage one mode of
+procuring an article at the expense of another, but allow interchange to
+take place just as if the duty did not exist--and to produce the saving
+of labour which constitutes the motive to international as to all other
+commerce. Of this kind, are duties on the importation of any commodity
+which could not by any possibility be produced at home; and duties not
+sufficiently high to counterbalance the difference of expense between
+the production of the article at home, and its importation. Of the money
+which is brought into the treasury of any country by taxes of this last
+description, a part only is paid by the people of that country; the
+remainder by the foreign consumers of their goods.
+
+Nevertheless, this latter kind of taxes are in principle as ineligible
+as the former, although not precisely on the same ground. A protecting
+duty can never be a cause of gain, but always and necessarily of loss,
+to the country imposing it, just so far as it is efficacious to its end.
+A non-protecting duty on the contrary would, in most cases, be a source
+of gain to the country imposing it, in so far as throwing part of the
+weight of its taxes upon other people is a gain; but it would be a means
+of gain which it could seldom be advisable to adopt, being so easily
+counteracted by a precisely similar proceeding on the other side.
+
+If England, in the case already supposed, sought to obtain for herself
+more than her natural share of the advantage of the trade with Germany,
+by imposing a duty upon cloth, Germany would only have to impose a duty
+upon linen, sufficient to diminish the demand for that article about as
+much as the demand for cloth had been diminished in England by the tax.
+Things would then be as before, and each country would pay its own tax.
+Unless, indeed, the sum of the two duties exceeded the entire advantage
+of the trade; for in that case the trade, and its advantage, would cease
+entirely.
+
+There would be no advantage, therefore, in imposing duties of this kind,
+with a view to gain by them, in the manner which has been pointed out.
+But so long as any other kind of taxes on commodities are retained, as a
+source of revenue, these may often be as unobjectionable as the rest. It
+is evident, moreover, that considerations of reciprocity, which are
+quite unessential when the matter in debate is a protecting duty, are of
+material importance when the repeal of duties of this other description
+is discussed. A country cannot be expected to renounce the power of
+taxing foreigners, unless foreigners will in return practise towards
+itself the same forbearance. The only mode in which a country can save
+itself from being a loser by the duties imposed by other countries on
+its commodities, is to impose corresponding duties on theirs. Only it
+must take care that these duties be not so high as to exceed all that
+remains of the advantage of the trade, and put an end to importation
+altogether; causing the article to be either produced at home, or
+imported from another and a dearer market.
+
+It is not necessary to apply the principles which we have stated to the
+case of bounties on exportation or importation. The application is easy,
+and the conclusions present nothing of particular interest or
+importance.
+
+6. Any cause which alters the exports or imports from one country into
+another, alters the division of the advantage of interchange between
+those two countries. Suppose the discovery of a new process, by which
+some article of export, or some article not previously exported, can be
+produced so cheap as to occasion a great demand for it in other
+countries. This of course produces a great influx of money from other
+countries, and lowers the prices of all articles imported from them,
+until the increase of importation produced by this cause has restored
+the equilibrium. Thus, the country which acquires a new article of
+export gets its imports cheaper. This is not a case of mere alteration
+in the division of the advantage; it is a new advantage created by the
+discovery.
+
+But suppose that the invention, to which the nation is indebted for this
+increase of the return to its industry, comes into use also in the other
+country, and that the process is one which can be as perfectly and as
+cheaply performed in the one country as in the other. The new
+exportation will cease; trade will revert to its old channels, the money
+which flowed in will again flow out, and the country which invented the
+process will lose that increase of its gain by trade, which it had
+derived from the discovery.
+
+Now the exportation of machinery comes within the case which we have
+just described.
+
+If the fact be, that by allowing to foreigners a participation in our
+machinery, we enable them to produce any of our leading articles of
+export, at a lower money price than we can sell those articles, it is
+certain that unless we possess as great an advantage in the production
+of the machinery itself as we have in the production of other articles
+by means of machinery, the permitting of its exportation would alter to
+our disadvantage the division of the benefit of trade. Our exports being
+diminished, we should have to pay a balance in money. This would raise,
+in foreign countries, the price of everything which we import from
+thence: while our incomes, being reduced in money value, would render
+us less able to buy those articles even if they had not risen. The
+equilibrium of exports and imports would only be restored, when either
+some of the latter became so dear that we could produce them cheaper at
+home, or some articles not previously exported became exportable from
+the fall of prices. In the one case, we lose the benefit of importation
+altogether, and are obliged to produce at home, at a greater cost. In
+the other case, we continue to import, but pay dearer for our imports.
+
+Notwithstanding what has now been observed, restrictions on the
+exportation of machinery are not, in our opinion, justifiable, either on
+the score of international morality or of sound policy. It is evidently
+the common interest of all nations that each of them should abstain from
+every measure by which the aggregate wealth of the commercial world
+would be diminished, although of this smaller sum total it might thereby
+be enabled to attract to itself a larger share. And the time will
+certainly come when nations in general will feel the importance of this
+rule, and will so direct their approbation and disapprobation as to
+enforce observance of it. Moreover, a country possessing machines should
+consider that if a similar advantage were extended to other countries,
+they would employ it above all in the production of those articles, in
+which they had already the greatest natural advantages; and if the
+former country would be a loser by their improvements in the production
+of articles which it sells, it would gain by their improvements in those
+which it buys. The exportation of machinery may, however, be a proper
+subject for adjustment with other nations, on the principle of
+reciprocity. Until, by the common consent of nations, all restrictions
+upon trade are done away, a nation cannot be required to abolish those
+from which she derives a real advantage, without stipulating for an
+equivalent.
+
+7. The case which we have just examined, is an example in how remarkable
+a manner every cause which materially influences exports, operates upon
+the prices of imports. According to the ancient theory of the balance of
+trade, and to the associations of the generality of what are termed
+practical men to this day, the sole benefit derived from commerce
+consists in the exports, and imports are rather an evil than otherwise.
+Political economists, seeing the folly of these views, and clearly
+perceiving that the advantage of commerce consists and must consist
+solely of the imports, have occasionally suffered themselves to employ
+language evincing inattention to the fact, that exports, though
+unimportant in themselves, are important by their influence on imports.
+So real and extensive is this influence, that every new market which is
+opened for any of our goods, and every increase in the demand for our
+commodities in foreign countries, enables us to supply ourselves with
+foreign commodities at a smaller cost.
+
+Let us revert to our earliest and simplest example, but which displays
+the real law of interchange more luminously than any formula into which
+money enters; the case of simple barter. We showed, that if at the rate
+of 10 yards of cloth for 17 of linen, the demand of Germany amounted to
+1000 times 10 yards of cloth, the two nations will trade together at
+that rate of interchange, provided that the linen required in England be
+exactly 1000 times 17 yards, neither more nor less. For the cloth and
+the linen will then exactly pay for one another, and nobody on either
+side will be obliged to offer what he has to sell at a lower rate, in
+order to procure what he wants to buy.
+
+Now if the increase of wealth and population in Germany should greatly
+increase the demand in that country for cloth, the demand for linen in
+England not increasing in the same ratio,--if, for instance, Germany
+became willing, at the above rate, to take 1500 times 10 yards; is it
+not evident, that to induce England to take in exchange for this the
+only article which Germany by supposition has to give, the latter must
+offer it at a rate more advantageous to England--at 18, or perhaps 19
+yards, for 10 of cloth? So that the division of the advantage becomes
+more and more favourable to a country, in proportion as the demand for
+its commodities increases in foreign countries.
+
+It is not even necessary that the country which takes its goods, should
+supply it with any commodity whatever. Suppose that a country should be
+opened to our merchants, disposed to buy from us in abundance, but which
+can sell to us scarcely anything, as every commodity which it affords
+could be got cheaper by us from some other quarter. Nevertheless, our
+trade with this country will enable us to obtain from all other
+countries their commodities at a lower price. At the first opening of
+this commerce of mere exportation, we must have received in payment a
+large quantity of money; for which our customer will have been
+indemnified by other countries, in exchange for her commodities. Prices
+must consequently be lower in all other countries, and higher with us,
+than before the opening of the new branch of trade; and we therefore
+obtain the commodities of other countries at a less cost, both as we pay
+less money for them, and as that money is lower in value.
+
+8. Another obvious application of the same principle will enable us to
+explain, and to bring within the dominion of strict science, the
+rivality of one exporting nation and another, or what is called, in the
+language of the mercantile system, _underselling_: a subject which
+political economists have taken little trouble to elucidate, from the
+habit before alluded to of disregarding almost entirely, in their purely
+scientific inquiries, those circumstances which affect the trade of a
+country by operating immediately upon the exports.
+
+Let us revert to our old example, and to our old figures. Suppose that
+the trade between England and Germany in cloth and linen is established,
+and that the rate of interchange is 10 yards of cloth for 17 of linen.
+Now suppose that there arises in another country, in Flanders, for
+example, a linen manufacture; and that the same causes, the working of
+which in England and Germany has made 10 yards exchange for 17, would in
+England and Flanders, putting Germany out of the question, have made the
+rate of interchange 10 for 18. It is evident that Germany also must give
+18 yards of linen for 10 of cloth, and so carry on the trade with a
+diminished share of the advantage, or lose it altogether. If the play of
+demand in England and Flanders had made the rate of interchange not 10
+for 18 but 10 for 21, (10 to 20 being in Germany the comparative cost of
+production,) it is evident that Germany could not have maintained the
+competition, and would have lost, not part of her share of the
+advantage, but all advantage, and the trade itself.
+
+It would be no answer to say, that Germany could probably still have
+found the means of importing cloth from England, by exporting something
+else. If she had purchased cloth with anything else, she would have
+purchased it dearer: as is proved by the fact, that having free choice,
+she found it most advantageous to purchase it with linen. When she could
+get 10 yards of cloth for 17 of linen, that was the mode in which she
+could get it with least labour. Being pressed by competition, she gave
+successively 17, 18, 18; but rather than give 19 yards of linen, she
+perhaps would prefer to give, as costing her rather less labour, 10
+yards of silk, (which we will suppose to be the quantity which in
+England will purchase 10 yards of cloth.) It is obvious that, although
+Germany has found the means of supplying herself with cloth, by
+exporting a different article from that in which she was undersold, yet
+the advantage of the trade between her and England is now shared in a
+proportion much less favourable to Germany.
+
+There is no difficulty in showing that the same series of consequences
+takes place in exactly the same manner through the agency of money. The
+trade in cloth and linen between England and Germany being supposed to
+exist as before, Flanders produces linen at a lower price than that at
+which Germany has hitherto afforded it. The exportation from Germany is
+suspended; and Germany, continuing to import cloth, pays for it in
+money. By so doing she lowers her own prices, and raises those in
+England: she has to pay more money for cloth, and to pay it in a
+currency of higher value. She thus suffers more and more as a consumer
+of cloth, until by the fall of her prices she can either afford to sell
+linen as cheap as Flanders, or to export some other commodity which she
+could not export before. In either case, her trade resumes its course,
+but with diminished advantage on her side. [4]
+
+It is in the mode just described, that those countries which formerly
+supplied Europe with manufactures, but which owed their power of doing
+so not to any natural and permanent advantages, but to their more
+advanced state of civilization as compared with other countries, have
+lost their pre-eminence as other countries successively attained an
+equal degree of civilization. Lombardy and Flanders, in the middle ages,
+produced some descriptions of clothing and ornament for all Europe:
+Holland, at a much later period, supplied ships, and almost all articles
+which came in ships, to most other parts of the world. All these
+countries have probably at this moment a much larger amount of capital
+than ever they had, but having been undersold by other countries, they
+have lost by far the greater part of the share which they had engrossed
+to themselves of the benefit which the world derives from commerce; and
+their capital yields to them in consequence a smaller proportional
+return. We are aware that other causes have contributed to the same
+effect, but we cannot doubt that this is a principal one.
+
+As much as is really true of the great returns alleged to have been made
+to capital during the last war, must have arisen from a similar cause.
+Our exclusive command of the sea excluded from the market all by whom we
+should have been undersold.
+
+The adoption by France, Russia, the Netherlands, and the United States,
+of a more severely restrictive commercial policy, subsequently to 1815,
+has done great injury undoubtedly to those countries; for the duties
+which they have established are intended to be, and really are, of the
+class termed _protecting_; that is to say, such as force the production
+of commodities by more costly processes at home, instead of suffering
+them to be imported from abroad. But these duties, though chiefly
+injurious to the countries imposing them, have also been highly
+injurious to England. By diminishing her exportation, or preventing it
+from increasing as it would otherwise have done, they have kept up the
+prices of all imported commodities in England, above what those prices
+would have fallen to if trade had been left free.
+
+By another obvious application of the same reasoning, it will be seen,
+that there is a real foundation for the notion, that a country may be
+benefited by receiving from another country the concession of what used
+to be termed commercial advantages, or by restraining its colonies from
+purchasing goods of any country except itself. In the figured
+illustration last used (p. 34) [not available, M.D.], it is evident,
+that if England had been bound by a treaty with Germany to buy linen
+exclusively from her, Germany would have retained the trade which we
+supposed her to lose, and would have continued to purchase cloth at a
+comparatively cheap rate from England, instead of producing it by a more
+costly process at home. Suppose that England had been a colony of
+Germany, and we see that by compelling colonies to deal at her shop, she
+may obtain a real advantage, though of a nature which we may hazard the
+assertion that the founders of our colonial policy little dreamt of.
+
+Such an advantage, however, being gained at the expense of another
+country, is, at the least, simply equivalent to a tax, or tribute. Now,
+if a country has just grounds, or deems superiority of power a
+sufficient ground, for exacting a tribute from another country, the most
+direct mode is the best. First, because it is the most intelligible, and
+has least of trick or disguise. Secondly, because it allows the people
+of the country paying the tribute, to raise the money in whatever way
+they consider least oppressive to themselves. Thirdly, because the
+indirect mode of taxing a country, by restrictions on its commerce,
+disturbs the distribution of industry most advantageous to the world at
+large, and occasions a greater loss to the restricted country, and to
+the other countries with which that country would have traded, than gain
+to the country in whose favour the restrictions are imposed. And lastly,
+because a country never could obtain such privileges from an independent
+nation, and has seldom been so undisguised an oppressor as to demand
+them even from its colonies, without subjecting itself to restrictions
+in some degree equivalent, for the benefit of those whom it has thus
+taxed. Each country, therefore, usually pays tribute to the other; and
+to produce this fruitless reciprocity of exaction, the industry and
+trade of both countries are diverted from the most advantageous
+channels, and the return to the labour and capital of both is
+diminished, in pure loss.
+
+9. The same principles which have led to the above conclusions, also
+suggest a remark of some importance with respect to the probable effect
+of a change from a restricted to a comparatively free trade.
+
+There is no doubt that our prohibiting the importation of a particular
+article, which, but for the prohibition, would have been imported,
+enables us to obtain our other imports at smaller cost. The article for
+which we have the greatest demand, and for which our demand is most
+increased by cheapness, is that which we should naturally import
+preferably to any other; now of this article we should import the
+quantity necessary to pay for our exports, on terms of interchange less
+advantageous to us than in the case of any other commodity. If our
+legislature prohibits this commodity, the other country will be obliged
+to offer any other article on easier terms, in order to force a
+sufficient demand for it to be an equivalent to what she purchases from
+us.
+
+The steps of the process, money being used, would be these:--We prohibit
+the importation of linen. The exportation of cloth continues, but is
+paid for in money. Our prices rise, those in Germany fall, until silk,
+or some other article, can be imported from Germany cheaper than it can
+be produced at home, and in sufficient abundance to balance the export
+of cloth. Thus by sacrificing the cheapness of one commodity, we gain
+the cheapness of another: but we sacrifice a greater cheapness to gain a
+less, and we sacrifice cheapness in the article which we most want, and
+would import by preference, while our compensation is cheapness in an
+article which we either could produce more advantageously at home, or
+which we have so little desire for, that it requires a species of bounty
+on the article to create a demand.
+
+Restrictions on importation do, however, tend to keep down the value and
+price of our remaining imports, and to keep up the nominal or money
+prices of all our other commodities, by retaining a greater quantity of
+money in the country than would otherwise be there. From this it
+obviously follows, that if the restrictions were removed, we should have
+to pay rather more for some of the articles which we now import, while
+those which we are now prevented from importing would cost us more than
+might be inferred from their _present_ price in the foreign market. And
+general prices would fall; to the benefit of those who have fixed sums
+to receive; to the disadvantage of those who have fixed sums to pay; and
+giving rise, as a general fall of prices always does, to an appearance,
+though a temporary and fallacious one, of general distress. [5]
+
+It is right to observe that the measures of the British Legislature
+which have been falsely characterised as measures of free trade, must,
+from their extremely insignificant extent, have produced far too little
+effect in increasing our importation, to have actually led, in any
+degree worth mentioning, to the results specified above.
+
+It is of greater importance to take notice, that these effects may be
+entirely obviated, if foreign countries can be prevailed upon
+simultaneously to relax their restrictive systems, so as to create an
+immediate increase of demand for our exports at the present prices. It
+is true that exports and imports must, in the end, balance one another,
+and if we increase our imports, our exports will of necessity increase
+too. But it is a forced increase, produced by an efflux of money and
+fall of prices; and this fall of prices being permanent, although it
+would be no evil at all in a country where credit is unknown, it may be
+a very serious one where large classes of persons, and the nation
+itself, are under engagements to pay fixed sums of money of large
+amount.
+
+10. The only remaining application of the principle set forth in this
+essay, which we think it of importance to notice specially, is the
+effect produced upon a country by the annual payment of a tribute or
+subsidy to a foreign power, or by the annual remittance of rents to
+absentee landlords, or of any other kind of income to its absent owners.
+Remittances to absentees are often very incorrectly likened in their
+general character to the payment of a tribute; from which they differ in
+this very material circumstance, that tribute, if not paid to a foreign
+country, is not paid at all, whereas rents are paid to the landlord, and
+consumed by him, even if he resides at home. The two kinds of payment,
+however, have a perfect resemblance to each other in such parts of their
+effects as we are about to point out.
+
+The tribute, subsidy, or remittance, is always in goods; for, unless the
+country possesses mines of the precious metals, and numbers those metals
+among its regular articles of export, it cannot go on, year after year,
+parting with them, and never receiving them back. When a nation has
+regular payments to make in a foreign country, for which it is not to
+receive any return, its exports must annually exceed its imports by the
+amount of the payments which it is bound so to make. In order to force a
+demand for its exports greater than its imports will suffice to pay for,
+it must offer them at a rate of interchange more favourable to the
+foreign country, and less so to itself, than if it had no payments to
+make beyond the value of its imports. It therefore carries on the trade
+with less advantage, in consequence of the obligations to which it is
+subject towards persons resident in foreign countries.
+
+The steps of the process are these. The exports and imports being in
+equilibrium, suppose a treaty to be concluded, by which the country
+binds itself to pay in tribute to another country, a certain sum
+annually. It makes, perhaps, the first payment by a remittance of money.
+This lowers prices in the paying country, and raises them in the
+receiving one: the exports of the tributary country increase, its
+imports diminish. When the efflux of money has altered prices in the
+requisite degree, the exports exceed the imports annually, by the amount
+of the tribute; and the latter, being added to the sum of the payments
+due, restores the balance of payments between the two countries. The
+result to the tributary country is a diminution of her share in the
+advantage of foreign trade. She pays dearer for her imports, in two
+ways, because she pays more money, and because that money is of higher
+value, the money incomes of her inhabitants being of smaller amount.
+
+Thus the imposition of a tribute is a double burthen to the country
+paying it, and a double gain to that which receives it. The tributary
+country pays to the other, first, the tax, whatever be its amount, and
+next, something more, which the one country loses in the increased cost
+of its imports, the other gains in the diminished cost of its own.
+
+Absenteeism, moreover, though not burthensome in the former of these
+ways, since the money is paid whether the receiver be an absentee or
+not, is yet disadvantageous in the second of the two modes which have
+been mentioned. Ireland pays dearer for her imports in consequence of
+her absentees; a circumstance which the assailants of Mr. M'Culloch,
+whether political economists or not, have not, we believe, hitherto
+thought of producing against him.
+
+11. If the question be now asked, which of the countries of the world
+gains most by foreign commerce, the following will be the answer.
+
+If by gain be meant advantage, in the most enlarged sense, that country
+will generally gain the most, which stands most in need of foreign
+commodities.
+
+But if by gain be meant saving of labour and capital in obtaining the
+commodities which the country desires to have, whatever they may be; the
+country will gain, not in proportion to its own need of foreign
+articles, but to the need which foreigners have of the articles which
+itself produces.
+
+Let us take, as an illustration of our meaning, the case of France and
+England. Those two nations, in consequence of the restrictions with
+which they have loaded their commercial intercourse, carry on so little
+trade with each other, as may almost, regard being had to the wealth and
+population of the two countries, be called none at all. If these fetters
+were at once taken off, which of the two countries would be the greatest
+gainer? England without doubt. There would instantly arise in France an
+immense demand for the cottons, woollens, and iron of England; while
+wines, brandies, and silks, the staple articles of France, are less
+likely to come into general demand here, nor would the consumption of
+such productions, it is probable, be so rapidly increased by the fall of
+price. The fall would probably be very great before France could obtain
+a vent in England for so much of her exports as would suffice to pay for
+the probable amount of her imports. There would be a considerable flow
+of the precious metals out of France into England. The English consumer
+of French wine would not merely save the amount of the duty which that
+wine now pays, but would find the wine itself falling-in prime cost,
+while his means of purchasing it would be increased by the augmentation
+of his own money income. The French consumer of English cottons, on the
+contrary, would not long continue to be able to purchase them at the
+price they now sell for in England. He would gain less, as the English
+would gain more, than might appear from a mere comparison between the
+present prices of commodities in the two countries.
+
+Various consequences would flow from opening the trade between France
+and England, which are not expected, either by the friends or by the
+opponents of the present restrictive system. The wine-growers of France,
+who imagine that free trade would relieve their distress by raising the
+price of their wine, might not improbably find that price actually
+lowered. On the other hand, our silk manufacturers would be surprised if
+they were told that the free admission of our cottons and hardware into
+the French market, would endanger _their_ branch of manufacture: yet
+such might very possibly be the effect. France, it is likely, could most
+advantageously pay us in silks for a portion of the large amount of
+cottons and hardware which we should sell to her; and though our silk
+manufacturers may now be able to compete advantageously, in some
+branches of the manufacture, with their French rivals, it by no means
+follows that they could do so when the efflux of money from France, and
+its influx into England, had lowered the price of silk goods in the
+French market, and increased all the expenses of production here.
+
+On the whole, England probably, of all the countries of Europe, draws to
+herself the largest share of the gains of international commerce:
+because her exportable articles are in universal demand, and are of such
+a kind that the demand increases rapidly as the price falls. Countries
+which export food, have the former advantage, but not the latter. But
+our own colonies, and the countries which supply us with the materials
+of our manufactures, maintain a hard struggle with us for an equal share
+of the advantages of their trade; for _their_ exports are also of a kind
+for which there exists a most extensive demand here, and a demand
+capable of almost indefinite extension by a fall of price. Contrary,
+therefore, to common opinion, it is probable that our trade with the
+colonies, and with the countries which send us the raw materials of our
+national industry, is not more but less advantageous to us, in
+proportion to its extent, than our trade with the continent of Europe.
+We mean in respect to the mere amount of the return to the labour and
+capital of the country; considered abstractedly from the usefulness or
+agreeableness of the particular articles on which the receivers may
+choose to expend it.
+
+
+NOTES:
+
+[1] _Elements of Political Economy_, by James Mill, Esq., 3rd
+edit., pp. 120-1.
+
+[2] The figures used are of course arbitrary, having no
+reference to any existing prices.
+
+[3] We have not deemed it necessary to enter minutely into all
+the circumstances which might modify the results mentioned in the text.
+For example, let us revert to the first case, that in which the demand
+for cloth in Germany is so little affected by the rise of price in
+consequence of the tax, that the quantity bought exceeds in pecuniary
+value what it was before. As the German consumers lay out more money in
+cloth, they have less to lay out in other things; other money prices
+will fall; among the rest that of linen; and this may so increase the
+demand for linen in England as to restore the equilibrium of exports and
+imports without any passage of money. But England's treasury will still
+gain from Germany the whole of the tax, and the English people will buy
+their linen cheaper besides. Again, in the opposite case, where the tax
+so diminishes the demand, that a smaller pecuniary value is required
+than before. The German consumers have, therefore, more to expend in
+other things; these, and among the rest linen, will rise; and this may
+so diminish the demand for linen in England, as to restore the
+equilibrium without the transmission of money. But the effect, as
+respects the division of the advantage, is still as stated in the text.
+
+[4] The world at large, sellers and buyers taken together, is
+always a gainer by underselling. If, in the case supposed, England were
+compelled by a commercial treaty to exclude the linen of Flanders from
+her market, the total wealth of the world, if affected at all, would be
+diminished.
+
+For, what is the cause which enables Flanders to undersell Germany? That
+Flanders, if she had the trade, would exchange linen for cloth at a rate
+of interchange more advantageous to England. And why can Flanders do so?
+It must be either because Flanders can produce the article with a less
+comparative quantity of labour than Germany, and therefore the total
+advantage to be divided between the two countries is greater in the case
+of Flanders than of Germany; or else because, though the total advantage
+is not greater, Flanders obtains a less share of it, her demand for
+cloth being greater, at the same rate of interchange, than that of
+Germany. In the former case, to exclude Flemish linen from England would
+be to prevent the world at large from making a greater saving of labour
+instead of a less. In the latter, the exclusion would be inefficacious
+for the only end it could be intended for, viz., the benefit of Germany,
+unless Flemish money were excluded from England as well as Flemish
+linen. For Flanders would buy English cloth, paying for it in money,
+until the fall of her prices enabled her to pay for it with something
+else: and the ultimate result would be that, by the rise of prices in
+England, Germany must pay a higher price for her cloth, and so lose a
+part of the advantage in spite of the treaty; while England would pay
+for German linen the same price indeed, but as the money incomes of her
+own people would be increased, the same money price would imply a
+smaller sacrifice.
+
+[5] This last possible effect of a sudden introduction of free
+trade, was pointed out in an able article on the Silk question, in a
+work of too short duration, the _Parliamentary Review_.
+
+
+
+
+ESSAY II.
+
+OF THE INFLUENCE OF CONSUMPTION ON PRODUCTION.
+
+
+Before the appearance of those great writers whose discoveries have
+given to political economy its present comparatively scientific
+character, the ideas universally entertained both by theorists and by
+practical men, on the causes of national wealth, were grounded upon
+certain general views, which almost all who have given any considerable
+attention to the subject now justly hold to be completely erroneous.
+
+Among the mistakes which were most pernicious in their direct
+consequences, and tended in the greatest degree to prevent a just
+conception of the objects of the science, or of the test to be applied
+to the solution of the questions which it presents, was the immense
+importance attached to consumption. The great end of legislation in
+matters of national wealth, according to the prevalent opinion, was to
+create consumers. A great and rapid consumption was what the producers,
+of all classes and denominations, wanted, to enrich themselves and the
+country. This object, under the varying names of an extensive demand, a
+brisk circulation, a great expenditure of money, and sometimes _totidem
+verbis_ a large consumption, was conceived to be the great condition of
+prosperity.
+
+It is not necessary, in the present state of the science, to contest
+this doctrine in the most flagrantly absurd of its forms or of its
+applications. The utility of a large government expenditure, for the
+purpose of encouraging industry, is no longer maintained. Taxes are not
+now esteemed to be "like the dews of heaven, which return again in
+prolific showers." It is no longer supposed that you benefit the
+producer by taking his money, provided you give it to him again in
+exchange for his goods. There is nothing which impresses a person of
+reflection with a stronger sense of the shallowness of the political
+reasonings of the last two centuries, than the general reception so long
+given to a doctrine which, if it proves anything, proves that the more
+you take from the pockets of the people to spend on your own pleasures,
+the richer they grow; that the man who steals money out of a shop,
+provided he expends it all again at the same shop, is a benefactor to
+the tradesman whom he robs, and that the same operation, repeated
+sufficiently often, would make the tradesman's fortune.
+
+In opposition to these palpable absurdities, it was triumphantly
+established by political economists, that consumption never needs
+encouragement. All which is produced is already consumed, either for the
+purpose of reproduction or of enjoyment. The person who saves his income
+is no less a consumer than he who spends it: he consumes it in a
+different way; it supplies food and clothing to be consumed, tools and
+materials to be used, by productive labourers. Consumption, therefore,
+already takes place to the greatest extent which the amount of
+production admits of; but, of the two kinds of consumption, reproductive
+and unproductive, the former alone adds to the national wealth, the
+latter impairs it. What is consumed for mere enjoyment, is gone; what is
+consumed for reproduction, leaves commodities of equal value, commonly
+with the addition of a profit. The usual effect of the attempts of
+government to encourage consumption, is merely to prevent saving; that
+is, to promote unproductive consumption at the expense of reproductive,
+and diminish the national wealth by the very means which were intended
+to increase it.
+
+What a country wants to make it richer, is never consumption, but
+production. Where there is the latter, we may be sure that there is no
+want of the former. To produce, implies that the producer desires to
+consume; why else should he give himself useless labour? He may not wish
+to consume what he himself produces, but his motive for producing and
+selling is the desire to buy. Therefore, if the producers generally
+produce and sell more and more, they certainly also buy more and more.
+Each may not want more of what he himself produces, but each wants more
+of what some other produces; and, by producing what the other wants,
+hopes to obtain what the other produces. There will never, therefore, be
+a greater quantity produced, of commodities in general, than there are
+consumers for. But there may be, and always are, abundance of persons
+who have the inclination to become consumers of some commodity, but are
+unable to satisfy their wish, because they have not the means of
+producing either that, or anything to give in exchange for it. The
+legislator, therefore, needs not give himself any concern about
+consumption. There will always be consumption for everything which can
+be produced, until the wants of all who possess the means of producing
+are completely satisfied, and then production will not increase any
+farther. The legislator has to look solely to two points: that no
+obstacle shall exist to prevent those who have the means of producing,
+from employing those means as they find most for their interest; and
+that those who have not at present the means of producing, to the extent
+of their desire to consume, shall have every facility afforded to their
+acquiring the means, that, becoming producers, they may be enabled to
+consume.
+
+These general principles are now well understood by almost all who
+profess to have studied the subject, and are disputed by few except
+those who ostentatiously proclaim their contempt for such studies. We
+touch upon the question, not in the hope of rendering these fundamental
+truths clearer than they already are, but to perform a task, so useful
+and needful, that it is to be wished it were oftener deemed part of the
+business of those who direct their assaults against ancient prejudices,
+--that of seeing that no scattered particles of important truth are
+buried and lost in the ruins of exploded error. Every prejudice, which
+has long and extensively prevailed among the educated and intelligent,
+must certainly be borne out by some strong appearance of evidence; and
+when it is found that the evidence does not prove the received
+conclusion, it is of the highest importance to see what it does prove.
+If this be thought not worth inquiring into, an error conformable to
+appearances is often merely exchanged for an error contrary to
+appearances; while, even if the result be truth, it is paradoxical
+truth, and will have difficulty in obtaining credence while the false
+appearances remain.
+
+Let us therefore inquire into the nature of the appearances, which gave
+rise to the belief that a great demand, a brisk circulation, a rapid
+consumption (three equivalent expressions), are a cause of national
+prosperity.
+
+If every man produced for himself, or with his capital employed others
+to produce, everything which he required, customers and their wants
+would be a matter of profound indifference to him. He would be rich, if
+he had produced and stored up a large supply of the articles which he
+was likely to require; and poor, if he had stored up none at all, or not
+enough to last until he could produce more.
+
+The case, however, is different after the separation of employments. In
+civilized society, a single producer confines himself to the production
+of one commodity, or a small number of commodities; and his affluence
+depends, not solely upon the quantity of his commodity which he has
+produced and laid in store, but upon his success in finding purchasers
+for that commodity.
+
+It is true, therefore, of every particular producer or dealer, that
+a great demand, a brisk circulation, a rapid consumption, of the
+commodities which he sells at his shop or produces in his manufactory,
+is important to him. The dealer whose shop is crowded with customers,
+who can dispose of a product almost the very moment it is completed,
+makes large profits, while his next neighbour, with an equal capital
+but fewer customers, gains comparatively little.
+
+It was natural that, in this case, as in a hundred others, the analogy
+of an individual should be unduly applied to a nation: as it has been
+concluded that a nation generally gains in wealth by the conquest of a
+province, because an individual frequently does so by the acquisition of
+an estate; and as, because an individual estimates his riches by the
+quantity of money which he can command, it was long deemed an excellent
+contrivance for enriching a country, to heap up artificially the
+greatest possible quantity of the precious metals within it.
+
+Let us examine, then, more closely than has usually been done, the case
+from which the misleading analogy is drawn. Let us ascertain to what
+extent the two cases actually resemble; what is the explanation of the
+false appearance, and the real nature of the phenomenon which, being
+seen indistinctly, has led to a false conclusion.
+
+       *       *       *       *       *
+
+We shall propose for examination a very simple case, but the explanation
+of which will suffice to clear up all other cases which fall within the
+same principle. Suppose that a number of foreigners with large incomes
+arrive in a country, and there expend those incomes: will this operation
+be beneficial, as respects the national wealth, to the country which
+receives these immigrants? Yes, say many political economists, if they
+save any part of their incomes, and employ them reproductively; because
+then an addition is made to the national capital, and the produce is a
+clear increase of the national wealth. But if the foreigner expends all
+his income unproductively, it is no benefit to the country, say they,
+and for the following reason.
+
+If the foreigner had his income remitted to him in bread and beef, coats
+and shoes, and all the other articles which he was desirous to consume,
+it would not be pretended that his eating, drinking, and wearing them,
+on our shores rather than on his own, could be of any advantage to us in
+point of wealth. Now, the case is not different if his income is
+remitted to him in some one commodity, as, for instance, in money. For
+whatever takes place afterwards, with a view to the supply of his wants,
+is a mere exchange of equivalents; and it is impossible that a person
+should ever be enriched by merely receiving an equal value in exchange
+for an equal value.
+
+When it is said that the purchases of the foreign consumer give
+employment to capital which would otherwise yield no profit to its
+owner, the same political economists reject this proposition as
+involving the fallacy of what has been called a "general glut." They
+say, that the capital, which any person has chosen to produce and to
+accumulate, can always find employment, since the fact that he has
+accumulated it proves that he had an unsatisfied desire; and if he
+cannot find anything to produce for the wants of other consumers, he can
+for his own.
+
+It is impossible to contest these propositions as thus stated. But there
+is one consideration which clearly shews, that there is something more
+in the matter than is here taken into the account; and this is, that the
+above reasoning tends distinctly to prove, that it does a tradesman no
+good to go into his shop and buy his goods. How can he be enriched? it
+might be asked. He merely receives a certain value in money, for an
+equivalent value in goods. Neither does this give employment to his
+capital; for there never exists more capital than can find employment,
+and if one person does not buy his goods another will; or if nobody
+does, there is over-production in that business, he can remove his
+capital, and find employment for it in another trade.
+
+Every one sees the fallacy of this reasoning as applied to individual
+producers. Every one knows that as applied to them it has not even the
+semblance of plausibility; that the wealth of a producer does in a great
+measure depend upon the number of his customers, and that in general
+every additional purchaser does really add to his profits. If the
+reasoning, which would be so absurd if applied to individuals, be
+applicable to nations, the principle on which it rests must require much
+explanation and elucidation.
+
+Let us endeavour to analyse with precision the real nature of the
+advantage which a producer derives from an addition to the number of his
+customers.
+
+For this purpose, it is necessary that we should premise a single
+observation on the meaning of the word capital. It is usually defined,
+the food, clothing, and other articles set aside for the consumption of
+the labourer, together with the materials and instruments of production.
+This definition appears to us peculiarly liable to misapprehension; and
+much vagueness and some narrow views have, we conceive, occasionally
+resulted from its being interpreted with too mechanical an adherence to
+the literal meaning of the words.
+
+The capital, whether of an individual or of a nation, consists, we
+apprehend, of all matters possessing exchangeable value, which the
+individual or the nation has in his or in its possession for the purpose
+of reproduction, and not for the purpose of the owner's unproductive
+enjoyment. All unsold goods, therefore, constitute a part of the
+national capital, and of the capital of the producer or dealer to whom
+they belong. It is true that tools, materials, and the articles on which
+the labourer is supported, are the only articles which are directly
+subservient to production: and if I have a capital consisting of money,
+or of goods in a warehouse, I can only employ them as means of
+production in so far as they are capable of being exchanged for the
+articles which conduce directly to that end. But the food, machinery,
+&c, which will ultimately be purchased with the goods in my warehouse,
+may at this moment not be in the country, may not be even in existence.
+If, after having sold the goods, I hire labourers with the money, and
+set them to work, I am surely employing capital, though the corn, which
+in the form of bread those labourers may buy with the money, may be now
+in warehouse at Dantzic, or perhaps not yet above ground.
+
+Whatever, therefore, is destined to be employed reproductively, either
+in its existing shape, or indirectly by a previous (or even subsequent)
+exchange, is capital. Suppose that I have laid out all the money I
+possess in wages and tools, and that the article I produce is just
+completed: in the interval which elapses before I can sell the article,
+realize the proceeds, and lay them out again in wages and tools, will it
+be said that I have no capital? Certainly not: I have the same capital
+as before, perhaps a greater, but it is locked up, as the expression is,
+and not disposable.
+
+When we have thus seen accurately what really constitutes capital, it
+becomes obvious, that of the capital of a country, there is at all times
+a very large proportion lying idle. The annual produce of a country is
+never any thing approaching in magnitude to what it might be if all the
+resources devoted to reproduction, if all the capital, in short, of the
+country, were in full employment.
+
+If every commodity on an average remained unsold for a length of time
+equal to that required for its production, it is obvious that, at any
+one time, no more than half the productive capital of the country would
+be really performing the functions of capital. The two halves would
+relieve one another, like the semichori in a Greek tragedy; or rather
+the half which was in employment would be a fluctuating portion,
+composed of varying parts; but the result would be, that each producer
+would be able to produce every year only half as large a supply of
+commodities, as he could produce if he were sure of selling them the
+moment the production was completed.
+
+This, or something like it, is however the habitual state, at every
+instant, of a very large proportion of all the capitalists in the world.
+
+The number of producers, or dealers, who turn over their capital, as the
+expression is, in the shortest possible time, is very small. There are
+few who have so rapid a sale for their wares, that all the goods which
+their own capital, or the capital which they can borrow, enables them to
+supply, are carried off as fast as they can be supplied. The majority
+have not an _extent of business_, at all adequate to the amount of the
+capital they dispose of. It is true that, in the communities in which
+industry and commerce are practised with greatest success, the
+contrivances of banking enable the possessor of a larger capital than he
+can employ in his own business, to employ it productively and derive a
+revenue from it notwithstanding. Yet even then, there is, of necessity,
+a great quantity of capital which remains fixed in the shape of
+implements, machinery, buildings, &c, whether it is only half employed,
+or in complete employment: and every dealer keeps a stock in trade, to
+be ready for a possible sudden demand, though he probably may not be
+able to dispose of it for an indefinite period.
+
+This perpetual non-employment of a large proportion of capital, is the
+price we pay for the division of labour. The purchase is worth what it
+costs; but the price is considerable.
+
+Of the importance of the fact which has just been noticed there are
+three signal proofs. One is, the large sum often given for the goodwill
+of a particular business. Another is, the large rent which is paid for
+shops in certain situations, near a great thoroughfare for example,
+which have no advantage except that the occupier may expect a larger
+body of customers, and be enabled to turn over his capital more quickly.
+Another is, that in many trades, there are some dealers who sell
+articles of an equal quality at a lower price than other dealers. Of
+course, this is not a voluntary sacrifice of profits: they expect by the
+consequent overflow of customers to turn over their capital more
+quickly, and to be gainers by keeping the whole of their capital in more
+constant employment, though on any given operation their gains are less.
+
+The reasoning cited in the earlier part of this paper, to show the
+uselessness of a mere purchaser or customer, for enriching a nation or
+an individual, applies only to the case of dealers who have already as
+much business as their capital admits of, and as rapid a sale for their
+commodities as is possible. To such dealers an additional purchaser is
+really of no use; for, if they are sure of selling all their commodities
+the moment those commodities are on sale, it is of no consequence whether
+they sell them to one person or to another. But it is questionable
+whether there be any dealers in whose case this hypothesis is exactly
+verified; and to the great majority it is not applicable at all. An
+additional customer, to most dealers, is equivalent to an increase of
+their productive capital. He enables them to convert a portion of their
+capital which was lying idle (and which could never have become
+productive in their hands until a customer was found) into wages and
+instruments of production; and if we suppose that the commodity, unless
+bought by him, would not have found a purchaser for a year after, then
+all which a capital of that value can enable men to produce during a
+year, is clear gain--gain to the dealer, or producer, and to the
+labourers whom he will employ, and thus (if no one sustains any
+corresponding loss) gain to the nation. The aggregate produce of the
+country for the succeeding year is, therefore, increased; not by the
+mere exchange, but by calling into activity a portion of the national
+capital, which, had it not been for the exchange, would have remained
+for some time longer unemployed.
+
+Thus there are actually at all times producers and dealers, of all, or
+nearly all classes, whose capital is lying partially idle, because they
+have not found the means of fulfilling the condition which the division
+of labour renders indispensable to the full employment of capital,--viz.,
+that of exchanging their products with each other. If these persons
+could find one another out, they could mutually relieve each other from
+this disadvantage. Any two shopkeepers, in insufficient employment, who
+agreed to deal at each other's shops so long as they could there
+purchase articles of as good a quality as elsewhere, and at as low a
+price, would render the nation a service. It may be said that they must
+previously have dealt, to the same amount, with some other dealers; but
+this is erroneous, since they could only have obtained the means of
+purchasing by being previously enabled to sell. By their compact, each
+would gain a customer, who would call his capital into fuller employment;
+each therefore would obtain an increased produce; and they would thus be
+enabled to become better customers to each other than they could be to
+third parties.
+
+It is obvious that every dealer who has not business sufficient fully to
+employ his capital (which is the case with all dealers when they commence
+business, and with many to the end of their lives), is in this
+predicament simply for want of some one with whom to exchange his
+commodities; and as there are such persons to about the same degree
+probably in all trades, it is evident that if these persons sought one
+another out, they have their remedy in their own hands, and by each
+other's assistance might bring their capital into more full employment.
+
+We are now qualified to define the exact nature of the benefit which a
+producer or dealer derives from the acquisition of a new customer. It is
+as follows:--
+
+1. If any part of his own capital was locked up in the form of unsold
+goods, producing (for a longer period or a shorter) nothing at all;
+a portion of this is called into greater activity, and becomes more
+constantly productive. But to this we must add some further advantages.
+
+2. If the additional demand exceeds what can be supplied by setting at
+liberty the capital which exists in the state of unsold goods; and if
+the dealer has additional resources, which were productively invested
+(in the public funds, for instance), but not in his own trade; he is
+enabled to obtain, on a portion of these, not mere interest, but profit,
+and so to gain that difference between the rate of profit and the rate
+of interest, which may be considered as "wages of superintendance."
+
+3. If all the dealer's capital is employed in his own trade, and no part
+of it locked up as unsold goods, the new demand affords him additional
+encouragement to save, by enabling his savings to yield him not merely
+interest, but profit; and if he does not choose to save (or until he
+shall have saved), it enables him to carry on an additional business
+with borrowed capital, and so gain the difference between interest and
+profit, or, in other words, to receive wages of superintendance on a
+larger amount of capital.
+
+This, it will be found, is a complete account of all the gains which a
+dealer in any commodity can derive from an accession to the number of
+those who deal with him: and it is evident to every one, that these
+advantages are real and important, and that they are the cause which
+induces a dealer of any kind to desire an increase of his business.
+
+It follows from these premises, that the arrival of a new unproductive
+consumer (living on his own means) in any place, be that place a
+village, a town, or an entire country, is beneficial to that place, if
+it causes to any of the dealers of the place any of the advantages above
+enumerated, without withdrawing an equal advantage of the same kind from
+any other dealer of the same place.
+
+This accordingly is the test by which we must try all such questions,
+and by which the propriety of the analogical argument, from dealing with
+a tradesman to dealing with a nation, must be decided.
+
+Let us take, for instance, as our example, Paris, which is much
+frequented by strangers from various parts of the world, who, as
+sojourners there, live unproductively upon their means. Let us consider
+whether the presence of these persons is beneficial, in an _industrial_
+point of view, to Paris.
+
+We exclude from the consideration that portion of the strangers' incomes
+which they pay to natives as direct remuneration for service, or labour
+of any description. This is obviously beneficial to the country. An
+increase in the funds expended in employing labour, whether that labour
+be productive or unproductive, tends equally to raise wages. The
+condition of the whole labouring class is, so far, benefited. It is true
+that the labourers thus employed by sojourners are probably, in part or
+altogether, withdrawn from productive employment. But this is far from
+being an evil; for either the situation of the labouring classes is
+improved, which is far more than an equivalent for a diminution in mere
+production, or the rise of wages acts as a stimulus to population, and
+then the number of productive labourers becomes as great as before.
+
+To this we may add, that what the sojourners pay as wages of labour or
+service (whether constant or casual), though expended unproductively by
+the first possessor, may, when it passes into the hands of the receivers,
+be by them saved, and invested in a productive employment. If so, a direct
+addition is made to the national capital.
+
+All this is obvious, and is sufficiently allowed by political economists;
+who have invariably set apart the gains of all persons coming under the
+class of domestic servants, as real advantages arising to a place from
+the residence there of an increased number of unproductive consumers.
+
+We have only to examine whether the purchases of commodities by these
+unproductive consumers, confer the same kind of benefit upon the
+village, town, or nation, which is bestowed upon a particular tradesman
+by dealing at his shop.
+
+Now it is obvious that the sojourners, on their arrival, confer the
+benefit in question upon some dealers, who did not enjoy it before. They
+purchase their food, and many other articles, from the dealers in the
+place. They, therefore, call the capital of some dealers, which was
+locked up in unsold goods, into more active employment. They encourage
+them to save, and enable them to receive wages of superintendance upon a
+larger amount of capital. These effects being undeniable, the question
+is, whether the presence of the sojourners deprives any others of the
+Paris dealers of a similar advantage.
+
+It will be seen that it does; and nothing will then remain but a
+comparison of the amounts.
+
+It is obvious to all who reflect (and was shown in the paper which
+precedes this) that the remittances to persons who expend their incomes
+in foreign countries are, after a slight passage of the precious metals,
+defrayed in commodities: and that the result commonly is, an increase of
+exports and a diminution of imports, until the latter fall short of the
+former by the amount of the remittances.
+
+The arrival, therefore, of the strangers (say from England), while it
+creates at Paris a market for commodities equivalent in value to their
+funds, displaces in the market other commodities to an equal value. To
+the extent of the increase of exports from England into France in the
+way of remittance, it introduces additional commodities which, by their
+cheapness, displace others formerly produced in that country. To the
+extent of the diminution of imports into England from France,
+commodities which existed or which were habitually produced in that
+country are deprived of a market, or can only find one at a price not
+sufficient to defray the cost.
+
+It must, therefore, be a matter of mere accident, if by arriving in a
+place, the new unproductive consumer causes any net advantage to its
+industry, of the kind which we are now examining. Not to mention that
+this, like any other change in the channels of trade, may render useless
+a portion of fixed capital, and so far injure the national wealth.
+
+A distinction, however, must here be made.
+
+The place to which the new unproductive consumers have come, may be a
+town or village, as well as a country. If a town or village, it may
+either be or not be a place having an export trade.
+
+If the place had no previous trade except with the immediate
+neighbourhood, there are no exports and imports, by the new arrangement
+of which, the remittance can be made. There is no capital, formerly
+employed in manufacturing for the foreign market, which is now brought
+into less full employment.
+
+Yet the remittance evidently is still made in commodities, but in this
+case without displacing any which were produced before. To shew this, it
+is necessary to make the following remarks.
+
+The reason why towns exist, is that _ceteris paribus_ it is convenient,
+in order to save cost of carriage, that the production of commodities
+should take place as far as practicable in the immediate vicinity of the
+consumer. Capital finds its way so easily from town to country and from
+country to town, that the amount of capital in the town will be regulated
+wholly by the amount which can be employed there more conveniently than
+elsewhere. Consequently the capital of a place will be such as is
+sufficient
+
+1st. To produce all commodities which from local circumstances can be
+produced there at less cost than elsewhere: and if this be the case to
+any great extent, it will be an exporting town. When we say _produced_,
+we may add, or _stored_.
+
+2nd. To produce and retail the commodities which are consumed by the
+inhabitants of the town, and the place of whose production is in other
+respects a matter of indifference. To the inhabitants of the town must
+be added such dwellers in the adjoining country, as are nearer to that
+place than to any other equally well furnished market.
+
+Now, if new unproductive consumers resort to the place, it is clear that
+for the latter of these two purposes, more capital will be required than
+before. Consequently, if less is not required for the former purpose,
+more capital will establish itself at the place.
+
+Until this additional capital has arrived, the producers and dealers
+already on the spot will enjoy great advantages. Every particle of their
+own capital will be called into the most active employment. What their
+capital does not enable them to supply, will be got from others at a
+distance, who cannot supply it on such favourable terms; consequently
+they will be in the predicament of possessing a partial monopoly
+--receiving for every thing a price regulated by a higher cost of
+production than they are compelled to pay. They also, being in possession
+of the market, will be enabled to make a large portion of the new capital
+pass through their hands, and thus to earn wages of superintendance upon
+it.
+
+If, indeed, the place from whence the strangers came, previously traded
+with that where they have taken up their abode, the effect of their
+arrival is, that the exports of the town will diminish, and that it will
+be supplied from abroad with something which it previously produced at
+home. In this way an amount of capital will be set free equal to that
+required, and there will be no increase on the whole. The removal of the
+court from London to Birmingham would not necessarily, though it would
+probably [6], increase the amount of capital in the latter place. The
+afflux of money to Birmingham, and its efflux from London, would render
+it cheaper to make some articles in London for Birmingham consumption;
+and to make others in London for home consumption, which were formerly
+brought from Birmingham.
+
+But instead of Birmingham, an exporting town, suppose a village, or a
+town which only produced and retailed for itself and its immediate
+vicinity. The remittances must come thither in the shape of money; and
+though the money would not remain, but would be sent away in exchange
+for commodities, it would, however, first pass through the hands of the
+producers and dealers in the place, and would by them be exported in
+exchange for the articles which they require--viz. the materials, tools,
+and subsistence necessary for the increased production now required of
+them, and articles of foreign luxury for their own increased unproductive
+consumption. These articles would not displace any formerly made in the
+place, but on the contrary, would forward the production of more.
+
+Hence we may consider the following propositions as established:
+
+1. The expenditure of absentees (the case of domestic servants excepted,)
+is not necessarily any loss to the _country_ which they leave, or gain to
+the _country_ which they resort to (save in the manner shown in Essay I.):
+for almost every _country_ habitually exports and imports to a much
+greater value than the incomes of its absentees, or of the foreign
+sojourners within it.
+
+2. But sojourners often do much good to the _town_ or village which they
+resort to, and absentees harm to that which they leave. The capital of
+the petty tradesman in a small town near an absentee's estate, is
+deprived of the market for which it is conveniently situated, and must
+resort to another to which other capitals lie nearer, and where it is
+consequently outbid, and gains less; obtaining only the same price, with
+greater expenses. But this evil would be equally occasioned, if, instead
+of going abroad, the absentee had removed to his own capital city.
+
+If the tradesman could, in the latter case, remove to the metropolis, or
+in the former, employ himself in producing increased exports, or in
+producing for home consumption articles now no longer imported, each in
+the place most convenient for that operation; he would not be a loser,
+though the place which he was obliged to leave might be said to lose.
+
+Paris undoubtedly gains much by the sojourn of foreigners, while the
+counteracting loss by diminution of exports from France is suffered by
+the great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c,
+which also suffer the principal part of the loss by importation of
+articles previously produced at home. The capital thus set free, finds
+its most convenient seat to be Paris, since the business to which it
+must turn is the production of articles to be unproductively consumed by
+the sojourners.
+
+The great trading towns of France would undoubtedly be more flourishing,
+if France were not frequented by foreigners.
+
+Rome and Naples are perhaps purely benefited by the foreigners
+sojourning there: for they have so little external trade, that their
+case may resemble that of the village in our hypothesis.
+
+Absenteeism, therefore, (except as shown in the first Essay,) is a
+local, not a national evil; and the resort of foreigners, in so far as
+they purchase for unproductive consumption, is not, in any commercial
+country, a national, though it may be a local good.
+
+From the considerations which we have now adduced, it is obvious what
+is meant by such phrases as a _brisk demand_, and a rapid circulation.
+There is a brisk demand and a rapid circulation, when goods, generally
+speaking, are sold as fast as they can be produced. There is slackness,
+on the contrary, and stagnation, when goods, which have been produced,
+remain for a long time unsold. In the former case, the capital which has
+been locked up in production is disengaged as soon as the production is
+completed; and can be immediately employed in further production. In the
+latter case, a large portion of the productive capital of the country is
+lying in temporary inactivity.
+
+From what has been already said, it is obvious that periods of "brisk
+demand" are also the periods of greatest production: the national
+capital is never called into full employment but at those periods. This,
+however, is no reason for desiring such times; it is not desirable that
+the whole capital of the country should be in full employment. For, the
+calculations of producers and traders being of necessity imperfect,
+there are always some commodities which are more or less in excess, as
+there are always some which are in deficiency. If, therefore, the whole
+truth were known, there would always be some classes of producers
+contracting, not extending, their operations. If _all_ are endeavouring
+to extend them, it is a certain proof that some general delusion is
+afloat. The commonest cause of such delusion is some general, or very
+extensive, rise of prices (whether caused by speculation or by the
+currency) which persuades all dealers that they are growing rich. And
+hence, an increase of production really takes place during the progress
+of depreciation, as long as the existence of depreciation is not
+suspected; and it is this which gives to the fallacies of the currency
+school, principally represented by Mr. Attwood, all the little
+plausibility they possess. But when the delusion vanishes and the truth
+is disclosed, those whose commodities are relatively in excess must
+diminish their production or be ruined: and if during the high prices
+they have built mills and erected machinery, they will be likely to
+repent at leisure.
+
+In the present state of the commercial world, mercantile transactions
+being carried on upon an immense scale, but the remote causes of
+fluctuations in prices being very little understood, so that
+unreasonable hopes and unreasonable fears alternately rule with
+tyrannical sway over the minds of a majority of the mercantile public;
+general eagerness to buy and general reluctance to buy, succeed one
+another in a manner more or less marked, at brief intervals. Except
+during short periods of transition, there is almost always either great
+briskness of business or great stagnation; either the principal
+producers of almost all the leading articles of industry have as many
+orders as they can possibly execute, or the dealers in almost all
+commodities have their warehouses full of unsold goods.
+
+In this last ease, it is commonly said that there is a general
+superabundance; and as those economists who have contested the
+possibility of general superabundance, would none of them deny the
+possibility or even the frequent occurrence of the phenomenon which we
+have just noticed, it would seem incumbent on them to show, that the
+expression to which they object is not applicable to a state of things
+in which all or most commodities remain unsold, in the same sense in
+which there is said to be a superabundance of any one commodity when it
+remains in the warehouses of dealers for want of a market.
+
+This is merely a question of naming, but an important one, as it seems
+to us that much apparent difference of opinion has been produced by a
+mere difference in the mode of describing the same facts, and that
+persons who at bottom were perfectly agreed, have considered each other
+as guilty of gross error, and sometimes oven misrepresentation, on this
+subject.
+
+In order to afford the explanations, with which it is necessary to take
+the doctrine of the impossibility of an excess of all commodities, we
+must advert for a moment to the argument by which this impossibility is
+commonly maintained.
+
+There can never, it is said, be a want of buyers for all commodities;
+because whoever offers a commodity for sale, desires to obtain a
+commodity in exchange for it, and is therefore a buyer by the mere fact
+of his being a seller. The sellers and the buyers, for all commodities
+taken together, must, by the metaphysical necessity of the case, be an
+exact equipoise to each other; and if there be more sellers than buyers
+of one thing, there must be more buyers than sellers for another.
+
+This argument is evidently founded on the supposition of a state of
+barter; and, on that supposition, it is perfectly incontestable. When
+two persons perform an act of barter, each of them is at once a seller
+and a buyer. He cannot sell without buying. Unless he chooses to buy
+some other person's commodity, he does not sell his own.
+
+If, however, we suppose that money is used, these propositions cease to
+be exactly true. It must be admitted that no person desires money for
+its own sake, (unless some very rare cases of misers be an exception,)
+and that he who sells his commodity, receiving money in exchange, does
+so with the intention of buying with that same money some other commodity.
+Interchange by means of money is therefore, as has been often observed,
+ultimately nothing but barter. But there is this difference--that in the
+case of barter, the selling and the buying are simultaneously confounded
+in one operation; you sell what you have, and buy what you want, by one
+indivisible act, and you cannot do the one without doing the other. Now
+the effect of the employment of money, and even the utility of it, is,
+that it enables this one act of interchange to be divided into two
+separate acts or operations; one of which may be performed now, and the
+other a year hence, or whenever it shall be most convenient. Although he
+who sells, really sells only to buy, he needs not buy at the same moment
+when he sells; and he does not therefore necessarily add to the
+_immediate_ demand for one commodity when he adds to the supply of
+another. The buying and selling being now separated, it may very well
+occur, that there may be, at some given time, a very general inclination
+to sell with as little delay as possible, accompanied with an equally
+general inclination to defer all purchases as long as possible. This is
+always actually the case, in those periods which are described as
+periods of general excess. And no one, after sufficient explanation,
+will contest the possibility of general excess, in this sense of the
+word. The state of things which we have just described, and which is of
+no uncommon occurrence, amounts to it.
+
+For when there is a general anxiety to sell, and a general
+disinclination to buy, commodities of all kinds remain for a long time
+unsold, and those which find an immediate market, do so at a very low
+price. If it be said that when all commodities fall in price, the fall
+is of no consequence, since mere money price is not material while the
+relative value of all commodities remains the same, we answer that this
+would be true if the low prices were to last for ever. But as it is
+certain that prices will rise again sooner or later, the person who is
+obliged by necessity to sell his commodity at a low money price is
+really a sufferer, the money he receives sinking shortly to its ordinary
+value. Every person, therefore, delays selling if he can, keeping his
+capital unproductive in the mean time, and sustaining the consequent
+loss of interest. There is stagnation to those who are not obliged to
+sell, and distress to those who are.
+
+It is true that this state can be only temporary, and must even be
+succeeded by a reaction of corresponding violence, since those who have
+sold without buying will certainly buy at last, and there will then be
+more buyers than sellers. But although the general over-supply is of
+necessity only temporary, this is no more than may be said of every
+partial over-supply. An overstocked state of the market is always
+temporary, and is generally followed by a more than common briskness of
+demand.
+
+In order to render the argument for the impossibility of an excess of
+all commodities applicable to the case in which a circulating medium is
+employed, money must itself be considered as a commodity. It must,
+undoubtedly, be admitted that there cannot be an excess of all other
+commodities, and an excess of money at the same time.
+
+But those who have, at periods such as we have described, affirmed that
+there was an excess of all commodities, never pretended that money was
+one of these commodities; they held that there was not an excess, but
+a deficiency of the circulating medium. What they called a general
+superabundance, was not a superabundance of commodities relatively to
+commodities, but a superabundance of all commodities relatively to
+money. What it amounted to was, that persons in general, at that
+particular time, from a general expectation of being called upon to meet
+sudden demands, liked better to possess money than any other commodity.
+Money, consequently, was in request, and all other commodities were in
+comparative disrepute. In extreme cases, money is collected in masses,
+and hoarded; in the milder cases, people merely defer parting with their
+money, or coming under any new engagements to part with it. But the
+result is, that all commodities fall in price, or become unsaleable.
+When this happens to one single commodity, there is said to be a
+superabundance of that commodity; and if that be a proper expression,
+there would seem to be in the nature of the case no particular
+impropriety in saying that there is a superabundance of all or most
+commodities, when all or most of them are in this same predicament.
+
+It is, however, of the utmost importance to observe that excess of all
+commodities, in the only sense in which it is possible, means only a
+temporary fall in their value relatively to money. To suppose that the
+markets for all commodities could, in any other sense than this, be
+overstocked, involves the absurdity that commodities may fall in value
+relatively to themselves; or that, of two commodities, each can fall
+relatively to the other, A becoming equivalent to B-_x_, and B to A-_x_,
+at the same time. And it is, perhaps, a sufficient reason for not using
+phrases of this description, that they suggest the idea of excessive
+production. A want of market for one article may arise from excessive
+production of that article; but when commodities in general become
+unsaleable, it is from a very different cause; there cannot be excessive
+production of commodities in general.
+
+The argument against the possibility of general over-production is quite
+conclusive, so far as it applies to the doctrine that a country may
+accumulate capital too fast; that produce in general may, by increasing
+faster than the demand for it, reduce all producers to distress. This
+proposition, strange to say, was almost a received doctrine as lately as
+thirty years ago; and the merit of those who have exploded it is much
+greater than might be inferred from the extreme obviousness of its
+absurdity when it is stated in its native simplicity. It is true that if
+all the wants of all the inhabitants of a country were fully satisfied,
+no further capital could find useful employment; but, in that case, none
+would be accumulated. So long as there remain any persons not possessed,
+we do not say of subsistence, but of the most refined luxuries, and who
+would work to possess them, there is employment for capital; and if the
+commodities which these persons want are not produced and placed at
+their disposal, it can only be because capital does not exist, disposable
+for the purpose of employing, if not any other labourers, those very
+labourers themselves, in producing the articles for their own consumption.
+Nothing can be more chimerical than the fear that the accumulation of
+capital should produce poverty and not wealth, or that it will ever take
+place too fast for its own end. Nothing is more true than that it is
+produce which constitutes the market for produce, and that every increase
+of production, if distributed without miscalculation among all kinds of
+produce in the proportion which private interest would dictate, creates,
+or rather constitutes, its own demand.
+
+This is the truth which the deniers of general over-production have
+seized and enforced; nor is it pretended that anything has been added
+to it, or subtracted from it, in the present disquisition. But it is
+thought that those who receive the doctrine accompanied with the
+explanations which we have given, will understand, more clearly than
+before, what is, and what is not, implied in it; and will see that, when
+properly understood, it in no way contradicts those obvious facts which
+are universally known and admitted to be not only of possible, but of
+actual and even frequent occurrence. The doctrine in question only
+appears a paradox, because it has usually been so expressed as
+apparently to contradict these well-known facts; which, however, were
+equally well known to the authors of the doctrine, who, therefore, can
+only have adopted from inadvertence any form of expression which could
+to a candid person appear inconsistent with it. The essentials of the
+doctrine are preserved when it is allowed that there cannot be permanent
+excess of production, or of accumulation; though it be at the same time
+admitted, that as there may be a temporary excess of any one article
+considered separately, so may there of commodities generally, not in
+consequence of over-production, but of a want of commercial confidence.
+
+
+NOTE:
+
+[6] Probably; because most articles of an ornamental description being
+still required from the same makers, these makers, with their capital,
+would probably follow their customers, Besides, from place to place
+within the same country, most persons will lather change their
+habitation than their employment. But the moving on this score would be
+reciprocal.
+
+
+
+
+ESSAY III.
+
+ON THE WORDS PRODUCTIVE AND UNPRODUCTIVE.
+
+
+It would probably be difficult to point out any two words, respecting
+the proper use of which political economists have been more divided,
+than they have been concerning the two words _productive_ and
+_unproductive_; whether considered as applied to _labour_, to
+_consumption_, or to _expenditure_.
+
+Although this is a question solely of nomenclature, it is one of
+sufficient importance to be worth another attempt to settle it
+satisfactorily. For, although writers on political economy have not
+agreed in the ideas which they were accustomed to annex to these terms,
+the terms have generally been employed to denote ideas of very great
+importance, and it is impossible that some vagueness should not have
+been thrown upon the ideas themselves by looseness in the use of the
+words by which they are habitually designated. Further, so long as the
+pedantic objection to the introduction of new technical terms continues,
+accurate thinkers on moral and political subjects are limited to a very
+scanty vocabulary for the expression of their ideas. It therefore is of
+great importance that the words with which mankind are familiar, should
+be turned to the greatest possible advantage as instruments of thought;
+that one word should not be used as the sign of an idea which is already
+sufficiently expressed by another word; and that words which are
+required to denote ideas of great importance, should not be usurped for
+the expression of such as are comparatively insignificant.
+
+The phrases _productive labour_, and _productive consumption_, have been
+employed by some writers on political economy with very great latitude.
+They have considered, and classed, as productive labour and productive
+consumption, all labour which serves any _useful_ purpose--all
+consumption which is not _waste_. Mr. M'Culloch has asserted, _totidem
+verbis_, that the labour of Madame Pasta was as well entitled to be
+called productive labour as that of a cotton spinner.
+
+Employed in this sense, the words _productive_ and _unproductive_ are
+superfluous, since the words _useful_ and _agreeable_ on the one hand,
+_useless_ and _worthless_ on the other, are quite sufficient to express
+all the ideas to which the words _productive_ and _unproductive_ are
+here applied.
+
+This use of the terms, therefore, is subversive of the ends of language.
+
+Those writers who have employed the words in a more limited sense, have
+usually understood by productive or unproductive labour, labour which is
+productive of wealth, or unproductive of wealth. But what is wealth? And
+here the words productive and unproductive have been affected with
+additional ambiguities, corresponding to the different extension which
+different writers have given to the term wealth.
+
+Some have given the name of wealth to _all things_ which tend to the use
+or enjoyment of mankind, and which possess exchangeable value. This last
+clause is added to exclude air, the light of the sun, and any other
+things which can be obtained in unlimited quantity without labour or
+sacrifice; together with all such things as, though produced by labour,
+are not held in sufficient general estimation to command any price in
+the market.
+
+But when this definition came to be explained, many persons were
+disposed to interpret "_all things_ which tend to the use or enjoyment
+of man," as implying only all _material_ things. _Immaterial_ products
+they refused to consider as wealth; and labour or expenditure which
+yielded nothing but immaterial products, they characterised as
+unproductive labour and unproductive expenditure.
+
+To this it was, or might have been, answered, that according to this
+classification, a carpenter's labour at his trade is productive labour,
+but the same individual's labour in learning his trade was unproductive
+labour. Yet it is obvious that, on both occasions, his labour tended
+exclusively to what is allowed to be production: the one was equally
+indispensable with the other, to the ultimate result. Further, if we
+adopted the above definition, we should be obliged to say that a nation
+whose artisans were twice as skilful as those of another nation, was
+not, _ceteris paribus_, more wealthy; although it is evident that every
+one of the results of wealth, and everything for the sake of which
+wealth is desired, would be possessed by the former country in a higher
+degree than by the latter.
+
+Every classification according to which a basket of cherries, gathered
+and eaten the next minute, are called wealth, while that title is denied
+to the acquired skill of those who are acknowledged to be productive
+labourers, is a purely arbitrary division, and does not conduce to the
+ends for which classification and nomenclature are designed.
+
+In order to get over all difficulties, some political economists seem
+disposed to make the terms express a distinction sufficiently definite
+indeed, but more completely arbitrary, and having less foundation in
+nature, than any of the former. They will not allow to any labour or to
+any expenditure the name of productive, unless the produce which it
+yields returns into the hands of the very person who made the outlay.
+Hedging and ditching they term productive labour, though those
+operations conduce to production only indirectly, by protecting the
+produce from destruction; but the necessary expenses incurred by a
+government for the protection of property are, they insist upon it,
+consumed unproductively: though, as has been well pointed out by Mr.
+M'Culloch, these expenses, in their relation to the national wealth, are
+exactly analogous to the wages of a hedger or a ditcher. The only
+difference is, that the farmer, who pays for the hedging and ditching,
+is the person to whom the consequent increase of production accrues,
+while the government, which is at the expense of police officers and
+courts of justice, does not, as a necessary consequence, get back into
+its own coffers the increase of the national wealth resulting from the
+security of property.
+
+It would be endless to point out the oddities and incongruities which
+result from this classification. Whether we take the words wealth and
+production in the largest, or in the most restricted sense in which they
+have ever yet been employed, nobody will dispute that roads, bridges,
+and canals, contribute in an eminent degree, and in a very direct
+manner, to the increase of production and wealth. The labour and
+pecuniary resources employed in their construction would, according to
+the above theory, be considered productive, if every occupier of land
+were compelled by law to construct so much of the road, or canal, as
+passes through his own farm. If, instead of this, the government makes
+the road, and throws it open to the public toll-free, the labour and
+expenditure would be, on the above system, clearly unproductive. But if
+the government, or an association of individuals, made the road, and
+imposed a toll to defray the expense, we do not see how these writers
+could refuse to the outlay the title of productive expenditure. It would
+follow, that the very same labour and expense, if given gratuitously,
+must be called unproductive, which, if a charge had been made for it,
+would have been called productive.
+
+When these consequences of the purely arbitrary classification to which
+we allude have been pointed out and complained of, the only answer which
+we have ever seen made to the objection is, that the line of demarcation
+must be drawn somewhere, and that in every classification there are
+intermediate cases, which might have been included, with almost equal
+propriety, either in the one class or in the other.
+
+This answer appears to us to indicate the want of a sufficiently
+accurate and discriminating perception, what is the kind of inaccuracy
+which generally cannot be avoided in a classification, and what is that
+other kind of inaccuracy, from which it always may be, and should be,
+exempt.
+
+The classes themselves may be, mentally speaking, perfectly definite,
+though it may not always be easy to say to which of them a particular
+object belongs. When it is uncertain in which of two classes an object
+should be placed, if the classification be properly made, and properly
+expressed, the uncertainty can turn only upon a matter of fact. It is
+uncertain to which class the object belongs, because it is doubtful
+whether it possesses in a greater degree the characteristics of the one
+class or those of the other. But the characteristics themselves may be
+defined and distinguished with the nicest exactness, and always ought to
+be so. Especially ought they in a case like the present, because here it
+is only the distinction between the ideas which is of any importance.
+That we should be able with ease to portion out all employments between
+the two classes, does not happen to be of any particular consequence.
+
+It is frequently said that classification is a mere affair of
+convenience. This assertion is true in one sense, but not if its meaning
+be, that the most proper classification is that in which it is easiest
+to say whether an object belongs to one class or to the other. The use
+of classification is, to fix attention upon the distinctions which exist
+among things; and that is the best classification, which is founded upon
+the most important distinctions, whatever be the facilities which it may
+afford of ticketing and arranging the different objects which exist in
+nature. In fixing, therefore, the meaning of the words productive and
+unproductive, we ought to endeavour to render them significative of the
+most important distinctions which, without too glaring a violation of
+received usage, they can be made to express.
+
+We ought further, when we are restricted to the employment of old words,
+to endeavour as far as possible that it shall not be necessary to
+struggle against the old associations with those words. We should, if
+possible, give the words such a meaning, that the propositions in which
+people are accustomed to use them, shall as far as possible still be
+true; and that the feelings habitually excited by them, shall be such as
+the things to which we mean to appropriate them ought to excite.
+
+We shall endeavour to unite these conditions in the result of the
+following enquiry.
+
+In whatever manner political economists may have settled the definition
+of productive and unproductive labour or consumption, the consequences
+which they have drawn from the definition are nearly the same. In
+proportion to the amount of the productive labour and consumption of
+a country, the country, they all allow, is enriched: in proportion to
+the amount of the unproductive labour and consumption, the country is
+impoverished. Productive expenditure they are accustomed to view as
+a gain; unproductive expenditure, however useful, as a sacrifice.
+Unproductive expenditure of what was destined to be expended
+productively, they always characterise as a squandering of resources,
+and call it profusion and prodigality. The productive expenditure of
+that which might, without encroaching upon capital, be expended
+unproductively, is called saving, economy, frugality. Want, misery, and
+starvation, are described as the lot of a nation which annually employs
+less and less of its labour and resources in production; growing comfort
+and opulence as the result of an annual increase in the quantity of
+wealth so employed.
+
+Let us then examine what qualities in expenditure, and in the employment
+of labour, are those from which all the consequences above mentioned
+really flow.
+
+The end to which all labour and all expenditure are directed, is
+twofold. Sometimes it is _enjoyment_ immediately; the fulfilment of
+those desires, the gratification of which is wished for on its own
+account. Whenever labour or expense is not incurred _immediately_ for
+the sake of enjoyment, and is yet not absolutely wasted, it must be
+incurred for the purpose of enjoyment _indirectly_ or mediately; by
+either repairing and perpetuating, or adding, to the _permanent sources_
+of enjoyment.
+
+Sources of enjoyment may be accumulated and stored up; enjoyment itself
+cannot. The wealth of a country consists of the sum total of the
+permanent sources of enjoyment, whether material or immaterial, contained
+in it: and labour or expenditure which tends to augment or to keep up
+these permanent sources, should, we conceive, be termed productive.
+
+Labour which is employed for the purpose of directly affording
+enjoyment, such as the labour of a performer on a musical instrument, we
+term unproductive labour. Whatever is consumed by such a performer, we
+consider as unproductively consumed: the accumulated total of the
+sources of enjoyment which the nation possesses, is diminished by the
+amount of what he has consumed: whereas, if it had been given to him in
+exchange for his services in producing food or clothing, the total of
+the permanent sources of enjoyment in the country might have been not
+diminished but increased.
+
+The performer on the musical instrument then is, so far as respects that
+act, not a productive, but an unproductive labourer. But what shall we
+say of the workman who made the musical instrument? He, most persons
+would say, is a productive labourer; and with reason; because the
+musical instrument is a permanent source of enjoyment, which does not
+begin and end with the enjoying, and therefore admits of being
+accumulated.
+
+But the _skill_ of the musician is a permanent source of enjoyment, as
+well as the instrument which he plays upon: and although skill is not a
+material object, but a quality of an object, viz., of the hands and mind
+of the performer; nevertheless skill possesses exchangeable value, is
+acquired by labour and capital, and is capable of being stored and
+accumulated. Skill, therefore, must be considered as wealth; and the
+labour and funds employed in acquiring skill in anything tending to the
+advantage or pleasure of mankind, must be considered to be productively
+employed and expended.
+
+The skill of a productive labourer is analogous to the machinery he
+works with: neither of them is enjoyment, nor conduces directly to it,
+but both conduce indirectly to it, and both in the same way. If a
+spinning-jenny be wealth, the spinner's skill is also wealth. If the
+mechanic who made the spinning-jenny laboured productively, the spinner
+also laboured productively when he was learning his trade: and what they
+both consumed was consumed productively, that is to say, its consumption
+did not tend to diminish, but to increase the sum of the permanent
+sources of enjoyment in the country, by effecting a new creation of
+those sources, more than equal to the amount of the consumption.
+
+The skill of a tailor, and the implements he employs, contribute in the
+same way to the convenience of him who wears the coat, namely, a remote
+way: it is the coat itself which contributes immediately. The skill of
+Madame Pasta, and the building and decorations which aid the effect of
+her performance, contribute in the same way to the enjoyment of the
+audience, namely, an immediate way, without any intermediate
+instrumentality. The building and decorations are consumed
+unproductively, and Madame Pasta labours and consumes unproductively;
+for the building is used and worn out, and Madame Pasta performs,
+immediately for the spectators' enjoyment, and without leaving, as a
+consequence of the performance, any permanent result possessing
+exchangeable value: consequently the epithet unproductive must be
+equally applied to the gradual wearing out of the bricks and mortar, the
+nightly consumption of the more perishable "properties" of the theatre,
+the labour of Madame Pasta in acting, and of the orchestra in playing.
+But notwithstanding this, the architect who built the theatre was a
+productive labourer; so were the producers of the perishable articles;
+so were those who constructed the musical instruments; and so, we must
+be permitted to add, were those who instructed the musicians, and all
+persons who, by the instructions which they may have given to Madame
+Pasta, contributed to the formation of her talent. All these persons
+contributed to the enjoyment of the audience in the same way, and that
+a remote way, viz., by the production of a _permanent source of
+enjoyment_.
+
+The difference between this case, and the case of the cotton spinner
+already adverted to, is this. The spinning-jenny, and the skill of the
+cotton spinner, are not only the result of productive labour, but are
+themselves productively consumed. The musical instrument and the skill
+of the musician are equally the result of productive labour, but are
+themselves unproductively consumed.
+
+Let us now consider what kinds of labour, and of consumption or
+expenditure, will be classed as productive, and what as unproductive,
+according to this rule.
+
+The following are always productive:
+
+Labour and expenditure, of which the direct object or effect is the
+creation of some material product useful or agreeable to mankind.
+
+Labour and expenditure, of which the direct effect and object are, to
+endow human or other animated beings with faculties or qualities useful
+or agreeable to mankind, and possessing exchangeable value.
+
+Labour and expenditure, which without having for their direct object the
+creation of any useful material product or bodily or mental faculty or
+quality, yet tend indirectly to promote one or other of those ends, and
+are exerted or incurred solely for that purpose.
+
+The following are partly productive and partly unproductive, and cannot
+with propriety be ranged decidedly with either class:
+
+Labour or expenditure which does indeed create, or promote the creation
+of, some useful material product or bodily or mental faculty or quality,
+but which is not incurred or exerted for that sole end; having also for
+another, and perhaps its principal end, enjoyment, or the promotion of
+enjoyment.
+
+Such are the labour of the judge, the legislator, the police-officer,
+the soldier; and the expenditure incurred for their support. These
+functionaries protect and secure mankind in the exclusive possession of
+such material products or acquired faculties as belong to them; and by
+the security which they so confer, they indirectly increase production
+in a degree far more than equivalent to the expense which is necessary
+for their maintenance. But this is not the only purpose for which they
+exist; they protect mankind, not merely in the possession of their
+permanent resources, but also in their actual enjoyments; and so far,
+although highly useful, they cannot, conformably to the distinction
+which we have attempted to lay down, be considered productive labourers.
+
+Such, also, are the labour and the wages of domestic servants. Such
+persons are entertained mainly as subservient to mere enjoyment; but
+most of them occasionally, and some habitually, render services which
+must be considered as of a productive nature; such as that of cookery,
+the last stage in the manufacture of food; or gardening, a branch of
+agriculture.
+
+The following are wholly unproductive:
+
+Labour exerted, and expenditure incurred, directly and exclusively for
+the purpose of enjoyment, and not calling into existence anything,
+whether substance or quality, but such as begins and perishes in the
+enjoyment.
+
+Labour exerted and expenditure incurred uselessly, or in pure waste, and
+yielding neither direct enjoyment nor permanent sources of enjoyment.
+
+It may be objected, that expenditure incurred even for pure enjoyment
+promotes production indirectly, by inciting to exertion. Thus the view
+of the splendour of a rich establishment is supposed by some writers to
+produce upon the mind of an indigent spectator an earnest desire of
+enjoying the same luxuries, and a consequent purpose of working with
+vigour and diligence, and saving from his earnings, thus increasing the
+productive capital of the country.
+
+It is true that mankind are, for the most part, excited to productive
+industry solely by the desire of subsequently consuming the result of
+their labour and accumulation. The consumption called unproductive,
+viz., that of which the direct result is enjoyment, is in reality the
+end, to which production is only the means; and a desire for the end,
+is what alone impels any one to have recourse to the means.
+
+But, notwithstanding this, it is of the greatest importance to mark the
+distinction between the labour and the consumption which have enjoyment
+for their immediate end, and the labour and the consumption of which the
+immediate end is reproduction. Though the sight of the former may still
+further stimulate that desire for the enjoyments afforded by wealth,
+which the mere knowledge, without the immediate view, would suffice to
+excite (and without dwelling on the consideration that if the example
+of a large expenditure excites one individual to accumulation, it
+encourages two to prodigal expense); still, if we look only to the
+effects which are intended, or to those which immediately follow from
+the consumption, and whose connexion with it can be distinctly traced,
+it evidently renders a country poorer in the permanent sources of
+enjoyment; while reproductive consumption leaves the country richer in
+these same sources. Besides, if what is spent for mere pleasure promotes
+indirectly the increase of wealth, it can only be by inducing others
+_not_ to expend on mere pleasure.
+
+Before quitting the subject, one more observation should be added. It
+must not be supposed that what is expended upon unproductive labourers
+is necessarily, the whole of it, unproductively consumed. The
+unproductive labourers may save part of their wages, and invest them in
+a productive employment.
+
+It is not unusual to speak of what is paid in wages to a labourer as
+being thereby _consumed_, as if all profit and loss to the nation were
+to be seen in the capitalist's account-book. What is paid for productive
+labour is said to be productively consumed; what is paid for
+unproductive labour is said to be consumed unproductively. It would be
+proper to say, not that it is productively or unproductively _consumed_,
+but productively or unproductively _expended_; otherwise, we shall be
+obliged to say that it is consumed twice over; the first time
+unproductively, perhaps, and the second, it may be, productively.
+
+To pronounce in which way the wages of the labourer are consumed, we
+must follow them into the labourer's own hands. As much as is necessary
+to keep the productive labourer in perfect health and fitness for his
+employment, may be said to be consumed productively. To this should be
+added what he expends in rearing children to the age at which they
+become capable of productive industry. If the state of the market for
+labour be such as to afford him more, this he may either save, or, as
+the common expression is, he may spend it. If he saves any portion, this
+(unless it be merely hoarded) he intends to employ productively, and it
+will be productively consumed. If he spends it, the consumption is for
+enjoyment immediately, and is therefore unproductive.
+
+This suggests another correction in the established language. Political
+economists generally define the "net produce" to be that portion of the
+gross annual produce of a country which remains after replacing the
+capital annually consumed. This, as they proceed to explain, consists of
+profits and rent; wages being included in the other portion of the gross
+produce, that which goes to replace capital. After this definition, they
+usually proceed to tell us that the net produce, and that alone,
+constitutes the fund from which a nation can accumulate, and add to its
+capital, as also that which it can, without retrograding in wealth,
+expend unproductively, or for enjoyment. Now, it is impossible that both
+the above propositions can be true. If the net produce is that which
+remains after replacing capital, then net produce is not the only fund
+out of which accumulation may be made: for accumulation may be made from
+wages; this is in all countries one of the great sources, and in countries
+like America perhaps the greatest source of accumulation. If, on the other
+hand, it is desirable to reserve the name of net produce to denote the
+fund available for accumulation or for unproductive consumption, we must
+define net produce differently. The definition which appears the best
+adapted to render the ordinary doctrines relating to net produce true,
+would be this:
+
+The net produce of a country is whatever is annually produced beyond
+what is necessary for maintaining the stock of materials and implements
+unimpaired, for keeping all productive labourers alive and in condition
+for work, and for just keeping up their numbers without increase. What
+is required for these purposes, or, in other words, for keeping up the
+productive resources of the country, cannot be diverted from its
+destination without rendering the nation as a whole poorer. But all
+which is produced beyond this, whether it be in the hands of the
+labourer, of the capitalist, or of any of the numerous varieties of
+rent-owners, may be taken for immediate enjoyment, without prejudice to
+the productive resources of the community; and whatever part of it is
+not so taken, constitutes a clear addition to the national capital, or
+to the permanent sources of enjoyment.
+
+
+
+
+ESSAY IV.
+
+ON PROFITS, AND INTEREST.
+
+
+The profits of stock are the surplus which remains to the capitalist
+after replacing his capital: and the ratio which that surplus bears to
+the capital itself, is the _rate_ of profit.
+
+This being the definition of profits, it might seem natural to adopt, as
+a sufficient theory in regard to the rate of profit, that it depends
+upon the productive power of capital. Some countries are favoured beyond
+others, either by nature or art, in the means of production. If the
+powers of the soil, or of machinery, enable capital to produce what is
+necessary for replacing itself, and twenty per cent more, profits will
+be twenty per cent; and so on.
+
+This, accordingly, is a popular mode of speaking on the subject of
+profits; but it has only the semblance, not the reality, of an
+explanation. The "productive power of capital," though a common, and,
+for some purposes, a convenient expression, is a delusive one. Capital,
+strictly speaking, has no productive power. The only productive power is
+that of labour; assisted, no doubt, by tools, and acting upon materials.
+That portion of capital which consists of tools and materials, may be
+said, perhaps, without any great impropriety, to have a productive
+power, because they contribute, along with labour, to the accomplishment
+of production. But that portion of capital which consists of wages, has
+no productive power of its own. Wages have no productive power; they are
+the price of a productive power. Wages do not contribute, along with
+labour, to the production of commodities, no more than the price of
+tools contributes along with the tools themselves. If labour could be
+had without purchase, wages might be dispensed with. That portion of
+capital which is expended in the wages of labour, is only the means by
+which the capitalist procures to himself, in the way of purchase, the
+use of that labour in which the power of production really resides.
+
+The proper view of capital is, that anything whatever, which a person
+possesses, constitutes his capital, provided he is able, and intends,
+to employ it, not in consumption for the purpose of enjoyment, but in
+possessing himself of the means of production, with the intention of
+employing those means productively. Now the means of production are
+labour, implements, and materials. The only productive power which
+anywhere exists, is the productive power of labour, implements, and
+materials.
+
+We need not, on this account, altogether proscribe the expression,
+"productive power of capital;" but we should carefully note, that it can
+only mean the quantity of real productive power which the capitalist,
+by means of his capital, can command. This may change, though the
+productive power of labour remains the same. Wages, for example, may
+rise; and then, although all the circumstances of production remain
+exactly as they were before, the same capital will yield a less return,
+because it will set in motion a less quantity of productive labour.
+
+We may, therefore, consider the capital of a producer as measured by the
+means which he has of possessing himself of the different essentials of
+production: namely, labour, and the various articles which labour
+requires as materials, or of which it avails itself as aids.
+
+The ratio between the price which he has to pay for these means of
+production, and the produce which they enable him to raise, is the
+_rate_ of his _profit_. If he must give for labour and tools four-fifths
+of what they will produce, the remaining fifth will constitute his
+profit, and will give him a rate of one in four, or twenty-five per
+cent, on his outlay.
+
+It is necessary here to remark, what cannot indeed by any possibility be
+misunderstood, but might possibly be overlooked in cases where attention
+to it is indispensable, viz., that we are speaking now of the _rate_ of
+profit, not the gross profit. If the capital of the country is very
+great, a profit of only five per cent upon it may be much more ample,
+may support a much larger number of capitalists and their families in
+much greater affluence, than a profit of twenty-five per cent on the
+comparatively small capital of a poor country. The _gross_ profit of a
+country is the actual amount of necessaries, conveniences, and luxuries,
+which are divided among its capitalists: but whether this be large or
+small, the rate of profit may be just the same. The rate of profit is
+the proportion which the profit bears to the capital; which the surplus
+produce after replacing the outlay, bears to the outlay. In short, if we
+compare the _price paid_ for labour and tools with what that labour and
+those tools will _produce_, from this ratio we may calculate the rate of
+profit.
+
+As the gross profit may be very different though the rate of profit be
+the same; so also may the absolute price paid for labour and tools be
+very different, and yet the proportion between the price paid and the
+produce obtained may be just the same. For greater clearness, let us
+omit, for the present, the consideration of tools, materials, &c, and
+conceive production as the result solely of labour. In a certain
+country, let us suppose, the wages of each labourer are one quarter of
+wheat per year, and 100 men can produce, in one year, 120 quarters. Here
+the price paid for labour is to the produce of that labour as 100 to
+120, and profits are 20 per cent. Suppose now that, in another country,
+wages are just double what they are in the country before supposed;
+namely, two quarters of wheat per year, for each labourer. But suppose,
+likewise, that the productive power of labour is double what it is in
+the first country; that by the greater fertility of the soil, 100 men
+can produce 240 quarters, instead of 120 as before. Here it is obvious,
+that the real price paid for labour is twice as great in the one country
+as in the other; but the produce being also twice as great, the ratio
+between the price of labour and the produce of labour is still exactly
+the same: an outlay of 200 quarters gives a return of 240 quarters, and
+profits, as before, are 20 per cent.
+
+Profits, then (meaning not gross profits, but the rate of profit),
+depend (not upon the price of labour, tools, and materials--but) upon
+the ratio between the price of labour, tools, and materials, and the
+produce of them: upon the proportionate share of the produce of industry
+which it is necessary to offer, in order to purchase that industry and
+the means of setting it in motion.
+
+       *       *       *       *       *
+
+We have hitherto spoken of tools, buildings, and materials, as
+essentials of production, co-ordinate with labour, and equally
+indispensable with it. This is true; but it is also true that tools,
+buildings, and materials, are themselves the produce of labour; and that
+the only cause (cases of monopoly excepted) of their having any value,
+is the labour which is required for their production.
+
+If tools, buildings, and materials were the spontaneous gifts of nature,
+requiring no labour either in order to produce or to appropriate them;
+and if they were thus bestowed upon mankind in indefinite quantity, and
+without the possibility of being monopolized; they would still be as
+useful, as indispensable as they now are; but since they could, like air
+and the light of the sun, be obtained without cost or sacrifice, they
+would form no part of the expenses of production, and no portion of the
+produce would be required to be set aside in order to replace the outlay
+made for these purposes. The whole produce, therefore, after replacing
+the wages of labour, would be clear profit to the capitalist.
+
+Labour alone is the primary means of production; "the original
+purchase-money which has been paid for everything." Tools and materials,
+like other things, have originally cost nothing but labour; and have a
+value in the market only because wages have been paid for them. The
+labour employed in making the tools and materials being added to the
+labour afterwards employed in working up the materials by aid of the
+tools, the sum total gives the whole of the labour employed in the
+production of the completed commodity. In the ultimate analysis,
+therefore, labour appears to be the only essential of production. To
+replace capital, is to replace nothing but the wages of the labour
+employed. Consequently, the whole of the surplus, after replacing wages,
+is profits. From this it seems to follow, that the ratio between the
+wages of labour and the produce of that labour gives the rate of profit.
+And thus we arrive at Mr. Ricardo's principle, that profits depend upon
+wages; rising as wages fall, and falling as wages rise.
+
+To protect this proposition (the most perfect form in which the law of
+profits seems to have been yet exhibited) against misapprehension, one
+or two explanatory remarks are required.
+
+If by wages, be meant what constitutes the real affluence of the
+labourer, the _quantity_ of produce which he receives in exchange for
+his labour; the proposition that profits vary inversely as wages, will
+be obviously false. The rate of profit (as has been already observed and
+exemplified) does not depend upon the price of labour, but upon the
+proportion between the price of labour and the produce of it. If the
+produce of labour is large, the price of labour may also be large
+without any diminution of the rate of profit: and, in fact, the rate of
+profit is highest in those countries (as, for instance, North America)
+where the labourer is most largely remunerated. For the wages of labour,
+though so large, bear a less proportion to the abundant _produce_ of
+labour, there than elsewhere.
+
+But this does not affect the truth of Mr. Ricardo's principle as he
+himself understood it; because an increase of the labourer's real
+comforts was not considered by him as a rise of wages. In his language
+wages were only said to rise, when they rose not in mere quantity but in
+_value_. To the labourer himself (he would have said) the _quantity_ of
+his remuneration is the important circumstance: but its _value_ is the
+only thing of importance to the person who purchases his labour.
+
+The rate of profits depends not upon absolute or real wages, but upon
+the _value_ of wages.
+
+If, however, by value, Mr. Ricardo had meant _exchangeable_ value, his
+proposition would still have been remote from the truth. Profits depend
+no more upon the exchangeable value of the labourer's remuneration, than
+upon its quantity. The truth is, that by the exchangeable value is meant
+the quantity of commodities which the labourer can purchase with his
+wages; so that when we say the exchangeable value of wages, we say their
+quantity, under another name.
+
+Mr. Ricardo, however, did not use the word value in the sense of
+exchangeable value.
+
+Occasionally, in his writings, he could not avoid using the word as
+other people use it, to denote value in exchange. But he more frequently
+employed it in a sense peculiar to himself, to denote cost of
+production; in other words, the _quantity of labour_ required to produce
+the article; that being his criterion of cost of production. Thus, if a
+hat could be made with ten days' labour in France and with five days'
+labour in England, he said that the value of a hat was double in France
+of what it was in England. If a quarter of corn could be produced a
+century ago with half as much labour as is necessary at present, Mr.
+Ricardo said that the value of a quarter of corn had doubled.
+
+Mr. Ricardo, therefore, would not have said that wages had risen,
+because a labourer could obtain two pecks of flour instead of one, for a
+day's labour; but if last year he received, for a day's labour,
+something which required eight hours' labour to produce it, and this
+year something which requires nine hours, then Mr. Ricardo would say
+that wages had risen. A rise of wages, with Mr. Ricardo, meant an
+increase in the cost of production of wages; an increase in the number
+of hours' labour which go to produce the wages of a day's labour; an
+increase in the _proportion_ of the fruits of labour which the labourer
+receives for his own share; an increase in the ratio between the wages
+of his labour and the produce of it. This is the theory: the reasoning,
+of which it is the result, has been given in the preceding paragraphs.
+
+Some of Mr. Ricardo's followers, or more properly, of those who have
+adopted in most particulars the views of political economy which his
+genius was the first to open up, have given explanations of Mr.
+Ricardo's doctrine to nearly the same effect as the above, but in rather
+different terms. They have said that profits depend not on _absolute_,
+but on _proportional_ wages: which they expounded to mean the proportion
+which the labourers _en masse_ receive of the total produce of the
+country.
+
+It seems, however, to be rather an unusual and inconvenient use of
+language to speak of anything as depending upon the wages of labour, and
+then to explain that by wages of labour you do not mean the wages of an
+individual labourer, but of all the labourers in the country
+collectively. Mankind will never agree to call anything a rise of wages,
+except a rise of the wages of individual labourers, and it is therefore
+preferable to employ language tending to fix attention upon the wages of
+the individual. The wages, however, on which profits are said to depend,
+are undoubtedly _proportional_ wages, namely, the proportional wages of
+one labourer: that is, the ratio between the wages of one labourer, and
+(not the whole produce of the country, but) the amount of what one
+labourer can produce; the amount of that portion of the collective
+produce of the industry of the country, which may be considered as
+corresponding to the labour of one single labourer. Proportional wages,
+thus understood, may be concisely termed the cost of production of
+wages; or, more concisely still, the cost of wages, meaning their cost
+in the "original purchase money," labour.
+
+We have now arrived at a distinct conception of Mr. Ricardo's theory of
+profits in its most perfect state. And this theory we conceive to be the
+basis of the true theory of profits. All that remains to do is to clear
+it from certain difficulties which still surround it, and which, though
+in a greater degree apparent than real, are not to be put aside as
+wholly imaginary.
+
+Though it is true that tools, materials, and buildings (it is to be
+wished that there were some compact designation for all these essentials
+of production taken together,) are themselves the produce of labour, and
+are only on that account to be ranked among the expenses of production;
+yet the _whole_ of their value is not resolvable into the wages of the
+labourers by whom they were produced. The wages of those labourers were
+paid by a capitalist, and that capitalist must have the same profit upon
+his advances as any other capitalist; when, therefore, he sells the
+tools or materials, he must receive from the purchaser not only the
+reimbursement of the wages he has paid, but also as much more as will
+afford him the ordinary rate of profit. And when the producer, after
+buying the tools and employing them in his own occupation, comes to
+estimate his gains, he must set aside a portion of the produce to
+replace not only the wages paid both by himself and by the tool-maker,
+but also the profits of the tool-maker, advanced by himself out of his
+own capital.
+
+It is not correct, therefore, to state that all which the capitalist
+retains after replacing wages forms his profit. It is true the whole
+return to capital is either wages or profits; but profits do not compose
+merely the surplus after replacing the outlay; they also enter into the
+outlay itself. Capital is expended partly in paying or reimbursing
+wages, and partly in paying the profits of other capitalists, whose
+concurrence was necessary in order to bring together the means of
+production.
+
+If any contrivance, therefore, were devised by which that part of the
+outlay which consists of previous profits could be either wholly or
+partially dispensed with, it is evident that more would remain as the
+profit of the immediate producer; while, as the quantity of _labour_
+necessary to produce a given quantity of the commodity would be
+unaltered, as well as the quantity of produce paid for that labour, it
+seems that the ratio between the price of labour and its produce would
+be the same as before; that the cost of production of wages would be the
+same, proportional wages the same, and yet profits different.
+
+To illustrate this by a simple instance, let it be supposed that
+one-third of the produce is sufficient to replace the wages of the
+labourers who have been immediately instrumental in the production; that
+another third is necessary to replace the materials used and the fixed
+capital worn out in the process; while the remaining third is clear
+gain, being a profit of 50 per cent. Suppose, for example, that 60
+agricultural labourers, receiving 60 quarters of corn for their wages,
+consume fixed capital and seed amounting to the value of 60 quarters
+more, and that the result of their operations is a produce of 180
+quarters. When we analyse the price of the seed and tools into its
+elements, we find that they must have been the produce of the labour of
+40 men: for the wages of those 40, together with profit at the rate
+previously supposed (50 per cent) make up 60 quarters. The produce,
+therefore, consisting of 180 quarters is the result of the labour
+altogether of 100 men: namely, the 60 first mentioned, and the 40 by
+whose labour the fixed capital and the seed were produced.
+
+Let us now suppose, by way of an extreme case, that some contrivance is
+discovered, whereby the purposes to which the second third of the
+produce had been devoted, may be dispensed with altogether: that some
+means are invented by which the same amount of produce may be procured
+without the assistance of any fixed capital, or the consumption of any
+seed or material sufficiently valuable to be worth calculating. Let us,
+however, suppose that this cannot be done without taking on a number of
+additional labourers, equal to those required for producing the seed and
+fixed capital; so that the saving shall be only in the profits of the
+previous capitalists. Let us, in conformity with this supposition,
+assume that in dispensing with the fixed capital and seed, value 60
+quarters, it is necessary to take on 40 additional labourers, receiving
+a quarter of corn each, as before.
+
+The rate of profit has evidently risen. It has increased from 50 per
+cent to 60 per cent. A return of 180 quarters could not before be
+obtained but by an outlay of 120 quarters; it can now be obtained by an
+outlay of no more than 100.
+
+Here, therefore, is an undeniable rise of profits. Have wages, in the
+sense above attached to them, fallen or not? It would seem not.
+
+The produce (180 quarters) is still the result of the same quantity of
+labour as before, namely, the labour of 100 men. A quarter of corn,
+therefore, is still, as before, the produce of 10/18 of a man's labour
+for a year. Each labourer receives, as before, one quarter of corn;
+each, therefore, receives the produce of 10\18 of a year's labour of one
+man, that is, the same cost of production; each receives 10/18 of the
+produce of his own labour, that is, the same proportional wages; and the
+labourers collectively still receive the same proportion, namely 10/18,
+of the whole produce.
+
+The conclusion, then, cannot be resisted, that Mr. Ricardo's theory is
+defective: that the rate of profits does _not_ exclusively depend upon
+the value of wages, in his sense, namely, the quantity of labour of
+which the wages of a labourer are the produce; that it does _not_
+exclusively depend upon proportional wages, that is, upon the proportion
+which the labourers collectively receive of the whole produce, or the
+ratio which the wages of an individual labourer bear to the produce of
+his individual labour.
+
+Those political economists, therefore, who have always dissented from
+Mr. Ricardo's doctrine, or who, having at first admitted, ended by
+discarding it, were so far in the right; but they committed a serious
+error in this, that, with the usual one-sidedness of disputants, they
+knew no medium between admitting absolutely and dismissing entirely;
+and saw no other course than utterly to reject what it would have been
+sufficient to modify.
+
+It is remarkable how very slight a modification will suffice to render
+Mr. Ricardo's doctrine completely true. It is even doubtful whether he
+himself, if called upon to adapt his expressions to this peculiar case,
+would not have so explained his doctrine as to render it entirely
+unobjectionable.
+
+It is perfectly true, that, in the example already made use of, a rise
+of profits takes place, while wages, considered in respect to the
+quantity of labour of which they are the produce, have not varied at
+all. But though wages are still the produce of the same _quantity of
+labour_ as before, the _cost of production_ of wages has nevertheless
+fallen; for into cost of production there enters another element besides
+labour.
+
+We have already remarked (and the very example out of which the
+difficulty arose presupposes it) that the cost of production of an
+article consists generally of two parts,--the _wages_ of the labour
+employed, and the _profits_ of those who, in any antecedent stage of
+the production, have advanced any portion of those wages. An article,
+therefore, may be the produce of the same quantity of labour as before,
+and yet, if any portion of the profits which the last producer has to
+make good to previous producers can be economized, the cost of
+production of the article is diminished.
+
+Now, in our example, a diminution of this sort is supposed to have taken
+place in the cost of production of corn. The production of that article
+has become less costly, in the ratio of six to five. A quantity of corn,
+the means of producing which could not previously have been secured but
+at an expense of 120 quarters, can now be produced by means which 100
+quarters are sufficient to purchase.
+
+But the labourer is supposed to receive the same quantity of corn as
+before. He receives one quarter. The cost of production of wages has,
+therefore, fallen one-sixth. A quarter of corn, which is the
+remuneration of a single labourer, is indeed the produce of the same
+quantity of labour as before; but its cost of production is nevertheless
+diminished. It is now the produce of 10/18 of a man's labour, and
+nothing else; whereas formerly it required for its production the
+conjunction of that quantity of labour with an expenditure, in the form
+of reimbursement of profit, amounting to one-fifth more.
+
+If the cost of production of wages had remained the same as before,
+profits could not have risen. Each labourer received one quarter of
+corn; but one quarter of corn at that time was the result of the same
+cost of production, as 1 1/5 quarter now. In order, therefore, that each
+labourer should receive the same cost of production, each must now
+receive one quarter of corn, _plus_ one-fifth. The labour of 100 men
+could not be purchased at this price for less than 120 quarters; and the
+produce, 180 quarters, would yield only 50 per cent, as first supposed [7].
+
+It is, therefore, strictly true, that the rate of profits varies
+inversely as the cost of production of wages. Profits cannot rise,
+unless the cost of production of wages falls exactly as much; nor fall,
+unless it rises.
+
+The proof of this position has been stated in figures, and in a
+particular case: we shall now state it in general terms, and for all
+cases.
+
+We have supposed, for simplicity, that wages are paid in the finished
+commodity. The agricultural labourers, in our example, were paid in
+corn, and if we had called them weavers, we should have supposed them to
+be paid in cloth. This supposition is allowable, for it is obviously of
+no consequence, in a question of value, or cost of production, what
+precise article we assume as the medium of exchange. The supposition
+has, besides, the recommendation of being conformable to the most
+ordinary state of the facts; for it is by the sale of his own finished
+article that each capitalist obtains the means of hiring labourers to
+renew the production; which is virtually the same thing as if, instead
+of selling the article for money and giving the money to his labourers,
+he gave the article itself to the labourers, and they sold it for their
+daily bread.
+
+Assuming, therefore, that the labourer is paid in the very article he
+produces, it is evident that, when any saving of expense takes place in
+the production of that article, if the labourer still receives the same
+cost of production as before, he must receive an increased quantity, in
+the very same ratio in which the productive power of capital has been
+increased. But, if so, the outlay of the capitalist will bear exactly
+the same proportion to the return as it did before; and profits will not
+rise.
+
+The variations, therefore, in the rate of profits, and those in the cost
+of production of wages, go hand in hand, and are inseparable. Mr.
+Ricardo's principle, that profits cannot rise unless wages fall, is
+strictly true, if by low wages be meant not merely wages which are the
+produce of a smaller quantity of labour, but wages which are produced at
+less cost, reckoning labour and previous profits together. But the
+interpretation which some economists have put upon Mr. Ricardo's
+doctrine, when they explain it to mean that profits depend upon the
+proportion which the labourers collectively receive of the aggregate
+produce, will not hold at all; for that, in our first example, remained
+the same, and yet profits rose.
+
+The only expression of the law of profits, which seems to be correct,
+is, that they depend upon the cost of production of wages. This must be
+received as the ultimate principle.
+
+From this may be deduced all the corollaries which Mr. Ricardo and
+others have drawn from his theory of profits as expounded by himself.
+The cost of production of the wages of one labourer for a year, is the
+result of two concurrent elements or factors,--viz., 1st, the quantity
+of commodities which the state of the labour market affords to him;
+2ndly, the cost of production of each of those commodities. It follows,
+that the rate of profits can never rise but in conjunction with one or
+other of two changes,--1st, a diminished remuneration of the labourer;
+or, 2ndly, an improvement in production, or an extension of commerce, by
+which any of the articles habitually consumed by the labourer may be
+obtained at smaller cost. (If the improvement be in any article which is
+not consumed by the labourer, it merely lowers the price of that article,
+and thereby benefits capitalists and all other people so far as they are
+consumers of that particular article, and may be said to increase gross
+profit, but not the rate of profit.)
+
+So, on the other hand, the rate of profit cannot fall, unless
+concurrently with one of two events: 1st, an improvement in the
+labourer's condition; or, 2ndly, an increased difficulty of producing
+or importing some article which the labourer habitually consumes. The
+progress of population and cultivation has a tendency to lower profits
+through the latter of these two channels, owing to the well known law
+of the application of capital to land, that a double capital does not
+_caeteris paribus_ yield a double produce. There is, therefore, a
+tendency in the rate of profits to fall with the progress of society.
+But there is also an antagonist tendency of profits to rise, by the
+successive introduction of improvements in agriculture, and in the
+production of those manufactured articles which the labourers consume.
+Supposing, therefore, that the actual comforts of the labourer remain
+the same, profits will fall or rise, according as population, or
+improvements in the production of food and other necessaries, advance
+fastest.
+
+The rate of profits, therefore, tends to _fall_ from the following
+causes:--1. An increase of capital beyond population, producing
+increased competition for labour; 2. An increase of population,
+occasioning a demand for an increased quantity of food, which must be
+produced at a greater cost. The rate of profits tends to _rise_ from
+the following causes:--1. An increase of population beyond capital,
+producing increased competition for employment; 2. Improvements
+producing increased cheapness of necessaries, and other articles
+habitually consumed by the labourer.
+
+       *       *       *       *       *
+
+The circumstances which regulate the rate of interest have usually been
+treated, even by professed writers on political economy, in a vague,
+loose, and unscientific manner. It has, however, been felt that there is
+some connexion between the rate of interest and the rate of profit; that
+(to use the words of Adam Smith) much will be given for money, when much
+can be made of it. It has been felt, also, that the fluctuations in the
+market-rate of interest from day to day, are determined, like other
+matters of bargain and sale, by demand and supply. It has, therefore,
+been considered as an established principle, that the rate of interest
+varies from day to day according to the quantity of capital offered or
+called for on loan; but conforms on the average of years to a standard
+determined by the rate of profits, and bearing some proportion to that
+rate--but a proportion which few attempts have been made to define.
+
+In consequence of these views, it has been customary to judge of the
+general rate of profits at any time or place, by the rate of interest at
+that time and place: it being supposed that the rate of interest, though
+liable to temporary fluctuations, can never vary for any long period of
+time unless profits vary; a notion which appears to us to be erroneous.
+
+It was observed by Adam Smith, that profits may be considered as divided
+into two parts, of which one may properly be considered as the
+remuneration for the use of the capital itself, the other as the reward
+of the labour of superintending its employment; and that the former of
+these will correspond with the rate of interest. The producer who
+borrows capital to employ it in his business, will consent to pay, for
+the use of it, all that remains of the profits he can make by it, after
+reserving what he considers reasonable remuneration for the trouble and
+risk which he incurs by borrowing and employing it.
+
+This remark is just; but it seems necessary to give greater precision to
+the ideas which it involves.
+
+The difference between the profit which can be made by the use of
+capital, and the interest which will be paid for it, is rightly
+characterized as wages of superintendance. But to infer from this that
+it is regulated by entirely the same principles as other wages, would be
+to push the analogy too far. It is wages, but wages paid by a commission
+upon the capital employed. If the general rate of profit is 10 per cent,
+and the rate of interest 5 per cent, the wages of superintendance will
+be 5 per cent; and though one borrower employ a capital of 100,000_l_.,
+another no more than 100_l_., the labour of both will be rewarded with
+the same per centage, though, in the one ease, this symbol will
+represent an income of 5_l_., in the other case, of 5000_l_. Yet it
+cannot be pretended that the labour of the two borrowers differs in this
+proportion. The rule, therefore, that equal quantities of labour of
+equal hardness and skill are equally remunerated, does not hold of this
+kind of labour. The wages of any other labour are here an inapplicable
+criterion.
+
+The wages of superintendance are distinguished from ordinary wages by
+another peculiarity, that they are not paid in advance out of capital,
+like the wages of all other labourers, but merge in the profit, and are
+not realized until the production is completed. This takes them entirely
+out of the ordinary law of wages. The wages of labourers who are paid in
+advance, are regulated by the number of competitors compared with the
+amount of capital; the labourers can consume no more than what has been
+previously accumulated. But there is no such limit to the remuneration
+of a kind of labour which is not paid for out of wealth previously
+accumulated, but out of that produce which it is itself employed in
+calling into existence.
+
+When these circumstances are duly weighed, it will be perceived, that
+although profit may be correctly analyzed into interest and wages of
+superintendance, we ought not to lay it down as the law of interest,
+that it is profits _minus_ the wages of superintendance. Of the two
+expressions, it would be decidedly the more correct, that the wages of
+superintendance are regulated by the rate of interest, or are equal to
+profits _minus_ interest. In strict, propriety, neither expression would
+be allowable. Interest, and the wages of superintendance, can scarcely
+be said to depend upon one another. They are to one another in the same
+relation as wages and profits are. They are like two buckets in a well:
+when one rises, the other descends, but neither of the two motions is
+the cause of the other; both are simultaneous effects of the same cause,
+the turning of the windlass.
+
+       *       *       *       *       *
+
+There are among the capitalists of every country a considerable number
+who are habitually, and almost necessarily, lenders; to whom scarcely
+any difference between what they could receive for their money and what
+could be made by it, would be an equivalent for incurring the risk and
+labour of carrying on business. In this predicament is the property of
+widows and orphans; of many public bodies; of charitable institutions;
+most property which is vested in trustees; and the property of a great
+number of persons unused to business, and who have a distaste for it,
+or whose other occupations prevent their engaging in it. How large a
+proportion of the property lent to the nation comes under this
+description, has been pointed out in Mr. Tooke's _Considerations on the
+State of the Currency._
+
+There is another large class, consisting of bankers, bill-brokers, and
+others, who are money-lenders by profession; who enter into that
+profession with the intention of making such gains as it will yield
+them, and who would not be induced to change their business by any but
+a very strong pecuniary inducement.
+
+There is, therefore, a large class of persons who are habitually
+lenders. On the other hand, all persons in business may be considered
+as habitually borrowers. Except in times of stagnation, they are all
+desirous of extending their business beyond their own capital, and are
+never desirous of lending any portion of their capital except for very
+short periods, during which they cannot advantageously invest it in
+their own trade.
+
+There is, in short, a productive class, and there is, besides, a class
+technically styled the monied class, who live upon the interest of their
+capital, without engaging personally in the work of production.
+
+The class of borrowers may be considered as unlimited. There is no
+quantity of capital that could be offered to be lent, which the
+productive classes would not be willing to borrow, at any rate of
+interest which would afford them the slightest excess of profit above a
+bare equivalent for the additional risk, incurred by that transaction,
+of the evils attendant on insolvency. The only assignable limit to the
+inclination to borrow, is the power of giving security: the producers
+would find it difficult to borrow more than an amount equal to their own
+capital. If more than half the capital of the country were in the hands
+of persons who preferred lending it to engaging personally in business,
+and if the surplus were greater than could be invested in loans to
+Government, or in mortgages upon the property of unproductive consumers;
+the competition of lenders would force down the rate of interest very
+low. A certain portion of the monied class would be obliged either to
+sacrifice their predilections by engaging in business, or to lend on
+inferior security; and they would accordingly accept, where they could
+obtain good security, an abatement of interest equivalent to the
+difference of risk.
+
+This is an extreme case. Let us put an extreme case of a contrary kind.
+Suppose that the wealthy people of any country, not relishing an idle
+life, and having a strong taste for gainful labour, were generally
+indisposed to accept of a smaller income in order to be relieved from
+the labour and anxiety of business. Every producer in flourishing
+circumstances would be eager to borrow, and few willing to lend. Under
+these circumstances the rate of interest would differ very little from
+the rate of profit. The trouble of managing a business is not
+proportionally increased by an increase of the magnitude of the
+business; and a very small surplus profit above the rate of interest,
+would therefore be a sufficient inducement to capitalists to borrow.
+
+We may even conceive a people whose habits were such, that in order to
+induce them to lend, it might be necessary to offer them a rate of
+interest fully equal to the ordinary rate of profit. In that case, of
+course, the productive classes would scarcely ever borrow. But
+government, and the unproductive classes, who do not borrow in order to
+make a profit by the loan, but from the pressure of a real or supposed
+necessity, might still be ready to borrow at this high rate.
+
+Although the inclination to borrow has no _fixed_ or _necessary_ limit
+except the power of giving security, yet it always, in point of fact,
+stops short of this; from the uncertainty of the prospects of any
+individual producer, which generally indisposes him to involve himself
+to the full extent of his means of payment. There is never any permanent
+want of market for things in general; but there may be so for the
+commodity which any one individual is producing; and even if there is a
+demand for the commodity, people may not buy it of him but of some other.
+There are, consequently, never more than a portion of the producers, the
+state of whose business encourages them to add to their capital by
+borrowing; and even these are disposed to borrow only as much as they
+see an _immediate_ prospect of profitably employing. There is, therefore,
+a practical limit to the demands of borrowers at any given instant; and
+when these demands are all satisfied, any additional capital offered on
+loan can find an investment only by a reduction of the rate of interest.
+
+The amount of borrowers being given, (and by the amount of borrowers is
+here meant the aggregate sum which people are willing to borrow at some
+given rate,) the rate of interest will depend upon the quantity of
+capital owned by people who are unwilling or unable to engage in trade.
+The circumstances which determine this, are, on the one hand, the degree
+in which a taste for business, or an aversion to it, happens to be
+prevalent among the classes possessed of property; and on the other
+hand, the amount of the annual accumulation from the earnings of labour.
+Those who accumulate from their wages, fees, or salaries, have, of
+course, (speaking generally) no means of investing their savings except
+by lending them to others: their occupations prevent them from personally
+superintending any employment.
+
+Upon these circumstances, then, the rate of interest depends, the amount
+of borrowers being given. And the counter-proposition equally holds,
+that, the above circumstances being given, the rate of interest depends
+upon the amount of borrowers.
+
+Suppose, for example, that when the rate of interest has adjusted itself
+to the existing state of the circumstances which affect the disposition
+to borrow and to lend, a war breaks out, which induces government, for
+a series of years, to borrow annually a large sum of money. During the
+whole of this period, the rate of interest will remain considerably
+above what it was before, and what it will be afterwards.
+
+Before the commencement of the supposed war, all persons who were
+disposed to lend at the then rate of interest, had found borrowers, and
+their capital was invested. This may be assumed; for if any capital had
+been seeking for a borrower at the existing rate of interest, and unable
+to find one, its owner would have offered it at a rate slightly below
+the existing rate. He would, for instance, have bought into the funds,
+at a slight advance of price; and thus set at liberty the capital of
+some fundholder, who, the funds yielding a lower interest, would have
+been obliged to accept a lower interest from individuals.
+
+Since, then, all who were willing to lend their capital at the market
+rate, have already lent it, Government will not be able to borrow unless
+by offering higher interest. Though, with the existing habits of the
+possessors of disposable capital, an increased number cannot be found
+who are willing to lend at the existing rate, there are doubtless some
+who will be induced to lend by the temptation of a higher rate. The same
+temptation will also induce some persons to invest, in the purchase of
+the new stock, what they would otherwise have expended unproductively in
+increasing their establishments, or productively, in improving their
+estates. The rate of interest will rise just sufficiently to call forth
+an increase of lenders to the amount required.
+
+This we apprehend to be the cause why the rate of interest in this
+country was so high as it is well known to have been during the last
+war. It is, therefore, by no means to be inferred, as some have done,
+that the general rate of profits was unusually high during the same
+period, because interest was so. Supposing the rate of profits to have
+been precisely the same during the war, as before or after it, the rate
+of interest would nevertheless have risen, from the causes and in the
+manner above described.
+
+The practical use of the preceding investigation is, to moderate the
+confidence with which inferences are frequently drawn with respect to
+the rate of profit from evidence regarding the rate of interest; and to
+shew that although the rate of profit is one of the elements which
+combine to determine the rate of interest, the latter is also acted upon
+by causes peculiar to itself, and may either rise or fall, both
+temporarily and permanently, while the general rate of profits remains
+unchanged.
+
+       *       *       *       *       *
+
+The introduction of banks, which perform the function of lenders and
+loan-brokers, with or without that of issuers of paper-money, produces
+some further anomalies in the rate of interest, which have not, so far
+as we are aware, been hitherto brought within the pale of exact science.
+
+If bankers were merely a class of middlemen between the lender and the
+borrower; if they merely received deposits of capital from those who had
+it lying unemployed in their hands, and lent this, together with their
+own capital, to the productive classes, receiving interest for it, and
+paying interest in their turn to those who had placed capital in their
+hands; the effect of the operations of banking on the rate of interest
+would be to lower it in some slight degree. The banker receives and
+collects together sums of money much too small, when taken individually,
+to render it worth while for the owners to look out for an investment,
+but which in the aggregate form a considerable amount. This amount may
+be considered a clear addition to the productive capital of the country;
+at least, to the capital in activity at any moment. And as this addition
+to the capital accrues wholly to that part of it which is not employed
+by the owners, but lent to other producers, the natural effect is a
+diminution of the rate of interest.
+
+The banker, to the extent of his own private capital, (the expenses of
+his business being first paid,) is a lender at interest. But, being
+subject to risk and trouble fully equal to that which belongs to most
+other employments, he cannot be satisfied with the mere interest even
+of his whole capital: he must have the ordinary profits of stock, or he
+will not engage in the business: the state of banking must be such as to
+hold out to him the prospect of adding, to the interest of what remains
+of his own capital after paying the expenses of his business, interest
+upon capital deposited with him, in sufficient amount to make up, after
+paying the expenses, the ordinary profit which could be derived from his
+own capital in any productive employment. This will be accomplished in
+one of two ways.
+
+1. If the circumstances of society are such as to furnish a ready
+investment of disposable capital; (as for instance in London, where the
+public funds and other securities, of undoubted stability, and affording
+great advantages for receiving the interest without trouble and
+realizing the principal without difficulty when required, tempt all
+persons who have sums of importance lying idle, to invest them on their
+own account without the intervention of any middleman;) the deposits
+with bankers consist chiefly of small sums likely to be wanted in a very
+short period for current expenses, and the interest on which would
+seldom be worth the trouble of calculating it. Bankers, therefore, do
+not allow any interest on their deposits. After paying the expenses of
+their business, all the rest of the interest they receive is clear gain.
+But as the circumstances of banking, as of all other modes of employing
+capital, will on the average be such as to afford to a person entering
+into the business a prospect of realizing the ordinary, and no more than
+the ordinary, profits upon his own capital; the gains of each banker by
+the investment of his deposits, will not on the average exceed what is
+necessary to make up his gains on his own capital to the ordinary rate.
+It is, of course, competition, which brings about this limitation.
+Whether competition operates by lowering the rate of interest, or by
+dividing the business among a larger number, it is difficult to decide.
+Probably it operates in both ways; but it is by no means impossible that
+it may operate in the latter way alone: just as an increase in the
+number of physicians does not lower the fees, though it diminishes an
+average competitor's chance of obtaining them.
+
+It is not impossible that the disposition of the lenders might be such,
+that they would cease to lend rather than acquiesce in any reduction of
+the rate of interest. If so, the arrival of a new lender, in the person
+of a banker of deposit, would not lower the rate of interest in any
+considerable degree. A slight fall would take place, and with that
+exception things would be as before, except that the capital in the
+hands of the banker would have put itself into the place of an equal
+portion of capital belonging to other lenders, who would themselves have
+engaged in business (e.g., by subscribing to some joint-stock company,
+or entering into commandite). Bankers' profits would then be limited to
+the ordinary rate chiefly by the division of the business among many
+banks, so that each on the average would receive no more interest on his
+deposits than would suffice to make up the interest on his own capital
+to the ordinary rate of profit after paying all expenses.
+
+2. But if the circumstances of society render it difficult and
+inconvenient for persons who wish to live upon the interest of their
+money, to seek an investment for themselves, the bankers become agents
+for this specific purpose: large as well as small sums are deposited
+with them, and they allow interest to their customers. Such is the
+practice of the Scotch banks, and of most of the country banks in
+England. Their customers, not living at any of the great seats of money
+transactions, prefer entrusting their capital to somebody on the spot,
+whom they know, and in whom they confide. He invests their money on the
+best terms he can, and pays to them such interest as he can afford to
+give; retaining a compensation for his own risk and trouble. This
+compensation is fixed by the competition of the market. The rate of
+interest is no further lowered by this operation, than inasmuch as it
+brings together the lender and the borrower in a safe and expeditious
+manner. The lender incurs less risk, and a larger proportion, therefore,
+of the holders of capital are willing to be lenders.
+
+When a banker, in addition to his other functions, is also an issuer of
+paper money, he gains an advantage similar to that which the London
+bankers derive from their deposits. To the extent to which he can put
+forth his notes, he has so much the more to lend, without himself having
+to pay any interest for it.
+
+If the paper is convertible, it cannot get into circulation permanently
+without displacing specie, which goes abroad and brings back an
+equivalent value. To the extent of this value, there is an increase of
+the capital of the country; and the increase accrues solely to that part
+of the capital which is employed in loans.
+
+If the paper is inconvertible, and instead of displacing specie
+depreciates the currency, the banker by issuing it levies a tax on every
+person who has money in his hands or due to him. He thus appropriates to
+himself a portion of the capital of other people, and a portion of their
+revenue. The capital might have been intended to be lent, or it might
+have been intended to be employed by the owner: such part of it as was
+intended to be employed by the owner now changes its destination, and is
+lent. The revenue was either intended to be accumulated, in which case
+it had already become capital, or it was intended to be spent: in this
+last case, revenue is converted into capital: and thus, strange as it
+may appear, the depreciation of the currency, when effected in this way,
+operates to a certain extent as a forced accumulation. This, indeed, is
+no palliation of its iniquity. Though A might have spent his property
+unproductively, B ought not to be permitted to rob him of it because B
+will expend it on productive labour.
+
+In any supposable case, however, the issue of paper money by bankers
+increases the proportion of the whole capital of the country which is
+destined to be lent. The rate of interest must therefore fall, until
+some of the lenders give over lending, or until the increase of
+borrowers absorbs the whole.
+
+But a fall of the rate of interest, sufficient to enable the money
+market to absorb the whole of the paper-loans, may not be sufficient to
+reduce the profits of a lender who lends what costs him nothing, to the
+ordinary rate of profit upon his capital. Here, therefore, competition
+will operate chiefly by dividing the business. The notes of each bank
+will be confined within so narrow a district, or will divide the supply
+of a district with so many other banks, that on the average each will
+receive no larger amount of interest on his notes than will make up the
+interest on his own capital to the ordinary rate of profit.
+
+Even in this way, however, the competition has the effect, to a certain
+limited extent, of lowering the rate of interest; for the power of
+bankers to receive interest on more than their capital attracts a
+greater amount of capital into the banking business than would otherwise
+flow into it; and this greater capital being all lent, interest will
+fall in consequence.
+
+
+NOTE:
+
+[7] It would be easy to go over in the same manner any other case. For
+instance, we may suppose, that, instead of dispensing with the _whole_
+of the fixed capital, material, &c, and taking on labourers in equal
+number to those by whom these were produced, _half_ only of the fixed
+capital and material is dispensed with; so that, instead of 60 labourers
+and a fixed capital worth 6O quarters of corn, we have 80 labourers and
+a fixed capital worth 30. The numerical statement of this case is more
+intricate than that in the text, but the result is not different.
+
+
+
+
+
+ESSAY V.
+
+ON THE DEFINITION OF POLITICAL ECONOMY; AND ON THE METHOD OF
+INVESTIGATION PROPER TO IT.
+
+
+It might be imagined, on a superficial view of the nature and objects of
+definition, that the definition of a science would occupy the same place
+in the chronological which it commonly does in the didactic order. As a
+treatise on any science usually commences with an attempt to express, in
+a brief formula, what the science is, and wherein it differs from other
+sciences, so, it might be supposed, did the framing of such a formula
+naturally precede the successful cultivation of the science.
+
+This, however, is far from having been the case. The definition of a
+science has almost invariably not preceded, but followed, the creation
+of the science itself. Like the wall of a city, it has usually been
+erected, not to be a receptacle for such edifices as might afterwards
+spring up, but to circumscribe an aggregation already in existence.
+Mankind did not measure out the ground for intellectual cultivation
+before they began to plant it; they did not divide the field of human
+investigation into regular compartments first, and then begin to collect
+truths for the purpose of being therein deposited; they proceeded in a
+less systematic manner. As discoveries were gathered in, either one by
+one, or in groups resulting from the continued prosecution of some
+uniform course of inquiry, the truths which were successively brought
+into store cohered and became agglomerated according to their individual
+affinities. Without any intentional classification, the facts classed
+themselves. They became associated in the mind, according to their
+general and obvious resemblances; and the aggregates thus formed, having
+to be frequently spoken of as aggregates, came to be denoted by a common
+name. Any body of truths which had thus acquired a collective
+denomination, was called a _science_. It was long before this fortuitous
+classification was felt not to be sufficiently precise. It was in a more
+advanced stage of the progress of knowledge that mankind became sensible
+of the advantage of ascertaining whether the facts which they had thus
+grouped together were distinguished from all other facts by any common
+properties, and what these were. The first attempts to answer this
+question were commonly very unskilful, and the consequent definitions
+extremely imperfect.
+
+And, in truth, there is scarcely any investigation in the whole body of
+a science requiring so high a degree of analysis and abstraction, as the
+inquiry, what the science itself is; in other words, what are the
+properties common to all the truths composing it, and distinguishing
+them from all other truths. Many persons, accordingly, who are
+profoundly conversant with the details of a science, would be very much
+at a loss to supply such a definition of the science itself as should
+not be liable to well-grounded logical objections. From this remark, we
+cannot except the authors of elementary scientific treatises. The
+definitions which those works furnish of the sciences, for the most part
+either do not fit them--some being too wide, some too narrow--or do not
+go deep enough into them, but define a science by its accidents, not its
+essentials; by some one of its properties which may, indeed, serve the
+purpose of a distinguishing mark, but which is of too little importance
+to have ever of itself led mankind to give the science a name and rank
+as a separate object of study.
+
+The definition of a science must, indeed, be placed among that class of
+truths which Dugald Stewart had in view, when he observed that the first
+principles of all sciences belong to the philosophy of the human mind.
+The observation is just; and the first principles of all sciences,
+including the definitions of them, have consequently participated
+hitherto in the vagueness and uncertainty which has pervaded that most
+difficult and unsettled of all branches of knowledge. If we open any
+book, even of mathematics or natural philosophy, it is impossible not to
+be struck with the mistiness of what we find represented as preliminary
+and fundamental notions, and the very insufficient manner in which the
+propositions which are palmed upon us as first principles seem to be
+made out, contrasted with the lucidity of the explanations and the
+conclusiveness of the proofs as soon as the writer enters upon the
+details of his subject. Whence comes this anomaly? Why is the admitted
+certainty of the results of those sciences in no way prejudiced by the
+want of solidity in their premises? How happens it that a firm
+superstructure has been erected upon an unstable foundation? The
+solution of the paradox _is_, that what are called first principles,
+are, in truth, _last_ principles. Instead of being the fixed point from
+whence the chain of proof which supports all the rest of the science
+hangs suspended, they are themselves the remotest link of the chain.
+Though presented as if all other truths were to be deduced from them,
+they are the truths which are last arrived at; the result of the last
+stage of generalization, or of the last and subtlest process of
+analysis, to which the particular truths of the science can be
+subjected; those particular truths having previously been ascertained
+by the evidence proper to their own nature.
+
+Like other sciences, Political Economy has remained destitute of a
+definition framed on strictly logical principles, or even of, what is
+more easily to be had, a definition exactly co-extensive with the thing
+defined. This has not, perhaps, caused the real bounds of the science to
+be, in this country at least, practically mistaken or overpassed; but
+it has occasioned--perhaps we should rather say it is connected with
+--indefinite, and often erroneous, conceptions of the mode in which the
+science should be studied.
+
+We proceed to verify these assertions by an examination of the most
+generally received definitions of the science.
+
+1. First, as to the vulgar notion of the nature and object of Political
+Economy, we shall not be wide of the mark if we state it to be something
+to this effect:--That Political Economy is a science which teaches, or
+professes to teach, in what manner a nation may be made rich. This
+notion of what constitutes the science, is in some degree countenanced
+by the title and arrangement which Adam Smith gave to his invaluable
+work. A systematic treatise on Political Economy, he chose to call an
+_Inquiry into the Nature and Causes of the Wealth of Nations_; and the
+topics are introduced in an order suitable to that view of the purpose
+of his book.
+
+With respect to the definition in question, if definition it can be
+called which is not found in any set form of words, but left to be
+arrived at by a process of abstraction from a hundred current modes of
+speaking on the subject; it seems liable to the conclusive objection,
+that it confounds the essentially distinct, though closely connected,
+ideas of _science_ and _art_. These two ideas differ from one another as
+the understanding differs from the will, or as the indicative mood in
+grammar differs from the imperative. The one deals in facts, the other
+in precepts. Science is a collection of _truths_; art, a body of
+_rules_, or directions for conduct. The language of science is, This is,
+or, This is not; This does, or does not, happen. The language of art is,
+Do this; Avoid that. Science takes cognizance of a _phenomenon_, and
+endeavours to discover its _law_; art proposes to itself an _end_, and
+looks out for _means_ to effect it.
+
+If, therefore, Political Economy be a science, it cannot be a collection
+of practical rules; though, unless it be altogether a useless science,
+practical rules must be capable of being founded upon it. The science of
+mechanics, a branch of natural philosophy, lays down the laws of motion,
+and the properties of what are called the mechanical powers. The art of
+practical mechanics teaches how we may avail ourselves of those laws and
+properties, to increase our command over external nature. An art would
+not be an art, unless it were founded upon a scientific knowledge of the
+properties of the subject-matter: without this, it would not be
+philosophy, but empiricism; [Greek: empeiria,] not [Greek: technae,] in
+Plato's sense. Rules, therefore, for making a nation increase in wealth,
+are not a science, but they are the results of science. Political
+Economy does not of itself instruct how to make a nation rich; but
+whoever would be qualified to judge of the means of making a nation
+rich, must first be a political economist.
+
+2. The definition most generally received among instructed persons, and
+laid down in the commencement of most of the professed treatises on the
+subject, is to the following effect:--That Political Economy informs us
+of the laws which regulate the production, distribution, and consumption
+of wealth. To this definition is frequently appended a familiar
+illustration. Political Economy, it is said, is to the state, what
+domestic economy is to the family.
+
+This definition is free from the fault which we pointed out in the
+former one. It distinctly takes notice that Political Economy is a
+science and not an art; that it is conversant with laws of nature,
+not with maxims of conduct, and teaches us how things take place of
+themselves, not in what manner it is advisable for us to shape them,
+in order to attain some particular end.
+
+But though the definition is, with regard to this particular point,
+unobjectionable, so much can scarcely be said for the accompanying
+illustration; which rather sends back the mind to the current loose
+notion of Political Economy already disposed of. Political Economy is
+really, and is stated in the definition to be, a science: but domestic
+economy, so far as it is capable of being reduced to principles, is an
+art. It consists of rules, or maxims of prudence, for keeping the family
+regularly supplied with what its wants require, and securing, with any
+given amount of means, the greatest possible quantity of physical
+comfort and enjoyment. Undoubtedly the beneficial _result_, the great
+practical _application_ of Political Economy, would be to accomplish
+for a nation something like what the most perfect domestic economy
+accomplishes for a single household: but supposing this purpose
+realised, there would be the same difference between the rules by which
+it might be effected, and Political Economy, which there is between the
+art of gunnery and the theory of projectiles, or between the rules of
+mathematical land-surveying and the science of trigonometry.
+
+The definition, though not liable to the same objection as the
+illustration which is annexed to it, is itself far from unexceptionable.
+To neither of them, considered as standing at the head of a treatise,
+have we much to object. At a very early stage in the study of the
+science, anything more accurate would be useless, and therefore
+pedantic. In a merely initiatory definition, scientific precision is not
+required: the object is, to insinuate into the learner's mind, it is
+scarcely material by what means, some general preconception of what are
+the uses of the pursuit, and what the series of topics through which he
+is about to travel. As a mere anticipation or _ébauche_ of a definition,
+intended to indicate to a learner as much as he is able to understand
+before he begins, of the nature of what is about to be taught to him,
+we do not quarrel with the received formula. But if it claims to be
+admitted as that complete _definitio_ or boundary-line, which results
+from a thorough exploring of the whole extent of the subject, and is
+intended to mark the exact place of Political Economy among the
+sciences, its pretension cannot be allowed.
+
+"The science of the laws which regulate the production, distribution,
+and consumption of wealth." The term wealth is surrounded by a haze of
+floating and vapoury associations, which will let nothing that is seen
+through them be shewn distinctly. Let us supply its place by a
+periphrasis. Wealth is defined, all objects useful or agreeable to
+mankind, except such as can be obtained in indefinite quantity without
+labour. Instead of all objects, some authorities say, all material
+objects: the distinction is of no moment for the present purpose.
+
+To confine ourselves to production: If the laws of the production of all
+objects, or even of all material objects, which are useful or agreeable
+to mankind, were comprised in Political Economy, it would be difficult
+to say where the science would end: at the least, all or nearly all
+physical knowledge would be included in it. Corn and cattle are material
+objects, in a high degree useful to mankind. The laws of the production
+of the one include the principles of agriculture; the production of the
+other is the subject of the art of cattle-breeding, which, in so far as
+really an art, must be built upon the science of physiology. The laws of
+the production of manufactured articles involve the whole of chemistry
+and the whole of mechanics. The laws of the production of the wealth
+which is extracted from the bowels of the earth, cannot be set forth
+without taking in a large part of geology.
+
+When a definition so manifestly surpasses in extent what it professes to
+define, we must suppose that it is not meant to be interpreted literally,
+though the limitations with which it is to be understood are not stated.
+
+Perhaps it will be said, that Political Economy is conversant with such
+only of the laws of the production of wealth as are applicable to _all_
+kinds of wealth: those which relate to the details of particular trades
+or employments forming the subject of other and totally distinct
+sciences.
+
+If, however, there were no more in the distinction between Political
+Economy and physical science than this, the distinction, we may venture
+to affirm, would never have been made. No similar division exists in any
+other department of knowledge. We do not break up zoology or mineralogy
+into two parts; one treating of the properties common to all animals, or
+to all minerals; another conversant with the properties peculiar to each
+particular species of animals or minerals. The reason is obvious; there
+is no distinction _in kind_ between the general laws of animal or of
+mineral nature and the peculiar properties of particular species. There
+is as close an analogy between the general laws and the particular ones,
+as there is between one of the general laws and another: most commonly,
+indeed, the particular laws are but the complex result of a plurality of
+general laws modifying each other. A separation, therefore, between the
+general laws and the particular ones, merely because the former are
+general and the latter particular, would run counter both to the
+strongest motives of convenience and to the natural tendencies of the
+mind. If the case is different with the laws of the production of
+wealth, it must be because, in this case, the general laws differ in
+kind from the particular ones. But if so, the difference in kind is the
+radical distinction, and we should find out what that is, and found our
+definition upon it.
+
+But, further, the recognised boundaries which separate the field of
+Political Economy from that of physical science, by no means correspond
+with the distinction between the truths which concern all kinds of
+wealth and those which relate only to some kinds. The three laws of
+motion, and the law of gravitation, are common, as far as human
+observation has yet extended, to all matter; and these, therefore, as
+being among the laws of the production of all wealth, should form part
+of Political Economy. There are hardly any of the processes of industry
+which do not partly depend upon the properties of the lever; but it
+would be a strange classification which included those properties among
+the truths of Political Economy. Again, the latter science has many
+inquiries altogether as special, and relating as exclusively to
+particular sorts of material objects, as any of the branches of physical
+science. The investigation of some of the circumstances which regulate
+the price of corn, has as little to do with the laws common to the
+production of all wealth, as any part of the knowledge of the
+agriculturist. The inquiry into the rent of mines or fisheries, or into
+the value of the precious metals, elicits truths which have immediate
+reference to the production solely of a peculiar kind of wealth; yet
+these are admitted to be correctly placed in the science of Political
+Economy.
+
+The real distinction between Political Economy and physical science must
+be sought in something deeper than the nature of the subject-matter;
+which, indeed, is for the most part common to both. Political Economy,
+and the scientific grounds of all the useful arts, have in truth one and
+the same subject-matter; namely, the objects which conduce to man's
+convenience and enjoyment: but they are, nevertheless, perfectly
+distinct branches of knowledge.
+
+3. If we contemplate the whole field of human knowledge, attained or
+attainable, we find that it separates itself obviously, and as it were
+spontaneously, into two divisions, which stand so strikingly in
+opposition and contradistinction to one another, that in all
+classifications of our knowledge they have been kept apart. These are,
+_physical_ science, and _moral_ or psychological science. The difference
+between these two departments of our knowledge does not reside in the
+subject-matter with which they are conversant: for although, of the
+simplest and most elementary parts of each, it may be said, with an
+approach to truth, that they are concerned with different subject-
+matters--namely, the one with the human mind, the other with all things
+whatever except the mind; this distinction does not hold between the
+higher regions of the two. Take the science of politics, for instance,
+or that of law: who will say that these are physical sciences? and yet
+is it not obvious that they are conversant fully as much with matter as
+with mind? Take, again, the theory of music, of painting, of any other
+of the fine arts, and who will venture to pronounce that the facts they
+are conversant with belong either wholly to the class of matter, or
+wholly to that of mind?
+
+The following seems to be the _rationale_ of the distinction between
+physical and moral science.
+
+In all the intercourse of man with nature, whether we consider him as
+acting upon it, or as receiving impressions from it, the effect or
+phenomenon depends upon causes of two kinds: the properties of the
+object acting, and those of the object acted upon. Everything which can
+possibly happen in which man and external things, are jointly concerned,
+results from the joint operation of a law or laws of matter, and a law
+or laws of the human mind. Thus the production of corn by human labour
+is the result of a law of mind, and many laws of matter. The laws of
+matter are those properties of the soil and of vegetable life which
+cause the seed to germinate in the ground, and those properties of the
+human body which render food necessary to its support. The law of mind
+is, that man desires to possess subsistence, and consequently wills the
+necessary means of procuring it.
+
+Laws of mind and laws of matter are so dissimilar in their nature, that
+it would be contrary to all principles of rational arrangement to mix
+them up as part of the same study. In all scientific methods, therefore,
+they are placed apart. Any compound effect or phenomenon which depends
+both on the properties of matter and on those of mind, may thus become
+the subject of two completely distinct sciences, or branches of science;
+one, treating of the phenomenon in so far as it depends upon the laws of
+matter only; the other treating of it in so far as it depends upon the
+laws of mind.
+
+The physical sciences are those which treat of the laws of matter, and
+of all complex phenomena in so far as dependent upon the laws of matter.
+The mental or moral sciences are those which treat of the laws of mind,
+and of all complex phenomena in so far as dependent upon the laws of
+mind.
+
+Most of the moral sciences presuppose physical science; but few of the
+physical sciences presuppose moral science. The reason is obvious. There
+are many phenomena (an earthquake, for example, or the motions of the
+planets) which depend upon the laws of matter exclusively; and have
+nothing whatever to do with the laws of mind. Many, therefore, of the
+physical sciences may be treated of without any reference to mind, and
+as if the mind existed as a recipient of knowledge only, not as a cause
+producing effects. But there are no phenomena which depend exclusively
+upon the laws of mind; even the phenomena of the mind itself being
+partially dependent upon the physiological laws of the body. All the
+mental sciences, therefore, not excepting the pure science of mind, must
+take account of a great variety of physical truths; and (as physical
+science is commonly and very properly studied first) may be said to
+presuppose them, taking up the complex phenomena where physical science
+leaves them.
+
+Now this, it will be found, is a precise statement of the relation in
+which Political Economy stands to the various sciences which are
+tributary to the arts of production.
+
+The laws of the production of the objects which constitute wealth, are
+the subject-matter both of Political Economy and of almost all the
+physical sciences. Such, however, of those laws as are purely laws of
+matter, belong to physical science, and to that exclusively. Such of
+them as are laws of the human mind, and no others, belong to Political
+Economy, which finally sums up the result of both combined.
+
+Political Economy, therefore, presupposes all the physical sciences; it
+takes for granted all such of the truths of those sciences as are
+concerned in the production of the objects demanded by the wants of
+mankind; or at least it takes for granted that the physical part of the
+process takes place somehow. It then inquires what are the phenomena of
+_mind_ which are concerned in the production and distribution [8] of
+those same objects; it borrows from the pure science of mind the laws of
+those phenomena, and inquires what effects follow from these mental
+laws, acting in concurrence with those physical one. [9]
+
+From the above considerations the following seems to come out as the
+correct and complete definition of Political Economy:--"The science
+which treats of the production and distribution of wealth, so far as
+they depend upon the laws of human nature." Or thus--science relating to
+the moral or psychological laws of the production and distribution of
+wealth."
+
+For popular use this definition is amply sufficient, but it still falls
+short of the complete accuracy required for the purposes of the
+philosopher. Political Economy does not treat of the production and
+distribution of wealth in all states of mankind, but only in what is
+termed the social state; nor so far as they depend upon the laws of
+human nature, but only so far as they depend upon a certain portion of
+those laws. This, at least, is the view which must be taken of Political
+Economy, if we mean it to find any place in an encyclopedical division
+of the field of science. On any other view, it either is not science at
+all, or it is several sciences. This will appear clearly, if, on the one
+hand, we take a general survey of the moral sciences, with a view to
+assign the exact place of Political Economy among them; while, on the
+other, we consider attentively the nature of the methods or processes by
+which the truths which are the object of those sciences are arrived at.
+
+Man, who, considered as a being having a moral or mental nature, is the
+subject-matter of all the moral sciences, may, with reference to that
+part of his nature, form the subject of philosophical inquiry under
+several distinct hypotheses. We may inquire what belongs to man
+considered individually, and as if no human being existed besides
+himself; we may next consider him as coming into contact with other
+individuals; and finally, as living in a state of _society_, that is,
+forming part of a body or aggregation of human beings, systematically
+co-operating for common purposes. Of this last state, political
+government, or subjection to a common superior, is an ordinary
+ingredient, but forms no necessary part of the conception, and, with
+respect to our present purpose, needs not be further adverted to.
+
+Those laws or properties of human nature which appertain to man as a
+mere individual, and do not presuppose, as a necessary condition, the
+existence of other individuals (except, perhaps, as mere instruments or
+means), form a part of the subject of pure mental philosophy. They
+comprise all the laws of the mere intellect, and those of the purely
+self-regarding desires.
+
+Those laws of human nature which relate to the feelings called forth in
+a human being by other individual human or intelligent beings, as such;
+namely, the _affections_, the _conscience_, or feeling of duty, and the
+love of _approbation_; and to the conduct of man, so far as it depends
+upon, or has relation to, these parts of his nature--form the subject of
+another portion of pure mental philosophy, namely, that portion of it on
+which _morals_, or _ethics_, are founded. For morality itself is not a
+science, but an art; not truths, but rules. The truths on which the
+rules are founded are drawn (as is the case in all arts) from a variety
+of sciences; but the principal of them, and those which are most nearly
+peculiar to this particular art, belong to a branch of the science of
+mind.
+
+Finally, there are certain principles of human nature which are
+peculiarly connected with the ideas and feelings generated in man by
+living in a state of _society_, that is, by forming part of a union or
+aggregation of human beings for a common purpose or purposes. Few,
+indeed, of the elementary laws of the human mind are peculiar to this
+state, almost all being called into action in the two other states. But
+those simple laws of human nature, operating in that wider field, give
+rise to results of a sufficiently universal character, and even (when
+compared with the still more complex phenomena of which they are the
+determining causes) sufficiently simple, to admit of being called,
+though in a somewhat looser sense, _laws_ of society, or laws of human
+nature in the social state. These laws, or general truths, form the
+subject of a branch of science which may be aptly designated from the
+title of _social economy_; somewhat less happily by that of _speculative
+politics_, or the _science_ of politics, as contradistinguished from the
+art. This science stands in the same relation to the social, as anatomy
+and physiology to the physical body. It shows by what principles of his
+nature man is induced to enter into a state of society; how this feature
+in his position acts upon his interests and feelings, and through them
+upon his conduct; how the association tends progressively to become
+closer, and the co-operation extends itself to more and more purposes;
+what those purposes are, and what the varieties of means most generally
+adopted for furthering them; what are the various relations which
+establish themselves among human beings as the ordinary consequence of
+the social union; what those which are different in different states of
+society; in what historical order those states tend to succeed one
+another; and what are the effects of each upon the conduct and character
+of man.
+
+This branch of science, whether we prefer to call it social economy,
+speculative politics, or the natural history of society, presupposes the
+whole science of the nature of the individual mind; since all the laws
+of which the latter science takes cognizance are brought into play in a
+state of society, and the truths of the social science are but
+statements of the manner in which those simple laws take effect in
+complicated circumstances. Pure mental philosophy, therefore, is an
+essential part, or preliminary, of political philosophy. The science of
+social economy embraces every part of man's nature, in so far as
+influencing the conduct or condition of man in society; and therefore
+may it be termed speculative politics, as being the scientific
+foundation of practical politics, or the art of government, of which the
+art of legislation is a part. [10]
+
+It is to _this_ important division of the field of science that one of
+the writers who have most correctly conceived and copiously illustrated
+its nature and limits,--we mean M. Say,--has chosen to give the name
+Political Economy. And, indeed, this large extension of the
+signification of that term is countenanced by its etymology. But the
+words "political economy" have long ceased to have so large a meaning.
+Every writer is entitled to use the words which are his tools in the
+manner which he judges most conducive to the general purposes of the
+exposition of truth; but he exercises this discretion under liability to
+criticism: and M. Say seems to have done in this instance, what should
+never be done without strong reasons; to have altered the meaning of a
+name which was appropriated to a particular purpose (and for which,
+therefore, a substitute must be provided), in order to transfer it to an
+object for which it was easy to find a more characteristic denomination.
+
+What is now commonly understood by the term "Political Economy" is not
+the science of speculative politics, but a branch of that science. It
+does not treat of the whole of man's nature as modified by the social
+state, nor of the whole conduct of man in society. It is concerned with
+him solely as a being who desires to possess wealth, and who is capable
+of judging of the comparative efficacy of means for obtaining that end.
+It predicts only such of the phenomena of the social state as take place
+in consequence of the pursuit of wealth. It makes entire abstraction of
+every other human passion or motive; except those which may be regarded
+as perpetually antagonizing principles to the desire of wealth, namely,
+aversion to labour, and desire of the present enjoyment of costly
+indulgences. These it takes, to a certain extent, into its calculations,
+because these do not merely, like other desires, occasionally conflict
+with the pursuit of wealth, but accompany it always as a drag, or
+impediment, and are therefore inseparably mixed up in the consideration
+of it. Political Economy considers mankind as occupied solely in
+acquiring and consuming wealth; and aims at showing what is the course
+of action into which mankind, living in a state of society, would be
+impelled, if that motive, except in the degree in which it is checked by
+the two perpetual counter-motives above adverted to, were absolute ruler
+of all their actions. Under the influence of this desire, it shows
+mankind accumulating wealth, and employing that wealth in the production
+of other wealth; sanctioning by mutual agreement the institution of
+property; establishing laws to prevent individuals from encroaching upon
+the property of others by force or fraud; adopting various contrivances
+for increasing the productiveness of their labour; settling the division
+of the produce by agreement, under the influence of competition
+(competition itself being governed by certain laws, which laws are
+therefore the ultimate regulators of the division of the produce); and
+employing certain expedients (as money, credit, &c.) to facilitate the
+distribution. All these operations, though many of them are really the
+result of a plurality of motives, are considered by Political Economy as
+flowing solely from the desire of wealth. The science then proceeds to
+investigate the laws which govern these several operations, under the
+supposition that man is a being who is determined, by the necessity of
+his nature, to prefer a greater portion of wealth to a smaller in all
+cases, without any other exception than that constituted by the two
+counter-motives already specified. Not that any political economist was
+ever so absurd as to suppose that mankind are really thus constituted,
+but because this is the mode in which science must necessarily proceed.
+When an effect depends upon a concurrence of causes, those causes must
+be studied one at a time, and their laws separately investigated, if we
+wish, through the causes, to obtain the power of either predicting or
+controlling the effect; since the law of the effect is compounded of the
+laws of all the causes which determine it. The law of the centripetal
+and that of the tangential force must have been known before the motions
+of the earth and planets could be explained, or many of them predicted.
+The same is the case with the conduct of man in society. In order to
+judge how he will act under the variety of desires and aversions which
+are concurrently operating upon him, we must know how he would act under
+the exclusive influence of each one in particular. There is, perhaps, no
+action of a man's life in which he is neither under the immediate nor
+under the remote influence of any impulse but the mere desire of wealth.
+With respect to those parts of human conduct of which wealth is not even
+the principal object, to these Political Economy does not pretend that
+its conclusions are applicable. But there are also certain departments
+of human affairs, in which the acquisition of wealth is the main and
+acknowledged end. It is only of these that Political Economy takes
+notice. The manner in which it necessarily proceeds is that of treating
+the main and acknowledged end as if it were the sole end; which, of all
+hypotheses equally simple, is the nearest to the truth. The political
+economist inquires, what are the actions which would be produced by this
+desire, if, within the departments in question, it were unimpeded by any
+other. In this way a nearer approximation is obtained than would
+otherwise be practicable, to the real order of human affairs in those
+departments. This approximation is then to be corrected by making proper
+allowance for the effects of any impulses of a different description,
+which can be shown to interfere with the result in any particular case.
+Only in a few of the most striking cases (such as the important one of
+the principle of population) are these corrections interpolated into the
+expositions of Political Economy itself; the strictness of purely
+scientific arrangement being thereby somewhat departed from, for the
+sake of practical utility. So far as it is known, or may be presumed,
+that the conduct of mankind in the pursuit of wealth is under the
+collateral influence of any other of the properties of our nature than
+the desire of obtaining the greatest quantity of wealth with the least
+labour and self-denial, the conclusions of Political Economy will so far
+fail of being applicable to the explanation or prediction of real
+events, until they are modified by a correct allowance for the degree of
+influence exercised by the other cause.
+
+Political Economy, then, may be defined as follows; and the definition
+seems to be complete:--
+
+"The science which traces the laws of such of the phenomena of society
+as arise from the combined operations of mankind for the production of
+wealth, in so far as those phenomena are not modified by the pursuit of
+any other object."
+
+But while this is a correct definition of Political Economy as a portion
+of the field of science, the didactic writer on the subject will
+naturally combine in his exposition, with the truths of the pure
+science, as many of the practical modifications as will, in his
+estimation, be most conducive to the usefulness of his work.
+
+       *       *       *       *       *
+
+The above attempt to frame a stricter definition of the science than
+what are commonly received as such, may be thought to be of little use;
+or, at best, to be chiefly useful in a general survey and classification
+of the sciences, rather than as conducing to the more successful pursuit
+of the particular science in question. We think otherwise, and for this
+reason; that, with the consideration of the definition of a science, is
+inseparably connected that of the _philosophic method_ of the science;
+the nature of the process by which its investigations are to be carried
+on, its truths to be arrived at.
+
+Now, in whatever science there are systematic differences of opinion
+--which is as much as to say, in all the moral or mental sciences, and
+in Political Economy among the rest; in whatever science there exist,
+among those who have attended to the subject, what are commonly called
+differences of principle, as distinguished from differences of
+matter-of-fact or detail,--the cause will be found to be, a difference
+in their conceptions of the philosophic method of the science. The
+parties who differ are guided, either knowingly or unconsciously, by
+different views concerning the nature of the evidence appropriate to the
+subject. They differ not solely in what they believe themselves to see,
+but in the quarter whence they obtained the light by which they think
+they see it.
+
+The most universal of the forms in which this difference of method is
+accustomed to present itself, is the ancient feud between what is called
+theory, and what is called practice or experience. There are, on social
+and political questions, two kinds of reasoners: there is one portion
+who term themselves practical men, and call the others theorists; a
+title which the latter do not reject, though they by no means recognise
+it as peculiar to them. The distinction between the two is a very broad
+one, though it is one of which the language employed is a most incorrect
+exponent. It has been again and again demonstrated, that those who are
+accused of despising facts and disregarding experience build and profess
+to build wholly upon facts and experience; while those who disavow
+theory cannot make one step without theorizing. But, although both
+classes of inquirers do nothing but theorize, and both of them consult
+no other guide than experience, there is this difference between them,
+and a most important difference it is: that those who are called
+practical men require _specific_ experience, and argue wholly _upwards_
+from particular facts to a general conclusion; while those who are
+called theorists aim at embracing a wider field of experience, and,
+having argued upwards from particular facts to a general principle
+including a much wider range than that of the question under discussion,
+then argue _downwards_ from that general principle to a variety of
+specific conclusions.
+
+Suppose, for example, that the question were, whether absolute kings
+were likely to employ the powers of government for the welfare or for
+the oppression of their subjects. The practicals would endeavour to
+determine this question by a direct induction from the conduct of
+particular despotic monarchs, as testified by history. The theorists
+would refer the question to be decided by the test not solely of our
+experience of kings, but of our experience of men. They would contend
+that an observation of the tendencies which human nature has manifested
+in the variety of situations in which human beings have been placed, and
+especially observation of what passes in our own minds, warrants us in
+inferring that a human being in the situation of a despotic king will
+make a bad use of power; and that this conclusion would lose nothing of
+its certainty even if absolute kings had never existed, or if history
+furnished us with no information of the manner in which they had
+conducted themselves.
+
+The first of these methods is a method of induction, merely; the last a
+mixed method of induction and ratiocination. The first may be called the
+method _à posteriori;_ the latter, the method _à priori_. We are aware
+that this last expression is sometimes used to characterize a supposed
+mode of philosophizing, which does not profess to be founded upon
+experience at all. But we are not acquainted with any mode of
+philosophizing, on political subjects at least, to which such a
+description is fairly applicable. By the method _à posteriori_ we mean
+that which requires, as the basis of its conclusions, not experience
+merely, but specific experience. By the method _à priori_ we mean (what
+has commonly been meant) reasoning from an assumed hypothesis; which is
+not a practice confined to mathematics, but is of the essence of all
+science which admits of general reasoning at all. To verify the
+hypothesis itself _à posteriori_, that is, to examine whether the facts
+of any actual case are in accordance with it, is no part of the business
+of science at all, but of the _application_ of science.
+
+In the definition which we have attempted to frame of the science of
+Political Economy, we have characterized it as essentially an _abstract_
+science, and its method as the method _à priori_. Such is undoubtedly
+its character as it has been understood and taught by all its most
+distinguished teachers. It reasons, and, as we contend, must necessarily
+reason, from assumptions, not from facts. It is built upon hypotheses,
+strictly analogous to those which, under the name of definitions, are
+the foundation of the other abstract sciences. Geometry presupposes an
+arbitrary definition of a line, "that which has length but not breadth."
+Just in the same manner does Political Economy presuppose an arbitrary
+definition of man, as a being who invariably does that by which he may
+obtain the greatest amount of necessaries, conveniences, and luxuries,
+with the smallest quantity of labour and physical self-denial with which
+they can be obtained in the existing state of knowledge. It is true that
+this definition of man is not formally prefixed to any work on Political
+Economy, as the definition of a line is prefixed to Euclid's Elements;
+and in proportion as by being so prefixed it would be less in danger of
+being forgotten, we may see ground for regret that this is not done. It
+is proper that what is assumed in every particular case, should once for
+all be brought before the mind in its full extent, by being somewhere
+formally stated as a general maxim. Now, no one who is conversant with
+systematic treatises on Political Economy will question, that whenever a
+political economist has shown that, by acting in a particular manner, a
+labourer may obviously obtain higher wages, a capitalist larger profits,
+or a landlord higher rent, he concludes, as a matter of course, that
+they will certainly act in that manner. Political Economy, therefore,
+reasons from _assumed_ premises--from premises which might be totally
+without foundation in fact, and which are not pretended to be
+universally in accordance with it. The conclusions of Political Economy,
+consequently, like those of geometry, are only true, as the common
+phrase is, _in the abstract_; that is, they are only true under certain
+suppositions, in which none but general causes--causes common to the
+_whole class_ of cases under consideration--are taken into the account.
+
+This ought not to be denied by the political economist. If he deny it,
+then, and then only, he places himself in the wrong. The _à priori_
+method which is laid to his charge, as if his employment of it proved
+his whole science to be worthless, is, as we shall presently show, the
+only method by which truth can possibly be attained in any department of
+the social science. All that is requisite is, that he be on his guard
+not to ascribe to conclusions which are grounded upon an hypothesis a
+different kind of certainty from that which really belongs to them. They
+would be true without qualification, only in a case which is purely
+imaginary. In proportion as the actual facts recede from the hypothesis,
+he must allow a corresponding deviation from the strict letter of his
+conclusion; otherwise it will be true only of things such as he has
+arbitrarily supposed, not of such things as really exist. That which is
+true in the abstract, is always true in the concrete with proper
+_allowances_. When a certain cause really exists, and if left to itself
+would infallibly produce a certain effect, that same effect, _modified_
+by all the other concurrent causes, will correctly correspond to the
+result really produced.
+
+The conclusions of geometry are not strictly true of such lines, angles,
+and figures, as human hands can construct. But no one, therefore,
+contends that the conclusions of geometry are of no utility, or that it
+would be better to shut up Euclid's Elements, and content ourselves with
+"practice" and "experience."
+
+No mathematician ever thought that his definition of a line corresponded
+to an actual line. As little did any political economist ever imagine
+that real men had no object of desire but wealth, or none which would
+not give way to the slightest motive of a pecuniary kind. But they were
+justified in assuming this, for the purposes of their argument; because
+they had to do only with those parts of human conduct which have
+pecuniary advantage for their direct and principal object; and because,
+as no two individual cases are exactly alike, no _general_ maxims could
+ever be laid down unless _some_ of the circumstances of the particular
+case were left out of consideration.
+
+But we go farther than to affirm that the method _à priori_ is a
+legitimate mode of philosophical investigation in the moral sciences: we
+contend that it is the only mode. We affirm that the method _à
+posteriori_, or that of specific experience, is altogether inefficacious
+in those sciences, as a means of arriving at any considerable body of
+valuable truth; though it admits of being usefully applied in aid of the
+method _à priori_, and even forms an indispensable supplement to it.
+
+There is a property common to almost all the moral sciences, and by
+which they are distinguished from many of the physical; this is, that it
+is seldom in our power to make experiments in them. In chemistry and
+natural philosophy, we can not only observe what happens under all the
+combinations of circumstances which nature brings together, but we may
+also try an indefinite number of new combinations. This we can seldom do
+in ethical, and scarcely ever in political science. We cannot try forms
+of government and systems of national policy on a diminutive scale in
+our laboratories, shaping our experiments as we think they may most
+conduce to the advancement of knowledge. We therefore study nature under
+circumstances of great disadvantage in these sciences; being confined to
+the limited number of experiments which take place (if we may so speak)
+of their own accord, without any preparation or management of ours; in
+circumstances, moreover, of great complexity, and never perfectly known
+to us; and with the far greater part of the processes concealed from our
+observation.
+
+The consequence of this unavoidable defect in the materials of the
+induction is, that we can rarely obtain what Bacon has quaintly, but not
+unaptly, termed an _experimentum crucis_.
+
+In any science which admits of an unlimited range of arbitrary
+experiments, an _experimentum crucis_ may always be obtained. Being able
+to vary all the circumstances, we can always take effectual means of
+ascertaining which of them are, and which are not, material. Call the
+effect B, and let the question be whether the cause A in any way
+contributes to it. We try an experiment in which all the surrounding
+circumstances are altered, except A alone: if the effect B is
+nevertheless produced, A is the cause of it. Or, instead of leaving A,
+and changing the other circumstances, we leave all the other
+circumstances and change A: if the effect B in that case does _not_ take
+place, then again A is a necessary condition of its existence. Either of
+these experiments, if accurately performed, is an _experimentum crucis_;
+it converts the presumption we had before of the existence of a
+connection between A and B into proof, by negativing every other
+hypothesis which would account for the appearances.
+
+But this can seldom be done in the moral sciences, owing to the immense
+multitude of the influencing circumstances, and our very scanty means of
+varying the experiment. Even in operating upon an individual mind, which
+is the case affording greatest room for experimenting, we cannot often
+obtain a _crucial_ experiment. The effect, for example, of a particular
+circumstance in education, upon the formation of character, may be tried
+in a variety of cases, but we can hardly ever be certain that any two of
+those cases differ in all their circumstances except the solitary one of
+which we wish to estimate the influence. In how much greater a degree
+must this difficulty exist in the affairs of states, where even the
+_number_ of recorded experiments is so scanty in comparison with the
+variety and multitude of the circumstances concerned in each. How, for
+example, can we obtain a crucial experiment on the effect of a
+restrictive commercial policy upon national wealth? We must find two
+nations alike in every other respect, or at least possessed, in a degree
+exactly equal, of everything which conduces to national opulence, and
+adopting exactly the same policy in all their other affairs, but
+differing in this only, that one of them adopts a system of commercial
+restrictions, and the other adopts free trade. This would be a decisive
+experiment, similar to those which we can almost always obtain in
+experimental physics. Doubtless this would be the most conclusive
+evidence of all if we could get it. But let any one consider how
+infinitely numerous and various are the circumstances which either
+directly or indirectly do or may influence the amount of the national
+wealth, and then ask himself what are the probabilities that in the
+longest revolution of ages two nations will be found, which agree, and
+can be shown to agree, in all those circumstances except one?
+
+Since, therefore, it is vain to hope that truth can be arrived at,
+either in Political Economy or in any other department of the social
+science, while we look at the facts in the concrete, clothed in all the
+complexity with which nature has surrounded them, and endeavour to
+elicit a general law by a process of induction from a comparison of
+details; there remains no other method than the _à priori_ one, or that
+of "abstract speculation."
+
+Although sufficiently ample grounds are not afforded in the field of
+politics, for a satisfactory induction by a comparison of the effects,
+the causes may, in all cases, be made the subject of specific
+experiment. These causes are, laws of human nature, and external
+circumstances capable of exciting the human will to action. The desires
+of man, and the nature of the conduct to which they prompt him, are
+within the reach of our observation. We can also observe what are the
+objects which excite those desires. The materials of this knowledge
+every one can principally collect within himself; with reasonable
+consideration of the differences, of which experience discloses to him
+the existence, between himself and other people. Knowing therefore
+accurately the properties of the substances concerned, we may reason
+with as much certainty as in the most demonstrative parts of physics
+from any assumed set of circumstances. This will be mere trifling if the
+assumed circumstances bear no sort of resemblance to any real ones; but
+if the assumption is correct as far as it goes, and differs from the
+truth no otherwise than as a part differs from the whole, then the
+conclusions which are correctly deduced from the assumption constitute
+_abstract_ truth; and when completed by adding or subtracting the effect
+of the non-calculated circumstances, they are true in the concrete, and
+may be applied to practice.
+
+Of this character is the science of Political Economy in the writings of
+its best teachers. To render it perfect as an abstract science, the
+combinations of circumstances which it assumes, in order to trace their
+effects, should embody all the circumstances that are common to all
+cases whatever, and likewise all the circumstances that are common to
+any important class of cases. The conclusions correctly deduced from
+these assumptions, would be as true in the abstract as those of
+mathematics; and would be as near an approximation as abstract truth can
+ever be, to truth in the concrete.
+
+When the principles of Political Economy are to be applied to a
+particular ease, then it is necessary to take into account all the
+individual circumstances of that case; not only examining to which of
+the sets of circumstances contemplated by the abstract science the
+circumstances of the case in question correspond, but likewise what
+other circumstances may exist in that case, which not being common to it
+with any large and strongly-marked class of cases, have not fallen under
+the cognizance of the science. These circumstances have been called
+_disturbing causes_. And here only it is that an element of uncertainty
+enters into the process--an uncertainty inherent in the nature of these
+complex phenomena, and arising from the impossibility of being quite
+sure that all the circumstances of the particular case are known to us
+sufficiently in detail, and that our attention is not unduly diverted
+from any of them.
+
+This constitutes the only uncertainty of Political Economy; and not of
+it alone, but of the moral sciences in general. When the disturbing
+causes are known, the allowance necessary to be made for them detracts
+in no way from scientific precision, nor constitutes any deviation from
+the _à priori_ method. The disturbing causes are not handed over to be
+dealt with by mere conjecture. Like _friction_ in mechanics, to which
+they have been often compared, they may at first have been considered
+merely as a non-assignable deduction to be made by guess from the result
+given by the general principles of science; but in time many of them are
+brought within the pale of the abstract science itself, and their effect
+is found to admit of as accurate an estimation as those more striking
+effects which they modify. The disturbing causes have their laws, as the
+causes which are thereby disturbed have theirs; and from the laws of the
+disturbing causes, the nature and amount of the disturbance may be
+predicted _à priori_, like the operation of the more general laws which
+they are said to modify or disturb, but with which they might more
+properly be said to be concurrent. The effect of the special causes is
+then to be added to, or subtracted from, the effect of the general ones.
+
+These disturbing causes are sometimes circumstances which operate upon
+human conduct through the same principle of human nature with which
+Political Economy is conversant, namely, the desire of wealth, but which
+are not general enough to be taken into account in the abstract science.
+Of disturbances of this description every political economist can
+produce many examples. In other instances the disturbing cause is some
+other law of human nature. In the latter case it never can fall within
+the province of Political Economy; it belongs to some other science; and
+here the mere political economist, he who has studied no science but
+Political Economy, if he attempt to apply his science to practice, will
+fail. [11]
+
+As for the other kind of disturbing causes, namely those which operate
+through the same law of human nature out of which the general principles
+of the science arise, these might always be brought within the pale of
+the abstract science if it were worth while; and when we make the
+necessary allowances for them in practice, if we are doing anything but
+guess, we are following out the method of the abstract science into
+minuter details; inserting among its hypotheses a fresh and still more
+complex combination of circumstances, and so adding _pro hác vice_ a
+supplementary chapter or appendix, or at least a supplementary theorem,
+to the abstract science.
+
+Having now shown that the method _à priori_ in Political Economy, and
+in all the other branches of moral science, is the only certain or
+scientific mode of investigation, and that the _à posteriori_ method,
+or that of specific experience, as a means of arriving at truth, is
+inapplicable to these subjects, we shall be able to show that the latter
+method is notwithstanding of great value in the moral sciences; namely,
+not as a means of discovering truth, but of verifying it, and reducing
+to the lowest point that uncertainty before alluded to as arising from
+the complexity of every particular case, and from the difficulty (not to
+say impossibility) of our being assured _à priori_ that we have taken
+into account all the material circumstances.
+
+If we could be quite certain that we knew all the facts of the
+particular case, we could derive little additional advantage from
+specific experience. The causes being given, we may know what will be
+their effect, without an actual trial of every possible combination;
+since the causes are human feelings, and outward circumstances fitted to
+excite them: and, as these for the most part are, or at least might be,
+familiar to us, we can more surely judge of their combined effect from
+that familiarity, than from any evidence which can be elicited from the
+complicated and entangled circumstances of an actual experiment. If the
+knowledge what are the particular causes operating in any given instance
+were revealed to us by infallible authority, then, if our abstract
+science were perfect, we should become prophets. But the causes are not
+so revealed: they are to be collected by observation; and observation in
+circumstances of complexity is apt to be imperfect. Some of the causes
+may lie beyond observation; many are apt to escape it, unless we are on
+the look-out for them; and it is only the habit of long and accurate
+observation which can give us so correct a preconception what causes we
+are likely to find, as shall induce us to look for them in the right
+quarter. But such is the nature of the human understanding, that the
+very fact of attending with intensity to one part of a thing, has a
+tendency to withdraw the attention from the other parts. We are
+consequently in great danger of adverting to a portion only of the
+causes which are actually at work. And if we are in this predicament,
+the more accurate our deductions and the more certain our conclusions in
+the abstract, (that is, making abstraction of all circumstances except
+those which form part of the hypothesis,) the less we are likely to
+suspect that we are in error: for no one can have looked closely into
+the sources of fallacious thinking without being deeply conscious that
+the coherence, and neat concatenation of our philosophical systems, is
+more apt than we are commonly aware to pass with us as evidence of their
+truth.
+
+We cannot, therefore, too carefully endeavour to verify our theory, by
+comparing, in the particular cases to which we have access, the results
+which it would have led us to predict, with the most trustworthy
+accounts we can obtain of those which have been actually realized. The
+discrepancy between our anticipations and the actual fact is often the
+only circumstance which would have drawn our attention to some important
+disturbing cause which we had overlooked. Nay, it often discloses to us
+errors in thought, still more serious than the omission of what can with
+any propriety be termed a disturbing cause. It often reveals to us that
+the basis itself of our whole argument is insufficient; that the data,
+from which we had reasoned, comprise only a part, and not always the
+most important part, of the circumstances by which the result is really
+determined. Such oversights are committed by very good reasoners, and
+even by a still rarer class, that of good observers. It is a kind of
+error to which those are peculiarly liable whose views are the largest
+and most philosophical: for exactly in that ratio are their minds more
+accustomed to dwell upon those laws, qualities, and tendencies, which
+are common to large classes of cases, and which belong to all place and
+all time; while it often happens that circumstances almost peculiar to
+the particular case or era have a far greater share in governing that
+one case.
+
+Although, therefore, a philosopher be convinced that no general truths
+can be attained in the affairs of nations by the _à posteriori_ road,
+it does not the less behove him, according to the measure of his
+opportunities, to sift and scrutinize the details of every specific
+experiment. Without this, he may be an excellent professor of abstract
+science; for a person may be of great use who points out correctly what
+effects will follow from certain combinations of possible circumstances,
+in whatever tract of the extensive region of hypothetical cases those
+combinations may be found. He stands in the same relation to the
+legislator, as the mere geographer to the practical navigator; telling
+him the latitude and longitude of all sorts of places, but not how to
+find whereabouts he himself is sailing. If, however, he does no more
+than this, he must rest contented to take no share in practical
+politics; to have no opinion, or to hold it with extreme modesty, on
+the applications which should be made of his doctrines to existing
+circumstances.
+
+No one who attempts to lay down propositions for the guidance of
+mankind, however perfect his scientific acquirements, can dispense with
+a practical knowledge of the actual modes in which the affairs of the
+world are carried on, and an extensive personal experience of the actual
+ideas, feelings, and intellectual and moral tendencies of his own
+country and of his own age. The true practical statesman is he who
+combines this experience with a profound knowledge of abstract political
+philosophy. Either acquirement, without the other, leaves him lame and
+impotent if he is sensible of the deficiency; renders him obstinate and
+presumptuous if, as is more probable, he is entirely unconscious of it.
+
+Such, then, are the respective offices and uses of the _à priori_ and
+the _à posteriori_ methods--the method of abstract science, and that of
+specific experiment--as well in Political Economy, as in all the other
+branches of social philosophy. Truth compels us to express our
+conviction that whether among those who have written on, these subjects,
+or among those for whose use they wrote, few can be pointed out who have
+allowed to each of these methods its just value, and systematically kept
+each to its proper objects and functions. One of the peculiarities of
+modern times, the separation of theory from practice--of the studies of
+the closet, from the outward business of the world--has given a wrong
+bias to the ideas and feelings both of the student and of the man of
+business. Each undervalues that part of the materials of thought with
+which he is not familiar. The one despises all comprehensive views, the
+other neglects details. The one draws his notion of the universe from
+the few objects with which his course of life has happened to render him
+familiar; the other having got demonstration on his side, and forgetting
+that it is only a demonstration _nisi_--a proof at all times liable to
+be set aside by the addition of a single new fact to the hypothesis
+--denies, instead of examining and sifting, the allegations which are
+opposed to him. For this he has considerable excuse in the worthlessness
+of the testimony on which the facts brought forward to invalidate the
+conclusions of theory usually rest. In these complex matters, men see
+with their preconceived opinions, not with their eyes: an interested or
+a passionate man's statistics are of little worth; and a year seldom
+passes without examples of the astounding falsehoods which large bodies
+of respectable men will back each other in publishing to the world as
+facts within their personal knowledge. It is not because a thing is
+_asserted_ to be true, but because in its nature it _may_ be true, that
+a sincere and patient inquirer will feel himself called upon to
+investigate it. He will use the assertions of opponents not as evidence,
+but indications leading to evidence; suggestions of the most proper
+course for his own inquiries.
+
+But while the philosopher and the practical man bandy half-truths with
+one another, we may seek far without finding one who, placed on a higher
+eminence of thought, comprehends as a whole what they see only in
+separate parts; who can make the anticipations of the philosopher guide
+the observation of the practical man, and the specific experience of the
+practical man warn the philosopher where something is to be added to his
+theory.
+
+The most memorable example in modern times of a man who united the
+spirit of philosophy with the pursuits of active life, and kept wholly
+clear from the partialities and prejudices both of the student and of
+the practical statesman, was Turgot; the wonder not only of his age, but
+of history, for his astonishing combination of the most opposite, and,
+judging from common experience, almost incompatible excellences.
+
+Though it is impossible to furnish any test by which a speculative
+thinker, either in Political Economy or in any other branch of social
+philosophy, may know that he is competent to judge of the application of
+his principles to the existing condition of his own or any other country,
+indications may be suggested by the absence of which he may well and
+surely know that he is not competent. His knowledge must at least enable
+him to explain and account for what _is_, or he is an insufficient judge
+of what ought to be. If a political economist, for instance, finds
+himself puzzled by any recent or present commercial phenomena; if there
+is any mystery to him in the late or present state of the productive
+industry of the country, which his knowledge of principle does not
+enable him to unriddle; he may be sure that something is wanting to
+render his system of opinions a safe guide in existing circumstances.
+Either some of the facts which influence the situation of the country
+and the course of events are not known to him; or, knowing them, he
+knows not what ought to be their effects. In the latter case his system
+is imperfect even as an abstract system; it does not enable him to trace
+correctly all the consequences even of assumed premises. Though he
+succeed in throwing doubts upon the reality of some of the phenomena
+which he is required to explain, his task is not yet completed; even
+then he is called upon to show how the belief, which he deems unfounded,
+arose; and what is the real nature of the appearances which gave a
+colour of probability to allegations which examination proves to be
+untrue.
+
+When the speculative politician has gone through this labour--has gone
+through it conscientiously, not with the desire of finding his system
+complete, but of making it so--he may deem himself qualified to apply
+his principles to the guidance of practice: but he must still continue
+to exercise the same discipline upon every new combination of facts as
+it arises; he must make a large allowance for the disturbing influence
+of unforeseen causes, and must carefully watch the result of every
+experiment, in order that any residuum of facts which his principles did
+not lead him to expect, and do not enable him to explain, may become the
+subject of a fresh analysis, and furnish the occasion for a consequent
+enlargement or correction of his general views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,
+--and have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether him to expect, and do not enable him to
+explain, may become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction of his general
+views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,--and
+have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether exempt, to admit the reality or relevancy of
+any facts which they have not previously either taken into, or left a
+place open for in, their systems.
+
+If indeed every phenomenon was generally the effect of no more than one
+cause, a knowledge of the law of that cause would, unless there was a
+logical error in our reasoning, enable us confidently to predict all the
+circumstances of the phenomenon. We might then, if we had carefully
+examined our premises and our reasoning, and found no flaw, venture to
+disbelieve the testimony which might be brought to show that matters had
+turned out differently from what we should have predicted. If the causes
+of erroneous conclusions were always patent on the face of the
+reasonings which lead to them, the human understanding would be a far
+more trustworthy instrument than it is. But the narrowest examination of
+the process itself will help us little towards discovering that we have
+omitted part of the premises which we ought to have taken into our
+reasoning. Effects are commonly determined by a _concurrence_ of causes.
+If we have overlooked any one cause, we may reason justly from all the
+others, and only be the further wrong. Our premises will be true, and
+our reasoning correct, and yet the result of no value in the particular
+case. There is, therefore, almost always room for a modest doubt as to
+our practical conclusions. Against false premises and unsound reasoning,
+a good mental discipline may effectually secure us; but against the
+danger of _overlooking_ something, neither strength of understanding nor
+intellectual cultivation can be more than a very imperfect protection.
+A person may be warranted in feeling confident, that whatever he has
+carefully contemplated with his mind's eye he has seen correctly; but no
+one can be sure that there is not something in existence which he has
+not seen at all. He can do no more than satisfy himself that he has seen
+all that is visible to any other persons who have concerned themselves
+with the subject. For this purpose he must endeavour to place himself at
+their point of view, and strive earnestly to see the object as they see
+it; nor give up the attempt until he has either added the appearance
+which is floating before them to his own stock of realities, or made out
+clearly that it is an optical deception.
+
+       *       *       *       *       *
+
+The principles which we have now stated are by no means alien to common
+apprehension: they are not absolutely hidden, perhaps, from any one, but
+are commonly seen through a mist. We might have presented the latter
+part of them in a phraseology in which they would have seemed the most
+familiar of truisms: we might have cautioned inquirers against too
+extensive _generalization_, and reminded them that there are _exceptions_
+to all rules. Such is the current language of those who distrust
+comprehensive thinking, without having any clear notion why or where it
+ought to be distrusted. We have avoided the use of these expressions
+purposely, because we deem them superficial and inaccurate. The error,
+when there is error, does _not_ arise from generalizing too extensively;
+that is, from including too wide a range of particular cases in a single
+proposition. Doubtless, a man often asserts of an entire class what is
+only true of a part of it; but his error generally consists not in making
+too wide an assertion, but in making the wrong _kind_ of assertion: he
+predicated an actual result, when he should only have predicated a
+_tendency_ to that result--a power acting with a certain intensity in that
+direction. With regard to _exceptions_; in any tolerably ably advanced
+science there is properly no such thing as an exception. What is thought
+to be an exception to a principle is always some other and distinct
+principle cutting into the former: some other force which impinges against
+the first force, and deflects it from its direction. There are not a _law_
+and an _exception_ to that law--the law acting in ninety-nine cases, and
+the exception in one. There are two laws, each possibly acting in the
+whole hundred cases, and bringing about a common effect by their conjunct
+operation. If the force which, being the less conspicuous of the two, is
+called the disturbing force, prevails sufficiently over the other force
+in some one case, to constitute that case what is commonly called an
+exception, the same disturbing force probably acts as a modifying cause
+in many other cases which no one will call exceptions.
+
+Thus if it were stated to be a law of nature, that all heavy bodies fall
+to the ground, it would probably be said that the resistance of the
+atmosphere, which prevents a balloon from falling, constitutes the
+balloon an exception to that pretended law of nature. But the real law
+is, that all heavy bodies _tend_ to fall; and to this there is no
+exception, not even the sun and moon; for even they, as every astronomer
+knows, tend towards the earth, with a force exactly equal to that with
+which the earth tends towards them. The resistance of the atmosphere
+might, in the particular case of the balloon, from a misapprehension of
+what the law of gravitation is, be said to _prevail_ over the law; but
+its disturbing effect is quite as real in every other case, since though
+it does not prevent, it retards the fall of all bodies whatever. The
+rule, and the so-called exception, do not divide the cases between them;
+each of them is a comprehensive rule extending to all cases. To call one
+of these concurrent principles an exception to the other, is
+superficial, and contrary to the correct principles of nomenclature and
+arrangement. An effect of precisely the same kind, and arising from the
+same cause, ought not to be placed in two different categories, merely
+as there does or does not exist another cause preponderating over it.
+
+It is only in art, as distinguished from science, that we can with
+propriety speak of exceptions. Art, the immediate end of which is
+practice, has nothing to do with causes, except as the means of bringing
+about effects. However heterogeneous the causes, it carries the effects
+of them all into one single reckoning, and according as the sum-total is
+_plus_ or _minus_, according as it falls above or below a certain line,
+Art says, Do this, or Abstain from doing it. The exception does not run
+by insensible degrees into the rule, like what are called exceptions in
+science. In a question of practice it frequently happens that a certain
+thing is either fit to be done, or fit to be altogether abstained from,
+there being no medium. If, in the majority of cases, it is fit to be
+done, that is made the rule. When a case subsequently occurs in which
+the thing ought not to be done, an entirely new leaf is turned over; the
+rule is now done with, and dismissed: a new train of ideas is introduced,
+between which and those involved in the rule there is a broad line of
+demarcation; as broad and _tranchant_ as the difference between Ay and
+No. Very possibly, between the last case which comes within the rule and
+the first of the exception, there is only the difference of a shade: but
+that shade probably makes the whole interval between acting in one way
+and in a totally different one. We may, therefore, in talking of art,
+unobjectionably speak of the _rule_ and the _exception_; meaning by the
+rule, the cases in which there exists a preponderance, however slight,
+of inducements for acting in a particular way; and by the exception, the
+cases in which the preponderance is on the contrary side.
+
+
+THE END.
+
+
+NOTES:
+
+[8] We say, the _production_ and _distribution_, not, as is usual with
+writers on this science, the production, distribution, and _consumption_.
+For we contend that Political Economy, as conceived by those very
+writers, has nothing to do with the consumption of wealth, further than
+as the consideration of it is inseparable from that of production, or
+from that of distribution. We know not of any _laws_ of the _consumption_
+of wealth as the subject of a distinct science: they can be no other
+than the laws of human enjoyment. Political economists have never treated
+of consumption on its own account, but always for the purpose of the
+inquiry in what manner different kinds of consumption affect the production
+and distribution of wealth. Under the head of Consumption, in professed
+treatises on the science, the following are the subjects treated of: 1st,
+The distinction between _productive_ and _unproductive_ consumption; 2nd,
+The inquiry whether it is possible for _too much_ wealth to be _produced_,
+and for too great a portion of what has been produced to be applied to the
+purpose of further _production_; 3rd, The theory of taxation, that is to
+say, the following two questions--by whom each particular tax is paid
+(a question of _distribution_), and in what manner particular taxes affect
+_production_.
+
+[9] The physical laws of the production of useful objects are all
+equally presupposed by the science of Political Economy: most of them,
+however, it presupposes in the gross, seeming to say nothing about them.
+A few (such, for instance, as the decreasing ratio in which the produce
+of the soil is increased by an increased application of labour) it is
+obliged particularly to specify, and thus seems to borrow those truths
+from the physical sciences to which they properly belong, and include
+them among its own.
+
+[10] The _science_ of legislation is an incorrect and misleading
+expression. Legislation is _making laws_. We do not talk of the
+_science_ of _making_ anything. Even the _science of government_ would
+be an objectionable expression, were it not that _government_ is often
+loosely taken to signify, not the act of governing, but the state or
+condition of _being governed_, or of living under a government. A
+preferable expression would be, the science of _political society_; a
+principal branch of the more extensive science of society, characterized
+in the text.
+
+[11] One of the strongest reasons for drawing the line of separation
+clearly and broadly between science and art is the following:--That the
+principle of classification in science most conveniently follows the
+classification of _causes_, while arts must necessarily be classified
+according to the classification of the _effects_, the production of
+which is their appropriate end. Now an effect, whether in physics or
+morals, commonly depends upon a concurrence of causes, and it frequently
+happens that several of these causes belong to different sciences. Thus
+in the construction of engines upon the principles of the science of
+_mechanics_, it is necessary to bear in mind the _chemical_ properties
+of the material, such as its liability to oxydize; its electrical and
+magnetic properties, and so forth. From this it follows that although
+the necessary foundation of all art is science, that is, the knowledge
+of the properties or laws of the objects upon which, and with which, the
+art dons its work; it is not equally true that every art corresponds to
+one particular science. Each art presupposes, not one science, but
+science in general; or, at least, many distinct sciences.
+
+
+
+(Editor's note:)
+
+Essays on some Unsettled Questions of Political Economy
+
+These five essays represent Mill's earliest thoughts on economic matters
+and were first composed in 1829 and 1830 before his reputation had been
+established by the publication of _Logic_ in 1843. Their successful
+reception no doubt hastened the composition of his comprehensive work
+the _Principles of Political Economy_ (1848).
+
+
+
+
+
+
+
+
+
+End of the Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
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+    <title>
+      The Project Gutenberg eBook of Essays On Some Unsettled Questions Of Political Economy, by John Stuart Mill.
+    </title>
+    <style type="text/css">
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+<pre>
+
+The Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
+
+This eBook is for the use of anyone anywhere at no cost and with
+almost no restrictions whatsoever.  You may copy it, give it away or
+re-use it under the terms of the Project Gutenberg License included
+with this eBook or online at www.gutenberg.org
+
+
+Title: Essays on some unsettled Questions of Political Economy
+
+Author: John Stuart Mill
+
+Release Date: April 9, 2004 [EBook #12004]
+
+Language: English
+
+Character set encoding: ISO Latin-1
+
+*** START OF THIS PROJECT GUTENBERG EBOOK ESSAYS ON SOME UNSETTLED ***
+
+
+
+
+Produced by Avinash Kothare and Marc D'Hooghe
+
+
+
+
+
+</pre>
+
+
+<h1>ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY</h1>
+
+<h3>by</h3>
+
+<h2>John Stuart Mill</h2>
+<br>
+
+<h3>1844</h3>
+
+
+
+<hr style="width: 65%;">
+<a name="PREFACE"></a><h2>PREFACE.</h2>
+<br>
+
+<p>Of these Essays, which were written in 1829 and
+1830, the fifth alone has been previously printed.
+The other four have hitherto remained in manuscript,
+because, during the temporary suspension of public
+interest in the species of discussion to which they
+belong, there was no inducement to their publication.</p>
+
+<p>They are now published (with a few merely verbal
+alterations) under the impression, that the controversies
+excited by Colonel Torrens' <i>Budget</i> have again
+called the attention of political economists to the discussions
+of the abstract science: and from the additional
+consideration, that the first paper relates expressly
+to the point upon which the question at issue
+between Colonel Torrens and his antagonists has principally
+turned.</p>
+
+<p>From that paper it will be seen that opinions
+identical in principle with those promulgated by
+Colonel Torrens (there would probably be considerable
+difference as to the extent of their practical application)
+have been held by the writer for more than
+fifteen years: although he cannot claim to himself the
+original conception, but only the elaboration, of the
+fundamental doctrine of the Essay.</p>
+
+<p>A prejudice appears to exist in many quarters
+against the theory in question, on the supposition of
+its being opposed to one of the most valuable results
+of modern political philosophy, the doctrine of Freedom
+of Trade between nation and nation. The
+opinions now laid before the reader are presented as
+corollaries necessarily following from the principles
+upon which Free Trade itself rests. The writer has
+also been careful to point out, that from these opinions
+no justification can be derived for any <i>protecting</i>
+duty, or other preference given to domestic over
+foreign industry. But in regard to those duties on
+foreign commodities which do not operate as protection,
+but are maintained solely for revenue, and which
+do not touch either the necessaries of life or the
+materials and instruments of production, it is his
+opinion that any relaxation of such duties, beyond
+what may be required by the interest of the revenue
+itself, should in general be made contingent upon the
+adoption of some corresponding degree of freedom of
+trade with this country, by the nation from which the
+commodities are imported.</p>
+
+
+
+<hr style="width: 65%;">
+<a name="CONTENTS"></a><h2>CONTENTS.</h2>
+
+<!-- Autogenerated TOC. Modify or delete as required. -->
+<a href="#PREFACE">PREFACE.</a><br>
+ <a href="#CONTENTS">CONTENTS.</a><br>
+ <a href="#ESSAY_I">ESSAY I.</a><br>
+ <a href="#ESSAY_II">ESSAY II.</a><br>
+ <a href="#ESSAY_III">ESSAY III.</a><br>
+ <a href="#ESSAY_IV">ESSAY IV.</a><br>
+ <a href="#ESSAY_V">ESSAY V.</a><br>
+
+<!-- End Autogenerated TOC. -->
+
+
+<br>
+
+<p>ESSAY I.</p>
+
+<p><b>Of the Laws of Interchange between Nations; and the Distribution
+of the Gains of Commerce among the Countries
+of the Commercial World</b></p>
+
+<p>ESSAY II.</p>
+
+<p><b>Of the Influence of Consumption upon Production</b></p>
+
+<p>ESSAY III.</p>
+
+<p><b>On the Words Productive and Unproductive</b></p>
+
+<p>ESSAY IV.</p>
+
+<p><b>On Profits, and Interest</b></p>
+
+<p>ESSAY V.</p>
+
+<p><b>On the Definition of Political Economy; and on the Method
+of Investigation proper to it</b></p>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_I"></a><h2>ESSAY I.</h2>
+
+<h2>OF THE LAWS OF INTERCHANGE BETWEEN NATIONS;
+AND THE DISTRIBUTION OF THE GAINS OF COMMERCE
+AMONG THE COUNTRIES OF THE
+COMMERCIAL WORLD.</h2>
+<br>
+
+<p>Of the truths with which political economy has been
+enriched by Mr. Ricardo, none has contributed more
+to give to that branch of knowledge the comparatively
+precise and scientific character which it at present bears,
+than the more accurate analysis which he performed of
+the nature of the advantage which nations derive from
+a mutual interchange of their productions. Previously
+to his time, the benefits of foreign trade were deemed,
+even by the most philosophical enquirers, to consist in
+affording a vent for surplus produce, or in enabling a
+portion of the national capital to replace itself with a
+profit. The futility of the theory implied in these
+and similar phrases, was an obvious consequence from
+the speculations of writers even anterior to Mr.
+Ricardo. But it was he who first, in the chapter
+on Foreign Trade, of his immortal <i>Principles of
+Political Economy and Taxation</i>, substituted for the
+former vague and unscientific, if not positively false,
+conceptions with regard to the advantage of trade,
+a philosophical exposition which explains, with strict
+precision, the nature of that advantage, and affords an
+accurate measure of its amount.</p>
+
+<p>He shewed, that the advantage of an interchange
+of commodities between nations consists simply and
+solely in this, that it enables each to obtain, with a
+given amount of labour and capital, a greater quantity
+of all commodities taken together. This it accomplishes
+by enabling each, with a quantity of one commodity
+which has cost it so much labour and capital,
+to purchase a quantity of another commodity which,
+if produced at home, would have required labour and
+capital to a greater amount. To render the importation
+of an article more advantageous than its production,
+it is not necessary that the foreign country
+should be able to produce it with less labour and
+capital than ourselves. We may even have a positive
+advantage in its production: but, if we are so far
+favoured by circumstances as to have a still greater
+positive advantage in the production of some other
+article which is in demand in the foreign country, we
+may be able to obtain a greater return to our labour and
+capital by employing none of it in producing the article
+in which our advantage is least, but devoting it all to the
+production of that in which our advantage is greatest,
+and giving this to the foreign country in exchange for
+the other. It is not a difference in the <i>absolute</i> cost
+of production, which determines the interchange, but
+a difference in the <i>comparative</i> cost. It may be to our
+advantage to procure iron from Sweden in exchange
+for cottons, even although the mines of England as well
+as her manufactories should be more productive than
+those of Sweden; for if we have an advantage of one-half
+in cottons, and only an advantage of a quarter in
+iron, and could sell our cottons to Sweden at the price
+which Sweden must pay for them if she produced them
+herself, we should obtain our iron with an advantage
+of one-half, as well as our cottons. We may often, by
+trading with foreigners, obtain their commodities at a
+smaller expense of labour and capital than they cost
+to the foreigners themselves. The bargain is still
+advantageous to the foreigner, because the commodity
+which he receives in exchange, though it has cost us
+less, would have cost him more. As often as a
+country possesses two commodities, one of which it
+can produce with less labour, comparatively to what it
+would cost in a foreign country, than the other; so
+often it is the interest of the country to export the
+first mentioned commodity and to import the second;
+even though it might be able to produce both the one
+and the other at a less expense of labour than the
+foreign country can produce them, but not less in the
+same degree; or might be unable to produce either
+except at a greater expense, but not greater in the
+same degree.</p>
+
+<p>On the contrary, if it produces both commodities
+with greater facility, or both with greater difficulty,
+and greater in exactly the same degree, there will be
+no motive to interchange.</p>
+
+<p>&quot;If the cloth and the corn, each of which required
+100 days' labour in Poland, required each 150 days'
+labour in England; it would follow, that the cloth of
+150 days' labour in England, if sent to Poland, would
+be equal to the cloth of 100 days' labour in Poland: if
+exchanged for corn, therefore, it would exchange for
+the corn of only 100 days' labour. But the corn of
+100 days' labour in Poland, was supposed to be the
+same quantity with that of 150 days' labour in
+England. With 150 days' labour in cloth, therefore,
+England would only get as much corn in Poland as
+she could raise with 150 days' labour at home; and
+she would, in importing it, have the cost of carriage
+besides. In these circumstances no exchange would
+take place.</p>
+
+<p>&quot;If, on the other hand, while the cloth produced
+with 100 days' labour in Poland was produced with
+150 days' labour in England, the corn which was produced
+in Poland with 100 days' labour could not be
+produced in England with less than 200 days' labour;
+an adequate motive to exchange would immediately
+arise. With a quantity of cloth which England produced
+with 150 days' labour, she would be able to
+purchase as much corn in Poland as was there produced
+with 100 days' labour; but the quantity, which
+was there produced with 100 days' labour, would be
+as great as the quantity produced in England with
+200 days' labour.</p>
+
+<p>&quot;The power of Poland would be reciprocal.
+With a quantity of corn which cost her 100 days'
+labour, equal to the quantity produced in England by
+200 days' labour, she could in the supposed case purchase
+in England the produce of 200 days' labour in
+cloth.&quot; But &quot;the produce of 150 days' labour in
+England in the article of cloth would be equal to the
+produce of 100 days' labour in Poland <a name="FNanchor1"></a><a href="#Footnote_1"><sup>[1]</sup></a>.&quot;</p>
+
+<p>The remainder of what Mr. Ricardo has done for
+the philosophical exposition of the principles of foreign
+trade, is to shew, that the truth of the propositions
+now recapitulated is not affected by the introduction
+of money as a medium of exchange; the precious
+metals always tending to distribute themselves in such
+a manner throughout the commercial world, that every
+country shall import all that it would have imported,
+and export all that it would have exported, if exchanges
+had taken place, as in the example above
+supposed, by barter.</p>
+
+<p>To this branch of the subject we shall, in the
+sequel of this essay, return. At present it will be
+more convenient that we should continue to suppose,
+that exchanges take place by the direct trucking of
+one commodity against another.</p>
+
+<p>It is established, that the advantage which two
+countries derive from trading with each other, results
+from the more advantageous employment which thence
+arises, of the labour and capital&mdash;for shortness let us
+say the labour&mdash;of both jointly. The circumstances are
+such, that if each country confines itself to the production
+of one commodity, there is a greater total
+return to the labour of both together; and this increase
+of produce forms the whole of what the two
+countries taken together gain by the trade.</p>
+
+<p>It is the purpose of the present essay to inquire, in
+what proportion the increase of produce, arising from
+the saving of labour, is divided between the two
+countries.</p>
+
+<p>This question was not entered into by Mr. Ricardo,
+whose attention was engrossed by far more important
+questions, and who, having a science to create, had not
+time, or room, to occupy himself with much more than
+the leading principles. When he had done enough to
+enable any one who came after him, and who took the
+necessary pains, to do all the rest, he was satisfied.
+He very rarely followed out the principles of the
+science into the ramifications of their consequences.
+But we believe that to no one, who has thoroughly
+entered into the spirit of his discoveries, will even
+the minutiae of the science offer any difficulty but
+that which is constituted by the necessity of patience
+and circumspection in tracing principles to their results.</p>
+
+<p>Mr. Ricardo, while intending to go no further
+into the question of the advantage of foreign trade
+than to show what it consisted of, and under what
+circumstances it arose, unguardedly expressed himself
+as if each of the two countries making the exchange
+separately gained the whole of the difference between
+the comparative costs of the two commodities in one
+country and in the other. But, the whole gain of both
+countries together, consisting in the saving of labour;
+and the saving of labour being exactly equal to the
+difference between the costs, in the two countries, of
+the one commodity as compared with the other; the
+two countries taken together gain no more than this
+difference: and if either country gains the whole of it,
+the other country derives no advantage from the trade.</p>
+
+<p>Suppose, for example, that 10 yards of broad cloth
+cost in England as much labour as 15 yards of linen,
+and in Germany as much as 20. If England sends 10
+yards of broad cloth to Germany, and is able to exchange
+them for linen according to the German cost
+of production, she will get 20 yards of linen, with a
+quantity of labour with which she could not have produced
+more than 15; and will gain, therefore, 5 yards
+on every 15, or 33-1/3 per cent. But in this case Germany
+would obtain only 10 yards of cloth for 20 of
+linen. Now, 10 yards of cloth cost exactly the same
+quantity of labour in Germany as 20 of linen; Germany,
+therefore, derives no advantage from the trade,
+more than she would possess if it did not exist.</p>
+
+<p>So, on the other hand, if Germany sends 15 yards of
+linen to England, and finding the relative value of the
+two articles in that country determined by the English
+costs of production, is enabled to purchase with 35
+yards of linen 10 yards of cloth; Germany now gains
+5 yards, just as England did before,&mdash;for with 15 yards
+of linen she purchases 10 yards of cloth, when to produce
+these 10 yards she must have employed as much labour
+as would have enabled her to produce 20 yards of
+linen. But in this case England would gain nothing:
+she would only obtain, for her 10 yards of cloth, 15
+yards of linen, which is exactly the comparative cost at
+which she could have produced them.</p>
+
+<p>This, which was not an error, but a mere oversight
+of Mr. Ricardo, arising from his having left the question
+of the division of the advantage entirely unnoticed,
+was first corrected in the third edition of Mr. Mill's
+<i>Elements of Political Economy</i>. It can hardly, however,
+be said that Mr. Mill has prosecuted the inquiry any
+further; which, indeed, would have been quite as
+inconsistent with the nature of his plan as of Mr.
+Ricardo's.</p>
+
+<p>1. When the trade is established between the two
+countries, the two commodities will exchange for each
+other at the same rate of interchange in both countries&mdash;bating
+the cost of carriage, of which, for the
+present, it will be more convenient to omit the consideration.
+Supposing, therefore, for the sake of argument,
+that the carriage of the commodities from one
+country to another could be effected without labour
+and without cost, no sooner would the trade be opened
+than, it is self-evident, the value of the two commodities,
+estimated in each other, would come to a level
+in both countries.</p>
+
+<p>If we knew what this level would be, we should
+know in what proportion the two countries would
+share the advantage of the trade.</p>
+
+<p>When each country produced both commodities for
+itself, 10 yards of broad cloth exchanged for 15 yards
+of linen in England, and for 20 in Germany. They
+will now exchange for the same number of yards of
+linen in both. For what number? If for 15 yards,
+England will be just as she was, and Germany will
+gain all. If for 20 yards, Germany will be as before,
+and England will derive the whole of the benefit. If
+for any number intermediate between 15 and 20, the
+advantage will be shared between the two countries.
+If, for example, 10 yards of cloth exchange for 18
+of linen, England will gain an advantage of 3 yards
+on every 15, Germany will save 2 out of every 20.</p>
+
+<p>The problem is, what are the causes which determine
+the proportion in which the cloth of England
+and the linen of Germany will exchange for each other?</p>
+
+<p>This, therefore, is a question concerning exchangeable
+value. There must be something which determines
+how much of one commodity another commodity will
+purchase; and there is no reason to suppose that the
+law of exchangeable value is more difficult of ascertainment
+in this case than in other cases.</p>
+
+<p>The law, however, cannot be precisely the same as
+in the common cases. When two articles are produced
+in the immediate vicinity of one another, so that, without
+expatriating himself, or moving to a distance, a
+capitalist has the choice of producing one or the other,
+the quantities of the two articles which will exchange
+for each other will be, on the average, those which are
+produced by equal quantities of labour. But this cannot
+be applied to the case where the two articles are
+produced in two different countries; because men do
+not usually leave their country, or even send their
+capital abroad, for the sake of those small differences
+of profit which are sufficient to determine their choice
+of a business, or of an investment, in their own country
+and neighbourhood.</p>
+
+<p>The principle, that value is proportional to cost of
+production, being consequently inapplicable, we must
+revert to a principle anterior to that of cost of production,
+and from which this last flows as a consequence,&mdash;namely,
+the principle of demand and supply.</p>
+
+<p>In order to apply this principle, with any advantage,
+to the solution of the question which now occupies us,
+the principle itself, and the idea attached to the term
+demand, must be conceived with a precision, which the
+loose manner in which the words are used generally
+prevents.</p>
+
+<p>It is well known that the quantity of any commodity
+which can be disposed of, varies with the price.
+The higher the price, the fewer will be the purchasers,
+and the smaller the quantity sold. The lower the
+price, the greater will in general be the number of
+purchasers, and the greater the quantity disposed of.
+This is true of almost all commodities whatever:
+though of some commodities, to diminish the consumption
+in any given degree would require a much
+greater rise of price than of others.</p>
+
+<p>Whatever be the commodity&mdash;the supply in any
+market being given, there is some price at which the
+whole of the supply exactly will find purchasers, and
+no more. That, whatever it be, is the price at which,
+by the effect of competition, the commodity will be
+sold. If the price be higher, the whole of the supply
+will not be disposed of, and the sellers, by their competition,
+will bring down the price. If the price be
+lower, there will be found purchasers for a larger supply,
+and the competition of these purchasers will raise
+the price.</p>
+
+<p>This, then, is what we mean, when we say that
+price, or exchangeable value, depends on demand and
+supply. We should express the principle more accurately,
+if we were to say, the price so regulates itself
+that the demand shall be exactly sufficient to carry off
+the supply.</p>
+
+<p>Let us now apply the principle of demand and
+supply, thus understood, to the interchange of broadcloth
+and linen between England and Germany.</p>
+
+<p>As exchangeable value in this case, as in every
+other, is proverbially fluctuating, it does not matter
+what we suppose it to be when we begin; we shall
+soon see whether there be any fixed point about which
+it oscillates&mdash;which it has a tendency always to approach
+to, and to remain at.</p>
+
+<p>Let us suppose, then, that by the effect of what
+Adam Smith calls the higgling of the market, 10 yards
+of cloth, in both countries, exchange for 17 yards of
+linen.</p>
+
+<p>The demand for a commodity, that is, the quantity
+of it which can find a purchaser, varies, as we have
+before remarked, according to the price. In Germany,
+the price of 10 yards of cloth is now 17 yards of
+linen; or whatever quantity of money is equivalent
+in Germany to 17 yards of linen. Now, that being
+the price, there is some particular number of yards
+of cloth, which will be in demand, or will find purchasers,
+at that price. There is some given quantity
+of cloth, more than which could not be disposed of at
+that price,&mdash;less than which, at that price, would not
+fully satisfy the demand. Let us suppose this quantity
+to be, 1000 times 10 yards.</p>
+
+<p>Let us now turn our attention to England. There,
+the price of 17 yards of linen is 10 yards of cloth, or
+whatever quantity of money is equivalent in England
+to 10 yards of cloth. There is some particular number
+of yards of linen, which, at that price, will exactly
+satisfy the demand, and no more. Let us suppose
+that this number is 1000 times 17 yards.</p>
+
+<p>As 17 yards of linen are to 30 yards of cloth,
+so are 1000 times 17 yards to 1000 times 10 yards.
+At the existing exchangeable value, the linen which
+England requires, will exactly pay for the quantity
+of cloth which, on the same terms of interchange,
+Germany requires. The demand on each side is
+precisely sufficient to carry off the supply on the
+other. The conditions required by the principle of
+demand and supply are fulfilled, and the two commodities
+will continue to be interchanged, as we supposed
+them to be, in the ratio of 17 yards of linen for
+10 yards of cloth.</p>
+
+<p>But our supposition might have been different.
+Suppose that, at the assumed rate of interchange,
+England had been disposed to consume no greater
+quantity of linen than 800 times 17 yards; it is
+evident that, at the rate supposed, this would not
+have sufficed to pay for the 1000 times 10 yards of
+cloth, which we have supposed Germany to require
+at the assumed value. Germany would be able to
+procure no more than 800 times 10 yards, at that
+price. To procure the remaining 200, which she
+would have no means of doing but by bidding higher
+for them, she would offer more than 17 yards of linen in
+exchange for 10 yards of cloth; let us suppose her
+to offer 18. At that price, perhaps, England would
+be inclined to purchase a greater quantity of linen.
+She could consume, possibly, at that price, 900 times
+18 yards. On the other hand, cloth having risen
+in price, the demand of Germany for it would, probably,
+have diminished. If, instead of 1000 times 10 yards,
+she is now contented with 900 times ten yards, these
+will exactly pay for the 900 times 18 yards of linen
+which England is willing to take at the altered price:
+the demand on each side will again exactly suffice to
+take off the corresponding supply; and 10 yards for
+18 will be the rate at which, in both countries, cloth
+will exchange for linen.</p>
+
+<p>The converse of all this would have happened if
+instead of 800 times 17 yards, we had supposed that
+England, at the rate of 10 for 17, would have taken
+1200 times 17 yards of linen. In this case, it is
+England whose demand is not fully supplied; it is
+England who, by bidding for more linen, will alter the
+rate of interchange to her own disadvantage; and 10
+yards of cloth will fall, in both countries, below the
+value of 17 yards of linen. By this fall of cloth, or
+what is the same thing, this rise of linen, the demand
+of Germany for cloth will increase, and the demand
+of England for linen will diminish, till the rate of
+interchange has so adjusted itself that the cloth and
+the linen will exactly pay for another; and when
+once this point is attained, values will remain as they
+are.</p>
+
+<p>It may be considered, therefore, as established,
+that when two countries trade together in two commodities,
+the exchangeable value of these commodities
+relatively to each other will adjust itself to the inclinations
+and circumstances of the consumers on both
+sides, in such manner that the quantities required by
+each country, of the article which it imports from its
+neighbour, shall be exactly sufficient to pay for one
+another. As the inclinations and circumstances of consumers
+cannot be reduced to any rule, so neither can
+the proportions in which the two commodities will
+be interchanged. We know that the limits within
+which the variation is confined are the ratio between
+their costs of production in the one country, and the
+ratio between their costs of production in the other. Ten
+yards of cloth cannot exchange for more than 20 yards
+of linen, nor for less than 15. But they may exchange
+for any intermediate number. The ratios, therefore,
+in which the advantage of the trade may be divided
+between the two nations, are various. The circumstances
+on which the proportionate share of each country
+more remotely depends, admit only of a very general
+indication.</p>
+
+<p>It is even possible to conceive an extreme case, in
+which the whole of the advantage resulting from the
+interchange would be reaped by one party, the other
+country gaining nothing at all. There is no absurdity
+in the hypothesis, that of some given commodity a
+certain quantity is all that is wanted at any price, and
+that when that quantity is obtained, no fall in the exchangeable
+value would induce other consumers to
+come forward, or those who are already supplied to
+take more. Let us suppose that this is the case in
+Germany with cloth. Before her trade with England
+commenced, when 10 yards of cloth cost her as much
+labour as 20 yards of linen, she nevertheless consumed
+as much cloth as she wanted under any circumstances,
+and if she could obtain it at the rate of 10
+yards of cloth for 15 of linen, she would not consume
+more. Let this fixed quantity be 1000 times
+10 yards. At the rate, however, of 10 for 20, England
+would want more linen than would be equivalent
+to this quantity of cloth. She would consequently
+offer a higher value for linen; or, what is the same
+thing, she would offer her cloth at a cheaper rate. But
+as by no lowering of the value could she prevail on
+Germany to take a greater quantity of cloth, there
+would be no limit to the rise of linen, or fall of cloth,
+until the demand of England for linen was reduced
+by the rise of its value, to the quantity which one
+thousand times ten yards of cloth would purchase. It
+might be, that to produce this diminution of the demand,
+a less fall would not suffice, than one which would
+make 10 yards of cloth exchange for 15 of linen.
+Germany would then gain the whole of the advantage,
+and England would be exactly as she was before the
+trade commenced. It would be for the interest, however,
+of Germany herself, to keep her linen a little
+below the value at which it could be produced in
+England, in order to keep herself from being supplanted
+by the home producer. England, therefore, would
+always benefit in some degree by the existence of the
+trade, though it might be in a very trifling one.</p>
+
+<p>But in general there will not be this extreme inequality
+in the degree in which the demand in the two
+countries varies with variations in the price. The
+advantage will probably be divided equally, oftener
+than in any one unequal ratio that can be named;
+though the division will be much oftener, on the whole,
+unequal than equal.</p>
+
+<p>2. We shall now examine whether the same law of
+interchange, which we have shown to apply upon the
+supposition of barter, holds good after the introduction
+of money. Mr. Ricardo found that his more general proposition
+stood this test; and as the proposition which we
+have just demonstrated is only a further developement
+of his principle, we shall probably find that it suffers a
+little, by a mere change in the mode (for it is no
+more) in which one commodity is exchanged against
+another.</p>
+
+<p>We may at first make whatever supposition we
+will with respect to the value of money. Let us suppose,
+therefore, that before the opening of the trade,
+the price of cloth is the same in both countries, namely,
+six shillings per yard <a name="FNanchor2"></a><a href="#Footnote_2"><sup>[2]</sup></a>. As 10 yards of cloth were supposed
+to exchange in England for 5 yards of linen,
+in Germany for 20, we must suppose that linen is sold
+in England at four shillings per yard, in Germany at
+three. Cost of carriage and importer's profit are left
+as before, out of consideration.</p>
+
+<p>In this state of prices, cloth, it is evident, cannot
+yet be exported from England into Germany. But
+linen can be imported from Germany into England.
+It will be so, and, in the first instance, the linen will be
+paid for in money.</p>
+
+<p>The efflux of money from England, and its influx
+into Germany, will raise money prices in the latter
+country, and lower them in the former. Linen will
+rise in Germany above three shillings per yard, and
+cloth above six shillings. Linen in England being
+imported from Germany, will (since cost of carriage is
+not reckoned) sink to the same price as in that country,
+while cloth will fall below six shillings. As soon as the
+price of cloth is lower in England than in Germany, it
+will begin to be exported, and the price of cloth in
+Germany will fall to what it is in England. As long
+As the cloth exported does not suffice to pay for the
+linen imported, money will continue to flow from
+England into Germany, and prices generally will continue
+to fall in England, and rise in Germany. By
+the fall, however, of cloth in England, cloth will fall in
+Germany also, and the demand for it will increase.
+By the rise of linen in Germany, linen must rise in
+England also, and the demand for it will diminish.
+Although the increased exportation of cloth takes place
+at a lower price, and the diminished importation of
+linen at a higher, yet the total money value of the
+exportation would probably increase, that of the importation
+diminish. As cloth fell in price and linen rose,
+there would be some particular price of both articles
+at-which the cloth exported, and the linen imported,
+would exactly pay for each other. At this point prices
+would remain, because money would then cease to
+move out of England into Germany. What this point
+might be, would entirely depend upon the circumstances
+and inclinations of the purchasers on both sides. If
+the fall of cloth did not much increase the demand for
+it in Germany, and the rise of linen did not diminish
+very rapidly the demand for it in England, much money
+must pass before the equilibrium is restored; cloth would
+fall very much, and linen would rise, until England,
+perhaps, had to pay nearly as much for it as when she
+produced it for herself. But if, on the contrary, the
+fall of cloth caused a very rapid increase of the demand
+for it in Germany, and the rise of linen in Germany
+reduced very rapidly the demand in England from
+what it was under the influence of the first cheapness
+produced by the opening of the trade; the cloth would
+very soon suffice to pay for the linen, little money would
+pass between the two countries, and England would
+derive a large portion of the benefit of the trade. We
+have thus arrived at precisely the same conclusion, in
+supposing the employment of money, which we found
+to hold under the supposition of barter.</p>
+
+<p>In what shape the benefit accrues to the two nations
+from the trade, is clear enough. Germany,
+before the commencement of the trade, paid six shillings
+per yard for broad-cloth. She now obtains it at
+a lower price. This, however, is not the whole of her
+advantage. As the money prices of all her other commodities
+have risen, the money incomes of all her producers
+have increased. This is no advantage to them in
+buying from each other; because the price of what they
+buy has risen in the same ratio with their means of
+paying for it: but it is an advantage to them in
+buying any thing which has not risen; and still more,
+any thing which has fallen. They therefore benefit as
+consumers of cloth, not merely to the extent to which
+cloth has fallen, but also to the extent to which other
+prices have risen. Suppose that this is one-tenth.
+The same proportion of their money incomes as before,
+will suffice to supply their other wants, and the remainder,
+being increased one-tenth in amount, will enable
+them to purchase one-tenth more cloth than before,
+even though cloth had not fallen. But it has fallen:
+so that they are doubly gainers. If they do not choose
+to increase their consumption of cloth, this does not
+prevent them from being gainers. They purchase the
+same quantity with less money, and have more to
+expend upon their other wants.</p>
+
+<p>In England, on the contrary, general money-prices
+have fallen. Linen, however, has fallen more than the
+rest; having been lowered in price, by importation from
+a country where it was cheaper, whereas the others
+have fallen only from the consequent efflux of money.
+Notwithstanding, therefore, the general fall of money-prices,
+the English producers will be exactly as they
+were in all other respects, while they will gain as purchasers
+of linen.</p>
+
+<p>The greater the efflux of money required to restore
+the equilibrium, the greater will be the gain of
+Germany; both by the fall of cloth, and by the rise of
+her general prices. The less the efflux of money
+requisite, the greater will be the gain of England;
+because the price of linen will continue lower, and her
+general prices will not be reduced so much. It must
+not, however, be imagined that high money-prices
+are a good, and low money-prices an evil, in themselves.
+But the higher the general money-prices in
+any country, the greater will be that country's means
+of purchasing those commodities which, being imported
+from abroad, are independent of the causes which keep
+prices high at home.</p>
+
+<p>3. We have hitherto supposed the carriage to be
+performed without labour or expense. If we abandon
+this supposition, we must correct the statement of the
+case in a slight degree. The prices of the two articles
+will no longer, when the trade is opened, be the same
+in both countries, nor will the articles exchange for
+one another at the same rate in both. Ten yards of
+cloth will purchase in Germany a quantity of linen
+greater than in England by a per-centage equal to the
+entire cost of conveyance both of the cloth to Germany
+and of the linen to England. The money-price
+of linen will be higher in England than in Germany,
+by the cost of carriage of the linen. The money-price
+of cloth will be higher in Germany than in England,
+by the cost of carriage of the cloth.</p>
+
+<p>The expense of the carriage is evidently a deduction
+<i>pro tanto</i> from the saving of labour produced by the
+establishment of the trade. The two countries together,
+therefore, have their gains by the trade diminished, by
+the amount of the cost of carriage of both commodities.
+But here the question arises, which of the two countries
+bears this deduction, or in what proportion it is divided
+between them.</p>
+
+<p>At the first inspection it would appear that each
+country bears its own cost of carriage, that is, that each
+country pays the carriage of the commodity which it
+imports. Upon this supposition, each country would
+gain whatever share of the joint saving of labour would
+otherwise fall to its lot, <i>minus</i> the cost of bringing from
+the other country the commodity which it imports.
+This solution is rendered plausible by the circumstance
+just now mentioned, that the price of the commodity
+will be higher in the country which imports it, than in
+the country which exports it, by the amount of the
+cost of carriage. If linen is sold in England at a
+higher price than in Germany, by a per-centage equal
+to the cost of carriage of the linen, it appears obvious
+that England pays for the carriage of the linen, and
+Germany, by parity of reason, for that of the cloth.</p>
+
+<p>But if we apply to these questions the principles
+already explained, we shall see that this is not by any
+means a universal law: the fact may correspond with
+it, or it may not.</p>
+
+<p>For suppose that the prices have adjusted themselves,
+no matter how, and that the imports and exports
+balance one another, each commodity, of course, being
+dearer by the cost of carriage, in the country which imports
+than in that which exports it: and suppose now
+that the cost of carriage, both of the one and of the
+other, were suddenly and miraculously annihilated, and
+that the commodities could pass from country to country
+without expense. If each country bore its own cost of
+carriage before, each country will save its own cost of
+carriage now. Cloth, in Germany, will in that case fall
+exactly to what it is in England; linen in England, to
+what it is in Germany.</p>
+
+<p>Now this fall of price, supposing it to happen, will
+probably affect the demand on both sides; and it will
+either affect it alike in both countries, or it will affect
+it unequally. It will affect it alike, if the fall of price
+does not affect the demand at all, or if it affects it
+equally in both countries. If either of these results
+should take place, the cloth and the linen would continue
+to balance each other as before: no money would pass
+from one country to the other; prices in both would
+continue at the point to which they had fallen, and
+each country would exactly save the cost of carriage
+on the commodity which it imports from the other.</p>
+
+<p>But the result might be, that the fall of price might
+not have an effect exactly equal, on the demand in the
+two countries. Suppose, for instance, that the fall of
+cloth in Germany owing to the saving of the cost of
+carriage, did not increase the demand for cloth in Germany;
+but that the fall of linen in England from a
+like cause, did increase the demand for linen in England.
+The linen imported would be more than could
+be paid for by the cloth exported: the difference must
+be paid in money: the change in the distribution of
+the precious metals between the two countries would
+lower the price of cloth in England, (and consequently
+in Germany), while it would raise the price of linen in
+Germany, (and consequently in England). Germany,
+therefore, by the annihilation of cost of carriage, would
+save in price more than the cost of carriage of the
+cloth; England would save less in price than the cost
+of carriage of the linen. But if by the miraculous
+annihilation of cost of carriage, England would not <i>save</i>
+the whole of the carriage of her imports, it follows that
+England did not previously <i>pay</i> the whole of that cost
+of carriage.</p>
+
+<p>Thus, the division of the cost of trade, and the
+division of the advantage of trade, are governed by
+precisely the same principles; and the only general
+proposition which can be affirmed respecting the cost
+is, that it is <i>pro tanto</i> a deduction from the advantage.
+It cannot even be maintained that the cost is shared
+in the same proportion as the advantage is; because
+the increase of the demand for a commodity as its
+price falls, is not governed by any fixed law. Suppose,
+for instance, that the advantage happened to be
+divided equally: this must be because the greater
+cheapness arising from the establishment of the trade,
+either did not affect the demand at all, or affected it
+in an equal proportion on both sides. Now, because
+such is the effect of the degree of increased cheapness
+resulting from importation burthened with cost of carriage,
+it would not follow that the still greater degree
+of cheapness, produced by the additional saving of the
+cost of carriage itself, would also affect the demand of
+both countries in precisely an equal degree. But we
+cannot be said to bear an expense, which, if saved,
+would be saved to somebody else, and not to us. Two
+countries may have equal shares of the clear benefit of
+the trade, while, if the cost of carriage were saved,
+they would divide that saving unequally. If so, they
+divide the gross gain in one unequal ratio, the cost in
+another unequal ratio, though their shares of the cost
+being deducted from their shares of the gain leave
+equal remainders.</p>
+
+<p>4. The question naturally suggests itself, whether
+any country, by its own legislative policy, can engross
+to itself a larger share of the benefits of foreign commerce,
+than would fall to it in the natural or spontaneous
+course of trade.</p>
+
+<p>The answer is, it can. By taxing exports, for
+instance, we may, under certain circumstances, produce
+a division of the advantage of the trade more
+favourable to ourselves. In some cases, we may draw
+into our coffers, at the expense of foreigners, not only
+the whole tax, but more than the tax: in other cases,
+we should gain exactly the tax,&mdash;in others, less than
+the tax. In this last case, a part of the tax is borne
+by ourselves: possibly the whole, possibly even, as we
+shall show, more than the whole.</p>
+
+<p>Suppose that England taxes her export of cloth:
+the tax not being supposed high enough to induce
+Germany to produce cloth for herself. The price at
+which cloth can be sold in Germany is augmented by
+the tax. This will probably diminish the quantity
+consumed. It may diminish it so much, that even at
+the increased price, there will not be required so great
+a money value as before. It may diminish it in such
+a ratio, that the money value of the quantity consumed
+will be exactly the same as before. Or it may not
+diminish it at all, or so little, that, in consequence of
+the higher price, a greater money value will be purchased
+than before. In this last case, England will
+gain, at the expense of Germany, not only the whole
+amount of the duty, but more. For the money value
+of her exports to Germany being increased, while her
+imports remain the same, money will flow into England
+from Germany. The price of cloth will rise in England,
+and consequently in Germany; but the price of
+linen will fall in Germany, and consequently in England,
+We shall export less cloth, and import more
+linen, till the equilibrium is restored. It thus appears,
+what is at first sight somewhat remarkable, that, by
+taxing her exports, England would, under some conceivable
+circumstances, not only gain from her foreign
+customers the whole amount of the tax, but would also
+get her imports cheaper. She would get them cheaper
+in two ways,&mdash;for she would obtain them for less
+money, and would have more money to purchase them
+with. Germany, on the other hand, would suffer
+doubly: she would have to pay for her cloth a price
+increased not only by the duty, but by the influx
+of money into England, while the same change in the
+distribution of the circulating medium would leave
+her less money to purchase it with.</p>
+
+<p>This, however, is only one of three possible cases.
+If, after the imposition of the duty, Germany requires
+so diminished a quantity of cloth, that its total money
+value is exactly the same as before, the balance of
+trade will be undisturbed; England will gain the duty,
+Germany will lose it, and nothing more. If, again,
+the imposition of the duty occasions such a falling off
+in the demand, that Germany requires a less pecuniary
+value than before, our exports will no longer pay for
+our imports, money must pass from England into
+Germany, and Germany's share of the advantage of the
+trade will be increased. By the change in the distribution
+of money, cloth will fall in England; and therefore
+it will, of course, fall in Germany. Thus Germany
+will not pay the whole of the tax. From the same
+cause, linen will rise in Germany, and consequently in
+England. When this alteration of prices has so adjusted
+the demand, that the cloth and the linen again
+pay for one another, the result is, that Germany has
+paid only a part of the tax, and the remainder of what
+has been received into our treasury has come indirectly
+out of the pockets of our own consumers of
+linen, who pay a higher price for that imported commodity,
+in consequence of the tax on our exports, which
+at the same time they, in consequence of the efflux of
+money and consequent fall of prices, have smaller
+money incomes wherewith to pay for the linen at that
+advanced price.</p>
+
+<p>It is not an impossible supposition that, by taxing
+our exports, we might not only gain nothing from
+the foreigner, the tax being paid out of our own
+pockets, but might even compel our own people to
+pay a second tax to the foreigner. Suppose, as before,
+that the demand of Germany for cloth falls off so
+much on the imposition of the duty, that she requires
+a smaller money value than before, but that the case
+is so different with linen in England, that when the
+price rises the demand either does not fall off at all, or
+so little that the money value required is greater than
+before. The first effect of laying on the duty is, as
+before, that the cloth exported will no longer pay for
+the linen imported. Money will, therefore, flow out
+of England into Germany. One effect is to raise the
+price of linen in Germany, and, consequently, in England.
+But this, by the supposition, instead of stopping
+the efflux of money, only makes it greater, because the
+higher the price, the greater the money value of the
+linen consumed. The balance, therefore, can only be
+restored by the other effect, which is going on at the
+same time, namely, the fall of cloth in the English,
+and, consequently, in the German market. Even
+when cloth has fallen so low that its price with the
+duty is only equal to what its price without the duty
+was at first, it is not a necessary consequence that the
+fall will stop; for the same amount of exportation as
+before will not now suffice to pay the increased money
+value of the imports; and although the German consumers
+have now not only cloth at the old price, but
+likewise increased money incomes, it is not certain
+that they will be inclined to employ the increase of
+their incomes in increasing their purchases of cloth.
+The price of cloth, therefore, must perhaps fall, to
+restore the equilibrium, more than the whole amount
+of the duty; Germany may be enabled to import
+cloth at a lower price when it is taxed, than when it
+was untaxed: and this gain she will acquire at the
+expense of the English consumers of linen, who, in
+addition, will be the real payers of the whole of what
+is received at their own custom-house under the name
+of duties on the export of cloth.</p>
+
+<p>Such are the extremely various effects which may
+result to ourselves, and to our customers, from the imposition
+of taxes on our exports <a name="FNanchor3"></a><a href="#Footnote_3"><sup>[3]</sup></a>: and the determining
+circumstances are of a nature so imperfectly ascertainable,
+that it must be almost impossible to decide
+with any certainty, even after the tax has been imposed,
+whether we have been gainers by it or losers.
+It is certain, however, that whatever we gain, is lost
+by somebody else, and there is the expense of the
+collection besides: if international morality, therefore,
+were rightly understood and acted upon, such taxes,
+as being contrary to the universal weal, would not
+exist. Moreover, the imposition of such a tax frequently
+will, and always may, expose a country to lose
+this branch of its trade altogether, or to carry it on with
+diminished advantage, in consequence of the competition
+of untaxed exporters from other countries, or
+of the domestic producers in the country to which it
+exports. Even on the most selfish principles, therefore,
+the benefit of such a tax is always extremely precarious.</p>
+
+<p>5. We have had an example of a tax on exports,
+that is, on foreigners, falling in part on ourselves. We
+shall, therefore, not be surprised if we find a tax on
+imports, that is, on ourselves, partly falling upon
+foreigners.</p>
+
+<p>Instead of taxing the cloth which we export, suppose
+that we tax the linen which we import. The
+duty which we are now supposing must not be what is
+termed a protecting duty, that is, a duty sufficiently
+high to induce us to produce the article at home. If
+it had this effect, it would destroy entirely the trade
+both in cloth and in linen, and both countries would
+lose the whole of the advantage which they previously
+gained by exchanging those commodities with one
+another. We suppose a duty which might diminish
+the consumption of the article, but which would not
+prevent us from continuing to import, as before, whatever
+linen we did consume.</p>
+
+<p>The equilibrium of trade would be disturbed if
+the imposition of the tax diminished in the slightest
+degree the quantity of linen consumed. For, as the
+tax is levied at our own custom-house, the German
+exporter only receives the same price as formerly,
+though the English consumer pays a higher one. If,
+therefore, there be any diminution of the quantity
+bought, although a larger sum of money may be
+actually laid out in the article, a smaller one will be
+due from England to Germany: this sum will no
+longer be an equivalent for the sum due from Germany
+to England for cloth, the balance therefore must
+be paid in money. Prices will fall in Germany, and
+rise in England; linen will fall in the German market;
+cloth will rise in the English. The Germans will pay
+higher price for cloth, and will have smaller money
+incomes to buy it with; while the English will obtain
+linen cheaper, that is, its price will exceed what it
+previously was by less than the amount of the duty,
+while their means of purchasing it will be increased
+by the increase of their money incomes.</p>
+
+<p>If the imposition of the tax does not diminish the
+demand, it will leave the trade exactly as it was
+before. We shall import as much, and export as
+much; the whole of the tax will be paid out of our
+own pockets.</p>
+
+<p>But the imposition of a tax on a commodity,
+almost always diminishes the demand more or less;
+and it can never, or scarcely ever increase the demand.
+It may, therefore, be laid down as a principle, that a
+tax on imported commodities, when it really operates
+as a tax, and not as a prohibition, either total or
+partial, almost always falls in part upon the foreigners
+who consume our goods: and that this is a mode in
+which a nation may be almost sure of appropriating to
+itself, at the expense of foreigners, a larger share than
+would otherwise belong to it of the increase in the
+general productiveness of the labour and capital of
+the world, which results from the interchange of
+commodities among nations.</p>
+
+<p>It is scarcely necessary to observe, that no such
+advantage can result from the duty, if it operate as a
+protecting duty; if it induce the country which imposes
+it, to produce for herself that which she would
+otherwise have imported. The saving of labour&mdash;the
+increase in the general productiveness of the capital
+of the world&mdash;which is the effect of commerce,
+and which a non-protecting duty would enable the
+country imposing it to engross, could not be engrossed
+by a protecting duty, because such a duty prevents
+any such increased production from existing.</p>
+
+<p>With a view to practical legislation, therefore,
+duties on importation may be divided into two classes:
+those which have the effect of encouraging some particular
+branch of domestic industry, and those which
+have not.</p>
+
+<p>The former are purely mischievous, both to the
+country imposing them, and to those with whom it
+trades. They prevent a saving of labour and capital,
+which, if permitted to be made, would be divided in
+some proportion or other between the importing
+country and the countries which buy what that
+country does or might export.</p>
+
+<p>The other class of duties are those which do not
+encourage one mode of procuring an article at the
+expense of another, but allow interchange to take place
+just as if the duty did not exist&mdash;and to produce the
+saving of labour which constitutes the motive to international
+as to all other commerce. Of this kind, are
+duties on the importation of any commodity which
+could not by any possibility be produced at home;
+and duties not sufficiently high to counterbalance the
+difference of expense between the production of the
+article at home, and its importation. Of the money
+which is brought into the treasury of any country by
+taxes of this last description, a part only is paid by
+the people of that country; the remainder by the
+foreign consumers of their goods.</p>
+
+<p>Nevertheless, this latter kind of taxes are in principle
+as ineligible as the former, although not precisely
+on the same ground. A protecting duty can never be
+a cause of gain, but always and necessarily of loss, to
+the country imposing it, just so far as it is efficacious
+to its end. A non-protecting duty on the contrary
+would, in most cases, be a source of gain to the
+country imposing it, in so far as throwing part of the
+weight of its taxes upon other people is a gain; but
+it would be a means of gain which it could seldom
+be advisable to adopt, being so easily counteracted by
+a precisely similar proceeding on the other side.</p>
+
+<p>If England, in the case already supposed, sought to
+obtain for herself more than her natural share of the
+advantage of the trade with Germany, by imposing a
+duty upon cloth, Germany would only have to impose
+a duty upon linen, sufficient to diminish the demand
+for that article about as much as the demand for cloth
+had been diminished in England by the tax. Things
+would then be as before, and each country would pay
+its own tax. Unless, indeed, the sum of the two duties
+exceeded the entire advantage of the trade; for in that
+case the trade, and its advantage, would cease entirely.</p>
+
+<p>There would be no advantage, therefore, in imposing
+duties of this kind, with a view to gain by
+them, in the manner which has been pointed out.
+But so long as any other kind of taxes on commodities
+are retained, as a source of revenue, these may often
+be as unobjectionable as the rest. It is evident, moreover,
+that considerations of reciprocity, which are
+quite unessential when the matter in debate is a protecting
+duty, are of material importance when the
+repeal of duties of this other description is discussed.
+A country cannot be expected to renounce the power
+of taxing foreigners, unless foreigners will in return
+practise towards itself the same forbearance. The
+only mode in which a country can save itself from
+being a loser by the duties imposed by other countries
+on its commodities, is to impose corresponding duties
+on theirs. Only it must take care that these duties
+be not so high as to exceed all that remains of the
+advantage of the trade, and put an end to importation
+altogether; causing the article to be either produced
+at home, or imported from another and a dearer
+market.</p>
+
+<p>It is not necessary to apply the principles which
+we have stated to the case of bounties on exportation
+or importation. The application is easy, and the
+conclusions present nothing of particular interest or
+importance.</p>
+
+<p>6. Any cause which alters the exports or imports
+from one country into another, alters the division of
+the advantage of interchange between those two countries.
+Suppose the discovery of a new process, by
+which some article of export, or some article not previously
+exported, can be produced so cheap as to
+occasion a great demand for it in other countries. This
+of course produces a great influx of money from other
+countries, and lowers the prices of all articles imported
+from them, until the increase of importation
+produced by this cause has restored the equilibrium.
+Thus, the country which acquires a new article of
+export gets its imports cheaper. This is not a case of
+mere alteration in the division of the advantage; it is
+a new advantage created by the discovery.</p>
+
+<p>But suppose that the invention, to which the
+nation is indebted for this increase of the return to
+its industry, comes into use also in the other country,
+and that the process is one which can be as perfectly
+and as cheaply performed in the one country as in the
+other. The new exportation will cease; trade will
+revert to its old channels, the money which flowed in
+will again flow out, and the country which invented
+the process will lose that increase of its gain by trade,
+which it had derived from the discovery.</p>
+
+<p>Now the exportation of machinery comes within
+the case which we have just described.</p>
+
+<p>If the fact be, that by allowing to foreigners a
+participation in our machinery, we enable them to
+produce any of our leading articles of export, at a
+lower money price than we can sell those articles, it
+is certain that unless we possess as great an advantage
+in the production of the machinery itself as we have
+in the production of other articles by means of machinery,
+the permitting of its exportation would alter
+to our disadvantage the division of the benefit of
+trade. Our exports being diminished, we should have
+to pay a balance in money. This would raise, in
+foreign countries, the price of everything which we
+import from thence: while our incomes, being reduced
+in money value, would render us less able to buy those
+articles even if they had not risen. The equilibrium
+of exports and imports would only be restored, when
+either some of the latter became so dear that we
+could produce them cheaper at home, or some articles
+not previously exported became exportable from the
+fall of prices. In the one case, we lose the benefit of
+importation altogether, and are obliged to produce at
+home, at a greater cost. In the other case, we continue
+to import, but pay dearer for our imports.</p>
+
+<p>Notwithstanding what has now been observed,
+restrictions on the exportation of machinery are not,
+in our opinion, justifiable, either on the score of
+international morality or of sound policy. It is evidently
+the common interest of all nations that each
+of them should abstain from every measure by which
+the aggregate wealth of the commercial world would
+be diminished, although of this smaller sum total it
+might thereby be enabled to attract to itself a larger
+share. And the time will certainly come when nations
+in general will feel the importance of this rule,
+and will so direct their approbation and disapprobation
+as to enforce observance of it. Moreover, a
+country possessing machines should consider that if a
+similar advantage were extended to other countries,
+they would employ it above all in the production of
+those articles, in which they had already the greatest
+natural advantages; and if the former country would
+be a loser by their improvements in the production of
+articles which it sells, it would gain by their improvements
+in those which it buys. The exportation of
+machinery may, however, be a proper subject for
+adjustment with other nations, on the principle of
+reciprocity. Until, by the common consent of nations,
+all restrictions upon trade are done away, a nation
+cannot be required to abolish those from which she
+derives a real advantage, without stipulating for an
+equivalent.</p>
+
+<p>7. The case which we have just examined, is an
+example in how remarkable a manner every cause
+which materially influences exports, operates upon
+the prices of imports. According to the ancient
+theory of the balance of trade, and to the associations
+of the generality of what are termed practical
+men to this day, the sole benefit derived from commerce
+consists in the exports, and imports are rather
+an evil than otherwise. Political economists, seeing
+the folly of these views, and clearly perceiving that
+the advantage of commerce consists and must consist
+solely of the imports, have occasionally suffered themselves
+to employ language evincing inattention to the
+fact, that exports, though unimportant in themselves,
+are important by their influence on imports. So real
+and extensive is this influence, that every new market
+which is opened for any of our goods, and every
+increase in the demand for our commodities in foreign
+countries, enables us to supply ourselves with foreign
+commodities at a smaller cost.</p>
+
+<p>Let us revert to our earliest and simplest example,
+but which displays the real law of interchange more
+luminously than any formula into which money enters;
+the case of simple barter. We showed, that if at the
+rate of 10 yards of cloth for 17 of linen, the demand
+of Germany amounted to 1000 times 10 yards of
+cloth, the two nations will trade together at that rate
+of interchange, provided that the linen required in
+England be exactly 1000 times 17 yards, neither
+more nor less. For the cloth and the linen will then
+exactly pay for one another, and nobody on either
+side will be obliged to offer what he has to sell at a
+lower rate, in order to procure what he wants to buy.</p>
+
+<p>Now if the increase of wealth and population in
+Germany should greatly increase the demand in that
+country for cloth, the demand for linen in England
+not increasing in the same ratio,&mdash;if, for instance, Germany
+became willing, at the above rate, to take 1500
+times 10 yards; is it not evident, that to induce
+England to take in exchange for this the only article
+which Germany by supposition has to give, the
+latter must offer it at a rate more advantageous to
+England&mdash;at 18, or perhaps 19 yards, for 10 of cloth?
+So that the division of the advantage becomes more
+and more favourable to a country, in proportion as
+the demand for its commodities increases in foreign
+countries.</p>
+
+<p>It is not even necessary that the country which
+takes its goods, should supply it with any commodity
+whatever. Suppose that a country should be opened
+to our merchants, disposed to buy from us in abundance,
+but which can sell to us scarcely anything, as
+every commodity which it affords could be got cheaper
+by us from some other quarter. Nevertheless, our
+trade with this country will enable us to obtain from
+all other countries their commodities at a lower price.
+At the first opening of this commerce of mere exportation,
+we must have received in payment a large
+quantity of money; for which our customer will have
+been indemnified by other countries, in exchange for
+her commodities. Prices must consequently be lower
+in all other countries, and higher with us, than before
+the opening of the new branch of trade; and we
+therefore obtain the commodities of other countries at
+a less cost, both as we pay less money for them, and
+as that money is lower in value.</p>
+
+<p>8. Another obvious application of the same principle
+will enable us to explain, and to bring within
+the dominion of strict science, the rivality of one
+exporting nation and another, or what is called, in the
+language of the mercantile system, <i>underselling</i>: a subject
+which political economists have taken little
+trouble to elucidate, from the habit before alluded to
+of disregarding almost entirely, in their purely scientific
+inquiries, those circumstances which affect the trade
+of a country by operating immediately upon the
+exports.</p>
+
+<p>Let us revert to our old example, and to our old
+figures. Suppose that the trade between England
+and Germany in cloth and linen is established, and
+that the rate of interchange is 10 yards of cloth for
+17 of linen. Now suppose that there arises in another
+country, in Flanders, for example, a linen manufacture;
+and that the same causes, the working of
+which in England and Germany has made 10 yards
+exchange for 17, would in England and Flanders,
+putting Germany out of the question, have made the
+rate of interchange 10 for 18. It is evident that
+Germany also must give 18 yards of linen for 10 of
+cloth, and so carry on the trade with a diminished
+share of the advantage, or lose it altogether. If the
+play of demand in England and Flanders had made
+the rate of interchange not 10 for 18 but 10 for 21,
+(10 to 20 being in Germany the comparative cost
+of production,) it is evident that Germany could not
+have maintained the competition, and would have
+lost, not part of her share of the advantage, but all
+advantage, and the trade itself.</p>
+
+<p>It would be no answer to say, that Germany could
+probably still have found the means of importing cloth
+from England, by exporting something else. If she
+had purchased cloth with anything else, she would
+have purchased it dearer: as is proved by the fact,
+that having free choice, she found it most advantageous
+to purchase it with linen. When she could
+get 10 yards of cloth for 17 of linen, that was the
+mode in which she could get it with least labour.
+Being pressed by competition, she gave successively
+17, 18, 18; but rather than give 19 yards of linen,
+she perhaps would prefer to give, as costing her rather
+less labour, 10 yards of silk, (which we will suppose
+to be the quantity which in England will purchase 10
+yards of cloth.) It is obvious that, although Germany
+has found the means of supplying herself with
+cloth, by exporting a different article from that in
+which she was undersold, yet the advantage of the
+trade between her and England is now shared in a
+proportion much less favourable to Germany.</p>
+
+<p>There is no difficulty in showing that the same
+series of consequences takes place in exactly the same
+manner through the agency of money. The trade in
+cloth and linen between England and Germany being
+supposed to exist as before, Flanders produces linen at
+a lower price than that at which Germany has hitherto
+afforded it. The exportation from Germany is suspended;
+and Germany, continuing to import cloth, pays
+for it in money. By so doing she lowers her own
+prices, and raises those in England: she has to pay more
+money for cloth, and to pay it in a currency of higher
+value. She thus suffers more and more as a consumer
+of cloth, until by the fall of her prices she can either
+afford to sell linen as cheap as Flanders, or to export
+some other commodity which she could not export
+before. In either case, her trade resumes its course,
+but with diminished advantage on her side. <a name="FNanchor4"></a><a href="#Footnote_4"><sup>[4]</sup></a></p>
+
+<p>It is in the mode just described, that those countries
+which formerly supplied Europe with manufactures,
+but which owed their power of doing so not to
+any natural and permanent advantages, but to their
+more advanced state of civilization as compared with
+other countries, have lost their pre-eminence as other
+countries successively attained an equal degree of
+civilization. Lombardy and Flanders, in the middle
+ages, produced some descriptions of clothing and ornament
+for all Europe: Holland, at a much later
+period, supplied ships, and almost all articles which
+came in ships, to most other parts of the world. All
+these countries have probably at this moment a much
+larger amount of capital than ever they had, but
+having been undersold by other countries, they have
+lost by far the greater part of the share which they
+had engrossed to themselves of the benefit which the
+world derives from commerce; and their capital yields
+to them in consequence a smaller proportional return.
+We are aware that other causes have contributed to
+the same effect, but we cannot doubt that this is a
+principal one.</p>
+
+<p>As much as is really true of the great returns
+alleged to have been made to capital during the last
+war, must have arisen from a similar cause. Our
+exclusive command of the sea excluded from the
+market all by whom we should have been undersold.</p>
+
+<p>The adoption by France, Russia, the Netherlands,
+and the United States, of a more severely restrictive
+commercial policy, subsequently to 1815, has
+done great injury undoubtedly to those countries; for
+the duties which they have established are intended
+to be, and really are, of the class termed <i>protecting</i>;
+that is to say, such as force the production of commodities
+by more costly processes at home, instead
+of suffering them to be imported from abroad. But
+these duties, though chiefly injurious to the countries
+imposing them, have also been highly injurious to
+England. By diminishing her exportation, or preventing
+it from increasing as it would otherwise have
+done, they have kept up the prices of all imported
+commodities in England, above what those prices
+would have fallen to if trade had been left free.</p>
+
+<p>By another obvious application of the same reasoning,
+it will be seen, that there is a real foundation
+for the notion, that a country may be benefited
+by receiving from another country the concession of
+what used to be termed commercial advantages, or
+by restraining its colonies from purchasing goods of
+any country except itself. In the figured illustration
+last used (p. 34) [not available, M.D.], it is evident, that if England had
+been bound by a treaty with Germany to buy linen
+exclusively from her, Germany would have retained
+the trade which we supposed her to lose, and would
+have continued to purchase cloth at a comparatively
+cheap rate from England, instead of producing it by a
+more costly process at home. Suppose that England
+had been a colony of Germany, and we see that by
+compelling colonies to deal at her shop, she may obtain
+a real advantage, though of a nature which we
+may hazard the assertion that the founders of our
+colonial policy little dreamt of.</p>
+
+<p>Such an advantage, however, being gained at the
+expense of another country, is, at the least, simply
+equivalent to a tax, or tribute. Now, if a country has
+just grounds, or deems superiority of power a sufficient
+ground, for exacting a tribute from another
+country, the most direct mode is the best. First,
+because it is the most intelligible, and has least of
+trick or disguise. Secondly, because it allows the
+people of the country paying the tribute, to raise the
+money in whatever way they consider least oppressive
+to themselves. Thirdly, because the indirect mode of
+taxing a country, by restrictions on its commerce, disturbs
+the distribution of industry most advantageous
+to the world at large, and occasions a greater loss to
+the restricted country, and to the other countries
+with which that country would have traded, than
+gain to the country in whose favour the restrictions
+are imposed. And lastly, because a country never
+could obtain such privileges from an independent
+nation, and has seldom been so undisguised an oppressor
+as to demand them even from its colonies,
+without subjecting itself to restrictions in some degree
+equivalent, for the benefit of those whom it has
+thus taxed. Each country, therefore, usually pays
+tribute to the other; and to produce this fruitless
+reciprocity of exaction, the industry and trade of both
+countries are diverted from the most advantageous
+channels, and the return to the labour and capital of
+both is diminished, in pure loss.</p>
+
+<p>9. The same principles which have led to the
+above conclusions, also suggest a remark of some
+importance with respect to the probable effect of a
+change from a restricted to a comparatively free
+trade.</p>
+
+<p>There is no doubt that our prohibiting the importation
+of a particular article, which, but for the prohibition,
+would have been imported, enables us to
+obtain our other imports at smaller cost. The article
+for which we have the greatest demand, and for
+which our demand is most increased by cheapness, is
+that which we should naturally import preferably to
+any other; now of this article we should import the
+quantity necessary to pay for our exports, on terms of
+interchange less advantageous to us than in the case
+of any other commodity. If our legislature prohibits
+this commodity, the other country will be obliged to
+offer any other article on easier terms, in order to
+force a sufficient demand for it to be an equivalent to
+what she purchases from us.</p>
+
+<p>The steps of the process, money being used, would
+be these:&mdash;We prohibit the importation of linen.
+The exportation of cloth continues, but is paid for in
+money. Our prices rise, those in Germany fall, until
+silk, or some other article, can be imported from
+Germany cheaper than it can be produced at home,
+and in sufficient abundance to balance the export of
+cloth. Thus by sacrificing the cheapness of one commodity,
+we gain the cheapness of another: but we
+sacrifice a greater cheapness to gain a less, and we
+sacrifice cheapness in the article which we most want,
+and would import by preference, while our compensation
+is cheapness in an article which we either could
+produce more advantageously at home, or which we
+have so little desire for, that it requires a species of
+bounty on the article to create a demand.</p>
+
+<p>Restrictions on importation do, however, tend to
+keep down the value and price of our remaining imports,
+and to keep up the nominal or money prices
+of all our other commodities, by retaining a greater
+quantity of money in the country than would otherwise
+be there. From this it obviously follows, that if
+the restrictions were removed, we should have to pay
+rather more for some of the articles which we now
+import, while those which we are now prevented from
+importing would cost us more than might be inferred
+from their <i>present</i> price in the foreign market. And
+general prices would fall; to the benefit of those who
+have fixed sums to receive; to the disadvantage of
+those who have fixed sums to pay; and giving rise, as
+a general fall of prices always does, to an appearance,
+though a temporary and fallacious one, of general
+distress <a name="FNanchor5"></a><a href="#Footnote_5"><sup>[5]</sup></a>.</p>
+
+<p>It is right to observe that the measures of the
+British Legislature which have been falsely characterised
+as measures of free trade, must, from their extremely
+insignificant extent, have produced far too
+little effect in increasing our importation, to have
+actually led, in any degree worth mentioning, to the
+results specified above.</p>
+
+<p>It is of greater importance to take notice, that these
+effects may be entirely obviated, if foreign countries
+can be prevailed upon simultaneously to relax their
+restrictive systems, so as to create an immediate increase
+of demand for our exports at the present prices.
+It is true that exports and imports must, in the end,
+balance one another, and if we increase our imports,
+our exports will of necessity increase too. But it is a
+forced increase, produced by an efflux of money and fall
+of prices; and this fall of prices being permanent,
+although it would be no evil at all in a country where
+credit is unknown, it may be a very serious one where
+large classes of persons, and the nation itself, are under
+engagements to pay fixed sums of money of large
+amount.</p>
+
+<p>10. The only remaining application of the principle
+set forth in this essay, which we think it of importance
+to notice specially, is the effect produced upon a country
+by the annual payment of a tribute or subsidy to a
+foreign power, or by the annual remittance of rents to
+absentee landlords, or of any other kind of income to
+its absent owners. Remittances to absentees are often
+very incorrectly likened in their general character to
+the payment of a tribute; from which they differ in this
+very material circumstance, that tribute, if not paid to
+a foreign country, is not paid at all, whereas rents
+are paid to the landlord, and consumed by him, even
+if he resides at home. The two kinds of payment,
+however, have a perfect resemblance to each other in
+such parts of their effects as we are about to point
+out.</p>
+
+<p>The tribute, subsidy, or remittance, is always in
+goods; for, unless the country possesses mines of the
+precious metals, and numbers those metals among its
+regular articles of export, it cannot go on, year after
+year, parting with them, and never receiving them
+back. When a nation has regular payments to make
+in a foreign country, for which it is not to receive any
+return, its exports must annually exceed its imports by
+the amount of the payments which it is bound so to
+make. In order to force a demand for its exports
+greater than its imports will suffice to pay for, it must
+offer them at a rate of interchange more favourable to
+the foreign country, and less so to itself, than if it had
+no payments to make beyond the value of its imports.
+It therefore carries on the trade with less advantage, in
+consequence of the obligations to which it is subject
+towards persons resident in foreign countries.</p>
+
+<p>The steps of the process are these. The exports and
+imports being in equilibrium, suppose a treaty to be
+concluded, by which the country binds itself to pay in
+tribute to another country, a certain sum annually. It
+makes, perhaps, the first payment by a remittance of
+money. This lowers prices in the paying country, and
+raises them in the receiving one: the exports of the
+tributary country increase, its imports diminish. When
+the efflux of money has altered prices in the requisite
+degree, the exports exceed the imports annually, by the
+amount of the tribute; and the latter, being added to
+the sum of the payments due, restores the balance of
+payments between the two countries. The result to
+the tributary country is a diminution of her share in
+the advantage of foreign trade. She pays dearer for
+her imports, in two ways, because she pays more
+money, and because that money is of higher value,
+the money incomes of her inhabitants being of smaller
+amount.</p>
+
+<p>Thus the imposition of a tribute is a double burthen
+to the country paying it, and a double gain to
+that which receives it. The tributary country pays to
+the other, first, the tax, whatever be its amount, and
+next, something more, which the one country loses in
+the increased cost of its imports, the other gains in the
+diminished cost of its own.</p>
+
+<p>Absenteeism, moreover, though not burthensome
+in the former of these ways, since the money is paid
+whether the receiver be an absentee or not, is yet
+disadvantageous in the second of the two modes which
+have been mentioned. Ireland pays dearer for her imports
+in consequence of her absentees; a circumstance
+which the assailants of Mr. M'Culloch, whether political
+economists or not, have not, we believe, hitherto
+thought of producing against him.</p>
+
+<p>11. If the question be now asked, which of the
+countries of the world gains most by foreign commerce,
+the following will be the answer.</p>
+
+<p>If by gain be meant advantage, in the most enlarged
+sense, that country will generally gain the most,
+which stands most in need of foreign commodities.</p>
+
+<p>But if by gain be meant saving of labour and
+capital in obtaining the commodities which the country
+desires to have, whatever they may be; the country
+will gain, not in proportion to its own need of foreign
+articles, but to the need which foreigners have of the
+articles which itself produces.</p>
+
+<p>Let us take, as an illustration of our meaning, the
+case of France and England. Those two nations, in
+consequence of the restrictions with which they have
+loaded their commercial intercourse, carry on so little
+trade with each other, as may almost, regard being had
+to the wealth and population of the two countries,
+be called none at all. If these fetters were at once
+taken off, which of the two countries would be the
+greatest gainer? England without doubt. There would
+instantly arise in France an immense demand for the
+cottons, woollens, and iron of England; while wines,
+brandies, and silks, the staple articles of France, are
+less likely to come into general demand here, nor would
+the consumption of such productions, it is probable, be
+so rapidly increased by the fall of price. The fall would
+probably be very great before France could obtain a
+vent in England for so much of her exports as would
+suffice to pay for the probable amount of her imports.
+There would be a considerable flow of the precious
+metals out of France into England. The English
+consumer of French wine would not merely save the
+amount of the duty which that wine now pays, but
+would find the wine itself falling-in prime cost, while
+his means of purchasing it would be increased by the
+augmentation of his own money income. The French
+consumer of English cottons, on the contrary, would
+not long continue to be able to purchase them at the
+price they now sell for in England. He would gain
+less, as the English would gain more, than might
+appear from a mere comparison between the present
+prices of commodities in the two countries.</p>
+
+<p>Various consequences would flow from opening the
+trade between France and England, which are not expected,
+either by the friends or by the opponents of the
+present restrictive system. The wine-growers of France,
+who imagine that free trade would relieve their distress
+by raising the price of their wine, might not improbably
+find that price actually lowered. On the other
+hand, our silk manufacturers would be surprised if they
+were told that the free admission of our cottons and
+hardware into the French market, would endanger
+<i>their</i> branch of manufacture: yet such might very possibly
+be the effect. France, it is likely, could most
+advantageously pay us in silks for a portion of the large
+amount of cottons and hardware which we should sell
+to her; and though our silk manufacturers may now
+be able to compete advantageously, in some branches
+of the manufacture, with their French rivals, it by no
+means follows that they could do so when the efflux of
+money from France, and its influx into England, had
+lowered the price of silk goods in the French market,
+and increased all the expenses of production here.</p>
+
+<p>On the whole, England probably, of all the countries
+of Europe, draws to herself the largest share of
+the gains of international commerce: because her exportable
+articles are in universal demand, and are of
+such a kind that the demand increases rapidly as the
+price falls. Countries which export food, have the
+former advantage, but not the latter. But our own
+colonies, and the countries which supply us with the
+materials of our manufactures, maintain a hard struggle
+with us for an equal share of the advantages of their
+trade; for <i>their</i> exports are also of a kind for which
+there exists a most extensive demand here, and a demand
+capable of almost indefinite extension by a fall
+of price. Contrary, therefore, to common opinion, it is
+probable that our trade with the colonies, and with the
+countries which send us the raw materials of our national
+industry, is not more but less advantageous to
+us, in proportion to its extent, than our trade with the
+continent of Europe. We mean in respect to the mere
+amount of the return to the labour and capital of the
+country; considered abstractedly from the usefulness
+or agreeableness of the particular articles on which the
+receivers may choose to expend it.</p>
+
+<p class="NO"><b>NOTES:</b></p>
+
+<p><a name="Footnote_1"></a><a href="#FNanchor1">[1]</a><div class=note> <i>Elements of Political Economy</i>, by James Mill, Esq., 3rd
+edit., pp. 120-1.</div><br>
+
+<p><a name="Footnote_2"></a><a href="#FNanchor2">[2]</a><div class=note> The figures used are of course arbitrary, having no reference
+to any existing prices.</div><br>
+
+<p><a name="Footnote_3"></a><a href="#FNanchor3">[3]</a><div class=note> We have not deemed it necessary to enter minutely into all the
+circumstances which might modify the results mentioned in the
+text. For example, let us revert to the first case, that in which
+the demand for cloth in Germany is so little affected by the rise of
+price in consequence of the tax, that the quantity bought exceeds
+in pecuniary value what it was before. As the German consumers
+lay out more money in cloth, they have less to lay out in other things;
+other money prices will fall; among the rest that of linen; and this
+may so increase the demand for linen in England as to restore the
+equilibrium of exports and imports without any passage of money.
+But England's treasury will still gain from Germany the whole of
+the tax, and the English people will buy their linen cheaper
+besides. Again, in the opposite case, where the tax so diminishes
+the demand, that a smaller pecuniary value is required than before.
+The German consumers have, therefore, more to expend in other
+things; these, and among the rest linen, will rise; and this may
+so diminish the demand for linen in England, as to restore the
+equilibrium without the transmission of money. But the effect, as
+respects the division of the advantage, is still as stated in the text.</div><br>
+
+<p><a name="Footnote_4"></a><a href="#FNanchor4">[4]</a><div class=note> The world at large, sellers and buyers taken together, is
+always a gainer by underselling. If, in the case supposed, England
+were compelled by a commercial treaty to exclude the linen of
+Flanders from her market, the total wealth of the world, if affected
+at all, would be diminished.
+<br><br>
+For, what is the cause which enables Flanders to undersell
+Germany? That Flanders, if she had the trade, would exchange
+linen for cloth at a rate of interchange more advantageous to
+England. And why can Flanders do so? It must be either
+because Flanders can produce the article with a less comparative
+quantity of labour than Germany, and therefore the total advantage
+to be divided between the two countries is greater in the case
+of Flanders than of Germany; or else because, though the total
+advantage is not greater, Flanders obtains a less share of it, her
+demand for cloth being greater, at the same rate of interchange,
+than that of Germany. In the former case, to exclude Flemish
+linen from England would be to prevent the world at large from
+making a greater saving of labour instead of a less. In the latter,
+the exclusion would be inefficacious for the only end it could be
+intended for, viz., the benefit of Germany, unless Flemish money
+were excluded from England as well as Flemish linen. For
+Flanders would buy English cloth, paying for it in money, until
+the fall of her prices enabled her to pay for it with something
+else: and the ultimate result would be that, by the rise of prices
+in England, Germany must pay a higher price for her cloth, and
+so lose a part of the advantage in spite of the treaty; while England
+would pay for German linen the same price indeed, but as
+the money incomes of her own people would be increased, the
+same money price would imply a smaller sacrifice.</div><br>
+
+<p><a name="Footnote_5"></a><a href="#FNanchor5">[5]</a><div class=note> This last possible effect of a sudden introduction of free trade,
+was pointed out in an able article on the Silk question, in a work
+of too short duration, the <i>Parliamentary Review</i>.</div><br>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_II"></a><h2>ESSAY II.</h2>
+
+<h2>OF THE INFLUENCE OF CONSUMPTION ON
+PRODUCTION.</h2>
+<br>
+
+<p>Before the appearance of those great writers whose
+discoveries have given to political economy its present
+comparatively scientific character, the ideas universally
+entertained both by theorists and by practical men, on
+the causes of national wealth, were grounded upon
+certain general views, which almost all who have given
+any considerable attention to the subject now justly
+hold to be completely erroneous.</p>
+
+<p>Among the mistakes which were most pernicious
+in their direct consequences, and tended in the greatest
+degree to prevent a just conception of the objects
+of the science, or of the test to be applied to the
+solution of the questions which it presents, was the
+immense importance attached to consumption. The
+great end of legislation in matters of national wealth,
+according to the prevalent opinion, was to create consumers.
+A great and rapid consumption was what
+the producers, of all classes and denominations, wanted,
+to enrich themselves and the country. This object,
+under the varying names of an extensive demand, a
+brisk circulation, a great expenditure of money, and
+sometimes <i>totidem verbis</i> a large consumption, was conceived
+to be the great condition of prosperity.</p>
+
+<p>It is not necessary, in the present state of the science,
+to contest this doctrine in the most flagrantly
+absurd of its forms or of its applications. The utility
+of a large government expenditure, for the purpose of
+encouraging industry, is no longer maintained. Taxes
+are not now esteemed to be &quot;like the dews of heaven,
+which return again in prolific showers.&quot; It is no longer
+supposed that you benefit the producer by taking his
+money, provided you give it to him again in exchange
+for his goods. There is nothing which impresses a
+person of reflection with a stronger sense of the shallowness
+of the political reasonings of the last two centuries,
+than the general reception so long given to a doctrine
+which, if it proves anything, proves that the more you
+take from the pockets of the people to spend on your
+own pleasures, the richer they grow; that the man
+who steals money out of a shop, provided he expends
+it all again at the same shop, is a benefactor to the
+tradesman whom he robs, and that the same operation,
+repeated sufficiently often, would make the
+tradesman's fortune.</p>
+
+<p>In opposition to these palpable absurdities, it was
+triumphantly established by political economists, that
+consumption never needs encouragement. All which
+is produced is already consumed, either for the purpose
+of reproduction or of enjoyment. The person who
+saves his income is no less a consumer than he who
+spends it: he consumes it in a different way; it supplies
+food and clothing to be consumed, tools and
+materials to be used, by productive labourers. Consumption,
+therefore, already takes place to the greatest
+extent which the amount of production admits of;
+but, of the two kinds of consumption, reproductive
+and unproductive, the former alone adds to the national
+wealth, the latter impairs it. What is consumed
+for mere enjoyment, is gone; what is consumed
+for reproduction, leaves commodities of equal value,
+commonly with the addition of a profit. The usual
+effect of the attempts of government to encourage
+consumption, is merely to prevent saving; that is, to
+promote unproductive consumption at the expense of
+reproductive, and diminish the national wealth by the
+very means which were intended to increase it.</p>
+
+<p>What a country wants to make it richer, is never
+consumption, but production. Where there is the latter,
+we may be sure that there is no want of the former.
+To produce, implies that the producer desires to consume;
+why else should he give himself useless labour?
+He may not wish to consume what he himself produces,
+but his motive for producing and selling is the
+desire to buy. Therefore, if the producers generally
+produce and sell more and more, they certainly also
+buy more and more. Each may not want more of
+what he himself produces, but each wants more of what
+some other produces; and, by producing what the other
+wants, hopes to obtain what the other produces. There
+will never, therefore, be a greater quantity produced, of
+commodities in general, than there are consumers for.
+But there may be, and always are, abundance of persons
+who have the inclination to become consumers of
+some commodity, but are unable to satisfy their wish,
+because they have not the means of producing either
+that, or anything to give in exchange for it. The
+legislator, therefore, needs not give himself any concern
+about consumption. There will always be consumption
+for everything which can be produced, until
+the wants of all who possess the means of producing
+are completely satisfied, and then production will not
+increase any farther. The legislator has to look solely
+to two points: that no obstacle shall exist to prevent
+those who have the means of producing, from employing
+those means as they find most for their interest;
+and that those who have not at present the means of
+producing, to the extent of their desire to consume,
+shall have every facility afforded to their acquiring the
+means, that, becoming producers, they may be enabled
+to consume.</p>
+
+<p>These general principles are now well understood
+by almost all who profess to have studied the subject,
+and are disputed by few except those who ostentatiously
+proclaim their contempt for such studies.
+We touch upon the question, not in the hope of rendering
+these fundamental truths clearer than they
+already are, but to perform a task, so useful and needful,
+that it is to be wished it were oftener deemed part
+of the business of those who direct their assaults
+against ancient prejudices,&mdash;that of seeing that no
+scattered particles of important truth are buried and
+lost in the ruins of exploded error. Every prejudice,
+which has long and extensively prevailed among the
+educated and intelligent, must certainly be borne out
+by some strong appearance of evidence; and when
+it is found that the evidence does not prove the received
+conclusion, it is of the highest importance to
+see what it does prove. If this be thought not worth
+inquiring into, an error conformable to appearances
+is often merely exchanged for an error contrary to
+appearances; while, even if the result be truth, it is
+paradoxical truth, and will have difficulty in obtaining
+credence while the false appearances remain.</p>
+
+<p>Let us therefore inquire into the nature of the
+appearances, which gave rise to the belief that a great
+demand, a brisk circulation, a rapid consumption (three
+equivalent expressions), are a cause of national prosperity.</p>
+
+<p>If every man produced for himself, or with his capital
+employed others to produce, everything which he
+required, customers and their wants would be a matter
+of profound indifference to him. He would be rich, if
+he had produced and stored up a large supply of the
+articles which he was likely to require; and poor, if he
+had stored up none at all, or not enough to last until
+he could produce more.</p>
+
+<p>The case, however, is different after the separation
+of employments. In civilized society, a single producer
+confines himself to the production of one commodity,
+or a small number of commodities; and his affluence
+depends, not solely upon the quantity of his commodity
+which he has produced and laid in store, but upon
+his success in finding purchasers for that commodity.</p>
+
+<p>It is true, therefore, of every particular producer
+or dealer, that a great demand, a brisk circulation, a
+rapid consumption, of the commodities which he sells
+at his shop or produces in his manufactory, is important
+to him. The dealer whose shop is crowded
+with customers, who can dispose of a product almost
+the very moment it is completed, makes large profits,
+while his next neighbour, with an equal capital but
+fewer customers, gains comparatively little.</p>
+
+<p>It was natural that, in this case, as in a hundred
+others, the analogy of an individual should be unduly
+applied to a nation: as it has been concluded that a
+nation generally gains in wealth by the conquest of a
+province, because an individual frequently does so by
+the acquisition of an estate; and as, because an individual
+estimates his riches by the quantity of money
+which he can command, it was long deemed an excellent
+contrivance for enriching a country, to heap up
+artificially the greatest possible quantity of the precious
+metals within it.</p>
+
+<p>Let us examine, then, more closely than has usually
+been done, the case from which the misleading analogy
+is drawn. Let us ascertain to what extent the two cases
+actually resemble; what is the explanation of the false
+appearance, and the real nature of the phenomenon
+which, being seen indistinctly, has led to a false conclusion.</p>
+
+<hr style="width: 45%;">
+
+<p>We shall propose for examination a very simple
+case, but the explanation of which will suffice to clear
+up all other cases which fall within the same principle.
+Suppose that a number of foreigners with large incomes
+arrive in a country, and there expend those incomes:
+will this operation be beneficial, as respects the national
+wealth, to the country which receives these immigrants?
+Yes, say many political economists, if they save any
+part of their incomes, and employ them reproductively;
+because then an addition is made to the national
+capital, and the produce is a clear increase of the national
+wealth. But if the foreigner expends all his
+income unproductively, it is no benefit to the country,
+say they, and for the following reason.</p>
+
+<p>If the foreigner had his income remitted to him in
+bread and beef, coats and shoes, and all the other
+articles which he was desirous to consume, it would
+not be pretended that his eating, drinking, and wearing
+them, on our shores rather than on his own, could
+be of any advantage to us in point of wealth. Now,
+the case is not different if his income is remitted to
+him in some one commodity, as, for instance, in money.
+For whatever takes place afterwards, with a view to
+the supply of his wants, is a mere exchange of equivalents;
+and it is impossible that a person should ever
+be enriched by merely receiving an equal value in
+exchange for an equal value.</p>
+
+<p>When it is said that the purchases of the foreign
+consumer give employment to capital which would
+otherwise yield no profit to its owner, the same political
+economists reject this proposition as involving the
+fallacy of what has been called a &quot;general glut.&quot; They
+say, that the capital, which any person has chosen to
+produce and to accumulate, can always find employment,
+since the fact that he has accumulated it proves
+that he had an unsatisfied desire; and if he cannot
+find anything to produce for the wants of other consumers,
+he can for his own.</p>
+
+<p>It is impossible to contest these propositions as
+thus stated. But there is one consideration which
+clearly shews, that there is something more in the
+matter than is here taken into the account; and this
+is, that the above reasoning tends distinctly to prove,
+that it does a tradesman no good to go into his shop
+and buy his goods. How can he be enriched? it might
+be asked. He merely receives a certain value in money,
+for an equivalent value in goods. Neither does this
+give employment to his capital; for there never exists
+more capital than can find employment, and if one person
+does not buy his goods another will; or if nobody
+does, there is over-production in that business, he can
+remove his capital, and find employment for it in
+another trade.</p>
+
+<p>Every one sees the fallacy of this reasoning as
+applied to individual producers. Every one knows
+that as applied to them it has not even the semblance
+of plausibility; that the wealth of a producer does in a
+great measure depend upon the number of his customers,
+and that in general every additional purchaser
+does really add to his profits. If the reasoning, which
+would be so absurd if applied to individuals, be applicable
+to nations, the principle on which it rests
+must require much explanation and elucidation.</p>
+
+<p>Let us endeavour to analyse with precision the
+real nature of the advantage which a producer derives
+from an addition to the number of his customers.</p>
+
+<p>For this purpose, it is necessary that we should
+premise a single observation on the meaning of the
+word capital. It is usually defined, the food, clothing,
+and other articles set aside for the consumption of the
+labourer, together with the materials and instruments
+of production. This definition appears to us peculiarly
+liable to misapprehension; and much vagueness and
+some narrow views have, we conceive, occasionally
+resulted from its being interpreted with too mechanical
+an adherence to the literal meaning of the
+words.</p>
+
+<p>The capital, whether of an individual or of a nation,
+consists, we apprehend, of all matters possessing
+exchangeable value, which the individual or the nation
+has in his or in its possession for the purpose of reproduction,
+and not for the purpose of the owner's
+unproductive enjoyment. All unsold goods, therefore,
+constitute a part of the national capital, and of the
+capital of the producer or dealer to whom they belong.
+It is true that tools, materials, and the articles on
+which the labourer is supported, are the only articles
+which are directly subservient to production: and if I
+have a capital consisting of money, or of goods in
+a warehouse, I can only employ them as means of
+production in so far as they are capable of being
+exchanged for the articles which conduce directly
+to that end. But the food, machinery, &amp;c, which
+will ultimately be purchased with the goods in my
+warehouse, may at this moment not be in the country,
+may not be even in existence. If, after having sold
+the goods, I hire labourers with the money, and set
+them to work, I am surely employing capital, though
+the corn, which in the form of bread those labourers
+may buy with the money, may be now in warehouse
+at Dantzic, or perhaps not yet above ground.</p>
+
+<p>Whatever, therefore, is destined to be employed
+reproductively, either in its existing shape, or indirectly
+by a previous (or even subsequent) exchange, is
+capital. Suppose that I have laid out all the money
+I possess in wages and tools, and that the article
+I produce is just completed: in the interval which
+elapses before I can sell the article, realize the proceeds,
+and lay them out again in wages and tools, will
+it be said that I have no capital? Certainly not: I
+have the same capital as before, perhaps a greater,
+but it is locked up, as the expression is, and not
+disposable.</p>
+
+<p>When we have thus seen accurately what really
+constitutes capital, it becomes obvious, that of the
+capital of a country, there is at all times a very
+large proportion lying idle. The annual produce of
+a country is never any thing approaching in magnitude
+to what it might be if all the resources devoted to
+reproduction, if all the capital, in short, of the country,
+were in full employment.</p>
+
+<p>If every commodity on an average remained unsold
+for a length of time equal to that required for its
+production, it is obvious that, at any one time, no
+more than half the productive capital of the country
+would be really performing the functions of capital.
+The two halves would relieve one another, like the
+semichori in a Greek tragedy; or rather the half which
+was in employment would be a fluctuating portion,
+composed of varying parts; but the result would
+be, that each producer would be able to produce
+every year only half as large a supply of commodities,
+as he could produce if he were sure of
+selling them the moment the production was completed.</p>
+
+<p>This, or something like it, is however the habitual
+state, at every instant, of a very large proportion of all
+the capitalists in the world.</p>
+
+<p>The number of producers, or dealers, who turn
+over their capital, as the expression is, in the shortest
+possible time, is very small. There are few who
+have so rapid a sale for their wares, that all the
+goods which their own capital, or the capital which
+they can borrow, enables them to supply, are carried
+off as fast as they can be supplied. The majority
+have not an <i>extent of business</i>, at all adequate
+to the amount of the capital they dispose of. It is
+true that, in the communities in which industry and
+commerce are practised with greatest success, the
+contrivances of banking enable the possessor of a
+larger capital than he can employ in his own business,
+to employ it productively and derive a revenue from
+it notwithstanding. Yet even then, there is, of necessity,
+a great quantity of capital which remains fixed
+in the shape of implements, machinery, buildings, &amp;c,
+whether it is only half employed, or in complete employment:
+and every dealer keeps a stock in trade, to
+be ready for a possible sudden demand, though he probably
+may not be able to dispose of it for an indefinite
+period.</p>
+
+<p>This perpetual non-employment of a large proportion
+of capital, is the price we pay for the division of
+labour. The purchase is worth what it costs; but
+the price is considerable.</p>
+
+<p>Of the importance of the fact which has just been
+noticed there are three signal proofs. One is, the
+large sum often given for the goodwill of a particular
+business. Another is, the large rent which is paid
+for shops in certain situations, near a great thoroughfare
+for example, which have no advantage except
+that the occupier may expect a larger body of customers,
+and be enabled to turn over his capital more
+quickly. Another is, that in many trades, there are
+some dealers who sell articles of an equal quality at a
+lower price than other dealers. Of course, this is not
+a voluntary sacrifice of profits: they expect by the
+consequent overflow of customers to turn over their
+capital more quickly, and to be gainers by keeping
+the whole of their capital in more constant employment,
+though on any given operation their gains are
+less.</p>
+
+<p>The reasoning cited in the earlier part of this paper,
+to show the uselessness of a mere purchaser or customer,
+for enriching a nation or an individual, applies
+only to the case of dealers who have already as much
+business as their capital admits of, and as rapid a sale
+for their commodities as is possible. To such dealers
+an additional purchaser is really of no use; for, if they
+are sure of selling all their commodities the moment
+those commodities are on sale, it is of no consequence
+whether they sell them to one person or to another.
+But it is questionable whether there be any dealers
+in whose case this hypothesis is exactly verified; and to
+the great majority it is not applicable at all. An additional
+customer, to most dealers, is equivalent to an
+increase of their productive capital. He enables them
+to convert a portion of their capital which was lying
+idle (and which could never have become productive in
+their hands until a customer was found) into wages
+and instruments of production; and if we suppose that
+the commodity, unless bought by him, would not have
+found a purchaser for a year after, then all which a
+capital of that value can enable men to produce during
+a year, is clear gain&mdash;gain to the dealer, or producer,
+and to the labourers whom he will employ, and thus
+(if no one sustains any corresponding loss) gain to the
+nation. The aggregate produce of the country for the
+succeeding year is, therefore, increased; not by the
+mere exchange, but by calling into activity a portion
+of the national capital, which, had it not been for the
+exchange, would have remained for some time longer
+unemployed.</p>
+
+<p>Thus there are actually at all times producers and
+dealers, of all, or nearly all classes, whose capital is
+lying partially idle, because they have not found the
+means of fulfilling the condition which the division of
+labour renders indispensable to the full employment of
+capital,&mdash;viz., that of exchanging their products with
+each other. If these persons could find one another
+out, they could mutually relieve each other from this
+disadvantage. Any two shopkeepers, in insufficient
+employment, who agreed to deal at each other's shops
+so long as they could there purchase articles of as good
+a quality as elsewhere, and at as low a price, would
+render the nation a service. It may be said that they
+must previously have dealt, to the same amount, with
+some other dealers; but this is erroneous, since they
+could only have obtained the means of purchasing by
+being previously enabled to sell. By their compact,
+each would gain a customer, who would call his capital
+into fuller employment; each therefore would obtain
+an increased produce; and they would thus be enabled
+to become better customers to each other than
+they could be to third parties.</p>
+
+<p>It is obvious that every dealer who has not business
+sufficient fully to employ his capital (which is the case
+with all dealers when they commence business, and with
+many to the end of their lives), is in this predicament
+simply for want of some one with whom to exchange his
+commodities; and as there are such persons to about the
+same degree probably in all trades, it is evident that if
+these persons sought one another out, they have their
+remedy in their own hands, and by each other's
+assistance might bring their capital into more full
+employment.</p>
+
+<p>We are now qualified to define the exact nature of
+the benefit which a producer or dealer derives from
+the acquisition of a new customer. It is as follows:&mdash;</p>
+
+<p>1. If any part of his own capital was locked up in
+the form of unsold goods, producing (for a longer
+period or a shorter) nothing at all; a portion of this
+is called into greater activity, and becomes more constantly
+productive. But to this we must add some
+further advantages.</p>
+
+<p>2. If the additional demand exceeds what can be
+supplied by setting at liberty the capital which exists in
+the state of unsold goods; and if the dealer has additional
+resources, which were productively invested (in
+the public funds, for instance), but not in his own trade;
+he is enabled to obtain, on a portion of these, not mere
+interest, but profit, and so to gain that difference between
+the rate of profit and the rate of interest, which
+may be considered as &quot;wages of superintendance.&quot;</p>
+
+<p>3. If all the dealer's capital is employed in his own
+trade, and no part of it locked up as unsold goods, the
+new demand affords him additional encouragement to
+save, by enabling his savings to yield him not merely
+interest, but profit; and if he does not choose to save
+(or until he shall have saved), it enables him to carry
+on an additional business with borrowed capital, and
+so gain the difference between interest and profit, or,
+in other words, to receive wages of superintendance on
+a larger amount of capital.</p>
+
+<p>This, it will be found, is a complete account of all
+the gains which a dealer in any commodity can derive
+from an accession to the number of those who deal
+with him: and it is evident to every one, that these
+advantages are real and important, and that they are
+the cause which induces a dealer of any kind to desire
+an increase of his business.</p>
+
+<p>It follows from these premises, that the arrival of a
+new unproductive consumer (living on his own means)
+in any place, be that place a village, a town, or an
+entire country, is beneficial to that place, if it causes
+to any of the dealers of the place any of the advantages
+above enumerated, without withdrawing an equal
+advantage of the same kind from any other dealer of
+the same place.</p>
+
+<p>This accordingly is the test by which we must try
+all such questions, and by which the propriety of the
+analogical argument, from dealing with a tradesman to
+dealing with a nation, must be decided.</p>
+
+<p>Let us take, for instance, as our example, Paris,
+which is much frequented by strangers from various
+parts of the world, who, as sojourners there, live
+unproductively upon their means. Let us consider
+whether the presence of these persons is beneficial, in
+an <i>industrial</i> point of view, to Paris.</p>
+
+<p>We exclude from the consideration that portion of
+the strangers' incomes which they pay to natives as
+direct remuneration for service, or labour of any description.
+This is obviously beneficial to the country.
+An increase in the funds expended in employing
+labour, whether that labour be productive or unproductive,
+tends equally to raise wages. The condition
+of the whole labouring class is, so far, benefited. It
+is true that the labourers thus employed by sojourners
+are probably, in part or altogether, withdrawn from productive
+employment. But this is far from being an
+evil; for either the situation of the labouring classes is
+improved, which is far more than an equivalent for a
+diminution in mere production, or the rise of wages
+acts as a stimulus to population, and then the number
+of productive labourers becomes as great as before.</p>
+
+<p>To this we may add, that what the sojourners pay
+as wages of labour or service (whether constant or
+casual), though expended unproductively by the first
+possessor, may, when it passes into the hands of the
+receivers, be by them saved, and invested in a productive
+employment. If so, a direct addition is made
+to the national capital.</p>
+
+<p>All this is obvious, and is sufficiently allowed by
+political economists; who have invariably set apart
+the gains of all persons coming under the class of
+domestic servants, as real advantages arising to a place
+from the residence there of an increased number of
+unproductive consumers.</p>
+
+<p>We have only to examine whether the purchases of
+commodities by these unproductive consumers, confer
+the same kind of benefit upon the village, town, or
+nation, which is bestowed upon a particular tradesman
+by dealing at his shop.</p>
+
+<p>Now it is obvious that the sojourners, on their arrival,
+confer the benefit in question upon some dealers,
+who did not enjoy it before. They purchase their food,
+and many other articles, from the dealers in the place.
+They, therefore, call the capital of some dealers, which
+was locked up in unsold goods, into more active employment.
+They encourage them to save, and enable
+them to receive wages of superintendance upon a larger
+amount of capital. These effects being undeniable, the
+question is, whether the presence of the sojourners
+deprives any others of the Paris dealers of a similar
+advantage.</p>
+
+<p>It will be seen that it does; and nothing will then
+remain but a comparison of the amounts.</p>
+
+<p>It is obvious to all who reflect (and was shown in
+the paper which precedes this) that the remittances to
+persons who expend their incomes in foreign countries
+are, after a slight passage of the precious metals, defrayed
+in commodities: and that the result commonly
+is, an increase of exports and a diminution of imports,
+until the latter fall short of the former by the amount
+of the remittances.</p>
+
+<p>The arrival, therefore, of the strangers (say from
+England), while it creates at Paris a market for commodities
+equivalent in value to their funds, displaces in
+the market other commodities to an equal value. To
+the extent of the increase of exports from England
+into France in the way of remittance, it introduces
+additional commodities which, by their cheapness, displace
+others formerly produced in that country. To
+the extent of the diminution of imports into England
+from France, commodities which existed or which
+were habitually produced in that country are deprived
+of a market, or can only find one at a price not sufficient
+to defray the cost.</p>
+
+<p>It must, therefore, be a matter of mere accident, if
+by arriving in a place, the new unproductive consumer
+causes any net advantage to its industry, of the kind
+which we are now examining. Not to mention that
+this, like any other change in the channels of trade,
+may render useless a portion of fixed capital, and so
+far injure the national wealth.</p>
+
+<p>A distinction, however, must here be made.</p>
+
+<p>The place to which the new unproductive consumers
+have come, may be a town or village, as well
+as a country. If a town or village, it may either be or
+not be a place having an export trade.</p>
+
+<p>If the place had no previous trade except with the
+immediate neighbourhood, there are no exports and
+imports, by the new arrangement of which, the remittance
+can be made. There is no capital, formerly
+employed in manufacturing for the foreign market,
+which is now brought into less full employment.</p>
+
+<p>Yet the remittance evidently is still made in
+commodities, but in this case without displacing any
+which were produced before. To shew this, it is necessary
+to make the following remarks.</p>
+
+<p>The reason why towns exist, is that <i>ceteris paribus</i> it
+is convenient, in order to save cost of carriage, that the
+production of commodities should take place as far as
+practicable in the immediate vicinity of the consumer.
+Capital finds its way so easily from town to country and
+from country to town, that the amount of capital in the
+town will be regulated wholly by the amount which
+can be employed there more conveniently than elsewhere.
+Consequently the capital of a place will be
+such as is sufficient</p>
+
+<p>1st. To produce all commodities which from local
+circumstances can be produced there at less cost than
+elsewhere: and if this be the case to any great extent,
+it will be an exporting town. When we say <i>produced</i>,
+we may add, or <i>stored</i>.</p>
+
+<p>2nd. To produce and retail the commodities which
+are consumed by the inhabitants of the town, and the
+place of whose production is in other respects a matter
+of indifference. To the inhabitants of the town must
+be added such dwellers in the adjoining country, as
+are nearer to that place than to any other equally well
+furnished market.</p>
+
+<p>Now, if new unproductive consumers resort to the
+place, it is clear that for the latter of these two purposes,
+more capital will be required than before. Consequently,
+if less is not required for the former purpose,
+more capital will establish itself at the place.</p>
+
+<p>Until this additional capital has arrived, the producers
+and dealers already on the spot will enjoy great
+advantages. Every particle of their own capital will
+be called into the most active employment. What
+their capital does not enable them to supply, will be
+got from others at a distance, who cannot supply it on
+such favourable terms; consequently they will be in the
+predicament of possessing a partial monopoly&mdash;receiving
+for every thing a price regulated by a higher cost of
+production than they are compelled to pay. They also,
+being in possession of the market, will be enabled to
+make a large portion of the new capital pass through
+their hands, and thus to earn wages of superintendance
+upon it.</p>
+
+<p>If, indeed, the place from whence the strangers
+came, previously traded with that where they have
+taken up their abode, the effect of their arrival is, that
+the exports of the town will diminish, and that it will
+be supplied from abroad with something which it previously
+produced at home. In this way an amount of
+capital will be set free equal to that required, and there
+will be no increase on the whole. The removal of the
+court from London to Birmingham would not necessarily,
+though it would probably <a name="FNanchor6"></a><a href="#Footnote_6"><sup>[6]</sup></a>, increase the amount
+of capital in the latter place. The afflux of money to
+Birmingham, and its efflux from London, would render
+it cheaper to make some articles in London for Birmingham
+consumption; and to make others in London
+for home consumption, which were formerly brought
+from Birmingham.</p>
+
+<p>But instead of Birmingham, an exporting town,
+suppose a village, or a town which only produced and
+retailed for itself and its immediate vicinity. The
+remittances must come thither in the shape of money;
+and though the money would not remain, but would be
+sent away in exchange for commodities, it would, however,
+first pass through the hands of the producers and
+dealers in the place, and would by them be exported in
+exchange for the articles which they require&mdash;viz. the
+materials, tools, and subsistence necessary for the increased
+production now required of them, and articles
+of foreign luxury for their own increased unproductive
+consumption. These articles would not displace any
+formerly made in the place, but on the contrary, would
+forward the production of more.</p>
+
+<p>Hence we may consider the following propositions
+as established:</p>
+
+<p>1. The expenditure of absentees (the case of domestic
+servants excepted,) is not necessarily any loss to the
+<i>country</i> which they leave, or gain to the <i>country</i> which
+they resort to (save in the manner shown in Essay I.):
+for almost every <i>country</i> habitually exports and imports
+to a much greater value than the incomes of its absentees,
+or of the foreign sojourners within it.</p>
+
+<p>2. But sojourners often do much good to the <i>town</i>
+or village which they resort to, and absentees harm to
+that which they leave. The capital of the petty
+tradesman in a small town near an absentee's estate,
+is deprived of the market for which it is conveniently
+situated, and must resort to another to which other
+capitals lie nearer, and where it is consequently outbid,
+and gains less; obtaining only the same price, with
+greater expenses. But this evil would be equally
+occasioned, if, instead of going abroad, the absentee
+had removed to his own capital city.</p>
+
+<p>If the tradesman could, in the latter case, remove
+to the metropolis, or in the former, employ himself
+in producing increased exports, or in producing for
+home consumption articles now no longer imported,
+each in the place most convenient for that operation;
+he would not be a loser, though the place which he
+was obliged to leave might be said to lose.</p>
+
+<p>Paris undoubtedly gains much by the sojourn of
+foreigners, while the counteracting loss by diminution
+of exports from France is suffered by the great
+trading and manufacturing towns, Rouen, Bordeaux,
+Lyons, &amp;c, which also suffer the principal part of the
+loss by importation of articles previously produced
+at home. The capital thus set free, finds its most convenient
+seat to be Paris, since the business to which
+it must turn is the production of articles to be unproductively
+consumed by the sojourners.</p>
+
+<p>The great trading towns of France would undoubtedly
+be more flourishing, if France were not frequented
+by foreigners.</p>
+
+<p>Rome and Naples are perhaps purely benefited by
+the foreigners sojourning there: for they have so little
+external trade, that their case may resemble that of the
+village in our hypothesis.</p>
+
+<p>Absenteeism, therefore, (except as shown in the first
+Essay,) is a local, not a national evil; and the resort of
+foreigners, in so far as they purchase for unproductive
+consumption, is not, in any commercial country, a national,
+though it may be a local good.</p>
+
+<p>From the considerations which we have now
+adduced, it is obvious what is meant by such phrases
+as a <i>brisk demand</i>, and a rapid circulation. There is a
+brisk demand and a rapid circulation, when goods,
+generally speaking, are sold as fast as they can be
+produced. There is slackness, on the contrary, and
+stagnation, when goods, which have been produced,
+remain for a long time unsold. In the former case,
+the capital which has been locked up in production is
+disengaged as soon as the production is completed;
+and can be immediately employed in further production.
+In the latter case, a large portion of the
+productive capital of the country is lying in temporary
+inactivity.</p>
+
+<p>From what has been already said, it is obvious that
+periods of &quot;brisk demand&quot; are also the periods of
+greatest production: the national capital is never called
+into full employment but at those periods. This,
+however, is no reason for desiring such times; it is not
+desirable that the whole capital of the country should
+be in full employment. For, the calculations of producers
+and traders being of necessity imperfect, there
+are always some commodities which are more or less
+in excess, as there are always some which are in
+deficiency. If, therefore, the whole truth were known,
+there would always be some classes of producers contracting,
+not extending, their operations. If <i>all</i> are
+endeavouring to extend them, it is a certain proof
+that some general delusion is afloat. The commonest
+cause of such delusion is some general, or very
+extensive, rise of prices (whether caused by speculation
+or by the currency) which persuades all dealers
+that they are growing rich. And hence, an increase of
+production really takes place during the progress of
+depreciation, as long as the existence of depreciation
+is not suspected; and it is this which gives to the fallacies
+of the currency school, principally represented by
+Mr. Attwood, all the little plausibility they possess. But
+when the delusion vanishes and the truth is disclosed,
+those whose commodities are relatively in excess must
+diminish their production or be ruined: and if during
+the high prices they have built mills and erected
+machinery, they will be likely to repent at leisure.</p>
+
+<p>In the present state of the commercial world,
+mercantile transactions being carried on upon an
+immense scale, but the remote causes of fluctuations
+in prices being very little understood, so that unreasonable
+hopes and unreasonable fears alternately rule
+with tyrannical sway over the minds of a majority of
+the mercantile public; general eagerness to buy and
+general reluctance to buy, succeed one another in a
+manner more or less marked, at brief intervals. Except
+during short periods of transition, there is almost
+always either great briskness of business or great stagnation;
+either the principal producers of almost all the
+leading articles of industry have as many orders as they
+can possibly execute, or the dealers in almost all commodities
+have their warehouses full of unsold goods.</p>
+
+<p>In this last ease, it is commonly said that there is a
+general superabundance; and as those economists who
+have contested the possibility of general superabundance,
+would none of them deny the possibility or even
+the frequent occurrence of the phenomenon which we
+have just noticed, it would seem incumbent on them to
+show, that the expression to which they object is not
+applicable to a state of things in which all or most commodities
+remain unsold, in the same sense in which
+there is said to be a superabundance of any one commodity
+when it remains in the warehouses of dealers
+for want of a market.</p>
+
+<p>This is merely a question of naming, but an important
+one, as it seems to us that much apparent
+difference of opinion has been produced by a mere
+difference in the mode of describing the same facts,
+and that persons who at bottom were perfectly agreed,
+have considered each other as guilty of gross error, and
+sometimes oven misrepresentation, on this subject.</p>
+
+<p>In order to afford the explanations, with which it
+is necessary to take the doctrine of the impossibility
+of an excess of all commodities, we must advert for a
+moment to the argument by which this impossibility
+is commonly maintained.</p>
+
+<p>There can never, it is said, be a want of buyers
+for all commodities; because whoever offers a commodity
+for sale, desires to obtain a commodity in
+exchange for it, and is therefore a buyer by the mere
+fact of his being a seller. The sellers and the buyers,
+for all commodities taken together, must, by the metaphysical
+necessity of the case, be an exact equipoise
+to each other; and if there be more sellers than
+buyers of one thing, there must be more buyers than
+sellers for another.</p>
+
+<p>This argument is evidently founded on the supposition
+of a state of barter; and, on that supposition, it
+is perfectly incontestable. When two persons perform
+an act of barter, each of them is at once a seller
+and a buyer. He cannot sell without buying. Unless
+he chooses to buy some other person's commodity, he
+does not sell his own.</p>
+
+<p>If, however, we suppose that money is used, these
+propositions cease to be exactly true. It must be
+admitted that no person desires money for its own
+sake, (unless some very rare cases of misers be an
+exception,) and that he who sells his commodity,
+receiving money in exchange, does so with the intention
+of buying with that same money some other commodity.
+Interchange by means of money is therefore,
+as has been often observed, ultimately nothing but
+barter. But there is this difference&mdash;that in the case
+of barter, the selling and the buying are simultaneously
+confounded in one operation; you sell what
+you have, and buy what you want, by one indivisible
+act, and you cannot do the one without doing the
+other. Now the effect of the employment of money,
+and even the utility of it, is, that it enables this
+one act of interchange to be divided into two separate
+acts or operations; one of which may be performed
+now, and the other a year hence, or whenever
+it shall be most convenient. Although he who
+sells, really sells only to buy, he needs not buy at
+the same moment when he sells; and he does not
+therefore necessarily add to the <i>immediate</i> demand for
+one commodity when he adds to the supply of another.
+The buying and selling being now separated, it may
+very well occur, that there may be, at some given
+time, a very general inclination to sell with as little
+delay as possible, accompanied with an equally general
+inclination to defer all purchases as long as possible.
+This is always actually the case, in those periods which
+are described as periods of general excess. And no one,
+after sufficient explanation, will contest the possibility
+of general excess, in this sense of the word. The state
+of things which we have just described, and which is
+of no uncommon occurrence, amounts to it.</p>
+
+<p>For when there is a general anxiety to sell, and a
+general disinclination to buy, commodities of all kinds
+remain for a long time unsold, and those which find an
+immediate market, do so at a very low price. If it be
+said that when all commodities fall in price, the fall is
+of no consequence, since mere money price is not
+material while the relative value of all commodities
+remains the same, we answer that this would be true
+if the low prices were to last for ever. But as it is
+certain that prices will rise again sooner or later, the
+person who is obliged by necessity to sell his commodity
+at a low money price is really a sufferer, the
+money he receives sinking shortly to its ordinary
+value. Every person, therefore, delays selling if he
+can, keeping his capital unproductive in the mean
+time, and sustaining the consequent loss of interest.
+There is stagnation to those who are not obliged to
+sell, and distress to those who are.</p>
+
+<p>It is true that this state can be only temporary,
+and must even be succeeded by a reaction of
+corresponding violence, since those who have sold
+without buying will certainly buy at last, and there
+will then be more buyers than sellers. But although
+the general over-supply is of necessity only temporary,
+this is no more than may be said of every partial
+over-supply. An overstocked state of the market is
+always temporary, and is generally followed by a more
+than common briskness of demand.</p>
+
+<p>In order to render the argument for the impossibility
+of an excess of all commodities applicable to the
+case in which a circulating medium is employed,
+money must itself be considered as a commodity. It
+must, undoubtedly, be admitted that there cannot be
+an excess of all other commodities, and an excess of
+money at the same time.</p>
+
+<p>But those who have, at periods such as we have
+described, affirmed that there was an excess of all
+commodities, never pretended that money was one
+of these commodities; they held that there was not
+an excess, but a deficiency of the circulating medium.
+What they called a general superabundance, was
+not a superabundance of commodities relatively to
+commodities, but a superabundance of all commodities
+relatively to money. What it amounted to was,
+that persons in general, at that particular time, from a
+general expectation of being called upon to meet
+sudden demands, liked better to possess money than
+any other commodity. Money, consequently, was in
+request, and all other commodities were in comparative
+disrepute. In extreme cases, money is collected
+in masses, and hoarded; in the milder cases,
+people merely defer parting with their money, or
+coming under any new engagements to part with it.
+But the result is, that all commodities fall in price,
+or become unsaleable. When this happens to one
+single commodity, there is said to be a superabundance
+of that commodity; and if that be a proper expression,
+there would seem to be in the nature of the case
+no particular impropriety in saying that there is a
+superabundance of all or most commodities, when all
+or most of them are in this same predicament.</p>
+
+<p>It is, however, of the utmost importance to observe
+that excess of all commodities, in the only sense in
+which it is possible, means only a temporary fall in
+their value relatively to money. To suppose that the
+markets for all commodities could, in any other sense
+than this, be overstocked, involves the absurdity that
+commodities may fall in value relatively to themselves;
+or that, of two commodities, each can fall
+relatively to the other, A becoming equivalent to
+B-<i>x</i>, and B to A-<i>x</i>, at the same time. And it is,
+perhaps, a sufficient reason for not using phrases of this
+description, that they suggest the idea of excessive production.
+A want of market for one article may arise
+from excessive production of that article; but when
+commodities in general become unsaleable, it is from
+a very different cause; there cannot be excessive production
+of commodities in general.</p>
+
+<p>The argument against the possibility of general
+over-production is quite conclusive, so far as it applies
+to the doctrine that a country may accumulate capital
+too fast; that produce in general may, by increasing
+faster than the demand for it, reduce all producers to
+distress. This proposition, strange to say, was almost a
+received doctrine as lately as thirty years ago; and
+the merit of those who have exploded it is much
+greater than might be inferred from the extreme
+obviousness of its absurdity when it is stated in its
+native simplicity. It is true that if all the wants of
+all the inhabitants of a country were fully satisfied, no
+further capital could find useful employment; but, in
+that case, none would be accumulated. So long as
+there remain any persons not possessed, we do not
+say of subsistence, but of the most refined luxuries,
+and who would work to possess them, there is employment
+for capital; and if the commodities which these
+persons want are not produced and placed at their disposal,
+it can only be because capital does not exist,
+disposable for the purpose of employing, if not any other
+labourers, those very labourers themselves, in producing
+the articles for their own consumption. Nothing can
+be more chimerical than the fear that the accumulation
+of capital should produce poverty and not wealth, or
+that it will ever take place too fast for its own end.
+Nothing is more true than that it is produce which
+constitutes the market for produce, and that every
+increase of production, if distributed without miscalculation
+among all kinds of produce in the proportion
+which private interest would dictate, creates, or rather
+constitutes, its own demand.</p>
+
+<p>This is the truth which the deniers of general over-production
+have seized and enforced; nor is it pretended
+that anything has been added to it, or subtracted from
+it, in the present disquisition. But it is thought that
+those who receive the doctrine accompanied with the
+explanations which we have given, will understand,
+more clearly than before, what is, and what is not,
+implied in it; and will see that, when properly understood,
+it in no way contradicts those obvious facts
+which are universally known and admitted to be not
+only of possible, but of actual and even frequent occurrence.
+The doctrine in question only appears a paradox,
+because it has usually been so expressed as
+apparently to contradict these well-known facts;
+which, however, were equally well known to the
+authors of the doctrine, who, therefore, can only have
+adopted from inadvertence any form of expression
+which could to a candid person appear inconsistent
+with it. The essentials of the doctrine are preserved
+when it is allowed that there cannot be permanent
+excess of production, or of accumulation; though it be
+at the same time admitted, that as there may be a
+temporary excess of any one article considered separately,
+so may there of commodities generally, not in
+consequence of over-production, but of a want of
+commercial confidence.</p>
+
+<p class="NO"><b>NOTE:</b></p>
+
+<p><a name="Footnote_6"></a><a href="#FNanchor6">[6]</a><div class=note> Probably; because most articles of an ornamental description
+being still required from the same makers, these makers,
+with their capital, would probably follow their customers, Besides,
+from place to place within the same country, most persons
+will lather change their habitation than their employment. But
+the moving on this score would be reciprocal.</div><br>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_III"></a><h2>ESSAY III.</h2>
+
+<h2>ON THE WORDS PRODUCTIVE AND
+UNPRODUCTIVE.</h2>
+<br>
+
+<p>It would probably be difficult to point out any two
+words, respecting the proper use of which political
+economists have been more divided, than they have
+been concerning the two words <i>productive</i> and <i>unproductive</i>;
+whether considered as applied to <i>labour</i>, to
+<i>consumption</i>, or to <i>expenditure</i>.</p>
+
+<p>Although this is a question solely of nomenclature,
+it is one of sufficient importance to be worth another
+attempt to settle it satisfactorily. For, although writers
+on political economy have not agreed in the ideas which
+they were accustomed to annex to these terms, the terms
+have generally been employed to denote ideas of very
+great importance, and it is impossible that some vagueness
+should not have been thrown upon the ideas themselves
+by looseness in the use of the words by which
+they are habitually designated. Further, so long as
+the pedantic objection to the introduction of new
+technical terms continues, accurate thinkers on moral
+and political subjects are limited to a very scanty
+vocabulary for the expression of their ideas. It therefore
+is of great importance that the words with which
+mankind are familiar, should be turned to the greatest
+possible advantage as instruments of thought; that one
+word should not be used as the sign of an idea which
+is already sufficiently expressed by another word; and
+that words which are required to denote ideas of great
+importance, should not be usurped for the expression
+of such as are comparatively insignificant.</p>
+
+<p>The phrases <i>productive labour</i>, and <i>productive consumption</i>,
+have been employed by some writers on
+political economy with very great latitude. They have
+considered, and classed, as productive labour and productive
+consumption, all labour which serves any <i>useful</i>
+purpose&mdash;all consumption which is not <i>waste</i>. Mr.
+M'Culloch has asserted, <i>totidem verbis</i>, that the labour
+of Madame Pasta was as well entitled to be called productive
+labour as that of a cotton spinner.</p>
+
+<p>Employed in this sense, the words <i>productive</i> and
+<i>unproductive</i> are superfluous, since the words <i>useful</i> and
+<i>agreeable</i> on the one hand, <i>useless</i> and <i>worthless</i> on the
+other, are quite sufficient to express all the ideas to
+which the words <i>productive</i> and <i>unproductive</i> are here
+applied.</p>
+
+<p>This use of the terms, therefore, is subversive of
+the ends of language.</p>
+
+<p>Those writers who have employed the words in a
+more limited sense, have usually understood by productive
+or unproductive labour, labour which is productive
+of wealth, or unproductive of wealth. But
+what is wealth? And here the words productive
+and unproductive have been affected with additional
+ambiguities, corresponding to the different extension
+which different writers have given to the term
+wealth.</p>
+
+<p>Some have given the name of wealth to <i>all things</i>
+which tend to the use or enjoyment of mankind, and
+which possess exchangeable value. This last clause is
+added to exclude air, the light of the sun, and any other
+things which can be obtained in unlimited quantity
+without labour or sacrifice; together with all such
+things as, though produced by labour, are not held in
+sufficient general estimation to command any price in
+the market.</p>
+
+<p>But when this definition came to be explained,
+many persons were disposed to interpret &quot;<i>all things</i>
+which tend to the use or enjoyment of man,&quot; as implying
+only all <i>material</i> things. <i>Immaterial</i> products they
+refused to consider as wealth; and labour or expenditure
+which yielded nothing but immaterial products,
+they characterised as unproductive labour and unproductive
+expenditure.</p>
+
+<p>To this it was, or might have been, answered, that
+according to this classification, a carpenter's labour at
+his trade is productive labour, but the same individual's
+labour in learning his trade was unproductive labour.
+Yet it is obvious that, on both occasions, his labour
+tended exclusively to what is allowed to be production:
+the one was equally indispensable with the other, to
+the ultimate result. Further, if we adopted the above
+definition, we should be obliged to say that a nation
+whose artisans were twice as skilful as those of another
+nation, was not, <i>ceteris paribus</i>, more wealthy;
+although it is evident that every one of the results of
+wealth, and everything for the sake of which wealth is
+desired, would be possessed by the former country in a
+higher degree than by the latter.</p>
+
+<p>Every classification according to which a basket
+of cherries, gathered and eaten the next minute, are
+called wealth, while that title is denied to the acquired
+skill of those who are acknowledged to be productive
+labourers, is a purely arbitrary division, and does not
+conduce to the ends for which classification and
+nomenclature are designed.</p>
+
+<p>In order to get over all difficulties, some political
+economists seem disposed to make the terms express a
+distinction sufficiently definite indeed, but more completely
+arbitrary, and having less foundation in nature,
+than any of the former. They will not allow to any
+labour or to any expenditure the name of productive,
+unless the produce which it yields returns into the
+hands of the very person who made the outlay.
+Hedging and ditching they term productive labour,
+though those operations conduce to production only indirectly,
+by protecting the produce from destruction; but
+the necessary expenses incurred by a government for
+the protection of property are, they insist upon it, consumed
+unproductively: though, as has been well pointed
+out by Mr. M'Culloch, these expenses, in their relation
+to the national wealth, are exactly analogous to the
+wages of a hedger or a ditcher. The only difference is,
+that the farmer, who pays for the hedging and ditching,
+is the person to whom the consequent increase of production
+accrues, while the government, which is at the
+expense of police officers and courts of justice, does
+not, as a necessary consequence, get back into its own
+coffers the increase of the national wealth resulting
+from the security of property.</p>
+
+<p>It would be endless to point out the oddities and
+incongruities which result from this classification.
+Whether we take the words wealth and production in
+the largest, or in the most restricted sense in which
+they have ever yet been employed, nobody will dispute
+that roads, bridges, and canals, contribute in an
+eminent degree, and in a very direct manner, to the
+increase of production and wealth. The labour and
+pecuniary resources employed in their construction
+would, according to the above theory, be considered
+productive, if every occupier of land were compelled by
+law to construct so much of the road, or canal, as
+passes through his own farm. If, instead of this, the
+government makes the road, and throws it open to the
+public toll-free, the labour and expenditure would be,
+on the above system, clearly unproductive. But if the
+government, or an association of individuals, made the
+road, and imposed a toll to defray the expense, we do
+not see how these writers could refuse to the outlay
+the title of productive expenditure. It would follow,
+that the very same labour and expense, if given gratuitously,
+must be called unproductive, which, if a
+charge had been made for it, would have been called
+productive.</p>
+
+<p>When these consequences of the purely arbitrary
+classification to which we allude have been pointed
+out and complained of, the only answer which we have
+ever seen made to the objection is, that the line of
+demarcation must be drawn somewhere, and that in
+every classification there are intermediate cases, which
+might have been included, with almost equal propriety,
+either in the one class or in the other.</p>
+
+<p>This answer appears to us to indicate the want of
+a sufficiently accurate and discriminating perception,
+what is the kind of inaccuracy which generally cannot
+be avoided in a classification, and what is that other
+kind of inaccuracy, from which it always may be, and
+should be, exempt.</p>
+
+<p>The classes themselves may be, mentally speaking,
+perfectly definite, though it may not always be easy to
+say to which of them a particular object belongs.
+When it is uncertain in which of two classes an object
+should be placed, if the classification be properly
+made, and properly expressed, the uncertainty can turn
+only upon a matter of fact. It is uncertain to which
+class the object belongs, because it is doubtful whether
+it possesses in a greater degree the characteristics of
+the one class or those of the other. But the characteristics
+themselves may be defined and distinguished
+with the nicest exactness, and always ought to be
+so. Especially ought they in a case like the present,
+because here it is only the distinction between the
+ideas which is of any importance. That we should be
+able with ease to portion out all employments between
+the two classes, does not happen to be of any particular
+consequence.</p>
+
+<p>It is frequently said that classification is a mere
+affair of convenience. This assertion is true in one
+sense, but not if its meaning be, that the most proper
+classification is that in which it is easiest to say whether
+an object belongs to one class or to the other.
+The use of classification is, to fix attention upon the
+distinctions which exist among things; and that is the
+best classification, which is founded upon the most
+important distinctions, whatever be the facilities which
+it may afford of ticketing and arranging the different
+objects which exist in nature. In fixing, therefore, the
+meaning of the words productive and unproductive, we
+ought to endeavour to render them significative of the
+most important distinctions which, without too glaring
+a violation of received usage, they can be made to
+express.</p>
+
+<p>We ought further, when we are restricted to the
+employment of old words, to endeavour as far as
+possible that it shall not be necessary to struggle
+against the old associations with those words. We
+should, if possible, give the words such a meaning, that
+the propositions in which people are accustomed to use
+them, shall as far as possible still be true; and that the
+feelings habitually excited by them, shall be such as the
+things to which we mean to appropriate them ought
+to excite.</p>
+
+<p>We shall endeavour to unite these conditions in the
+result of the following enquiry.</p>
+
+<p>In whatever manner political economists may have
+settled the definition of productive and unproductive
+labour or consumption, the consequences which they
+have drawn from the definition are nearly the same.
+In proportion to the amount of the productive labour
+and consumption of a country, the country, they all
+allow, is enriched: in proportion to the amount of the
+unproductive labour and consumption, the country is
+impoverished. Productive expenditure they are accustomed
+to view as a gain; unproductive expenditure,
+however useful, as a sacrifice. Unproductive expenditure
+of what was destined to be expended productively,
+they always characterise as a squandering of resources,
+and call it profusion and prodigality. The productive
+expenditure of that which might, without encroaching
+upon capital, be expended unproductively, is called
+saving, economy, frugality. Want, misery, and starvation,
+are described as the lot of a nation which annually
+employs less and less of its labour and resources
+in production; growing comfort and opulence as the
+result of an annual increase in the quantity of wealth
+so employed.</p>
+
+<p>Let us then examine what qualities in expenditure,
+and in the employment of labour, are those from
+which all the consequences above mentioned really
+flow.</p>
+
+<p>The end to which all labour and all expenditure are
+directed, is twofold. Sometimes it is <i>enjoyment</i> immediately;
+the fulfilment of those desires, the gratification
+of which is wished for on its own account. Whenever
+labour or expense is not incurred <i>immediately</i> for the
+sake of enjoyment, and is yet not absolutely wasted, it
+must be incurred for the purpose of enjoyment <i>indirectly</i>
+or mediately; by either repairing and perpetuating,
+or adding, to the <i>permanent sources</i> of enjoyment.</p>
+
+<p>Sources of enjoyment may be accumulated and
+stored up; enjoyment itself cannot. The wealth of a
+country consists of the sum total of the permanent
+sources of enjoyment, whether material or immaterial,
+contained in it: and labour or expenditure which tends
+to augment or to keep up these permanent sources,
+should, we conceive, be termed productive.</p>
+
+<p>Labour which is employed for the purpose of
+directly affording enjoyment, such as the labour of a
+performer on a musical instrument, we term unproductive
+labour. Whatever is consumed by such a performer,
+we consider as unproductively consumed: the
+accumulated total of the sources of enjoyment which
+the nation possesses, is diminished by the amount of
+what he has consumed: whereas, if it had been given
+to him in exchange for his services in producing food or
+clothing, the total of the permanent sources of enjoyment
+in the country might have been not diminished
+but increased.</p>
+
+<p>The performer on the musical instrument then is,
+so far as respects that act, not a productive, but an unproductive
+labourer. But what shall we say of the
+workman who made the musical instrument? He, most
+persons would say, is a productive labourer; and with
+reason; because the musical instrument is a permanent
+source of enjoyment, which does not begin and end
+with the enjoying, and therefore admits of being accumulated.</p>
+
+<p>But the <i>skill</i> of the musician is a permanent source
+of enjoyment, as well as the instrument which he plays
+upon: and although skill is not a material object, but
+a quality of an object, viz., of the hands and mind of
+the performer; nevertheless skill possesses exchangeable
+value, is acquired by labour and capital, and is
+capable of being stored and accumulated. Skill, therefore,
+must be considered as wealth; and the labour and
+funds employed in acquiring skill in anything tending
+to the advantage or pleasure of mankind, must be
+considered to be productively employed and expended.</p>
+
+<p>The skill of a productive labourer is analogous to
+the machinery he works with: neither of them is enjoyment,
+nor conduces directly to it, but both conduce
+indirectly to it, and both in the same way. If a spinning-jenny
+be wealth, the spinner's skill is also wealth.
+If the mechanic who made the spinning-jenny laboured
+productively, the spinner also laboured productively
+when he was learning his trade: and what they both
+consumed was consumed productively, that is to say, its
+consumption did not tend to diminish, but to increase
+the sum of the permanent sources of enjoyment in the
+country, by effecting a new creation of those sources,
+more than equal to the amount of the consumption.</p>
+
+<p>The skill of a tailor, and the implements he employs,
+contribute in the same way to the convenience of him
+who wears the coat, namely, a remote way: it is the
+coat itself which contributes immediately. The skill
+of Madame Pasta, and the building and decorations
+which aid the effect of her performance, contribute in
+the same way to the enjoyment of the audience, namely,
+an immediate way, without any intermediate instrumentality.
+The building and decorations are consumed
+unproductively, and Madame Pasta labours and
+consumes unproductively; for the building is used and
+worn out, and Madame Pasta performs, immediately
+for the spectators' enjoyment, and without leaving,
+as a consequence of the performance, any permanent
+result possessing exchangeable value: consequently the
+epithet unproductive must be equally applied to the
+gradual wearing out of the bricks and mortar, the
+nightly consumption of the more perishable &quot;properties&quot;
+of the theatre, the labour of Madame Pasta in
+acting, and of the orchestra in playing. But notwithstanding
+this, the architect who built the theatre
+was a productive labourer; so were the producers of
+the perishable articles; so were those who constructed
+the musical instruments; and so, we must be permitted
+to add, were those who instructed the musicians, and
+all persons who, by the instructions which they may
+have given to Madame Pasta, contributed to the formation
+of her talent. All these persons contributed
+to the enjoyment of the audience in the same way, and
+that a remote way, viz., by the production of a <i>permanent
+source of enjoyment</i>.</p>
+
+<p>The difference between this case, and the case of
+the cotton spinner already adverted to, is this. The
+spinning-jenny, and the skill of the cotton spinner, are
+not only the result of productive labour, but are themselves
+productively consumed. The musical instrument
+and the skill of the musician are equally the
+result of productive labour, but are themselves unproductively
+consumed.</p>
+
+<p>Let us now consider what kinds of labour, and of
+consumption or expenditure, will be classed as productive,
+and what as unproductive, according to this
+rule.</p>
+
+<p>The following are always productive:</p>
+
+<p>Labour and expenditure, of which the direct object
+or effect is the creation of some material product useful
+or agreeable to mankind.</p>
+
+<p>Labour and expenditure, of which the direct effect
+and object are, to endow human or other animated
+beings with faculties or qualities useful or agreeable to
+mankind, and possessing exchangeable value.</p>
+
+<p>Labour and expenditure, which without having for
+their direct object the creation of any useful material
+product or bodily or mental faculty or quality, yet
+tend indirectly to promote one or other of those
+ends, and are exerted or incurred solely for that purpose.</p>
+
+<p>The following are partly productive and partly
+unproductive, and cannot with propriety be ranged
+decidedly with either class:</p>
+
+<p>Labour or expenditure which does indeed create,
+or promote the creation of, some useful material product
+or bodily or mental faculty or quality, but which
+is not incurred or exerted for that sole end; having
+also for another, and perhaps its principal end, enjoyment,
+or the promotion of enjoyment.</p>
+
+<p>Such are the labour of the judge, the legislator,
+the police-officer, the soldier; and the expenditure
+incurred for their support. These functionaries protect
+and secure mankind in the exclusive possession of
+such material products or acquired faculties as belong
+to them; and by the security which they so confer,
+they indirectly increase production in a degree far
+more than equivalent to the expense which is necessary
+for their maintenance. But this is not the only
+purpose for which they exist; they protect mankind,
+not merely in the possession of their permanent resources,
+but also in their actual enjoyments; and so
+far, although highly useful, they cannot, conformably
+to the distinction which we have attempted to lay
+down, be considered productive labourers.</p>
+
+<p>Such, also, are the labour and the wages of domestic
+servants. Such persons are entertained mainly as
+subservient to mere enjoyment; but most of them
+occasionally, and some habitually, render services
+which must be considered as of a productive nature;
+such as that of cookery, the last stage in the manufacture
+of food; or gardening, a branch of agriculture.</p>
+
+<p>The following are wholly unproductive:</p>
+
+<p>Labour exerted, and expenditure incurred, directly
+and exclusively for the purpose of enjoyment, and not
+calling into existence anything, whether substance or
+quality, but such as begins and perishes in the enjoyment.</p>
+
+<p>Labour exerted and expenditure incurred uselessly,
+or in pure waste, and yielding neither direct
+enjoyment nor permanent sources of enjoyment.</p>
+
+<p>It may be objected, that expenditure incurred even
+for pure enjoyment promotes production indirectly, by
+inciting to exertion. Thus the view of the splendour
+of a rich establishment is supposed by some
+writers to produce upon the mind of an indigent
+spectator an earnest desire of enjoying the same
+luxuries, and a consequent purpose of working with
+vigour and diligence, and saving from his earnings,
+thus increasing the productive capital of the country.</p>
+
+<p>It is true that mankind are, for the most part, excited
+to productive industry solely by the desire of
+subsequently consuming the result of their labour and
+accumulation. The consumption called unproductive,
+viz., that of which the direct result is enjoyment, is in
+reality the end, to which production is only the means;
+and a desire for the end, is what alone impels any one
+to have recourse to the means.</p>
+
+<p>But, notwithstanding this, it is of the greatest
+importance to mark the distinction between the labour
+and the consumption which have enjoyment for their
+immediate end, and the labour and the consumption of
+which the immediate end is reproduction. Though
+the sight of the former may still further stimulate that
+desire for the enjoyments afforded by wealth, which
+the mere knowledge, without the immediate view,
+would suffice to excite (and without dwelling on the
+consideration that if the example of a large expenditure
+excites one individual to accumulation, it
+encourages two to prodigal expense); still, if we look
+only to the effects which are intended, or to those
+which immediately follow from the consumption, and
+whose connexion with it can be distinctly traced, it
+evidently renders a country poorer in the permanent
+sources of enjoyment; while reproductive consumption
+leaves the country richer in these same sources.
+Besides, if what is spent for mere pleasure promotes
+indirectly the increase of wealth, it can only be by
+inducing others <i>not</i> to expend on mere pleasure.</p>
+
+<p>Before quitting the subject, one more observation
+should be added. It must not be supposed that
+what is expended upon unproductive labourers is necessarily,
+the whole of it, unproductively consumed.
+The unproductive labourers may save part of their
+wages, and invest them in a productive employment.</p>
+
+<p>It is not unusual to speak of what is paid in wages
+to a labourer as being thereby <i>consumed</i>, as if all
+profit and loss to the nation were to be seen in the
+capitalist's account-book. What is paid for productive
+labour is said to be productively consumed; what
+is paid for unproductive labour is said to be consumed
+unproductively. It would be proper to say, not that
+it is productively or unproductively <i>consumed</i>, but productively
+or unproductively <i>expended</i>; otherwise, we
+shall be obliged to say that it is consumed twice over;
+the first time unproductively, perhaps, and the second,
+it may be, productively.</p>
+
+<p>To pronounce in which way the wages of the labourer
+are consumed, we must follow them into the labourer's
+own hands. As much as is necessary to keep the
+productive labourer in perfect health and fitness for
+his employment, may be said to be consumed productively.
+To this should be added what he expends
+in rearing children to the age at which they become
+capable of productive industry. If the state of the
+market for labour be such as to afford him more, this
+he may either save, or, as the common expression is,
+he may spend it. If he saves any portion, this (unless
+it be merely hoarded) he intends to employ productively,
+and it will be productively consumed. If he
+spends it, the consumption is for enjoyment immediately,
+and is therefore unproductive.</p>
+
+<p>This suggests another correction in the established
+language. Political economists generally define the
+&quot;net produce&quot; to be that portion of the gross annual
+produce of a country which remains after replacing
+the capital annually consumed. This, as they proceed
+to explain, consists of profits and rent; wages being
+included in the other portion of the gross produce,
+that which goes to replace capital. After this definition,
+they usually proceed to tell us that the net
+produce, and that alone, constitutes the fund from
+which a nation can accumulate, and add to its capital,
+as also that which it can, without retrograding in
+wealth, expend unproductively, or for enjoyment.
+Now, it is impossible that both the above propositions
+can be true. If the net produce is that which remains
+after replacing capital, then net produce is not the
+only fund out of which accumulation may be made: for
+accumulation may be made from wages; this is in all
+countries one of the great sources, and in countries
+like America perhaps the greatest source of accumulation.
+If, on the other hand, it is desirable to reserve
+the name of net produce to denote the fund available
+for accumulation or for unproductive consumption, we
+must define net produce differently. The definition
+which appears the best adapted to render the ordinary
+doctrines relating to net produce true, would be
+this:</p>
+
+<p>The net produce of a country is whatever is annually
+produced beyond what is necessary for maintaining
+the stock of materials and implements unimpaired,
+for keeping all productive labourers alive and in condition
+for work, and for just keeping up their numbers
+without increase. What is required for these purposes,
+or, in other words, for keeping up the productive
+resources of the country, cannot be diverted from
+its destination without rendering the nation as a whole
+poorer. But all which is produced beyond this, whether
+it be in the hands of the labourer, of the capitalist, or
+of any of the numerous varieties of rent-owners, may
+be taken for immediate enjoyment, without prejudice
+to the productive resources of the community; and
+whatever part of it is not so taken, constitutes a clear
+addition to the national capital, or to the permanent
+sources of enjoyment.</p>
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_IV"></a><h2>ESSAY IV.</h2>
+
+<h2>ON PROFITS, AND INTEREST.</h2>
+<br>
+
+<p>The profits of stock are the surplus which remains to
+the capitalist after replacing his capital: and the ratio
+which that surplus bears to the capital itself, is the <i>rate</i>
+of profit.</p>
+
+<p>This being the definition of profits, it might seem
+natural to adopt, as a sufficient theory in regard to the
+rate of profit, that it depends upon the productive
+power of capital. Some countries are favoured beyond
+others, either by nature or art, in the means of production.
+If the powers of the soil, or of machinery,
+enable capital to produce what is necessary for replacing
+itself, and twenty per cent more, profits will
+be twenty per cent; and so on.</p>
+
+<p>This, accordingly, is a popular mode of speaking on
+the subject of profits; but it has only the semblance,
+not the reality, of an explanation. The &quot;productive
+power of capital,&quot; though a common, and, for some
+purposes, a convenient expression, is a delusive one.
+Capital, strictly speaking, has no productive power.
+The only productive power is that of labour; assisted,
+no doubt, by tools, and acting upon materials. That
+portion of capital which consists of tools and materials,
+may be said, perhaps, without any great impropriety,
+to have a productive power, because they contribute,
+along with labour, to the accomplishment of production.
+But that portion of capital which consists of
+wages, has no productive power of its own. Wages
+have no productive power; they are the price of a productive
+power. Wages do not contribute, along with
+labour, to the production of commodities, no more than
+the price of tools contributes along with the tools
+themselves. If labour could be had without purchase,
+wages might be dispensed with. That portion of
+capital which is expended in the wages of labour, is
+only the means by which the capitalist procures to
+himself, in the way of purchase, the use of that labour
+in which the power of production really resides.</p>
+
+<p>The proper view of capital is, that anything whatever,
+which a person possesses, constitutes his capital,
+provided he is able, and intends, to employ it, not in
+consumption for the purpose of enjoyment, but in
+possessing himself of the means of production, with the
+intention of employing those means productively. Now
+the means of production are labour, implements, and
+materials. The only productive power which anywhere
+exists, is the productive power of labour, implements,
+and materials.</p>
+
+<p>We need not, on this account, altogether proscribe
+the expression, &quot;productive power of capital;&quot; but we
+should carefully note, that it can only mean the quantity
+of real productive power which the capitalist, by means
+of his capital, can command. This may change, though
+the productive power of labour remains the same.
+Wages, for example, may rise; and then, although all
+the circumstances of production remain exactly as they
+were before, the same capital will yield a less return,
+because it will set in motion a less quantity of productive
+labour.</p>
+
+<p>We may, therefore, consider the capital of a producer
+as measured by the means which he has of possessing
+himself of the different essentials of production:
+namely, labour, and the various articles which labour
+requires as materials, or of which it avails itself as aids.</p>
+
+<p>The ratio between the price which he has to pay for
+these means of production, and the produce which they
+enable him to raise, is the <i>rate</i> of his <i>profit</i>. If he
+must give for labour and tools four-fifths of what they
+will produce, the remaining fifth will constitute his
+profit, and will give him a rate of one in four, or twenty-five
+per cent, on his outlay.</p>
+
+<p>It is necessary here to remark, what cannot indeed
+by any possibility be misunderstood, but might possibly
+be overlooked in cases where attention to it is
+indispensable, viz., that we are speaking now of the
+<i>rate</i> of profit, not the gross profit. If the capital of
+the country is very great, a profit of only five per
+cent upon it may be much more ample, may support
+a much larger number of capitalists and their
+families in much greater affluence, than a profit of
+twenty-five per cent on the comparatively small
+capital of a poor country. The <i>gross</i> profit of a
+country is the actual amount of necessaries, conveniences,
+and luxuries, which are divided among its
+capitalists: but whether this be large or small, the
+rate of profit may be just the same. The rate of
+profit is the proportion which the profit bears to the
+capital; which the surplus produce after replacing
+the outlay, bears to the outlay. In short, if we compare
+the <i>price paid</i> for labour and tools with what
+that labour and those tools will <i>produce</i>, from this ratio
+we may calculate the rate of profit.</p>
+
+<p>As the gross profit may be very different though
+the rate of profit be the same; so also may the absolute
+price paid for labour and tools be very different, and
+yet the proportion between the price paid and the produce
+obtained may be just the same. For greater
+clearness, let us omit, for the present, the consideration
+of tools, materials, &amp;c, and conceive production as the
+result solely of labour. In a certain country, let us
+suppose, the wages of each labourer are one quarter of
+wheat per year, and 100 men can produce, in one year,
+120 quarters. Here the price paid for labour is to
+the produce of that labour as 100 to 120, and profits
+are 20 per cent. Suppose now that, in another
+country, wages are just double what they are in the
+country before supposed; namely, two quarters of
+wheat per year, for each labourer. But suppose, likewise,
+that the productive power of labour is double
+what it is in the first country; that by the greater
+fertility of the soil, 100 men can produce 240 quarters,
+instead of 120 as before. Here it is obvious, that the
+real price paid for labour is twice as great in the one
+country as in the other; but the produce being also
+twice as great, the ratio between the price of labour
+and the produce of labour is still exactly the same: an
+outlay of 200 quarters gives a return of 240 quarters,
+and profits, as before, are 20 per cent.</p>
+
+<p>Profits, then (meaning not gross profits, but the
+rate of profit), depend (not upon the price of labour,
+tools, and materials&mdash;but) upon the ratio between the
+price of labour, tools, and materials, and the produce
+of them: upon the proportionate share of the produce
+of industry which it is necessary to offer, in order to
+purchase that industry and the means of setting it in
+motion.</p>
+
+<hr style="width: 45%;">
+
+<p>We have hitherto spoken of tools, buildings, and
+materials, as essentials of production, co-ordinate with
+labour, and equally indispensable with it. This is true;
+but it is also true that tools, buildings, and materials, are
+themselves the produce of labour; and that the only cause
+(cases of monopoly excepted) of their having any value,
+is the labour which is required for their production.</p>
+
+<p>If tools, buildings, and materials were the spontaneous
+gifts of nature, requiring no labour either in
+order to produce or to appropriate them; and if they
+were thus bestowed upon mankind in indefinite quantity,
+and without the possibility of being monopolized; they
+would still be as useful, as indispensable as they now
+are; but since they could, like air and the light of the
+sun, be obtained without cost or sacrifice, they would
+form no part of the expenses of production, and no
+portion of the produce would be required to be set
+aside in order to replace the outlay made for these
+purposes. The whole produce, therefore, after replacing
+the wages of labour, would be clear profit to
+the capitalist.</p>
+
+<p>Labour alone is the primary means of production;
+&quot;the original purchase-money which has been paid for
+everything.&quot; Tools and materials, like other things,
+have originally cost nothing but labour; and have a
+value in the market only because wages have been
+paid for them. The labour employed in making the
+tools and materials being added to the labour afterwards
+employed in working up the materials by aid of
+the tools, the sum total gives the whole of the labour
+employed in the production of the completed commodity.
+In the ultimate analysis, therefore, labour
+appears to be the only essential of production. To replace
+capital, is to replace nothing but the wages of
+the labour employed. Consequently, the whole of the
+surplus, after replacing wages, is profits. From this it
+seems to follow, that the ratio between the wages of
+labour and the produce of that labour gives the rate of
+profit. And thus we arrive at Mr. Ricardo's principle,
+that profits depend upon wages; rising as wages
+fall, and falling as wages rise.</p>
+
+<p>To protect this proposition (the most perfect form
+in which the law of profits seems to have been yet
+exhibited) against misapprehension, one or two explanatory
+remarks are required.</p>
+
+<p>If by wages, be meant what constitutes the real
+affluence of the labourer, the <i>quantity</i> of produce
+which he receives in exchange for his labour; the proposition
+that profits vary inversely as wages, will be
+obviously false. The rate of profit (as has been
+already observed and exemplified) does not depend upon
+the price of labour, but upon the proportion between
+the price of labour and the produce of it. If the
+produce of labour is large, the price of labour may
+also be large without any diminution of the rate of
+profit: and, in fact, the rate of profit is highest in
+those countries (as, for instance, North America)
+where the labourer is most largely remunerated. For
+the wages of labour, though so large, bear a less
+proportion to the abundant <i>produce</i> of labour, there
+than elsewhere.</p>
+
+<p>But this does not affect the truth of Mr. Ricardo's
+principle as he himself understood it; because an
+increase of the labourer's real comforts was not considered
+by him as a rise of wages. In his language
+wages were only said to rise, when they rose not in
+mere quantity but in <i>value</i>. To the labourer himself
+(he would have said) the <i>quantity</i> of his remuneration
+is the important circumstance: but its <i>value</i> is
+the only thing of importance to the person who purchases
+his labour.</p>
+
+<p>The rate of profits depends not upon absolute or
+real wages, but upon the <i>value</i> of wages.</p>
+
+<p>If, however, by value, Mr. Ricardo had meant
+<i>exchangeable</i> value, his proposition would still have
+been remote from the truth. Profits depend no more
+upon the exchangeable value of the labourer's remuneration,
+than upon its quantity. The truth is, that
+by the exchangeable value is meant the quantity of
+commodities which the labourer can purchase with
+his wages; so that when we say the exchangeable
+value of wages, we say their quantity, under another
+name.</p>
+
+<p>Mr. Ricardo, however, did not use the word value
+in the sense of exchangeable value.</p>
+
+<p>Occasionally, in his writings, he could not avoid
+using the word as other people use it, to denote value
+in exchange. But he more frequently employed it in
+a sense peculiar to himself, to denote cost of production;
+in other words, the <i>quantity of labour</i> required
+to produce the article; that being his criterion of cost
+of production. Thus, if a hat could be made with
+ten days' labour in France and with five days' labour
+in England, he said that the value of a hat was
+double in France of what it was in England. If a
+quarter of corn could be produced a century ago with
+half as much labour as is necessary at present, Mr.
+Ricardo said that the value of a quarter of corn
+had doubled.</p>
+
+<p>Mr. Ricardo, therefore, would not have said that
+wages had risen, because a labourer could obtain two
+pecks of flour instead of one, for a day's labour; but
+if last year he received, for a day's labour, something
+which required eight hours' labour to produce it, and
+this year something which requires nine hours, then
+Mr. Ricardo would say that wages had risen. A rise
+of wages, with Mr. Ricardo, meant an increase in the
+cost of production of wages; an increase in the number
+of hours' labour which go to produce the wages of a
+day's labour; an increase in the <i>proportion</i> of the
+fruits of labour which the labourer receives for his
+own share; an increase in the ratio between the wages
+of his labour and the produce of it. This is the
+theory: the reasoning, of which it is the result, has
+been given in the preceding paragraphs.</p>
+
+<p>Some of Mr. Ricardo's followers, or more properly,
+of those who have adopted in most particulars
+the views of political economy which his genius
+was the first to open up, have given explanations
+of Mr. Ricardo's doctrine to nearly the same effect
+as the above, but in rather different terms. They
+have said that profits depend not on <i>absolute</i>, but
+on <i>proportional</i> wages: which they expounded to mean
+the proportion which the labourers <i>en masse</i> receive of
+the total produce of the country.</p>
+
+<p>It seems, however, to be rather an unusual and
+inconvenient use of language to speak of anything as
+depending upon the wages of labour, and then to
+explain that by wages of labour you do not mean the
+wages of an individual labourer, but of all the
+labourers in the country collectively. Mankind will
+never agree to call anything a rise of wages, except a
+rise of the wages of individual labourers, and it is
+therefore preferable to employ language tending to fix
+attention upon the wages of the individual. The
+wages, however, on which profits are said to depend,
+are undoubtedly <i>proportional</i> wages, namely, the proportional
+wages of one labourer: that is, the ratio
+between the wages of one labourer, and (not the
+whole produce of the country, but) the amount of
+what one labourer can produce; the amount of that
+portion of the collective produce of the industry of
+the country, which may be considered as corresponding
+to the labour of one single labourer. Proportional
+wages, thus understood, may be concisely termed
+the cost of production of wages; or, more concisely
+still, the cost of wages, meaning their cost in the
+&quot;original purchase money,&quot; labour.</p>
+
+<p>We have now arrived at a distinct conception of
+Mr. Ricardo's theory of profits in its most perfect
+state. And this theory we conceive to be the basis
+of the true theory of profits. All that remains to
+do is to clear it from certain difficulties which still
+surround it, and which, though in a greater degree
+apparent than real, are not to be put aside as wholly
+imaginary.</p>
+
+<p>Though it is true that tools, materials, and buildings
+(it is to be wished that there were some compact
+designation for all these essentials of production
+taken together,) are themselves the produce of
+labour, and are only on that account to be ranked
+among the expenses of production; yet the <i>whole</i> of
+their value is not resolvable into the wages of the
+labourers by whom they were produced. The wages
+of those labourers were paid by a capitalist, and that
+capitalist must have the same profit upon his advances
+as any other capitalist; when, therefore, he sells the tools
+or materials, he must receive from the purchaser not
+only the reimbursement of the wages he has paid, but
+also as much more as will afford him the ordinary rate
+of profit. And when the producer, after buying the
+tools and employing them in his own occupation,
+comes to estimate his gains, he must set aside a portion
+of the produce to replace not only the wages
+paid both by himself and by the tool-maker, but also
+the profits of the tool-maker, advanced by himself out
+of his own capital.</p>
+
+<p>It is not correct, therefore, to state that all which
+the capitalist retains after replacing wages forms his
+profit. It is true the whole return to capital is
+either wages or profits; but profits do not compose
+merely the surplus after replacing the outlay; they
+also enter into the outlay itself. Capital is expended
+partly in paying or reimbursing wages, and partly in
+paying the profits of other capitalists, whose concurrence
+was necessary in order to bring together the
+means of production.</p>
+
+<p>If any contrivance, therefore, were devised by which
+that part of the outlay which consists of previous
+profits could be either wholly or partially dispensed
+with, it is evident that more would remain as the
+profit of the immediate producer; while, as the
+quantity of <i>labour</i> necessary to produce a given
+quantity of the commodity would be unaltered, as well
+as the quantity of produce paid for that labour, it
+seems that the ratio between the price of labour and
+its produce would be the same as before; that the
+cost of production of wages would be the same, proportional
+wages the same, and yet profits different.</p>
+
+<p>To illustrate this by a simple instance, let it be
+supposed that one-third of the produce is sufficient to
+replace the wages of the labourers who have been
+immediately instrumental in the production; that
+another third is necessary to replace the materials used
+and the fixed capital worn out in the process; while
+the remaining third is clear gain, being a profit of
+50 per cent. Suppose, for example, that 60 agricultural
+labourers, receiving 60 quarters of corn for their
+wages, consume fixed capital and seed amounting
+to the value of 60 quarters more, and that the result
+of their operations is a produce of 180 quarters.
+When we analyse the price of the seed and tools
+into its elements, we find that they must have been
+the produce of the labour of 40 men: for the wages
+of those 40, together with profit at the rate previously
+supposed (50 per cent) make up 60 quarters.
+The produce, therefore, consisting of 180 quarters
+is the result of the labour altogether of 100 men:
+namely, the 60 first mentioned, and the 40 by
+whose labour the fixed capital and the seed were
+produced.</p>
+
+<p>Let us now suppose, by way of an extreme case,
+that some contrivance is discovered, whereby the purposes
+to which the second third of the produce had
+been devoted, may be dispensed with altogether: that
+some means are invented by which the same amount
+of produce may be procured without the assistance of
+any fixed capital, or the consumption of any seed or
+material sufficiently valuable to be worth calculating.
+Let us, however, suppose that this cannot be done
+without taking on a number of additional labourers,
+equal to those required for producing the seed and
+fixed capital; so that the saving shall be only in the
+profits of the previous capitalists. Let us, in conformity
+with this supposition, assume that in dispensing
+with the fixed capital and seed, value 60
+quarters, it is necessary to take on 40 additional
+labourers, receiving a quarter of corn each, as before.</p>
+
+<p>The rate of profit has evidently risen. It has
+increased from 50 per cent to 60 per cent. A return
+of 180 quarters could not before be obtained but by
+an outlay of 120 quarters; it can now be obtained by
+an outlay of no more than 100.</p>
+
+<p>Here, therefore, is an undeniable rise of profits.
+Have wages, in the sense above attached to them,
+fallen or not? It would seem not.</p>
+
+<p>The produce (180 quarters) is still the result of
+the same quantity of labour as before, namely, the
+labour of 100 men. A quarter of corn, therefore, is
+still, as before, the produce of 10/18 of a man's labour for
+a year. Each labourer receives, as before, one quarter
+of corn; each, therefore, receives the produce of 10\18
+of a year's labour of one man, that is, the same cost of
+production; each receives 10/18 of the produce of his
+own labour, that is, the same proportional wages; and
+the labourers collectively still receive the same proportion,
+namely 10/18, of the whole produce.</p>
+
+<p>The conclusion, then, cannot be resisted, that
+Mr. Ricardo's theory is defective: that the rate of
+profits does <i>not</i> exclusively depend upon the value of
+wages, in his sense, namely, the quantity of labour
+of which the wages of a labourer are the produce;
+that it does <i>not</i> exclusively depend upon proportional
+wages, that is, upon the proportion which the labourers
+collectively receive of the whole produce, or the ratio
+which the wages of an individual labourer bear to the
+produce of his individual labour.</p>
+
+<p>Those political economists, therefore, who have
+always dissented from Mr. Ricardo's doctrine, or who,
+having at first admitted, ended by discarding it, were
+so far in the right; but they committed a serious
+error in this, that, with the usual one-sidedness of disputants,
+they knew no medium between admitting
+absolutely and dismissing entirely; and saw no other
+course than utterly to reject what it would have been
+sufficient to modify.</p>
+
+<p>It is remarkable how very slight a modification will
+suffice to render Mr. Ricardo's doctrine completely
+true. It is even doubtful whether he himself, if called
+upon to adapt his expressions to this peculiar case,
+would not have so explained his doctrine as to render
+it entirely unobjectionable.</p>
+
+<p>It is perfectly true, that, in the example already
+made use of, a rise of profits takes place, while wages,
+considered in respect to the quantity of labour of which
+they are the produce, have not varied at all. But
+though wages are still the produce of the same
+<i>quantity of labour</i> as before, the <i>cost of production</i>
+of wages has nevertheless fallen; for into cost of
+production there enters another element besides
+labour.</p>
+
+<p>We have already remarked (and the very example
+out of which the difficulty arose presupposes it) that
+the cost of production of an article consists generally
+of two parts,&mdash;the <i>wages</i> of the labour employed, and
+the <i>profits</i> of those who, in any antecedent stage of
+the production, have advanced any portion of those
+wages. An article, therefore, may be the produce
+of the same quantity of labour as before, and yet,
+if any portion of the profits which the last producer
+has to make good to previous producers can be
+economized, the cost of production of the article is
+diminished.</p>
+
+<p>Now, in our example, a diminution of this sort is
+supposed to have taken place in the cost of production
+of corn. The production of that article has become
+less costly, in the ratio of six to five. A quantity of
+corn, the means of producing which could not previously
+have been secured but at an expense of 120
+quarters, can now be produced by means which 100
+quarters are sufficient to purchase.</p>
+
+<p>But the labourer is supposed to receive the same
+quantity of corn as before. He receives one quarter.
+The cost of production of wages has, therefore, fallen
+one-sixth. A quarter of corn, which is the remuneration
+of a single labourer, is indeed the produce of the
+same quantity of labour as before; but its cost of production
+is nevertheless diminished. It is now the
+produce of 10/18 of a man's labour, and nothing else;
+whereas formerly it required for its production the
+conjunction of that quantity of labour with an expenditure,
+in the form of reimbursement of profit, amounting
+to one-fifth more.</p>
+
+<p>If the cost of production of wages had remained
+the same as before, profits could not have risen. Each
+labourer received one quarter of corn; but one quarter
+of corn at that time was the result of the same cost of
+production, as 1 1/5 quarter now. In order, therefore,
+that each labourer should receive the same cost of
+production, each must now receive one quarter of corn,
+<i>plus</i> one-fifth. The labour of 100 men could not be
+purchased at this price for less than 120 quarters; and
+the produce, 180 quarters, would yield only 50 per
+cent, as first supposed <a name="FNanchor7"></a><a href="#Footnote_7"><sup>[7]</sup></a>.</p>
+
+<p>It is, therefore, strictly true, that the rate of profits
+varies inversely as the cost of production of wages.
+Profits cannot rise, unless the cost of production of
+wages falls exactly as much; nor fall, unless it rises.</p>
+
+<p>The proof of this position has been stated in figures,
+and in a particular case: we shall now state it in general
+terms, and for all cases.</p>
+
+<p>We have supposed, for simplicity, that wages are
+paid in the finished commodity. The agricultural
+labourers, in our example, were paid in corn, and if we
+had called them weavers, we should have supposed
+them to be paid in cloth. This supposition is allowable,
+for it is obviously of no consequence, in a question
+of value, or cost of production, what precise article we
+assume as the medium of exchange. The supposition
+has, besides, the recommendation of being conformable
+to the most ordinary state of the facts; for it is by the
+sale of his own finished article that each capitalist
+obtains the means of hiring labourers to renew the production;
+which is virtually the same thing as if, instead
+of selling the article for money and giving the money
+to his labourers, he gave the article itself to the
+labourers, and they sold it for their daily bread.</p>
+
+<p>Assuming, therefore, that the labourer is paid in
+the very article he produces, it is evident that, when
+any saving of expense takes place in the production of
+that article, if the labourer still receives the same cost
+of production as before, he must receive an increased
+quantity, in the very same ratio in which the productive
+power of capital has been increased. But, if so,
+the outlay of the capitalist will bear exactly the same
+proportion to the return as it did before; and profits
+will not rise.</p>
+
+<p>The variations, therefore, in the rate of profits, and
+those in the cost of production of wages, go hand in
+hand, and are inseparable. Mr. Ricardo's principle,
+that profits cannot rise unless wages fall, is strictly
+true, if by low wages be meant not merely wages
+which are the produce of a smaller quantity of labour,
+but wages which are produced at less cost, reckoning
+labour and previous profits together. But the
+interpretation which some economists have put upon
+Mr. Ricardo's doctrine, when they explain it to mean
+that profits depend upon the proportion which the
+labourers collectively receive of the aggregate produce,
+will not hold at all; for that, in our first example,
+remained the same, and yet profits rose.</p>
+
+<p>The only expression of the law of profits, which
+seems to be correct, is, that they depend upon the cost
+of production of wages. This must be received as the
+ultimate principle.</p>
+
+<p>From this may be deduced all the corollaries which
+Mr. Ricardo and others have drawn from his theory of
+profits as expounded by himself. The cost of production
+of the wages of one labourer for a year, is the
+result of two concurrent elements or factors,&mdash;viz., 1st,
+the quantity of commodities which the state of the
+labour market affords to him; 2ndly, the cost of production
+of each of those commodities. It follows, that
+the rate of profits can never rise but in conjunction
+with one or other of two changes,&mdash;1st, a diminished
+remuneration of the labourer; or, 2ndly, an improvement
+in production, or an extension of commerce, by
+which any of the articles habitually consumed by the
+labourer may be obtained at smaller cost. (If the
+improvement be in any article which is not consumed
+by the labourer, it merely lowers the price of that
+article, and thereby benefits capitalists and all other
+people so far as they are consumers of that particular
+article, and may be said to increase gross profit, but
+not the rate of profit.)</p>
+
+<p>So, on the other hand, the rate of profit cannot fall,
+unless concurrently with one of two events: 1st, an
+improvement in the labourer's condition; or, 2ndly, an
+increased difficulty of producing or importing some
+article which the labourer habitually consumes. The
+progress of population and cultivation has a tendency
+to lower profits through the latter of these two
+channels, owing to the well known law of the application
+of capital to land, that a double capital does
+not <i>caeteris paribus</i> yield a double produce. There is,
+therefore, a tendency in the rate of profits to fall with
+the progress of society. But there is also an antagonist
+tendency of profits to rise, by the successive introduction
+of improvements in agriculture, and in the
+production of those manufactured articles which the
+labourers consume. Supposing, therefore, that the
+actual comforts of the labourer remain the same, profits
+will fall or rise, according as population, or improvements
+in the production of food and other necessaries,
+advance fastest.</p>
+
+<p>The rate of profits, therefore, tends to <i>fall</i> from
+the following causes:&mdash;1. An increase of capital beyond
+population, producing increased competition for
+labour; 2. An increase of population, occasioning a
+demand for an increased quantity of food, which
+must be produced at a greater cost. The rate of
+profits tends to <i>rise</i> from the following causes:&mdash;1.
+An increase of population beyond capital, producing
+increased competition for employment; 2. Improvements
+producing increased cheapness of necessaries,
+and other articles habitually consumed by the labourer.</p>
+
+<hr style="width: 45%;">
+
+<p>The circumstances which regulate the rate of
+interest have usually been treated, even by professed
+writers on political economy, in a vague, loose, and
+unscientific manner. It has, however, been felt that
+there is some connexion between the rate of interest
+and the rate of profit; that (to use the words of
+Adam Smith) much will be given for money, when
+much can be made of it. It has been felt, also, that
+the fluctuations in the market-rate of interest from
+day to day, are determined, like other matters of
+bargain and sale, by demand and supply. It has,
+therefore, been considered as an established principle,
+that the rate of interest varies from day to day
+according to the quantity of capital offered or called
+for on loan; but conforms on the average of years to a
+standard determined by the rate of profits, and bearing
+some proportion to that rate&mdash;but a proportion
+which few attempts have been made to define.</p>
+
+<p>In consequence of these views, it has been customary
+to judge of the general rate of profits at any time or
+place, by the rate of interest at that time and place: it
+being supposed that the rate of interest, though liable
+to temporary fluctuations, can never vary for any long
+period of time unless profits vary; a notion which
+appears to us to be erroneous.</p>
+
+<p>It was observed by Adam Smith, that profits
+may be considered as divided into two parts, of
+which one may properly be considered as the remuneration
+for the use of the capital itself, the other as
+the reward of the labour of superintending its employment;
+and that the former of these will correspond
+with the rate of interest. The producer who borrows
+capital to employ it in his business, will consent to
+pay, for the use of it, all that remains of the profits he
+can make by it, after reserving what he considers
+reasonable remuneration for the trouble and risk
+which he incurs by borrowing and employing it.</p>
+
+<p>This remark is just; but it seems necessary to give
+greater precision to the ideas which it involves.</p>
+
+<p>The difference between the profit which can be
+made by the use of capital, and the interest which will
+be paid for it, is rightly characterized as wages of
+superintendance. But to infer from this that it is
+regulated by entirely the same principles as other
+wages, would be to push the analogy too far. It is
+wages, but wages paid by a commission upon the
+capital employed. If the general rate of profit is 10
+per cent, and the rate of interest 5 per cent, the
+wages of superintendance will be 5 per cent; and
+though one borrower employ a capital of 100,000<i>l</i>.,
+another no more than 100<i>l</i>., the labour of both will
+be rewarded with the same per centage, though, in the
+one ease, this symbol will represent an income of 5<i>l</i>.,
+in the other case, of 5000<i>l</i>. Yet it cannot be pretended
+that the labour of the two borrowers differs in
+this proportion. The rule, therefore, that equal quantities
+of labour of equal hardness and skill are equally
+remunerated, does not hold of this kind of labour.
+The wages of any other labour are here an inapplicable
+criterion.</p>
+
+<p>The wages of superintendance are distinguished
+from ordinary wages by another peculiarity, that they
+are not paid in advance out of capital, like the wages
+of all other labourers, but merge in the profit, and are
+not realized until the production is completed. This
+takes them entirely out of the ordinary law of wages.
+The wages of labourers who are paid in advance, are
+regulated by the number of competitors compared
+with the amount of capital; the labourers can consume
+no more than what has been previously accumulated.
+But there is no such limit to the remuneration of a
+kind of labour which is not paid for out of wealth
+previously accumulated, but out of that produce which
+it is itself employed in calling into existence.</p>
+
+<p>When these circumstances are duly weighed, it
+will be perceived, that although profit may be correctly
+analyzed into interest and wages of superintendance,
+we ought not to lay it down as the law of
+interest, that it is profits <i>minus</i> the wages of superintendance.
+Of the two expressions, it would be
+decidedly the more correct, that the wages of superintendance
+are regulated by the rate of interest, or
+are equal to profits <i>minus</i> interest. In strict, propriety,
+neither expression would be allowable. Interest, and
+the wages of superintendance, can scarcely be said to
+depend upon one another. They are to one another in
+the same relation as wages and profits are. They are
+like two buckets in a well: when one rises, the other
+descends, but neither of the two motions is the cause
+of the other; both are simultaneous effects of the
+same cause, the turning of the windlass.</p>
+
+<hr style="width: 45%;">
+
+<p>There are among the capitalists of every country a
+considerable number who are habitually, and almost
+necessarily, lenders; to whom scarcely any difference
+between what they could receive for their money and
+what could be made by it, would be an equivalent for
+incurring the risk and labour of carrying on business.
+In this predicament is the property of widows and
+orphans; of many public bodies; of charitable institutions;
+most property which is vested in trustees; and
+the property of a great number of persons unused to
+business, and who have a distaste for it, or whose
+other occupations prevent their engaging in it. How
+large a proportion of the property lent to the nation
+comes under this description, has been pointed out
+in Mr. Tooke's <i>Considerations on the State of the
+Currency.</i></p>
+
+<p>There is another large class, consisting of bankers,
+bill-brokers, and others, who are money-lenders by
+profession; who enter into that profession with the
+intention of making such gains as it will yield them,
+and who would not be induced to change their business
+by any but a very strong pecuniary inducement.</p>
+
+<p>There is, therefore, a large class of persons who
+are habitually lenders. On the other hand, all persons
+in business may be considered as habitually borrowers.
+Except in times of stagnation, they are all
+desirous of extending their business beyond their own
+capital, and are never desirous of lending any portion
+of their capital except for very short periods, during
+which they cannot advantageously invest it in their
+own trade.</p>
+
+<p>There is, in short, a productive class, and there is,
+besides, a class technically styled the monied class,
+who live upon the interest of their capital, without
+engaging personally in the work of production.</p>
+
+<p>The class of borrowers may be considered as unlimited.
+There is no quantity of capital that could
+be offered to be lent, which the productive classes
+would not be willing to borrow, at any rate of interest
+which would afford them the slightest excess of profit
+above a bare equivalent for the additional risk, incurred
+by that transaction, of the evils attendant on
+insolvency. The only assignable limit to the inclination
+to borrow, is the power of giving security: the
+producers would find it difficult to borrow more than
+an amount equal to their own capital. If more than
+half the capital of the country were in the hands of
+persons who preferred lending it to engaging personally
+in business, and if the surplus were greater than
+could be invested in loans to Government, or in mortgages
+upon the property of unproductive consumers;
+the competition of lenders would force down the rate
+of interest very low. A certain portion of the monied
+class would be obliged either to sacrifice their predilections
+by engaging in business, or to lend on
+inferior security; and they would accordingly accept,
+where they could obtain good security, an abatement
+of interest equivalent to the difference of risk.</p>
+
+<p>This is an extreme case. Let us put an extreme
+case of a contrary kind. Suppose that the wealthy
+people of any country, not relishing an idle life, and
+having a strong taste for gainful labour, were generally
+indisposed to accept of a smaller income in order
+to be relieved from the labour and anxiety of business.
+Every producer in flourishing circumstances would
+be eager to borrow, and few willing to lend. Under
+these circumstances the rate of interest would differ
+very little from the rate of profit. The trouble of
+managing a business is not proportionally increased
+by an increase of the magnitude of the business; and
+a very small surplus profit above the rate of interest,
+would therefore be a sufficient inducement to capitalists
+to borrow.</p>
+
+<p>We may even conceive a people whose habits
+were such, that in order to induce them to lend, it
+might be necessary to offer them a rate of interest
+fully equal to the ordinary rate of profit. In that
+case, of course, the productive classes would scarcely
+ever borrow. But government, and the unproductive
+classes, who do not borrow in order to make a profit
+by the loan, but from the pressure of a real or supposed
+necessity, might still be ready to borrow at this
+high rate.</p>
+
+<p>Although the inclination to borrow has no <i>fixed</i>
+or <i>necessary</i> limit except the power of giving security,
+yet it always, in point of fact, stops short of this; from
+the uncertainty of the prospects of any individual
+producer, which generally indisposes him to involve
+himself to the full extent of his means of payment.
+There is never any permanent want of market for
+things in general; but there may be so for the commodity
+which any one individual is producing; and
+even if there is a demand for the commodity, people
+may not buy it of him but of some other. There are,
+consequently, never more than a portion of the producers,
+the state of whose business encourages them to
+add to their capital by borrowing; and even these are
+disposed to borrow only as much as they see an <i>immediate</i>
+prospect of profitably employing. There is,
+therefore, a practical limit to the demands of borrowers
+at any given instant; and when these demands
+are all satisfied, any additional capital offered on loan
+can find an investment only by a reduction of the rate
+of interest.</p>
+
+<p>The amount of borrowers being given, (and by the
+amount of borrowers is here meant the aggregate
+sum which people are willing to borrow at some
+given rate,) the rate of interest will depend upon
+the quantity of capital owned by people who are
+unwilling or unable to engage in trade. The circumstances
+which determine this, are, on the one hand,
+the degree in which a taste for business, or an aversion
+to it, happens to be prevalent among the classes
+possessed of property; and on the other hand, the
+amount of the annual accumulation from the earnings
+of labour. Those who accumulate from their wages,
+fees, or salaries, have, of course, (speaking generally)
+no means of investing their savings except by lending
+them to others: their occupations prevent them from
+personally superintending any employment.</p>
+
+<p>Upon these circumstances, then, the rate of interest
+depends, the amount of borrowers being given. And
+the counter-proposition equally holds, that, the above
+circumstances being given, the rate of interest depends
+upon the amount of borrowers.</p>
+
+<p>Suppose, for example, that when the rate of interest
+has adjusted itself to the existing state of the circumstances
+which affect the disposition to borrow and to
+lend, a war breaks out, which induces government, for
+a series of years, to borrow annually a large sum of
+money. During the whole of this period, the rate of
+interest will remain considerably above what it was
+before, and what it will be afterwards.</p>
+
+<p>Before the commencement of the supposed war,
+all persons who were disposed to lend at the then
+rate of interest, had found borrowers, and their capital
+was invested. This may be assumed; for if any
+capital had been seeking for a borrower at the existing
+rate of interest, and unable to find one, its owner
+would have offered it at a rate slightly below the
+existing rate. He would, for instance, have bought
+into the funds, at a slight advance of price; and thus
+set at liberty the capital of some fundholder, who, the
+funds yielding a lower interest, would have been
+obliged to accept a lower interest from individuals.</p>
+
+<p>Since, then, all who were willing to lend their
+capital at the market rate, have already lent it,
+Government will not be able to borrow unless by
+offering higher interest. Though, with the existing
+habits of the possessors of disposable capital, an
+increased number cannot be found who are willing to
+lend at the existing rate, there are doubtless some who
+will be induced to lend by the temptation of a higher
+rate. The same temptation will also induce some persons
+to invest, in the purchase of the new stock, what
+they would otherwise have expended unproductively
+in increasing their establishments, or productively, in
+improving their estates. The rate of interest will
+rise just sufficiently to call forth an increase of lenders
+to the amount required.</p>
+
+<p>This we apprehend to be the cause why the rate
+of interest in this country was so high as it is well
+known to have been during the last war. It is, therefore,
+by no means to be inferred, as some have done,
+that the general rate of profits was unusually high
+during the same period, because interest was so. Supposing
+the rate of profits to have been precisely the
+same during the war, as before or after it, the rate
+of interest would nevertheless have risen, from the
+causes and in the manner above described.</p>
+
+<p>The practical use of the preceding investigation is,
+to moderate the confidence with which inferences are
+frequently drawn with respect to the rate of profit
+from evidence regarding the rate of interest; and to
+shew that although the rate of profit is one of the
+elements which combine to determine the rate of
+interest, the latter is also acted upon by causes peculiar
+to itself, and may either rise or fall, both temporarily
+and permanently, while the general rate of
+profits remains unchanged.</p>
+
+<hr style="width: 45%;">
+
+<p>The introduction of banks, which perform the
+function of lenders and loan-brokers, with or without
+that of issuers of paper-money, produces some further
+anomalies in the rate of interest, which have not, so
+far as we are aware, been hitherto brought within the
+pale of exact science.</p>
+
+<p>If bankers were merely a class of middlemen
+between the lender and the borrower; if they merely
+received deposits of capital from those who had it lying
+unemployed in their hands, and lent this, together
+with their own capital, to the productive classes,
+receiving interest for it, and paying interest in their
+turn to those who had placed capital in their hands;
+the effect of the operations of banking on the rate of
+interest would be to lower it in some slight degree.
+The banker receives and collects together sums of
+money much too small, when taken individually, to
+render it worth while for the owners to look out
+for an investment, but which in the aggregate form
+a considerable amount. This amount may be considered
+a clear addition to the productive capital of the
+country; at least, to the capital in activity at any
+moment. And as this addition to the capital accrues
+wholly to that part of it which is not employed by
+the owners, but lent to other producers, the natural
+effect is a diminution of the rate of interest.</p>
+
+<p>The banker, to the extent of his own private
+capital, (the expenses of his business being first paid,)
+is a lender at interest. But, being subject to risk and
+trouble fully equal to that which belongs to most
+other employments, he cannot be satisfied with the
+mere interest even of his whole capital: he must have
+the ordinary profits of stock, or he will not engage
+in the business: the state of banking must be such
+as to hold out to him the prospect of adding, to
+the interest of what remains of his own capital after
+paying the expenses of his business, interest upon
+capital deposited with him, in sufficient amount to
+make up, after paying the expenses, the ordinary
+profit which could be derived from his own capital
+in any productive employment. This will be accomplished
+in one of two ways.</p>
+
+<p>1. If the circumstances of society are such as to
+furnish a ready investment of disposable capital; (as
+for instance in London, where the public funds and
+other securities, of undoubted stability, and affording
+great advantages for receiving the interest without
+trouble and realizing the principal without difficulty
+when required, tempt all persons who have sums of
+importance lying idle, to invest them on their own
+account without the intervention of any middleman;)
+the deposits with bankers consist chiefly of small sums
+likely to be wanted in a very short period for current
+expenses, and the interest on which would seldom be
+worth the trouble of calculating it. Bankers, therefore,
+do not allow any interest on their deposits. After
+paying the expenses of their business, all the rest of
+the interest they receive is clear gain. But as the
+circumstances of banking, as of all other modes of
+employing capital, will on the average be such as
+to afford to a person entering into the business a
+prospect of realizing the ordinary, and no more than
+the ordinary, profits upon his own capital; the gains
+of each banker by the investment of his deposits, will
+not on the average exceed what is necessary to make
+up his gains on his own capital to the ordinary rate.
+It is, of course, competition, which brings about this
+limitation. Whether competition operates by lowering
+the rate of interest, or by dividing the business
+among a larger number, it is difficult to decide. Probably
+it operates in both ways; but it is by no means
+impossible that it may operate in the latter way
+alone: just as an increase in the number of physicians
+does not lower the fees, though it diminishes an average
+competitor's chance of obtaining them.</p>
+
+<p>It is not impossible that the disposition of the lenders
+might be such, that they would cease to lend rather
+than acquiesce in any reduction of the rate of interest.
+If so, the arrival of a new lender, in the person of a
+banker of deposit, would not lower the rate of interest
+in any considerable degree. A slight fall would take
+place, and with that exception things would be as before,
+except that the capital in the hands of the banker
+would have put itself into the place of an equal portion
+of capital belonging to other lenders, who would
+themselves have engaged in business (<i>e.g.</i>, by subscribing
+to some joint-stock company, or entering into
+commandite). Bankers' profits would then be limited
+to the ordinary rate chiefly by the division of the
+business among many banks, so that each on the
+average would receive no more interest on his deposits
+than would suffice to make up the interest on
+his own capital to the ordinary rate of profit after
+paying all expenses.</p>
+
+<p>2. But if the circumstances of society render it
+difficult and inconvenient for persons who wish to live
+upon the interest of their money, to seek an investment
+for themselves, the bankers become agents for
+this specific purpose: large as well as small sums are
+deposited with them, and they allow interest to their
+customers. Such is the practice of the Scotch banks,
+and of most of the country banks in England. Their
+customers, not living at any of the great seats of
+money transactions, prefer entrusting their capital to
+somebody on the spot, whom they know, and in whom
+they confide. He invests their money on the best
+terms he can, and pays to them such interest as he can
+afford to give; retaining a compensation for his own
+risk and trouble. This compensation is fixed by the
+competition of the market. The rate of interest is no
+further lowered by this operation, than inasmuch as it
+brings together the lender and the borrower in a safe
+and expeditious manner. The lender incurs less risk,
+and a larger proportion, therefore, of the holders of
+capital are willing to be lenders.</p>
+
+<p>When a banker, in addition to his other functions,
+is also an issuer of paper money, he gains an advantage
+similar to that which the London bankers derive from
+their deposits. To the extent to which he can put
+forth his notes, he has so much the more to lend,
+without himself having to pay any interest for it.</p>
+
+<p>If the paper is convertible, it cannot get into circulation
+permanently without displacing specie, which
+goes abroad and brings back an equivalent value.
+To the extent of this value, there is an increase of
+the capital of the country; and the increase accrues
+solely to that part of the capital which is employed in
+loans.</p>
+
+<p>If the paper is inconvertible, and instead of displacing
+specie depreciates the currency, the banker by
+issuing it levies a tax on every person who has money
+in his hands or due to him. He thus appropriates to
+himself a portion of the capital of other people, and a
+portion of their revenue. The capital might have
+been intended to be lent, or it might have been intended
+to be employed by the owner: such part of it
+as was intended to be employed by the owner now
+changes its destination, and is lent. The revenue
+was either intended to be accumulated, in which case
+it had already become capital, or it was intended to
+be spent: in this last case, revenue is converted into
+capital: and thus, strange as it may appear, the depreciation
+of the currency, when effected in this way,
+operates to a certain extent as a forced accumulation.
+This, indeed, is no palliation of its iniquity. Though
+A might have spent his property unproductively, B
+ought not to be permitted to rob him of it because
+B will expend it on productive labour.</p>
+
+<p>In any supposable case, however, the issue of
+paper money by bankers increases the proportion of
+the whole capital of the country which is destined to
+be lent. The rate of interest must therefore fall, until
+some of the lenders give over lending, or until the
+increase of borrowers absorbs the whole.</p>
+
+<p>But a fall of the rate of interest, sufficient to
+enable the money market to absorb the whole of the
+paper-loans, may not be sufficient to reduce the profits
+of a lender who lends what costs him nothing, to the
+ordinary rate of profit upon his capital. Here, therefore,
+competition will operate chiefly by dividing the
+business. The notes of each bank will be confined
+within so narrow a district, or will divide the supply
+of a district with so many other banks, that on the
+average each will receive no larger amount of interest
+on his notes than will make up the interest on his
+own capital to the ordinary rate of profit.</p>
+
+<p>Even in this way, however, the competition has
+the effect, to a certain limited extent, of lowering the
+rate of interest; for the power of bankers to receive
+interest on more than their capital attracts a greater
+amount of capital into the banking business than would
+otherwise flow into it; and this greater capital being
+all lent, interest will fall in consequence.</p>
+
+<p class="NO"><b>NOTE:</b></p>
+
+<p><a name="Footnote_7"></a><a href="#FNanchor7">[7]</a><div class=note> It would be easy to go over in the same manner
+any other case. For instance, we may suppose, that, instead
+of dispensing with the <i>whole</i> of the fixed capital, material, &amp;c,
+and taking on labourers in equal number to those by whom
+these were produced, <i>half</i> only of the fixed capital and material is
+dispensed with; so that, instead of 60 labourers and a fixed capital
+worth 60 quarters of corn, we have 80 labourers and a fixed capital
+worth 30. The numerical statement of this case is more intricate
+than that in the text, but the result is not different.</div><br>
+
+
+
+
+<hr style="width: 65%;">
+<a name="ESSAY_V"></a><h2>ESSAY V.</h2>
+
+<h2>ON THE DEFINITION OF POLITICAL ECONOMY; AND ON
+THE METHOD OF INVESTIGATION PROPER TO IT.</h2>
+<br>
+
+<p>It might be imagined, on a superficial view of the
+nature and objects of definition, that the definition of
+a science would occupy the same place in the chronological
+which it commonly does in the didactic order.
+As a treatise on any science usually commences with
+an attempt to express, in a brief formula, what the
+science is, and wherein it differs from other sciences,
+so, it might be supposed, did the framing of such a
+formula naturally precede the successful cultivation of
+the science.</p>
+
+<p>This, however, is far from having been the case.
+The definition of a science has almost invariably not
+preceded, but followed, the creation of the science
+itself. Like the wall of a city, it has usually been
+erected, not to be a receptacle for such edifices as
+might afterwards spring up, but to circumscribe an
+aggregation already in existence. Mankind did not
+measure out the ground for intellectual cultivation
+before they began to plant it; they did not divide the
+field of human investigation into regular compartments
+first, and then begin to collect truths for the
+purpose of being therein deposited; they proceeded
+in a less systematic manner. As discoveries were
+gathered in, either one by one, or in groups resulting
+from the continued prosecution of some uniform course
+of inquiry, the truths which were successively brought
+into store cohered and became agglomerated according
+to their individual affinities. Without any intentional
+classification, the facts classed themselves. They
+became associated in the mind, according to their
+general and obvious resemblances; and the aggregates
+thus formed, having to be frequently spoken of as
+aggregates, came to be denoted by a common name.
+Any body of truths which had thus acquired a collective
+denomination, was called a <i>science</i>. It was long
+before this fortuitous classification was felt not to be
+sufficiently precise. It was in a more advanced stage
+of the progress of knowledge that mankind became
+sensible of the advantage of ascertaining whether the
+facts which they had thus grouped together were distinguished
+from all other facts by any common properties,
+and what these were. The first attempts to
+answer this question were commonly very unskilful,
+and the consequent definitions extremely imperfect.</p>
+
+<p>And, in truth, there is scarcely any investigation in
+the whole body of a science requiring so high a degree
+of analysis and abstraction, as the inquiry, what the
+science itself is; in other words, what are the properties
+common to all the truths composing it, and distinguishing
+them from all other truths. Many persons,
+accordingly, who are profoundly conversant with the
+details of a science, would be very much at a loss to
+supply such a definition of the science itself as should
+not be liable to well-grounded logical objections.
+From this remark, we cannot except the authors of
+elementary scientific treatises. The definitions which
+those works furnish of the sciences, for the most part
+either do not fit them&mdash;some being too wide, some too
+narrow&mdash;or do not go deep enough into them, but
+define a science by its accidents, not its essentials; by
+some one of its properties which may, indeed, serve
+the purpose of a distinguishing mark, but which is of
+too little importance to have ever of itself led mankind
+to give the science a name and rank as a separate
+object of study.</p>
+
+<p>The definition of a science must, indeed, be placed
+among that class of truths which Dugald Stewart had
+in view, when he observed that the first principles of
+all sciences belong to the philosophy of the human
+mind. The observation is just; and the first principles
+of all sciences, including the definitions of them, have
+consequently participated hitherto in the vagueness
+and uncertainty which has pervaded that most difficult
+and unsettled of all branches of knowledge. If we
+open any book, even of mathematics or natural philosophy,
+it is impossible not to be struck with the mistiness
+of what we find represented as preliminary and
+fundamental notions, and the very insufficient manner
+in which the propositions which are palmed upon us
+as first principles seem to be made out, contrasted
+with the lucidity of the explanations and the conclusiveness
+of the proofs as soon as the writer enters
+upon the details of his subject. Whence comes this
+anomaly? Why is the admitted certainty of the
+results of those sciences in no way prejudiced by the
+want of solidity in their premises? How happens it
+that a firm superstructure has been erected upon an
+unstable foundation? The solution of the paradox <i>is</i>,
+that what are called first principles, are, in truth,
+<i>last</i> principles. Instead of being the fixed point from
+whence the chain of proof which supports all the rest
+of the science hangs suspended, they are themselves
+the remotest link of the chain. Though presented as
+if all other truths were to be deduced from them, they
+are the truths which are last arrived at; the result of
+the last stage of generalization, or of the last and
+subtlest process of analysis, to which the particular
+truths of the science can be subjected; those particular
+truths having previously been ascertained by
+the evidence proper to their own nature.</p>
+
+<p>Like other sciences, Political Economy has remained
+destitute of a definition framed on strictly
+logical principles, or even of, what is more easily to be
+had, a definition exactly co-extensive with the thing
+defined. This has not, perhaps, caused the real bounds
+of the science to be, in this country at least, practically
+mistaken or overpassed; but it has occasioned&mdash;perhaps
+we should rather say it is connected with&mdash;indefinite,
+and often erroneous, conceptions of the
+mode in which the science should be studied.</p>
+
+<p>We proceed to verify these assertions by an examination
+of the most generally received definitions of
+the science.</p>
+
+<p>1. First, as to the vulgar notion of the nature and
+object of Political Economy, we shall not be wide of
+the mark if we state it to be something to this effect:&mdash;That
+Political Economy is a science which teaches,
+or professes to teach, in what manner a nation may
+be made rich. This notion of what constitutes the
+science, is in some degree countenanced by the title
+and arrangement which Adam Smith gave to his invaluable
+work. A systematic treatise on Political
+Economy, he chose to call an <i>Inquiry into the Nature
+and Causes of the Wealth of Nations</i>; and the topics
+are introduced in an order suitable to that view of the
+purpose of his book.</p>
+
+<p>With respect to the definition in question, if definition
+it can be called which is not found in any set
+form of words, but left to be arrived at by a process of
+abstraction from a hundred current modes of speaking
+on the subject; it seems liable to the conclusive objection,
+that it confounds the essentially distinct, though
+closely connected, ideas of <i>science</i> and <i>art</i>. These two
+ideas differ from one another as the understanding
+differs from the will, or as the indicative mood in
+grammar differs from the imperative. The one deals in
+facts, the other in precepts. Science is a collection of
+<i>truths</i>; art, a body of <i>rules</i>, or directions for conduct.
+The language of science is, This is, or, This is not;
+This does, or does not, happen. The language of art
+is, Do this; Avoid that. Science takes cognizance of
+a <i>phenomenon</i>, and endeavours to discover its <i>law</i>; art
+proposes to itself an <i>end</i>, and looks out for <i>means</i> to
+effect it.</p>
+
+<p>If, therefore, Political Economy be a science, it
+cannot be a collection of practical rules; though,
+unless it be altogether a useless science, practical
+rules must be capable of being founded upon it.
+The science of mechanics, a branch of natural philosophy,
+lays down the laws of motion, and the properties
+of what are called the mechanical powers. The art of
+practical mechanics teaches how we may avail ourselves
+of those laws and properties, to increase our
+command over external nature. An art would not be
+an art, unless it were founded upon a scientific knowledge
+of the properties of the subject-matter: without
+this, it would not be philosophy, but empiricism;
+[Greek: empeiria,] not [Greek: technae,] in Plato's sense. Rules, therefore,
+for making a nation increase in wealth, are not a
+science, but they are the results of science. Political
+Economy does not of itself instruct how to make a
+nation rich; but whoever would be qualified to judge
+of the means of making a nation rich, must first be a
+political economist.</p>
+
+<p>2. The definition most generally received among
+instructed persons, and laid down in the commencement
+of most of the professed treatises on the subject,
+is to the following effect:&mdash;That Political Economy
+informs us of the laws which regulate the production,
+distribution, and consumption of wealth. To this
+definition is frequently appended a familiar illustration.
+Political Economy, it is said, is to the state,
+what domestic economy is to the family.</p>
+
+<p>This definition is free from the fault which we
+pointed out in the former one. It distinctly takes
+notice that Political Economy is a science and not an
+art; that it is conversant with laws of nature, not with
+maxims of conduct, and teaches us how things take
+place of themselves, not in what manner it is advisable
+for us to shape them, in order to attain some particular
+end.</p>
+
+<p>But though the definition is, with regard to this
+particular point, unobjectionable, so much can scarcely
+be said for the accompanying illustration; which
+rather sends back the mind to the current loose
+notion of Political Economy already disposed of.
+Political Economy is really, and is stated in the
+definition to be, a science: but domestic economy, so
+far as it is capable of being reduced to principles, is
+an art. It consists of rules, or maxims of prudence,
+for keeping the family regularly supplied with what
+its wants require, and securing, with any given amount
+of means, the greatest possible quantity of physical
+comfort and enjoyment. Undoubtedly the beneficial
+<i>result</i>, the great practical <i>application</i> of Political Economy,
+would be to accomplish for a nation something
+like what the most perfect domestic economy accomplishes
+for a single household: but supposing this
+purpose realised, there would be the same difference
+between the rules by which it might be effected, and
+Political Economy, which there is between the art of
+gunnery and the theory of projectiles, or between the
+rules of mathematical land-surveying and the science
+of trigonometry.</p>
+
+<p>The definition, though not liable to the same objection
+as the illustration which is annexed to it, is
+itself far from unexceptionable. To neither of them,
+considered as standing at the head of a treatise, have
+we much to object. At a very early stage in the
+study of the science, anything more accurate would be
+useless, and therefore pedantic. In a merely initiatory
+definition, scientific precision is not required: the
+object is, to insinuate into the learner's mind, it is
+scarcely material by what means, some general preconception
+of what are the uses of the pursuit, and what
+the series of topics through which he is about to travel.
+As a mere anticipation or <i>&eacute;bauche</i> of a definition, intended
+to indicate to a learner as much as he is able
+to understand before he begins, of the nature of what
+is about to be taught to him, we do not quarrel with
+the received formula. But if it claims to be admitted
+as that complete <i>definitio</i> or boundary-line, which results
+from a thorough exploring of the whole extent
+of the subject, and is intended to mark the exact place
+of Political Economy among the sciences, its pretension
+cannot be allowed.</p>
+
+<p>&quot;The science of the laws which regulate the production,
+distribution, and consumption of wealth.&quot; The
+term wealth is surrounded by a haze of floating and
+vapoury associations, which will let nothing that is
+seen through them be shewn distinctly. Let us supply
+its place by a periphrasis. Wealth is defined, all objects
+useful or agreeable to mankind, except such as
+can be obtained in indefinite quantity without labour.
+Instead of all objects, some authorities say, all material
+objects: the distinction is of no moment for the
+present purpose.</p>
+
+<p>To confine ourselves to production: If the laws of
+the production of all objects, or even of all material
+objects, which are useful or agreeable to mankind, were
+comprised in Political Economy, it would be difficult
+to say where the science would end: at the least, all
+or nearly all physical knowledge would be included in
+it. Corn and cattle are material objects, in a high
+degree useful to mankind. The laws of the production
+of the one include the principles of agriculture; the
+production of the other is the subject of the art of
+cattle-breeding, which, in so far as really an art, must
+be built upon the science of physiology. The laws of
+the production of manufactured articles involve the
+whole of chemistry and the whole of mechanics. The
+laws of the production of the wealth which is extracted
+from the bowels of the earth, cannot be set
+forth without taking in a large part of geology.</p>
+
+<p>When a definition so manifestly surpasses in extent
+what it professes to define, we must suppose that
+it is not meant to be interpreted literally, though the
+limitations with which it is to be understood are not
+stated.</p>
+
+<p>Perhaps it will be said, that Political Economy is
+conversant with such only of the laws of the production
+of wealth as are applicable to <i>all</i> kinds of wealth:
+those which relate to the details of particular trades
+or employments forming the subject of other and
+totally distinct sciences.</p>
+
+<p>If, however, there were no more in the distinction
+between Political Economy and physical science than
+this, the distinction, we may venture to affirm, would
+never have been made. No similar division exists in
+any other department of knowledge. We do not
+break up zoology or mineralogy into two parts; one
+treating of the properties common to all animals, or to
+all minerals; another conversant with the properties
+peculiar to each particular species of animals or minerals.
+The reason is obvious; there is no distinction
+<i>in kind</i> between the general laws of animal or of
+mineral nature and the peculiar properties of particular
+species. There is as close an analogy between
+the general laws and the particular ones, as there is
+between one of the general laws and another: most
+commonly, indeed, the particular laws are but the
+complex result of a plurality of general laws modifying
+each other. A separation, therefore, between the
+general laws and the particular ones, merely because
+the former are general and the latter particular, would
+run counter both to the strongest motives of convenience
+and to the natural tendencies of the mind.
+If the case is different with the laws of the production
+of wealth, it must be because, in this case, the general
+laws differ in kind from the particular ones. But if
+so, the difference in kind is the radical distinction,
+and we should find out what that is, and found our
+definition upon it.</p>
+
+<p>But, further, the recognised boundaries which
+separate the field of Political Economy from that of
+physical science, by no means correspond with the
+distinction between the truths which concern all kinds
+of wealth and those which relate only to some kinds.
+The three laws of motion, and the law of gravitation,
+are common, as far as human observation has yet extended,
+to all matter; and these, therefore, as being
+among the laws of the production of all wealth, should
+form part of Political Economy. There are hardly
+any of the processes of industry which do not partly
+depend upon the properties of the lever; but it would
+be a strange classification which included those properties
+among the truths of Political Economy. Again,
+the latter science has many inquiries altogether as
+special, and relating as exclusively to particular sorts
+of material objects, as any of the branches of physical
+science. The investigation of some of the circumstances
+which regulate the price of corn, has as little
+to do with the laws common to the production of all
+wealth, as any part of the knowledge of the agriculturist.
+The inquiry into the rent of mines or fisheries,
+or into the value of the precious metals, elicits truths
+which have immediate reference to the production
+solely of a peculiar kind of wealth; yet these are
+admitted to be correctly placed in the science of
+Political Economy.</p>
+
+<p>The real distinction between Political Economy
+and physical science must be sought in something
+deeper than the nature of the subject-matter; which,
+indeed, is for the most part common to both. Political
+Economy, and the scientific grounds of all the
+useful arts, have in truth one and the same subject-matter;
+namely, the objects which conduce to man's
+convenience and enjoyment: but they are, nevertheless,
+perfectly distinct branches of knowledge.</p>
+
+<p>3. If we contemplate the whole field of human
+knowledge, attained or attainable, we find that it
+separates itself obviously, and as it were spontaneously,
+into two divisions, which stand so strikingly in
+opposition and contradistinction to one another, that
+in all classifications of our knowledge they have been
+kept apart. These are, <i>physical</i> science, and <i>moral</i> or
+psychological science. The difference between these
+two departments of our knowledge does not reside in
+the subject-matter with which they are conversant:
+for although, of the simplest and most elementary
+parts of each, it may be said, with an approach to
+truth, that they are concerned with different subject-matters&mdash;namely,
+the one with the human mind, the
+other with all things whatever except the mind; this
+distinction does not hold between the higher regions
+of the two. Take the science of politics, for instance,
+or that of law: who will say that these are physical
+sciences? and yet is it not obvious that they are conversant
+fully as much with matter as with mind?
+Take, again, the theory of music, of painting, of any
+other of the fine arts, and who will venture to pronounce
+that the facts they are conversant with belong
+either wholly to the class of matter, or wholly to that
+of mind?</p>
+
+<p>The following seems to be the <i>rationale</i> of the distinction
+between physical and moral science.</p>
+
+<p>In all the intercourse of man with nature, whether
+we consider him as acting upon it, or as receiving impressions
+from it, the effect or phenomenon depends
+upon causes of two kinds: the properties of the object
+acting, and those of the object acted upon. Everything
+which can possibly happen in which man and
+external things, are jointly concerned, results from the
+joint operation of a law or laws of matter, and a law
+or laws of the human mind. Thus the production of
+corn by human labour is the result of a law of mind,
+and many laws of matter. The laws of matter are
+those properties of the soil and of vegetable life which
+cause the seed to germinate in the ground, and those
+properties of the human body which render food
+necessary to its support. The law of mind is, that
+man desires to possess subsistence, and consequently
+wills the necessary means of procuring it.</p>
+
+<p>Laws of mind and laws of matter are so dissimilar
+in their nature, that it would be contrary to all principles
+of rational arrangement to mix them up as part
+of the same study. In all scientific methods, therefore,
+they are placed apart. Any compound effect or
+phenomenon which depends both on the properties of
+matter and on those of mind, may thus become the
+subject of two completely distinct sciences, or branches
+of science; one, treating of the phenomenon in so far
+as it depends upon the laws of matter only; the other
+treating of it in so far as it depends upon the laws of
+mind.</p>
+
+<p>The physical sciences are those which treat of the
+laws of matter, and of all complex phenomena in so
+far as dependent upon the laws of matter. The mental
+or moral sciences are those which treat of the laws of
+mind, and of all complex phenomena in so far as
+dependent upon the laws of mind.</p>
+
+<p>Most of the moral sciences presuppose physical
+science; but few of the physical sciences presuppose
+moral science. The reason is obvious. There are
+many phenomena (an earthquake, for example, or the
+motions of the planets) which depend upon the laws
+of matter exclusively; and have nothing whatever to
+do with the laws of mind. Many, therefore, of the
+physical sciences may be treated of without any reference
+to mind, and as if the mind existed as a recipient
+of knowledge only, not as a cause producing effects.
+But there are no phenomena which depend exclusively
+upon the laws of mind; even the phenomena of the
+mind itself being partially dependent upon the physiological
+laws of the body. All the mental sciences,
+therefore, not excepting the pure science of mind,
+must take account of a great variety of physical
+truths; and (as physical science is commonly and very
+properly studied first) may be said to presuppose them,
+taking up the complex phenomena where physical
+science leaves them.</p>
+
+<p>Now this, it will be found, is a precise statement
+of the relation in which Political Economy stands to
+the various sciences which are tributary to the arts of
+production.</p>
+
+<p>The laws of the production of the objects which
+constitute wealth, are the subject-matter both of
+Political Economy and of almost all the physical
+sciences. Such, however, of those laws as are purely
+laws of matter, belong to physical science, and to that
+exclusively. Such of them as are laws of the human
+mind, and no others, belong to Political Economy,
+which finally sums up the result of both combined.</p>
+
+<p>Political Economy, therefore, presupposes all the
+physical sciences; it takes for granted all such of the
+truths of those sciences as are concerned in the production
+of the objects demanded by the wants of
+mankind; or at least it takes for granted that the
+physical part of the process takes place somehow. It
+then inquires what are the phenomena of <i>mind</i> which
+are concerned in the production and distribution <a name="FNanchor8"></a><a href="#Footnote_8"><sup>[8]</sup></a> of
+those same objects; it borrows from the pure science
+of mind the laws of those phenomena, and inquires
+what effects follow from these mental laws, acting in
+concurrence with those physical one. <a name="FNanchor9"></a><a href="#Footnote_9"><sup>[9]</sup></a></p>
+
+<p>From the above considerations the following seems
+to come out as the correct and complete definition of
+Political Economy:&mdash;&quot;The science which treats of the
+production and distribution of wealth, so far as they
+depend upon the laws of human nature.&quot; Or thus&mdash;science
+relating to the moral or psychological
+laws of the production and distribution of wealth.&quot;</p>
+
+<p>For popular use this definition is amply sufficient,
+but it still falls short of the complete accuracy required
+for the purposes of the philosopher. Political
+Economy does not treat of the production and distribution
+of wealth in all states of mankind, but only
+in what is termed the social state; nor so far as they
+depend upon the laws of human nature, but only so
+far as they depend upon a certain portion of those
+laws. This, at least, is the view which must be taken
+of Political Economy, if we mean it to find any place
+in an encyclopedical division of the field of science.
+On any other view, it either is not science at all, or
+it is several sciences. This will appear clearly, if, on
+the one hand, we take a general survey of the moral
+sciences, with a view to assign the exact place of
+Political Economy among them; while, on the other,
+we consider attentively the nature of the methods or
+processes by which the truths which are the object of
+those sciences are arrived at.</p>
+
+<p>Man, who, considered as a being having a moral
+or mental nature, is the subject-matter of all the
+moral sciences, may, with reference to that part of his
+nature, form the subject of philosophical inquiry under
+several distinct hypotheses. We may inquire what
+belongs to man considered individually, and as if no
+human being existed besides himself; we may next
+consider him as coming into contact with other individuals;
+and finally, as living in a state of <i>society</i>,
+that is, forming part of a body or aggregation of
+human beings, systematically co-operating for common
+purposes. Of this last state, political government,
+or subjection to a common superior, is an ordinary
+ingredient, but forms no necessary part of the conception,
+and, with respect to our present purpose,
+needs not be further adverted to.</p>
+
+<p>Those laws or properties of human nature which
+appertain to man as a mere individual, and do not
+presuppose, as a necessary condition, the existence of
+other individuals (except, perhaps, as mere instruments
+or means), form a part of the subject of pure
+mental philosophy. They comprise all the laws of the
+mere intellect, and those of the purely self-regarding
+desires.</p>
+
+<p>Those laws of human nature which relate to the
+feelings called forth in a human being by other individual
+human or intelligent beings, as such; namely,
+the <i>affections</i>, the <i>conscience</i>, or feeling of duty, and the
+love of <i>approbation</i>; and to the conduct of man, so
+far as it depends upon, or has relation to, these parts
+of his nature&mdash;form the subject of another portion of
+pure mental philosophy, namely, that portion of it on
+which <i>morals</i>, or <i>ethics</i>, are founded. For morality
+itself is not a science, but an art; not truths, but
+rules. The truths on which the rules are founded are
+drawn (as is the case in all arts) from a variety of
+sciences; but the principal of them, and those which
+are most nearly peculiar to this particular art, belong
+to a branch of the science of mind.</p>
+
+<p>Finally, there are certain principles of human
+nature which are peculiarly connected with the ideas
+and feelings generated in man by living in a state of
+<i>society</i>, that is, by forming part of a union or aggregation
+of human beings for a common purpose or
+purposes. Few, indeed, of the elementary laws of the
+human mind are peculiar to this state, almost all
+being called into action in the two other states. But
+those simple laws of human nature, operating in that
+wider field, give rise to results of a sufficiently universal
+character, and even (when compared with the
+still more complex phenomena of which they are the
+determining causes) sufficiently simple, to admit of
+being called, though in a somewhat looser sense, <i>laws</i>
+of society, or laws of human nature in the social
+state. These laws, or general truths, form the subject
+of a branch of science which may be aptly designated
+from the title of <i>social economy</i>; somewhat less happily
+by that of <i>speculative politics</i>, or the <i>science</i> of politics,
+as contradistinguished from the art. This science
+stands in the same relation to the social, as anatomy
+and physiology to the physical body. It shows by
+what principles of his nature man is induced to enter
+into a state of society; how this feature in his position
+acts upon his interests and feelings, and through them
+upon his conduct; how the association tends progressively
+to become closer, and the co-operation extends
+itself to more and more purposes; what those purposes
+are, and what the varieties of means most generally
+adopted for furthering them; what are the various
+relations which establish themselves among human
+beings as the ordinary consequence of the social
+union; what those which are different in different
+states of society; in what historical order those states
+tend to succeed one another; and what are the effects
+of each upon the conduct and character of man.</p>
+
+<p>This branch of science, whether we prefer to call
+it social economy, speculative politics, or the natural
+history of society, presupposes the whole science of
+the nature of the individual mind; since all the laws
+of which the latter science takes cognizance are
+brought into play in a state of society, and the truths
+of the social science are but statements of the manner
+in which those simple laws take effect in complicated
+circumstances. Pure mental philosophy, therefore, is
+an essential part, or preliminary, of political philosophy.
+The science of social economy embraces every
+part of man's nature, in so far as influencing the conduct
+or condition of man in society; and therefore
+may it be termed speculative politics, as being the
+scientific foundation of practical politics, or the art
+of government, of which the art of legislation is a
+part <a name="FNanchor10"></a><a href="#Footnote_10"><sup>[10]</sup></a>.</p>
+
+<p>It is to <i>this</i> important division of the field of
+science that one of the writers who have most correctly
+conceived and copiously illustrated its nature
+and limits,&mdash;we mean M. Say,&mdash;has chosen to give
+the name Political Economy. And, indeed, this large
+extension of the signification of that term is countenanced
+by its etymology. But the words &quot;political
+economy&quot; have long ceased to have so large a meaning.
+Every writer is entitled to use the words which are
+his tools in the manner which he judges most conducive
+to the general purposes of the exposition of
+truth; but he exercises this discretion under liability
+to criticism: and M. Say seems to have done in this
+instance, what should never be done without strong
+reasons; to have altered the meaning of a name
+which was appropriated to a particular purpose (and
+for which, therefore, a substitute must be provided),
+in order to transfer it to an object for which it was
+easy to find a more characteristic denomination.</p>
+
+<p>What is now commonly understood by the term
+&quot;Political Economy&quot; is not the science of speculative
+politics, but a branch of that science. It does not
+treat of the whole of man's nature as modified by the
+social state, nor of the whole conduct of man in
+society. It is concerned with him solely as a being
+who desires to possess wealth, and who is capable
+of judging of the comparative efficacy of means for
+obtaining that end. It predicts only such of the
+phenomena of the social state as take place in consequence
+of the pursuit of wealth. It makes entire
+abstraction of every other human passion or motive;
+except those which may be regarded as perpetually
+antagonizing principles to the desire of wealth, namely,
+aversion to labour, and desire of the present enjoyment
+of costly indulgences. These it takes, to a
+certain extent, into its calculations, because these
+do not merely, like other desires, occasionally conflict
+with the pursuit of wealth, but accompany it
+always as a drag, or impediment, and are therefore
+inseparably mixed up in the consideration of it. Political
+Economy considers mankind as occupied solely
+in acquiring and consuming wealth; and aims at showing
+what is the course of action into which mankind,
+living in a state of society, would be impelled, if that
+motive, except in the degree in which it is checked by
+the two perpetual counter-motives above adverted to,
+were absolute ruler of all their actions. Under the
+influence of this desire, it shows mankind accumulating
+wealth, and employing that wealth in the production
+of other wealth; sanctioning by mutual agreement
+the institution of property; establishing laws to
+prevent individuals from encroaching upon the property
+of others by force or fraud; adopting various
+contrivances for increasing the productiveness of their
+labour; settling the division of the produce by agreement,
+under the influence of competition (competition
+itself being governed by certain laws, which laws are
+therefore the ultimate regulators of the division of the
+produce); and employing certain expedients (as money,
+credit, &amp;c.) to facilitate the distribution. All these
+operations, though many of them are really the result
+of a plurality of motives, are considered by Political
+Economy as flowing solely from the desire of wealth.
+The science then proceeds to investigate the laws
+which govern these several operations, under the supposition
+that man is a being who is determined, by
+the necessity of his nature, to prefer a greater portion
+of wealth to a smaller in all cases, without any other
+exception than that constituted by the two counter-motives
+already specified. Not that any political
+economist was ever so absurd as to suppose that
+mankind are really thus constituted, but because this
+is the mode in which science must necessarily proceed.
+When an effect depends upon a concurrence of causes,
+those causes must be studied one at a time, and their
+laws separately investigated, if we wish, through the
+causes, to obtain the power of either predicting or
+controlling the effect; since the law of the effect is
+compounded of the laws of all the causes which determine
+it. The law of the centripetal and that of the
+tangential force must have been known before the
+motions of the earth and planets could be explained,
+or many of them predicted. The same is the case
+with the conduct of man in society. In order to
+judge how he will act under the variety of desires and
+aversions which are concurrently operating upon him,
+we must know how he would act under the exclusive
+influence of each one in particular. There is, perhaps,
+no action of a man's life in which he is neither under
+the immediate nor under the remote influence of any
+impulse but the mere desire of wealth. With respect
+to those parts of human conduct of which wealth is
+not even the principal object, to these Political Economy
+does not pretend that its conclusions are applicable.
+But there are also certain departments of
+human affairs, in which the acquisition of wealth is
+the main and acknowledged end. It is only of these
+that Political Economy takes notice. The manner in
+which it necessarily proceeds is that of treating the
+main and acknowledged end as if it were the sole end;
+which, of all hypotheses equally simple, is the nearest
+to the truth. The political economist inquires, what
+are the actions which would be produced by this
+desire, if, within the departments in question, it were
+unimpeded by any other. In this way a nearer approximation
+is obtained than would otherwise be practicable,
+to the real order of human affairs in those
+departments. This approximation is then to be corrected
+by making proper allowance for the effects of
+any impulses of a different description, which can be
+shown to interfere with the result in any particular
+case. Only in a few of the most striking cases (such
+as the important one of the principle of population)
+are these corrections interpolated into the expositions
+of Political Economy itself; the strictness of purely
+scientific arrangement being thereby somewhat departed
+from, for the sake of practical utility. So far
+as it is known, or may be presumed, that the conduct
+of mankind in the pursuit of wealth is under the collateral
+influence of any other of the properties of
+our nature than the desire of obtaining the greatest
+quantity of wealth with the least labour and self-denial,
+the conclusions of Political Economy will so
+far fail of being applicable to the explanation or prediction
+of real events, until they are modified by a
+correct allowance for the degree of influence exercised
+by the other cause.</p>
+
+<p>Political Economy, then, may be defined as follows;
+and the definition seems to be complete:&mdash;</p>
+
+<p>&quot;The science which traces the laws of such of the
+phenomena of society as arise from the combined
+operations of mankind for the production of wealth,
+in so far as those phenomena are not modified by the
+pursuit of any other object.&quot;</p>
+
+<p>But while this is a correct definition of Political
+Economy as a portion of the field of science, the
+didactic writer on the subject will naturally combine
+in his exposition, with the truths of the pure science,
+as many of the practical modifications as will, in his
+estimation, be most conducive to the usefulness of his
+work.</p>
+
+<hr style="width: 45%;">
+
+<p>The above attempt to frame a stricter definition
+of the science than what are commonly received as
+such, may be thought to be of little use; or, at best,
+to be chiefly useful in a general survey and classification
+of the sciences, rather than as conducing to the
+more successful pursuit of the particular science in
+question. We think otherwise, and for this reason;
+that, with the consideration of the definition of a
+science, is inseparably connected that of the <i>philosophic
+method</i> of the science; the nature of the process by
+which its investigations are to be carried on, its
+truths to be arrived at.</p>
+
+<p>Now, in whatever science there are systematic
+differences of opinion&mdash;which is as much as to say,
+in all the moral or mental sciences, and in Political
+Economy among the rest; in whatever science there
+exist, among those who have attended to the subject,
+what are commonly called differences of principle,
+as distinguished from differences of matter-of-fact or
+detail,&mdash;the cause will be found to be, a difference in
+their conceptions of the philosophic method of the
+science. The parties who differ are guided, either
+knowingly or unconsciously, by different views concerning
+the nature of the evidence appropriate to the
+subject. They differ not solely in what they believe
+themselves to see, but in the quarter whence they
+obtained the light by which they think they see it.</p>
+
+<p>The most universal of the forms in which this difference
+of method is accustomed to present itself, is the
+ancient feud between what is called theory, and what
+is called practice or experience. There are, on social
+and political questions, two kinds of reasoners: there
+is one portion who term themselves practical men, and
+call the others theorists; a title which the latter do not
+reject, though they by no means recognise it as peculiar
+to them. The distinction between the two is a very
+broad one, though it is one of which the language employed
+is a most incorrect exponent. It has been again
+and again demonstrated, that those who are accused of
+despising facts and disregarding experience build and
+profess to build wholly upon facts and experience; while
+those who disavow theory cannot make one step without
+theorizing. But, although both classes of inquirers
+do nothing but theorize, and both of them consult no
+other guide than experience, there is this difference
+between them, and a most important difference it is:
+that those who are called practical men require <i>specific</i>
+experience, and argue wholly <i>upwards</i> from particular
+facts to a general conclusion; while those who are
+called theorists aim at embracing a wider field of experience,
+and, having argued upwards from particular
+facts to a general principle including a much wider
+range than that of the question under discussion, then
+argue <i>downwards</i> from that general principle to a variety
+of specific conclusions.</p>
+
+<p>Suppose, for example, that the question were, whether
+absolute kings were likely to employ the powers
+of government for the welfare or for the oppression of
+their subjects. The practicals would endeavour to
+determine this question by a direct induction from the
+conduct of particular despotic monarchs, as testified
+by history. The theorists would refer the question
+to be decided by the test not solely of our experience
+of kings, but of our experience of men. They would
+contend that an observation of the tendencies which
+human nature has manifested in the variety of situations
+in which human beings have been placed, and
+especially observation of what passes in our own minds,
+warrants us in inferring that a human being in the
+situation of a despotic king will make a bad use of
+power; and that this conclusion would lose nothing of
+its certainty even if absolute kings had never existed,
+or if history furnished us with no information of the
+manner in which they had conducted themselves.</p>
+
+<p>The first of these methods is a method of induction,
+merely; the last a mixed method of induction and
+ratiocination. The first may be called the method <i>&agrave;
+posteriori;</i> the latter, the method <i>&agrave; priori</i>. We are
+aware that this last expression is sometimes used to
+characterize a supposed mode of philosophizing, which
+does not profess to be founded upon experience at all.
+But we are not acquainted with any mode of philosophizing,
+on political subjects at least, to which such a
+description is fairly applicable. By the method <i>&agrave; posteriori</i>
+we mean that which requires, as the basis of its
+conclusions, not experience merely, but specific experience.
+By the method <i>&agrave; priori</i> we mean (what has
+commonly been meant) reasoning from an assumed
+hypothesis; which is not a practice confined to mathematics,
+but is of the essence of all science which admits
+of general reasoning at all. To verify the hypothesis
+itself <i>&agrave; posteriori</i>, that is, to examine whether the
+facts of any actual case are in accordance with it, is no
+part of the business of science at all, but of the <i>application</i>
+of science.</p>
+
+<p>In the definition which we have attempted to frame
+of the science of Political Economy, we have characterized
+it as essentially an <i>abstract</i> science, and its
+method as the method <i>&agrave; priori</i>. Such is undoubtedly
+its character as it has been understood and taught by
+all its most distinguished teachers. It reasons, and, as
+we contend, must necessarily reason, from assumptions,
+not from facts. It is built upon hypotheses, strictly
+analogous to those which, under the name of definitions,
+are the foundation of the other abstract sciences.
+Geometry presupposes an arbitrary definition of a line,
+&quot;that which has length but not breadth.&quot; Just in the
+same manner does Political Economy presuppose an
+arbitrary definition of man, as a being who invariably
+does that by which he may obtain the greatest amount
+of necessaries, conveniences, and luxuries, with the
+smallest quantity of labour and physical self-denial
+with which they can be obtained in the existing state
+of knowledge. It is true that this definition of man
+is not formally prefixed to any work on Political Economy,
+as the definition of a line is prefixed to Euclid's
+Elements; and in proportion as by being so prefixed it
+would be less in danger of being forgotten, we may see
+ground for regret that this is not done. It is proper
+that what is assumed in every particular case, should
+once for all be brought before the mind in its full
+extent, by being somewhere formally stated as a general
+maxim. Now, no one who is conversant with systematic
+treatises on Political Economy will question,
+that whenever a political economist has shown that, by
+acting in a particular manner, a labourer may obviously
+obtain higher wages, a capitalist larger profits, or a
+landlord higher rent, he concludes, as a matter of
+course, that they will certainly act in that manner.
+Political Economy, therefore, reasons from <i>assumed</i>
+premises&mdash;from premises which might be totally without
+foundation in fact, and which are not pretended to
+be universally in accordance with it. The conclusions
+of Political Economy, consequently, like those of geometry,
+are only true, as the common phrase is, <i>in the
+abstract</i>; that is, they are only true under certain suppositions,
+in which none but general causes&mdash;causes
+common to the <i>whole class</i> of cases under consideration&mdash;are
+taken into the account.</p>
+
+<p>This ought not to be denied by the political economist.
+If he deny it, then, and then only, he places
+himself in the wrong. The <i>&agrave; priori</i> method which is
+laid to his charge, as if his employment of it proved his
+whole science to be worthless, is, as we shall presently
+show, the only method by which truth can possibly be
+attained in any department of the social science. All
+that is requisite is, that he be on his guard not to
+ascribe to conclusions which are grounded upon an
+hypothesis a different kind of certainty from that which
+really belongs to them. They would be true without
+qualification, only in a case which is purely imaginary.
+In proportion as the actual facts recede from the hypothesis,
+he must allow a corresponding deviation from
+the strict letter of his conclusion; otherwise it will be
+true only of things such as he has arbitrarily supposed,
+not of such things as really exist. That which is true
+in the abstract, is always true in the concrete with
+proper <i>allowances</i>. When a certain cause really exists,
+and if left to itself would infallibly produce a certain
+effect, that same effect, <i>modified</i> by all the other concurrent
+causes, will correctly correspond to the result
+really produced.</p>
+
+<p>The conclusions of geometry are not strictly true
+of such lines, angles, and figures, as human hands can
+construct. But no one, therefore, contends that the
+conclusions of geometry are of no utility, or that it
+would be better to shut up Euclid's Elements, and
+content ourselves with &quot;practice&quot; and &quot;experience.&quot;</p>
+
+<p>No mathematician ever thought that his definition
+of a line corresponded to an actual line. As little did
+any political economist ever imagine that real men had
+no object of desire but wealth, or none which would not
+give way to the slightest motive of a pecuniary kind.
+But they were justified in assuming this, for the purposes
+of their argument; because they had to do only
+with those parts of human conduct which have pecuniary
+advantage for their direct and principal object;
+and because, as no two individual cases are exactly
+alike, no <i>general</i> maxims could ever be laid down unless
+<i>some</i> of the circumstances of the particular case
+were left out of consideration.</p>
+
+<p>But we go farther than to affirm that the method
+<i>&agrave; priori</i> is a legitimate mode of philosophical investigation
+in the moral sciences: we contend that it is the
+only mode. We affirm that the method <i>&agrave; posteriori</i>, or
+that of specific experience, is altogether inefficacious in
+those sciences, as a means of arriving at any considerable
+body of valuable truth; though it admits of being
+usefully applied in aid of the method <i>&agrave; priori</i>, and
+even forms an indispensable supplement to it.</p>
+
+<p>There is a property common to almost all the moral
+sciences, and by which they are distinguished from
+many of the physical; this is, that it is seldom in our
+power to make experiments in them. In chemistry
+and natural philosophy, we can not only observe what
+happens under all the combinations of circumstances
+which nature brings together, but we may also try an
+indefinite number of new combinations. This we can
+seldom do in ethical, and scarcely ever in political science.
+We cannot try forms of government and systems
+of national policy on a diminutive scale in our
+laboratories, shaping our experiments as we think they
+may most conduce to the advancement of knowledge.
+We therefore study nature under circumstances of
+great disadvantage in these sciences; being confined
+to the limited number of experiments which take place
+(if we may so speak) of their own accord, without any
+preparation or management of ours; in circumstances,
+moreover, of great complexity, and never perfectly
+known to us; and with the far greater part of the
+processes concealed from our observation.</p>
+
+<p>The consequence of this unavoidable defect in the
+materials of the induction is, that we can rarely obtain
+what Bacon has quaintly, but not unaptly, termed an
+<i>experimentum crucis</i>.</p>
+
+<p>In any science which admits of an unlimited range
+of arbitrary experiments, an <i>experimentum crucis</i> may
+always be obtained. Being able to vary all the circumstances,
+we can always take effectual means of
+ascertaining which of them are, and which are not,
+material. Call the effect B, and let the question be
+whether the cause A in any way contributes to it.
+We try an experiment in which all the surrounding
+circumstances are altered, except A alone: if the effect
+B is nevertheless produced, A is the cause of it. Or,
+instead of leaving A, and changing the other circumstances,
+we leave all the other circumstances and
+change A: if the effect B in that case does <i>not</i> take
+place, then again A is a necessary condition of its
+existence. Either of these experiments, if accurately
+performed, is an <i>experimentum crucis</i>; it converts the
+presumption we had before of the existence of a connection
+between A and B into proof, by negativing
+every other hypothesis which would account for the
+appearances.</p>
+
+<p>But this can seldom be done in the moral sciences,
+owing to the immense multitude of the influencing
+circumstances, and our very scanty means of varying
+the experiment. Even in operating upon an individual
+mind, which is the case affording greatest room for
+experimenting, we cannot often obtain a <i>crucial</i> experiment.
+The effect, for example, of a particular circumstance
+in education, upon the formation of character,
+may be tried in a variety of cases, but we can
+hardly ever be certain that any two of those cases
+differ in all their circumstances except the solitary
+one of which we wish to estimate the influence. In
+how much greater a degree must this difficulty exist in
+the affairs of states, where even the <i>number</i> of recorded
+experiments is so scanty in comparison with the variety
+and multitude of the circumstances concerned in each.
+How, for example, can we obtain a crucial experiment
+on the effect of a restrictive commercial policy upon
+national wealth? We must find two nations alike in
+every other respect, or at least possessed, in a degree
+exactly equal, of everything which conduces to national
+opulence, and adopting exactly the same policy in all
+their other affairs, but differing in this only, that one
+of them adopts a system of commercial restrictions, and
+the other adopts free trade. This would be a decisive experiment,
+similar to those which we can almost always
+obtain in experimental physics. Doubtless this would
+be the most conclusive evidence of all if we could get
+it. But let any one consider how infinitely numerous
+and various are the circumstances which either directly
+or indirectly do or may influence the amount of the
+national wealth, and then ask himself what are the
+probabilities that in the longest revolution of ages two
+nations will be found, which agree, and can be shown
+to agree, in all those circumstances except one?</p>
+
+<p>Since, therefore, it is vain to hope that truth can
+be arrived at, either in Political Economy or in any
+other department of the social science, while we look
+at the facts in the concrete, clothed in all the complexity
+with which nature has surrounded them, and
+endeavour to elicit a general law by a process of induction
+from a comparison of details; there remains no
+other method than the <i>&agrave; priori</i> one, or that of &quot;abstract
+speculation.&quot;</p>
+
+<p>Although sufficiently ample grounds are not afforded
+in the field of politics, for a satisfactory induction by a
+comparison of the effects, the causes may, in all cases,
+be made the subject of specific experiment. These
+causes are, laws of human nature, and external circumstances
+capable of exciting the human will to action.
+The desires of man, and the nature of the conduct to
+which they prompt him, are within the reach of our
+observation. We can also observe what are the objects
+which excite those desires. The materials of
+this knowledge every one can principally collect within
+himself; with reasonable consideration of the differences,
+of which experience discloses to him the existence,
+between himself and other people. Knowing
+therefore accurately the properties of the substances
+concerned, we may reason with as much certainty as in
+the most demonstrative parts of physics from any
+assumed set of circumstances. This will be mere trifling
+if the assumed circumstances bear no sort of resemblance
+to any real ones; but if the assumption is correct
+as far as it goes, and differs from the truth no
+otherwise than as a part differs from the whole, then
+the conclusions which are correctly deduced from the
+assumption constitute <i>abstract</i> truth; and when completed
+by adding or subtracting the effect of the non-calculated
+circumstances, they are true in the concrete,
+and may be applied to practice.</p>
+
+<p>Of this character is the science of Political Economy
+in the writings of its best teachers. To render it perfect
+as an abstract science, the combinations of circumstances
+which it assumes, in order to trace their effects,
+should embody all the circumstances that are common
+to all cases whatever, and likewise all the circumstances
+that are common to any important class of cases.
+The conclusions correctly deduced from these assumptions,
+would be as true in the abstract as those of
+mathematics; and would be as near an approximation
+as abstract truth can ever be, to truth in the
+concrete.</p>
+
+<p>When the principles of Political Economy are to
+be applied to a particular ease, then it is necessary to
+take into account all the individual circumstances of
+that case; not only examining to which of the sets of
+circumstances contemplated by the abstract science
+the circumstances of the case in question correspond,
+but likewise what other circumstances may exist in
+that case, which not being common to it with any large
+and strongly-marked class of cases, have not fallen
+under the cognizance of the science. These circumstances
+have been called <i>disturbing causes</i>. And here
+only it is that an element of uncertainty enters into
+the process&mdash;an uncertainty inherent in the nature
+of these complex phenomena, and arising from the
+impossibility of being quite sure that all the circumstances
+of the particular case are known to us sufficiently
+in detail, and that our attention is not unduly
+diverted from any of them.</p>
+
+<p>This constitutes the only uncertainty of Political
+Economy; and not of it alone, but of the moral sciences
+in general. When the disturbing causes are known,
+the allowance necessary to be made for them detracts
+in no way from scientific precision, nor constitutes any
+deviation from the <i>&agrave; priori</i> method. The disturbing
+causes are not handed over to be dealt with by mere
+conjecture. Like <i>friction</i> in mechanics, to which they
+have been often compared, they may at first have been
+considered merely as a non-assignable deduction to be
+made by guess from the result given by the general
+principles of science; but in time many of them are
+brought within the pale of the abstract science itself,
+and their effect is found to admit of as accurate an
+estimation as those more striking effects which they
+modify. The disturbing causes have their laws, as the
+causes which are thereby disturbed have theirs; and
+from the laws of the disturbing causes, the nature and
+amount of the disturbance may be predicted <i>&agrave; priori</i>,
+like the operation of the more general laws which they
+are said to modify or disturb, but with which they
+might more properly be said to be concurrent. The
+effect of the special causes is then to be added to, or
+subtracted from, the effect of the general ones.</p>
+
+<p>These disturbing causes are sometimes circumstances
+which operate upon human conduct through
+the same principle of human nature with which Political
+Economy is conversant, namely, the desire of
+wealth, but which are not general enough to be taken
+into account in the abstract science. Of disturbances
+of this description every political economist can produce
+many examples. In other instances the disturbing
+cause is some other law of human nature. In the
+latter case it never can fall within the province of
+Political Economy; it belongs to some other science;
+and here the mere political economist, he who has
+studied no science but Political Economy, if he attempt
+to apply his science to practice, will fail. <a name="FNanchor11"></a><a href="#Footnote_11"><sup>[11]</sup></a></p>
+
+<p>As for the other kind of disturbing causes, namely
+those which operate through the same law of human
+nature out of which the general principles of the
+science arise, these might always be brought within
+the pale of the abstract science if it were worth while;
+and when we make the necessary allowances for them
+in practice, if we are doing anything but guess, we are
+following out the method of the abstract science into
+minuter details; inserting among its hypotheses a
+fresh and still more complex combination of circumstances,
+and so adding <i>pro h&aacute;c vice</i> a supplementary
+chapter or appendix, or at least a supplementary
+theorem, to the abstract science.</p>
+
+<p>Having now shown that the method <i>&agrave; priori</i> in
+Political Economy, and in all the other branches of
+moral science, is the only certain or scientific mode
+of investigation, and that the <i>&agrave; posteriori</i> method, or
+that of specific experience, as a means of arriving at
+truth, is inapplicable to these subjects, we shall be
+able to show that the latter method is notwithstanding
+of great value in the moral sciences; namely, not as a
+means of discovering truth, but of verifying it, and
+reducing to the lowest point that uncertainty before
+alluded to as arising from the complexity of every
+particular case, and from the difficulty (not to say
+impossibility) of our being assured <i>&agrave; priori</i> that we
+have taken into account all the material circumstances.</p>
+
+<p>If we could be quite certain that we knew all the
+facts of the particular case, we could derive little additional
+advantage from specific experience. The causes
+being given, we may know what will be their effect,
+without an actual trial of every possible combination;
+since the causes are human feelings, and outward circumstances
+fitted to excite them: and, as these for
+the most part are, or at least might be, familiar to us,
+we can more surely judge of their combined effect
+from that familiarity, than from any evidence which
+can be elicited from the complicated and entangled
+circumstances of an actual experiment. If the knowledge
+what are the particular causes operating in any
+given instance were revealed to us by infallible authority,
+then, if our abstract science were perfect, we
+should become prophets. But the causes are not so
+revealed: they are to be collected by observation; and
+observation in circumstances of complexity is apt to
+be imperfect. Some of the causes may lie beyond
+observation; many are apt to escape it, unless we are
+on the look-out for them; and it is only the habit of
+long and accurate observation which can give us so
+correct a preconception what causes we are likely to
+find, as shall induce us to look for them in the right
+quarter. But such is the nature of the human understanding,
+that the very fact of attending with intensity
+to one part of a thing, has a tendency to withdraw
+the attention from the other parts. We are consequently
+in great danger of adverting to a portion only
+of the causes which are actually at work. And if we
+are in this predicament, the more accurate our deductions
+and the more certain our conclusions in the
+abstract, (that is, making abstraction of all circumstances
+except those which form part of the hypothesis,)
+the less we are likely to suspect that we are
+in error: for no one can have looked closely into the
+sources of fallacious thinking without being deeply
+conscious that the coherence, and neat concatenation
+of our philosophical systems, is more apt than we are
+commonly aware to pass with us as evidence of their
+truth.</p>
+
+<p>We cannot, therefore, too carefully endeavour to
+verify our theory, by comparing, in the particular cases
+to which we have access, the results which it would
+have led us to predict, with the most trustworthy
+accounts we can obtain of those which have been
+actually realized. The discrepancy between our anticipations
+and the actual fact is often the only circumstance
+which would have drawn our attention to some
+important disturbing cause which we had overlooked.
+Nay, it often discloses to us errors in thought, still
+more serious than the omission of what can with any
+propriety be termed a disturbing cause. It often
+reveals to us that the basis itself of our whole argument
+is insufficient; that the data, from which we had
+reasoned, comprise only a part, and not always the
+most important part, of the circumstances by which
+the result is really determined. Such oversights are
+committed by very good reasoners, and even by a still
+rarer class, that of good observers. It is a kind of
+error to which those are peculiarly liable whose views
+are the largest and most philosophical: for exactly in
+that ratio are their minds more accustomed to dwell
+upon those laws, qualities, and tendencies, which are
+common to large classes of cases, and which belong to
+all place and all time; while it often happens that
+circumstances almost peculiar to the particular case
+or era have a far greater share in governing that one
+case.</p>
+
+<p>Although, therefore, a philosopher be convinced
+that no general truths can be attained in the affairs
+of nations by the <i>&agrave; posteriori</i> road, it does not the less
+behove him, according to the measure of his opportunities,
+to sift and scrutinize the details of every
+specific experiment. Without this, he may be an
+excellent professor of abstract science; for a person
+may be of great use who points out correctly what
+effects will follow from certain combinations of possible
+circumstances, in whatever tract of the extensive
+region of hypothetical cases those combinations may
+be found. He stands in the same relation to the
+legislator, as the mere geographer to the practical
+navigator; telling him the latitude and longitude of
+all sorts of places, but not how to find whereabouts
+he himself is sailing. If, however, he does no more
+than this, he must rest contented to take no share in
+practical politics; to have no opinion, or to hold it
+with extreme modesty, on the applications which
+should be made of his doctrines to existing circumstances.</p>
+
+<p>No one who attempts to lay down propositions
+for the guidance of mankind, however perfect his
+scientific acquirements, can dispense with a practical
+knowledge of the actual modes in which the affairs of
+the world are carried on, and an extensive personal
+experience of the actual ideas, feelings, and intellectual
+and moral tendencies of his own country and of
+his own age. The true practical statesman is he who
+combines this experience with a profound knowledge
+of abstract political philosophy. Either acquirement,
+without the other, leaves him lame and impotent if he
+is sensible of the deficiency; renders him obstinate and
+presumptuous if, as is more probable, he is entirely
+unconscious of it.</p>
+
+<p>Such, then, are the respective offices and uses of
+the <i>&agrave; priori</i> and the <i>&agrave; posteriori</i> methods&mdash;the method
+of abstract science, and that of specific experiment&mdash;as
+well in Political Economy, as in all the other
+branches of social philosophy. Truth compels us to
+express our conviction that whether among those who
+have written on, these subjects, or among those for
+whose use they wrote, few can be pointed out who
+have allowed to each of these methods its just value,
+and systematically kept each to its proper objects and
+functions. One of the peculiarities of modern times,
+the separation of theory from practice&mdash;of the studies
+of the closet, from the outward business of the world&mdash;has
+given a wrong bias to the ideas and feelings both
+of the student and of the man of business. Each
+undervalues that part of the materials of thought with
+which he is not familiar. The one despises all comprehensive
+views, the other neglects details. The one
+draws his notion of the universe from the few objects
+with which his course of life has happened to render
+him familiar; the other having got demonstration on his
+side, and forgetting that it is only a demonstration <i>nisi</i>&mdash;a
+proof at all times liable to be set aside by the addition
+of a single new fact to the hypothesis&mdash;denies, instead
+of examining and sifting, the allegations which are
+opposed to him. For this he has considerable excuse
+in the worthlessness of the testimony on which the facts
+brought forward to invalidate the conclusions of theory
+usually rest. In these complex matters, men see with
+their preconceived opinions, not with their eyes: an
+interested or a passionate man's statistics are of little
+worth; and a year seldom passes without examples of
+the astounding falsehoods which large bodies of respectable
+men will back each other in publishing to
+the world as facts within their personal knowledge. It
+is not because a thing is <i>asserted</i> to be true, but because
+in its nature it <i>may</i> be true, that a sincere and
+patient inquirer will feel himself called upon to investigate
+it. He will use the assertions of opponents not
+as evidence, but indications leading to evidence; suggestions
+of the most proper course for his own inquiries.</p>
+
+<p>But while the philosopher and the practical man
+bandy half-truths with one another, we may seek far
+without finding one who, placed on a higher eminence
+of thought, comprehends as a whole what they see only
+in separate parts; who can make the anticipations of
+the philosopher guide the observation of the practical
+man, and the specific experience of the practical man
+warn the philosopher where something is to be added
+to his theory.</p>
+
+<p>The most memorable example in modern times of
+a man who united the spirit of philosophy with the
+pursuits of active life, and kept wholly clear from the
+partialities and prejudices both of the student and of
+the practical statesman, was Turgot; the wonder not
+only of his age, but of history, for his astonishing combination
+of the most opposite, and, judging from common
+experience, almost incompatible excellences.</p>
+
+<p>Though it is impossible to furnish any test by which
+a speculative thinker, either in Political Economy or in
+any other branch of social philosophy, may know that
+he is competent to judge of the application of his
+principles to the existing condition of his own or any
+other country, indications may be suggested by the
+absence of which he may well and surely know that he
+is not competent. His knowledge must at least enable
+him to explain and account for what <i>is</i>, or he is
+an insufficient judge of what ought to be. If a political
+economist, for instance, finds himself puzzled by
+any recent or present commercial phenomena; if there
+is any mystery to him in the late or present state of
+the productive industry of the country, which his knowledge
+of principle does not enable him to unriddle; he
+may be sure that something is wanting to render his
+system of opinions a safe guide in existing circumstances.
+Either some of the facts which influence
+the situation of the country and the course of events
+are not known to him; or, knowing them, he knows
+not what ought to be their effects. In the latter case
+his system is imperfect even as an abstract system; it
+does not enable him to trace correctly all the consequences
+even of assumed premises. Though he succeed
+in throwing doubts upon the reality of some of
+the phenomena which he is required to explain, his
+task is not yet completed; even then he is called upon
+to show how the belief, which he deems unfounded,
+arose; and what is the real nature of the appearances
+which gave a colour of probability to allegations which
+examination proves to be untrue.</p>
+
+<p>When the speculative politician has gone through
+this labour&mdash;has gone through it conscientiously, not
+with the desire of finding his system complete, but
+of making it so&mdash;he may deem himself qualified to
+apply his principles to the guidance of practice: but
+he must still continue to exercise the same discipline
+upon every new combination of facts as it arises; he
+must make a large allowance for the disturbing influence
+of unforeseen causes, and must carefully watch
+the result of every experiment, in order that any
+residuum of facts which his principles did not lead
+him to expect, and do not enable him to explain, may
+become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction
+of his general views.</p>
+
+<p>The method of the practical philosopher consists,
+therefore, of two processes; the one analytical, the
+other synthetical. He must <i>analyze</i> the existing state
+of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience
+of individual man to learn the <i>law</i> of each of
+these elements, that is, to learn what are its natural
+effects, and how much of the effect follows from so
+much of the cause when not counteracted by any
+other cause, there remains an operation of <i>synthesis</i>;
+to put all these effects together, and, from what
+they are separately, to collect what would be the
+effect of all the causes acting at once. If these
+various operations could be correctly performed, the
+result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness,
+mankind can never predict with absolute certainty,
+but only with a less or greater degree of probability;
+according as they are better or worse apprised
+what the causes are,&mdash;have learnt with more or less
+accuracy from experience the law to which each of
+those causes, when acting separately, conforms,&mdash;and
+have summed up the aggregate effect more or less
+carefully.</p>
+
+<p>With all the precautions which have been indicated
+there will still be some danger of falling into partial
+views; but we shall at least have taken the best securities
+against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories,
+and to free ourselves, as far as we are able, from that
+reluctance from which few inquirers are altogether
+him to expect, and do not enable him to explain, may
+become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction
+of his general views.</p>
+
+<p>The method of the practical philosopher consists,
+therefore, of two processes; the one analytical, the
+other synthetical. He must <i>analyze</i> the existing state
+of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience
+of individual man to learn the <i>law</i> of each of
+these elements, that is, to learn what are its natural
+effects, and how much of the effect follows from so
+much of the cause when not counteracted by any
+other cause, there remains an operation of <i>synthesis</i>;
+to put all these effects together, and, from what
+they are separately, to collect what would be the
+effect of all the causes acting at once. If these
+various operations could be correctly performed, the
+result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness,
+mankind can never predict with absolute certainty,
+but only with a less or greater degree of probability;
+according as they are better or worse apprised
+what the causes are,&mdash;have learnt with more or less
+accuracy from experience the law to which each of
+those causes, when acting separately, conforms,&mdash;and
+have summed up the aggregate effect more or less
+carefully.</p>
+
+<p>With all the precautions which have been indicated
+there will still be some danger of falling into partial
+views; but we shall at least have taken the best securities
+against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories,
+and to free ourselves, as far as we are able, from that
+reluctance from which few inquirers are altogether
+exempt, to admit the reality or relevancy of any
+facts which they have not previously either taken into,
+or left a place open for in, their systems.</p>
+
+<p>If indeed every phenomenon was generally the
+effect of no more than one cause, a knowledge of the
+law of that cause would, unless there was a logical
+error in our reasoning, enable us confidently to predict
+all the circumstances of the phenomenon. We
+might then, if we had carefully examined our premises
+and our reasoning, and found no flaw, venture
+to disbelieve the testimony which might be brought to
+show that matters had turned out differently from
+what we should have predicted. If the causes of
+erroneous conclusions were always patent on the face
+of the reasonings which lead to them, the human understanding
+would be a far more trustworthy instrument
+than it is. But the narrowest examination of
+the process itself will help us little towards discovering
+that we have omitted part of the premises which
+we ought to have taken into our reasoning. Effects
+are commonly determined by a <i>concurrence</i> of causes.
+If we have overlooked any one cause, we may reason
+justly from all the others, and only be the further
+wrong. Our premises will be true, and our reasoning
+correct, and yet the result of no value in the particular
+case. There is, therefore, almost always room
+for a modest doubt as to our practical conclusions.
+Against false premises and unsound reasoning, a good
+mental discipline may effectually secure us; but against
+the danger of <i>overlooking</i> something, neither strength
+of understanding nor intellectual cultivation can be
+more than a very imperfect protection. A person
+may be warranted in feeling confident, that whatever
+he has carefully contemplated with his mind's eye he
+has seen correctly; but no one can be sure that there
+is not something in existence which he has not seen
+at all. He can do no more than satisfy himself that
+he has seen all that is visible to any other persons
+who have concerned themselves with the subject.
+For this purpose he must endeavour to place himself
+at their point of view, and strive earnestly to see the
+object as they see it; nor give up the attempt until
+he has either added the appearance which is floating
+before them to his own stock of realities, or made out
+clearly that it is an optical deception.</p>
+
+<hr style="width: 45%;">
+
+<p>The principles which we have now stated are by no
+means alien to common apprehension: they are not
+absolutely hidden, perhaps, from any one, but are
+commonly seen through a mist. We might have presented
+the latter part of them in a phraseology in
+which they would have seemed the most familiar of
+truisms: we might have cautioned inquirers against
+too extensive <i>generalization</i>, and reminded them that
+there are <i>exceptions</i> to all rules. Such is the current
+language of those who distrust comprehensive thinking,
+without having any clear notion why or where it
+ought to be distrusted. We have avoided the use of
+these expressions purposely, because we deem them
+superficial and inaccurate. The error, when there is
+error, does <i>not</i> arise from generalizing too extensively;
+that is, from including too wide a range of particular
+cases in a single proposition. Doubtless, a man often
+asserts of an entire class what is only true of a part of
+it; but his error generally consists not in making too
+wide an assertion, but in making the wrong <i>kind</i> of
+assertion: he predicated an actual result, when he
+should only have predicated a <i>tendency</i> to that result&mdash;a
+power acting with a certain intensity in that
+direction. With regard to <i>exceptions</i>; in any tolerably
+ably advanced science there is properly no such thing
+as an exception. What is thought to be an exception
+to a principle is always some other and distinct
+principle cutting into the former: some other force
+which impinges against the first force, and deflects it
+from its direction. There are not a <i>law</i> and an <i>exception</i>
+to that law&mdash;the law acting in ninety-nine cases,
+and the exception in one. There are two laws, each
+possibly acting in the whole hundred cases, and bringing
+about a common effect by their conjunct operation.
+If the force which, being the less conspicuous
+of the two, is called the disturbing force, prevails
+sufficiently over the other force in some one case, to
+constitute that case what is commonly called an exception,
+the same disturbing force probably acts as a
+modifying cause in many other cases which no one
+will call exceptions.</p>
+
+<p>Thus if it were stated to be a law of nature, that
+all heavy bodies fall to the ground, it would probably
+be said that the resistance of the atmosphere, which
+prevents a balloon from falling, constitutes the balloon
+an exception to that pretended law of nature. But
+the real law is, that all heavy bodies <i>tend</i> to fall; and
+to this there is no exception, not even the sun and
+moon; for even they, as every astronomer knows,
+tend towards the earth, with a force exactly equal to
+that with which the earth tends towards them. The
+resistance of the atmosphere might, in the particular
+case of the balloon, from a misapprehension of what
+the law of gravitation is, be said to <i>prevail</i> over the
+law; but its disturbing effect is quite as real in every
+other case, since though it does not prevent, it retards
+the fall of all bodies whatever. The rule, and the
+so-called exception, do not divide the cases between
+them; each of them is a comprehensive rule extending
+to all cases. To call one of these concurrent
+principles an exception to the other, is superficial,
+and contrary to the correct principles of nomenclature
+and arrangement. An effect of precisely the same
+kind, and arising from the same cause, ought not to
+be placed in two different categories, merely as there
+does or does not exist another cause preponderating
+over it.</p>
+
+<p>It is only in art, as distinguished from science, that
+we can with propriety speak of exceptions. Art, the
+immediate end of which is practice, has nothing to do
+with causes, except as the means of bringing about
+effects. However heterogeneous the causes, it carries
+the effects of them all into one single reckoning, and
+according as the sum-total is <i>plus</i> or <i>minus</i>, according
+as it falls above or below a certain line, Art says, Do
+this, or Abstain from doing it. The exception does
+not run by insensible degrees into the rule, like what
+are called exceptions in science. In a question of
+practice it frequently happens that a certain thing is
+either fit to be done, or fit to be altogether abstained
+from, there being no medium. If, in the majority
+of cases, it is fit to be done, that is made the rule.
+When a case subsequently occurs in which the thing
+ought not to be done, an entirely new leaf is turned
+over; the rule is now done with, and dismissed: a new
+train of ideas is introduced, between which and those
+involved in the rule there is a broad line of demarcation;
+as broad and <i>tranchant</i> as the difference between
+Ay and No. Very possibly, between the last case
+which comes within the rule and the first of the exception,
+there is only the difference of a shade: but
+that shade probably makes the whole interval between
+acting in one way and in a totally different one. We
+may, therefore, in talking of art, unobjectionably speak
+of the <i>rule</i> and the <i>exception</i>; meaning by the rule,
+the cases in which there exists a preponderance, however
+slight, of inducements for acting in a particular
+way; and by the exception, the cases in which the
+preponderance is on the contrary side.</p>
+
+<p class="NO"><b>NOTES:</b></p>
+
+<p><a name="Footnote_8"></a><a href="#FNanchor8">[8]</a><div class=note> We say, the <i>production</i> and <i>distribution</i>, not, as is usual
+with writers on this science, the production, distribution, and <i>consumption</i>.
+For we contend that Political Economy, as conceived
+by those very writers, has nothing to do with the consumption of
+wealth, further than as the consideration of it is inseparable from
+that of production, or from that of distribution. We know not of
+any <i>laws</i> of the <i>consumption</i> of wealth as the subject of a distinct
+science: they can be no other than the laws of human enjoyment.
+Political economists have never treated of consumption on its own
+account, but always for the purpose of the inquiry in what manner
+different kinds of consumption affect the production and distribution
+of wealth. Under the head of Consumption, in professed
+treatises on the science, the following are the subjects treated of:
+1st, The distinction between <i>productive</i> and <i>unproductive</i> consumption;
+2nd, The inquiry whether it is possible for <i>too much</i> wealth
+to be <i>produced</i>, and for too great a portion of what has been produced
+to be applied to the purpose of further <i>production</i>; 3rd,
+The theory of taxation, that is to say, the following two questions&mdash;by
+whom each particular tax is paid (a question of <i>distribution</i>),
+and in what manner particular taxes affect <i>production</i>.</div><br>
+
+<p><a name="Footnote_9"></a><a href="#FNanchor9">[9]</a><div class=note> The physical laws of the production of useful objects are all
+equally presupposed by the science of Political Economy: most of
+them, however, it presupposes in the gross, seeming to say nothing
+about them. A few (such, for instance, as the decreasing ratio in
+which the produce of the soil is increased by an increased application
+of labour) it is obliged particularly to specify, and thus
+seems to borrow those truths from the physical sciences to which
+they properly belong, and include them among its own.</div><br>
+
+<p><a name="Footnote_10"></a><a href="#FNanchor10">[10]</a><div class=note> The <i>science</i> of legislation is an incorrect and misleading expression.
+Legislation is <i>making laws</i>. We do not talk of the
+<i>science</i> of <i>making</i> anything. Even the <i>science of government</i> would
+be an objectionable expression, were it not that <i>government</i> is often
+loosely taken to signify, not the act of governing, but the state or
+condition of <i>being governed</i>, or of living under a government. A
+preferable expression would be, the science of <i>political society</i>; a
+principal branch of the more extensive science of society, characterized
+in the text.</div><br>
+
+<p><a name="Footnote_11"></a><a href="#FNanchor11">[11]</a><div class=note> One of the strongest reasons for drawing the line of separation
+clearly and broadly between science and art is the following:&mdash;That
+the principle of classification in science most
+conveniently follows the classification of <i>causes</i>, while arts must
+necessarily be classified according to the classification of the <i>effects</i>,
+the production of which is their appropriate end. Now an effect,
+whether in physics or morals, commonly depends upon a concurrence
+of causes, and it frequently happens that several of these
+causes belong to different sciences. Thus in the construction of
+engines upon the principles of the science of <i>mechanics</i>, it is
+necessary to bear in mind the <i>chemical</i> properties of the material,
+such as its liability to oxydize; its electrical and magnetic properties,
+and so forth. From this it follows that although the
+necessary foundation of all art is science, that is, the knowledge
+of the properties or laws of the objects upon which, and with
+which, the art dons its work; it is not equally true that every art
+corresponds to one particular science. Each art presupposes, not
+one science, but science in general; or, at least, many distinct
+sciences.</div><br><br>
+
+
+
+<p>THE END.</p>
+<br><br>
+<p>(Editor's note)</p>
+
+<p><b>Essays on some Unsettled.
+Questions of Political
+Economy</b></p>
+
+<p>These five essays represent Mill's
+earliest thoughts on economic matters
+and were first composed in 1829 and
+1830 before his reputation had been
+established by the publication of <i>Logic</i>
+in 1843. Their successful reception no
+doubt hastened the composition of his
+comprehensive work the <i>Principles of
+Political Economy</i> (1848).</p>
+
+
+
+
+
+
+
+
+
+
+<pre>
+
+
+
+
+
+End of the Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
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diff --git a/old/12004.txt b/old/12004.txt
new file mode 100644
index 0000000..8a7542e
--- /dev/null
+++ b/old/12004.txt
@@ -0,0 +1,5298 @@
+The Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
+
+This eBook is for the use of anyone anywhere at no cost and with
+almost no restrictions whatsoever.  You may copy it, give it away or
+re-use it under the terms of the Project Gutenberg License included
+with this eBook or online at www.gutenberg.org
+
+
+Title: Essays on some unsettled Questions of Political Economy
+
+Author: John Stuart Mill
+
+Release Date: April 9, 2004 [EBook #12004]
+
+Language: English
+
+Character set encoding: ISO Latin-1
+
+*** START OF THIS PROJECT GUTENBERG EBOOK ESSAYS ON SOME UNSETTLED ***
+
+
+
+
+Produced by Avinash Kothare and Marc D'Hooghe
+
+
+
+
+
+
+ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY
+
+by
+
+JOHN STUART MILL
+
+
+1844
+
+
+
+
+PREFACE.
+
+
+Of these Essays, which were written in 1829 and 1830, the fifth alone
+has been previously printed. The other four have hitherto remained in
+manuscript, because, during the temporary suspension of public interest
+in the species of discussion to which they belong, there was no
+inducement to their publication.
+
+They are now published (with a few merely verbal alterations) under the
+impression, that the controversies excited by Colonel Torrens' _Budget_
+have again called the attention of political economists to the
+discussions of the abstract science: and from the additional
+consideration, that the first paper relates expressly to the point upon
+which the question at issue between Colonel Torrens and his antagonists
+has principally turned.
+
+From that paper it will be seen that opinions identical in principle
+with those promulgated by Colonel Torrens (there would probably be
+considerable difference as to the extent of their practical application)
+have been held by the writer for more than fifteen years: although he
+cannot claim to himself the original conception, but only the
+elaboration, of the fundamental doctrine of the Essay.
+
+A prejudice appears to exist in many quarters against the theory in
+question, on the supposition of its being opposed to one of the most
+valuable results of modern political philosophy, the doctrine of Freedom
+of Trade between nation and nation. The opinions now laid before the
+reader are presented as corollaries necessarily following from the
+principles upon which Free Trade itself rests. The writer has also been
+careful to point out, that from these opinions no justification can be
+derived for any _protecting_ duty, or other preference given to domestic
+over foreign industry. But in regard to those duties on foreign
+commodities which do not operate as protection, but are maintained
+solely for revenue, and which do not touch either the necessaries of
+life or the materials and instruments of production, it is his opinion
+that any relaxation of such duties, beyond what may be required by the
+interest of the revenue itself, should in general be made contingent
+upon the adoption of some corresponding degree of freedom of trade with
+this country, by the nation from which the commodities are imported.
+
+
+
+
+CONTENTS.
+
+
+ESSAY I.
+
+Of the Laws of Interchange between Nations; and the Distribution of the
+Gains of Commerce among the Countries of the Commercial World
+
+ESSAY II.
+
+Of the Influence of Consumption upon Production
+
+ESSAY III.
+
+On the Words Productive and Unproductive
+
+ESSAY IV.
+
+On Profits, and Interest
+
+ESSAY V.
+
+On the Definition of Political Economy; and on the Method of
+Investigation proper to it
+
+
+
+
+ESSAY I.
+
+OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THE
+GAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD.
+
+
+Of the truths with which political economy has been enriched by Mr.
+Ricardo, none has contributed more to give to that branch of knowledge
+the comparatively precise and scientific character which it at present
+bears, than the more accurate analysis which he performed of the nature
+of the advantage which nations derive from a mutual interchange of their
+productions. Previously to his time, the benefits of foreign trade were
+deemed, even by the most philosophical enquirers, to consist in
+affording a vent for surplus produce, or in enabling a portion of the
+national capital to replace itself with a profit. The futility of the
+theory implied in these and similar phrases, was an obvious consequence
+from the speculations of writers even anterior to Mr. Ricardo. But it
+was he who first, in the chapter on Foreign Trade, of his immortal
+_Principles of Political Economy and Taxation_, substituted for the
+former vague and unscientific, if not positively false, conceptions with
+regard to the advantage of trade, a philosophical exposition which
+explains, with strict precision, the nature of that advantage, and
+affords an accurate measure of its amount.
+
+He shewed, that the advantage of an interchange of commodities between
+nations consists simply and solely in this, that it enables each to
+obtain, with a given amount of labour and capital, a greater quantity of
+all commodities taken together. This it accomplishes by enabling each,
+with a quantity of one commodity which has cost it so much labour and
+capital, to purchase a quantity of another commodity which, if produced
+at home, would have required labour and capital to a greater amount.
+To render the importation of an article more advantageous than its
+production, it is not necessary that the foreign country should be able
+to produce it with less labour and capital than ourselves. We may even
+have a positive advantage in its production: but, if we are so far
+favoured by circumstances as to have a still greater positive advantage
+in the production of some other article which is in demand in the
+foreign country, we may be able to obtain a greater return to our labour
+and capital by employing none of it in producing the article in which
+our advantage is least, but devoting it all to the production of that in
+which our advantage is greatest, and giving this to the foreign country
+in exchange for the other. It is not a difference in the _absolute_ cost
+of production, which determines the interchange, but a difference in the
+_comparative_ cost. It may be to our advantage to procure iron from
+Sweden in exchange for cottons, even although the mines of England as
+well as her manufactories should be more productive than those of
+Sweden; for if we have an advantage of one-half in cottons, and only an
+advantage of a quarter in iron, and could sell our cottons to Sweden at
+the price which Sweden must pay for them if she produced them herself,
+we should obtain our iron with an advantage of one-half, as well as our
+cottons. We may often, by trading with foreigners, obtain their
+commodities at a smaller expense of labour and capital than they cost
+to the foreigners themselves. The bargain is still advantageous to the
+foreigner, because the commodity which he receives in exchange, though
+it has cost us less, would have cost him more. As often as a country
+possesses two commodities, one of which it can produce with less labour,
+comparatively to what it would cost in a foreign country, than the
+other; so often it is the interest of the country to export the first
+mentioned commodity and to import the second; even though it might be
+able to produce both the one and the other at a less expense of labour
+than the foreign country can produce them, but not less in the same
+degree; or might be unable to produce either except at a greater
+expense, but not greater in the same degree.
+
+On the contrary, if it produces both commodities with greater facility,
+or both with greater difficulty, and greater in exactly the same degree,
+there will be no motive to interchange.
+
+"If the cloth and the corn, each of which required 100 days' labour in
+Poland, required each 150 days' labour in England; it would follow, that
+the cloth of 150 days' labour in England, if sent to Poland, would be
+equal to the cloth of 100 days' labour in Poland: if exchanged for corn,
+therefore, it would exchange for the corn of only 100 days' labour. But
+the corn of 100 days' labour in Poland, was supposed to be the same
+quantity with that of 150 days' labour in England. With 150 days' labour
+in cloth, therefore, England would only get as much corn in Poland as
+she could raise with 150 days' labour at home; and she would, in
+importing it, have the cost of carriage besides. In these circumstances
+no exchange would take place.
+
+"If, on the other hand, while the cloth produced with 100 days' labour
+in Poland was produced with 150 days' labour in England, the corn which
+was produced in Poland with 100 days' labour could not be produced in
+England with less than 200 days' labour; an adequate motive to exchange
+would immediately arise. With a quantity of cloth which England produced
+with 150 days' labour, she would be able to purchase as much corn in
+Poland as was there produced with 100 days' labour; but the quantity,
+which was there produced with 100 days' labour, would be as great as the
+quantity produced in England with 200 days' labour.
+
+"The power of Poland would be reciprocal. With a quantity of corn which
+cost her 100 days' labour, equal to the quantity produced in England by
+200 days' labour, she could in the supposed case purchase in England the
+produce of 200 days' labour in cloth." But "the produce of 150 days'
+labour in England in the article of cloth would be equal to the produce
+of 100 days' labour in Poland [1]."
+
+The remainder of what Mr. Ricardo has done for the philosophical
+exposition of the principles of foreign trade, is to shew, that the
+truth of the propositions now recapitulated is not affected by the
+introduction of money as a medium of exchange; the precious metals
+always tending to distribute themselves in such a manner throughout the
+commercial world, that every country shall import all that it would have
+imported, and export all that it would have exported, if exchanges had
+taken place, as in the example above supposed, by barter.
+
+To this branch of the subject we shall, in the sequel of this essay,
+return. At present it will be more convenient that we should continue to
+suppose, that exchanges take place by the direct trucking of one
+commodity against another.
+
+It is established, that the advantage which two countries derive from
+trading with each other, results from the more advantageous employment
+which thence arises, of the labour and capital--for shortness let us say
+the labour--of both jointly. The circumstances are such, that if each
+country confines itself to the production of one commodity, there is a
+greater total return to the labour of both together; and this increase
+of produce forms the whole of what the two countries taken together gain
+by the trade.
+
+It is the purpose of the present essay to inquire, in what proportion
+the increase of produce, arising from the saving of labour, is divided
+between the two countries.
+
+This question was not entered into by Mr. Ricardo, whose attention was
+engrossed by far more important questions, and who, having a science to
+create, had not time, or room, to occupy himself with much more than the
+leading principles. When he had done enough to enable any one who came
+after him, and who took the necessary pains, to do all the rest, he was
+satisfied. He very rarely followed out the principles of the science
+into the ramifications of their consequences. But we believe that to no
+one, who has thoroughly entered into the spirit of his discoveries, will
+even the minutiae of the science offer any difficulty but that which is
+constituted by the necessity of patience and circumspection in tracing
+principles to their results.
+
+Mr. Ricardo, while intending to go no further into the question of the
+advantage of foreign trade than to show what it consisted of, and under
+what circumstances it arose, unguardedly expressed himself as if each of
+the two countries making the exchange separately gained the whole of the
+difference between the comparative costs of the two commodities in one
+country and in the other. But, the whole gain of both countries
+together, consisting in the saving of labour; and the saving of labour
+being exactly equal to the difference between the costs, in the two
+countries, of the one commodity as compared with the other; the two
+countries taken together gain no more than this difference: and if
+either country gains the whole of it, the other country derives no
+advantage from the trade.
+
+Suppose, for example, that 10 yards of broad cloth cost in England as
+much labour as 15 yards of linen, and in Germany as much as 20. If
+England sends 10 yards of broad cloth to Germany, and is able to
+exchange them for linen according to the German cost of production, she
+will get 20 yards of linen, with a quantity of labour with which she
+could not have produced more than 15; and will gain, therefore, 5 yards
+on every 15, or 33-1/3 per cent. But in this case Germany would obtain
+only 10 yards of cloth for 20 of linen. Now, 10 yards of cloth cost
+exactly the same quantity of labour in Germany as 20 of linen; Germany,
+therefore, derives no advantage from the trade, more than she would
+possess if it did not exist.
+
+So, on the other hand, if Germany sends 15 yards of linen to England,
+and finding the relative value of the two articles in that country
+determined by the English costs of production, is enabled to purchase
+with 35 yards of linen 10 yards of cloth; Germany now gains 5 yards,
+just as England did before,--for with 15 yards of linen she purchases 10
+yards of cloth, when to produce these 10 yards she must have employed as
+much labour as would have enabled her to produce 20 yards of linen. But
+in this case England would gain nothing: she would only obtain, for her
+10 yards of cloth, 15 yards of linen, which is exactly the comparative
+cost at which she could have produced them.
+
+This, which was not an error, but a mere oversight of Mr. Ricardo,
+arising from his having left the question of the division of the
+advantage entirely unnoticed, was first corrected in the third edition
+of Mr. Mill's _Elements of Political Economy_. It can hardly, however,
+be said that Mr. Mill has prosecuted the inquiry any further; which,
+indeed, would have been quite as inconsistent with the nature of his
+plan as of Mr. Ricardo's.
+
+1. When the trade is established between the two countries, the two
+commodities will exchange for each other at the same rate of interchange
+in both countries--bating the cost of carriage, of which, for the present,
+it will be more convenient to omit the consideration. Supposing, therefore,
+for the sake of argument, that the carriage of the commodities from one
+country to another could be effected without labour and without cost, no
+sooner would the trade be opened than, it is self-evident, the value of
+the two commodities, estimated in each other, would come to a level in
+both countries.
+
+If we knew what this level would be, we should know in what proportion
+the two countries would share the advantage of the trade.
+
+When each country produced both commodities for itself, 10 yards of
+broad cloth exchanged for 15 yards of linen in England, and for 20 in
+Germany. They will now exchange for the same number of yards of linen in
+both. For what number? If for 15 yards, England will be just as she was,
+and Germany will gain all. If for 20 yards, Germany will be as before,
+and England will derive the whole of the benefit. If for any number
+intermediate between 15 and 20, the advantage will be shared between the
+two countries. If, for example, 10 yards of cloth exchange for 18 of
+linen, England will gain an advantage of 3 yards on every 15, Germany
+will save 2 out of every 20.
+
+The problem is, what are the causes which determine the proportion in
+which the cloth of England and the linen of Germany will exchange for
+each other?
+
+This, therefore, is a question concerning exchangeable value. There must
+be something which determines how much of one commodity another
+commodity will purchase; and there is no reason to suppose that the law
+of exchangeable value is more difficult of ascertainment in this case
+than in other cases.
+
+The law, however, cannot be precisely the same as in the common cases.
+When two articles are produced in the immediate vicinity of one another,
+so that, without expatriating himself, or moving to a distance, a
+capitalist has the choice of producing one or the other, the quantities
+of the two articles which will exchange for each other will be, on the
+average, those which are produced by equal quantities of labour. But
+this cannot be applied to the case where the two articles are produced
+in two different countries; because men do not usually leave their
+country, or even send their capital abroad, for the sake of those small
+differences of profit which are sufficient to determine their choice of
+a business, or of an investment, in their own country and neighbourhood.
+
+The principle, that value is proportional to cost of production, being
+consequently inapplicable, we must revert to a principle anterior to
+that of cost of production, and from which this last flows as a
+consequence,--namely, the principle of demand and supply.
+
+In order to apply this principle, with any advantage, to the solution of
+the question which now occupies us, the principle itself, and the idea
+attached to the term demand, must be conceived with a precision, which
+the loose manner in which the words are used generally prevents.
+
+It is well known that the quantity of any commodity which can be
+disposed of, varies with the price. The higher the price, the fewer will
+be the purchasers, and the smaller the quantity sold. The lower the
+price, the greater will in general be the number of purchasers, and the
+greater the quantity disposed of. This is true of almost all commodities
+whatever: though of some commodities, to diminish the consumption in any
+given degree would require a much greater rise of price than of others.
+
+Whatever be the commodity--the supply in any market being given, there
+is some price at which the whole of the supply exactly will find
+purchasers, and no more. That, whatever it be, is the price at which, by
+the effect of competition, the commodity will be sold. If the price be
+higher, the whole of the supply will not be disposed of, and the
+sellers, by their competition, will bring down the price. If the price
+be lower, there will be found purchasers for a larger supply, and the
+competition of these purchasers will raise the price.
+
+This, then, is what we mean, when we say that price, or exchangeable
+value, depends on demand and supply. We should express the principle
+more accurately, if we were to say, the price so regulates itself that
+the demand shall be exactly sufficient to carry off the supply.
+
+Let us now apply the principle of demand and supply, thus understood, to
+the interchange of broadcloth and linen between England and Germany.
+
+As exchangeable value in this case, as in every other, is proverbially
+fluctuating, it does not matter what we suppose it to be when we begin;
+we shall soon see whether there be any fixed point about which it
+oscillates--which it has a tendency always to approach to, and to remain
+at.
+
+Let us suppose, then, that by the effect of what Adam Smith calls the
+higgling of the market, 10 yards of cloth, in both countries, exchange
+for 17 yards of linen.
+
+The demand for a commodity, that is, the quantity of it which can find a
+purchaser, varies, as we have before remarked, according to the price.
+In Germany, the price of 10 yards of cloth is now 17 yards of linen; or
+whatever quantity of money is equivalent in Germany to 17 yards of
+linen. Now, that being the price, there is some particular number of
+yards of cloth, which will be in demand, or will find purchasers, at
+that price. There is some given quantity of cloth, more than which could
+not be disposed of at that price,--less than which, at that price, would
+not fully satisfy the demand. Let us suppose this quantity to be, 1000
+times 10 yards.
+
+Let us now turn our attention to England. There, the price of 17 yards
+of linen is 10 yards of cloth, or whatever quantity of money is
+equivalent in England to 10 yards of cloth. There is some particular
+number of yards of linen, which, at that price, will exactly satisfy the
+demand, and no more. Let us suppose that this number is 1000 times 17
+yards.
+
+As 17 yards of linen are to 30 yards of cloth, so are 1000 times 17
+yards to 1000 times 10 yards. At the existing exchangeable value, the
+linen which England requires, will exactly pay for the quantity of cloth
+which, on the same terms of interchange, Germany requires. The demand on
+each side is precisely sufficient to carry off the supply on the other.
+The conditions required by the principle of demand and supply are
+fulfilled, and the two commodities will continue to be interchanged, as
+we supposed them to be, in the ratio of 17 yards of linen for 10 yards
+of cloth.
+
+But our supposition might have been different. Suppose that, at the
+assumed rate of interchange, England had been disposed to consume no
+greater quantity of linen than 800 times 17 yards; it is evident that,
+at the rate supposed, this would not have sufficed to pay for the 1000
+times 10 yards of cloth, which we have supposed Germany to require at
+the assumed value. Germany would be able to procure no more than 800
+times 10 yards, at that price. To procure the remaining 200, which she
+would have no means of doing but by bidding higher for them, she would
+offer more than 17 yards of linen in exchange for 10 yards of cloth; let
+us suppose her to offer 18. At that price, perhaps, England would be
+inclined to purchase a greater quantity of linen. She could consume,
+possibly, at that price, 900 times 18 yards. On the other hand, cloth
+having risen in price, the demand of Germany for it would, probably,
+have diminished. If, instead of 1000 times 10 yards, she is now
+contented with 900 times ten yards, these will exactly pay for the 900
+times 18 yards of linen which England is willing to take at the altered
+price: the demand on each side will again exactly suffice to take off
+the corresponding supply; and 10 yards for 18 will be the rate at which,
+in both countries, cloth will exchange for linen.
+
+The converse of all this would have happened if instead of 800 times 17
+yards, we had supposed that England, at the rate of 10 for 17, would
+have taken 1200 times 17 yards of linen. In this case, it is England
+whose demand is not fully supplied; it is England who, by bidding for
+more linen, will alter the rate of interchange to her own disadvantage;
+and 10 yards of cloth will fall, in both countries, below the value of
+17 yards of linen. By this fall of cloth, or what is the same thing,
+this rise of linen, the demand of Germany for cloth will increase, and
+the demand of England for linen will diminish, till the rate of
+interchange has so adjusted itself that the cloth and the linen will
+exactly pay for another; and when once this point is attained, values
+will remain as they are.
+
+It may be considered, therefore, as established, that when two countries
+trade together in two commodities, the exchangeable value of these
+commodities relatively to each other will adjust itself to the
+inclinations and circumstances of the consumers on both sides, in such
+manner that the quantities required by each country, of the article
+which it imports from its neighbour, shall be exactly sufficient to pay
+for one another. As the inclinations and circumstances of consumers
+cannot be reduced to any rule, so neither can the proportions in which
+the two commodities will be interchanged. We know that the limits within
+which the variation is confined are the ratio between their costs of
+production in the one country, and the ratio between their costs of
+production in the other. Ten yards of cloth cannot exchange for more
+than 20 yards of linen, nor for less than 15. But they may exchange for
+any intermediate number. The ratios, therefore, in which the advantage
+of the trade may be divided between the two nations, are various. The
+circumstances on which the proportionate share of each country more
+remotely depends, admit only of a very general indication.
+
+It is even possible to conceive an extreme case, in which the whole of
+the advantage resulting from the interchange would be reaped by one
+party, the other country gaining nothing at all. There is no absurdity
+in the hypothesis, that of some given commodity a certain quantity is
+all that is wanted at any price, and that when that quantity is
+obtained, no fall in the exchangeable value would induce other consumers
+to come forward, or those who are already supplied to take more. Let us
+suppose that this is the case in Germany with cloth. Before her trade
+with England commenced, when 10 yards of cloth cost her as much labour
+as 20 yards of linen, she nevertheless consumed as much cloth as she
+wanted under any circumstances, and if she could obtain it at the rate
+of 10 yards of cloth for 15 of linen, she would not consume more. Let
+this fixed quantity be 1000 times 10 yards. At the rate, however, of 10
+for 20, England would want more linen than would be equivalent to this
+quantity of cloth. She would consequently offer a higher value for
+linen; or, what is the same thing, she would offer her cloth at a
+cheaper rate. But as by no lowering of the value could she prevail on
+Germany to take a greater quantity of cloth, there would be no limit to
+the rise of linen, or fall of cloth, until the demand of England for
+linen was reduced by the rise of its value, to the quantity which one
+thousand times ten yards of cloth would purchase. It might be, that to
+produce this diminution of the demand, a less fall would not suffice,
+than one which would make 10 yards of cloth exchange for 15 of linen.
+Germany would then gain the whole of the advantage, and England would be
+exactly as she was before the trade commenced. It would be for the
+interest, however, of Germany herself, to keep her linen a little below
+the value at which it could be produced in England, in order to keep
+herself from being supplanted by the home producer. England, therefore,
+would always benefit in some degree by the existence of the trade,
+though it might be in a very trifling one.
+
+But in general there will not be this extreme inequality in the degree
+in which the demand in the two countries varies with variations in the
+price. The advantage will probably be divided equally, oftener than in
+any one unequal ratio that can be named; though the division will be
+much oftener, on the whole, unequal than equal.
+
+2. We shall now examine whether the same law of interchange, which we
+have shown to apply upon the supposition of barter, holds good after the
+introduction of money. Mr. Ricardo found that his more general
+proposition stood this test; and as the proposition which we have just
+demonstrated is only a further developement of his principle, we shall
+probably find that it suffers a little, by a mere change in the mode
+(for it is no more) in which one commodity is exchanged against another.
+
+We may at first make whatever supposition we will with respect to the
+value of money. Let us suppose, therefore, that before the opening of
+the trade, the price of cloth is the same in both countries, namely, six
+shillings per yard [2]. As 10 yards of cloth were supposed to exchange in
+England for 5 yards of linen, in Germany for 20, we must suppose that
+linen is sold in England at four shillings per yard, in Germany at
+three. Cost of carriage and importer's profit are left as before, out of
+consideration.
+
+In this state of prices, cloth, it is evident, cannot yet be exported
+from England into Germany. But linen can be imported from Germany into
+England. It will be so, and, in the first instance, the linen will be
+paid for in money.
+
+The efflux of money from England, and its influx into Germany, will
+raise money prices in the latter country, and lower them in the former.
+Linen will rise in Germany above three shillings per yard, and cloth
+above six shillings. Linen in England being imported from Germany, will
+(since cost of carriage is not reckoned) sink to the same price as in
+that country, while cloth will fall below six shillings. As soon as the
+price of cloth is lower in England than in Germany, it will begin to be
+exported, and the price of cloth in Germany will fall to what it is in
+England. As long As the cloth exported does not suffice to pay for the
+linen imported, money will continue to flow from England into Germany,
+and prices generally will continue to fall in England, and rise in
+Germany. By the fall, however, of cloth in England, cloth will fall in
+Germany also, and the demand for it will increase. By the rise of linen
+in Germany, linen must rise in England also, and the demand for it will
+diminish. Although the increased exportation of cloth takes place at a
+lower price, and the diminished importation of linen at a higher, yet
+the total money value of the exportation would probably increase, that
+of the importation diminish. As cloth fell in price and linen rose,
+there would be some particular price of both articles at-which the cloth
+exported, and the linen imported, would exactly pay for each other. At
+this point prices would remain, because money would then cease to move
+out of England into Germany. What this point might be, would entirely
+depend upon the circumstances and inclinations of the purchasers on both
+sides. If the fall of cloth did not much increase the demand for it in
+Germany, and the rise of linen did not diminish very rapidly the demand
+for it in England, much money must pass before the equilibrium is
+restored; cloth would fall very much, and linen would rise, until
+England, perhaps, had to pay nearly as much for it as when she produced
+it for herself. But if, on the contrary, the fall of cloth caused a very
+rapid increase of the demand for it in Germany, and the rise of linen in
+Germany reduced very rapidly the demand in England from what it was
+under the influence of the first cheapness produced by the opening of
+the trade; the cloth would very soon suffice to pay for the linen,
+little money would pass between the two countries, and England would
+derive a large portion of the benefit of the trade. We have thus arrived
+at precisely the same conclusion, in supposing the employment of money,
+which we found to hold under the supposition of barter.
+
+In what shape the benefit accrues to the two nations from the trade, is
+clear enough. Germany, before the commencement of the trade, paid six
+shillings per yard for broad-cloth. She now obtains it at a lower price.
+This, however, is not the whole of her advantage. As the money prices of
+all her other commodities have risen, the money incomes of all her
+producers have increased. This is no advantage to them in buying from
+each other; because the price of what they buy has risen in the same
+ratio with their means of paying for it: but it is an advantage to them
+in buying any thing which has not risen; and still more, any thing which
+has fallen. They therefore benefit as consumers of cloth, not merely to
+the extent to which cloth has fallen, but also to the extent to which
+other prices have risen. Suppose that this is one-tenth. The same
+proportion of their money incomes as before, will suffice to supply
+their other wants, and the remainder, being increased one-tenth in
+amount, will enable them to purchase one-tenth more cloth than before,
+even though cloth had not fallen. But it has fallen: so that they are
+doubly gainers. If they do not choose to increase their consumption of
+cloth, this does not prevent them from being gainers. They purchase the
+same quantity with less money, and have more to expend upon their other
+wants.
+
+In England, on the contrary, general money-prices have fallen. Linen,
+however, has fallen more than the rest; having been lowered in price, by
+importation from a country where it was cheaper, whereas the others have
+fallen only from the consequent efflux of money. Notwithstanding,
+therefore, the general fall of money-prices, the English producers will
+be exactly as they were in all other respects, while they will gain as
+purchasers of linen.
+
+The greater the efflux of money required to restore the equilibrium, the
+greater will be the gain of Germany; both by the fall of cloth, and by
+the rise of her general prices. The less the efflux of money requisite,
+the greater will be the gain of England; because the price of linen will
+continue lower, and her general prices will not be reduced so much. It
+must not, however, be imagined that high money-prices are a good, and
+low money-prices an evil, in themselves. But the higher the general
+money-prices in any country, the greater will be that country's means
+of purchasing those commodities which, being imported from abroad, are
+independent of the causes which keep prices high at home.
+
+3. We have hitherto supposed the carriage to be performed without labour
+or expense. If we abandon this supposition, we must correct the
+statement of the case in a slight degree. The prices of the two articles
+will no longer, when the trade is opened, be the same in both countries,
+nor will the articles exchange for one another at the same rate in both.
+Ten yards of cloth will purchase in Germany a quantity of linen greater
+than in England by a per-centage equal to the entire cost of conveyance
+both of the cloth to Germany and of the linen to England. The
+money-price of linen will be higher in England than in Germany, by the
+cost of carriage of the linen. The money-price of cloth will be higher
+in Germany than in England, by the cost of carriage of the cloth.
+
+The expense of the carriage is evidently a deduction _pro tanto_ from
+the saving of labour produced by the establishment of the trade. The two
+countries together, therefore, have their gains by the trade diminished,
+by the amount of the cost of carriage of both commodities. But here the
+question arises, which of the two countries bears this deduction, or in
+what proportion it is divided between them.
+
+At the first inspection it would appear that each country bears its own
+cost of carriage, that is, that each country pays the carriage of the
+commodity which it imports. Upon this supposition, each country would
+gain whatever share of the joint saving of labour would otherwise fall
+to its lot, _minus_ the cost of bringing from the other country the
+commodity which it imports. This solution is rendered plausible by the
+circumstance just now mentioned, that the price of the commodity will be
+higher in the country which imports it, than in the country which
+exports it, by the amount of the cost of carriage. If linen is sold in
+England at a higher price than in Germany, by a per-centage equal to the
+cost of carriage of the linen, it appears obvious that England pays for
+the carriage of the linen, and Germany, by parity of reason, for that of
+the cloth.
+
+But if we apply to these questions the principles already explained, we
+shall see that this is not by any means a universal law: the fact may
+correspond with it, or it may not.
+
+For suppose that the prices have adjusted themselves, no matter how, and
+that the imports and exports balance one another, each commodity, of
+course, being dearer by the cost of carriage, in the country which
+imports than in that which exports it: and suppose now that the cost of
+carriage, both of the one and of the other, were suddenly and
+miraculously annihilated, and that the commodities could pass from
+country to country without expense. If each country bore its own cost of
+carriage before, each country will save its own cost of carriage now.
+Cloth, in Germany, will in that case fall exactly to what it is in
+England; linen in England, to what it is in Germany.
+
+Now this fall of price, supposing it to happen, will probably affect the
+demand on both sides; and it will either affect it alike in both
+countries, or it will affect it unequally. It will affect it alike, if
+the fall of price does not affect the demand at all, or if it affects it
+equally in both countries. If either of these results should take place,
+the cloth and the linen would continue to balance each other as before:
+no money would pass from one country to the other; prices in both would
+continue at the point to which they had fallen, and each country would
+exactly save the cost of carriage on the commodity which it imports from
+the other.
+
+But the result might be, that the fall of price might not have an effect
+exactly equal, on the demand in the two countries. Suppose, for
+instance, that the fall of cloth in Germany owing to the saving of the
+cost of carriage, did not increase the demand for cloth in Germany; but
+that the fall of linen in England from a like cause, did increase the
+demand for linen in England. The linen imported would be more than could
+be paid for by the cloth exported: the difference must be paid in money:
+the change in the distribution of the precious metals between the two
+countries would lower the price of cloth in England, (and consequently
+in Germany), while it would raise the price of linen in Germany, (and
+consequently in England). Germany, therefore, by the annihilation of
+cost of carriage, would save in price more than the cost of carriage of
+the cloth; England would save less in price than the cost of carriage of
+the linen. But if by the miraculous annihilation of cost of carriage,
+England would not _save_ the whole of the carriage of her imports, it
+follows that England did not previously _pay_ the whole of that cost of
+carriage.
+
+Thus, the division of the cost of trade, and the division of the
+advantage of trade, are governed by precisely the same principles; and
+the only general proposition which can be affirmed respecting the cost
+is, that it is _pro tanto_ a deduction from the advantage. It cannot
+even be maintained that the cost is shared in the same proportion as the
+advantage is; because the increase of the demand for a commodity as its
+price falls, is not governed by any fixed law. Suppose, for instance,
+that the advantage happened to be divided equally: this must be because
+the greater cheapness arising from the establishment of the trade,
+either did not affect the demand at all, or affected it in an equal
+proportion on both sides. Now, because such is the effect of the degree
+of increased cheapness resulting from importation burthened with cost of
+carriage, it would not follow that the still greater degree of
+cheapness, produced by the additional saving of the cost of carriage
+itself, would also affect the demand of both countries in precisely an
+equal degree. But we cannot be said to bear an expense, which, if saved,
+would be saved to somebody else, and not to us. Two countries may have
+equal shares of the clear benefit of the trade, while, if the cost of
+carriage were saved, they would divide that saving unequally. If so,
+they divide the gross gain in one unequal ratio, the cost in another
+unequal ratio, though their shares of the cost being deducted from their
+shares of the gain leave equal remainders.
+
+4. The question naturally suggests itself, whether any country, by its
+own legislative policy, can engross to itself a larger share of the
+benefits of foreign commerce, than would fall to it in the natural or
+spontaneous course of trade.
+
+The answer is, it can. By taxing exports, for instance, we may, under
+certain circumstances, produce a division of the advantage of the trade
+more favourable to ourselves. In some cases, we may draw into our
+coffers, at the expense of foreigners, not only the whole tax, but more
+than the tax: in other cases, we should gain exactly the tax,--in
+others, less than the tax. In this last case, a part of the tax is borne
+by ourselves: possibly the whole, possibly even, as we shall show, more
+than the whole.
+
+Suppose that England taxes her export of cloth: the tax not being
+supposed high enough to induce Germany to produce cloth for herself. The
+price at which cloth can be sold in Germany is augmented by the tax.
+This will probably diminish the quantity consumed. It may diminish it so
+much, that even at the increased price, there will not be required so
+great a money value as before. It may diminish it in such a ratio, that
+the money value of the quantity consumed will be exactly the same as
+before. Or it may not diminish it at all, or so little, that, in
+consequence of the higher price, a greater money value will be purchased
+than before. In this last case, England will gain, at the expense of
+Germany, not only the whole amount of the duty, but more. For the money
+value of her exports to Germany being increased, while her imports
+remain the same, money will flow into England from Germany. The price of
+cloth will rise in England, and consequently in Germany; but the price
+of linen will fall in Germany, and consequently in England, We shall
+export less cloth, and import more linen, till the equilibrium is
+restored. It thus appears, what is at first sight somewhat remarkable,
+that, by taxing her exports, England would, under some conceivable
+circumstances, not only gain from her foreign customers the whole amount
+of the tax, but would also get her imports cheaper. She would get them
+cheaper in two ways,--for she would obtain them for less money, and
+would have more money to purchase them with. Germany, on the other hand,
+would suffer doubly: she would have to pay for her cloth a price
+increased not only by the duty, but by the influx of money into England,
+while the same change in the distribution of the circulating medium
+would leave her less money to purchase it with.
+
+This, however, is only one of three possible cases. If, after the
+imposition of the duty, Germany requires so diminished a quantity of
+cloth, that its total money value is exactly the same as before, the
+balance of trade will be undisturbed; England will gain the duty,
+Germany will lose it, and nothing more. If, again, the imposition of the
+duty occasions such a falling off in the demand, that Germany requires a
+less pecuniary value than before, our exports will no longer pay for our
+imports, money must pass from England into Germany, and Germany's share
+of the advantage of the trade will be increased. By the change in the
+distribution of money, cloth will fall in England; and therefore it
+will, of course, fall in Germany. Thus Germany will not pay the whole of
+the tax. From the same cause, linen will rise in Germany, and
+consequently in England. When this alteration of prices has so adjusted
+the demand, that the cloth and the linen again pay for one another, the
+result is, that Germany has paid only a part of the tax, and the
+remainder of what has been received into our treasury has come
+indirectly out of the pockets of our own consumers of linen, who pay a
+higher price for that imported commodity, in consequence of the tax on
+our exports, which at the same time they, in consequence of the efflux
+of money and consequent fall of prices, have smaller money incomes
+wherewith to pay for the linen at that advanced price.
+
+It is not an impossible supposition that, by taxing our exports, we
+might not only gain nothing from the foreigner, the tax being paid out
+of our own pockets, but might even compel our own people to pay a second
+tax to the foreigner. Suppose, as before, that the demand of Germany for
+cloth falls off so much on the imposition of the duty, that she requires
+a smaller money value than before, but that the case is so different
+with linen in England, that when the price rises the demand either does
+not fall off at all, or so little that the money value required is
+greater than before. The first effect of laying on the duty is, as
+before, that the cloth exported will no longer pay for the linen
+imported. Money will, therefore, flow out of England into Germany. One
+effect is to raise the price of linen in Germany, and, consequently, in
+England. But this, by the supposition, instead of stopping the efflux of
+money, only makes it greater, because the higher the price, the greater
+the money value of the linen consumed. The balance, therefore, can only
+be restored by the other effect, which is going on at the same time,
+namely, the fall of cloth in the English, and, consequently, in the
+German market. Even when cloth has fallen so low that its price with the
+duty is only equal to what its price without the duty was at first, it
+is not a necessary consequence that the fall will stop; for the same
+amount of exportation as before will not now suffice to pay the
+increased money value of the imports; and although the German consumers
+have now not only cloth at the old price, but likewise increased money
+incomes, it is not certain that they will be inclined to employ the
+increase of their incomes in increasing their purchases of cloth. The
+price of cloth, therefore, must perhaps fall, to restore the
+equilibrium, more than the whole amount of the duty; Germany may be
+enabled to import cloth at a lower price when it is taxed, than when it
+was untaxed: and this gain she will acquire at the expense of the
+English consumers of linen, who, in addition, will be the real payers of
+the whole of what is received at their own custom-house under the name
+of duties on the export of cloth.
+
+Such are the extremely various effects which may result to ourselves,
+and to our customers, from the imposition of taxes on our exports [3]:
+and the determining circumstances are of a nature so imperfectly
+ascertainable, that it must be almost impossible to decide with any
+certainty, even after the tax has been imposed, whether we have been
+gainers by it or losers. It is certain, however, that whatever we gain,
+is lost by somebody else, and there is the expense of the collection
+besides: if international morality, therefore, were rightly understood
+and acted upon, such taxes, as being contrary to the universal weal,
+would not exist. Moreover, the imposition of such a tax frequently will,
+and always may, expose a country to lose this branch of its trade
+altogether, or to carry it on with diminished advantage, in consequence
+of the competition of untaxed exporters from other countries, or of the
+domestic producers in the country to which it exports. Even on the most
+selfish principles, therefore, the benefit of such a tax is always
+extremely precarious.
+
+5. We have had an example of a tax on exports, that is, on foreigners,
+falling in part on ourselves. We shall, therefore, not be surprised if
+we find a tax on imports, that is, on ourselves, partly falling upon
+foreigners.
+
+Instead of taxing the cloth which we export, suppose that we tax the
+linen which we import. The duty which we are now supposing must not be
+what is termed a protecting duty, that is, a duty sufficiently high to
+induce us to produce the article at home. If it had this effect, it
+would destroy entirely the trade both in cloth and in linen, and both
+countries would lose the whole of the advantage which they previously
+gained by exchanging those commodities with one another. We suppose a
+duty which might diminish the consumption of the article, but which
+would not prevent us from continuing to import, as before, whatever
+linen we did consume.
+
+The equilibrium of trade would be disturbed if the imposition of the tax
+diminished in the slightest degree the quantity of linen consumed. For,
+as the tax is levied at our own custom-house, the German exporter only
+receives the same price as formerly, though the English consumer pays a
+higher one. If, therefore, there be any diminution of the quantity
+bought, although a larger sum of money may be actually laid out in the
+article, a smaller one will be due from England to Germany: this sum
+will no longer be an equivalent for the sum due from Germany to England
+for cloth, the balance therefore must be paid in money. Prices will fall
+in Germany, and rise in England; linen will fall in the German market;
+cloth will rise in the English. The Germans will pay higher price for
+cloth, and will have smaller money incomes to buy it with; while the
+English will obtain linen cheaper, that is, its price will exceed what
+it previously was by less than the amount of the duty, while their means
+of purchasing it will be increased by the increase of their money
+incomes.
+
+If the imposition of the tax does not diminish the demand, it will leave
+the trade exactly as it was before. We shall import as much, and export
+as much; the whole of the tax will be paid out of our own pockets.
+
+But the imposition of a tax on a commodity, almost always diminishes the
+demand more or less; and it can never, or scarcely ever increase the
+demand. It may, therefore, be laid down as a principle, that a tax on
+imported commodities, when it really operates as a tax, and not as a
+prohibition, either total or partial, almost always falls in part upon
+the foreigners who consume our goods: and that this is a mode in which a
+nation may be almost sure of appropriating to itself, at the expense of
+foreigners, a larger share than would otherwise belong to it of the
+increase in the general productiveness of the labour and capital of the
+world, which results from the interchange of commodities among nations.
+
+It is scarcely necessary to observe, that no such advantage can result
+from the duty, if it operate as a protecting duty; if it induce the
+country which imposes it, to produce for herself that which she would
+otherwise have imported. The saving of labour--the increase in the
+general productiveness of the capital of the world--which is the effect
+of commerce, and which a non-protecting duty would enable the country
+imposing it to engross, could not be engrossed by a protecting duty,
+because such a duty prevents any such increased production from
+existing.
+
+With a view to practical legislation, therefore, duties on importation
+may be divided into two classes: those which have the effect of
+encouraging some particular branch of domestic industry, and those which
+have not.
+
+The former are purely mischievous, both to the country imposing them,
+and to those with whom it trades. They prevent a saving of labour and
+capital, which, if permitted to be made, would be divided in some
+proportion or other between the importing country and the countries
+which buy what that country does or might export.
+
+The other class of duties are those which do not encourage one mode of
+procuring an article at the expense of another, but allow interchange to
+take place just as if the duty did not exist--and to produce the saving
+of labour which constitutes the motive to international as to all other
+commerce. Of this kind, are duties on the importation of any commodity
+which could not by any possibility be produced at home; and duties not
+sufficiently high to counterbalance the difference of expense between
+the production of the article at home, and its importation. Of the money
+which is brought into the treasury of any country by taxes of this last
+description, a part only is paid by the people of that country; the
+remainder by the foreign consumers of their goods.
+
+Nevertheless, this latter kind of taxes are in principle as ineligible
+as the former, although not precisely on the same ground. A protecting
+duty can never be a cause of gain, but always and necessarily of loss,
+to the country imposing it, just so far as it is efficacious to its end.
+A non-protecting duty on the contrary would, in most cases, be a source
+of gain to the country imposing it, in so far as throwing part of the
+weight of its taxes upon other people is a gain; but it would be a means
+of gain which it could seldom be advisable to adopt, being so easily
+counteracted by a precisely similar proceeding on the other side.
+
+If England, in the case already supposed, sought to obtain for herself
+more than her natural share of the advantage of the trade with Germany,
+by imposing a duty upon cloth, Germany would only have to impose a duty
+upon linen, sufficient to diminish the demand for that article about as
+much as the demand for cloth had been diminished in England by the tax.
+Things would then be as before, and each country would pay its own tax.
+Unless, indeed, the sum of the two duties exceeded the entire advantage
+of the trade; for in that case the trade, and its advantage, would cease
+entirely.
+
+There would be no advantage, therefore, in imposing duties of this kind,
+with a view to gain by them, in the manner which has been pointed out.
+But so long as any other kind of taxes on commodities are retained, as a
+source of revenue, these may often be as unobjectionable as the rest. It
+is evident, moreover, that considerations of reciprocity, which are
+quite unessential when the matter in debate is a protecting duty, are of
+material importance when the repeal of duties of this other description
+is discussed. A country cannot be expected to renounce the power of
+taxing foreigners, unless foreigners will in return practise towards
+itself the same forbearance. The only mode in which a country can save
+itself from being a loser by the duties imposed by other countries on
+its commodities, is to impose corresponding duties on theirs. Only it
+must take care that these duties be not so high as to exceed all that
+remains of the advantage of the trade, and put an end to importation
+altogether; causing the article to be either produced at home, or
+imported from another and a dearer market.
+
+It is not necessary to apply the principles which we have stated to the
+case of bounties on exportation or importation. The application is easy,
+and the conclusions present nothing of particular interest or
+importance.
+
+6. Any cause which alters the exports or imports from one country into
+another, alters the division of the advantage of interchange between
+those two countries. Suppose the discovery of a new process, by which
+some article of export, or some article not previously exported, can be
+produced so cheap as to occasion a great demand for it in other
+countries. This of course produces a great influx of money from other
+countries, and lowers the prices of all articles imported from them,
+until the increase of importation produced by this cause has restored
+the equilibrium. Thus, the country which acquires a new article of
+export gets its imports cheaper. This is not a case of mere alteration
+in the division of the advantage; it is a new advantage created by the
+discovery.
+
+But suppose that the invention, to which the nation is indebted for this
+increase of the return to its industry, comes into use also in the other
+country, and that the process is one which can be as perfectly and as
+cheaply performed in the one country as in the other. The new
+exportation will cease; trade will revert to its old channels, the money
+which flowed in will again flow out, and the country which invented the
+process will lose that increase of its gain by trade, which it had
+derived from the discovery.
+
+Now the exportation of machinery comes within the case which we have
+just described.
+
+If the fact be, that by allowing to foreigners a participation in our
+machinery, we enable them to produce any of our leading articles of
+export, at a lower money price than we can sell those articles, it is
+certain that unless we possess as great an advantage in the production
+of the machinery itself as we have in the production of other articles
+by means of machinery, the permitting of its exportation would alter to
+our disadvantage the division of the benefit of trade. Our exports being
+diminished, we should have to pay a balance in money. This would raise,
+in foreign countries, the price of everything which we import from
+thence: while our incomes, being reduced in money value, would render
+us less able to buy those articles even if they had not risen. The
+equilibrium of exports and imports would only be restored, when either
+some of the latter became so dear that we could produce them cheaper at
+home, or some articles not previously exported became exportable from
+the fall of prices. In the one case, we lose the benefit of importation
+altogether, and are obliged to produce at home, at a greater cost. In
+the other case, we continue to import, but pay dearer for our imports.
+
+Notwithstanding what has now been observed, restrictions on the
+exportation of machinery are not, in our opinion, justifiable, either on
+the score of international morality or of sound policy. It is evidently
+the common interest of all nations that each of them should abstain from
+every measure by which the aggregate wealth of the commercial world
+would be diminished, although of this smaller sum total it might thereby
+be enabled to attract to itself a larger share. And the time will
+certainly come when nations in general will feel the importance of this
+rule, and will so direct their approbation and disapprobation as to
+enforce observance of it. Moreover, a country possessing machines should
+consider that if a similar advantage were extended to other countries,
+they would employ it above all in the production of those articles, in
+which they had already the greatest natural advantages; and if the
+former country would be a loser by their improvements in the production
+of articles which it sells, it would gain by their improvements in those
+which it buys. The exportation of machinery may, however, be a proper
+subject for adjustment with other nations, on the principle of
+reciprocity. Until, by the common consent of nations, all restrictions
+upon trade are done away, a nation cannot be required to abolish those
+from which she derives a real advantage, without stipulating for an
+equivalent.
+
+7. The case which we have just examined, is an example in how remarkable
+a manner every cause which materially influences exports, operates upon
+the prices of imports. According to the ancient theory of the balance of
+trade, and to the associations of the generality of what are termed
+practical men to this day, the sole benefit derived from commerce
+consists in the exports, and imports are rather an evil than otherwise.
+Political economists, seeing the folly of these views, and clearly
+perceiving that the advantage of commerce consists and must consist
+solely of the imports, have occasionally suffered themselves to employ
+language evincing inattention to the fact, that exports, though
+unimportant in themselves, are important by their influence on imports.
+So real and extensive is this influence, that every new market which is
+opened for any of our goods, and every increase in the demand for our
+commodities in foreign countries, enables us to supply ourselves with
+foreign commodities at a smaller cost.
+
+Let us revert to our earliest and simplest example, but which displays
+the real law of interchange more luminously than any formula into which
+money enters; the case of simple barter. We showed, that if at the rate
+of 10 yards of cloth for 17 of linen, the demand of Germany amounted to
+1000 times 10 yards of cloth, the two nations will trade together at
+that rate of interchange, provided that the linen required in England be
+exactly 1000 times 17 yards, neither more nor less. For the cloth and
+the linen will then exactly pay for one another, and nobody on either
+side will be obliged to offer what he has to sell at a lower rate, in
+order to procure what he wants to buy.
+
+Now if the increase of wealth and population in Germany should greatly
+increase the demand in that country for cloth, the demand for linen in
+England not increasing in the same ratio,--if, for instance, Germany
+became willing, at the above rate, to take 1500 times 10 yards; is it
+not evident, that to induce England to take in exchange for this the
+only article which Germany by supposition has to give, the latter must
+offer it at a rate more advantageous to England--at 18, or perhaps 19
+yards, for 10 of cloth? So that the division of the advantage becomes
+more and more favourable to a country, in proportion as the demand for
+its commodities increases in foreign countries.
+
+It is not even necessary that the country which takes its goods, should
+supply it with any commodity whatever. Suppose that a country should be
+opened to our merchants, disposed to buy from us in abundance, but which
+can sell to us scarcely anything, as every commodity which it affords
+could be got cheaper by us from some other quarter. Nevertheless, our
+trade with this country will enable us to obtain from all other
+countries their commodities at a lower price. At the first opening of
+this commerce of mere exportation, we must have received in payment a
+large quantity of money; for which our customer will have been
+indemnified by other countries, in exchange for her commodities. Prices
+must consequently be lower in all other countries, and higher with us,
+than before the opening of the new branch of trade; and we therefore
+obtain the commodities of other countries at a less cost, both as we pay
+less money for them, and as that money is lower in value.
+
+8. Another obvious application of the same principle will enable us to
+explain, and to bring within the dominion of strict science, the
+rivality of one exporting nation and another, or what is called, in the
+language of the mercantile system, _underselling_: a subject which
+political economists have taken little trouble to elucidate, from the
+habit before alluded to of disregarding almost entirely, in their purely
+scientific inquiries, those circumstances which affect the trade of a
+country by operating immediately upon the exports.
+
+Let us revert to our old example, and to our old figures. Suppose that
+the trade between England and Germany in cloth and linen is established,
+and that the rate of interchange is 10 yards of cloth for 17 of linen.
+Now suppose that there arises in another country, in Flanders, for
+example, a linen manufacture; and that the same causes, the working of
+which in England and Germany has made 10 yards exchange for 17, would in
+England and Flanders, putting Germany out of the question, have made the
+rate of interchange 10 for 18. It is evident that Germany also must give
+18 yards of linen for 10 of cloth, and so carry on the trade with a
+diminished share of the advantage, or lose it altogether. If the play of
+demand in England and Flanders had made the rate of interchange not 10
+for 18 but 10 for 21, (10 to 20 being in Germany the comparative cost of
+production,) it is evident that Germany could not have maintained the
+competition, and would have lost, not part of her share of the
+advantage, but all advantage, and the trade itself.
+
+It would be no answer to say, that Germany could probably still have
+found the means of importing cloth from England, by exporting something
+else. If she had purchased cloth with anything else, she would have
+purchased it dearer: as is proved by the fact, that having free choice,
+she found it most advantageous to purchase it with linen. When she could
+get 10 yards of cloth for 17 of linen, that was the mode in which she
+could get it with least labour. Being pressed by competition, she gave
+successively 17, 18, 18; but rather than give 19 yards of linen, she
+perhaps would prefer to give, as costing her rather less labour, 10
+yards of silk, (which we will suppose to be the quantity which in
+England will purchase 10 yards of cloth.) It is obvious that, although
+Germany has found the means of supplying herself with cloth, by
+exporting a different article from that in which she was undersold, yet
+the advantage of the trade between her and England is now shared in a
+proportion much less favourable to Germany.
+
+There is no difficulty in showing that the same series of consequences
+takes place in exactly the same manner through the agency of money. The
+trade in cloth and linen between England and Germany being supposed to
+exist as before, Flanders produces linen at a lower price than that at
+which Germany has hitherto afforded it. The exportation from Germany is
+suspended; and Germany, continuing to import cloth, pays for it in
+money. By so doing she lowers her own prices, and raises those in
+England: she has to pay more money for cloth, and to pay it in a
+currency of higher value. She thus suffers more and more as a consumer
+of cloth, until by the fall of her prices she can either afford to sell
+linen as cheap as Flanders, or to export some other commodity which she
+could not export before. In either case, her trade resumes its course,
+but with diminished advantage on her side. [4]
+
+It is in the mode just described, that those countries which formerly
+supplied Europe with manufactures, but which owed their power of doing
+so not to any natural and permanent advantages, but to their more
+advanced state of civilization as compared with other countries, have
+lost their pre-eminence as other countries successively attained an
+equal degree of civilization. Lombardy and Flanders, in the middle ages,
+produced some descriptions of clothing and ornament for all Europe:
+Holland, at a much later period, supplied ships, and almost all articles
+which came in ships, to most other parts of the world. All these
+countries have probably at this moment a much larger amount of capital
+than ever they had, but having been undersold by other countries, they
+have lost by far the greater part of the share which they had engrossed
+to themselves of the benefit which the world derives from commerce; and
+their capital yields to them in consequence a smaller proportional
+return. We are aware that other causes have contributed to the same
+effect, but we cannot doubt that this is a principal one.
+
+As much as is really true of the great returns alleged to have been made
+to capital during the last war, must have arisen from a similar cause.
+Our exclusive command of the sea excluded from the market all by whom we
+should have been undersold.
+
+The adoption by France, Russia, the Netherlands, and the United States,
+of a more severely restrictive commercial policy, subsequently to 1815,
+has done great injury undoubtedly to those countries; for the duties
+which they have established are intended to be, and really are, of the
+class termed _protecting_; that is to say, such as force the production
+of commodities by more costly processes at home, instead of suffering
+them to be imported from abroad. But these duties, though chiefly
+injurious to the countries imposing them, have also been highly
+injurious to England. By diminishing her exportation, or preventing it
+from increasing as it would otherwise have done, they have kept up the
+prices of all imported commodities in England, above what those prices
+would have fallen to if trade had been left free.
+
+By another obvious application of the same reasoning, it will be seen,
+that there is a real foundation for the notion, that a country may be
+benefited by receiving from another country the concession of what used
+to be termed commercial advantages, or by restraining its colonies from
+purchasing goods of any country except itself. In the figured
+illustration last used (p. 34) [not available, M.D.], it is evident,
+that if England had been bound by a treaty with Germany to buy linen
+exclusively from her, Germany would have retained the trade which we
+supposed her to lose, and would have continued to purchase cloth at a
+comparatively cheap rate from England, instead of producing it by a more
+costly process at home. Suppose that England had been a colony of
+Germany, and we see that by compelling colonies to deal at her shop, she
+may obtain a real advantage, though of a nature which we may hazard the
+assertion that the founders of our colonial policy little dreamt of.
+
+Such an advantage, however, being gained at the expense of another
+country, is, at the least, simply equivalent to a tax, or tribute. Now,
+if a country has just grounds, or deems superiority of power a
+sufficient ground, for exacting a tribute from another country, the most
+direct mode is the best. First, because it is the most intelligible, and
+has least of trick or disguise. Secondly, because it allows the people
+of the country paying the tribute, to raise the money in whatever way
+they consider least oppressive to themselves. Thirdly, because the
+indirect mode of taxing a country, by restrictions on its commerce,
+disturbs the distribution of industry most advantageous to the world at
+large, and occasions a greater loss to the restricted country, and to
+the other countries with which that country would have traded, than gain
+to the country in whose favour the restrictions are imposed. And lastly,
+because a country never could obtain such privileges from an independent
+nation, and has seldom been so undisguised an oppressor as to demand
+them even from its colonies, without subjecting itself to restrictions
+in some degree equivalent, for the benefit of those whom it has thus
+taxed. Each country, therefore, usually pays tribute to the other; and
+to produce this fruitless reciprocity of exaction, the industry and
+trade of both countries are diverted from the most advantageous
+channels, and the return to the labour and capital of both is
+diminished, in pure loss.
+
+9. The same principles which have led to the above conclusions, also
+suggest a remark of some importance with respect to the probable effect
+of a change from a restricted to a comparatively free trade.
+
+There is no doubt that our prohibiting the importation of a particular
+article, which, but for the prohibition, would have been imported,
+enables us to obtain our other imports at smaller cost. The article for
+which we have the greatest demand, and for which our demand is most
+increased by cheapness, is that which we should naturally import
+preferably to any other; now of this article we should import the
+quantity necessary to pay for our exports, on terms of interchange less
+advantageous to us than in the case of any other commodity. If our
+legislature prohibits this commodity, the other country will be obliged
+to offer any other article on easier terms, in order to force a
+sufficient demand for it to be an equivalent to what she purchases from
+us.
+
+The steps of the process, money being used, would be these:--We prohibit
+the importation of linen. The exportation of cloth continues, but is
+paid for in money. Our prices rise, those in Germany fall, until silk,
+or some other article, can be imported from Germany cheaper than it can
+be produced at home, and in sufficient abundance to balance the export
+of cloth. Thus by sacrificing the cheapness of one commodity, we gain
+the cheapness of another: but we sacrifice a greater cheapness to gain a
+less, and we sacrifice cheapness in the article which we most want, and
+would import by preference, while our compensation is cheapness in an
+article which we either could produce more advantageously at home, or
+which we have so little desire for, that it requires a species of bounty
+on the article to create a demand.
+
+Restrictions on importation do, however, tend to keep down the value and
+price of our remaining imports, and to keep up the nominal or money
+prices of all our other commodities, by retaining a greater quantity of
+money in the country than would otherwise be there. From this it
+obviously follows, that if the restrictions were removed, we should have
+to pay rather more for some of the articles which we now import, while
+those which we are now prevented from importing would cost us more than
+might be inferred from their _present_ price in the foreign market. And
+general prices would fall; to the benefit of those who have fixed sums
+to receive; to the disadvantage of those who have fixed sums to pay; and
+giving rise, as a general fall of prices always does, to an appearance,
+though a temporary and fallacious one, of general distress. [5]
+
+It is right to observe that the measures of the British Legislature
+which have been falsely characterised as measures of free trade, must,
+from their extremely insignificant extent, have produced far too little
+effect in increasing our importation, to have actually led, in any
+degree worth mentioning, to the results specified above.
+
+It is of greater importance to take notice, that these effects may be
+entirely obviated, if foreign countries can be prevailed upon
+simultaneously to relax their restrictive systems, so as to create an
+immediate increase of demand for our exports at the present prices. It
+is true that exports and imports must, in the end, balance one another,
+and if we increase our imports, our exports will of necessity increase
+too. But it is a forced increase, produced by an efflux of money and
+fall of prices; and this fall of prices being permanent, although it
+would be no evil at all in a country where credit is unknown, it may be
+a very serious one where large classes of persons, and the nation
+itself, are under engagements to pay fixed sums of money of large
+amount.
+
+10. The only remaining application of the principle set forth in this
+essay, which we think it of importance to notice specially, is the
+effect produced upon a country by the annual payment of a tribute or
+subsidy to a foreign power, or by the annual remittance of rents to
+absentee landlords, or of any other kind of income to its absent owners.
+Remittances to absentees are often very incorrectly likened in their
+general character to the payment of a tribute; from which they differ in
+this very material circumstance, that tribute, if not paid to a foreign
+country, is not paid at all, whereas rents are paid to the landlord, and
+consumed by him, even if he resides at home. The two kinds of payment,
+however, have a perfect resemblance to each other in such parts of their
+effects as we are about to point out.
+
+The tribute, subsidy, or remittance, is always in goods; for, unless the
+country possesses mines of the precious metals, and numbers those metals
+among its regular articles of export, it cannot go on, year after year,
+parting with them, and never receiving them back. When a nation has
+regular payments to make in a foreign country, for which it is not to
+receive any return, its exports must annually exceed its imports by the
+amount of the payments which it is bound so to make. In order to force a
+demand for its exports greater than its imports will suffice to pay for,
+it must offer them at a rate of interchange more favourable to the
+foreign country, and less so to itself, than if it had no payments to
+make beyond the value of its imports. It therefore carries on the trade
+with less advantage, in consequence of the obligations to which it is
+subject towards persons resident in foreign countries.
+
+The steps of the process are these. The exports and imports being in
+equilibrium, suppose a treaty to be concluded, by which the country
+binds itself to pay in tribute to another country, a certain sum
+annually. It makes, perhaps, the first payment by a remittance of money.
+This lowers prices in the paying country, and raises them in the
+receiving one: the exports of the tributary country increase, its
+imports diminish. When the efflux of money has altered prices in the
+requisite degree, the exports exceed the imports annually, by the amount
+of the tribute; and the latter, being added to the sum of the payments
+due, restores the balance of payments between the two countries. The
+result to the tributary country is a diminution of her share in the
+advantage of foreign trade. She pays dearer for her imports, in two
+ways, because she pays more money, and because that money is of higher
+value, the money incomes of her inhabitants being of smaller amount.
+
+Thus the imposition of a tribute is a double burthen to the country
+paying it, and a double gain to that which receives it. The tributary
+country pays to the other, first, the tax, whatever be its amount, and
+next, something more, which the one country loses in the increased cost
+of its imports, the other gains in the diminished cost of its own.
+
+Absenteeism, moreover, though not burthensome in the former of these
+ways, since the money is paid whether the receiver be an absentee or
+not, is yet disadvantageous in the second of the two modes which have
+been mentioned. Ireland pays dearer for her imports in consequence of
+her absentees; a circumstance which the assailants of Mr. M'Culloch,
+whether political economists or not, have not, we believe, hitherto
+thought of producing against him.
+
+11. If the question be now asked, which of the countries of the world
+gains most by foreign commerce, the following will be the answer.
+
+If by gain be meant advantage, in the most enlarged sense, that country
+will generally gain the most, which stands most in need of foreign
+commodities.
+
+But if by gain be meant saving of labour and capital in obtaining the
+commodities which the country desires to have, whatever they may be; the
+country will gain, not in proportion to its own need of foreign
+articles, but to the need which foreigners have of the articles which
+itself produces.
+
+Let us take, as an illustration of our meaning, the case of France and
+England. Those two nations, in consequence of the restrictions with
+which they have loaded their commercial intercourse, carry on so little
+trade with each other, as may almost, regard being had to the wealth and
+population of the two countries, be called none at all. If these fetters
+were at once taken off, which of the two countries would be the greatest
+gainer? England without doubt. There would instantly arise in France an
+immense demand for the cottons, woollens, and iron of England; while
+wines, brandies, and silks, the staple articles of France, are less
+likely to come into general demand here, nor would the consumption of
+such productions, it is probable, be so rapidly increased by the fall of
+price. The fall would probably be very great before France could obtain
+a vent in England for so much of her exports as would suffice to pay for
+the probable amount of her imports. There would be a considerable flow
+of the precious metals out of France into England. The English consumer
+of French wine would not merely save the amount of the duty which that
+wine now pays, but would find the wine itself falling-in prime cost,
+while his means of purchasing it would be increased by the augmentation
+of his own money income. The French consumer of English cottons, on the
+contrary, would not long continue to be able to purchase them at the
+price they now sell for in England. He would gain less, as the English
+would gain more, than might appear from a mere comparison between the
+present prices of commodities in the two countries.
+
+Various consequences would flow from opening the trade between France
+and England, which are not expected, either by the friends or by the
+opponents of the present restrictive system. The wine-growers of France,
+who imagine that free trade would relieve their distress by raising the
+price of their wine, might not improbably find that price actually
+lowered. On the other hand, our silk manufacturers would be surprised if
+they were told that the free admission of our cottons and hardware into
+the French market, would endanger _their_ branch of manufacture: yet
+such might very possibly be the effect. France, it is likely, could most
+advantageously pay us in silks for a portion of the large amount of
+cottons and hardware which we should sell to her; and though our silk
+manufacturers may now be able to compete advantageously, in some
+branches of the manufacture, with their French rivals, it by no means
+follows that they could do so when the efflux of money from France, and
+its influx into England, had lowered the price of silk goods in the
+French market, and increased all the expenses of production here.
+
+On the whole, England probably, of all the countries of Europe, draws to
+herself the largest share of the gains of international commerce:
+because her exportable articles are in universal demand, and are of such
+a kind that the demand increases rapidly as the price falls. Countries
+which export food, have the former advantage, but not the latter. But
+our own colonies, and the countries which supply us with the materials
+of our manufactures, maintain a hard struggle with us for an equal share
+of the advantages of their trade; for _their_ exports are also of a kind
+for which there exists a most extensive demand here, and a demand
+capable of almost indefinite extension by a fall of price. Contrary,
+therefore, to common opinion, it is probable that our trade with the
+colonies, and with the countries which send us the raw materials of our
+national industry, is not more but less advantageous to us, in
+proportion to its extent, than our trade with the continent of Europe.
+We mean in respect to the mere amount of the return to the labour and
+capital of the country; considered abstractedly from the usefulness or
+agreeableness of the particular articles on which the receivers may
+choose to expend it.
+
+
+NOTES:
+
+[1] _Elements of Political Economy_, by James Mill, Esq., 3rd
+edit., pp. 120-1.
+
+[2] The figures used are of course arbitrary, having no
+reference to any existing prices.
+
+[3] We have not deemed it necessary to enter minutely into all
+the circumstances which might modify the results mentioned in the text.
+For example, let us revert to the first case, that in which the demand
+for cloth in Germany is so little affected by the rise of price in
+consequence of the tax, that the quantity bought exceeds in pecuniary
+value what it was before. As the German consumers lay out more money in
+cloth, they have less to lay out in other things; other money prices
+will fall; among the rest that of linen; and this may so increase the
+demand for linen in England as to restore the equilibrium of exports and
+imports without any passage of money. But England's treasury will still
+gain from Germany the whole of the tax, and the English people will buy
+their linen cheaper besides. Again, in the opposite case, where the tax
+so diminishes the demand, that a smaller pecuniary value is required
+than before. The German consumers have, therefore, more to expend in
+other things; these, and among the rest linen, will rise; and this may
+so diminish the demand for linen in England, as to restore the
+equilibrium without the transmission of money. But the effect, as
+respects the division of the advantage, is still as stated in the text.
+
+[4] The world at large, sellers and buyers taken together, is
+always a gainer by underselling. If, in the case supposed, England were
+compelled by a commercial treaty to exclude the linen of Flanders from
+her market, the total wealth of the world, if affected at all, would be
+diminished.
+
+For, what is the cause which enables Flanders to undersell Germany? That
+Flanders, if she had the trade, would exchange linen for cloth at a rate
+of interchange more advantageous to England. And why can Flanders do so?
+It must be either because Flanders can produce the article with a less
+comparative quantity of labour than Germany, and therefore the total
+advantage to be divided between the two countries is greater in the case
+of Flanders than of Germany; or else because, though the total advantage
+is not greater, Flanders obtains a less share of it, her demand for
+cloth being greater, at the same rate of interchange, than that of
+Germany. In the former case, to exclude Flemish linen from England would
+be to prevent the world at large from making a greater saving of labour
+instead of a less. In the latter, the exclusion would be inefficacious
+for the only end it could be intended for, viz., the benefit of Germany,
+unless Flemish money were excluded from England as well as Flemish
+linen. For Flanders would buy English cloth, paying for it in money,
+until the fall of her prices enabled her to pay for it with something
+else: and the ultimate result would be that, by the rise of prices in
+England, Germany must pay a higher price for her cloth, and so lose a
+part of the advantage in spite of the treaty; while England would pay
+for German linen the same price indeed, but as the money incomes of her
+own people would be increased, the same money price would imply a
+smaller sacrifice.
+
+[5] This last possible effect of a sudden introduction of free
+trade, was pointed out in an able article on the Silk question, in a
+work of too short duration, the _Parliamentary Review_.
+
+
+
+
+ESSAY II.
+
+OF THE INFLUENCE OF CONSUMPTION ON PRODUCTION.
+
+
+Before the appearance of those great writers whose discoveries have
+given to political economy its present comparatively scientific
+character, the ideas universally entertained both by theorists and by
+practical men, on the causes of national wealth, were grounded upon
+certain general views, which almost all who have given any considerable
+attention to the subject now justly hold to be completely erroneous.
+
+Among the mistakes which were most pernicious in their direct
+consequences, and tended in the greatest degree to prevent a just
+conception of the objects of the science, or of the test to be applied
+to the solution of the questions which it presents, was the immense
+importance attached to consumption. The great end of legislation in
+matters of national wealth, according to the prevalent opinion, was to
+create consumers. A great and rapid consumption was what the producers,
+of all classes and denominations, wanted, to enrich themselves and the
+country. This object, under the varying names of an extensive demand, a
+brisk circulation, a great expenditure of money, and sometimes _totidem
+verbis_ a large consumption, was conceived to be the great condition of
+prosperity.
+
+It is not necessary, in the present state of the science, to contest
+this doctrine in the most flagrantly absurd of its forms or of its
+applications. The utility of a large government expenditure, for the
+purpose of encouraging industry, is no longer maintained. Taxes are not
+now esteemed to be "like the dews of heaven, which return again in
+prolific showers." It is no longer supposed that you benefit the
+producer by taking his money, provided you give it to him again in
+exchange for his goods. There is nothing which impresses a person of
+reflection with a stronger sense of the shallowness of the political
+reasonings of the last two centuries, than the general reception so long
+given to a doctrine which, if it proves anything, proves that the more
+you take from the pockets of the people to spend on your own pleasures,
+the richer they grow; that the man who steals money out of a shop,
+provided he expends it all again at the same shop, is a benefactor to
+the tradesman whom he robs, and that the same operation, repeated
+sufficiently often, would make the tradesman's fortune.
+
+In opposition to these palpable absurdities, it was triumphantly
+established by political economists, that consumption never needs
+encouragement. All which is produced is already consumed, either for the
+purpose of reproduction or of enjoyment. The person who saves his income
+is no less a consumer than he who spends it: he consumes it in a
+different way; it supplies food and clothing to be consumed, tools and
+materials to be used, by productive labourers. Consumption, therefore,
+already takes place to the greatest extent which the amount of
+production admits of; but, of the two kinds of consumption, reproductive
+and unproductive, the former alone adds to the national wealth, the
+latter impairs it. What is consumed for mere enjoyment, is gone; what is
+consumed for reproduction, leaves commodities of equal value, commonly
+with the addition of a profit. The usual effect of the attempts of
+government to encourage consumption, is merely to prevent saving; that
+is, to promote unproductive consumption at the expense of reproductive,
+and diminish the national wealth by the very means which were intended
+to increase it.
+
+What a country wants to make it richer, is never consumption, but
+production. Where there is the latter, we may be sure that there is no
+want of the former. To produce, implies that the producer desires to
+consume; why else should he give himself useless labour? He may not wish
+to consume what he himself produces, but his motive for producing and
+selling is the desire to buy. Therefore, if the producers generally
+produce and sell more and more, they certainly also buy more and more.
+Each may not want more of what he himself produces, but each wants more
+of what some other produces; and, by producing what the other wants,
+hopes to obtain what the other produces. There will never, therefore, be
+a greater quantity produced, of commodities in general, than there are
+consumers for. But there may be, and always are, abundance of persons
+who have the inclination to become consumers of some commodity, but are
+unable to satisfy their wish, because they have not the means of
+producing either that, or anything to give in exchange for it. The
+legislator, therefore, needs not give himself any concern about
+consumption. There will always be consumption for everything which can
+be produced, until the wants of all who possess the means of producing
+are completely satisfied, and then production will not increase any
+farther. The legislator has to look solely to two points: that no
+obstacle shall exist to prevent those who have the means of producing,
+from employing those means as they find most for their interest; and
+that those who have not at present the means of producing, to the extent
+of their desire to consume, shall have every facility afforded to their
+acquiring the means, that, becoming producers, they may be enabled to
+consume.
+
+These general principles are now well understood by almost all who
+profess to have studied the subject, and are disputed by few except
+those who ostentatiously proclaim their contempt for such studies. We
+touch upon the question, not in the hope of rendering these fundamental
+truths clearer than they already are, but to perform a task, so useful
+and needful, that it is to be wished it were oftener deemed part of the
+business of those who direct their assaults against ancient prejudices,
+--that of seeing that no scattered particles of important truth are
+buried and lost in the ruins of exploded error. Every prejudice, which
+has long and extensively prevailed among the educated and intelligent,
+must certainly be borne out by some strong appearance of evidence; and
+when it is found that the evidence does not prove the received
+conclusion, it is of the highest importance to see what it does prove.
+If this be thought not worth inquiring into, an error conformable to
+appearances is often merely exchanged for an error contrary to
+appearances; while, even if the result be truth, it is paradoxical
+truth, and will have difficulty in obtaining credence while the false
+appearances remain.
+
+Let us therefore inquire into the nature of the appearances, which gave
+rise to the belief that a great demand, a brisk circulation, a rapid
+consumption (three equivalent expressions), are a cause of national
+prosperity.
+
+If every man produced for himself, or with his capital employed others
+to produce, everything which he required, customers and their wants
+would be a matter of profound indifference to him. He would be rich, if
+he had produced and stored up a large supply of the articles which he
+was likely to require; and poor, if he had stored up none at all, or not
+enough to last until he could produce more.
+
+The case, however, is different after the separation of employments. In
+civilized society, a single producer confines himself to the production
+of one commodity, or a small number of commodities; and his affluence
+depends, not solely upon the quantity of his commodity which he has
+produced and laid in store, but upon his success in finding purchasers
+for that commodity.
+
+It is true, therefore, of every particular producer or dealer, that
+a great demand, a brisk circulation, a rapid consumption, of the
+commodities which he sells at his shop or produces in his manufactory,
+is important to him. The dealer whose shop is crowded with customers,
+who can dispose of a product almost the very moment it is completed,
+makes large profits, while his next neighbour, with an equal capital
+but fewer customers, gains comparatively little.
+
+It was natural that, in this case, as in a hundred others, the analogy
+of an individual should be unduly applied to a nation: as it has been
+concluded that a nation generally gains in wealth by the conquest of a
+province, because an individual frequently does so by the acquisition of
+an estate; and as, because an individual estimates his riches by the
+quantity of money which he can command, it was long deemed an excellent
+contrivance for enriching a country, to heap up artificially the
+greatest possible quantity of the precious metals within it.
+
+Let us examine, then, more closely than has usually been done, the case
+from which the misleading analogy is drawn. Let us ascertain to what
+extent the two cases actually resemble; what is the explanation of the
+false appearance, and the real nature of the phenomenon which, being
+seen indistinctly, has led to a false conclusion.
+
+       *       *       *       *       *
+
+We shall propose for examination a very simple case, but the explanation
+of which will suffice to clear up all other cases which fall within the
+same principle. Suppose that a number of foreigners with large incomes
+arrive in a country, and there expend those incomes: will this operation
+be beneficial, as respects the national wealth, to the country which
+receives these immigrants? Yes, say many political economists, if they
+save any part of their incomes, and employ them reproductively; because
+then an addition is made to the national capital, and the produce is a
+clear increase of the national wealth. But if the foreigner expends all
+his income unproductively, it is no benefit to the country, say they,
+and for the following reason.
+
+If the foreigner had his income remitted to him in bread and beef, coats
+and shoes, and all the other articles which he was desirous to consume,
+it would not be pretended that his eating, drinking, and wearing them,
+on our shores rather than on his own, could be of any advantage to us in
+point of wealth. Now, the case is not different if his income is
+remitted to him in some one commodity, as, for instance, in money. For
+whatever takes place afterwards, with a view to the supply of his wants,
+is a mere exchange of equivalents; and it is impossible that a person
+should ever be enriched by merely receiving an equal value in exchange
+for an equal value.
+
+When it is said that the purchases of the foreign consumer give
+employment to capital which would otherwise yield no profit to its
+owner, the same political economists reject this proposition as
+involving the fallacy of what has been called a "general glut." They
+say, that the capital, which any person has chosen to produce and to
+accumulate, can always find employment, since the fact that he has
+accumulated it proves that he had an unsatisfied desire; and if he
+cannot find anything to produce for the wants of other consumers, he can
+for his own.
+
+It is impossible to contest these propositions as thus stated. But there
+is one consideration which clearly shews, that there is something more
+in the matter than is here taken into the account; and this is, that the
+above reasoning tends distinctly to prove, that it does a tradesman no
+good to go into his shop and buy his goods. How can he be enriched? it
+might be asked. He merely receives a certain value in money, for an
+equivalent value in goods. Neither does this give employment to his
+capital; for there never exists more capital than can find employment,
+and if one person does not buy his goods another will; or if nobody
+does, there is over-production in that business, he can remove his
+capital, and find employment for it in another trade.
+
+Every one sees the fallacy of this reasoning as applied to individual
+producers. Every one knows that as applied to them it has not even the
+semblance of plausibility; that the wealth of a producer does in a great
+measure depend upon the number of his customers, and that in general
+every additional purchaser does really add to his profits. If the
+reasoning, which would be so absurd if applied to individuals, be
+applicable to nations, the principle on which it rests must require much
+explanation and elucidation.
+
+Let us endeavour to analyse with precision the real nature of the
+advantage which a producer derives from an addition to the number of his
+customers.
+
+For this purpose, it is necessary that we should premise a single
+observation on the meaning of the word capital. It is usually defined,
+the food, clothing, and other articles set aside for the consumption of
+the labourer, together with the materials and instruments of production.
+This definition appears to us peculiarly liable to misapprehension; and
+much vagueness and some narrow views have, we conceive, occasionally
+resulted from its being interpreted with too mechanical an adherence to
+the literal meaning of the words.
+
+The capital, whether of an individual or of a nation, consists, we
+apprehend, of all matters possessing exchangeable value, which the
+individual or the nation has in his or in its possession for the purpose
+of reproduction, and not for the purpose of the owner's unproductive
+enjoyment. All unsold goods, therefore, constitute a part of the
+national capital, and of the capital of the producer or dealer to whom
+they belong. It is true that tools, materials, and the articles on which
+the labourer is supported, are the only articles which are directly
+subservient to production: and if I have a capital consisting of money,
+or of goods in a warehouse, I can only employ them as means of
+production in so far as they are capable of being exchanged for the
+articles which conduce directly to that end. But the food, machinery,
+&c, which will ultimately be purchased with the goods in my warehouse,
+may at this moment not be in the country, may not be even in existence.
+If, after having sold the goods, I hire labourers with the money, and
+set them to work, I am surely employing capital, though the corn, which
+in the form of bread those labourers may buy with the money, may be now
+in warehouse at Dantzic, or perhaps not yet above ground.
+
+Whatever, therefore, is destined to be employed reproductively, either
+in its existing shape, or indirectly by a previous (or even subsequent)
+exchange, is capital. Suppose that I have laid out all the money I
+possess in wages and tools, and that the article I produce is just
+completed: in the interval which elapses before I can sell the article,
+realize the proceeds, and lay them out again in wages and tools, will it
+be said that I have no capital? Certainly not: I have the same capital
+as before, perhaps a greater, but it is locked up, as the expression is,
+and not disposable.
+
+When we have thus seen accurately what really constitutes capital, it
+becomes obvious, that of the capital of a country, there is at all times
+a very large proportion lying idle. The annual produce of a country is
+never any thing approaching in magnitude to what it might be if all the
+resources devoted to reproduction, if all the capital, in short, of the
+country, were in full employment.
+
+If every commodity on an average remained unsold for a length of time
+equal to that required for its production, it is obvious that, at any
+one time, no more than half the productive capital of the country would
+be really performing the functions of capital. The two halves would
+relieve one another, like the semichori in a Greek tragedy; or rather
+the half which was in employment would be a fluctuating portion,
+composed of varying parts; but the result would be, that each producer
+would be able to produce every year only half as large a supply of
+commodities, as he could produce if he were sure of selling them the
+moment the production was completed.
+
+This, or something like it, is however the habitual state, at every
+instant, of a very large proportion of all the capitalists in the world.
+
+The number of producers, or dealers, who turn over their capital, as the
+expression is, in the shortest possible time, is very small. There are
+few who have so rapid a sale for their wares, that all the goods which
+their own capital, or the capital which they can borrow, enables them to
+supply, are carried off as fast as they can be supplied. The majority
+have not an _extent of business_, at all adequate to the amount of the
+capital they dispose of. It is true that, in the communities in which
+industry and commerce are practised with greatest success, the
+contrivances of banking enable the possessor of a larger capital than he
+can employ in his own business, to employ it productively and derive a
+revenue from it notwithstanding. Yet even then, there is, of necessity,
+a great quantity of capital which remains fixed in the shape of
+implements, machinery, buildings, &c, whether it is only half employed,
+or in complete employment: and every dealer keeps a stock in trade, to
+be ready for a possible sudden demand, though he probably may not be
+able to dispose of it for an indefinite period.
+
+This perpetual non-employment of a large proportion of capital, is the
+price we pay for the division of labour. The purchase is worth what it
+costs; but the price is considerable.
+
+Of the importance of the fact which has just been noticed there are
+three signal proofs. One is, the large sum often given for the goodwill
+of a particular business. Another is, the large rent which is paid for
+shops in certain situations, near a great thoroughfare for example,
+which have no advantage except that the occupier may expect a larger
+body of customers, and be enabled to turn over his capital more quickly.
+Another is, that in many trades, there are some dealers who sell
+articles of an equal quality at a lower price than other dealers. Of
+course, this is not a voluntary sacrifice of profits: they expect by the
+consequent overflow of customers to turn over their capital more
+quickly, and to be gainers by keeping the whole of their capital in more
+constant employment, though on any given operation their gains are less.
+
+The reasoning cited in the earlier part of this paper, to show the
+uselessness of a mere purchaser or customer, for enriching a nation or
+an individual, applies only to the case of dealers who have already as
+much business as their capital admits of, and as rapid a sale for their
+commodities as is possible. To such dealers an additional purchaser is
+really of no use; for, if they are sure of selling all their commodities
+the moment those commodities are on sale, it is of no consequence whether
+they sell them to one person or to another. But it is questionable
+whether there be any dealers in whose case this hypothesis is exactly
+verified; and to the great majority it is not applicable at all. An
+additional customer, to most dealers, is equivalent to an increase of
+their productive capital. He enables them to convert a portion of their
+capital which was lying idle (and which could never have become
+productive in their hands until a customer was found) into wages and
+instruments of production; and if we suppose that the commodity, unless
+bought by him, would not have found a purchaser for a year after, then
+all which a capital of that value can enable men to produce during a
+year, is clear gain--gain to the dealer, or producer, and to the
+labourers whom he will employ, and thus (if no one sustains any
+corresponding loss) gain to the nation. The aggregate produce of the
+country for the succeeding year is, therefore, increased; not by the
+mere exchange, but by calling into activity a portion of the national
+capital, which, had it not been for the exchange, would have remained
+for some time longer unemployed.
+
+Thus there are actually at all times producers and dealers, of all, or
+nearly all classes, whose capital is lying partially idle, because they
+have not found the means of fulfilling the condition which the division
+of labour renders indispensable to the full employment of capital,--viz.,
+that of exchanging their products with each other. If these persons
+could find one another out, they could mutually relieve each other from
+this disadvantage. Any two shopkeepers, in insufficient employment, who
+agreed to deal at each other's shops so long as they could there
+purchase articles of as good a quality as elsewhere, and at as low a
+price, would render the nation a service. It may be said that they must
+previously have dealt, to the same amount, with some other dealers; but
+this is erroneous, since they could only have obtained the means of
+purchasing by being previously enabled to sell. By their compact, each
+would gain a customer, who would call his capital into fuller employment;
+each therefore would obtain an increased produce; and they would thus be
+enabled to become better customers to each other than they could be to
+third parties.
+
+It is obvious that every dealer who has not business sufficient fully to
+employ his capital (which is the case with all dealers when they commence
+business, and with many to the end of their lives), is in this
+predicament simply for want of some one with whom to exchange his
+commodities; and as there are such persons to about the same degree
+probably in all trades, it is evident that if these persons sought one
+another out, they have their remedy in their own hands, and by each
+other's assistance might bring their capital into more full employment.
+
+We are now qualified to define the exact nature of the benefit which a
+producer or dealer derives from the acquisition of a new customer. It is
+as follows:--
+
+1. If any part of his own capital was locked up in the form of unsold
+goods, producing (for a longer period or a shorter) nothing at all;
+a portion of this is called into greater activity, and becomes more
+constantly productive. But to this we must add some further advantages.
+
+2. If the additional demand exceeds what can be supplied by setting at
+liberty the capital which exists in the state of unsold goods; and if
+the dealer has additional resources, which were productively invested
+(in the public funds, for instance), but not in his own trade; he is
+enabled to obtain, on a portion of these, not mere interest, but profit,
+and so to gain that difference between the rate of profit and the rate
+of interest, which may be considered as "wages of superintendance."
+
+3. If all the dealer's capital is employed in his own trade, and no part
+of it locked up as unsold goods, the new demand affords him additional
+encouragement to save, by enabling his savings to yield him not merely
+interest, but profit; and if he does not choose to save (or until he
+shall have saved), it enables him to carry on an additional business
+with borrowed capital, and so gain the difference between interest and
+profit, or, in other words, to receive wages of superintendance on a
+larger amount of capital.
+
+This, it will be found, is a complete account of all the gains which a
+dealer in any commodity can derive from an accession to the number of
+those who deal with him: and it is evident to every one, that these
+advantages are real and important, and that they are the cause which
+induces a dealer of any kind to desire an increase of his business.
+
+It follows from these premises, that the arrival of a new unproductive
+consumer (living on his own means) in any place, be that place a
+village, a town, or an entire country, is beneficial to that place, if
+it causes to any of the dealers of the place any of the advantages above
+enumerated, without withdrawing an equal advantage of the same kind from
+any other dealer of the same place.
+
+This accordingly is the test by which we must try all such questions,
+and by which the propriety of the analogical argument, from dealing with
+a tradesman to dealing with a nation, must be decided.
+
+Let us take, for instance, as our example, Paris, which is much
+frequented by strangers from various parts of the world, who, as
+sojourners there, live unproductively upon their means. Let us consider
+whether the presence of these persons is beneficial, in an _industrial_
+point of view, to Paris.
+
+We exclude from the consideration that portion of the strangers' incomes
+which they pay to natives as direct remuneration for service, or labour
+of any description. This is obviously beneficial to the country. An
+increase in the funds expended in employing labour, whether that labour
+be productive or unproductive, tends equally to raise wages. The
+condition of the whole labouring class is, so far, benefited. It is true
+that the labourers thus employed by sojourners are probably, in part or
+altogether, withdrawn from productive employment. But this is far from
+being an evil; for either the situation of the labouring classes is
+improved, which is far more than an equivalent for a diminution in mere
+production, or the rise of wages acts as a stimulus to population, and
+then the number of productive labourers becomes as great as before.
+
+To this we may add, that what the sojourners pay as wages of labour or
+service (whether constant or casual), though expended unproductively by
+the first possessor, may, when it passes into the hands of the receivers,
+be by them saved, and invested in a productive employment. If so, a direct
+addition is made to the national capital.
+
+All this is obvious, and is sufficiently allowed by political economists;
+who have invariably set apart the gains of all persons coming under the
+class of domestic servants, as real advantages arising to a place from
+the residence there of an increased number of unproductive consumers.
+
+We have only to examine whether the purchases of commodities by these
+unproductive consumers, confer the same kind of benefit upon the
+village, town, or nation, which is bestowed upon a particular tradesman
+by dealing at his shop.
+
+Now it is obvious that the sojourners, on their arrival, confer the
+benefit in question upon some dealers, who did not enjoy it before. They
+purchase their food, and many other articles, from the dealers in the
+place. They, therefore, call the capital of some dealers, which was
+locked up in unsold goods, into more active employment. They encourage
+them to save, and enable them to receive wages of superintendance upon a
+larger amount of capital. These effects being undeniable, the question
+is, whether the presence of the sojourners deprives any others of the
+Paris dealers of a similar advantage.
+
+It will be seen that it does; and nothing will then remain but a
+comparison of the amounts.
+
+It is obvious to all who reflect (and was shown in the paper which
+precedes this) that the remittances to persons who expend their incomes
+in foreign countries are, after a slight passage of the precious metals,
+defrayed in commodities: and that the result commonly is, an increase of
+exports and a diminution of imports, until the latter fall short of the
+former by the amount of the remittances.
+
+The arrival, therefore, of the strangers (say from England), while it
+creates at Paris a market for commodities equivalent in value to their
+funds, displaces in the market other commodities to an equal value. To
+the extent of the increase of exports from England into France in the
+way of remittance, it introduces additional commodities which, by their
+cheapness, displace others formerly produced in that country. To the
+extent of the diminution of imports into England from France,
+commodities which existed or which were habitually produced in that
+country are deprived of a market, or can only find one at a price not
+sufficient to defray the cost.
+
+It must, therefore, be a matter of mere accident, if by arriving in a
+place, the new unproductive consumer causes any net advantage to its
+industry, of the kind which we are now examining. Not to mention that
+this, like any other change in the channels of trade, may render useless
+a portion of fixed capital, and so far injure the national wealth.
+
+A distinction, however, must here be made.
+
+The place to which the new unproductive consumers have come, may be a
+town or village, as well as a country. If a town or village, it may
+either be or not be a place having an export trade.
+
+If the place had no previous trade except with the immediate
+neighbourhood, there are no exports and imports, by the new arrangement
+of which, the remittance can be made. There is no capital, formerly
+employed in manufacturing for the foreign market, which is now brought
+into less full employment.
+
+Yet the remittance evidently is still made in commodities, but in this
+case without displacing any which were produced before. To shew this, it
+is necessary to make the following remarks.
+
+The reason why towns exist, is that _ceteris paribus_ it is convenient,
+in order to save cost of carriage, that the production of commodities
+should take place as far as practicable in the immediate vicinity of the
+consumer. Capital finds its way so easily from town to country and from
+country to town, that the amount of capital in the town will be regulated
+wholly by the amount which can be employed there more conveniently than
+elsewhere. Consequently the capital of a place will be such as is
+sufficient
+
+1st. To produce all commodities which from local circumstances can be
+produced there at less cost than elsewhere: and if this be the case to
+any great extent, it will be an exporting town. When we say _produced_,
+we may add, or _stored_.
+
+2nd. To produce and retail the commodities which are consumed by the
+inhabitants of the town, and the place of whose production is in other
+respects a matter of indifference. To the inhabitants of the town must
+be added such dwellers in the adjoining country, as are nearer to that
+place than to any other equally well furnished market.
+
+Now, if new unproductive consumers resort to the place, it is clear that
+for the latter of these two purposes, more capital will be required than
+before. Consequently, if less is not required for the former purpose,
+more capital will establish itself at the place.
+
+Until this additional capital has arrived, the producers and dealers
+already on the spot will enjoy great advantages. Every particle of their
+own capital will be called into the most active employment. What their
+capital does not enable them to supply, will be got from others at a
+distance, who cannot supply it on such favourable terms; consequently
+they will be in the predicament of possessing a partial monopoly
+--receiving for every thing a price regulated by a higher cost of
+production than they are compelled to pay. They also, being in possession
+of the market, will be enabled to make a large portion of the new capital
+pass through their hands, and thus to earn wages of superintendance upon
+it.
+
+If, indeed, the place from whence the strangers came, previously traded
+with that where they have taken up their abode, the effect of their
+arrival is, that the exports of the town will diminish, and that it will
+be supplied from abroad with something which it previously produced at
+home. In this way an amount of capital will be set free equal to that
+required, and there will be no increase on the whole. The removal of the
+court from London to Birmingham would not necessarily, though it would
+probably [6], increase the amount of capital in the latter place. The
+afflux of money to Birmingham, and its efflux from London, would render
+it cheaper to make some articles in London for Birmingham consumption;
+and to make others in London for home consumption, which were formerly
+brought from Birmingham.
+
+But instead of Birmingham, an exporting town, suppose a village, or a
+town which only produced and retailed for itself and its immediate
+vicinity. The remittances must come thither in the shape of money; and
+though the money would not remain, but would be sent away in exchange
+for commodities, it would, however, first pass through the hands of the
+producers and dealers in the place, and would by them be exported in
+exchange for the articles which they require--viz. the materials, tools,
+and subsistence necessary for the increased production now required of
+them, and articles of foreign luxury for their own increased unproductive
+consumption. These articles would not displace any formerly made in the
+place, but on the contrary, would forward the production of more.
+
+Hence we may consider the following propositions as established:
+
+1. The expenditure of absentees (the case of domestic servants excepted,)
+is not necessarily any loss to the _country_ which they leave, or gain to
+the _country_ which they resort to (save in the manner shown in Essay I.):
+for almost every _country_ habitually exports and imports to a much
+greater value than the incomes of its absentees, or of the foreign
+sojourners within it.
+
+2. But sojourners often do much good to the _town_ or village which they
+resort to, and absentees harm to that which they leave. The capital of
+the petty tradesman in a small town near an absentee's estate, is
+deprived of the market for which it is conveniently situated, and must
+resort to another to which other capitals lie nearer, and where it is
+consequently outbid, and gains less; obtaining only the same price, with
+greater expenses. But this evil would be equally occasioned, if, instead
+of going abroad, the absentee had removed to his own capital city.
+
+If the tradesman could, in the latter case, remove to the metropolis, or
+in the former, employ himself in producing increased exports, or in
+producing for home consumption articles now no longer imported, each in
+the place most convenient for that operation; he would not be a loser,
+though the place which he was obliged to leave might be said to lose.
+
+Paris undoubtedly gains much by the sojourn of foreigners, while the
+counteracting loss by diminution of exports from France is suffered by
+the great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c,
+which also suffer the principal part of the loss by importation of
+articles previously produced at home. The capital thus set free, finds
+its most convenient seat to be Paris, since the business to which it
+must turn is the production of articles to be unproductively consumed by
+the sojourners.
+
+The great trading towns of France would undoubtedly be more flourishing,
+if France were not frequented by foreigners.
+
+Rome and Naples are perhaps purely benefited by the foreigners
+sojourning there: for they have so little external trade, that their
+case may resemble that of the village in our hypothesis.
+
+Absenteeism, therefore, (except as shown in the first Essay,) is a
+local, not a national evil; and the resort of foreigners, in so far as
+they purchase for unproductive consumption, is not, in any commercial
+country, a national, though it may be a local good.
+
+From the considerations which we have now adduced, it is obvious what
+is meant by such phrases as a _brisk demand_, and a rapid circulation.
+There is a brisk demand and a rapid circulation, when goods, generally
+speaking, are sold as fast as they can be produced. There is slackness,
+on the contrary, and stagnation, when goods, which have been produced,
+remain for a long time unsold. In the former case, the capital which has
+been locked up in production is disengaged as soon as the production is
+completed; and can be immediately employed in further production. In the
+latter case, a large portion of the productive capital of the country is
+lying in temporary inactivity.
+
+From what has been already said, it is obvious that periods of "brisk
+demand" are also the periods of greatest production: the national
+capital is never called into full employment but at those periods. This,
+however, is no reason for desiring such times; it is not desirable that
+the whole capital of the country should be in full employment. For, the
+calculations of producers and traders being of necessity imperfect,
+there are always some commodities which are more or less in excess, as
+there are always some which are in deficiency. If, therefore, the whole
+truth were known, there would always be some classes of producers
+contracting, not extending, their operations. If _all_ are endeavouring
+to extend them, it is a certain proof that some general delusion is
+afloat. The commonest cause of such delusion is some general, or very
+extensive, rise of prices (whether caused by speculation or by the
+currency) which persuades all dealers that they are growing rich. And
+hence, an increase of production really takes place during the progress
+of depreciation, as long as the existence of depreciation is not
+suspected; and it is this which gives to the fallacies of the currency
+school, principally represented by Mr. Attwood, all the little
+plausibility they possess. But when the delusion vanishes and the truth
+is disclosed, those whose commodities are relatively in excess must
+diminish their production or be ruined: and if during the high prices
+they have built mills and erected machinery, they will be likely to
+repent at leisure.
+
+In the present state of the commercial world, mercantile transactions
+being carried on upon an immense scale, but the remote causes of
+fluctuations in prices being very little understood, so that
+unreasonable hopes and unreasonable fears alternately rule with
+tyrannical sway over the minds of a majority of the mercantile public;
+general eagerness to buy and general reluctance to buy, succeed one
+another in a manner more or less marked, at brief intervals. Except
+during short periods of transition, there is almost always either great
+briskness of business or great stagnation; either the principal
+producers of almost all the leading articles of industry have as many
+orders as they can possibly execute, or the dealers in almost all
+commodities have their warehouses full of unsold goods.
+
+In this last ease, it is commonly said that there is a general
+superabundance; and as those economists who have contested the
+possibility of general superabundance, would none of them deny the
+possibility or even the frequent occurrence of the phenomenon which we
+have just noticed, it would seem incumbent on them to show, that the
+expression to which they object is not applicable to a state of things
+in which all or most commodities remain unsold, in the same sense in
+which there is said to be a superabundance of any one commodity when it
+remains in the warehouses of dealers for want of a market.
+
+This is merely a question of naming, but an important one, as it seems
+to us that much apparent difference of opinion has been produced by a
+mere difference in the mode of describing the same facts, and that
+persons who at bottom were perfectly agreed, have considered each other
+as guilty of gross error, and sometimes oven misrepresentation, on this
+subject.
+
+In order to afford the explanations, with which it is necessary to take
+the doctrine of the impossibility of an excess of all commodities, we
+must advert for a moment to the argument by which this impossibility is
+commonly maintained.
+
+There can never, it is said, be a want of buyers for all commodities;
+because whoever offers a commodity for sale, desires to obtain a
+commodity in exchange for it, and is therefore a buyer by the mere fact
+of his being a seller. The sellers and the buyers, for all commodities
+taken together, must, by the metaphysical necessity of the case, be an
+exact equipoise to each other; and if there be more sellers than buyers
+of one thing, there must be more buyers than sellers for another.
+
+This argument is evidently founded on the supposition of a state of
+barter; and, on that supposition, it is perfectly incontestable. When
+two persons perform an act of barter, each of them is at once a seller
+and a buyer. He cannot sell without buying. Unless he chooses to buy
+some other person's commodity, he does not sell his own.
+
+If, however, we suppose that money is used, these propositions cease to
+be exactly true. It must be admitted that no person desires money for
+its own sake, (unless some very rare cases of misers be an exception,)
+and that he who sells his commodity, receiving money in exchange, does
+so with the intention of buying with that same money some other commodity.
+Interchange by means of money is therefore, as has been often observed,
+ultimately nothing but barter. But there is this difference--that in the
+case of barter, the selling and the buying are simultaneously confounded
+in one operation; you sell what you have, and buy what you want, by one
+indivisible act, and you cannot do the one without doing the other. Now
+the effect of the employment of money, and even the utility of it, is,
+that it enables this one act of interchange to be divided into two
+separate acts or operations; one of which may be performed now, and the
+other a year hence, or whenever it shall be most convenient. Although he
+who sells, really sells only to buy, he needs not buy at the same moment
+when he sells; and he does not therefore necessarily add to the
+_immediate_ demand for one commodity when he adds to the supply of
+another. The buying and selling being now separated, it may very well
+occur, that there may be, at some given time, a very general inclination
+to sell with as little delay as possible, accompanied with an equally
+general inclination to defer all purchases as long as possible. This is
+always actually the case, in those periods which are described as
+periods of general excess. And no one, after sufficient explanation,
+will contest the possibility of general excess, in this sense of the
+word. The state of things which we have just described, and which is of
+no uncommon occurrence, amounts to it.
+
+For when there is a general anxiety to sell, and a general
+disinclination to buy, commodities of all kinds remain for a long time
+unsold, and those which find an immediate market, do so at a very low
+price. If it be said that when all commodities fall in price, the fall
+is of no consequence, since mere money price is not material while the
+relative value of all commodities remains the same, we answer that this
+would be true if the low prices were to last for ever. But as it is
+certain that prices will rise again sooner or later, the person who is
+obliged by necessity to sell his commodity at a low money price is
+really a sufferer, the money he receives sinking shortly to its ordinary
+value. Every person, therefore, delays selling if he can, keeping his
+capital unproductive in the mean time, and sustaining the consequent
+loss of interest. There is stagnation to those who are not obliged to
+sell, and distress to those who are.
+
+It is true that this state can be only temporary, and must even be
+succeeded by a reaction of corresponding violence, since those who have
+sold without buying will certainly buy at last, and there will then be
+more buyers than sellers. But although the general over-supply is of
+necessity only temporary, this is no more than may be said of every
+partial over-supply. An overstocked state of the market is always
+temporary, and is generally followed by a more than common briskness of
+demand.
+
+In order to render the argument for the impossibility of an excess of
+all commodities applicable to the case in which a circulating medium is
+employed, money must itself be considered as a commodity. It must,
+undoubtedly, be admitted that there cannot be an excess of all other
+commodities, and an excess of money at the same time.
+
+But those who have, at periods such as we have described, affirmed that
+there was an excess of all commodities, never pretended that money was
+one of these commodities; they held that there was not an excess, but
+a deficiency of the circulating medium. What they called a general
+superabundance, was not a superabundance of commodities relatively to
+commodities, but a superabundance of all commodities relatively to
+money. What it amounted to was, that persons in general, at that
+particular time, from a general expectation of being called upon to meet
+sudden demands, liked better to possess money than any other commodity.
+Money, consequently, was in request, and all other commodities were in
+comparative disrepute. In extreme cases, money is collected in masses,
+and hoarded; in the milder cases, people merely defer parting with their
+money, or coming under any new engagements to part with it. But the
+result is, that all commodities fall in price, or become unsaleable.
+When this happens to one single commodity, there is said to be a
+superabundance of that commodity; and if that be a proper expression,
+there would seem to be in the nature of the case no particular
+impropriety in saying that there is a superabundance of all or most
+commodities, when all or most of them are in this same predicament.
+
+It is, however, of the utmost importance to observe that excess of all
+commodities, in the only sense in which it is possible, means only a
+temporary fall in their value relatively to money. To suppose that the
+markets for all commodities could, in any other sense than this, be
+overstocked, involves the absurdity that commodities may fall in value
+relatively to themselves; or that, of two commodities, each can fall
+relatively to the other, A becoming equivalent to B-_x_, and B to A-_x_,
+at the same time. And it is, perhaps, a sufficient reason for not using
+phrases of this description, that they suggest the idea of excessive
+production. A want of market for one article may arise from excessive
+production of that article; but when commodities in general become
+unsaleable, it is from a very different cause; there cannot be excessive
+production of commodities in general.
+
+The argument against the possibility of general over-production is quite
+conclusive, so far as it applies to the doctrine that a country may
+accumulate capital too fast; that produce in general may, by increasing
+faster than the demand for it, reduce all producers to distress. This
+proposition, strange to say, was almost a received doctrine as lately as
+thirty years ago; and the merit of those who have exploded it is much
+greater than might be inferred from the extreme obviousness of its
+absurdity when it is stated in its native simplicity. It is true that if
+all the wants of all the inhabitants of a country were fully satisfied,
+no further capital could find useful employment; but, in that case, none
+would be accumulated. So long as there remain any persons not possessed,
+we do not say of subsistence, but of the most refined luxuries, and who
+would work to possess them, there is employment for capital; and if the
+commodities which these persons want are not produced and placed at
+their disposal, it can only be because capital does not exist, disposable
+for the purpose of employing, if not any other labourers, those very
+labourers themselves, in producing the articles for their own consumption.
+Nothing can be more chimerical than the fear that the accumulation of
+capital should produce poverty and not wealth, or that it will ever take
+place too fast for its own end. Nothing is more true than that it is
+produce which constitutes the market for produce, and that every increase
+of production, if distributed without miscalculation among all kinds of
+produce in the proportion which private interest would dictate, creates,
+or rather constitutes, its own demand.
+
+This is the truth which the deniers of general over-production have
+seized and enforced; nor is it pretended that anything has been added
+to it, or subtracted from it, in the present disquisition. But it is
+thought that those who receive the doctrine accompanied with the
+explanations which we have given, will understand, more clearly than
+before, what is, and what is not, implied in it; and will see that, when
+properly understood, it in no way contradicts those obvious facts which
+are universally known and admitted to be not only of possible, but of
+actual and even frequent occurrence. The doctrine in question only
+appears a paradox, because it has usually been so expressed as
+apparently to contradict these well-known facts; which, however, were
+equally well known to the authors of the doctrine, who, therefore, can
+only have adopted from inadvertence any form of expression which could
+to a candid person appear inconsistent with it. The essentials of the
+doctrine are preserved when it is allowed that there cannot be permanent
+excess of production, or of accumulation; though it be at the same time
+admitted, that as there may be a temporary excess of any one article
+considered separately, so may there of commodities generally, not in
+consequence of over-production, but of a want of commercial confidence.
+
+
+NOTE:
+
+[6] Probably; because most articles of an ornamental description being
+still required from the same makers, these makers, with their capital,
+would probably follow their customers, Besides, from place to place
+within the same country, most persons will lather change their
+habitation than their employment. But the moving on this score would be
+reciprocal.
+
+
+
+
+ESSAY III.
+
+ON THE WORDS PRODUCTIVE AND UNPRODUCTIVE.
+
+
+It would probably be difficult to point out any two words, respecting
+the proper use of which political economists have been more divided,
+than they have been concerning the two words _productive_ and
+_unproductive_; whether considered as applied to _labour_, to
+_consumption_, or to _expenditure_.
+
+Although this is a question solely of nomenclature, it is one of
+sufficient importance to be worth another attempt to settle it
+satisfactorily. For, although writers on political economy have not
+agreed in the ideas which they were accustomed to annex to these terms,
+the terms have generally been employed to denote ideas of very great
+importance, and it is impossible that some vagueness should not have
+been thrown upon the ideas themselves by looseness in the use of the
+words by which they are habitually designated. Further, so long as the
+pedantic objection to the introduction of new technical terms continues,
+accurate thinkers on moral and political subjects are limited to a very
+scanty vocabulary for the expression of their ideas. It therefore is of
+great importance that the words with which mankind are familiar, should
+be turned to the greatest possible advantage as instruments of thought;
+that one word should not be used as the sign of an idea which is already
+sufficiently expressed by another word; and that words which are
+required to denote ideas of great importance, should not be usurped for
+the expression of such as are comparatively insignificant.
+
+The phrases _productive labour_, and _productive consumption_, have been
+employed by some writers on political economy with very great latitude.
+They have considered, and classed, as productive labour and productive
+consumption, all labour which serves any _useful_ purpose--all
+consumption which is not _waste_. Mr. M'Culloch has asserted, _totidem
+verbis_, that the labour of Madame Pasta was as well entitled to be
+called productive labour as that of a cotton spinner.
+
+Employed in this sense, the words _productive_ and _unproductive_ are
+superfluous, since the words _useful_ and _agreeable_ on the one hand,
+_useless_ and _worthless_ on the other, are quite sufficient to express
+all the ideas to which the words _productive_ and _unproductive_ are
+here applied.
+
+This use of the terms, therefore, is subversive of the ends of language.
+
+Those writers who have employed the words in a more limited sense, have
+usually understood by productive or unproductive labour, labour which is
+productive of wealth, or unproductive of wealth. But what is wealth? And
+here the words productive and unproductive have been affected with
+additional ambiguities, corresponding to the different extension which
+different writers have given to the term wealth.
+
+Some have given the name of wealth to _all things_ which tend to the use
+or enjoyment of mankind, and which possess exchangeable value. This last
+clause is added to exclude air, the light of the sun, and any other
+things which can be obtained in unlimited quantity without labour or
+sacrifice; together with all such things as, though produced by labour,
+are not held in sufficient general estimation to command any price in
+the market.
+
+But when this definition came to be explained, many persons were
+disposed to interpret "_all things_ which tend to the use or enjoyment
+of man," as implying only all _material_ things. _Immaterial_ products
+they refused to consider as wealth; and labour or expenditure which
+yielded nothing but immaterial products, they characterised as
+unproductive labour and unproductive expenditure.
+
+To this it was, or might have been, answered, that according to this
+classification, a carpenter's labour at his trade is productive labour,
+but the same individual's labour in learning his trade was unproductive
+labour. Yet it is obvious that, on both occasions, his labour tended
+exclusively to what is allowed to be production: the one was equally
+indispensable with the other, to the ultimate result. Further, if we
+adopted the above definition, we should be obliged to say that a nation
+whose artisans were twice as skilful as those of another nation, was
+not, _ceteris paribus_, more wealthy; although it is evident that every
+one of the results of wealth, and everything for the sake of which
+wealth is desired, would be possessed by the former country in a higher
+degree than by the latter.
+
+Every classification according to which a basket of cherries, gathered
+and eaten the next minute, are called wealth, while that title is denied
+to the acquired skill of those who are acknowledged to be productive
+labourers, is a purely arbitrary division, and does not conduce to the
+ends for which classification and nomenclature are designed.
+
+In order to get over all difficulties, some political economists seem
+disposed to make the terms express a distinction sufficiently definite
+indeed, but more completely arbitrary, and having less foundation in
+nature, than any of the former. They will not allow to any labour or to
+any expenditure the name of productive, unless the produce which it
+yields returns into the hands of the very person who made the outlay.
+Hedging and ditching they term productive labour, though those
+operations conduce to production only indirectly, by protecting the
+produce from destruction; but the necessary expenses incurred by a
+government for the protection of property are, they insist upon it,
+consumed unproductively: though, as has been well pointed out by Mr.
+M'Culloch, these expenses, in their relation to the national wealth, are
+exactly analogous to the wages of a hedger or a ditcher. The only
+difference is, that the farmer, who pays for the hedging and ditching,
+is the person to whom the consequent increase of production accrues,
+while the government, which is at the expense of police officers and
+courts of justice, does not, as a necessary consequence, get back into
+its own coffers the increase of the national wealth resulting from the
+security of property.
+
+It would be endless to point out the oddities and incongruities which
+result from this classification. Whether we take the words wealth and
+production in the largest, or in the most restricted sense in which they
+have ever yet been employed, nobody will dispute that roads, bridges,
+and canals, contribute in an eminent degree, and in a very direct
+manner, to the increase of production and wealth. The labour and
+pecuniary resources employed in their construction would, according to
+the above theory, be considered productive, if every occupier of land
+were compelled by law to construct so much of the road, or canal, as
+passes through his own farm. If, instead of this, the government makes
+the road, and throws it open to the public toll-free, the labour and
+expenditure would be, on the above system, clearly unproductive. But if
+the government, or an association of individuals, made the road, and
+imposed a toll to defray the expense, we do not see how these writers
+could refuse to the outlay the title of productive expenditure. It would
+follow, that the very same labour and expense, if given gratuitously,
+must be called unproductive, which, if a charge had been made for it,
+would have been called productive.
+
+When these consequences of the purely arbitrary classification to which
+we allude have been pointed out and complained of, the only answer which
+we have ever seen made to the objection is, that the line of demarcation
+must be drawn somewhere, and that in every classification there are
+intermediate cases, which might have been included, with almost equal
+propriety, either in the one class or in the other.
+
+This answer appears to us to indicate the want of a sufficiently
+accurate and discriminating perception, what is the kind of inaccuracy
+which generally cannot be avoided in a classification, and what is that
+other kind of inaccuracy, from which it always may be, and should be,
+exempt.
+
+The classes themselves may be, mentally speaking, perfectly definite,
+though it may not always be easy to say to which of them a particular
+object belongs. When it is uncertain in which of two classes an object
+should be placed, if the classification be properly made, and properly
+expressed, the uncertainty can turn only upon a matter of fact. It is
+uncertain to which class the object belongs, because it is doubtful
+whether it possesses in a greater degree the characteristics of the one
+class or those of the other. But the characteristics themselves may be
+defined and distinguished with the nicest exactness, and always ought to
+be so. Especially ought they in a case like the present, because here it
+is only the distinction between the ideas which is of any importance.
+That we should be able with ease to portion out all employments between
+the two classes, does not happen to be of any particular consequence.
+
+It is frequently said that classification is a mere affair of
+convenience. This assertion is true in one sense, but not if its meaning
+be, that the most proper classification is that in which it is easiest
+to say whether an object belongs to one class or to the other. The use
+of classification is, to fix attention upon the distinctions which exist
+among things; and that is the best classification, which is founded upon
+the most important distinctions, whatever be the facilities which it may
+afford of ticketing and arranging the different objects which exist in
+nature. In fixing, therefore, the meaning of the words productive and
+unproductive, we ought to endeavour to render them significative of the
+most important distinctions which, without too glaring a violation of
+received usage, they can be made to express.
+
+We ought further, when we are restricted to the employment of old words,
+to endeavour as far as possible that it shall not be necessary to
+struggle against the old associations with those words. We should, if
+possible, give the words such a meaning, that the propositions in which
+people are accustomed to use them, shall as far as possible still be
+true; and that the feelings habitually excited by them, shall be such as
+the things to which we mean to appropriate them ought to excite.
+
+We shall endeavour to unite these conditions in the result of the
+following enquiry.
+
+In whatever manner political economists may have settled the definition
+of productive and unproductive labour or consumption, the consequences
+which they have drawn from the definition are nearly the same. In
+proportion to the amount of the productive labour and consumption of
+a country, the country, they all allow, is enriched: in proportion to
+the amount of the unproductive labour and consumption, the country is
+impoverished. Productive expenditure they are accustomed to view as
+a gain; unproductive expenditure, however useful, as a sacrifice.
+Unproductive expenditure of what was destined to be expended
+productively, they always characterise as a squandering of resources,
+and call it profusion and prodigality. The productive expenditure of
+that which might, without encroaching upon capital, be expended
+unproductively, is called saving, economy, frugality. Want, misery, and
+starvation, are described as the lot of a nation which annually employs
+less and less of its labour and resources in production; growing comfort
+and opulence as the result of an annual increase in the quantity of
+wealth so employed.
+
+Let us then examine what qualities in expenditure, and in the employment
+of labour, are those from which all the consequences above mentioned
+really flow.
+
+The end to which all labour and all expenditure are directed, is
+twofold. Sometimes it is _enjoyment_ immediately; the fulfilment of
+those desires, the gratification of which is wished for on its own
+account. Whenever labour or expense is not incurred _immediately_ for
+the sake of enjoyment, and is yet not absolutely wasted, it must be
+incurred for the purpose of enjoyment _indirectly_ or mediately; by
+either repairing and perpetuating, or adding, to the _permanent sources_
+of enjoyment.
+
+Sources of enjoyment may be accumulated and stored up; enjoyment itself
+cannot. The wealth of a country consists of the sum total of the
+permanent sources of enjoyment, whether material or immaterial, contained
+in it: and labour or expenditure which tends to augment or to keep up
+these permanent sources, should, we conceive, be termed productive.
+
+Labour which is employed for the purpose of directly affording
+enjoyment, such as the labour of a performer on a musical instrument, we
+term unproductive labour. Whatever is consumed by such a performer, we
+consider as unproductively consumed: the accumulated total of the
+sources of enjoyment which the nation possesses, is diminished by the
+amount of what he has consumed: whereas, if it had been given to him in
+exchange for his services in producing food or clothing, the total of
+the permanent sources of enjoyment in the country might have been not
+diminished but increased.
+
+The performer on the musical instrument then is, so far as respects that
+act, not a productive, but an unproductive labourer. But what shall we
+say of the workman who made the musical instrument? He, most persons
+would say, is a productive labourer; and with reason; because the
+musical instrument is a permanent source of enjoyment, which does not
+begin and end with the enjoying, and therefore admits of being
+accumulated.
+
+But the _skill_ of the musician is a permanent source of enjoyment, as
+well as the instrument which he plays upon: and although skill is not a
+material object, but a quality of an object, viz., of the hands and mind
+of the performer; nevertheless skill possesses exchangeable value, is
+acquired by labour and capital, and is capable of being stored and
+accumulated. Skill, therefore, must be considered as wealth; and the
+labour and funds employed in acquiring skill in anything tending to the
+advantage or pleasure of mankind, must be considered to be productively
+employed and expended.
+
+The skill of a productive labourer is analogous to the machinery he
+works with: neither of them is enjoyment, nor conduces directly to it,
+but both conduce indirectly to it, and both in the same way. If a
+spinning-jenny be wealth, the spinner's skill is also wealth. If the
+mechanic who made the spinning-jenny laboured productively, the spinner
+also laboured productively when he was learning his trade: and what they
+both consumed was consumed productively, that is to say, its consumption
+did not tend to diminish, but to increase the sum of the permanent
+sources of enjoyment in the country, by effecting a new creation of
+those sources, more than equal to the amount of the consumption.
+
+The skill of a tailor, and the implements he employs, contribute in the
+same way to the convenience of him who wears the coat, namely, a remote
+way: it is the coat itself which contributes immediately. The skill of
+Madame Pasta, and the building and decorations which aid the effect of
+her performance, contribute in the same way to the enjoyment of the
+audience, namely, an immediate way, without any intermediate
+instrumentality. The building and decorations are consumed
+unproductively, and Madame Pasta labours and consumes unproductively;
+for the building is used and worn out, and Madame Pasta performs,
+immediately for the spectators' enjoyment, and without leaving, as a
+consequence of the performance, any permanent result possessing
+exchangeable value: consequently the epithet unproductive must be
+equally applied to the gradual wearing out of the bricks and mortar, the
+nightly consumption of the more perishable "properties" of the theatre,
+the labour of Madame Pasta in acting, and of the orchestra in playing.
+But notwithstanding this, the architect who built the theatre was a
+productive labourer; so were the producers of the perishable articles;
+so were those who constructed the musical instruments; and so, we must
+be permitted to add, were those who instructed the musicians, and all
+persons who, by the instructions which they may have given to Madame
+Pasta, contributed to the formation of her talent. All these persons
+contributed to the enjoyment of the audience in the same way, and that
+a remote way, viz., by the production of a _permanent source of
+enjoyment_.
+
+The difference between this case, and the case of the cotton spinner
+already adverted to, is this. The spinning-jenny, and the skill of the
+cotton spinner, are not only the result of productive labour, but are
+themselves productively consumed. The musical instrument and the skill
+of the musician are equally the result of productive labour, but are
+themselves unproductively consumed.
+
+Let us now consider what kinds of labour, and of consumption or
+expenditure, will be classed as productive, and what as unproductive,
+according to this rule.
+
+The following are always productive:
+
+Labour and expenditure, of which the direct object or effect is the
+creation of some material product useful or agreeable to mankind.
+
+Labour and expenditure, of which the direct effect and object are, to
+endow human or other animated beings with faculties or qualities useful
+or agreeable to mankind, and possessing exchangeable value.
+
+Labour and expenditure, which without having for their direct object the
+creation of any useful material product or bodily or mental faculty or
+quality, yet tend indirectly to promote one or other of those ends, and
+are exerted or incurred solely for that purpose.
+
+The following are partly productive and partly unproductive, and cannot
+with propriety be ranged decidedly with either class:
+
+Labour or expenditure which does indeed create, or promote the creation
+of, some useful material product or bodily or mental faculty or quality,
+but which is not incurred or exerted for that sole end; having also for
+another, and perhaps its principal end, enjoyment, or the promotion of
+enjoyment.
+
+Such are the labour of the judge, the legislator, the police-officer,
+the soldier; and the expenditure incurred for their support. These
+functionaries protect and secure mankind in the exclusive possession of
+such material products or acquired faculties as belong to them; and by
+the security which they so confer, they indirectly increase production
+in a degree far more than equivalent to the expense which is necessary
+for their maintenance. But this is not the only purpose for which they
+exist; they protect mankind, not merely in the possession of their
+permanent resources, but also in their actual enjoyments; and so far,
+although highly useful, they cannot, conformably to the distinction
+which we have attempted to lay down, be considered productive labourers.
+
+Such, also, are the labour and the wages of domestic servants. Such
+persons are entertained mainly as subservient to mere enjoyment; but
+most of them occasionally, and some habitually, render services which
+must be considered as of a productive nature; such as that of cookery,
+the last stage in the manufacture of food; or gardening, a branch of
+agriculture.
+
+The following are wholly unproductive:
+
+Labour exerted, and expenditure incurred, directly and exclusively for
+the purpose of enjoyment, and not calling into existence anything,
+whether substance or quality, but such as begins and perishes in the
+enjoyment.
+
+Labour exerted and expenditure incurred uselessly, or in pure waste, and
+yielding neither direct enjoyment nor permanent sources of enjoyment.
+
+It may be objected, that expenditure incurred even for pure enjoyment
+promotes production indirectly, by inciting to exertion. Thus the view
+of the splendour of a rich establishment is supposed by some writers to
+produce upon the mind of an indigent spectator an earnest desire of
+enjoying the same luxuries, and a consequent purpose of working with
+vigour and diligence, and saving from his earnings, thus increasing the
+productive capital of the country.
+
+It is true that mankind are, for the most part, excited to productive
+industry solely by the desire of subsequently consuming the result of
+their labour and accumulation. The consumption called unproductive,
+viz., that of which the direct result is enjoyment, is in reality the
+end, to which production is only the means; and a desire for the end,
+is what alone impels any one to have recourse to the means.
+
+But, notwithstanding this, it is of the greatest importance to mark the
+distinction between the labour and the consumption which have enjoyment
+for their immediate end, and the labour and the consumption of which the
+immediate end is reproduction. Though the sight of the former may still
+further stimulate that desire for the enjoyments afforded by wealth,
+which the mere knowledge, without the immediate view, would suffice to
+excite (and without dwelling on the consideration that if the example
+of a large expenditure excites one individual to accumulation, it
+encourages two to prodigal expense); still, if we look only to the
+effects which are intended, or to those which immediately follow from
+the consumption, and whose connexion with it can be distinctly traced,
+it evidently renders a country poorer in the permanent sources of
+enjoyment; while reproductive consumption leaves the country richer in
+these same sources. Besides, if what is spent for mere pleasure promotes
+indirectly the increase of wealth, it can only be by inducing others
+_not_ to expend on mere pleasure.
+
+Before quitting the subject, one more observation should be added. It
+must not be supposed that what is expended upon unproductive labourers
+is necessarily, the whole of it, unproductively consumed. The
+unproductive labourers may save part of their wages, and invest them in
+a productive employment.
+
+It is not unusual to speak of what is paid in wages to a labourer as
+being thereby _consumed_, as if all profit and loss to the nation were
+to be seen in the capitalist's account-book. What is paid for productive
+labour is said to be productively consumed; what is paid for
+unproductive labour is said to be consumed unproductively. It would be
+proper to say, not that it is productively or unproductively _consumed_,
+but productively or unproductively _expended_; otherwise, we shall be
+obliged to say that it is consumed twice over; the first time
+unproductively, perhaps, and the second, it may be, productively.
+
+To pronounce in which way the wages of the labourer are consumed, we
+must follow them into the labourer's own hands. As much as is necessary
+to keep the productive labourer in perfect health and fitness for his
+employment, may be said to be consumed productively. To this should be
+added what he expends in rearing children to the age at which they
+become capable of productive industry. If the state of the market for
+labour be such as to afford him more, this he may either save, or, as
+the common expression is, he may spend it. If he saves any portion, this
+(unless it be merely hoarded) he intends to employ productively, and it
+will be productively consumed. If he spends it, the consumption is for
+enjoyment immediately, and is therefore unproductive.
+
+This suggests another correction in the established language. Political
+economists generally define the "net produce" to be that portion of the
+gross annual produce of a country which remains after replacing the
+capital annually consumed. This, as they proceed to explain, consists of
+profits and rent; wages being included in the other portion of the gross
+produce, that which goes to replace capital. After this definition, they
+usually proceed to tell us that the net produce, and that alone,
+constitutes the fund from which a nation can accumulate, and add to its
+capital, as also that which it can, without retrograding in wealth,
+expend unproductively, or for enjoyment. Now, it is impossible that both
+the above propositions can be true. If the net produce is that which
+remains after replacing capital, then net produce is not the only fund
+out of which accumulation may be made: for accumulation may be made from
+wages; this is in all countries one of the great sources, and in countries
+like America perhaps the greatest source of accumulation. If, on the other
+hand, it is desirable to reserve the name of net produce to denote the
+fund available for accumulation or for unproductive consumption, we must
+define net produce differently. The definition which appears the best
+adapted to render the ordinary doctrines relating to net produce true,
+would be this:
+
+The net produce of a country is whatever is annually produced beyond
+what is necessary for maintaining the stock of materials and implements
+unimpaired, for keeping all productive labourers alive and in condition
+for work, and for just keeping up their numbers without increase. What
+is required for these purposes, or, in other words, for keeping up the
+productive resources of the country, cannot be diverted from its
+destination without rendering the nation as a whole poorer. But all
+which is produced beyond this, whether it be in the hands of the
+labourer, of the capitalist, or of any of the numerous varieties of
+rent-owners, may be taken for immediate enjoyment, without prejudice to
+the productive resources of the community; and whatever part of it is
+not so taken, constitutes a clear addition to the national capital, or
+to the permanent sources of enjoyment.
+
+
+
+
+ESSAY IV.
+
+ON PROFITS, AND INTEREST.
+
+
+The profits of stock are the surplus which remains to the capitalist
+after replacing his capital: and the ratio which that surplus bears to
+the capital itself, is the _rate_ of profit.
+
+This being the definition of profits, it might seem natural to adopt, as
+a sufficient theory in regard to the rate of profit, that it depends
+upon the productive power of capital. Some countries are favoured beyond
+others, either by nature or art, in the means of production. If the
+powers of the soil, or of machinery, enable capital to produce what is
+necessary for replacing itself, and twenty per cent more, profits will
+be twenty per cent; and so on.
+
+This, accordingly, is a popular mode of speaking on the subject of
+profits; but it has only the semblance, not the reality, of an
+explanation. The "productive power of capital," though a common, and,
+for some purposes, a convenient expression, is a delusive one. Capital,
+strictly speaking, has no productive power. The only productive power is
+that of labour; assisted, no doubt, by tools, and acting upon materials.
+That portion of capital which consists of tools and materials, may be
+said, perhaps, without any great impropriety, to have a productive
+power, because they contribute, along with labour, to the accomplishment
+of production. But that portion of capital which consists of wages, has
+no productive power of its own. Wages have no productive power; they are
+the price of a productive power. Wages do not contribute, along with
+labour, to the production of commodities, no more than the price of
+tools contributes along with the tools themselves. If labour could be
+had without purchase, wages might be dispensed with. That portion of
+capital which is expended in the wages of labour, is only the means by
+which the capitalist procures to himself, in the way of purchase, the
+use of that labour in which the power of production really resides.
+
+The proper view of capital is, that anything whatever, which a person
+possesses, constitutes his capital, provided he is able, and intends,
+to employ it, not in consumption for the purpose of enjoyment, but in
+possessing himself of the means of production, with the intention of
+employing those means productively. Now the means of production are
+labour, implements, and materials. The only productive power which
+anywhere exists, is the productive power of labour, implements, and
+materials.
+
+We need not, on this account, altogether proscribe the expression,
+"productive power of capital;" but we should carefully note, that it can
+only mean the quantity of real productive power which the capitalist,
+by means of his capital, can command. This may change, though the
+productive power of labour remains the same. Wages, for example, may
+rise; and then, although all the circumstances of production remain
+exactly as they were before, the same capital will yield a less return,
+because it will set in motion a less quantity of productive labour.
+
+We may, therefore, consider the capital of a producer as measured by the
+means which he has of possessing himself of the different essentials of
+production: namely, labour, and the various articles which labour
+requires as materials, or of which it avails itself as aids.
+
+The ratio between the price which he has to pay for these means of
+production, and the produce which they enable him to raise, is the
+_rate_ of his _profit_. If he must give for labour and tools four-fifths
+of what they will produce, the remaining fifth will constitute his
+profit, and will give him a rate of one in four, or twenty-five per
+cent, on his outlay.
+
+It is necessary here to remark, what cannot indeed by any possibility be
+misunderstood, but might possibly be overlooked in cases where attention
+to it is indispensable, viz., that we are speaking now of the _rate_ of
+profit, not the gross profit. If the capital of the country is very
+great, a profit of only five per cent upon it may be much more ample,
+may support a much larger number of capitalists and their families in
+much greater affluence, than a profit of twenty-five per cent on the
+comparatively small capital of a poor country. The _gross_ profit of a
+country is the actual amount of necessaries, conveniences, and luxuries,
+which are divided among its capitalists: but whether this be large or
+small, the rate of profit may be just the same. The rate of profit is
+the proportion which the profit bears to the capital; which the surplus
+produce after replacing the outlay, bears to the outlay. In short, if we
+compare the _price paid_ for labour and tools with what that labour and
+those tools will _produce_, from this ratio we may calculate the rate of
+profit.
+
+As the gross profit may be very different though the rate of profit be
+the same; so also may the absolute price paid for labour and tools be
+very different, and yet the proportion between the price paid and the
+produce obtained may be just the same. For greater clearness, let us
+omit, for the present, the consideration of tools, materials, &c, and
+conceive production as the result solely of labour. In a certain
+country, let us suppose, the wages of each labourer are one quarter of
+wheat per year, and 100 men can produce, in one year, 120 quarters. Here
+the price paid for labour is to the produce of that labour as 100 to
+120, and profits are 20 per cent. Suppose now that, in another country,
+wages are just double what they are in the country before supposed;
+namely, two quarters of wheat per year, for each labourer. But suppose,
+likewise, that the productive power of labour is double what it is in
+the first country; that by the greater fertility of the soil, 100 men
+can produce 240 quarters, instead of 120 as before. Here it is obvious,
+that the real price paid for labour is twice as great in the one country
+as in the other; but the produce being also twice as great, the ratio
+between the price of labour and the produce of labour is still exactly
+the same: an outlay of 200 quarters gives a return of 240 quarters, and
+profits, as before, are 20 per cent.
+
+Profits, then (meaning not gross profits, but the rate of profit),
+depend (not upon the price of labour, tools, and materials--but) upon
+the ratio between the price of labour, tools, and materials, and the
+produce of them: upon the proportionate share of the produce of industry
+which it is necessary to offer, in order to purchase that industry and
+the means of setting it in motion.
+
+       *       *       *       *       *
+
+We have hitherto spoken of tools, buildings, and materials, as
+essentials of production, co-ordinate with labour, and equally
+indispensable with it. This is true; but it is also true that tools,
+buildings, and materials, are themselves the produce of labour; and that
+the only cause (cases of monopoly excepted) of their having any value,
+is the labour which is required for their production.
+
+If tools, buildings, and materials were the spontaneous gifts of nature,
+requiring no labour either in order to produce or to appropriate them;
+and if they were thus bestowed upon mankind in indefinite quantity, and
+without the possibility of being monopolized; they would still be as
+useful, as indispensable as they now are; but since they could, like air
+and the light of the sun, be obtained without cost or sacrifice, they
+would form no part of the expenses of production, and no portion of the
+produce would be required to be set aside in order to replace the outlay
+made for these purposes. The whole produce, therefore, after replacing
+the wages of labour, would be clear profit to the capitalist.
+
+Labour alone is the primary means of production; "the original
+purchase-money which has been paid for everything." Tools and materials,
+like other things, have originally cost nothing but labour; and have a
+value in the market only because wages have been paid for them. The
+labour employed in making the tools and materials being added to the
+labour afterwards employed in working up the materials by aid of the
+tools, the sum total gives the whole of the labour employed in the
+production of the completed commodity. In the ultimate analysis,
+therefore, labour appears to be the only essential of production. To
+replace capital, is to replace nothing but the wages of the labour
+employed. Consequently, the whole of the surplus, after replacing wages,
+is profits. From this it seems to follow, that the ratio between the
+wages of labour and the produce of that labour gives the rate of profit.
+And thus we arrive at Mr. Ricardo's principle, that profits depend upon
+wages; rising as wages fall, and falling as wages rise.
+
+To protect this proposition (the most perfect form in which the law of
+profits seems to have been yet exhibited) against misapprehension, one
+or two explanatory remarks are required.
+
+If by wages, be meant what constitutes the real affluence of the
+labourer, the _quantity_ of produce which he receives in exchange for
+his labour; the proposition that profits vary inversely as wages, will
+be obviously false. The rate of profit (as has been already observed and
+exemplified) does not depend upon the price of labour, but upon the
+proportion between the price of labour and the produce of it. If the
+produce of labour is large, the price of labour may also be large
+without any diminution of the rate of profit: and, in fact, the rate of
+profit is highest in those countries (as, for instance, North America)
+where the labourer is most largely remunerated. For the wages of labour,
+though so large, bear a less proportion to the abundant _produce_ of
+labour, there than elsewhere.
+
+But this does not affect the truth of Mr. Ricardo's principle as he
+himself understood it; because an increase of the labourer's real
+comforts was not considered by him as a rise of wages. In his language
+wages were only said to rise, when they rose not in mere quantity but in
+_value_. To the labourer himself (he would have said) the _quantity_ of
+his remuneration is the important circumstance: but its _value_ is the
+only thing of importance to the person who purchases his labour.
+
+The rate of profits depends not upon absolute or real wages, but upon
+the _value_ of wages.
+
+If, however, by value, Mr. Ricardo had meant _exchangeable_ value, his
+proposition would still have been remote from the truth. Profits depend
+no more upon the exchangeable value of the labourer's remuneration, than
+upon its quantity. The truth is, that by the exchangeable value is meant
+the quantity of commodities which the labourer can purchase with his
+wages; so that when we say the exchangeable value of wages, we say their
+quantity, under another name.
+
+Mr. Ricardo, however, did not use the word value in the sense of
+exchangeable value.
+
+Occasionally, in his writings, he could not avoid using the word as
+other people use it, to denote value in exchange. But he more frequently
+employed it in a sense peculiar to himself, to denote cost of
+production; in other words, the _quantity of labour_ required to produce
+the article; that being his criterion of cost of production. Thus, if a
+hat could be made with ten days' labour in France and with five days'
+labour in England, he said that the value of a hat was double in France
+of what it was in England. If a quarter of corn could be produced a
+century ago with half as much labour as is necessary at present, Mr.
+Ricardo said that the value of a quarter of corn had doubled.
+
+Mr. Ricardo, therefore, would not have said that wages had risen,
+because a labourer could obtain two pecks of flour instead of one, for a
+day's labour; but if last year he received, for a day's labour,
+something which required eight hours' labour to produce it, and this
+year something which requires nine hours, then Mr. Ricardo would say
+that wages had risen. A rise of wages, with Mr. Ricardo, meant an
+increase in the cost of production of wages; an increase in the number
+of hours' labour which go to produce the wages of a day's labour; an
+increase in the _proportion_ of the fruits of labour which the labourer
+receives for his own share; an increase in the ratio between the wages
+of his labour and the produce of it. This is the theory: the reasoning,
+of which it is the result, has been given in the preceding paragraphs.
+
+Some of Mr. Ricardo's followers, or more properly, of those who have
+adopted in most particulars the views of political economy which his
+genius was the first to open up, have given explanations of Mr.
+Ricardo's doctrine to nearly the same effect as the above, but in rather
+different terms. They have said that profits depend not on _absolute_,
+but on _proportional_ wages: which they expounded to mean the proportion
+which the labourers _en masse_ receive of the total produce of the
+country.
+
+It seems, however, to be rather an unusual and inconvenient use of
+language to speak of anything as depending upon the wages of labour, and
+then to explain that by wages of labour you do not mean the wages of an
+individual labourer, but of all the labourers in the country
+collectively. Mankind will never agree to call anything a rise of wages,
+except a rise of the wages of individual labourers, and it is therefore
+preferable to employ language tending to fix attention upon the wages of
+the individual. The wages, however, on which profits are said to depend,
+are undoubtedly _proportional_ wages, namely, the proportional wages of
+one labourer: that is, the ratio between the wages of one labourer, and
+(not the whole produce of the country, but) the amount of what one
+labourer can produce; the amount of that portion of the collective
+produce of the industry of the country, which may be considered as
+corresponding to the labour of one single labourer. Proportional wages,
+thus understood, may be concisely termed the cost of production of
+wages; or, more concisely still, the cost of wages, meaning their cost
+in the "original purchase money," labour.
+
+We have now arrived at a distinct conception of Mr. Ricardo's theory of
+profits in its most perfect state. And this theory we conceive to be the
+basis of the true theory of profits. All that remains to do is to clear
+it from certain difficulties which still surround it, and which, though
+in a greater degree apparent than real, are not to be put aside as
+wholly imaginary.
+
+Though it is true that tools, materials, and buildings (it is to be
+wished that there were some compact designation for all these essentials
+of production taken together,) are themselves the produce of labour, and
+are only on that account to be ranked among the expenses of production;
+yet the _whole_ of their value is not resolvable into the wages of the
+labourers by whom they were produced. The wages of those labourers were
+paid by a capitalist, and that capitalist must have the same profit upon
+his advances as any other capitalist; when, therefore, he sells the
+tools or materials, he must receive from the purchaser not only the
+reimbursement of the wages he has paid, but also as much more as will
+afford him the ordinary rate of profit. And when the producer, after
+buying the tools and employing them in his own occupation, comes to
+estimate his gains, he must set aside a portion of the produce to
+replace not only the wages paid both by himself and by the tool-maker,
+but also the profits of the tool-maker, advanced by himself out of his
+own capital.
+
+It is not correct, therefore, to state that all which the capitalist
+retains after replacing wages forms his profit. It is true the whole
+return to capital is either wages or profits; but profits do not compose
+merely the surplus after replacing the outlay; they also enter into the
+outlay itself. Capital is expended partly in paying or reimbursing
+wages, and partly in paying the profits of other capitalists, whose
+concurrence was necessary in order to bring together the means of
+production.
+
+If any contrivance, therefore, were devised by which that part of the
+outlay which consists of previous profits could be either wholly or
+partially dispensed with, it is evident that more would remain as the
+profit of the immediate producer; while, as the quantity of _labour_
+necessary to produce a given quantity of the commodity would be
+unaltered, as well as the quantity of produce paid for that labour, it
+seems that the ratio between the price of labour and its produce would
+be the same as before; that the cost of production of wages would be the
+same, proportional wages the same, and yet profits different.
+
+To illustrate this by a simple instance, let it be supposed that
+one-third of the produce is sufficient to replace the wages of the
+labourers who have been immediately instrumental in the production; that
+another third is necessary to replace the materials used and the fixed
+capital worn out in the process; while the remaining third is clear
+gain, being a profit of 50 per cent. Suppose, for example, that 60
+agricultural labourers, receiving 60 quarters of corn for their wages,
+consume fixed capital and seed amounting to the value of 60 quarters
+more, and that the result of their operations is a produce of 180
+quarters. When we analyse the price of the seed and tools into its
+elements, we find that they must have been the produce of the labour of
+40 men: for the wages of those 40, together with profit at the rate
+previously supposed (50 per cent) make up 60 quarters. The produce,
+therefore, consisting of 180 quarters is the result of the labour
+altogether of 100 men: namely, the 60 first mentioned, and the 40 by
+whose labour the fixed capital and the seed were produced.
+
+Let us now suppose, by way of an extreme case, that some contrivance is
+discovered, whereby the purposes to which the second third of the
+produce had been devoted, may be dispensed with altogether: that some
+means are invented by which the same amount of produce may be procured
+without the assistance of any fixed capital, or the consumption of any
+seed or material sufficiently valuable to be worth calculating. Let us,
+however, suppose that this cannot be done without taking on a number of
+additional labourers, equal to those required for producing the seed and
+fixed capital; so that the saving shall be only in the profits of the
+previous capitalists. Let us, in conformity with this supposition,
+assume that in dispensing with the fixed capital and seed, value 60
+quarters, it is necessary to take on 40 additional labourers, receiving
+a quarter of corn each, as before.
+
+The rate of profit has evidently risen. It has increased from 50 per
+cent to 60 per cent. A return of 180 quarters could not before be
+obtained but by an outlay of 120 quarters; it can now be obtained by an
+outlay of no more than 100.
+
+Here, therefore, is an undeniable rise of profits. Have wages, in the
+sense above attached to them, fallen or not? It would seem not.
+
+The produce (180 quarters) is still the result of the same quantity of
+labour as before, namely, the labour of 100 men. A quarter of corn,
+therefore, is still, as before, the produce of 10/18 of a man's labour
+for a year. Each labourer receives, as before, one quarter of corn;
+each, therefore, receives the produce of 10\18 of a year's labour of one
+man, that is, the same cost of production; each receives 10/18 of the
+produce of his own labour, that is, the same proportional wages; and the
+labourers collectively still receive the same proportion, namely 10/18,
+of the whole produce.
+
+The conclusion, then, cannot be resisted, that Mr. Ricardo's theory is
+defective: that the rate of profits does _not_ exclusively depend upon
+the value of wages, in his sense, namely, the quantity of labour of
+which the wages of a labourer are the produce; that it does _not_
+exclusively depend upon proportional wages, that is, upon the proportion
+which the labourers collectively receive of the whole produce, or the
+ratio which the wages of an individual labourer bear to the produce of
+his individual labour.
+
+Those political economists, therefore, who have always dissented from
+Mr. Ricardo's doctrine, or who, having at first admitted, ended by
+discarding it, were so far in the right; but they committed a serious
+error in this, that, with the usual one-sidedness of disputants, they
+knew no medium between admitting absolutely and dismissing entirely;
+and saw no other course than utterly to reject what it would have been
+sufficient to modify.
+
+It is remarkable how very slight a modification will suffice to render
+Mr. Ricardo's doctrine completely true. It is even doubtful whether he
+himself, if called upon to adapt his expressions to this peculiar case,
+would not have so explained his doctrine as to render it entirely
+unobjectionable.
+
+It is perfectly true, that, in the example already made use of, a rise
+of profits takes place, while wages, considered in respect to the
+quantity of labour of which they are the produce, have not varied at
+all. But though wages are still the produce of the same _quantity of
+labour_ as before, the _cost of production_ of wages has nevertheless
+fallen; for into cost of production there enters another element besides
+labour.
+
+We have already remarked (and the very example out of which the
+difficulty arose presupposes it) that the cost of production of an
+article consists generally of two parts,--the _wages_ of the labour
+employed, and the _profits_ of those who, in any antecedent stage of
+the production, have advanced any portion of those wages. An article,
+therefore, may be the produce of the same quantity of labour as before,
+and yet, if any portion of the profits which the last producer has to
+make good to previous producers can be economized, the cost of
+production of the article is diminished.
+
+Now, in our example, a diminution of this sort is supposed to have taken
+place in the cost of production of corn. The production of that article
+has become less costly, in the ratio of six to five. A quantity of corn,
+the means of producing which could not previously have been secured but
+at an expense of 120 quarters, can now be produced by means which 100
+quarters are sufficient to purchase.
+
+But the labourer is supposed to receive the same quantity of corn as
+before. He receives one quarter. The cost of production of wages has,
+therefore, fallen one-sixth. A quarter of corn, which is the
+remuneration of a single labourer, is indeed the produce of the same
+quantity of labour as before; but its cost of production is nevertheless
+diminished. It is now the produce of 10/18 of a man's labour, and
+nothing else; whereas formerly it required for its production the
+conjunction of that quantity of labour with an expenditure, in the form
+of reimbursement of profit, amounting to one-fifth more.
+
+If the cost of production of wages had remained the same as before,
+profits could not have risen. Each labourer received one quarter of
+corn; but one quarter of corn at that time was the result of the same
+cost of production, as 1 1/5 quarter now. In order, therefore, that each
+labourer should receive the same cost of production, each must now
+receive one quarter of corn, _plus_ one-fifth. The labour of 100 men
+could not be purchased at this price for less than 120 quarters; and the
+produce, 180 quarters, would yield only 50 per cent, as first supposed [7].
+
+It is, therefore, strictly true, that the rate of profits varies
+inversely as the cost of production of wages. Profits cannot rise,
+unless the cost of production of wages falls exactly as much; nor fall,
+unless it rises.
+
+The proof of this position has been stated in figures, and in a
+particular case: we shall now state it in general terms, and for all
+cases.
+
+We have supposed, for simplicity, that wages are paid in the finished
+commodity. The agricultural labourers, in our example, were paid in
+corn, and if we had called them weavers, we should have supposed them to
+be paid in cloth. This supposition is allowable, for it is obviously of
+no consequence, in a question of value, or cost of production, what
+precise article we assume as the medium of exchange. The supposition
+has, besides, the recommendation of being conformable to the most
+ordinary state of the facts; for it is by the sale of his own finished
+article that each capitalist obtains the means of hiring labourers to
+renew the production; which is virtually the same thing as if, instead
+of selling the article for money and giving the money to his labourers,
+he gave the article itself to the labourers, and they sold it for their
+daily bread.
+
+Assuming, therefore, that the labourer is paid in the very article he
+produces, it is evident that, when any saving of expense takes place in
+the production of that article, if the labourer still receives the same
+cost of production as before, he must receive an increased quantity, in
+the very same ratio in which the productive power of capital has been
+increased. But, if so, the outlay of the capitalist will bear exactly
+the same proportion to the return as it did before; and profits will not
+rise.
+
+The variations, therefore, in the rate of profits, and those in the cost
+of production of wages, go hand in hand, and are inseparable. Mr.
+Ricardo's principle, that profits cannot rise unless wages fall, is
+strictly true, if by low wages be meant not merely wages which are the
+produce of a smaller quantity of labour, but wages which are produced at
+less cost, reckoning labour and previous profits together. But the
+interpretation which some economists have put upon Mr. Ricardo's
+doctrine, when they explain it to mean that profits depend upon the
+proportion which the labourers collectively receive of the aggregate
+produce, will not hold at all; for that, in our first example, remained
+the same, and yet profits rose.
+
+The only expression of the law of profits, which seems to be correct,
+is, that they depend upon the cost of production of wages. This must be
+received as the ultimate principle.
+
+From this may be deduced all the corollaries which Mr. Ricardo and
+others have drawn from his theory of profits as expounded by himself.
+The cost of production of the wages of one labourer for a year, is the
+result of two concurrent elements or factors,--viz., 1st, the quantity
+of commodities which the state of the labour market affords to him;
+2ndly, the cost of production of each of those commodities. It follows,
+that the rate of profits can never rise but in conjunction with one or
+other of two changes,--1st, a diminished remuneration of the labourer;
+or, 2ndly, an improvement in production, or an extension of commerce, by
+which any of the articles habitually consumed by the labourer may be
+obtained at smaller cost. (If the improvement be in any article which is
+not consumed by the labourer, it merely lowers the price of that article,
+and thereby benefits capitalists and all other people so far as they are
+consumers of that particular article, and may be said to increase gross
+profit, but not the rate of profit.)
+
+So, on the other hand, the rate of profit cannot fall, unless
+concurrently with one of two events: 1st, an improvement in the
+labourer's condition; or, 2ndly, an increased difficulty of producing
+or importing some article which the labourer habitually consumes. The
+progress of population and cultivation has a tendency to lower profits
+through the latter of these two channels, owing to the well known law
+of the application of capital to land, that a double capital does not
+_caeteris paribus_ yield a double produce. There is, therefore, a
+tendency in the rate of profits to fall with the progress of society.
+But there is also an antagonist tendency of profits to rise, by the
+successive introduction of improvements in agriculture, and in the
+production of those manufactured articles which the labourers consume.
+Supposing, therefore, that the actual comforts of the labourer remain
+the same, profits will fall or rise, according as population, or
+improvements in the production of food and other necessaries, advance
+fastest.
+
+The rate of profits, therefore, tends to _fall_ from the following
+causes:--1. An increase of capital beyond population, producing
+increased competition for labour; 2. An increase of population,
+occasioning a demand for an increased quantity of food, which must be
+produced at a greater cost. The rate of profits tends to _rise_ from
+the following causes:--1. An increase of population beyond capital,
+producing increased competition for employment; 2. Improvements
+producing increased cheapness of necessaries, and other articles
+habitually consumed by the labourer.
+
+       *       *       *       *       *
+
+The circumstances which regulate the rate of interest have usually been
+treated, even by professed writers on political economy, in a vague,
+loose, and unscientific manner. It has, however, been felt that there is
+some connexion between the rate of interest and the rate of profit; that
+(to use the words of Adam Smith) much will be given for money, when much
+can be made of it. It has been felt, also, that the fluctuations in the
+market-rate of interest from day to day, are determined, like other
+matters of bargain and sale, by demand and supply. It has, therefore,
+been considered as an established principle, that the rate of interest
+varies from day to day according to the quantity of capital offered or
+called for on loan; but conforms on the average of years to a standard
+determined by the rate of profits, and bearing some proportion to that
+rate--but a proportion which few attempts have been made to define.
+
+In consequence of these views, it has been customary to judge of the
+general rate of profits at any time or place, by the rate of interest at
+that time and place: it being supposed that the rate of interest, though
+liable to temporary fluctuations, can never vary for any long period of
+time unless profits vary; a notion which appears to us to be erroneous.
+
+It was observed by Adam Smith, that profits may be considered as divided
+into two parts, of which one may properly be considered as the
+remuneration for the use of the capital itself, the other as the reward
+of the labour of superintending its employment; and that the former of
+these will correspond with the rate of interest. The producer who
+borrows capital to employ it in his business, will consent to pay, for
+the use of it, all that remains of the profits he can make by it, after
+reserving what he considers reasonable remuneration for the trouble and
+risk which he incurs by borrowing and employing it.
+
+This remark is just; but it seems necessary to give greater precision to
+the ideas which it involves.
+
+The difference between the profit which can be made by the use of
+capital, and the interest which will be paid for it, is rightly
+characterized as wages of superintendance. But to infer from this that
+it is regulated by entirely the same principles as other wages, would be
+to push the analogy too far. It is wages, but wages paid by a commission
+upon the capital employed. If the general rate of profit is 10 per cent,
+and the rate of interest 5 per cent, the wages of superintendance will
+be 5 per cent; and though one borrower employ a capital of 100,000_l_.,
+another no more than 100_l_., the labour of both will be rewarded with
+the same per centage, though, in the one ease, this symbol will
+represent an income of 5_l_., in the other case, of 5000_l_. Yet it
+cannot be pretended that the labour of the two borrowers differs in this
+proportion. The rule, therefore, that equal quantities of labour of
+equal hardness and skill are equally remunerated, does not hold of this
+kind of labour. The wages of any other labour are here an inapplicable
+criterion.
+
+The wages of superintendance are distinguished from ordinary wages by
+another peculiarity, that they are not paid in advance out of capital,
+like the wages of all other labourers, but merge in the profit, and are
+not realized until the production is completed. This takes them entirely
+out of the ordinary law of wages. The wages of labourers who are paid in
+advance, are regulated by the number of competitors compared with the
+amount of capital; the labourers can consume no more than what has been
+previously accumulated. But there is no such limit to the remuneration
+of a kind of labour which is not paid for out of wealth previously
+accumulated, but out of that produce which it is itself employed in
+calling into existence.
+
+When these circumstances are duly weighed, it will be perceived, that
+although profit may be correctly analyzed into interest and wages of
+superintendance, we ought not to lay it down as the law of interest,
+that it is profits _minus_ the wages of superintendance. Of the two
+expressions, it would be decidedly the more correct, that the wages of
+superintendance are regulated by the rate of interest, or are equal to
+profits _minus_ interest. In strict, propriety, neither expression would
+be allowable. Interest, and the wages of superintendance, can scarcely
+be said to depend upon one another. They are to one another in the same
+relation as wages and profits are. They are like two buckets in a well:
+when one rises, the other descends, but neither of the two motions is
+the cause of the other; both are simultaneous effects of the same cause,
+the turning of the windlass.
+
+       *       *       *       *       *
+
+There are among the capitalists of every country a considerable number
+who are habitually, and almost necessarily, lenders; to whom scarcely
+any difference between what they could receive for their money and what
+could be made by it, would be an equivalent for incurring the risk and
+labour of carrying on business. In this predicament is the property of
+widows and orphans; of many public bodies; of charitable institutions;
+most property which is vested in trustees; and the property of a great
+number of persons unused to business, and who have a distaste for it,
+or whose other occupations prevent their engaging in it. How large a
+proportion of the property lent to the nation comes under this
+description, has been pointed out in Mr. Tooke's _Considerations on the
+State of the Currency._
+
+There is another large class, consisting of bankers, bill-brokers, and
+others, who are money-lenders by profession; who enter into that
+profession with the intention of making such gains as it will yield
+them, and who would not be induced to change their business by any but
+a very strong pecuniary inducement.
+
+There is, therefore, a large class of persons who are habitually
+lenders. On the other hand, all persons in business may be considered
+as habitually borrowers. Except in times of stagnation, they are all
+desirous of extending their business beyond their own capital, and are
+never desirous of lending any portion of their capital except for very
+short periods, during which they cannot advantageously invest it in
+their own trade.
+
+There is, in short, a productive class, and there is, besides, a class
+technically styled the monied class, who live upon the interest of their
+capital, without engaging personally in the work of production.
+
+The class of borrowers may be considered as unlimited. There is no
+quantity of capital that could be offered to be lent, which the
+productive classes would not be willing to borrow, at any rate of
+interest which would afford them the slightest excess of profit above a
+bare equivalent for the additional risk, incurred by that transaction,
+of the evils attendant on insolvency. The only assignable limit to the
+inclination to borrow, is the power of giving security: the producers
+would find it difficult to borrow more than an amount equal to their own
+capital. If more than half the capital of the country were in the hands
+of persons who preferred lending it to engaging personally in business,
+and if the surplus were greater than could be invested in loans to
+Government, or in mortgages upon the property of unproductive consumers;
+the competition of lenders would force down the rate of interest very
+low. A certain portion of the monied class would be obliged either to
+sacrifice their predilections by engaging in business, or to lend on
+inferior security; and they would accordingly accept, where they could
+obtain good security, an abatement of interest equivalent to the
+difference of risk.
+
+This is an extreme case. Let us put an extreme case of a contrary kind.
+Suppose that the wealthy people of any country, not relishing an idle
+life, and having a strong taste for gainful labour, were generally
+indisposed to accept of a smaller income in order to be relieved from
+the labour and anxiety of business. Every producer in flourishing
+circumstances would be eager to borrow, and few willing to lend. Under
+these circumstances the rate of interest would differ very little from
+the rate of profit. The trouble of managing a business is not
+proportionally increased by an increase of the magnitude of the
+business; and a very small surplus profit above the rate of interest,
+would therefore be a sufficient inducement to capitalists to borrow.
+
+We may even conceive a people whose habits were such, that in order to
+induce them to lend, it might be necessary to offer them a rate of
+interest fully equal to the ordinary rate of profit. In that case, of
+course, the productive classes would scarcely ever borrow. But
+government, and the unproductive classes, who do not borrow in order to
+make a profit by the loan, but from the pressure of a real or supposed
+necessity, might still be ready to borrow at this high rate.
+
+Although the inclination to borrow has no _fixed_ or _necessary_ limit
+except the power of giving security, yet it always, in point of fact,
+stops short of this; from the uncertainty of the prospects of any
+individual producer, which generally indisposes him to involve himself
+to the full extent of his means of payment. There is never any permanent
+want of market for things in general; but there may be so for the
+commodity which any one individual is producing; and even if there is a
+demand for the commodity, people may not buy it of him but of some other.
+There are, consequently, never more than a portion of the producers, the
+state of whose business encourages them to add to their capital by
+borrowing; and even these are disposed to borrow only as much as they
+see an _immediate_ prospect of profitably employing. There is, therefore,
+a practical limit to the demands of borrowers at any given instant; and
+when these demands are all satisfied, any additional capital offered on
+loan can find an investment only by a reduction of the rate of interest.
+
+The amount of borrowers being given, (and by the amount of borrowers is
+here meant the aggregate sum which people are willing to borrow at some
+given rate,) the rate of interest will depend upon the quantity of
+capital owned by people who are unwilling or unable to engage in trade.
+The circumstances which determine this, are, on the one hand, the degree
+in which a taste for business, or an aversion to it, happens to be
+prevalent among the classes possessed of property; and on the other
+hand, the amount of the annual accumulation from the earnings of labour.
+Those who accumulate from their wages, fees, or salaries, have, of
+course, (speaking generally) no means of investing their savings except
+by lending them to others: their occupations prevent them from personally
+superintending any employment.
+
+Upon these circumstances, then, the rate of interest depends, the amount
+of borrowers being given. And the counter-proposition equally holds,
+that, the above circumstances being given, the rate of interest depends
+upon the amount of borrowers.
+
+Suppose, for example, that when the rate of interest has adjusted itself
+to the existing state of the circumstances which affect the disposition
+to borrow and to lend, a war breaks out, which induces government, for
+a series of years, to borrow annually a large sum of money. During the
+whole of this period, the rate of interest will remain considerably
+above what it was before, and what it will be afterwards.
+
+Before the commencement of the supposed war, all persons who were
+disposed to lend at the then rate of interest, had found borrowers, and
+their capital was invested. This may be assumed; for if any capital had
+been seeking for a borrower at the existing rate of interest, and unable
+to find one, its owner would have offered it at a rate slightly below
+the existing rate. He would, for instance, have bought into the funds,
+at a slight advance of price; and thus set at liberty the capital of
+some fundholder, who, the funds yielding a lower interest, would have
+been obliged to accept a lower interest from individuals.
+
+Since, then, all who were willing to lend their capital at the market
+rate, have already lent it, Government will not be able to borrow unless
+by offering higher interest. Though, with the existing habits of the
+possessors of disposable capital, an increased number cannot be found
+who are willing to lend at the existing rate, there are doubtless some
+who will be induced to lend by the temptation of a higher rate. The same
+temptation will also induce some persons to invest, in the purchase of
+the new stock, what they would otherwise have expended unproductively in
+increasing their establishments, or productively, in improving their
+estates. The rate of interest will rise just sufficiently to call forth
+an increase of lenders to the amount required.
+
+This we apprehend to be the cause why the rate of interest in this
+country was so high as it is well known to have been during the last
+war. It is, therefore, by no means to be inferred, as some have done,
+that the general rate of profits was unusually high during the same
+period, because interest was so. Supposing the rate of profits to have
+been precisely the same during the war, as before or after it, the rate
+of interest would nevertheless have risen, from the causes and in the
+manner above described.
+
+The practical use of the preceding investigation is, to moderate the
+confidence with which inferences are frequently drawn with respect to
+the rate of profit from evidence regarding the rate of interest; and to
+shew that although the rate of profit is one of the elements which
+combine to determine the rate of interest, the latter is also acted upon
+by causes peculiar to itself, and may either rise or fall, both
+temporarily and permanently, while the general rate of profits remains
+unchanged.
+
+       *       *       *       *       *
+
+The introduction of banks, which perform the function of lenders and
+loan-brokers, with or without that of issuers of paper-money, produces
+some further anomalies in the rate of interest, which have not, so far
+as we are aware, been hitherto brought within the pale of exact science.
+
+If bankers were merely a class of middlemen between the lender and the
+borrower; if they merely received deposits of capital from those who had
+it lying unemployed in their hands, and lent this, together with their
+own capital, to the productive classes, receiving interest for it, and
+paying interest in their turn to those who had placed capital in their
+hands; the effect of the operations of banking on the rate of interest
+would be to lower it in some slight degree. The banker receives and
+collects together sums of money much too small, when taken individually,
+to render it worth while for the owners to look out for an investment,
+but which in the aggregate form a considerable amount. This amount may
+be considered a clear addition to the productive capital of the country;
+at least, to the capital in activity at any moment. And as this addition
+to the capital accrues wholly to that part of it which is not employed
+by the owners, but lent to other producers, the natural effect is a
+diminution of the rate of interest.
+
+The banker, to the extent of his own private capital, (the expenses of
+his business being first paid,) is a lender at interest. But, being
+subject to risk and trouble fully equal to that which belongs to most
+other employments, he cannot be satisfied with the mere interest even
+of his whole capital: he must have the ordinary profits of stock, or he
+will not engage in the business: the state of banking must be such as to
+hold out to him the prospect of adding, to the interest of what remains
+of his own capital after paying the expenses of his business, interest
+upon capital deposited with him, in sufficient amount to make up, after
+paying the expenses, the ordinary profit which could be derived from his
+own capital in any productive employment. This will be accomplished in
+one of two ways.
+
+1. If the circumstances of society are such as to furnish a ready
+investment of disposable capital; (as for instance in London, where the
+public funds and other securities, of undoubted stability, and affording
+great advantages for receiving the interest without trouble and
+realizing the principal without difficulty when required, tempt all
+persons who have sums of importance lying idle, to invest them on their
+own account without the intervention of any middleman;) the deposits
+with bankers consist chiefly of small sums likely to be wanted in a very
+short period for current expenses, and the interest on which would
+seldom be worth the trouble of calculating it. Bankers, therefore, do
+not allow any interest on their deposits. After paying the expenses of
+their business, all the rest of the interest they receive is clear gain.
+But as the circumstances of banking, as of all other modes of employing
+capital, will on the average be such as to afford to a person entering
+into the business a prospect of realizing the ordinary, and no more than
+the ordinary, profits upon his own capital; the gains of each banker by
+the investment of his deposits, will not on the average exceed what is
+necessary to make up his gains on his own capital to the ordinary rate.
+It is, of course, competition, which brings about this limitation.
+Whether competition operates by lowering the rate of interest, or by
+dividing the business among a larger number, it is difficult to decide.
+Probably it operates in both ways; but it is by no means impossible that
+it may operate in the latter way alone: just as an increase in the
+number of physicians does not lower the fees, though it diminishes an
+average competitor's chance of obtaining them.
+
+It is not impossible that the disposition of the lenders might be such,
+that they would cease to lend rather than acquiesce in any reduction of
+the rate of interest. If so, the arrival of a new lender, in the person
+of a banker of deposit, would not lower the rate of interest in any
+considerable degree. A slight fall would take place, and with that
+exception things would be as before, except that the capital in the
+hands of the banker would have put itself into the place of an equal
+portion of capital belonging to other lenders, who would themselves have
+engaged in business (e.g., by subscribing to some joint-stock company,
+or entering into commandite). Bankers' profits would then be limited to
+the ordinary rate chiefly by the division of the business among many
+banks, so that each on the average would receive no more interest on his
+deposits than would suffice to make up the interest on his own capital
+to the ordinary rate of profit after paying all expenses.
+
+2. But if the circumstances of society render it difficult and
+inconvenient for persons who wish to live upon the interest of their
+money, to seek an investment for themselves, the bankers become agents
+for this specific purpose: large as well as small sums are deposited
+with them, and they allow interest to their customers. Such is the
+practice of the Scotch banks, and of most of the country banks in
+England. Their customers, not living at any of the great seats of money
+transactions, prefer entrusting their capital to somebody on the spot,
+whom they know, and in whom they confide. He invests their money on the
+best terms he can, and pays to them such interest as he can afford to
+give; retaining a compensation for his own risk and trouble. This
+compensation is fixed by the competition of the market. The rate of
+interest is no further lowered by this operation, than inasmuch as it
+brings together the lender and the borrower in a safe and expeditious
+manner. The lender incurs less risk, and a larger proportion, therefore,
+of the holders of capital are willing to be lenders.
+
+When a banker, in addition to his other functions, is also an issuer of
+paper money, he gains an advantage similar to that which the London
+bankers derive from their deposits. To the extent to which he can put
+forth his notes, he has so much the more to lend, without himself having
+to pay any interest for it.
+
+If the paper is convertible, it cannot get into circulation permanently
+without displacing specie, which goes abroad and brings back an
+equivalent value. To the extent of this value, there is an increase of
+the capital of the country; and the increase accrues solely to that part
+of the capital which is employed in loans.
+
+If the paper is inconvertible, and instead of displacing specie
+depreciates the currency, the banker by issuing it levies a tax on every
+person who has money in his hands or due to him. He thus appropriates to
+himself a portion of the capital of other people, and a portion of their
+revenue. The capital might have been intended to be lent, or it might
+have been intended to be employed by the owner: such part of it as was
+intended to be employed by the owner now changes its destination, and is
+lent. The revenue was either intended to be accumulated, in which case
+it had already become capital, or it was intended to be spent: in this
+last case, revenue is converted into capital: and thus, strange as it
+may appear, the depreciation of the currency, when effected in this way,
+operates to a certain extent as a forced accumulation. This, indeed, is
+no palliation of its iniquity. Though A might have spent his property
+unproductively, B ought not to be permitted to rob him of it because B
+will expend it on productive labour.
+
+In any supposable case, however, the issue of paper money by bankers
+increases the proportion of the whole capital of the country which is
+destined to be lent. The rate of interest must therefore fall, until
+some of the lenders give over lending, or until the increase of
+borrowers absorbs the whole.
+
+But a fall of the rate of interest, sufficient to enable the money
+market to absorb the whole of the paper-loans, may not be sufficient to
+reduce the profits of a lender who lends what costs him nothing, to the
+ordinary rate of profit upon his capital. Here, therefore, competition
+will operate chiefly by dividing the business. The notes of each bank
+will be confined within so narrow a district, or will divide the supply
+of a district with so many other banks, that on the average each will
+receive no larger amount of interest on his notes than will make up the
+interest on his own capital to the ordinary rate of profit.
+
+Even in this way, however, the competition has the effect, to a certain
+limited extent, of lowering the rate of interest; for the power of
+bankers to receive interest on more than their capital attracts a
+greater amount of capital into the banking business than would otherwise
+flow into it; and this greater capital being all lent, interest will
+fall in consequence.
+
+
+NOTE:
+
+[7] It would be easy to go over in the same manner any other case. For
+instance, we may suppose, that, instead of dispensing with the _whole_
+of the fixed capital, material, &c, and taking on labourers in equal
+number to those by whom these were produced, _half_ only of the fixed
+capital and material is dispensed with; so that, instead of 60 labourers
+and a fixed capital worth 6O quarters of corn, we have 80 labourers and
+a fixed capital worth 30. The numerical statement of this case is more
+intricate than that in the text, but the result is not different.
+
+
+
+
+
+ESSAY V.
+
+ON THE DEFINITION OF POLITICAL ECONOMY; AND ON THE METHOD OF
+INVESTIGATION PROPER TO IT.
+
+
+It might be imagined, on a superficial view of the nature and objects of
+definition, that the definition of a science would occupy the same place
+in the chronological which it commonly does in the didactic order. As a
+treatise on any science usually commences with an attempt to express, in
+a brief formula, what the science is, and wherein it differs from other
+sciences, so, it might be supposed, did the framing of such a formula
+naturally precede the successful cultivation of the science.
+
+This, however, is far from having been the case. The definition of a
+science has almost invariably not preceded, but followed, the creation
+of the science itself. Like the wall of a city, it has usually been
+erected, not to be a receptacle for such edifices as might afterwards
+spring up, but to circumscribe an aggregation already in existence.
+Mankind did not measure out the ground for intellectual cultivation
+before they began to plant it; they did not divide the field of human
+investigation into regular compartments first, and then begin to collect
+truths for the purpose of being therein deposited; they proceeded in a
+less systematic manner. As discoveries were gathered in, either one by
+one, or in groups resulting from the continued prosecution of some
+uniform course of inquiry, the truths which were successively brought
+into store cohered and became agglomerated according to their individual
+affinities. Without any intentional classification, the facts classed
+themselves. They became associated in the mind, according to their
+general and obvious resemblances; and the aggregates thus formed, having
+to be frequently spoken of as aggregates, came to be denoted by a common
+name. Any body of truths which had thus acquired a collective
+denomination, was called a _science_. It was long before this fortuitous
+classification was felt not to be sufficiently precise. It was in a more
+advanced stage of the progress of knowledge that mankind became sensible
+of the advantage of ascertaining whether the facts which they had thus
+grouped together were distinguished from all other facts by any common
+properties, and what these were. The first attempts to answer this
+question were commonly very unskilful, and the consequent definitions
+extremely imperfect.
+
+And, in truth, there is scarcely any investigation in the whole body of
+a science requiring so high a degree of analysis and abstraction, as the
+inquiry, what the science itself is; in other words, what are the
+properties common to all the truths composing it, and distinguishing
+them from all other truths. Many persons, accordingly, who are
+profoundly conversant with the details of a science, would be very much
+at a loss to supply such a definition of the science itself as should
+not be liable to well-grounded logical objections. From this remark, we
+cannot except the authors of elementary scientific treatises. The
+definitions which those works furnish of the sciences, for the most part
+either do not fit them--some being too wide, some too narrow--or do not
+go deep enough into them, but define a science by its accidents, not its
+essentials; by some one of its properties which may, indeed, serve the
+purpose of a distinguishing mark, but which is of too little importance
+to have ever of itself led mankind to give the science a name and rank
+as a separate object of study.
+
+The definition of a science must, indeed, be placed among that class of
+truths which Dugald Stewart had in view, when he observed that the first
+principles of all sciences belong to the philosophy of the human mind.
+The observation is just; and the first principles of all sciences,
+including the definitions of them, have consequently participated
+hitherto in the vagueness and uncertainty which has pervaded that most
+difficult and unsettled of all branches of knowledge. If we open any
+book, even of mathematics or natural philosophy, it is impossible not to
+be struck with the mistiness of what we find represented as preliminary
+and fundamental notions, and the very insufficient manner in which the
+propositions which are palmed upon us as first principles seem to be
+made out, contrasted with the lucidity of the explanations and the
+conclusiveness of the proofs as soon as the writer enters upon the
+details of his subject. Whence comes this anomaly? Why is the admitted
+certainty of the results of those sciences in no way prejudiced by the
+want of solidity in their premises? How happens it that a firm
+superstructure has been erected upon an unstable foundation? The
+solution of the paradox _is_, that what are called first principles,
+are, in truth, _last_ principles. Instead of being the fixed point from
+whence the chain of proof which supports all the rest of the science
+hangs suspended, they are themselves the remotest link of the chain.
+Though presented as if all other truths were to be deduced from them,
+they are the truths which are last arrived at; the result of the last
+stage of generalization, or of the last and subtlest process of
+analysis, to which the particular truths of the science can be
+subjected; those particular truths having previously been ascertained
+by the evidence proper to their own nature.
+
+Like other sciences, Political Economy has remained destitute of a
+definition framed on strictly logical principles, or even of, what is
+more easily to be had, a definition exactly co-extensive with the thing
+defined. This has not, perhaps, caused the real bounds of the science to
+be, in this country at least, practically mistaken or overpassed; but
+it has occasioned--perhaps we should rather say it is connected with
+--indefinite, and often erroneous, conceptions of the mode in which the
+science should be studied.
+
+We proceed to verify these assertions by an examination of the most
+generally received definitions of the science.
+
+1. First, as to the vulgar notion of the nature and object of Political
+Economy, we shall not be wide of the mark if we state it to be something
+to this effect:--That Political Economy is a science which teaches, or
+professes to teach, in what manner a nation may be made rich. This
+notion of what constitutes the science, is in some degree countenanced
+by the title and arrangement which Adam Smith gave to his invaluable
+work. A systematic treatise on Political Economy, he chose to call an
+_Inquiry into the Nature and Causes of the Wealth of Nations_; and the
+topics are introduced in an order suitable to that view of the purpose
+of his book.
+
+With respect to the definition in question, if definition it can be
+called which is not found in any set form of words, but left to be
+arrived at by a process of abstraction from a hundred current modes of
+speaking on the subject; it seems liable to the conclusive objection,
+that it confounds the essentially distinct, though closely connected,
+ideas of _science_ and _art_. These two ideas differ from one another as
+the understanding differs from the will, or as the indicative mood in
+grammar differs from the imperative. The one deals in facts, the other
+in precepts. Science is a collection of _truths_; art, a body of
+_rules_, or directions for conduct. The language of science is, This is,
+or, This is not; This does, or does not, happen. The language of art is,
+Do this; Avoid that. Science takes cognizance of a _phenomenon_, and
+endeavours to discover its _law_; art proposes to itself an _end_, and
+looks out for _means_ to effect it.
+
+If, therefore, Political Economy be a science, it cannot be a collection
+of practical rules; though, unless it be altogether a useless science,
+practical rules must be capable of being founded upon it. The science of
+mechanics, a branch of natural philosophy, lays down the laws of motion,
+and the properties of what are called the mechanical powers. The art of
+practical mechanics teaches how we may avail ourselves of those laws and
+properties, to increase our command over external nature. An art would
+not be an art, unless it were founded upon a scientific knowledge of the
+properties of the subject-matter: without this, it would not be
+philosophy, but empiricism; [Greek: empeiria,] not [Greek: technae,] in
+Plato's sense. Rules, therefore, for making a nation increase in wealth,
+are not a science, but they are the results of science. Political
+Economy does not of itself instruct how to make a nation rich; but
+whoever would be qualified to judge of the means of making a nation
+rich, must first be a political economist.
+
+2. The definition most generally received among instructed persons, and
+laid down in the commencement of most of the professed treatises on the
+subject, is to the following effect:--That Political Economy informs us
+of the laws which regulate the production, distribution, and consumption
+of wealth. To this definition is frequently appended a familiar
+illustration. Political Economy, it is said, is to the state, what
+domestic economy is to the family.
+
+This definition is free from the fault which we pointed out in the
+former one. It distinctly takes notice that Political Economy is a
+science and not an art; that it is conversant with laws of nature,
+not with maxims of conduct, and teaches us how things take place of
+themselves, not in what manner it is advisable for us to shape them,
+in order to attain some particular end.
+
+But though the definition is, with regard to this particular point,
+unobjectionable, so much can scarcely be said for the accompanying
+illustration; which rather sends back the mind to the current loose
+notion of Political Economy already disposed of. Political Economy is
+really, and is stated in the definition to be, a science: but domestic
+economy, so far as it is capable of being reduced to principles, is an
+art. It consists of rules, or maxims of prudence, for keeping the family
+regularly supplied with what its wants require, and securing, with any
+given amount of means, the greatest possible quantity of physical
+comfort and enjoyment. Undoubtedly the beneficial _result_, the great
+practical _application_ of Political Economy, would be to accomplish
+for a nation something like what the most perfect domestic economy
+accomplishes for a single household: but supposing this purpose
+realised, there would be the same difference between the rules by which
+it might be effected, and Political Economy, which there is between the
+art of gunnery and the theory of projectiles, or between the rules of
+mathematical land-surveying and the science of trigonometry.
+
+The definition, though not liable to the same objection as the
+illustration which is annexed to it, is itself far from unexceptionable.
+To neither of them, considered as standing at the head of a treatise,
+have we much to object. At a very early stage in the study of the
+science, anything more accurate would be useless, and therefore
+pedantic. In a merely initiatory definition, scientific precision is not
+required: the object is, to insinuate into the learner's mind, it is
+scarcely material by what means, some general preconception of what are
+the uses of the pursuit, and what the series of topics through which he
+is about to travel. As a mere anticipation or _ebauche_ of a definition,
+intended to indicate to a learner as much as he is able to understand
+before he begins, of the nature of what is about to be taught to him,
+we do not quarrel with the received formula. But if it claims to be
+admitted as that complete _definitio_ or boundary-line, which results
+from a thorough exploring of the whole extent of the subject, and is
+intended to mark the exact place of Political Economy among the
+sciences, its pretension cannot be allowed.
+
+"The science of the laws which regulate the production, distribution,
+and consumption of wealth." The term wealth is surrounded by a haze of
+floating and vapoury associations, which will let nothing that is seen
+through them be shewn distinctly. Let us supply its place by a
+periphrasis. Wealth is defined, all objects useful or agreeable to
+mankind, except such as can be obtained in indefinite quantity without
+labour. Instead of all objects, some authorities say, all material
+objects: the distinction is of no moment for the present purpose.
+
+To confine ourselves to production: If the laws of the production of all
+objects, or even of all material objects, which are useful or agreeable
+to mankind, were comprised in Political Economy, it would be difficult
+to say where the science would end: at the least, all or nearly all
+physical knowledge would be included in it. Corn and cattle are material
+objects, in a high degree useful to mankind. The laws of the production
+of the one include the principles of agriculture; the production of the
+other is the subject of the art of cattle-breeding, which, in so far as
+really an art, must be built upon the science of physiology. The laws of
+the production of manufactured articles involve the whole of chemistry
+and the whole of mechanics. The laws of the production of the wealth
+which is extracted from the bowels of the earth, cannot be set forth
+without taking in a large part of geology.
+
+When a definition so manifestly surpasses in extent what it professes to
+define, we must suppose that it is not meant to be interpreted literally,
+though the limitations with which it is to be understood are not stated.
+
+Perhaps it will be said, that Political Economy is conversant with such
+only of the laws of the production of wealth as are applicable to _all_
+kinds of wealth: those which relate to the details of particular trades
+or employments forming the subject of other and totally distinct
+sciences.
+
+If, however, there were no more in the distinction between Political
+Economy and physical science than this, the distinction, we may venture
+to affirm, would never have been made. No similar division exists in any
+other department of knowledge. We do not break up zoology or mineralogy
+into two parts; one treating of the properties common to all animals, or
+to all minerals; another conversant with the properties peculiar to each
+particular species of animals or minerals. The reason is obvious; there
+is no distinction _in kind_ between the general laws of animal or of
+mineral nature and the peculiar properties of particular species. There
+is as close an analogy between the general laws and the particular ones,
+as there is between one of the general laws and another: most commonly,
+indeed, the particular laws are but the complex result of a plurality of
+general laws modifying each other. A separation, therefore, between the
+general laws and the particular ones, merely because the former are
+general and the latter particular, would run counter both to the
+strongest motives of convenience and to the natural tendencies of the
+mind. If the case is different with the laws of the production of
+wealth, it must be because, in this case, the general laws differ in
+kind from the particular ones. But if so, the difference in kind is the
+radical distinction, and we should find out what that is, and found our
+definition upon it.
+
+But, further, the recognised boundaries which separate the field of
+Political Economy from that of physical science, by no means correspond
+with the distinction between the truths which concern all kinds of
+wealth and those which relate only to some kinds. The three laws of
+motion, and the law of gravitation, are common, as far as human
+observation has yet extended, to all matter; and these, therefore, as
+being among the laws of the production of all wealth, should form part
+of Political Economy. There are hardly any of the processes of industry
+which do not partly depend upon the properties of the lever; but it
+would be a strange classification which included those properties among
+the truths of Political Economy. Again, the latter science has many
+inquiries altogether as special, and relating as exclusively to
+particular sorts of material objects, as any of the branches of physical
+science. The investigation of some of the circumstances which regulate
+the price of corn, has as little to do with the laws common to the
+production of all wealth, as any part of the knowledge of the
+agriculturist. The inquiry into the rent of mines or fisheries, or into
+the value of the precious metals, elicits truths which have immediate
+reference to the production solely of a peculiar kind of wealth; yet
+these are admitted to be correctly placed in the science of Political
+Economy.
+
+The real distinction between Political Economy and physical science must
+be sought in something deeper than the nature of the subject-matter;
+which, indeed, is for the most part common to both. Political Economy,
+and the scientific grounds of all the useful arts, have in truth one and
+the same subject-matter; namely, the objects which conduce to man's
+convenience and enjoyment: but they are, nevertheless, perfectly
+distinct branches of knowledge.
+
+3. If we contemplate the whole field of human knowledge, attained or
+attainable, we find that it separates itself obviously, and as it were
+spontaneously, into two divisions, which stand so strikingly in
+opposition and contradistinction to one another, that in all
+classifications of our knowledge they have been kept apart. These are,
+_physical_ science, and _moral_ or psychological science. The difference
+between these two departments of our knowledge does not reside in the
+subject-matter with which they are conversant: for although, of the
+simplest and most elementary parts of each, it may be said, with an
+approach to truth, that they are concerned with different subject-
+matters--namely, the one with the human mind, the other with all things
+whatever except the mind; this distinction does not hold between the
+higher regions of the two. Take the science of politics, for instance,
+or that of law: who will say that these are physical sciences? and yet
+is it not obvious that they are conversant fully as much with matter as
+with mind? Take, again, the theory of music, of painting, of any other
+of the fine arts, and who will venture to pronounce that the facts they
+are conversant with belong either wholly to the class of matter, or
+wholly to that of mind?
+
+The following seems to be the _rationale_ of the distinction between
+physical and moral science.
+
+In all the intercourse of man with nature, whether we consider him as
+acting upon it, or as receiving impressions from it, the effect or
+phenomenon depends upon causes of two kinds: the properties of the
+object acting, and those of the object acted upon. Everything which can
+possibly happen in which man and external things, are jointly concerned,
+results from the joint operation of a law or laws of matter, and a law
+or laws of the human mind. Thus the production of corn by human labour
+is the result of a law of mind, and many laws of matter. The laws of
+matter are those properties of the soil and of vegetable life which
+cause the seed to germinate in the ground, and those properties of the
+human body which render food necessary to its support. The law of mind
+is, that man desires to possess subsistence, and consequently wills the
+necessary means of procuring it.
+
+Laws of mind and laws of matter are so dissimilar in their nature, that
+it would be contrary to all principles of rational arrangement to mix
+them up as part of the same study. In all scientific methods, therefore,
+they are placed apart. Any compound effect or phenomenon which depends
+both on the properties of matter and on those of mind, may thus become
+the subject of two completely distinct sciences, or branches of science;
+one, treating of the phenomenon in so far as it depends upon the laws of
+matter only; the other treating of it in so far as it depends upon the
+laws of mind.
+
+The physical sciences are those which treat of the laws of matter, and
+of all complex phenomena in so far as dependent upon the laws of matter.
+The mental or moral sciences are those which treat of the laws of mind,
+and of all complex phenomena in so far as dependent upon the laws of
+mind.
+
+Most of the moral sciences presuppose physical science; but few of the
+physical sciences presuppose moral science. The reason is obvious. There
+are many phenomena (an earthquake, for example, or the motions of the
+planets) which depend upon the laws of matter exclusively; and have
+nothing whatever to do with the laws of mind. Many, therefore, of the
+physical sciences may be treated of without any reference to mind, and
+as if the mind existed as a recipient of knowledge only, not as a cause
+producing effects. But there are no phenomena which depend exclusively
+upon the laws of mind; even the phenomena of the mind itself being
+partially dependent upon the physiological laws of the body. All the
+mental sciences, therefore, not excepting the pure science of mind, must
+take account of a great variety of physical truths; and (as physical
+science is commonly and very properly studied first) may be said to
+presuppose them, taking up the complex phenomena where physical science
+leaves them.
+
+Now this, it will be found, is a precise statement of the relation in
+which Political Economy stands to the various sciences which are
+tributary to the arts of production.
+
+The laws of the production of the objects which constitute wealth, are
+the subject-matter both of Political Economy and of almost all the
+physical sciences. Such, however, of those laws as are purely laws of
+matter, belong to physical science, and to that exclusively. Such of
+them as are laws of the human mind, and no others, belong to Political
+Economy, which finally sums up the result of both combined.
+
+Political Economy, therefore, presupposes all the physical sciences; it
+takes for granted all such of the truths of those sciences as are
+concerned in the production of the objects demanded by the wants of
+mankind; or at least it takes for granted that the physical part of the
+process takes place somehow. It then inquires what are the phenomena of
+_mind_ which are concerned in the production and distribution [8] of
+those same objects; it borrows from the pure science of mind the laws of
+those phenomena, and inquires what effects follow from these mental
+laws, acting in concurrence with those physical one. [9]
+
+From the above considerations the following seems to come out as the
+correct and complete definition of Political Economy:--"The science
+which treats of the production and distribution of wealth, so far as
+they depend upon the laws of human nature." Or thus--science relating to
+the moral or psychological laws of the production and distribution of
+wealth."
+
+For popular use this definition is amply sufficient, but it still falls
+short of the complete accuracy required for the purposes of the
+philosopher. Political Economy does not treat of the production and
+distribution of wealth in all states of mankind, but only in what is
+termed the social state; nor so far as they depend upon the laws of
+human nature, but only so far as they depend upon a certain portion of
+those laws. This, at least, is the view which must be taken of Political
+Economy, if we mean it to find any place in an encyclopedical division
+of the field of science. On any other view, it either is not science at
+all, or it is several sciences. This will appear clearly, if, on the one
+hand, we take a general survey of the moral sciences, with a view to
+assign the exact place of Political Economy among them; while, on the
+other, we consider attentively the nature of the methods or processes by
+which the truths which are the object of those sciences are arrived at.
+
+Man, who, considered as a being having a moral or mental nature, is the
+subject-matter of all the moral sciences, may, with reference to that
+part of his nature, form the subject of philosophical inquiry under
+several distinct hypotheses. We may inquire what belongs to man
+considered individually, and as if no human being existed besides
+himself; we may next consider him as coming into contact with other
+individuals; and finally, as living in a state of _society_, that is,
+forming part of a body or aggregation of human beings, systematically
+co-operating for common purposes. Of this last state, political
+government, or subjection to a common superior, is an ordinary
+ingredient, but forms no necessary part of the conception, and, with
+respect to our present purpose, needs not be further adverted to.
+
+Those laws or properties of human nature which appertain to man as a
+mere individual, and do not presuppose, as a necessary condition, the
+existence of other individuals (except, perhaps, as mere instruments or
+means), form a part of the subject of pure mental philosophy. They
+comprise all the laws of the mere intellect, and those of the purely
+self-regarding desires.
+
+Those laws of human nature which relate to the feelings called forth in
+a human being by other individual human or intelligent beings, as such;
+namely, the _affections_, the _conscience_, or feeling of duty, and the
+love of _approbation_; and to the conduct of man, so far as it depends
+upon, or has relation to, these parts of his nature--form the subject of
+another portion of pure mental philosophy, namely, that portion of it on
+which _morals_, or _ethics_, are founded. For morality itself is not a
+science, but an art; not truths, but rules. The truths on which the
+rules are founded are drawn (as is the case in all arts) from a variety
+of sciences; but the principal of them, and those which are most nearly
+peculiar to this particular art, belong to a branch of the science of
+mind.
+
+Finally, there are certain principles of human nature which are
+peculiarly connected with the ideas and feelings generated in man by
+living in a state of _society_, that is, by forming part of a union or
+aggregation of human beings for a common purpose or purposes. Few,
+indeed, of the elementary laws of the human mind are peculiar to this
+state, almost all being called into action in the two other states. But
+those simple laws of human nature, operating in that wider field, give
+rise to results of a sufficiently universal character, and even (when
+compared with the still more complex phenomena of which they are the
+determining causes) sufficiently simple, to admit of being called,
+though in a somewhat looser sense, _laws_ of society, or laws of human
+nature in the social state. These laws, or general truths, form the
+subject of a branch of science which may be aptly designated from the
+title of _social economy_; somewhat less happily by that of _speculative
+politics_, or the _science_ of politics, as contradistinguished from the
+art. This science stands in the same relation to the social, as anatomy
+and physiology to the physical body. It shows by what principles of his
+nature man is induced to enter into a state of society; how this feature
+in his position acts upon his interests and feelings, and through them
+upon his conduct; how the association tends progressively to become
+closer, and the co-operation extends itself to more and more purposes;
+what those purposes are, and what the varieties of means most generally
+adopted for furthering them; what are the various relations which
+establish themselves among human beings as the ordinary consequence of
+the social union; what those which are different in different states of
+society; in what historical order those states tend to succeed one
+another; and what are the effects of each upon the conduct and character
+of man.
+
+This branch of science, whether we prefer to call it social economy,
+speculative politics, or the natural history of society, presupposes the
+whole science of the nature of the individual mind; since all the laws
+of which the latter science takes cognizance are brought into play in a
+state of society, and the truths of the social science are but
+statements of the manner in which those simple laws take effect in
+complicated circumstances. Pure mental philosophy, therefore, is an
+essential part, or preliminary, of political philosophy. The science of
+social economy embraces every part of man's nature, in so far as
+influencing the conduct or condition of man in society; and therefore
+may it be termed speculative politics, as being the scientific
+foundation of practical politics, or the art of government, of which the
+art of legislation is a part. [10]
+
+It is to _this_ important division of the field of science that one of
+the writers who have most correctly conceived and copiously illustrated
+its nature and limits,--we mean M. Say,--has chosen to give the name
+Political Economy. And, indeed, this large extension of the
+signification of that term is countenanced by its etymology. But the
+words "political economy" have long ceased to have so large a meaning.
+Every writer is entitled to use the words which are his tools in the
+manner which he judges most conducive to the general purposes of the
+exposition of truth; but he exercises this discretion under liability to
+criticism: and M. Say seems to have done in this instance, what should
+never be done without strong reasons; to have altered the meaning of a
+name which was appropriated to a particular purpose (and for which,
+therefore, a substitute must be provided), in order to transfer it to an
+object for which it was easy to find a more characteristic denomination.
+
+What is now commonly understood by the term "Political Economy" is not
+the science of speculative politics, but a branch of that science. It
+does not treat of the whole of man's nature as modified by the social
+state, nor of the whole conduct of man in society. It is concerned with
+him solely as a being who desires to possess wealth, and who is capable
+of judging of the comparative efficacy of means for obtaining that end.
+It predicts only such of the phenomena of the social state as take place
+in consequence of the pursuit of wealth. It makes entire abstraction of
+every other human passion or motive; except those which may be regarded
+as perpetually antagonizing principles to the desire of wealth, namely,
+aversion to labour, and desire of the present enjoyment of costly
+indulgences. These it takes, to a certain extent, into its calculations,
+because these do not merely, like other desires, occasionally conflict
+with the pursuit of wealth, but accompany it always as a drag, or
+impediment, and are therefore inseparably mixed up in the consideration
+of it. Political Economy considers mankind as occupied solely in
+acquiring and consuming wealth; and aims at showing what is the course
+of action into which mankind, living in a state of society, would be
+impelled, if that motive, except in the degree in which it is checked by
+the two perpetual counter-motives above adverted to, were absolute ruler
+of all their actions. Under the influence of this desire, it shows
+mankind accumulating wealth, and employing that wealth in the production
+of other wealth; sanctioning by mutual agreement the institution of
+property; establishing laws to prevent individuals from encroaching upon
+the property of others by force or fraud; adopting various contrivances
+for increasing the productiveness of their labour; settling the division
+of the produce by agreement, under the influence of competition
+(competition itself being governed by certain laws, which laws are
+therefore the ultimate regulators of the division of the produce); and
+employing certain expedients (as money, credit, &c.) to facilitate the
+distribution. All these operations, though many of them are really the
+result of a plurality of motives, are considered by Political Economy as
+flowing solely from the desire of wealth. The science then proceeds to
+investigate the laws which govern these several operations, under the
+supposition that man is a being who is determined, by the necessity of
+his nature, to prefer a greater portion of wealth to a smaller in all
+cases, without any other exception than that constituted by the two
+counter-motives already specified. Not that any political economist was
+ever so absurd as to suppose that mankind are really thus constituted,
+but because this is the mode in which science must necessarily proceed.
+When an effect depends upon a concurrence of causes, those causes must
+be studied one at a time, and their laws separately investigated, if we
+wish, through the causes, to obtain the power of either predicting or
+controlling the effect; since the law of the effect is compounded of the
+laws of all the causes which determine it. The law of the centripetal
+and that of the tangential force must have been known before the motions
+of the earth and planets could be explained, or many of them predicted.
+The same is the case with the conduct of man in society. In order to
+judge how he will act under the variety of desires and aversions which
+are concurrently operating upon him, we must know how he would act under
+the exclusive influence of each one in particular. There is, perhaps, no
+action of a man's life in which he is neither under the immediate nor
+under the remote influence of any impulse but the mere desire of wealth.
+With respect to those parts of human conduct of which wealth is not even
+the principal object, to these Political Economy does not pretend that
+its conclusions are applicable. But there are also certain departments
+of human affairs, in which the acquisition of wealth is the main and
+acknowledged end. It is only of these that Political Economy takes
+notice. The manner in which it necessarily proceeds is that of treating
+the main and acknowledged end as if it were the sole end; which, of all
+hypotheses equally simple, is the nearest to the truth. The political
+economist inquires, what are the actions which would be produced by this
+desire, if, within the departments in question, it were unimpeded by any
+other. In this way a nearer approximation is obtained than would
+otherwise be practicable, to the real order of human affairs in those
+departments. This approximation is then to be corrected by making proper
+allowance for the effects of any impulses of a different description,
+which can be shown to interfere with the result in any particular case.
+Only in a few of the most striking cases (such as the important one of
+the principle of population) are these corrections interpolated into the
+expositions of Political Economy itself; the strictness of purely
+scientific arrangement being thereby somewhat departed from, for the
+sake of practical utility. So far as it is known, or may be presumed,
+that the conduct of mankind in the pursuit of wealth is under the
+collateral influence of any other of the properties of our nature than
+the desire of obtaining the greatest quantity of wealth with the least
+labour and self-denial, the conclusions of Political Economy will so far
+fail of being applicable to the explanation or prediction of real
+events, until they are modified by a correct allowance for the degree of
+influence exercised by the other cause.
+
+Political Economy, then, may be defined as follows; and the definition
+seems to be complete:--
+
+"The science which traces the laws of such of the phenomena of society
+as arise from the combined operations of mankind for the production of
+wealth, in so far as those phenomena are not modified by the pursuit of
+any other object."
+
+But while this is a correct definition of Political Economy as a portion
+of the field of science, the didactic writer on the subject will
+naturally combine in his exposition, with the truths of the pure
+science, as many of the practical modifications as will, in his
+estimation, be most conducive to the usefulness of his work.
+
+       *       *       *       *       *
+
+The above attempt to frame a stricter definition of the science than
+what are commonly received as such, may be thought to be of little use;
+or, at best, to be chiefly useful in a general survey and classification
+of the sciences, rather than as conducing to the more successful pursuit
+of the particular science in question. We think otherwise, and for this
+reason; that, with the consideration of the definition of a science, is
+inseparably connected that of the _philosophic method_ of the science;
+the nature of the process by which its investigations are to be carried
+on, its truths to be arrived at.
+
+Now, in whatever science there are systematic differences of opinion
+--which is as much as to say, in all the moral or mental sciences, and
+in Political Economy among the rest; in whatever science there exist,
+among those who have attended to the subject, what are commonly called
+differences of principle, as distinguished from differences of
+matter-of-fact or detail,--the cause will be found to be, a difference
+in their conceptions of the philosophic method of the science. The
+parties who differ are guided, either knowingly or unconsciously, by
+different views concerning the nature of the evidence appropriate to the
+subject. They differ not solely in what they believe themselves to see,
+but in the quarter whence they obtained the light by which they think
+they see it.
+
+The most universal of the forms in which this difference of method is
+accustomed to present itself, is the ancient feud between what is called
+theory, and what is called practice or experience. There are, on social
+and political questions, two kinds of reasoners: there is one portion
+who term themselves practical men, and call the others theorists; a
+title which the latter do not reject, though they by no means recognise
+it as peculiar to them. The distinction between the two is a very broad
+one, though it is one of which the language employed is a most incorrect
+exponent. It has been again and again demonstrated, that those who are
+accused of despising facts and disregarding experience build and profess
+to build wholly upon facts and experience; while those who disavow
+theory cannot make one step without theorizing. But, although both
+classes of inquirers do nothing but theorize, and both of them consult
+no other guide than experience, there is this difference between them,
+and a most important difference it is: that those who are called
+practical men require _specific_ experience, and argue wholly _upwards_
+from particular facts to a general conclusion; while those who are
+called theorists aim at embracing a wider field of experience, and,
+having argued upwards from particular facts to a general principle
+including a much wider range than that of the question under discussion,
+then argue _downwards_ from that general principle to a variety of
+specific conclusions.
+
+Suppose, for example, that the question were, whether absolute kings
+were likely to employ the powers of government for the welfare or for
+the oppression of their subjects. The practicals would endeavour to
+determine this question by a direct induction from the conduct of
+particular despotic monarchs, as testified by history. The theorists
+would refer the question to be decided by the test not solely of our
+experience of kings, but of our experience of men. They would contend
+that an observation of the tendencies which human nature has manifested
+in the variety of situations in which human beings have been placed, and
+especially observation of what passes in our own minds, warrants us in
+inferring that a human being in the situation of a despotic king will
+make a bad use of power; and that this conclusion would lose nothing of
+its certainty even if absolute kings had never existed, or if history
+furnished us with no information of the manner in which they had
+conducted themselves.
+
+The first of these methods is a method of induction, merely; the last a
+mixed method of induction and ratiocination. The first may be called the
+method _a posteriori;_ the latter, the method _a priori_. We are aware
+that this last expression is sometimes used to characterize a supposed
+mode of philosophizing, which does not profess to be founded upon
+experience at all. But we are not acquainted with any mode of
+philosophizing, on political subjects at least, to which such a
+description is fairly applicable. By the method _a posteriori_ we mean
+that which requires, as the basis of its conclusions, not experience
+merely, but specific experience. By the method _a priori_ we mean (what
+has commonly been meant) reasoning from an assumed hypothesis; which is
+not a practice confined to mathematics, but is of the essence of all
+science which admits of general reasoning at all. To verify the
+hypothesis itself _a posteriori_, that is, to examine whether the facts
+of any actual case are in accordance with it, is no part of the business
+of science at all, but of the _application_ of science.
+
+In the definition which we have attempted to frame of the science of
+Political Economy, we have characterized it as essentially an _abstract_
+science, and its method as the method _a priori_. Such is undoubtedly
+its character as it has been understood and taught by all its most
+distinguished teachers. It reasons, and, as we contend, must necessarily
+reason, from assumptions, not from facts. It is built upon hypotheses,
+strictly analogous to those which, under the name of definitions, are
+the foundation of the other abstract sciences. Geometry presupposes an
+arbitrary definition of a line, "that which has length but not breadth."
+Just in the same manner does Political Economy presuppose an arbitrary
+definition of man, as a being who invariably does that by which he may
+obtain the greatest amount of necessaries, conveniences, and luxuries,
+with the smallest quantity of labour and physical self-denial with which
+they can be obtained in the existing state of knowledge. It is true that
+this definition of man is not formally prefixed to any work on Political
+Economy, as the definition of a line is prefixed to Euclid's Elements;
+and in proportion as by being so prefixed it would be less in danger of
+being forgotten, we may see ground for regret that this is not done. It
+is proper that what is assumed in every particular case, should once for
+all be brought before the mind in its full extent, by being somewhere
+formally stated as a general maxim. Now, no one who is conversant with
+systematic treatises on Political Economy will question, that whenever a
+political economist has shown that, by acting in a particular manner, a
+labourer may obviously obtain higher wages, a capitalist larger profits,
+or a landlord higher rent, he concludes, as a matter of course, that
+they will certainly act in that manner. Political Economy, therefore,
+reasons from _assumed_ premises--from premises which might be totally
+without foundation in fact, and which are not pretended to be
+universally in accordance with it. The conclusions of Political Economy,
+consequently, like those of geometry, are only true, as the common
+phrase is, _in the abstract_; that is, they are only true under certain
+suppositions, in which none but general causes--causes common to the
+_whole class_ of cases under consideration--are taken into the account.
+
+This ought not to be denied by the political economist. If he deny it,
+then, and then only, he places himself in the wrong. The _a priori_
+method which is laid to his charge, as if his employment of it proved
+his whole science to be worthless, is, as we shall presently show, the
+only method by which truth can possibly be attained in any department of
+the social science. All that is requisite is, that he be on his guard
+not to ascribe to conclusions which are grounded upon an hypothesis a
+different kind of certainty from that which really belongs to them. They
+would be true without qualification, only in a case which is purely
+imaginary. In proportion as the actual facts recede from the hypothesis,
+he must allow a corresponding deviation from the strict letter of his
+conclusion; otherwise it will be true only of things such as he has
+arbitrarily supposed, not of such things as really exist. That which is
+true in the abstract, is always true in the concrete with proper
+_allowances_. When a certain cause really exists, and if left to itself
+would infallibly produce a certain effect, that same effect, _modified_
+by all the other concurrent causes, will correctly correspond to the
+result really produced.
+
+The conclusions of geometry are not strictly true of such lines, angles,
+and figures, as human hands can construct. But no one, therefore,
+contends that the conclusions of geometry are of no utility, or that it
+would be better to shut up Euclid's Elements, and content ourselves with
+"practice" and "experience."
+
+No mathematician ever thought that his definition of a line corresponded
+to an actual line. As little did any political economist ever imagine
+that real men had no object of desire but wealth, or none which would
+not give way to the slightest motive of a pecuniary kind. But they were
+justified in assuming this, for the purposes of their argument; because
+they had to do only with those parts of human conduct which have
+pecuniary advantage for their direct and principal object; and because,
+as no two individual cases are exactly alike, no _general_ maxims could
+ever be laid down unless _some_ of the circumstances of the particular
+case were left out of consideration.
+
+But we go farther than to affirm that the method _a priori_ is a
+legitimate mode of philosophical investigation in the moral sciences: we
+contend that it is the only mode. We affirm that the method _a
+posteriori_, or that of specific experience, is altogether inefficacious
+in those sciences, as a means of arriving at any considerable body of
+valuable truth; though it admits of being usefully applied in aid of the
+method _a priori_, and even forms an indispensable supplement to it.
+
+There is a property common to almost all the moral sciences, and by
+which they are distinguished from many of the physical; this is, that it
+is seldom in our power to make experiments in them. In chemistry and
+natural philosophy, we can not only observe what happens under all the
+combinations of circumstances which nature brings together, but we may
+also try an indefinite number of new combinations. This we can seldom do
+in ethical, and scarcely ever in political science. We cannot try forms
+of government and systems of national policy on a diminutive scale in
+our laboratories, shaping our experiments as we think they may most
+conduce to the advancement of knowledge. We therefore study nature under
+circumstances of great disadvantage in these sciences; being confined to
+the limited number of experiments which take place (if we may so speak)
+of their own accord, without any preparation or management of ours; in
+circumstances, moreover, of great complexity, and never perfectly known
+to us; and with the far greater part of the processes concealed from our
+observation.
+
+The consequence of this unavoidable defect in the materials of the
+induction is, that we can rarely obtain what Bacon has quaintly, but not
+unaptly, termed an _experimentum crucis_.
+
+In any science which admits of an unlimited range of arbitrary
+experiments, an _experimentum crucis_ may always be obtained. Being able
+to vary all the circumstances, we can always take effectual means of
+ascertaining which of them are, and which are not, material. Call the
+effect B, and let the question be whether the cause A in any way
+contributes to it. We try an experiment in which all the surrounding
+circumstances are altered, except A alone: if the effect B is
+nevertheless produced, A is the cause of it. Or, instead of leaving A,
+and changing the other circumstances, we leave all the other
+circumstances and change A: if the effect B in that case does _not_ take
+place, then again A is a necessary condition of its existence. Either of
+these experiments, if accurately performed, is an _experimentum crucis_;
+it converts the presumption we had before of the existence of a
+connection between A and B into proof, by negativing every other
+hypothesis which would account for the appearances.
+
+But this can seldom be done in the moral sciences, owing to the immense
+multitude of the influencing circumstances, and our very scanty means of
+varying the experiment. Even in operating upon an individual mind, which
+is the case affording greatest room for experimenting, we cannot often
+obtain a _crucial_ experiment. The effect, for example, of a particular
+circumstance in education, upon the formation of character, may be tried
+in a variety of cases, but we can hardly ever be certain that any two of
+those cases differ in all their circumstances except the solitary one of
+which we wish to estimate the influence. In how much greater a degree
+must this difficulty exist in the affairs of states, where even the
+_number_ of recorded experiments is so scanty in comparison with the
+variety and multitude of the circumstances concerned in each. How, for
+example, can we obtain a crucial experiment on the effect of a
+restrictive commercial policy upon national wealth? We must find two
+nations alike in every other respect, or at least possessed, in a degree
+exactly equal, of everything which conduces to national opulence, and
+adopting exactly the same policy in all their other affairs, but
+differing in this only, that one of them adopts a system of commercial
+restrictions, and the other adopts free trade. This would be a decisive
+experiment, similar to those which we can almost always obtain in
+experimental physics. Doubtless this would be the most conclusive
+evidence of all if we could get it. But let any one consider how
+infinitely numerous and various are the circumstances which either
+directly or indirectly do or may influence the amount of the national
+wealth, and then ask himself what are the probabilities that in the
+longest revolution of ages two nations will be found, which agree, and
+can be shown to agree, in all those circumstances except one?
+
+Since, therefore, it is vain to hope that truth can be arrived at,
+either in Political Economy or in any other department of the social
+science, while we look at the facts in the concrete, clothed in all the
+complexity with which nature has surrounded them, and endeavour to
+elicit a general law by a process of induction from a comparison of
+details; there remains no other method than the _a priori_ one, or that
+of "abstract speculation."
+
+Although sufficiently ample grounds are not afforded in the field of
+politics, for a satisfactory induction by a comparison of the effects,
+the causes may, in all cases, be made the subject of specific
+experiment. These causes are, laws of human nature, and external
+circumstances capable of exciting the human will to action. The desires
+of man, and the nature of the conduct to which they prompt him, are
+within the reach of our observation. We can also observe what are the
+objects which excite those desires. The materials of this knowledge
+every one can principally collect within himself; with reasonable
+consideration of the differences, of which experience discloses to him
+the existence, between himself and other people. Knowing therefore
+accurately the properties of the substances concerned, we may reason
+with as much certainty as in the most demonstrative parts of physics
+from any assumed set of circumstances. This will be mere trifling if the
+assumed circumstances bear no sort of resemblance to any real ones; but
+if the assumption is correct as far as it goes, and differs from the
+truth no otherwise than as a part differs from the whole, then the
+conclusions which are correctly deduced from the assumption constitute
+_abstract_ truth; and when completed by adding or subtracting the effect
+of the non-calculated circumstances, they are true in the concrete, and
+may be applied to practice.
+
+Of this character is the science of Political Economy in the writings of
+its best teachers. To render it perfect as an abstract science, the
+combinations of circumstances which it assumes, in order to trace their
+effects, should embody all the circumstances that are common to all
+cases whatever, and likewise all the circumstances that are common to
+any important class of cases. The conclusions correctly deduced from
+these assumptions, would be as true in the abstract as those of
+mathematics; and would be as near an approximation as abstract truth can
+ever be, to truth in the concrete.
+
+When the principles of Political Economy are to be applied to a
+particular ease, then it is necessary to take into account all the
+individual circumstances of that case; not only examining to which of
+the sets of circumstances contemplated by the abstract science the
+circumstances of the case in question correspond, but likewise what
+other circumstances may exist in that case, which not being common to it
+with any large and strongly-marked class of cases, have not fallen under
+the cognizance of the science. These circumstances have been called
+_disturbing causes_. And here only it is that an element of uncertainty
+enters into the process--an uncertainty inherent in the nature of these
+complex phenomena, and arising from the impossibility of being quite
+sure that all the circumstances of the particular case are known to us
+sufficiently in detail, and that our attention is not unduly diverted
+from any of them.
+
+This constitutes the only uncertainty of Political Economy; and not of
+it alone, but of the moral sciences in general. When the disturbing
+causes are known, the allowance necessary to be made for them detracts
+in no way from scientific precision, nor constitutes any deviation from
+the _a priori_ method. The disturbing causes are not handed over to be
+dealt with by mere conjecture. Like _friction_ in mechanics, to which
+they have been often compared, they may at first have been considered
+merely as a non-assignable deduction to be made by guess from the result
+given by the general principles of science; but in time many of them are
+brought within the pale of the abstract science itself, and their effect
+is found to admit of as accurate an estimation as those more striking
+effects which they modify. The disturbing causes have their laws, as the
+causes which are thereby disturbed have theirs; and from the laws of the
+disturbing causes, the nature and amount of the disturbance may be
+predicted _a priori_, like the operation of the more general laws which
+they are said to modify or disturb, but with which they might more
+properly be said to be concurrent. The effect of the special causes is
+then to be added to, or subtracted from, the effect of the general ones.
+
+These disturbing causes are sometimes circumstances which operate upon
+human conduct through the same principle of human nature with which
+Political Economy is conversant, namely, the desire of wealth, but which
+are not general enough to be taken into account in the abstract science.
+Of disturbances of this description every political economist can
+produce many examples. In other instances the disturbing cause is some
+other law of human nature. In the latter case it never can fall within
+the province of Political Economy; it belongs to some other science; and
+here the mere political economist, he who has studied no science but
+Political Economy, if he attempt to apply his science to practice, will
+fail. [11]
+
+As for the other kind of disturbing causes, namely those which operate
+through the same law of human nature out of which the general principles
+of the science arise, these might always be brought within the pale of
+the abstract science if it were worth while; and when we make the
+necessary allowances for them in practice, if we are doing anything but
+guess, we are following out the method of the abstract science into
+minuter details; inserting among its hypotheses a fresh and still more
+complex combination of circumstances, and so adding _pro hac vice_ a
+supplementary chapter or appendix, or at least a supplementary theorem,
+to the abstract science.
+
+Having now shown that the method _a priori_ in Political Economy, and
+in all the other branches of moral science, is the only certain or
+scientific mode of investigation, and that the _a posteriori_ method,
+or that of specific experience, as a means of arriving at truth, is
+inapplicable to these subjects, we shall be able to show that the latter
+method is notwithstanding of great value in the moral sciences; namely,
+not as a means of discovering truth, but of verifying it, and reducing
+to the lowest point that uncertainty before alluded to as arising from
+the complexity of every particular case, and from the difficulty (not to
+say impossibility) of our being assured _a priori_ that we have taken
+into account all the material circumstances.
+
+If we could be quite certain that we knew all the facts of the
+particular case, we could derive little additional advantage from
+specific experience. The causes being given, we may know what will be
+their effect, without an actual trial of every possible combination;
+since the causes are human feelings, and outward circumstances fitted to
+excite them: and, as these for the most part are, or at least might be,
+familiar to us, we can more surely judge of their combined effect from
+that familiarity, than from any evidence which can be elicited from the
+complicated and entangled circumstances of an actual experiment. If the
+knowledge what are the particular causes operating in any given instance
+were revealed to us by infallible authority, then, if our abstract
+science were perfect, we should become prophets. But the causes are not
+so revealed: they are to be collected by observation; and observation in
+circumstances of complexity is apt to be imperfect. Some of the causes
+may lie beyond observation; many are apt to escape it, unless we are on
+the look-out for them; and it is only the habit of long and accurate
+observation which can give us so correct a preconception what causes we
+are likely to find, as shall induce us to look for them in the right
+quarter. But such is the nature of the human understanding, that the
+very fact of attending with intensity to one part of a thing, has a
+tendency to withdraw the attention from the other parts. We are
+consequently in great danger of adverting to a portion only of the
+causes which are actually at work. And if we are in this predicament,
+the more accurate our deductions and the more certain our conclusions in
+the abstract, (that is, making abstraction of all circumstances except
+those which form part of the hypothesis,) the less we are likely to
+suspect that we are in error: for no one can have looked closely into
+the sources of fallacious thinking without being deeply conscious that
+the coherence, and neat concatenation of our philosophical systems, is
+more apt than we are commonly aware to pass with us as evidence of their
+truth.
+
+We cannot, therefore, too carefully endeavour to verify our theory, by
+comparing, in the particular cases to which we have access, the results
+which it would have led us to predict, with the most trustworthy
+accounts we can obtain of those which have been actually realized. The
+discrepancy between our anticipations and the actual fact is often the
+only circumstance which would have drawn our attention to some important
+disturbing cause which we had overlooked. Nay, it often discloses to us
+errors in thought, still more serious than the omission of what can with
+any propriety be termed a disturbing cause. It often reveals to us that
+the basis itself of our whole argument is insufficient; that the data,
+from which we had reasoned, comprise only a part, and not always the
+most important part, of the circumstances by which the result is really
+determined. Such oversights are committed by very good reasoners, and
+even by a still rarer class, that of good observers. It is a kind of
+error to which those are peculiarly liable whose views are the largest
+and most philosophical: for exactly in that ratio are their minds more
+accustomed to dwell upon those laws, qualities, and tendencies, which
+are common to large classes of cases, and which belong to all place and
+all time; while it often happens that circumstances almost peculiar to
+the particular case or era have a far greater share in governing that
+one case.
+
+Although, therefore, a philosopher be convinced that no general truths
+can be attained in the affairs of nations by the _a posteriori_ road,
+it does not the less behove him, according to the measure of his
+opportunities, to sift and scrutinize the details of every specific
+experiment. Without this, he may be an excellent professor of abstract
+science; for a person may be of great use who points out correctly what
+effects will follow from certain combinations of possible circumstances,
+in whatever tract of the extensive region of hypothetical cases those
+combinations may be found. He stands in the same relation to the
+legislator, as the mere geographer to the practical navigator; telling
+him the latitude and longitude of all sorts of places, but not how to
+find whereabouts he himself is sailing. If, however, he does no more
+than this, he must rest contented to take no share in practical
+politics; to have no opinion, or to hold it with extreme modesty, on
+the applications which should be made of his doctrines to existing
+circumstances.
+
+No one who attempts to lay down propositions for the guidance of
+mankind, however perfect his scientific acquirements, can dispense with
+a practical knowledge of the actual modes in which the affairs of the
+world are carried on, and an extensive personal experience of the actual
+ideas, feelings, and intellectual and moral tendencies of his own
+country and of his own age. The true practical statesman is he who
+combines this experience with a profound knowledge of abstract political
+philosophy. Either acquirement, without the other, leaves him lame and
+impotent if he is sensible of the deficiency; renders him obstinate and
+presumptuous if, as is more probable, he is entirely unconscious of it.
+
+Such, then, are the respective offices and uses of the _a priori_ and
+the _a posteriori_ methods--the method of abstract science, and that of
+specific experiment--as well in Political Economy, as in all the other
+branches of social philosophy. Truth compels us to express our
+conviction that whether among those who have written on, these subjects,
+or among those for whose use they wrote, few can be pointed out who have
+allowed to each of these methods its just value, and systematically kept
+each to its proper objects and functions. One of the peculiarities of
+modern times, the separation of theory from practice--of the studies of
+the closet, from the outward business of the world--has given a wrong
+bias to the ideas and feelings both of the student and of the man of
+business. Each undervalues that part of the materials of thought with
+which he is not familiar. The one despises all comprehensive views, the
+other neglects details. The one draws his notion of the universe from
+the few objects with which his course of life has happened to render him
+familiar; the other having got demonstration on his side, and forgetting
+that it is only a demonstration _nisi_--a proof at all times liable to
+be set aside by the addition of a single new fact to the hypothesis
+--denies, instead of examining and sifting, the allegations which are
+opposed to him. For this he has considerable excuse in the worthlessness
+of the testimony on which the facts brought forward to invalidate the
+conclusions of theory usually rest. In these complex matters, men see
+with their preconceived opinions, not with their eyes: an interested or
+a passionate man's statistics are of little worth; and a year seldom
+passes without examples of the astounding falsehoods which large bodies
+of respectable men will back each other in publishing to the world as
+facts within their personal knowledge. It is not because a thing is
+_asserted_ to be true, but because in its nature it _may_ be true, that
+a sincere and patient inquirer will feel himself called upon to
+investigate it. He will use the assertions of opponents not as evidence,
+but indications leading to evidence; suggestions of the most proper
+course for his own inquiries.
+
+But while the philosopher and the practical man bandy half-truths with
+one another, we may seek far without finding one who, placed on a higher
+eminence of thought, comprehends as a whole what they see only in
+separate parts; who can make the anticipations of the philosopher guide
+the observation of the practical man, and the specific experience of the
+practical man warn the philosopher where something is to be added to his
+theory.
+
+The most memorable example in modern times of a man who united the
+spirit of philosophy with the pursuits of active life, and kept wholly
+clear from the partialities and prejudices both of the student and of
+the practical statesman, was Turgot; the wonder not only of his age, but
+of history, for his astonishing combination of the most opposite, and,
+judging from common experience, almost incompatible excellences.
+
+Though it is impossible to furnish any test by which a speculative
+thinker, either in Political Economy or in any other branch of social
+philosophy, may know that he is competent to judge of the application of
+his principles to the existing condition of his own or any other country,
+indications may be suggested by the absence of which he may well and
+surely know that he is not competent. His knowledge must at least enable
+him to explain and account for what _is_, or he is an insufficient judge
+of what ought to be. If a political economist, for instance, finds
+himself puzzled by any recent or present commercial phenomena; if there
+is any mystery to him in the late or present state of the productive
+industry of the country, which his knowledge of principle does not
+enable him to unriddle; he may be sure that something is wanting to
+render his system of opinions a safe guide in existing circumstances.
+Either some of the facts which influence the situation of the country
+and the course of events are not known to him; or, knowing them, he
+knows not what ought to be their effects. In the latter case his system
+is imperfect even as an abstract system; it does not enable him to trace
+correctly all the consequences even of assumed premises. Though he
+succeed in throwing doubts upon the reality of some of the phenomena
+which he is required to explain, his task is not yet completed; even
+then he is called upon to show how the belief, which he deems unfounded,
+arose; and what is the real nature of the appearances which gave a
+colour of probability to allegations which examination proves to be
+untrue.
+
+When the speculative politician has gone through this labour--has gone
+through it conscientiously, not with the desire of finding his system
+complete, but of making it so--he may deem himself qualified to apply
+his principles to the guidance of practice: but he must still continue
+to exercise the same discipline upon every new combination of facts as
+it arises; he must make a large allowance for the disturbing influence
+of unforeseen causes, and must carefully watch the result of every
+experiment, in order that any residuum of facts which his principles did
+not lead him to expect, and do not enable him to explain, may become the
+subject of a fresh analysis, and furnish the occasion for a consequent
+enlargement or correction of his general views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,
+--and have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether him to expect, and do not enable him to
+explain, may become the subject of a fresh analysis, and furnish the
+occasion for a consequent enlargement or correction of his general
+views.
+
+The method of the practical philosopher consists, therefore, of two
+processes; the one analytical, the other synthetical. He must _analyze_
+the existing state of society into its elements, not dropping and losing
+any of them by the way. After referring to the experience of individual
+man to learn the _law_ of each of these elements, that is, to learn what
+are its natural effects, and how much of the effect follows from so much
+of the cause when not counteracted by any other cause, there remains an
+operation of _synthesis_; to put all these effects together, and, from
+what they are separately, to collect what would be the effect of all the
+causes acting at once. If these various operations could be correctly
+performed, the result would be prophecy; but, as they can be performed
+only with a certain approximation to correctness, mankind can never
+predict with absolute certainty, but only with a less or greater degree
+of probability; according as they are better or worse apprised what the
+causes are,--have learnt with more or less accuracy from experience the
+law to which each of those causes, when acting separately, conforms,--and
+have summed up the aggregate effect more or less carefully.
+
+With all the precautions which have been indicated there will still be
+some danger of falling into partial views; but we shall at least have
+taken the best securities against it. All that we can do more, is to
+endeavour to be impartial critics of our own theories, and to free
+ourselves, as far as we are able, from that reluctance from which few
+inquirers are altogether exempt, to admit the reality or relevancy of
+any facts which they have not previously either taken into, or left a
+place open for in, their systems.
+
+If indeed every phenomenon was generally the effect of no more than one
+cause, a knowledge of the law of that cause would, unless there was a
+logical error in our reasoning, enable us confidently to predict all the
+circumstances of the phenomenon. We might then, if we had carefully
+examined our premises and our reasoning, and found no flaw, venture to
+disbelieve the testimony which might be brought to show that matters had
+turned out differently from what we should have predicted. If the causes
+of erroneous conclusions were always patent on the face of the
+reasonings which lead to them, the human understanding would be a far
+more trustworthy instrument than it is. But the narrowest examination of
+the process itself will help us little towards discovering that we have
+omitted part of the premises which we ought to have taken into our
+reasoning. Effects are commonly determined by a _concurrence_ of causes.
+If we have overlooked any one cause, we may reason justly from all the
+others, and only be the further wrong. Our premises will be true, and
+our reasoning correct, and yet the result of no value in the particular
+case. There is, therefore, almost always room for a modest doubt as to
+our practical conclusions. Against false premises and unsound reasoning,
+a good mental discipline may effectually secure us; but against the
+danger of _overlooking_ something, neither strength of understanding nor
+intellectual cultivation can be more than a very imperfect protection.
+A person may be warranted in feeling confident, that whatever he has
+carefully contemplated with his mind's eye he has seen correctly; but no
+one can be sure that there is not something in existence which he has
+not seen at all. He can do no more than satisfy himself that he has seen
+all that is visible to any other persons who have concerned themselves
+with the subject. For this purpose he must endeavour to place himself at
+their point of view, and strive earnestly to see the object as they see
+it; nor give up the attempt until he has either added the appearance
+which is floating before them to his own stock of realities, or made out
+clearly that it is an optical deception.
+
+       *       *       *       *       *
+
+The principles which we have now stated are by no means alien to common
+apprehension: they are not absolutely hidden, perhaps, from any one, but
+are commonly seen through a mist. We might have presented the latter
+part of them in a phraseology in which they would have seemed the most
+familiar of truisms: we might have cautioned inquirers against too
+extensive _generalization_, and reminded them that there are _exceptions_
+to all rules. Such is the current language of those who distrust
+comprehensive thinking, without having any clear notion why or where it
+ought to be distrusted. We have avoided the use of these expressions
+purposely, because we deem them superficial and inaccurate. The error,
+when there is error, does _not_ arise from generalizing too extensively;
+that is, from including too wide a range of particular cases in a single
+proposition. Doubtless, a man often asserts of an entire class what is
+only true of a part of it; but his error generally consists not in making
+too wide an assertion, but in making the wrong _kind_ of assertion: he
+predicated an actual result, when he should only have predicated a
+_tendency_ to that result--a power acting with a certain intensity in that
+direction. With regard to _exceptions_; in any tolerably ably advanced
+science there is properly no such thing as an exception. What is thought
+to be an exception to a principle is always some other and distinct
+principle cutting into the former: some other force which impinges against
+the first force, and deflects it from its direction. There are not a _law_
+and an _exception_ to that law--the law acting in ninety-nine cases, and
+the exception in one. There are two laws, each possibly acting in the
+whole hundred cases, and bringing about a common effect by their conjunct
+operation. If the force which, being the less conspicuous of the two, is
+called the disturbing force, prevails sufficiently over the other force
+in some one case, to constitute that case what is commonly called an
+exception, the same disturbing force probably acts as a modifying cause
+in many other cases which no one will call exceptions.
+
+Thus if it were stated to be a law of nature, that all heavy bodies fall
+to the ground, it would probably be said that the resistance of the
+atmosphere, which prevents a balloon from falling, constitutes the
+balloon an exception to that pretended law of nature. But the real law
+is, that all heavy bodies _tend_ to fall; and to this there is no
+exception, not even the sun and moon; for even they, as every astronomer
+knows, tend towards the earth, with a force exactly equal to that with
+which the earth tends towards them. The resistance of the atmosphere
+might, in the particular case of the balloon, from a misapprehension of
+what the law of gravitation is, be said to _prevail_ over the law; but
+its disturbing effect is quite as real in every other case, since though
+it does not prevent, it retards the fall of all bodies whatever. The
+rule, and the so-called exception, do not divide the cases between them;
+each of them is a comprehensive rule extending to all cases. To call one
+of these concurrent principles an exception to the other, is
+superficial, and contrary to the correct principles of nomenclature and
+arrangement. An effect of precisely the same kind, and arising from the
+same cause, ought not to be placed in two different categories, merely
+as there does or does not exist another cause preponderating over it.
+
+It is only in art, as distinguished from science, that we can with
+propriety speak of exceptions. Art, the immediate end of which is
+practice, has nothing to do with causes, except as the means of bringing
+about effects. However heterogeneous the causes, it carries the effects
+of them all into one single reckoning, and according as the sum-total is
+_plus_ or _minus_, according as it falls above or below a certain line,
+Art says, Do this, or Abstain from doing it. The exception does not run
+by insensible degrees into the rule, like what are called exceptions in
+science. In a question of practice it frequently happens that a certain
+thing is either fit to be done, or fit to be altogether abstained from,
+there being no medium. If, in the majority of cases, it is fit to be
+done, that is made the rule. When a case subsequently occurs in which
+the thing ought not to be done, an entirely new leaf is turned over; the
+rule is now done with, and dismissed: a new train of ideas is introduced,
+between which and those involved in the rule there is a broad line of
+demarcation; as broad and _tranchant_ as the difference between Ay and
+No. Very possibly, between the last case which comes within the rule and
+the first of the exception, there is only the difference of a shade: but
+that shade probably makes the whole interval between acting in one way
+and in a totally different one. We may, therefore, in talking of art,
+unobjectionably speak of the _rule_ and the _exception_; meaning by the
+rule, the cases in which there exists a preponderance, however slight,
+of inducements for acting in a particular way; and by the exception, the
+cases in which the preponderance is on the contrary side.
+
+
+THE END.
+
+
+NOTES:
+
+[8] We say, the _production_ and _distribution_, not, as is usual with
+writers on this science, the production, distribution, and _consumption_.
+For we contend that Political Economy, as conceived by those very
+writers, has nothing to do with the consumption of wealth, further than
+as the consideration of it is inseparable from that of production, or
+from that of distribution. We know not of any _laws_ of the _consumption_
+of wealth as the subject of a distinct science: they can be no other
+than the laws of human enjoyment. Political economists have never treated
+of consumption on its own account, but always for the purpose of the
+inquiry in what manner different kinds of consumption affect the production
+and distribution of wealth. Under the head of Consumption, in professed
+treatises on the science, the following are the subjects treated of: 1st,
+The distinction between _productive_ and _unproductive_ consumption; 2nd,
+The inquiry whether it is possible for _too much_ wealth to be _produced_,
+and for too great a portion of what has been produced to be applied to the
+purpose of further _production_; 3rd, The theory of taxation, that is to
+say, the following two questions--by whom each particular tax is paid
+(a question of _distribution_), and in what manner particular taxes affect
+_production_.
+
+[9] The physical laws of the production of useful objects are all
+equally presupposed by the science of Political Economy: most of them,
+however, it presupposes in the gross, seeming to say nothing about them.
+A few (such, for instance, as the decreasing ratio in which the produce
+of the soil is increased by an increased application of labour) it is
+obliged particularly to specify, and thus seems to borrow those truths
+from the physical sciences to which they properly belong, and include
+them among its own.
+
+[10] The _science_ of legislation is an incorrect and misleading
+expression. Legislation is _making laws_. We do not talk of the
+_science_ of _making_ anything. Even the _science of government_ would
+be an objectionable expression, were it not that _government_ is often
+loosely taken to signify, not the act of governing, but the state or
+condition of _being governed_, or of living under a government. A
+preferable expression would be, the science of _political society_; a
+principal branch of the more extensive science of society, characterized
+in the text.
+
+[11] One of the strongest reasons for drawing the line of separation
+clearly and broadly between science and art is the following:--That the
+principle of classification in science most conveniently follows the
+classification of _causes_, while arts must necessarily be classified
+according to the classification of the _effects_, the production of
+which is their appropriate end. Now an effect, whether in physics or
+morals, commonly depends upon a concurrence of causes, and it frequently
+happens that several of these causes belong to different sciences. Thus
+in the construction of engines upon the principles of the science of
+_mechanics_, it is necessary to bear in mind the _chemical_ properties
+of the material, such as its liability to oxydize; its electrical and
+magnetic properties, and so forth. From this it follows that although
+the necessary foundation of all art is science, that is, the knowledge
+of the properties or laws of the objects upon which, and with which, the
+art dons its work; it is not equally true that every art corresponds to
+one particular science. Each art presupposes, not one science, but
+science in general; or, at least, many distinct sciences.
+
+
+
+(Editor's note:)
+
+Essays on some Unsettled Questions of Political Economy
+
+These five essays represent Mill's earliest thoughts on economic matters
+and were first composed in 1829 and 1830 before his reputation had been
+established by the publication of _Logic_ in 1843. Their successful
+reception no doubt hastened the composition of his comprehensive work
+the _Principles of Political Economy_ (1848).
+
+
+
+
+
+
+
+
+
+End of the Project Gutenberg EBook of Essays on some unsettled Questions of
+Political Economy, by John Stuart Mill
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