{"collection":"philosophy-ethics","full_text_available":true,"graph_url":"https://unchartedknowledge.5gfusion.net/v2/api/page/gutenberg_12004/graph","html_url":"https://unchartedknowledge.5gfusion.net/v2/page/gutenberg_12004","id":"gutenberg_12004","license":"Public Domain (US)","rights_basis":"gutenberg_metadata_copyright_false","source":"gutenberg","source_url":"https://www.gutenberg.org/ebooks/12004","summary":null,"tags":["Category: Economics","Economics","Philosophy"],"text":"ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY\n\nby\n\nJOHN STUART MILL\n\n\n1844\n\n\n\n\nPREFACE.\n\n\nOf these Essays, which were written in 1829 and 1830, the fifth alone\nhas been previously printed. The other four have hitherto remained in\nmanuscript, because, during the temporary suspension of public interest\nin the species of discussion to which they belong, there was no\ninducement to their publication.\n\nThey are now published (with a few merely verbal alterations) under the\nimpression, that the controversies excited by Colonel Torrens' _Budget_\nhave again called the attention of political economists to the\ndiscussions of the abstract science: and from the additional\nconsideration, that the first paper relates expressly to the point upon\nwhich the question at issue between Colonel Torrens and his antagonists\nhas principally turned.\n\nFrom that paper it will be seen that opinions identical in principle\nwith those promulgated by Colonel Torrens (there would probably be\nconsiderable difference as to the extent of their practical application)\nhave been held by the writer for more than fifteen years: although he\ncannot claim to himself the original conception, but only the\nelaboration, of the fundamental doctrine of the Essay.\n\nA prejudice appears to exist in many quarters against the theory in\nquestion, on the supposition of its being opposed to one of the most\nvaluable results of modern political philosophy, the doctrine of Freedom\nof Trade between nation and nation. The opinions now laid before the\nreader are presented as corollaries necessarily following from the\nprinciples upon which Free Trade itself rests. The writer has also been\ncareful to point out, that from these opinions no justification can be\nderived for any _protecting_ duty, or other preference given to domestic\nover foreign industry. But in regard to those duties on foreign\ncommodities which do not operate as protection, but are maintained\nsolely for revenue, and which do not touch either the necessaries of\nlife or the materials and instruments of production, it is his opinion\nthat any relaxation of such duties, beyond what may be required by the\ninterest of the revenue itself, should in general be made contingent\nupon the adoption of some corresponding degree of freedom of trade with\nthis country, by the nation from which the commodities are imported.\n\n\n\n\nCONTENTS.\n\n\nESSAY I.\n\nOf the Laws of Interchange between Nations; and the Distribution of the\nGains of Commerce among the Countries of the Commercial World\n\nESSAY II.\n\nOf the Influence of Consumption upon Production\n\nESSAY III.\n\nOn the Words Productive and Unproductive\n\nESSAY IV.\n\nOn Profits, and Interest\n\nESSAY V.\n\nOn the Definition of Political Economy; and on the Method of\nInvestigation proper to it\n\n\n\n\nESSAY I.\n\nOF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THE\nGAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD.\n\n\nOf the truths with which political economy has been enriched by Mr.\nRicardo, none has contributed more to give to that branch of knowledge\nthe comparatively precise and scientific character which it at present\nbears, than the more accurate analysis which he performed of the nature\nof the advantage which nations derive from a mutual interchange of their\nproductions. Previously to his time, the benefits of foreign trade were\ndeemed, even by the most philosophical enquirers, to consist in\naffording a vent for surplus produce, or in enabling a portion of the\nnational capital to replace itself with a profit. The futility of the\ntheory implied in these and similar phrases, was an obvious consequence\nfrom the speculations of writers even anterior to Mr. Ricardo. But it\nwas he who first, in the chapter on Foreign Trade, of his immortal\n_Principles of Political Economy and Taxation_, substituted for the\nformer vague and unscientific, if not positively false, conceptions with\nregard to the advantage of trade, a philosophical exposition which\nexplains, with strict precision, the nature of that advantage, and\naffords an accurate measure of its amount.\n\nHe shewed, that the advantage of an interchange of commodities between\nnations consists simply and solely in this, that it enables each to\nobtain, with a given amount of labour and capital, a greater quantity of\nall commodities taken together. This it accomplishes by enabling each,\nwith a quantity of one commodity which has cost it so much labour and\ncapital, to purchase a quantity of another commodity which, if produced\nat home, would have required labour and capital to a greater amount.\nTo render the importation of an article more advantageous than its\nproduction, it is not necessary that the foreign country should be able\nto produce it with less labour and capital than ourselves. We may even\nhave a positive advantage in its production: but, if we are so far\nfavoured by circumstances as to have a still greater positive advantage\nin the production of some other article which is in demand in the\nforeign country, we may be able to obtain a greater return to our labour\nand capital by employing none of it in producing the article in which\nour advantage is least, but devoting it all to the production of that in\nwhich our advantage is greatest, and giving this to the foreign country\nin exchange for the other. It is not a difference in the _absolute_ cost\nof production, which determines the interchange, but a difference in the\n_comparative_ cost. It may be to our advantage to procure iron from\nSweden in exchange for cottons, even although the mines of England as\nwell as her manufactories should be more productive than those of\nSweden; for if we have an advantage of one-half in cottons, and only an\nadvantage of a quarter in iron, and could sell our cottons to Sweden at\nthe price which Sweden must pay for them if she produced them herself,\nwe should obtain our iron with an advantage of one-half, as well as our\ncottons. We may often, by trading with foreigners, obtain their\ncommodities at a smaller expense of labour and capital than they cost\nto the foreigners themselves. The bargain is still advantageous to the\nforeigner, because the commodity which he receives in exchange, though\nit has cost us less, would have cost him more. As often as a country\npossesses two commodities, one of which it can produce with less labour,\ncomparatively to what it would cost in a foreign country, than the\nother; so often it is the interest of the country to export the first\nmentioned commodity and to import the second; even though it might be\nable to produce both the one and the other at a less expense of labour\nthan the foreign country can produce them, but not less in the same\ndegree; or might be unable to produce either except at a greater\nexpense, but not greater in the same degree.\n\nOn the contrary, if it produces both commodities with greater facility,\nor both with greater difficulty, and greater in exactly the same degree,\nthere will be no motive to interchange.\n\n\"If the cloth and the corn, each of which required 100 days' labour in\nPoland, required each 150 days' labour in England; it would follow, that\nthe cloth of 150 days' labour in England, if sent to Poland, would be\nequal to the cloth of 100 days' labour in Poland: if exchanged for corn,\ntherefore, it would exchange for the corn of only 100 days' labour. But\nthe corn of 100 days' labour in Poland, was supposed to be the same\nquantity with that of 150 days' labour in England. With 150 days' labour\nin cloth, therefore, England would only get as much corn in Poland as\nshe could raise with 150 days' labour at home; and she would, in\nimporting it, have the cost of carriage besides. In these circumstances\nno exchange would take place.\n\n\"If, on the other hand, while the cloth produced with 100 days' labour\nin Poland was produced with 150 days' labour in England, the corn which\nwas produced in Poland with 100 days' labour could not be produced in\nEngland with less than 200 days' labour; an adequate motive to exchange\nwould immediately arise. With a quantity of cloth which England produced\nwith 150 days' labour, she would be able to purchase as much corn in\nPoland as was there produced with 100 days' labour; but the quantity,\nwhich was there produced with 100 days' labour, would be as great as the\nquantity produced in England with 200 days' labour.\n\n\"The power of Poland would be reciprocal. With a quantity of corn which\ncost her 100 days' labour, equal to the quantity produced in England by\n200 days' labour, she could in the supposed case purchase in England the\nproduce of 200 days' labour in cloth.\" But \"the produce of 150 days'\nlabour in England in the article of cloth would be equal to the produce\nof 100 days' labour in Poland [1].\"\n\nThe remainder of what Mr. Ricardo has done for the philosophical\nexposition of the principles of foreign trade, is to shew, that the\ntruth of the propositions now recapitulated is not affected by the\nintroduction of money as a medium of exchange; the precious metals\nalways tending to distribute themselves in such a manner throughout the\ncommercial world, that every country shall import all that it would have\nimported, and export all that it would have exported, if exchanges had\ntaken place, as in the example above supposed, by barter.\n\nTo this branch of the subject we shall, in the sequel of this essay,\nreturn. At present it will be more convenient that we should continue to\nsuppose, that exchanges take place by the direct trucking of one\ncommodity against another.\n\nIt is established, that the advantage which two countries derive from\ntrading with each other, results from the more advantageous employment\nwhich thence arises, of the labour and capital--for shortness let us say\nthe labour--of both jointly. The circumstances are such, that if each\ncountry confines itself to the production of one commodity, there is a\ngreater total return to the labour of both together; and this increase\nof produce forms the whole of what the two countries taken together gain\nby the trade.\n\nIt is the purpose of the present essay to inquire, in what proportion\nthe increase of produce, arising from the saving of labour, is divided\nbetween the two countries.\n\nThis question was not entered into by Mr. Ricardo, whose attention was\nengrossed by far more important questions, and who, having a science to\ncreate, had not time, or room, to occupy himself with much more than the\nleading principles. When he had done enough to enable any one who came\nafter him, and who took the necessary pains, to do all the rest, he was\nsatisfied. He very rarely followed out the principles of the science\ninto the ramifications of their consequences. But we believe that to no\none, who has thoroughly entered into the spirit of his discoveries, will\neven the minutiae of the science offer any difficulty but that which is\nconstituted by the necessity of patience and circumspection in tracing\nprinciples to their results.\n\nMr. Ricardo, while intending to go no further into the question of the\nadvantage of foreign trade than to show what it consisted of, and under\nwhat circumstances it arose, unguardedly expressed himself as if each of\nthe two countries making the exchange separately gained the whole of the\ndifference between the comparative costs of the two commodities in one\ncountry and in the other. But, the whole gain of both countries\ntogether, consisting in the saving of labour; and the saving of labour\nbeing exactly equal to the difference between the costs, in the two\ncountries, of the one commodity as compared with the other; the two\ncountries taken together gain no more than this difference: and if\neither country gains the whole of it, the other country derives no\nadvantage from the trade.\n\nSuppose, for example, that 10 yards of broad cloth cost in England as\nmuch labour as 15 yards of linen, and in Germany as much as 20. If\nEngland sends 10 yards of broad cloth to Germany, and is able to\nexchange them for linen according to the German cost of production, she\nwill get 20 yards of linen, with a quantity of labour with which she\ncould not have produced more than 15; and will gain, therefore, 5 yards\non every 15, or 33-1/3 per cent. But in this case Germany would obtain\nonly 10 yards of cloth for 20 of linen. Now, 10 yards of cloth cost\nexactly the same quantity of labour in Germany as 20 of linen; Germany,\ntherefore, derives no advantage from the trade, more than she would\npossess if it did not exist.\n\nSo, on the other hand, if Germany sends 15 yards of linen to England,\nand finding the relative value of the two articles in that country\ndetermined by the English costs of production, is enabled to purchase\nwith 35 yards of linen 10 yards of cloth; Germany now gains 5 yards,\njust as England did before,--for with 15 yards of linen she purchases 10\nyards of cloth, when to produce these 10 yards she must have employed as\nmuch labour as would have enabled her to produce 20 yards of linen. But\nin this case England would gain nothing: she would only obtain, for her\n10 yards of cloth, 15 yards of linen, which is exactly the comparative\ncost at which she could have produced them.\n\nThis, which was not an error, but a mere oversight of Mr. Ricardo,\narising from his having left the question of the division of the\nadvantage entirely unnoticed, was first corrected in the third edition\nof Mr. Mill's _Elements of Political Economy_. It can hardly, however,\nbe said that Mr. Mill has prosecuted the inquiry any further; which,\nindeed, would have been quite as inconsistent with the nature of his\nplan as of Mr. Ricardo's.\n\n1. When the trade is established between the two countries, the two\ncommodities will exchange for each other at the same rate of interchange\nin both countries--bating the cost of carriage, of which, for the present,\nit will be more convenient to omit the consideration. Supposing, therefore,\nfor the sake of argument, that the carriage of the commodities from one\ncountry to another could be effected without labour and without cost, no\nsooner would the trade be opened than, it is self-evident, the value of\nthe two commodities, estimated in each other, would come to a level in\nboth countries.\n\nIf we knew what this level would be, we should know in what proportion\nthe two countries would share the advantage of the trade.\n\nWhen each country produced both commodities for itself, 10 yards of\nbroad cloth exchanged for 15 yards of linen in England, and for 20 in\nGermany. They will now exchange for the same number of yards of linen in\nboth. For what number? If for 15 yards, England will be just as she was,\nand Germany will gain all. If for 20 yards, Germany will be as before,\nand England will derive the whole of the benefit. If for any number\nintermediate between 15 and 20, the advantage will be shared between the\ntwo countries. If, for example, 10 yards of cloth exchange for 18 of\nlinen, England will gain an advantage of 3 yards on every 15, Germany\nwill save 2 out of every 20.\n\nThe problem is, what are the causes which determine the proportion in\nwhich the cloth of England and the linen of Germany will exchange for\neach other?\n\nThis, therefore, is a question concerning exchangeable value. There must\nbe something which determines how much of one commodity another\ncommodity will purchase; and there is no reason to suppose that the law\nof exchangeable value is more difficult of ascertainment in this case\nthan in other cases.\n\nThe law, however, cannot be precisely the same as in the common cases.\nWhen two articles are produced in the immediate vicinity of one another,\nso that, without expatriating himself, or moving to a distance, a\ncapitalist has the choice of producing one or the other, the quantities\nof the two articles which will exchange for each other will be, on the\naverage, those which are produced by equal quantities of labour. But\nthis cannot be applied to the case where the two articles are produced\nin two different countries; because men do not usually leave their\ncountry, or even send their capital abroad, for the sake of those small\ndifferences of profit which are sufficient to determine their choice of\na business, or of an investment, in their own country and neighbourhood.\n\nThe principle, that value is proportional to cost of production, being\nconsequently inapplicable, we must revert to a principle anterior to\nthat of cost of production, and from which this last flows as a\nconsequence,--namely, the principle of demand and supply.\n\nIn order to apply this principle, with any advantage, to the solution of\nthe question which now occupies us, the principle itself, and the idea\nattached to the term demand, must be conceived with a precision, which\nthe loose manner in which the words are used generally prevents.\n\nIt is well known that the quantity of any commodity which can be\ndisposed of, varies with the price. The higher the price, the fewer will\nbe the purchasers, and the smaller the quantity sold. The lower the\nprice, the greater will in general be the number of purchasers, and the\ngreater the quantity disposed of. This is true of almost all commodities\nwhatever: though of some commodities, to diminish the consumption in any\ngiven degree would require a much greater rise of price than of others.\n\nWhatever be the commodity--the supply in any market being given, there\nis some price at which the whole of the supply exactly will find\npurchasers, and no more. That, whatever it be, is the price at which, by\nthe effect of competition, the commodity will be sold. If the price be\nhigher, the whole of the supply will not be disposed of, and the\nsellers, by their competition, will bring down the price. If the price\nbe lower, there will be found purchasers for a larger supply, and the\ncompetition of these purchasers will raise the price.\n\nThis, then, is what we mean, when we say that price, or exchangeable\nvalue, depends on demand and supply. We should express the principle\nmore accurately, if we were to say, the price so regulates itself that\nthe demand shall be exactly sufficient to carry off the supply.\n\nLet us now apply the principle of demand and supply, thus understood, to\nthe interchange of broadcloth and linen between England and Germany.\n\nAs exchangeable value in this case, as in every other, is proverbially\nfluctuating, it does not matter what we suppose it to be when we begin;\nwe shall soon see whether there be any fixed point about which it\noscillates--which it has a tendency always to approach to, and to remain\nat.\n\nLet us suppose, then, that by the effect of what Adam Smith calls the\nhiggling of the market, 10 yards of cloth, in both countries, exchange\nfor 17 yards of linen.\n\nThe demand for a commodity, that is, the quantity of it which can find a\npurchaser, varies, as we have before remarked, according to the price.\nIn Germany, the price of 10 yards of cloth is now 17 yards of linen; or\nwhatever quantity of money is equivalent in Germany to 17 yards of\nlinen. Now, that being the price, there is some particular number of\nyards of cloth, which will be in demand, or will find purchasers, at\nthat price. There is some given quantity of cloth, more than which could\nnot be disposed of at that price,--less than which, at that price, would\nnot fully satisfy the demand. Let us suppose this quantity to be, 1000\ntimes 10 yards.\n\nLet us now turn our attention to England. There, the price of 17 yards\nof linen is 10 yards of cloth, or whatever quantity of money is\nequivalent in England to 10 yards of cloth. There is some particular\nnumber of yards of linen, which, at that price, will exactly satisfy the\ndemand, and no more. Let us suppose that this number is 1000 times 17\nyards.\n\nAs 17 yards of linen are to 30 yards of cloth, so are 1000 times 17\nyards to 1000 times 10 yards. At the existing exchangeable value, the\nlinen which England requires, will exactly pay for the quantity of cloth\nwhich, on the same terms of interchange, Germany requires. The demand on\neach side is precisely sufficient to carry off the supply on the other.\nThe conditions required by the principle of demand and supply are\nfulfilled, and the two commodities will continue to be interchanged, as\nwe supposed them to be, in the ratio of 17 yards of linen for 10 yards\nof cloth.\n\nBut our supposition might have been different. Suppose that, at the\nassumed rate of interchange, England had been disposed to consume no\ngreater quantity of linen than 800 times 17 yards; it is evident that,\nat the rate supposed, this would not have sufficed to pay for the 1000\ntimes 10 yards of cloth, which we have supposed Germany to require at\nthe assumed value. Germany would be able to procure no more than 800\ntimes 10 yards, at that price. To procure the remaining 200, which she\nwould have no means of doing but by bidding higher for them, she would\noffer more than 17 yards of linen in exchange for 10 yards of cloth; let\nus suppose her to offer 18. At that price, perhaps, England would be\ninclined to purchase a greater quantity of linen. She could consume,\npossibly, at that price, 900 times 18 yards. On the other hand, cloth\nhaving risen in price, the demand of Germany for it would, probably,\nhave diminished. If, instead of 1000 times 10 yards, she is now\ncontented with 900 times ten yards, these will exactly pay for the 900\ntimes 18 yards of linen which England is willing to take at the altered\nprice: the demand on each side will again exactly suffice to take off\nthe corresponding supply; and 10 yards for 18 will be the rate at which,\nin both countries, cloth will exchange for linen.\n\nThe converse of all this would have happened if instead of 800 times 17\nyards, we had supposed that England, at the rate of 10 for 17, would\nhave taken 1200 times 17 yards of linen. In this case, it is England\nwhose demand is not fully supplied; it is England who, by bidding for\nmore linen, will alter the rate of interchange to her own disadvantage;\nand 10 yards of cloth will fall, in both countries, below the value of\n17 yards of linen. By this fall of cloth, or what is the same thing,\nthis rise of linen, the demand of Germany for cloth will increase, and\nthe demand of England for linen will diminish, till the rate of\ninterchange has so adjusted itself that the cloth and the linen will\nexactly pay for another; and when once this point is attained, values\nwill remain as they are.\n\nIt may be considered, therefore, as established, that when two countries\ntrade together in two commodities, the exchangeable value of these\ncommodities relatively to each other will adjust itself to the\ninclinations and circumstances of the consumers on both sides, in such\nmanner that the quantities required by each country, of the article\nwhich it imports from its neighbour, shall be exactly sufficient to pay\nfor one another. As the inclinations and circumstances of consumers\ncannot be reduced to any rule, so neither can the proportions in which\nthe two commodities will be interchanged. We know that the limits within\nwhich the variation is confined are the ratio between their costs of\nproduction in the one country, and the ratio between their costs of\nproduction in the other. Ten yards of cloth cannot exchange for more\nthan 20 yards of linen, nor for less than 15. But they may exchange for\nany intermediate number. The ratios, therefore, in which the advantage\nof the trade may be divided between the two nations, are various. The\ncircumstances on which the proportionate share of each country more\nremotely depends, admit only of a very general indication.\n\nIt is even possible to conceive an extreme case, in which the whole of\nthe advantage resulting from the interchange would be reaped by one\nparty, the other country gaining nothing at all. There is no absurdity\nin the hypothesis, that of some given commodity a certain quantity is\nall that is wanted at any price, and that when that quantity is\nobtained, no fall in the exchangeable value would induce other consumers\nto come forward, or those who are already supplied to take more. Let us\nsuppose that this is the case in Germany with cloth. Before her trade\nwith England commenced, when 10 yards of cloth cost her as much labour\nas 20 yards of linen, she nevertheless consumed as much cloth as she\nwanted under any circumstances, and if she could obtain it at the rate\nof 10 yards of cloth for 15 of linen, she would not consume more. Let\nthis fixed quantity be 1000 times 10 yards. At the rate, however, of 10\nfor 20, England would want more linen than would be equivalent to this\nquantity of cloth. She would consequently offer a higher value for\nlinen; or, what is the same thing, she would offer her cloth at a\ncheaper rate. But as by no lowering of the value could she prevail on\nGermany to take a greater quantity of cloth, there would be no limit to\nthe rise of linen, or fall of cloth, until the demand of England for\nlinen was reduced by the rise of its value, to the quantity which one\nthousand times ten yards of cloth would purchase. It might be, that to\nproduce this diminution of the demand, a less fall would not suffice,\nthan one which would make 10 yards of cloth exchange for 15 of linen.\nGermany would then gain the whole of the advantage, and England would be\nexactly as she was before the trade commenced. It would be for the\ninterest, however, of Germany herself, to keep her linen a little below\nthe value at which it could be produced in England, in order to keep\nherself from being supplanted by the home producer. England, therefore,\nwould always benefit in some degree by the existence of the trade,\nthough it might be in a very trifling one.\n\nBut in general there will not be this extreme inequality in the degree\nin which the demand in the two countries varies with variations in the\nprice. The advantage will probably be divided equally, oftener than in\nany one unequal ratio that can be named; though the division will be\nmuch oftener, on the whole, unequal than equal.\n\n2. We shall now examine whether the same law of interchange, which we\nhave shown to apply upon the supposition of barter, holds good after the\nintroduction of money. Mr. Ricardo found that his more general\nproposition stood this test; and as the proposition which we have just\ndemonstrated is only a further developement of his principle, we shall\nprobably find that it suffers a little, by a mere change in the mode\n(for it is no more) in which one commodity is exchanged against another.\n\nWe may at first make whatever supposition we will with respect to the\nvalue of money. Let us suppose, therefore, that before the opening of\nthe trade, the price of cloth is the same in both countries, namely, six\nshillings per yard [2]. As 10 yards of cloth were supposed to exchange in\nEngland for 5 yards of linen, in Germany for 20, we must suppose that\nlinen is sold in England at four shillings per yard, in Germany at\nthree. Cost of carriage and importer's profit are left as before, out of\nconsideration.\n\nIn this state of prices, cloth, it is evident, cannot yet be exported\nfrom England into Germany. But linen can be imported from Germany into\nEngland. It will be so, and, in the first instance, the linen will be\npaid for in money.\n\nThe efflux of money from England, and its influx into Germany, will\nraise money prices in the latter country, and lower them in the former.\nLinen will rise in Germany above three shillings per yard, and cloth\nabove six shillings. Linen in England being imported from Germany, will\n(since cost of carriage is not reckoned) sink to the same price as in\nthat country, while cloth will fall below six shillings. As soon as the\nprice of cloth is lower in England than in Germany, it will begin to be\nexported, and the price of cloth in Germany will fall to what it is in\nEngland. As long As the cloth exported does not suffice to pay for the\nlinen imported, money will continue to flow from England into Germany,\nand prices generally will continue to fall in England, and rise in\nGermany. By the fall, however, of cloth in England, cloth will fall in\nGermany also, and the demand for it will increase. By the rise of linen\nin Germany, linen must rise in England also, and the demand for it will\ndiminish. Although the increased exportation of cloth takes place at a\nlower price, and the diminished importation of linen at a higher, yet\nthe total money value of the exportation would probably increase, that\nof the importation diminish. As cloth fell in price and linen rose,\nthere would be some particular price of both articles at-which the cloth\nexported, and the linen imported, would exactly pay for each other. At\nthis point prices would remain, because money would then cease to move\nout of England into Germany. What this point might be, would entirely\ndepend upon the circumstances and inclinations of the purchasers on both\nsides. If the fall of cloth did not much increase the demand for it in\nGermany, and the rise of linen did not diminish very rapidly the demand\nfor it in England, much money must pass before the equilibrium is\nrestored; cloth would fall very much, and linen would rise, until\nEngland, perhaps, had to pay nearly as much for it as when she produced\nit for herself. But if, on the contrary, the fall of cloth caused a very\nrapid increase of the demand for it in Germany, and the rise of linen in\nGermany reduced very rapidly the demand in England from what it was\nunder the influence of the first cheapness produced by the opening of\nthe trade; the cloth would very soon suffice to pay for the linen,\nlittle money would pass between the two countries, and England would\nderive a large portion of the benefit of the trade. We have thus arrived\nat precisely the same conclusion, in supposing the employment of money,\nwhich we found to hold under the supposition of barter.\n\nIn what shape the benefit accrues to the two nations from the trade, is\nclear enough. Germany, before the commencement of the trade, paid six\nshillings per yard for broad-cloth. She now obtains it at a lower price.\nThis, however, is not the whole of her advantage. As the money prices of\nall her other commodities have risen, the money incomes of all her\nproducers have increased. This is no advantage to them in buying from\neach other; because the price of what they buy has risen in the same\nratio with their means of paying for it: but it is an advantage to them\nin buying any thing which has not risen; and still more, any thing which\nhas fallen. They therefore benefit as consumers of cloth, not merely to\nthe extent to which cloth has fallen, but also to the extent to which\nother prices have risen. Suppose that this is one-tenth. The same\nproportion of their money incomes as before, will suffice to supply\ntheir other wants, and the remainder, being increased one-tenth in\namount, will enable them to purchase one-tenth more cloth than before,\neven though cloth had not fallen. But it has fallen: so that they are\ndoubly gainers. If they do not choose to increase their consumption of\ncloth, this does not prevent them from being gainers. They purchase the\nsame quantity with less money, and have more to expend upon their other\nwants.\n\nIn England, on the contrary, general money-prices have fallen. Linen,\nhowever, has fallen more than the rest; having been lowered in price, by\nimportation from a country where it was cheaper, whereas the others have\nfallen only from the consequent efflux of money. Notwithstanding,\ntherefore, the general fall of money-prices, the English producers will\nbe exactly as they were in all other respects, while they will gain as\npurchasers of linen.\n\nThe greater the efflux of money required to restore the equilibrium, the\ngreater will be the gain of Germany; both by the fall of cloth, and by\nthe rise of her general prices. The less the efflux of money requisite,\nthe greater will be the gain of England; because the price of linen will\ncontinue lower, and her general prices will not be reduced so much. It\nmust not, however, be imagined that high money-prices are a good, and\nlow money-prices an evil, in themselves. But the higher the general\nmoney-prices in any country, the greater will be that country's means\nof purchasing those commodities which, being imported from abroad, are\nindependent of the causes which keep prices high at home.\n\n3. We have hitherto supposed the carriage to be performed without labour\nor expense. If we abandon this supposition, we must correct the\nstatement of the case in a slight degree. The prices of the two articles\nwill no longer, when the trade is opened, be the same in both countries,\nnor will the articles exchange for one another at the same rate in both.\nTen yards of cloth will purchase in Germany a quantity of linen greater\nthan in England by a per-centage equal to the entire cost of conveyance\nboth of the cloth to Germany and of the linen to England. The\nmoney-price of linen will be higher in England than in Germany, by the\ncost of carriage of the linen. The money-price of cloth will be higher\nin Germany than in England, by the cost of carriage of the cloth.\n\nThe expense of the carriage is evidently a deduction _pro tanto_ from\nthe saving of labour produced by the establishment of the trade. The two\ncountries together, therefore, have their gains by the trade diminished,\nby the amount of the cost of carriage of both commodities. But here the\nquestion arises, which of the two countries bears this deduction, or in\nwhat proportion it is divided between them.\n\nAt the first inspection it would appear that each country bears its own\ncost of carriage, that is, that each country pays the carriage of the\ncommodity which it imports. Upon this supposition, each country would\ngain whatever share of the joint saving of labour would otherwise fall\nto its lot, _minus_ the cost of bringing from the other country the\ncommodity which it imports. This solution is rendered plausible by the\ncircumstance just now mentioned, that the price of the commodity will be\nhigher in the country which imports it, than in the country which\nexports it, by the amount of the cost of carriage. If linen is sold in\nEngland at a higher price than in Germany, by a per-centage equal to the\ncost of carriage of the linen, it appears obvious that England pays for\nthe carriage of the linen, and Germany, by parity of reason, for that of\nthe cloth.\n\nBut if we apply to these questions the principles already explained, we\nshall see that this is not by any means a universal law: the fact may\ncorrespond with it, or it may not.\n\nFor suppose that the prices have adjusted themselves, no matter how, and\nthat the imports and exports balance one another, each commodity, of\ncourse, being dearer by the cost of carriage, in the country which\nimports than in that which exports it: and suppose now that the cost of\ncarriage, both of the one and of the other, were suddenly and\nmiraculously annihilated, and that the commodities could pass from\ncountry to country without expense. If each country bore its own cost of\ncarriage before, each country will save its own cost of carriage now.\nCloth, in Germany, will in that case fall exactly to what it is in\nEngland; linen in England, to what it is in Germany.\n\nNow this fall of price, supposing it to happen, will probably affect the\ndemand on both sides; and it will either affect it alike in both\ncountries, or it will affect it unequally. It will affect it alike, if\nthe fall of price does not affect the demand at all, or if it affects it\nequally in both countries. If either of these results should take place,\nthe cloth and the linen would continue to balance each other as before:\nno money would pass from one country to the other; prices in both would\ncontinue at the point to which they had fallen, and each country would\nexactly save the cost of carriage on the commodity which it imports from\nthe other.\n\nBut the result might be, that the fall of price might not have an effect\nexactly equal, on the demand in the two countries. Suppose, for\ninstance, that the fall of cloth in Germany owing to the saving of the\ncost of carriage, did not increase the demand for cloth in Germany; but\nthat the fall of linen in England from a like cause, did increase the\ndemand for linen in England. The linen imported would be more than could\nbe paid for by the cloth exported: the difference must be paid in money:\nthe change in the distribution of the precious metals between the two\ncountries would lower the price of cloth in England, (and consequently\nin Germany), while it would raise the price of linen in Germany, (and\nconsequently in England). Germany, therefore, by the annihilation of\ncost of carriage, would save in price more than the cost of carriage of\nthe cloth; England would save less in price than the cost of carriage of\nthe linen. But if by the miraculous annihilation of cost of carriage,\nEngland would not _save_ the whole of the carriage of her imports, it\nfollows that England did not previously _pay_ the whole of that cost of\ncarriage.\n\nThus, the division of the cost of trade, and the division of the\nadvantage of trade, are governed by precisely the same principles; and\nthe only general proposition which can be affirmed respecting the cost\nis, that it is _pro tanto_ a deduction from the advantage. It cannot\neven be maintained that the cost is shared in the same proportion as the\nadvantage is; because the increase of the demand for a commodity as its\nprice falls, is not governed by any fixed law. Suppose, for instance,\nthat the advantage happened to be divided equally: this must be because\nthe greater cheapness arising from the establishment of the trade,\neither did not affect the demand at all, or affected it in an equal\nproportion on both sides. Now, because such is the effect of the degree\nof increased cheapness resulting from importation burthened with cost of\ncarriage, it would not follow that the still greater degree of\ncheapness, produced by the additional saving of the cost of carriage\nitself, would also affect the demand of both countries in precisely an\nequal degree. But we cannot be said to bear an expense, which, if saved,\nwould be saved to somebody else, and not to us. Two countries may have\nequal shares of the clear benefit of the trade, while, if the cost of\ncarriage were saved, they would divide that saving unequally. If so,\nthey divide the gross gain in one unequal ratio, the cost in another\nunequal ratio, though their shares of the cost being deducted from their\nshares of the gain leave equal remainders.\n\n4. The question naturally suggests itself, whether any country, by its\nown legislative policy, can engross to itself a larger share of the\nbenefits of foreign commerce, than would fall to it in the natural or\nspontaneous course of trade.\n\nThe answer is, it can. By taxing exports, for instance, we may, under\ncertain circumstances, produce a division of the advantage of the trade\nmore favourable to ourselves. In some cases, we may draw into our\ncoffers, at the expense of foreigners, not only the whole tax, but more\nthan the tax: in other cases, we should gain exactly the tax,--in\nothers, less than the tax. In this last case, a part of the tax is borne\nby ourselves: possibly the whole, possibly even, as we shall show, more\nthan the whole.\n\nSuppose that England taxes her export of cloth: the tax not being\nsupposed high enough to induce Germany to produce cloth for herself. The\nprice at which cloth can be sold in Germany is augmented by the tax.\nThis will probably diminish the quantity consumed. It may diminish it so\nmuch, that even at the increased price, there will not be required so\ngreat a money value as before. It may diminish it in such a ratio, that\nthe money value of the quantity consumed will be exactly the same as\nbefore. Or it may not diminish it at all, or so little, that, in\nconsequence of the higher price, a greater money value will be purchased\nthan before. In this last case, England will gain, at the expense of\nGermany, not only the whole amount of the duty, but more. For the money\nvalue of her exports to Germany being increased, while her imports\nremain the same, money will flow into England from Germany. The price of\ncloth will rise in England, and consequently in Germany; but the price\nof linen will fall in Germany, and consequently in England, We shall\nexport less cloth, and import more linen, till the equilibrium is\nrestored. It thus appears, what is at first sight somewhat remarkable,\nthat, by taxing her exports, England would, under some conceivable\ncircumstances, not only gain from her foreign customers the whole amount\nof the tax, but would also get her imports cheaper. She would get them\ncheaper in two ways,--for she would obtain them for less money, and\nwould have more money to purchase them with. Germany, on the other hand,\nwould suffer doubly: she would have to pay for her cloth a price\nincreased not only by the duty, but by the influx of money into England,\nwhile the same change in the distribution of the circulating medium\nwould leave her less money to purchase it with.\n\nThis, however, is only one of three possible cases. If, after the\nimposition of the duty, Germany requires so diminished a quantity of\ncloth, that its total money value is exactly the same as before, the\nbalance of trade will be undisturbed; England will gain the duty,\nGermany will lose it, and nothing more. If, again, the imposition of the\nduty occasions such a falling off in the demand, that Germany requires a\nless pecuniary value than before, our exports will no longer pay for our\nimports, money must pass from England into Germany, and Germany's share\nof the advantage of the trade will be increased. By the change in the\ndistribution of money, cloth will fall in England; and therefore it\nwill, of course, fall in Germany. Thus Germany will not pay the whole of\nthe tax. From the same cause, linen will rise in Germany, and\nconsequently in England. When this alteration of prices has so adjusted\nthe demand, that the cloth and the linen again pay for one another, the\nresult is, that Germany has paid only a part of the tax, and the\nremainder of what has been received into our treasury has come\nindirectly out of the pockets of our own consumers of linen, who pay a\nhigher price for that imported commodity, in consequence of the tax on\nour exports, which at the same time they, in consequence of the efflux\nof money and consequent fall of prices, have smaller money incomes\nwherewith to pay for the linen at that advanced price.\n\nIt is not an impossible supposition that, by taxing our exports, we\nmight not only gain nothing from the foreigner, the tax being paid out\nof our own pockets, but might even compel our own people to pay a second\ntax to the foreigner. Suppose, as before, that the demand of Germany for\ncloth falls off so much on the imposition of the duty, that she requires\na smaller money value than before, but that the case is so different\nwith linen in England, that when the price rises the demand either does\nnot fall off at all, or so little that the money value required is\ngreater than before. The first effect of laying on the duty is, as\nbefore, that the cloth exported will no longer pay for the linen\nimported. Money will, therefore, flow out of England into Germany. One\neffect is to raise the price of linen in Germany, and, consequently, in\nEngland. But this, by the supposition, instead of stopping the efflux of\nmoney, only makes it greater, because the higher the price, the greater\nthe money value of the linen consumed. The balance, therefore, can only\nbe restored by the other effect, which is going on at the same time,\nnamely, the fall of cloth in the English, and, consequently, in the\nGerman market. Even when cloth has fallen so low that its price with the\nduty is only equal to what its price without the duty was at first, it\nis not a necessary consequence that the fall will stop; for the same\namount of exportation as before will not now suffice to pay the\nincreased money value of the imports; and although the German consumers\nhave now not only cloth at the old price, but likewise increased money\nincomes, it is not certain that they will be inclined to employ the\nincrease of their incomes in increasing their purchases of cloth. The\nprice of cloth, therefore, must perhaps fall, to restore the\nequilibrium, more than the whole amount of the duty; Germany may be\nenabled to import cloth at a lower price when it is taxed, than when it\nwas untaxed: and this gain she will acquire at the expense of the\nEnglish consumers of linen, who, in addition, will be the real payers of\nthe whole of what is received at their own custom-house under the name\nof duties on the export of cloth.\n\nSuch are the extremely various effects which may result to ourselves,\nand to our customers, from the imposition of taxes on our exports [3]:\nand the determining circumstances are of a nature so imperfectly\nascertainable, that it must be almost impossible to decide with any\ncertainty, even after the tax has been imposed, whether we have been\ngainers by it or losers. It is certain, however, that whatever we gain,\nis lost by somebody else, and there is the expense of the collection\nbesides: if international morality, therefore, were rightly understood\nand acted upon, such taxes, as being contrary to the universal weal,\nwould not exist. Moreover, the imposition of such a tax frequently will,\nand always may, expose a country to lose this branch of its trade\naltogether, or to carry it on with diminished advantage, in consequence\nof the competition of untaxed exporters from other countries, or of the\ndomestic producers in the country to which it exports. Even on the most\nselfish principles, therefore, the benefit of such a tax is always\nextremely precarious.\n\n5. We have had an example of a tax on exports, that is, on foreigners,\nfalling in part on ourselves. We shall, therefore, not be surprised if\nwe find a tax on imports, that is, on ourselves, partly falling upon\nforeigners.\n\nInstead of taxing the cloth which we export, suppose that we tax the\nlinen which we import. The duty which we are now supposing must not be\nwhat is termed a protecting duty, that is, a duty sufficiently high to\ninduce us to produce the article at home. If it had this effect, it\nwould destroy entirely the trade both in cloth and in linen, and both\ncountries would lose the whole of the advantage which they previously\ngained by exchanging those commodities with one another. We suppose a\nduty which might diminish the consumption of the article, but which\nwould not prevent us from continuing to import, as before, whatever\nlinen we did consume.\n\nThe equilibrium of trade would be disturbed if the imposition of the tax\ndiminished in the slightest degree the quantity of linen consumed. For,\nas the tax is levied at our own custom-house, the German exporter only\nreceives the same price as formerly, though the English consumer pays a\nhigher one. If, therefore, there be any diminution of the quantity\nbought, although a larger sum of money may be actually laid out in the\narticle, a smaller one will be due from England to Germany: this sum\nwill no longer be an equivalent for the sum due from Germany to England\nfor cloth, the balance therefore must be paid in money. Prices will fall\nin Germany, and rise in England; linen will fall in the German market;\ncloth will rise in the English. The Germans will pay higher price for\ncloth, and will have smaller money incomes to buy it with; while the\nEnglish will obtain linen cheaper, that is, its price will exceed what\nit previously was by less than the amount of the duty, while their means\nof purchasing it will be increased by the increase of their money\nincomes.\n\nIf the imposition of the tax does not diminish the demand, it will leave\nthe trade exactly as it was before. We shall import as much, and export\nas much; the whole of the tax will be paid out of our own pockets.\n\nBut the imposition of a tax on a commodity, almost always diminishes the\ndemand more or less; and it can never, or scarcely ever increase the\ndemand. It may, therefore, be laid down as a principle, that a tax on\nimported commodities, when it really operates as a tax, and not as a\nprohibition, either total or partial, almost always falls in part upon\nthe foreigners who consume our goods: and that this is a mode in which a\nnation may be almost sure of appropriating to itself, at the expense of\nforeigners, a larger share than would otherwise belong to it of the\nincrease in the general productiveness of the labour and capital of the\nworld, which results from the interchange of commodities among nations.\n\nIt is scarcely necessary to observe, that no such advantage can result\nfrom the duty, if it operate as a protecting duty; if it induce the\ncountry which imposes it, to produce for herself that which she would\notherwise have imported. The saving of labour--the increase in the\ngeneral productiveness of the capital of the world--which is the effect\nof commerce, and which a non-protecting duty would enable the country\nimposing it to engross, could not be engrossed by a protecting duty,\nbecause such a duty prevents any such increased production from\nexisting.\n\nWith a view to practical legislation, therefore, duties on importation\nmay be divided into two classes: those which have the effect of\nencouraging some particular branch of domestic industry, and those which\nhave not.\n\nThe former are purely mischievous, both to the country imposing them,\nand to those with whom it trades. They prevent a saving of labour and\ncapital, which, if permitted to be made, would be divided in some\nproportion or other between the importing country and the countries\nwhich buy what that country does or might export.\n\nThe other class of duties are those which do not encourage one mode of\nprocuring an article at the expense of another, but allow interchange to\ntake place just as if the duty did not exist--and to produce the saving\nof labour which constitutes the motive to international as to all other\ncommerce. Of this kind, are duties on the importation of any commodity\nwhich could not by any possibility be produced at home; and duties not\nsufficiently high to counterbalance the difference of expense between\nthe production of the article at home, and its importation. Of the money\nwhich is brought into the treasury of any country by taxes of this last\ndescription, a part only is paid by the people of that country; the\nremainder by the foreign consumers of their goods.\n\nNevertheless, this latter kind of taxes are in principle as ineligible\nas the former, although not precisely on the same ground. A protecting\nduty can never be a cause of gain, but always and necessarily of loss,\nto the country imposing it, just so far as it is efficacious to its end.\nA non-protecting duty on the contrary would, in most cases, be a source\nof gain to the country imposing it, in so far as throwing part of the\nweight of its taxes upon other people is a gain; but it would be a means\nof gain which it could seldom be advisable to adopt, being so easily\ncounteracted by a precisely similar proceeding on the other side.\n\nIf England, in the case already supposed, sought to obtain for herself\nmore than her natural share of the advantage of the trade with Germany,\nby imposing a duty upon cloth, Germany would only have to impose a duty\nupon linen, sufficient to diminish the demand for that article about as\nmuch as the demand for cloth had been diminished in England by the tax.\nThings would then be as before, and each country would pay its own tax.\nUnless, indeed, the sum of the two duties exceeded the entire advantage\nof the trade; for in that case the trade, and its advantage, would cease\nentirely.\n\nThere would be no advantage, therefore, in imposing duties of this kind,\nwith a view to gain by them, in the manner which has been pointed out.\nBut so long as any other kind of taxes on commodities are retained, as a\nsource of revenue, these may often be as unobjectionable as the rest. It\nis evident, moreover, that considerations of reciprocity, which are\nquite unessential when the matter in debate is a protecting duty, are of\nmaterial importance when the repeal of duties of this other description\nis discussed. A country cannot be expected to renounce the power of\ntaxing foreigners, unless foreigners will in return practise towards\nitself the same forbearance. The only mode in which a country can save\nitself from being a loser by the duties imposed by other countries on\nits commodities, is to impose corresponding duties on theirs. Only it\nmust take care that these duties be not so high as to exceed all that\nremains of the advantage of the trade, and put an end to importation\naltogether; causing the article to be either produced at home, or\nimported from another and a dearer market.\n\nIt is not necessary to apply the principles which we have stated to the\ncase of bounties on exportation or importation. The application is easy,\nand the conclusions present nothing of particular interest or\nimportance.\n\n6. Any cause which alters the exports or imports from one country into\nanother, alters the division of the advantage of interchange between\nthose two countries. Suppose the discovery of a new process, by which\nsome article of export, or some article not previously exported, can be\nproduced so cheap as to occasion a great demand for it in other\ncountries. This of course produces a great influx of money from other\ncountries, and lowers the prices of all articles imported from them,\nuntil the increase of importation produced by this cause has restored\nthe equilibrium. Thus, the country which acquires a new article of\nexport gets its imports cheaper. This is not a case of mere alteration\nin the division of the advantage; it is a new advantage created by the\ndiscovery.\n\nBut suppose that the invention, to which the nation is indebted for this\nincrease of the return to its industry, comes into use also in the other\ncountry, and that the process is one which can be as perfectly and as\ncheaply performed in the one country as in the other. The new\nexportation will cease; trade will revert to its old channels, the money\nwhich flowed in will again flow out, and the country which invented the\nprocess will lose that increase of its gain by trade, which it had\nderived from the discovery.\n\nNow the exportation of machinery comes within the case which we have\njust described.\n\nIf the fact be, that by allowing to foreigners a participation in our\nmachinery, we enable them to produce any of our leading articles of\nexport, at a lower money price than we can sell those articles, it is\ncertain that unless we possess as great an advantage in the production\nof the machinery itself as we have in the production of other articles\nby means of machinery, the permitting of its exportation would alter to\nour disadvantage the division of the benefit of trade. Our exports being\ndiminished, we should have to pay a balance in money. This would raise,\nin foreign countries, the price of everything which we import from\nthence: while our incomes, being reduced in money value, would render\nus less able to buy those articles even if they had not risen. The\nequilibrium of exports and imports would only be restored, when either\nsome of the latter became so dear that we could produce them cheaper at\nhome, or some articles not previously exported became exportable from\nthe fall of prices. In the one case, we lose the benefit of importation\naltogether, and are obliged to produce at home, at a greater cost. In\nthe other case, we continue to import, but pay dearer for our imports.\n\nNotwithstanding what has now been observed, restrictions on the\nexportation of machinery are not, in our opinion, justifiable, either on\nthe score of international morality or of sound policy. It is evidently\nthe common interest of all nations that each of them should abstain from\nevery measure by which the aggregate wealth of the commercial world\nwould be diminished, although of this smaller sum total it might thereby\nbe enabled to attract to itself a larger share. And the time will\ncertainly come when nations in general will feel the importance of this\nrule, and will so direct their approbation and disapprobation as to\nenforce observance of it. Moreover, a country possessing machines should\nconsider that if a similar advantage were extended to other countries,\nthey would employ it above all in the production of those articles, in\nwhich they had already the greatest natural advantages; and if the\nformer country would be a loser by their improvements in the production\nof articles which it sells, it would gain by their improvements in those\nwhich it buys. The exportation of machinery may, however, be a proper\nsubject for adjustment with other nations, on the principle of\nreciprocity. Until, by the common consent of nations, all restrictions\nupon trade are done away, a nation cannot be required to abolish those\nfrom which she derives a real advantage, without stipulating for an\nequivalent.\n\n7. The case which we have just examined, is an example in how remarkable\na manner every cause which materially influences exports, operates upon\nthe prices of imports. According to the ancient theory of the balance of\ntrade, and to the associations of the generality of what are termed\npractical men to this day, the sole benefit derived from commerce\nconsists in the exports, and imports are rather an evil than otherwise.\nPolitical economists, seeing the folly of these views, and clearly\nperceiving that the advantage of commerce consists and must consist\nsolely of the imports, have occasionally suffered themselves to employ\nlanguage evincing inattention to the fact, that exports, though\nunimportant in themselves, are important by their influence on imports.\nSo real and extensive is this influence, that every new market which is\nopened for any of our goods, and every increase in the demand for our\ncommodities in foreign countries, enables us to supply ourselves with\nforeign commodities at a smaller cost.\n\nLet us revert to our earliest and simplest example, but which displays\nthe real law of interchange more luminously than any formula into which\nmoney enters; the case of simple barter. We showed, that if at the rate\nof 10 yards of cloth for 17 of linen, the demand of Germany amounted to\n1000 times 10 yards of cloth, the two nations will trade together at\nthat rate of interchange, provided that the linen required in England be\nexactly 1000 times 17 yards, neither more nor less. For the cloth and\nthe linen will then exactly pay for one another, and nobody on either\nside will be obliged to offer what he has to sell at a lower rate, in\norder to procure what he wants to buy.\n\nNow if the increase of wealth and population in Germany should greatly\nincrease the demand in that country for cloth, the demand for linen in\nEngland not increasing in the same ratio,--if, for instance, Germany\nbecame willing, at the above rate, to take 1500 times 10 yards; is it\nnot evident, that to induce England to take in exchange for this the\nonly article which Germany by supposition has to give, the latter must\noffer it at a rate more advantageous to England--at 18, or perhaps 19\nyards, for 10 of cloth? So that the division of the advantage becomes\nmore and more favourable to a country, in proportion as the demand for\nits commodities increases in foreign countries.\n\nIt is not even necessary that the country which takes its goods, should\nsupply it with any commodity whatever. Suppose that a country should be\nopened to our merchants, disposed to buy from us in abundance, but which\ncan sell to us scarcely anything, as every commodity which it affords\ncould be got cheaper by us from some other quarter. Nevertheless, our\ntrade with this country will enable us to obtain from all other\ncountries their commodities at a lower price. At the first opening of\nthis commerce of mere exportation, we must have received in payment a\nlarge quantity of money; for which our customer will have been\nindemnified by other countries, in exchange for her commodities. Prices\nmust consequently be lower in all other countries, and higher with us,\nthan before the opening of the new branch of trade; and we therefore\nobtain the commodities of other countries at a less cost, both as we pay\nless money for them, and as that money is lower in value.\n\n8. Another obvious application of the same principle will enable us to\nexplain, and to bring within the dominion of strict science, the\nrivality of one exporting nation and another, or what is called, in the\nlanguage of the mercantile system, _underselling_: a subject which\npolitical economists have taken little trouble to elucidate, from the\nhabit before alluded to of disregarding almost entirely, in their purely\nscientific inquiries, those circumstances which affect the trade of a\ncountry by operating immediately upon the exports.\n\nLet us revert to our old example, and to our old figures. Suppose that\nthe trade between England and Germany in cloth and linen is established,\nand that the rate of interchange is 10 yards of cloth for 17 of linen.\nNow suppose that there arises in another country, in Flanders, for\nexample, a linen manufacture; and that the same causes, the working of\nwhich in England and Germany has made 10 yards exchange for 17, would in\nEngland and Flanders, putting Germany out of the question, have made the\nrate of interchange 10 for 18. It is evident that Germany also must give\n18 yards of linen for 10 of cloth, and so carry on the trade with a\ndiminished share of the advantage, or lose it altogether. If the play of\ndemand in England and Flanders had made the rate of interchange not 10\nfor 18 but 10 for 21, (10 to 20 being in Germany the comparative cost of\nproduction,) it is evident that Germany could not have maintained the\ncompetition, and would have lost, not part of her share of the\nadvantage, but all advantage, and the trade itself.\n\nIt would be no answer to say, that Germany could probably still have\nfound the means of importing cloth from England, by exporting something\nelse. If she had purchased cloth with anything else, she would have\npurchased it dearer: as is proved by the fact, that having free choice,\nshe found it most advantageous to purchase it with linen. When she could\nget 10 yards of cloth for 17 of linen, that was the mode in which she\ncould get it with least labour. Being pressed by competition, she gave\nsuccessively 17, 18, 18; but rather than give 19 yards of linen, she\nperhaps would prefer to give, as costing her rather less labour, 10\nyards of silk, (which we will suppose to be the quantity which in\nEngland will purchase 10 yards of cloth.) It is obvious that, although\nGermany has found the means of supplying herself with cloth, by\nexporting a different article from that in which she was undersold, yet\nthe advantage of the trade between her and England is now shared in a\nproportion much less favourable to Germany.\n\nThere is no difficulty in showing that the same series of consequences\ntakes place in exactly the same manner through the agency of money. The\ntrade in cloth and linen between England and Germany being supposed to\nexist as before, Flanders produces linen at a lower price than that at\nwhich Germany has hitherto afforded it. The exportation from Germany is\nsuspended; and Germany, continuing to import cloth, pays for it in\nmoney. By so doing she lowers her own prices, and raises those in\nEngland: she has to pay more money for cloth, and to pay it in a\ncurrency of higher value. She thus suffers more and more as a consumer\nof cloth, until by the fall of her prices she can either afford to sell\nlinen as cheap as Flanders, or to export some other commodity which she\ncould not export before. In either case, her trade resumes its course,\nbut with diminished advantage on her side. [4]\n\nIt is in the mode just described, that those countries which formerly\nsupplied Europe with manufactures, but which owed their power of doing\nso not to any natural and permanent advantages, but to their more\nadvanced state of civilization as compared with other countries, have\nlost their pre-eminence as other countries successively attained an\nequal degree of civilization. Lombardy and Flanders, in the middle ages,\nproduced some descriptions of clothing and ornament for all Europe:\nHolland, at a much later period, supplied ships, and almost all articles\nwhich came in ships, to most other parts of the world. All these\ncountries have probably at this moment a much larger amount of capital\nthan ever they had, but having been undersold by other countries, they\nhave lost by far the greater part of the share which they had engrossed\nto themselves of the benefit which the world derives from commerce; and\ntheir capital yields to them in consequence a smaller proportional\nreturn. We are aware that other causes have contributed to the same\neffect, but we cannot doubt that this is a principal one.\n\nAs much as is really true of the great returns alleged to have been made\nto capital during the last war, must have arisen from a similar cause.\nOur exclusive command of the sea excluded from the market all by whom we\nshould have been undersold.\n\nThe adoption by France, Russia, the Netherlands, and the United States,\nof a more severely restrictive commercial policy, subsequently to 1815,\nhas done great injury undoubtedly to those countries; for the duties\nwhich they have established are intended to be, and really are, of the\nclass termed _protecting_; that is to say, such as force the production\nof commodities by more costly processes at home, instead of suffering\nthem to be imported from abroad. But these duties, though chiefly\ninjurious to the countries imposing them, have also been highly\ninjurious to England. By diminishing her exportation, or preventing it\nfrom increasing as it would otherwise have done, they have kept up the\nprices of all imported commodities in England, above what those prices\nwould have fallen to if trade had been left free.\n\nBy another obvious application of the same reasoning, it will be seen,\nthat there is a real foundation for the notion, that a country may be\nbenefited by receiving from another country the concession of what used\nto be termed commercial advantages, or by restraining its colonies from\npurchasing goods of any country except itself. In the figured\nillustration last used (p. 34) [not available, M.D.], it is evident,\nthat if England had been bound by a treaty with Germany to buy linen\nexclusively from her, Germany would have retained the trade which we\nsupposed her to lose, and would have continued to purchase cloth at a\ncomparatively cheap rate from England, instead of producing it by a more\ncostly process at home. Suppose that England had been a colony of\nGermany, and we see that by compelling colonies to deal at her shop, she\nmay obtain a real advantage, though of a nature which we may hazard the\nassertion that the founders of our colonial policy little dreamt of.\n\nSuch an advantage, however, being gained at the expense of another\ncountry, is, at the least, simply equivalent to a tax, or tribute. Now,\nif a country has just grounds, or deems superiority of power a\nsufficient ground, for exacting a tribute from another country, the most\ndirect mode is the best. First, because it is the most intelligible, and\nhas least of trick or disguise. Secondly, because it allows the people\nof the country paying the tribute, to raise the money in whatever way\nthey consider least oppressive to themselves. Thirdly, because the\nindirect mode of taxing a country, by restrictions on its commerce,\ndisturbs the distribution of industry most advantageous to the world at\nlarge, and occasions a greater loss to the restricted country, and to\nthe other countries with which that country would have traded, than gain\nto the country in whose favour the restrictions are imposed. And lastly,\nbecause a country never could obtain such privileges from an independent\nnation, and has seldom been so undisguised an oppressor as to demand\nthem even from its colonies, without subjecting itself to restrictions\nin some degree equivalent, for the benefit of those whom it has thus\ntaxed. Each country, therefore, usually pays tribute to the other; and\nto produce this fruitless reciprocity of exaction, the industry and\ntrade of both countries are diverted from the most advantageous\nchannels, and the return to the labour and capital of both is\ndiminished, in pure loss.\n\n9. The same principles which have led to the above conclusions, also\nsuggest a remark of some importance with respect to the probable effect\nof a change from a restricted to a comparatively free trade.\n\nThere is no doubt that our prohibiting the importation of a particular\narticle, which, but for the prohibition, would have been imported,\nenables us to obtain our other imports at smaller cost. The article for\nwhich we have the greatest demand, and for which our demand is most\nincreased by cheapness, is that which we should naturally import\npreferably to any other; now of this article we should import the\nquantity necessary to pay for our exports, on terms of interchange less\nadvantageous to us than in the case of any other commodity. If our\nlegislature prohibits this commodity, the other country will be obliged\nto offer any other article on easier terms, in order to force a\nsufficient demand for it to be an equivalent to what she purchases from\nus.\n\nThe steps of the process, money being used, would be these:--We prohibit\nthe importation of linen. The exportation of cloth continues, but is\npaid for in money. Our prices rise, those in Germany fall, until silk,\nor some other article, can be imported from Germany cheaper than it can\nbe produced at home, and in sufficient abundance to balance the export\nof cloth. Thus by sacrificing the cheapness of one commodity, we gain\nthe cheapness of another: but we sacrifice a greater cheapness to gain a\nless, and we sacrifice cheapness in the article which we most want, and\nwould import by preference, while our compensation is cheapness in an\narticle which we either could produce more advantageously at home, or\nwhich we have so little desire for, that it requires a species of bounty\non the article to create a demand.\n\nRestrictions on importation do, however, tend to keep down the value and\nprice of our remaining imports, and to keep up the nominal or money\nprices of all our other commodities, by retaining a greater quantity of\nmoney in the country than would otherwise be there. From this it\nobviously follows, that if the restrictions were removed, we should have\nto pay rather more for some of the articles which we now import, while\nthose which we are now prevented from importing would cost us more than\nmight be inferred from their _present_ price in the foreign market. And\ngeneral prices would fall; to the benefit of those who have fixed sums\nto receive; to the disadvantage of those who have fixed sums to pay; and\ngiving rise, as a general fall of prices always does, to an appearance,\nthough a temporary and fallacious one, of general distress. [5]\n\nIt is right to observe that the measures of the British Legislature\nwhich have been falsely characterised as measures of free trade, must,\nfrom their extremely insignificant extent, have produced far too little\neffect in increasing our importation, to have actually led, in any\ndegree worth mentioning, to the results specified above.\n\nIt is of greater importance to take notice, that these effects may be\nentirely obviated, if foreign countries can be prevailed upon\nsimultaneously to relax their restrictive systems, so as to create an\nimmediate increase of demand for our exports at the present prices. It\nis true that exports and imports must, in the end, balance one another,\nand if we increase our imports, our exports will of necessity increase\ntoo. But it is a forced increase, produced by an efflux of money and\nfall of prices; and this fall of prices being permanent, although it\nwould be no evil at all in a country where credit is unknown, it may be\na very serious one where large classes of persons, and the nation\nitself, are under engagements to pay fixed sums of money of large\namount.\n\n10. The only remaining application of the principle set forth in this\nessay, which we think it of importance to notice specially, is the\neffect produced upon a country by the annual payment of a tribute or\nsubsidy to a foreign power, or by the annual remittance of rents to\nabsentee landlords, or of any other kind of income to its absent owners.\nRemittances to absentees are often very incorrectly likened in their\ngeneral character to the payment of a tribute; from which they differ in\nthis very material circumstance, that tribute, if not paid to a foreign\ncountry, is not paid at all, whereas rents are paid to the landlord, and\nconsumed by him, even if he resides at home. The two kinds of payment,\nhowever, have a perfect resemblance to each other in such parts of their\neffects as we are about to point out.\n\nThe tribute, subsidy, or remittance, is always in goods; for, unless the\ncountry possesses mines of the precious metals, and numbers those metals\namong its regular articles of export, it cannot go on, year after year,\nparting with them, and never receiving them back. When a nation has\nregular payments to make in a foreign country, for which it is not to\nreceive any return, its exports must annually exceed its imports by the\namount of the payments which it is bound so to make. In order to force a\ndemand for its exports greater than its imports will suffice to pay for,\nit must offer them at a rate of interchange more favourable to the\nforeign country, and less so to itself, than if it had no payments to\nmake beyond the value of its imports. It therefore carries on the trade\nwith less advantage, in consequence of the obligations to which it is\nsubject towards persons resident in foreign countries.\n\nThe steps of the process are these. The exports and imports being in\nequilibrium, suppose a treaty to be concluded, by which the country\nbinds itself to pay in tribute to another country, a certain sum\nannually. It makes, perhaps, the first payment by a remittance of money.\nThis lowers prices in the paying country, and raises them in the\nreceiving one: the exports of the tributary country increase, its\nimports diminish. When the efflux of money has altered prices in the\nrequisite degree, the exports exceed the imports annually, by the amount\nof the tribute; and the latter, being added to the sum of the payments\ndue, restores the balance of payments between the two countries. The\nresult to the tributary country is a diminution of her share in the\nadvantage of foreign trade. She pays dearer for her imports, in two\nways, because she pays more money, and because that money is of higher\nvalue, the money incomes of her inhabitants being of smaller amount.\n\nThus the imposition of a tribute is a double burthen to the country\npaying it, and a double gain to that which receives it. The tributary\ncountry pays to the other, first, the tax, whatever be its amount, and\nnext, something more, which the one country loses in the increased cost\nof its imports, the other gains in the diminished cost of its own.\n\nAbsenteeism, moreover, though not burthensome in the former of these\nways, since the money is paid whether the receiver be an absentee or\nnot, is yet disadvantageous in the second of the two modes which have\nbeen mentioned. Ireland pays dearer for her imports in consequence of\nher absentees; a circumstance which the assailants of Mr. M'Culloch,\nwhether political economists or not, have not, we believe, hitherto\nthought of producing against him.\n\n11. If the question be now asked, which of the countries of the world\ngains most by foreign commerce, the following will be the answer.\n\nIf by gain be meant advantage, in the most enlarged sense, that country\nwill generally gain the most, which stands most in need of foreign\ncommodities.\n\nBut if by gain be meant saving of labour and capital in obtaining the\ncommodities which the country desires to have, whatever they may be; the\ncountry will gain, not in proportion to its own need of foreign\narticles, but to the need which foreigners have of the articles which\nitself produces.\n\nLet us take, as an illustration of our meaning, the case of France and\nEngland. Those two nations, in consequence of the restrictions with\nwhich they have loaded their commercial intercourse, carry on so little\ntrade with each other, as may almost, regard being had to the wealth and\npopulation of the two countries, be called none at all. If these fetters\nwere at once taken off, which of the two countries would be the greatest\ngainer? England without doubt. There would instantly arise in France an\nimmense demand for the cottons, woollens, and iron of England; while\nwines, brandies, and silks, the staple articles of France, are less\nlikely to come into general demand here, nor would the consumption of\nsuch productions, it is probable, be so rapidly increased by the fall of\nprice. The fall would probably be very great before France could obtain\na vent in England for so much of her exports as would suffice to pay for\nthe probable amount of her imports. There would be a considerable flow\nof the precious metals out of France into England. The English consumer\nof French wine would not merely save the amount of the duty which that\nwine now pays, but would find the wine itself falling-in prime cost,\nwhile his means of purchasing it would be increased by the augmentation\nof his own money income. The French consumer of English cottons, on the\ncontrary, would not long continue to be able to purchase them at the\nprice they now sell for in England. He would gain less, as the English\nwould gain more, than might appear from a mere comparison between the\npresent prices of commodities in the two countries.\n\nVarious consequences would flow from opening the trade between France\nand England, which are not expected, either by the friends or by the\nopponents of the present restrictive system. The wine-growers of France,\nwho imagine that free trade would relieve their distress by raising the\nprice of their wine, might not improbably find that price actually\nlowered. On the other hand, our silk manufacturers would be surprised if\nthey were told that the free admission of our cottons and hardware into\nthe French market, would endanger _their_ branch of manufacture: yet\nsuch might very possibly be the effect. France, it is likely, could most\nadvantageously pay us in silks for a portion of the large amount of\ncottons and hardware which we should sell to her; and though our silk\nmanufacturers may now be able to compete advantageously, in some\nbranches of the manufacture, with their French rivals, it by no means\nfollows that they could do so when the efflux of money from France, and\nits influx into England, had lowered the price of silk goods in the\nFrench market, and increased all the expenses of production here.\n\nOn the whole, England probably, of all the countries of Europe, draws to\nherself the largest share of the gains of international commerce:\nbecause her exportable articles are in universal demand, and are of such\na kind that the demand increases rapidly as the price falls. Countries\nwhich export food, have the former advantage, but not the latter. But\nour own colonies, and the countries which supply us with the materials\nof our manufactures, maintain a hard struggle with us for an equal share\nof the advantages of their trade; for _their_ exports are also of a kind\nfor which there exists a most extensive demand here, and a demand\ncapable of almost indefinite extension by a fall of price. Contrary,\ntherefore, to common opinion, it is probable that our trade with the\ncolonies, and with the countries which send us the raw materials of our\nnational industry, is not more but less advantageous to us, in\nproportion to its extent, than our trade with the continent of Europe.\nWe mean in respect to the mere amount of the return to the labour and\ncapital of the country; considered abstractedly from the usefulness or\nagreeableness of the particular articles on which the receivers may\nchoose to expend it.\n\n\nNOTES:\n\n[1] _Elements of Political Economy_, by James Mill, Esq., 3rd\nedit., pp. 120-1.\n\n[2] The figures used are of course arbitrary, having no\nreference to any existing prices.\n\n[3] We have not deemed it necessary to enter minutely into all\nthe circumstances which might modify the results mentioned in the text.\nFor example, let us revert to the first case, that in which the demand\nfor cloth in Germany is so little affected by the rise of price in\nconsequence of the tax, that the quantity bought exceeds in pecuniary\nvalue what it was before. As the German consumers lay out more money in\ncloth, they have less to lay out in other things; other money prices\nwill fall; among the rest that of linen; and this may so increase the\ndemand for linen in England as to restore the equilibrium of exports and\nimports without any passage of money. But England's treasury will still\ngain from Germany the whole of the tax, and the English people will buy\ntheir linen cheaper besides. Again, in the opposite case, where the tax\nso diminishes the demand, that a smaller pecuniary value is required\nthan before. The German consumers have, therefore, more to expend in\nother things; these, and among the rest linen, will rise; and this may\nso diminish the demand for linen in England, as to restore the\nequilibrium without the transmission of money. But the effect, as\nrespects the division of the advantage, is still as stated in the text.\n\n[4] The world at large, sellers and buyers taken together, is\nalways a gainer by underselling. If, in the case supposed, England were\ncompelled by a commercial treaty to exclude the linen of Flanders from\nher market, the total wealth of the world, if affected at all, would be\ndiminished.\n\nFor, what is the cause which enables Flanders to undersell Germany? That\nFlanders, if she had the trade, would exchange linen for cloth at a rate\nof interchange more advantageous to England. And why can Flanders do so?\nIt must be either because Flanders can produce the article with a less\ncomparative quantity of labour than Germany, and therefore the total\nadvantage to be divided between the two countries is greater in the case\nof Flanders than of Germany; or else because, though the total advantage\nis not greater, Flanders obtains a less share of it, her demand for\ncloth being greater, at the same rate of interchange, than that of\nGermany. In the former case, to exclude Flemish linen from England would\nbe to prevent the world at large from making a greater saving of labour\ninstead of a less. In the latter, the exclusion would be inefficacious\nfor the only end it could be intended for, viz., the benefit of Germany,\nunless Flemish money were excluded from England as well as Flemish\nlinen. For Flanders would buy English cloth, paying for it in money,\nuntil the fall of her prices enabled her to pay for it with something\nelse: and the ultimate result would be that, by the rise of prices in\nEngland, Germany must pay a higher price for her cloth, and so lose a\npart of the advantage in spite of the treaty; while England would pay\nfor German linen the same price indeed, but as the money incomes of her\nown people would be increased, the same money price would imply a\nsmaller sacrifice.\n\n[5] This last possible effect of a sudden introduction of free\ntrade, was pointed out in an able article on the Silk question, in a\nwork of too short duration, the _Parliamentary Review_.\n\n\n\n\nESSAY II.\n\nOF THE INFLUENCE OF CONSUMPTION ON PRODUCTION.\n\n\nBefore the appearance of those great writers whose discoveries have\ngiven to political economy its present comparatively scientific\ncharacter, the ideas universally entertained both by theorists and by\npractical men, on the causes of national wealth, were grounded upon\ncertain general views, which almost all who have given any considerable\nattention to the subject now justly hold to be completely erroneous.\n\nAmong the mistakes which were most pernicious in their direct\nconsequences, and tended in the greatest degree to prevent a just\nconception of the objects of the science, or of the test to be applied\nto the solution of the questions which it presents, was the immense\nimportance attached to consumption. The great end of legislation in\nmatters of national wealth, according to the prevalent opinion, was to\ncreate consumers. A great and rapid consumption was what the producers,\nof all classes and denominations, wanted, to enrich themselves and the\ncountry. This object, under the varying names of an extensive demand, a\nbrisk circulation, a great expenditure of money, and sometimes _totidem\nverbis_ a large consumption, was conceived to be the great condition of\nprosperity.\n\nIt is not necessary, in the present state of the science, to contest\nthis doctrine in the most flagrantly absurd of its forms or of its\napplications. The utility of a large government expenditure, for the\npurpose of encouraging industry, is no longer maintained. Taxes are not\nnow esteemed to be \"like the dews of heaven, which return again in\nprolific showers.\" It is no longer supposed that you benefit the\nproducer by taking his money, provided you give it to him again in\nexchange for his goods. There is nothing which impresses a person of\nreflection with a stronger sense of the shallowness of the political\nreasonings of the last two centuries, than the general reception so long\ngiven to a doctrine which, if it proves anything, proves that the more\nyou take from the pockets of the people to spend on your own pleasures,\nthe richer they grow; that the man who steals money out of a shop,\nprovided he expends it all again at the same shop, is a benefactor to\nthe tradesman whom he robs, and that the same operation, repeated\nsufficiently often, would make the tradesman's fortune.\n\nIn opposition to these palpable absurdities, it was triumphantly\nestablished by political economists, that consumption never needs\nencouragement. All which is produced is already consumed, either for the\npurpose of reproduction or of enjoyment. The person who saves his income\nis no less a consumer than he who spends it: he consumes it in a\ndifferent way; it supplies food and clothing to be consumed, tools and\nmaterials to be used, by productive labourers. Consumption, therefore,\nalready takes place to the greatest extent which the amount of\nproduction admits of; but, of the two kinds of consumption, reproductive\nand unproductive, the former alone adds to the national wealth, the\nlatter impairs it. What is consumed for mere enjoyment, is gone; what is\nconsumed for reproduction, leaves commodities of equal value, commonly\nwith the addition of a profit. The usual effect of the attempts of\ngovernment to encourage consumption, is merely to prevent saving; that\nis, to promote unproductive consumption at the expense of reproductive,\nand diminish the national wealth by the very means which were intended\nto increase it.\n\nWhat a country wants to make it richer, is never consumption, but\nproduction. Where there is the latter, we may be sure that there is no\nwant of the former. To produce, implies that the producer desires to\nconsume; why else should he give himself useless labour? He may not wish\nto consume what he himself produces, but his motive for producing and\nselling is the desire to buy. Therefore, if the producers generally\nproduce and sell more and more, they certainly also buy more and more.\nEach may not want more of what he himself produces, but each wants more\nof what some other produces; and, by producing what the other wants,\nhopes to obtain what the other produces. There will never, therefore, be\na greater quantity produced, of commodities in general, than there are\nconsumers for. But there may be, and always are, abundance of persons\nwho have the inclination to become consumers of some commodity, but are\nunable to satisfy their wish, because they have not the means of\nproducing either that, or anything to give in exchange for it. The\nlegislator, therefore, needs not give himself any concern about\nconsumption. There will always be consumption for everything which can\nbe produced, until the wants of all who possess the means of producing\nare completely satisfied, and then production will not increase any\nfarther. The legislator has to look solely to two points: that no\nobstacle shall exist to prevent those who have the means of producing,\nfrom employing those means as they find most for their interest; and\nthat those who have not at present the means of producing, to the extent\nof their desire to consume, shall have every facility afforded to their\nacquiring the means, that, becoming producers, they may be enabled to\nconsume.\n\nThese general principles are now well understood by almost all who\nprofess to have studied the subject, and are disputed by few except\nthose who ostentatiously proclaim their contempt for such studies. We\ntouch upon the question, not in the hope of rendering these fundamental\ntruths clearer than they already are, but to perform a task, so useful\nand needful, that it is to be wished it were oftener deemed part of the\nbusiness of those who direct their assaults against ancient prejudices,\n--that of seeing that no scattered particles of important truth are\nburied and lost in the ruins of exploded error. Every prejudice, which\nhas long and extensively prevailed among the educated and intelligent,\nmust certainly be borne out by some strong appearance of evidence; and\nwhen it is found that the evidence does not prove the received\nconclusion, it is of the highest importance to see what it does prove.\nIf this be thought not worth inquiring into, an error conformable to\nappearances is often merely exchanged for an error contrary to\nappearances; while, even if the result be truth, it is paradoxical\ntruth, and will have difficulty in obtaining credence while the false\nappearances remain.\n\nLet us therefore inquire into the nature of the appearances, which gave\nrise to the belief that a great demand, a brisk circulation, a rapid\nconsumption (three equivalent expressions), are a cause of national\nprosperity.\n\nIf every man produced for himself, or with his capital employed others\nto produce, everything which he required, customers and their wants\nwould be a matter of profound indifference to him. He would be rich, if\nhe had produced and stored up a large supply of the articles which he\nwas likely to require; and poor, if he had stored up none at all, or not\nenough to last until he could produce more.\n\nThe case, however, is different after the separation of employments. In\ncivilized society, a single producer confines himself to the production\nof one commodity, or a small number of commodities; and his affluence\ndepends, not solely upon the quantity of his commodity which he has\nproduced and laid in store, but upon his success in finding purchasers\nfor that commodity.\n\nIt is true, therefore, of every particular producer or dealer, that\na great demand, a brisk circulation, a rapid consumption, of the\ncommodities which he sells at his shop or produces in his manufactory,\nis important to him. The dealer whose shop is crowded with customers,\nwho can dispose of a product almost the very moment it is completed,\nmakes large profits, while his next neighbour, with an equal capital\nbut fewer customers, gains comparatively little.\n\nIt was natural that, in this case, as in a hundred others, the analogy\nof an individual should be unduly applied to a nation: as it has been\nconcluded that a nation generally gains in wealth by the conquest of a\nprovince, because an individual frequently does so by the acquisition of\nan estate; and as, because an individual estimates his riches by the\nquantity of money which he can command, it was long deemed an excellent\ncontrivance for enriching a country, to heap up artificially the\ngreatest possible quantity of the precious metals within it.\n\nLet us examine, then, more closely than has usually been done, the case\nfrom which the misleading analogy is drawn. Let us ascertain to what\nextent the two cases actually resemble; what is the explanation of the\nfalse appearance, and the real nature of the phenomenon which, being\nseen indistinctly, has led to a false conclusion.\n\n       *       *       *       *       *\n\nWe shall propose for examination a very simple case, but the explanation\nof which will suffice to clear up all other cases which fall within the\nsame principle. Suppose that a number of foreigners with large incomes\narrive in a country, and there expend those incomes: will this operation\nbe beneficial, as respects the national wealth, to the country which\nreceives these immigrants? Yes, say many political economists, if they\nsave any part of their incomes, and employ them reproductively; because\nthen an addition is made to the national capital, and the produce is a\nclear increase of the national wealth. But if the foreigner expends all\nhis income unproductively, it is no benefit to the country, say they,\nand for the following reason.\n\nIf the foreigner had his income remitted to him in bread and beef, coats\nand shoes, and all the other articles which he was desirous to consume,\nit would not be pretended that his eating, drinking, and wearing them,\non our shores rather than on his own, could be of any advantage to us in\npoint of wealth. Now, the case is not different if his income is\nremitted to him in some one commodity, as, for instance, in money. For\nwhatever takes place afterwards, with a view to the supply of his wants,\nis a mere exchange of equivalents; and it is impossible that a person\nshould ever be enriched by merely receiving an equal value in exchange\nfor an equal value.\n\nWhen it is said that the purchases of the foreign consumer give\nemployment to capital which would otherwise yield no profit to its\nowner, the same political economists reject this proposition as\ninvolving the fallacy of what has been called a \"general glut.\" They\nsay, that the capital, which any person has chosen to produce and to\naccumulate, can always find employment, since the fact that he has\naccumulated it proves that he had an unsatisfied desire; and if he\ncannot find anything to produce for the wants of other consumers, he can\nfor his own.\n\nIt is impossible to contest these propositions as thus stated. But there\nis one consideration which clearly shews, that there is something more\nin the matter than is here taken into the account; and this is, that the\nabove reasoning tends distinctly to prove, that it does a tradesman no\ngood to go into his shop and buy his goods. How can he be enriched? it\nmight be asked. He merely receives a certain value in money, for an\nequivalent value in goods. Neither does this give employment to his\ncapital; for there never exists more capital than can find employment,\nand if one person does not buy his goods another will; or if nobody\ndoes, there is over-production in that business, he can remove his\ncapital, and find employment for it in another trade.\n\nEvery one sees the fallacy of this reasoning as applied to individual\nproducers. Every one knows that as applied to them it has not even the\nsemblance of plausibility; that the wealth of a producer does in a great\nmeasure depend upon the number of his customers, and that in general\nevery additional purchaser does really add to his profits. If the\nreasoning, which would be so absurd if applied to individuals, be\napplicable to nations, the principle on which it rests must require much\nexplanation and elucidation.\n\nLet us endeavour to analyse with precision the real nature of the\nadvantage which a producer derives from an addition to the number of his\ncustomers.\n\nFor this purpose, it is necessary that we should premise a single\nobservation on the meaning of the word capital. It is usually defined,\nthe food, clothing, and other articles set aside for the consumption of\nthe labourer, together with the materials and instruments of production.\nThis definition appears to us peculiarly liable to misapprehension; and\nmuch vagueness and some narrow views have, we conceive, occasionally\nresulted from its being interpreted with too mechanical an adherence to\nthe literal meaning of the words.\n\nThe capital, whether of an individual or of a nation, consists, we\napprehend, of all matters possessing exchangeable value, which the\nindividual or the nation has in his or in its possession for the purpose\nof reproduction, and not for the purpose of the owner's unproductive\nenjoyment. All unsold goods, therefore, constitute a part of the\nnational capital, and of the capital of the producer or dealer to whom\nthey belong. It is true that tools, materials, and the articles on which\nthe labourer is supported, are the only articles which are directly\nsubservient to production: and if I have a capital consisting of money,\nor of goods in a warehouse, I can only employ them as means of\nproduction in so far as they are capable of being exchanged for the\narticles which conduce directly to that end. But the food, machinery,\n&c, which will ultimately be purchased with the goods in my warehouse,\nmay at this moment not be in the country, may not be even in existence.\nIf, after having sold the goods, I hire labourers with the money, and\nset them to work, I am surely employing capital, though the corn, which\nin the form of bread those labourers may buy with the money, may be now\nin warehouse at Dantzic, or perhaps not yet above ground.\n\nWhatever, therefore, is destined to be employed reproductively, either\nin its existing shape, or indirectly by a previous (or even subsequent)\nexchange, is capital. Suppose that I have laid out all the money I\npossess in wages and tools, and that the article I produce is just\ncompleted: in the interval which elapses before I can sell the article,\nrealize the proceeds, and lay them out again in wages and tools, will it\nbe said that I have no capital? Certainly not: I have the same capital\nas before, perhaps a greater, but it is locked up, as the expression is,\nand not disposable.\n\nWhen we have thus seen accurately what really constitutes capital, it\nbecomes obvious, that of the capital of a country, there is at all times\na very large proportion lying idle. The annual produce of a country is\nnever any thing approaching in magnitude to what it might be if all the\nresources devoted to reproduction, if all the capital, in short, of the\ncountry, were in full employment.\n\nIf every commodity on an average remained unsold for a length of time\nequal to that required for its production, it is obvious that, at any\none time, no more than half the productive capital of the country would\nbe really performing the functions of capital. The two halves would\nrelieve one another, like the semichori in a Greek tragedy; or rather\nthe half which was in employment would be a fluctuating portion,\ncomposed of varying parts; but the result would be, that each producer\nwould be able to produce every year only half as large a supply of\ncommodities, as he could produce if he were sure of selling them the\nmoment the production was completed.\n\nThis, or something like it, is however the habitual state, at every\ninstant, of a very large proportion of all the capitalists in the world.\n\nThe number of producers, or dealers, who turn over their capital, as the\nexpression is, in the shortest possible time, is very small. There are\nfew who have so rapid a sale for their wares, that all the goods which\ntheir own capital, or the capital which they can borrow, enables them to\nsupply, are carried off as fast as they can be supplied. The majority\nhave not an _extent of business_, at all adequate to the amount of the\ncapital they dispose of. It is true that, in the communities in which\nindustry and commerce are practised with greatest success, the\ncontrivances of banking enable the possessor of a larger capital than he\ncan employ in his own business, to employ it productively and derive a\nrevenue from it notwithstanding. Yet even then, there is, of necessity,\na great quantity of capital which remains fixed in the shape of\nimplements, machinery, buildings, &c, whether it is only half employed,\nor in complete employment: and every dealer keeps a stock in trade, to\nbe ready for a possible sudden demand, though he probably may not be\nable to dispose of it for an indefinite period.\n\nThis perpetual non-employment of a large proportion of capital, is the\nprice we pay for the division of labour. The purchase is worth what it\ncosts; but the price is considerable.\n\nOf the importance of the fact which has just been noticed there are\nthree signal proofs. One is, the large sum often given for the goodwill\nof a particular business. Another is, the large rent which is paid for\nshops in certain situations, near a great thoroughfare for example,\nwhich have no advantage except that the occupier may expect a larger\nbody of customers, and be enabled to turn over his capital more quickly.\nAnother is, that in many trades, there are some dealers who sell\narticles of an equal quality at a lower price than other dealers. Of\ncourse, this is not a voluntary sacrifice of profits: they expect by the\nconsequent overflow of customers to turn over their capital more\nquickly, and to be gainers by keeping the whole of their capital in more\nconstant employment, though on any given operation their gains are less.\n\nThe reasoning cited in the earlier part of this paper, to show the\nuselessness of a mere purchaser or customer, for enriching a nation or\nan individual, applies only to the case of dealers who have already as\nmuch business as their capital admits of, and as rapid a sale for their\ncommodities as is possible. To such dealers an additional purchaser is\nreally of no use; for, if they are sure of selling all their commodities\nthe moment those commodities are on sale, it is of no consequence whether\nthey sell them to one person or to another. But it is questionable\nwhether there be any dealers in whose case this hypothesis is exactly\nverified; and to the great majority it is not applicable at all. An\nadditional customer, to most dealers, is equivalent to an increase of\ntheir productive capital. He enables them to convert a portion of their\ncapital which was lying idle (and which could never have become\nproductive in their hands until a customer was found) into wages and\ninstruments of production; and if we suppose that the commodity, unless\nbought by him, would not have found a purchaser for a year after, then\nall which a capital of that value can enable men to produce during a\nyear, is clear gain--gain to the dealer, or producer, and to the\nlabourers whom he will employ, and thus (if no one sustains any\ncorresponding loss) gain to the nation. The aggregate produce of the\ncountry for the succeeding year is, therefore, increased; not by the\nmere exchange, but by calling into activity a portion of the national\ncapital, which, had it not been for the exchange, would have remained\nfor some time longer unemployed.\n\nThus there are actually at all times producers and dealers, of all, or\nnearly all classes, whose capital is lying partially idle, because they\nhave not found the means of fulfilling the condition which the division\nof labour renders indispensable to the full employment of capital,--viz.,\nthat of exchanging their products with each other. If these persons\ncould find one another out, they could mutually relieve each other from\nthis disadvantage. Any two shopkeepers, in insufficient employment, who\nagreed to deal at each other's shops so long as they could there\npurchase articles of as good a quality as elsewhere, and at as low a\nprice, would render the nation a service. It may be said that they must\npreviously have dealt, to the same amount, with some other dealers; but\nthis is erroneous, since they could only have obtained the means of\npurchasing by being previously enabled to sell. By their compact, each\nwould gain a customer, who would call his capital into fuller employment;\neach therefore would obtain an increased produce; and they would thus be\nenabled to become better customers to each other than they could be to\nthird parties.\n\nIt is obvious that every dealer who has not business sufficient fully to\nemploy his capital (which is the case with all dealers when they commence\nbusiness, and with many to the end of their lives), is in this\npredicament simply for want of some one with whom to exchange his\ncommodities; and as there are such persons to about the same degree\nprobably in all trades, it is evident that if these persons sought one\nanother out, they have their remedy in their own hands, and by each\nother's assistance might bring their capital into more full employment.\n\nWe are now qualified to define the exact nature of the benefit which a\nproducer or dealer derives from the acquisition of a new customer. It is\nas follows:--\n\n1. If any part of his own capital was locked up in the form of unsold\ngoods, producing (for a longer period or a shorter) nothing at all;\na portion of this is called into greater activity, and becomes more\nconstantly productive. But to this we must add some further advantages.\n\n2. If the additional demand exceeds what can be supplied by setting at\nliberty the capital which exists in the state of unsold goods; and if\nthe dealer has additional resources, which were productively invested\n(in the public funds, for instance), but not in his own trade; he is\nenabled to obtain, on a portion of these, not mere interest, but profit,\nand so to gain that difference between the rate of profit and the rate\nof interest, which may be considered as \"wages of superintendance.\"\n\n3. If all the dealer's capital is employed in his own trade, and no part\nof it locked up as unsold goods, the new demand affords him additional\nencouragement to save, by enabling his savings to yield him not merely\ninterest, but profit; and if he does not choose to save (or until he\nshall have saved), it enables him to carry on an additional business\nwith borrowed capital, and so gain the difference between interest and\nprofit, or, in other words, to receive wages of superintendance on a\nlarger amount of capital.\n\nThis, it will be found, is a complete account of all the gains which a\ndealer in any commodity can derive from an accession to the number of\nthose who deal with him: and it is evident to every one, that these\nadvantages are real and important, and that they are the cause which\ninduces a dealer of any kind to desire an increase of his business.\n\nIt follows from these premises, that the arrival of a new unproductive\nconsumer (living on his own means) in any place, be that place a\nvillage, a town, or an entire country, is beneficial to that place, if\nit causes to any of the dealers of the place any of the advantages above\nenumerated, without withdrawing an equal advantage of the same kind from\nany other dealer of the same place.\n\nThis accordingly is the test by which we must try all such questions,\nand by which the propriety of the analogical argument, from dealing with\na tradesman to dealing with a nation, must be decided.\n\nLet us take, for instance, as our example, Paris, which is much\nfrequented by strangers from various parts of the world, who, as\nsojourners there, live unproductively upon their means. Let us consider\nwhether the presence of these persons is beneficial, in an _industrial_\npoint of view, to Paris.\n\nWe exclude from the consideration that portion of the strangers' incomes\nwhich they pay to natives as direct remuneration for service, or labour\nof any description. This is obviously beneficial to the country. An\nincrease in the funds expended in employing labour, whether that labour\nbe productive or unproductive, tends equally to raise wages. The\ncondition of the whole labouring class is, so far, benefited. It is true\nthat the labourers thus employed by sojourners are probably, in part or\naltogether, withdrawn from productive employment. But this is far from\nbeing an evil; for either the situation of the labouring classes is\nimproved, which is far more than an equivalent for a diminution in mere\nproduction, or the rise of wages acts as a stimulus to population, and\nthen the number of productive labourers becomes as great as before.\n\nTo this we may add, that what the sojourners pay as wages of labour or\nservice (whether constant or casual), though expended unproductively by\nthe first possessor, may, when it passes into the hands of the receivers,\nbe by them saved, and invested in a productive employment. If so, a direct\naddition is made to the national capital.\n\nAll this is obvious, and is sufficiently allowed by political economists;\nwho have invariably set apart the gains of all persons coming under the\nclass of domestic servants, as real advantages arising to a place from\nthe residence there of an increased number of unproductive consumers.\n\nWe have only to examine whether the purchases of commodities by these\nunproductive consumers, confer the same kind of benefit upon the\nvillage, town, or nation, which is bestowed upon a particular tradesman\nby dealing at his shop.\n\nNow it is obvious that the sojourners, on their arrival, confer the\nbenefit in question upon some dealers, who did not enjoy it before. They\npurchase their food, and many other articles, from the dealers in the\nplace. They, therefore, call the capital of some dealers, which was\nlocked up in unsold goods, into more active employment. They encourage\nthem to save, and enable them to receive wages of superintendance upon a\nlarger amount of capital. These effects being undeniable, the question\nis, whether the presence of the sojourners deprives any others of the\nParis dealers of a similar advantage.\n\nIt will be seen that it does; and nothing will then remain but a\ncomparison of the amounts.\n\nIt is obvious to all who reflect (and was shown in the paper which\nprecedes this) that the remittances to persons who expend their incomes\nin foreign countries are, after a slight passage of the precious metals,\ndefrayed in commodities: and that the result commonly is, an increase of\nexports and a diminution of imports, until the latter fall short of the\nformer by the amount of the remittances.\n\nThe arrival, therefore, of the strangers (say from England), while it\ncreates at Paris a market for commodities equivalent in value to their\nfunds, displaces in the market other commodities to an equal value. To\nthe extent of the increase of exports from England into France in the\nway of remittance, it introduces additional commodities which, by their\ncheapness, displace others formerly produced in that country. To the\nextent of the diminution of imports into England from France,\ncommodities which existed or which were habitually produced in that\ncountry are deprived of a market, or can only find one at a price not\nsufficient to defray the cost.\n\nIt must, therefore, be a matter of mere accident, if by arriving in a\nplace, the new unproductive consumer causes any net advantage to its\nindustry, of the kind which we are now examining. Not to mention that\nthis, like any other change in the channels of trade, may render useless\na portion of fixed capital, and so far injure the national wealth.\n\nA distinction, however, must here be made.\n\nThe place to which the new unproductive consumers have come, may be a\ntown or village, as well as a country. If a town or village, it may\neither be or not be a place having an export trade.\n\nIf the place had no previous trade except with the immediate\nneighbourhood, there are no exports and imports, by the new arrangement\nof which, the remittance can be made. There is no capital, formerly\nemployed in manufacturing for the foreign market, which is now brought\ninto less full employment.\n\nYet the remittance evidently is still made in commodities, but in this\ncase without displacing any which were produced before. To shew this, it\nis necessary to make the following remarks.\n\nThe reason why towns exist, is that _ceteris paribus_ it is convenient,\nin order to save cost of carriage, that the production of commodities\nshould take place as far as practicable in the immediate vicinity of the\nconsumer. Capital finds its way so easily from town to country and from\ncountry to town, that the amount of capital in the town will be regulated\nwholly by the amount which can be employed there more conveniently than\nelsewhere. Consequently the capital of a place will be such as is\nsufficient\n\n1st. To produce all commodities which from local circumstances can be\nproduced there at less cost than elsewhere: and if this be the case to\nany great extent, it will be an exporting town. When we say _produced_,\nwe may add, or _stored_.\n\n2nd. To produce and retail the commodities which are consumed by the\ninhabitants of the town, and the place of whose production is in other\nrespects a matter of indifference. To the inhabitants of the town must\nbe added such dwellers in the adjoining country, as are nearer to that\nplace than to any other equally well furnished market.\n\nNow, if new unproductive consumers resort to the place, it is clear that\nfor the latter of these two purposes, more capital will be required than\nbefore. Consequently, if less is not required for the former purpose,\nmore capital will establish itself at the place.\n\nUntil this additional capital has arrived, the producers and dealers\nalready on the spot will enjoy great advantages. Every particle of their\nown capital will be called into the most active employment. What their\ncapital does not enable them to supply, will be got from others at a\ndistance, who cannot supply it on such favourable terms; consequently\nthey will be in the predicament of possessing a partial monopoly\n--receiving for every thing a price regulated by a higher cost of\nproduction than they are compelled to pay. They also, being in possession\nof the market, will be enabled to make a large portion of the new capital\npass through their hands, and thus to earn wages of superintendance upon\nit.\n\nIf, indeed, the place from whence the strangers came, previously traded\nwith that where they have taken up their abode, the effect of their\narrival is, that the exports of the town will diminish, and that it will\nbe supplied from abroad with something which it previously produced at\nhome. In this way an amount of capital will be set free equal to that\nrequired, and there will be no increase on the whole. The removal of the\ncourt from London to Birmingham would not necessarily, though it would\nprobably [6], increase the amount of capital in the latter place. The\nafflux of money to Birmingham, and its efflux from London, would render\nit cheaper to make some articles in London for Birmingham consumption;\nand to make others in London for home consumption, which were formerly\nbrought from Birmingham.\n\nBut instead of Birmingham, an exporting town, suppose a village, or a\ntown which only produced and retailed for itself and its immediate\nvicinity. The remittances must come thither in the shape of money; and\nthough the money would not remain, but would be sent away in exchange\nfor commodities, it would, however, first pass through the hands of the\nproducers and dealers in the place, and would by them be exported in\nexchange for the articles which they require--viz. the materials, tools,\nand subsistence necessary for the increased production now required of\nthem, and articles of foreign luxury for their own increased unproductive\nconsumption. These articles would not displace any formerly made in the\nplace, but on the contrary, would forward the production of more.\n\nHence we may consider the following propositions as established:\n\n1. The expenditure of absentees (the case of domestic servants excepted,)\nis not necessarily any loss to the _country_ which they leave, or gain to\nthe _country_ which they resort to (save in the manner shown in Essay I.):\nfor almost every _country_ habitually exports and imports to a much\ngreater value than the incomes of its absentees, or of the foreign\nsojourners within it.\n\n2. But sojourners often do much good to the _town_ or village which they\nresort to, and absentees harm to that which they leave. The capital of\nthe petty tradesman in a small town near an absentee's estate, is\ndeprived of the market for which it is conveniently situated, and must\nresort to another to which other capitals lie nearer, and where it is\nconsequently outbid, and gains less; obtaining only the same price, with\ngreater expenses. But this evil would be equally occasioned, if, instead\nof going abroad, the absentee had removed to his own capital city.\n\nIf the tradesman could, in the latter case, remove to the metropolis, or\nin the former, employ himself in producing increased exports, or in\nproducing for home consumption articles now no longer imported, each in\nthe place most convenient for that operation; he would not be a loser,\nthough the place which he was obliged to leave might be said to lose.\n\nParis undoubtedly gains much by the sojourn of foreigners, while the\ncounteracting loss by diminution of exports from France is suffered by\nthe great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c,\nwhich also suffer the principal part of the loss by importation of\narticles previously produced at home. The capital thus set free, finds\nits most convenient seat to be Paris, since the business to which it\nmust turn is the production of articles to be unproductively consumed by\nthe sojourners.\n\nThe great trading towns of France would undoubtedly be more flourishing,\nif France were not frequented by foreigners.\n\nRome and Naples are perhaps purely benefited by the foreigners\nsojourning there: for they have so little external trade, that their\ncase may resemble that of the village in our hypothesis.\n\nAbsenteeism, therefore, (except as shown in the first Essay,) is a\nlocal, not a national evil; and the resort of foreigners, in so far as\nthey purchase for unproductive consumption, is not, in any commercial\ncountry, a national, though it may be a local good.\n\nFrom the considerations which we have now adduced, it is obvious what\nis meant by such phrases as a _brisk demand_, and a rapid circulation.\nThere is a brisk demand and a rapid circulation, when goods, generally\nspeaking, are sold as fast as they can be produced. There is slackness,\non the contrary, and stagnation, when goods, which have been produced,\nremain for a long time unsold. In the former case, the capital which has\nbeen locked up in production is disengaged as soon as the production is\ncompleted; and can be immediately employed in further production. In the\nlatter case, a large portion of the productive capital of the country is\nlying in temporary inactivity.\n\nFrom what has been already said, it is obvious that periods of \"brisk\ndemand\" are also the periods of greatest production: the national\ncapital is never called into full employment but at those periods. This,\nhowever, is no reason for desiring such times; it is not desirable that\nthe whole capital of the country should be in full employment. For, the\ncalculations of producers and traders being of necessity imperfect,\nthere are always some commodities which are more or less in excess, as\nthere are always some which are in deficiency. If, therefore, the whole\ntruth were known, there would always be some classes of producers\ncontracting, not extending, their operations. If _all_ are endeavouring\nto extend them, it is a certain proof that some general delusion is\nafloat. The commonest cause of such delusion is some general, or very\nextensive, rise of prices (whether caused by speculation or by the\ncurrency) which persuades all dealers that they are growing rich. And\nhence, an increase of production really takes place during the progress\nof depreciation, as long as the existence of depreciation is not\nsuspected; and it is this which gives to the fallacies of the currency\nschool, principally represented by Mr. Attwood, all the little\nplausibility they possess. But when the delusion vanishes and the truth\nis disclosed, those whose commodities are relatively in excess must\ndiminish their production or be ruined: and if during the high prices\nthey have built mills and erected machinery, they will be likely to\nrepent at leisure.\n\nIn the present state of the commercial world, mercantile transactions\nbeing carried on upon an immense scale, but the remote causes of\nfluctuations in prices being very little understood, so that\nunreasonable hopes and unreasonable fears alternately rule with\ntyrannical sway over the minds of a majority of the mercantile public;\ngeneral eagerness to buy and general reluctance to buy, succeed one\nanother in a manner more or less marked, at brief intervals. Except\nduring short periods of transition, there is almost always either great\nbriskness of business or great stagnation; either the principal\nproducers of almost all the leading articles of industry have as many\norders as they can possibly execute, or the dealers in almost all\ncommodities have their warehouses full of unsold goods.\n\nIn this last ease, it is commonly said that there is a general\nsuperabundance; and as those economists who have contested the\npossibility of general superabundance, would none of them deny the\npossibility or even the frequent occurrence of the phenomenon which we\nhave just noticed, it would seem incumbent on them to show, that the\nexpression to which they object is not applicable to a state of things\nin which all or most commodities remain unsold, in the same sense in\nwhich there is said to be a superabundance of any one commodity when it\nremains in the warehouses of dealers for want of a market.\n\nThis is merely a question of naming, but an important one, as it seems\nto us that much apparent difference of opinion has been produced by a\nmere difference in the mode of describing the same facts, and that\npersons who at bottom were perfectly agreed, have considered each other\nas guilty of gross error, and sometimes oven misrepresentation, on this\nsubject.\n\nIn order to afford the explanations, with which it is necessary to take\nthe doctrine of the impossibility of an excess of all commodities, we\nmust advert for a moment to the argument by which this impossibility is\ncommonly maintained.\n\nThere can never, it is said, be a want of buyers for all commodities;\nbecause whoever offers a commodity for sale, desires to obtain a\ncommodity in exchange for it, and is therefore a buyer by the mere fact\nof his being a seller. The sellers and the buyers, for all commodities\ntaken together, must, by the metaphysical necessity of the case, be an\nexact equipoise to each other; and if there be more sellers than buyers\nof one thing, there must be more buyers than sellers for another.\n\nThis argument is evidently founded on the supposition of a state of\nbarter; and, on that supposition, it is perfectly incontestable. When\ntwo persons perform an act of barter, each of them is at once a seller\nand a buyer. He cannot sell without buying. Unless he chooses to buy\nsome other person's commodity, he does not sell his own.\n\nIf, however, we suppose that money is used, these propositions cease to\nbe exactly true. It must be admitted that no person desires money for\nits own sake, (unless some very rare cases of misers be an exception,)\nand that he who sells his commodity, receiving money in exchange, does\nso with the intention of buying with that same money some other commodity.\nInterchange by means of money is therefore, as has been often observed,\nultimately nothing but barter. But there is this difference--that in the\ncase of barter, the selling and the buying are simultaneously confounded\nin one operation; you sell what you have, and buy what you want, by one\nindivisible act, and you cannot do the one without doing the other. Now\nthe effect of the employment of money, and even the utility of it, is,\nthat it enables this one act of interchange to be divided into two\nseparate acts or operations; one of which may be performed now, and the\nother a year hence, or whenever it shall be most convenient. Although he\nwho sells, really sells only to buy, he needs not buy at the same moment\nwhen he sells; and he does not therefore necessarily add to the\n_immediate_ demand for one commodity when he adds to the supply of\nanother. The buying and selling being now separated, it may very well\noccur, that there may be, at some given time, a very general inclination\nto sell with as little delay as possible, accompanied with an equally\ngeneral inclination to defer all purchases as long as possible. This is\nalways actually the case, in those periods which are described as\nperiods of general excess. And no one, after sufficient explanation,\nwill contest the possibility of general excess, in this sense of the\nword. The state of things which we have just described, and which is of\nno uncommon occurrence, amounts to it.\n\nFor when there is a general anxiety to sell, and a general\ndisinclination to buy, commodities of all kinds remain for a long time\nunsold, and those which find an immediate market, do so at a very low\nprice. If it be said that when all commodities fall in price, the fall\nis of no consequence, since mere money price is not material while the\nrelative value of all commodities remains the same, we answer that this\nwould be true if the low prices were to last for ever. But as it is\ncertain that prices will rise again sooner or later, the person who is\nobliged by necessity to sell his commodity at a low money price is\nreally a sufferer, the money he receives sinking shortly to its ordinary\nvalue. Every person, therefore, delays selling if he can, keeping his\ncapital unproductive in the mean time, and sustaining the consequent\nloss of interest. There is stagnation to those who are not obliged to\nsell, and distress to those who are.\n\nIt is true that this state can be only temporary, and must even be\nsucceeded by a reaction of corresponding violence, since those who have\nsold without buying will certainly buy at last, and there will then be\nmore buyers than sellers. But although the general over-supply is of\nnecessity only temporary, this is no more than may be said of every\npartial over-supply. An overstocked state of the market is always\ntemporary, and is generally followed by a more than common briskness of\ndemand.\n\nIn order to render the argument for the impossibility of an excess of\nall commodities applicable to the case in which a circulating medium is\nemployed, money must itself be considered as a commodity. It must,\nundoubtedly, be admitted that there cannot be an excess of all other\ncommodities, and an excess of money at the same time.\n\nBut those who have, at periods such as we have described, affirmed that\nthere was an excess of all commodities, never pretended that money was\none of these commodities; they held that there was not an excess, but\na deficiency of the circulating medium. What they called a general\nsuperabundance, was not a superabundance of commodities relatively to\ncommodities, but a superabundance of all commodities relatively to\nmoney. What it amounted to was, that persons in general, at that\nparticular time, from a general expectation of being called upon to meet\nsudden demands, liked better to possess money than any other commodity.\nMoney, consequently, was in request, and all other commodities were in\ncomparative disrepute. In extreme cases, money is collected in masses,\nand hoarded; in the milder cases, people merely defer parting with their\nmoney, or coming under any new engagements to part with it. But the\nresult is, that all commodities fall in price, or become unsaleable.\nWhen this happens to one single commodity, there is said to be a\nsuperabundance of that commodity; and if that be a proper expression,\nthere would seem to be in the nature of the case no particular\nimpropriety in saying that there is a superabundance of all or most\ncommodities, when all or most of them are in this same predicament.\n\nIt is, however, of the utmost importance to observe that excess of all\ncommodities, in the only sense in which it is possible, means only a\ntemporary fall in their value relatively to money. To suppose that the\nmarkets for all commodities could, in any other sense than this, be\noverstocked, involves the absurdity that commodities may fall in value\nrelatively to themselves; or that, of two commodities, each can fall\nrelatively to the other, A becoming equivalent to B-_x_, and B to A-_x_,\nat the same time. And it is, perhaps, a sufficient reason for not using\nphrases of this description, that they suggest the idea of excessive\nproduction. A want of market for one article may arise from excessive\nproduction of that article; but when commodities in general become\nunsaleable, it is from a very different cause; there cannot be excessive\nproduction of commodities in general.\n\nThe argument against the possibility of general over-production is quite\nconclusive, so far as it applies to the doctrine that a country may\naccumulate capital too fast; that produce in general may, by increasing\nfaster than the demand for it, reduce all producers to distress. This\nproposition, strange to say, was almost a received doctrine as lately as\nthirty years ago; and the merit of those who have exploded it is much\ngreater than might be inferred from the extreme obviousness of its\nabsurdity when it is stated in its native simplicity. It is true that if\nall the wants of all the inhabitants of a country were fully satisfied,\nno further capital could find useful employment; but, in that case, none\nwould be accumulated. So long as there remain any persons not possessed,\nwe do not say of subsistence, but of the most refined luxuries, and who\nwould work to possess them, there is employment for capital; and if the\ncommodities which these persons want are not produced and placed at\ntheir disposal, it can only be because capital does not exist, disposable\nfor the purpose of employing, if not any other labourers, those very\nlabourers themselves, in producing the articles for their own consumption.\nNothing can be more chimerical than the fear that the accumulation of\ncapital should produce poverty and not wealth, or that it will ever take\nplace too fast for its own end. Nothing is more true than that it is\nproduce which constitutes the market for produce, and that every increase\nof production, if distributed without miscalculation among all kinds of\nproduce in the proportion which private interest would dictate, creates,\nor rather constitutes, its own demand.\n\nThis is the truth which the deniers of general over-production have\nseized and enforced; nor is it pretended that anything has been added\nto it, or subtracted from it, in the present disquisition. But it is\nthought that those who receive the doctrine accompanied with the\nexplanations which we have given, will understand, more clearly than\nbefore, what is, and what is not, implied in it; and will see that, when\nproperly understood, it in no way contradicts those obvious facts which\nare universally known and admitted to be not only of possible, but of\nactual and even frequent occurrence. The doctrine in question only\nappears a paradox, because it has usually been so expressed as\napparently to contradict these well-known facts; which, however, were\nequally well known to the authors of the doctrine, who, therefore, can\nonly have adopted from inadvertence any form of expression which could\nto a candid person appear inconsistent with it. The essentials of the\ndoctrine are preserved when it is allowed that there cannot be permanent\nexcess of production, or of accumulation; though it be at the same time\nadmitted, that as there may be a temporary excess of any one article\nconsidered separately, so may there of commodities generally, not in\nconsequence of over-production, but of a want of commercial confidence.\n\n\nNOTE:\n\n[6] Probably; because most articles of an ornamental description being\nstill required from the same makers, these makers, with their capital,\nwould probably follow their customers, Besides, from place to place\nwithin the same country, most persons will lather change their\nhabitation than their employment. But the moving on this score would be\nreciprocal.\n\n\n\n\nESSAY III.\n\nON THE WORDS PRODUCTIVE AND UNPRODUCTIVE.\n\n\nIt would probably be difficult to point out any two words, respecting\nthe proper use of which political economists have been more divided,\nthan they have been concerning the two words _productive_ and\n_unproductive_; whether considered as applied to _labour_, to\n_consumption_, or to _expenditure_.\n\nAlthough this is a question solely of nomenclature, it is one of\nsufficient importance to be worth another attempt to settle it\nsatisfactorily. For, although writers on political economy have not\nagreed in the ideas which they were accustomed to annex to these terms,\nthe terms have generally been employed to denote ideas of very great\nimportance, and it is impossible that some vagueness should not have\nbeen thrown upon the ideas themselves by looseness in the use of the\nwords by which they are habitually designated. Further, so long as the\npedantic objection to the introduction of new technical terms continues,\naccurate thinkers on moral and political subjects are limited to a very\nscanty vocabulary for the expression of their ideas. It therefore is of\ngreat importance that the words with which mankind are familiar, should\nbe turned to the greatest possible advantage as instruments of thought;\nthat one word should not be used as the sign of an idea which is already\nsufficiently expressed by another word; and that words which are\nrequired to denote ideas of great importance, should not be usurped for\nthe expression of such as are comparatively insignificant.\n\nThe phrases _productive labour_, and _productive consumption_, have been\nemployed by some writers on political economy with very great latitude.\nThey have considered, and classed, as productive labour and productive\nconsumption, all labour which serves any _useful_ purpose--all\nconsumption which is not _waste_. Mr. M'Culloch has asserted, _totidem\nverbis_, that the labour of Madame Pasta was as well entitled to be\ncalled productive labour as that of a cotton spinner.\n\nEmployed in this sense, the words _productive_ and _unproductive_ are\nsuperfluous, since the words _useful_ and _agreeable_ on the one hand,\n_useless_ and _worthless_ on the other, are quite sufficient to express\nall the ideas to which the words _productive_ and _unproductive_ are\nhere applied.\n\nThis use of the terms, therefore, is subversive of the ends of language.\n\nThose writers who have employed the words in a more limited sense, have\nusually understood by productive or unproductive labour, labour which is\nproductive of wealth, or unproductive of wealth. But what is wealth? And\nhere the words productive and unproductive have been affected with\nadditional ambiguities, corresponding to the different extension which\ndifferent writers have given to the term wealth.\n\nSome have given the name of wealth to _all things_ which tend to the use\nor enjoyment of mankind, and which possess exchangeable value. This last\nclause is added to exclude air, the light of the sun, and any other\nthings which can be obtained in unlimited quantity without labour or\nsacrifice; together with all such things as, though produced by labour,\nare not held in sufficient general estimation to command any price in\nthe market.\n\nBut when this definition came to be explained, many persons were\ndisposed to interpret \"_all things_ which tend to the use or enjoyment\nof man,\" as implying only all _material_ things. _Immaterial_ products\nthey refused to consider as wealth; and labour or expenditure which\nyielded nothing but immaterial products, they characterised as\nunproductive labour and unproductive expenditure.\n\nTo this it was, or might have been, answered, that according to this\nclassification, a carpenter's labour at his trade is productive labour,\nbut the same individual's labour in learning his trade was unproductive\nlabour. Yet it is obvious that, on both occasions, his labour tended\nexclusively to what is allowed to be production: the one was equally\nindispensable with the other, to the ultimate result. Further, if we\nadopted the above definition, we should be obliged to say that a nation\nwhose artisans were twice as skilful as those of another nation, was\nnot, _ceteris paribus_, more wealthy; although it is evident that every\none of the results of wealth, and everything for the sake of which\nwealth is desired, would be possessed by the former country in a higher\ndegree than by the latter.\n\nEvery classification according to which a basket of cherries, gathered\nand eaten the next minute, are called wealth, while that title is denied\nto the acquired skill of those who are acknowledged to be productive\nlabourers, is a purely arbitrary division, and does not conduce to the\nends for which classification and nomenclature are designed.\n\nIn order to get over all difficulties, some political economists seem\ndisposed to make the terms express a distinction sufficiently definite\nindeed, but more completely arbitrary, and having less foundation in\nnature, than any of the former. They will not allow to any labour or to\nany expenditure the name of productive, unless the produce which it\nyields returns into the hands of the very person who made the outlay.\nHedging and ditching they term productive labour, though those\noperations conduce to production only indirectly, by protecting the\nproduce from destruction; but the necessary expenses incurred by a\ngovernment for the protection of property are, they insist upon it,\nconsumed unproductively: though, as has been well pointed out by Mr.\nM'Culloch, these expenses, in their relation to the national wealth, are\nexactly analogous to the wages of a hedger or a ditcher. The only\ndifference is, that the farmer, who pays for the hedging and ditching,\nis the person to whom the consequent increase of production accrues,\nwhile the government, which is at the expense of police officers and\ncourts of justice, does not, as a necessary consequence, get back into\nits own coffers the increase of the national wealth resulting from the\nsecurity of property.\n\nIt would be endless to point out the oddities and incongruities which\nresult from this classification. Whether we take the words wealth and\nproduction in the largest, or in the most restricted sense in which they\nhave ever yet been employed, nobody will dispute that roads, bridges,\nand canals, contribute in an eminent degree, and in a very direct\nmanner, to the increase of production and wealth. The labour and\npecuniary resources employed in their construction would, according to\nthe above theory, be considered productive, if every occupier of land\nwere compelled by law to construct so much of the road, or canal, as\npasses through his own farm. If, instead of this, the government makes\nthe road, and throws it open to the public toll-free, the labour and\nexpenditure would be, on the above system, clearly unproductive. But if\nthe government, or an association of individuals, made the road, and\nimposed a toll to defray the expense, we do not see how these writers\ncould refuse to the outlay the title of productive expenditure. It would\nfollow, that the very same labour and expense, if given gratuitously,\nmust be called unproductive, which, if a charge had been made for it,\nwould have been called productive.\n\nWhen these consequences of the purely arbitrary classification to which\nwe allude have been pointed out and complained of, the only answer which\nwe have ever seen made to the objection is, that the line of demarcation\nmust be drawn somewhere, and that in every classification there are\nintermediate cases, which might have been included, with almost equal\npropriety, either in the one class or in the other.\n\nThis answer appears to us to indicate the want of a sufficiently\naccurate and discriminating perception, what is the kind of inaccuracy\nwhich generally cannot be avoided in a classification, and what is that\nother kind of inaccuracy, from which it always may be, and should be,\nexempt.\n\nThe classes themselves may be, mentally speaking, perfectly definite,\nthough it may not always be easy to say to which of them a particular\nobject belongs. When it is uncertain in which of two classes an object\nshould be placed, if the classification be properly made, and properly\nexpressed, the uncertainty can turn only upon a matter of fact. It is\nuncertain to which class the object belongs, because it is doubtful\nwhether it possesses in a greater degree the characteristics of the one\nclass or those of the other. But the characteristics themselves may be\ndefined and distinguished with the nicest exactness, and always ought to\nbe so. Especially ought they in a case like the present, because here it\nis only the distinction between the ideas which is of any importance.\nThat we should be able with ease to portion out all employments between\nthe two classes, does not happen to be of any particular consequence.\n\nIt is frequently said that classification is a mere affair of\nconvenience. This assertion is true in one sense, but not if its meaning\nbe, that the most proper classification is that in which it is easiest\nto say whether an object belongs to one class or to the other. The use\nof classification is, to fix attention upon the distinctions which exist\namong things; and that is the best classification, which is founded upon\nthe most important distinctions, whatever be the facilities which it may\nafford of ticketing and arranging the different objects which exist in\nnature. In fixing, therefore, the meaning of the words productive and\nunproductive, we ought to endeavour to render them significative of the\nmost important distinctions which, without too glaring a violation of\nreceived usage, they can be made to express.\n\nWe ought further, when we are restricted to the employment of old words,\nto endeavour as far as possible that it shall not be necessary to\nstruggle against the old associations with those words. We should, if\npossible, give the words such a meaning, that the propositions in which\npeople are accustomed to use them, shall as far as possible still be\ntrue; and that the feelings habitually excited by them, shall be such as\nthe things to which we mean to appropriate them ought to excite.\n\nWe shall endeavour to unite these conditions in the result of the\nfollowing enquiry.\n\nIn whatever manner political economists may have settled the definition\nof productive and unproductive labour or consumption, the consequences\nwhich they have drawn from the definition are nearly the same. In\nproportion to the amount of the productive labour and consumption of\na country, the country, they all allow, is enriched: in proportion to\nthe amount of the unproductive labour and consumption, the country is\nimpoverished. Productive expenditure they are accustomed to view as\na gain; unproductive expenditure, however useful, as a sacrifice.\nUnproductive expenditure of what was destined to be expended\nproductively, they always characterise as a squandering of resources,\nand call it profusion and prodigality. The productive expenditure of\nthat which might, without encroaching upon capital, be expended\nunproductively, is called saving, economy, frugality. Want, misery, and\nstarvation, are described as the lot of a nation which annually employs\nless and less of its labour and resources in production; growing comfort\nand opulence as the result of an annual increase in the quantity of\nwealth so employed.\n\nLet us then examine what qualities in expenditure, and in the employment\nof labour, are those from which all the consequences above mentioned\nreally flow.\n\nThe end to which all labour and all expenditure are directed, is\ntwofold. Sometimes it is _enjoyment_ immediately; the fulfilment of\nthose desires, the gratification of which is wished for on its own\naccount. Whenever labour or expense is not incurred _immediately_ for\nthe sake of enjoyment, and is yet not absolutely wasted, it must be\nincurred for the purpose of enjoyment _indirectly_ or mediately; by\neither repairing and perpetuating, or adding, to the _permanent sources_\nof enjoyment.\n\nSources of enjoyment may be accumulated and stored up; enjoyment itself\ncannot. The wealth of a country consists of the sum total of the\npermanent sources of enjoyment, whether material or immaterial, contained\nin it: and labour or expenditure which tends to augment or to keep up\nthese permanent sources, should, we conceive, be termed productive.\n\nLabour which is employed for the purpose of directly affording\nenjoyment, such as the labour of a performer on a musical instrument, we\nterm unproductive labour. Whatever is consumed by such a performer, we\nconsider as unproductively consumed: the accumulated total of the\nsources of enjoyment which the nation possesses, is diminished by the\namount of what he has consumed: whereas, if it had been given to him in\nexchange for his services in producing food or clothing, the total of\nthe permanent sources of enjoyment in the country might have been not\ndiminished but increased.\n\nThe performer on the musical instrument then is, so far as respects that\nact, not a productive, but an unproductive labourer. But what shall we\nsay of the workman who made the musical instrument? He, most persons\nwould say, is a productive labourer; and with reason; because the\nmusical instrument is a permanent source of enjoyment, which does not\nbegin and end with the enjoying, and therefore admits of being\naccumulated.\n\nBut the _skill_ of the musician is a permanent source of enjoyment, as\nwell as the instrument which he plays upon: and although skill is not a\nmaterial object, but a quality of an object, viz., of the hands and mind\nof the performer; nevertheless skill possesses exchangeable value, is\nacquired by labour and capital, and is capable of being stored and\naccumulated. Skill, therefore, must be considered as wealth; and the\nlabour and funds employed in acquiring skill in anything tending to the\nadvantage or pleasure of mankind, must be considered to be productively\nemployed and expended.\n\nThe skill of a productive labourer is analogous to the machinery he\nworks with: neither of them is enjoyment, nor conduces directly to it,\nbut both conduce indirectly to it, and both in the same way. If a\nspinning-jenny be wealth, the spinner's skill is also wealth. If the\nmechanic who made the spinning-jenny laboured productively, the spinner\nalso laboured productively when he was learning his trade: and what they\nboth consumed was consumed productively, that is to say, its consumption\ndid not tend to diminish, but to increase the sum of the permanent\nsources of enjoyment in the country, by effecting a new creation of\nthose sources, more than equal to the amount of the consumption.\n\nThe skill of a tailor, and the implements he employs, contribute in the\nsame way to the convenience of him who wears the coat, namely, a remote\nway: it is the coat itself which contributes immediately. The skill of\nMadame Pasta, and the building and decorations which aid the effect of\nher performance, contribute in the same way to the enjoyment of the\naudience, namely, an immediate way, without any intermediate\ninstrumentality. The building and decorations are consumed\nunproductively, and Madame Pasta labours and consumes unproductively;\nfor the building is used and worn out, and Madame Pasta performs,\nimmediately for the spectators' enjoyment, and without leaving, as a\nconsequence of the performance, any permanent result possessing\nexchangeable value: consequently the epithet unproductive must be\nequally applied to the gradual wearing out of the bricks and mortar, the\nnightly consumption of the more perishable \"properties\" of the theatre,\nthe labour of Madame Pasta in acting, and of the orchestra in playing.\nBut notwithstanding this, the architect who built the theatre was a\nproductive labourer; so were the producers of the perishable articles;\nso were those who constructed the musical instruments; and so, we must\nbe permitted to add, were those who instructed the musicians, and all\npersons who, by the instructions which they may have given to Madame\nPasta, contributed to the formation of her talent. All these persons\ncontributed to the enjoyment of the audience in the same way, and that\na remote way, viz., by the production of a _permanent source of\nenjoyment_.\n\nThe difference between this case, and the case of the cotton spinner\nalready adverted to, is this. The spinning-jenny, and the skill of the\ncotton spinner, are not only the result of productive labour, but are\nthemselves productively consumed. The musical instrument and the skill\nof the musician are equally the result of productive labour, but are\nthemselves unproductively consumed.\n\nLet us now consider what kinds of labour, and of consumption or\nexpenditure, will be classed as productive, and what as unproductive,\naccording to this rule.\n\nThe following are always productive:\n\nLabour and expenditure, of which the direct object or effect is the\ncreation of some material product useful or agreeable to mankind.\n\nLabour and expenditure, of which the direct effect and object are, to\nendow human or other animated beings with faculties or qualities useful\nor agreeable to mankind, and possessing exchangeable value.\n\nLabour and expenditure, which without having for their direct object the\ncreation of any useful material product or bodily or mental faculty or\nquality, yet tend indirectly to promote one or other of those ends, and\nare exerted or incurred solely for that purpose.\n\nThe following are partly productive and partly unproductive, and cannot\nwith propriety be ranged decidedly with either class:\n\nLabour or expenditure which does indeed create, or promote the creation\nof, some useful material product or bodily or mental faculty or quality,\nbut which is not incurred or exerted for that sole end; having also for\nanother, and perhaps its principal end, enjoyment, or the promotion of\nenjoyment.\n\nSuch are the labour of the judge, the legislator, the police-officer,\nthe soldier; and the expenditure incurred for their support. These\nfunctionaries protect and secure mankind in the exclusive possession of\nsuch material products or acquired faculties as belong to them; and by\nthe security which they so confer, they indirectly increase production\nin a degree far more than equivalent to the expense which is necessary\nfor their maintenance. But this is not the only purpose for which they\nexist; they protect mankind, not merely in the possession of their\npermanent resources, but also in their actual enjoyments; and so far,\nalthough highly useful, they cannot, conformably to the distinction\nwhich we have attempted to lay down, be considered productive labourers.\n\nSuch, also, are the labour and the wages of domestic servants. Such\npersons are entertained mainly as subservient to mere enjoyment; but\nmost of them occasionally, and some habitually, render services which\nmust be considered as of a productive nature; such as that of cookery,\nthe last stage in the manufacture of food; or gardening, a branch of\nagriculture.\n\nThe following are wholly unproductive:\n\nLabour exerted, and expenditure incurred, directly and exclusively for\nthe purpose of enjoyment, and not calling into existence anything,\nwhether substance or quality, but such as begins and perishes in the\nenjoyment.\n\nLabour exerted and expenditure incurred uselessly, or in pure waste, and\nyielding neither direct enjoyment nor permanent sources of enjoyment.\n\nIt may be objected, that expenditure incurred even for pure enjoyment\npromotes production indirectly, by inciting to exertion. Thus the view\nof the splendour of a rich establishment is supposed by some writers to\nproduce upon the mind of an indigent spectator an earnest desire of\nenjoying the same luxuries, and a consequent purpose of working with\nvigour and diligence, and saving from his earnings, thus increasing the\nproductive capital of the country.\n\nIt is true that mankind are, for the most part, excited to productive\nindustry solely by the desire of subsequently consuming the result of\ntheir labour and accumulation. The consumption called unproductive,\nviz., that of which the direct result is enjoyment, is in reality the\nend, to which production is only the means; and a desire for the end,\nis what alone impels any one to have recourse to the means.\n\nBut, notwithstanding this, it is of the greatest importance to mark the\ndistinction between the labour and the consumption which have enjoyment\nfor their immediate end, and the labour and the consumption of which the\nimmediate end is reproduction. Though the sight of the former may still\nfurther stimulate that desire for the enjoyments afforded by wealth,\nwhich the mere knowledge, without the immediate view, would suffice to\nexcite (and without dwelling on the consideration that if the example\nof a large expenditure excites one individual to accumulation, it\nencourages two to prodigal expense); still, if we look only to the\neffects which are intended, or to those which immediately follow from\nthe consumption, and whose connexion with it can be distinctly traced,\nit evidently renders a country poorer in the permanent sources of\nenjoyment; while reproductive consumption leaves the country richer in\nthese same sources. Besides, if what is spent for mere pleasure promotes\nindirectly the increase of wealth, it can only be by inducing others\n_not_ to expend on mere pleasure.\n\nBefore quitting the subject, one more observation should be added. It\nmust not be supposed that what is expended upon unproductive labourers\nis necessarily, the whole of it, unproductively consumed. The\nunproductive labourers may save part of their wages, and invest them in\na productive employment.\n\nIt is not unusual to speak of what is paid in wages to a labourer as\nbeing thereby _consumed_, as if all profit and loss to the nation were\nto be seen in the capitalist's account-book. What is paid for productive\nlabour is said to be productively consumed; what is paid for\nunproductive labour is said to be consumed unproductively. It would be\nproper to say, not that it is productively or unproductively _consumed_,\nbut productively or unproductively _expended_; otherwise, we shall be\nobliged to say that it is consumed twice over; the first time\nunproductively, perhaps, and the second, it may be, productively.\n\nTo pronounce in which way the wages of the labourer are consumed, we\nmust follow them into the labourer's own hands. As much as is necessary\nto keep the productive labourer in perfect health and fitness for his\nemployment, may be said to be consumed productively. To this should be\nadded what he expends in rearing children to the age at which they\nbecome capable of productive industry. If the state of the market for\nlabour be such as to afford him more, this he may either save, or, as\nthe common expression is, he may spend it. If he saves any portion, this\n(unless it be merely hoarded) he intends to employ productively, and it\nwill be productively consumed. If he spends it, the consumption is for\nenjoyment immediately, and is therefore unproductive.\n\nThis suggests another correction in the established language. Political\neconomists generally define the \"net produce\" to be that portion of the\ngross annual produce of a country which remains after replacing the\ncapital annually consumed. This, as they proceed to explain, consists of\nprofits and rent; wages being included in the other portion of the gross\nproduce, that which goes to replace capital. After this definition, they\nusually proceed to tell us that the net produce, and that alone,\nconstitutes the fund from which a nation can accumulate, and add to its\ncapital, as also that which it can, without retrograding in wealth,\nexpend unproductively, or for enjoyment. Now, it is impossible that both\nthe above propositions can be true. If the net produce is that which\nremains after replacing capital, then net produce is not the only fund\nout of which accumulation may be made: for accumulation may be made from\nwages; this is in all countries one of the great sources, and in countries\nlike America perhaps the greatest source of accumulation. If, on the other\nhand, it is desirable to reserve the name of net produce to denote the\nfund available for accumulation or for unproductive consumption, we must\ndefine net produce differently. The definition which appears the best\nadapted to render the ordinary doctrines relating to net produce true,\nwould be this:\n\nThe net produce of a country is whatever is annually produced beyond\nwhat is necessary for maintaining the stock of materials and implements\nunimpaired, for keeping all productive labourers alive and in condition\nfor work, and for just keeping up their numbers without increase. What\nis required for these purposes, or, in other words, for keeping up the\nproductive resources of the country, cannot be diverted from its\ndestination without rendering the nation as a whole poorer. But all\nwhich is produced beyond this, whether it be in the hands of the\nlabourer, of the capitalist, or of any of the numerous varieties of\nrent-owners, may be taken for immediate enjoyment, without prejudice to\nthe productive resources of the community; and whatever part of it is\nnot so taken, constitutes a clear addition to the national capital, or\nto the permanent sources of enjoyment.\n\n\n\n\nESSAY IV.\n\nON PROFITS, AND INTEREST.\n\n\nThe profits of stock are the surplus which remains to the capitalist\nafter replacing his capital: and the ratio which that surplus bears to\nthe capital itself, is the _rate_ of profit.\n\nThis being the definition of profits, it might seem natural to adopt, as\na sufficient theory in regard to the rate of profit, that it depends\nupon the productive power of capital. Some countries are favoured beyond\nothers, either by nature or art, in the means of production. If the\npowers of the soil, or of machinery, enable capital to produce what is\nnecessary for replacing itself, and twenty per cent more, profits will\nbe twenty per cent; and so on.\n\nThis, accordingly, is a popular mode of speaking on the subject of\nprofits; but it has only the semblance, not the reality, of an\nexplanation. The \"productive power of capital,\" though a common, and,\nfor some purposes, a convenient expression, is a delusive one. Capital,\nstrictly speaking, has no productive power. The only productive power is\nthat of labour; assisted, no doubt, by tools, and acting upon materials.\nThat portion of capital which consists of tools and materials, may be\nsaid, perhaps, without any great impropriety, to have a productive\npower, because they contribute, along with labour, to the accomplishment\nof production. But that portion of capital which consists of wages, has\nno productive power of its own. Wages have no productive power; they are\nthe price of a productive power. Wages do not contribute, along with\nlabour, to the production of commodities, no more than the price of\ntools contributes along with the tools themselves. If labour could be\nhad without purchase, wages might be dispensed with. That portion of\ncapital which is expended in the wages of labour, is only the means by\nwhich the capitalist procures to himself, in the way of purchase, the\nuse of that labour in which the power of production really resides.\n\nThe proper view of capital is, that anything whatever, which a person\npossesses, constitutes his capital, provided he is able, and intends,\nto employ it, not in consumption for the purpose of enjoyment, but in\npossessing himself of the means of production, with the intention of\nemploying those means productively. Now the means of production are\nlabour, implements, and materials. The only productive power which\nanywhere exists, is the productive power of labour, implements, and\nmaterials.\n\nWe need not, on this account, altogether proscribe the expression,\n\"productive power of capital;\" but we should carefully note, that it can\nonly mean the quantity of real productive power which the capitalist,\nby means of his capital, can command. This may change, though the\nproductive power of labour remains the same. Wages, for example, may\nrise; and then, although all the circumstances of production remain\nexactly as they were before, the same capital will yield a less return,\nbecause it will set in motion a less quantity of productive labour.\n\nWe may, therefore, consider the capital of a producer as measured by the\nmeans which he has of possessing himself of the different essentials of\nproduction: namely, labour, and the various articles which labour\nrequires as materials, or of which it avails itself as aids.\n\nThe ratio between the price which he has to pay for these means of\nproduction, and the produce which they enable him to raise, is the\n_rate_ of his _profit_. If he must give for labour and tools four-fifths\nof what they will produce, the remaining fifth will constitute his\nprofit, and will give him a rate of one in four, or twenty-five per\ncent, on his outlay.\n\nIt is necessary here to remark, what cannot indeed by any possibility be\nmisunderstood, but might possibly be overlooked in cases where attention\nto it is indispensable, viz., that we are speaking now of the _rate_ of\nprofit, not the gross profit. If the capital of the country is very\ngreat, a profit of only five per cent upon it may be much more ample,\nmay support a much larger number of capitalists and their families in\nmuch greater affluence, than a profit of twenty-five per cent on the\ncomparatively small capital of a poor country. The _gross_ profit of a\ncountry is the actual amount of necessaries, conveniences, and luxuries,\nwhich are divided among its capitalists: but whether this be large or\nsmall, the rate of profit may be just the same. The rate of profit is\nthe proportion which the profit bears to the capital; which the surplus\nproduce after replacing the outlay, bears to the outlay. In short, if we\ncompare the _price paid_ for labour and tools with what that labour and\nthose tools will _produce_, from this ratio we may calculate the rate of\nprofit.\n\nAs the gross profit may be very different though the rate of profit be\nthe same; so also may the absolute price paid for labour and tools be\nvery different, and yet the proportion between the price paid and the\nproduce obtained may be just the same. For greater clearness, let us\nomit, for the present, the consideration of tools, materials, &c, and\nconceive production as the result solely of labour. In a certain\ncountry, let us suppose, the wages of each labourer are one quarter of\nwheat per year, and 100 men can produce, in one year, 120 quarters. Here\nthe price paid for labour is to the produce of that labour as 100 to\n120, and profits are 20 per cent. Suppose now that, in another country,\nwages are just double what they are in the country before supposed;\nnamely, two quarters of wheat per year, for each labourer. But suppose,\nlikewise, that the productive power of labour is double what it is in\nthe first country; that by the greater fertility of the soil, 100 men\ncan produce 240 quarters, instead of 120 as before. Here it is obvious,\nthat the real price paid for labour is twice as great in the one country\nas in the other; but the produce being also twice as great, the ratio\nbetween the price of labour and the produce of labour is still exactly\nthe same: an outlay of 200 quarters gives a return of 240 quarters, and\nprofits, as before, are 20 per cent.\n\nProfits, then (meaning not gross profits, but the rate of profit),\ndepend (not upon the price of labour, tools, and materials--but) upon\nthe ratio between the price of labour, tools, and materials, and the\nproduce of them: upon the proportionate share of the produce of industry\nwhich it is necessary to offer, in order to purchase that industry and\nthe means of setting it in motion.\n\n       *       *       *       *       *\n\nWe have hitherto spoken of tools, buildings, and materials, as\nessentials of production, co-ordinate with labour, and equally\nindispensable with it. This is true; but it is also true that tools,\nbuildings, and materials, are themselves the produce of labour; and that\nthe only cause (cases of monopoly excepted) of their having any value,\nis the labour which is required for their production.\n\nIf tools, buildings, and materials were the spontaneous gifts of nature,\nrequiring no labour either in order to produce or to appropriate them;\nand if they were thus bestowed upon mankind in indefinite quantity, and\nwithout the possibility of being monopolized; they would still be as\nuseful, as indispensable as they now are; but since they could, like air\nand the light of the sun, be obtained without cost or sacrifice, they\nwould form no part of the expenses of production, and no portion of the\nproduce would be required to be set aside in order to replace the outlay\nmade for these purposes. The whole produce, therefore, after replacing\nthe wages of labour, would be clear profit to the capitalist.\n\nLabour alone is the primary means of production; \"the original\npurchase-money which has been paid for everything.\" Tools and materials,\nlike other things, have originally cost nothing but labour; and have a\nvalue in the market only because wages have been paid for them. The\nlabour employed in making the tools and materials being added to the\nlabour afterwards employed in working up the materials by aid of the\ntools, the sum total gives the whole of the labour employed in the\nproduction of the completed commodity. In the ultimate analysis,\ntherefore, labour appears to be the only essential of production. To\nreplace capital, is to replace nothing but the wages of the labour\nemployed. Consequently, the whole of the surplus, after replacing wages,\nis profits. From this it seems to follow, that the ratio between the\nwages of labour and the produce of that labour gives the rate of profit.\nAnd thus we arrive at Mr. Ricardo's principle, that profits depend upon\nwages; rising as wages fall, and falling as wages rise.\n\nTo protect this proposition (the most perfect form in which the law of\nprofits seems to have been yet exhibited) against misapprehension, one\nor two explanatory remarks are required.\n\nIf by wages, be meant what constitutes the real affluence of the\nlabourer, the _quantity_ of produce which he receives in exchange for\nhis labour; the proposition that profits vary inversely as wages, will\nbe obviously false. The rate of profit (as has been already observed and\nexemplified) does not depend upon the price of labour, but upon the\nproportion between the price of labour and the produce of it. If the\nproduce of labour is large, the price of labour may also be large\nwithout any diminution of the rate of profit: and, in fact, the rate of\nprofit is highest in those countries (as, for instance, North America)\nwhere the labourer is most largely remunerated. For the wages of labour,\nthough so large, bear a less proportion to the abundant _produce_ of\nlabour, there than elsewhere.\n\nBut this does not affect the truth of Mr. Ricardo's principle as he\nhimself understood it; because an increase of the labourer's real\ncomforts was not considered by him as a rise of wages. In his language\nwages were only said to rise, when they rose not in mere quantity but in\n_value_. To the labourer himself (he would have said) the _quantity_ of\nhis remuneration is the important circumstance: but its _value_ is the\nonly thing of importance to the person who purchases his labour.\n\nThe rate of profits depends not upon absolute or real wages, but upon\nthe _value_ of wages.\n\nIf, however, by value, Mr. Ricardo had meant _exchangeable_ value, his\nproposition would still have been remote from the truth. Profits depend\nno more upon the exchangeable value of the labourer's remuneration, than\nupon its quantity. The truth is, that by the exchangeable value is meant\nthe quantity of commodities which the labourer can purchase with his\nwages; so that when we say the exchangeable value of wages, we say their\nquantity, under another name.\n\nMr. Ricardo, however, did not use the word value in the sense of\nexchangeable value.\n\nOccasionally, in his writings, he could not avoid using the word as\nother people use it, to denote value in exchange. But he more frequently\nemployed it in a sense peculiar to himself, to denote cost of\nproduction; in other words, the _quantity of labour_ required to produce\nthe article; that being his criterion of cost of production. Thus, if a\nhat could be made with ten days' labour in France and with five days'\nlabour in England, he said that the value of a hat was double in France\nof what it was in England. If a quarter of corn could be produced a\ncentury ago with half as much labour as is necessary at present, Mr.\nRicardo said that the value of a quarter of corn had doubled.\n\nMr. Ricardo, therefore, would not have said that wages had risen,\nbecause a labourer could obtain two pecks of flour instead of one, for a\nday's labour; but if last year he received, for a day's labour,\nsomething which required eight hours' labour to produce it, and this\nyear something which requires nine hours, then Mr. Ricardo would say\nthat wages had risen. A rise of wages, with Mr. Ricardo, meant an\nincrease in the cost of production of wages; an increase in the number\nof hours' labour which go to produce the wages of a day's labour; an\nincrease in the _proportion_ of the fruits of labour which the labourer\nreceives for his own share; an increase in the ratio between the wages\nof his labour and the produce of it. This is the theory: the reasoning,\nof which it is the result, has been given in the preceding paragraphs.\n\nSome of Mr. Ricardo's followers, or more properly, of those who have\nadopted in most particulars the views of political economy which his\ngenius was the first to open up, have given explanations of Mr.\nRicardo's doctrine to nearly the same effect as the above, but in rather\ndifferent terms. They have said that profits depend not on _absolute_,\nbut on _proportional_ wages: which they expounded to mean the proportion\nwhich the labourers _en masse_ receive of the total produce of the\ncountry.\n\nIt seems, however, to be rather an unusual and inconvenient use of\nlanguage to speak of anything as depending upon the wages of labour, and\nthen to explain that by wages of labour you do not mean the wages of an\nindividual labourer, but of all the labourers in the country\ncollectively. Mankind will never agree to call anything a rise of wages,\nexcept a rise of the wages of individual labourers, and it is therefore\npreferable to employ language tending to fix attention upon the wages of\nthe individual. The wages, however, on which profits are said to depend,\nare undoubtedly _proportional_ wages, namely, the proportional wages of\none labourer: that is, the ratio between the wages of one labourer, and\n(not the whole produce of the country, but) the amount of what one\nlabourer can produce; the amount of that portion of the collective\nproduce of the industry of the country, which may be considered as\ncorresponding to the labour of one single labourer. Proportional wages,\nthus understood, may be concisely termed the cost of production of\nwages; or, more concisely still, the cost of wages, meaning their cost\nin the \"original purchase money,\" labour.\n\nWe have now arrived at a distinct conception of Mr. Ricardo's theory of\nprofits in its most perfect state. And this theory we conceive to be the\nbasis of the true theory of profits. All that remains to do is to clear\nit from certain difficulties which still surround it, and which, though\nin a greater degree apparent than real, are not to be put aside as\nwholly imaginary.\n\nThough it is true that tools, materials, and buildings (it is to be\nwished that there were some compact designation for all these essentials\nof production taken together,) are themselves the produce of labour, and\nare only on that account to be ranked among the expenses of production;\nyet the _whole_ of their value is not resolvable into the wages of the\nlabourers by whom they were produced. The wages of those labourers were\npaid by a capitalist, and that capitalist must have the same profit upon\nhis advances as any other capitalist; when, therefore, he sells the\ntools or materials, he must receive from the purchaser not only the\nreimbursement of the wages he has paid, but also as much more as will\nafford him the ordinary rate of profit. And when the producer, after\nbuying the tools and employing them in his own occupation, comes to\nestimate his gains, he must set aside a portion of the produce to\nreplace not only the wages paid both by himself and by the tool-maker,\nbut also the profits of the tool-maker, advanced by himself out of his\nown capital.\n\nIt is not correct, therefore, to state that all which the capitalist\nretains after replacing wages forms his profit. It is true the whole\nreturn to capital is either wages or profits; but profits do not compose\nmerely the surplus after replacing the outlay; they also enter into the\noutlay itself. Capital is expended partly in paying or reimbursing\nwages, and partly in paying the profits of other capitalists, whose\nconcurrence was necessary in order to bring together the means of\nproduction.\n\nIf any contrivance, therefore, were devised by which that part of the\noutlay which consists of previous profits could be either wholly or\npartially dispensed with, it is evident that more would remain as the\nprofit of the immediate producer; while, as the quantity of _labour_\nnecessary to produce a given quantity of the commodity would be\nunaltered, as well as the quantity of produce paid for that labour, it\nseems that the ratio between the price of labour and its produce would\nbe the same as before; that the cost of production of wages would be the\nsame, proportional wages the same, and yet profits different.\n\nTo illustrate this by a simple instance, let it be supposed that\none-third of the produce is sufficient to replace the wages of the\nlabourers who have been immediately instrumental in the production; that\nanother third is necessary to replace the materials used and the fixed\ncapital worn out in the process; while the remaining third is clear\ngain, being a profit of 50 per cent. Suppose, for example, that 60\nagricultural labourers, receiving 60 quarters of corn for their wages,\nconsume fixed capital and seed amounting to the value of 60 quarters\nmore, and that the result of their operations is a produce of 180\nquarters. When we analyse the price of the seed and tools into its\nelements, we find that they must have been the produce of the labour of\n40 men: for the wages of those 40, together with profit at the rate\npreviously supposed (50 per cent) make up 60 quarters. The produce,\ntherefore, consisting of 180 quarters is the result of the labour\naltogether of 100 men: namely, the 60 first mentioned, and the 40 by\nwhose labour the fixed capital and the seed were produced.\n\nLet us now suppose, by way of an extreme case, that some contrivance is\ndiscovered, whereby the purposes to which the second third of the\nproduce had been devoted, may be dispensed with altogether: that some\nmeans are invented by which the same amount of produce may be procured\nwithout the assistance of any fixed capital, or the consumption of any\nseed or material sufficiently valuable to be worth calculating. Let us,\nhowever, suppose that this cannot be done without taking on a number of\nadditional labourers, equal to those required for producing the seed and\nfixed capital; so that the saving shall be only in the profits of the\nprevious capitalists. Let us, in conformity with this supposition,\nassume that in dispensing with the fixed capital and seed, value 60\nquarters, it is necessary to take on 40 additional labourers, receiving\na quarter of corn each, as before.\n\nThe rate of profit has evidently risen. It has increased from 50 per\ncent to 60 per cent. A return of 180 quarters could not before be\nobtained but by an outlay of 120 quarters; it can now be obtained by an\noutlay of no more than 100.\n\nHere, therefore, is an undeniable rise of profits. Have wages, in the\nsense above attached to them, fallen or not? It would seem not.\n\nThe produce (180 quarters) is still the result of the same quantity of\nlabour as before, namely, the labour of 100 men. A quarter of corn,\ntherefore, is still, as before, the produce of 10/18 of a man's labour\nfor a year. Each labourer receives, as before, one quarter of corn;\neach, therefore, receives the produce of 10\\18 of a year's labour of one\nman, that is, the same cost of production; each receives 10/18 of the\nproduce of his own labour, that is, the same proportional wages; and the\nlabourers collectively still receive the same proportion, namely 10/18,\nof the whole produce.\n\nThe conclusion, then, cannot be resisted, that Mr. Ricardo's theory is\ndefective: that the rate of profits does _not_ exclusively depend upon\nthe value of wages, in his sense, namely, the quantity of labour of\nwhich the wages of a labourer are the produce; that it does _not_\nexclusively depend upon proportional wages, that is, upon the proportion\nwhich the labourers collectively receive of the whole produce, or the\nratio which the wages of an individual labourer bear to the produce of\nhis individual labour.\n\nThose political economists, therefore, who have always dissented from\nMr. Ricardo's doctrine, or who, having at first admitted, ended by\ndiscarding it, were so far in the right; but they committed a serious\nerror in this, that, with the usual one-sidedness of disputants, they\nknew no medium between admitting absolutely and dismissing entirely;\nand saw no other course than utterly to reject what it would have been\nsufficient to modify.\n\nIt is remarkable how very slight a modification will suffice to render\nMr. Ricardo's doctrine completely true. It is even doubtful whether he\nhimself, if called upon to adapt his expressions to this peculiar case,\nwould not have so explained his doctrine as to render it entirely\nunobjectionable.\n\nIt is perfectly true, that, in the example already made use of, a rise\nof profits takes place, while wages, considered in respect to the\nquantity of labour of which they are the produce, have not varied at\nall. But though wages are still the produce of the same _quantity of\nlabour_ as before, the _cost of production_ of wages has nevertheless\nfallen; for into cost of production there enters another element besides\nlabour.\n\nWe have already remarked (and the very example out of which the\ndifficulty arose presupposes it) that the cost of production of an\narticle consists generally of two parts,--the _wages_ of the labour\nemployed, and the _profits_ of those who, in any antecedent stage of\nthe production, have advanced any portion of those wages. An article,\ntherefore, may be the produce of the same quantity of labour as before,\nand yet, if any portion of the profits which the last producer has to\nmake good to previous producers can be economized, the cost of\nproduction of the article is diminished.\n\nNow, in our example, a diminution of this sort is supposed to have taken\nplace in the cost of production of corn. The production of that article\nhas become less costly, in the ratio of six to five. A quantity of corn,\nthe means of producing which could not previously have been secured but\nat an expense of 120 quarters, can now be produced by means which 100\nquarters are sufficient to purchase.\n\nBut the labourer is supposed to receive the same quantity of corn as\nbefore. He receives one quarter. The cost of production of wages has,\ntherefore, fallen one-sixth. A quarter of corn, which is the\nremuneration of a single labourer, is indeed the produce of the same\nquantity of labour as before; but its cost of production is nevertheless\ndiminished. It is now the produce of 10/18 of a man's labour, and\nnothing else; whereas formerly it required for its production the\nconjunction of that quantity of labour with an expenditure, in the form\nof reimbursement of profit, amounting to one-fifth more.\n\nIf the cost of production of wages had remained the same as before,\nprofits could not have risen. Each labourer received one quarter of\ncorn; but one quarter of corn at that time was the result of the same\ncost of production, as 1 1/5 quarter now. In order, therefore, that each\nlabourer should receive the same cost of production, each must now\nreceive one quarter of corn, _plus_ one-fifth. The labour of 100 men\ncould not be purchased at this price for less than 120 quarters; and the\nproduce, 180 quarters, would yield only 50 per cent, as first supposed [7].\n\nIt is, therefore, strictly true, that the rate of profits varies\ninversely as the cost of production of wages. Profits cannot rise,\nunless the cost of production of wages falls exactly as much; nor fall,\nunless it rises.\n\nThe proof of this position has been stated in figures, and in a\nparticular case: we shall now state it in general terms, and for all\ncases.\n\nWe have supposed, for simplicity, that wages are paid in the finished\ncommodity. The agricultural labourers, in our example, were paid in\ncorn, and if we had called them weavers, we should have supposed them to\nbe paid in cloth. This supposition is allowable, for it is obviously of\nno consequence, in a question of value, or cost of production, what\nprecise article we assume as the medium of exchange. The supposition\nhas, besides, the recommendation of being conformable to the most\nordinary state of the facts; for it is by the sale of his own finished\narticle that each capitalist obtains the means of hiring labourers to\nrenew the production; which is virtually the same thing as if, instead\nof selling the article for money and giving the money to his labourers,\nhe gave the article itself to the labourers, and they sold it for their\ndaily bread.\n\nAssuming, therefore, that the labourer is paid in the very article he\nproduces, it is evident that, when any saving of expense takes place in\nthe production of that article, if the labourer still receives the same\ncost of production as before, he must receive an increased quantity, in\nthe very same ratio in which the productive power of capital has been\nincreased. But, if so, the outlay of the capitalist will bear exactly\nthe same proportion to the return as it did before; and profits will not\nrise.\n\nThe variations, therefore, in the rate of profits, and those in the cost\nof production of wages, go hand in hand, and are inseparable. Mr.\nRicardo's principle, that profits cannot rise unless wages fall, is\nstrictly true, if by low wages be meant not merely wages which are the\nproduce of a smaller quantity of labour, but wages which are produced at\nless cost, reckoning labour and previous profits together. But the\ninterpretation which some economists have put upon Mr. Ricardo's\ndoctrine, when they explain it to mean that profits depend upon the\nproportion which the labourers collectively receive of the aggregate\nproduce, will not hold at all; for that, in our first example, remained\nthe same, and yet profits rose.\n\nThe only expression of the law of profits, which seems to be correct,\nis, that they depend upon the cost of production of wages. This must be\nreceived as the ultimate principle.\n\nFrom this may be deduced all the corollaries which Mr. Ricardo and\nothers have drawn from his theory of profits as expounded by himself.\nThe cost of production of the wages of one labourer for a year, is the\nresult of two concurrent elements or factors,--viz., 1st, the quantity\nof commodities which the state of the labour market affords to him;\n2ndly, the cost of production of each of those commodities. It follows,\nthat the rate of profits can never rise but in conjunction with one or\nother of two changes,--1st, a diminished remuneration of the labourer;\nor, 2ndly, an improvement in production, or an extension of commerce, by\nwhich any of the articles habitually consumed by the labourer may be\nobtained at smaller cost. (If the improvement be in any article which is\nnot consumed by the labourer, it merely lowers the price of that article,\nand thereby benefits capitalists and all other people so far as they are\nconsumers of that particular article, and may be said to increase gross\nprofit, but not the rate of profit.)\n\nSo, on the other hand, the rate of profit cannot fall, unless\nconcurrently with one of two events: 1st, an improvement in the\nlabourer's condition; or, 2ndly, an increased difficulty of producing\nor importing some article which the labourer habitually consumes. The\nprogress of population and cultivation has a tendency to lower profits\nthrough the latter of these two channels, owing to the well known law\nof the application of capital to land, that a double capital does not\n_caeteris paribus_ yield a double produce. There is, therefore, a\ntendency in the rate of profits to fall with the progress of society.\nBut there is also an antagonist tendency of profits to rise, by the\nsuccessive introduction of improvements in agriculture, and in the\nproduction of those manufactured articles which the labourers consume.\nSupposing, therefore, that the actual comforts of the labourer remain\nthe same, profits will fall or rise, according as population, or\nimprovements in the production of food and other necessaries, advance\nfastest.\n\nThe rate of profits, therefore, tends to _fall_ from the following\ncauses:--1. An increase of capital beyond population, producing\nincreased competition for labour; 2. An increase of population,\noccasioning a demand for an increased quantity of food, which must be\nproduced at a greater cost. The rate of profits tends to _rise_ from\nthe following causes:--1. An increase of population beyond capital,\nproducing increased competition for employment; 2. Improvements\nproducing increased cheapness of necessaries, and other articles\nhabitually consumed by the labourer.\n\n       *       *       *       *       *\n\nThe circumstances which regulate the rate of interest have usually been\ntreated, even by professed writers on political economy, in a vague,\nloose, and unscientific manner. It has, however, been felt that there is\nsome connexion between the rate of interest and the rate of profit; that\n(to use the words of Adam Smith) much will be given for money, when much\ncan be made of it. It has been felt, also, that the fluctuations in the\nmarket-rate of interest from day to day, are determined, like other\nmatters of bargain and sale, by demand and supply. It has, therefore,\nbeen considered as an established principle, that the rate of interest\nvaries from day to day according to the quantity of capital offered or\ncalled for on loan; but conforms on the average of years to a standard\ndetermined by the rate of profits, and bearing some proportion to that\nrate--but a proportion which few attempts have been made to define.\n\nIn consequence of these views, it has been customary to judge of the\ngeneral rate of profits at any time or place, by the rate of interest at\nthat time and place: it being supposed that the rate of interest, though\nliable to temporary fluctuations, can never vary for any long period of\ntime unless profits vary; a notion which appears to us to be erroneous.\n\nIt was observed by Adam Smith, that profits may be considered as divided\ninto two parts, of which one may properly be considered as the\nremuneration for the use of the capital itself, the other as the reward\nof the labour of superintending its employment; and that the former of\nthese will correspond with the rate of interest. The producer who\nborrows capital to employ it in his business, will consent to pay, for\nthe use of it, all that remains of the profits he can make by it, after\nreserving what he considers reasonable remuneration for the trouble and\nrisk which he incurs by borrowing and employing it.\n\nThis remark is just; but it seems necessary to give greater precision to\nthe ideas which it involves.\n\nThe difference between the profit which can be made by the use of\ncapital, and the interest which will be paid for it, is rightly\ncharacterized as wages of superintendance. But to infer from this that\nit is regulated by entirely the same principles as other wages, would be\nto push the analogy too far. It is wages, but wages paid by a commission\nupon the capital employed. If the general rate of profit is 10 per cent,\nand the rate of interest 5 per cent, the wages of superintendance will\nbe 5 per cent; and though one borrower employ a capital of 100,000_l_.,\nanother no more than 100_l_., the labour of both will be rewarded with\nthe same per centage, though, in the one ease, this symbol will\nrepresent an income of 5_l_., in the other case, of 5000_l_. Yet it\ncannot be pretended that the labour of the two borrowers differs in this\nproportion. The rule, therefore, that equal quantities of labour of\nequal hardness and skill are equally remunerated, does not hold of this\nkind of labour. The wages of any other labour are here an inapplicable\ncriterion.\n\nThe wages of superintendance are distinguished from ordinary wages by\nanother peculiarity, that they are not paid in advance out of capital,\nlike the wages of all other labourers, but merge in the profit, and are\nnot realized until the production is completed. This takes them entirely\nout of the ordinary law of wages. The wages of labourers who are paid in\nadvance, are regulated by the number of competitors compared with the\namount of capital; the labourers can consume no more than what has been\npreviously accumulated. But there is no such limit to the remuneration\nof a kind of labour which is not paid for out of wealth previously\naccumulated, but out of that produce which it is itself employed in\ncalling into existence.\n\nWhen these circumstances are duly weighed, it will be perceived, that\nalthough profit may be correctly analyzed into interest and wages of\nsuperintendance, we ought not to lay it down as the law of interest,\nthat it is profits _minus_ the wages of superintendance. Of the two\nexpressions, it would be decidedly the more correct, that the wages of\nsuperintendance are regulated by the rate of interest, or are equal to\nprofits _minus_ interest. In strict, propriety, neither expression would\nbe allowable. Interest, and the wages of superintendance, can scarcely\nbe said to depend upon one another. They are to one another in the same\nrelation as wages and profits are. They are like two buckets in a well:\nwhen one rises, the other descends, but neither of the two motions is\nthe cause of the other; both are simultaneous effects of the same cause,\nthe turning of the windlass.\n\n       *       *       *       *       *\n\nThere are among the capitalists of every country a considerable number\nwho are habitually, and almost necessarily, lenders; to whom scarcely\nany difference between what they could receive for their money and what\ncould be made by it, would be an equivalent for incurring the risk and\nlabour of carrying on business. In this predicament is the property of\nwidows and orphans; of many public bodies; of charitable institutions;\nmost property which is vested in trustees; and the property of a great\nnumber of persons unused to business, and who have a distaste for it,\nor whose other occupations prevent their engaging in it. How large a\nproportion of the property lent to the nation comes under this\ndescription, has been pointed out in Mr. Tooke's _Considerations on the\nState of the Currency._\n\nThere is another large class, consisting of bankers, bill-brokers, and\nothers, who are money-lenders by profession; who enter into that\nprofession with the intention of making such gains as it will yield\nthem, and who would not be induced to change their business by any but\na very strong pecuniary inducement.\n\nThere is, therefore, a large class of persons who are habitually\nlenders. On the other hand, all persons in business may be considered\nas habitually borrowers. Except in times of stagnation, they are all\ndesirous of extending their business beyond their own capital, and are\nnever desirous of lending any portion of their capital except for very\nshort periods, during which they cannot advantageously invest it in\ntheir own trade.\n\nThere is, in short, a productive class, and there is, besides, a class\ntechnically styled the monied class, who live upon the interest of their\ncapital, without engaging personally in the work of production.\n\nThe class of borrowers may be considered as unlimited. There is no\nquantity of capital that could be offered to be lent, which the\nproductive classes would not be willing to borrow, at any rate of\ninterest which would afford them the slightest excess of profit above a\nbare equivalent for the additional risk, incurred by that transaction,\nof the evils attendant on insolvency. The only assignable limit to the\ninclination to borrow, is the power of giving security: the producers\nwould find it difficult to borrow more than an amount equal to their own\ncapital. If more than half the capital of the country were in the hands\nof persons who preferred lending it to engaging personally in business,\nand if the surplus were greater than could be invested in loans to\nGovernment, or in mortgages upon the property of unproductive consumers;\nthe competition of lenders would force down the rate of interest very\nlow. A certain portion of the monied class would be obliged either to\nsacrifice their predilections by engaging in business, or to lend on\ninferior security; and they would accordingly accept, where they could\nobtain good security, an abatement of interest equivalent to the\ndifference of risk.\n\nThis is an extreme case. Let us put an extreme case of a contrary kind.\nSuppose that the wealthy people of any country, not relishing an idle\nlife, and having a strong taste for gainful labour, were generally\nindisposed to accept of a smaller income in order to be relieved from\nthe labour and anxiety of business. Every producer in flourishing\ncircumstances would be eager to borrow, and few willing to lend. Under\nthese circumstances the rate of interest would differ very little from\nthe rate of profit. The trouble of managing a business is not\nproportionally increased by an increase of the magnitude of the\nbusiness; and a very small surplus profit above the rate of interest,\nwould therefore be a sufficient inducement to capitalists to borrow.\n\nWe may even conceive a people whose habits were such, that in order to\ninduce them to lend, it might be necessary to offer them a rate of\ninterest fully equal to the ordinary rate of profit. In that case, of\ncourse, the productive classes would scarcely ever borrow. But\ngovernment, and the unproductive classes, who do not borrow in order to\nmake a profit by the loan, but from the pressure of a real or supposed\nnecessity, might still be ready to borrow at this high rate.\n\nAlthough the inclination to borrow has no _fixed_ or _necessary_ limit\nexcept the power of giving security, yet it always, in point of fact,\nstops short of this; from the uncertainty of the prospects of any\nindividual producer, which generally indisposes him to involve himself\nto the full extent of his means of payment. There is never any permanent\nwant of market for things in general; but there may be so for the\ncommodity which any one individual is producing; and even if there is a\ndemand for the commodity, people may not buy it of him but of some other.\nThere are, consequently, never more than a portion of the producers, the\nstate of whose business encourages them to add to their capital by\nborrowing; and even these are disposed to borrow only as much as they\nsee an _immediate_ prospect of profitably employing. There is, therefore,\na practical limit to the demands of borrowers at any given instant; and\nwhen these demands are all satisfied, any additional capital offered on\nloan can find an investment only by a reduction of the rate of interest.\n\nThe amount of borrowers being given, (and by the amount of borrowers is\nhere meant the aggregate sum which people are willing to borrow at some\ngiven rate,) the rate of interest will depend upon the quantity of\ncapital owned by people who are unwilling or unable to engage in trade.\nThe circumstances which determine this, are, on the one hand, the degree\nin which a taste for business, or an aversion to it, happens to be\nprevalent among the classes possessed of property; and on the other\nhand, the amount of the annual accumulation from the earnings of labour.\nThose who accumulate from their wages, fees, or salaries, have, of\ncourse, (speaking generally) no means of investing their savings except\nby lending them to others: their occupations prevent them from personally\nsuperintending any employment.\n\nUpon these circumstances, then, the rate of interest depends, the amount\nof borrowers being given. And the counter-proposition equally holds,\nthat, the above circumstances being given, the rate of interest depends\nupon the amount of borrowers.\n\nSuppose, for example, that when the rate of interest has adjusted itself\nto the existing state of the circumstances which affect the disposition\nto borrow and to lend, a war breaks out, which induces government, for\na series of years, to borrow annually a large sum of money. During the\nwhole of this period, the rate of interest will remain considerably\nabove what it was before, and what it will be afterwards.\n\nBefore the commencement of the supposed war, all persons who were\ndisposed to lend at the then rate of interest, had found borrowers, and\ntheir capital was invested. This may be assumed; for if any capital had\nbeen seeking for a borrower at the existing rate of interest, and unable\nto find one, its owner would have offered it at a rate slightly below\nthe existing rate. He would, for instance, have bought into the funds,\nat a slight advance of price; and thus set at liberty the capital of\nsome fundholder, who, the funds yielding a lower interest, would have\nbeen obliged to accept a lower interest from individuals.\n\nSince, then, all who were willing to lend their capital at the market\nrate, have already lent it, Government will not be able to borrow unless\nby offering higher interest. Though, with the existing habits of the\npossessors of disposable capital, an increased number cannot be found\nwho are willing to lend at the existing rate, there are doubtless some\nwho will be induced to lend by the temptation of a higher rate. The same\ntemptation will also induce some persons to invest, in the purchase of\nthe new stock, what they would otherwise have expended unproductively in\nincreasing their establishments, or productively, in improving their\nestates. The rate of interest will rise just sufficiently to call forth\nan increase of lenders to the amount required.\n\nThis we apprehend to be the cause why the rate of interest in this\ncountry was so high as it is well known to have been during the last\nwar. It is, therefore, by no means to be inferred, as some have done,\nthat the general rate of profits was unusually high during the same\nperiod, because interest was so. Supposing the rate of profits to have\nbeen precisely the same during the war, as before or after it, the rate\nof interest would nevertheless have risen, from the causes and in the\nmanner above described.\n\nThe practical use of the preceding investigation is, to moderate the\nconfidence with which inferences are frequently drawn with respect to\nthe rate of profit from evidence regarding the rate of interest; and to\nshew that although the rate of profit is one of the elements which\ncombine to determine the rate of interest, the latter is also acted upon\nby causes peculiar to itself, and may either rise or fall, both\ntemporarily and permanently, while the general rate of profits remains\nunchanged.\n\n       *       *       *       *       *\n\nThe introduction of banks, which perform the function of lenders and\nloan-brokers, with or without that of issuers of paper-money, produces\nsome further anomalies in the rate of interest, which have not, so far\nas we are aware, been hitherto brought within the pale of exact science.\n\nIf bankers were merely a class of middlemen between the lender and the\nborrower; if they merely received deposits of capital from those who had\nit lying unemployed in their hands, and lent this, together with their\nown capital, to the productive classes, receiving interest for it, and\npaying interest in their turn to those who had placed capital in their\nhands; the effect of the operations of banking on the rate of interest\nwould be to lower it in some slight degree. The banker receives and\ncollects together sums of money much too small, when taken individually,\nto render it worth while for the owners to look out for an investment,\nbut which in the aggregate form a considerable amount. This amount may\nbe considered a clear addition to the productive capital of the country;\nat least, to the capital in activity at any moment. And as this addition\nto the capital accrues wholly to that part of it which is not employed\nby the owners, but lent to other producers, the natural effect is a\ndiminution of the rate of interest.\n\nThe banker, to the extent of his own private capital, (the expenses of\nhis business being first paid,) is a lender at interest. But, being\nsubject to risk and trouble fully equal to that which belongs to most\nother employments, he cannot be satisfied with the mere interest even\nof his whole capital: he must have the ordinary profits of stock, or he\nwill not engage in the business: the state of banking must be such as to\nhold out to him the prospect of adding, to the interest of what remains\nof his own capital after paying the expenses of his business, interest\nupon capital deposited with him, in sufficient amount to make up, after\npaying the expenses, the ordinary profit which could be derived from his\nown capital in any productive employment. This will be accomplished in\none of two ways.\n\n1. If the circumstances of society are such as to furnish a ready\ninvestment of disposable capital; (as for instance in London, where the\npublic funds and other securities, of undoubted stability, and affording\ngreat advantages for receiving the interest without trouble and\nrealizing the principal without difficulty when required, tempt all\npersons who have sums of importance lying idle, to invest them on their\nown account without the intervention of any middleman;) the deposits\nwith bankers consist chiefly of small sums likely to be wanted in a very\nshort period for current expenses, and the interest on which would\nseldom be worth the trouble of calculating it. Bankers, therefore, do\nnot allow any interest on their deposits. After paying the expenses of\ntheir business, all the rest of the interest they receive is clear gain.\nBut as the circumstances of banking, as of all other modes of employing\ncapital, will on the average be such as to afford to a person entering\ninto the business a prospect of realizing the ordinary, and no more than\nthe ordinary, profits upon his own capital; the gains of each banker by\nthe investment of his deposits, will not on the average exceed what is\nnecessary to make up his gains on his own capital to the ordinary rate.\nIt is, of course, competition, which brings about this limitation.\nWhether competition operates by lowering the rate of interest, or by\ndividing the business among a larger number, it is difficult to decide.\nProbably it operates in both ways; but it is by no means impossible that\nit may operate in the latter way alone: just as an increase in the\nnumber of physicians does not lower the fees, though it diminishes an\naverage competitor's chance of obtaining them.\n\nIt is not impossible that the disposition of the lenders might be such,\nthat they would cease to lend rather than acquiesce in any reduction of\nthe rate of interest. If so, the arrival of a new lender, in the person\nof a banker of deposit, would not lower the rate of interest in any\nconsiderable degree. A slight fall would take place, and with that\nexception things would be as before, except that the capital in the\nhands of the banker would have put itself into the place of an equal\nportion of capital belonging to other lenders, who would themselves have\nengaged in business (e.g., by subscribing to some joint-stock company,\nor entering into commandite). Bankers' profits would then be limited to\nthe ordinary rate chiefly by the division of the business among many\nbanks, so that each on the average would receive no more interest on his\ndeposits than would suffice to make up the interest on his own capital\nto the ordinary rate of profit after paying all expenses.\n\n2. But if the circumstances of society render it difficult and\ninconvenient for persons who wish to live upon the interest of their\nmoney, to seek an investment for themselves, the bankers become agents\nfor this specific purpose: large as well as small sums are deposited\nwith them, and they allow interest to their customers. Such is the\npractice of the Scotch banks, and of most of the country banks in\nEngland. Their customers, not living at any of the great seats of money\ntransactions, prefer entrusting their capital to somebody on the spot,\nwhom they know, and in whom they confide. He invests their money on the\nbest terms he can, and pays to them such interest as he can afford to\ngive; retaining a compensation for his own risk and trouble. This\ncompensation is fixed by the competition of the market. The rate of\ninterest is no further lowered by this operation, than inasmuch as it\nbrings together the lender and the borrower in a safe and expeditious\nmanner. The lender incurs less risk, and a larger proportion, therefore,\nof the holders of capital are willing to be lenders.\n\nWhen a banker, in addition to his other functions, is also an issuer of\npaper money, he gains an advantage similar to that which the London\nbankers derive from their deposits. To the extent to which he can put\nforth his notes, he has so much the more to lend, without himself having\nto pay any interest for it.\n\nIf the paper is convertible, it cannot get into circulation permanently\nwithout displacing specie, which goes abroad and brings back an\nequivalent value. To the extent of this value, there is an increase of\nthe capital of the country; and the increase accrues solely to that part\nof the capital which is employed in loans.\n\nIf the paper is inconvertible, and instead of displacing specie\ndepreciates the currency, the banker by issuing it levies a tax on every\nperson who has money in his hands or due to him. He thus appropriates to\nhimself a portion of the capital of other people, and a portion of their\nrevenue. The capital might have been intended to be lent, or it might\nhave been intended to be employed by the owner: such part of it as was\nintended to be employed by the owner now changes its destination, and is\nlent. The revenue was either intended to be accumulated, in which case\nit had already become capital, or it was intended to be spent: in this\nlast case, revenue is converted into capital: and thus, strange as it\nmay appear, the depreciation of the currency, when effected in this way,\noperates to a certain extent as a forced accumulation. This, indeed, is\nno palliation of its iniquity. Though A might have spent his property\nunproductively, B ought not to be permitted to rob him of it because B\nwill expend it on productive labour.\n\nIn any supposable case, however, the issue of paper money by bankers\nincreases the proportion of the whole capital of the country which is\ndestined to be lent. The rate of interest must therefore fall, until\nsome of the lenders give over lending, or until the increase of\nborrowers absorbs the whole.\n\nBut a fall of the rate of interest, sufficient to enable the money\nmarket to absorb the whole of the paper-loans, may not be sufficient to\nreduce the profits of a lender who lends what costs him nothing, to the\nordinary rate of profit upon his capital. Here, therefore, competition\nwill operate chiefly by dividing the business. The notes of each bank\nwill be confined within so narrow a district, or will divide the supply\nof a district with so many other banks, that on the average each will\nreceive no larger amount of interest on his notes than will make up the\ninterest on his own capital to the ordinary rate of profit.\n\nEven in this way, however, the competition has the effect, to a certain\nlimited extent, of lowering the rate of interest; for the power of\nbankers to receive interest on more than their capital attracts a\ngreater amount of capital into the banking business than would otherwise\nflow into it; and this greater capital being all lent, interest will\nfall in consequence.\n\n\nNOTE:\n\n[7] It would be easy to go over in the same manner any other case. For\ninstance, we may suppose, that, instead of dispensing with the _whole_\nof the fixed capital, material, &c, and taking on labourers in equal\nnumber to those by whom these were produced, _half_ only of the fixed\ncapital and material is dispensed with; so that, instead of 60 labourers\nand a fixed capital worth 6O quarters of corn, we have 80 labourers and\na fixed capital worth 30. The numerical statement of this case is more\nintricate than that in the text, but the result is not different.\n\n\n\n\n\nESSAY V.\n\nON THE DEFINITION OF POLITICAL ECONOMY; AND ON THE METHOD OF\nINVESTIGATION PROPER TO IT.\n\n\nIt might be imagined, on a superficial view of the nature and objects of\ndefinition, that the definition of a science would occupy the same place\nin the chronological which it commonly does in the didactic order. As a\ntreatise on any science usually commences with an attempt to express, in\na brief formula, what the science is, and wherein it differs from other\nsciences, so, it might be supposed, did the framing of such a formula\nnaturally precede the successful cultivation of the science.\n\nThis, however, is far from having been the case. The definition of a\nscience has almost invariably not preceded, but followed, the creation\nof the science itself. Like the wall of a city, it has usually been\nerected, not to be a receptacle for such edifices as might afterwards\nspring up, but to circumscribe an aggregation already in existence.\nMankind did not measure out the ground for intellectual cultivation\nbefore they began to plant it; they did not divide the field of human\ninvestigation into regular compartments first, and then begin to collect\ntruths for the purpose of being therein deposited; they proceeded in a\nless systematic manner. As discoveries were gathered in, either one by\none, or in groups resulting from the continued prosecution of some\nuniform course of inquiry, the truths which were successively brought\ninto store cohered and became agglomerated according to their individual\naffinities. Without any intentional classification, the facts classed\nthemselves. They became associated in the mind, according to their\ngeneral and obvious resemblances; and the aggregates thus formed, having\nto be frequently spoken of as aggregates, came to be denoted by a common\nname. Any body of truths which had thus acquired a collective\ndenomination, was called a _science_. It was long before this fortuitous\nclassification was felt not to be sufficiently precise. It was in a more\nadvanced stage of the progress of knowledge that mankind became sensible\nof the advantage of ascertaining whether the facts which they had thus\ngrouped together were distinguished from all other facts by any common\nproperties, and what these were. The first attempts to answer this\nquestion were commonly very unskilful, and the consequent definitions\nextremely imperfect.\n\nAnd, in truth, there is scarcely any investigation in the whole body of\na science requiring so high a degree of analysis and abstraction, as the\ninquiry, what the science itself is; in other words, what are the\nproperties common to all the truths composing it, and distinguishing\nthem from all other truths. Many persons, accordingly, who are\nprofoundly conversant with the details of a science, would be very much\nat a loss to supply such a definition of the science itself as should\nnot be liable to well-grounded logical objections. From this remark, we\ncannot except the authors of elementary scientific treatises. The\ndefinitions which those works furnish of the sciences, for the most part\neither do not fit them--some being too wide, some too narrow--or do not\ngo deep enough into them, but define a science by its accidents, not its\nessentials; by some one of its properties which may, indeed, serve the\npurpose of a distinguishing mark, but which is of too little importance\nto have ever of itself led mankind to give the science a name and rank\nas a separate object of study.\n\nThe definition of a science must, indeed, be placed among that class of\ntruths which Dugald Stewart had in view, when he observed that the first\nprinciples of all sciences belong to the philosophy of the human mind.\nThe observation is just; and the first principles of all sciences,\nincluding the definitions of them, have consequently participated\nhitherto in the vagueness and uncertainty which has pervaded that most\ndifficult and unsettled of all branches of knowledge. If we open any\nbook, even of mathematics or natural philosophy, it is impossible not to\nbe struck with the mistiness of what we find represented as preliminary\nand fundamental notions, and the very insufficient manner in which the\npropositions which are palmed upon us as first principles seem to be\nmade out, contrasted with the lucidity of the explanations and the\nconclusiveness of the proofs as soon as the writer enters upon the\ndetails of his subject. Whence comes this anomaly? Why is the admitted\ncertainty of the results of those sciences in no way prejudiced by the\nwant of solidity in their premises? How happens it that a firm\nsuperstructure has been erected upon an unstable foundation? The\nsolution of the paradox _is_, that what are called first principles,\nare, in truth, _last_ principles. Instead of being the fixed point from\nwhence the chain of proof which supports all the rest of the science\nhangs suspended, they are themselves the remotest link of the chain.\nThough presented as if all other truths were to be deduced from them,\nthey are the truths which are last arrived at; the result of the last\nstage of generalization, or of the last and subtlest process of\nanalysis, to which the particular truths of the science can be\nsubjected; those particular truths having previously been ascertained\nby the evidence proper to their own nature.\n\nLike other sciences, Political Economy has remained destitute of a\ndefinition framed on strictly logical principles, or even of, what is\nmore easily to be had, a definition exactly co-extensive with the thing\ndefined. This has not, perhaps, caused the real bounds of the science to\nbe, in this country at least, practically mistaken or overpassed; but\nit has occasioned--perhaps we should rather say it is connected with\n--indefinite, and often erroneous, conceptions of the mode in which the\nscience should be studied.\n\nWe proceed to verify these assertions by an examination of the most\ngenerally received definitions of the science.\n\n1. First, as to the vulgar notion of the nature and object of Political\nEconomy, we shall not be wide of the mark if we state it to be something\nto this effect:--That Political Economy is a science which teaches, or\nprofesses to teach, in what manner a nation may be made rich. This\nnotion of what constitutes the science, is in some degree countenanced\nby the title and arrangement which Adam Smith gave to his invaluable\nwork. A systematic treatise on Political Economy, he chose to call an\n_Inquiry into the Nature and Causes of the Wealth of Nations_; and the\ntopics are introduced in an order suitable to that view of the purpose\nof his book.\n\nWith respect to the definition in question, if definition it can be\ncalled which is not found in any set form of words, but left to be\narrived at by a process of abstraction from a hundred current modes of\nspeaking on the subject; it seems liable to the conclusive objection,\nthat it confounds the essentially distinct, though closely connected,\nideas of _science_ and _art_. These two ideas differ from one another as\nthe understanding differs from the will, or as the indicative mood in\ngrammar differs from the imperative. The one deals in facts, the other\nin precepts. Science is a collection of _truths_; art, a body of\n_rules_, or directions for conduct. The language of science is, This is,\nor, This is not; This does, or does not, happen. The language of art is,\nDo this; Avoid that. Science takes cognizance of a _phenomenon_, and\nendeavours to discover its _law_; art proposes to itself an _end_, and\nlooks out for _means_ to effect it.\n\nIf, therefore, Political Economy be a science, it cannot be a collection\nof practical rules; though, unless it be altogether a useless science,\npractical rules must be capable of being founded upon it. The science of\nmechanics, a branch of natural philosophy, lays down the laws of motion,\nand the properties of what are called the mechanical powers. The art of\npractical mechanics teaches how we may avail ourselves of those laws and\nproperties, to increase our command over external nature. An art would\nnot be an art, unless it were founded upon a scientific knowledge of the\nproperties of the subject-matter: without this, it would not be\nphilosophy, but empiricism; [Greek: empeiria,] not [Greek: technae,] in\nPlato's sense. Rules, therefore, for making a nation increase in wealth,\nare not a science, but they are the results of science. Political\nEconomy does not of itself instruct how to make a nation rich; but\nwhoever would be qualified to judge of the means of making a nation\nrich, must first be a political economist.\n\n2. The definition most generally received among instructed persons, and\nlaid down in the commencement of most of the professed treatises on the\nsubject, is to the following effect:--That Political Economy informs us\nof the laws which regulate the production, distribution, and consumption\nof wealth. To this definition is frequently appended a familiar\nillustration. Political Economy, it is said, is to the state, what\ndomestic economy is to the family.\n\nThis definition is free from the fault which we pointed out in the\nformer one. It distinctly takes notice that Political Economy is a\nscience and not an art; that it is conversant with laws of nature,\nnot with maxims of conduct, and teaches us how things take place of\nthemselves, not in what manner it is advisable for us to shape them,\nin order to attain some particular end.\n\nBut though the definition is, with regard to this particular point,\nunobjectionable, so much can scarcely be said for the accompanying\nillustration; which rather sends back the mind to the current loose\nnotion of Political Economy already disposed of. Political Economy is\nreally, and is stated in the definition to be, a science: but domestic\neconomy, so far as it is capable of being reduced to principles, is an\nart. It consists of rules, or maxims of prudence, for keeping the family\nregularly supplied with what its wants require, and securing, with any\ngiven amount of means, the greatest possible quantity of physical\ncomfort and enjoyment. Undoubtedly the beneficial _result_, the great\npractical _application_ of Political Economy, would be to accomplish\nfor a nation something like what the most perfect domestic economy\naccomplishes for a single household: but supposing this purpose\nrealised, there would be the same difference between the rules by which\nit might be effected, and Political Economy, which there is between the\nart of gunnery and the theory of projectiles, or between the rules of\nmathematical land-surveying and the science of trigonometry.\n\nThe definition, though not liable to the same objection as the\nillustration which is annexed to it, is itself far from unexceptionable.\nTo neither of them, considered as standing at the head of a treatise,\nhave we much to object. At a very early stage in the study of the\nscience, anything more accurate would be useless, and therefore\npedantic. In a merely initiatory definition, scientific precision is not\nrequired: the object is, to insinuate into the learner's mind, it is\nscarcely material by what means, some general preconception of what are\nthe uses of the pursuit, and what the series of topics through which he\nis about to travel. As a mere anticipation or _\u00e9bauche_ of a definition,\nintended to indicate to a learner as much as he is able to understand\nbefore he begins, of the nature of what is about to be taught to him,\nwe do not quarrel with the received formula. But if it claims to be\nadmitted as that complete _definitio_ or boundary-line, which results\nfrom a thorough exploring of the whole extent of the subject, and is\nintended to mark the exact place of Political Economy among the\nsciences, its pretension cannot be allowed.\n\n\"The science of the laws which regulate the production, distribution,\nand consumption of wealth.\" The term wealth is surrounded by a haze of\nfloating and vapoury associations, which will let nothing that is seen\nthrough them be shewn distinctly. Let us supply its place by a\nperiphrasis. Wealth is defined, all objects useful or agreeable to\nmankind, except such as can be obtained in indefinite quantity without\nlabour. Instead of all objects, some authorities say, all material\nobjects: the distinction is of no moment for the present purpose.\n\nTo confine ourselves to production: If the laws of the production of all\nobjects, or even of all material objects, which are useful or agreeable\nto mankind, were comprised in Political Economy, it would be difficult\nto say where the science would end: at the least, all or nearly all\nphysical knowledge would be included in it. Corn and cattle are material\nobjects, in a high degree useful to mankind. The laws of the production\nof the one include the principles of agriculture; the production of the\nother is the subject of the art of cattle-breeding, which, in so far as\nreally an art, must be built upon the science of physiology. The laws of\nthe production of manufactured articles involve the whole of chemistry\nand the whole of mechanics. The laws of the production of the wealth\nwhich is extracted from the bowels of the earth, cannot be set forth\nwithout taking in a large part of geology.\n\nWhen a definition so manifestly surpasses in extent what it professes to\ndefine, we must suppose that it is not meant to be interpreted literally,\nthough the limitations with which it is to be understood are not stated.\n\nPerhaps it will be said, that Political Economy is conversant with such\nonly of the laws of the production of wealth as are applicable to _all_\nkinds of wealth: those which relate to the details of particular trades\nor employments forming the subject of other and totally distinct\nsciences.\n\nIf, however, there were no more in the distinction between Political\nEconomy and physical science than this, the distinction, we may venture\nto affirm, would never have been made. No similar division exists in any\nother department of knowledge. We do not break up zoology or mineralogy\ninto two parts; one treating of the properties common to all animals, or\nto all minerals; another conversant with the properties peculiar to each\nparticular species of animals or minerals. The reason is obvious; there\nis no distinction _in kind_ between the general laws of animal or of\nmineral nature and the peculiar properties of particular species. There\nis as close an analogy between the general laws and the particular ones,\nas there is between one of the general laws and another: most commonly,\nindeed, the particular laws are but the complex result of a plurality of\ngeneral laws modifying each other. A separation, therefore, between the\ngeneral laws and the particular ones, merely because the former are\ngeneral and the latter particular, would run counter both to the\nstrongest motives of convenience and to the natural tendencies of the\nmind. If the case is different with the laws of the production of\nwealth, it must be because, in this case, the general laws differ in\nkind from the particular ones. But if so, the difference in kind is the\nradical distinction, and we should find out what that is, and found our\ndefinition upon it.\n\nBut, further, the recognised boundaries which separate the field of\nPolitical Economy from that of physical science, by no means correspond\nwith the distinction between the truths which concern all kinds of\nwealth and those which relate only to some kinds. The three laws of\nmotion, and the law of gravitation, are common, as far as human\nobservation has yet extended, to all matter; and these, therefore, as\nbeing among the laws of the production of all wealth, should form part\nof Political Economy. There are hardly any of the processes of industry\nwhich do not partly depend upon the properties of the lever; but it\nwould be a strange classification which included those properties among\nthe truths of Political Economy. Again, the latter science has many\ninquiries altogether as special, and relating as exclusively to\nparticular sorts of material objects, as any of the branches of physical\nscience. The investigation of some of the circumstances which regulate\nthe price of corn, has as little to do with the laws common to the\nproduction of all wealth, as any part of the knowledge of the\nagriculturist. The inquiry into the rent of mines or fisheries, or into\nthe value of the precious metals, elicits truths which have immediate\nreference to the production solely of a peculiar kind of wealth; yet\nthese are admitted to be correctly placed in the science of Political\nEconomy.\n\nThe real distinction between Political Economy and physical science must\nbe sought in something deeper than the nature of the subject-matter;\nwhich, indeed, is for the most part common to both. Political Economy,\nand the scientific grounds of all the useful arts, have in truth one and\nthe same subject-matter; namely, the objects which conduce to man's\nconvenience and enjoyment: but they are, nevertheless, perfectly\ndistinct branches of knowledge.\n\n3. If we contemplate the whole field of human knowledge, attained or\nattainable, we find that it separates itself obviously, and as it were\nspontaneously, into two divisions, which stand so strikingly in\nopposition and contradistinction to one another, that in all\nclassifications of our knowledge they have been kept apart. These are,\n_physical_ science, and _moral_ or psychological science. The difference\nbetween these two departments of our knowledge does not reside in the\nsubject-matter with which they are conversant: for although, of the\nsimplest and most elementary parts of each, it may be said, with an\napproach to truth, that they are concerned with different subject-\nmatters--namely, the one with the human mind, the other with all things\nwhatever except the mind; this distinction does not hold between the\nhigher regions of the two. Take the science of politics, for instance,\nor that of law: who will say that these are physical sciences? and yet\nis it not obvious that they are conversant fully as much with matter as\nwith mind? Take, again, the theory of music, of painting, of any other\nof the fine arts, and who will venture to pronounce that the facts they\nare conversant with belong either wholly to the class of matter, or\nwholly to that of mind?\n\nThe following seems to be the _rationale_ of the distinction between\nphysical and moral science.\n\nIn all the intercourse of man with nature, whether we consider him as\nacting upon it, or as receiving impressions from it, the effect or\nphenomenon depends upon causes of two kinds: the properties of the\nobject acting, and those of the object acted upon. Everything which can\npossibly happen in which man and external things, are jointly concerned,\nresults from the joint operation of a law or laws of matter, and a law\nor laws of the human mind. Thus the production of corn by human labour\nis the result of a law of mind, and many laws of matter. The laws of\nmatter are those properties of the soil and of vegetable life which\ncause the seed to germinate in the ground, and those properties of the\nhuman body which render food necessary to its support. The law of mind\nis, that man desires to possess subsistence, and consequently wills the\nnecessary means of procuring it.\n\nLaws of mind and laws of matter are so dissimilar in their nature, that\nit would be contrary to all principles of rational arrangement to mix\nthem up as part of the same study. In all scientific methods, therefore,\nthey are placed apart. Any compound effect or phenomenon which depends\nboth on the properties of matter and on those of mind, may thus become\nthe subject of two completely distinct sciences, or branches of science;\none, treating of the phenomenon in so far as it depends upon the laws of\nmatter only; the other treating of it in so far as it depends upon the\nlaws of mind.\n\nThe physical sciences are those which treat of the laws of matter, and\nof all complex phenomena in so far as dependent upon the laws of matter.\nThe mental or moral sciences are those which treat of the laws of mind,\nand of all complex phenomena in so far as dependent upon the laws of\nmind.\n\nMost of the moral sciences presuppose physical science; but few of the\nphysical sciences presuppose moral science. The reason is obvious. There\nare many phenomena (an earthquake, for example, or the motions of the\nplanets) which depend upon the laws of matter exclusively; and have\nnothing whatever to do with the laws of mind. Many, therefore, of the\nphysical sciences may be treated of without any reference to mind, and\nas if the mind existed as a recipient of knowledge only, not as a cause\nproducing effects. But there are no phenomena which depend exclusively\nupon the laws of mind; even the phenomena of the mind itself being\npartially dependent upon the physiological laws of the body. All the\nmental sciences, therefore, not excepting the pure science of mind, must\ntake account of a great variety of physical truths; and (as physical\nscience is commonly and very properly studied first) may be said to\npresuppose them, taking up the complex phenomena where physical science\nleaves them.\n\nNow this, it will be found, is a precise statement of the relation in\nwhich Political Economy stands to the various sciences which are\ntributary to the arts of production.\n\nThe laws of the production of the objects which constitute wealth, are\nthe subject-matter both of Political Economy and of almost all the\nphysical sciences. Such, however, of those laws as are purely laws of\nmatter, belong to physical science, and to that exclusively. Such of\nthem as are laws of the human mind, and no others, belong to Political\nEconomy, which finally sums up the result of both combined.\n\nPolitical Economy, therefore, presupposes all the physical sciences; it\ntakes for granted all such of the truths of those sciences as are\nconcerned in the production of the objects demanded by the wants of\nmankind; or at least it takes for granted that the physical part of the\nprocess takes place somehow. It then inquires what are the phenomena of\n_mind_ which are concerned in the production and distribution [8] of\nthose same objects; it borrows from the pure science of mind the laws of\nthose phenomena, and inquires what effects follow from these mental\nlaws, acting in concurrence with those physical one. [9]\n\nFrom the above considerations the following seems to come out as the\ncorrect and complete definition of Political Economy:--\"The science\nwhich treats of the production and distribution of wealth, so far as\nthey depend upon the laws of human nature.\" Or thus--science relating to\nthe moral or psychological laws of the production and distribution of\nwealth.\"\n\nFor popular use this definition is amply sufficient, but it still falls\nshort of the complete accuracy required for the purposes of the\nphilosopher. Political Economy does not treat of the production and\ndistribution of wealth in all states of mankind, but only in what is\ntermed the social state; nor so far as they depend upon the laws of\nhuman nature, but only so far as they depend upon a certain portion of\nthose laws. This, at least, is the view which must be taken of Political\nEconomy, if we mean it to find any place in an encyclopedical division\nof the field of science. On any other view, it either is not science at\nall, or it is several sciences. This will appear clearly, if, on the one\nhand, we take a general survey of the moral sciences, with a view to\nassign the exact place of Political Economy among them; while, on the\nother, we consider attentively the nature of the methods or processes by\nwhich the truths which are the object of those sciences are arrived at.\n\nMan, who, considered as a being having a moral or mental nature, is the\nsubject-matter of all the moral sciences, may, with reference to that\npart of his nature, form the subject of philosophical inquiry under\nseveral distinct hypotheses. We may inquire what belongs to man\nconsidered individually, and as if no human being existed besides\nhimself; we may next consider him as coming into contact with other\nindividuals; and finally, as living in a state of _society_, that is,\nforming part of a body or aggregation of human beings, systematically\nco-operating for common purposes. Of this last state, political\ngovernment, or subjection to a common superior, is an ordinary\ningredient, but forms no necessary part of the conception, and, with\nrespect to our present purpose, needs not be further adverted to.\n\nThose laws or properties of human nature which appertain to man as a\nmere individual, and do not presuppose, as a necessary condition, the\nexistence of other individuals (except, perhaps, as mere instruments or\nmeans), form a part of the subject of pure mental philosophy. They\ncomprise all the laws of the mere intellect, and those of the purely\nself-regarding desires.\n\nThose laws of human nature which relate to the feelings called forth in\na human being by other individual human or intelligent beings, as such;\nnamely, the _affections_, the _conscience_, or feeling of duty, and the\nlove of _approbation_; and to the conduct of man, so far as it depends\nupon, or has relation to, these parts of his nature--form the subject of\nanother portion of pure mental philosophy, namely, that portion of it on\nwhich _morals_, or _ethics_, are founded. For morality itself is not a\nscience, but an art; not truths, but rules. The truths on which the\nrules are founded are drawn (as is the case in all arts) from a variety\nof sciences; but the principal of them, and those which are most nearly\npeculiar to this particular art, belong to a branch of the science of\nmind.\n\nFinally, there are certain principles of human nature which are\npeculiarly connected with the ideas and feelings generated in man by\nliving in a state of _society_, that is, by forming part of a union or\naggregation of human beings for a common purpose or purposes. Few,\nindeed, of the elementary laws of the human mind are peculiar to this\nstate, almost all being called into action in the two other states. But\nthose simple laws of human nature, operating in that wider field, give\nrise to results of a sufficiently universal character, and even (when\ncompared with the still more complex phenomena of which they are the\ndetermining causes) sufficiently simple, to admit of being called,\nthough in a somewhat looser sense, _laws_ of society, or laws of human\nnature in the social state. These laws, or general truths, form the\nsubject of a branch of science which may be aptly designated from the\ntitle of _social economy_; somewhat less happily by that of _speculative\npolitics_, or the _science_ of politics, as contradistinguished from the\nart. This science stands in the same relation to the social, as anatomy\nand physiology to the physical body. It shows by what principles of his\nnature man is induced to enter into a state of society; how this feature\nin his position acts upon his interests and feelings, and through them\nupon his conduct; how the association tends progressively to become\ncloser, and the co-operation extends itself to more and more purposes;\nwhat those purposes are, and what the varieties of means most generally\nadopted for furthering them; what are the various relations which\nestablish themselves among human beings as the ordinary consequence of\nthe social union; what those which are different in different states of\nsociety; in what historical order those states tend to succeed one\nanother; and what are the effects of each upon the conduct and character\nof man.\n\nThis branch of science, whether we prefer to call it social economy,\nspeculative politics, or the natural history of society, presupposes the\nwhole science of the nature of the individual mind; since all the laws\nof which the latter science takes cognizance are brought into play in a\nstate of society, and the truths of the social science are but\nstatements of the manner in which those simple laws take effect in\ncomplicated circumstances. Pure mental philosophy, therefore, is an\nessential part, or preliminary, of political philosophy. The science of\nsocial economy embraces every part of man's nature, in so far as\ninfluencing the conduct or condition of man in society; and therefore\nmay it be termed speculative politics, as being the scientific\nfoundation of practical politics, or the art of government, of which the\nart of legislation is a part. [10]\n\nIt is to _this_ important division of the field of science that one of\nthe writers who have most correctly conceived and copiously illustrated\nits nature and limits,--we mean M. Say,--has chosen to give the name\nPolitical Economy. And, indeed, this large extension of the\nsignification of that term is countenanced by its etymology. But the\nwords \"political economy\" have long ceased to have so large a meaning.\nEvery writer is entitled to use the words which are his tools in the\nmanner which he judges most conducive to the general purposes of the\nexposition of truth; but he exercises this discretion under liability to\ncriticism: and M. Say seems to have done in this instance, what should\nnever be done without strong reasons; to have altered the meaning of a\nname which was appropriated to a particular purpose (and for which,\ntherefore, a substitute must be provided), in order to transfer it to an\nobject for which it was easy to find a more characteristic denomination.\n\nWhat is now commonly understood by the term \"Political Economy\" is not\nthe science of speculative politics, but a branch of that science. It\ndoes not treat of the whole of man's nature as modified by the social\nstate, nor of the whole conduct of man in society. It is concerned with\nhim solely as a being who desires to possess wealth, and who is capable\nof judging of the comparative efficacy of means for obtaining that end.\nIt predicts only such of the phenomena of the social state as take place\nin consequence of the pursuit of wealth. It makes entire abstraction of\nevery other human passion or motive; except those which may be regarded\nas perpetually antagonizing principles to the desire of wealth, namely,\naversion to labour, and desire of the present enjoyment of costly\nindulgences. These it takes, to a certain extent, into its calculations,\nbecause these do not merely, like other desires, occasionally conflict\nwith the pursuit of wealth, but accompany it always as a drag, or\nimpediment, and are therefore inseparably mixed up in the consideration\nof it. Political Economy considers mankind as occupied solely in\nacquiring and consuming wealth; and aims at showing what is the course\nof action into which mankind, living in a state of society, would be\nimpelled, if that motive, except in the degree in which it is checked by\nthe two perpetual counter-motives above adverted to, were absolute ruler\nof all their actions. Under the influence of this desire, it shows\nmankind accumulating wealth, and employing that wealth in the production\nof other wealth; sanctioning by mutual agreement the institution of\nproperty; establishing laws to prevent individuals from encroaching upon\nthe property of others by force or fraud; adopting various contrivances\nfor increasing the productiveness of their labour; settling the division\nof the produce by agreement, under the influence of competition\n(competition itself being governed by certain laws, which laws are\ntherefore the ultimate regulators of the division of the produce); and\nemploying certain expedients (as money, credit, &c.) to facilitate the\ndistribution. All these operations, though many of them are really the\nresult of a plurality of motives, are considered by Political Economy as\nflowing solely from the desire of wealth. The science then proceeds to\ninvestigate the laws which govern these several operations, under the\nsupposition that man is a being who is determined, by the necessity of\nhis nature, to prefer a greater portion of wealth to a smaller in all\ncases, without any other exception than that constituted by the two\ncounter-motives already specified. Not that any political economist was\never so absurd as to suppose that mankind are really thus constituted,\nbut because this is the mode in which science must necessarily proceed.\nWhen an effect depends upon a concurrence of causes, those causes must\nbe studied one at a time, and their laws separately investigated, if we\nwish, through the causes, to obtain the power of either predicting or\ncontrolling the effect; since the law of the effect is compounded of the\nlaws of all the causes which determine it. The law of the centripetal\nand that of the tangential force must have been known before the motions\nof the earth and planets could be explained, or many of them predicted.\nThe same is the case with the conduct of man in society. In order to\njudge how he will act under the variety of desires and aversions which\nare concurrently operating upon him, we must know how he would act under\nthe exclusive influence of each one in particular. There is, perhaps, no\naction of a man's life in which he is neither under the immediate nor\nunder the remote influence of any impulse but the mere desire of wealth.\nWith respect to those parts of human conduct of which wealth is not even\nthe principal object, to these Political Economy does not pretend that\nits conclusions are applicable. But there are also certain departments\nof human affairs, in which the acquisition of wealth is the main and\nacknowledged end. It is only of these that Political Economy takes\nnotice. The manner in which it necessarily proceeds is that of treating\nthe main and acknowledged end as if it were the sole end; which, of all\nhypotheses equally simple, is the nearest to the truth. The political\neconomist inquires, what are the actions which would be produced by this\ndesire, if, within the departments in question, it were unimpeded by any\nother. In this way a nearer approximation is obtained than would\notherwise be practicable, to the real order of human affairs in those\ndepartments. This approximation is then to be corrected by making proper\nallowance for the effects of any impulses of a different description,\nwhich can be shown to interfere with the result in any particular case.\nOnly in a few of the most striking cases (such as the important one of\nthe principle of population) are these corrections interpolated into the\nexpositions of Political Economy itself; the strictness of purely\nscientific arrangement being thereby somewhat departed from, for the\nsake of practical utility. So far as it is known, or may be presumed,\nthat the conduct of mankind in the pursuit of wealth is under the\ncollateral influence of any other of the properties of our nature than\nthe desire of obtaining the greatest quantity of wealth with the least\nlabour and self-denial, the conclusions of Political Economy will so far\nfail of being applicable to the explanation or prediction of real\nevents, until they are modified by a correct allowance for the degree of\ninfluence exercised by the other cause.\n\nPolitical Economy, then, may be defined as follows; and the definition\nseems to be complete:--\n\n\"The science which traces the laws of such of the phenomena of society\nas arise from the combined operations of mankind for the production of\nwealth, in so far as those phenomena are not modified by the pursuit of\nany other object.\"\n\nBut while this is a correct definition of Political Economy as a portion\nof the field of science, the didactic writer on the subject will\nnaturally combine in his exposition, with the truths of the pure\nscience, as many of the practical modifications as will, in his\nestimation, be most conducive to the usefulness of his work.\n\n       *       *       *       *       *\n\nThe above attempt to frame a stricter definition of the science than\nwhat are commonly received as such, may be thought to be of little use;\nor, at best, to be chiefly useful in a general survey and classification\nof the sciences, rather than as conducing to the more successful pursuit\nof the particular science in question. We think otherwise, and for this\nreason; that, with the consideration of the definition of a science, is\ninseparably connected that of the _philosophic method_ of the science;\nthe nature of the process by which its investigations are to be carried\non, its truths to be arrived at.\n\nNow, in whatever science there are systematic differences of opinion\n--which is as much as to say, in all the moral or mental sciences, and\nin Political Economy among the rest; in whatever science there exist,\namong those who have attended to the subject, what are commonly called\ndifferences of principle, as distinguished from differences of\nmatter-of-fact or detail,--the cause will be found to be, a difference\nin their conceptions of the philosophic method of the science. The\nparties who differ are guided, either knowingly or unconsciously, by\ndifferent views concerning the nature of the evidence appropriate to the\nsubject. They differ not solely in what they believe themselves to see,\nbut in the quarter whence they obtained the light by which they think\nthey see it.\n\nThe most universal of the forms in which this difference of method is\naccustomed to present itself, is the ancient feud between what is called\ntheory, and what is called practice or experience. There are, on social\nand political questions, two kinds of reasoners: there is one portion\nwho term themselves practical men, and call the others theorists; a\ntitle which the latter do not reject, though they by no means recognise\nit as peculiar to them. The distinction between the two is a very broad\none, though it is one of which the language employed is a most incorrect\nexponent. It has been again and again demonstrated, that those who are\naccused of despising facts and disregarding experience build and profess\nto build wholly upon facts and experience; while those who disavow\ntheory cannot make one step without theorizing. But, although both\nclasses of inquirers do nothing but theorize, and both of them consult\nno other guide than experience, there is this difference between them,\nand a most important difference it is: that those who are called\npractical men require _specific_ experience, and argue wholly _upwards_\nfrom particular facts to a general conclusion; while those who are\ncalled theorists aim at embracing a wider field of experience, and,\nhaving argued upwards from particular facts to a general principle\nincluding a much wider range than that of the question under discussion,\nthen argue _downwards_ from that general principle to a variety of\nspecific conclusions.\n\nSuppose, for example, that the question were, whether absolute kings\nwere likely to employ the powers of government for the welfare or for\nthe oppression of their subjects. The practicals would endeavour to\ndetermine this question by a direct induction from the conduct of\nparticular despotic monarchs, as testified by history. The theorists\nwould refer the question to be decided by the test not solely of our\nexperience of kings, but of our experience of men. They would contend\nthat an observation of the tendencies which human nature has manifested\nin the variety of situations in which human beings have been placed, and\nespecially observation of what passes in our own minds, warrants us in\ninferring that a human being in the situation of a despotic king will\nmake a bad use of power; and that this conclusion would lose nothing of\nits certainty even if absolute kings had never existed, or if history\nfurnished us with no information of the manner in which they had\nconducted themselves.\n\nThe first of these methods is a method of induction, merely; the last a\nmixed method of induction and ratiocination. The first may be called the\nmethod _\u00e0 posteriori;_ the latter, the method _\u00e0 priori_. We are aware\nthat this last expression is sometimes used to characterize a supposed\nmode of philosophizing, which does not profess to be founded upon\nexperience at all. But we are not acquainted with any mode of\nphilosophizing, on political subjects at least, to which such a\ndescription is fairly applicable. By the method _\u00e0 posteriori_ we mean\nthat which requires, as the basis of its conclusions, not experience\nmerely, but specific experience. By the method _\u00e0 priori_ we mean (what\nhas commonly been meant) reasoning from an assumed hypothesis; which is\nnot a practice confined to mathematics, but is of the essence of all\nscience which admits of general reasoning at all. To verify the\nhypothesis itself _\u00e0 posteriori_, that is, to examine whether the facts\nof any actual case are in accordance with it, is no part of the business\nof science at all, but of the _application_ of science.\n\nIn the definition which we have attempted to frame of the science of\nPolitical Economy, we have characterized it as essentially an _abstract_\nscience, and its method as the method _\u00e0 priori_. Such is undoubtedly\nits character as it has been understood and taught by all its most\ndistinguished teachers. It reasons, and, as we contend, must necessarily\nreason, from assumptions, not from facts. It is built upon hypotheses,\nstrictly analogous to those which, under the name of definitions, are\nthe foundation of the other abstract sciences. Geometry presupposes an\narbitrary definition of a line, \"that which has length but not breadth.\"\nJust in the same manner does Political Economy presuppose an arbitrary\ndefinition of man, as a being who invariably does that by which he may\nobtain the greatest amount of necessaries, conveniences, and luxuries,\nwith the smallest quantity of labour and physical self-denial with which\nthey can be obtained in the existing state of knowledge. It is true that\nthis definition of man is not formally prefixed to any work on Political\nEconomy, as the definition of a line is prefixed to Euclid's Elements;\nand in proportion as by being so prefixed it would be less in danger of\nbeing forgotten, we may see ground for regret that this is not done. It\nis proper that what is assumed in every particular case, should once for\nall be brought before the mind in its full extent, by being somewhere\nformally stated as a general maxim. Now, no one who is conversant with\nsystematic treatises on Political Economy will question, that whenever a\npolitical economist has shown that, by acting in a particular manner, a\nlabourer may obviously obtain higher wages, a capitalist larger profits,\nor a landlord higher rent, he concludes, as a matter of course, that\nthey will certainly act in that manner. Political Economy, therefore,\nreasons from _assumed_ premises--from premises which might be totally\nwithout foundation in fact, and which are not pretended to be\nuniversally in accordance with it. The conclusions of Political Economy,\nconsequently, like those of geometry, are only true, as the common\nphrase is, _in the abstract_; that is, they are only true under certain\nsuppositions, in which none but general causes--causes common to the\n_whole class_ of cases under consideration--are taken into the account.\n\nThis ought not to be denied by the political economist. If he deny it,\nthen, and then only, he places himself in the wrong. The _\u00e0 priori_\nmethod which is laid to his charge, as if his employment of it proved\nhis whole science to be worthless, is, as we shall presently show, the\nonly method by which truth can possibly be attained in any department of\nthe social science. All that is requisite is, that he be on his guard\nnot to ascribe to conclusions which are grounded upon an hypothesis a\ndifferent kind of certainty from that which really belongs to them. They\nwould be true without qualification, only in a case which is purely\nimaginary. In proportion as the actual facts recede from the hypothesis,\nhe must allow a corresponding deviation from the strict letter of his\nconclusion; otherwise it will be true only of things such as he has\narbitrarily supposed, not of such things as really exist. That which is\ntrue in the abstract, is always true in the concrete with proper\n_allowances_. When a certain cause really exists, and if left to itself\nwould infallibly produce a certain effect, that same effect, _modified_\nby all the other concurrent causes, will correctly correspond to the\nresult really produced.\n\nThe conclusions of geometry are not strictly true of such lines, angles,\nand figures, as human hands can construct. But no one, therefore,\ncontends that the conclusions of geometry are of no utility, or that it\nwould be better to shut up Euclid's Elements, and content ourselves with\n\"practice\" and \"experience.\"\n\nNo mathematician ever thought that his definition of a line corresponded\nto an actual line. As little did any political economist ever imagine\nthat real men had no object of desire but wealth, or none which would\nnot give way to the slightest motive of a pecuniary kind. But they were\njustified in assuming this, for the purposes of their argument; because\nthey had to do only with those parts of human conduct which have\npecuniary advantage for their direct and principal object; and because,\nas no two individual cases are exactly alike, no _general_ maxims could\never be laid down unless _some_ of the circumstances of the particular\ncase were left out of consideration.\n\nBut we go farther than to affirm that the method _\u00e0 priori_ is a\nlegitimate mode of philosophical investigation in the moral sciences: we\ncontend that it is the only mode. We affirm that the method _\u00e0\nposteriori_, or that of specific experience, is altogether inefficacious\nin those sciences, as a means of arriving at any considerable body of\nvaluable truth; though it admits of being usefully applied in aid of the\nmethod _\u00e0 priori_, and even forms an indispensable supplement to it.\n\nThere is a property common to almost all the moral sciences, and by\nwhich they are distinguished from many of the physical; this is, that it\nis seldom in our power to make experiments in them. In chemistry and\nnatural philosophy, we can not only observe what happens under all the\ncombinations of circumstances which nature brings together, but we may\nalso try an indefinite number of new combinations. This we can seldom do\nin ethical, and scarcely ever in political science. We cannot try forms\nof government and systems of national policy on a diminutive scale in\nour laboratories, shaping our experiments as we think they may most\nconduce to the advancement of knowledge. We therefore study nature under\ncircumstances of great disadvantage in these sciences; being confined to\nthe limited number of experiments which take place (if we may so speak)\nof their own accord, without any preparation or management of ours; in\ncircumstances, moreover, of great complexity, and never perfectly known\nto us; and with the far greater part of the processes concealed from our\nobservation.\n\nThe consequence of this unavoidable defect in the materials of the\ninduction is, that we can rarely obtain what Bacon has quaintly, but not\nunaptly, termed an _experimentum crucis_.\n\nIn any science which admits of an unlimited range of arbitrary\nexperiments, an _experimentum crucis_ may always be obtained. Being able\nto vary all the circumstances, we can always take effectual means of\nascertaining which of them are, and which are not, material. Call the\neffect B, and let the question be whether the cause A in any way\ncontributes to it. We try an experiment in which all the surrounding\ncircumstances are altered, except A alone: if the effect B is\nnevertheless produced, A is the cause of it. Or, instead of leaving A,\nand changing the other circumstances, we leave all the other\ncircumstances and change A: if the effect B in that case does _not_ take\nplace, then again A is a necessary condition of its existence. Either of\nthese experiments, if accurately performed, is an _experimentum crucis_;\nit converts the presumption we had before of the existence of a\nconnection between A and B into proof, by negativing every other\nhypothesis which would account for the appearances.\n\nBut this can seldom be done in the moral sciences, owing to the immense\nmultitude of the influencing circumstances, and our very scanty means of\nvarying the experiment. Even in operating upon an individual mind, which\nis the case affording greatest room for experimenting, we cannot often\nobtain a _crucial_ experiment. The effect, for example, of a particular\ncircumstance in education, upon the formation of character, may be tried\nin a variety of cases, but we can hardly ever be certain that any two of\nthose cases differ in all their circumstances except the solitary one of\nwhich we wish to estimate the influence. In how much greater a degree\nmust this difficulty exist in the affairs of states, where even the\n_number_ of recorded experiments is so scanty in comparison with the\nvariety and multitude of the circumstances concerned in each. How, for\nexample, can we obtain a crucial experiment on the effect of a\nrestrictive commercial policy upon national wealth? We must find two\nnations alike in every other respect, or at least possessed, in a degree\nexactly equal, of everything which conduces to national opulence, and\nadopting exactly the same policy in all their other affairs, but\ndiffering in this only, that one of them adopts a system of commercial\nrestrictions, and the other adopts free trade. This would be a decisive\nexperiment, similar to those which we can almost always obtain in\nexperimental physics. Doubtless this would be the most conclusive\nevidence of all if we could get it. But let any one consider how\ninfinitely numerous and various are the circumstances which either\ndirectly or indirectly do or may influence the amount of the national\nwealth, and then ask himself what are the probabilities that in the\nlongest revolution of ages two nations will be found, which agree, and\ncan be shown to agree, in all those circumstances except one?\n\nSince, therefore, it is vain to hope that truth can be arrived at,\neither in Political Economy or in any other department of the social\nscience, while we look at the facts in the concrete, clothed in all the\ncomplexity with which nature has surrounded them, and endeavour to\nelicit a general law by a process of induction from a comparison of\ndetails; there remains no other method than the _\u00e0 priori_ one, or that\nof \"abstract speculation.\"\n\nAlthough sufficiently ample grounds are not afforded in the field of\npolitics, for a satisfactory induction by a comparison of the effects,\nthe causes may, in all cases, be made the subject of specific\nexperiment. These causes are, laws of human nature, and external\ncircumstances capable of exciting the human will to action. The desires\nof man, and the nature of the conduct to which they prompt him, are\nwithin the reach of our observation. We can also observe what are the\nobjects which excite those desires. The materials of this knowledge\nevery one can principally collect within himself; with reasonable\nconsideration of the differences, of which experience discloses to him\nthe existence, between himself and other people. Knowing therefore\naccurately the properties of the substances concerned, we may reason\nwith as much certainty as in the most demonstrative parts of physics\nfrom any assumed set of circumstances. This will be mere trifling if the\nassumed circumstances bear no sort of resemblance to any real ones; but\nif the assumption is correct as far as it goes, and differs from the\ntruth no otherwise than as a part differs from the whole, then the\nconclusions which are correctly deduced from the assumption constitute\n_abstract_ truth; and when completed by adding or subtracting the effect\nof the non-calculated circumstances, they are true in the concrete, and\nmay be applied to practice.\n\nOf this character is the science of Political Economy in the writings of\nits best teachers. To render it perfect as an abstract science, the\ncombinations of circumstances which it assumes, in order to trace their\neffects, should embody all the circumstances that are common to all\ncases whatever, and likewise all the circumstances that are common to\nany important class of cases. The conclusions correctly deduced from\nthese assumptions, would be as true in the abstract as those of\nmathematics; and would be as near an approximation as abstract truth can\never be, to truth in the concrete.\n\nWhen the principles of Political Economy are to be applied to a\nparticular ease, then it is necessary to take into account all the\nindividual circumstances of that case; not only examining to which of\nthe sets of circumstances contemplated by the abstract science the\ncircumstances of the case in question correspond, but likewise what\nother circumstances may exist in that case, which not being common to it\nwith any large and strongly-marked class of cases, have not fallen under\nthe cognizance of the science. These circumstances have been called\n_disturbing causes_. And here only it is that an element of uncertainty\nenters into the process--an uncertainty inherent in the nature of these\ncomplex phenomena, and arising from the impossibility of being quite\nsure that all the circumstances of the particular case are known to us\nsufficiently in detail, and that our attention is not unduly diverted\nfrom any of them.\n\nThis constitutes the only uncertainty of Political Economy; and not of\nit alone, but of the moral sciences in general. When the disturbing\ncauses are known, the allowance necessary to be made for them detracts\nin no way from scientific precision, nor constitutes any deviation from\nthe _\u00e0 priori_ method. The disturbing causes are not handed over to be\ndealt with by mere conjecture. Like _friction_ in mechanics, to which\nthey have been often compared, they may at first have been considered\nmerely as a non-assignable deduction to be made by guess from the result\ngiven by the general principles of science; but in time many of them are\nbrought within the pale of the abstract science itself, and their effect\nis found to admit of as accurate an estimation as those more striking\neffects which they modify. The disturbing causes have their laws, as the\ncauses which are thereby disturbed have theirs; and from the laws of the\ndisturbing causes, the nature and amount of the disturbance may be\npredicted _\u00e0 priori_, like the operation of the more general laws which\nthey are said to modify or disturb, but with which they might more\nproperly be said to be concurrent. The effect of the special causes is\nthen to be added to, or subtracted from, the effect of the general ones.\n\nThese disturbing causes are sometimes circumstances which operate upon\nhuman conduct through the same principle of human nature with which\nPolitical Economy is conversant, namely, the desire of wealth, but which\nare not general enough to be taken into account in the abstract science.\nOf disturbances of this description every political economist can\nproduce many examples. In other instances the disturbing cause is some\nother law of human nature. In the latter case it never can fall within\nthe province of Political Economy; it belongs to some other science; and\nhere the mere political economist, he who has studied no science but\nPolitical Economy, if he attempt to apply his science to practice, will\nfail. [11]\n\nAs for the other kind of disturbing causes, namely those which operate\nthrough the same law of human nature out of which the general principles\nof the science arise, these might always be brought within the pale of\nthe abstract science if it were worth while; and when we make the\nnecessary allowances for them in practice, if we are doing anything but\nguess, we are following out the method of the abstract science into\nminuter details; inserting among its hypotheses a fresh and still more\ncomplex combination of circumstances, and so adding _pro h\u00e1c vice_ a\nsupplementary chapter or appendix, or at least a supplementary theorem,\nto the abstract science.\n\nHaving now shown that the method _\u00e0 priori_ in Political Economy, and\nin all the other branches of moral science, is the only certain or\nscientific mode of investigation, and that the _\u00e0 posteriori_ method,\nor that of specific experience, as a means of arriving at truth, is\ninapplicable to these subjects, we shall be able to show that the latter\nmethod is notwithstanding of great value in the moral sciences; namely,\nnot as a means of discovering truth, but of verifying it, and reducing\nto the lowest point that uncertainty before alluded to as arising from\nthe complexity of every particular case, and from the difficulty (not to\nsay impossibility) of our being assured _\u00e0 priori_ that we have taken\ninto account all the material circumstances.\n\nIf we could be quite certain that we knew all the facts of the\nparticular case, we could derive little additional advantage from\nspecific experience. The causes being given, we may know what will be\ntheir effect, without an actual trial of every possible combination;\nsince the causes are human feelings, and outward circumstances fitted to\nexcite them: and, as these for the most part are, or at least might be,\nfamiliar to us, we can more surely judge of their combined effect from\nthat familiarity, than from any evidence which can be elicited from the\ncomplicated and entangled circumstances of an actual experiment. If the\nknowledge what are the particular causes operating in any given instance\nwere revealed to us by infallible authority, then, if our abstract\nscience were perfect, we should become prophets. But the causes are not\nso revealed: they are to be collected by observation; and observation in\ncircumstances of complexity is apt to be imperfect. Some of the causes\nmay lie beyond observation; many are apt to escape it, unless we are on\nthe look-out for them; and it is only the habit of long and accurate\nobservation which can give us so correct a preconception what causes we\nare likely to find, as shall induce us to look for them in the right\nquarter. But such is the nature of the human understanding, that the\nvery fact of attending with intensity to one part of a thing, has a\ntendency to withdraw the attention from the other parts. We are\nconsequently in great danger of adverting to a portion only of the\ncauses which are actually at work. And if we are in this predicament,\nthe more accurate our deductions and the more certain our conclusions in\nthe abstract, (that is, making abstraction of all circumstances except\nthose which form part of the hypothesis,) the less we are likely to\nsuspect that we are in error: for no one can have looked closely into\nthe sources of fallacious thinking without being deeply conscious that\nthe coherence, and neat concatenation of our philosophical systems, is\nmore apt than we are commonly aware to pass with us as evidence of their\ntruth.\n\nWe cannot, therefore, too carefully endeavour to verify our theory, by\ncomparing, in the particular cases to which we have access, the results\nwhich it would have led us to predict, with the most trustworthy\naccounts we can obtain of those which have been actually realized. The\ndiscrepancy between our anticipations and the actual fact is often the\nonly circumstance which would have drawn our attention to some important\ndisturbing cause which we had overlooked. Nay, it often discloses to us\nerrors in thought, still more serious than the omission of what can with\nany propriety be termed a disturbing cause. It often reveals to us that\nthe basis itself of our whole argument is insufficient; that the data,\nfrom which we had reasoned, comprise only a part, and not always the\nmost important part, of the circumstances by which the result is really\ndetermined. Such oversights are committed by very good reasoners, and\neven by a still rarer class, that of good observers. It is a kind of\nerror to which those are peculiarly liable whose views are the largest\nand most philosophical: for exactly in that ratio are their minds more\naccustomed to dwell upon those laws, qualities, and tendencies, which\nare common to large classes of cases, and which belong to all place and\nall time; while it often happens that circumstances almost peculiar to\nthe particular case or era have a far greater share in governing that\none case.\n\nAlthough, therefore, a philosopher be convinced that no general truths\ncan be attained in the affairs of nations by the _\u00e0 posteriori_ road,\nit does not the less behove him, according to the measure of his\nopportunities, to sift and scrutinize the details of every specific\nexperiment. Without this, he may be an excellent professor of abstract\nscience; for a person may be of great use who points out correctly what\neffects will follow from certain combinations of possible circumstances,\nin whatever tract of the extensive region of hypothetical cases those\ncombinations may be found. He stands in the same relation to the\nlegislator, as the mere geographer to the practical navigator; telling\nhim the latitude and longitude of all sorts of places, but not how to\nfind whereabouts he himself is sailing. If, however, he does no more\nthan this, he must rest contented to take no share in practical\npolitics; to have no opinion, or to hold it with extreme modesty, on\nthe applications which should be made of his doctrines to existing\ncircumstances.\n\nNo one who attempts to lay down propositions for the guidance of\nmankind, however perfect his scientific acquirements, can dispense with\na practical knowledge of the actual modes in which the affairs of the\nworld are carried on, and an extensive personal experience of the actual\nideas, feelings, and intellectual and moral tendencies of his own\ncountry and of his own age. The true practical statesman is he who\ncombines this experience with a profound knowledge of abstract political\nphilosophy. Either acquirement, without the other, leaves him lame and\nimpotent if he is sensible of the deficiency; renders him obstinate and\npresumptuous if, as is more probable, he is entirely unconscious of it.\n\nSuch, then, are the respective offices and uses of the _\u00e0 priori_ and\nthe _\u00e0 posteriori_ methods--the method of abstract science, and that of\nspecific experiment--as well in Political Economy, as in all the other\nbranches of social philosophy. Truth compels us to express our\nconviction that whether among those who have written on, these subjects,\nor among those for whose use they wrote, few can be pointed out who have\nallowed to each of these methods its just value, and systematically kept\neach to its proper objects and functions. One of the peculiarities of\nmodern times, the separation of theory from practice--of the studies of\nthe closet, from the outward business of the world--has given a wrong\nbias to the ideas and feelings both of the student and of the man of\nbusiness. Each undervalues that part of the materials of thought with\nwhich he is not familiar. The one despises all comprehensive views, the\nother neglects details. The one draws his notion of the universe from\nthe few objects with which his course of life has happened to render him\nfamiliar; the other having got demonstration on his side, and forgetting\nthat it is only a demonstration _nisi_--a proof at all times liable to\nbe set aside by the addition of a single new fact to the hypothesis\n--denies, instead of examining and sifting, the allegations which are\nopposed to him. For this he has considerable excuse in the worthlessness\nof the testimony on which the facts brought forward to invalidate the\nconclusions of theory usually rest. In these complex matters, men see\nwith their preconceived opinions, not with their eyes: an interested or\na passionate man's statistics are of little worth; and a year seldom\npasses without examples of the astounding falsehoods which large bodies\nof respectable men will back each other in publishing to the world as\nfacts within their personal knowledge. It is not because a thing is\n_asserted_ to be true, but because in its nature it _may_ be true, that\na sincere and patient inquirer will feel himself called upon to\ninvestigate it. He will use the assertions of opponents not as evidence,\nbut indications leading to evidence; suggestions of the most proper\ncourse for his own inquiries.\n\nBut while the philosopher and the practical man bandy half-truths with\none another, we may seek far without finding one who, placed on a higher\neminence of thought, comprehends as a whole what they see only in\nseparate parts; who can make the anticipations of the philosopher guide\nthe observation of the practical man, and the specific experience of the\npractical man warn the philosopher where something is to be added to his\ntheory.\n\nThe most memorable example in modern times of a man who united the\nspirit of philosophy with the pursuits of active life, and kept wholly\nclear from the partialities and prejudices both of the student and of\nthe practical statesman, was Turgot; the wonder not only of his age, but\nof history, for his astonishing combination of the most opposite, and,\njudging from common experience, almost incompatible excellences.\n\nThough it is impossible to furnish any test by which a speculative\nthinker, either in Political Economy or in any other branch of social\nphilosophy, may know that he is competent to judge of the application of\nhis principles to the existing condition of his own or any other country,\nindications may be suggested by the absence of which he may well and\nsurely know that he is not competent. His knowledge must at least enable\nhim to explain and account for what _is_, or he is an insufficient judge\nof what ought to be. If a political economist, for instance, finds\nhimself puzzled by any recent or present commercial phenomena; if there\nis any mystery to him in the late or present state of the productive\nindustry of the country, which his knowledge of principle does not\nenable him to unriddle; he may be sure that something is wanting to\nrender his system of opinions a safe guide in existing circumstances.\nEither some of the facts which influence the situation of the country\nand the course of events are not known to him; or, knowing them, he\nknows not what ought to be their effects. In the latter case his system\nis imperfect even as an abstract system; it does not enable him to trace\ncorrectly all the consequences even of assumed premises. Though he\nsucceed in throwing doubts upon the reality of some of the phenomena\nwhich he is required to explain, his task is not yet completed; even\nthen he is called upon to show how the belief, which he deems unfounded,\narose; and what is the real nature of the appearances which gave a\ncolour of probability to allegations which examination proves to be\nuntrue.\n\nWhen the speculative politician has gone through this labour--has gone\nthrough it conscientiously, not with the desire of finding his system\ncomplete, but of making it so--he may deem himself qualified to apply\nhis principles to the guidance of practice: but he must still continue\nto exercise the same discipline upon every new combination of facts as\nit arises; he must make a large allowance for the disturbing influence\nof unforeseen causes, and must carefully watch the result of every\nexperiment, in order that any residuum of facts which his principles did\nnot lead him to expect, and do not enable him to explain, may become the\nsubject of a fresh analysis, and furnish the occasion for a consequent\nenlargement or correction of his general views.\n\nThe method of the practical philosopher consists, therefore, of two\nprocesses; the one analytical, the other synthetical. He must _analyze_\nthe existing state of society into its elements, not dropping and losing\nany of them by the way. After referring to the experience of individual\nman to learn the _law_ of each of these elements, that is, to learn what\nare its natural effects, and how much of the effect follows from so much\nof the cause when not counteracted by any other cause, there remains an\noperation of _synthesis_; to put all these effects together, and, from\nwhat they are separately, to collect what would be the effect of all the\ncauses acting at once. If these various operations could be correctly\nperformed, the result would be prophecy; but, as they can be performed\nonly with a certain approximation to correctness, mankind can never\npredict with absolute certainty, but only with a less or greater degree\nof probability; according as they are better or worse apprised what the\ncauses are,--have learnt with more or less accuracy from experience the\nlaw to which each of those causes, when acting separately, conforms,\n--and have summed up the aggregate effect more or less carefully.\n\nWith all the precautions which have been indicated there will still be\nsome danger of falling into partial views; but we shall at least have\ntaken the best securities against it. All that we can do more, is to\nendeavour to be impartial critics of our own theories, and to free\nourselves, as far as we are able, from that reluctance from which few\ninquirers are altogether him to expect, and do not enable him to\nexplain, may become the subject of a fresh analysis, and furnish the\noccasion for a consequent enlargement or correction of his general\nviews.\n\nThe method of the practical philosopher consists, therefore, of two\nprocesses; the one analytical, the other synthetical. He must _analyze_\nthe existing state of society into its elements, not dropping and losing\nany of them by the way. After referring to the experience of individual\nman to learn the _law_ of each of these elements, that is, to learn what\nare its natural effects, and how much of the effect follows from so much\nof the cause when not counteracted by any other cause, there remains an\noperation of _synthesis_; to put all these effects together, and, from\nwhat they are separately, to collect what would be the effect of all the\ncauses acting at once. If these various operations could be correctly\nperformed, the result would be prophecy; but, as they can be performed\nonly with a certain approximation to correctness, mankind can never\npredict with absolute certainty, but only with a less or greater degree\nof probability; according as they are better or worse apprised what the\ncauses are,--have learnt with more or less accuracy from experience the\nlaw to which each of those causes, when acting separately, conforms,--and\nhave summed up the aggregate effect more or less carefully.\n\nWith all the precautions which have been indicated there will still be\nsome danger of falling into partial views; but we shall at least have\ntaken the best securities against it. All that we can do more, is to\nendeavour to be impartial critics of our own theories, and to free\nourselves, as far as we are able, from that reluctance from which few\ninquirers are altogether exempt, to admit the reality or relevancy of\nany facts which they have not previously either taken into, or left a\nplace open for in, their systems.\n\nIf indeed every phenomenon was generally the effect of no more than one\ncause, a knowledge of the law of that cause would, unless there was a\nlogical error in our reasoning, enable us confidently to predict all the\ncircumstances of the phenomenon. We might then, if we had carefully\nexamined our premises and our reasoning, and found no flaw, venture to\ndisbelieve the testimony which might be brought to show that matters had\nturned out differently from what we should have predicted. If the causes\nof erroneous conclusions were always patent on the face of the\nreasonings which lead to them, the human understanding would be a far\nmore trustworthy instrument than it is. But the narrowest examination of\nthe process itself will help us little towards discovering that we have\nomitted part of the premises which we ought to have taken into our\nreasoning. Effects are commonly determined by a _concurrence_ of causes.\nIf we have overlooked any one cause, we may reason justly from all the\nothers, and only be the further wrong. Our premises will be true, and\nour reasoning correct, and yet the result of no value in the particular\ncase. There is, therefore, almost always room for a modest doubt as to\nour practical conclusions. Against false premises and unsound reasoning,\na good mental discipline may effectually secure us; but against the\ndanger of _overlooking_ something, neither strength of understanding nor\nintellectual cultivation can be more than a very imperfect protection.\nA person may be warranted in feeling confident, that whatever he has\ncarefully contemplated with his mind's eye he has seen correctly; but no\none can be sure that there is not something in existence which he has\nnot seen at all. He can do no more than satisfy himself that he has seen\nall that is visible to any other persons who have concerned themselves\nwith the subject. For this purpose he must endeavour to place himself at\ntheir point of view, and strive earnestly to see the object as they see\nit; nor give up the attempt until he has either added the appearance\nwhich is floating before them to his own stock of realities, or made out\nclearly that it is an optical deception.\n\n       *       *       *       *       *\n\nThe principles which we have now stated are by no means alien to common\napprehension: they are not absolutely hidden, perhaps, from any one, but\nare commonly seen through a mist. We might have presented the latter\npart of them in a phraseology in which they would have seemed the most\nfamiliar of truisms: we might have cautioned inquirers against too\nextensive _generalization_, and reminded them that there are _exceptions_\nto all rules. Such is the current language of those who distrust\ncomprehensive thinking, without having any clear notion why or where it\nought to be distrusted. We have avoided the use of these expressions\npurposely, because we deem them superficial and inaccurate. The error,\nwhen there is error, does _not_ arise from generalizing too extensively;\nthat is, from including too wide a range of particular cases in a single\nproposition. Doubtless, a man often asserts of an entire class what is\nonly true of a part of it; but his error generally consists not in making\ntoo wide an assertion, but in making the wrong _kind_ of assertion: he\npredicated an actual result, when he should only have predicated a\n_tendency_ to that result--a power acting with a certain intensity in that\ndirection. With regard to _exceptions_; in any tolerably ably advanced\nscience there is properly no such thing as an exception. What is thought\nto be an exception to a principle is always some other and distinct\nprinciple cutting into the former: some other force which impinges against\nthe first force, and deflects it from its direction. There are not a _law_\nand an _exception_ to that law--the law acting in ninety-nine cases, and\nthe exception in one. There are two laws, each possibly acting in the\nwhole hundred cases, and bringing about a common effect by their conjunct\noperation. If the force which, being the less conspicuous of the two, is\ncalled the disturbing force, prevails sufficiently over the other force\nin some one case, to constitute that case what is commonly called an\nexception, the same disturbing force probably acts as a modifying cause\nin many other cases which no one will call exceptions.\n\nThus if it were stated to be a law of nature, that all heavy bodies fall\nto the ground, it would probably be said that the resistance of the\natmosphere, which prevents a balloon from falling, constitutes the\nballoon an exception to that pretended law of nature. But the real law\nis, that all heavy bodies _tend_ to fall; and to this there is no\nexception, not even the sun and moon; for even they, as every astronomer\nknows, tend towards the earth, with a force exactly equal to that with\nwhich the earth tends towards them. The resistance of the atmosphere\nmight, in the particular case of the balloon, from a misapprehension of\nwhat the law of gravitation is, be said to _prevail_ over the law; but\nits disturbing effect is quite as real in every other case, since though\nit does not prevent, it retards the fall of all bodies whatever. The\nrule, and the so-called exception, do not divide the cases between them;\neach of them is a comprehensive rule extending to all cases. To call one\nof these concurrent principles an exception to the other, is\nsuperficial, and contrary to the correct principles of nomenclature and\narrangement. An effect of precisely the same kind, and arising from the\nsame cause, ought not to be placed in two different categories, merely\nas there does or does not exist another cause preponderating over it.\n\nIt is only in art, as distinguished from science, that we can with\npropriety speak of exceptions. Art, the immediate end of which is\npractice, has nothing to do with causes, except as the means of bringing\nabout effects. However heterogeneous the causes, it carries the effects\nof them all into one single reckoning, and according as the sum-total is\n_plus_ or _minus_, according as it falls above or below a certain line,\nArt says, Do this, or Abstain from doing it. The exception does not run\nby insensible degrees into the rule, like what are called exceptions in\nscience. In a question of practice it frequently happens that a certain\nthing is either fit to be done, or fit to be altogether abstained from,\nthere being no medium. If, in the majority of cases, it is fit to be\ndone, that is made the rule. When a case subsequently occurs in which\nthe thing ought not to be done, an entirely new leaf is turned over; the\nrule is now done with, and dismissed: a new train of ideas is introduced,\nbetween which and those involved in the rule there is a broad line of\ndemarcation; as broad and _tranchant_ as the difference between Ay and\nNo. Very possibly, between the last case which comes within the rule and\nthe first of the exception, there is only the difference of a shade: but\nthat shade probably makes the whole interval between acting in one way\nand in a totally different one. We may, therefore, in talking of art,\nunobjectionably speak of the _rule_ and the _exception_; meaning by the\nrule, the cases in which there exists a preponderance, however slight,\nof inducements for acting in a particular way; and by the exception, the\ncases in which the preponderance is on the contrary side.\n\n\nTHE END.\n\n\nNOTES:\n\n[8] We say, the _production_ and _distribution_, not, as is usual with\nwriters on this science, the production, distribution, and _consumption_.\nFor we contend that Political Economy, as conceived by those very\nwriters, has nothing to do with the consumption of wealth, further than\nas the consideration of it is inseparable from that of production, or\nfrom that of distribution. We know not of any _laws_ of the _consumption_\nof wealth as the subject of a distinct science: they can be no other\nthan the laws of human enjoyment. Political economists have never treated\nof consumption on its own account, but always for the purpose of the\ninquiry in what manner different kinds of consumption affect the production\nand distribution of wealth. Under the head of Consumption, in professed\ntreatises on the science, the following are the subjects treated of: 1st,\nThe distinction between _productive_ and _unproductive_ consumption; 2nd,\nThe inquiry whether it is possible for _too much_ wealth to be _produced_,\nand for too great a portion of what has been produced to be applied to the\npurpose of further _production_; 3rd, The theory of taxation, that is to\nsay, the following two questions--by whom each particular tax is paid\n(a question of _distribution_), and in what manner particular taxes affect\n_production_.\n\n[9] The physical laws of the production of useful objects are all\nequally presupposed by the science of Political Economy: most of them,\nhowever, it presupposes in the gross, seeming to say nothing about them.\nA few (such, for instance, as the decreasing ratio in which the produce\nof the soil is increased by an increased application of labour) it is\nobliged particularly to specify, and thus seems to borrow those truths\nfrom the physical sciences to which they properly belong, and include\nthem among its own.\n\n[10] The _science_ of legislation is an incorrect and misleading\nexpression. Legislation is _making laws_. We do not talk of the\n_science_ of _making_ anything. Even the _science of government_ would\nbe an objectionable expression, were it not that _government_ is often\nloosely taken to signify, not the act of governing, but the state or\ncondition of _being governed_, or of living under a government. A\npreferable expression would be, the science of _political society_; a\nprincipal branch of the more extensive science of society, characterized\nin the text.\n\n[11] One of the strongest reasons for drawing the line of separation\nclearly and broadly between science and art is the following:--That the\nprinciple of classification in science most conveniently follows the\nclassification of _causes_, while arts must necessarily be classified\naccording to the classification of the _effects_, the production of\nwhich is their appropriate end. Now an effect, whether in physics or\nmorals, commonly depends upon a concurrence of causes, and it frequently\nhappens that several of these causes belong to different sciences. Thus\nin the construction of engines upon the principles of the science of\n_mechanics_, it is necessary to bear in mind the _chemical_ properties\nof the material, such as its liability to oxydize; its electrical and\nmagnetic properties, and so forth. From this it follows that although\nthe necessary foundation of all art is science, that is, the knowledge\nof the properties or laws of the objects upon which, and with which, the\nart dons its work; it is not equally true that every art corresponds to\none particular science. Each art presupposes, not one science, but\nscience in general; or, at least, many distinct sciences.\n\n\n\n(Editor's note:)\n\nEssays on some Unsettled Questions of Political Economy\n\nThese five essays represent Mill's earliest thoughts on economic matters\nand were first composed in 1829 and 1830 before his reputation had been\nestablished by the publication of _Logic_ in 1843. Their successful\nreception no doubt hastened the composition of his comprehensive work\nthe _Principles of Political Economy_ (1848).","title":"Essays on some unsettled Questions of Political Economy","tradition":"philosophy-ethics","translated_text":null,"word_count":49902}