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| author | Roger Frank <rfrank@pglaf.org> | 2025-10-15 04:38:38 -0700 |
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| committer | Roger Frank <rfrank@pglaf.org> | 2025-10-15 04:38:38 -0700 |
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diff --git a/12004-h/12004-h.htm b/12004-h/12004-h.htm new file mode 100644 index 0000000..7afaee7 --- /dev/null +++ b/12004-h/12004-h.htm @@ -0,0 +1,6251 @@ +<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"> +<html> + <head> + <meta http-equiv="Content-Type" content= + "text/html; charset=UTF-8"> + <title> + The Project Gutenberg eBook of Essays On Some Unsettled Questions Of Political Economy, by John Stuart Mill. + </title> + <style type="text/css"> + <!-- + * { font-family: Times;} + P { text-indent:em; + margin-top: .75em; + text-align: justify; + margin-bottom: .75em; } + H1,H2 { text-align: center; color: maroon; } + H3,H4,H5,H6 { text-align: center; } + HR { width: 33%; + margin-top: 1em; + margin-bottom: 1em;} + BODY{margin-left: 10%; + margin-right: 10%;} + .linenum {position: absolute; top: auto; left: 4%;} /* poetry number */ + .note {text-indent: margin-left: em; + margin-bottom: 1em; + text-align: justify;} + .NO { margin-top: 2em; } + .pagenum {position: absolute; left: 92%; right: 100%; font-size: 8pt; justify: right;} /* page numbers */ + // --> + </style> + </head> +<body> +<div>*** START OF THE PROJECT GUTENBERG EBOOK 12004 ***</div> + +<h1>ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY</h1> + +<h3>by</h3> + +<h2>John Stuart Mill</h2> +<br> + +<h3>1844</h3> + + + +<hr style="width: 65%;"> +<a name="PREFACE"></a><h2>PREFACE.</h2> +<br> + +<p>Of these Essays, which were written in 1829 and +1830, the fifth alone has been previously printed. +The other four have hitherto remained in manuscript, +because, during the temporary suspension of public +interest in the species of discussion to which they +belong, there was no inducement to their publication.</p> + +<p>They are now published (with a few merely verbal +alterations) under the impression, that the controversies +excited by Colonel Torrens' <i>Budget</i> have again +called the attention of political economists to the discussions +of the abstract science: and from the additional +consideration, that the first paper relates expressly +to the point upon which the question at issue +between Colonel Torrens and his antagonists has principally +turned.</p> + +<p>From that paper it will be seen that opinions +identical in principle with those promulgated by +Colonel Torrens (there would probably be considerable +difference as to the extent of their practical application) +have been held by the writer for more than +fifteen years: although he cannot claim to himself the +original conception, but only the elaboration, of the +fundamental doctrine of the Essay.</p> + +<p>A prejudice appears to exist in many quarters +against the theory in question, on the supposition of +its being opposed to one of the most valuable results +of modern political philosophy, the doctrine of Freedom +of Trade between nation and nation. The +opinions now laid before the reader are presented as +corollaries necessarily following from the principles +upon which Free Trade itself rests. The writer has +also been careful to point out, that from these opinions +no justification can be derived for any <i>protecting</i> +duty, or other preference given to domestic over +foreign industry. But in regard to those duties on +foreign commodities which do not operate as protection, +but are maintained solely for revenue, and which +do not touch either the necessaries of life or the +materials and instruments of production, it is his +opinion that any relaxation of such duties, beyond +what may be required by the interest of the revenue +itself, should in general be made contingent upon the +adoption of some corresponding degree of freedom of +trade with this country, by the nation from which the +commodities are imported.</p> + + + +<hr style="width: 65%;"> +<a name="CONTENTS"></a><h2>CONTENTS.</h2> + +<!-- Autogenerated TOC. Modify or delete as required. --> +<a href="#PREFACE">PREFACE.</a><br> + <a href="#CONTENTS">CONTENTS.</a><br> + <a href="#ESSAY_I">ESSAY I.</a><br> + <a href="#ESSAY_II">ESSAY II.</a><br> + <a href="#ESSAY_III">ESSAY III.</a><br> + <a href="#ESSAY_IV">ESSAY IV.</a><br> + <a href="#ESSAY_V">ESSAY V.</a><br> + +<!-- End Autogenerated TOC. --> + + +<br> + +<p>ESSAY I.</p> + +<p><b>Of the Laws of Interchange between Nations; and the Distribution +of the Gains of Commerce among the Countries +of the Commercial World</b></p> + +<p>ESSAY II.</p> + +<p><b>Of the Influence of Consumption upon Production</b></p> + +<p>ESSAY III.</p> + +<p><b>On the Words Productive and Unproductive</b></p> + +<p>ESSAY IV.</p> + +<p><b>On Profits, and Interest</b></p> + +<p>ESSAY V.</p> + +<p><b>On the Definition of Political Economy; and on the Method +of Investigation proper to it</b></p> + + + +<hr style="width: 65%;"> +<a name="ESSAY_I"></a><h2>ESSAY I.</h2> + +<h2>OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; +AND THE DISTRIBUTION OF THE GAINS OF COMMERCE +AMONG THE COUNTRIES OF THE +COMMERCIAL WORLD.</h2> +<br> + +<p>Of the truths with which political economy has been +enriched by Mr. Ricardo, none has contributed more +to give to that branch of knowledge the comparatively +precise and scientific character which it at present bears, +than the more accurate analysis which he performed of +the nature of the advantage which nations derive from +a mutual interchange of their productions. Previously +to his time, the benefits of foreign trade were deemed, +even by the most philosophical enquirers, to consist in +affording a vent for surplus produce, or in enabling a +portion of the national capital to replace itself with a +profit. The futility of the theory implied in these +and similar phrases, was an obvious consequence from +the speculations of writers even anterior to Mr. +Ricardo. But it was he who first, in the chapter +on Foreign Trade, of his immortal <i>Principles of +Political Economy and Taxation</i>, substituted for the +former vague and unscientific, if not positively false, +conceptions with regard to the advantage of trade, +a philosophical exposition which explains, with strict +precision, the nature of that advantage, and affords an +accurate measure of its amount.</p> + +<p>He shewed, that the advantage of an interchange +of commodities between nations consists simply and +solely in this, that it enables each to obtain, with a +given amount of labour and capital, a greater quantity +of all commodities taken together. This it accomplishes +by enabling each, with a quantity of one commodity +which has cost it so much labour and capital, +to purchase a quantity of another commodity which, +if produced at home, would have required labour and +capital to a greater amount. To render the importation +of an article more advantageous than its production, +it is not necessary that the foreign country +should be able to produce it with less labour and +capital than ourselves. We may even have a positive +advantage in its production: but, if we are so far +favoured by circumstances as to have a still greater +positive advantage in the production of some other +article which is in demand in the foreign country, we +may be able to obtain a greater return to our labour and +capital by employing none of it in producing the article +in which our advantage is least, but devoting it all to the +production of that in which our advantage is greatest, +and giving this to the foreign country in exchange for +the other. It is not a difference in the <i>absolute</i> cost +of production, which determines the interchange, but +a difference in the <i>comparative</i> cost. It may be to our +advantage to procure iron from Sweden in exchange +for cottons, even although the mines of England as well +as her manufactories should be more productive than +those of Sweden; for if we have an advantage of one-half +in cottons, and only an advantage of a quarter in +iron, and could sell our cottons to Sweden at the price +which Sweden must pay for them if she produced them +herself, we should obtain our iron with an advantage +of one-half, as well as our cottons. We may often, by +trading with foreigners, obtain their commodities at a +smaller expense of labour and capital than they cost +to the foreigners themselves. The bargain is still +advantageous to the foreigner, because the commodity +which he receives in exchange, though it has cost us +less, would have cost him more. As often as a +country possesses two commodities, one of which it +can produce with less labour, comparatively to what it +would cost in a foreign country, than the other; so +often it is the interest of the country to export the +first mentioned commodity and to import the second; +even though it might be able to produce both the one +and the other at a less expense of labour than the +foreign country can produce them, but not less in the +same degree; or might be unable to produce either +except at a greater expense, but not greater in the +same degree.</p> + +<p>On the contrary, if it produces both commodities +with greater facility, or both with greater difficulty, +and greater in exactly the same degree, there will be +no motive to interchange.</p> + +<p>"If the cloth and the corn, each of which required +100 days' labour in Poland, required each 150 days' +labour in England; it would follow, that the cloth of +150 days' labour in England, if sent to Poland, would +be equal to the cloth of 100 days' labour in Poland: if +exchanged for corn, therefore, it would exchange for +the corn of only 100 days' labour. But the corn of +100 days' labour in Poland, was supposed to be the +same quantity with that of 150 days' labour in +England. With 150 days' labour in cloth, therefore, +England would only get as much corn in Poland as +she could raise with 150 days' labour at home; and +she would, in importing it, have the cost of carriage +besides. In these circumstances no exchange would +take place.</p> + +<p>"If, on the other hand, while the cloth produced +with 100 days' labour in Poland was produced with +150 days' labour in England, the corn which was produced +in Poland with 100 days' labour could not be +produced in England with less than 200 days' labour; +an adequate motive to exchange would immediately +arise. With a quantity of cloth which England produced +with 150 days' labour, she would be able to +purchase as much corn in Poland as was there produced +with 100 days' labour; but the quantity, which +was there produced with 100 days' labour, would be +as great as the quantity produced in England with +200 days' labour.</p> + +<p>"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 <a name="FNanchor1"></a><a href="#Footnote_1"><sup>[1]</sup></a>."</p> + +<p>The remainder of what Mr. Ricardo has done for +the philosophical exposition of the principles of foreign +trade, is to shew, that the truth of the propositions +now recapitulated is not affected by the introduction +of money as a medium of exchange; the precious +metals always tending to distribute themselves in such +a manner throughout the commercial world, that every +country shall import all that it would have imported, +and export all that it would have exported, if exchanges +had taken place, as in the example above +supposed, by barter.</p> + +<p>To this branch of the subject we shall, in the +sequel of this essay, return. At present it will be +more convenient that we should continue to suppose, +that exchanges take place by the direct trucking of +one commodity against another.</p> + +<p>It is established, that the advantage which two +countries derive from trading with each other, results +from the more advantageous employment which thence +arises, of the labour and capital—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.</p> + +<p>It is the purpose of the present essay to inquire, in +what proportion the increase of produce, arising from +the saving of labour, is divided between the two +countries.</p> + +<p>This question was not entered into by Mr. Ricardo, +whose attention was engrossed by far more important +questions, and who, having a science to create, had not +time, or room, to occupy himself with much more than +the leading principles. When he had done enough to +enable any one who came after him, and who took the +necessary pains, to do all the rest, he was satisfied. +He very rarely followed out the principles of the +science into the ramifications of their consequences. +But we believe that to no one, who has thoroughly +entered into the spirit of his discoveries, will even +the minutiae of the science offer any difficulty but +that which is constituted by the necessity of patience +and circumspection in tracing principles to their results.</p> + +<p>Mr. Ricardo, while intending to go no further +into the question of the advantage of foreign trade +than to show what it consisted of, and under what +circumstances it arose, unguardedly expressed himself +as if each of the two countries making the exchange +separately gained the whole of the difference between +the comparative costs of the two commodities in one +country and in the other. But, the whole gain of both +countries together, consisting in the saving of labour; +and the saving of labour being exactly equal to the +difference between the costs, in the two countries, of +the one commodity as compared with the other; the +two countries taken together gain no more than this +difference: and if either country gains the whole of it, +the other country derives no advantage from the trade.</p> + +<p>Suppose, for example, that 10 yards of broad cloth +cost in England as much labour as 15 yards of linen, +and in Germany as much as 20. If England sends 10 +yards of broad cloth to Germany, and is able to exchange +them for linen according to the German cost +of production, she will get 20 yards of linen, with a +quantity of labour with which she could not have produced +more than 15; and will gain, therefore, 5 yards +on every 15, or 33-1/3 per cent. But in this case Germany +would obtain only 10 yards of cloth for 20 of +linen. Now, 10 yards of cloth cost exactly the same +quantity of labour in Germany as 20 of linen; Germany, +therefore, derives no advantage from the trade, +more than she would possess if it did not exist.</p> + +<p>So, on the other hand, if Germany sends 15 yards of +linen to England, and finding the relative value of the +two articles in that country determined by the English +costs of production, is enabled to purchase with 35 +yards of linen 10 yards of cloth; Germany now gains +5 yards, just as England did before,—for with 15 yards +of linen she purchases 10 yards of cloth, when to produce +these 10 yards she must have employed as much labour +as would have enabled her to produce 20 yards of +linen. But in this case England would gain nothing: +she would only obtain, for her 10 yards of cloth, 15 +yards of linen, which is exactly the comparative cost at +which she could have produced them.</p> + +<p>This, which was not an error, but a mere oversight +of Mr. Ricardo, arising from his having left the question +of the division of the advantage entirely unnoticed, +was first corrected in the third edition of Mr. Mill's +<i>Elements of Political Economy</i>. It can hardly, however, +be said that Mr. Mill has prosecuted the inquiry any +further; which, indeed, would have been quite as +inconsistent with the nature of his plan as of Mr. +Ricardo's.</p> + +<p>1. When the trade is established between the two +countries, the two commodities will exchange for each +other at the same rate of interchange in both countries—bating +the cost of carriage, of which, for the +present, it will be more convenient to omit the consideration. +Supposing, therefore, for the sake of argument, +that the carriage of the commodities from one +country to another could be effected without labour +and without cost, no sooner would the trade be opened +than, it is self-evident, the value of the two commodities, +estimated in each other, would come to a level +in both countries.</p> + +<p>If we knew what this level would be, we should +know in what proportion the two countries would +share the advantage of the trade.</p> + +<p>When each country produced both commodities for +itself, 10 yards of broad cloth exchanged for 15 yards +of linen in England, and for 20 in Germany. They +will now exchange for the same number of yards of +linen in both. For what number? If for 15 yards, +England will be just as she was, and Germany will +gain all. If for 20 yards, Germany will be as before, +and England will derive the whole of the benefit. If +for any number intermediate between 15 and 20, the +advantage will be shared between the two countries. +If, for example, 10 yards of cloth exchange for 18 +of linen, England will gain an advantage of 3 yards +on every 15, Germany will save 2 out of every 20.</p> + +<p>The problem is, what are the causes which determine +the proportion in which the cloth of England +and the linen of Germany will exchange for each other?</p> + +<p>This, therefore, is a question concerning exchangeable +value. There must be something which determines +how much of one commodity another commodity will +purchase; and there is no reason to suppose that the +law of exchangeable value is more difficult of ascertainment +in this case than in other cases.</p> + +<p>The law, however, cannot be precisely the same as +in the common cases. When two articles are produced +in the immediate vicinity of one another, so that, without +expatriating himself, or moving to a distance, a +capitalist has the choice of producing one or the other, +the quantities of the two articles which will exchange +for each other will be, on the average, those which are +produced by equal quantities of labour. But this cannot +be applied to the case where the two articles are +produced in two different countries; because men do +not usually leave their country, or even send their +capital abroad, for the sake of those small differences +of profit which are sufficient to determine their choice +of a business, or of an investment, in their own country +and neighbourhood.</p> + +<p>The principle, that value is proportional to cost of +production, being consequently inapplicable, we must +revert to a principle anterior to that of cost of production, +and from which this last flows as a consequence,—namely, +the principle of demand and supply.</p> + +<p>In order to apply this principle, with any advantage, +to the solution of the question which now occupies us, +the principle itself, and the idea attached to the term +demand, must be conceived with a precision, which the +loose manner in which the words are used generally +prevents.</p> + +<p>It is well known that the quantity of any commodity +which can be disposed of, varies with the price. +The higher the price, the fewer will be the purchasers, +and the smaller the quantity sold. The lower the +price, the greater will in general be the number of +purchasers, and the greater the quantity disposed of. +This is true of almost all commodities whatever: +though of some commodities, to diminish the consumption +in any given degree would require a much +greater rise of price than of others.</p> + +<p>Whatever be the commodity—the supply in any +market being given, there is some price at which the +whole of the supply exactly will find purchasers, and +no more. That, whatever it be, is the price at which, +by the effect of competition, the commodity will be +sold. If the price be higher, the whole of the supply +will not be disposed of, and the sellers, by their competition, +will bring down the price. If the price be +lower, there will be found purchasers for a larger supply, +and the competition of these purchasers will raise +the price.</p> + +<p>This, then, is what we mean, when we say that +price, or exchangeable value, depends on demand and +supply. We should express the principle more accurately, +if we were to say, the price so regulates itself +that the demand shall be exactly sufficient to carry off +the supply.</p> + +<p>Let us now apply the principle of demand and +supply, thus understood, to the interchange of broadcloth +and linen between England and Germany.</p> + +<p>As exchangeable value in this case, as in every +other, is proverbially fluctuating, it does not matter +what we suppose it to be when we begin; we shall +soon see whether there be any fixed point about which +it oscillates—which it has a tendency always to approach +to, and to remain at.</p> + +<p>Let us suppose, then, that by the effect of what +Adam Smith calls the higgling of the market, 10 yards +of cloth, in both countries, exchange for 17 yards of +linen.</p> + +<p>The demand for a commodity, that is, the quantity +of it which can find a purchaser, varies, as we have +before remarked, according to the price. In Germany, +the price of 10 yards of cloth is now 17 yards of +linen; or whatever quantity of money is equivalent +in Germany to 17 yards of linen. Now, that being +the price, there is some particular number of yards +of cloth, which will be in demand, or will find purchasers, +at that price. There is some given quantity +of cloth, more than which could not be disposed of at +that price,—less than which, at that price, would not +fully satisfy the demand. Let us suppose this quantity +to be, 1000 times 10 yards.</p> + +<p>Let us now turn our attention to England. There, +the price of 17 yards of linen is 10 yards of cloth, or +whatever quantity of money is equivalent in England +to 10 yards of cloth. There is some particular number +of yards of linen, which, at that price, will exactly +satisfy the demand, and no more. Let us suppose +that this number is 1000 times 17 yards.</p> + +<p>As 17 yards of linen are to 30 yards of cloth, +so are 1000 times 17 yards to 1000 times 10 yards. +At the existing exchangeable value, the linen which +England requires, will exactly pay for the quantity +of cloth which, on the same terms of interchange, +Germany requires. The demand on each side is +precisely sufficient to carry off the supply on the +other. The conditions required by the principle of +demand and supply are fulfilled, and the two commodities +will continue to be interchanged, as we supposed +them to be, in the ratio of 17 yards of linen for +10 yards of cloth.</p> + +<p>But our supposition might have been different. +Suppose that, at the assumed rate of interchange, +England had been disposed to consume no greater +quantity of linen than 800 times 17 yards; it is +evident that, at the rate supposed, this would not +have sufficed to pay for the 1000 times 10 yards of +cloth, which we have supposed Germany to require +at the assumed value. Germany would be able to +procure no more than 800 times 10 yards, at that +price. To procure the remaining 200, which she +would have no means of doing but by bidding higher +for them, she would offer more than 17 yards of linen in +exchange for 10 yards of cloth; let us suppose her +to offer 18. At that price, perhaps, England would +be inclined to purchase a greater quantity of linen. +She could consume, possibly, at that price, 900 times +18 yards. On the other hand, cloth having risen +in price, the demand of Germany for it would, probably, +have diminished. If, instead of 1000 times 10 yards, +she is now contented with 900 times ten yards, these +will exactly pay for the 900 times 18 yards of linen +which England is willing to take at the altered price: +the demand on each side will again exactly suffice to +take off the corresponding supply; and 10 yards for +18 will be the rate at which, in both countries, cloth +will exchange for linen.</p> + +<p>The converse of all this would have happened if +instead of 800 times 17 yards, we had supposed that +England, at the rate of 10 for 17, would have taken +1200 times 17 yards of linen. In this case, it is +England whose demand is not fully supplied; it is +England who, by bidding for more linen, will alter the +rate of interchange to her own disadvantage; and 10 +yards of cloth will fall, in both countries, below the +value of 17 yards of linen. By this fall of cloth, or +what is the same thing, this rise of linen, the demand +of Germany for cloth will increase, and the demand +of England for linen will diminish, till the rate of +interchange has so adjusted itself that the cloth and +the linen will exactly pay for another; and when +once this point is attained, values will remain as they +are.</p> + +<p>It may be considered, therefore, as established, +that when two countries trade together in two commodities, +the exchangeable value of these commodities +relatively to each other will adjust itself to the inclinations +and circumstances of the consumers on both +sides, in such manner that the quantities required by +each country, of the article which it imports from its +neighbour, shall be exactly sufficient to pay for one +another. As the inclinations and circumstances of consumers +cannot be reduced to any rule, so neither can +the proportions in which the two commodities will +be interchanged. We know that the limits within +which the variation is confined are the ratio between +their costs of production in the one country, and the +ratio between their costs of production in the other. Ten +yards of cloth cannot exchange for more than 20 yards +of linen, nor for less than 15. But they may exchange +for any intermediate number. The ratios, therefore, +in which the advantage of the trade may be divided +between the two nations, are various. The circumstances +on which the proportionate share of each country +more remotely depends, admit only of a very general +indication.</p> + +<p>It is even possible to conceive an extreme case, in +which the whole of the advantage resulting from the +interchange would be reaped by one party, the other +country gaining nothing at all. There is no absurdity +in the hypothesis, that of some given commodity a +certain quantity is all that is wanted at any price, and +that when that quantity is obtained, no fall in the exchangeable +value would induce other consumers to +come forward, or those who are already supplied to +take more. Let us suppose that this is the case in +Germany with cloth. Before her trade with England +commenced, when 10 yards of cloth cost her as much +labour as 20 yards of linen, she nevertheless consumed +as much cloth as she wanted under any circumstances, +and if she could obtain it at the rate of 10 +yards of cloth for 15 of linen, she would not consume +more. Let this fixed quantity be 1000 times +10 yards. At the rate, however, of 10 for 20, England +would want more linen than would be equivalent +to this quantity of cloth. She would consequently +offer a higher value for linen; or, what is the same +thing, she would offer her cloth at a cheaper rate. But +as by no lowering of the value could she prevail on +Germany to take a greater quantity of cloth, there +would be no limit to the rise of linen, or fall of cloth, +until the demand of England for linen was reduced +by the rise of its value, to the quantity which one +thousand times ten yards of cloth would purchase. It +might be, that to produce this diminution of the demand, +a less fall would not suffice, than one which would +make 10 yards of cloth exchange for 15 of linen. +Germany would then gain the whole of the advantage, +and England would be exactly as she was before the +trade commenced. It would be for the interest, however, +of Germany herself, to keep her linen a little +below the value at which it could be produced in +England, in order to keep herself from being supplanted +by the home producer. England, therefore, would +always benefit in some degree by the existence of the +trade, though it might be in a very trifling one.</p> + +<p>But in general there will not be this extreme inequality +in the degree in which the demand in the two +countries varies with variations in the price. The +advantage will probably be divided equally, oftener +than in any one unequal ratio that can be named; +though the division will be much oftener, on the whole, +unequal than equal.</p> + +<p>2. We shall now examine whether the same law of +interchange, which we have shown to apply upon the +supposition of barter, holds good after the introduction +of money. Mr. Ricardo found that his more general proposition +stood this test; and as the proposition which we +have just demonstrated is only a further developement +of his principle, we shall probably find that it suffers a +little, by a mere change in the mode (for it is no +more) in which one commodity is exchanged against +another.</p> + +<p>We may at first make whatever supposition we +will with respect to the value of money. Let us suppose, +therefore, that before the opening of the trade, +the price of cloth is the same in both countries, namely, +six shillings per yard <a name="FNanchor2"></a><a href="#Footnote_2"><sup>[2]</sup></a>. As 10 yards of cloth were supposed +to exchange in England for 5 yards of linen, +in Germany for 20, we must suppose that linen is sold +in England at four shillings per yard, in Germany at +three. Cost of carriage and importer's profit are left +as before, out of consideration.</p> + +<p>In this state of prices, cloth, it is evident, cannot +yet be exported from England into Germany. But +linen can be imported from Germany into England. +It will be so, and, in the first instance, the linen will be +paid for in money.</p> + +<p>The efflux of money from England, and its influx +into Germany, will raise money prices in the latter +country, and lower them in the former. Linen will +rise in Germany above three shillings per yard, and +cloth above six shillings. Linen in England being +imported from Germany, will (since cost of carriage is +not reckoned) sink to the same price as in that country, +while cloth will fall below six shillings. As soon as the +price of cloth is lower in England than in Germany, it +will begin to be exported, and the price of cloth in +Germany will fall to what it is in England. As long +As the cloth exported does not suffice to pay for the +linen imported, money will continue to flow from +England into Germany, and prices generally will continue +to fall in England, and rise in Germany. By +the fall, however, of cloth in England, cloth will fall in +Germany also, and the demand for it will increase. +By the rise of linen in Germany, linen must rise in +England also, and the demand for it will diminish. +Although the increased exportation of cloth takes place +at a lower price, and the diminished importation of +linen at a higher, yet the total money value of the +exportation would probably increase, that of the importation +diminish. As cloth fell in price and linen rose, +there would be some particular price of both articles +at-which the cloth exported, and the linen imported, +would exactly pay for each other. At this point prices +would remain, because money would then cease to +move out of England into Germany. What this point +might be, would entirely depend upon the circumstances +and inclinations of the purchasers on both sides. If +the fall of cloth did not much increase the demand for +it in Germany, and the rise of linen did not diminish +very rapidly the demand for it in England, much money +must pass before the equilibrium is restored; cloth would +fall very much, and linen would rise, until England, +perhaps, had to pay nearly as much for it as when she +produced it for herself. But if, on the contrary, the +fall of cloth caused a very rapid increase of the demand +for it in Germany, and the rise of linen in Germany +reduced very rapidly the demand in England from +what it was under the influence of the first cheapness +produced by the opening of the trade; the cloth would +very soon suffice to pay for the linen, little money would +pass between the two countries, and England would +derive a large portion of the benefit of the trade. We +have thus arrived at precisely the same conclusion, in +supposing the employment of money, which we found +to hold under the supposition of barter.</p> + +<p>In what shape the benefit accrues to the two nations +from the trade, is clear enough. Germany, +before the commencement of the trade, paid six shillings +per yard for broad-cloth. She now obtains it at +a lower price. This, however, is not the whole of her +advantage. As the money prices of all her other commodities +have risen, the money incomes of all her producers +have increased. This is no advantage to them in +buying from each other; because the price of what they +buy has risen in the same ratio with their means of +paying for it: but it is an advantage to them in +buying any thing which has not risen; and still more, +any thing which has fallen. They therefore benefit as +consumers of cloth, not merely to the extent to which +cloth has fallen, but also to the extent to which other +prices have risen. Suppose that this is one-tenth. +The same proportion of their money incomes as before, +will suffice to supply their other wants, and the remainder, +being increased one-tenth in amount, will enable +them to purchase one-tenth more cloth than before, +even though cloth had not fallen. But it has fallen: +so that they are doubly gainers. If they do not choose +to increase their consumption of cloth, this does not +prevent them from being gainers. They purchase the +same quantity with less money, and have more to +expend upon their other wants.</p> + +<p>In England, on the contrary, general money-prices +have fallen. Linen, however, has fallen more than the +rest; having been lowered in price, by importation from +a country where it was cheaper, whereas the others +have fallen only from the consequent efflux of money. +Notwithstanding, therefore, the general fall of money-prices, +the English producers will be exactly as they +were in all other respects, while they will gain as purchasers +of linen.</p> + +<p>The greater the efflux of money required to restore +the equilibrium, the greater will be the gain of +Germany; both by the fall of cloth, and by the rise of +her general prices. The less the efflux of money +requisite, the greater will be the gain of England; +because the price of linen will continue lower, and her +general prices will not be reduced so much. It must +not, however, be imagined that high money-prices +are a good, and low money-prices an evil, in themselves. +But the higher the general money-prices in +any country, the greater will be that country's means +of purchasing those commodities which, being imported +from abroad, are independent of the causes which keep +prices high at home.</p> + +<p>3. We have hitherto supposed the carriage to be +performed without labour or expense. If we abandon +this supposition, we must correct the statement of the +case in a slight degree. The prices of the two articles +will no longer, when the trade is opened, be the same +in both countries, nor will the articles exchange for +one another at the same rate in both. Ten yards of +cloth will purchase in Germany a quantity of linen +greater than in England by a per-centage equal to the +entire cost of conveyance both of the cloth to Germany +and of the linen to England. The money-price +of linen will be higher in England than in Germany, +by the cost of carriage of the linen. The money-price +of cloth will be higher in Germany than in England, +by the cost of carriage of the cloth.</p> + +<p>The expense of the carriage is evidently a deduction +<i>pro tanto</i> from the saving of labour produced by the +establishment of the trade. The two countries together, +therefore, have their gains by the trade diminished, by +the amount of the cost of carriage of both commodities. +But here the question arises, which of the two countries +bears this deduction, or in what proportion it is divided +between them.</p> + +<p>At the first inspection it would appear that each +country bears its own cost of carriage, that is, that each +country pays the carriage of the commodity which it +imports. Upon this supposition, each country would +gain whatever share of the joint saving of labour would +otherwise fall to its lot, <i>minus</i> the cost of bringing from +the other country the commodity which it imports. +This solution is rendered plausible by the circumstance +just now mentioned, that the price of the commodity +will be higher in the country which imports it, than in +the country which exports it, by the amount of the +cost of carriage. If linen is sold in England at a +higher price than in Germany, by a per-centage equal +to the cost of carriage of the linen, it appears obvious +that England pays for the carriage of the linen, and +Germany, by parity of reason, for that of the cloth.</p> + +<p>But if we apply to these questions the principles +already explained, we shall see that this is not by any +means a universal law: the fact may correspond with +it, or it may not.</p> + +<p>For suppose that the prices have adjusted themselves, +no matter how, and that the imports and exports +balance one another, each commodity, of course, being +dearer by the cost of carriage, in the country which imports +than in that which exports it: and suppose now +that the cost of carriage, both of the one and of the +other, were suddenly and miraculously annihilated, and +that the commodities could pass from country to country +without expense. If each country bore its own cost of +carriage before, each country will save its own cost of +carriage now. Cloth, in Germany, will in that case fall +exactly to what it is in England; linen in England, to +what it is in Germany.</p> + +<p>Now this fall of price, supposing it to happen, will +probably affect the demand on both sides; and it will +either affect it alike in both countries, or it will affect +it unequally. It will affect it alike, if the fall of price +does not affect the demand at all, or if it affects it +equally in both countries. If either of these results +should take place, the cloth and the linen would continue +to balance each other as before: no money would pass +from one country to the other; prices in both would +continue at the point to which they had fallen, and +each country would exactly save the cost of carriage +on the commodity which it imports from the other.</p> + +<p>But the result might be, that the fall of price might +not have an effect exactly equal, on the demand in the +two countries. Suppose, for instance, that the fall of +cloth in Germany owing to the saving of the cost of +carriage, did not increase the demand for cloth in Germany; +but that the fall of linen in England from a +like cause, did increase the demand for linen in England. +The linen imported would be more than could +be paid for by the cloth exported: the difference must +be paid in money: the change in the distribution of +the precious metals between the two countries would +lower the price of cloth in England, (and consequently +in Germany), while it would raise the price of linen in +Germany, (and consequently in England). Germany, +therefore, by the annihilation of cost of carriage, would +save in price more than the cost of carriage of the +cloth; England would save less in price than the cost +of carriage of the linen. But if by the miraculous +annihilation of cost of carriage, England would not <i>save</i> +the whole of the carriage of her imports, it follows that +England did not previously <i>pay</i> the whole of that cost +of carriage.</p> + +<p>Thus, the division of the cost of trade, and the +division of the advantage of trade, are governed by +precisely the same principles; and the only general +proposition which can be affirmed respecting the cost +is, that it is <i>pro tanto</i> a deduction from the advantage. +It cannot even be maintained that the cost is shared +in the same proportion as the advantage is; because +the increase of the demand for a commodity as its +price falls, is not governed by any fixed law. Suppose, +for instance, that the advantage happened to be +divided equally: this must be because the greater +cheapness arising from the establishment of the trade, +either did not affect the demand at all, or affected it +in an equal proportion on both sides. Now, because +such is the effect of the degree of increased cheapness +resulting from importation burthened with cost of carriage, +it would not follow that the still greater degree +of cheapness, produced by the additional saving of the +cost of carriage itself, would also affect the demand of +both countries in precisely an equal degree. But we +cannot be said to bear an expense, which, if saved, +would be saved to somebody else, and not to us. Two +countries may have equal shares of the clear benefit of +the trade, while, if the cost of carriage were saved, +they would divide that saving unequally. If so, they +divide the gross gain in one unequal ratio, the cost in +another unequal ratio, though their shares of the cost +being deducted from their shares of the gain leave +equal remainders.</p> + +<p>4. The question naturally suggests itself, whether +any country, by its own legislative policy, can engross +to itself a larger share of the benefits of foreign commerce, +than would fall to it in the natural or spontaneous +course of trade.</p> + +<p>The answer is, it can. By taxing exports, for +instance, we may, under certain circumstances, produce +a division of the advantage of the trade more +favourable to ourselves. In some cases, we may draw +into our coffers, at the expense of foreigners, not only +the whole tax, but more than the tax: in other cases, +we should gain exactly the tax,—in others, less than +the tax. In this last case, a part of the tax is borne +by ourselves: possibly the whole, possibly even, as we +shall show, more than the whole.</p> + +<p>Suppose that England taxes her export of cloth: +the tax not being supposed high enough to induce +Germany to produce cloth for herself. The price at +which cloth can be sold in Germany is augmented by +the tax. This will probably diminish the quantity +consumed. It may diminish it so much, that even at +the increased price, there will not be required so great +a money value as before. It may diminish it in such +a ratio, that the money value of the quantity consumed +will be exactly the same as before. Or it may not +diminish it at all, or so little, that, in consequence of +the higher price, a greater money value will be purchased +than before. In this last case, England will +gain, at the expense of Germany, not only the whole +amount of the duty, but more. For the money value +of her exports to Germany being increased, while her +imports remain the same, money will flow into England +from Germany. The price of cloth will rise in England, +and consequently in Germany; but the price of +linen will fall in Germany, and consequently in England, +We shall export less cloth, and import more +linen, till the equilibrium is restored. It thus appears, +what is at first sight somewhat remarkable, that, by +taxing her exports, England would, under some conceivable +circumstances, not only gain from her foreign +customers the whole amount of the tax, but would also +get her imports cheaper. She would get them cheaper +in two ways,—for she would obtain them for less +money, and would have more money to purchase them +with. Germany, on the other hand, would suffer +doubly: she would have to pay for her cloth a price +increased not only by the duty, but by the influx +of money into England, while the same change in the +distribution of the circulating medium would leave +her less money to purchase it with.</p> + +<p>This, however, is only one of three possible cases. +If, after the imposition of the duty, Germany requires +so diminished a quantity of cloth, that its total money +value is exactly the same as before, the balance of +trade will be undisturbed; England will gain the duty, +Germany will lose it, and nothing more. If, again, +the imposition of the duty occasions such a falling off +in the demand, that Germany requires a less pecuniary +value than before, our exports will no longer pay for +our imports, money must pass from England into +Germany, and Germany's share of the advantage of the +trade will be increased. By the change in the distribution +of money, cloth will fall in England; and therefore +it will, of course, fall in Germany. Thus Germany +will not pay the whole of the tax. From the same +cause, linen will rise in Germany, and consequently in +England. When this alteration of prices has so adjusted +the demand, that the cloth and the linen again +pay for one another, the result is, that Germany has +paid only a part of the tax, and the remainder of what +has been received into our treasury has come indirectly +out of the pockets of our own consumers of +linen, who pay a higher price for that imported commodity, +in consequence of the tax on our exports, which +at the same time they, in consequence of the efflux of +money and consequent fall of prices, have smaller +money incomes wherewith to pay for the linen at that +advanced price.</p> + +<p>It is not an impossible supposition that, by taxing +our exports, we might not only gain nothing from +the foreigner, the tax being paid out of our own +pockets, but might even compel our own people to +pay a second tax to the foreigner. Suppose, as before, +that the demand of Germany for cloth falls off so +much on the imposition of the duty, that she requires +a smaller money value than before, but that the case +is so different with linen in England, that when the +price rises the demand either does not fall off at all, or +so little that the money value required is greater than +before. The first effect of laying on the duty is, as +before, that the cloth exported will no longer pay for +the linen imported. Money will, therefore, flow out +of England into Germany. One effect is to raise the +price of linen in Germany, and, consequently, in England. +But this, by the supposition, instead of stopping +the efflux of money, only makes it greater, because the +higher the price, the greater the money value of the +linen consumed. The balance, therefore, can only be +restored by the other effect, which is going on at the +same time, namely, the fall of cloth in the English, +and, consequently, in the German market. Even +when cloth has fallen so low that its price with the +duty is only equal to what its price without the duty +was at first, it is not a necessary consequence that the +fall will stop; for the same amount of exportation as +before will not now suffice to pay the increased money +value of the imports; and although the German consumers +have now not only cloth at the old price, but +likewise increased money incomes, it is not certain +that they will be inclined to employ the increase of +their incomes in increasing their purchases of cloth. +The price of cloth, therefore, must perhaps fall, to +restore the equilibrium, more than the whole amount +of the duty; Germany may be enabled to import +cloth at a lower price when it is taxed, than when it +was untaxed: and this gain she will acquire at the +expense of the English consumers of linen, who, in +addition, will be the real payers of the whole of what +is received at their own custom-house under the name +of duties on the export of cloth.</p> + +<p>Such are the extremely various effects which may +result to ourselves, and to our customers, from the imposition +of taxes on our exports <a name="FNanchor3"></a><a href="#Footnote_3"><sup>[3]</sup></a>: and the determining +circumstances are of a nature so imperfectly ascertainable, +that it must be almost impossible to decide +with any certainty, even after the tax has been imposed, +whether we have been gainers by it or losers. +It is certain, however, that whatever we gain, is lost +by somebody else, and there is the expense of the +collection besides: if international morality, therefore, +were rightly understood and acted upon, such taxes, +as being contrary to the universal weal, would not +exist. Moreover, the imposition of such a tax frequently +will, and always may, expose a country to lose +this branch of its trade altogether, or to carry it on with +diminished advantage, in consequence of the competition +of untaxed exporters from other countries, or +of the domestic producers in the country to which it +exports. Even on the most selfish principles, therefore, +the benefit of such a tax is always extremely precarious.</p> + +<p>5. We have had an example of a tax on exports, +that is, on foreigners, falling in part on ourselves. We +shall, therefore, not be surprised if we find a tax on +imports, that is, on ourselves, partly falling upon +foreigners.</p> + +<p>Instead of taxing the cloth which we export, suppose +that we tax the linen which we import. The +duty which we are now supposing must not be what is +termed a protecting duty, that is, a duty sufficiently +high to induce us to produce the article at home. If +it had this effect, it would destroy entirely the trade +both in cloth and in linen, and both countries would +lose the whole of the advantage which they previously +gained by exchanging those commodities with one +another. We suppose a duty which might diminish +the consumption of the article, but which would not +prevent us from continuing to import, as before, whatever +linen we did consume.</p> + +<p>The equilibrium of trade would be disturbed if +the imposition of the tax diminished in the slightest +degree the quantity of linen consumed. For, as the +tax is levied at our own custom-house, the German +exporter only receives the same price as formerly, +though the English consumer pays a higher one. If, +therefore, there be any diminution of the quantity +bought, although a larger sum of money may be +actually laid out in the article, a smaller one will be +due from England to Germany: this sum will no +longer be an equivalent for the sum due from Germany +to England for cloth, the balance therefore must +be paid in money. Prices will fall in Germany, and +rise in England; linen will fall in the German market; +cloth will rise in the English. The Germans will pay +higher price for cloth, and will have smaller money +incomes to buy it with; while the English will obtain +linen cheaper, that is, its price will exceed what it +previously was by less than the amount of the duty, +while their means of purchasing it will be increased +by the increase of their money incomes.</p> + +<p>If the imposition of the tax does not diminish the +demand, it will leave the trade exactly as it was +before. We shall import as much, and export as +much; the whole of the tax will be paid out of our +own pockets.</p> + +<p>But the imposition of a tax on a commodity, +almost always diminishes the demand more or less; +and it can never, or scarcely ever increase the demand. +It may, therefore, be laid down as a principle, that a +tax on imported commodities, when it really operates +as a tax, and not as a prohibition, either total or +partial, almost always falls in part upon the foreigners +who consume our goods: and that this is a mode in +which a nation may be almost sure of appropriating to +itself, at the expense of foreigners, a larger share than +would otherwise belong to it of the increase in the +general productiveness of the labour and capital of +the world, which results from the interchange of +commodities among nations.</p> + +<p>It is scarcely necessary to observe, that no such +advantage can result from the duty, if it operate as a +protecting duty; if it induce the country which imposes +it, to produce for herself that which she would +otherwise have imported. The saving of labour—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.</p> + +<p>With a view to practical legislation, therefore, +duties on importation may be divided into two classes: +those which have the effect of encouraging some particular +branch of domestic industry, and those which +have not.</p> + +<p>The former are purely mischievous, both to the +country imposing them, and to those with whom it +trades. They prevent a saving of labour and capital, +which, if permitted to be made, would be divided in +some proportion or other between the importing +country and the countries which buy what that +country does or might export.</p> + +<p>The other class of duties are those which do not +encourage one mode of procuring an article at the +expense of another, but allow interchange to take place +just as if the duty did not exist—and to produce the +saving of labour which constitutes the motive to international +as to all other commerce. Of this kind, are +duties on the importation of any commodity which +could not by any possibility be produced at home; +and duties not sufficiently high to counterbalance the +difference of expense between the production of the +article at home, and its importation. Of the money +which is brought into the treasury of any country by +taxes of this last description, a part only is paid by +the people of that country; the remainder by the +foreign consumers of their goods.</p> + +<p>Nevertheless, this latter kind of taxes are in principle +as ineligible as the former, although not precisely +on the same ground. A protecting duty can never be +a cause of gain, but always and necessarily of loss, to +the country imposing it, just so far as it is efficacious +to its end. A non-protecting duty on the contrary +would, in most cases, be a source of gain to the +country imposing it, in so far as throwing part of the +weight of its taxes upon other people is a gain; but +it would be a means of gain which it could seldom +be advisable to adopt, being so easily counteracted by +a precisely similar proceeding on the other side.</p> + +<p>If England, in the case already supposed, sought to +obtain for herself more than her natural share of the +advantage of the trade with Germany, by imposing a +duty upon cloth, Germany would only have to impose +a duty upon linen, sufficient to diminish the demand +for that article about as much as the demand for cloth +had been diminished in England by the tax. Things +would then be as before, and each country would pay +its own tax. Unless, indeed, the sum of the two duties +exceeded the entire advantage of the trade; for in that +case the trade, and its advantage, would cease entirely.</p> + +<p>There would be no advantage, therefore, in imposing +duties of this kind, with a view to gain by +them, in the manner which has been pointed out. +But so long as any other kind of taxes on commodities +are retained, as a source of revenue, these may often +be as unobjectionable as the rest. It is evident, moreover, +that considerations of reciprocity, which are +quite unessential when the matter in debate is a protecting +duty, are of material importance when the +repeal of duties of this other description is discussed. +A country cannot be expected to renounce the power +of taxing foreigners, unless foreigners will in return +practise towards itself the same forbearance. The +only mode in which a country can save itself from +being a loser by the duties imposed by other countries +on its commodities, is to impose corresponding duties +on theirs. Only it must take care that these duties +be not so high as to exceed all that remains of the +advantage of the trade, and put an end to importation +altogether; causing the article to be either produced +at home, or imported from another and a dearer +market.</p> + +<p>It is not necessary to apply the principles which +we have stated to the case of bounties on exportation +or importation. The application is easy, and the +conclusions present nothing of particular interest or +importance.</p> + +<p>6. Any cause which alters the exports or imports +from one country into another, alters the division of +the advantage of interchange between those two countries. +Suppose the discovery of a new process, by +which some article of export, or some article not previously +exported, can be produced so cheap as to +occasion a great demand for it in other countries. This +of course produces a great influx of money from other +countries, and lowers the prices of all articles imported +from them, until the increase of importation +produced by this cause has restored the equilibrium. +Thus, the country which acquires a new article of +export gets its imports cheaper. This is not a case of +mere alteration in the division of the advantage; it is +a new advantage created by the discovery.</p> + +<p>But suppose that the invention, to which the +nation is indebted for this increase of the return to +its industry, comes into use also in the other country, +and that the process is one which can be as perfectly +and as cheaply performed in the one country as in the +other. The new exportation will cease; trade will +revert to its old channels, the money which flowed in +will again flow out, and the country which invented +the process will lose that increase of its gain by trade, +which it had derived from the discovery.</p> + +<p>Now the exportation of machinery comes within +the case which we have just described.</p> + +<p>If the fact be, that by allowing to foreigners a +participation in our machinery, we enable them to +produce any of our leading articles of export, at a +lower money price than we can sell those articles, it +is certain that unless we possess as great an advantage +in the production of the machinery itself as we have +in the production of other articles by means of machinery, +the permitting of its exportation would alter +to our disadvantage the division of the benefit of +trade. Our exports being diminished, we should have +to pay a balance in money. This would raise, in +foreign countries, the price of everything which we +import from thence: while our incomes, being reduced +in money value, would render us less able to buy those +articles even if they had not risen. The equilibrium +of exports and imports would only be restored, when +either some of the latter became so dear that we +could produce them cheaper at home, or some articles +not previously exported became exportable from the +fall of prices. In the one case, we lose the benefit of +importation altogether, and are obliged to produce at +home, at a greater cost. In the other case, we continue +to import, but pay dearer for our imports.</p> + +<p>Notwithstanding what has now been observed, +restrictions on the exportation of machinery are not, +in our opinion, justifiable, either on the score of +international morality or of sound policy. It is evidently +the common interest of all nations that each +of them should abstain from every measure by which +the aggregate wealth of the commercial world would +be diminished, although of this smaller sum total it +might thereby be enabled to attract to itself a larger +share. And the time will certainly come when nations +in general will feel the importance of this rule, +and will so direct their approbation and disapprobation +as to enforce observance of it. Moreover, a +country possessing machines should consider that if a +similar advantage were extended to other countries, +they would employ it above all in the production of +those articles, in which they had already the greatest +natural advantages; and if the former country would +be a loser by their improvements in the production of +articles which it sells, it would gain by their improvements +in those which it buys. The exportation of +machinery may, however, be a proper subject for +adjustment with other nations, on the principle of +reciprocity. Until, by the common consent of nations, +all restrictions upon trade are done away, a nation +cannot be required to abolish those from which she +derives a real advantage, without stipulating for an +equivalent.</p> + +<p>7. The case which we have just examined, is an +example in how remarkable a manner every cause +which materially influences exports, operates upon +the prices of imports. According to the ancient +theory of the balance of trade, and to the associations +of the generality of what are termed practical +men to this day, the sole benefit derived from commerce +consists in the exports, and imports are rather +an evil than otherwise. Political economists, seeing +the folly of these views, and clearly perceiving that +the advantage of commerce consists and must consist +solely of the imports, have occasionally suffered themselves +to employ language evincing inattention to the +fact, that exports, though unimportant in themselves, +are important by their influence on imports. So real +and extensive is this influence, that every new market +which is opened for any of our goods, and every +increase in the demand for our commodities in foreign +countries, enables us to supply ourselves with foreign +commodities at a smaller cost.</p> + +<p>Let us revert to our earliest and simplest example, +but which displays the real law of interchange more +luminously than any formula into which money enters; +the case of simple barter. We showed, that if at the +rate of 10 yards of cloth for 17 of linen, the demand +of Germany amounted to 1000 times 10 yards of +cloth, the two nations will trade together at that rate +of interchange, provided that the linen required in +England be exactly 1000 times 17 yards, neither +more nor less. For the cloth and the linen will then +exactly pay for one another, and nobody on either +side will be obliged to offer what he has to sell at a +lower rate, in order to procure what he wants to buy.</p> + +<p>Now if the increase of wealth and population in +Germany should greatly increase the demand in that +country for cloth, the demand for linen in England +not increasing in the same ratio,—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.</p> + +<p>It is not even necessary that the country which +takes its goods, should supply it with any commodity +whatever. Suppose that a country should be opened +to our merchants, disposed to buy from us in abundance, +but which can sell to us scarcely anything, as +every commodity which it affords could be got cheaper +by us from some other quarter. Nevertheless, our +trade with this country will enable us to obtain from +all other countries their commodities at a lower price. +At the first opening of this commerce of mere exportation, +we must have received in payment a large +quantity of money; for which our customer will have +been indemnified by other countries, in exchange for +her commodities. Prices must consequently be lower +in all other countries, and higher with us, than before +the opening of the new branch of trade; and we +therefore obtain the commodities of other countries at +a less cost, both as we pay less money for them, and +as that money is lower in value.</p> + +<p>8. Another obvious application of the same principle +will enable us to explain, and to bring within +the dominion of strict science, the rivality of one +exporting nation and another, or what is called, in the +language of the mercantile system, <i>underselling</i>: a subject +which political economists have taken little +trouble to elucidate, from the habit before alluded to +of disregarding almost entirely, in their purely scientific +inquiries, those circumstances which affect the trade +of a country by operating immediately upon the +exports.</p> + +<p>Let us revert to our old example, and to our old +figures. Suppose that the trade between England +and Germany in cloth and linen is established, and +that the rate of interchange is 10 yards of cloth for +17 of linen. Now suppose that there arises in another +country, in Flanders, for example, a linen manufacture; +and that the same causes, the working of +which in England and Germany has made 10 yards +exchange for 17, would in England and Flanders, +putting Germany out of the question, have made the +rate of interchange 10 for 18. It is evident that +Germany also must give 18 yards of linen for 10 of +cloth, and so carry on the trade with a diminished +share of the advantage, or lose it altogether. If the +play of demand in England and Flanders had made +the rate of interchange not 10 for 18 but 10 for 21, +(10 to 20 being in Germany the comparative cost +of production,) it is evident that Germany could not +have maintained the competition, and would have +lost, not part of her share of the advantage, but all +advantage, and the trade itself.</p> + +<p>It would be no answer to say, that Germany could +probably still have found the means of importing cloth +from England, by exporting something else. If she +had purchased cloth with anything else, she would +have purchased it dearer: as is proved by the fact, +that having free choice, she found it most advantageous +to purchase it with linen. When she could +get 10 yards of cloth for 17 of linen, that was the +mode in which she could get it with least labour. +Being pressed by competition, she gave successively +17, 18, 18; but rather than give 19 yards of linen, +she perhaps would prefer to give, as costing her rather +less labour, 10 yards of silk, (which we will suppose +to be the quantity which in England will purchase 10 +yards of cloth.) It is obvious that, although Germany +has found the means of supplying herself with +cloth, by exporting a different article from that in +which she was undersold, yet the advantage of the +trade between her and England is now shared in a +proportion much less favourable to Germany.</p> + +<p>There is no difficulty in showing that the same +series of consequences takes place in exactly the same +manner through the agency of money. The trade in +cloth and linen between England and Germany being +supposed to exist as before, Flanders produces linen at +a lower price than that at which Germany has hitherto +afforded it. The exportation from Germany is suspended; +and Germany, continuing to import cloth, pays +for it in money. By so doing she lowers her own +prices, and raises those in England: she has to pay more +money for cloth, and to pay it in a currency of higher +value. She thus suffers more and more as a consumer +of cloth, until by the fall of her prices she can either +afford to sell linen as cheap as Flanders, or to export +some other commodity which she could not export +before. In either case, her trade resumes its course, +but with diminished advantage on her side. <a name="FNanchor4"></a><a href="#Footnote_4"><sup>[4]</sup></a></p> + +<p>It is in the mode just described, that those countries +which formerly supplied Europe with manufactures, +but which owed their power of doing so not to +any natural and permanent advantages, but to their +more advanced state of civilization as compared with +other countries, have lost their pre-eminence as other +countries successively attained an equal degree of +civilization. Lombardy and Flanders, in the middle +ages, produced some descriptions of clothing and ornament +for all Europe: Holland, at a much later +period, supplied ships, and almost all articles which +came in ships, to most other parts of the world. All +these countries have probably at this moment a much +larger amount of capital than ever they had, but +having been undersold by other countries, they have +lost by far the greater part of the share which they +had engrossed to themselves of the benefit which the +world derives from commerce; and their capital yields +to them in consequence a smaller proportional return. +We are aware that other causes have contributed to +the same effect, but we cannot doubt that this is a +principal one.</p> + +<p>As much as is really true of the great returns +alleged to have been made to capital during the last +war, must have arisen from a similar cause. Our +exclusive command of the sea excluded from the +market all by whom we should have been undersold.</p> + +<p>The adoption by France, Russia, the Netherlands, +and the United States, of a more severely restrictive +commercial policy, subsequently to 1815, has +done great injury undoubtedly to those countries; for +the duties which they have established are intended +to be, and really are, of the class termed <i>protecting</i>; +that is to say, such as force the production of commodities +by more costly processes at home, instead +of suffering them to be imported from abroad. But +these duties, though chiefly injurious to the countries +imposing them, have also been highly injurious to +England. By diminishing her exportation, or preventing +it from increasing as it would otherwise have +done, they have kept up the prices of all imported +commodities in England, above what those prices +would have fallen to if trade had been left free.</p> + +<p>By another obvious application of the same reasoning, +it will be seen, that there is a real foundation +for the notion, that a country may be benefited +by receiving from another country the concession of +what used to be termed commercial advantages, or +by restraining its colonies from purchasing goods of +any country except itself. In the figured illustration +last used (p. 34) [not available, M.D.], it is evident, that if England had +been bound by a treaty with Germany to buy linen +exclusively from her, Germany would have retained +the trade which we supposed her to lose, and would +have continued to purchase cloth at a comparatively +cheap rate from England, instead of producing it by a +more costly process at home. Suppose that England +had been a colony of Germany, and we see that by +compelling colonies to deal at her shop, she may obtain +a real advantage, though of a nature which we +may hazard the assertion that the founders of our +colonial policy little dreamt of.</p> + +<p>Such an advantage, however, being gained at the +expense of another country, is, at the least, simply +equivalent to a tax, or tribute. Now, if a country has +just grounds, or deems superiority of power a sufficient +ground, for exacting a tribute from another +country, the most direct mode is the best. First, +because it is the most intelligible, and has least of +trick or disguise. Secondly, because it allows the +people of the country paying the tribute, to raise the +money in whatever way they consider least oppressive +to themselves. Thirdly, because the indirect mode of +taxing a country, by restrictions on its commerce, disturbs +the distribution of industry most advantageous +to the world at large, and occasions a greater loss to +the restricted country, and to the other countries +with which that country would have traded, than +gain to the country in whose favour the restrictions +are imposed. And lastly, because a country never +could obtain such privileges from an independent +nation, and has seldom been so undisguised an oppressor +as to demand them even from its colonies, +without subjecting itself to restrictions in some degree +equivalent, for the benefit of those whom it has +thus taxed. Each country, therefore, usually pays +tribute to the other; and to produce this fruitless +reciprocity of exaction, the industry and trade of both +countries are diverted from the most advantageous +channels, and the return to the labour and capital of +both is diminished, in pure loss.</p> + +<p>9. The same principles which have led to the +above conclusions, also suggest a remark of some +importance with respect to the probable effect of a +change from a restricted to a comparatively free +trade.</p> + +<p>There is no doubt that our prohibiting the importation +of a particular article, which, but for the prohibition, +would have been imported, enables us to +obtain our other imports at smaller cost. The article +for which we have the greatest demand, and for +which our demand is most increased by cheapness, is +that which we should naturally import preferably to +any other; now of this article we should import the +quantity necessary to pay for our exports, on terms of +interchange less advantageous to us than in the case +of any other commodity. If our legislature prohibits +this commodity, the other country will be obliged to +offer any other article on easier terms, in order to +force a sufficient demand for it to be an equivalent to +what she purchases from us.</p> + +<p>The steps of the process, money being used, would +be these:—We prohibit the importation of linen. +The exportation of cloth continues, but is paid for in +money. Our prices rise, those in Germany fall, until +silk, or some other article, can be imported from +Germany cheaper than it can be produced at home, +and in sufficient abundance to balance the export of +cloth. Thus by sacrificing the cheapness of one commodity, +we gain the cheapness of another: but we +sacrifice a greater cheapness to gain a less, and we +sacrifice cheapness in the article which we most want, +and would import by preference, while our compensation +is cheapness in an article which we either could +produce more advantageously at home, or which we +have so little desire for, that it requires a species of +bounty on the article to create a demand.</p> + +<p>Restrictions on importation do, however, tend to +keep down the value and price of our remaining imports, +and to keep up the nominal or money prices +of all our other commodities, by retaining a greater +quantity of money in the country than would otherwise +be there. From this it obviously follows, that if +the restrictions were removed, we should have to pay +rather more for some of the articles which we now +import, while those which we are now prevented from +importing would cost us more than might be inferred +from their <i>present</i> price in the foreign market. And +general prices would fall; to the benefit of those who +have fixed sums to receive; to the disadvantage of +those who have fixed sums to pay; and giving rise, as +a general fall of prices always does, to an appearance, +though a temporary and fallacious one, of general +distress <a name="FNanchor5"></a><a href="#Footnote_5"><sup>[5]</sup></a>.</p> + +<p>It is right to observe that the measures of the +British Legislature which have been falsely characterised +as measures of free trade, must, from their extremely +insignificant extent, have produced far too +little effect in increasing our importation, to have +actually led, in any degree worth mentioning, to the +results specified above.</p> + +<p>It is of greater importance to take notice, that these +effects may be entirely obviated, if foreign countries +can be prevailed upon simultaneously to relax their +restrictive systems, so as to create an immediate increase +of demand for our exports at the present prices. +It is true that exports and imports must, in the end, +balance one another, and if we increase our imports, +our exports will of necessity increase too. But it is a +forced increase, produced by an efflux of money and fall +of prices; and this fall of prices being permanent, +although it would be no evil at all in a country where +credit is unknown, it may be a very serious one where +large classes of persons, and the nation itself, are under +engagements to pay fixed sums of money of large +amount.</p> + +<p>10. The only remaining application of the principle +set forth in this essay, which we think it of importance +to notice specially, is the effect produced upon a country +by the annual payment of a tribute or subsidy to a +foreign power, or by the annual remittance of rents to +absentee landlords, or of any other kind of income to +its absent owners. Remittances to absentees are often +very incorrectly likened in their general character to +the payment of a tribute; from which they differ in this +very material circumstance, that tribute, if not paid to +a foreign country, is not paid at all, whereas rents +are paid to the landlord, and consumed by him, even +if he resides at home. The two kinds of payment, +however, have a perfect resemblance to each other in +such parts of their effects as we are about to point +out.</p> + +<p>The tribute, subsidy, or remittance, is always in +goods; for, unless the country possesses mines of the +precious metals, and numbers those metals among its +regular articles of export, it cannot go on, year after +year, parting with them, and never receiving them +back. When a nation has regular payments to make +in a foreign country, for which it is not to receive any +return, its exports must annually exceed its imports by +the amount of the payments which it is bound so to +make. In order to force a demand for its exports +greater than its imports will suffice to pay for, it must +offer them at a rate of interchange more favourable to +the foreign country, and less so to itself, than if it had +no payments to make beyond the value of its imports. +It therefore carries on the trade with less advantage, in +consequence of the obligations to which it is subject +towards persons resident in foreign countries.</p> + +<p>The steps of the process are these. The exports and +imports being in equilibrium, suppose a treaty to be +concluded, by which the country binds itself to pay in +tribute to another country, a certain sum annually. It +makes, perhaps, the first payment by a remittance of +money. This lowers prices in the paying country, and +raises them in the receiving one: the exports of the +tributary country increase, its imports diminish. When +the efflux of money has altered prices in the requisite +degree, the exports exceed the imports annually, by the +amount of the tribute; and the latter, being added to +the sum of the payments due, restores the balance of +payments between the two countries. The result to +the tributary country is a diminution of her share in +the advantage of foreign trade. She pays dearer for +her imports, in two ways, because she pays more +money, and because that money is of higher value, +the money incomes of her inhabitants being of smaller +amount.</p> + +<p>Thus the imposition of a tribute is a double burthen +to the country paying it, and a double gain to +that which receives it. The tributary country pays to +the other, first, the tax, whatever be its amount, and +next, something more, which the one country loses in +the increased cost of its imports, the other gains in the +diminished cost of its own.</p> + +<p>Absenteeism, moreover, though not burthensome +in the former of these ways, since the money is paid +whether the receiver be an absentee or not, is yet +disadvantageous in the second of the two modes which +have been mentioned. Ireland pays dearer for her imports +in consequence of her absentees; a circumstance +which the assailants of Mr. M'Culloch, whether political +economists or not, have not, we believe, hitherto +thought of producing against him.</p> + +<p>11. If the question be now asked, which of the +countries of the world gains most by foreign commerce, +the following will be the answer.</p> + +<p>If by gain be meant advantage, in the most enlarged +sense, that country will generally gain the most, +which stands most in need of foreign commodities.</p> + +<p>But if by gain be meant saving of labour and +capital in obtaining the commodities which the country +desires to have, whatever they may be; the country +will gain, not in proportion to its own need of foreign +articles, but to the need which foreigners have of the +articles which itself produces.</p> + +<p>Let us take, as an illustration of our meaning, the +case of France and England. Those two nations, in +consequence of the restrictions with which they have +loaded their commercial intercourse, carry on so little +trade with each other, as may almost, regard being had +to the wealth and population of the two countries, +be called none at all. If these fetters were at once +taken off, which of the two countries would be the +greatest gainer? England without doubt. There would +instantly arise in France an immense demand for the +cottons, woollens, and iron of England; while wines, +brandies, and silks, the staple articles of France, are +less likely to come into general demand here, nor would +the consumption of such productions, it is probable, be +so rapidly increased by the fall of price. The fall would +probably be very great before France could obtain a +vent in England for so much of her exports as would +suffice to pay for the probable amount of her imports. +There would be a considerable flow of the precious +metals out of France into England. The English +consumer of French wine would not merely save the +amount of the duty which that wine now pays, but +would find the wine itself falling-in prime cost, while +his means of purchasing it would be increased by the +augmentation of his own money income. The French +consumer of English cottons, on the contrary, would +not long continue to be able to purchase them at the +price they now sell for in England. He would gain +less, as the English would gain more, than might +appear from a mere comparison between the present +prices of commodities in the two countries.</p> + +<p>Various consequences would flow from opening the +trade between France and England, which are not expected, +either by the friends or by the opponents of the +present restrictive system. The wine-growers of France, +who imagine that free trade would relieve their distress +by raising the price of their wine, might not improbably +find that price actually lowered. On the other +hand, our silk manufacturers would be surprised if they +were told that the free admission of our cottons and +hardware into the French market, would endanger +<i>their</i> branch of manufacture: yet such might very possibly +be the effect. France, it is likely, could most +advantageously pay us in silks for a portion of the large +amount of cottons and hardware which we should sell +to her; and though our silk manufacturers may now +be able to compete advantageously, in some branches +of the manufacture, with their French rivals, it by no +means follows that they could do so when the efflux of +money from France, and its influx into England, had +lowered the price of silk goods in the French market, +and increased all the expenses of production here.</p> + +<p>On the whole, England probably, of all the countries +of Europe, draws to herself the largest share of +the gains of international commerce: because her exportable +articles are in universal demand, and are of +such a kind that the demand increases rapidly as the +price falls. Countries which export food, have the +former advantage, but not the latter. But our own +colonies, and the countries which supply us with the +materials of our manufactures, maintain a hard struggle +with us for an equal share of the advantages of their +trade; for <i>their</i> exports are also of a kind for which +there exists a most extensive demand here, and a demand +capable of almost indefinite extension by a fall +of price. Contrary, therefore, to common opinion, it is +probable that our trade with the colonies, and with the +countries which send us the raw materials of our national +industry, is not more but less advantageous to +us, in proportion to its extent, than our trade with the +continent of Europe. We mean in respect to the mere +amount of the return to the labour and capital of the +country; considered abstractedly from the usefulness +or agreeableness of the particular articles on which the +receivers may choose to expend it.</p> + +<p class="NO"><b>NOTES:</b></p> + +<p><a name="Footnote_1"></a><a href="#FNanchor1">[1]</a><div class=note> <i>Elements of Political Economy</i>, by James Mill, Esq., 3rd +edit., pp. 120-1.</div><br> + +<p><a name="Footnote_2"></a><a href="#FNanchor2">[2]</a><div class=note> The figures used are of course arbitrary, having no reference +to any existing prices.</div><br> + +<p><a name="Footnote_3"></a><a href="#FNanchor3">[3]</a><div class=note> We have not deemed it necessary to enter minutely into all the +circumstances which might modify the results mentioned in the +text. For example, let us revert to the first case, that in which +the demand for cloth in Germany is so little affected by the rise of +price in consequence of the tax, that the quantity bought exceeds +in pecuniary value what it was before. As the German consumers +lay out more money in cloth, they have less to lay out in other things; +other money prices will fall; among the rest that of linen; and this +may so increase the demand for linen in England as to restore the +equilibrium of exports and imports without any passage of money. +But England's treasury will still gain from Germany the whole of +the tax, and the English people will buy their linen cheaper +besides. Again, in the opposite case, where the tax so diminishes +the demand, that a smaller pecuniary value is required than before. +The German consumers have, therefore, more to expend in other +things; these, and among the rest linen, will rise; and this may +so diminish the demand for linen in England, as to restore the +equilibrium without the transmission of money. But the effect, as +respects the division of the advantage, is still as stated in the text.</div><br> + +<p><a name="Footnote_4"></a><a href="#FNanchor4">[4]</a><div class=note> The world at large, sellers and buyers taken together, is +always a gainer by underselling. If, in the case supposed, England +were compelled by a commercial treaty to exclude the linen of +Flanders from her market, the total wealth of the world, if affected +at all, would be diminished. +<br><br> +For, what is the cause which enables Flanders to undersell +Germany? That Flanders, if she had the trade, would exchange +linen for cloth at a rate of interchange more advantageous to +England. And why can Flanders do so? It must be either +because Flanders can produce the article with a less comparative +quantity of labour than Germany, and therefore the total advantage +to be divided between the two countries is greater in the case +of Flanders than of Germany; or else because, though the total +advantage is not greater, Flanders obtains a less share of it, her +demand for cloth being greater, at the same rate of interchange, +than that of Germany. In the former case, to exclude Flemish +linen from England would be to prevent the world at large from +making a greater saving of labour instead of a less. In the latter, +the exclusion would be inefficacious for the only end it could be +intended for, viz., the benefit of Germany, unless Flemish money +were excluded from England as well as Flemish linen. For +Flanders would buy English cloth, paying for it in money, until +the fall of her prices enabled her to pay for it with something +else: and the ultimate result would be that, by the rise of prices +in England, Germany must pay a higher price for her cloth, and +so lose a part of the advantage in spite of the treaty; while England +would pay for German linen the same price indeed, but as +the money incomes of her own people would be increased, the +same money price would imply a smaller sacrifice.</div><br> + +<p><a name="Footnote_5"></a><a href="#FNanchor5">[5]</a><div class=note> This last possible effect of a sudden introduction of free trade, +was pointed out in an able article on the Silk question, in a work +of too short duration, the <i>Parliamentary Review</i>.</div><br> + + + +<hr style="width: 65%;"> +<a name="ESSAY_II"></a><h2>ESSAY II.</h2> + +<h2>OF THE INFLUENCE OF CONSUMPTION ON +PRODUCTION.</h2> +<br> + +<p>Before the appearance of those great writers whose +discoveries have given to political economy its present +comparatively scientific character, the ideas universally +entertained both by theorists and by practical men, on +the causes of national wealth, were grounded upon +certain general views, which almost all who have given +any considerable attention to the subject now justly +hold to be completely erroneous.</p> + +<p>Among the mistakes which were most pernicious +in their direct consequences, and tended in the greatest +degree to prevent a just conception of the objects +of the science, or of the test to be applied to the +solution of the questions which it presents, was the +immense importance attached to consumption. The +great end of legislation in matters of national wealth, +according to the prevalent opinion, was to create consumers. +A great and rapid consumption was what +the producers, of all classes and denominations, wanted, +to enrich themselves and the country. This object, +under the varying names of an extensive demand, a +brisk circulation, a great expenditure of money, and +sometimes <i>totidem verbis</i> a large consumption, was conceived +to be the great condition of prosperity.</p> + +<p>It is not necessary, in the present state of the science, +to contest this doctrine in the most flagrantly +absurd of its forms or of its applications. The utility +of a large government expenditure, for the purpose of +encouraging industry, is no longer maintained. Taxes +are not now esteemed to be "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.</p> + +<p>In opposition to these palpable absurdities, it was +triumphantly established by political economists, that +consumption never needs encouragement. All which +is produced is already consumed, either for the purpose +of reproduction or of enjoyment. The person who +saves his income is no less a consumer than he who +spends it: he consumes it in a different way; it supplies +food and clothing to be consumed, tools and +materials to be used, by productive labourers. Consumption, +therefore, already takes place to the greatest +extent which the amount of production admits of; +but, of the two kinds of consumption, reproductive +and unproductive, the former alone adds to the national +wealth, the latter impairs it. What is consumed +for mere enjoyment, is gone; what is consumed +for reproduction, leaves commodities of equal value, +commonly with the addition of a profit. The usual +effect of the attempts of government to encourage +consumption, is merely to prevent saving; that is, to +promote unproductive consumption at the expense of +reproductive, and diminish the national wealth by the +very means which were intended to increase it.</p> + +<p>What a country wants to make it richer, is never +consumption, but production. Where there is the latter, +we may be sure that there is no want of the former. +To produce, implies that the producer desires to consume; +why else should he give himself useless labour? +He may not wish to consume what he himself produces, +but his motive for producing and selling is the +desire to buy. Therefore, if the producers generally +produce and sell more and more, they certainly also +buy more and more. Each may not want more of +what he himself produces, but each wants more of what +some other produces; and, by producing what the other +wants, hopes to obtain what the other produces. There +will never, therefore, be a greater quantity produced, of +commodities in general, than there are consumers for. +But there may be, and always are, abundance of persons +who have the inclination to become consumers of +some commodity, but are unable to satisfy their wish, +because they have not the means of producing either +that, or anything to give in exchange for it. The +legislator, therefore, needs not give himself any concern +about consumption. There will always be consumption +for everything which can be produced, until +the wants of all who possess the means of producing +are completely satisfied, and then production will not +increase any farther. The legislator has to look solely +to two points: that no obstacle shall exist to prevent +those who have the means of producing, from employing +those means as they find most for their interest; +and that those who have not at present the means of +producing, to the extent of their desire to consume, +shall have every facility afforded to their acquiring the +means, that, becoming producers, they may be enabled +to consume.</p> + +<p>These general principles are now well understood +by almost all who profess to have studied the subject, +and are disputed by few except those who ostentatiously +proclaim their contempt for such studies. +We touch upon the question, not in the hope of rendering +these fundamental truths clearer than they +already are, but to perform a task, so useful and needful, +that it is to be wished it were oftener deemed part +of the business of those who direct their assaults +against ancient prejudices,—that of seeing that no +scattered particles of important truth are buried and +lost in the ruins of exploded error. Every prejudice, +which has long and extensively prevailed among the +educated and intelligent, must certainly be borne out +by some strong appearance of evidence; and when +it is found that the evidence does not prove the received +conclusion, it is of the highest importance to +see what it does prove. If this be thought not worth +inquiring into, an error conformable to appearances +is often merely exchanged for an error contrary to +appearances; while, even if the result be truth, it is +paradoxical truth, and will have difficulty in obtaining +credence while the false appearances remain.</p> + +<p>Let us therefore inquire into the nature of the +appearances, which gave rise to the belief that a great +demand, a brisk circulation, a rapid consumption (three +equivalent expressions), are a cause of national prosperity.</p> + +<p>If every man produced for himself, or with his capital +employed others to produce, everything which he +required, customers and their wants would be a matter +of profound indifference to him. He would be rich, if +he had produced and stored up a large supply of the +articles which he was likely to require; and poor, if he +had stored up none at all, or not enough to last until +he could produce more.</p> + +<p>The case, however, is different after the separation +of employments. In civilized society, a single producer +confines himself to the production of one commodity, +or a small number of commodities; and his affluence +depends, not solely upon the quantity of his commodity +which he has produced and laid in store, but upon +his success in finding purchasers for that commodity.</p> + +<p>It is true, therefore, of every particular producer +or dealer, that a great demand, a brisk circulation, a +rapid consumption, of the commodities which he sells +at his shop or produces in his manufactory, is important +to him. The dealer whose shop is crowded +with customers, who can dispose of a product almost +the very moment it is completed, makes large profits, +while his next neighbour, with an equal capital but +fewer customers, gains comparatively little.</p> + +<p>It was natural that, in this case, as in a hundred +others, the analogy of an individual should be unduly +applied to a nation: as it has been concluded that a +nation generally gains in wealth by the conquest of a +province, because an individual frequently does so by +the acquisition of an estate; and as, because an individual +estimates his riches by the quantity of money +which he can command, it was long deemed an excellent +contrivance for enriching a country, to heap up +artificially the greatest possible quantity of the precious +metals within it.</p> + +<p>Let us examine, then, more closely than has usually +been done, the case from which the misleading analogy +is drawn. Let us ascertain to what extent the two cases +actually resemble; what is the explanation of the false +appearance, and the real nature of the phenomenon +which, being seen indistinctly, has led to a false conclusion.</p> + +<hr style="width: 45%;"> + +<p>We shall propose for examination a very simple +case, but the explanation of which will suffice to clear +up all other cases which fall within the same principle. +Suppose that a number of foreigners with large incomes +arrive in a country, and there expend those incomes: +will this operation be beneficial, as respects the national +wealth, to the country which receives these immigrants? +Yes, say many political economists, if they save any +part of their incomes, and employ them reproductively; +because then an addition is made to the national +capital, and the produce is a clear increase of the national +wealth. But if the foreigner expends all his +income unproductively, it is no benefit to the country, +say they, and for the following reason.</p> + +<p>If the foreigner had his income remitted to him in +bread and beef, coats and shoes, and all the other +articles which he was desirous to consume, it would +not be pretended that his eating, drinking, and wearing +them, on our shores rather than on his own, could +be of any advantage to us in point of wealth. Now, +the case is not different if his income is remitted to +him in some one commodity, as, for instance, in money. +For whatever takes place afterwards, with a view to +the supply of his wants, is a mere exchange of equivalents; +and it is impossible that a person should ever +be enriched by merely receiving an equal value in +exchange for an equal value.</p> + +<p>When it is said that the purchases of the foreign +consumer give employment to capital which would +otherwise yield no profit to its owner, the same political +economists reject this proposition as involving the +fallacy of what has been called a "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.</p> + +<p>It is impossible to contest these propositions as +thus stated. But there is one consideration which +clearly shews, that there is something more in the +matter than is here taken into the account; and this +is, that the above reasoning tends distinctly to prove, +that it does a tradesman no good to go into his shop +and buy his goods. How can he be enriched? it might +be asked. He merely receives a certain value in money, +for an equivalent value in goods. Neither does this +give employment to his capital; for there never exists +more capital than can find employment, and if one person +does not buy his goods another will; or if nobody +does, there is over-production in that business, he can +remove his capital, and find employment for it in +another trade.</p> + +<p>Every one sees the fallacy of this reasoning as +applied to individual producers. Every one knows +that as applied to them it has not even the semblance +of plausibility; that the wealth of a producer does in a +great measure depend upon the number of his customers, +and that in general every additional purchaser +does really add to his profits. If the reasoning, which +would be so absurd if applied to individuals, be applicable +to nations, the principle on which it rests +must require much explanation and elucidation.</p> + +<p>Let us endeavour to analyse with precision the +real nature of the advantage which a producer derives +from an addition to the number of his customers.</p> + +<p>For this purpose, it is necessary that we should +premise a single observation on the meaning of the +word capital. It is usually defined, the food, clothing, +and other articles set aside for the consumption of the +labourer, together with the materials and instruments +of production. This definition appears to us peculiarly +liable to misapprehension; and much vagueness and +some narrow views have, we conceive, occasionally +resulted from its being interpreted with too mechanical +an adherence to the literal meaning of the +words.</p> + +<p>The capital, whether of an individual or of a nation, +consists, we apprehend, of all matters possessing +exchangeable value, which the individual or the nation +has in his or in its possession for the purpose of reproduction, +and not for the purpose of the owner's +unproductive enjoyment. All unsold goods, therefore, +constitute a part of the national capital, and of the +capital of the producer or dealer to whom they belong. +It is true that tools, materials, and the articles on +which the labourer is supported, are the only articles +which are directly subservient to production: and if I +have a capital consisting of money, or of goods in +a warehouse, I can only employ them as means of +production in so far as they are capable of being +exchanged for the articles which conduce directly +to that end. But the food, machinery, &c, which +will ultimately be purchased with the goods in my +warehouse, may at this moment not be in the country, +may not be even in existence. If, after having sold +the goods, I hire labourers with the money, and set +them to work, I am surely employing capital, though +the corn, which in the form of bread those labourers +may buy with the money, may be now in warehouse +at Dantzic, or perhaps not yet above ground.</p> + +<p>Whatever, therefore, is destined to be employed +reproductively, either in its existing shape, or indirectly +by a previous (or even subsequent) exchange, is +capital. Suppose that I have laid out all the money +I possess in wages and tools, and that the article +I produce is just completed: in the interval which +elapses before I can sell the article, realize the proceeds, +and lay them out again in wages and tools, will +it be said that I have no capital? Certainly not: I +have the same capital as before, perhaps a greater, +but it is locked up, as the expression is, and not +disposable.</p> + +<p>When we have thus seen accurately what really +constitutes capital, it becomes obvious, that of the +capital of a country, there is at all times a very +large proportion lying idle. The annual produce of +a country is never any thing approaching in magnitude +to what it might be if all the resources devoted to +reproduction, if all the capital, in short, of the country, +were in full employment.</p> + +<p>If every commodity on an average remained unsold +for a length of time equal to that required for its +production, it is obvious that, at any one time, no +more than half the productive capital of the country +would be really performing the functions of capital. +The two halves would relieve one another, like the +semichori in a Greek tragedy; or rather the half which +was in employment would be a fluctuating portion, +composed of varying parts; but the result would +be, that each producer would be able to produce +every year only half as large a supply of commodities, +as he could produce if he were sure of +selling them the moment the production was completed.</p> + +<p>This, or something like it, is however the habitual +state, at every instant, of a very large proportion of all +the capitalists in the world.</p> + +<p>The number of producers, or dealers, who turn +over their capital, as the expression is, in the shortest +possible time, is very small. There are few who +have so rapid a sale for their wares, that all the +goods which their own capital, or the capital which +they can borrow, enables them to supply, are carried +off as fast as they can be supplied. The majority +have not an <i>extent of business</i>, at all adequate +to the amount of the capital they dispose of. It is +true that, in the communities in which industry and +commerce are practised with greatest success, the +contrivances of banking enable the possessor of a +larger capital than he can employ in his own business, +to employ it productively and derive a revenue from +it notwithstanding. Yet even then, there is, of necessity, +a great quantity of capital which remains fixed +in the shape of implements, machinery, buildings, &c, +whether it is only half employed, or in complete employment: +and every dealer keeps a stock in trade, to +be ready for a possible sudden demand, though he probably +may not be able to dispose of it for an indefinite +period.</p> + +<p>This perpetual non-employment of a large proportion +of capital, is the price we pay for the division of +labour. The purchase is worth what it costs; but +the price is considerable.</p> + +<p>Of the importance of the fact which has just been +noticed there are three signal proofs. One is, the +large sum often given for the goodwill of a particular +business. Another is, the large rent which is paid +for shops in certain situations, near a great thoroughfare +for example, which have no advantage except +that the occupier may expect a larger body of customers, +and be enabled to turn over his capital more +quickly. Another is, that in many trades, there are +some dealers who sell articles of an equal quality at a +lower price than other dealers. Of course, this is not +a voluntary sacrifice of profits: they expect by the +consequent overflow of customers to turn over their +capital more quickly, and to be gainers by keeping +the whole of their capital in more constant employment, +though on any given operation their gains are +less.</p> + +<p>The reasoning cited in the earlier part of this paper, +to show the uselessness of a mere purchaser or customer, +for enriching a nation or an individual, applies +only to the case of dealers who have already as much +business as their capital admits of, and as rapid a sale +for their commodities as is possible. To such dealers +an additional purchaser is really of no use; for, if they +are sure of selling all their commodities the moment +those commodities are on sale, it is of no consequence +whether they sell them to one person or to another. +But it is questionable whether there be any dealers +in whose case this hypothesis is exactly verified; and to +the great majority it is not applicable at all. An additional +customer, to most dealers, is equivalent to an +increase of their productive capital. He enables them +to convert a portion of their capital which was lying +idle (and which could never have become productive in +their hands until a customer was found) into wages +and instruments of production; and if we suppose that +the commodity, unless bought by him, would not have +found a purchaser for a year after, then all which a +capital of that value can enable men to produce during +a year, is clear gain—gain to the dealer, or producer, +and to the labourers whom he will employ, and thus +(if no one sustains any corresponding loss) gain to the +nation. The aggregate produce of the country for the +succeeding year is, therefore, increased; not by the +mere exchange, but by calling into activity a portion +of the national capital, which, had it not been for the +exchange, would have remained for some time longer +unemployed.</p> + +<p>Thus there are actually at all times producers and +dealers, of all, or nearly all classes, whose capital is +lying partially idle, because they have not found the +means of fulfilling the condition which the division of +labour renders indispensable to the full employment of +capital,—viz., that of exchanging their products with +each other. If these persons could find one another +out, they could mutually relieve each other from this +disadvantage. Any two shopkeepers, in insufficient +employment, who agreed to deal at each other's shops +so long as they could there purchase articles of as good +a quality as elsewhere, and at as low a price, would +render the nation a service. It may be said that they +must previously have dealt, to the same amount, with +some other dealers; but this is erroneous, since they +could only have obtained the means of purchasing by +being previously enabled to sell. By their compact, +each would gain a customer, who would call his capital +into fuller employment; each therefore would obtain +an increased produce; and they would thus be enabled +to become better customers to each other than +they could be to third parties.</p> + +<p>It is obvious that every dealer who has not business +sufficient fully to employ his capital (which is the case +with all dealers when they commence business, and with +many to the end of their lives), is in this predicament +simply for want of some one with whom to exchange his +commodities; and as there are such persons to about the +same degree probably in all trades, it is evident that if +these persons sought one another out, they have their +remedy in their own hands, and by each other's +assistance might bring their capital into more full +employment.</p> + +<p>We are now qualified to define the exact nature of +the benefit which a producer or dealer derives from +the acquisition of a new customer. It is as follows:—</p> + +<p>1. If any part of his own capital was locked up in +the form of unsold goods, producing (for a longer +period or a shorter) nothing at all; a portion of this +is called into greater activity, and becomes more constantly +productive. But to this we must add some +further advantages.</p> + +<p>2. If the additional demand exceeds what can be +supplied by setting at liberty the capital which exists in +the state of unsold goods; and if the dealer has additional +resources, which were productively invested (in +the public funds, for instance), but not in his own trade; +he is enabled to obtain, on a portion of these, not mere +interest, but profit, and so to gain that difference between +the rate of profit and the rate of interest, which +may be considered as "wages of superintendance."</p> + +<p>3. If all the dealer's capital is employed in his own +trade, and no part of it locked up as unsold goods, the +new demand affords him additional encouragement to +save, by enabling his savings to yield him not merely +interest, but profit; and if he does not choose to save +(or until he shall have saved), it enables him to carry +on an additional business with borrowed capital, and +so gain the difference between interest and profit, or, +in other words, to receive wages of superintendance on +a larger amount of capital.</p> + +<p>This, it will be found, is a complete account of all +the gains which a dealer in any commodity can derive +from an accession to the number of those who deal +with him: and it is evident to every one, that these +advantages are real and important, and that they are +the cause which induces a dealer of any kind to desire +an increase of his business.</p> + +<p>It follows from these premises, that the arrival of a +new unproductive consumer (living on his own means) +in any place, be that place a village, a town, or an +entire country, is beneficial to that place, if it causes +to any of the dealers of the place any of the advantages +above enumerated, without withdrawing an equal +advantage of the same kind from any other dealer of +the same place.</p> + +<p>This accordingly is the test by which we must try +all such questions, and by which the propriety of the +analogical argument, from dealing with a tradesman to +dealing with a nation, must be decided.</p> + +<p>Let us take, for instance, as our example, Paris, +which is much frequented by strangers from various +parts of the world, who, as sojourners there, live +unproductively upon their means. Let us consider +whether the presence of these persons is beneficial, in +an <i>industrial</i> point of view, to Paris.</p> + +<p>We exclude from the consideration that portion of +the strangers' incomes which they pay to natives as +direct remuneration for service, or labour of any description. +This is obviously beneficial to the country. +An increase in the funds expended in employing +labour, whether that labour be productive or unproductive, +tends equally to raise wages. The condition +of the whole labouring class is, so far, benefited. It +is true that the labourers thus employed by sojourners +are probably, in part or altogether, withdrawn from productive +employment. But this is far from being an +evil; for either the situation of the labouring classes is +improved, which is far more than an equivalent for a +diminution in mere production, or the rise of wages +acts as a stimulus to population, and then the number +of productive labourers becomes as great as before.</p> + +<p>To this we may add, that what the sojourners pay +as wages of labour or service (whether constant or +casual), though expended unproductively by the first +possessor, may, when it passes into the hands of the +receivers, be by them saved, and invested in a productive +employment. If so, a direct addition is made +to the national capital.</p> + +<p>All this is obvious, and is sufficiently allowed by +political economists; who have invariably set apart +the gains of all persons coming under the class of +domestic servants, as real advantages arising to a place +from the residence there of an increased number of +unproductive consumers.</p> + +<p>We have only to examine whether the purchases of +commodities by these unproductive consumers, confer +the same kind of benefit upon the village, town, or +nation, which is bestowed upon a particular tradesman +by dealing at his shop.</p> + +<p>Now it is obvious that the sojourners, on their arrival, +confer the benefit in question upon some dealers, +who did not enjoy it before. They purchase their food, +and many other articles, from the dealers in the place. +They, therefore, call the capital of some dealers, which +was locked up in unsold goods, into more active employment. +They encourage them to save, and enable +them to receive wages of superintendance upon a larger +amount of capital. These effects being undeniable, the +question is, whether the presence of the sojourners +deprives any others of the Paris dealers of a similar +advantage.</p> + +<p>It will be seen that it does; and nothing will then +remain but a comparison of the amounts.</p> + +<p>It is obvious to all who reflect (and was shown in +the paper which precedes this) that the remittances to +persons who expend their incomes in foreign countries +are, after a slight passage of the precious metals, defrayed +in commodities: and that the result commonly +is, an increase of exports and a diminution of imports, +until the latter fall short of the former by the amount +of the remittances.</p> + +<p>The arrival, therefore, of the strangers (say from +England), while it creates at Paris a market for commodities +equivalent in value to their funds, displaces in +the market other commodities to an equal value. To +the extent of the increase of exports from England +into France in the way of remittance, it introduces +additional commodities which, by their cheapness, displace +others formerly produced in that country. To +the extent of the diminution of imports into England +from France, commodities which existed or which +were habitually produced in that country are deprived +of a market, or can only find one at a price not sufficient +to defray the cost.</p> + +<p>It must, therefore, be a matter of mere accident, if +by arriving in a place, the new unproductive consumer +causes any net advantage to its industry, of the kind +which we are now examining. Not to mention that +this, like any other change in the channels of trade, +may render useless a portion of fixed capital, and so +far injure the national wealth.</p> + +<p>A distinction, however, must here be made.</p> + +<p>The place to which the new unproductive consumers +have come, may be a town or village, as well +as a country. If a town or village, it may either be or +not be a place having an export trade.</p> + +<p>If the place had no previous trade except with the +immediate neighbourhood, there are no exports and +imports, by the new arrangement of which, the remittance +can be made. There is no capital, formerly +employed in manufacturing for the foreign market, +which is now brought into less full employment.</p> + +<p>Yet the remittance evidently is still made in +commodities, but in this case without displacing any +which were produced before. To shew this, it is necessary +to make the following remarks.</p> + +<p>The reason why towns exist, is that <i>ceteris paribus</i> it +is convenient, in order to save cost of carriage, that the +production of commodities should take place as far as +practicable in the immediate vicinity of the consumer. +Capital finds its way so easily from town to country and +from country to town, that the amount of capital in the +town will be regulated wholly by the amount which +can be employed there more conveniently than elsewhere. +Consequently the capital of a place will be +such as is sufficient</p> + +<p>1st. To produce all commodities which from local +circumstances can be produced there at less cost than +elsewhere: and if this be the case to any great extent, +it will be an exporting town. When we say <i>produced</i>, +we may add, or <i>stored</i>.</p> + +<p>2nd. To produce and retail the commodities which +are consumed by the inhabitants of the town, and the +place of whose production is in other respects a matter +of indifference. To the inhabitants of the town must +be added such dwellers in the adjoining country, as +are nearer to that place than to any other equally well +furnished market.</p> + +<p>Now, if new unproductive consumers resort to the +place, it is clear that for the latter of these two purposes, +more capital will be required than before. Consequently, +if less is not required for the former purpose, +more capital will establish itself at the place.</p> + +<p>Until this additional capital has arrived, the producers +and dealers already on the spot will enjoy great +advantages. Every particle of their own capital will +be called into the most active employment. What +their capital does not enable them to supply, will be +got from others at a distance, who cannot supply it on +such favourable terms; consequently they will be in the +predicament of possessing a partial monopoly—receiving +for every thing a price regulated by a higher cost of +production than they are compelled to pay. They also, +being in possession of the market, will be enabled to +make a large portion of the new capital pass through +their hands, and thus to earn wages of superintendance +upon it.</p> + +<p>If, indeed, the place from whence the strangers +came, previously traded with that where they have +taken up their abode, the effect of their arrival is, that +the exports of the town will diminish, and that it will +be supplied from abroad with something which it previously +produced at home. In this way an amount of +capital will be set free equal to that required, and there +will be no increase on the whole. The removal of the +court from London to Birmingham would not necessarily, +though it would probably <a name="FNanchor6"></a><a href="#Footnote_6"><sup>[6]</sup></a>, increase the amount +of capital in the latter place. The afflux of money to +Birmingham, and its efflux from London, would render +it cheaper to make some articles in London for Birmingham +consumption; and to make others in London +for home consumption, which were formerly brought +from Birmingham.</p> + +<p>But instead of Birmingham, an exporting town, +suppose a village, or a town which only produced and +retailed for itself and its immediate vicinity. The +remittances must come thither in the shape of money; +and though the money would not remain, but would be +sent away in exchange for commodities, it would, however, +first pass through the hands of the producers and +dealers in the place, and would by them be exported in +exchange for the articles which they require—viz. the +materials, tools, and subsistence necessary for the increased +production now required of them, and articles +of foreign luxury for their own increased unproductive +consumption. These articles would not displace any +formerly made in the place, but on the contrary, would +forward the production of more.</p> + +<p>Hence we may consider the following propositions +as established:</p> + +<p>1. The expenditure of absentees (the case of domestic +servants excepted,) is not necessarily any loss to the +<i>country</i> which they leave, or gain to the <i>country</i> which +they resort to (save in the manner shown in Essay I.): +for almost every <i>country</i> habitually exports and imports +to a much greater value than the incomes of its absentees, +or of the foreign sojourners within it.</p> + +<p>2. But sojourners often do much good to the <i>town</i> +or village which they resort to, and absentees harm to +that which they leave. The capital of the petty +tradesman in a small town near an absentee's estate, +is deprived of the market for which it is conveniently +situated, and must resort to another to which other +capitals lie nearer, and where it is consequently outbid, +and gains less; obtaining only the same price, with +greater expenses. But this evil would be equally +occasioned, if, instead of going abroad, the absentee +had removed to his own capital city.</p> + +<p>If the tradesman could, in the latter case, remove +to the metropolis, or in the former, employ himself +in producing increased exports, or in producing for +home consumption articles now no longer imported, +each in the place most convenient for that operation; +he would not be a loser, though the place which he +was obliged to leave might be said to lose.</p> + +<p>Paris undoubtedly gains much by the sojourn of +foreigners, while the counteracting loss by diminution +of exports from France is suffered by the great +trading and manufacturing towns, Rouen, Bordeaux, +Lyons, &c, which also suffer the principal part of the +loss by importation of articles previously produced +at home. The capital thus set free, finds its most convenient +seat to be Paris, since the business to which +it must turn is the production of articles to be unproductively +consumed by the sojourners.</p> + +<p>The great trading towns of France would undoubtedly +be more flourishing, if France were not frequented +by foreigners.</p> + +<p>Rome and Naples are perhaps purely benefited by +the foreigners sojourning there: for they have so little +external trade, that their case may resemble that of the +village in our hypothesis.</p> + +<p>Absenteeism, therefore, (except as shown in the first +Essay,) is a local, not a national evil; and the resort of +foreigners, in so far as they purchase for unproductive +consumption, is not, in any commercial country, a national, +though it may be a local good.</p> + +<p>From the considerations which we have now +adduced, it is obvious what is meant by such phrases +as a <i>brisk demand</i>, and a rapid circulation. There is a +brisk demand and a rapid circulation, when goods, +generally speaking, are sold as fast as they can be +produced. There is slackness, on the contrary, and +stagnation, when goods, which have been produced, +remain for a long time unsold. In the former case, +the capital which has been locked up in production is +disengaged as soon as the production is completed; +and can be immediately employed in further production. +In the latter case, a large portion of the +productive capital of the country is lying in temporary +inactivity.</p> + +<p>From what has been already said, it is obvious that +periods of "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 <i>all</i> are +endeavouring to extend them, it is a certain proof +that some general delusion is afloat. The commonest +cause of such delusion is some general, or very +extensive, rise of prices (whether caused by speculation +or by the currency) which persuades all dealers +that they are growing rich. And hence, an increase of +production really takes place during the progress of +depreciation, as long as the existence of depreciation +is not suspected; and it is this which gives to the fallacies +of the currency school, principally represented by +Mr. Attwood, all the little plausibility they possess. But +when the delusion vanishes and the truth is disclosed, +those whose commodities are relatively in excess must +diminish their production or be ruined: and if during +the high prices they have built mills and erected +machinery, they will be likely to repent at leisure.</p> + +<p>In the present state of the commercial world, +mercantile transactions being carried on upon an +immense scale, but the remote causes of fluctuations +in prices being very little understood, so that unreasonable +hopes and unreasonable fears alternately rule +with tyrannical sway over the minds of a majority of +the mercantile public; general eagerness to buy and +general reluctance to buy, succeed one another in a +manner more or less marked, at brief intervals. Except +during short periods of transition, there is almost +always either great briskness of business or great stagnation; +either the principal producers of almost all the +leading articles of industry have as many orders as they +can possibly execute, or the dealers in almost all commodities +have their warehouses full of unsold goods.</p> + +<p>In this last ease, it is commonly said that there is a +general superabundance; and as those economists who +have contested the possibility of general superabundance, +would none of them deny the possibility or even +the frequent occurrence of the phenomenon which we +have just noticed, it would seem incumbent on them to +show, that the expression to which they object is not +applicable to a state of things in which all or most commodities +remain unsold, in the same sense in which +there is said to be a superabundance of any one commodity +when it remains in the warehouses of dealers +for want of a market.</p> + +<p>This is merely a question of naming, but an important +one, as it seems to us that much apparent +difference of opinion has been produced by a mere +difference in the mode of describing the same facts, +and that persons who at bottom were perfectly agreed, +have considered each other as guilty of gross error, and +sometimes oven misrepresentation, on this subject.</p> + +<p>In order to afford the explanations, with which it +is necessary to take the doctrine of the impossibility +of an excess of all commodities, we must advert for a +moment to the argument by which this impossibility +is commonly maintained.</p> + +<p>There can never, it is said, be a want of buyers +for all commodities; because whoever offers a commodity +for sale, desires to obtain a commodity in +exchange for it, and is therefore a buyer by the mere +fact of his being a seller. The sellers and the buyers, +for all commodities taken together, must, by the metaphysical +necessity of the case, be an exact equipoise +to each other; and if there be more sellers than +buyers of one thing, there must be more buyers than +sellers for another.</p> + +<p>This argument is evidently founded on the supposition +of a state of barter; and, on that supposition, it +is perfectly incontestable. When two persons perform +an act of barter, each of them is at once a seller +and a buyer. He cannot sell without buying. Unless +he chooses to buy some other person's commodity, he +does not sell his own.</p> + +<p>If, however, we suppose that money is used, these +propositions cease to be exactly true. It must be +admitted that no person desires money for its own +sake, (unless some very rare cases of misers be an +exception,) and that he who sells his commodity, +receiving money in exchange, does so with the intention +of buying with that same money some other commodity. +Interchange by means of money is therefore, +as has been often observed, ultimately nothing but +barter. But there is this difference—that in the case +of barter, the selling and the buying are simultaneously +confounded in one operation; you sell what +you have, and buy what you want, by one indivisible +act, and you cannot do the one without doing the +other. Now the effect of the employment of money, +and even the utility of it, is, that it enables this +one act of interchange to be divided into two separate +acts or operations; one of which may be performed +now, and the other a year hence, or whenever +it shall be most convenient. Although he who +sells, really sells only to buy, he needs not buy at +the same moment when he sells; and he does not +therefore necessarily add to the <i>immediate</i> demand for +one commodity when he adds to the supply of another. +The buying and selling being now separated, it may +very well occur, that there may be, at some given +time, a very general inclination to sell with as little +delay as possible, accompanied with an equally general +inclination to defer all purchases as long as possible. +This is always actually the case, in those periods which +are described as periods of general excess. And no one, +after sufficient explanation, will contest the possibility +of general excess, in this sense of the word. The state +of things which we have just described, and which is +of no uncommon occurrence, amounts to it.</p> + +<p>For when there is a general anxiety to sell, and a +general disinclination to buy, commodities of all kinds +remain for a long time unsold, and those which find an +immediate market, do so at a very low price. If it be +said that when all commodities fall in price, the fall is +of no consequence, since mere money price is not +material while the relative value of all commodities +remains the same, we answer that this would be true +if the low prices were to last for ever. But as it is +certain that prices will rise again sooner or later, the +person who is obliged by necessity to sell his commodity +at a low money price is really a sufferer, the +money he receives sinking shortly to its ordinary +value. Every person, therefore, delays selling if he +can, keeping his capital unproductive in the mean +time, and sustaining the consequent loss of interest. +There is stagnation to those who are not obliged to +sell, and distress to those who are.</p> + +<p>It is true that this state can be only temporary, +and must even be succeeded by a reaction of +corresponding violence, since those who have sold +without buying will certainly buy at last, and there +will then be more buyers than sellers. But although +the general over-supply is of necessity only temporary, +this is no more than may be said of every partial +over-supply. An overstocked state of the market is +always temporary, and is generally followed by a more +than common briskness of demand.</p> + +<p>In order to render the argument for the impossibility +of an excess of all commodities applicable to the +case in which a circulating medium is employed, +money must itself be considered as a commodity. It +must, undoubtedly, be admitted that there cannot be +an excess of all other commodities, and an excess of +money at the same time.</p> + +<p>But those who have, at periods such as we have +described, affirmed that there was an excess of all +commodities, never pretended that money was one +of these commodities; they held that there was not +an excess, but a deficiency of the circulating medium. +What they called a general superabundance, was +not a superabundance of commodities relatively to +commodities, but a superabundance of all commodities +relatively to money. What it amounted to was, +that persons in general, at that particular time, from a +general expectation of being called upon to meet +sudden demands, liked better to possess money than +any other commodity. Money, consequently, was in +request, and all other commodities were in comparative +disrepute. In extreme cases, money is collected +in masses, and hoarded; in the milder cases, +people merely defer parting with their money, or +coming under any new engagements to part with it. +But the result is, that all commodities fall in price, +or become unsaleable. When this happens to one +single commodity, there is said to be a superabundance +of that commodity; and if that be a proper expression, +there would seem to be in the nature of the case +no particular impropriety in saying that there is a +superabundance of all or most commodities, when all +or most of them are in this same predicament.</p> + +<p>It is, however, of the utmost importance to observe +that excess of all commodities, in the only sense in +which it is possible, means only a temporary fall in +their value relatively to money. To suppose that the +markets for all commodities could, in any other sense +than this, be overstocked, involves the absurdity that +commodities may fall in value relatively to themselves; +or that, of two commodities, each can fall +relatively to the other, A becoming equivalent to +B-<i>x</i>, and B to A-<i>x</i>, at the same time. And it is, +perhaps, a sufficient reason for not using phrases of this +description, that they suggest the idea of excessive production. +A want of market for one article may arise +from excessive production of that article; but when +commodities in general become unsaleable, it is from +a very different cause; there cannot be excessive production +of commodities in general.</p> + +<p>The argument against the possibility of general +over-production is quite conclusive, so far as it applies +to the doctrine that a country may accumulate capital +too fast; that produce in general may, by increasing +faster than the demand for it, reduce all producers to +distress. This proposition, strange to say, was almost a +received doctrine as lately as thirty years ago; and +the merit of those who have exploded it is much +greater than might be inferred from the extreme +obviousness of its absurdity when it is stated in its +native simplicity. It is true that if all the wants of +all the inhabitants of a country were fully satisfied, no +further capital could find useful employment; but, in +that case, none would be accumulated. So long as +there remain any persons not possessed, we do not +say of subsistence, but of the most refined luxuries, +and who would work to possess them, there is employment +for capital; and if the commodities which these +persons want are not produced and placed at their disposal, +it can only be because capital does not exist, +disposable for the purpose of employing, if not any other +labourers, those very labourers themselves, in producing +the articles for their own consumption. Nothing can +be more chimerical than the fear that the accumulation +of capital should produce poverty and not wealth, or +that it will ever take place too fast for its own end. +Nothing is more true than that it is produce which +constitutes the market for produce, and that every +increase of production, if distributed without miscalculation +among all kinds of produce in the proportion +which private interest would dictate, creates, or rather +constitutes, its own demand.</p> + +<p>This is the truth which the deniers of general over-production +have seized and enforced; nor is it pretended +that anything has been added to it, or subtracted from +it, in the present disquisition. But it is thought that +those who receive the doctrine accompanied with the +explanations which we have given, will understand, +more clearly than before, what is, and what is not, +implied in it; and will see that, when properly understood, +it in no way contradicts those obvious facts +which are universally known and admitted to be not +only of possible, but of actual and even frequent occurrence. +The doctrine in question only appears a paradox, +because it has usually been so expressed as +apparently to contradict these well-known facts; +which, however, were equally well known to the +authors of the doctrine, who, therefore, can only have +adopted from inadvertence any form of expression +which could to a candid person appear inconsistent +with it. The essentials of the doctrine are preserved +when it is allowed that there cannot be permanent +excess of production, or of accumulation; though it be +at the same time admitted, that as there may be a +temporary excess of any one article considered separately, +so may there of commodities generally, not in +consequence of over-production, but of a want of +commercial confidence.</p> + +<p class="NO"><b>NOTE:</b></p> + +<p><a name="Footnote_6"></a><a href="#FNanchor6">[6]</a><div class=note> Probably; because most articles of an ornamental description +being still required from the same makers, these makers, +with their capital, would probably follow their customers, Besides, +from place to place within the same country, most persons +will lather change their habitation than their employment. But +the moving on this score would be reciprocal.</div><br> + + + +<hr style="width: 65%;"> +<a name="ESSAY_III"></a><h2>ESSAY III.</h2> + +<h2>ON THE WORDS PRODUCTIVE AND +UNPRODUCTIVE.</h2> +<br> + +<p>It would probably be difficult to point out any two +words, respecting the proper use of which political +economists have been more divided, than they have +been concerning the two words <i>productive</i> and <i>unproductive</i>; +whether considered as applied to <i>labour</i>, to +<i>consumption</i>, or to <i>expenditure</i>.</p> + +<p>Although this is a question solely of nomenclature, +it is one of sufficient importance to be worth another +attempt to settle it satisfactorily. For, although writers +on political economy have not agreed in the ideas which +they were accustomed to annex to these terms, the terms +have generally been employed to denote ideas of very +great importance, and it is impossible that some vagueness +should not have been thrown upon the ideas themselves +by looseness in the use of the words by which +they are habitually designated. Further, so long as +the pedantic objection to the introduction of new +technical terms continues, accurate thinkers on moral +and political subjects are limited to a very scanty +vocabulary for the expression of their ideas. It therefore +is of great importance that the words with which +mankind are familiar, should be turned to the greatest +possible advantage as instruments of thought; that one +word should not be used as the sign of an idea which +is already sufficiently expressed by another word; and +that words which are required to denote ideas of great +importance, should not be usurped for the expression +of such as are comparatively insignificant.</p> + +<p>The phrases <i>productive labour</i>, and <i>productive consumption</i>, +have been employed by some writers on +political economy with very great latitude. They have +considered, and classed, as productive labour and productive +consumption, all labour which serves any <i>useful</i> +purpose—all consumption which is not <i>waste</i>. Mr. +M'Culloch has asserted, <i>totidem verbis</i>, that the labour +of Madame Pasta was as well entitled to be called productive +labour as that of a cotton spinner.</p> + +<p>Employed in this sense, the words <i>productive</i> and +<i>unproductive</i> are superfluous, since the words <i>useful</i> and +<i>agreeable</i> on the one hand, <i>useless</i> and <i>worthless</i> on the +other, are quite sufficient to express all the ideas to +which the words <i>productive</i> and <i>unproductive</i> are here +applied.</p> + +<p>This use of the terms, therefore, is subversive of +the ends of language.</p> + +<p>Those writers who have employed the words in a +more limited sense, have usually understood by productive +or unproductive labour, labour which is productive +of wealth, or unproductive of wealth. But +what is wealth? And here the words productive +and unproductive have been affected with additional +ambiguities, corresponding to the different extension +which different writers have given to the term +wealth.</p> + +<p>Some have given the name of wealth to <i>all things</i> +which tend to the use or enjoyment of mankind, and +which possess exchangeable value. This last clause is +added to exclude air, the light of the sun, and any other +things which can be obtained in unlimited quantity +without labour or sacrifice; together with all such +things as, though produced by labour, are not held in +sufficient general estimation to command any price in +the market.</p> + +<p>But when this definition came to be explained, +many persons were disposed to interpret "<i>all things</i> +which tend to the use or enjoyment of man," as implying +only all <i>material</i> things. <i>Immaterial</i> products they +refused to consider as wealth; and labour or expenditure +which yielded nothing but immaterial products, +they characterised as unproductive labour and unproductive +expenditure.</p> + +<p>To this it was, or might have been, answered, that +according to this classification, a carpenter's labour at +his trade is productive labour, but the same individual's +labour in learning his trade was unproductive labour. +Yet it is obvious that, on both occasions, his labour +tended exclusively to what is allowed to be production: +the one was equally indispensable with the other, to +the ultimate result. Further, if we adopted the above +definition, we should be obliged to say that a nation +whose artisans were twice as skilful as those of another +nation, was not, <i>ceteris paribus</i>, more wealthy; +although it is evident that every one of the results of +wealth, and everything for the sake of which wealth is +desired, would be possessed by the former country in a +higher degree than by the latter.</p> + +<p>Every classification according to which a basket +of cherries, gathered and eaten the next minute, are +called wealth, while that title is denied to the acquired +skill of those who are acknowledged to be productive +labourers, is a purely arbitrary division, and does not +conduce to the ends for which classification and +nomenclature are designed.</p> + +<p>In order to get over all difficulties, some political +economists seem disposed to make the terms express a +distinction sufficiently definite indeed, but more completely +arbitrary, and having less foundation in nature, +than any of the former. They will not allow to any +labour or to any expenditure the name of productive, +unless the produce which it yields returns into the +hands of the very person who made the outlay. +Hedging and ditching they term productive labour, +though those operations conduce to production only indirectly, +by protecting the produce from destruction; but +the necessary expenses incurred by a government for +the protection of property are, they insist upon it, consumed +unproductively: though, as has been well pointed +out by Mr. M'Culloch, these expenses, in their relation +to the national wealth, are exactly analogous to the +wages of a hedger or a ditcher. The only difference is, +that the farmer, who pays for the hedging and ditching, +is the person to whom the consequent increase of production +accrues, while the government, which is at the +expense of police officers and courts of justice, does +not, as a necessary consequence, get back into its own +coffers the increase of the national wealth resulting +from the security of property.</p> + +<p>It would be endless to point out the oddities and +incongruities which result from this classification. +Whether we take the words wealth and production in +the largest, or in the most restricted sense in which +they have ever yet been employed, nobody will dispute +that roads, bridges, and canals, contribute in an +eminent degree, and in a very direct manner, to the +increase of production and wealth. The labour and +pecuniary resources employed in their construction +would, according to the above theory, be considered +productive, if every occupier of land were compelled by +law to construct so much of the road, or canal, as +passes through his own farm. If, instead of this, the +government makes the road, and throws it open to the +public toll-free, the labour and expenditure would be, +on the above system, clearly unproductive. But if the +government, or an association of individuals, made the +road, and imposed a toll to defray the expense, we do +not see how these writers could refuse to the outlay +the title of productive expenditure. It would follow, +that the very same labour and expense, if given gratuitously, +must be called unproductive, which, if a +charge had been made for it, would have been called +productive.</p> + +<p>When these consequences of the purely arbitrary +classification to which we allude have been pointed +out and complained of, the only answer which we have +ever seen made to the objection is, that the line of +demarcation must be drawn somewhere, and that in +every classification there are intermediate cases, which +might have been included, with almost equal propriety, +either in the one class or in the other.</p> + +<p>This answer appears to us to indicate the want of +a sufficiently accurate and discriminating perception, +what is the kind of inaccuracy which generally cannot +be avoided in a classification, and what is that other +kind of inaccuracy, from which it always may be, and +should be, exempt.</p> + +<p>The classes themselves may be, mentally speaking, +perfectly definite, though it may not always be easy to +say to which of them a particular object belongs. +When it is uncertain in which of two classes an object +should be placed, if the classification be properly +made, and properly expressed, the uncertainty can turn +only upon a matter of fact. It is uncertain to which +class the object belongs, because it is doubtful whether +it possesses in a greater degree the characteristics of +the one class or those of the other. But the characteristics +themselves may be defined and distinguished +with the nicest exactness, and always ought to be +so. Especially ought they in a case like the present, +because here it is only the distinction between the +ideas which is of any importance. That we should be +able with ease to portion out all employments between +the two classes, does not happen to be of any particular +consequence.</p> + +<p>It is frequently said that classification is a mere +affair of convenience. This assertion is true in one +sense, but not if its meaning be, that the most proper +classification is that in which it is easiest to say whether +an object belongs to one class or to the other. +The use of classification is, to fix attention upon the +distinctions which exist among things; and that is the +best classification, which is founded upon the most +important distinctions, whatever be the facilities which +it may afford of ticketing and arranging the different +objects which exist in nature. In fixing, therefore, the +meaning of the words productive and unproductive, we +ought to endeavour to render them significative of the +most important distinctions which, without too glaring +a violation of received usage, they can be made to +express.</p> + +<p>We ought further, when we are restricted to the +employment of old words, to endeavour as far as +possible that it shall not be necessary to struggle +against the old associations with those words. We +should, if possible, give the words such a meaning, that +the propositions in which people are accustomed to use +them, shall as far as possible still be true; and that the +feelings habitually excited by them, shall be such as the +things to which we mean to appropriate them ought +to excite.</p> + +<p>We shall endeavour to unite these conditions in the +result of the following enquiry.</p> + +<p>In whatever manner political economists may have +settled the definition of productive and unproductive +labour or consumption, the consequences which they +have drawn from the definition are nearly the same. +In proportion to the amount of the productive labour +and consumption of a country, the country, they all +allow, is enriched: in proportion to the amount of the +unproductive labour and consumption, the country is +impoverished. Productive expenditure they are accustomed +to view as a gain; unproductive expenditure, +however useful, as a sacrifice. Unproductive expenditure +of what was destined to be expended productively, +they always characterise as a squandering of resources, +and call it profusion and prodigality. The productive +expenditure of that which might, without encroaching +upon capital, be expended unproductively, is called +saving, economy, frugality. Want, misery, and starvation, +are described as the lot of a nation which annually +employs less and less of its labour and resources +in production; growing comfort and opulence as the +result of an annual increase in the quantity of wealth +so employed.</p> + +<p>Let us then examine what qualities in expenditure, +and in the employment of labour, are those from +which all the consequences above mentioned really +flow.</p> + +<p>The end to which all labour and all expenditure are +directed, is twofold. Sometimes it is <i>enjoyment</i> immediately; +the fulfilment of those desires, the gratification +of which is wished for on its own account. Whenever +labour or expense is not incurred <i>immediately</i> for the +sake of enjoyment, and is yet not absolutely wasted, it +must be incurred for the purpose of enjoyment <i>indirectly</i> +or mediately; by either repairing and perpetuating, +or adding, to the <i>permanent sources</i> of enjoyment.</p> + +<p>Sources of enjoyment may be accumulated and +stored up; enjoyment itself cannot. The wealth of a +country consists of the sum total of the permanent +sources of enjoyment, whether material or immaterial, +contained in it: and labour or expenditure which tends +to augment or to keep up these permanent sources, +should, we conceive, be termed productive.</p> + +<p>Labour which is employed for the purpose of +directly affording enjoyment, such as the labour of a +performer on a musical instrument, we term unproductive +labour. Whatever is consumed by such a performer, +we consider as unproductively consumed: the +accumulated total of the sources of enjoyment which +the nation possesses, is diminished by the amount of +what he has consumed: whereas, if it had been given +to him in exchange for his services in producing food or +clothing, the total of the permanent sources of enjoyment +in the country might have been not diminished +but increased.</p> + +<p>The performer on the musical instrument then is, +so far as respects that act, not a productive, but an unproductive +labourer. But what shall we say of the +workman who made the musical instrument? He, most +persons would say, is a productive labourer; and with +reason; because the musical instrument is a permanent +source of enjoyment, which does not begin and end +with the enjoying, and therefore admits of being accumulated.</p> + +<p>But the <i>skill</i> of the musician is a permanent source +of enjoyment, as well as the instrument which he plays +upon: and although skill is not a material object, but +a quality of an object, viz., of the hands and mind of +the performer; nevertheless skill possesses exchangeable +value, is acquired by labour and capital, and is +capable of being stored and accumulated. Skill, therefore, +must be considered as wealth; and the labour and +funds employed in acquiring skill in anything tending +to the advantage or pleasure of mankind, must be +considered to be productively employed and expended.</p> + +<p>The skill of a productive labourer is analogous to +the machinery he works with: neither of them is enjoyment, +nor conduces directly to it, but both conduce +indirectly to it, and both in the same way. If a spinning-jenny +be wealth, the spinner's skill is also wealth. +If the mechanic who made the spinning-jenny laboured +productively, the spinner also laboured productively +when he was learning his trade: and what they both +consumed was consumed productively, that is to say, its +consumption did not tend to diminish, but to increase +the sum of the permanent sources of enjoyment in the +country, by effecting a new creation of those sources, +more than equal to the amount of the consumption.</p> + +<p>The skill of a tailor, and the implements he employs, +contribute in the same way to the convenience of him +who wears the coat, namely, a remote way: it is the +coat itself which contributes immediately. The skill +of Madame Pasta, and the building and decorations +which aid the effect of her performance, contribute in +the same way to the enjoyment of the audience, namely, +an immediate way, without any intermediate instrumentality. +The building and decorations are consumed +unproductively, and Madame Pasta labours and +consumes unproductively; for the building is used and +worn out, and Madame Pasta performs, immediately +for the spectators' enjoyment, and without leaving, +as a consequence of the performance, any permanent +result possessing exchangeable value: consequently the +epithet unproductive must be equally applied to the +gradual wearing out of the bricks and mortar, the +nightly consumption of the more perishable "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 <i>permanent +source of enjoyment</i>.</p> + +<p>The difference between this case, and the case of +the cotton spinner already adverted to, is this. The +spinning-jenny, and the skill of the cotton spinner, are +not only the result of productive labour, but are themselves +productively consumed. The musical instrument +and the skill of the musician are equally the +result of productive labour, but are themselves unproductively +consumed.</p> + +<p>Let us now consider what kinds of labour, and of +consumption or expenditure, will be classed as productive, +and what as unproductive, according to this +rule.</p> + +<p>The following are always productive:</p> + +<p>Labour and expenditure, of which the direct object +or effect is the creation of some material product useful +or agreeable to mankind.</p> + +<p>Labour and expenditure, of which the direct effect +and object are, to endow human or other animated +beings with faculties or qualities useful or agreeable to +mankind, and possessing exchangeable value.</p> + +<p>Labour and expenditure, which without having for +their direct object the creation of any useful material +product or bodily or mental faculty or quality, yet +tend indirectly to promote one or other of those +ends, and are exerted or incurred solely for that purpose.</p> + +<p>The following are partly productive and partly +unproductive, and cannot with propriety be ranged +decidedly with either class:</p> + +<p>Labour or expenditure which does indeed create, +or promote the creation of, some useful material product +or bodily or mental faculty or quality, but which +is not incurred or exerted for that sole end; having +also for another, and perhaps its principal end, enjoyment, +or the promotion of enjoyment.</p> + +<p>Such are the labour of the judge, the legislator, +the police-officer, the soldier; and the expenditure +incurred for their support. These functionaries protect +and secure mankind in the exclusive possession of +such material products or acquired faculties as belong +to them; and by the security which they so confer, +they indirectly increase production in a degree far +more than equivalent to the expense which is necessary +for their maintenance. But this is not the only +purpose for which they exist; they protect mankind, +not merely in the possession of their permanent resources, +but also in their actual enjoyments; and so +far, although highly useful, they cannot, conformably +to the distinction which we have attempted to lay +down, be considered productive labourers.</p> + +<p>Such, also, are the labour and the wages of domestic +servants. Such persons are entertained mainly as +subservient to mere enjoyment; but most of them +occasionally, and some habitually, render services +which must be considered as of a productive nature; +such as that of cookery, the last stage in the manufacture +of food; or gardening, a branch of agriculture.</p> + +<p>The following are wholly unproductive:</p> + +<p>Labour exerted, and expenditure incurred, directly +and exclusively for the purpose of enjoyment, and not +calling into existence anything, whether substance or +quality, but such as begins and perishes in the enjoyment.</p> + +<p>Labour exerted and expenditure incurred uselessly, +or in pure waste, and yielding neither direct +enjoyment nor permanent sources of enjoyment.</p> + +<p>It may be objected, that expenditure incurred even +for pure enjoyment promotes production indirectly, by +inciting to exertion. Thus the view of the splendour +of a rich establishment is supposed by some +writers to produce upon the mind of an indigent +spectator an earnest desire of enjoying the same +luxuries, and a consequent purpose of working with +vigour and diligence, and saving from his earnings, +thus increasing the productive capital of the country.</p> + +<p>It is true that mankind are, for the most part, excited +to productive industry solely by the desire of +subsequently consuming the result of their labour and +accumulation. The consumption called unproductive, +viz., that of which the direct result is enjoyment, is in +reality the end, to which production is only the means; +and a desire for the end, is what alone impels any one +to have recourse to the means.</p> + +<p>But, notwithstanding this, it is of the greatest +importance to mark the distinction between the labour +and the consumption which have enjoyment for their +immediate end, and the labour and the consumption of +which the immediate end is reproduction. Though +the sight of the former may still further stimulate that +desire for the enjoyments afforded by wealth, which +the mere knowledge, without the immediate view, +would suffice to excite (and without dwelling on the +consideration that if the example of a large expenditure +excites one individual to accumulation, it +encourages two to prodigal expense); still, if we look +only to the effects which are intended, or to those +which immediately follow from the consumption, and +whose connexion with it can be distinctly traced, it +evidently renders a country poorer in the permanent +sources of enjoyment; while reproductive consumption +leaves the country richer in these same sources. +Besides, if what is spent for mere pleasure promotes +indirectly the increase of wealth, it can only be by +inducing others <i>not</i> to expend on mere pleasure.</p> + +<p>Before quitting the subject, one more observation +should be added. It must not be supposed that +what is expended upon unproductive labourers is necessarily, +the whole of it, unproductively consumed. +The unproductive labourers may save part of their +wages, and invest them in a productive employment.</p> + +<p>It is not unusual to speak of what is paid in wages +to a labourer as being thereby <i>consumed</i>, as if all +profit and loss to the nation were to be seen in the +capitalist's account-book. What is paid for productive +labour is said to be productively consumed; what +is paid for unproductive labour is said to be consumed +unproductively. It would be proper to say, not that +it is productively or unproductively <i>consumed</i>, but productively +or unproductively <i>expended</i>; otherwise, we +shall be obliged to say that it is consumed twice over; +the first time unproductively, perhaps, and the second, +it may be, productively.</p> + +<p>To pronounce in which way the wages of the labourer +are consumed, we must follow them into the labourer's +own hands. As much as is necessary to keep the +productive labourer in perfect health and fitness for +his employment, may be said to be consumed productively. +To this should be added what he expends +in rearing children to the age at which they become +capable of productive industry. If the state of the +market for labour be such as to afford him more, this +he may either save, or, as the common expression is, +he may spend it. If he saves any portion, this (unless +it be merely hoarded) he intends to employ productively, +and it will be productively consumed. If he +spends it, the consumption is for enjoyment immediately, +and is therefore unproductive.</p> + +<p>This suggests another correction in the established +language. Political economists generally define the +"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:</p> + +<p>The net produce of a country is whatever is annually +produced beyond what is necessary for maintaining +the stock of materials and implements unimpaired, +for keeping all productive labourers alive and in condition +for work, and for just keeping up their numbers +without increase. What is required for these purposes, +or, in other words, for keeping up the productive +resources of the country, cannot be diverted from +its destination without rendering the nation as a whole +poorer. But all which is produced beyond this, whether +it be in the hands of the labourer, of the capitalist, or +of any of the numerous varieties of rent-owners, may +be taken for immediate enjoyment, without prejudice +to the productive resources of the community; and +whatever part of it is not so taken, constitutes a clear +addition to the national capital, or to the permanent +sources of enjoyment.</p> + + + +<hr style="width: 65%;"> +<a name="ESSAY_IV"></a><h2>ESSAY IV.</h2> + +<h2>ON PROFITS, AND INTEREST.</h2> +<br> + +<p>The profits of stock are the surplus which remains to +the capitalist after replacing his capital: and the ratio +which that surplus bears to the capital itself, is the <i>rate</i> +of profit.</p> + +<p>This being the definition of profits, it might seem +natural to adopt, as a sufficient theory in regard to the +rate of profit, that it depends upon the productive +power of capital. Some countries are favoured beyond +others, either by nature or art, in the means of production. +If the powers of the soil, or of machinery, +enable capital to produce what is necessary for replacing +itself, and twenty per cent more, profits will +be twenty per cent; and so on.</p> + +<p>This, accordingly, is a popular mode of speaking on +the subject of profits; but it has only the semblance, +not the reality, of an explanation. The "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.</p> + +<p>The proper view of capital is, that anything whatever, +which a person possesses, constitutes his capital, +provided he is able, and intends, to employ it, not in +consumption for the purpose of enjoyment, but in +possessing himself of the means of production, with the +intention of employing those means productively. Now +the means of production are labour, implements, and +materials. The only productive power which anywhere +exists, is the productive power of labour, implements, +and materials.</p> + +<p>We need not, on this account, altogether proscribe +the expression, "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.</p> + +<p>We may, therefore, consider the capital of a producer +as measured by the means which he has of possessing +himself of the different essentials of production: +namely, labour, and the various articles which labour +requires as materials, or of which it avails itself as aids.</p> + +<p>The ratio between the price which he has to pay for +these means of production, and the produce which they +enable him to raise, is the <i>rate</i> of his <i>profit</i>. If he +must give for labour and tools four-fifths of what they +will produce, the remaining fifth will constitute his +profit, and will give him a rate of one in four, or twenty-five +per cent, on his outlay.</p> + +<p>It is necessary here to remark, what cannot indeed +by any possibility be misunderstood, but might possibly +be overlooked in cases where attention to it is +indispensable, viz., that we are speaking now of the +<i>rate</i> of profit, not the gross profit. If the capital of +the country is very great, a profit of only five per +cent upon it may be much more ample, may support +a much larger number of capitalists and their +families in much greater affluence, than a profit of +twenty-five per cent on the comparatively small +capital of a poor country. The <i>gross</i> profit of a +country is the actual amount of necessaries, conveniences, +and luxuries, which are divided among its +capitalists: but whether this be large or small, the +rate of profit may be just the same. The rate of +profit is the proportion which the profit bears to the +capital; which the surplus produce after replacing +the outlay, bears to the outlay. In short, if we compare +the <i>price paid</i> for labour and tools with what +that labour and those tools will <i>produce</i>, from this ratio +we may calculate the rate of profit.</p> + +<p>As the gross profit may be very different though +the rate of profit be the same; so also may the absolute +price paid for labour and tools be very different, and +yet the proportion between the price paid and the produce +obtained may be just the same. For greater +clearness, let us omit, for the present, the consideration +of tools, materials, &c, and conceive production as the +result solely of labour. In a certain country, let us +suppose, the wages of each labourer are one quarter of +wheat per year, and 100 men can produce, in one year, +120 quarters. Here the price paid for labour is to +the produce of that labour as 100 to 120, and profits +are 20 per cent. Suppose now that, in another +country, wages are just double what they are in the +country before supposed; namely, two quarters of +wheat per year, for each labourer. But suppose, likewise, +that the productive power of labour is double +what it is in the first country; that by the greater +fertility of the soil, 100 men can produce 240 quarters, +instead of 120 as before. Here it is obvious, that the +real price paid for labour is twice as great in the one +country as in the other; but the produce being also +twice as great, the ratio between the price of labour +and the produce of labour is still exactly the same: an +outlay of 200 quarters gives a return of 240 quarters, +and profits, as before, are 20 per cent.</p> + +<p>Profits, then (meaning not gross profits, but the +rate of profit), depend (not upon the price of labour, +tools, and materials—but) upon the ratio between the +price of labour, tools, and materials, and the produce +of them: upon the proportionate share of the produce +of industry which it is necessary to offer, in order to +purchase that industry and the means of setting it in +motion.</p> + +<hr style="width: 45%;"> + +<p>We have hitherto spoken of tools, buildings, and +materials, as essentials of production, co-ordinate with +labour, and equally indispensable with it. This is true; +but it is also true that tools, buildings, and materials, are +themselves the produce of labour; and that the only cause +(cases of monopoly excepted) of their having any value, +is the labour which is required for their production.</p> + +<p>If tools, buildings, and materials were the spontaneous +gifts of nature, requiring no labour either in +order to produce or to appropriate them; and if they +were thus bestowed upon mankind in indefinite quantity, +and without the possibility of being monopolized; they +would still be as useful, as indispensable as they now +are; but since they could, like air and the light of the +sun, be obtained without cost or sacrifice, they would +form no part of the expenses of production, and no +portion of the produce would be required to be set +aside in order to replace the outlay made for these +purposes. The whole produce, therefore, after replacing +the wages of labour, would be clear profit to +the capitalist.</p> + +<p>Labour alone is the primary means of production; +"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.</p> + +<p>To protect this proposition (the most perfect form +in which the law of profits seems to have been yet +exhibited) against misapprehension, one or two explanatory +remarks are required.</p> + +<p>If by wages, be meant what constitutes the real +affluence of the labourer, the <i>quantity</i> of produce +which he receives in exchange for his labour; the proposition +that profits vary inversely as wages, will be +obviously false. The rate of profit (as has been +already observed and exemplified) does not depend upon +the price of labour, but upon the proportion between +the price of labour and the produce of it. If the +produce of labour is large, the price of labour may +also be large without any diminution of the rate of +profit: and, in fact, the rate of profit is highest in +those countries (as, for instance, North America) +where the labourer is most largely remunerated. For +the wages of labour, though so large, bear a less +proportion to the abundant <i>produce</i> of labour, there +than elsewhere.</p> + +<p>But this does not affect the truth of Mr. Ricardo's +principle as he himself understood it; because an +increase of the labourer's real comforts was not considered +by him as a rise of wages. In his language +wages were only said to rise, when they rose not in +mere quantity but in <i>value</i>. To the labourer himself +(he would have said) the <i>quantity</i> of his remuneration +is the important circumstance: but its <i>value</i> is +the only thing of importance to the person who purchases +his labour.</p> + +<p>The rate of profits depends not upon absolute or +real wages, but upon the <i>value</i> of wages.</p> + +<p>If, however, by value, Mr. Ricardo had meant +<i>exchangeable</i> value, his proposition would still have +been remote from the truth. Profits depend no more +upon the exchangeable value of the labourer's remuneration, +than upon its quantity. The truth is, that +by the exchangeable value is meant the quantity of +commodities which the labourer can purchase with +his wages; so that when we say the exchangeable +value of wages, we say their quantity, under another +name.</p> + +<p>Mr. Ricardo, however, did not use the word value +in the sense of exchangeable value.</p> + +<p>Occasionally, in his writings, he could not avoid +using the word as other people use it, to denote value +in exchange. But he more frequently employed it in +a sense peculiar to himself, to denote cost of production; +in other words, the <i>quantity of labour</i> required +to produce the article; that being his criterion of cost +of production. Thus, if a hat could be made with +ten days' labour in France and with five days' labour +in England, he said that the value of a hat was +double in France of what it was in England. If a +quarter of corn could be produced a century ago with +half as much labour as is necessary at present, Mr. +Ricardo said that the value of a quarter of corn +had doubled.</p> + +<p>Mr. Ricardo, therefore, would not have said that +wages had risen, because a labourer could obtain two +pecks of flour instead of one, for a day's labour; but +if last year he received, for a day's labour, something +which required eight hours' labour to produce it, and +this year something which requires nine hours, then +Mr. Ricardo would say that wages had risen. A rise +of wages, with Mr. Ricardo, meant an increase in the +cost of production of wages; an increase in the number +of hours' labour which go to produce the wages of a +day's labour; an increase in the <i>proportion</i> of the +fruits of labour which the labourer receives for his +own share; an increase in the ratio between the wages +of his labour and the produce of it. This is the +theory: the reasoning, of which it is the result, has +been given in the preceding paragraphs.</p> + +<p>Some of Mr. Ricardo's followers, or more properly, +of those who have adopted in most particulars +the views of political economy which his genius +was the first to open up, have given explanations +of Mr. Ricardo's doctrine to nearly the same effect +as the above, but in rather different terms. They +have said that profits depend not on <i>absolute</i>, but +on <i>proportional</i> wages: which they expounded to mean +the proportion which the labourers <i>en masse</i> receive of +the total produce of the country.</p> + +<p>It seems, however, to be rather an unusual and +inconvenient use of language to speak of anything as +depending upon the wages of labour, and then to +explain that by wages of labour you do not mean the +wages of an individual labourer, but of all the +labourers in the country collectively. Mankind will +never agree to call anything a rise of wages, except a +rise of the wages of individual labourers, and it is +therefore preferable to employ language tending to fix +attention upon the wages of the individual. The +wages, however, on which profits are said to depend, +are undoubtedly <i>proportional</i> wages, namely, the proportional +wages of one labourer: that is, the ratio +between the wages of one labourer, and (not the +whole produce of the country, but) the amount of +what one labourer can produce; the amount of that +portion of the collective produce of the industry of +the country, which may be considered as corresponding +to the labour of one single labourer. Proportional +wages, thus understood, may be concisely termed +the cost of production of wages; or, more concisely +still, the cost of wages, meaning their cost in the +"original purchase money," labour.</p> + +<p>We have now arrived at a distinct conception of +Mr. Ricardo's theory of profits in its most perfect +state. And this theory we conceive to be the basis +of the true theory of profits. All that remains to +do is to clear it from certain difficulties which still +surround it, and which, though in a greater degree +apparent than real, are not to be put aside as wholly +imaginary.</p> + +<p>Though it is true that tools, materials, and buildings +(it is to be wished that there were some compact +designation for all these essentials of production +taken together,) are themselves the produce of +labour, and are only on that account to be ranked +among the expenses of production; yet the <i>whole</i> of +their value is not resolvable into the wages of the +labourers by whom they were produced. The wages +of those labourers were paid by a capitalist, and that +capitalist must have the same profit upon his advances +as any other capitalist; when, therefore, he sells the tools +or materials, he must receive from the purchaser not +only the reimbursement of the wages he has paid, but +also as much more as will afford him the ordinary rate +of profit. And when the producer, after buying the +tools and employing them in his own occupation, +comes to estimate his gains, he must set aside a portion +of the produce to replace not only the wages +paid both by himself and by the tool-maker, but also +the profits of the tool-maker, advanced by himself out +of his own capital.</p> + +<p>It is not correct, therefore, to state that all which +the capitalist retains after replacing wages forms his +profit. It is true the whole return to capital is +either wages or profits; but profits do not compose +merely the surplus after replacing the outlay; they +also enter into the outlay itself. Capital is expended +partly in paying or reimbursing wages, and partly in +paying the profits of other capitalists, whose concurrence +was necessary in order to bring together the +means of production.</p> + +<p>If any contrivance, therefore, were devised by which +that part of the outlay which consists of previous +profits could be either wholly or partially dispensed +with, it is evident that more would remain as the +profit of the immediate producer; while, as the +quantity of <i>labour</i> necessary to produce a given +quantity of the commodity would be unaltered, as well +as the quantity of produce paid for that labour, it +seems that the ratio between the price of labour and +its produce would be the same as before; that the +cost of production of wages would be the same, proportional +wages the same, and yet profits different.</p> + +<p>To illustrate this by a simple instance, let it be +supposed that one-third of the produce is sufficient to +replace the wages of the labourers who have been +immediately instrumental in the production; that +another third is necessary to replace the materials used +and the fixed capital worn out in the process; while +the remaining third is clear gain, being a profit of +50 per cent. Suppose, for example, that 60 agricultural +labourers, receiving 60 quarters of corn for their +wages, consume fixed capital and seed amounting +to the value of 60 quarters more, and that the result +of their operations is a produce of 180 quarters. +When we analyse the price of the seed and tools +into its elements, we find that they must have been +the produce of the labour of 40 men: for the wages +of those 40, together with profit at the rate previously +supposed (50 per cent) make up 60 quarters. +The produce, therefore, consisting of 180 quarters +is the result of the labour altogether of 100 men: +namely, the 60 first mentioned, and the 40 by +whose labour the fixed capital and the seed were +produced.</p> + +<p>Let us now suppose, by way of an extreme case, +that some contrivance is discovered, whereby the purposes +to which the second third of the produce had +been devoted, may be dispensed with altogether: that +some means are invented by which the same amount +of produce may be procured without the assistance of +any fixed capital, or the consumption of any seed or +material sufficiently valuable to be worth calculating. +Let us, however, suppose that this cannot be done +without taking on a number of additional labourers, +equal to those required for producing the seed and +fixed capital; so that the saving shall be only in the +profits of the previous capitalists. Let us, in conformity +with this supposition, assume that in dispensing +with the fixed capital and seed, value 60 +quarters, it is necessary to take on 40 additional +labourers, receiving a quarter of corn each, as before.</p> + +<p>The rate of profit has evidently risen. It has +increased from 50 per cent to 60 per cent. A return +of 180 quarters could not before be obtained but by +an outlay of 120 quarters; it can now be obtained by +an outlay of no more than 100.</p> + +<p>Here, therefore, is an undeniable rise of profits. +Have wages, in the sense above attached to them, +fallen or not? It would seem not.</p> + +<p>The produce (180 quarters) is still the result of +the same quantity of labour as before, namely, the +labour of 100 men. A quarter of corn, therefore, is +still, as before, the produce of 10/18 of a man's labour for +a year. Each labourer receives, as before, one quarter +of corn; each, therefore, receives the produce of 10\18 +of a year's labour of one man, that is, the same cost of +production; each receives 10/18 of the produce of his +own labour, that is, the same proportional wages; and +the labourers collectively still receive the same proportion, +namely 10/18, of the whole produce.</p> + +<p>The conclusion, then, cannot be resisted, that +Mr. Ricardo's theory is defective: that the rate of +profits does <i>not</i> exclusively depend upon the value of +wages, in his sense, namely, the quantity of labour +of which the wages of a labourer are the produce; +that it does <i>not</i> exclusively depend upon proportional +wages, that is, upon the proportion which the labourers +collectively receive of the whole produce, or the ratio +which the wages of an individual labourer bear to the +produce of his individual labour.</p> + +<p>Those political economists, therefore, who have +always dissented from Mr. Ricardo's doctrine, or who, +having at first admitted, ended by discarding it, were +so far in the right; but they committed a serious +error in this, that, with the usual one-sidedness of disputants, +they knew no medium between admitting +absolutely and dismissing entirely; and saw no other +course than utterly to reject what it would have been +sufficient to modify.</p> + +<p>It is remarkable how very slight a modification will +suffice to render Mr. Ricardo's doctrine completely +true. It is even doubtful whether he himself, if called +upon to adapt his expressions to this peculiar case, +would not have so explained his doctrine as to render +it entirely unobjectionable.</p> + +<p>It is perfectly true, that, in the example already +made use of, a rise of profits takes place, while wages, +considered in respect to the quantity of labour of which +they are the produce, have not varied at all. But +though wages are still the produce of the same +<i>quantity of labour</i> as before, the <i>cost of production</i> +of wages has nevertheless fallen; for into cost of +production there enters another element besides +labour.</p> + +<p>We have already remarked (and the very example +out of which the difficulty arose presupposes it) that +the cost of production of an article consists generally +of two parts,—the <i>wages</i> of the labour employed, and +the <i>profits</i> of those who, in any antecedent stage of +the production, have advanced any portion of those +wages. An article, therefore, may be the produce +of the same quantity of labour as before, and yet, +if any portion of the profits which the last producer +has to make good to previous producers can be +economized, the cost of production of the article is +diminished.</p> + +<p>Now, in our example, a diminution of this sort is +supposed to have taken place in the cost of production +of corn. The production of that article has become +less costly, in the ratio of six to five. A quantity of +corn, the means of producing which could not previously +have been secured but at an expense of 120 +quarters, can now be produced by means which 100 +quarters are sufficient to purchase.</p> + +<p>But the labourer is supposed to receive the same +quantity of corn as before. He receives one quarter. +The cost of production of wages has, therefore, fallen +one-sixth. A quarter of corn, which is the remuneration +of a single labourer, is indeed the produce of the +same quantity of labour as before; but its cost of production +is nevertheless diminished. It is now the +produce of 10/18 of a man's labour, and nothing else; +whereas formerly it required for its production the +conjunction of that quantity of labour with an expenditure, +in the form of reimbursement of profit, amounting +to one-fifth more.</p> + +<p>If the cost of production of wages had remained +the same as before, profits could not have risen. Each +labourer received one quarter of corn; but one quarter +of corn at that time was the result of the same cost of +production, as 1 1/5 quarter now. In order, therefore, +that each labourer should receive the same cost of +production, each must now receive one quarter of corn, +<i>plus</i> one-fifth. The labour of 100 men could not be +purchased at this price for less than 120 quarters; and +the produce, 180 quarters, would yield only 50 per +cent, as first supposed <a name="FNanchor7"></a><a href="#Footnote_7"><sup>[7]</sup></a>.</p> + +<p>It is, therefore, strictly true, that the rate of profits +varies inversely as the cost of production of wages. +Profits cannot rise, unless the cost of production of +wages falls exactly as much; nor fall, unless it rises.</p> + +<p>The proof of this position has been stated in figures, +and in a particular case: we shall now state it in general +terms, and for all cases.</p> + +<p>We have supposed, for simplicity, that wages are +paid in the finished commodity. The agricultural +labourers, in our example, were paid in corn, and if we +had called them weavers, we should have supposed +them to be paid in cloth. This supposition is allowable, +for it is obviously of no consequence, in a question +of value, or cost of production, what precise article we +assume as the medium of exchange. The supposition +has, besides, the recommendation of being conformable +to the most ordinary state of the facts; for it is by the +sale of his own finished article that each capitalist +obtains the means of hiring labourers to renew the production; +which is virtually the same thing as if, instead +of selling the article for money and giving the money +to his labourers, he gave the article itself to the +labourers, and they sold it for their daily bread.</p> + +<p>Assuming, therefore, that the labourer is paid in +the very article he produces, it is evident that, when +any saving of expense takes place in the production of +that article, if the labourer still receives the same cost +of production as before, he must receive an increased +quantity, in the very same ratio in which the productive +power of capital has been increased. But, if so, +the outlay of the capitalist will bear exactly the same +proportion to the return as it did before; and profits +will not rise.</p> + +<p>The variations, therefore, in the rate of profits, and +those in the cost of production of wages, go hand in +hand, and are inseparable. Mr. Ricardo's principle, +that profits cannot rise unless wages fall, is strictly +true, if by low wages be meant not merely wages +which are the produce of a smaller quantity of labour, +but wages which are produced at less cost, reckoning +labour and previous profits together. But the +interpretation which some economists have put upon +Mr. Ricardo's doctrine, when they explain it to mean +that profits depend upon the proportion which the +labourers collectively receive of the aggregate produce, +will not hold at all; for that, in our first example, +remained the same, and yet profits rose.</p> + +<p>The only expression of the law of profits, which +seems to be correct, is, that they depend upon the cost +of production of wages. This must be received as the +ultimate principle.</p> + +<p>From this may be deduced all the corollaries which +Mr. Ricardo and others have drawn from his theory of +profits as expounded by himself. The cost of production +of the wages of one labourer for a year, is the +result of two concurrent elements or factors,—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.)</p> + +<p>So, on the other hand, the rate of profit cannot fall, +unless concurrently with one of two events: 1st, an +improvement in the labourer's condition; or, 2ndly, an +increased difficulty of producing or importing some +article which the labourer habitually consumes. The +progress of population and cultivation has a tendency +to lower profits through the latter of these two +channels, owing to the well known law of the application +of capital to land, that a double capital does +not <i>caeteris paribus</i> yield a double produce. There is, +therefore, a tendency in the rate of profits to fall with +the progress of society. But there is also an antagonist +tendency of profits to rise, by the successive introduction +of improvements in agriculture, and in the +production of those manufactured articles which the +labourers consume. Supposing, therefore, that the +actual comforts of the labourer remain the same, profits +will fall or rise, according as population, or improvements +in the production of food and other necessaries, +advance fastest.</p> + +<p>The rate of profits, therefore, tends to <i>fall</i> from +the following causes:—1. An increase of capital beyond +population, producing increased competition for +labour; 2. An increase of population, occasioning a +demand for an increased quantity of food, which +must be produced at a greater cost. The rate of +profits tends to <i>rise</i> from the following causes:—1. +An increase of population beyond capital, producing +increased competition for employment; 2. Improvements +producing increased cheapness of necessaries, +and other articles habitually consumed by the labourer.</p> + +<hr style="width: 45%;"> + +<p>The circumstances which regulate the rate of +interest have usually been treated, even by professed +writers on political economy, in a vague, loose, and +unscientific manner. It has, however, been felt that +there is some connexion between the rate of interest +and the rate of profit; that (to use the words of +Adam Smith) much will be given for money, when +much can be made of it. It has been felt, also, that +the fluctuations in the market-rate of interest from +day to day, are determined, like other matters of +bargain and sale, by demand and supply. It has, +therefore, been considered as an established principle, +that the rate of interest varies from day to day +according to the quantity of capital offered or called +for on loan; but conforms on the average of years to a +standard determined by the rate of profits, and bearing +some proportion to that rate—but a proportion +which few attempts have been made to define.</p> + +<p>In consequence of these views, it has been customary +to judge of the general rate of profits at any time or +place, by the rate of interest at that time and place: it +being supposed that the rate of interest, though liable +to temporary fluctuations, can never vary for any long +period of time unless profits vary; a notion which +appears to us to be erroneous.</p> + +<p>It was observed by Adam Smith, that profits +may be considered as divided into two parts, of +which one may properly be considered as the remuneration +for the use of the capital itself, the other as +the reward of the labour of superintending its employment; +and that the former of these will correspond +with the rate of interest. The producer who borrows +capital to employ it in his business, will consent to +pay, for the use of it, all that remains of the profits he +can make by it, after reserving what he considers +reasonable remuneration for the trouble and risk +which he incurs by borrowing and employing it.</p> + +<p>This remark is just; but it seems necessary to give +greater precision to the ideas which it involves.</p> + +<p>The difference between the profit which can be +made by the use of capital, and the interest which will +be paid for it, is rightly characterized as wages of +superintendance. But to infer from this that it is +regulated by entirely the same principles as other +wages, would be to push the analogy too far. It is +wages, but wages paid by a commission upon the +capital employed. If the general rate of profit is 10 +per cent, and the rate of interest 5 per cent, the +wages of superintendance will be 5 per cent; and +though one borrower employ a capital of 100,000<i>l</i>., +another no more than 100<i>l</i>., the labour of both will +be rewarded with the same per centage, though, in the +one ease, this symbol will represent an income of 5<i>l</i>., +in the other case, of 5000<i>l</i>. Yet it cannot be pretended +that the labour of the two borrowers differs in +this proportion. The rule, therefore, that equal quantities +of labour of equal hardness and skill are equally +remunerated, does not hold of this kind of labour. +The wages of any other labour are here an inapplicable +criterion.</p> + +<p>The wages of superintendance are distinguished +from ordinary wages by another peculiarity, that they +are not paid in advance out of capital, like the wages +of all other labourers, but merge in the profit, and are +not realized until the production is completed. This +takes them entirely out of the ordinary law of wages. +The wages of labourers who are paid in advance, are +regulated by the number of competitors compared +with the amount of capital; the labourers can consume +no more than what has been previously accumulated. +But there is no such limit to the remuneration of a +kind of labour which is not paid for out of wealth +previously accumulated, but out of that produce which +it is itself employed in calling into existence.</p> + +<p>When these circumstances are duly weighed, it +will be perceived, that although profit may be correctly +analyzed into interest and wages of superintendance, +we ought not to lay it down as the law of +interest, that it is profits <i>minus</i> the wages of superintendance. +Of the two expressions, it would be +decidedly the more correct, that the wages of superintendance +are regulated by the rate of interest, or +are equal to profits <i>minus</i> interest. In strict, propriety, +neither expression would be allowable. Interest, and +the wages of superintendance, can scarcely be said to +depend upon one another. They are to one another in +the same relation as wages and profits are. They are +like two buckets in a well: when one rises, the other +descends, but neither of the two motions is the cause +of the other; both are simultaneous effects of the +same cause, the turning of the windlass.</p> + +<hr style="width: 45%;"> + +<p>There are among the capitalists of every country a +considerable number who are habitually, and almost +necessarily, lenders; to whom scarcely any difference +between what they could receive for their money and +what could be made by it, would be an equivalent for +incurring the risk and labour of carrying on business. +In this predicament is the property of widows and +orphans; of many public bodies; of charitable institutions; +most property which is vested in trustees; and +the property of a great number of persons unused to +business, and who have a distaste for it, or whose +other occupations prevent their engaging in it. How +large a proportion of the property lent to the nation +comes under this description, has been pointed out +in Mr. Tooke's <i>Considerations on the State of the +Currency.</i></p> + +<p>There is another large class, consisting of bankers, +bill-brokers, and others, who are money-lenders by +profession; who enter into that profession with the +intention of making such gains as it will yield them, +and who would not be induced to change their business +by any but a very strong pecuniary inducement.</p> + +<p>There is, therefore, a large class of persons who +are habitually lenders. On the other hand, all persons +in business may be considered as habitually borrowers. +Except in times of stagnation, they are all +desirous of extending their business beyond their own +capital, and are never desirous of lending any portion +of their capital except for very short periods, during +which they cannot advantageously invest it in their +own trade.</p> + +<p>There is, in short, a productive class, and there is, +besides, a class technically styled the monied class, +who live upon the interest of their capital, without +engaging personally in the work of production.</p> + +<p>The class of borrowers may be considered as unlimited. +There is no quantity of capital that could +be offered to be lent, which the productive classes +would not be willing to borrow, at any rate of interest +which would afford them the slightest excess of profit +above a bare equivalent for the additional risk, incurred +by that transaction, of the evils attendant on +insolvency. The only assignable limit to the inclination +to borrow, is the power of giving security: the +producers would find it difficult to borrow more than +an amount equal to their own capital. If more than +half the capital of the country were in the hands of +persons who preferred lending it to engaging personally +in business, and if the surplus were greater than +could be invested in loans to Government, or in mortgages +upon the property of unproductive consumers; +the competition of lenders would force down the rate +of interest very low. A certain portion of the monied +class would be obliged either to sacrifice their predilections +by engaging in business, or to lend on +inferior security; and they would accordingly accept, +where they could obtain good security, an abatement +of interest equivalent to the difference of risk.</p> + +<p>This is an extreme case. Let us put an extreme +case of a contrary kind. Suppose that the wealthy +people of any country, not relishing an idle life, and +having a strong taste for gainful labour, were generally +indisposed to accept of a smaller income in order +to be relieved from the labour and anxiety of business. +Every producer in flourishing circumstances would +be eager to borrow, and few willing to lend. Under +these circumstances the rate of interest would differ +very little from the rate of profit. The trouble of +managing a business is not proportionally increased +by an increase of the magnitude of the business; and +a very small surplus profit above the rate of interest, +would therefore be a sufficient inducement to capitalists +to borrow.</p> + +<p>We may even conceive a people whose habits +were such, that in order to induce them to lend, it +might be necessary to offer them a rate of interest +fully equal to the ordinary rate of profit. In that +case, of course, the productive classes would scarcely +ever borrow. But government, and the unproductive +classes, who do not borrow in order to make a profit +by the loan, but from the pressure of a real or supposed +necessity, might still be ready to borrow at this +high rate.</p> + +<p>Although the inclination to borrow has no <i>fixed</i> +or <i>necessary</i> limit except the power of giving security, +yet it always, in point of fact, stops short of this; from +the uncertainty of the prospects of any individual +producer, which generally indisposes him to involve +himself to the full extent of his means of payment. +There is never any permanent want of market for +things in general; but there may be so for the commodity +which any one individual is producing; and +even if there is a demand for the commodity, people +may not buy it of him but of some other. There are, +consequently, never more than a portion of the producers, +the state of whose business encourages them to +add to their capital by borrowing; and even these are +disposed to borrow only as much as they see an <i>immediate</i> +prospect of profitably employing. There is, +therefore, a practical limit to the demands of borrowers +at any given instant; and when these demands +are all satisfied, any additional capital offered on loan +can find an investment only by a reduction of the rate +of interest.</p> + +<p>The amount of borrowers being given, (and by the +amount of borrowers is here meant the aggregate +sum which people are willing to borrow at some +given rate,) the rate of interest will depend upon +the quantity of capital owned by people who are +unwilling or unable to engage in trade. The circumstances +which determine this, are, on the one hand, +the degree in which a taste for business, or an aversion +to it, happens to be prevalent among the classes +possessed of property; and on the other hand, the +amount of the annual accumulation from the earnings +of labour. Those who accumulate from their wages, +fees, or salaries, have, of course, (speaking generally) +no means of investing their savings except by lending +them to others: their occupations prevent them from +personally superintending any employment.</p> + +<p>Upon these circumstances, then, the rate of interest +depends, the amount of borrowers being given. And +the counter-proposition equally holds, that, the above +circumstances being given, the rate of interest depends +upon the amount of borrowers.</p> + +<p>Suppose, for example, that when the rate of interest +has adjusted itself to the existing state of the circumstances +which affect the disposition to borrow and to +lend, a war breaks out, which induces government, for +a series of years, to borrow annually a large sum of +money. During the whole of this period, the rate of +interest will remain considerably above what it was +before, and what it will be afterwards.</p> + +<p>Before the commencement of the supposed war, +all persons who were disposed to lend at the then +rate of interest, had found borrowers, and their capital +was invested. This may be assumed; for if any +capital had been seeking for a borrower at the existing +rate of interest, and unable to find one, its owner +would have offered it at a rate slightly below the +existing rate. He would, for instance, have bought +into the funds, at a slight advance of price; and thus +set at liberty the capital of some fundholder, who, the +funds yielding a lower interest, would have been +obliged to accept a lower interest from individuals.</p> + +<p>Since, then, all who were willing to lend their +capital at the market rate, have already lent it, +Government will not be able to borrow unless by +offering higher interest. Though, with the existing +habits of the possessors of disposable capital, an +increased number cannot be found who are willing to +lend at the existing rate, there are doubtless some who +will be induced to lend by the temptation of a higher +rate. The same temptation will also induce some persons +to invest, in the purchase of the new stock, what +they would otherwise have expended unproductively +in increasing their establishments, or productively, in +improving their estates. The rate of interest will +rise just sufficiently to call forth an increase of lenders +to the amount required.</p> + +<p>This we apprehend to be the cause why the rate +of interest in this country was so high as it is well +known to have been during the last war. It is, therefore, +by no means to be inferred, as some have done, +that the general rate of profits was unusually high +during the same period, because interest was so. Supposing +the rate of profits to have been precisely the +same during the war, as before or after it, the rate +of interest would nevertheless have risen, from the +causes and in the manner above described.</p> + +<p>The practical use of the preceding investigation is, +to moderate the confidence with which inferences are +frequently drawn with respect to the rate of profit +from evidence regarding the rate of interest; and to +shew that although the rate of profit is one of the +elements which combine to determine the rate of +interest, the latter is also acted upon by causes peculiar +to itself, and may either rise or fall, both temporarily +and permanently, while the general rate of +profits remains unchanged.</p> + +<hr style="width: 45%;"> + +<p>The introduction of banks, which perform the +function of lenders and loan-brokers, with or without +that of issuers of paper-money, produces some further +anomalies in the rate of interest, which have not, so +far as we are aware, been hitherto brought within the +pale of exact science.</p> + +<p>If bankers were merely a class of middlemen +between the lender and the borrower; if they merely +received deposits of capital from those who had it lying +unemployed in their hands, and lent this, together +with their own capital, to the productive classes, +receiving interest for it, and paying interest in their +turn to those who had placed capital in their hands; +the effect of the operations of banking on the rate of +interest would be to lower it in some slight degree. +The banker receives and collects together sums of +money much too small, when taken individually, to +render it worth while for the owners to look out +for an investment, but which in the aggregate form +a considerable amount. This amount may be considered +a clear addition to the productive capital of the +country; at least, to the capital in activity at any +moment. And as this addition to the capital accrues +wholly to that part of it which is not employed by +the owners, but lent to other producers, the natural +effect is a diminution of the rate of interest.</p> + +<p>The banker, to the extent of his own private +capital, (the expenses of his business being first paid,) +is a lender at interest. But, being subject to risk and +trouble fully equal to that which belongs to most +other employments, he cannot be satisfied with the +mere interest even of his whole capital: he must have +the ordinary profits of stock, or he will not engage +in the business: the state of banking must be such +as to hold out to him the prospect of adding, to +the interest of what remains of his own capital after +paying the expenses of his business, interest upon +capital deposited with him, in sufficient amount to +make up, after paying the expenses, the ordinary +profit which could be derived from his own capital +in any productive employment. This will be accomplished +in one of two ways.</p> + +<p>1. If the circumstances of society are such as to +furnish a ready investment of disposable capital; (as +for instance in London, where the public funds and +other securities, of undoubted stability, and affording +great advantages for receiving the interest without +trouble and realizing the principal without difficulty +when required, tempt all persons who have sums of +importance lying idle, to invest them on their own +account without the intervention of any middleman;) +the deposits with bankers consist chiefly of small sums +likely to be wanted in a very short period for current +expenses, and the interest on which would seldom be +worth the trouble of calculating it. Bankers, therefore, +do not allow any interest on their deposits. After +paying the expenses of their business, all the rest of +the interest they receive is clear gain. But as the +circumstances of banking, as of all other modes of +employing capital, will on the average be such as +to afford to a person entering into the business a +prospect of realizing the ordinary, and no more than +the ordinary, profits upon his own capital; the gains +of each banker by the investment of his deposits, will +not on the average exceed what is necessary to make +up his gains on his own capital to the ordinary rate. +It is, of course, competition, which brings about this +limitation. Whether competition operates by lowering +the rate of interest, or by dividing the business +among a larger number, it is difficult to decide. Probably +it operates in both ways; but it is by no means +impossible that it may operate in the latter way +alone: just as an increase in the number of physicians +does not lower the fees, though it diminishes an average +competitor's chance of obtaining them.</p> + +<p>It is not impossible that the disposition of the lenders +might be such, that they would cease to lend rather +than acquiesce in any reduction of the rate of interest. +If so, the arrival of a new lender, in the person of a +banker of deposit, would not lower the rate of interest +in any considerable degree. A slight fall would take +place, and with that exception things would be as before, +except that the capital in the hands of the banker +would have put itself into the place of an equal portion +of capital belonging to other lenders, who would +themselves have engaged in business (<i>e.g.</i>, by subscribing +to some joint-stock company, or entering into +commandite). Bankers' profits would then be limited +to the ordinary rate chiefly by the division of the +business among many banks, so that each on the +average would receive no more interest on his deposits +than would suffice to make up the interest on +his own capital to the ordinary rate of profit after +paying all expenses.</p> + +<p>2. But if the circumstances of society render it +difficult and inconvenient for persons who wish to live +upon the interest of their money, to seek an investment +for themselves, the bankers become agents for +this specific purpose: large as well as small sums are +deposited with them, and they allow interest to their +customers. Such is the practice of the Scotch banks, +and of most of the country banks in England. Their +customers, not living at any of the great seats of +money transactions, prefer entrusting their capital to +somebody on the spot, whom they know, and in whom +they confide. He invests their money on the best +terms he can, and pays to them such interest as he can +afford to give; retaining a compensation for his own +risk and trouble. This compensation is fixed by the +competition of the market. The rate of interest is no +further lowered by this operation, than inasmuch as it +brings together the lender and the borrower in a safe +and expeditious manner. The lender incurs less risk, +and a larger proportion, therefore, of the holders of +capital are willing to be lenders.</p> + +<p>When a banker, in addition to his other functions, +is also an issuer of paper money, he gains an advantage +similar to that which the London bankers derive from +their deposits. To the extent to which he can put +forth his notes, he has so much the more to lend, +without himself having to pay any interest for it.</p> + +<p>If the paper is convertible, it cannot get into circulation +permanently without displacing specie, which +goes abroad and brings back an equivalent value. +To the extent of this value, there is an increase of +the capital of the country; and the increase accrues +solely to that part of the capital which is employed in +loans.</p> + +<p>If the paper is inconvertible, and instead of displacing +specie depreciates the currency, the banker by +issuing it levies a tax on every person who has money +in his hands or due to him. He thus appropriates to +himself a portion of the capital of other people, and a +portion of their revenue. The capital might have +been intended to be lent, or it might have been intended +to be employed by the owner: such part of it +as was intended to be employed by the owner now +changes its destination, and is lent. The revenue +was either intended to be accumulated, in which case +it had already become capital, or it was intended to +be spent: in this last case, revenue is converted into +capital: and thus, strange as it may appear, the depreciation +of the currency, when effected in this way, +operates to a certain extent as a forced accumulation. +This, indeed, is no palliation of its iniquity. Though +A might have spent his property unproductively, B +ought not to be permitted to rob him of it because +B will expend it on productive labour.</p> + +<p>In any supposable case, however, the issue of +paper money by bankers increases the proportion of +the whole capital of the country which is destined to +be lent. The rate of interest must therefore fall, until +some of the lenders give over lending, or until the +increase of borrowers absorbs the whole.</p> + +<p>But a fall of the rate of interest, sufficient to +enable the money market to absorb the whole of the +paper-loans, may not be sufficient to reduce the profits +of a lender who lends what costs him nothing, to the +ordinary rate of profit upon his capital. Here, therefore, +competition will operate chiefly by dividing the +business. The notes of each bank will be confined +within so narrow a district, or will divide the supply +of a district with so many other banks, that on the +average each will receive no larger amount of interest +on his notes than will make up the interest on his +own capital to the ordinary rate of profit.</p> + +<p>Even in this way, however, the competition has +the effect, to a certain limited extent, of lowering the +rate of interest; for the power of bankers to receive +interest on more than their capital attracts a greater +amount of capital into the banking business than would +otherwise flow into it; and this greater capital being +all lent, interest will fall in consequence.</p> + +<p class="NO"><b>NOTE:</b></p> + +<p><a name="Footnote_7"></a><a href="#FNanchor7">[7]</a><div class=note> It would be easy to go over in the same manner +any other case. For instance, we may suppose, that, instead +of dispensing with the <i>whole</i> of the fixed capital, material, &c, +and taking on labourers in equal number to those by whom +these were produced, <i>half</i> only of the fixed capital and material is +dispensed with; so that, instead of 60 labourers and a fixed capital +worth 60 quarters of corn, we have 80 labourers and a fixed capital +worth 30. The numerical statement of this case is more intricate +than that in the text, but the result is not different.</div><br> + + + + +<hr style="width: 65%;"> +<a name="ESSAY_V"></a><h2>ESSAY V.</h2> + +<h2>ON THE DEFINITION OF POLITICAL ECONOMY; AND ON +THE METHOD OF INVESTIGATION PROPER TO IT.</h2> +<br> + +<p>It might be imagined, on a superficial view of the +nature and objects of definition, that the definition of +a science would occupy the same place in the chronological +which it commonly does in the didactic order. +As a treatise on any science usually commences with +an attempt to express, in a brief formula, what the +science is, and wherein it differs from other sciences, +so, it might be supposed, did the framing of such a +formula naturally precede the successful cultivation of +the science.</p> + +<p>This, however, is far from having been the case. +The definition of a science has almost invariably not +preceded, but followed, the creation of the science +itself. Like the wall of a city, it has usually been +erected, not to be a receptacle for such edifices as +might afterwards spring up, but to circumscribe an +aggregation already in existence. Mankind did not +measure out the ground for intellectual cultivation +before they began to plant it; they did not divide the +field of human investigation into regular compartments +first, and then begin to collect truths for the +purpose of being therein deposited; they proceeded +in a less systematic manner. As discoveries were +gathered in, either one by one, or in groups resulting +from the continued prosecution of some uniform course +of inquiry, the truths which were successively brought +into store cohered and became agglomerated according +to their individual affinities. Without any intentional +classification, the facts classed themselves. They +became associated in the mind, according to their +general and obvious resemblances; and the aggregates +thus formed, having to be frequently spoken of as +aggregates, came to be denoted by a common name. +Any body of truths which had thus acquired a collective +denomination, was called a <i>science</i>. It was long +before this fortuitous classification was felt not to be +sufficiently precise. It was in a more advanced stage +of the progress of knowledge that mankind became +sensible of the advantage of ascertaining whether the +facts which they had thus grouped together were distinguished +from all other facts by any common properties, +and what these were. The first attempts to +answer this question were commonly very unskilful, +and the consequent definitions extremely imperfect.</p> + +<p>And, in truth, there is scarcely any investigation in +the whole body of a science requiring so high a degree +of analysis and abstraction, as the inquiry, what the +science itself is; in other words, what are the properties +common to all the truths composing it, and distinguishing +them from all other truths. Many persons, +accordingly, who are profoundly conversant with the +details of a science, would be very much at a loss to +supply such a definition of the science itself as should +not be liable to well-grounded logical objections. +From this remark, we cannot except the authors of +elementary scientific treatises. The definitions which +those works furnish of the sciences, for the most part +either do not fit them—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.</p> + +<p>The definition of a science must, indeed, be placed +among that class of truths which Dugald Stewart had +in view, when he observed that the first principles of +all sciences belong to the philosophy of the human +mind. The observation is just; and the first principles +of all sciences, including the definitions of them, have +consequently participated hitherto in the vagueness +and uncertainty which has pervaded that most difficult +and unsettled of all branches of knowledge. If we +open any book, even of mathematics or natural philosophy, +it is impossible not to be struck with the mistiness +of what we find represented as preliminary and +fundamental notions, and the very insufficient manner +in which the propositions which are palmed upon us +as first principles seem to be made out, contrasted +with the lucidity of the explanations and the conclusiveness +of the proofs as soon as the writer enters +upon the details of his subject. Whence comes this +anomaly? Why is the admitted certainty of the +results of those sciences in no way prejudiced by the +want of solidity in their premises? How happens it +that a firm superstructure has been erected upon an +unstable foundation? The solution of the paradox <i>is</i>, +that what are called first principles, are, in truth, +<i>last</i> principles. Instead of being the fixed point from +whence the chain of proof which supports all the rest +of the science hangs suspended, they are themselves +the remotest link of the chain. Though presented as +if all other truths were to be deduced from them, they +are the truths which are last arrived at; the result of +the last stage of generalization, or of the last and +subtlest process of analysis, to which the particular +truths of the science can be subjected; those particular +truths having previously been ascertained by +the evidence proper to their own nature.</p> + +<p>Like other sciences, Political Economy has remained +destitute of a definition framed on strictly +logical principles, or even of, what is more easily to be +had, a definition exactly co-extensive with the thing +defined. This has not, perhaps, caused the real bounds +of the science to be, in this country at least, practically +mistaken or overpassed; but it has occasioned—perhaps +we should rather say it is connected with—indefinite, +and often erroneous, conceptions of the +mode in which the science should be studied.</p> + +<p>We proceed to verify these assertions by an examination +of the most generally received definitions of +the science.</p> + +<p>1. First, as to the vulgar notion of the nature and +object of Political Economy, we shall not be wide of +the mark if we state it to be something to this effect:—That +Political Economy is a science which teaches, +or professes to teach, in what manner a nation may +be made rich. This notion of what constitutes the +science, is in some degree countenanced by the title +and arrangement which Adam Smith gave to his invaluable +work. A systematic treatise on Political +Economy, he chose to call an <i>Inquiry into the Nature +and Causes of the Wealth of Nations</i>; and the topics +are introduced in an order suitable to that view of the +purpose of his book.</p> + +<p>With respect to the definition in question, if definition +it can be called which is not found in any set +form of words, but left to be arrived at by a process of +abstraction from a hundred current modes of speaking +on the subject; it seems liable to the conclusive objection, +that it confounds the essentially distinct, though +closely connected, ideas of <i>science</i> and <i>art</i>. These two +ideas differ from one another as the understanding +differs from the will, or as the indicative mood in +grammar differs from the imperative. The one deals in +facts, the other in precepts. Science is a collection of +<i>truths</i>; art, a body of <i>rules</i>, or directions for conduct. +The language of science is, This is, or, This is not; +This does, or does not, happen. The language of art +is, Do this; Avoid that. Science takes cognizance of +a <i>phenomenon</i>, and endeavours to discover its <i>law</i>; art +proposes to itself an <i>end</i>, and looks out for <i>means</i> to +effect it.</p> + +<p>If, therefore, Political Economy be a science, it +cannot be a collection of practical rules; though, +unless it be altogether a useless science, practical +rules must be capable of being founded upon it. +The science of mechanics, a branch of natural philosophy, +lays down the laws of motion, and the properties +of what are called the mechanical powers. The art of +practical mechanics teaches how we may avail ourselves +of those laws and properties, to increase our +command over external nature. An art would not be +an art, unless it were founded upon a scientific knowledge +of the properties of the subject-matter: without +this, it would not be philosophy, but empiricism; +[Greek: empeiria,] not [Greek: technae,] in Plato's sense. Rules, therefore, +for making a nation increase in wealth, are not a +science, but they are the results of science. Political +Economy does not of itself instruct how to make a +nation rich; but whoever would be qualified to judge +of the means of making a nation rich, must first be a +political economist.</p> + +<p>2. The definition most generally received among +instructed persons, and laid down in the commencement +of most of the professed treatises on the subject, +is to the following effect:—That Political Economy +informs us of the laws which regulate the production, +distribution, and consumption of wealth. To this +definition is frequently appended a familiar illustration. +Political Economy, it is said, is to the state, +what domestic economy is to the family.</p> + +<p>This definition is free from the fault which we +pointed out in the former one. It distinctly takes +notice that Political Economy is a science and not an +art; that it is conversant with laws of nature, not with +maxims of conduct, and teaches us how things take +place of themselves, not in what manner it is advisable +for us to shape them, in order to attain some particular +end.</p> + +<p>But though the definition is, with regard to this +particular point, unobjectionable, so much can scarcely +be said for the accompanying illustration; which +rather sends back the mind to the current loose +notion of Political Economy already disposed of. +Political Economy is really, and is stated in the +definition to be, a science: but domestic economy, so +far as it is capable of being reduced to principles, is +an art. It consists of rules, or maxims of prudence, +for keeping the family regularly supplied with what +its wants require, and securing, with any given amount +of means, the greatest possible quantity of physical +comfort and enjoyment. Undoubtedly the beneficial +<i>result</i>, the great practical <i>application</i> of Political Economy, +would be to accomplish for a nation something +like what the most perfect domestic economy accomplishes +for a single household: but supposing this +purpose realised, there would be the same difference +between the rules by which it might be effected, and +Political Economy, which there is between the art of +gunnery and the theory of projectiles, or between the +rules of mathematical land-surveying and the science +of trigonometry.</p> + +<p>The definition, though not liable to the same objection +as the illustration which is annexed to it, is +itself far from unexceptionable. To neither of them, +considered as standing at the head of a treatise, have +we much to object. At a very early stage in the +study of the science, anything more accurate would be +useless, and therefore pedantic. In a merely initiatory +definition, scientific precision is not required: the +object is, to insinuate into the learner's mind, it is +scarcely material by what means, some general preconception +of what are the uses of the pursuit, and what +the series of topics through which he is about to travel. +As a mere anticipation or <i>ébauche</i> of a definition, intended +to indicate to a learner as much as he is able +to understand before he begins, of the nature of what +is about to be taught to him, we do not quarrel with +the received formula. But if it claims to be admitted +as that complete <i>definitio</i> or boundary-line, which results +from a thorough exploring of the whole extent +of the subject, and is intended to mark the exact place +of Political Economy among the sciences, its pretension +cannot be allowed.</p> + +<p>"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.</p> + +<p>To confine ourselves to production: If the laws of +the production of all objects, or even of all material +objects, which are useful or agreeable to mankind, were +comprised in Political Economy, it would be difficult +to say where the science would end: at the least, all +or nearly all physical knowledge would be included in +it. Corn and cattle are material objects, in a high +degree useful to mankind. The laws of the production +of the one include the principles of agriculture; the +production of the other is the subject of the art of +cattle-breeding, which, in so far as really an art, must +be built upon the science of physiology. The laws of +the production of manufactured articles involve the +whole of chemistry and the whole of mechanics. The +laws of the production of the wealth which is extracted +from the bowels of the earth, cannot be set +forth without taking in a large part of geology.</p> + +<p>When a definition so manifestly surpasses in extent +what it professes to define, we must suppose that +it is not meant to be interpreted literally, though the +limitations with which it is to be understood are not +stated.</p> + +<p>Perhaps it will be said, that Political Economy is +conversant with such only of the laws of the production +of wealth as are applicable to <i>all</i> kinds of wealth: +those which relate to the details of particular trades +or employments forming the subject of other and +totally distinct sciences.</p> + +<p>If, however, there were no more in the distinction +between Political Economy and physical science than +this, the distinction, we may venture to affirm, would +never have been made. No similar division exists in +any other department of knowledge. We do not +break up zoology or mineralogy into two parts; one +treating of the properties common to all animals, or to +all minerals; another conversant with the properties +peculiar to each particular species of animals or minerals. +The reason is obvious; there is no distinction +<i>in kind</i> between the general laws of animal or of +mineral nature and the peculiar properties of particular +species. There is as close an analogy between +the general laws and the particular ones, as there is +between one of the general laws and another: most +commonly, indeed, the particular laws are but the +complex result of a plurality of general laws modifying +each other. A separation, therefore, between the +general laws and the particular ones, merely because +the former are general and the latter particular, would +run counter both to the strongest motives of convenience +and to the natural tendencies of the mind. +If the case is different with the laws of the production +of wealth, it must be because, in this case, the general +laws differ in kind from the particular ones. But if +so, the difference in kind is the radical distinction, +and we should find out what that is, and found our +definition upon it.</p> + +<p>But, further, the recognised boundaries which +separate the field of Political Economy from that of +physical science, by no means correspond with the +distinction between the truths which concern all kinds +of wealth and those which relate only to some kinds. +The three laws of motion, and the law of gravitation, +are common, as far as human observation has yet extended, +to all matter; and these, therefore, as being +among the laws of the production of all wealth, should +form part of Political Economy. There are hardly +any of the processes of industry which do not partly +depend upon the properties of the lever; but it would +be a strange classification which included those properties +among the truths of Political Economy. Again, +the latter science has many inquiries altogether as +special, and relating as exclusively to particular sorts +of material objects, as any of the branches of physical +science. The investigation of some of the circumstances +which regulate the price of corn, has as little +to do with the laws common to the production of all +wealth, as any part of the knowledge of the agriculturist. +The inquiry into the rent of mines or fisheries, +or into the value of the precious metals, elicits truths +which have immediate reference to the production +solely of a peculiar kind of wealth; yet these are +admitted to be correctly placed in the science of +Political Economy.</p> + +<p>The real distinction between Political Economy +and physical science must be sought in something +deeper than the nature of the subject-matter; which, +indeed, is for the most part common to both. Political +Economy, and the scientific grounds of all the +useful arts, have in truth one and the same subject-matter; +namely, the objects which conduce to man's +convenience and enjoyment: but they are, nevertheless, +perfectly distinct branches of knowledge.</p> + +<p>3. If we contemplate the whole field of human +knowledge, attained or attainable, we find that it +separates itself obviously, and as it were spontaneously, +into two divisions, which stand so strikingly in +opposition and contradistinction to one another, that +in all classifications of our knowledge they have been +kept apart. These are, <i>physical</i> science, and <i>moral</i> or +psychological science. The difference between these +two departments of our knowledge does not reside in +the subject-matter with which they are conversant: +for although, of the simplest and most elementary +parts of each, it may be said, with an approach to +truth, that they are concerned with different subject-matters—namely, +the one with the human mind, the +other with all things whatever except the mind; this +distinction does not hold between the higher regions +of the two. Take the science of politics, for instance, +or that of law: who will say that these are physical +sciences? and yet is it not obvious that they are conversant +fully as much with matter as with mind? +Take, again, the theory of music, of painting, of any +other of the fine arts, and who will venture to pronounce +that the facts they are conversant with belong +either wholly to the class of matter, or wholly to that +of mind?</p> + +<p>The following seems to be the <i>rationale</i> of the distinction +between physical and moral science.</p> + +<p>In all the intercourse of man with nature, whether +we consider him as acting upon it, or as receiving impressions +from it, the effect or phenomenon depends +upon causes of two kinds: the properties of the object +acting, and those of the object acted upon. Everything +which can possibly happen in which man and +external things, are jointly concerned, results from the +joint operation of a law or laws of matter, and a law +or laws of the human mind. Thus the production of +corn by human labour is the result of a law of mind, +and many laws of matter. The laws of matter are +those properties of the soil and of vegetable life which +cause the seed to germinate in the ground, and those +properties of the human body which render food +necessary to its support. The law of mind is, that +man desires to possess subsistence, and consequently +wills the necessary means of procuring it.</p> + +<p>Laws of mind and laws of matter are so dissimilar +in their nature, that it would be contrary to all principles +of rational arrangement to mix them up as part +of the same study. In all scientific methods, therefore, +they are placed apart. Any compound effect or +phenomenon which depends both on the properties of +matter and on those of mind, may thus become the +subject of two completely distinct sciences, or branches +of science; one, treating of the phenomenon in so far +as it depends upon the laws of matter only; the other +treating of it in so far as it depends upon the laws of +mind.</p> + +<p>The physical sciences are those which treat of the +laws of matter, and of all complex phenomena in so +far as dependent upon the laws of matter. The mental +or moral sciences are those which treat of the laws of +mind, and of all complex phenomena in so far as +dependent upon the laws of mind.</p> + +<p>Most of the moral sciences presuppose physical +science; but few of the physical sciences presuppose +moral science. The reason is obvious. There are +many phenomena (an earthquake, for example, or the +motions of the planets) which depend upon the laws +of matter exclusively; and have nothing whatever to +do with the laws of mind. Many, therefore, of the +physical sciences may be treated of without any reference +to mind, and as if the mind existed as a recipient +of knowledge only, not as a cause producing effects. +But there are no phenomena which depend exclusively +upon the laws of mind; even the phenomena of the +mind itself being partially dependent upon the physiological +laws of the body. All the mental sciences, +therefore, not excepting the pure science of mind, +must take account of a great variety of physical +truths; and (as physical science is commonly and very +properly studied first) may be said to presuppose them, +taking up the complex phenomena where physical +science leaves them.</p> + +<p>Now this, it will be found, is a precise statement +of the relation in which Political Economy stands to +the various sciences which are tributary to the arts of +production.</p> + +<p>The laws of the production of the objects which +constitute wealth, are the subject-matter both of +Political Economy and of almost all the physical +sciences. Such, however, of those laws as are purely +laws of matter, belong to physical science, and to that +exclusively. Such of them as are laws of the human +mind, and no others, belong to Political Economy, +which finally sums up the result of both combined.</p> + +<p>Political Economy, therefore, presupposes all the +physical sciences; it takes for granted all such of the +truths of those sciences as are concerned in the production +of the objects demanded by the wants of +mankind; or at least it takes for granted that the +physical part of the process takes place somehow. It +then inquires what are the phenomena of <i>mind</i> which +are concerned in the production and distribution <a name="FNanchor8"></a><a href="#Footnote_8"><sup>[8]</sup></a> of +those same objects; it borrows from the pure science +of mind the laws of those phenomena, and inquires +what effects follow from these mental laws, acting in +concurrence with those physical one. <a name="FNanchor9"></a><a href="#Footnote_9"><sup>[9]</sup></a></p> + +<p>From the above considerations the following seems +to come out as the correct and complete definition of +Political Economy:—"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."</p> + +<p>For popular use this definition is amply sufficient, +but it still falls short of the complete accuracy required +for the purposes of the philosopher. Political +Economy does not treat of the production and distribution +of wealth in all states of mankind, but only +in what is termed the social state; nor so far as they +depend upon the laws of human nature, but only so +far as they depend upon a certain portion of those +laws. This, at least, is the view which must be taken +of Political Economy, if we mean it to find any place +in an encyclopedical division of the field of science. +On any other view, it either is not science at all, or +it is several sciences. This will appear clearly, if, on +the one hand, we take a general survey of the moral +sciences, with a view to assign the exact place of +Political Economy among them; while, on the other, +we consider attentively the nature of the methods or +processes by which the truths which are the object of +those sciences are arrived at.</p> + +<p>Man, who, considered as a being having a moral +or mental nature, is the subject-matter of all the +moral sciences, may, with reference to that part of his +nature, form the subject of philosophical inquiry under +several distinct hypotheses. We may inquire what +belongs to man considered individually, and as if no +human being existed besides himself; we may next +consider him as coming into contact with other individuals; +and finally, as living in a state of <i>society</i>, +that is, forming part of a body or aggregation of +human beings, systematically co-operating for common +purposes. Of this last state, political government, +or subjection to a common superior, is an ordinary +ingredient, but forms no necessary part of the conception, +and, with respect to our present purpose, +needs not be further adverted to.</p> + +<p>Those laws or properties of human nature which +appertain to man as a mere individual, and do not +presuppose, as a necessary condition, the existence of +other individuals (except, perhaps, as mere instruments +or means), form a part of the subject of pure +mental philosophy. They comprise all the laws of the +mere intellect, and those of the purely self-regarding +desires.</p> + +<p>Those laws of human nature which relate to the +feelings called forth in a human being by other individual +human or intelligent beings, as such; namely, +the <i>affections</i>, the <i>conscience</i>, or feeling of duty, and the +love of <i>approbation</i>; and to the conduct of man, so +far as it depends upon, or has relation to, these parts +of his nature—form the subject of another portion of +pure mental philosophy, namely, that portion of it on +which <i>morals</i>, or <i>ethics</i>, are founded. For morality +itself is not a science, but an art; not truths, but +rules. The truths on which the rules are founded are +drawn (as is the case in all arts) from a variety of +sciences; but the principal of them, and those which +are most nearly peculiar to this particular art, belong +to a branch of the science of mind.</p> + +<p>Finally, there are certain principles of human +nature which are peculiarly connected with the ideas +and feelings generated in man by living in a state of +<i>society</i>, that is, by forming part of a union or aggregation +of human beings for a common purpose or +purposes. Few, indeed, of the elementary laws of the +human mind are peculiar to this state, almost all +being called into action in the two other states. But +those simple laws of human nature, operating in that +wider field, give rise to results of a sufficiently universal +character, and even (when compared with the +still more complex phenomena of which they are the +determining causes) sufficiently simple, to admit of +being called, though in a somewhat looser sense, <i>laws</i> +of society, or laws of human nature in the social +state. These laws, or general truths, form the subject +of a branch of science which may be aptly designated +from the title of <i>social economy</i>; somewhat less happily +by that of <i>speculative politics</i>, or the <i>science</i> of politics, +as contradistinguished from the art. This science +stands in the same relation to the social, as anatomy +and physiology to the physical body. It shows by +what principles of his nature man is induced to enter +into a state of society; how this feature in his position +acts upon his interests and feelings, and through them +upon his conduct; how the association tends progressively +to become closer, and the co-operation extends +itself to more and more purposes; what those purposes +are, and what the varieties of means most generally +adopted for furthering them; what are the various +relations which establish themselves among human +beings as the ordinary consequence of the social +union; what those which are different in different +states of society; in what historical order those states +tend to succeed one another; and what are the effects +of each upon the conduct and character of man.</p> + +<p>This branch of science, whether we prefer to call +it social economy, speculative politics, or the natural +history of society, presupposes the whole science of +the nature of the individual mind; since all the laws +of which the latter science takes cognizance are +brought into play in a state of society, and the truths +of the social science are but statements of the manner +in which those simple laws take effect in complicated +circumstances. Pure mental philosophy, therefore, is +an essential part, or preliminary, of political philosophy. +The science of social economy embraces every +part of man's nature, in so far as influencing the conduct +or condition of man in society; and therefore +may it be termed speculative politics, as being the +scientific foundation of practical politics, or the art +of government, of which the art of legislation is a +part <a name="FNanchor10"></a><a href="#Footnote_10"><sup>[10]</sup></a>.</p> + +<p>It is to <i>this</i> important division of the field of +science that one of the writers who have most correctly +conceived and copiously illustrated its nature +and limits,—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.</p> + +<p>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.</p> + +<p>Political Economy, then, may be defined as follows; +and the definition seems to be complete:—</p> + +<p>"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."</p> + +<p>But while this is a correct definition of Political +Economy as a portion of the field of science, the +didactic writer on the subject will naturally combine +in his exposition, with the truths of the pure science, +as many of the practical modifications as will, in his +estimation, be most conducive to the usefulness of his +work.</p> + +<hr style="width: 45%;"> + +<p>The above attempt to frame a stricter definition +of the science than what are commonly received as +such, may be thought to be of little use; or, at best, +to be chiefly useful in a general survey and classification +of the sciences, rather than as conducing to the +more successful pursuit of the particular science in +question. We think otherwise, and for this reason; +that, with the consideration of the definition of a +science, is inseparably connected that of the <i>philosophic +method</i> of the science; the nature of the process by +which its investigations are to be carried on, its +truths to be arrived at.</p> + +<p>Now, in whatever science there are systematic +differences of opinion—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.</p> + +<p>The most universal of the forms in which this difference +of method is accustomed to present itself, is the +ancient feud between what is called theory, and what +is called practice or experience. There are, on social +and political questions, two kinds of reasoners: there +is one portion who term themselves practical men, and +call the others theorists; a title which the latter do not +reject, though they by no means recognise it as peculiar +to them. The distinction between the two is a very +broad one, though it is one of which the language employed +is a most incorrect exponent. It has been again +and again demonstrated, that those who are accused of +despising facts and disregarding experience build and +profess to build wholly upon facts and experience; while +those who disavow theory cannot make one step without +theorizing. But, although both classes of inquirers +do nothing but theorize, and both of them consult no +other guide than experience, there is this difference +between them, and a most important difference it is: +that those who are called practical men require <i>specific</i> +experience, and argue wholly <i>upwards</i> from particular +facts to a general conclusion; while those who are +called theorists aim at embracing a wider field of experience, +and, having argued upwards from particular +facts to a general principle including a much wider +range than that of the question under discussion, then +argue <i>downwards</i> from that general principle to a variety +of specific conclusions.</p> + +<p>Suppose, for example, that the question were, whether +absolute kings were likely to employ the powers +of government for the welfare or for the oppression of +their subjects. The practicals would endeavour to +determine this question by a direct induction from the +conduct of particular despotic monarchs, as testified +by history. The theorists would refer the question +to be decided by the test not solely of our experience +of kings, but of our experience of men. They would +contend that an observation of the tendencies which +human nature has manifested in the variety of situations +in which human beings have been placed, and +especially observation of what passes in our own minds, +warrants us in inferring that a human being in the +situation of a despotic king will make a bad use of +power; and that this conclusion would lose nothing of +its certainty even if absolute kings had never existed, +or if history furnished us with no information of the +manner in which they had conducted themselves.</p> + +<p>The first of these methods is a method of induction, +merely; the last a mixed method of induction and +ratiocination. The first may be called the method <i>à +posteriori;</i> the latter, the method <i>à priori</i>. We are +aware that this last expression is sometimes used to +characterize a supposed mode of philosophizing, which +does not profess to be founded upon experience at all. +But we are not acquainted with any mode of philosophizing, +on political subjects at least, to which such a +description is fairly applicable. By the method <i>à posteriori</i> +we mean that which requires, as the basis of its +conclusions, not experience merely, but specific experience. +By the method <i>à priori</i> we mean (what has +commonly been meant) reasoning from an assumed +hypothesis; which is not a practice confined to mathematics, +but is of the essence of all science which admits +of general reasoning at all. To verify the hypothesis +itself <i>à posteriori</i>, that is, to examine whether the +facts of any actual case are in accordance with it, is no +part of the business of science at all, but of the <i>application</i> +of science.</p> + +<p>In the definition which we have attempted to frame +of the science of Political Economy, we have characterized +it as essentially an <i>abstract</i> science, and its +method as the method <i>à priori</i>. Such is undoubtedly +its character as it has been understood and taught by +all its most distinguished teachers. It reasons, and, as +we contend, must necessarily reason, from assumptions, +not from facts. It is built upon hypotheses, strictly +analogous to those which, under the name of definitions, +are the foundation of the other abstract sciences. +Geometry presupposes an arbitrary definition of a line, +"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 <i>assumed</i> +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, <i>in the +abstract</i>; that is, they are only true under certain suppositions, +in which none but general causes—causes +common to the <i>whole class</i> of cases under consideration—are +taken into the account.</p> + +<p>This ought not to be denied by the political economist. +If he deny it, then, and then only, he places +himself in the wrong. The <i>à priori</i> method which is +laid to his charge, as if his employment of it proved his +whole science to be worthless, is, as we shall presently +show, the only method by which truth can possibly be +attained in any department of the social science. All +that is requisite is, that he be on his guard not to +ascribe to conclusions which are grounded upon an +hypothesis a different kind of certainty from that which +really belongs to them. They would be true without +qualification, only in a case which is purely imaginary. +In proportion as the actual facts recede from the hypothesis, +he must allow a corresponding deviation from +the strict letter of his conclusion; otherwise it will be +true only of things such as he has arbitrarily supposed, +not of such things as really exist. That which is true +in the abstract, is always true in the concrete with +proper <i>allowances</i>. When a certain cause really exists, +and if left to itself would infallibly produce a certain +effect, that same effect, <i>modified</i> by all the other concurrent +causes, will correctly correspond to the result +really produced.</p> + +<p>The conclusions of geometry are not strictly true +of such lines, angles, and figures, as human hands can +construct. But no one, therefore, contends that the +conclusions of geometry are of no utility, or that it +would be better to shut up Euclid's Elements, and +content ourselves with "practice" and "experience."</p> + +<p>No mathematician ever thought that his definition +of a line corresponded to an actual line. As little did +any political economist ever imagine that real men had +no object of desire but wealth, or none which would not +give way to the slightest motive of a pecuniary kind. +But they were justified in assuming this, for the purposes +of their argument; because they had to do only +with those parts of human conduct which have pecuniary +advantage for their direct and principal object; +and because, as no two individual cases are exactly +alike, no <i>general</i> maxims could ever be laid down unless +<i>some</i> of the circumstances of the particular case +were left out of consideration.</p> + +<p>But we go farther than to affirm that the method +<i>à priori</i> is a legitimate mode of philosophical investigation +in the moral sciences: we contend that it is the +only mode. We affirm that the method <i>à posteriori</i>, or +that of specific experience, is altogether inefficacious in +those sciences, as a means of arriving at any considerable +body of valuable truth; though it admits of being +usefully applied in aid of the method <i>à priori</i>, and +even forms an indispensable supplement to it.</p> + +<p>There is a property common to almost all the moral +sciences, and by which they are distinguished from +many of the physical; this is, that it is seldom in our +power to make experiments in them. In chemistry +and natural philosophy, we can not only observe what +happens under all the combinations of circumstances +which nature brings together, but we may also try an +indefinite number of new combinations. This we can +seldom do in ethical, and scarcely ever in political science. +We cannot try forms of government and systems +of national policy on a diminutive scale in our +laboratories, shaping our experiments as we think they +may most conduce to the advancement of knowledge. +We therefore study nature under circumstances of +great disadvantage in these sciences; being confined +to the limited number of experiments which take place +(if we may so speak) of their own accord, without any +preparation or management of ours; in circumstances, +moreover, of great complexity, and never perfectly +known to us; and with the far greater part of the +processes concealed from our observation.</p> + +<p>The consequence of this unavoidable defect in the +materials of the induction is, that we can rarely obtain +what Bacon has quaintly, but not unaptly, termed an +<i>experimentum crucis</i>.</p> + +<p>In any science which admits of an unlimited range +of arbitrary experiments, an <i>experimentum crucis</i> may +always be obtained. Being able to vary all the circumstances, +we can always take effectual means of +ascertaining which of them are, and which are not, +material. Call the effect B, and let the question be +whether the cause A in any way contributes to it. +We try an experiment in which all the surrounding +circumstances are altered, except A alone: if the effect +B is nevertheless produced, A is the cause of it. Or, +instead of leaving A, and changing the other circumstances, +we leave all the other circumstances and +change A: if the effect B in that case does <i>not</i> take +place, then again A is a necessary condition of its +existence. Either of these experiments, if accurately +performed, is an <i>experimentum crucis</i>; it converts the +presumption we had before of the existence of a connection +between A and B into proof, by negativing +every other hypothesis which would account for the +appearances.</p> + +<p>But this can seldom be done in the moral sciences, +owing to the immense multitude of the influencing +circumstances, and our very scanty means of varying +the experiment. Even in operating upon an individual +mind, which is the case affording greatest room for +experimenting, we cannot often obtain a <i>crucial</i> experiment. +The effect, for example, of a particular circumstance +in education, upon the formation of character, +may be tried in a variety of cases, but we can +hardly ever be certain that any two of those cases +differ in all their circumstances except the solitary +one of which we wish to estimate the influence. In +how much greater a degree must this difficulty exist in +the affairs of states, where even the <i>number</i> of recorded +experiments is so scanty in comparison with the variety +and multitude of the circumstances concerned in each. +How, for example, can we obtain a crucial experiment +on the effect of a restrictive commercial policy upon +national wealth? We must find two nations alike in +every other respect, or at least possessed, in a degree +exactly equal, of everything which conduces to national +opulence, and adopting exactly the same policy in all +their other affairs, but differing in this only, that one +of them adopts a system of commercial restrictions, and +the other adopts free trade. This would be a decisive experiment, +similar to those which we can almost always +obtain in experimental physics. Doubtless this would +be the most conclusive evidence of all if we could get +it. But let any one consider how infinitely numerous +and various are the circumstances which either directly +or indirectly do or may influence the amount of the +national wealth, and then ask himself what are the +probabilities that in the longest revolution of ages two +nations will be found, which agree, and can be shown +to agree, in all those circumstances except one?</p> + +<p>Since, therefore, it is vain to hope that truth can +be arrived at, either in Political Economy or in any +other department of the social science, while we look +at the facts in the concrete, clothed in all the complexity +with which nature has surrounded them, and +endeavour to elicit a general law by a process of induction +from a comparison of details; there remains no +other method than the <i>à priori</i> one, or that of "abstract +speculation."</p> + +<p>Although sufficiently ample grounds are not afforded +in the field of politics, for a satisfactory induction by a +comparison of the effects, the causes may, in all cases, +be made the subject of specific experiment. These +causes are, laws of human nature, and external circumstances +capable of exciting the human will to action. +The desires of man, and the nature of the conduct to +which they prompt him, are within the reach of our +observation. We can also observe what are the objects +which excite those desires. The materials of +this knowledge every one can principally collect within +himself; with reasonable consideration of the differences, +of which experience discloses to him the existence, +between himself and other people. Knowing +therefore accurately the properties of the substances +concerned, we may reason with as much certainty as in +the most demonstrative parts of physics from any +assumed set of circumstances. This will be mere trifling +if the assumed circumstances bear no sort of resemblance +to any real ones; but if the assumption is correct +as far as it goes, and differs from the truth no +otherwise than as a part differs from the whole, then +the conclusions which are correctly deduced from the +assumption constitute <i>abstract</i> truth; and when completed +by adding or subtracting the effect of the non-calculated +circumstances, they are true in the concrete, +and may be applied to practice.</p> + +<p>Of this character is the science of Political Economy +in the writings of its best teachers. To render it perfect +as an abstract science, the combinations of circumstances +which it assumes, in order to trace their effects, +should embody all the circumstances that are common +to all cases whatever, and likewise all the circumstances +that are common to any important class of cases. +The conclusions correctly deduced from these assumptions, +would be as true in the abstract as those of +mathematics; and would be as near an approximation +as abstract truth can ever be, to truth in the +concrete.</p> + +<p>When the principles of Political Economy are to +be applied to a particular ease, then it is necessary to +take into account all the individual circumstances of +that case; not only examining to which of the sets of +circumstances contemplated by the abstract science +the circumstances of the case in question correspond, +but likewise what other circumstances may exist in +that case, which not being common to it with any large +and strongly-marked class of cases, have not fallen +under the cognizance of the science. These circumstances +have been called <i>disturbing causes</i>. And here +only it is that an element of uncertainty enters into +the process—an uncertainty inherent in the nature +of these complex phenomena, and arising from the +impossibility of being quite sure that all the circumstances +of the particular case are known to us sufficiently +in detail, and that our attention is not unduly +diverted from any of them.</p> + +<p>This constitutes the only uncertainty of Political +Economy; and not of it alone, but of the moral sciences +in general. When the disturbing causes are known, +the allowance necessary to be made for them detracts +in no way from scientific precision, nor constitutes any +deviation from the <i>à priori</i> method. The disturbing +causes are not handed over to be dealt with by mere +conjecture. Like <i>friction</i> in mechanics, to which they +have been often compared, they may at first have been +considered merely as a non-assignable deduction to be +made by guess from the result given by the general +principles of science; but in time many of them are +brought within the pale of the abstract science itself, +and their effect is found to admit of as accurate an +estimation as those more striking effects which they +modify. The disturbing causes have their laws, as the +causes which are thereby disturbed have theirs; and +from the laws of the disturbing causes, the nature and +amount of the disturbance may be predicted <i>à priori</i>, +like the operation of the more general laws which they +are said to modify or disturb, but with which they +might more properly be said to be concurrent. The +effect of the special causes is then to be added to, or +subtracted from, the effect of the general ones.</p> + +<p>These disturbing causes are sometimes circumstances +which operate upon human conduct through +the same principle of human nature with which Political +Economy is conversant, namely, the desire of +wealth, but which are not general enough to be taken +into account in the abstract science. Of disturbances +of this description every political economist can produce +many examples. In other instances the disturbing +cause is some other law of human nature. In the +latter case it never can fall within the province of +Political Economy; it belongs to some other science; +and here the mere political economist, he who has +studied no science but Political Economy, if he attempt +to apply his science to practice, will fail. <a name="FNanchor11"></a><a href="#Footnote_11"><sup>[11]</sup></a></p> + +<p>As for the other kind of disturbing causes, namely +those which operate through the same law of human +nature out of which the general principles of the +science arise, these might always be brought within +the pale of the abstract science if it were worth while; +and when we make the necessary allowances for them +in practice, if we are doing anything but guess, we are +following out the method of the abstract science into +minuter details; inserting among its hypotheses a +fresh and still more complex combination of circumstances, +and so adding <i>pro hác vice</i> a supplementary +chapter or appendix, or at least a supplementary +theorem, to the abstract science.</p> + +<p>Having now shown that the method <i>à priori</i> in +Political Economy, and in all the other branches of +moral science, is the only certain or scientific mode +of investigation, and that the <i>à posteriori</i> method, or +that of specific experience, as a means of arriving at +truth, is inapplicable to these subjects, we shall be +able to show that the latter method is notwithstanding +of great value in the moral sciences; namely, not as a +means of discovering truth, but of verifying it, and +reducing to the lowest point that uncertainty before +alluded to as arising from the complexity of every +particular case, and from the difficulty (not to say +impossibility) of our being assured <i>à priori</i> that we +have taken into account all the material circumstances.</p> + +<p>If we could be quite certain that we knew all the +facts of the particular case, we could derive little additional +advantage from specific experience. The causes +being given, we may know what will be their effect, +without an actual trial of every possible combination; +since the causes are human feelings, and outward circumstances +fitted to excite them: and, as these for +the most part are, or at least might be, familiar to us, +we can more surely judge of their combined effect +from that familiarity, than from any evidence which +can be elicited from the complicated and entangled +circumstances of an actual experiment. If the knowledge +what are the particular causes operating in any +given instance were revealed to us by infallible authority, +then, if our abstract science were perfect, we +should become prophets. But the causes are not so +revealed: they are to be collected by observation; and +observation in circumstances of complexity is apt to +be imperfect. Some of the causes may lie beyond +observation; many are apt to escape it, unless we are +on the look-out for them; and it is only the habit of +long and accurate observation which can give us so +correct a preconception what causes we are likely to +find, as shall induce us to look for them in the right +quarter. But such is the nature of the human understanding, +that the very fact of attending with intensity +to one part of a thing, has a tendency to withdraw +the attention from the other parts. We are consequently +in great danger of adverting to a portion only +of the causes which are actually at work. And if we +are in this predicament, the more accurate our deductions +and the more certain our conclusions in the +abstract, (that is, making abstraction of all circumstances +except those which form part of the hypothesis,) +the less we are likely to suspect that we are +in error: for no one can have looked closely into the +sources of fallacious thinking without being deeply +conscious that the coherence, and neat concatenation +of our philosophical systems, is more apt than we are +commonly aware to pass with us as evidence of their +truth.</p> + +<p>We cannot, therefore, too carefully endeavour to +verify our theory, by comparing, in the particular cases +to which we have access, the results which it would +have led us to predict, with the most trustworthy +accounts we can obtain of those which have been +actually realized. The discrepancy between our anticipations +and the actual fact is often the only circumstance +which would have drawn our attention to some +important disturbing cause which we had overlooked. +Nay, it often discloses to us errors in thought, still +more serious than the omission of what can with any +propriety be termed a disturbing cause. It often +reveals to us that the basis itself of our whole argument +is insufficient; that the data, from which we had +reasoned, comprise only a part, and not always the +most important part, of the circumstances by which +the result is really determined. Such oversights are +committed by very good reasoners, and even by a still +rarer class, that of good observers. It is a kind of +error to which those are peculiarly liable whose views +are the largest and most philosophical: for exactly in +that ratio are their minds more accustomed to dwell +upon those laws, qualities, and tendencies, which are +common to large classes of cases, and which belong to +all place and all time; while it often happens that +circumstances almost peculiar to the particular case +or era have a far greater share in governing that one +case.</p> + +<p>Although, therefore, a philosopher be convinced +that no general truths can be attained in the affairs +of nations by the <i>à posteriori</i> road, it does not the less +behove him, according to the measure of his opportunities, +to sift and scrutinize the details of every +specific experiment. Without this, he may be an +excellent professor of abstract science; for a person +may be of great use who points out correctly what +effects will follow from certain combinations of possible +circumstances, in whatever tract of the extensive +region of hypothetical cases those combinations may +be found. He stands in the same relation to the +legislator, as the mere geographer to the practical +navigator; telling him the latitude and longitude of +all sorts of places, but not how to find whereabouts +he himself is sailing. If, however, he does no more +than this, he must rest contented to take no share in +practical politics; to have no opinion, or to hold it +with extreme modesty, on the applications which +should be made of his doctrines to existing circumstances.</p> + +<p>No one who attempts to lay down propositions +for the guidance of mankind, however perfect his +scientific acquirements, can dispense with a practical +knowledge of the actual modes in which the affairs of +the world are carried on, and an extensive personal +experience of the actual ideas, feelings, and intellectual +and moral tendencies of his own country and of +his own age. The true practical statesman is he who +combines this experience with a profound knowledge +of abstract political philosophy. Either acquirement, +without the other, leaves him lame and impotent if he +is sensible of the deficiency; renders him obstinate and +presumptuous if, as is more probable, he is entirely +unconscious of it.</p> + +<p>Such, then, are the respective offices and uses of +the <i>à priori</i> and the <i>à posteriori</i> 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 <i>nisi</i>—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 <i>asserted</i> to be true, but because +in its nature it <i>may</i> be true, that a sincere and +patient inquirer will feel himself called upon to investigate +it. He will use the assertions of opponents not +as evidence, but indications leading to evidence; suggestions +of the most proper course for his own inquiries.</p> + +<p>But while the philosopher and the practical man +bandy half-truths with one another, we may seek far +without finding one who, placed on a higher eminence +of thought, comprehends as a whole what they see only +in separate parts; who can make the anticipations of +the philosopher guide the observation of the practical +man, and the specific experience of the practical man +warn the philosopher where something is to be added +to his theory.</p> + +<p>The most memorable example in modern times of +a man who united the spirit of philosophy with the +pursuits of active life, and kept wholly clear from the +partialities and prejudices both of the student and of +the practical statesman, was Turgot; the wonder not +only of his age, but of history, for his astonishing combination +of the most opposite, and, judging from common +experience, almost incompatible excellences.</p> + +<p>Though it is impossible to furnish any test by which +a speculative thinker, either in Political Economy or in +any other branch of social philosophy, may know that +he is competent to judge of the application of his +principles to the existing condition of his own or any +other country, indications may be suggested by the +absence of which he may well and surely know that he +is not competent. His knowledge must at least enable +him to explain and account for what <i>is</i>, or he is +an insufficient judge of what ought to be. If a political +economist, for instance, finds himself puzzled by +any recent or present commercial phenomena; if there +is any mystery to him in the late or present state of +the productive industry of the country, which his knowledge +of principle does not enable him to unriddle; he +may be sure that something is wanting to render his +system of opinions a safe guide in existing circumstances. +Either some of the facts which influence +the situation of the country and the course of events +are not known to him; or, knowing them, he knows +not what ought to be their effects. In the latter case +his system is imperfect even as an abstract system; it +does not enable him to trace correctly all the consequences +even of assumed premises. Though he succeed +in throwing doubts upon the reality of some of +the phenomena which he is required to explain, his +task is not yet completed; even then he is called upon +to show how the belief, which he deems unfounded, +arose; and what is the real nature of the appearances +which gave a colour of probability to allegations which +examination proves to be untrue.</p> + +<p>When the speculative politician has gone through +this labour—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.</p> + +<p>The method of the practical philosopher consists, +therefore, of two processes; the one analytical, the +other synthetical. He must <i>analyze</i> the existing state +of society into its elements, not dropping and losing +any of them by the way. After referring to the experience +of individual man to learn the <i>law</i> of each of +these elements, that is, to learn what are its natural +effects, and how much of the effect follows from so +much of the cause when not counteracted by any +other cause, there remains an operation of <i>synthesis</i>; +to put all these effects together, and, from what +they are separately, to collect what would be the +effect of all the causes acting at once. If these +various operations could be correctly performed, the +result would be prophecy; but, as they can be performed +only with a certain approximation to correctness, +mankind can never predict with absolute certainty, +but only with a less or greater degree of probability; +according as they are better or worse apprised +what the causes are,—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.</p> + +<p>With all the precautions which have been indicated +there will still be some danger of falling into partial +views; but we shall at least have taken the best securities +against it. All that we can do more, is to +endeavour to be impartial critics of our own theories, +and to free ourselves, as far as we are able, from that +reluctance from which few inquirers are altogether +him to expect, and do not enable him to explain, may +become the subject of a fresh analysis, and furnish the +occasion for a consequent enlargement or correction +of his general views.</p> + +<p>The method of the practical philosopher consists, +therefore, of two processes; the one analytical, the +other synthetical. He must <i>analyze</i> the existing state +of society into its elements, not dropping and losing +any of them by the way. After referring to the experience +of individual man to learn the <i>law</i> of each of +these elements, that is, to learn what are its natural +effects, and how much of the effect follows from so +much of the cause when not counteracted by any +other cause, there remains an operation of <i>synthesis</i>; +to put all these effects together, and, from what +they are separately, to collect what would be the +effect of all the causes acting at once. If these +various operations could be correctly performed, the +result would be prophecy; but, as they can be performed +only with a certain approximation to correctness, +mankind can never predict with absolute certainty, +but only with a less or greater degree of probability; +according as they are better or worse apprised +what the causes are,—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.</p> + +<p>With all the precautions which have been indicated +there will still be some danger of falling into partial +views; but we shall at least have taken the best securities +against it. All that we can do more, is to +endeavour to be impartial critics of our own theories, +and to free ourselves, as far as we are able, from that +reluctance from which few inquirers are altogether +exempt, to admit the reality or relevancy of any +facts which they have not previously either taken into, +or left a place open for in, their systems.</p> + +<p>If indeed every phenomenon was generally the +effect of no more than one cause, a knowledge of the +law of that cause would, unless there was a logical +error in our reasoning, enable us confidently to predict +all the circumstances of the phenomenon. We +might then, if we had carefully examined our premises +and our reasoning, and found no flaw, venture +to disbelieve the testimony which might be brought to +show that matters had turned out differently from +what we should have predicted. If the causes of +erroneous conclusions were always patent on the face +of the reasonings which lead to them, the human understanding +would be a far more trustworthy instrument +than it is. But the narrowest examination of +the process itself will help us little towards discovering +that we have omitted part of the premises which +we ought to have taken into our reasoning. Effects +are commonly determined by a <i>concurrence</i> of causes. +If we have overlooked any one cause, we may reason +justly from all the others, and only be the further +wrong. Our premises will be true, and our reasoning +correct, and yet the result of no value in the particular +case. There is, therefore, almost always room +for a modest doubt as to our practical conclusions. +Against false premises and unsound reasoning, a good +mental discipline may effectually secure us; but against +the danger of <i>overlooking</i> something, neither strength +of understanding nor intellectual cultivation can be +more than a very imperfect protection. A person +may be warranted in feeling confident, that whatever +he has carefully contemplated with his mind's eye he +has seen correctly; but no one can be sure that there +is not something in existence which he has not seen +at all. He can do no more than satisfy himself that +he has seen all that is visible to any other persons +who have concerned themselves with the subject. +For this purpose he must endeavour to place himself +at their point of view, and strive earnestly to see the +object as they see it; nor give up the attempt until +he has either added the appearance which is floating +before them to his own stock of realities, or made out +clearly that it is an optical deception.</p> + +<hr style="width: 45%;"> + +<p>The principles which we have now stated are by no +means alien to common apprehension: they are not +absolutely hidden, perhaps, from any one, but are +commonly seen through a mist. We might have presented +the latter part of them in a phraseology in +which they would have seemed the most familiar of +truisms: we might have cautioned inquirers against +too extensive <i>generalization</i>, and reminded them that +there are <i>exceptions</i> to all rules. Such is the current +language of those who distrust comprehensive thinking, +without having any clear notion why or where it +ought to be distrusted. We have avoided the use of +these expressions purposely, because we deem them +superficial and inaccurate. The error, when there is +error, does <i>not</i> arise from generalizing too extensively; +that is, from including too wide a range of particular +cases in a single proposition. Doubtless, a man often +asserts of an entire class what is only true of a part of +it; but his error generally consists not in making too +wide an assertion, but in making the wrong <i>kind</i> of +assertion: he predicated an actual result, when he +should only have predicated a <i>tendency</i> to that result—a +power acting with a certain intensity in that +direction. With regard to <i>exceptions</i>; in any tolerably +ably advanced science there is properly no such thing +as an exception. What is thought to be an exception +to a principle is always some other and distinct +principle cutting into the former: some other force +which impinges against the first force, and deflects it +from its direction. There are not a <i>law</i> and an <i>exception</i> +to that law—the law acting in ninety-nine cases, +and the exception in one. There are two laws, each +possibly acting in the whole hundred cases, and bringing +about a common effect by their conjunct operation. +If the force which, being the less conspicuous +of the two, is called the disturbing force, prevails +sufficiently over the other force in some one case, to +constitute that case what is commonly called an exception, +the same disturbing force probably acts as a +modifying cause in many other cases which no one +will call exceptions.</p> + +<p>Thus if it were stated to be a law of nature, that +all heavy bodies fall to the ground, it would probably +be said that the resistance of the atmosphere, which +prevents a balloon from falling, constitutes the balloon +an exception to that pretended law of nature. But +the real law is, that all heavy bodies <i>tend</i> to fall; and +to this there is no exception, not even the sun and +moon; for even they, as every astronomer knows, +tend towards the earth, with a force exactly equal to +that with which the earth tends towards them. The +resistance of the atmosphere might, in the particular +case of the balloon, from a misapprehension of what +the law of gravitation is, be said to <i>prevail</i> over the +law; but its disturbing effect is quite as real in every +other case, since though it does not prevent, it retards +the fall of all bodies whatever. The rule, and the +so-called exception, do not divide the cases between +them; each of them is a comprehensive rule extending +to all cases. To call one of these concurrent +principles an exception to the other, is superficial, +and contrary to the correct principles of nomenclature +and arrangement. An effect of precisely the same +kind, and arising from the same cause, ought not to +be placed in two different categories, merely as there +does or does not exist another cause preponderating +over it.</p> + +<p>It is only in art, as distinguished from science, that +we can with propriety speak of exceptions. Art, the +immediate end of which is practice, has nothing to do +with causes, except as the means of bringing about +effects. However heterogeneous the causes, it carries +the effects of them all into one single reckoning, and +according as the sum-total is <i>plus</i> or <i>minus</i>, according +as it falls above or below a certain line, Art says, Do +this, or Abstain from doing it. The exception does +not run by insensible degrees into the rule, like what +are called exceptions in science. In a question of +practice it frequently happens that a certain thing is +either fit to be done, or fit to be altogether abstained +from, there being no medium. If, in the majority +of cases, it is fit to be done, that is made the rule. +When a case subsequently occurs in which the thing +ought not to be done, an entirely new leaf is turned +over; the rule is now done with, and dismissed: a new +train of ideas is introduced, between which and those +involved in the rule there is a broad line of demarcation; +as broad and <i>tranchant</i> as the difference between +Ay and No. Very possibly, between the last case +which comes within the rule and the first of the exception, +there is only the difference of a shade: but +that shade probably makes the whole interval between +acting in one way and in a totally different one. We +may, therefore, in talking of art, unobjectionably speak +of the <i>rule</i> and the <i>exception</i>; meaning by the rule, +the cases in which there exists a preponderance, however +slight, of inducements for acting in a particular +way; and by the exception, the cases in which the +preponderance is on the contrary side.</p> + +<p class="NO"><b>NOTES:</b></p> + +<p><a name="Footnote_8"></a><a href="#FNanchor8">[8]</a><div class=note> We say, the <i>production</i> and <i>distribution</i>, not, as is usual +with writers on this science, the production, distribution, and <i>consumption</i>. +For we contend that Political Economy, as conceived +by those very writers, has nothing to do with the consumption of +wealth, further than as the consideration of it is inseparable from +that of production, or from that of distribution. We know not of +any <i>laws</i> of the <i>consumption</i> of wealth as the subject of a distinct +science: they can be no other than the laws of human enjoyment. +Political economists have never treated of consumption on its own +account, but always for the purpose of the inquiry in what manner +different kinds of consumption affect the production and distribution +of wealth. Under the head of Consumption, in professed +treatises on the science, the following are the subjects treated of: +1st, The distinction between <i>productive</i> and <i>unproductive</i> consumption; +2nd, The inquiry whether it is possible for <i>too much</i> wealth +to be <i>produced</i>, and for too great a portion of what has been produced +to be applied to the purpose of further <i>production</i>; 3rd, +The theory of taxation, that is to say, the following two questions—by +whom each particular tax is paid (a question of <i>distribution</i>), +and in what manner particular taxes affect <i>production</i>.</div><br> + +<p><a name="Footnote_9"></a><a href="#FNanchor9">[9]</a><div class=note> The physical laws of the production of useful objects are all +equally presupposed by the science of Political Economy: most of +them, however, it presupposes in the gross, seeming to say nothing +about them. A few (such, for instance, as the decreasing ratio in +which the produce of the soil is increased by an increased application +of labour) it is obliged particularly to specify, and thus +seems to borrow those truths from the physical sciences to which +they properly belong, and include them among its own.</div><br> + +<p><a name="Footnote_10"></a><a href="#FNanchor10">[10]</a><div class=note> The <i>science</i> of legislation is an incorrect and misleading expression. +Legislation is <i>making laws</i>. We do not talk of the +<i>science</i> of <i>making</i> anything. Even the <i>science of government</i> would +be an objectionable expression, were it not that <i>government</i> is often +loosely taken to signify, not the act of governing, but the state or +condition of <i>being governed</i>, or of living under a government. A +preferable expression would be, the science of <i>political society</i>; a +principal branch of the more extensive science of society, characterized +in the text.</div><br> + +<p><a name="Footnote_11"></a><a href="#FNanchor11">[11]</a><div class=note> One of the strongest reasons for drawing the line of separation +clearly and broadly between science and art is the following:—That +the principle of classification in science most +conveniently follows the classification of <i>causes</i>, while arts must +necessarily be classified according to the classification of the <i>effects</i>, +the production of which is their appropriate end. Now an effect, +whether in physics or morals, commonly depends upon a concurrence +of causes, and it frequently happens that several of these +causes belong to different sciences. Thus in the construction of +engines upon the principles of the science of <i>mechanics</i>, it is +necessary to bear in mind the <i>chemical</i> properties of the material, +such as its liability to oxydize; its electrical and magnetic properties, +and so forth. From this it follows that although the +necessary foundation of all art is science, that is, the knowledge +of the properties or laws of the objects upon which, and with +which, the art dons its work; it is not equally true that every art +corresponds to one particular science. Each art presupposes, not +one science, but science in general; or, at least, many distinct +sciences.</div><br><br> + + + +<p>THE END.</p> +<br><br> +<p>(Editor's note)</p> + +<p><b>Essays on some Unsettled. +Questions of Political +Economy</b></p> + +<p>These five essays represent Mill's +earliest thoughts on economic matters +and were first composed in 1829 and +1830 before his reputation had been +established by the publication of <i>Logic</i> +in 1843. Their successful reception no +doubt hastened the composition of his +comprehensive work the <i>Principles of +Political Economy</i> (1848).</p> + +<div>*** END OF THE PROJECT GUTENBERG EBOOK 12004 ***</div> +</body> +</html> + + + |