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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 ***