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ECONOMIC STUDIES 
 
WORKS BY WALTER BAGEHOT. 
 
 LITERARY STUDIES. Edited, with a Prefatory Memoir, by 
 the late Richard Holt Hutton. With Portrait. (3 vols.) 
 Vol. I., New Impression (1905). Vol. II., New Impression 
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 ECONOMIC STUDIES. Edited by the late Richard Holt 
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 THE POSTULATES OF ENGLISH POLITICAL ECO- 
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ECONOMIC STUDIES 
 
 LIBRARY OF 
 
 Mercantile Tu^ Coiupany of {jMmm 
 
 BY THE LATE 
 
 WALTER BAGEHOT 
 
 MA. AND FELLOW OF UNIVERSITY COLLEGE, LONDON 
 
 EDITED BY THE LATE 
 
 I^ICHARD HOLT HUTTON 
 
 SEVENTH EDITION 
 
 LONGMANS, GREEN, AND CO. 
 
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PREFATORY NOTE TO SECOND EDITION. 
 
 Since the first edition of this book was published, 
 the two first chapters, which alone received the 
 author's final corrections, have been published sepa- 
 rately as a "Students' Edition" for Cambridge under- 
 graduates, with an interesting preface by Professor 
 Marshall. There is, however, so much even in the 
 later and posthumous part of the book which is of 
 permanent value, that a second edition of the com- 
 plete work is called for, and is now given to the 
 public. 
 
 R. H. H. 
 nth September. 1888. 
 
 PREFATORY NOTE TO THE FIRST 
 EDITION. 
 
 It will be obvious to the readers of this book that a 
 considerable portion of it, though hardly to be called 
 fragmentary, is yet not at all as complete as the 
 author, had he lived, would have made it; and that, 
 in the last two essays at all events, there are con- 
 siderable gaps which he would certainly have filled 
 up. Obviously, too, various other essays would have 
 been added — probably two or three between those 
 which here appear, certainly many on subjects which 
 would naturally have followed the last and least per- 
 fect of all the papers, that on " Cost of Production ". 
 Indeed Mr. Bagehot is known to have stated that hi.s 
 
 fTA^/i'j'yfit 
 
VI Prefatory Note. 
 
 economic studies would have worked out into three 
 distinct volumes, one of which would have been bio- 
 graphical. Again, no careful reader can fail to per- 
 ceive that there is a certain amount of redundancy of 
 statement in these pages, as well as of omission ; and 
 this was inevitable, for in preparing his finished 
 writings for the press, the author's practice was to cut 
 away as well as to add much, — a duty which I was 
 not imprudent enough to attempt to discharge for him. 
 Therefore, considering that only the first two essays 
 had been published, or even printed, in the life-time 
 of the author, and that, even with the most valuable 
 help of Mr. Robert Giffen, the head of the Statistical 
 Department of the Board of Trade (who, during the 
 last years of Mr. Bagehot's life, had a better know- 
 ledge of his economic mind than any other person), I 
 have had great difficulty in determining the precise 
 arrangement of some parts of the MS., the folios of 
 which were often inaccurately numbered, I hope that 
 the reader may wonder less that much is incomplete, 
 than that so much that is complete and valuable, as 
 well as original, remains. No thoughtful economist, I 
 am sure, who reads this book, will fail to recognise the 
 value of a great portion of even the least perfect of 
 these essays. 
 
 It only remains for me to express my hearty 
 gratitude to Mr. Giffen for his willing and most 
 important help, without which I should have felt no 
 little hesitation in deciding on the true sequence of 
 some passages in this volume. 
 
 R. H. H. 
 
 loth August, 1879. r^ 
 
CONTENTS. 
 
 ESSAY P^°^ 
 
 I. The Postulates of English Political 
 
 Economy i 
 
 1. The Transferability of Labour - - 28 
 
 2. The Transferabihty of Capital - - 54 
 II. The Preliminaries of Political Economy 95 
 
 III. Adam Smith and Our Modern Economy- 125 
 
 IV. Malthus ' 176 
 
 V. RiCARDO 197 
 
 VI. The Growth of Capital - - _ - 209 
 
 VII. Cost of Production 238 
 
 Appendix -------- 273 
 
 Index - ' ------ 281 
 
THE POSTULATES 
 
 OF 
 
 ENGLISH POLrnCAL ECONOMY. 
 
 Adam Smith completed the Wealth of Nations in 
 1776, and our English Political Economy is there- 
 fore just a hundred years old. In that time it has 
 had a wonderful effect. The life of almost every 
 one in England — perhaps of every one — is different 
 and better in consequence of it. The whole com- 
 mercial policy of the country is not so much founded 
 on it as instinct with it. Ideas w^hich are paradoxes 
 everywhere else in the world are accepted axioms 
 here as results of it. No other form of political 
 philosophy has ever had one thousandth part of 
 the influence on us ; its teachings have settled down 
 into the common sense of the nation, and have 
 become irreversible. 
 
 We are too familiar with the good we have thus 
 acquired to appreciate it properly. To do so we 
 should see what our ancestors were taught. The best 
 book on Political Economy published in England 
 before that of Adam Smith is Sir James Steuart's 
 Inquiry, a book full of acuteness, and written by a 
 man of travel and cultivation. And its teaching is 
 of this sort : " In all trade two things are to be 
 
 I 
 
 \0 
 
Economic Studies. 
 
 considered in the commodity sold. The first is the 
 matter ; the second is the labour employed to render 
 this matter useful. The matter exported from a 
 country is what the country loses ; the price of the 
 labour exported is what it gains. If the value of 
 the matter imported be greater than the value of 
 what is exported the country gains. If a greater 
 value of labour be imported than exported the 
 country loses. Why ? Because in the first case 
 strangers must have paid in matter the surplus of 
 labour exported ; and in the second place because 
 the strangers must have paid to strangers in matter 
 the surplus of labour imported. It is, therefore, a 
 general maxim to discourage the importation of 
 work, and to encourage the exportation of it." ^ 
 
 It was in a world where this was believed that our 
 present Political Economy began. 
 
 Abroad the influence of our English system has 
 of course not been nearly so great as in England 
 itself. But even there it has had an enormous 
 effect. All the highest financial and commercial 
 legislation of the continent has been founded upon 
 it. As curious a testimony perhaps as any to its 
 power is to be found in the memoir of Mollien — the 
 financial adviser of the first Napoleon, Ic hon Mollien, 
 whom nothing would induce him to discard because 
 his administration brought francs, whereas that of 
 his more showy competitors might after all end in 
 ideas. " It was then," says Mollien, in giving an 
 account of his youth, ''that I read an English book 
 
 ^ Book ii., chap. xxiv. 
 
The Postulates of Political Economy. 3 
 
 of which the disciples whom M. Turgot had left 
 spake with the greatest praise — the work of Adam 
 Smith. I had especially remarked how warmly the 
 venerable and judicious Malesherbes used to speak 
 of it — this book so deprecated by all the men of 
 the old routine who spoke of themselves so im- 
 properly as of the school of Colbert. They seemed 
 to have persuaded themselves that the most import- 
 ant thing for our nation was that not one sou should 
 ever leave France ; that so long as this was so, the 
 kind and the amount of taxation, the rate of wages, 
 the greater or less perfection of industrial arts, were 
 things of complete indifference, provided always that 
 one Frenchman gained what another Frenchman 
 lost." 
 
 And he describes how the Wealth of Nations led 
 him to abandon those absurdities and to substitute 
 the views with which we are now so familiar, but 
 on which the "good Mollien " dwells as on new 
 paradoxes. In cases like this, one instance is worth 
 a hundred arguments. We see in a moment the 
 sort of effect that our English Political Economy 
 has had when we find it guiding the finance of 
 Napoleon, who hated ideologues, and who did not 
 love the English. 
 
 But notwithstanding these triumphs, the position 
 of our Political Economy is not altogether satis- 
 factory. It lies rather dead in the public mind. 
 Not only does it not excite the same interest as 
 formerly, but there is not exactly the same con- 
 fidence in it. Younger men either do not study it, 
 or do not feci that it comes home to them, and that 
 
Economic Studies. 
 
 it matches with their most hving ideas. New 
 sciences have come up in the last few years with 
 new modes of investigation, and they want to know 
 what is the relation of economic science, as their 
 fathers held it, to these new thoughts and these new 
 instruments. They ask, often hardly knowing it, will 
 this "science," as it claims to be, harmonise with 
 what we now know to be sciences, or bear to be tried 
 as we now try sciences ? And they are not sure of 
 the answer. 
 
 Abroad, as is natural, the revolt is more avowed. 
 Indeed, though the Political Economy of Adam 
 Smith penetrated deep into the continent, what has 
 been added in England since has never penetrated 
 equally; though if our ''science" is true, the newer 
 work required a greater intellectual effort, and is 
 far more complete as a scientific achievement than 
 anything which Adam Smith did himself. Political 
 Economy, as it was taught by Ricardo, has had in 
 this respect much the same fate as another branch 
 of English thought of the same age, with which it 
 has many analogies — ^jurisprudence as it was taught 
 by Austin and Bentham ; it has remained insular. 
 I do not m.ean that it was not often read and under- 
 stood ; of course it was so, though it was often 
 misread and misunderstood. But it never at all 
 reigned abroad as it reigns here ; never was really 
 fully accepted in other countries as it was here where 
 it arose. And no theory, economic or political, can 
 now be both insular and secure ; foreign thoughts 
 come soon and trouble us; there will always be 
 doubt here as to what is only believed here. 
 
The Postulates of Political Economy. 5 
 
 There are, no doubt, obvious reasons why English 
 Political Economy should be thus unpopular out of 
 England. It is known everywhere as the theory 
 " of Free-trade," and out of England Free-trade is 
 almost everywhere unpopular. Experience shows 
 that no belief is so difficult to create, and no one so 
 easy to disturb. The Protectionist creed rises like a 
 weed in every soil. "Why," M. Thiers was asked, 
 *' do you give these bounties to the French sugar 
 refiners?" '* I wish," replied he, "the tall chim- 
 neys to smoke." Every nation wishes prosperity for 
 some conspicuous industry. At what cost to the 
 consumer, by what hardship to less conspicuous 
 industries, that prosperity is obtained, it does not 
 care. Indeed, it hardly knows, it will never read, 
 it will never apprehend the refined reasons which 
 prove those evils and show how great they are ; the 
 visible picture of the smoking chimneys absorbs the 
 whole mind. And, in many cases, the eagerness of 
 England in the Free-trade cause onty does that cause 
 harm. Foreigners say : "Your English traders are 
 strong and rich ; of course you wish to under-sell 
 our traders, who are weak and poor. You have in- 
 vented this Political Economy to enrich yourselves 
 and ruin us; we will see that you shall not do so." 
 
 And that English Political Economy is more 
 opposed to the action of Government in all ways 
 than most such theories, brings it no accession* of 
 popularity. All Governments like to interfere ; it 
 elevates their position to make out that they can 
 cure the evils of mankind. And all zealots wish 
 they should interfere, for such zealots think they can 
 
Economic Studies. 
 
 and may convert the rulers and manipulate the 
 State control : it is a distinct object to convert a 
 definite man, and if he will not be convinced there is 
 always a hope of his successor. But most zealots 
 dislike to appeal to the mass of mankind ; they know 
 instinctively that it will be too opaque and impene- 
 trable for them. 
 
 Still I do not believe that these are the only 
 reasons why our English Political Economy is not 
 estimated at its value abroad. I believe that this 
 arises from its special characteristic, from that which 
 constitutes its peculiar value, and, paradoxical as it 
 may seem, I also believe that this same character- 
 istic is likewise the reason why it is often not 
 thoroughly understood in England itself. The 
 science of Political Economy as we have it in Eng- 
 land may be defined as the science of business, such 
 as business is in large productive and trading com- 
 munities. It is an analysis of that world so familiar 
 to many Englishmen — the ''great commerce" by 
 which England has become rich. It assumes the 
 principal facts which make that commerce possible, 
 and as is the way of an abstract science it isolates 
 and simplifies them ; it detaches them from the con- 
 fusion with which they are mixed in fact. And it 
 deals too with the men who carry on that commerce, 
 and who make it possible. It assumes a sort of 
 human nature such as we see everywhere around us, 
 and again it simplifies that human nature ; it looks 
 at one part of it only. Dealing with matters of 
 "business," it assumes that man is actuated only 
 by motives of business. It assumes that every man 
 
The PosUdatcs of Political Economy. 7 
 
 who makes anything, makes it for money, that he 
 always makes that which brings him in most at 
 least cost, and that he will make it in the way that 
 will produce most and spend least ; it assumes that 
 every man who buys, buys with his whole heart, 
 and that he who sells, sells with his whole heart, 
 each wanting to gain all possible advantage. Of 
 course we know that this is not so, that men are not 
 like this ; but we assume it for simplicity's sake, as 
 an hypothesis. And this deceives many excellent 
 people, for from deficient education they have very 
 indistinct ideas what an abstract science is. 
 
 More competent persons, indeed, have understood 
 that English Political Economists are not speaking 
 of real men, but of imaginary ones ; not of men as 
 we see them, but of men as it is convenient to us to 
 suppose they are. But even they often do not 
 understand that the world which our Political 
 Economists treat of, is a very limited and peculiar 
 world also. They often imagine that what they 
 read is applicable to all states of society, and to all 
 equally, whereas it is only true of — and only proved 
 as to — states of society in which commerce has 
 largely developed, and where it has taken the form 
 of development, or something near the form, which 
 it has taken in England. 
 
 This explains why abroad the science has not 
 been well understood. Commerce, as we have it in 
 England, is not so full-grown anywhere else as it is 
 here — at any rate, is not so outside the lands popu- 
 lated by the Anglo-Saxon race. Here it is not only 
 a thing definite and observable, but about the most 
 
8 Economic Studies. 
 
 definite thinj^ we have, the thini:^ which it is most 
 difficult to help seeing. But on the continent, 
 though there is much that is like it, and though that 
 much is daily growing more, there is nowhere the 
 same pervading entity — the same patent, pressing, 
 and unmistakable object. 
 
 And this brings out too the inherent difficulty of 
 the subject — a difficulty which no other science, I 
 think, presents in equal magnitude. Years ago I 
 heard Mr. Cobden say at a league meeting that 
 " Political Economy was the highest study of the 
 human mind, for that the physical sciences required 
 by no means so hard an effort ". An orator cannot 
 be expected to be exactly precise, and of course 
 Political Economy is in no sense the highest study 
 of the mind — there are others which are much 
 higher, for they are concerned with things much 
 nobler than w^ealth or money ; nor is it true that the 
 effort of mind which Political Economy requires is 
 nearly as great as that required for the abstruser 
 theories of physical science, for the theory of gravita- 
 tion, or the theory of natural selection ; but, never- 
 theless, what Mr. Cobden meant had — as was usual 
 with his first-hand mind — a great fund of truth. He 
 meant that Political Economy — effectual Political 
 Economy, Political Economy which in complex pro- 
 blems succeeds — is a very difficult thing ; something 
 altogether more abstruse and difficult, as well as more 
 conclusive, than that which many of those who 
 rush in upon it have a notion of. It is an abstract 
 science which labours under a special hardship. 
 Those who are conversant with its abstractions are 
 
The Postulates of Political Economy. Q 
 
 usually without a true contact with its facts ; those 
 who are in contact with its facts have usually little 
 sympathy with and little cognisance of its abstractions. 
 Literary men who write about it are constantly using 
 what a great teacher calls *' unreal words " — that is, 
 they are using expressions with which they have 
 no complete vivid picture to correspond. They are 
 like physiologists who have never dissected ; like 
 astronomers who have never seen the stars ; and, in 
 consequence, just when they seem to be reasoning at 
 their best, their knowledge of the facts falls short. 
 Their primitive picture fails them, and their deduction 
 altogether misses the mark — sometimes, indeed, goes 
 astray so far that those who live and move among 
 the facts boldly say that they cannot comprehend 
 "how any one can talk such nonsense". Yet, on 
 the other hand, these people who live and move 
 among the facts often, or mostly, cannot of themselves 
 put together any precise reasonings about them. 
 Men of business have a solid judgment — a wonderful 
 guessing power of what is going to happen — each in 
 his own trade ; but they have never practised them- 
 selves in reasoning out their judgments and in 
 supporting their guesses by argument : probably if 
 they did so some of the finer and correcter parts of 
 their anticipations would vanish. They are like the 
 sensible lady to whom Coleridge said : *' Madam, I 
 accept your conclusion, but you must let me find the 
 logic for it". Men of business can no more put into 
 words much of what guides their life than they could 
 tell another person how to speak their language. 
 And so the " theory of business " leads a life of 
 
10 Economic Studies. 
 
 obstruction, because theorists do not see the business, 
 and the men of business will not reason out the 
 ^ theories. Far from wondering that such a science 
 is not completely perfect, we should rather wonder 
 that it exists at all. 
 
 Something has been done to lessen the difficulty by 
 statistics. These give tables of facts which help 
 theoretical writers and keep them straight, but the 
 cure is not complete. Writers without experience of 
 trade are always fancying that these tables mean 
 something more than, or something different from, 
 that which they really mean. A table of prices, for 
 example, seems an easy and simple thing to under- 
 stand, and a whole literature of statistics assumes 
 that simplicity ; but in fact there are many difficulties. 
 At the outset there is a difference between the men 
 of theory and the men of practice. Theorists take 
 a table of prices as facts settled by unalterable laws ; 
 a stockbroker will tell you such prices can be 
 "made". In actual business such is his constant 
 expression. If you ask him what is the price of such 
 a stock, he will say, if it be a stock at all out of the 
 common : '' I do not know, sir : I will go on to the 
 market and get them to make me a price". And the 
 following passage from the Report of the late Foreign 
 Loans Committee shows what sort of process 
 ''making" a price sometimes is: "Immediately," 
 they say, " after the publication of the prospectus " 
 — the case is that of the Honduras Loan — "and 
 before any allotment was made, M. Lefevre authorised 
 extensive purchases and sales of loans on his behalf; 
 brokers were employed by him to deal in the manner 
 
The Postulates of Political Economy. ii 
 
 best calculated to maintain the price of the stock ; 
 the brokers so employed instructed jobbers to 
 purchase the stock when the market required to be 
 strengthened, and to sell it if the market was suf- 
 ficiently firm. In consequence of the market thus 
 created dealings were carried on to a very large 
 amount. Fifty or a hundred men were in the market 
 dealing with each other and the brokers all round. 
 One jobber had sold the loan (;jr2, 500,000) once over." 
 Much money was thus abstracted from credulous 
 rural investors ; and I regret to say that book statists 
 are often equally, though less hurtfully, deceived. 
 They make tables in which artificial prices run side 
 by side with natural ones ; in which the price of an 
 article like Honduras scrip, which can be indefinitely 
 manipulated, is treated just like the price of consols, 
 which can scarcely be manipulated at all. In most 
 cases it never occurs to the maker of the table that 
 there could be such a thing as an artificial — a mala 
 fide — price at all. He imagines all prices to be 
 equally straightforward. Perhaps, however, this may 
 be said to be an unfair sample of price difficulties, 
 because it is drawn from the Stock Exchange, the 
 most complex market for prices ; and no doubt the 
 Stock Exchange has its peculiar difficulties, of 
 which I certainly shall not speak lightly ; but on 
 the other hand, in one cardinal respect, it is the 
 simplest of markets. There is no question in it of 
 the physical quality of commodities : one Turkish 
 bond of 1858 is as good or bad as another ; one 
 ordinary share in a railway exactly the same as any 
 other ordinary share ; but in other markets each 
 
12 Economic Studies. 
 
 sample differs in quality, and it is a learning in each 
 market to judge of qualities, so many are ihty, and 
 so fine their gradations. Yet mere tables do not tell 
 this, and cannot tell it. Accordingly in a hundred 
 cases you may see ''prices" compared as it they 
 were prices of the same thing, when, in fact, they 
 are prices of different things. The Gazette average 
 of corn is thus compared incessantly, yet it is hardly 
 the price of the same exact quality of corn in any 
 two years. It is an average of all the prices in all 
 the sales in all the markets. But this year the kind 
 of corn mostly sold may be very superior, and last 
 year very inferior — yet the tables compare the two 
 without noticing the difficulty. And when the range 
 of prices runs over many years, the figures are even 
 more treacherous, for the names remain, while the 
 quality, the thing signified, is changed. And of this 
 persons not engaged in business have no warning. 
 Statistical tables, even those which are most elaborate 
 and careful, are not substitutes for an actual cog- 
 nisance of the facts : they do not, as a rule, convey 
 a just idea of the movements of a trade to persons 
 not in the trade. 
 
 It will be asked, why do you frame such a science 
 if from its nature it is so difficult to frame it ? The 
 answer is that it is necessary to frame it, or we must 
 go without important knowledge. The facts of 
 commerce, especially of the great commerce, are very 
 complex. Some of the most important are not on 
 the surface ; some of those most likely to confuse are 
 on the surface. If you attempt to solve such problems 
 without some apparatus of method, you are as sure 
 
The Postulates of Political Economy. 13 
 
 to fail as if you try to take a modern military fortress 
 — a Metz or a Belfort — by common assault ; you 
 must have guns to attack the one, and method to 
 attack the other. 
 
 The way to be sure of this is to take a few new 
 problems, such as are for ever presented by investiga- 
 tion and life, and to see what by mere common sense 
 we can make of them. For example, it is said that 
 the general productiveness of the earth is less or 
 more in certain regular cycles, corresponding with 
 perceived changes in the state of the sun, — what 
 would be the effect of this cyclical variation in the 
 efficiency of industry upon commerce ? Some hold, 
 and as I think hold justly, that, extraordinary as it 
 may seem, these regular changes in the sun have 
 much to do with the regular recurrence of difficult 
 times in the money market. What common sense 
 would be able to answer these questions ? Yet we 
 may be sure that if there be a periodical series of 
 changes in the yielding power of this planet, that 
 series will have many consequences on the industry 
 of men, whether those which have been suggested or 
 others. 
 
 Or to take an easier case, who can tell without 
 instruction what is likely to be the effect of the new 
 loans of England to foreign nations ? We press 
 upon half-finished and half-civilised communities in- 
 calculable sums ; we are to them what the London 
 money-dealers are to students at Oxford and Cam- 
 bridge. We enable these communities to read in 
 every newspaper that they can have ready money, 
 almost of any amount, on ''personal security". No 
 
14 Ecojwniic Studies, 
 
 incipient and no arrested civilisations ever had this 
 faciHty before. What will be the effect on such 
 civilisations now, no untutored mind can say. 
 
 Or again : since the Franco-German War an im- 
 mense sum of new money has come to England ; 
 England has become the settling-place of interna- 
 tional bargains much more than it was before ; but 
 whose mind could divine the effect of such a change 
 as this, except it had a professed science to help it ? 
 
 There are indeed two suggested modes of investiga- 
 tion, besides our English Political Economy, and 
 competing with it. One is the Enumerative, or if I 
 may coin such a word, the '' all-case method ". One 
 school of theorists say, or assume oftener than they 
 say, that you should have a "complete experience" ; 
 that you should accumulate all the facts of these 
 subjects before you begin to reason. A very able 
 German writer has said, in the Fortnightly Re- 
 view, ^ of a great economic topic, banking : " I 
 venture to suggest that there is but one way of 
 arriving at such knowledge and truth " — that is, 
 absolute truth and full knowledge — "namely, a 
 thorough investigation of the facts of the case. By 
 the facts, I mean not merely such facts as present 
 themselves to so-called practical men in the common 
 routine of business, but the facts which a complete 
 historical and statistical inquiry would develop. 
 When such a work shall have been accomplished, 
 German economists may boast of having restored 
 
 ^Gustav Cohn, in the Fortnightly Review for September, 
 
 1873. 
 
The Postulates of Political Economy. 15 
 
 the principles of banking, that is to say, of German 
 banking, but not even then of banking in general. 
 To set forth principles of banking in general, it will 
 be necessary to master in the same way the facts ol 
 English, Scotch, French, and American banking — in V 
 short, of every country where banking exists." " The 
 only," he afterwards continues, "but let us add also, 
 the safe ground of hope for Political Economy is, 
 following Bacon's exhortation to recommence afresh 
 the whole work of economic inquiry. In what con- 
 dition would chemistry, physics, geology, zoology, 
 be, and the other branches of natural science which 
 have yielded such prodigious results, if their students 
 had been linked to their chains of deduction from the 
 assumptions and speculations of the last century ? " 
 But the reply is that the method which Mr. Cohn 
 suggests was tried in physical science and failed. 
 And it is very remarkable that he should not have 
 remembered it as he speaks of Lord Bacon, for the 
 method which he suggests is exactly that which 
 Lord Bacon himself followed, and owing to the mis- 
 taken nature of which he discovered nothing. The 
 investigation into the nature of heat in the Novum 
 Organum is exactly such a collection of facts as Mr. 
 Cohn suggests, — but nothing comes of it. As Mr. 
 Jevons well says : " Lord Bacon's notion of scientific 
 method was that of a kind of scientific book-keeping. 
 Facts were to be indiscriminately gathered from 
 every source, and posted in a kind of ledger from 
 which would emerge in time a clear balance of truth. 
 It is difficult to imagine a less likely way of arriving 
 at discoveries." And yet it is precisely that from 
 
i6 Economic Studies. 
 
 which, mentioning Bacon's name, but not forewarned 
 by his experience, Mr. Cohn hopes to make them. 
 
 The real plan that has answered in physical 
 science is much simpler. The discovery of a law of 
 nature is very like the discovery of a murder. In 
 the one case you arrest a suspected person, and in 
 the other you isolate a suspected cause. When 
 Newton, by the fall of the apple, or something else, 
 was led to think that the attraction of gravitation 
 would account for the planetary motions, he took 
 that cause by itself, traced out its effects by abstract 
 mathematics, and, so to say, found it "guilty," — he 
 discovered that it would produce the phenomenon 
 under investigation. In the same way geology has 
 been revolutionised in our own time by Sir Charles 
 Lyell. He for the first time considered the effects 
 of one particular set of causes by themselves. He 
 showed how large a body of facts could be explained 
 on the hypothesis "that the forces now operating 
 upon and beneath the earth's surface are the same 
 both in kind and degree as those which, at remote 
 epochs, have worked out geological changes ". He 
 did not wait to begin his inquiry till his data about 
 all kinds of strata, or even about any particular 
 kind, were complete ; he took palpable causes as he 
 knew them, and showed how many facts they would 
 explain ; he spent a long and most important life in 
 fitting new facts into an abstract and youthful specu- 
 lation. Just so in an instance which has made a 
 literature and gone the round of the world. Mr. Dar- 
 win, who is a disciple of Lyell, has shown how one vera 
 causa, "natural selection," would account for an 
 
The Postulates of Political Economy. 17 
 
 immense number of the facts of nature ; for how 
 man}^, no doubt, is controverted, but, as is admitted, 
 for a very large number. And this he showed by 
 ver}^ difficult pieces of reasoning which very few- 
 persons would have thought of, and which most 
 people found at first not at all easy to comprehend. 
 The process by which physical science has become 
 what it is, has not been that of discarding abstract 
 speculations, but of working out abstract specula- 
 tions. The most important known laws of nature 
 — the laws of motion — the basis of the figures in 
 the Nautical Almanack by which every ship sails 
 — are difficult and abstract enough, as most of us 
 found to our cost in our youth. 
 
 There is no doubt a strong tendency to revolt 
 against abstract reasoning. Human nature has a 
 strong " factish " element in it. The reasonings of 
 the Principia are now accepted. But in the be- 
 ginning they were "mere crotchets of Mr. Newton's"; 
 Flamstead, the greatest astronomical discoverer of 
 his day — the man of facts, par excellence — so called 
 them ; they have irresistibly conquered ; but at 
 first even those most conversant with the matter did 
 not believe them. I do not claim for the conclusions 
 of English Political Economy the same certainty 
 as for the *Maws of motion". But I say that the 
 method by which they have been obtained is the 
 same, and that the difference in the success of the 
 two investigations largely comes from this — that the 
 laws of wealth are the laws of a most complex 
 phenomenon which you can but passively observe, 
 and on which you cannot try experiments for 
 
1 8 Economic Studies. 
 
 science' sake, and that the laws of motion relate to 
 a matter on which you can experiment, and which 
 is comparatively simple in itself. 
 
 And to carry the war into the enemy's country, I 
 say also that the method proposed by Mr. Cohn, the 
 "all-case" method, is impossible. When I read the 
 words ''all the facts of English banking," I cannot 
 but ask, of what facts is Mr. Cohn thinking ? Bank- 
 ing in England goes on growing, multiplying, and 
 changing, as the English people itself goes on grow- 
 ing, multiplying, and changing. The facts of it are 
 one thing to-day and another to-morrow ; nor at one 
 moment does any one know them completely. Those 
 who best know many of them will not tell them or 
 hint at them ; gradually and in the course of years 
 they separately come to light, and by the time they 
 do so, for the most part, another crop of unknown 
 ones has accumulated. If we wait to reason till the 
 "facts" are complete, we shall wait till the human 
 race has expired. I consider that Mr. Cohn, and those 
 who think with him, are too "bookish" in this matter. 
 They mean by having all the " facts " before them, 
 having all the printed facts, all the statistical tables. 
 But what has been said of Nature is true of com- 
 merce. " Nature," says Sir Charles Lyell, " has 
 made it no part of her concern to provide a record 
 of her operations for the use of men;" nor does 
 trade either — only the smallest of fractions of actual 
 transactions is set down, so that investigation can 
 use it. Literature has been called the "fragment 
 of fragments," and in the same way statistics are 
 the "scrap of scraps". In real life scarcely any 
 
The Postulates of Political Economy. ig 
 
 one knows more than a small part of what his 
 neighbour is doing, and he scarcely makes public 
 any of that little, or of what he does himself. A 
 complete record of commercial facts, or even of one 
 kind of such facts, is the completest of dreams. 
 You might as well hope for an entire record of 
 human conversation. 
 
 There is also a second antagonistic method to 
 that of English Political Economy, which, by con- 
 trast, I will call the "single-case" method. It 
 is said that you should analyse each group of 
 facts separately — that you should take the panic 
 of 1866 separately, and explain it ; or, at any rate, 
 the whole history of Lombard Street separately, 
 and explain it. And this is very good and very 
 important ; but it is no substitute for a prelimin- 
 ary theory. You might as well try to substitute a 
 corollary for the proposition on which it depends. 
 The history of a panic is the history cf a confused 
 conflict of many causes ; and unless you know what 
 sort of effect each cause is likely to produce, you 
 cannot explain any part of what happens. It is 
 trying to explain the bursting of a boiler without 
 knowing the theory of steam. Any history of similar 
 phenomena like those of Lombard Street could not 
 be usefully told, unless there was a considerable 
 accumulation of applicable doctrine before existing. 
 You might as well try to write the " life " of a ship, 
 making as you went along the theory of naval con- 
 struction. Clumsy dissertations would run all over 
 the narrative ; and the result would be a perfect 
 puzzle. 
 
20 Economic Studies. 
 
 I have been careful not to use in this discussion 
 of methods the phrase which is oftenest used, viz., 
 the Historical method, because there is an excessive 
 ambiguity in it. Sometimes it seems what I have 
 called the Enumerative, or '' all-case " method ; 
 sometimes the " single-case " method; a most con- 
 fusing double meaning, for by the mixture of the 
 two, the mind is prevented from seeing the defects 
 of either. And sometimes it has other meanings, 
 with which, as I shall show, I have no quarrel, 
 but rather much sympathy. Rightly conceived the 
 Historical method is no rival to the abstract method 
 rightly conceived. But I shall be able to explain 
 this better and less tediously at the end of these 
 papers than I can at the beginning. 
 
 This conclusion is confirmed by a curious circum- 
 stance. At the very moment that our Political 
 Economy is objected to in some quarters as too 
 abstract, in others an attempt is made to substitute 
 for it one which is more abstract still. Mr. Stanley 
 Jevons, and M. Walras, of Lausanne, without com- 
 munication and almost simultaneously, have worked 
 out a "mathematical" theory of Political Economy; — 
 and any one who thinks what is ordinarily taught in 
 England objectionable, because it is too little con- 
 crete in its method, and looks too unlike life and 
 business, had better try the new doctrine, which he 
 will find to be much worse on these points than the 
 old. 
 
 But I shall be asked, Do you then say that English 
 Political Economy is perfect ? — surely it is contrary 
 to reason that so much difficulty should be felt in 
 
The Postulates of Political Economy. 21 
 
 accepting a real science properly treated ? At the 
 first beginning no doubt there are difficulties in 
 gaining a hearing for all sciences, but English 
 Political Economy has long passed out of its first 
 beginning ? Surely, if there were not some intrinsic 
 defect, it would have been firmJy and coherently 
 established, just as others are ? 
 
 In this reasoning there is evident plausibility, and 
 I answer that, in my judgment, there are three defects 
 in the mode in which Political Economy has been 
 treated in England, which have prevented people 
 from seeing what it really is, and from prizing it at 
 its proper value. 
 
 First, — It has often been put forward, not. as a 
 theory of the principal causes affecting wealth in 
 certain societies, but as a theory of the principal, 
 sometimes even of all, the causes affecting wealth in 
 every society. And this has occasioned many and 
 strong doubts about it. Travellers fresh from the 
 sight, and historians fresh from the study, of peculiar 
 and various states of society, look with dislike and 
 disbelief on a single set of abstract propositions 
 which claim, as they think, to be applicable to all 
 such societies, and to explain a most important part 
 of most of them. I cannot here pause to say how 
 far particular English Economists have justified this 
 accusation ; I only sa}- that, taking the whole body 
 of them, there is much ground for it, and that in 
 almost every one of them there is some ground. No 
 doubt almost every one — every one of importance — 
 has admitted that there is a "friction" in society 
 which counteracts the effect of the causes treated of. 
 
22 Economic Studies. 
 
 But in general they leave their readers with the idea 
 that, after all, this friction is but subordinate ; that 
 probably in the course of years it may be neglected ; 
 and, at any rate, that the causes assigned in the 
 science of Political Economy, as they treat it, are the 
 main and principal ones. Now I hold that these 
 causes are only the main ones in a single kind of 
 society — a society of grown-up competitive commerce, 
 such as we have in England ; that it is only in such 
 societies that the other and counteracting forces can 
 be set together under the minor head of " friction " ; 
 but that in other societies these other causes— -in 
 some cases one, and in some another — are the most 
 effective ones, and that the greatest confusion arises 
 if you try to fit on we-economic societies the theories 
 only true of, and only proved as to, economic ones. 
 In my judgment, we need — not that the authority 
 of our Political Economy should be impugned, but 
 that it should be minimised ; that we should realise 
 distinctly where it is established, and where not ; 
 that its sovereignty should be upheld, but its frontiers 
 marked. And until this is done, I am sure that there 
 will remain the same doubt and hesitation in many 
 minds about the science that there is now. 
 
 Secondly, — I think in consequence of this defect 
 of conception Economists have been far more ab- 
 stract, and in consequence much more dry, than 
 they need have been. If they had distinctly set 
 before themselves that they were dealing only with 
 the causes of wealth in a single set of societies, they 
 might have effectively pointed their doctrines with 
 facts from those societies. But, so long as the 
 
The Postulates of Political Economy. 23 
 
 vision of universal theory vaguely floated before 
 them, they shrank from particular illustrations. 
 Real societies are plainly so many and so unlike, 
 that an instance from one kind does not show that 
 the same thing exists in other societies ; — it rather 
 raises in the mind a presumption that it does not 
 exist there ; and therefore speculators aiming at an 
 all-embracing doctrine refrain from telling cases, be- 
 cause those cases are apt to work in unexpected ways, 
 and to raise up the image not only of the societies in 
 which the tenet illustrated is true, but also of the 
 opposite group in which it is false. 
 
 Thirdly, — It is also in consequence, as I imagine, 
 of this defective conception of their science, that 
 English Economists have not been as fertile as they 
 should have been in verifying it. They have been 
 too content to remain in the " abstract," and to 
 shrink from concrete notions, because they could not 
 but feel that many of the most obvious phenomena 
 of many nations did not look much like their abstrac- 
 tions. Whereas in the societies with which the 
 science is really concerned, an almost infinite harvest 
 of verification was close at hand, ready to be gathered 
 in ; and because it has not been used, much con- 
 fidence in the science has been lost, and it is thought 
 " to be like the stars which give no good light because 
 they are so high ". 
 
 Of course this reasoning implies that the bound- 
 aries of this sort of Political Economy are arbitrary, 
 and might be fixed here or there. But this is already 
 implied when it is said that Political Economy is 
 an abstract science. All abstractions are arbitrary ; 
 
24 Economic Studies. 
 
 they are more or less convenient fictions made by the 
 mind for its own purposes. An abstract idea means a 
 concrete fact or set of facts minus somethin^^ thrown 
 away. The fact or set of facts were made by 
 nature ; but how much you will throw aside of them 
 and how much you will keep for consideration you 
 settle for yourself. There may be any number of 
 political economies according as the subject is 
 divided off in one way or in another, and in this 
 way all may be useful if they do not interfere with 
 one another, or attempt to rule further than they are 
 proved. 
 
 The particular Political Economy which I have 
 been calling the English Political Economy, is that 
 of which the first beginning was made by Adam 
 Smith. But what he did was much like the rough 
 view of the lirst traveller who discovers a country ; 
 he saw some great outlines well, but he mistook 
 others and left out much. It was Ricardo who 
 made the first map ; who reduced the subjects 
 into consecutive shape, and constructed what you 
 can call a science. Few greater efforts of mind have 
 been made, and not many have had greater fruits. 
 Prom Ricardo the science passed to a whole set of 
 minds— James Mill, Senior, Torrens, McCulloch, 
 and others, who busied themselves with working 
 out his ideas, with elaborating and with completing 
 them. For five and twenty years the English world 
 was full of such discussions. Then Mr. J. S. Mill 
 — the Mr. Mill whom the present generation know 
 so well, and who has had so much influence — shaped 
 with masterly literary skill the confused substance 
 
The Postulates of Political Economy. 25 
 
 of those discussions into a compact whole. He did 
 not add a great deal which was his own, and some 
 of what is due to him does not seem to me of great 
 value. But he pieced the subjects together, showed 
 where what one of his predecessors had done had 
 fitted on to that of another, and adjusted this science 
 to other sciences according to the notions of that 
 time. To many students his book is the Alpha and 
 Omega of Political Economy ; they know little of 
 what was before, and imagine little which can come 
 after in the way of improvement. But it is not 
 given to any writer to occupy such a place. Mr. 
 Mill would have been the last to claim it for himself. 
 He well knew that, taking his own treatise as the 
 standard, what he added to Political Economy was 
 not a ninth of what was due to Ricardo, and that 
 for much of what is new in his book he was rather 
 the Secretaire de la Redaction^ expressing and formu- 
 lating the current views of a certain world, than pro- 
 ducing by original thought from his own brain. And 
 his remoteness from mercantile life, and I should 
 say his enthusiastic character, eager after things 
 far less sublunary than money, made him little likely 
 to give finishing touches to a theory of " the great 
 commerce ". In fact he has not done so ; much yet 
 remains to be done in it as in all sciences. Mr. Mill, 
 too, seem's to me open to the charge of having 
 widened the old Political Economy either too much 
 or not enough. If it be, as I hold, a theory proved 
 of, and applicable to, particular societies only, much 
 of what is contained in Mr. Mill's book should not be 
 there ; if it is, on the contrary, a theory holding 
 
26 Economic Studies. 
 
 good for all societies, as far as the}^ are concerned 
 with wealth, much more ought to be there, and 
 much which is there should be guarded and limited. 
 English Political Economy is not a finished and 
 completed theory, but the first lines of a great 
 analysis which has worked out much, but which still 
 leaves much unsettled and unexplained. 
 
 There is nothing capricious, we should observe, 
 in this conception of Political Economy, nor, though 
 it originated in England, is there anything specially 
 English in it. It is the theory of commerce, as 
 commerce tends more and more to be when capital 
 increases and competition grows. England was the 
 first — or one of the first — countries to display these 
 characteristics in such vigour and so isolated as to 
 suggest a separate analysis of them, but as the world 
 goes on, similar characteristics are being evolved in one 
 society after another. A similar money market, a simi- 
 lar competing trade based on large capital, gradually 
 tends to arise in all countries. As " men of the world " 
 are the same everywhere, so the great commerce is 
 the same everywhere. Local peculiarities and ancient 
 modifying circumstances fall away in both cases ; 
 and it is of this one and uniform commerce which 
 grows daily, and which will grow, according to every 
 probability, more and more, that English Political 
 Economy aspires to be the explanation. 
 
 And our Political Economy does not profess to 
 prove this growing world to be a good world — far 
 less to be the best. Abroad the necessity of contesting 
 socialism has made some writers use the conclusions 
 brought out by our English science for that object. 
 
The Postulates of Political Economy. 27 
 
 But the aim of that science is far more humble ; it 
 says these and these forces produce these and these 
 effects, and there it stops. It does not profess to give 
 a moral judgment on either; it leaves it for a higher 
 science, and one yet more difficult, to pronounce 
 what ought and what ought not to be. 
 
 The first thing to be done for English Political 
 Economy, as I hold, is to put its aim right. So 
 long as writers on it do not clearly see, and as 
 readers do not at all see, the limits of what they are 
 analysing, the result will not satisfy either. The 
 science will continue to seem what to many minds it 
 seems now, proved perhaps but proved in nuhihus ; 
 true, no doubt, somehow and somewhere, but that 
 somewhere a terra incognita, and that somehow an 
 unknown quantity. — As a help in this matter I pro- 
 pose to take the principal assumptions of Political 
 Economy one by one, and to show, not exhaustively, 
 for that would require a long work, but roughly, 
 where each is true and where it is not. We shall 
 then find that our Political Economy is not a 
 questionable thing of unlimited extent, but a most 
 certain and useful thing of limited extent. By 
 marking the frontier of our property we shall learn 
 its use, and we shall have a positive and reliable 
 basis for estimating its value. 
 
28 
 
 THE TRANSFERABILITY OF LABOUR. 
 
 The first assumption which I shall take is that 
 which is perhaps oftener made in our economic 
 reasonings than any other, namely, that labour 
 (masculine labour, I mean) and capital circulate 
 readily within the limits of a nation from employ- 
 ment to employment, leaving that in which the 
 remuneration is smaller and going to that in which 
 it is greater. No assumption can be better founded, 
 as respects such a country as England, in such an 
 economic state as our present one. A rise in the 
 profits of capital, in any trade, brings more capital 
 to it with us now-a-days — I do not say quickly, for 
 that would be too feeble a word, but almost instan- 
 taneously. If, owing to a high price of corn, the 
 corn trade on a sudden becomes more profitable than 
 usual, the bill-cases of bill-brokers and bankers are 
 in a few days stuffed with corn bills — that is to say, 
 the free capital of the country is by the lending 
 capitalists, the bankers and bill-brokers, transmitted 
 where it is most wanted. When the price of coal 
 and iron rose rapidly a few years since, so much 
 capital was found to open new mines and to erect 
 new furnaces that the profits of the coal and iron 
 trades have not yet recovered it. In this case the 
 
The Posiulates of Political Economy, 29 
 
 influence of capital attracted by high profits was not 
 only adequate, but much more than adequate : in- 
 stead of reducing these profits only to an average 
 level, it reduced them below that level ; and this 
 happens commonly, for the speculative enterprise 
 which brings in the new capital is a strong, eager, 
 and rushing force, and rarely stops exactly where 
 it should Here and now a craving for capital in 
 a trade is almost as sure to be followed by a 
 plethora of it as winter to be followed by summer. 
 Labour does not flow so quickly from pursuit to 
 pursuit, for man is not so easily moved as money 
 — but still it moves very quickly. Patent statis- 
 tical facts show what we may call "the tides" 
 of our people. Between the years shown by the 
 last census, the years 1861 and 1871, the popula- 
 tion of 
 
 The Northern counties increased 23 per cent. 
 Yorkshire ,, 19 ,, 
 
 North-western counties „ 14 „ 
 London „ 16 ,, 
 
 While that of 
 
 The South-western counties only increased 2 per cent. 
 Eastern „ » 7 " 
 
 North Midland ,, „ 9 „ 
 
 — though the fertility of marriages is equal. The 
 set of labour is steadily and rapidly from the 
 counties where there is only agriculture and little 
 to be made of new labour, towards those where 
 there are many employments and where much is 
 to be made of it. 
 
 No doubt there are, even at present in England, 
 
30 Economic Studies. 
 
 many limitations to this tendency, both of capital 
 and of labour, which are of various degrees of im- 
 portance, and which need to be considered for 
 various purposes. There is a "friction," but still 
 it is only a " friction " ; its resisting power is mostly 
 defeated, and at a first view need not be regarded. 
 But taking the world, present and past, as a whole, 
 the exact contrary is true ; in most ages and coun- 
 tries this tendency has been not victorious but 
 defeated ; in some cases it can scarcely be said even 
 to have existed, much less to have conquered. If 
 you take at random a country in history, the im- 
 mense chances are that you will find this tendency 
 either to be altogether absent, or not at all to prevail 
 as it does with us now. This primary assumption 
 of our Political Economy is not true everywhere 
 and always, but only in a few places and a few 
 times. 
 
 The truth of it depends on the existence of con- 
 ditions which, taken together, are rarely satisfied. 
 Let us take labour first, as it is the older and simpler 
 of the two. First, there must be "employments," 
 between which labour is to migrate ; and this is not 
 true at all of the primitive states of society. We 
 are used to a society which abounds in felt wants 
 that it can satisfy, and where there are settled com- 
 binations of men — trades as we call them — each 
 solely occupied in satisfying some one of them. But 
 in primitive times nothing at all like this exists. 
 The conscious wants of m.en are few, the means of 
 supplying them still fewer, and the whole society 
 homogeneous — one man living much as another. 
 
The Postulates of Political Economy. 31 
 
 Civilisation is a shifting mixture of many colours, 
 but barbarism was and is of a dull monotony, hardly 
 varying even in shade. 
 
 A picture or tw^o of savage tribes brings this home 
 to the mind better than abstract w^ords. Let us 
 hear Mr. Catlin's description of a favourite North 
 American tribe, with which he means us to be 
 much pleased: "The Mandans, like all other tribes, 
 live lives of idleness and leisure, and of course 
 devote a great deal of time to their amusements, of 
 which they have a great variety. Of these dancing 
 is one of the principal, and may be seen in a variety 
 of forms : such as the buffalo dance, the boasting 
 dance, the begging dance, the scalp dance, and a 
 dozen other dances, all of which have their peculiar 
 characters and meanings and objects." ^ 
 
 Then he describes the "starts and jumps" of 
 these dances, and goes on : " Buffaloes, it is well 
 known, are a sort of roaming creatures congregat- 
 ing occasionally in huge masses, and strolling away 
 about the country from east to west or from north 
 to south, or just where their whims or fancies may 
 lead them ; and the Mandans are sometimes by this 
 means most unceremoniously left without anything 
 to eat, and being a small tribe and unwilling to risk 
 their lives by going far from home in the face of 
 their more powerful enemies, are oftentimes left 
 almost in a state of starvation. In any emergency 
 of this kind every man musters and brings out of 
 his lodge his mask (the skin of a buffalo's head with 
 
 ^ North American huiuDis , Letter 18. 
 
32 Economic Studies. 
 
 the horns on), which he is obliged to keep in readi- 
 ness for the occasion ; and then commences the 
 buffalo dance of which I have spoken, which is held 
 for the purpose of making ' buffalo come,' as they 
 term it, — of inducing the buffalo herds to change 
 the direction of their wanderings, and bend their 
 course towards the Mandan village and graze about 
 on the beautiful hills and bluffs in its vicinity, where 
 the Mandans can shoot them down and cook them 
 as they want them for food. For the most part of 
 the year the young warriors and hunters by riding 
 out a mile or two from the village can kill meat in 
 abundance ; and sometimes large herds of these ani- 
 mals may be seen grazing in full view of the village. 
 There are other seasons also when the young men have 
 ranged about the country, as far as they are willing to 
 risk their lives on account of their enemies, without 
 finding meat. This sad intelligence is brought back 
 to the chiefs and doctors, who sit in solemn council 
 and consult on the most expedient measures to be 
 taken until they are sure to decide the old and only 
 expedient ' which has never failed '. This is the 
 buffalo dance, which is incessantly continued till 
 ' buffalo come,' and which the whole village by 
 relays of dancers keeps up in succession. And when 
 the buffaloes are seen, there is a brisk preparation 
 for the chase — a great hunt takes place. The 
 choicest pieces of the carcase are sacrificed to 
 the Great Spirit, and then a surfeit or a carouse. 
 These dances have sometimes been continued for 
 two or three weeks until the joyful moment when 
 buffaloes made their appearance. And so they 
 
The Postulates of Political Economy. 33 
 
 'never fail,' as the village thinks, to bring the buf- 
 faloes in." 
 
 Such is the mode of gaining the main source of 
 existence, without which the tribe would starve. 
 And as to the rest we are told : '' The principal 
 occupations of the women in this village consist in 
 procuring wood and water, in cooking, dressing 
 robes and other skins, in drying meat and wild fruits, 
 and raising maize ". ^ 
 
 In this attractive description there is hardly any 
 mention of male labour at all ; the men hunt, fight, 
 and amuse themselves, and the women do all the 
 rest. 
 
 And in the lowest form of savage life, in the stone 
 age, the social structure must have been still more 
 uniform, for there were still less means to break or 
 vary it. The number of things which can be made 
 with a flint implement is much greater than one would 
 have imagined, and savages made more things with 
 it than any one would make now. Time is nothing 
 in the savage state, and protracted labour, even with 
 the worst instrument, achieves much, especially when 
 there are no other means of achieving anything. 
 But there is no formal division of employments — 
 no cotton trade, no iron trade, no woollen trade. 
 There are beginnings of a division, of course, but, 
 as a rule, every one does what he can at every- 
 thing. 
 
 In much later times the same uniformity in the 
 structure of society still continues. We all know 
 
 1 Letter 17. 
 3 
 
34 Economic Studies. 
 
 from childhood how simple is the constitution of a 
 pastoral society. As we see it in the Pentateuch it 
 consists of one family, or a group of families, pos- 
 sessing flocks and herds, on which, and by which, 
 they live. They have no competing employments ; 
 no alternative pursuits. "What manufactures there 
 are, are domestic, are the work of women at all times, 
 and of men, of certain men, at spare times. No 
 circulation of labour is then conceivable, for there is 
 no circle; there is no group of trades round which 
 to go, for the whole of industry is one trade. 
 
 Many agricultural communities are exactly similar. 
 The pastoral communities have left the life of move- 
 ment, which is essential to a subsistence on the 
 flocks and herds, and have fixed themselves on the 
 soil. But they have hardly done more than change 
 one sort of uniformity for another. They have be- 
 come peasant proprietors— combining into a village, 
 and holding more or less their land in common, but 
 having no pursuit worth mentioning, except tillage. 
 The whole of their industrial energy — domestic clothes- 
 making and simiilar things excepted — is absorbed in 
 that. 
 
 No doubt in happy communities a division of 
 labour very soon and very naturally arises, and at 
 first sight we might expect that with it a circulation 
 of labour would begin too. But an examination of 
 primitive society does not confirm this idea ; on the 
 contrary, it shows that a main object of the social 
 organisation which then exists, is to impede or 
 prevent that circulation. And upon a little thought 
 the reason is evident. There is no paradox in the 
 
The Postulates of Political Economy. 35 
 
 notion ; early nations were not giving up an ad- 
 vantage which they might have had ; the good 
 which we enjoy from the circulation of labour was 
 unattainable by them ; all they could do was to 
 provide a substitute for it — a means of enjoying the 
 advantages of the division of labour without it, — and 
 this they did. We must carry back our minds to 
 the circumstances of primitive society before we 
 can comprehend the difficulty under which they 
 laboured, and see how entirely it differs from any 
 which we have to meet now. 
 
 A free circulation of labour from employment to 
 employment involves an incessant competition between 
 man and man, which causes constant quarrels, — some 
 of which, as we see in the daily transactions of trades 
 unions, easily run into violence ; and also a constant 
 series of new bargains, one differing from another, 
 some of which are sure to be broken, or said to be so, 
 which makes disputes of another kind. The peace 
 of society was exposed in early times to greater 
 danger from this source than now, because the 
 passions of men were then less under control than 
 now. " In the simple and violent times," as they 
 have been well called, "which we read of in our 
 Bibles," people struck one another, and people killed 
 one another, for very little matters as we should think 
 them. And the most efficient counteractive machin- 
 ery which now preserves that peace, then did not 
 exist. We have now in the midst of us a formed, 
 elaborate, strong government, which is incessantly 
 laying down the best rules which it can find to 
 prevent trouble under changing circumstances, and 
 
36 Economic Studies. 
 
 which constantly applies a sharp pervading force 
 running through society to prevent and punish 
 breaches of those rules. We are so familiar with 
 the idea of a government inherently possessing and 
 daily exercising both executive and legislative power, 
 that we scarcely comprehend the possibility of a 
 nation existing without them. But if we attend to 
 the vivid picture given in the Book of Judges of 
 an early stage in Hebrew society, we shall see 
 that there was then absolutely no legislative power, 
 and only a faint and intermittent executive power. 
 The idea of law making, the idea of making new 
 rules for new circumstances, would have been as 
 incomprehensible to Gideon or Abimelech as the 
 statutes at large to a child of three years old. 
 They and their contemporaries thought that there 
 was an unalterable law consecrated by religion and 
 confirmed by custom, which they had to obey, but 
 they could not have conceived an alteration of it 
 except as an act of wickedness — a worshipping 
 of Baal. And the actual coercive power available 
 for punishing breaches of it was alwa3^s slight, and 
 often broken. One "judge," or ruler, arises after 
 another, sometimes in one tribe and place, and 
 sometimes in another, and exercises some kind of 
 jurisdiction, but his power is always limited ; there 
 is no organisation for transmitting it, and often there 
 is no such person — no king in Israel whatever. 
 
 The names and the details of this book may or 
 may not be historical, but its spirit is certainly true. 
 The peace of society then reposed on a confused 
 sentiment, in which respect for law, as such — at 
 
The Postulates of Political Economy. 37 
 
 least law in our usual modern sense — was an incon- 
 siderable element, and of which the main components 
 were a coercive sense of ingrained usage, which kept 
 men from thinking what they had not before thought, 
 and from doing what they had not before done ; a 
 vague horror that something, they did not well know 
 what, might happen if they did so ; a close religion 
 which filled the air with deities who were known by 
 inherited tradition, and who hated uninherited ways; 
 and a submission to local opinion inevitable when 
 family and tribe were the main props of life, — when 
 there really was " no world without Verona's walls," ^ 
 — when every exile was an outcast, expelled from 
 what was then most natural, and scarcely finding 
 an alternative existence. 
 
 No doubt this sentiment was in all communities 
 partially reinforced by police. Even at the time 
 of the "Judges," there were no doubt 'Mocal au- 
 thorities," as we should now say, who forcibly main- 
 tained some sort of order, even when the central 
 power was weakest. But the main support of these 
 authorities was the established opinion ; they had no 
 military to call in, no exterior force to aid them ; if 
 the fixed sentiment of the community was not strong 
 enough to aid them, they collapsed and failed. But 
 that fixed sentiment would have been at once 
 weakened, if not destroyed, by a free circulation of 
 labour, which is a spring of progress that is favour- 
 able to new ideas, that brings in new inventions, that 
 prevents the son being where his father was, that 
 
 Romeo and Juliet," iii., 3. 
 
38 Economic Studies. 
 
 interrupts the traditions of generations and breaks 
 inherited feeHng. Besides causing new sorts of 
 quarrels by creating new circumstances and new 
 occasions, this change of men from employment to 
 employment decomposes the moral authority which 
 alone in this state of society can prevent quarrels 
 or settle them. Accordingly, the most successful 
 early societies have forbidden this ready change 
 as much as possible, and have endeavoured, as 
 far as they could, to obtain the advantages of 
 the division of labour without it. Sir Henry Maine, 
 to whom this subject so peculiarly belongs, and 
 who has taught us so much more on it than 
 any one else, shall describe the industrial ex- 
 pedients of primitive society as he has seen them 
 still surviving in India. ''There is," he says, "yet 
 another feature of the modern Indian cultivating 
 group which connects them with primitive Western 
 communities of the same kind. I have several times 
 spoken of them as organised and self-acting. They, 
 in fact, include a nearly complete establishment of 
 occupations and trades for enabling them to continue 
 their collective life without assistance from any 
 person or body external to them. Besides the 
 headmen or council, exercising quasi-judicial, quasi- 
 legislative power, they contain a village police, now 
 recognised and paid in certain provinces by the 
 British Government. They include several families 
 of hereditary traders ; the blacksmith, the harness- 
 maker, the shoemaker. The Brahman is also found 
 for the performance of ceremonies, and even the 
 dancing-girl for attendance at festivities. There is 
 
The Postulates of Political Economy. 39 
 
 invariably a village accountant, an important person 
 among an unlettered population, so important, in- 
 deed, and so conspicuous, that, according to reports 
 current in India, the earliest English functionaries 
 engaged in settlements of land were occasionally led, 
 by their assumption that there must be a single 
 proprietor somewhere, to mistake the accountant for 
 the owner of the village, and to record him as such 
 in the official register. But the person practising 
 any one of these hereditary employments is really a 
 servant of the community as well as one of its com- 
 ponent members. He is sometimes paid by an 
 allowance in grain, more generally by the allotment 
 to his family of a piece of land in hereditary posses- 
 sion. Whatever else he may demand for the wares 
 he produces is limited by a fixed price very rarely 
 departed from." ^ 
 
 To no world could the free circulation of labour, 
 as we have it in England, and as we assume it in 
 our Political Economy, be more alien, and in none 
 would it have been more incomprehensible. In this 
 case, as in many others, what seems in later times 
 the most natural organisation is really one most 
 difficult to create, and it does not arise till after 
 many organisations which seem to our notions more 
 complex have preceded it and perished. The village 
 association of India, as Sir Henry Maine describes it, 
 seems a much more elaborate structure, a much more 
 involved piece of workmanship, than a common 
 English village where every one chooses his own 
 
 * Village Communities, Lecture iv. 
 
40 Economic Studies. 
 
 calling, and where there are no special rules for each 
 person, and where a single law rules all. But in 
 fact our organisation is the more artificial because it 
 presupposes the pervading intervention of an effectual 
 Government — the last triumph of civilisation, and 
 one to which early times had nothing comparable. 
 In expecting what we call simple things from early 
 ages, we are in fact expecting them to draw a circle 
 without compasses, to produce the results of civilisa- 
 tion when they have not attained civilisation. 
 
 One instance of this want of simplicity in early 
 institutions, which has, almost more than any other, 
 impaired the free transit of labour, is the complexity 
 of the early forms of landholding. In a future page 
 I hope to say something of the general effects of 
 this complexity, and to compare it with the assump- 
 tions as to ownership in land made by Ricardo and 
 others. I am here only concerned with it as affect- 
 ing the movement of men, but in this respect its 
 effect has been incalculable. As is now generally 
 known, the earliest form of landowning was not in- 
 dividual holding, but tribal owning. In the old 
 contracts of Englishmen with savages nothing was 
 commoner than for the king or chief to sell tracts 
 of land, — and the buyers could not comprehend that 
 according to native notions he had no right to do 
 so, that he could not make a title to it, and that 
 according to those notions there was no one who 
 could. Englishmen in all land dealings looked for 
 some single owner, or at any rate some small 
 number of owners, who had an exceptional right 
 over particular pieces of land ; they could not 
 
The Postulates of Political Economy. 41 
 
 conceive the supposed ownership of a tribe, as in 
 New Zealand, or of a village in India, over large 
 tracts. Yet this joint stock principle is that which 
 has been by far the commonest in the world, and 
 that which the world began with. And not with- 
 out good reason. In the early ages of society it 
 would have been impossible to maintain the ex- 
 clusive ownership of a few persons in what seems at 
 first sight an equal gift to all — a thing to which 
 every one has the same claim. There was then no 
 distinct government apart from and above the tribe 
 any more than among New Zealanders nov/. There 
 was no compulsory agency which could create or 
 preserve exclusive ownership of the land, even if 
 it wished. And of course it could not have been 
 wished, for though experience has now conclusively 
 shown that such exclusive ownership is desirable 
 for and beneficial to the nation as a whole, as 
 well as to the individual owner, no theorist would 
 have been bold enough to predict this beforehand. 
 This monopoly is almost a paradox after experi- 
 ence, and it would have seemed monstrous folly 
 before it. Indeed, the idea of a discussion of it is 
 attributing to people in the year 1000 B.C. the 
 notions of people in the year 1800 a.d. Common 
 ownership was then irremediable and inevitable ; no 
 alternative for it was possible, or would then have 
 been conceivable. But it is in its essence opposed 
 to the ready circulation of labour. Few things fix a 
 man so much as a share in a property which is fixed 
 by nature ; and common ownership, wherever it pre- 
 vails, gives the mass of men such a share. 
 
42 Economic Studies. 
 
 And there is another force of tlie same tendency 
 which does not act so widely, but which when it 
 does act is even stronger — in many cases is omni- 
 potent. This is the disposition of many societies 
 to crystalHse themselves into specialised groups, which 
 are definite units, each with a character of its own, and 
 are more or less strictly hereditary. Sir Henry Maine 
 has described to us how in an Indian village the black- 
 smith is hereditary, and the harness-maker, and the 
 shoemaker, — and this is natural, for every trade has its 
 secrets, which make a kind of craft or " mystery " of it, 
 and which must be learnt by transmission or not at all. 
 The first and most efficient kind of apprenticeship is 
 that by birth; the father teaches his son that by which 
 he makes his living, almost without knowing it ; the 
 son picks up the skill which is in the air of the house, 
 almost without feeling that he is doing so. Even now 
 we see that there are city families, and university and 
 legal families, — families where a special kind of 
 taste and knowledge are passed on in each genera- 
 tion by tradition, and which in each have in that 
 respect an advantage over others. In most ages 
 most kinds of skilled labour have shown a disposi- 
 tion to intensify this advantage by combination — 
 to form a bounded and exclusive society, guild, 
 trades union, or whatever it may be called, which 
 keeps or tries to keep in each case to itself the 
 rich secret of the inherited art. And even when no 
 pains are taken, each special occupation, after it gains 
 a certain size, tends to form itself into a separate 
 group. Each occupation has certain peculiar char- 
 acteristics which help to success in it, and which. 
 
The Postulates of Political Economy. 43 
 
 therefore, it fosters and develops; and in a subtle 
 way these traits collect together and form a group- 
 character analogous to a national character. The 
 process of caste-making is often thought to be an 
 old-world thing which came to an end when certain 
 old castes were made and fixed before the dawn of 
 history. But in fact the process has been actively 
 at work in recent times, and has hardly yet died out. 
 Thus in Cashmere, where the division of castes is 
 already minute, Mr. Drew tells us that of the Batals 
 — a class at the very bottom of the scale, " whose 
 trade it is to remove and skin carcasses, and to cure 
 leather," — he has heard ''that there are two classes; 
 so apt are communities in India to divide and to sub- 
 divide, to perpetuate differences, and to separate 
 rather than amalgamate. The higher Batals follow 
 the Mohammedan rules as to eating, and are allowed 
 some fellowship with the other Mohammedans. 
 The lower Batals eat carrion, and would not bear 
 the name of Mohammedans in the mouths of others, 
 though they might call themselves so." ^ Just so. 
 Sir W. Hunter says that ''the Brahmans of Lower 
 Bengal bore to the Brahmans of Oudh the same 
 relation that the landed gentry of Canada or 
 Australia bears to the landed gentry of England. 
 Each is an aristocracy, both claim the title of 
 Esquire, but each is composed of elements whose 
 social history is widely different, and the home 
 aristocracy never regards the successful settlers as 
 equal in rank. The Brahmans of the midland land 
 
 Jummoo and Kashmir Territories, chap, viii., by Frederick 
 Drew. 
 
44 Economic Studies. 
 
 went further ; they declared the Brahmans of Lower 
 Bengal inferior not only in the social scale, but in 
 religious capabilities. To this day many of the 
 north country Brahmans do not eat with the Brah- 
 mans of the lower valley, and convicted felons 
 from the north-west will suffer repeated floggings 
 in jail, for contumacy, rather than let rice cooked 
 by a Bengal Brahman pass their lips." ^ Caste- 
 making is not a rare act, but a constantly occurring 
 act, when circumstances aid it, and when the human 
 mind is predisposed to it. 
 
 One great aid to this process is the mutual ani- 
 mosity of the different groups. " What one nation 
 hates," said Napoleon, ''is another nation; " just so, 
 what one caste hates is another caste : the marked 
 characteristics of each form — by their difference — a 
 certain natural basis for mutual dislike. There is an 
 intense disposition in the human mind — as you may 
 see in any set of schoolboys — to hate what is unusual 
 and strange in other people, and each caste supplies 
 those adjoining it with a conspicuous supply of what 
 is unusual. And this hatred again makes each caste 
 more and more unlike the other, for every one wishes 
 as much as possible to distinguish himself from the 
 neighbouring hated castes by excelling in the peculi- 
 arities of his own caste, and by avoiding theirs. 
 
 In the ancient parts of the world these contrasts 
 of group to group are more or less connected for the 
 most part with contrasts of race. Very often the 
 origin of the caste — the mental tendency which made 
 
 ^ Annals of Rural Bengal, by Sir W. W. Hunter, chap. lii. 
 
The Postulates of Political Economy. 45 
 
 its first members take to its special occupation — was 
 some inborn peculiarity of race ; and at other times, 
 as successive waves of conquest passed over the 
 country, each race of conquerors connected them- 
 selves most with, and at last were absorbed in, the 
 pre-existing kind of persons which they most re- 
 sembled, and frequently in so doing hardened into an 
 absolute caste what was before a half-joined and 
 incipient group. 
 
 Each conquest, too, tends to make a set of out- 
 casts — generally from the worst part of the previous 
 population — and these become " hewers of wood and 
 drawers of water" to the conquerors — that is, they 
 are an outlying and degraded race, which is not ad- 
 mitted to compete or mix with the others, and which 
 becomes more degraded from feeling that it is thus in- 
 ferior, and from being confined to the harder, baser, 
 and less teaching occupations. And upon these un- 
 happy groups the contempt and hatred of the higher 
 ones tend to concentrate themselves, and, like most 
 strong sentiments in the early world, thesefeelings find 
 for themselves a religious sanction. To many villages 
 in India, Sir Henry Maine says, there are attached 
 a class of '' outsiders" who never enter the village, 
 or only enter reserved portions of it, who are looked 
 on as "essentially impure," ''whose very touch is 
 avoided as contaminating". These poor people are 
 more or less thought to be " accursed " ; to have some 
 taint which shows that the gods hate them, and which 
 justifies men in hating them too, and in refusing to 
 mix with them. 
 
 The result of these causes is, that many ancient 
 
46 Economic Studies. 
 
 societies are complex pieces of patchwork — bits of 
 contrasted human nature, put side by side. They 
 have a variegated complexity, which modern civilised 
 States mostly want. And there must clearly have 
 been an advantage in this organisation of labour — 
 to speak of it in modern phrase — though it seems to 
 us now so strange, or it would not have sprung up 
 independently in many places and many ages, and 
 have endured in many for long tracts of years. This 
 advantage, as we have seen, was the gain of the 
 division of labour without the competition which 
 with us accompanies it, but which the structure of 
 society was not then hard enough to bear. 
 
 No doubt we must not push too far this notion of 
 the rigidity of caste. The system was too rigid to 
 work without some safety-valves, and in every age 
 and place where that system prevails, some have 
 been provided. Thus in India we are told " a 
 Brahman unable to subsist by his duties may live by 
 the duty of a soldier ; if he cannot get a subsistence 
 by either of these employments, he may apply to 
 tillage and attendance on cattle, or gain a competence 
 by traffic, avoiding certain commodities. A Kshatriya 
 in distress may subsist by all these means, but he 
 must not have recourse to the highest functions. A 
 Vaisya unable to subsist by his own duties may de- 
 scend to the servile acts of a S'udra ; and a S'udra, 
 not finding employment by waiting on men of the 
 higher classes, may subsist by handicrafts ; besides 
 the particular occupations assigned to the mixed 
 classes, they have the alternative of following that 
 profession which regularly belongs to the class from 
 
The Postulates of Political Economy. 47 
 
 which they derive their origin on the mother's side; " ^ 
 and so on, without end. 
 
 And probably it is through these supplementary 
 provisions, as I may call them, that the system of 
 caste ultimately breaks down and disappears. It 
 certainly disappeared in ancient Egypt when the 
 compact Roman Government was strong enough to 
 do without it, and when a change of religion had 
 removed the sanctions which fixed and consecrated 
 it. The process is most slow, as our experience in 
 India proves. The saying that *'La providence a 
 ses aises dans le temps " has rarely elsewhere seemed 
 so true. Still, the course is sure, and the caste 
 system will in the end pass away, whenever an 
 efficient substitute has been made for it, and the peace 
 of industry secured without it. 
 
 But it would be a great mistake to believe that, 
 whenever and wherever there is an efficient external 
 government capable of enforcing the law, and of 
 making the competitive migration of labour safe and 
 possible, such migration of itself at once begins. 
 There is, in most cases, a long and dreary economic 
 interval to be passed first. In many countries, the 
 beginning of such migration is for ages retarded by 
 the want of another requisite — the want of external 
 security. We have come in modern Europe to look 
 on nations as if they were things indestructible — at 
 least, on large nations. But this is a new idea, and 
 even now it has to be taken with many qualifications. 
 In many periods of history it has not been true at 
 
 ^ Colebrooke's Essays, vol. ii., No. vi., " Indian Classes". 
 
48 Economic Studies. 
 
 all ; the world was in such confusion, that it was 
 almost an even chance whether nations should 
 continue, or whether they should be conquered and 
 destroyed. In such times the whole energy of the 
 community must be concentrated on its own defence ; 
 all that interferes with it must be sacrificed, if it is 
 to live. And the most efficient mode of defending 
 it is generally a feudal system ; that is, a local 
 militia based on the land, where each occupier of 
 the soil has certain services to render, of which 
 he cannot divest himself, and which he must stay 
 on certain definite fields to perform when wanted. 
 In consequence the races of men which were pos- 
 sessed of an organisation easily adapting itself to 
 the creation of such a militia, have had a striking 
 tendency to prevail in the struggle of history. 
 "The feudal S3^stem," says Sir George Campbell, 
 on many accounts one of our most competent 
 judges, "'' I believe to be no invention of the Middle 
 Ages, but the almost necessary result of the hereditar}' 
 character of the Indo-Germanic institutions, when 
 the tribes take the position of dominant conquerors. 
 They form, in fact, an hereditary army, with that 
 gradation of fealty from the commander to the 
 private soldier which is essential in military opera- 
 tions. Accordingly, we find that among all the 
 tribes of Indo-Germanic blood which have conquered 
 and ruled Indian provinces, the tendency is to 
 establish a feudal system extremely similar to that 
 which prevailed in Europe. In Rajpootana the 
 system is still in full force. The Mahrattas and 
 Sikhs had both established a similar system. In 
 
The PosUdates of Political Economy. 49 
 
 my early days it existed in great perfection in some 
 parts of the Cis-Sutlej States." ^ And where the 
 system is most developed, at the lowest point of the 
 scale there is always an immovable class — serfs, 
 villeins regardants, or what we choose to call them — 
 who do not fight themselves, who perhaps are too 
 abject in spirit, or perhaps are of too dubious fidelity 
 to be let have arms, but who cultivate the ground 
 for those who really fight. The soldier class, rooted 
 to the land by martial tenure, has beneath it a non- 
 soldier class even more rooted to the soil by the 
 tenure of tilling it. I need not say how completely 
 such a system of military defence, and such a 
 system of cultivation, are opposed to the free transit 
 of labour from employment to employment. Where 
 these systems are perfectly developed, this transit is 
 not so much impeded as prevented. 
 
 And there is a yet more pervading enemy of the 
 free circulation of labour. This is slavery. We 
 must remember that our modern notion that slavery 
 is an exceptional institution, is itself an exceptional 
 idea ; it is the product of recent times and recent 
 philosophies. No ancient philosopher, no primitive 
 community, would have comprehended what we 
 meant by it. That human beings are divided into 
 strong and weak, higher and lower, or what is thought 
 to be such ; and that the weak and inferior ought to 
 be made to serve the higher and better, whether 
 they would wish to do so or not, are settled axioms 
 ol early thought. Whatever might be the origin 
 
 ^''Tenure of Land in India,"'" chap. iii. of Systems 0/ Land 
 Tenure in Various Countries (Cobden Club Essays). 
 
 4 
 
50 Economic Studies. 
 
 and whatever mii^ht be the fate of other institutions, 
 the ancient world did not doubt that slavery at all 
 events existed ''by the law of nature," and would 
 last as long as men. And it interferes with the 
 ready passage of labour from employment to employ- 
 ment in two ways. First, it prevents what we call 
 for this purpose "employments" — that is, markets 
 where labour may be bought, mostly in order that the 
 produce may be sold. Slavery, on the contrary, 
 strengthens and extends domestic manufactures 
 where the produce is never sold at all, where it is 
 never intended to be so, but where each household 
 by its own hands makes what it wants. In a slave- 
 community so framed, not only is there little quick 
 migration of free labour, but there are few fit places 
 for it to migrate between ; there are no centres for 
 the purchase of much of it ; society tends to be 
 divided into self-sufficing groups, buying little from 
 the exterior. And at a later stage of industrial 
 progress slavery arrests the movement of free labour 
 still more effectively by providing a substitute. It is, 
 then, the slave labour which changes occupation, 
 and not the free labour. Just as in the present day 
 a capitalist who wants to execute any sort of work 
 hires voluntary labour to do it, so in a former stage 
 of progress he would buy slaves in order to do it. 
 He might not, indeed, be able to buy enough slaves — 
 enough suitable slaves, that is for his purpose. The 
 organisation of slavery has never been as effectual as 
 our present classified system of free labour, and from 
 intrinsic defects never can be. But it does develop 
 earlier. Just when the system of free labour might 
 
The Postulates of Political Economy. 51 
 
 develop if it were let alone, the imperfect substitute 
 of slavery steps in and spoils it. When free labour 
 still moves slowly and irregularly, and when frequent 
 wars supply the slave-market with many prisoners, 
 the slave-market is much the easiest resource of the 
 capitalist. So it is when a good slave-trade keeps 
 it well filled. The capitalist finds it better to buy 
 than to hire, for there are in this condition of things 
 comparatively many men to be bought and compara- 
 tively few to be hired. And the result takes unexpected 
 directions. " What the printing-press is in modern 
 times," says a German writer, "that slavery was in 
 ancient times." And though this may be a little 
 exaggerated, it is certain that in ancient Rome books 
 were produced much cheaper and in much greater 
 number than they were for hundreds of years after- 
 wards. When there was a demand for a book, 
 extra copying-slaves could be " turned on " to 
 multiply it in a way which in later times, when 
 slavery had ceased, was impossible, and which is 
 only surpassed by the way in which additional 
 compositors are applied to works in demand now. 
 And political philosophers proposed to obtain re- 
 venue from this source, and to save taxation. 
 "Suppose," says Xenophon, "that the Athenian 
 State should buy twelve hundred slaves, and should 
 let them out to work in the mines at an obolus a 
 head, and suppose that the whole amount annually 
 thus received should be employed in the purchase 
 of new slaves, who should again in the same way 
 yield the same income, and so on successively ; the 
 State would then by these means in five or six 
 
52 Economic Studies. 
 
 years possess six thousand slaves," which would 
 yield a large income. The idea of a compound 
 interest investment in men, though abhorrent to us, 
 seemed most natural to Xenophon. And almost 
 every page of the classics proves how completely 
 the civilisation then existing was based on slavery 
 in one or other of its forms — that of skilled labour 
 (the father of Demosthenes owned thirty-three 
 cutlers and twenty coachmakers) or unskilled, that 
 might either be worked by the proprietor or let out, 
 as he liked. Even if this system had only economic 
 consequences, it must have prevented the beginning 
 of freely moving labour, for it is much handier than 
 such a system can be at its outset. And as we 
 know, the system has moral effects working in the 
 same way even more powerful, for it degrades 
 labour by making it the slave-mark, and makes the 
 free labourer — whether the proletaire of ancient 
 cities, or the '* mean white" of American planta- 
 tions — one 'of the least respectable and the least 
 workmanlike of mankind. 
 
 Happily this full-grown form of slavery is exceed- 
 ingly frail. We have ourselves seen in America 
 how completely it collapses at an extrinsic attack ; 
 how easy it is to destroy it, how impossible to revive 
 it. And much of the weakness of ancient civilisa- 
 tion was also so caused. Any system which makes 
 the mass of a society hate the constitution of that 
 society, must be in unstable equilibrium. A small 
 touch will overthrow it, and scarcely any human 
 power will re-establish it. And this is the necessary 
 effect of capitalistic slavery, for it prevents all other 
 
The Postulates of Political Economy, 53 
 
 labourers, makes slaves the " many " of the com- 
 munity, and fills their mind with grief and hatred. 
 Capitalistic slavery is, as history shows, one of the 
 easiest things to efface, as domestic slavery is one of 
 the hardest. But capitalistic slavery has vitally 
 influenced most of the greatest civilisations ; and 
 as domestic slavery has influenced nearly all of 
 them, the entire effect of the two has been pro- 
 digious. 
 
 We see then that there are at least four conditions 
 to be satisfied before this axiom of our English 
 Political Economy is true within a nation. Before 
 labour can move easily and as it pleases from em- 
 ployment to employment there must be such em- 
 ployments for it to move between ; — there must be 
 an effectual government capable of maintaining 
 peace and order during the transition and not re- 
 quiring itself to be supported by fixity of station in 
 society as so many governments have been ; — the 
 nation must be capable of maintaining its inde- 
 pendent existence against other nations without a 
 military system dependent on localised and immovable 
 persons ; and there must be no competing system 
 of involuntary labour limiting the number of employ- 
 ments or moving between them more perfectly than 
 contemporary free labour. These are not indeed 
 all the conditions needful for the truth of the axiom, 
 but the others can be explained better when some 
 other matters have been first discussed. 
 
54 
 
 II. 
 
 THE TRANSFERABILITY OF CAPITAL. 
 
 In my last paper I discussed the fundamental 
 principle of English Political Economy, that within 
 the limits of a nation labour migrates from employ- 
 ment to employment, as increased remuneration 
 attracts or decreased remuneration repels it ; and 
 now I have to treat the corresponding principle as to 
 capital, that it flows or tends to flow to trades of 
 which the profits are high, that it leaves or tends to 
 leave those in which the profits are low, and that in 
 consequence there is a tendency — a tendency limited 
 and contracted, but still a tendency — to an equality 
 of profits through commerce. 
 
 First, this requires such a development of the 
 division of labour as to create what we call " trade," 
 that is to say, a set of persons working for the wants 
 of others, and providing for their own wants by the 
 return-commodities received from those others. But 
 this development has only been gradually acquired 
 by the human race. Captain Cook found some 
 Australian tribes to whom the idea of traffic seemed 
 unknown. They received what was given them 
 readily, but they received it as a present only ; they 
 seemed to have no notion of giving anything in lieu 
 of it. The idea of barter — an idea usually so familiar 
 
The Postulates of Political Economy. 55 
 
 to the lower races of men — appeared never to have 
 dawned on these very low ones. But among races 
 in such a condition there is no change of trades as 
 capital becomes more and more profitable in any 
 one. The very conception comes long after. Every 
 one works for himself at everything ; and he always 
 works most at what he likes most for the time ; as 
 he changes his desires, so far as he can he changes 
 his labour. Whenever he works he uses the few 
 tools he has, the stone implements, the charred wood, 
 the thongs of hide, and other such things, in the best 
 way he can ; a hundred savages are doing so at once, 
 some in one way, some in another, and these are 
 no doubt " shiftings of capital". But there is no 
 computation of profit, as we now reckon profit, on 
 such shiftings. Profit, as we calculate, means that 
 which is over after the capital is replaced. But a 
 savage incapable of traffic does not make this 
 calculation as to his flints and his hides. The idea 
 could not even be explained to him. 
 
 Secondly, this comparison requires a medium in 
 which the profits can be calculated, that is, a money. 
 Supposing that in the flax trade profits are 5 per 
 cent., and that side by side in the cotton trade they 
 are 15 per cent., capital will now-a-days immediately 
 run from one to the other. And it does so because 
 those who are making much, try to get more capital, 
 and those who are making little — still more those 
 who are losing — do not care to keep as much as they 
 have. But if there is no money to compute in, 
 neither will know what they are making, and there- 
 fore the process of migration wants iti> motive, and 
 
56 Economic Studies. 
 
 will not begin. The first sign of extra profit in a 
 trade — not a conclusive, but a strongly presumptive 
 one — is an extra high price in the article that trade 
 makes or sells ; but this test fails altogether when 
 there is no '' money " to sell in. And the debit side 
 of the account, the cost of production, is as difficult 
 to calculate when there is no common measure 
 between its items, or between the product, and any 
 of them. Political Economists have indeed an idea 
 of " exchangeable value" — that is, of the number of 
 things which each article will exchange for — and 
 they sometimes suppose a state of barter in which 
 people had this notion, and in which they cal- 
 culated the profit of a trade by deducting the 
 exchangeable value of the labour and commodi- 
 ties used in its production from the value of the 
 finished work. But such a state of society never 
 existed in reality. No nation, which was not clever 
 enough to invent a money, was ever able to conceive 
 so thin and hard an idea as " exchangeable value ". 
 Even now Mr. Fawcett justly says that it puzzles 
 many people, and sends them away frightened from 
 books on Political Economy. In fact it is an ideal 
 which those used to money-prices have framed to 
 themselves. They see that the price of anything, 
 the money it fetches, is equal to its '' purchasing 
 power " over things, and by steadily attending they 
 come to be able to think of this " purchasing power " 
 separately, and to call and reason upon it as ex- 
 changeable value. But the idea is very treacherous 
 even to skilled minds, and even now-a-days not the 
 tenth part of any population could ever take it in. 
 
The Postulates of Political Economy. 57 
 
 As for the nations really in a state of barter ever 
 comprehending it, no one can imagine it, for they 
 are mostly unequal to easy arithmetic, and some 
 cannot count five. A most acute traveller thus 
 describes the actual process of bargaining among 
 savage nations as he saw it. " In practice," Mr. 
 Galton tells us of the Damaras, *' whatever they 
 may possess in their language, they certainly use no 
 numeral greater than three. When they wish to 
 express four they take to their fingers, which are 
 to them as formidable instruments of calculation as 
 a sliding-rule is to an English schoolboy. They 
 puzzle very much after five, because no spare hand 
 remains to grasp and secure the fingers that are 
 required for ' units '. Yet they seldom lose oxen : 
 the way in which they discover the loss of one is not 
 by the number of the herd being diminished, but by 
 the absence of a face which they know. When 
 bartering is going on each sheep must be paid for 
 separately. Thus suppose two sticks of tobacco to 
 be the rate of exchange for one sheep, it would sorely 
 puzzle a Damara to take two sheep and give him 
 four sticks. I have done so, and seen a man first 
 put two of the sticks apart, and take a sight over 
 them at one of the sheep he was about to sell. 
 Having satisfied himself that that one was honestly 
 paid for, and finding to his surprise that exactly two 
 sticks remained in hand to settle the account for the 
 other sheep, he would be afflicted with doubts ; the 
 transaction seemed too pat to be correct, and he 
 would refer back to the first couple of sticks, and 
 then his mind got hazy and confused, and wandered 
 
58 Economic Studies. 
 
 from one sheep to the other, and he bioke off the 
 transaction until two sticks were put into his hand 
 and one sheep driven away, and then the other two 
 sticks given him, and the second sheep driven away."^ 
 Such a dehneation of primitive business speaks for 
 itself, and it is waste of space showing further that 
 an abstraction like "value in exchange" is utterly 
 beyond the reach of the real bartering peoples — that 
 a habit of using money, and of computing in it, are 
 necessary preliminaries to comparisons of profits. 
 
 Unquestionably the most primitive community can 
 see if a pursuit utterly fails, or if it immensely 
 succeeds. The earliest men must have been eager 
 in making flint tools, for there are so many of them, 
 and no doubt they did not try to breed cattle where 
 they died. But there was in those days no adjusted 
 comparison between one thing and another ; all 
 pursuits which anyhow suited went on then as they 
 do among savages now. 
 
 Money, too, is in this matter essential, or all but 
 essential, in another way. It is a form in which 
 capital is held in suspense without loss. The transfer 
 of capital from employment to employment is a 
 matter requiring consideration, consideration takes 
 time, and the capital must be somewhere during 
 that time. But most articles are bought at a risk ; 
 they lose in the process, and become second-hand ; 
 an ordinary person cannot get rid of them without 
 receiving for them less — often much less — than he 
 gave. But money is never "second-hand" ; it will 
 
 ^ *' Travels in Tropical South Africa, by Francis Gallon, 
 chap, v., p. 113. 
 
The Postulates of Political Economy. 59 
 
 always fetch itself, and it loses nothing by keeping. 
 No doubt modern civilisation has invented some 
 other forms of property which are almost as good to 
 hold as money. Some interest-bearing securities, 
 like Exchequer bills, are so, and pay an interest 
 besides. But these are the creatures of money, so 
 to say, and based upon it ; they presuppose it, and 
 would not be possible without it. A community of 
 pure barter, even if it could reckon and compare 
 profits, would not be able to move capital accurately 
 from one trade to another, for it possesses no com- 
 modity which could, without risk of loss that could 
 not be calculated, be held idle during the com- 
 putation. 
 
 The refined means by which the movement is 
 now effected is one of the nicest marvels of our 
 commercial civilisation. The three principal of 
 them are as follows: — 
 
 First, — There is the whole of the loan fund of the 
 country lying in the hands of bankers and bill- 
 brokers, which moves in an instant towards a trade 
 that is unusually profitable, if only that trade can 
 produce securities which come within banking rules. 
 Supposing the corn trade to become particularly 
 good, there are immediately twice the usual number 
 of corn bills in the bill-brokers' cases ; and if the 
 iron trade, then of iron bills. You could almost see 
 the change of capital, if you could look into the bill 
 cases at different times. But what you could not 
 see is the mental skill and knowledge which have 
 made that transfer, and without which it could not 
 have been made safely. Probablv it would be new 
 
6o Economic Studies. 
 
 to many people if stated plainly ; but a very great 
 many of the strongest heads in England spend their 
 minds on little else than on thinking whether other 
 people will pay their debts. The life of Lombard 
 Street bill-brokers is almost exclusively so spent. 
 Mr. Chapman, one of the partners in Overend, 
 Gurney and Co., once rather amused a parliament- 
 ary committee by speaking with unction and en- 
 thusiasm of " paper of the very finest quality," by 
 which he meant paper on which the best promises 
 were written. Bills of exchange are only undertak- 
 ings to pay money, and the most likely to be paid 
 are, in the market phrase, of the " finest quality," 
 and the less likely of inferior quality. The mind of 
 a man like Mr. Chapman, if it could be looked into, 
 would be found to be a graduating machine marking 
 in an instant the rises and falls of pecuniary likeli- 
 hood. Each banker in his own neighbourhood is 
 the same ; he is a kind of " solvency-meter," and 
 lives by estimating rightly the " responsibility of 
 parties," as he would call it. And the only reason 
 why the London bill-broker has to do it on a greater 
 scale is that, being in the great centre, he receives 
 the surplus savings not of one district but of many, 
 which find no means of employment there. He is 
 thus become the greatest and most just measurer of 
 moneyed means and moneyed probity which the 
 world has ever seen ; to reduce it to its lowest 
 terms, he knows that more people will pay more 
 debts than any one who now is, or ever before was, 
 in the world. And the combined aggregate of these 
 persons is a prepared machine ready to carry capital 
 
The Postulates of Political Economy. 6i 
 
 in any direction. The moment any set of traders 
 want capital, the best of them, those whose promises 
 are well known to be good, get it in a minute, be- 
 cause it is lying ready in the hands of those who 
 know, and who live by knowing, that they are fit to 
 have it. 
 
 Secondly, — In modern England, there is a great 
 speculative fund which is always ready to go into 
 anything which promises high profits. The largest 
 part of this is composed of the savings of men of 
 business. When, as in 1871, the profits of many 
 trades suddenly become much greater than usual, 
 the Stock Exchange instantly becomes animated ; 
 there is at once a market for all kinds of securities, 
 so long as they promise much, either by great in- 
 terest or by rise of prices. Men of business who are 
 used to a high percentage of profit in their own trade 
 despise 3 or 4 per cent., and think that they ought 
 to have much more. In consequence there is no 
 money so often lost as theirs ; there is an idea that 
 it is the country clergyman and the ignorant widow 
 who mostly lose by bad loans and bad companies. 
 And no doubt they often do lose. But I believe that 
 it is oftener still men of business, of slight education 
 and of active temperament, who have made money 
 rapidly, and who fancy that the skill and know- 
 ledge of a special trade which have enabled them 
 to do so, will also enable them to judge of risks, 
 and measure contingencies out of that trade ; where- 
 as, in fact, there are no persons more incompetent, 
 for they think they know everything, when they 
 really know almost nothing out of their little busi- 
 
62 Economic Studies. 
 
 ness, and by habit and nature they are eager to be 
 doing. So much of their money as comes to London 
 is in greater jeopardy almost than any other money. 
 But there is a great deal which never comes there, 
 and which those who make it are able to put out 
 in pushing their own trade and in extending allied 
 trades. The very defects which make the trader 
 so bad a judge of other things make him an excellent 
 judge of these, and he is ready and daring, and 
 most quick to make use of what he knows. Each 
 trade in modern commerce is surrounded by sub- 
 sidiary and kindred trades, which familiarise the 
 imagination with it, and make its state known ; as 
 soon, therefore, as the conspicuous dealers in that 
 trade are known to be doing particularly well, the 
 people in the surrounding trades say, "Why should 
 not we do as well too ? " and they embark their 
 capital in it — sometimes, of course, wrongly, but 
 upon the whole wisely and beneficially. In an ani- 
 mated business world like ours, these inroads into 
 the trades with largest gains by the nearest parts 
 of the speculative fund are incessant, and are a 
 main means of equalising profits. 
 
 Lastly, — There is the obvious tendency of young 
 men starting in business to go into the best-paying 
 business, or what is thought to be so at that time. 
 This, in the best cases, also acts mainly on the 
 allied and analogous trades. Little good, for the 
 most part, comes of persons who have been brought 
 up on one side of the business world going quite to 
 the other side — of farmers' sons going to cotton- 
 spinning, or of lacemakers' sons going into shipping. 
 
The Postidates of Political Economy. 63 
 
 Each sort of trade has a tradition of its own, which 
 is never written, probably could not be written, 
 which can only be learned in fragments, and which 
 is best taken in early life, before the mind is shaped 
 and the ideas fixed. From all surrounding trades 
 there is an incessant movement of young men with 
 new money into very profitable trades, which steadily 
 tends to reduce that profitableness to the common 
 average. 
 
 I am more careful than might seem necessary to 
 describe the entire process of equalisation at length, 
 because it is only by so doing that we can see how 
 complex it is, and how much development in society 
 it requires ; but as yet the description is not complete, 
 or nearly so. We have only got as far as the influx 
 of money into new trades, but this is but a small part 
 of what is necessary. Trades do not live by money 
 alone ; money by itself will not make anything. 
 What, then, do we mean when we speak of " capital" 
 as flowing from employment to emplo3mient ? 
 
 Some writers speak as if the only thing which 
 transfers of capital effect is a change in the sort of 
 labour that is set in motion ; and no doubt this is so 
 far true, that all new employments of capital do 
 require new labour. Human labour is the primitive 
 moving force, and you must have more of it if you 
 want more things done ; but the description, though 
 true, is most incomplete, as the most obvious facts 
 in the matter prove. When new capital comes into 
 cotton-spinning, this means not only that new money 
 is applied to paying cotton operatives, but also that 
 new money is applied to buying new spinning 
 
64 Economic Studies. 
 
 machines ; these spinninj:^ machines are made by 
 other machines, as well as labour; and the second 
 lot of machines again by a third set, as well as other 
 labour. In the present state of the world, nothing 
 is made by brute labour ; everything is made by aids 
 to labour ; and when capital goes from trade to trade, 
 it settles not only which sort of labour shall be 
 employed, but which sort of existing machines shall 
 be first used up, which sort of new ones made, and 
 how soon those new ones shall be worn out, not only 
 in the selected trade, but in an endless series sub- 
 sidiary to it. 
 
 To understand the matter fully, we must have a 
 distinct view of what on this occasion and on this 
 matter we mean by '' capital". The necessity of 
 a science like Political Economy is that it must 
 borrow its words from common life, and therefore 
 from a source where they are not used accurately, 
 and cannot be used accurately. When we come to 
 reason strictly on the subjects to w^hich they relate 
 we must always look somewhat precisely to their 
 meaning; and the worst is that it will not do, if 370U 
 are writing for the mass of men, even of educated 
 men, to use words always in the same sense. Com- 
 mon words are so few, that if you tie them down 
 to one meaning they are not enough for your pur- 
 pose ; they do their work in common life because 
 they are in a state of incessant slight variation ; 
 meaning one thing in one discussion and another 
 a little different in the next. If we were really 
 to write an invariable nomenclature in a science 
 where we have so much to say of so many things 
 
The Posttdates of Political Economy. 65 
 
 as we have in Political Economy, we must invent 
 new terms, like the writers on other sciences. 
 Mr. de Morgan said (in defence of some fresh-coined 
 substantive) : " Mathematics must not want words 
 because Cicero did not know the differential cal- 
 culus". But a writer on Political Economy is bound 
 — not perhaps by Cicero — but by his readers. He 
 must not use words out of his own head, which they 
 never heard of ; they will not read him if he does. 
 The best way, as we cannot do this, is to give up 
 uniform uses — to write more as we do in common 
 life, where the context is a sort of unexpressed '' in- 
 terpretation clause," showing in what sense words 
 are used ; only, as in Political Economy we have 
 more difficult things to speak of than in common 
 conversation, we must take more care, give more 
 warning of any change, and at times write out the 
 " interpretation clause " for that page or discussion, 
 least there should be any mistake. I know that 
 this is difficult and delicate work ; and all I have 
 to say in defence of it is that in practice it is safer 
 than the competing plan of inflexible definitions. 
 Any one who tries to express varied meanings on 
 complex things with a scanty vocabulary of fastened 
 senses, will find that his style grows cumbrous with- 
 out being accurate, that he has to use long peri- 
 phrases for common thoughts, and that after all 
 he does not come out right, for he is half his time 
 falling back into the senses which fit the case in 
 hand best, and these are sometimes one, sometimes 
 another, and almost always different from his ''hard 
 and fast " sense. In such discussions we should 
 
 5 
 
66 Economic Studies. 
 
 learn to vary our definitions as we want, just as we 
 say, **let x, y, z mean" now this, and now that, 
 in different problems ; and this, though they do not 
 always avow it, is really the practice of the clearest 
 and most effective writers. 
 
 By capital, then, in this discussion, we mean an 
 aggregate of two unlike sorts of artificial commodities 
 — co-operative things which help labour, and re- 
 munerative things which pay for it. The two have 
 this in common, that they are the produce of human 
 labour, but they differ in almost everything else if 
 you judge of them by the visual appearance. Be- 
 tween a loaf of bread and a steam-engine, between a 
 gimlet and a piece of bacon, there looks as if there 
 were really nothing in common, except that man 
 manufactured both. But, though the contrast of 
 externalities is so great, the two have a most 
 essential common property which is that which 
 Political Economy fixes upon; the possible effect of 
 both is to augment human wealth. Labourers work 
 because they want bread ; their work goes farther if 
 they have good tools ; and therefore economists have 
 a common word for both tools and bread. They are 
 both capital, and other similar things are so too. 
 
 And here we come across another of the inevitable 
 verbal difficulties of Political Economy. Taking its 
 words from common life, it finds that at times 
 and for particular discussions it must twist them 
 in a way which common people would never think 
 of. The obvious resemblances which we deal 
 with in life dictate one mode of grouping objects in 
 the mind, and one mode of speaking of them ; the 
 
The Postulates of Political Economy. 67 
 
 latent but more powerful resemblance which science 
 finds would dictate another form of speech and 
 mental grouping. And then what seems a per- 
 verse use of language must be made. Thus, for 
 the present discussion, the acquired skill of a 
 labourer is capital, though no one in common life 
 would call it so. It is a productive thing made by 
 man, as much as any tool ; it w, in fact, an im- 
 material tool which the labourer uses just as he does 
 a material one. It is co-operative capital as much 
 as anything can be. And then, again, the most un- 
 likely-looking and luxurious articles are capital if 
 they reward and stimulate labour. Artisans like the 
 best of rabbits, the best bits of meat, green peas, and 
 gin ; they work to get these ; they would stay idle if 
 they were not incited by these, and therefore these 
 are "capital". Political Economy (like most moral 
 sciences) requires not only to change its definitions 
 as it moves from problem to problem, but also for 
 some problems to use definitions which, unless we 
 see the motive, seem most strange ; just as in Acts 
 of Parliament the necessity of the draftsman makes 
 a very technical use of words necessary if he is to do 
 his work neatly, and the reader will easily be most 
 mistaken and confused if he does not heed the 
 dictionary which such Acts contain. 
 
 Remembering all this, we see at once that it Is 
 principally remunerative capital which is transferable 
 from employment to employment. Some tools and 
 instruments are, no doubt, used in many trades, 
 especially the complex ones ; knives, hammers, twine, 
 and nails can be used, are used, in a thousand. The 
 
68 Economic Studies, 
 
 existing stock of these is transferred bodily when 
 capital migrates from an employment. But, in 
 general, as I have said before, the effect of the migra- 
 tion on co-operative capital is to change the speed 
 with which the existing machines are worked out, 
 and the nature of the new machines which are made ; 
 the '* live skill " of an artisan being treated as a 
 machine. On remunerative capital the effect is 
 simpler. As a rule, much the same commodities 
 reward labour in different trades, and if one trade 
 declines and another rises, the only effect is to 
 change the labourer who gets these commodities ; or, 
 if the change be from a trade which employs little 
 skilled labour to one which employs much, then the 
 costly commodities which skilled labour wants will 
 be in demand, more of them will be made, and there 
 will be an increase of animation in all the ancillary 
 trades which help their making. 
 
 We see also more distinctly than before what we 
 mean by an " employment ". We mean a group of 
 persons with fitting tools and of fitting skill paid by 
 the things they like. I purposely speak of " tools " 
 to include all machines, even the greatest, for I want 
 to fix attention on the fact that everything depends 
 on the effort of man, on the primary fruit of human 
 labour. Without this to start with, all else is 
 useless. And I use it out of brevity to include such 
 things as coal and materials, which for any other 
 purpose no one would call so, but which are plainly 
 the same for what we have now to do with. 
 
 And "employment " in any large trade implies an 
 "employer". The capitalist is the motive power in 
 
The Postulates of Political Economy, 6g 
 
 modern production, in the "great commerce". He 
 settles what goods shall be made, and what not ; 
 what brought to market, and what not. He is the 
 general of the army ; he fixes on the plan of opera- 
 tions, organises its means, and superintends its 
 execution. If he does this well, the business 
 succeeds and continues ; if he does it ill, the business 
 fails and ceases. Everything depends on the correct- 
 ness of the unseen decisions, on the secret sagacity 
 of the determining mind. And I am careful to dwell 
 on this, though it is so obvious, and though no man 
 of business would think it worth mentioning, because 
 books forget it, — because the writers of books are 
 not familiar with it. They are taken with the con- 
 Spicuousness of the working classes ; they hear them 
 say : " It is we who made Birmingham, we who 
 made Manchester," but you might as well say that 
 it was the " compositors" who made the Times news- 
 paper. No doubt the craftsmen were necessary to 
 both, but of themselves they were insufficient to either. 
 The printers do not settle what is to be printed ; 
 the writers do not even settle what is to be written. 
 It is the editor who settles everything. He creates 
 the Times from day to day ; on his power of hitting 
 the public fancy its prosperity and power rest ; 
 everything depends on his daily bringing to the 
 public exactly what the public wants to buy ; the 
 rest of Printing-House Square — all the steam-presses, 
 all the type, all the staff, clever as so many of them 
 are, — are but implements which he moves. In the 
 very same way the capitalist edits the '' business" ; 
 it is he who settles what commodities to offer 
 
70 Economic Studies. 
 
 to the public ; how and when to offer them, and all 
 the rest of what is material. This monarchical 
 structure of money business increases as society goes 
 on, just as the corresponding structure of war busi- 
 ness does, and from the same causes. In primitive 
 times a battle depends as much on the prowess of 
 the best fighting men, of some Hector or some 
 Achilles, as on the good science of the general. But 
 now-a-days it is a man at the far end of a telegraph 
 wire — a Count Moltke, with his head over some 
 papers, — who sees that the proper persons are slain, 
 and who secures the victory. So in commerce. The 
 primitive weavers are separate men with looms 
 apiece, the primitive weapon-makers separate men 
 with flints apiece ; there is no organised action, no 
 planning, contriving, or foreseeing in either trade, 
 except on the smallest scale ; but now the whole is 
 an affair of money and management ; of a thinking 
 man in a dark office, computing the prices of guns 
 or worsteds. No doubt in some simple t rade s these 
 essential calculations can be verified by several 
 persons — by a board of directors, or something like 
 it. But these trades, as the sagacity of Adam Smith 
 predicted,^ and as painful experience now shows, are 
 very few ; the moment there comes anything difficult 
 or complicated, the I3oard '* does not see its way," 
 and then, except it is protected by a monopoly, or 
 something akin to monopoly, the individual capitalist 
 beats it out of the field. But the details of this are 
 not to my present purpose. The sole point now 
 
 ' The Wealth of Nations, book v., chap, i 
 
The Postulates of Political Economy. 71 
 
 material is that the transference of capital from 
 employment to employment involves the pre-existence 
 of employment, and this pre-existence involves that 
 of " employers" : of a set of persons — one or many, 
 though usually one — who can effect the transfer 
 of that capital from employment to employment, 
 and can manage it when it arrives at the employ- 
 ment to which it is taken. 
 
 And this management implies knowledge. In all 
 cases successful production implies the power of 
 adapting means to ends, of making what you want 
 as you want it. But after the division of labour has 
 arisen, it implies much more than this : it then 
 requires, too, that the producer should know the 
 wants of the consumer, a man whom mostly he has 
 never seen, whose name probably he does not know, 
 very likely even speaking another language, living 
 according to other habits, and having scarcely any 
 point of intimate relation to the producer, except 
 a liking for what he produces. And if a person who 
 does not see is to suit another who is not seen, he 
 must have much head-knowledge, an acquired learn- 
 ing in strange wants as well as of the mode of 
 making things to meet them. A person possessing 
 that knowledge is necessary to the process of trans- 
 ferring capital, for he alone can use it when the 
 time comes, and if he is at the critical instant not 
 to be found, the change fails, and the transfer is a 
 loss and not a gain. 
 
 This description of the process by which capital is 
 transferred and of what we mean by it, may seem 
 long, but it will enable us to be much shorter in 
 
72 Economic Studies. 
 
 showing the conditions which that transfer implies. 
 First, it presupposes the existence of transferable 
 labour, and I showed before how rare transferable 
 labour is in the world, and how very peculiar are its 
 prerequisites. You cannot have it unless you have 
 a strong government, which will keep peace in the 
 delicate line on which people are moving. You must 
 not have fixed castes in inherited occupations, which 
 at first are ways and means to do without a strong 
 government, but which often last on after it begins ; 
 you must not have a local army which roots men to 
 fixed spots for military purposes, and therefore very 
 much to fixed pursuits ; and you must not have 
 slavery, for this is an imperfect substitute for free 
 transferable labour, which effectually prevents the 
 existence of it. Complete freedom of capital pre- 
 supposes complete freedom of labour, and can only 
 be attained when and where this exists. 
 
 No doubt capital begins to move much before the 
 movement of labour is perfect. The first great start 
 of it commences with a very unpopular person, who 
 is almost always spoken evil of when his name is 
 mentioned, but in whom those who know the great 
 things of which he has been the forerunner will 
 always take a great interest. It is the money-lender 
 in a primitive community, whose capital is first 
 transferred readily from occupation to occupation. 
 Suppose a new crop, say cotton, becomes suddenly 
 lucrative, immediately the little proprietors throng 
 to the money-lender's to obtain funds to buy cotton. 
 A new trade is begun by his help, which could not 
 have been begun without him. If cotton ceases to 
 
The Postulates of Political Economy. 73 
 
 be a good crop, he ceases to lend to grow it, his 
 spare capital either remains idle or goes to some 
 other loan, perhaps to help some other crop which 
 has taken the place of cotton in profitableness. 
 There is no more useful trade in early civilisation, 
 though there is none which has such a bad name, 
 and not unnaturally, for there is none which then 
 produces more evil as well as good. Securities for 
 loans, such as we have them in developed commerce, 
 are rarely to be met with in early times ; the land 
 — the best security as we think it — is then mostly 
 held upon conditions which prevent its being made 
 in that way available ; there is little moveable 
 property of much value, and peasants who work the 
 land have scarcely any of that little ; the only thing 
 they can really pledge is their labour — themselves. 
 But then when the loan is not paid, *' realising the 
 security " is only possible by making the debtor a 
 slave, and as this is very painful, the creditor who 
 makes much use of it is hated. Even when the 
 land can be pledged, peasant proprietors never think 
 that it ought really to be taken if the debt for 
 which it is pledged is not paid. They think that 
 the land is still theirs, no matter how much has been 
 lent them upon it, or how much they have neglected 
 to pay. But odious as the "usurer" thus becomes, 
 he is most useful really, and the beginner of the 
 movement which creates the "great commerce". 
 
 Another condition which precedes the free transfer 
 of labour — the first prerequisite of the free transfer 
 of capital — is slavery, and within its limits this is 
 free enough ; indeed, more free than anything else 
 
74 Economic Studies. 
 
 similar, for you have not to consult the labourer at 
 all, as in all other organisations you must. The 
 capitalist buys the slave and sets him to do, not 
 what the slave likes, but what he himself likes. I 
 can imagine that a theorist would say beforehand 
 that this was the best way of getting things done, 
 though not for the happiness of the doer. It makes 
 the "working group" into an army where the 
 general is absolute, and desertion penal. But so 
 subtle is the nature of things, that actual trial shows 
 this structure of society not to be industrially 
 superior to all others, but to be very ineffectual 
 indeed, and industrially inferior to most of them. 
 The slave will not work except he is made, and 
 therefore he does little ; he is none the better, or 
 little the better, if he does his work well than if he 
 does it ill, and therefore he rarely cares to do it very 
 well. On a small scale, and under careful super- 
 vision, a few slaves carefully trained may be made 
 to do very good work, but on any large scale it is 
 impossible. A gang of slaves can do nothing but 
 what is most simple and easy, and most capable of 
 being looked after. The Southern States of America, 
 for some years before their rebellion, were engaged 
 in trying on the greatest scale and with the most 
 ample means the world has ever seen the experiment 
 how far slavery would go ; and the result is easily 
 stated ; they never could " make brute force go 
 beyond brute work". 
 
 Next, in order that capital can be transferred, 
 it must exist and be at the disposal of persons 
 who wish to transfer it. This is especially evident 
 
The Posttdates of Political Economy, 75 
 
 as to remunerative capital, which we have seen 
 to be the most transferable of all capital. But the 
 earliest wages-paying commodities — the food and 
 the necessaries which in simple communities the 
 labourer desires — are accumulated by persons who 
 want them for their own use, and who will not part 
 with them. The "untransferable" labourer — the 
 labourer confined to a single occupation in a primitive 
 society — saves certain things for himself, and needs 
 them for himself, but he has no extra stock. He 
 has no use, indeed, for it. In a society where there 
 is no transferable labour, or need to hire, there is 
 no motive, or almost none, for an accumulation 
 of wages-paying capital which is to buy labour. 
 The idea of it, simple as it seems to us, is one 
 of a much later age, like that in which labour 
 seeking to be hired is the commonest of things, 
 and therefore the commodities needed for hiring it 
 are among the commonest too. The means of buy- 
 ing, and the thing bought, inevitably in such a 
 case as this grow together. 
 
 As to the other kind of capital — that which aids 
 labour, the co-operative kind — the scientific study 
 of savage tribes, which is so peculiar a feature of 
 the present world, has brought out its scantiness — 
 I might say its meanness — almost more distinctly 
 than it has brought out anything else. Sir John 
 Lubbock, one of our greatest instructors on this 
 matter, tells us the implements of the Australians 
 are very simple. " I'hey have no knowledge of 
 pottery, and carry water in skins, or in vessels made 
 of bark. They are quite ignorant of warm water, 
 
'^^ Economic Studies. 
 
 which strikes them with great amazement." Some 
 of them carry "a small bag about the size of a 
 moderate cabbage net, which is made by laying 
 threads, loop within loop, somewhat in the manner 
 of knitting used by our ladies to make purses. This 
 bag the man carries loose upon his back by a small 
 string, which passes over his head ; it generally con- 
 tains a lump or two of paint and resin, some fish- 
 hooks and lines, a shell or two out of which these 
 hooks are made, a few points of darts, and their 
 usual ornaments, which include the whole worldly 
 treasure of the richest man among them." All 
 travellers say that rude nations have no stock of any- 
 thing — no materials lying ready to be worked up, 
 no idle tools waiting to be used ; the whole is a 
 "hand-to-mouth" world. And this is but another 
 way of saying that in such societies there is no 
 capital of this kind to be transferred. We said just 
 now that what we meant by transfer in such a case 
 was a change in the sort of stock — the kind of 
 materials, the kind of machines, the kind of living 
 things to be used fastest and worn out quickest. 
 But in these poverty-stricken early societies there is 
 substantially no such stock at all. Every petty thing 
 which there exists is already being used for all its 
 petty purposes, and cannot be worked more quickly 
 than it already is, or be worn out more rapidly than 
 it is being worn out. 
 
 Next, this capital must be concentrated in "trades," 
 else it cannot be transferred from trade to trade for 
 the sake of profit, and it must be worked by a single 
 capitalist, or little group of capitalists, as the case 
 
The Postulates of Political Economy. yy 
 
 may be, else the trade will not yield profit. And 
 this, as has been explained, is not a universal feature 
 of all times, but a special characteristic of somewhat 
 advanced eras. And there must be the knowledge 
 capable of employing that capital — a knowledge 
 which altogether differs in different trades. Now-a- 
 days the amount of the difference is a little disguised 
 from us because we see people with '' capital " in 
 various pursuits — that is, who are traders in each 
 and all of them. But such persons could not do 
 this unless they were assisted by more specialised 
 persons. The same principle governs political ad- 
 ministration. Sir George Lewis, one of the most 
 capable judges of it in our time, has observed: '* The 
 permanent officers of a department are the deposi- 
 taries of its official tradition ; they are generally 
 referred to by the political head of the office for in- 
 formation on questions of official practice, and know- 
 ledge of this sort acquired in one department would 
 be useless in another. If, for example, the chief 
 clerk of the criminal department of the Home Office 
 were to be transferred to the Foreign Office, or to 
 the Admiralty, the special experience which he 
 has acquired at the Home Office, and which is 
 in daily requisition for the guidance of the Home 
 Secretary, would be utterly valueless to the Foreign 
 Secretary, or to the First Lord of the Admiralty. 
 . . . Where a general superintendence is required, 
 and assistance can be obtained from subordinates, 
 and where the chief qualifications are judgment, 
 sagacity, and enlightened political opinions, such a 
 change of offices is possible ; but as you descend 
 
78 Economic Studies. 
 
 lower in the ofBcial scale, the speciality of functions 
 increases. The duties must be performed in person, 
 with little or no assistance, and there is consequently 
 a necessity for special knowledge and experience. 
 Hence the same person may be successively at the 
 head of the Home Office, the Foreign Office, the 
 Colonial Office and the Admiralty ; he may be 
 successively President of the Board of Trade, and 
 Chancellor of the Exchequer ; but to transfer an 
 experienced clerk from one office to another would 
 be like transferring a skilful naval officer to the 
 army, or appointing a military engineer officer 
 to command a ship of war." And just so in mercan- 
 tile business — there are certain general principles 
 which are common to all kinds of it, and a person 
 can be of considerable use in more than one kind if 
 he understands these principles, and has the proper 
 sort of mind. But the appearance of this common 
 element is in commerce, as in politics, a sign of 
 magnitude, and primitive commerce is all petty. In 
 early tribes there is nothing but the special man — 
 the clothier, the mason, the weapon-maker. Each 
 craft tried to be, and very much was, a mystery 
 except to those who carried it on. The knowledge 
 required for each was possessed by few, kept secret 
 by those few, and nothing else was of use but this 
 monopolised and often inherited acquirement ; there 
 was no "general" business knowledge. The idea of 
 a general art of money-making is very modern ; 
 almost everj'thing ancient about it is individual and 
 particular. Distance helped much in this kind of 
 speciality. "To the great fair of Stourbridge," in 
 
The Postulates of Political Economy. 79 
 
 the south of England, there came, we are told, 
 besides foreign products, '' the woolpacks, which 
 then formed the riches of England, and were the 
 envy of outer nations. The Cornish tin-mine sent 
 its produce, stamped with the sign of the rich earl 
 who bought the throne of the German empire, or of 
 the warlike prince who had won his spurs at Crecy, 
 and captured the French king at Poitiers. . . . Thither 
 came also salt from the springs of Worcestershire, as 
 well as that which had been gathered under the 
 summer sun from the salterns of the eastern coasts. 
 Here, too, might be found lead from the mines of 
 Derbyshire, and iron, either raw or manufactured, 
 from the Sussex forges." ^ In an age when loco- 
 motion was tedious and costly, the mere distance of 
 the separate seats of industry tended to make separ- 
 ate monopolies of them. Other difficulties of trans- 
 ferring capital were aggravated by the rarity and the 
 localisation of the knowledge necessary for carrying 
 it on. 
 
 Next, as we have seen, for the attraction of capital 
 from trade to trade, there must be a money in which 
 to calculate such profits, and a good money too. 
 Many media of interchange which have been widely 
 used in the world, and which are quite good enough 
 for many purposes, are quite unfit for this. Cattle, 
 for instance, which were certainly one of the first- 
 used kinds of money, and which have been said to 
 have been that most used, because what we call the 
 primitive ages lasted so long, are quite inadequate. 
 
 1 Thorold Roarers. 
 
8o Economic Studies. 
 
 They are good enough for present bargains, but not 
 for the forward- and backward-looking calculations 
 of profit and loss. The notation is not distinct 
 enough for accuracy. One cow is not exactly like 
 another ; a price-list saying that so much raw cotton 
 was worth twenty cows, and so much cotton worth 
 thirty cows, would not tell much for the purpose ; you 
 could not be sure what cows you would have to give 
 or you would get. There might be a " loss by ex- 
 change " which would annihilate profit. Until you 
 get good coined money, calculations of profit and 
 loss that could guide capital are impossible. 
 
 Next, there must be the means of shifting 
 " money," which we analj/sed — the loan fund, the 
 speculative fund, and the choice of employment by 
 young capitalists, or some of them. The loan fund 
 on a small scale is, as we have seen, a very early 
 institution ; it begins in the primitive village almost 
 as soon as any kind of trade begins at all, and a 
 perception of its enormous value is one of the 
 earliest pieces of true economic speculation. " In 
 the Athenian laws," says Demosthenes, " are many 
 well-devised securities for the protection of the 
 creditor ; for commerce proceeds not from the 
 borrowers, but from the lenders, without whom no 
 vessel, no navigator, no traveller could depart from 
 port." Even in these days we could hardly put the 
 value of discounts and trade loans higher. But 
 though the loan fund begins so early in civilisation, 
 and is prized so soon, it grows very slowly ; the full 
 development, modern banking such as we are familiar 
 with in England, stops where the English language 
 
The Postulates of Poliiical Economy. 8i 
 
 ceases to be spoken. The peculiarity of that system 
 is that it utilises all the petty cash of private persons 
 down nearly to the end of the middle class. This is 
 lodged with bankers on running account, and though 
 incessantly changing in distribution, the quantity is 
 nearly fixed on the whole, for most of what one 
 person pays out others almost directly pay in ; and 
 therefore it is so much added to the loan fund which 
 bankers have to use, though, as credit is always 
 precarious, they can, of course, only use it with 
 caution. Besides this, English bankers have most 
 of the permanent savings of little persons deposited 
 with them, and so have an unexampled power of 
 ready lending. But ages of diffused confidence are 
 necessary to establish such a system, and peculiar 
 circumstances in the banking history of England, 
 and of Scotland still more, have favoured it. Our 
 insular position exempting us from war, and enabling 
 our free institutions to develop both quietly and 
 effectually, is at the very root of it. But here until 
 within a hundred years there was no such concentra- 
 tion of minute moneys, no such increment to the loan 
 fund, and abroad there is nothing equal to it now. 
 Taking history as a whole, it is a rare and special 
 phenomenon. Mostly the loan fund of a country 
 consists of such parts of its moneyed savings as those 
 who have saved them are able to lend for themselves. 
 As countries advance banking slowly begins, and 
 some persons who are believed to have much, are 
 intrusted with the money of others, and become a 
 sort of middlemen to put it out ; but almost every- 
 where the loan fund is ver}' small to our English 
 
 6 
 
82 Economic Studies. 
 
 notions. It is a far less efficient instrument foi 
 conveying capital from trade to trade everywhere else 
 than here ; in very many countries it is only incipient ; 
 in some it can hardly be said to exist at all. 
 
 The speculative fund, as I have called it, has also 
 but a bounded range of action. The number of per- 
 sons who have large moneyed savings who are willing 
 to invest them in new things is in England con- 
 siderable, but in most countries it is small. Such 
 persons fear the unknown ; they have a good deal to 
 lose, and they do not wish to lose it. In most com- 
 munities there is not even the beginning of a settled 
 opinion to tell them which undertaking is likely to 
 be good, and which bad. In the industrial history 
 of most countries, the most marked feature is an 
 extreme monotony ; enterprises are few ; the same 
 things continue for ages to be done in the same way. 
 The data which should guide original minds are few 
 and insufficient; there was not such a thing as a 
 *' price list " in any ancient community. No Athenian 
 merchant could, by looking over a file of figures, see 
 which commodities were much lower in their average 
 price, and which therefore might be advantageously 
 bought with, money that he could not employ in his 
 usual trade. Even for so simple a speculation as 
 this, according to our present notions, the data did 
 not exist, and for more complex ones the knowledge 
 was either altogether wanting or confined to a few 
 persons, none of whom might have the idle capital. 
 The speculative fund does not become a force of 
 first-rate magnitude till we have in the same com- 
 munity a great accumulation of spare capital, and a 
 
The Postulates of Political Economy. 83 
 
 wide diffusion of sound trade knowledge, — and then 
 it does. 
 
 The free choice by young men of the mode in 
 which they will invest the capital which they pos- 
 sess, is also in the early times of trade much hindered 
 and cramped, and it only gains anything near the 
 effective influence which it now has with us, in quite 
 late times. For a long period of industrial history 
 special associations called ''guilds" prohibited it; 
 these kept each trade apart, and prevented capital 
 from going from one to the other. They even kept 
 the trade of city A quite apart from the same trade 
 in city B ; they would not let capital or labour flow 
 from one to the other. These restrictive hedges 
 grew up naturally, and there was no great move- 
 ment to throw them down. They strengthened 
 what was already strong, and that which was weak 
 made no protest. The general ignorance of trade 
 matters in such communities made it seem quite 
 reasonable to keep each trade to those who under- 
 stood it ; other people going into it would, it was 
 imagined, only do it ill, lose their money, and hurt 
 those who did it well by a pernicious competition. 
 We now know that this is a great error, that such 
 guilds did far more harm than good, that only ex- 
 periment can show where capital will answer in 
 trade, that it is from the outsider that the best 
 improvements commonly come. But these things, 
 which are now commonplaces after experience, were 
 paradoxes before it. The first deduction of the un- 
 instructed mind was and is the other way. Nor is 
 it dispelled by mere argument. Civilisation must 
 
84 "Economic Studies. 
 
 increase, trade ideas must grow and spread, and idle 
 capital waiting to change must accumulate. Till 
 these things have happened, the free choice by a 
 young man how he will invest his capital is not the 
 common rule, but the rare exception ; it is not what 
 mostly happens, though it may be resisted, but what 
 happens only where it is unusually helped. Even 
 where there is no formal guild, the circumstances 
 which have elsewhere created so many, create an 
 informal monopoly, mostly much stronger than any 
 force which strives to infringe it. 
 
 None, therefore, of the three instruments which 
 now convey capital from employment to employment 
 can in early times be relied on for doing so, even when 
 that capital exists, and when some labour at least is 
 available to be employed by it ; neither the loan 
 fund, nor the speculative fund, nor the free choice 
 of a trade by young men, is then a commonly pre- 
 dominant power ; nor do the whole three taken 
 together commonly come to much in comparison 
 with the forces opposed to them. 
 
 And even if their intrinsic strength had been far 
 greater than it was, it would often have been suc- 
 cessfully impeded by the want of a final condition to 
 the free transfer of capital, of which I have not 
 spoken yet. This is a political condition. We have 
 seen that for the free transfer of labour from employ- 
 ment to employment a strong government is neces- 
 sary. The rules regulating the inheritance of trades 
 and the fixed separations of labour were really con- 
 trivances to obtain some part of the results of the 
 division of labour, when for want of an effectual 
 
The Postulates of Political Economy. 85 
 
 government, punishing quarrels and preserving life, 
 free competition and movement in labour were im- 
 possible. And this same effectual government is 
 equally necessary, as need not be explained, for the 
 free migration of money. That migration needs 
 peace and order quite as obviously as the migration 
 of labour ; and those who understand the delicacy 
 of the process will need no proof of it. But though 
 a strong government is required, something more is 
 wanted too ; for the movement of capital we need a 
 fair government. If capital is to be tempted from 
 trade to trade by the prospect of high profits, it must 
 be allowed to keep those profits when they have 
 been made. But the primitive notion of taxation is 
 that when a government sees much money it should 
 take some of it, and that if it sees more money it 
 should take more of it. Adam Smith laid down, as 
 a fundamental canon, that taxes ought to be levied 
 at the time when, and in the manner in which, it is 
 most easy for the tax-payer to pay them. But the 
 primitive rule is to take them when and how it is 
 most eas\^ to fmd and seize them. Under govern- 
 ments with that rule persons who are doing well 
 shrink from showing that they are doing well ; those 
 who are making money refuse to enjoy themselves, 
 and will show none of the natural signs of that money, 
 lest the tax-gatherer should appear and should take 
 as much as he likes of it. A socialist speaker once 
 spoke of a "healthy habit of confiscation," and that 
 habit has been much diffused over the world. Wher- 
 ever it exists it is sure exceedingly to impede the move- 
 ments of capital, and where it abounds to prevent them. 
 
86 Economic Studies. 
 
 These reasonings give us a conception of a " pre- 
 economic" era when the fundamental postulates of 
 Political Economy, of which we have spoken, were 
 not realised, and shov/ us that the beginnings of all 
 wealth were made in that era. Primitive capital 
 accumulated in the hands of men who could neither 
 move it nor themselves — who really never thought 
 of doing either — to whom either would often have 
 seemed monstrous if they could have thought of it, 
 and in whose case either was still more often prevented 
 by insuperable difficulties. And this should warn us 
 not to trust the historical retrospect of economists, 
 merely because we see and know that their reason- 
 ings on the events and causes of the present world 
 are right. Early times had different events and 
 different causes. Reasoners like economists, and 
 there are many others like them, are apt to modify 
 the famous saying of Plunket ; they turn history 
 not into an old almanac, but into a new one. They 
 make what happens now to have happened always, 
 according to the same course of time. 
 
 And these reasonings also enable us to explain 
 what is so common in all writing concerning those 
 early and pre-economic times. One of the common- 
 est phenomena of primitive trade is ''fixed" prices, 
 and the natural inquiry of every one who is trained 
 in our Political Economy is, how could these prices 
 be maintained? They seem impossible according 
 to the teaching which he has received, and yet they 
 were maintained for ages ; they lasted longer than 
 many things now-a-days which we do not reckon 
 short-lived. One explanation is that they were main- 
 
The Postulates of Political Economy. 87 
 
 tained by custom ; but this fails at the crisis, for the 
 question is, how could the custom be maintained ? 
 The unchanging price could not always be right 
 under changing circumstances. Why did not capital 
 and labour flow into the trades which at the time 
 had more than their ''natural" price, desert those 
 which had less, and so disturb the first with a plethora, 
 and the second with a scarcity ? The answer we 
 now see is that what we have been used to call 
 "natural" is not the first but the second nature of 
 men ; that there were ages when capital and labour 
 could not migrate, when trade was very much one 
 of monopoly against monopoly. And in such a 
 society, fixing a price is a primitive way of doing 
 what in after ages we do as far as we can ; it is a 
 mode of regulating the monopoly — of preventing the 
 incessant dissensions which in all ages arise about 
 what is a just price and what is not, when there is 
 no competition to settle that price. The way in 
 which " custom " settles prices, how it gradually 
 arrives at what is right and proper, or at least at 
 what is endurable, one cannot well say ; probably 
 many incipient customary prices break down before 
 the one which suits and lasts is stumbled upon. 
 But defects of this rule-of-thumb method are no re- 
 proach to primitive times. When we try to regulate 
 monopolies ourselves we have arrived at nothing 
 better. The fares of railways — the fixed prices at 
 which these great monopolies carry passengers — are 
 as accidental, as much the rough results of incon- 
 clusive experiments, as any prices can be. 
 
 And this long analysis proves so plainly, that it 
 
88 Economic Studies. 
 
 would be tedious to show it again, that the free 
 movement of capital from employment to employ- 
 ment within a nation, and the consequent strong 
 tendency to an equality of profits there, are ideals 
 daily becoming truer as competition increases and 
 capital grows, that all the hindrances are gradually 
 diminishing, all the incentives enhancing, and all 
 the instruments becoming keener, quicker, and more 
 powerful. 
 
 But it is most important to observe that this 
 ideal of English Political Economy is not, like most 
 of its ideals, an ultimate one. In fact the " great 
 commerce " has already gone beyond it ; we can 
 already distinctly foresee a time when that commerce 
 will have merged it in something larger. English 
 Political Economy, as we know, says that capital 
 fluctuates from trade to trade within a nation, and it 
 adds that capital will not as a rule migrate beyond 
 that nation. ''Feelings," says Ricardo, " which I 
 should be sorry to see weakened, induced most men 
 of property to be satisfied with a low rate of profits 
 in their own country, rather than seek a more 
 advantageous employment for their wealth in foreign 
 nations." But these feelings are being weakened 
 every day. A class of cosmopolitan capitalists has 
 grown up which scarcely feels them at all. When 
 Ricardo wrote, trade of the modern magnitude was 
 new : long wars had separated most nations from 
 most others, and especially had isolated England in 
 habit and in feeling. Ricardo framed, and others 
 have continued, a theory of foreign trade in which 
 each nation is bounded by a ring-fence, through 
 
The Postulates of Political Economy. 8g 
 
 which capital cannot pass in or out. But the 
 present state of things is far less simple, and much 
 of that theory must be remodelled. The truth is 
 that the three great instruments for transferring 
 capital within a nation, whose operation we have 
 analysed, have begun to operate on the largest scale 
 between nations. The "loan fund/' the first and 
 most powerful of these, does so most strikingly. 
 Whenever the English money market is bare of cash 
 it can at once obtain it by raising the rate of interest. 
 That is to say, it can borrow money to the extent 
 of millions at any moment to meet its occasions : 
 or what is the same thing, can call in loans of its 
 own. Other nations can do so too, each in pro- 
 portion to its credit and its wealth — though none so 
 quickly as England, on account of our superiority 
 in these things. A cosmopolitan loan^ fund exists, 
 which runs everywhere as it is wanted, and as the 
 rate of interest tempts it. 
 
 A new commodity, one of the greatest growths 
 of recent times, is used to aid these operations. 
 The "securities" of all well-known countries, their 
 national debts, their railway shares, and so on (a 
 kind of properties peculiar to the last two centuries, 
 and increasing now most rapidly), are dealt in 
 through Europe on every Stock Exchange. If the 
 rate of interest rises in any one country the price of 
 such securities falls ; foreign countries come in and 
 buy them ; they are sent abroad and their purchase- 
 money comes here. Such interest-bearing documents 
 are a sort of national "notes of hand" which a country 
 puts out when it is poor, and buys back when it is rich. 
 
go Economic Studies. 
 
 The mode in which the indemnity from France to 
 Germany was paid is the most striking instance of 
 this which ever occurred in the world. The sum 
 of ;£'200,ooo,ooo was the largest ever paid by one 
 set of persons to another, upon a single contract, 
 since the system of payments began. Without a 
 great lending apparatus such an operation could not 
 have been effected. The resources of one nation, as 
 nations now are, would not have been equal to it. 
 In fact it was the international loan fund which did 
 the business. '* We may say," M. Say states in his 
 official report, " that all the great banking-houses 
 of Europe have concurred in this operation, and it 
 is sufficient to show the extent and the magnitude 
 of it to say that the number of houses which signed 
 or concurred in the arrangement was fifty-five, and 
 that many of them represented syndicates of bankers, 
 so that the actual number concerned was far more 
 considerable." " The concentration," he adds, " of 
 the effects of all the banks of Europe produced 
 results of an unhoped-for magnitude. All other 
 business of a similar nature was almost suspended 
 for a time, while the capital of all the private banks, 
 and of all their friends, co-operated in the success of 
 the French loans, and in the transmission of the 
 money lent from country to country. This was a 
 new fact in the economic history of Europe, and we 
 should attach peculiar importance to it." The 
 magnitude of it as a single transaction was indeed 
 very new ; but it is only a magnificent instance of 
 what incessantly happens ; and the commonness 
 of similar small transactions, and the amount of 
 
The Postulates of Political Economy. 91 
 
 them when added together, are even more remark- 
 able and even more important than the size of this 
 one ; and similar operations of the international 
 *' loan fund " are going on constantly, though on 
 a far less scale. 
 
 We must not, however, fancy that this puts all 
 countries on a level, as far as capital is concerned, 
 because it can be attracted from one to another. 
 On the contrary, there will always tend to be a fixed 
 difference between two kinds of countries. The old 
 country, where capital accumulates, will always, on 
 an average, have it cheaper than the new country, 
 which has saved little, and can employ any quantity. 
 The Americans in the Mississippi Valley are naturally 
 a borrowing community, and the English at home 
 are naturally lenders. And the rate of interest in 
 the lending country will of course be less than that 
 in the borrowing country. We see approaches — 
 distant approaches even yet, but still distinct ap- 
 proaches — to a time at which all civilised and in- 
 dustrial countries will be able to obtain a propor- 
 tionate share of the international loan fund, and will 
 differ only in the rate they have to pay for it. 
 
 The " speculative fund" is also becoming common 
 to all countries, and it is the English who have 
 taken the lead, because they have more money, more 
 practical adaptation to circumstances, and more in- 
 dustrial courage than other nations. Some nations, 
 no doubt, have as much or more of one of these 
 singly, but none have as much of the efficiency which 
 is the combined result of all three. The way in which 
 continental railways — the early ones especially, when 
 
g2 Economic Studies. 
 
 the idea was novel — were made by English con- 
 tractors is an example of this. When Mr. Brassey, 
 the greatest of them, was making the line from Turin 
 to Novara, for the Italian Government, Count 
 Cavour sent one morning for his agent, and said : 
 "We are in a difficulty : the public have subscribed 
 for very few shares, but I am determined to carry 
 out the line, and I want to know if Mr. Brassey will 
 take half the deficiency if the Italian Government 
 will take the other half". Mr. Brassey did so, and 
 thus the railway was made. This is the inter- 
 national speculative fund in action, and the world 
 is filled with its triumphs. 
 
 So large, so daring, and indeed often so reckless 
 is this speculative fund, that some persons have 
 imagined that there was nothing which would seem 
 absurd to it. A very little while ago, a scheme— a 
 fraudulent scheme, no doubt — was gravely brought 
 out, for a ship railway over the Isthmus of Panama ; 
 the ships were to be lifted upon the line on one side, 
 and lifted off and returned to the ocean on the other. 
 But even the " speculative fund " would not stand 
 that, and the scheme collapsed. Yet the caricature 
 shows the reality; we may use it to remind ourselves 
 how mobile this sort of money is, and how it runs 
 from country to country like beads of quicksilver. 
 
 Young men also now transfer their capital from 
 country to country with a rapidity formerly unknown. 
 In Europe perhaps the Germans are most eminent 
 in so doing. Their better school education, their 
 better-trained habits of learning modern languages, 
 and their readiness to bear the many privations of 
 
The Postulates of Political Economy. gj 
 
 a residence among foreigners, have gained them a 
 prominence certainly over the Enghsh and the 
 French, perhaps above all other nations. But taking 
 the world as a whole the English have a vast superi- 
 ority. They have more capital to transfer, and their 
 language is the language of the great commerce 
 everywhere, and tends to become so more and more. 
 More transactions of the "cosmopolitan speculative 
 fund" are arranged in English, probably, than in all 
 the other languages of the world put together ; not 
 only because of the wealth and influence of mere 
 England, though that is not small, but because of 
 the wealth and influence of the other States which 
 speak that language also, the United States, our 
 colonies, and British India, which uses it mostly for 
 its largest trade. The number of English com- 
 mercial houses all over the world is immense, and 
 of American very many, and yearly a vast number 
 of young Englishmen are sent out to join them. 
 The pay is high, the prospect good, and insular as 
 we are thought to be (and in some respects we are 
 so most mischievously), the emigration of 3'oung 
 men with English capital, and to manage English 
 capital, is one of the great instruments of world- 
 wide trade and one of the binding forces of the 
 future. 
 
 In this way the same instruments which diffused 
 capital through a nation are gradually diffusing it 
 among nations. And the effect of this will be in the 
 end much to simplify the problems of international 
 trade. But for the present, as is commonly the 
 case with incipient causes whose effect is incomplete. 
 
94 Economic Studies. 
 
 it complicates all it touches. We still have to con- 
 sider, after the manner Ricardo began, international 
 trade as one between two or more limits which do 
 not interchange their compound capitals, and then 
 to consider how much the conclusions so drawn are 
 modified by new circumstances and new causes. 
 And as even when conceived in Ricardo's compara- 
 tively simple manner, international trade, as Mr. 
 Mill justly said, and as the readers of his discussion 
 on it well know, is an excessively difficult subject 
 of inquiry, we may expect to find many parts of it 
 very hard indeed to reduce to anything like simplicity 
 when new encumbrances are added. The popular 
 discussion of the subject tends to conceal its diffi- 
 culties, and indeed is mostly conducted by those 
 who do not see them. Nothing is commoner than 
 to see statements on it put forth as axioms which it 
 would take half a book really to prove or disprove. 
 But with the soundness or unsoundness of such 
 arguments I have at present nothing to do. The 
 object of these papers is not to examine the edifice 
 of our English Political Economy, but to define its 
 basis. Nothing but unreality can come of it till we 
 know when and how far its first assertions are true 
 in matter of fact, and when and how far they are 
 not. 
 
95 
 
 THE PRELIMINARIES 
 
 OF 
 
 POLITICAL E C N M Y.i 
 
 Adam Smith began the Wealth of Nations about 
 1773, and finished it in 1776 ; and as our modern 
 Political Economy really begins from that time, we 
 may fairly say that it is now a hundred years old.^ 
 In that century, especially in England, its career 
 has been most remarkable. No form of philoso- 
 phical speculation (some theologies excepted, which 
 are not comparable) has ever had half or a thou- 
 sandth part of the influence upon life and practice ; 
 no abstract doctrine w^as ever half as much quoted 
 or half as much acted on. The whole legislation 
 of England as to trade has been changed by the 
 philosophy of trade, and the life of almost every one 
 in England is, in consequence, different and better. 
 Other countries, it is true, have not equally followed 
 
 ^ It will be obvious that some of the leading ideas of the 
 previous essays are repeated in this. There is, however, so 
 much that is fresh in it, and so much danger of bunghng in 
 any attempt to disentangle the fresh matter from what was 
 embodied in the two previous essays, that it has been thought 
 better to run some little risk of repetition rather than to 
 attempt any separation of the old and new by any other hand 
 than the author's. 
 
 '^ Written in 1876 or earlier. 
 
g6 Econouiic Studied. 
 
 this teaching, but they have continually, if not 
 equally, discussed it. The highest class of culti- 
 vated intellects is in every civilised country more 
 or less affected by it. When a little while ago M. 
 Thiers began to talk and act in thorough opposition 
 to the whole science, a shiver of wonder ran through 
 Europe ; it seemed an anachronism to find so able a 
 mind in the pre-economic period, and a strange 
 survival of extinct error, to hear him expounding 
 the good of all which Political Economy showed to 
 be bad, and the evil of all which Political Economy 
 proved to be good. No kind of political teaching 
 has ever won half as many triumphs, or produced 
 half the effects. 
 
 But, nevertheless, the reputation of Political 
 Economy is not altogether satisfactory to the minds 
 of those who most value and prize it. There is not 
 quite the same interest felt for it, or quite the same 
 confidence reposed in it, which there was formerly. 
 A small knot of persons deny its value ; a good many 
 people, though sure they are wrong, are puzzled by 
 them, and do not see how to answer them. Man}; 
 young men, even studious men, especially those 
 educated abroad, have not studied its best writers, 
 and have but vague views about it. Though vic- 
 torious, it wants part of the prestige of victory ; 
 though rich in results, its credit is not quite as good 
 as on that account it ought to be. 
 
 The truth is that the story of Political Economy, 
 if I may so call it, is a curious one in itself; the 
 science is to some extent a new sort of one in the 
 world, and has come to be what it is in a rather 
 
The Prelimmaries of Political Economy. 97 
 
 strange way. That story could only be fully ex- 
 plained by an exposition of all the science, and an 
 account of all who contributed to it. But I think 
 the main and most valuable part of the truth may 
 be set before those who will read a short description 
 of the science as it now stands, and a rough account 
 of the labours of four great men, ^ who more than 
 any others, have made the science what it is, and 
 placed it where it is. The knowledge so given will 
 after all be most imperfect. 
 
 Political Economy in its complete form, and as we 
 now have it, is an abstract science, just as statics 
 or dynamics are deductive sciences. And, in con- 
 sequence, it deals with an unreal and imaginary 
 subject. Just as statics and dynamics — the sciences 
 of theoretical mechanics — deal with perfectly rigid 
 bodies, which nothing will bend or strain ; with 
 perfectly elastic planes, from which the rebound is 
 equal to the impact ; with a world destitute of 
 friction ; with physical materials in short which no 
 one ever expects to find in reality — so Political 
 Economy deals with an immaterial subject, which in 
 the existing world cannot be found either. Political 
 Economy deals not with the entire real man as we 
 know him in fact, but with a simpler, imaginary 
 man — a man answering to a pure definition from 
 which all impairing and conflicting elements have 
 been fined away. The abstract man of this science 
 is engrossed with one desire only — the desire of 
 possessing wealth, not of course that there ever was a 
 
 ^The essay on J. S. Mill was not written and that on Adam 
 Smith is incomplete. 
 
g8 Economic Studies. 
 
 being who always acted as that desire would dictate, 
 any more than any one thinks there is in nature 
 a world without friction or entirely elastic planes, 
 but because it is found convenient to isolate the 
 effects of this force from all others. The effect of 
 the abstract hypothesis, made on the necessary basis 
 of statics and dynamics, is to enable us to see the 
 effect of the single agent, " pressure," in a simple 
 way and free from the repressing and obscuring con- 
 ditions which exist in actual nature. And in the 
 same way the use of the primitive assumptions of 
 Political Economy is to show how the greatest of in- 
 dustrial desires — the desire to obtain wealth — would 
 operate, if we consider it as operating, as far as we 
 possibly can, by itself. The maxim of science is 
 simply that of common-sense — simple cases first ; 
 begin with seeing how the main force acts when 
 there is as little as possible to impede it, and when 
 you thoroughly comprehend that, add to it in suc- 
 cession the separate effects of each of the encumber- 
 ing and interfering agencies. 
 
 If such a simplification is necessary in physical 
 science where the forces are obvious and few, it must 
 much more be necessary in dealing with the science 
 of society, where the forces are, in comparison, very 
 various and difficult to perceive. In this very science 
 of Political Economy, the first writers endeavoured 
 to deal in a single science with all the causes which 
 produced or impaired wealth — which, as they would 
 have said, " made nations rich or poor ". And this 
 was the most natural way of beginning. Almost all 
 science seems to have begun similarly. In each 
 
The Preliminaries of Political Economy. gg 
 
 case there was some large palpable fact to be ex- 
 plained — some great pressing problem to be solved. 
 And so here, if you look over the nations of the 
 world, you see at once that one of the greatest con- 
 trasts between them is that of comparative wealth, 
 or comparative poverty ; the palpable fact at the 
 beginning of Political Economy is that the Dutch 
 are rich, and others (the Tyrolese, suppose), poor- - 
 that England is a very rich country, and Ireland a 
 very poor country ; how then was this difference to 
 be accounted for, and the practical problem — money 
 being an admitted good— to be solved, how far can 
 we make the poor nations rich, and how are we to 
 begin so to do ? But considered in this simple and 
 practical way, the science of Political Economy be- 
 comes useless, because of its immense extent. The 
 whole of a man's nature, and the whole of his cir- 
 cumstances, must be reckoned up and reasoned upon 
 before you can explain his comparative wealth or 
 poverty. To explain the difference of industrial 
 conditions between the Tyrol and Holland, you will 
 have, first, to state all the points of difference in 
 religion, in morality, and in inherited character be- 
 tween a Dutchman and a Tyrolese — then state the 
 diversities of their physical condition, and work out, 
 as best you can, the effects of all the contrasts. And 
 still further, if you try to give a universal reason why 
 nations are poor and why nations are rich, you will 
 not be able to arrive at any useful answer. Some 
 will be poor because they have a bad government ; 
 some because they are cooped up on a poor soil ; 
 some because they have a religion which disinclines 
 
 ^ fV^^^ 
 
 X. n 
 
100 Economic Studies. 
 
 them to make money ; some because they have 
 ancient rules, which helped them to make a begin- 
 ning, but now retard them ; some because they have 
 never been able to make that beginning ; and many 
 other causes might be given. The problem taken up 
 in that form is indeterminate ; why nations are rich 
 or poor depends on the whole intrinsic nature, and 
 all the outward circumstances, of such nations. 
 There is no simpler formula to be discovered, and a 
 science which attempted to find one would of neces- 
 sity have to deal with the whole of physical science ; 
 it w^ould be an account of all " men " and all the 
 earth. 
 
 It is on account of its abstract character that 
 Political Economy is often, and justly described, as 
 a science of ''tendencies" only; that is, the object 
 of it is to work out and ascertain the result of certain 
 great forces, as if these alone operated, and as if 
 nothing else had any effect in the matter. But as 
 in matter of fact many other forces have an effect, 
 the computed results of the larger isolated forces 
 will never exactly happen ; they will onl3% as it is 
 said, tend more or less to happen ; that is, they 
 happen more and more nearly in proportion as the 
 resisting and perturbing causes in each case happen 
 to be less and less. 
 
 The very refined nature of the modern science of 
 Political Economy has naturally led to many mis- 
 takes about it. The mere idea of such a science has 
 evidently never crossed the minds of many able 
 writers, and persons who have given but slight con- 
 sideration to the matter are much puzzled. Analo- 
 
The Preliminaries of Political Economy. loi 
 
 gous sciences of physical subjects are, as has been 
 said, easy to find, but illustrations from them do not 
 tell much where effectual description of Political 
 Economy is most wanted. A science occupied with 
 human things, and professedly with a part of human 
 things profoundly interesting, awakens a great curi- 
 osity among multitudes of little cultivation. They 
 begin to think about it, and to read about it, and the 
 better the books they read, the more likely are they 
 to be puzzled by what they find. They know that 
 they are reading words which are constantly used in 
 common life, and about things resembling, at least, 
 those of that life, but nevertheless the reasonings 
 and the conclusions do not seem to belong to real 
 life at all. Such persons know nothing about statics 
 or dynamics ; and any attempt to explain the nature 
 of Political Economy by an account of the nature of 
 statics or dynamics, is only explaining obscuruni per 
 obscurius. As might be expected, the worst offenders 
 are the uncultured moralists. They see all manner 
 of reasonings framed, and of conclusions drawn, 
 apparently about subjects with which morality itself 
 is concerned deeply — about (say) industry and wealth, 
 population and poverty, and they never dream that 
 there is anything peculiar about these conclusions. 
 They apply the " rules of morality" to them at once; 
 they ask: "Is argument B true of good persons ? 
 Would not conclusion C augment wickedness ? " 
 whereas, in fact, the economic writers under con- 
 sideration did not mean (and rightly did not mean) 
 to deal with ethics at all. They only evolved a 
 hypothesis; they did not intend that their arguments 
 
102 Economic Studies. 
 
 should be thought to be taken from real life, or that 
 their conclusions should be roughly, and as they 
 stood, applied to real life. They considered not the 
 whole of actual human nature, but only a part of it. 
 They dealt not with man, the moral being, but with 
 man, the money-making animal. 
 
 Naturally, too, the cultivators of the abstract 
 science itself (even those who fully understood its 
 peculiar nature), did not always in practice remember 
 the remoteness to practice of that nature. On the 
 contrary, they rushed forth into the world with hasty 
 recommendations to instant action ; whereas the 
 very justification of their reasonings, and the very 
 ground of their axioms, was the necessity of beginning 
 the investigation of the subject in a simple theory, and 
 far away from the complexities of practice and action. 
 But so much are the practical impulses of man 
 stronger than his theoretical tastes, that the culti- 
 vators of an abstract science are always in great 
 danger of forgetting its abstract nature ; they rush 
 and act on it at once. In the abstract physical 
 sciences there is an effectual penalty. A person who 
 acted on abstract dynamics would soon break his 
 head, but in mental and physical sciences unhappily 
 there are no instant tests of failure. Whatever 
 happens, a man can always argue that he was right ; 
 and thus an abstract science of human things is more 
 delicate to handle, and more likely to be misused, 
 than a similar science of external nature. 
 
 A sort of uncertainty likewise seems, even in the 
 better-informed minds, to creep over the subject. If 
 it is so remote from practice, they say, how can you 
 
The Preliminaries of Political Economy. 103 
 
 test it, and how can you tell that it is true ? But this 
 is exactly so also in the corresponding physical 
 sciences. One of the shrewdest observers of in- 
 tellectual matters of the generation, the late Sir 
 G. C. Lewis, used to say : '* My experience in this 
 office " (he was then Secretary of State for War) 
 "has convinced me that when you come to practice, 
 physics are just as uncertain as metaphysics. The 
 abstract theory of physics is unquestionably much 
 more complete, but if you want to deal with an 
 instance in life, you will always find that there is a 
 * tension,' or a ' friction,' or some other cause, which 
 is not accurately measured, and does not figure in the 
 abstract theory. And this is the reason why, on all 
 such questions, scientific evidence is so conflicting. 
 You can always obtain an eminent engineer on any side 
 to set against an eminent engineer on the other side, 
 because the scientific and certain part of the subject 
 is not the whole, and there still remains an im- 
 perfectly explored residuum on which there may be 
 different opinions." All this is as true of Political 
 Economy as of any physical science ; its deductions 
 may be incontrovertible, and its results precisely true, 
 whenever its assumptions are true, but these results 
 will be very imperfect guides, wherever those 
 assumptions are impaired by contradictory matter. 
 
 On the other side, however, it should also be said 
 that "abstract" Political Economy is not by any 
 means the unnatural thing which, from the account 
 of it on paper, and the description of its difficulties, 
 it would seem to be. Many people on the matter 
 have " talked prose all their lives without knowing 
 
104 Economic Studies. 
 
 it " ; many people have given admirable arguments 
 on Political Economy, and have been more or less 
 precisely aware of the difference of their assumptions 
 from those of the real world, though they have never 
 studied the specially abstract science, and could 
 have given no sufficient delineation of it. The notion 
 of investigating how much money persons would 
 make, who simply wished to make it, and how they 
 would best do so, is a very simple idea. The desire 
 for wealth— using wealth in the largest sense, so as 
 to include not only the means of luxury, but the 
 means of subsistence — is so preponderant in very 
 many minds, that it is very easy, if necessary, 
 to regard it as the sole object. As far as people are 
 what we now always call men of business, money, 
 the thing they look for and the thing they want, is 
 their sole object, and in that sense of the phrase. 
 Political Economy may be fairly called the science 
 of " business ". 
 
 On that account, in some very large scenes of our 
 present English life. Political Economy is exactly 
 true. The primary assumption on which it rests 
 is precisely realised. On the Stock Exchange every- 
 body does act from a love of money ; men come 
 there to make it, and thev try to make as much of it 
 as they can. Of Lombard Street the same may be 
 said ; the pecuniary phenomena of Lombard Street 
 may be investigated with quite sufficient accuracy, 
 on the assumption that bankers come there only 
 to make money, and when there, make as much of it 
 as they can. All markets are scenes nearly similar; 
 so long as they are at the market all dealers try to 
 
The Preliminaries of Political Economy. 105 
 
 make the best bargain they can. As the principal 
 nations of the world at present are nations of business 
 — commercial nations — and as the mass of men in 
 such nations are mainly occupied in business, it 
 follows that with respect to those nations a simple 
 analysis of the unchecked consequences of the 
 " business motive " will be a near approximation 
 to a large part of their life, though it will not be a 
 perfect account of their complete career, for there is 
 very much also in every nation besides business 
 and besides money — but it will be a useful hint to a 
 predominant characteristic of that career. Having 
 investigated the effects of this principal motive, we 
 may when we please, and as far as it is necessary, 
 investigate the effects of the almost infinite number 
 of the secondary and interfering motives. 
 
 As, too, it is at present necessary for all nations 
 to be rich in order to be influential in the world, it 
 follows further, that an account of the commercial 
 motive of action, taken by itself, is, as the world now 
 stands, an analysis of the results of a principal 
 ingredient in the days that are gone by, when poor 
 barbarians, if warlike, were more powerful than rich 
 civilised people. The times are gone by when 
 civilisation enervated energy, or when wealth im- 
 peded valour. At present, courage without money 
 is courage without guns ; and courage without guns 
 Is useless. Political Economy traces, in an abstract 
 way, the effects of the desire to be rich, and nations 
 must now-a-days abound in that passion if they are 
 to have much power or much respect in the world. 
 
 On the other hand, no intellectual attempt can be 
 
to6 Economic Studies. 
 
 more absurd than the attempt to apply the con- 
 clusions of our Political Economy to the lives of 
 nations at a non-commercial stage of their existence. 
 A great military nation, based on slavery, like the 
 Romans ; a nation bound by fixed customs like so 
 many Oriental nations ; tribes in a state of barbar- 
 ism, — are not guided principally by the commercial 
 spirit. The money-getting element is a most sub- 
 ordinate one in their minds ; its effects are very 
 subordinate ones in their lives. As the commercial 
 element is all but necessary to considerable com- 
 binations of men, that element will almost always 
 have effects, and usually important effects, in the 
 destiny of these combinations. But only in com- 
 munities where the commercial element is the 
 greatest element, will these effects be the greatest. 
 In so far as nations are occupied in " buying and 
 selling," in so far will Political Economy, the ex- 
 clusive theory of men buying and selling, come out 
 right, and be true of them. 
 
 But it will be good as far as it goes, and, though 
 it is not my business to say it, I think it will be 
 the fault of the writer if the curious interest of the 
 facts does not lead many readers to a further study 
 of the subject. 
 
 And, though what has been explained is the 
 principal difference between the hypothetical science 
 of Political Economy and the real world, it is by 
 no means the only difference. Just as this science 
 takes an abstract and one-sided view of man, who 
 is one of its subjects, so it also takes an abstract 
 and one-sided view of wealth, which is its other 
 
The Preliminaries of Political Economy. I07 
 
 subject. Wealth is infinitely various; as the wants 
 of human nature are almost innumerable, so the 
 kinds of wealth are various. Why men want so 
 many things is a great subject fit for inquiry. 
 Which of them it would be wise for men to want 
 more of, and which of them it would be wise to 
 want less of — are also great subjects equally fit. 
 But with these subjects Political Economy does not 
 deal at all ; it leaves the first to the metaphysician, 
 who has to explain, if he can, the origin and the 
 order of human wants ; and the second to the moral- 
 ist, who is to decide, to the best of his ability, which 
 of these tastes are to be encouraged, and when — 
 which to be discouraged, and when The only 
 peculiarity of wealth with which the economist is 
 concerned is its differentia specifica — that which makes 
 it wealth. To do so it must gratify some want of 
 man, or it would not be desirable, or it would not 
 be wealth. But whence that want comes, whether 
 from a low part of man, or from a high, is to the 
 economist immaterial ; whether it is a desirable want 
 for man to gratify he cares as little, so long as that 
 gratification does not hurt man as a wealth-produc- 
 ing machine. He regards a pot of beer and a 
 picture, a book of religion and a pack of cards, as 
 all equally "wealth," and therefore, for his purpose, 
 equally worthy of regard. The only division of 
 wealth in his mind is, if I may use the words, the 
 division between sterile and not sterile. Some 
 things will help men to make new things ; some 
 things will induce men to work and make new 
 things; both these classes of things are in the eyes 
 
io8 Economic Studies. 
 
 of the economist capital or reproductive. On the 
 other hand, other things have no similar reproduc- 
 tive power ; if they were taken out of the world all 
 work would go on with equal efficiency, and as 
 many new things would be produced. And these 
 last are, in the eyes of the economist, unproductive 
 opulence, just as the first were productive capital. 
 
 Further, Political Economy makes not only these 
 assumptions as to the nature of its principal force 
 and as to that of its object, it also makes two as to 
 the physical conditions under which this force acts, 
 and in which this object is supposed to exist. For 
 its own purposes it simplifies, as we have seen, the 
 nature of the actors, and the end of the action ; 
 we have now to see that it simplifies also the stage. 
 
 Political Economy assumes that land is " limited 
 in quantity and variable in quality ". And, taking 
 the whole of human states, this assumption has 
 almost always been true. There has been, in almost 
 all countries, a difficulty in obtaining land ; there 
 has scarcely ever been a surplus of it. Still, though 
 this assumption accurately coincides with the usual- 
 phenomena of most countries, it does not agree with 
 all the phenomena of them all. On the contrary, 
 in all "new" countries, as they are called, land is 
 exceedingly plentiful. There is practically no diffi- 
 culty in procuring it ; in the valley of the Mississippi 
 as much of the best land as any one wants can, 
 without serious impediment, be obtained. No doubt 
 such land is farther off from the best markets than 
 most occupied land of a like kind. But in the 
 present state of the arts such a difference in distance 
 
The Preliminaries of Political Economy. 109 
 
 presents no serious difficulty. The construction even 
 of a short railway will open up an entire district, 
 and make its produce as available in the market as 
 that of much land long before cultivated. In new 
 countries it can hardly be said that this assumption 
 of Political Economy is at all the truth ; it is rather 
 the opposite of the truth. And accordingly the 
 doctrines of abstract Political Economy must not 
 be applied to such countries roughly, and without 
 previous re-examination. One of the primitive 
 assumptions not being true, we must be careful to 
 reinvestigate and see whether any particular deduc- 
 tion which we wish to use, is, or is not, impaired 
 — is, or is not, in consequence, untrue. 
 
 At first sight it would seem that this limitation of 
 abstract Political Economy would exclude it from 
 much of the real world. New countries, one would 
 imagine, would be among the most common of 
 countries; the human race has always been wander- 
 ing, and must have been always reaching new 
 countries. But, in truth, this limitation scarcely 
 makes any new exclusion. The nature of the " man" 
 who first occupied new countries did not " conform " 
 to the standard of economic man ; the being of 
 reality was not the being of the hypothesis. The first 
 men, all researches justify us in assuming, nearly 
 approached in nature to the present savage man. 
 They had not probably as many curious customs or 
 so many debasing superstitions ; they had not so 
 many ingrained vices. But they had as little in- 
 tellectual development, and as little knowledge of 
 material things; they were ignorant of the " calen- 
 
no Economic Studies. 
 
 dar"; they could with difficuUy count more than 
 five; they could just make a few weapons of war ; 
 they could just construct some sort of shed that 
 would serve for a dwelling ; but they could not make 
 any of the articles which we now call " wealth " ; 
 and they would not have appreciated such things. 
 The desire, so strong in civilised man, for wealth, has 
 been excited in him by the experience of ages, and 
 has been transmitted to him by inheritance. If you 
 take a present savage, even of a high type, he will 
 find the life of cities, the life of wealth, par excellencCy 
 scarcely tolerable. There is a well-known story of one 
 savage, who, after living some forty or fifty years in a 
 cultivated world, in his old age returned to die as a bar- 
 barian, saying " that civilisation was so much trouble 
 he could bear it no longer ". The first occupiers of 
 most countries were not men eager for complex 
 wealth ; they cared only for a bare subsistence — 
 and then to kill and eat one another. 
 
 Many ages, indeed, have always intervened be- 
 tween the first settlement of any country, and the 
 rise of a strong and independent mercantile element, 
 before the time at which the first assumption of 
 Political Economy was at all satisfied in it. During 
 that time such countries commenced a kind of 
 civilisation, but it was a very different kind of civilisa- 
 tion from the predominantly commercial ; it was in 
 general ruled by fixed customs, as most of the East 
 is now ; it did not allow its members to choose 
 their own ends and fix their own existence for them- 
 selves ; on the contrary, it chose itself those ends 
 and prescribed that existence. And the life so 
 
The Preliminaries of Political Economy. iii 
 
 selected gave but little scope to the production of 
 wealth. It was occupied either with an incessant 
 military service, or, in peace, with an equally incessant 
 but semi-religious ritual ; the labour for, and the ac- 
 cumulation of, the means of physical comfort were 
 very secondary aims in most of the periods described 
 by history, as they still are in by far the greater part 
 of the present world. For ages after their first 
 colonisation, there was no such absorbing and self- 
 selecting life of trade as Political Economy assumes 
 and requires. 
 
 Accordingly, in all the old world — the world as 
 known to the "ancients" — the land has long been 
 occupied, and more or less usefully, more or less 
 fully, by ancient and ineradicable races. In practice 
 they cannot be dispossessed. In all that large 
 part of the world, therefore, land is very scarce ; 
 no new comers can, in fact, obtain much of it. But 
 of late there have been immense territories — '*new 
 worlds," to use the usual word — of which this is not 
 true, but where the very reverse is true. Long 
 voyages, impossible to the ancient navigator, have 
 been made possible by modern inventions ; and these 
 voyages have discovered large regions inhabited only 
 by men who fade away before the presence of civil- 
 ised men. In these distant regions man seems to 
 have been a protected, and, therefore, a feeble animal ; 
 he had not to submit to the incessant competition 
 which has in the "old world" hardened his frame 
 and seasoned his mind. The diseases which the 
 European can bear, the stimulants in which he 
 delights, the labour for which he lives, are so many 
 
112 Econouiic Studies. 
 
 poisons to the Australian or American savage. He 
 dies of one or all of them soon after the coming of 
 the European, and he leaves his land vacant. He 
 has never been able to cultivate the land which he 
 calls his, and now he drops away from it. As a 
 singular result of this strange history, land of the 
 best quality is now procurable in large quantities 
 and with great ease by civilised man. There are 
 now countries not only called "new," because newly 
 discovered, but new, really, because the land in them 
 can now be used, but has never been used before. 
 
 As a matter of fact, therefore, the primitive 
 assumption of hypothetical Political Economy, that 
 land is always limited in quantity, as well as variable 
 in quality, coincides well enough with the usual facts 
 of the world. But as the modern exception is one of 
 great present importance to economic nations, as a 
 matter of convenience it has become desirable (though 
 I do not think the desirability has been usually 
 recognised) to annex to Political Economy a full 
 discussion of the nature and the effects of that 
 exception. What has hitherto been the rule, and 
 what has hitherto been the deviation from it, both 
 become clearer when considered side by side. 
 
 It may be asked, what is the use of laying down 
 such a rule, if you admit it, and discuss exceptions 
 to it ? Why invent a hypothetical hedge when you 
 know that it does not include all you want, and that, 
 therefore, you will be unable to keep within it ? 
 The answer is, that the rule was not arbitrarily in- 
 vented by inward fancy, but suggested by outward 
 facts long predominant. The nearest way to the 
 
The Preliminaries of Political Economy, it3 
 
 whole truth is by pursuing the clue which the partial 
 truth first gave. 
 
 Political Economy also assumes, as another 
 axiomatic fact as to land, that land throughout the 
 world is for the most part of such fertility that the 
 labour of a cultivator, if he has but a very moderate 
 degree of knowledge and skill, will produce not only 
 a subsistence for himself, but also many other 
 persons. This is so true that it perhaps scarcely 
 needs to be said, but it is of cardinal importance. 
 If it had not been true, the truths of Political 
 Economy and the lives of men would have been 
 altogether different from what they now are. And 
 there is no a priori reason — in physics, at least — 
 why the whole earth should not be as a bit of bleak 
 moor, where agriculturists have nothing over, and 
 can but just raise a bare subsistence for themselves. 
 But for the most part there is a surplus, and this 
 surplus is, of course, increased day by day. By the 
 continual improvement in the arts of agriculture 
 more is produced, and, therefore, there is more over. 
 In old countries the increasing productiveness retards 
 the need of a resort to new soils, and diminishes 
 the evil of it ; and in new countries this additional 
 surplus is an extra fund for exportation, and a new 
 means for supplying the wants of those who have 
 stayed at home in the old world. 
 
 And, lastly. Political Economy declines to investi- 
 gate all the causes which determine the rate of 
 increase of man, and assumes an avowedly incom- 
 plete and approximate formula as to it. From the 
 ver}' nature of the case, Political I'^conomy must do 
 
 8 
 
114 Economic Studies. 
 
 this. The causes which regulate the increase of 
 mankind are little less than all the causes outward 
 and inward which determine human action. Climate, 
 social customs, political government, inherited race- 
 nature, and other things beside, affect, as we all 
 know, the rate at which population grows. Political 
 Economy would have to discuss half physiology, 
 half the science of government, and half several 
 other sciences too, if it attempted to investigate the 
 real laws which regulate the multiplication of man- 
 kind ; it has necessarily to make an assumption, to 
 assume as a dictum some approximation to the 
 complex truth, which is at once simple enough to be 
 manageable, and true enough to be useful. Political 
 Economy, therefore, assumes that in any particular 
 society the power of parents to produce children 
 exceeds the power to provide for them in what those 
 parents think sufficient comfort ; whence it comes 
 that either parents must not produce all the children 
 that they can, or that, if they do, the standard of 
 comfort in the population must deteriorate, and if 
 the multiplication continue, and the deterioration 
 augment, that the population must die off. There 
 is no difficulty in showing that this assumption em- 
 bodies accurately enough the ordinary experience of 
 mankind as history records it, and as present facts 
 evince it. An immense ''reserve power" of multipli- 
 cation is certainly to be found in most countries, 
 which is kept down by one obstacle or other, but 
 which is ready to start forward when that obstacle 
 is removed. No two countries can differ more in 
 every respect important for this purpose than Great 
 
The Preliminaries of Political Economy. 115 
 
 Britain and British India. Yet both of them seem 
 to prove the same result. At home, the people of 
 Great Britain increase only at the rate of I'oi per 
 cent, per annum, and double in fifty-eight years; but 
 if you take the very same population to the Colonies 
 or the United States, it is believed to increase at a 
 much more rapid rate, and to double itself more 
 rapidly, though the relative increase is not nearly so 
 great as is sometimes assumed when no sufficient 
 account is taken of the continual immigration into 
 those countries. The lesson of Hindostan is still 
 more remarkable. The population of the Peninsula 
 is ordinarily supposed not to have augmented since 
 the time of Alexander; there is conclusive evidence 
 that for centuries {)receding the English conquest it 
 augmented very slowly, if at all. But now, under 
 the influence of long peace, and long good govern- 
 ment, the population is beginning to augment very 
 rapidly. In the North-West Provinces, where the 
 data are the best, it is said to be augmenting almost 
 as rapidly as the population of Great Britain. Here, 
 as before, there is an immense acceleration of the 
 rate of multiplication, because a repressive force has, 
 as before, been withdrawn. No one can doubt that 
 the same experiment would have a like result in 
 other cases. 
 
 It may be said that out of Europe there is very 
 much unoccupied land, and that even if Europe pro- 
 duced all the people it could, those people might be 
 sent thither. But emigration on such a scale, 
 though imaginable in speculation, is not possible in 
 practice. To create very rapidly new colonies, or to 
 
ii6 Economic Studies. 
 
 \/ 
 
 extend very rapidly old ones, requires the migration 
 not only of persons but of capital. You must send 
 thither the means of subsistence if the emigrants 
 are to be subsisted, and the means of employment 
 if they are to be employed, and capital will not go 
 unless you pay it. It must have its regular per- 
 centage ; and as yet no capital employed in founding 
 colonies — no capital, that is, of a founding company, 
 or of founders as such — has ever paid a farthing. 
 The capital so expended has been a great benefit to 
 the emigrants and to the colony, but it has never 
 paid a dividend ; on the contrary, the whole capital 
 has commonly been lost. There are no means by 
 which owners at home can be sure of their interest, 
 nor will very many owners of capital go themselves 
 to the colonies, only because it would much help the 
 poor there if they did so. Capital must be propelled 
 by self-interest ; it cannot be enticed by benevolence. 
 The sudden foundation of a colony so huge as to 
 contain all the possible children — all those that might 
 be in excess of those which are — is impossible ; the 
 bare idea of it is ridiculous. 
 
 Nor, if such a colony could be founded, would it 
 attain the end desired. Cultivated persons in Europe 
 do not produce all the children they might, because 
 they know that if they did, those children could not 
 lead any such life as they themselves lead. They 
 wish their children to have refined habits, and to 
 live by their talents and their mind as they do them- 
 selves. But in a .colony this is simply impossible. 
 Rude plenty and rough prosperity are common, but 
 a nice refinement is all but impossible. The life of 
 
The Preliminaries of Political Economy. 117 
 
 a lady, as we see it in Europe, is in colonies im- 
 possible. As sufficient servants cannot be obtained, 
 the mother of the family has in person to see to the 
 manual slavery of the housev^ork as well as look 
 after her children, and this leaves her little oppor- 
 tunity for refined culture. The men are a little 
 better off, but not much. The demand for educated 
 labour in the colonies is exceedingly small ; the 
 business of the place is to produce corn or wool — 
 food or raw material ; neither skilled labour nor 
 cultured labour is much wanted for that. Almost 
 all our colonies have warned our artisans not to come 
 thither, because there was no room ; and as for the 
 legal or other long-trained and costly mental labour 
 of the old world, there is very little opportunity for 
 it. Not only, therefore, is a colony impossible 
 which should be huge enough for all the possible 
 people of the old world, but such a colony, even if 
 possible, would be inadequate ; it would only provide 
 for the children of rude people in the manner rude 
 people wish ; it would not provide for those of re- 
 lined people in the least, as refined people wish. 
 
 The measured use of the multiplying power which 
 is now practised by all decent people in the existing 
 society of the old world is, therefore, more or less 
 essential to the continuance of such a society. A 
 use of the power without measure would certainly 
 overcrowd such societies with high aims that could 
 not be satisfied ; and, perhaps, also with mouths 
 which could not be fed. 
 
 And it is quite consistent with this to believe that 
 such restraint has not at all been uniformly practised 
 
ii8 Economic Studies. 
 
 in the world, that it has been rather the rare excep- 
 tion, not the common rule. Such restraint has not 
 been practised because it has not been wanted. We 
 have been let into the secret of the matter by the 
 experience of India. The number of the people in 
 British India, as we have seen, was stationar}^ for 
 ages, but now they have begun to augment quickly. 
 And we know the reason why. 
 
 And it is, too, quite consistent with this doctrine 
 to believe, as has been lately urged with singular 
 force, that we have as yet much to learn as to the 
 theory of population, — that the numbers of all nations 
 do not augment alike (even under seemingly similar 
 conditions), — that there is the same difference in 
 different families, — that there are a variety of " laws," 
 some that can be clearly indicated, others that can 
 be only suspected, which diminish, or seem to 
 diminish, the multiplying capacity of mankind. 
 
 One of these is the increase of intellectual action. 
 Physiologists say, on a priori ground, that if you spend 
 nervous force in one direction, you will not have as 
 much to spend in another. The ultimate identity of 
 seemingly different forces is one of the most re- 
 markable discoveries of recent science, and there is 
 every reason to think that it applies here. An 
 incessant action of the brain often seems to diminish 
 the multiplying power. It can hardly be an accident 
 that Shakespeare, Lord Bacon, Milton, Newton, 
 and Locke — perhaps oui five greatest Englishmen — 
 had only six children between them.^ Locke and 
 
 ^ There may be some doubt as to Newton and Shakespeare, 
 but this is the number as far as it can be authenticated. 
 
The Prelinimaries of Political Economy. iig 
 
 Newton, it is true, did not marry, but it is not 
 irrational to suspect that the coolness of temperament 
 which kept them single was but another phase of 
 the same fundamental fact. But the doctrine of 
 abstract physiology must be applied with caution ; 
 it only says that of any particular total of nervous 
 force, what is expended in one way will not remain 
 to be expended in another ; in any given case, to use 
 the well-known phrase, '' what is gained in children 
 will be lost in mind " ; but all cases are not alike. 
 The nervous power of A may be fifty times that of C, 
 and, therefore, he may do five times more brain-work 
 than C, and also have five times his children. And, 
 in fact, Mr. Galton finds that English judges — a 
 strongly intellectual race as a whole — have as many 
 children as other people. And there are some other 
 limiting observations which might be made on the 
 subject. Still, on the whole there seems to be a 
 tendency in the absorbing action of intellectual power 
 to have this particular effect, and abstract science 
 teaches that we should expect it. 
 
 The same remark, with some limitations, is pro- 
 bably also applicable to women. Hardly any one 
 who observes can doubt that women of much mind 
 and fine nerves, as a rule, seem not so likely to 
 have children, or, at least, not to have so many 
 children as others. Here, too, as with men, the 
 whole vital force in one case often may be, and 
 often will be, different from that force in another, 
 and, therefore, particular women may be up to the 
 average, or even be remarkable in both ways. l)ut 
 still, on the whole, the existence of the tendency 
 
120 Economic Studies. 
 
 seems clear. And it is curiously like a similar force 
 at the other end of the social scale. Mr. Wallace, 
 one of the most competent of living observers, says 
 that the increase of the population in savage tribes 
 is much retarded by the exhausting labour of their 
 women. And it will be a curious cycle if, as is likely 
 in the latest civilisation, the same preventive check 
 should again become a powerful one. 
 
 Another force which may be strongly suspected, 
 if it cannot be quite proved, is the tendency of dis- 
 heartened races and of dispirited families to die out 
 and disappear. This force would seem to be much 
 the same as that which operates on all wild animals 
 when in confinement. The richest food may be given 
 to such animals, the greatest care taken of them, 
 and their apparent health may seem to be as good 
 as possible, and yet they will not breed. Now all 
 such animals are dispirited for want of the excite- 
 ment of a wild life, and this may be the reason of 
 the change in their multiplying power ; at any rate, 
 in the case of men, close observers of the dying 
 savage races seem to think that often the mind has 
 something to do with it. The New Zealander says 
 that " as the English rat has supplanted the 
 Maori rat, so the English ' man ' will supplant the 
 Maori * man ' ". He looks on the extinction of his 
 race as a fixed fate, and, in consequence, his spirits 
 fall, his mind loses some of its tone, and his con- 
 stitution some of its vigour. In civilised life parti- 
 cular families sometimes seem to droop and die 
 away, though it is not possible to set down the 
 cases exactly in figures. This is analogous to 
 
The Preliminaries of Political Economy. 121 
 
 what Dr. Maudsley tells us he has observed of 
 anxiety. 
 
 All these seem to be traces of new laws which 
 already diminish, and in future times may still 
 more limit, the multiplying power of mankind ; but 
 the fullest acknowledgment of them does not con- 
 tradict the primary assumption made by abstract 
 Political Economy. It will still remain true, at 
 present, that if all people had as many children as 
 they could, they could not provide for them as they 
 think they ought — perhaps could not provide for 
 them at all. Nor is it easy to imagine a future 
 time when causes such as these should have so 
 exceedingly diminished the sexual feelings as to 
 make voluntary restraint of them needless. Those 
 feelings certainly are incredibly strong now, in com- 
 parison with the forces which it is thought will 
 hereafter supplant them. It is easy to believe that 
 the necessity for voluntary restraint should be 
 diminished, but it is not easy even to imagine that 
 this necessity should be extinguished. 
 
 In the same way this primary axiom would not 
 be impaired if it could be proved that aristocracies, 
 as such, tend to have fewer children than other 
 classes. Aristocracies are so small a fraction of 
 mankind that the particular rate of their increase 
 is not important enough to alter much the rate of 
 increase of mankind, or even of a nation as a whole. 
 But though this tendency of aristocracies has often 
 been imagined, it has never been proved, and, indeed, 
 it never will be, for it can be easily disproved. The 
 most obvious and conclusive fact against it is that 
 
122 Economic Studies. 
 
 the English aristocracy have more children than 
 the average of Englishmen. A common observer of 
 society would, indeed, expect to find this. He would 
 remember that the peers now differ very little from 
 the rest of the English gentry; that the English 
 gentry are, as a rule, healthy and not dissipated 
 men ; that peers in general are married early. All 
 these characteristics make them likely to have more 
 children than other people, and, in fact, they have 
 more. The theor}^ that aristocracies of necessity 
 diminish in number fails in this case even ludicrously, 
 for that theory attributes to the persons it selects 
 a deficiency in the very particulars in which they 
 were likely to excel, and do excel. 
 
 But though this assumption as to the multiplying 
 power of the people is true of by far the greater part 
 of the world, and of most ages, it is not true of all 
 the world or of all ages. Like the other primitive 
 axiom of Political Economy as to land, it fails where 
 " new" countries are occupied by old races. I have 
 already spoken of the strange chance which has un- 
 peopled so great a part of the world just when 
 civilised people wanted to go there. It is strange to 
 think how different would have been the fate of this 
 and of coming generations, if America and Australia 
 had possessed imperfect but thickly populated civil- 
 isations, like those of China and of India. In 
 climate, and in all external circumstances, America 
 seems as fit for an early civilisation as India. 
 Happily, however, it did not possess one, nor did 
 Australia. There is nothing there now left to 
 cumber the ground. A race rich in the arts of 
 
The Preliminaries of Political Econotny. 123 
 
 civilisation is thus placed in a country rich in un- 
 owned but fertile land. And in these countries 
 there is no check on population. Those who can 
 live there — who are the kind of people that can bear 
 the necessary rudeness and can live there — can 
 multiply as fast as they like ; they will be able to 
 support their children in the rough comfort of such 
 countries ; those children will not be in the least 
 likely to die off from want or from disease ; on the 
 contrary, they will be as likely to live as any 
 children of the human race. The possible maximum 
 of multiplication is there reached, and yet none of 
 the multipliers are deteriorated in the scale of the 
 life, or in any of their circumstances. 
 
 And it is necessary to take most careful account 
 of this exceptional case, because it vitally affects 
 the present life of present commercial nations, to 
 which Political Economy is meant to be an approxi- 
 mation. The existence of those nations is vitally 
 affected by the results of this exception, and there- 
 fore those results must not be neglected. It follows 
 from those results that Political Economy is not the 
 ''dismal science" which it was thought to be years 
 ago, and which many people still imagine it to be. 
 It does not teach that of necessity there will be, 
 as time goes on, a greater and greater difficulty in 
 providing for the increase of mankind. It assumes 
 as an indisputable fact, a present difficulty, but it 
 does not assume, or say, that this difficulty will in- 
 crease. That augmentation of difficulty will not 
 arise, first, because some of the inhabitants of old 
 countries can emigrate to new countries, where 
 
124 Economic Studies. 
 
 people may increase as fast as they can ; secondly, 
 because those emigrants produce more than they 
 want in bare subsistence, and can send home a 
 surplus to those who remain behind ; thirdly, 
 because even in the old countries the growing im- 
 provement in the arts of production is likely, at 
 least, to counterbalance the inevitable difficulty of 
 a gradual resort to less favoured and fertile soils. 
 
 This short explanation will, I think, be enough to 
 give a rude idea of the science of Political Economy 
 in its present form. If I were writing a professed 
 book on the science, there would be much more to 
 be said on the subject. But I hope what has been 
 said will be enough to make plain the rest of this 
 book. I am to speak of the creators of Political 
 Economy, and to criticise them, and, unless as much 
 as this had been said, the necessary considerations 
 could scarcely have been lucidly explained. 
 
125 
 
 ADAAI SMITH AND OUR MODERN 
 ECONOMY. 
 
 I. 
 
 If we compare Adam Smith's conception of Political 
 Economy with that to which we are now used, the 
 most striking point is that he never seems aware 
 that he is dealing with what we should call an 
 abstract science at all. The Wealth of Nations 
 does not deal, as do our modern books, with a 
 fictitious human being hypothetically simplified, but 
 with the actual concrete men who live and move. 
 It is concerned with Greeks and Romans, the nations 
 of the middle ages, the Scotch and the English, and 
 never diverges into the abstract world. Considering 
 the natural progress of opulence as an item in greater 
 studies, as part of the natural growth of human 
 civilisation, Adam Smith always thought how it had 
 been affected by human nature, taken as a whole. 
 
 Adam Smith approximates to our modern Political 
 Economist, because his conception of human nature 
 is so limited. It has been justly said that he 
 thought " there was a Scotchman inside every man ". 
 His Theory of Moral Sc7itiment, indeed, somewhat 
 differs in tone, but all through The Wealth of 
 Nations, the desire of man to promote his pecuniary 
 interest is treated as far more universally intense, 
 and his willingness to labour for that interest as far 
 
126 Economic Studies. 
 
 more eager and far more commonly diffused, than 
 experience shows them to be. Modern economists, in- 
 structed by a larger experience, well know that the 
 force of which their science treats is neither so potent 
 nor so isolated as Adam Smith thought. They 
 consistently advance as an assumption what he more 
 or less assumes as a fact. 
 
 Perhaps a little unfairly, nothing has more con- 
 duced to the unpopularity of modern political 
 economists, and to the comparative fame of Adam 
 Smith, than this superiority of their view over his. 
 Of course Adam Smith was infinitely too sensible a 
 man to treat the desire to attain wealth as the sole 
 source of human action. He much overrated its 
 sphere and exaggerated its effect, but he was well 
 aware that there was much else in human nature 
 besides. As a considerate and careful observer of 
 mankind, he could not help being aware of it. 
 Accordingly he often introduces references to other 
 motives, and describes at length and in an interesting 
 way what we should now consider non-economic 
 phenomena ; and, therefore, he is more intelligible 
 than modern economists, and seems to be more 
 practical. But in reality he looks as if he were more 
 practical, only because his analysis is less complete. 
 He speaks as if he were dealing with all the facts of 
 human nature, when he is not ; modern economists 
 know their own limitations ; they would no more 
 undertake to prescribe for the real world, than a man 
 in green spectacles would undertake to describe the 
 colours of a landscape. But the mass of mankind 
 have a difficulty in understanding this. They think 
 
Adam Smith and our Modern Economy. 127 
 
 Adam Smith practical because he seems to deal with 
 all the real facts of man's life, though he actually 
 exaggerates some, and often omits others ; but they 
 think modern economists unpractical because they 
 have taken the most business-like step towards real 
 practice — that of dealing with things one at a time. 
 
 And it is precisely this singular position of Adam 
 Smith which has given him his peculiar usefulness. 
 He fulfilled two functions. On the one hand, he 
 prepared the way for, though he did not found, the 
 abstract science of Political Economy. The con- 
 ception of human nature which underlies The Wealth 
 of Nations is near enough to the fictitious man of 
 recent economic science to make its reasonings 
 often approximate to, and sometimes coincide with, 
 those which the stoutest of modern economists 
 might use. The philosophical and conscious approxi- 
 mation which we now use has been gradually framed 
 by the continual purification of the rough and vague 
 idea which he employed. In this way Adam Smith 
 is the legitimate progenitor of Ricardo and of Mill. 
 Their books would not have been written in the least 
 as they now are, most likely would never have been 
 written at all, unless Adam Smith, or some similar 
 writer, had written as he has. But, on the other 
 hand, Adam Smith is the beginner of a great 
 practical movement too. His partial conception of 
 human nature is near enough to the entire real truth 
 of it to have been assumed as such in his own mind, 
 and to be easily accepted as such by the multitude of 
 readers. When he writes, he writes about what 
 interests most practical men in a manner which every 
 
128 Economic Siiidies. 
 
 one will like who is able to follow any sort of written 
 reasoning; and in his time there was a great deal 
 of most important new truth, which most practical 
 people were willing to learn, and which he was 
 desirous to teach. It is difficult for a modern 
 Englishman, to whom ''Free Trade" is an accepted 
 maxim of tedious orthodoxy, to remember sufficiently 
 that a hundred years ago it was a heresy and a para- 
 dox. The whole commercial legislation of the world 
 was framed on the doctrines of Protection ; all 
 financiers held them, and the practical men of the 
 world were fixed in the belief of them. " I avow," 
 says Monsieur Mollien, the wise Finance Minister of 
 the first Napoleon, "to the shame of my first 
 instructors," the previous officials of France, " that 
 it was the book of Adam Smith, then so little known, 
 but which was already decried by the administrators 
 with whom I had served, which taught me better to 
 appreciate the multitude of points at which public 
 finance touches every family, and which raised 
 judges of it in every household." There were many 
 Free Traders before Adam Smith, both writers and 
 men of business, but it is only in the antiquarian 
 sense in which there were '' poets before Homer, and 
 kings before Agamemnon ". There was no great 
 practical teacher of the new doctrine ; no one who 
 could bring it home to the mass of men ; who con- 
 nected it in a plain emphatic way with the history of 
 the past and with the facts of the present ; who made 
 men feel that it was not a mere " book theory," 
 but a thing which might be, and ought to be, real. 
 And thus (by a good fortune such as has hardl}' 
 
Adam Smith and our Modern Economy. 129 
 
 happened to any other writer) Adam Smith is the 
 true parent of Mr. Cobden and the Anti-Corn Law 
 League, as well as of Ricardo and of accurate 
 Political Economy. His writings are semi-concrete, 
 seeming to be quite so, and, therefore, they have 
 been the beginning of two great movements, one in 
 the actual, and the other in the abstract world. 
 
 Probably both these happy chances would have 
 amazed Adam Smith, if he could have been told of 
 them. As we have seen, the last way in which he 
 regarded Political Economy was as a separate and 
 confined speciality ; he came upon it as an insepar- 
 able part of the development of all things, and it 
 was in that vast connection that he habitually con- 
 sidered it. The peculiar mode of treating the sub- 
 ject which we now have, had never occurred to him. 
 And the idea of his being the teacher, who more than 
 any one else caused Free Trade to be accepted as 
 the cardinal doctrine of English policy, would have 
 been quite as strange to him. He has put on record 
 his feeling: "To expect, indeed, that the freedom 
 of trade should ever be entirely restored in Great 
 Britain, is as absurd as to expect that an Oceania 
 or Utopia should ever be established in it. Not only 
 the prejudices of the public, but what is much more 
 unconquerable, the private interests of many indi- 
 viduals, irresistibly oppose it. Were the officers of 
 the army to oppose with the same zeal and unanimity 
 any reduction in the number of forces, with which 
 master manufacturers set themselves against every 
 law that is likely to increase the number of their 
 rivals in the home market ; were the former to ani- 
 
 9 
 
130 Economic Studies. 
 
 mate their soldiers, in the same manner as the latter 
 inflame their workmen, to attack with violence and 
 outrage the proposers of any such regulation ; to 
 attempt to reduce the army would be as dangerous 
 as it has now become to attempt to diminish in any 
 respect the monopoly which our manufacturers have 
 obtained against us. This monopoly has so much 
 increased the number of some particular tribes of 
 them, that, like an overgrown standing army, they 
 have become formidable to the Government, and 
 upon many occasions intimidate the legislature. 
 The member of Parliament who supports every pro- 
 posal for strengthening this monopoly is sure to 
 acquire not only the reputation of understanding 
 trade, but great popularity and influence with an 
 order of men whose numbers and wealth render 
 them of great importance. If he opposes them, on 
 the contrary, and still more if he has authority 
 enough to be able to thwart them, neither the most 
 acknowledged probity, nor the highest rank, nor the 
 greatest public services can protect him from the 
 most infamous abuse and detraction, from personal 
 insults, nor sometimes from real danger, arising 
 from the insolent outrage of furious and disappointed 
 monopolists." 
 
 Yet, in fact, the '' Utopia " of Free Trade was 
 introduced into England by the exertions of the 
 '' master manufacturers," and those who advocated 
 it, and who were " thought to understand trade," 
 said that they had learned the doctrines they were 
 inculcating from The Wealth of Nations above and 
 beyond every other book. 
 
Adam Smith and our Modern Economy. 131 
 
 II. 
 
 If we look at The Wealth of Nations as if it 
 were a book of modern Political Economy, we 
 should ask four questions about it. 
 
 (i) What, by its teaching, is the cause which 
 makes one thing exchange for more or less of other 
 things ? 
 
 (2) What are the laws under which that cause 
 acts in producing these things ? — the full reply 
 to which gives the laws of population and growth 
 of capital. 
 
 (3) If it turns ou. (as of course it does) that 
 these things are produced by the co-operation of 
 many people, what settles the share of each of those 
 people in those things, or in their proceeds ? The 
 answer to this question gives what are called the 
 laws of distribution. 
 
 (4) If this co-operation costs something (as of 
 course it does), like all other co-operations, who is 
 to pay that cost, and how is it to be levied ? The 
 reply to this inquiry is the theory of taxation. 
 
 To persons who have not been much accustomed 
 to think of these subjects, these questions may 
 seem a little strange. They will be apt to think 
 that I ought to have spoken of the laws of wealth 
 and of its production and distribution, rather than 
 of the causes which make one thing exchange for 
 more or less of other things, and of the consequent 
 laws. But the truth is that for the purposes of 
 Political Economy, "wealth" means that which 
 possesses exchange value, and on that ground Arch- 
 
132 Economic Studies. 
 
 bishop Whately wanted to call the science *' catal- 
 lactics ". The air and the sunlight — the riches of 
 nature — are nothing in Political Economy, because 
 every one can have them, and therefore no one W\\\ 
 give anything for them. " Wealth " is not such for 
 economic purposes, unless it is scarce and transfer- 
 able, and so desirable that some one is anxious to 
 give something else for it. The business of the 
 science is not with the general bounty of nature to 
 all men, but with the privileged possessions — bodily 
 and mental powers included — which some have, and 
 which others have not. 
 
 Unluckily when we come to inquire what makes 
 these things exchange for more or less of value, one 
 among another, we find ourselves in the middle of 
 a question which involves many and difficult ele- 
 ments, and which requires delicate handling. Most 
 of the difficulties which are felt in reflecting on the 
 entire subject are owing to a deficient conception 
 of the primitive ingredient. And this will surprise 
 no one conversant with the history of science, for 
 most errors in it have been introduced at the 
 beginning, just as the questions which a child is apt 
 to ask are in general the ones which it is hardest to 
 answer. 
 
 It is usual to begin treating the subject by suppos- 
 ing a state of barter, and this is in principle quite 
 right, for ''money" is a peculiar commodity which 
 requires explanation, and the simplest cases of ex- 
 change take place without it. But it is apt to be 
 forgotten that a state of barter is not a very easy 
 thing fully to imagine. The very simplicity which 
 
Adam Smith and our Modern Economy. 133 
 
 renders it useful in speculation, makes it more and 
 more unlike our present complex experience. Hap- 
 pily, though barter has died out of the adult life of 
 civilised communities, there remains an age when 
 we, most of us, had something to do with it. To 
 schoolboys money is always a scarce and often a 
 brief possession, and they are obliged to eke out 
 the want by simpler expedients. The memories of 
 most of us may help them in the matter, though 
 their present life certainly will not. 
 
 Suppose, then, that one boy at school has a ham 
 sent him from home (those who object to trivial 
 illustrations must be sent back to the Platonic 
 Socrates to learn that they are of the most special 
 use in the most difficult matters, and be set to read 
 the history of philosophy that they may learn what 
 becomes of the pomposity which neglects them), and 
 suppose that another boy has cake, and that each 
 has more of his own than he cares for and lacks 
 something of the other, what are the proportions 
 in which they will exchange ? If boy A likes his 
 own ham scarcely at all, or not very much, and if he 
 is very fond of cake, he will be ready to barter a 
 great deal of it against a little of boy B's cake; and 
 if boy B is fond of cake too and does not care so 
 much for ham, cake will be at a premium, and a 
 very little of it will go a great way in the transaction, 
 especially if the cake is a small one and the ham a 
 big one ; but if, on the contrary, both boys care 
 much for ham, and neither much for cake, and also 
 the ham be small and the cake large, then the ham 
 will be at a premium, the cake at a discount, and 
 
134 Economic Studies, 
 
 both sides of the exchange will be altered. The use 
 of this simplest of all cases is that you see the 
 inevitable complexity of, and that you cannot 
 artificially simplify, the subject. There are in every 
 exchange, as we here see, no less than six elements 
 which more or less aifect it in general ; first, the 
 quantities of the two commodities, and next, two 
 feelings in each exchanger — first, his craving for the 
 commodity of the other, and secondly, his liking or 
 disinclination for his own. In every transaction, 
 small or great, you will be liable to blunder unless 
 you consider all six. 
 
 The introduction of money introduces in this 
 respect no new. element. The inseparable use of 
 that incessant expedient is that which ingrains into 
 civilised life the abstract idea of a ''purchasing 
 power " ; of a thing which, when possessed, will 
 obtain all other things. And independently of the 
 hand-to-hand use of money, this idea of it as a 
 universal equivalent, with the consequent means 
 of counting, has been incalculably beneficial to 
 civilisation. But into a mere single interchange 
 its use introduces nothing new. Money, in that 
 aspect, is simply a desirable commodity ; it often 
 happens to be particularly coveted, but at other 
 times, in comparison with some simpler and more 
 essential things, its worth is insignificant. 
 
 Nor do the common bargains of commerce contain 
 any additional ingredient. There are always six 
 things to be considered. Suppose that a holder of 
 ;^io,ooo " Peruvians " wants to sell them on the 
 London Exchange, the price he will get will obvi- 
 
Adam Smith and our Modern Economy. 135 
 
 ously vary with the quantity of Peruvian stock there 
 is about in the market, and the quantity of money 
 which the owners are ready to invest in it ; but also 
 according to four other things. 
 
 First, — Whether he is anxious for money or not ; 
 if he has a bill to meet to-morrow morning and must 
 have money, the chances are great that some one 
 will take advantage of his necessities, and he will 
 have to take less ; if, on the other hand, he be a rich 
 man — a strong holder, as the phrase is — he will say, 
 " Ah, if I cannot get my price to-day I will wait till 
 to-morrow," and so he will get a better price. 
 
 Secondly, — Even if he is not violently in want of 
 money, the price will vary according as he thinks 
 '' Peruvians " more or less likely to fall or not. If 
 he thinks them a declining or ''treacherous " stock, 
 he will be anxious to get rid of them, and will be less 
 difficult as to price ; if he had private and peculiar 
 knowledge that Peru was about to imitate Spain 
 and to stop paj'ment the next day, he will sell at 
 once for any price that those not in the secret would 
 be ready to give him. In these two ways the bargain 
 would be influenced by the mental state of the seller, 
 and it will be influenced in two ways also by the 
 mental state of the buyer. 
 
 Thirdly, — If the buyer is desirous of the article, 
 because he thinks it will get rapidly up, he of course 
 will give more than if he thinks it is likely to be 
 stationary, or even for a time to fall. He will 
 "discount" the prospect of improvement, as the 
 market phrase has it. 
 
 Fourthly, — If he can make little of his money 
 
136 Economic Studies. 
 
 in other ways, say, if it is earning 2 per cent., he 
 will be ready to put it into " Peruvians " at a much 
 lower price than he would if he could get 7 per cent, 
 for it in other ways. If there were a crisis, and 
 money had risen in value to 10 per cent., he would 
 hardly put it out of his own control by buying 
 "Peruvians" with it, at any price, no matter how 
 low. He would prize the money at such a time, 
 because in a general disturbance it may often be used 
 to untold advantage, or may save its owner from ruin. 
 
 In the bargains in all other commodities the same 
 considerations have to be taken account of, and no 
 others. A bargain in foreign stocks or railway 
 shares is in essentials the same as one in corn or 
 cheese. The same six elements are in each case to 
 be thought of, and no others. 
 
 Every transaction in commerce is in a legal sense 
 separate ; it is a contract in which one side engages 
 to do certain things in return for certain other things 
 which are to be done by the other side. But in a 
 practical sense most important commercial pheno- 
 mena are interlaced one with another. The feelings 
 of each seller as to parting, or not parting, with his 
 goods, are mainly caused — or much caused at any 
 rate— by the amount of goods which other dealers 
 have now in or are about to bring to market, and 
 also by what he imagines to be their " strength " or 
 *' weakness " ; that is, their more or less of inclination 
 to part with their goods or to retain them in every 
 market, and a most able living economist ^ has justly 
 
 1 Professor Jevons' Theory of Political Economy, page 84. 
 
Adam Smith and our Modern Economy. 137 
 
 observed that now-a-days this is what we mean by 
 " a market " ; the estimate formed of all which the 
 dealers have, and of all which they expect to have, 
 is all pretty much collected into one corporate 
 opinion, which floats variously about upon the lips of 
 men, though often it would not be easy to condense 
 into a formula, or to bring it home on evidence to 
 any single speaker. For the most part it is an im- 
 bibed, not a discovered, fact, that the market is 
 ''dull, and likely to be dull," ''lively, and likely to 
 be so ". These are in part truths of observation, 
 but in part also accredited hypotheses. A market 
 knows its own present state, and anticipates its own 
 future, by signs which an outside observer would not 
 see, and by the unconscious contribution of many 
 minds to a daily growing opinion. A market in the 
 higher commercial sense of the word — in the sense 
 in which we speak of the "money market" — does 
 not mean, as it once did, a place where goods were 
 exposed, but an historical result of the proximity of 
 traders, a set of dealers cognisant of one another, 
 and acquainted more or less with each other's 
 position, and each other's intentions. 
 
 It must not be supposed, however, that the process 
 of bargain-making approaches in general to a 
 statistical calculation. A person proposing to buy, 
 looks at a trade circular to see what the writer of it 
 thinks the price is ; he asks the broker what price 
 has been given, what offered, what refused ; he 
 inquires whether holders are strong or weak, whether 
 they are under supplied or over supplied ; he asks if 
 other buyers are many or few, whether they are eager 
 
138 Economic Studies. 
 
 or indifferent, whether they have much money, or 
 whether they have Httle ; and out of these inquiries 
 he forms an idea of the price at which he is Hkely to 
 buy the commodities. A person intending to sell a 
 commodity forms in like manner a notion of the price 
 he is likely to obtain for it ; on the surface the appear- 
 ance is often frivolous enough. Many persons go 
 about inquiring, " In what state do you think the 
 market, sir ? " and getting, as it would seem, not 
 much reply in return. But underneath there are 
 some of the keenest anxieties and most ardent hopes 
 of human nature. A large quantity of goods is on 
 the market, by selling which many holders must live, 
 if they live at all. A great, though uncertain, 
 quantity of money is in the market, which the owners 
 mean to live by investing. The main interest of 
 many lives is at stake, and the subsistence of many 
 families, little as on the outside the market looks so. 
 
 On the whole, then, we may sum the matter up 
 thus : — 
 
 Firstly, — That a bargain will be struck when four 
 conditions are satisfied, viz. : — 
 
 "When the seller thinks he cannot obtain more 
 from the buyer with whom he is dealing, or from any 
 other ; 
 
 "When he is sufficiently desirous to sell his article, 
 or enough in want of money to take that price ; 
 
 " When the buyer thinks that he cannot obtain 
 the article for less, either from that seller or from any 
 one else ; 
 
 " When he is so eager for the article, or so 
 anxious to invest his money, as to give it." 
 
Adam Smith and our Modern Economy, 139 
 
 Secondly, — That every bargain is a datum for 
 other bargains, and influences the opinions on which 
 they are based. 
 
 Thirdly, — That the average price of such bargains 
 is the market price. 
 
 Fourthly, — That the main elements of market 
 price are those which prevail in most bargains, viz., 
 the actual quantity of the article in the market, the 
 quantity of money actually ready to be invested in 
 it, and the average strength with which the wish to 
 hold the article, the wish to acquire it, the wish to 
 obtain money, and the wish to invest it, operate 
 through the whole class of buyers and of sellers. 
 
 These formulae may seem complex, but I do not 
 think that any of them can be left out or shortened 
 except hy^ omitting necessary facts. ^ 
 
 An attempt is, indeed, commonly made to abbre- 
 viate these rules. Very much the same is meant by 
 the common phrase that market price is determined 
 by " supply and demand," which is a good phrase 
 enough when you know how to manage it. But the 
 eifect of using so few words for so much meaning is 
 that they are continually being used in various 
 senses ; no one signification of the terms can be 
 stretched over the whole matter. And in con- 
 sequence a literature has come to exist discussing 
 their ambiguities. The most obvious objection is 
 that, if the words are taken in their natural sense, 
 they imply a relation between two things of wholly 
 different natures ; demand is a desire in the mind, 
 
 ^ See Note A on Market Price at the end of the volume. 
 
140 Economic Studies. 
 
 supply a quantity of matter ; how then can there be 
 an equahty between them ? And even when demand 
 is used in the best sense, ^ for the quantity of money 
 or purchasing power, the formula has the defect of 
 mentioning only the two quantities of the changing 
 commodities, of not saying that they are onl}^ 
 estimates of quantities, and of not warning those who 
 use it that they must likewise consider the other 
 elements — the four wishes of the two exchangers. 
 
 It is most important to be clear upon the matter, 
 because confusion about it has led, and still leads, 
 to many most mischievous fallacies. For example, 
 it has been vigorously argued that " Trades Unions " 
 could not alter the price of labour. '' The supply, 
 the number of labourers," it was said, " is the same 
 as before, and also the demand, viz., the quantity of 
 money wanting to buy labour — the two causes being 
 thus identical, the effect cannot be different." But, 
 in fact, a Trades Union establishment at once alters 
 the mental conditions. It turns the labourer, in the 
 Stock Exchange language, from a weak holder into 
 a strong one ; it enables him to hold. Before, he 
 must either take the master's terms or starve ; now, 
 he has money to live, and will often get more, be- 
 cause he can stand out for a good bargain. 
 
 The complete view of the facts thus effaces at 
 once the ingrained mistake of the last generation. 
 
 ^ See the admirable dissertation of Professor Cairnes, 
 Leading Principles, pages 17-40. A most ingenious collec- 
 tion of the difficulties of the doctrine of supply and demand as 
 usually stated, will be found in Thornton on Labour, book 
 ii. cap. I. 
 
Adam Smith and our Modern Economy, 141 
 
 and it also destroys as quickly a recent error now 
 common. It is imagined that because Trades Unions 
 have sometimes raised wages to some extent, they 
 can raise them, at any rate gradually, to any extent. 
 But we now see the limit of their power. They 
 can only win when the funds of the Union are 
 stronger than the funds of the capitalists ; and this 
 will sometimes be so, and sometimes not be so. A 
 clear view of the facts also explains (that which is 
 a difficulty in the ordinary theory) the difference 
 between a speculative market and an ordinary one. 
 So long as it is imagined that market price is 
 determined by the supply of the article in the 
 market, and the money here eager to buy it, it is 
 not possible to explain why two markets in which 
 both these elements coincide should be so different 
 as a dull market and an excited one always are. 
 But as soon as we understand that we have to deal 
 likewise with opinions and with wishes, we see 
 how there is great scope for discrepancy and for 
 mutability. 
 
 Again, on another side of the subject, it has been 
 incessantly said that (at all events since the Act 
 of 1844, which limits the power of issue) the Bank 
 of England cannot alter the rate of discount. 
 There exist, it is said, a certain number of bills, 
 and a certain amount of money ready to be invested 
 in bills, and this determines the way in which one 
 will be exchanged for the other. But, in fact, much 
 of such money is held by the Bank of England, 
 and the fact of its being unwilling to lend, inevitably 
 alters "the equation of exchange". The desire of 
 
142 Economic Studies. 
 
 the principal dealers to operate, or not to operate, 
 is a vital element in every market. When you read 
 in the jargon of trade circulars that " yarns are 
 sluggish, and that teas are lively," the palliation 
 for the use of these ridiculous adjectives is that in 
 the facts described there is as much of mental 
 state as of physical supply. 
 
 It is in consequence of the extreme importance 
 of these mental elements that in all markets you 
 hear so much of "flying and often concocted 
 rumours". On the Stock Exchange "the lie of 
 the day," as Dr. Johnson would have called it, 
 always has some influence, because the momentary 
 wishes of sellers to sell, and buyers to buy, are 
 greatly affected by what they hear as to possible 
 wars and revolutions of the nations whose debts 
 they are buying and selling. The best States only 
 care for such rumours at critical instants, but more 
 or less the repute of minor ones lies at the " truth 
 of him that makes it," and their credit is incessantly 
 talked up and talked down much more than they 
 themselves desire. 
 
 The league of the moment — " rig," " ring," " syndi- 
 cate," or " pool," or what not — " one form with many 
 names" — operates in the same way. It is a mental 
 expedient for changing the mental state of the market. 
 By combining, the same persons are able to make 
 the same amount of speech and the same amount 
 of money go farther. They affect opinion more, 
 because they say the same things, and they are 
 more tenacious holders, or more desperate buyers, 
 because they rely one on another. 
 
Adam Smith and our Modern Economy. 143 
 
 We see, too, from this analysis why it is that 
 one man is a good seller and another a bad one. 
 A good seller is a good advocate, who acts effec- 
 tually on the opinions and feelings of persons inclined 
 to deal with him, who makes them think that the 
 article is very excellent, that it is growing very 
 scarce, that it is going to be scarcer, that a great 
 many people are wanting it, that much money is 
 going to be had for it, that the holders in general are 
 anxious not to sell as yet because they believe it 
 will get dearer, that he himself is above all unwill- 
 ing to part with his article and will do so only as 
 a personal favour. He weakens the judgment and 
 intensifies the desire of his opponent as he wishes. 
 
 The requisites of a good buyer are in essentials 
 the same. He also is an advocate, only on the other 
 side. He has to show that the article in question 
 is undesirable, that it is plentiful, that most holders 
 are most anxious to sell it, that few persons, and 
 those with little money, are coming forward to buy 
 it, that though, perhaps, he might himself be in- 
 duced to buy a little of it, yet it would only be under 
 peculiar circumstances, and as a matter of private 
 feeling. There is, indeed, a common saying that a 
 good buyer is much rarer than a good seller ; and I 
 believe that the Manchester warehouse-keepers, as 
 they are called — that is, the great dealers in under- 
 clothing, — great traders, but who do not produce 
 anything, and must therefore both largely buy and 
 sell — give higher salaries to their buyers than to 
 their sellers. But this is only because the buyers 
 are the advocates who have to address the more 
 
144 Economic Studies. 
 
 skilled audience. They buy of a few manufacturers 
 who understand business well, and must, therefore, 
 be careful what they say. The sellers for the firm, 
 who distribute the goods among the country shops, 
 have people of very inferior intelligence to deal with. 
 A few good buyers, therefore, purchase what many 
 less qualified sellers dispose of. But in its essence 
 the business is identical. It consists in exciting 
 desire and in modifying opinion. 
 
 It may strike some people that if prices thus 
 depend on casual opinions and on casual desires, it 
 is odd that prices in markets should be so uniform 
 on particular days in particular markets as they 
 really are. But in fact, at ordinary times, these 
 casual opinions and casual desires form a sort of 
 average. The timid seller is emboldened by know- 
 ing that others are courageous ; the necessitous by 
 knowing that others are strong ; the cautious buyer 
 is forced on because he knows that eager ones will 
 outstrip him ; the adventurous is restrained because 
 he knows that others have doubts, and so on through 
 the whole subject. In the infancy of trade no doubt 
 there is ample room for great variations. A most 
 graphic observer ^ has said of Oriental markets : 
 " The necessities of a savage are soon satisfied, and 
 unless he belong to a nation civilised enough to live 
 in permanent habitations, and secure from plunder, 
 he cannot accumulate, but is only able to keep what 
 he is actually able to carry about his own person. 
 Thus, the chief at Lake N'gomi told Mr. Andersson 
 
 ^Gallon's Art of Travel, under "Presents and Articles 
 for Payment ". 
 
Adam Smith and our Modern Economy. 1.45 
 
 that his beads would be of little use, for the women 
 about the place already ' grunted like pigs ' under the 
 burden of those that they wore, and which they had 
 received from previous travellers." 
 
 In civilised times facts are known, advocacy is 
 weak, and prices are usually uniform. But they are 
 not so at a commercial crisis ; then, as the phrase 
 goes, prices are very ''wide". A necessitous seller 
 must sell, and he pulls down the price for an instant, 
 but if a buyer is stimulated by this, and wants to 
 buy more at the same price, he will find that he 
 cannot do it. There are no more equally necessitous 
 sellers in the market ; the rest do not want money 
 for the instant, and will not sell, except at a much 
 higher price. At such a moment, too, skilful people 
 will act on the fears of others. I have heard it said 
 of a bland and delicate operator, who was ultimately 
 very successful, that at critical times "he encouraged 
 others to be frightened ". And in panics cool heads 
 and strong nerves make much by dealing with weak 
 nerves and hot heads. But in common times the 
 contrary tendencies are subdued to an average. The 
 most anxious seller will depress a good stock but 
 very little, and the most eager will raise it but a 
 little also. 
 
 I have been obliged to state the facts carefully, 
 before discussing Adam Smith's doctrine, because I 
 could not otherwise make an attempt to estimate it 
 intelligibly, and I must go on with some further 
 facts also, or even that estimate would be broken and 
 faulty. At a glance it is plain that the doctrine of 
 exchange which I have sketched, cannot be the final 
 
 10 
 
146 Economic Studies. 
 
 theory. It depends on the relative quantity of two 
 things, but as most things can be increased at will 
 by human labour, men have, therefore, in most cases 
 the means of making these quantities what they 
 please, and therefore these quantities cannot be 
 ultimate causes. *' Supply and demand" cannot be 
 final regulators of value, for in most cases men can 
 supply what they like, and to finish the subject we 
 must know when they will begin to do so, and when 
 they will leave off. 
 
 The first answer to be given to these questions 
 is, that producers who produce in order to receive 
 something m exchange for their products, will go on 
 producing as long as the gain, pleasure, satisfaction 
 (whatever word you choose to use) they receive from 
 that something is a sufficient compensation to them 
 for the bore and irksomeness of production, and they 
 will stop producing when it ceases to be sufficient. 
 In an early state of society it is easy to imagine 
 simple cases of this. In the times of which the 
 Scandinavian " kitchenmiddings " are the only extant 
 vestige, the population lived partly by hunting and 
 partly by fishing ; most, I suppose, did both ; some 
 confined themselves to that which they did best. In 
 that case a hunter, who only hunted, would work as 
 long as the fish received in exchange seemed to him 
 to repay the trouble of hunting; a fisherman, who 
 only fished, would do the same. The man who tat- 
 tooed the population would continue to do so as long 
 as the game or the fish he received in return seemed 
 to make it worth his while. The polisher of flint 
 implements or bones would do just the same. The 
 
Adam Smith and our Modern Economy. 147 
 
 essence of the whole is the exchange of the produce 
 of much labour and very little capital, so long as the 
 labourer thinks what he thus obtains repays him for 
 his labour. And the same thing goes on down to the 
 end of civilisation in a subordinate way. An old 
 woman gathers laver on the sea-shore of Somerset- 
 shire as long as any one will give the pittance she 
 expects for it. A diver will bring up pearls as long 
 as any one will give what he thinks is enough to 
 make it worth while to go to the bottom of the sea 
 for them. The primitive form of production still 
 exists, and the primitive estimate of recompense, but 
 in most cases they exist as "survivals" only. In 
 two remarkable instances, of which I shall speak 
 hereafter, they still alter the main tide of commerce. 
 But for the most part the interest of the transactions 
 is principally antiquarian ; little money is now made 
 by them, but they are worth thinking of now and 
 then, because they remind us of what once was the 
 only way in which the relative value of commodities 
 was finallv determined in the world. 
 
 The main part of modern commerce is carried on 
 in a very different manner. It begins at a different 
 point, and ends at a different point. The funda- 
 mental principle is, indeed, the same ; the determin- 
 ing producer — the person on whose volition it de- 
 pends whether the article shall be produced or not — 
 goes on so long as he is satisfied with his recompense, 
 and stops when he ceases to be so satisfied. But 
 this determining producer is now not a labourer but 
 a capitalist. In nine hundred and ninety-nine cases 
 out of every thousand, it is the capitalist and not the 
 
148 Economic Studies. 
 
 labourer who decides whether or not an enterprise 
 shall be commenced, and therefore whether the con- 
 sequent commodity shall come on the market. He 
 buys his labour just as he buys his raw material ; he 
 may calculate wrongly in both cases, he may think 
 he will buy when labour or material is cheaper than 
 it turns out ever to be ; but his calculation will be 
 the critical element in the whole business ; that 
 which decides whether it shall or shall not be entered 
 upon. 
 
 This change has occurred in the organisation of 
 industry, because the new mode of organising it is 
 infinitely more efficient than the old. A body of 
 separate labourers has many of the characteristics 
 of a mob; but one acting under the control of a 
 capitalist has many of those of an army. A capitalist 
 provides his labourers with subsistence, directs each 
 what he shall do and when, and educes the desired 
 result of the whole combination at the proper time, 
 much as a general does. He and his men will live 
 and will produce riches where a mere multitude of 
 labourers will starve. When, in very modern times, 
 it has been endeavoured in schemes of '' co-operation " 
 to enable labourersto subsistwithoutdependenceon an 
 individual capitalist, it has been necessary, under cloak 
 of the combination, to invent a capitalist in disguise. 
 A common fund subscribed beforehand, an elected 
 board to invest it, a selected manager to combine it, 
 are all refined expedients for doing in a complex way 
 what the single rich capitalist does in a simple way ; 
 even yet we do not know how far they can be applied 
 with comparable efficiency. In simpler times the rich 
 
Adam Smith and our Modern Economy. 149 
 
 man who has much beforehand, buys the labour of 
 his poorer neighbours who have nothing, and directs 
 their power towards results which no one of them 
 could perhaps have conceived, and which a thousand 
 times as many, without his controlling mind, would 
 have been impotent to produce. On one point, how- 
 ever, the point which is most material for the present 
 purpose, the old organisation, or disorganisation, of 
 mere labourers acting separately, and the exact 
 modern industry, where enterprise depends on the 
 fiat of the capitalist, are alike ; and are so because 
 human nature is alike both in capitalist and labourer. 
 Neither of them will take much trouble to obtain in 
 one way that which he can obtain with very little 
 trouble in another way. As far as labour can migrate 
 from employment to employment, articles produced 
 by the same labour will exchange for one another. 
 If it were not so, the labourers who worked at the 
 thing which fetched least would be throwing away 
 some of their labour ; they would do better to pro- 
 duce something else, and in the end they would do 
 so. In the same way, as far as capital (including 
 the capital which buys labour) can be transferred 
 from employment to employment, things produced 
 with the same amount of capital, in similar times and 
 similar circumstances, exchange one for another. 
 When it is not so, capital tends to go from the pur- 
 suit in which it is less profitably employed to those 
 in which it is more so. 
 
 As might be expected, the modern organisation is 
 much more perfect in this respect as in most others. 
 Labour always circulates from employment to employ- 
 
150 Economic Studies. 
 
 ment. ''Whatever," says Adam Smith, "obstructs 
 the free circulation of labour from one employment 
 to another, obstructs that of stock likewise ; the 
 quantity of stock which can be employed in any 
 branch of business depending very much upon that 
 of the labour which can be employed in it. Cor- 
 poration laws, however, give less obstruction to the 
 free circulation of stock from one place to another 
 than to that of labour. It is everywhere much 
 easier for a wealthy merchant to obtain the privilege 
 of trading in a town corporate, than for a poor arti- 
 ficer to obtain that of working in it. The obstruction 
 which corporation laws give to the free circulation of 
 labour is common, I believe, to every part of Europe. 
 That which is given to it by the poor laws is, so far 
 as I know, peculiar to England. It consists in the 
 difficulty which a poor man finds in obtaining a 
 settlement, or even in being allowed to exercise his 
 industry in any parish but that to which he belongs. 
 It is not the labour of artificers and manufacturers 
 only of which the free circulation is obstructed by 
 corporation laws. The difficulty of obtaining settle- 
 ments obstructs even that of common labour." 
 
 Man is of all pieces of luggage the most difficult to 
 be removed. In general an ill-paid labourer early in 
 life gives hostages to misfortune, he burdens himself 
 with the support of a wife and children ; he cannot 
 move, or they would starve. But civilisation has 
 invented an elaborate machinery for holding capital 
 in a transferable form. The basis of this machinery 
 is the invention of money. One of the uses of money 
 is that it is a mode in which capital may be held with- 
 
Adam Smith and our Modern Economy. 151 
 
 out loss in what may be called a provisional form. 
 All capital originally comes from production — is, say, 
 so much corn, or tin, or hemp — but if a man holds 
 corn, or any other commodity, he may not be able to 
 exchange it in a little while for so much as he can to- 
 day. Most commodities are in their nature perish- 
 able, and most others are liable to depreciation from 
 the change in human desires. But money is always 
 wanted, for it will buy everything ; any one who is 
 not sure how he will ultimately employ his capital 
 can hold it in the form of money. This provisional 
 state — this interval of non-employment — is a great 
 security for the substantial equality of equal capitals 
 in equal employments, for it gives capitalists time to 
 look before them and see what they should select 
 because it will yield most, and what they should 
 avoid because it will yield least. 
 
 But in this, its elementary form, the machinery 
 for holding capital, so to say, in expectation, has an 
 obvious defect ; the capitalists derive no income from 
 it while it is in a state of indecision. '' Money is 
 barren," according to the old saying, and whoever 
 holds mere coin will certainly derive no income. 
 But in countries where banking is well developed, 
 the machinery is far more efficient ; a man who has 
 capital lying idle can place it with a banker, who, if 
 he will agree to give some notice before he withdraws 
 it, will agree to pay him some interest on it. This 
 interest, as far as it goes, is a source of income 
 during the period of suspended investment, and is 
 something on which the capitalist can subsist with- 
 out trenching on his capilal, and williout hurrying 
 
152 Economic Studies. 
 
 to a premature use of it. This capital awaiting in- 
 vestment the banker employs in the same way that 
 he employs the unused balances of people's income, 
 and that is in lending to the trades which are at the mo- 
 ment most profitable. As I have elsewhere explained: 
 " Political Economists say that capital sets towards 
 the most profitable trades, and that it rapidly leaves 
 the less profitable and non-paying trades. But in 
 ordinary countries this is a slow process, and some 
 persons who want to have ocular demonstration of 
 abstract truths have been inclined to doubt it, 
 because they could not see it. In England, how- 
 ever, the process would be visible enough if you 
 could only see the books of the bill brokers and the 
 bankers. Their bill cases as a rule are full of the 
 bills drawn in the most profitable trades, and, cceteris 
 paribus, in comparison empty of those drawn in the 
 less profitable. If the iron trade ceases to be as 
 profitable as usual, less iron is sold ; the fewer the 
 sales the fewer the bills ; and in consequence the 
 number of iron bills in Lombard Street is diminished. 
 On the other hand, if in consequence of a bad 
 harvest the corn trade becomes on a sudden profit- 
 able, immediately ' corn bills ' are created in great 
 numbers, and, if good, are discounted in Lombard 
 Street. Thus English capital runs as surely and 
 instantly where it is most wanted, and where there 
 is most to be made of it, as water runs to find its 
 level." 
 
 In this way ''expectant capital," while it is so ex- 
 pectant, forms part of a fund which is lent now to 
 this trade, and now to that, according as for the 
 
Adam Smith and our Modern Economy. 153 
 
 moment each trade is more profitable ; and at last 
 instructed by reflection, its owner will invest it, other 
 things being equal, in the trade which offers the 
 most for it. In its temporary use it tends to equalise 
 temporary profits ; in its permanent use it does so 
 too. 
 
 No doubt some callings are naturally pleasant, 
 others unpleasant ; some encouraged by opinion, 
 others adverse to it ; some easy to learn, some 
 difficult ; some easy to enter, others hedged in by 
 tradition and privilege ; some abounding in risk, 
 some with little of it. But our principle is not 
 affected by these. It is that, non-pecuniary en- 
 couragements and discouragements being reckoned, 
 capitals employed in all trades yield an equal return 
 in equal times. 
 
 What that return will be it would be premature 
 here to speak of It is only necessary to say that it 
 is such as the capitalist will think worth while to 
 invest his capital for, enough, that is, to compensate 
 him for the inevitable trouble and attendant risk ; 
 if it is not enough he will let it continue uninvested 
 at interest, or will eat it up and live on it. 
 
 We must carefully bear in mind, too, that the 
 rule that equivalent returns are made to equal capi- 
 tals in the same times, is only true of employments 
 between which capital fluctuates freely. This is to 
 an almost perfect extent true of employments in this 
 country, and to a great extent, though far from an 
 equal extent, of all employments within their own 
 country. But it is not at all true of employments in 
 different countries ; English capital, by far the most 
 
154 Economic Studies. 
 
 locomotive of all capitals, will not go abroad for the 
 same percentage of return that will suffice it at 
 home. A great deal of the capital of all countries — 
 by far the greater part of it everywhere, indeed — could 
 hardly on any terms be tempted abroad. We have 
 arrived, however, at the principle that within the 
 same nation all commodities will tend to be of the 
 same exchangeable value, whose cost of production 
 is identical, and that this cost of production is that 
 which the capitalist expends, and the return for 
 which he is willing to take the pains of expending it. 
 And this will be enough for our present purpose. 
 
 III. 
 
 On all these subjects Adam Smith wrote in an 
 extinct world, and one of the objects always before 
 him was to destroy now extinct superstitions. In 
 that age it was still believed, though the belief was 
 dwindling away, that wealth consisted in '' money," 
 and that its value was somehow different from that 
 of anything else. As Adam Smith himself describes 
 it : " That wealth consists in money, or in gold and 
 silver, is a popular notion which naturally arises from 
 the double function of money, as the instrument of 
 commerce, and as the measure of value. In conse- 
 quence of its being the instrument of commerce, 
 when we have money we can more readily obtain 
 whatever else we have occasion for than by means 
 of any other commodity. The great affair, we 
 always find, is to get money. When that is obtained, 
 there is no difficulty in making any subsequent pur- 
 
Adam Smith and our Modern Economy. 155 
 
 chase. In consequence of its being the measure of 
 value, we estimate that of all other commodities by 
 the quantity of money which they will exchange for. 
 We say of a rich man that he is worth a great deal, 
 and of a poor man that he is worth very little 
 money. A frugal man, or a man eager to be rich, is 
 said to love money ; and a careless, a generous, or a 
 profuse man, is said to be indifferent about it. To 
 grow rich is to get money ; and wealth and money, 
 in short, are, in common language, considered as in 
 every respect synonymous." 
 
 No true theory of '' value " could be established 
 till this false theory was cleared away. So long as 
 even a vestige of it haunts the minds of thinkers and 
 learners, they cannot think or learn anything on this 
 subject properly. And therefore Adam Smith applied 
 his whole force to the confutation of it. His success 
 has been so complete that it has made this part of 
 his writings now useless. No one now thinks or 
 supposes that money is the essence of wealth ; that 
 it is anything but a kind of wealth, having distinct 
 uses, like other kinds. The strongest interest in 
 reading the chapters of The Wealth of Nations on 
 the subject is given by the vigour with which they 
 are written. They are essentially models of practical 
 writing ; they are meant to extirpate living error ; 
 they follow that error into the minds of those who 
 believe it, and extirpate it in the forms in which it 
 thrives and rules there. The error that the precious 
 metals are the only real wealth, was a living error 
 to Adam Smith, for he had lived with many persons 
 who held it. 
 
156 Economic Studies. 
 
 The efficacy of Adam Smith's refutation is not 
 wholly derived exactly from its literary merit. Hume 
 had before given a brief exposure, which in mere 
 writing is at least as good. But Hume impressed 
 on this, as on so much else, a certain taint of para- 
 dox. He seems to be playing with his subject ; he 
 hardly appears to believe what he says, and a plain 
 reader is often puzzled to know whether he ought 
 to believe it either. On a strong-headed man of 
 business, semi-insincere exposition produces no effect. 
 But Adam Smith takes up the subject in a solid, 
 straightforward way, such as he knew would suit the 
 Glasgow merchants with whom he had once lived, 
 and he talks to them, not only as a man acquainted 
 with present mercantile things, but also as one 
 possessing much other culture and authority. He 
 impressed practical men by his learning, at the same 
 time that he won them by his lucidity and assured 
 them by his confidence. 
 
 But when we pass from the refutation of ancient 
 errors to the establishment of coherent truth, we 
 shall not be equally satisfied. Students are, indeed, 
 still sometimes told that they will find such truth in 
 Adam Smith, but those who had nothing else to 
 read, and who wanted to read accurately, did not 
 find it so. What in fact a student will find in Adam 
 Smith is a rough outline of sensible thoughts ; not 
 always consistent with themselves, and rarely stated 
 with much precision ; often very near the truth, 
 though seldom precisely hitting it ; a great mental 
 effort in its day, though always deficient in the con- 
 secutiveness required by careful learners, and, except 
 
Adam Smith and our Modern Economy. 157 
 
 for the purpose of exciting an interest in the subject, 
 altogether superseded and surpassed now. 
 
 " Gold and silver, however," says Adam Smith, 
 ''like every other commodity, vary in their value, 
 are sometimes cheaper and sometimes dearer, some- 
 times of easier and sometimes of more difficult pur- 
 chase. The quantity of labour which any particular 
 quantity of them can purchase or command, or the 
 quantity of other goods which it will exchange for, 
 depends always upon the fertility or barrenness of the 
 mines which happen to be known about the time 
 when such exchanges are made. The discovery of 
 the abundant mines of America reduced in the six- 
 teenth century the value of gold and silver in Europe 
 to about a third of what it had been before. As 
 it cost less labour to bring those metals from the 
 mine to the market, so when they were brought 
 thither they could purchase or command less labour ; 
 and this revolution in their value, though perhaps 
 the greatest, is by no means the only one of which 
 history gives some account. But as a measure of 
 quantity, such as the natural foot, fathom, or hand- 
 ful, which is continually varying in its own quantity, 
 can never be an accurate measure of the quantity of 
 other things ; so a commodity which is itself con- 
 tinually varying in its own value can never be an 
 accurate measure of the value of other commodities. 
 Equal quantities of labour, at all times and places, 
 may be said to be of equal value to the labourer. In 
 his ordinary state of health, strength and spirits, in 
 the ordinary degree of his skill and dexterity, he 
 must always lay down the same portion of his ease, 
 
158 Economic Studies. 
 
 his liberty, and his happiness. The price which he 
 pays must always be the same, whatever may be the 
 quantity of goods which he receives in return for it. 
 Of these, indeed^ it may sometimes purchase a 
 greater and sometimes a smaller quantity ; but it is 
 their value which varies, not that of the labour 
 which purchases them. At all times and places that 
 is dear which it is difficult to come at, or which it 
 costs much labour to acquire ; and that cheap which is 
 to be had easily, or with very little labour. Labour 
 alone, therefore, never varying in its own value, is 
 alone the ultimate and real standard by which 
 the value of all commodities can at all times and 
 places be estimated and compared. It is their 
 real price ; money is their nominal price only." 
 
 But in the present day it is not true at all that 
 things are dear simply in proportion to the mere 
 labour which it has cost to produce them. A 
 thousand men's labour assisted, say, by ten steam- 
 engines, will produce many more valuable things 
 than a thousand men's labour without those steam- 
 engines. The result of the labour of the two sets 
 of men will not exchange for one another at all. 
 Besides immediate labour there is a vast apparatus 
 of the assisting results of past labour. These must 
 be paid for in some way, or their owner will not let 
 them be used. There is something else essential 
 to modern industry besides labour, and that is saving, 
 or the refraining from the immediate consumption 
 of past labour. Sometimes this saving is used to 
 co-operate with labour, as in machines, sometimes 
 to support it, as with food and necessaries. But in 
 
Adam Smith and our Modern Economy. 159 
 
 either case its existence must be remunerated, and 
 its use paid for. As modern economists say, the 
 value of an article must be such as to compensate 
 not only for the labour, but for the abstinence by which 
 it was produced. 
 
 Again, — Adam Smith speaks of the quantity of 
 labour which a commodity will buy, as if it were 
 identical with the quantity of labour by which it 
 was produced. He says : " Every man is rich or 
 poor according to the degree in which he can afford 
 to enjoy the necessaries, conveniences, and amuse- 
 ments of human life. But after the division of 
 labour has once thoroughly taken place, it is but a 
 very small part of these with which a man's own 
 labour can supply him. The far greater part of 
 them he must derive from the labour of other people, 
 and he must be rich or poor according to the quantit}^ 
 of that labour which he can command, or which he 
 can afford to purchase. The value of any commodity, 
 therefore, to the person who possesses it, and who 
 means not to use or consume it himself, but to ex- 
 change it for other commodities, is equal to the 
 quantity of labour which it enables him to purchase 
 or command. Labour, therefore, is the real measure 
 of the exchangeable value of all commodities. The 
 real price of everything, what everything really costs 
 to the man who wants to acquire it, is the toil 
 and trouble of acquiring it. What everything is 
 really worth to the man who has acquired it, and 
 who wants to dispose of it or exchange it for some- 
 thing else, is the toil and trouble which it can save 
 to himself, and which it can impose upon other 
 
i6o Economic Studies. 
 
 people. What is bought with money or with goods 
 is purchased by labour, as much as what we acquire 
 by the toil of our own body. That money or those 
 goods indeed save us this toil. They contain the 
 value of a certain quantity of labour which we ex- 
 change for what is supposed at the time to contain 
 the value of an equal quantity. Labour was the 
 first price, the original purchase money that was 
 paid for all things. It was not by gold or by silver, 
 but by labour, that all the wealth of the world was 
 originally purchased ; and its value, to those who 
 possess it, and who want to exchange it for some 
 new productions, is precisely equal to the quantity 
 of labour which it can enable them to purchase or 
 command." 
 
 But the quantity of labour which a thing will 
 purchase depends on the degree in which it is desired 
 by labourers. A grand piano in a coarse community 
 will buy less labour than a barrel of beer. Mere 
 labour is the worst " measure " of value conceivable, 
 because it varies with the appetites and differs with 
 the tastes of mankind. There is nothing more un- 
 certain, more changeable, or more casual than the 
 number of days' labour that an article will purchase. 
 As some one expressed it : " Gin will purchase more 
 than it ought, and tracts less than they ought ". 
 
 Adam Smith did not put the matter graphically 
 enough before his mind. He speaks of a man's 
 fortune being equal '' to the quantity either of other 
 men's labour, or what is the same thing, of the pro- 
 duce of other men's labour which it enables him to 
 command ". But unless you suppose that some 
 
Adam Smith and our Modern Economy. i6i 
 
 general instrument of purchasing power, like money, 
 exists, and that a man's fortune consists in it, the 
 two things are not the same at all. One man's 
 fortune may consist of a valuable library, which 
 would buy no manual labour at all, but for which 
 bookish people would barter many other commodities; 
 another may have a heap of coarse meat and drink, 
 which will bring crowds of labourers to share them, 
 but for which few refined persons would give any- 
 thing. 
 
 Unquestionably, as has been shown, in a rude 
 state of society, where labour is the principal cost of 
 production, two articles produced with the same 
 amounts of labour will tend to exchange one for 
 another because every labourer will tend to migrate 
 to the place where his labour is better rewarded, 
 and leave the place where it is worse. And this is 
 what Adam Smith vaguely saw, and several times 
 meant to say, but he did not exactly say it ; he 
 never says it, and often says something quite 
 different. 
 
 In another passage Adam Smith sets forth a 
 similarly vague view of the doctrine of exchangeable 
 value as it stands after capital has accumulated. 
 But, as will be shown, he does not work it out fully, 
 and he does not reconcile it, or feel that there is a 
 difficulty in reconciling it, with his former doctrine 
 of value based on mere labour, and yet they are 
 plainly incompatible. "There is," he says, " in every 
 society or neighbourhood an ordinary or average 
 rate both of wages and profit in every different 
 employment of labour and stock. This rate is 
 
 \\ 
 
1 62 Economic Studies. 
 
 naturally regulated, as I shall show hereafter, partly 
 by the general circumstances of the society, their 
 riches or poverty, their advancing, stationary or 
 declining condition, and partly by the particular 
 nature of each employment. There is likewise in 
 every society or neighbourhood an ordinary or 
 average rate of rent, which is regulated too, as I 
 shall show hereafter, partly by the general circum- 
 stances of the society or neighbourhood in which 
 the land is situated, and partly by the natural or im- 
 proved fertility of the land. These ordinary or 
 average rates may be called the natural rates of 
 wages, profit, and rent, at the time and place in 
 which they commonly prevail. When the price of 
 any commodity is neither more nor less than what 
 is sufficient to pay the rent of the land, the wages 
 of the labour, and the profits of the stock employed 
 in raising, preparing, and bringing it to market, 
 according to their natural rates, the commodity is 
 then sold for what may be called its natural price. 
 The commodity is then sold precisely for what it is 
 worth, or for what it really costs the person who 
 brings it to market ; for though in common language 
 what is called the prime cost of any commodity does 
 not comprehend the profit of the person who is to 
 sell it again, yet if he sells it at a price which does 
 not allow him the ordinary rate of profit in his 
 neighbourhood, he is evidently a loser by the trade ; 
 since by employing his stock in some other way he 
 might have made that profit. His profit, besides, 
 is his revenue, the proper fund of his subsistence. 
 As, while he is preparing and bringing the goods to 
 
Adam Smith and our Modern Economy. 163 
 
 market, he advances to his workmen their wages, or 
 their subsistence ; so he advances to himself, in the 
 same manner, his own subsistence, which is gener- 
 ally suitable to the profit which he may reasonably 
 expect from the sale of his goods. Unless they 
 yield him this profit, therefore, they do not repay 
 him what they may very properly be said to have really 
 cost him. Though the price, therefore, which leaves 
 him this profit, is not always the lowest at which a 
 dealer may sometimes sell his goods, it is the low- 
 est at which he is likely to sell them for any consider- 
 able time ; at least where there is perfect liberty, or 
 where he may change his trade as often as he 
 pleases." 
 
 As every one will see, this second doctrine is much 
 more like real life than the former. But in Adam 
 Smith's mind it did not supersede it. All through 
 The Wealth of Nations there is recurring confusion 
 between three things, the " natural price " of an 
 article estimated as in the above passage, the 
 quantity of labour required to make it, and the 
 quantity of labour which it will buy ; of which 
 three things no one ever for the most part coincides 
 with the others. 
 
 Even this second exposition contains one error, 
 which unfits it for scientific use, and which the sharp 
 eye of Hume at once perceived. " I cannot think," 
 Hume wrote, " that the rent of farms makes any 
 part of the price of produce. " And very clearly it 
 does not. For, if it does, of what farm ? The rent 
 of various pieces of corn-growing land varies in- 
 finitely ; is it the rent of the dearest which enters 
 
164 Economic Studies. 
 
 into the price of the half-and-half, or of the cheapest ? 
 We know that the price of corn is the same, no 
 matter on what quality of land it is grown. Does 
 that price pay the rent of good, of indifferent, or of 
 bad land ? This question Adam Smith does not 
 answer, nor seemingly does the necessity of answer- 
 ing it occur to him. 
 
 On the other hand, it must be owned that there is 
 a great naturalness in Adam Smith's idea. It is 
 that which would strike every one on a first view of 
 the facts. The capitalist pays the rent of the land, 
 just as he pays the wages and buys the seed corn ; 
 and it is as much necessary that he should be re- 
 couped for the payment of that rent as for either of 
 the other payments. If the "rent" of the farm is 
 not an element in the price of the corn, how then is 
 that rent to be paid ? 
 
 The answer is, that the rent of extra good land is 
 paid out of the extra quantity (or extra good quality) 
 of what it produces. If one acre of land yields twice 
 as much as another, it will answer the capitalist's 
 purpose to pay twice as much for its use. But if he 
 does pay twice as much, the cost at which he will 
 grow each ear of corn will be the same as that of the 
 farmer on less good land ; the extra fertility will be 
 compensated by the extra rent. It may, of course, 
 be that the owner of the best land will farm it him- 
 self, and then he will have no rent to pay for its un- 
 usual goodness. But he will not sell his produce 
 the least cheaper for that ; he will get all that he 
 can for it. We have seen how *' market price " is 
 determined : it depends on certain desires of the 
 
Adam Smith and our Modern Economy, 165 
 
 seller and the buyer, in part generated by the quan- 
 tity of the article and the quantity of money, and in 
 part not. But none of those desires would make a 
 man say : " I produce this at a less cost than others, 
 and therefore I will let them charge a higher price 
 than I do ". No producer sets himself to introduce 
 fairness into the reward of production, by letting 
 those who possessed less facilities than he did, 
 receive more than he does. The nature of market- 
 going man is formed quite differently. 
 
 The only reason why the cost of production in the 
 end tends to determine market value is that every 
 one who wants an article will take the easiest means 
 to get it. If a capitalist wants to invest his money 
 to gain an income, he will, cceteris paribus, be apt to 
 engage in pursuits which are reputed profitable, and 
 to avoid those which are reputed unprofitable ; and 
 this will reduce the profits of all trades not to a level, 
 but towards a level. But the argument assumes that 
 all means of production are equall}- open to every one. 
 If any one has exclusive possession of an especially 
 good opportunity, he will get something out of it 
 proportioned to that especial goodness. The owner 
 of extremely good land, who farms it himself, will 
 get a return over and above the ordinary rate of 
 profit in proportion to that goodness. He will sell a 
 great deal at the price which will yield the required 
 profit to those who can sell only much less. 
 
 This is only another way of saying that the 
 capital which yields the least permanent return — 
 the least profit for which farmers as a class will 
 carry on agriculture — is that which determines the 
 
i66 Economic Studies. 
 
 price of agricultural produce. This is the least 
 which the farmer in the long run will sell for, and 
 the most which he will be able to obtain And this 
 capital is that which pays the least rent. 
 
 In all countries where land is easily accessible to 
 capital, that ''least" rent is no rent, because land is 
 taken into cultivation as soon as its cultivation will 
 pay the usual profit, and because after it is in culti- 
 vation, more and more capital is expended upon it, 
 so long as expenditure meets with the usual return. 
 The production of valuable thmgs on the surface of 
 the ground is exactly like the extraction of valuable 
 thmgs from beneath that surface. It is the worst 
 mine which can in the long run be kept going, that 
 in the long run determines the price of the produce ; 
 the owner of the better mine does not sell his ore 
 cheaper than his neighbour, because he can get that 
 ore at less cost than his neighbour ; the best-circum- 
 stanced miner exacts as much as the worst-circum- 
 stanced miner is able to obtain. And the ''worst- 
 circumstanced" mine pays no royalty to the owner 
 at all ; it only pays a bare profit on the capital. 
 
 Adam Smith's idea, therefore, that in ordinary 
 circumstances the rent of land entered as an element 
 into the price of agricultural produce, though a very 
 natural idea, was a complete mistake, because he 
 could not have told what rent he meant — the rent 
 of best, or middling, or bad land — and because much 
 capital employed in agriculture yields only the 
 ordinary profit on capital, and therefore pays no rent 
 at all. The mode of estimating " cost of production," 
 given by Adam Smith, in this case was most im- 
 
Adam Smith and our Modern Economy. 167 
 
 perfect, because one of its terms was undetermined, 
 a variable which might be anything, and often is 
 nothing. 
 
 This opinion of Adam Smith's as to the rent of 
 land is closely connected with a peculiar, opinion of 
 his as to agriculture. He held that it was the most 
 profitable employment to which the capital and 
 industry of a country could be directed. This 
 opinion, like many of his others, was a modification 
 of that which he had learned in France. The 
 economistes in Paris at that time held that agriculture 
 was the only profitable occupation of labour and 
 capital. And it w^ould take many pages to give an 
 account in the least comprehensible, of the elaborate 
 reasoning by which they had persuaded themselves 
 of this ridiculous result. Adam Smith, of course, 
 rejected it ; his strong sense particularly revolted 
 from that kind of argumentative absurdity. But he 
 was nevertheless influenced by it. Though he did 
 not hold agriculture to be the only source of profit, 
 he held that it was a particularly prolific one. '' It 
 keeps three people," he would have said, " the 
 landlord, the capitalist farmer, and the labourer ; 
 manufacturers and trade keep only two, the labourer 
 and capitalist ; clearly therefore agriculture has the 
 advantage." He assigned at length what he thought 
 was the philosophical reason. " The labourers and 
 labouring cattle, therefore, employed in agriculture, 
 not only occasion, like the workmen in manufactures, 
 the reproduction of a value equal to their own con- 
 sumption, or to the capital which employs them, 
 together with its owner's profits ; but of a much 
 
i68 Economic Studies. 
 
 greater value. Over and above the capital of the 
 farmer and all its profits, they regularly occasion the 
 reproduction of the rent of the landlord. This rent 
 may be considered as the produce of those powers 
 of nature, the use of which the landlord lends to the 
 farmer. It is greater or smaller according to the 
 supposed extent of those powers, or, in other words, 
 according to the supposed natural or improved 
 fertility of the land. It is the work of nature which 
 remains after deducting or compensating everything 
 which can be regarded as the work of man. It is sel- 
 dom less than a fourth, and frequently more than a 
 third, of the whole produce. No equal quantity of pro- 
 ductive labour emplo3^ed in manufactures can ever 
 occasion so great a reproduction. In them nature 
 does nothing ; man does all ; and the reproduction 
 must always be in proportion to the strength of the 
 agents that occasion it. The capital employed in 
 agriculture, therefore, not only puts into motion a 
 greater quantity of productive labour than any equal 
 capital employed in manufactures, but, in pioportion 
 too to the quantity of productive labour which it 
 employs, it adds a much greater value to the annual 
 produce of the land and labour of the country, to the 
 real wealth and revenue of its inhabitants. Of all 
 the ways in which a capital can be employed, it is 
 by far the most advantageous to the society." 
 
 Probably few passages in so eminent a writer on 
 the subject for which he is eminent, contain so much 
 curious falsehood. If nature does nothing in manu- 
 factures, in what is it that it does anything? 
 " Manufactures " are but applications of natural 
 
Adam Smith and our Modern Economy. l6g 
 
 forces, just as agriculture is another application. 
 And the reasoning assumes that the natural causes 
 which produce dear things are more beneficial to 
 mankind than those which produce cheap things, 
 though had Adam Smith seen that he was making 
 such an assumption he would have been the first 
 to reject it. The causes which produce dear things 
 are not necessarily more beneficial than those which 
 produce cheap ones ; they are only less plentiful. 
 A diamond mine is not more useful to the State than 
 a coal mine ; probably in the strictest sense of the 
 word not so useful. The fact that a particular 
 occupation keeps three classes of men, while other 
 occupations only keep two, only shows that there is 
 a special difficulty in getting into that occupation, 
 and a special scarcity in its opportunities ; it proves 
 nothing as to the degree of good which it does for 
 the public. And Adam Smith's conclusion is en- 
 cumbered with the further absurdity that agriculture 
 in new colonies does not create rent, and does not 
 keep three people, though of course it is just as good 
 for the public there as in old countries. 
 
 Although, therefore, Adam Smith had the merit 
 of teaching the world that the exchangeable value 
 of commodities is proportioned to the cost of their 
 production, his analysis of that cost was so very 
 defective as to throw that part of Political Economy 
 into great confusion for many years, and as quite to 
 prevent his teaching being used as an authority upon 
 it now. 
 
 The causes which regulate the value of securities, 
 whether debts or shares, Adam Smith did not 
 
170 Economic Studies. 
 
 attempt to investigate at all ; and it was not to be 
 expected that he should do so, for such things were 
 in his day a very unimportant part of wealth, com- 
 pared with that which they are now. And if, as we 
 have seen, Adam Smith's conception of *' average" 
 value, and of the causes producing it, was then im- 
 perfect, his idea of monetary or market value was 
 much worse. He says : " The actual price at which 
 any commodity is commonly sold is called its market 
 price. It may either be above, or below, or exactly 
 the same with its natural price. The market price 
 of every particular commodity is regulated by the 
 proportion between the quantity which is actually 
 brought to market, and the demand of those who are 
 willing to pay the natural price of the commodity , or the 
 whole value of the rent, labour, and profit^ which 
 must be paid in order to bring it thither. Such 
 people may be called the effectual demanders, and 
 their demand the effectual demand ; since it may be 
 sufficient to effectuate the bringing of the commodity 
 to market. It is different from the absolute demand. 
 A very poor man may be said in some sense to have 
 a demand for a coach and six ; he might like to have 
 it ; but his demand is not an effectual demand, as 
 the commodity can never be brought to market in 
 order to satisfy it." 
 
 But the actual price at which a thing is sold is 
 determined not solely by the demands of those who 
 are willing to pay the average price of the commodity, 
 but by everybody's demand who bids for it. It is, as 
 we have seen, an exchange determined by the quan- 
 tity of the commodity in the market and the desires 
 
Adam Smith and our Modern Economy. 171 
 
 of its holders, as compared with the quantity of 
 money in that market and the desires of its holders ; 
 it is a case of barter determined by relative quantities 
 and relative feelings. And the phrase *' effectual 
 demand," if defined to mean the demand of those 
 willing to pay cost price, is misleading, because the 
 money offered by those willing to pay cost price is 
 not sufficient to be effectual when articles are par- 
 ticularly in demand, and therefore sell for more than 
 it cost to make them, and is more than sufficient to 
 be effectual when the demand for articles is par- 
 ticularly slack, and when therefore they sell for less 
 than it cost to make them. The whole idea is con- 
 fused. 
 
 In other passages, Adam Smith takes a view far 
 better than in this. But this is the place where he 
 ought to have taken the best, for it is the guiding 
 paragraph of his special disquisition upon the sub- 
 ject. And his being not so good upon it here as 
 elsewhere shows that his elementary conception was 
 defective in definiteness. And nothing is more 
 natural than that it should be so. Perhaps, as I 
 have said before, Adam Smith's mind was by nature 
 rather disinclined to an anxious accuracy in abstract 
 ideas, and a century of critics on these facts and 
 these times have sharpened our perception since he 
 wrote on them. We must not expect from him the 
 use of modern "words of precision," any more 
 than we should find fault with a marksman of his 
 generation for not using a rifle. Neither such " arms 
 of precision," nor such 'Svords of precision," then 
 existed. And there was then little encouragement 
 
172 Economic Studies. 
 
 to think out the subject. Adam Smith evidently 
 hurries over the abstract part of it, because he thinks 
 his readers will not attend to it. Even now a writer, 
 who wishes to be read beyond a very narrow circle, 
 must be careful not to be too elaborate. And in the 
 last century the case was certainly far worse. Many 
 great writers — Montesquieu and Hume especially — 
 would have written far more instructively, and as we 
 should now think, far better, if they could have relied 
 on any careful attention from their readers. They 
 evidently thought that their writings would be 
 principally read by persons who would cease to read 
 as soon as they became dull. Now-a-days the 
 diffusion of physical science — even of popular physi- 
 cal science — has partly taught us that much truth is 
 dull and complex, and that the most interesting 
 parts of truth can only be understood by those who 
 have mastered that dull and complex part. But 
 even now we do not remember this half enough. 
 
 After these specimens, it would evidently be tedious 
 to criticise The Wealth of Nations as if it were a 
 treatise of modern Political Economy. We have 
 given some account of what would be its answer to 
 the first question of that science, " What makes all 
 things exchange for more or less of other things ? " 
 And we see from it what the answer to other similar 
 questions would be like. Nothing could be more 
 unjust to a great writer than to judge of him by a 
 standard which he did not expect, and to blame his 
 best book for not being what he never thought of 
 making it, especially when, except for him, we should 
 never have imagined the standard, or conceived the 
 
Adam Smith and our Modern Economy. 173 
 
 possibility of the book being that which we now 
 blame it for not being. We might as well expect 
 that the first cultivators of a country should make 
 the best permanent road, as that the first pro- 
 pounders of great conceptions should shape them 
 into the finished form most useful to posterity. 
 
 The ways really to appreciate Adam Smith are 
 two. First, — You should form a clear notion of the 
 state of the received Political Economy of the world 
 at the time he wrote. The last treatise on the sub- 
 ject published in England before The Wealth of 
 Natiotts, was The Principles of Political Economy, by 
 Sir James Steuart. The author was a man of culture 
 and travel, acquainted with a great variety of eco- 
 nomic facts, and conversant with what had been 
 written before upon the subject. He was a man of 
 considerable natural ability, respected and consulted 
 in his time, and his book is still worth looking over, 
 for it contains many facts and reasonings which are 
 curious. And this is the sort of thing he writes. 
 Much foreign trade he considers mischievous. He 
 propounds a plan — a foreign trade that is really 
 desirable for a nation founded on the three following 
 "easy principles ". 
 
 " The first, — That in a country entirely taken up 
 with the object of foreign trade, no competition 
 should be allowed to come from abroad for articles 
 of the first necessity, and principally for food, so as 
 to raise prices beyond a certain standard. 
 
 ''The second, — That no domestic competition 
 should be encouraged upon articles of superfluity, 
 so as to raise prices beyond a certain standard. 
 
174 Economic Studies, 
 
 *' The third, — That when these standards cannot 
 be preserved, and that, from natural causes, prices 
 get above them, pubHc money must be thrown into 
 the scale to bring prices to the level of those of ex- 
 portation. 
 
 *' The greater the extent of foreign trade in any 
 nation is, the lower these standards must be kept ; 
 the less the extent of it is, the higher they may be 
 allowed to rise." ^ 
 
 And taking the subject more practically, he says : 
 *' It is a general maxim to discourage the importa- 
 tion of work, and to encourage the exportation of it," 
 and upon that footing he asks and discusses : " What 
 is the proper method to put a stop to a foreign trade 
 in manufactures when the balance of it turns against 
 a nation ? " This is the kind of authoritative 
 doctrine which ruled in Adam Smith's time, and 
 from which he delivered us. 
 
 The second way is to take up Adam Smith him- 
 self and read him. There are scarcely five consecu- 
 tive pages in The Wealth of Nations, which do not 
 contain some sound and solid observation important 
 in practice and replete with common-sense. The 
 most experienced men of business would have been 
 proud of such a fund of just maxims fresh from the 
 life, and it is wonderful that they should have oc- 
 curred to an absent student, apparently buried in 
 books and busy with abstractions. Most of such 
 students, so far from being able to make such re- 
 marks, would not comprehend their value — would 
 
 ^ Principks of Political Econoiruy^ by Sir James Steuart, vol. 
 i., p. 358. 
 
Adam Smith and our Modern Economy. 175 
 
 acknowledge that they could not see much in them, 
 if they were elaborately explained to them. Adam 
 Smith himself probably did not know their exceeding 
 merit, and preferred more learned parts of his 
 writings, w^iich are now obsolete, and more refined 
 parts, which are now seen to have little value. Lord 
 Bacon says of some one that he was " like Saul, 
 who went in search of his father's asses and found a 
 kingdom " ; and this is exactly what happened to 
 Adam Smith. He was engaged in a scheme of vast 
 research, far surpassing the means at his disposal, 
 and too good for any single man. In the course 
 of that great pursuit, and as a small part of it, he 
 came upon the " Wealth of Nations," for dealing with 
 which his powers and his opportunities peculiarly 
 fitted him, and on that he wrote a book, which has 
 itself deeply influenced thought and policy, and 
 which has been the beginning of a new science. He 
 has obtained great fame, though it was not that 
 fame which was the dream of his life, for — 
 
 What was before us we know not, 
 And we know not what shall succeed.^ 
 
 ^ Matthew Arnold. 
 
176 
 
 MALTHUS. 
 
 The next great advance in Political Economy was 
 made almost in as unlikely a manner. In the middle 
 of the last century there lived in the south of England 
 a certain Mr. David Malthus, who was a friend and 
 correspondent of Rousseau, and one of his executors. 
 This gentleman had adopted all Rousseau's ideas of 
 the perfectibility of man, and of the speed with 
 which he would improve if he were only left to him- 
 self, and set free from the chains of ancient custom 
 The air of that time was full of such ideas, and 
 many otherwise quiet and rational persons were 
 excited and enthusiastic about them. Mr. David 
 Malthus had a clever son, Robert, whom he educated 
 with great care, and to whom, doubtless, in season 
 and out of season, he communicated his favourite 
 ideas. At any rate, Robert grew up with a proper 
 antipathy to them. The instinctive reaction of 
 child against parent, which more than almost any- 
 tl^ing keeps men moving, and prevents ''one good 
 custom" from "corrupting the world," has seldom 
 had a better example. "Train up a child in the 
 way he should go," a cynic has observed, "and then 
 you may feel safe that he will not walk in it." Let 
 a child hear much from infancy of nice dreams and 
 pleasing visions, and to the best of your ability you 
 will have prepared him for prosaic carefulness and a 
 dismal rationalism. 
 
Malthus. lyy 
 
 The Essay on Population, says Mr. Malthus.. 
 " which I published in 1798, was suggested, as is 
 stated in the preface, by a paper in Mr. Godwin's 
 Enquirer;'' and there is a curious story about it. 
 Mr. Godwin was a disciple of Rousseau, and had 
 drawn up a plan of village perfection, in which " every 
 rood was to maintain " its man, and in which man- 
 kind were to be happy and at ease, without the 
 annoying restraints of property and marriage. Such 
 "Elysiums" have been sketched in all ages, and 
 here is nothing remarkable about them ; but Mr. 
 Malthus's reply was very remarkable. " You may," 
 he said, "imagine this perfect picture for a little 
 while, but it will not last. It cannot last. Nature 
 is against it. She has a principle — that of popu- 
 lation — which is sure to destroy it. Mankind always, 
 b}' her arrangements, increase as fast as they can ; 
 misery checks their increase, and vice checks it, but 
 nothing else. A perfectly happy and virtuous com- 
 munity, by physical law, is constrained to increase 
 very rapidly ; if you look into the fact you will fmd 
 that it will double every twenty-five years, but there 
 can be no similar increase in their food. The best 
 lands are taken up first, then the next best, then the 
 inferior, at last the worst ; at each stage the amount 
 of food produced is less than before. B}^ nature 
 human food increases in a slow arithmetical ratio ; 
 man himself increases in a quick geometrical ratio, 
 unless want and vice stop him, so that if you make 
 him happy in a village community for a moment, he 
 will soon multiply so that he shall cease to be happy ; 
 
 there is nothing to stop him ; he will ere long reach 
 
 12 
 
178 Hconomic Studies. 
 
 the inevitable limit where want and wickedness begin 
 to keep him down." 
 
 The world rather eagerly read his doctrine, for the 
 reaction against dreams and visions was strong in 
 many minds. The event of the French Revolution 
 had upset all calculation, broken up all pleasing 
 visions, and disheartened half, or, indeed, much 
 more than half, mankind. Mr. Malthus was as much 
 the mouthpiece of his generation in exposing Utopias, 
 as his father had been in accepting them. The 
 Essay on Population, in its first edition, was read 
 with eager avidity, and its doctrines seem to have 
 been much believed. 
 
 Still, when examined, the tenets seemed startling, 
 and what made them even more surprising was that 
 their propounder, Mr. Malthus, was a clergyman. 
 People objected, " Can this really be so ? Is it con- 
 sistent with religion ? Can we believe that inevitably 
 man is yoked to sin and misery ? That even if you 
 make him good, and if goodness makes him happy, 
 the structure of earth and nature is such as inevitably 
 in a few years to make him miserable again ? How 
 is this possible under a benevolent Creator ? How 
 can it be made to accord with revelation ? " Such 
 objections were difficult to answer, especially as Mr. 
 Malthus was a simple candid man, and they seem to 
 have had much effect in changing his views. At 
 least, in the preface to the second edition, he tells 
 us : *' Throughout the whole of the present work, I 
 have so far differed from the former, as to suppose 
 the action of another check to population, which does 
 not come under the head either of vice or misery". 
 
Malthus. 179 
 
 This is the celebrated principle of " self-restraint, 
 moral or prudential". And he goes on to say that 
 he has endeavoured to soften some of the harshest 
 conclusions of the first essay. But he does not seem^ 
 to see that he has cut away the ground of his whole 
 argument. If there be this principle of virtuous 
 self-restraint, he no longer answers Godwin ; he no 
 longer destroys the dreams of perfectibility. If it be 
 possible for a perfectly virtuous community to limit 
 their numbers, they will perform that duty just as 
 they perform all others ; there is no infallible prin- 
 ciple that will break up the village community; it 
 can adjust its numbers to its food, and may last 
 for ever. In its first form the Essay on Popula- 
 tion was conclusive as an argument, only it was 
 based on untrue facts ; in its second form it was 
 based on true facts, but it was inconclusive as an 
 argument. 
 
 From this unlucky beginning the established 
 doctrine in Political Economy of " Population" is to be 
 dated. And as was not unnatural, so odd a com- 
 mencement was unfavourable to its comprehension. 
 From the mode in which he first regarded the sub- 
 ject, it was natural that Mr. Malthus should think 
 more of the painful aspects of the subject than of the 
 opposite ones. At first there were no cheerful 
 aspects ; the doctrine was an apparatus for destroy- 
 ing cheerfulness ; in its second and truer form it is 
 far less painful, though like most great truths about 
 the world (especially economic ones, which have so 
 much to do with labour and toil), it has its painful 
 side. But Mr. Malthus first put the painful 
 
i8o Economic Studies. 
 
 side alone forward, fixed the public mind upon it, 
 and for many years it could see no other. 
 
 There is much in the theory of population which 
 it would require a large book to discuss, and I am 
 far from pretending that I could write that book. 
 Many most difficult questions of morals, and many 
 others of physiology, must be treated of, and it 
 is especially hard to discuss such questions virginihns 
 puerisque, as almost all questions are now discussed. 
 Some parts of it could scarcely be managed, except 
 under the decent veil of a dead language. The con- 
 ditions of marriage form only part of that subject, 
 and a great deal would have to be written on that 
 part in its relations to the actual past, and to the 
 possible future. But what is necessary for abstract 
 Political Economy is much easier. As has been 
 previously explained, the peculiarity of this science 
 is that it abstracts, that is, it seizes upon and alone 
 considers the principal peculiarities of existing man 
 as we find him in the principal commercial nations. 
 It does not profess to be accurately complete as to 
 those nations, even as they are now, still less as 
 they once were, or as they may hereafter be ; and 
 still less again does it pretend to be true of other 
 nations, in ages of a different character, cast in a 
 different mould, and occupied with different ideas. 
 Human nature is so various that we cannot treat of 
 it at once briefly and fully ; we can only reason on 
 short propositions, and, therefore, we must cut the 
 subject up into distinct portions, each of which 
 can be conceived of by itself and heard out by itself. 
 And no part of human nature is more infinite 
 
Malthus. i8i 
 
 than the relation between the sexes and its con- 
 sequences. 
 
 Mr. Malthus had no idea of looking at the subject 
 in this way. He thought he was dealing with all 
 nations and all ages. In its original form the 
 Essay propounded a universal principle, destruc- 
 tive of golden visions ; in its later forms he deals, 
 first, with principles of population in the most bar- 
 barous ages-, and then with them in every variety 
 of society which he knew of — nomad or stationary, 
 commercial or agricultural ; and there is much in 
 his discussion of the savage society, which is still 
 worth reading, and which was much before his time. 
 His mind was by nature indisposed for, and unfit for, 
 abstractions; indeed, if I may say so with reverence, 
 he always seems to me but a poor hand at a dry 
 argument. Like Adam Smith, he had no idea that 
 he was founding an abstract science ; he thought he 
 was dealing wholly with the concrete world, but it 
 so happened that his idea of the concrete world 
 coincided with the most convenient abstraction 
 that can be made from it, and so he became, 
 in spite of himself, the founder of an abstract 
 science. 
 
 The assumed laws of population in abstract Politi- 
 cal Economy are these : — 
 
 First, — That population would soon outstrip the 
 means of feeding it, if it were not kept down by vice, 
 misery, or self-restraint. 
 
 Secondly, — That in a state of society where self- 
 restraint does not act at all, or only acts so little 
 that we need not think of it, population will augment 
 
i82 Economic Studies. 
 
 till the poorest class of the community have only just 
 enough to support life. 
 
 Thirdly, — That in a community where self-restraint 
 acts effectually, each class of the community will 
 augment till it reaches the point at which it begins to 
 exercise that restraint. 
 
 In the second case (which was all that Malthus 
 thought of in his first edition), the population in- 
 creases till it reaches a physical minimum of sub- 
 sistence — one that is set by natural causes ; in the 
 other it increases till it reaches a moral minimum of 
 subsistence — that is, one set by human choice. And 
 It follows that in improving communities this moral 
 minimum is commonly rising, for in most com- 
 munities more self-restraint of this sort is desirable, 
 and as people improve they mostly are more inclined 
 to exercise it. The physical minimum must be a 
 fixed minimum ; the moral may be, and ordinarily is, 
 a moving minimum. A Political Economist does not 
 imagine (as I have previously explained) that vice, 
 misery, and self-restraint are the only causes which 
 affect the rate of increase of population. He well 
 knows that many others act on it. All he says is, 
 that in the principal commercial communities of the 
 world these causes are now in most powerful opera- 
 tion, though they are retarded or helped by others ; 
 in a word, that these selected causes will in such 
 communities produce the specified results, in more or 
 less time, though there are other causes which aid 
 in settling how long or how short that time is to 
 be. 
 
 For example, it might well be (though I do not 
 
Malthus. 183 
 
 know that it has been proved) that some races of men 
 from inherent organisation tend to augment faster 
 than other races. The causes which divide men 
 into races are so many, so hidden, and produce so 
 many effects, that it would not be strange if they had 
 this effect among others. Perhaps there would be 
 more a priori likelihood that they would have such 
 an effect as this than that they would produce some 
 actual effects which are quite certain. There is 
 much evidence that different climates affect differ- 
 ently the sexual desires ; some aggravating them and 
 some calming them. And it would vSeem likely that 
 those races which had in this respect for ages been 
 exposed to intensifying influences, would augment 
 more rapidly than those which had been exposed 
 to mitigating ones. Our knowledge of race-making 
 causes is still most imperfect, and we can never 
 trace race effects separately ; they are alwa3's com- 
 bined with the effects of many other causes. In this 
 case the confusion is peculiarly complex, for rules of 
 morality — arising in unknown circumstances, and 
 inherited for untold ages — so retard or quicken the 
 growth of population that it is impossible to isolate 
 the purely physiological phenomenon. Still the 
 principles above laid down afford all possible room 
 for it ; they will have their usual action, though 
 morality will have a concurrent action. 
 
 Again, we may quite believe that the nervous 
 conditions which luxury engenders are less favour- 
 able to the prolificness of population than simpler 
 conditions. On this point, and on this point only, 
 of the theory of population — Adam Smith had re- 
 
184 Economic Studies, 
 
 markable and sound views. " A half-starved High- 
 land woman," he tells us, "frequently bears more 
 than twenty children, while a pampered fine lady is 
 often incapable of bearing any, and is generally 
 exhausted by two or three. Barrenness, so frequent 
 among women of fashion, is very rare among those 
 of inferior station." Probably of all causes which 
 regulate the pace of population, the nervous state of 
 the woman is the most important, and it seems to 
 have a kind of cyclical course as society advances. 
 There is much reason to think that in the earliest 
 state in which we know men to have lived — the state 
 of the old slave age and the present savages — the 
 hard labour and insufficient food of the women tend 
 very much to keep down the increase of numbers. 
 At a later period the improvement of food, better 
 shelter, diminution of work during pregnancy, bring 
 the bearing power of women up to its maximum. 
 The Highland woman of Adam Smith probably was 
 able to bring into the world as many children, and, 
 physically at least, as strong children, as any one 
 who ever lived. After that, not only the luxury of 
 which he speaks, but education and the habit of 
 using the mind, tend almost certainly to diminish 
 the producing power. There is only a certain 
 quantity of force in the female frame, and if that 
 force is invested, so to say, in one way, it cannot be 
 used in another. 
 
 The same force acts, no doubt, on man, but prob- 
 ably differently. The use of the mind in some ways 
 certainly does not have much, if any, effect on the 
 power of increasing the race. The English judges 
 
Malthus. 185 
 
 whose children Mr. Gallon counted, showed very 
 considerable capacity of this sort, and they worked 
 in their way as hard as many people ever have or 
 will. But for the most part they do their work with 
 a joyous swing and impetus which show that it does 
 not tell upon the nerves. But anxiety, as has been 
 said, does so tell, and we have seen that there is 
 reason to believe that it much tends to slacken the 
 growth of population ; and, probably, any of the 
 higher exercises of the mind, which cause, as they 
 all do, obscure and subtle pain, have a similar effect. 
 But these are problems for the future. No one can 
 say that they are solved as yet ; indeed, we are only 
 beginning to try to solve them. Some have been 
 sanguine enough to fancy that the accumulation of 
 them may in distant ages make a stationary state 
 possible, and make it pleasant. But with this 
 Political Economy has nothing to do. It deals with 
 men here and now ; it takes certain parts of their 
 nature which are indisputable, and which are im- 
 portant, and considers how these would operate by 
 themselves. Questions as to the ultimate effects of 
 other agencies, physiological or. mental, it leaves to 
 other sciences and to futurity. 
 
 In the same way, then, Political Economy cannot 
 by itself pretend to solve the many new problems 
 which the sanitary condition of great cities suggests 
 in this age of them. There can be little doubt that 
 these great accumulations of human beings have at 
 least three effects. First, Mr. Galton holds that they 
 diminish in some unknown degree the number of 
 births, ** Again, there is a constant tendency of the 
 
i86 Economic Studies. 
 
 best men in the country to settle in the great cities, 
 where marriages are less prolific and children are 
 less likely to live. Owing to these several causes, 
 there is a steady check in an old civilisation upon 
 the fertility of the abler classes ; the improvident and 
 unambitious are those who chiefly keep up the breed. 
 So the race gradually deteriorates, becoming in each 
 successive generation less fitted for a high civilisation, 
 although it retains the external appearances of one, 
 until the time comes when the whole political and 
 social fabric caves in, and a greater or less relapse 
 to barbarism takes place, during the reign of which 
 the race is perhaps able to recover its tone." And 
 these consequences seem to Mr. Galton purely evil. 
 But they do not seem so to me. No doubt it is an 
 evil that the accumulation of men in cities weakens 
 the frame, and that they have not the same energy 
 or health as those in the country. Every one must 
 regret this decline of power. But when power has 
 declined in a certain race, it is better that that race 
 should not increase as fast as others. We had 
 better breed from hardy than from weakened speci- 
 mens. The diminished growth of urban populations 
 seems to be Nature's remedy for the diminution in 
 their strength. Secondly, great towns indisputably 
 encourage drunkenness. The bad state of the atmo- 
 sphere there certainly inclines men more to drink 
 than the better air of the country. And this is, no 
 doubt, a great evil. But we may doubt if it is an 
 evil without compensation. The persons most in- 
 clined to drunkenness are generally persons of some 
 nervous taint or weakness which they often inherite(3 
 
Malthus. 187 
 
 themselves, and which they might not improbably 
 transmit to their children. I do not, of course, mean 
 that this inherent weakness is irresistible. No doubt 
 the mass of these people can, at first at least, help 
 drinking very well. The heritable taint amounts 
 only to an increased liability to this temptation. 
 But this is quite reason enough to wish that it should 
 not be inherited. Great cities seem to have this 
 special function in the world, that they bring out 
 this taint in the worst specimens. Not only do such 
 persons suffer as usual from the general decline in 
 the multiplying power of city populations, but they 
 also suffer in a way peculiar to themselves. One of 
 the effects of a drunken habit is to diminish this 
 kind of power, as well as, and perhaps more than, 
 most others. Thirdly, great cities collect together 
 a great criminal population, and make them sterile ; 
 and so far as crime is connected with a low type of 
 nervous organisation, as it is very often, this sterility 
 is a great gain. Society gets rid of these over-" 
 tempted persons, whose peculiar defects are a dan- 
 ger to others as well as to themselves. Great cities 
 must always be in their worst aspects painful spec- 
 tacles, but this painfulness is somewhat relieved 
 when we see that we can regard them as a huge 
 cleansing machinery, which, no doubt, shows us a 
 great deal that is detestable, but also takes away 
 much of it, and prevents more coming, not only in 
 that place but in others. 
 
 Nor has Political Economy any concern with the 
 other purging means, which in a subtle way Nature 
 seems to use all through civilised society. It is said 
 
1 88 Economic Studies. 
 
 that man is the only animal of whose breed no 
 care is taken. But Nature has not forgotten to take 
 much care of it. Every one who watches society must 
 have seen many instances in which defective fami- 
 lies have died out, because they were defective. The 
 men being weak failed to earn their living, and, 
 therefore, could not marry, and the girls wanting 
 from the same cause life and vigour did not find 
 husbands, and so the race died away. And this 
 cause works not only in families weak as a whole, 
 but in the weak members of strong families. All 
 through society there is a constant tendency in civil- 
 ised life to slacken the pace of population by weed- 
 ing away those weaker and less valuable. 
 
 There seem to be curious processes of Nature also 
 at the other end of the scale of cultivation. The 
 process by which so many savage races die out before 
 civilised man, is certainly not as yet completely 
 explained. Hard work, which civilised man brings, 
 and which most savages cannot bear, accounts for 
 some of it ; alcohol, " the fire-water," as savages 
 call it, accounts for more. But there seems to be a 
 residue still unexplained. The most plausible theory 
 says that this is due to two causes ; and first, to the 
 inability of savage nations to bear the diseases to 
 which the hardened frame of civilised men is inured. 
 For ages, in the contested parts of the world which 
 civilised man inhabits, the stronger race has con- 
 quered and supplanted the weaker, and the result 
 is a strong animal equal to many difficulties, and 
 able among other things to survive strong diseases. 
 But in the out-of-the-way places which savages in- 
 
Malthus. i8g 
 
 habit there has been no such incessant conflict, and 
 in consequence there is no such strong animal. The 
 weaker savage succumbs to diseases which the 
 seasoned white man easily bears. Indeed, the way 
 in which savages waste away before ''alcohol" is 
 but a case of this ; they cannot bear, as white men 
 can, the diseases which it generates. And the second 
 cause which co-operates with this is a certain dis- 
 heartened tendency of mind which somehow tells on 
 the nerves and which is analogous to the way in 
 which wild animals die out when caught and con- 
 fined. A certain life and spirit seem as essential 
 to keep men in good numbers as in good health. 
 
 Different kinds of food may, too, for ought we 
 know, have an effect not yet understood on man's 
 power to increase his numbers. The potato was at 
 one time fancied — erroneously, probably — to contain 
 a particular stimulus of this sort. But though this 
 instance may have been a mistake, the conception is 
 possible. We must not always say that the more 
 nutritious food will tend universally to produce the 
 more people, though, no doubt, it usually does so. 
 It may even sometimes have a contrary effect ; it 
 may run to quality rather than to quantity ; it 
 may make fewer strong people, instead of more weak 
 ones. 
 
 I set out these considerations at length because it 
 is most important that there should be no disunion 
 between Political Economy and Physiology, or 
 between it and the more complex forms of social 
 science. No Political Economist has the slightest 
 reason to depreciate the causes which act on popula- 
 
I go Economic Studies. 
 
 tion of which his science takes no cognisance. On 
 the contrary, he has the greatest reason for taking 
 an interest in them. They supplement what he dis- 
 cusses ; reahty is composed of the influences treated 
 of in his science, plus these influences, and of course 
 he wishes to compare his work with fact. 
 
 We must be careful to see what these principles 
 themselves mean, for they are often mistaken. Even 
 apart from Physiology, they do not say that an in- 
 crease in the comfort of a people necessarily tends to 
 augment their numbers. It does so in two cases 
 only. The first case is when the people are at 
 the "physical minimum," with just enough to sup- 
 port life, and do not exercise self-restraint. Here the 
 moment there is more food there will be more num- 
 bers. Such people will always multiply, just as the 
 ryots in Bengal, in a somewhat similar state of things, 
 are multiplying. The second case is when the people 
 are at the " moral minimum," with just what will sup- 
 port the existing numbers in the sort of life they think 
 proper — be it high or low — such numbers being kept 
 down by self-restraint, and when the people do not 
 change their standard. Then, undoubtedly, morecom- 
 fort will be turned into more children, and in a little 
 while the new state of things will produce no more com- 
 fort to each person than the old one — only there will 
 be more persons to enjoy it. But there is no sort of 
 necessity in this ; as has been explained, the *' moral 
 minimum " is very movable ; the people may change 
 their standard, and in that case more comfort will 
 not produce more persons. There will only be as 
 many as there would have been before, and the 
 
MaltJms, igl 
 
 average of these will have a better life. Whether a 
 people take one course or the other, will depend on 
 this sort of change, and on its relation to the sort of 
 civilisation enjoyed by the people. I doubt if any 
 general formula can be found for it. Some writers 
 have said that a great sudden change which elevates 
 a whole generation, is more likely to raise the 
 population standard than a series of successive small 
 changes. But as far as I can judge, more depends 
 on the previous preparation of the people than on its 
 absolute amount ; a really thrifty people used to self- 
 denial will profit exceedingly by a series of small 
 improvements; they will not "run to numbers," 
 they will augment in happiness. And an easy-going 
 enjoying nation will mostly not be much the better 
 for any boon of plenty, however great or sudden ; 
 they will live at the same average, but the average 
 will not be raised. 
 
 Now that we see the extreme delicacy of the 
 assumptions as to population on which abstract 
 Political Economy is based, we shall not be surprised 
 at finding that Mr. Malthus did not apprehend them 
 as they really are. As I have said, he did not in the 
 least know that he was aiding in the foundation of 
 an abstract science. He thought that he was deal- 
 ing with real men and that the principles which he 
 expounded were all those which affected his subject. 
 Indeed, the best part of his book is an account, 
 which must have cost great labour at that time, of 
 the rate at which population had augmented, and 
 was augmenting, in various countries, and the 
 causes which influenced that rate. And the best 
 
tg2 Economic Studies. 
 
 part of this is that which relates to the savage 
 state, for even now when that state has been so 
 accurately studied, it is worth while to glance over 
 what Malthus wrote on it, more than fifty years ago. 
 That his analysis of population causes in other 
 countries should be most incomplete was a matter 
 of course ; even now we are in the dark on much 
 of this subject. But how incomplete it was will 
 sufficiently appear from a single fact. Though he 
 treats elaborately of Norway and of Switzerland, 
 he has no idea that peasant properties have a tend- 
 ency to check population He discusses the subject 
 as if there were no difference in this respect between 
 a people which owns the soil and one which lives by 
 wages. And therefore many of the disquisitions in 
 which he indulges are wholly thrown away. 
 
 And Mr. Malthus, as was natural, never cleared 
 his mind entirely of the dismal theory with which he 
 began. Scarcely any man who has evolved a striking 
 and original conception of a subject ever gets rid of 
 it. Long after he himself fancies that he has cleared 
 his mind of it, every one else sees that it haunts him 
 still. Mr. Malthus was peculiarly little likely to get 
 rid of his errors. He had published his original 
 theory, had made a name by publishing it, and he 
 never admitted even to himself how complete a 
 change the foundation of his ideas had undergone. 
 A theory of population which does not include self- 
 restraint, like his first, and one which essentially 
 depends on it, like his second, differ in their essence, 
 and therefore differ in their main consequences. 
 From a theory of population which does not include 
 
MaltJms. 193 
 
 a prudential check, it follows that plenty cannot 
 last, and that men will always multiply down to 
 misery. But such a theory with a prudential check, 
 has no such consequence. And for many years it 
 was a misfortune to the subject that the original 
 propounder of what were then the best views of it, 
 had connected those views with a mischievous 
 exaggeration, leading straight to lamentable results. 
 
 To most other parts of Political Economy Mr. 
 Malthus added very little. And on some he sup- 
 ported errors which were even then becoming 
 antiquated. He was a strenuous advocate of 
 '' Protection to Agriculture," and believed that the 
 supply of all commodities might exceed the demand, 
 which is as much as to say that there is too much 
 of everything. The truth is, that Mr. Malthus had 
 not the practical sagacity necessary for the treat- 
 ment of Political Economy in a concrete way, or the 
 mastery of abstract ideas necessary to deal with it 
 in what we should now call a scientific way. He 
 tried a bad mixture of both. There is a mist of 
 speculation over his facts, and a vapour of fact over 
 his ideas. 
 
 On one important point Mr. Malthus was, how- 
 ever, in advance of his time. He was one of several 
 writers who, at the same time, discovered the true 
 theory of rent. That theory lay, indeed, close to his 
 ideas on population. Its essence (as we have seen) 
 is, that the rent of land arises from the scarcity of 
 good land. Mr. Malthus could not help seeing that 
 Adam Smith (and the French economistes) were wrong 
 in imputing rent to some pre-eminent merit in the 
 
 13 
 
194 Economic Studies. 
 
 land. He saw that it came from a special fact 
 concerning land, viz., that so little of it is first-rate 
 both in situation and in quality ; that most is either 
 not the best, or not in the best place, else there 
 would be no rent of land anymore than of air. This 
 truth seems so plain that one can scarcely conceive 
 how it should ever not have been seen. But 
 certainly it was not seen till modern economists 
 pointed it out. And, then, as so often happens, it 
 was on many people's lips almost at once. The 
 fact was so unmistakably plain that several persons 
 could not help seeing it the moment they began to 
 search for it. Of these, Mr. Malthus was one, but 
 not the best. As we shall see, a much keener 
 intellect than his far more fully examined all its 
 consequences. 
 
 There is nothing in Mr. Malthus's life which is 
 worth mentioning, or which illustrated his doctrines. 
 He was an estimable gentleman, and clerical pro- 
 fessor; a "mild pottering person," I think Carlyle 
 would have called him. Neither his occupation nor 
 his turn of mind particularly fitted him to write on 
 money matters. He was not a man of business, nor 
 had he, like Paley, and similar clergymen, a hard- 
 headed liking for, and an innate insight into, the theory 
 of business. He was a sensible man educated in the 
 midst of illusions ; he felt a reaction against them, 
 and devoted the vigour of his youth to disprove and 
 dispel them. And he made many sensible and acute 
 remarks on kindred topics. But he has been among 
 the luckiest of authors, for he has connected his 
 name with the foundation of a lasting science which 
 
Malthus. 195 
 
 he did not plan, and would by no means have agreed 
 in. 
 
 This celebrity may seem over-fortunate, but it is 
 explained by the circumstances of the time. The 
 age in which he wrote was as much against the 
 Godwinian illusions as Mr. Malthus could be. He 
 and his father were but an instance of a general 
 contrast between successive generations. The 
 generation before 1789 was full of hope, and de- 
 lighted with happy schemes; that after it was terrified 
 by the French Revolution, insensible to hope and 
 ready for despair. To this change of sentiment Mr. 
 Malthus effectually ministered, and beneath this 
 want of the surface there was one much more real 
 need, to which he was of use also. An immense tide 
 of sentiment favoured the growth of population, no 
 matter what the circumstances and what its means 
 of subsistence. Mr. Pitt, who was the most in- 
 structed statesman of the time on economic subjects 
 said that " the man who had a large family was ' a 
 benefactor to his country ' ". And the old English 
 Poor Law was simply a subsidy to the increase of 
 paupers. Against sucli notions and such practices 
 Mr. Malthus's views were a most admirable reaction. 
 If there had been no such movement our agricultural 
 districts would by this time have been a pauper 
 warren. That his views were exaggerated, though a 
 subsequent misfortune, was an immediate advantage. 
 He advertised his notions and fixed them among the 
 men who understood a simple and striking exaggera- 
 tion far more easily than a full and accurate truth. 
 He created an entirely new feeling on his subject. 
 
ig6 Economic Studies. 
 
 " If we look," says Mr. Carlyle, "at the old Poor 
 Law, we shall find it to have become still more insup- 
 portable, demanding, if England was not destined for 
 anarchy, to be done away with." "To create men 
 filled with a theory" that it ought to be done away 
 with " was the one thing needful " ; " nature had no 
 readier way of getting it done away with ". To this 
 Mr. Malthus most essentially contributed. It was 
 he who, more than any one else, " filled " men with 
 that theory. 
 
197 
 
 RICARDO. 
 
 The true founder of abstract Political Economy is 
 Ricardo. And yet in seeming there was no one less 
 likely to be the founder. He was a practical man of 
 business, who had little education, who was for much 
 of his life closely occupied in a singularly absorbing 
 trade, and who made a fortune in that trade. Just 
 as no one would have expected from Adam Smith, 
 the bookish student, the practical sagacity with which 
 every page of The Wealth of Nations overflows, so no 
 one would have expected from Ricardo, who made a 
 large fortune, the foundation of a science of abstrac- 
 tions. Every one would, on the contrary, have 
 imagined that Adam Smith would have been eminent 
 in the abstractions among which his closet-life would 
 seem to have been spent, and that Ricardo would 
 have been eminent in the rough and rude sense which 
 makes money. But, in fact, Ricardo arrives at his 
 best conclusions by the most delicate and often diffi- 
 cult reasoning, and Adam Smith, as we have seen, at 
 his by an easy and homely sagacity. 
 
 There is much in this, as in all such cases, which 
 now is, and probably will always remain, inexplicable ; 
 for the most obscure and subtle of causes are those 
 which fix inherited genius. But, just as in Adam 
 Smith's case, a more exact survey of the circumstances 
 tends to diminish our surprise. The trade in which 
 Ricardo spent his life, and in which he was so sue- 
 
ig8 Economic Studies. 
 
 cessful, is of all trades the most abstract. Perhaps 
 some people may smile when they hear that his 
 money was made on the Stock Exchange, which they 
 believe to be a scene of gambling. But there is no 
 place where the calculations are so fine, or where 
 they are employed on data so impalpable and so little 
 "immersed in matter". There is a story that some 
 dealer made very many thousand pounds by continued 
 dealings in the shares of some railway, and then on 
 a sudden asked where that railway was. The whole 
 thing had been a series of algebraic quantities to him, 
 which called up no picture, but which affected a 
 profit and loss account. In most kinds of business 
 there is an appeal of some sort to the senses ; there 
 are goods in ships or machines ; even in banking 
 there is much physical money to be counted. But 
 the Stock Exchange deals in the " debts," that is the 
 '' promises," of nations, and in the " shares " of under- 
 takings whose value depends on certain future 
 dividends — that is, on certain expectations — and 
 what those expectations are to be, is a matter of nice 
 calculation from the past. These imponderable 
 elements of trade cannot be seen or handled, and the 
 dealing with them trains the mind to a refinement 
 analogous to that of the metaphysician. The ordinary 
 human mind finds a great rest in fixing itself on a 
 concrete object, but neither the metaphysician nor 
 the stock-jobber has any such means of repose. 
 Both must make their minds ache by fixing them 
 intently on what they can never see, and by working 
 out all its important qualities and quantities. A 
 stock-jobber loses money, and in the end is ruined, if 
 
Ricardo. 199 
 
 he omits any, or miscalculates any. If any man of 
 business is to turn abstract thinker, this is the one who 
 should do so. Any careful reader of Ricardo, who 
 knows anything of such matters, and who watches 
 the anxious penetration with which he follows out 
 rarefied minutiae, will very often say to himself, " I 
 see well why this man made a fortune on the Stock 
 Exchange ". 
 
 For this tiade Ricardo had the best of all prepara- 
 tions—the preparation of race. He was a Jew by 
 descent (his father was one by religion), and for ages 
 the Jews have shown a marked excellence in what 
 may be called the *' commerce of imperceptibles". 
 They have no particular superiority in the ordinary 
 branches of trade; an Englishman is quite their equal 
 in dealing with ordinary merchandise, in machine- 
 making, or manufacturing. But the Jews excel on 
 every Bourse in Europe ; they — and Christian de- 
 scendants of their blood — have a pre-eminence there 
 wholly out of proportion to their numbers or even to 
 their wealth. Some part of that pre-eminence is, no 
 doubt, owing to their peculiar position as a race ; for 
 nearly two thousand years they have been a small 
 nation diffused over a vast area ; that diffusion has 
 made them the money-lenders for most of the nations 
 with whom they lived ; and the exchange of money 
 between country and country is a business of fine 
 calculation, which prepared them for other fine 
 calculations. This long experience has probably 
 developed a natural aptitude, and it would be idle to 
 distinguish what is due to the one in comparison with 
 the other. The fact remains that the Jews have now 
 
200 Economic Studies. 
 
 an inborn facility in applying figures to pure money 
 matters. They want, less than other nations, a 
 visible commodity which they can imagine, if not 
 touch ; they follow with greater ease and greater 
 nicety all the minute fractions on which this subtle 
 commerce depends (a task which is a particular 
 torture to most Englishmen), and they make money 
 as the result. The writings of Ricardo are unique 
 in literature, so far as I know, as a representative on 
 paper of the special faculties by which the Jews have 
 grown rich for ages. The works of Spinoza, and 
 many others, have shown the power of the race 
 in dealing with other kinds of abstraction ; but 
 I know none but Ricardo's which can awaken a 
 book-student to a sense of the Jewish genius for the 
 mathematics of money-dealing. His mastery over 
 the abstractions of Political Economy is of a kind 
 almost exactly identical. 
 
 The peculiar circumstances of his time also con- 
 ducted Ricardo to the task for which his mind was 
 most fit. He did not go to Political Economy — 
 Political Economy, so to say, came to him. He lived 
 in the '' City " at a time when there was an incessant 
 economic discussion there. He was born in 1772, and 
 had been some years in business in 1797, the year 
 of the celebrated "Bank restriction," which "re- 
 stricted" the Bank of England from paying its notes 
 in coin, and which established for the next twenty 
 years in England an inconvertible paper currency. 
 As to this — as to the nature of its effect, and 
 even as to whether it had an effect, — there was an 
 enormous amount of controversy. Ricardo could 
 
Ricardo. 20 1 
 
 not have helped hearing of it, and after some years 
 took an eager part in it. Probably, if he had not 
 been led in this way to write pamphlets, he would 
 never have written anything at all, or have got the 
 habit of consecutive dealing with difficult topics, 
 which is rarely gained without writing. He had 
 only a common school education, and no special 
 training in such things. But it is the nature of an 
 inconvertible currency to throw the dealings between 
 other countries and the country which has it, into 
 confusion, and to change the price of all its securities. 
 As Ricardo was a jobber on the English Stock 
 Exchange for the whole time during which the notes 
 of the Bank of England were inconvertible, his daily 
 business must have constantly felt the effect. 
 
 Having been thus stimulated to write pamphlets 
 on the one great economic subject of his day, 
 Ricardo was naturally led to write them also on the 
 other great one. At the close of the war the Eng- 
 lish Parliament was afraid that corn would be too 
 cheap ; the war had made it dear, and probably when 
 peace came it would cease to be dear. And there- 
 fore, in its wisdom. Parliament passed " Corn Laws " 
 to keep it dear. And it would have been difficult for 
 a keen arguer and clear thinker like Ricardo to 
 abstain from proving that Parliament was wrong. 
 And, accordingly, he wrote some essays which would 
 be called '' dry and difficult " now, but which were 
 then read very extensively and liad much influence. 
 
 Political Econom}^ was, indeed, the favourite sub- 
 ject in England from about 1810 to 1840, and this to 
 an extent which the present generation can scarcely 
 
202 Economic Studies. 
 
 comprehend. Indeed, old people are puzzled for an 
 opposite reason ; they can hardly understand the 
 comparative disappearance of what was the principal 
 topic in their youth. They mutter, with extreme 
 surprise, "we hardly hear anything now about 
 Political Economy ; we used to hear of nothing so 
 much". And the fundamental cause is the great im- 
 provement in the condition of the country. For the 
 thirty years succeeding the peace of 1815 England 
 was always uncomfortable. Trade was bad, employ- 
 ment scarce, and all our industry depressed, fluctuat- 
 ing, and out of heart. So great is the change of 
 times, that what we now call bad trade would then 
 have seemed very good trade, and what we now call 
 good trade would have been too good to be thought 
 of — would have been deemed an inconceivable 
 Elysian and Utopian dream. So long as this misery 
 and discomfort continued, there was a natural curio- 
 sity as to the remedy. Business being bad, there 
 was a great interest in the " science of business," 
 which ought to explain why it was thus bad, and 
 might be able to show how it was to be made good. 
 While the economic condition of countries is bad, 
 men care for Political Economy, which may tell us 
 how it is to be improved ; when that condition is im- 
 proved. Political Economy ceases to have the same 
 popular interest, for it can no longer prescribe any- 
 thing which helps the people's life. In no age of 
 England, either before or since, could a practical 
 man of business, like Ricardo, have had so many and 
 such strong influences combining to lead him to- 
 wards Political Economy, as in Ricardo's own time. 
 
Ricardo. 203 
 
 And there was at that time a philosophical fashion 
 which was peculiarly adapted to make him think 
 that the abstract mode of treating the subject which 
 was most suitable to his genius was the right mode. 
 It was the age of " philosophical Radicalism," a 
 school of philosophy which held that the whole theory 
 of Political Government could be deduced from a few 
 simple axioms of human nature. It assumed certain 
 maxims as to every one's interest, and as to every 
 one always following his interest, and from thence 
 deduced the universal superiority of one particular 
 form of Government over all others. " Euclid " was 
 its one type of scientific thought, and it believed that 
 type to be, if not always, at least very often, attain- 
 able. From a short series of axioms and definitions 
 it believed that a large part of human things, far 
 more than is really possible, could be deduced. The 
 most known to posterity of this school (and probably 
 its founder) was Mr. Bentham, for the special value 
 of his works on jurisprudence has caused his name 
 to survive the general mode of political thinking 
 which he was so powerful in introducing. But a 
 member of the sect, almost equally influential in his 
 own time, was Mr. James Mill, of whom his son has 
 given us such a graphic picture in his biography. 
 This austere dogmatist thought that the laws of 
 Government and of human happiness might be 
 evolved from some few principles, just as a Calvinistic 
 theologian evolves a whole creed of human salvation 
 from certain others. Mr. Grote, who belonged for 
 the best years of his life to the sect, and whose 
 writings and tone of mind were profoundly tinctured 
 
204 Economic Studies. 
 
 by its teaching, has left us a vivid description of 
 Mr. James Mill, who seems to have influenced him 
 far more than any one else. And an equally vivid 
 picture may still be found in the reminiscences of a 
 few old men, who still linger in London society, and 
 who are fond of recalling the doctrines of their youth, 
 though probably they now no longer believe them. 
 James Mill must have pre-eminently possessed the 
 Socratic gift of instantaneously exciting and perman- 
 ently impressing the minds of those around him. 
 
 I do not know in what manner Ricardo and James 
 Mill became acquainted, except that John Mill says 
 it was through Bentham, who was a rich man, and, 
 though a recluse, made for many years his house a 
 sort of castle. John Mill tells us also that James 
 Mill considered the friendship of Ricardo to have 
 been the most valuable of his whole life. To a genius 
 like Ricardo, with Ricardo's time and circumstances, 
 the doctrines of James Mill must have come like fire 
 to fuel ; they must have stimulated the innate desire 
 to deduce in systematic connection from the fewest 
 possible principles, the truths which he had long 
 been considering disconnectedly. If Ricardo had 
 never seen James Mill he would probably have written 
 many special pamphlets of great value on passing 
 economic problems, but he would probably not have 
 written On the Principles of Political Economy and 
 Taxation, and thus founded an abstract science ; it 
 takes a great effort to breathe for long together the 
 " thin air " of abstract reasoning. 
 
 It must be remembered that Ricardo was in no 
 high sense an educated man. As far as we know he 
 
Rtcardo. 205 
 
 had not studied any science, and had no large notion 
 of what science was ; without encouragement from a 
 better-trained mind he most Hkely would not have 
 attempted any purely scientific effort. To the end of 
 his days, indeed, he never comprehended what he 
 was doing. He dealt with abstractions without 
 knowing that they were such ; he thoroughly be- 
 lieved that he was dealing with real things. He 
 thought that he was considering actual human 
 nature in its actual circumstances, when he was 
 really considering a fictitious nature in fictitious 
 circumstances. And James Mill, his instructor on 
 general subjects, had on this point as little true 
 knowledge as he had himself. James Mill, above 
 all men, believed that you could work out the con- 
 crete world of human polity and wealth from a few 
 first truths. He would have shuddered at our 
 modern conception of Political Economy as a con- 
 venient series of deductions from assumed axioms 
 "which are never quite true, which in many times and 
 countries would be utterly untrue, but which are 
 sufficiently near to the principal conditions of the 
 modern world to make it useful to consider them by 
 themselves. At that time economists indulged in 
 happy visions ; they thought the attainment of truth 
 far easier than we have since found it to be. They 
 were engaged in a most valuable preliminary work, 
 one which is essential to the conception of the pheno- 
 mena of wealth in such an age as this, or in any age 
 in which free industry has made much progress ; but 
 after this preliminary work is finished there is a long 
 and tedious time to be spent in comparing the 
 
2o6 Economic Studies. 
 
 assumptions we have made in it with the facts which 
 we see, and in adding the corrections which that 
 comparison suggests ; and only at the end of this 
 dull task can we leave mere reasoning and come to 
 life and practice. 
 
 Little is known of Ricardo's life, and of that little 
 only one thing is worth mentioning in a sketch like 
 this — that he went into Parliament. He had retired 
 with a large fortune from business comparatively 
 young, not much over forty, as far as I can make out, 
 and the currency and other favourite economic sub- 
 jects of his were so much under discussion in Parlia- 
 ment, that he was induced to enter it. At present 
 an abstract philosopher, however wealthy, does not 
 often enter Parliament ; there is a most toilsome, 
 and to him probably disagreeable, labour to be first 
 undergone — the canvassing a popular constituency. 
 But fifty years ago this was not essential. Ricardo 
 entered Parliament for Portarlington, which is now 
 the smallest borough in Ireland, or indeed, in the 
 whole United Kingdom, and which was then a mere 
 rotten or proprietary borough, and no doubt Ricardo 
 bought his seat of the proprietor. He was well re- 
 ceived in the House, and spoke with clearness and 
 effect on his own subjects. He is said to have had 
 in conversation a very happy power of lucid explana- 
 tion, and he was able to use the same power in a 
 continuous speech to an assembly. His wealth, no 
 doubt, gave him a facility in acquiring respect. 
 Parliament, like every other collection of English- 
 men, is much more ready to trust a rich man about 
 money than a poor one. 
 
Ricardo. 207 
 
 The most curious characteristic of Ricardo's 
 poHtical career was his zeal to aboHsh the means 
 by which he entered Parhament ; he was most 
 anxious for a Parhamentary Reform much resem- 
 bhng in principle that of 1832. And in this he agreed 
 with most of the sensible men of his time. The 
 narrow-mindedness and the want of capacity with 
 which the Tory party had governed the country 
 since the peace, are now only known to us from 
 history, and are not easily believed by those who 
 have not carefully studied that history. As was the 
 tree, so were its fruits ; the Government seemed to 
 be one which must hurt a country, and in fact the 
 country was, if not very unhappy, at any rate most 
 uncomfortable. The best cure seemed to be a change 
 of rulers, by a large addition to the popular element 
 in the Government. And, as we now know, this has 
 been effectual. The country has been far happier 
 under the new system than under the old, and the 
 improvement has been greatly due to the change ; 
 we could not have had Free Trade before 1832, and 
 it is Free Trade which more than any other single 
 cause makes us so happy. The change in popular 
 comfort has been greater than Ricardo or than any 
 one of his generation could have imagined. But we 
 have had to pay a good price for it, and one of the 
 items in that price is the exclusion of philosophers 
 from Parliament. Such a thinker as Ricardo, with 
 the unflinching independence which characterised 
 Ricardo, would be impossible in our recent Parlia- 
 ments. No popular constituency would consent to 
 elect such a man, nor would he consent to ask them. 
 
2o8 Economic Studies. 
 
 Very little is now to be learnt of Ricardo's ordinary 
 life. We know that he had a mind — 
 
 keen, intense, and frugal, 
 Apt for all affairs. 
 
 And we know little else. A well-authenticated tradi- 
 tion says that he was most apt and ready in the minut- 
 est numerical calculations. This might be gathered 
 from his works, and, indeed, any one must be thus 
 apt and ready who thrives on the Stock Exchange. 
 A less authorised story says that he was a careful 
 saver of small sums — "one of those people who 
 would borrow a pamphlet, price sixpence, instead of 
 buying it," notwithstanding that he was a rich man. 
 We also know, as has been said, that he was very 
 happy in orally explaining his doctrines, and they are 
 by no means easy to explain in that way. He must 
 have been most industrious, for he died at fifty-two ; 
 and either the thinking which he did, or the fortune 
 which he made, would be generally esteemed, even 
 by laborious men, a sufficient result for so short a 
 life.i 
 
 1 [Mr. Bagehot had intended, as the reader will have seen, 
 to give an estimate of J. S. Mill similar to those of Malthus 
 and Ricardo. As he did not carry out this intention, I think it 
 well to give some brief passages from a shorter paper on Mill, 
 written on the occasion of his death, which contain Mr. 
 Bagehot's general view of Mill's economic position. These 
 will be found in Note B, at the end of the volume. — Editor. 1 
 
209 
 
 THE GROWTH OF CAPITAL. 
 
 The conclusion that English Political Economy is 
 an analysis only of industrial societies which are to 
 a certain extent developed, will be strengthened by 
 a consideration of the doctrines which that Political 
 Economy teaches us as to one of the principal parts 
 of the subject — the theory of the growth of capital. 
 Our Political Economy does not recognise that 
 there is a vital distinction between the main mode 
 in which capital grows in such countries as England 
 now, and the mode in which it grew in all countries 
 at first. 
 
 The principal way in which capital increases in 
 England now, is by abstinence from enjoyment. 
 We receive our incomes in money, and either we 
 spend them on our enjoyments, in which case capital 
 is not increased, for our incomes are all gone and 
 no new productive thing is made, or we abstain 
 from enjoyment and put our money into trade our- 
 selves, supposing that we are in trade, and supposing 
 that we are not in trade, lend it to those who are. 
 The productive part of wealth — the wealth which 
 creates other wealth — is augmented mainly by our 
 not enjoying our incomes. 
 
 But there is another mode of augmenting capital 
 of which Defoe gives us, perhaps, a more vivid 
 notion than we can get elsewhere. " I cannot say,*" 
 says Robinson Crusoe, ** that after this, for five 
 
 14 
 
210 Economic Studies. 
 
 years, any extraordinary thing happened to me ; 
 but I lived on in the same course, in the same pos- 
 ture and place just as before ; the chief thing I was 
 employed in, besides my yearly labour of planting 
 my barley and rice, and curing my raisins, of both 
 which I always kept up just enough to have suffi- 
 cient stock of the year's provisions beforehand ; I 
 say, besides this yearly labour, and my daily labour 
 of going out with my gun, I had one labour to make 
 me a canoe, which at last I finished : so that by 
 digging a canal to it, six feet wide, and four feet 
 deep, I brought it into the creek, almost half a mile. 
 As for the first, that was so vastly big, as I made 
 it without considering beforehand, as I ought to do, 
 how I should be able to launch it ; so never being 
 able to bring it to the water, or bring the water to 
 it, I was obliged to let it lie where it was, as a 
 memorandum to teach me to be wiser next time. 
 Indeed the next time though I could not get a tree 
 proper for it, and was in a place where I could not 
 get the water to it, at any less distance than, as I 
 have said, of near half a mile ; yet as I saw it was 
 practicable at last, I never gave it over ; and though 
 I was near two years about it, yet I never grudged 
 my labour, in hopes of having a boat to go off to 
 sea at last.*" But in this case there was evidently 
 no abstinence from enjoyment. Robinson Crusoe 
 had only the bare means of subsistence ; he had no 
 pleasant things to give up ; but he employed his 
 time and labour in making a vessel, a piece of 
 capital, if ever there was one. 
 
 Just similar is the practice of primitive societies. 
 
The Growth of Capital. 211 
 
 When a savage in the stone age made a flint im- 
 plement he rehnquished no satisfaction. Having 
 nothing else to do he made a tool, which has been 
 the beginning of all other tools. " Mankind," says 
 a recent writer,^ " may have discovered how to 
 manufacture earthen vessels in various wa3^s. Sir 
 John Lubbock points out that Captain Cook saw 
 stones surrounded with a rim of clay in use among 
 the Aleutians on Unalashka ; but this might be 
 an imitation of European vessels with which the 
 islanders had already become acquainted through 
 Russian sailors. The practice of the Australians 
 on the Lower Murray River, of puddling holes in 
 the earth with clay and cooking food in them, might 
 perhaps have led an inventive mind to the manu- 
 facture of earthen vessels. But the process is better 
 explained by the account of the French sailor Gonne- 
 ville, who, in 1504, landed on a South Atlantic coast, 
 probably in Brazil.^ He describes certain wooden 
 vessels in use among the natives (in whom D'Avezac 
 fancies that he recognises Brazilian Carijo) enveloped 
 in a coating of clay as a protection from the fire.^ 
 If by chance the wooden bowl separated itself from 
 the covering of clay, an earthen vessel would remain. 
 In examining the site of an old pottery manufactory 
 of the Red Indians on the Cahokia, which falls into 
 the Mississippi below St. Louis, Carl Rau discovered 
 
 1 Oscar Peschel's Races of Man and their Geographical Dis- 
 tribution, page 168. 
 
 2 Pierre Margry, Les Navigations Frangaises, 1867. 
 ^ D'Avezac, Voyage du Capitaine Gonneville, 1869. 
 
212 Economic Studies. 
 
 half-finished vessels, that is to say, baskets of rushes 
 or willow, lined inside with clay." 
 
 These primitive potters had no luxuries to forego, 
 and had no "income" to spend on luxuries. They 
 simply had spare time and unused handiness, and 
 with this they made the first pots, which were the 
 beginning of all pots — the ancestors first of the tea 
 kettle and then of the condensing engine. 
 
 In the same way there was no sacrifice of pleasure 
 in the greatest source of early capital — the taming 
 of animals ; on the contrary, according to the most 
 probable theory, there was a new pleasure in taming 
 them which did not require the surrender of any old 
 pleasure. 
 
 Mr. Galton has shown that in all probability the 
 taming of animals began, not in the restraining of 
 any impulses, but in the indulgence of some very 
 simple ones.^ " The domestication of animals," he 
 tells us, " is one of the few relics of the past whence 
 we may reasonably speculate on man's social con- 
 dition in very ancient times. We know that the 
 domestication of every important member of our 
 existing stock originated in prehistoric ages, and, 
 therefore, that our remote ancestors accomplished 
 in a variety of cases, what we have been unable to 
 effect in any single instance. The object of my 
 paper is to discuss the character of ancient civilisa- 
 tion, as indicated by so great an achievement. Was 
 there a golden age of advanced enlightenment ? 
 
 ^ Domestication of Animals, by Francis Galton, F.R.S. Re- 
 printed from the Transactions of the Ethnological Society, 
 1865, p. I. 
 
The Growth of Capital, 213 
 
 Have extraordinary geniuses arisen who severally 
 taught their contemporaries to tame and domesticate 
 the dog, the ox, the sheep, the hog, the fowl, the 
 camel, the llama, the reindeer, and the rest ? Or 
 again. Is it possible that the ordinary habits of rude 
 races, combined with the qualities of the animals in 
 question, have sufficed to originate every instance 
 of established domestication ? The conclusion to 
 which I have arrived, is entirely in favour of the 
 last hypothesis. My arguments are contained in the 
 following paper ; but I will commence by stating 
 their drift, lest the details I introduce should seem 
 trifling or inconsequent. It will be this : All sav- 
 ages maintain pet animals, many tribes have sacred 
 ones, and kings of ancient states have imported captive 
 animals, on a vast scale, from their barbarian neigh- 
 bours. I infer that every animal, of any pretensions, 
 has been tamed over and over again, and has had 
 numerous opportunities of becoming domesticated. 
 But the cases are rare in which these opportunities 
 can lead to any result. No animal is fitted for 
 domestication unless it fulfils certain stringent con- 
 ditions, which I will endeavour to state and to discuss. 
 My conclusion is, that all domesticable animals of 
 any note, have long ago fallen under the yoke of 
 man. In short, that the animal creation has been 
 pretty thoroughly, though half unconsciously, ex- 
 plored, by the every-day habits of rude races and 
 simple civilisations."" 
 
 And after enumerating the qualities which a tame- 
 able animal must possess, which are hardiness, 
 fondness lor man (which some animals now used 
 
214 Economic Studies. 
 
 have, while others have not), desire of comfort, 
 easiness to tend, willingness to breed, and useful- 
 ness to the human race, he adds:^ ''The utility of 
 the animals as a store of future food, is undoubtedly 
 the most durable reason for maintaining them ; but 
 I think it was probably not so early a motive as the 
 chiefs pleasure in possessing them. That was the 
 feeling under which the menageries, described above 
 were established. Whatever the despot of savage 
 tribes is pleased with, becomes invested with a sort 
 of sacredness. His tame animals would be the care 
 of all his people, who would become skilful herdsmen 
 under the pressure of fear. It would be as much as 
 their lives were worth if one of the creatures were 
 injured through their neglect. I believe that the 
 keeping of a herd of beasts, with the sole motive of 
 using them as a reserve for food, or as a means of bar- 
 ter, is a late idea in the history of civilisation. It has 
 now become established among the pastoral races of 
 South Africa, owing to the traffickings of the cattle 
 traders, but it was by no means prevalent in Damara- 
 Land when I travelled there twelve years ago. I 
 then was surprised to observe the considerations 
 that induced the chiefs to take pleasure in their 
 vast herds of cattle. They were valued for their 
 stateliness and colour, far more than for their beef. 
 They were as the deer of an English squire, or as 
 the stud of a man who has many more horses than 
 he can ride. An ox was almost a sacred beast in 
 
 '^Domestication of Animals, by Francis Gallon, F.R.S. Re- 
 printed from the Transactions of the Ethnological Society^ 
 1865, p. 14. 
 
The Growth of Capital. 215 
 
 Damara-Land, not to be killed except on momentous 
 occasions, and then as a sort of sacrificial feast, in 
 which all bystanders shared. The payment of two 
 oxen w^as hush-money for the life of a man. I was 
 considerably embarrassed by finding that I had 
 the greatest trouble in buying oxen for my own 
 use, with the ordinary articles of barter. The 
 possessors would hardl}^ part with them for any 
 remuneration ; they would never sell their handsom- 
 est beasts." And he concludes : " I see no reason 
 to suppose that the first domestication of any animal, 
 except the elephant, implies a high civilisation among 
 the people who established it. I cannot believe it 
 to have been the result of a preconceived intention, 
 followed by elaborate trials, to administer to the 
 comfort of man. Neither can I think it arose from 
 one successful effort made by an individual, who 
 might thereby justly claim the title of benefactor to 
 his race ; but, on the contrary, that a vast number 
 of half-conscious attempts have been made through- 
 out the course of ages, and that ultimately, by slow 
 degrees, after many relapses, and continued selection, 
 our several domestic breeds became firmly estab- 
 Hshed." 
 
 This theory is one of the most valuable fruits of 
 that contact of the most cultivated living minds with 
 the least so — of men of science with savages, which 
 is characteristic of this generation. And though its 
 details may be modified, its essence seems certain, 
 and it shows that this great form of early capital, the 
 live form, did not begin with abstinence at all. 
 
 Even in such times as are described in the Book 
 
2i6 Economic Studies. 
 
 of Genesis — the specially pastoral times — abstinence 
 was not the main source of capital. When we are 
 told that the flocks and herds of certain patriarchs 
 "grew and multiplied exceedingly," those patriarchs 
 were sacrificing nothing. They had enough to eat 
 and to drink — the women of their household made 
 their clothes — they had few other conscious wants, 
 and still fewer means of supplying those which they 
 had. The vast increase of animal power which 
 helped on after-wealth so much, had probably its 
 origin in the pride of the eye, in the love of the 
 spectacle of wealth, as much as in anything. Abra- 
 ham and Jacob were pleased to see " their cattle wax 
 great and cover the whole land," and, therefore, they 
 let them cover it. There was no luxury to them 
 equal to this. There was not even a competing 
 one. 
 
 Another analogous source of capital in early times 
 was making slaves and breeding slaves. Yet neither 
 in the capture nor in the breeding was there any 
 kind of relinquishment of enjoyment. The slaves 
 were gained in the fortune of war, and if A had not 
 enslaved B, B would have enslaved A. The joy of 
 the combat was, perhaps, the greatest known in those 
 times. And even in the cruellest times it was pro- 
 bably pleasanter to spare the life of the captive than 
 to take it. 
 
 A similar source is marriage, which, indeed, is all 
 but the same, for even the highest wives of primitive 
 ages worked in the house, much like slaves, and the 
 concubines, who really were slaves, were but faintly 
 divided from these wives. But it would be absurd 
 
The Growth of Capital. 217 
 
 to call keeping a harem a kind of abstinence, though 
 harems were a great form of capital, and the members 
 of them made a great deal of wealth. 
 
 The reason why we now so closely connect " ab- 
 stinence" with capital is, that the final product of our 
 industry is almost always received in what I may call 
 an " optional " medium. Almost all our wealth is 
 created to be exchanged, and that exchange is 
 effected by means of money ; we can either use that 
 money to buy perishable things which produce 
 nothing, or we can " invest " it, as we say, in some 
 producing business, or lend it to some one — generally 
 to some one engaged in production — who will pay an 
 interest upon it. But in a state of society where 
 things are not created to be exchanged, " abstinence" 
 plays no such constant part. Men must, it is true, 
 abstain from eating the food which is necessary for 
 their subsistence hereafter, and the food so obtained 
 is, certainly, '' capital " obtained by abstinence. But 
 most permanent things which are made are like the 
 " flint implement," and the primitive clay vessel, 
 things which contribute to daily comfort because 
 they are in daily use. The industry which created 
 them never assumed an optional form, it was from 
 the beginning fixed in the particular form in which 
 it was created ; neither can be sold or exchanged, for 
 we are supposing a state of society in which there 
 is no exchange or sale. 
 
 A primitive patriarchal society is in fact very like 
 this. Either exchange or sale was a very rare act 
 in the lives of such persons as Lot or Abraham. 
 They rarely saw any one to exchange with. They 
 
2i8 Economic Studies. 
 
 rarely went down into Egypt to buy anything ; they 
 rarely saw any sort of travelling merchant to whom 
 they could sell anything. The life of such persons is 
 a life of production, not for sale, but for use, as far 
 as it is a life of production at all. 
 
 Hire is a still rarer phenomenon at such a period. 
 Hire as a rule involves proximity of residence, so 
 that the lender may be sure the hirer will return his 
 article. If the borrower goes off to an unknown 
 distance no one can be sure that he will do so. Nor 
 for the most part is trust, which is essential in a loan, 
 developed in societies till men have long lived near 
 together, till they have learnt to know one another, 
 and till the}^ have created some sort of law, or formed 
 some effectual custom which partly punishes and 
 partly prevents bad faith. The diffused habit of 
 lending things, which is the basis of so much of 
 modern industry, is in truth a habit hard to diffuse, 
 and one which the earliest men could not learn. 
 
 Nor even w^hen the hire of -capital does begin to 
 be an important part of industrial organisation is 
 there necessarily any abstinence from enjoyment in 
 the possessor. Sir Henry Maine describes, in his 
 Early Institutions, a condition of Irish societ}^ which 
 was based on the loan of '' cattle " — the main capital 
 then existing — in which there was no abstinence in 
 the lender at all. '' Every considerable tribe," he 
 tells us, " and almost every smaller body of men 
 contained in it, is under a chief, whether he be one 
 of the many tribal rulers whom the Irish records call 
 kings, or whether he be one of those heads of joint 
 families whom the Anglo-Irish lawyers at a later 
 
The Growth of Capital, 2ig 
 
 date called the Capita Cognationum. But he is not 
 owner of the tribal land. His own land he may 
 have, consisting of private estate or of official 
 domain, or of both, and over the general tribal land 
 he has a general administrative authority, which is 
 ever growing greater over that portion of it which 
 is unappropriated waste. He is meanwhile the mili- 
 tary leader of his tribesmen, and, probably in that 
 capacity, he has acquired great wealth in cattle. It 
 has somehow become of great importance to him to 
 place out portions of his herds among the tribesmen, 
 and they on their part occasionally find themselves 
 through stress of circumstance in pressing need of 
 cattle for employment in tillage. Thus the chiefs 
 appear in the Brehon law as perpetually ' giving 
 stock,' and the tribesmen as receiving it. The 
 remarkable thing is, that out of this practice grew, 
 not only the familiar incidents of ownership, such as 
 the right to rent and the liability to pay it, together 
 with some other incidents less pleasantly familiar to 
 the student of Irish history, but, above and besides 
 these, nearly all the well-known incidents of feudal 
 tenure. It is by taking stock that the free Irish 
 tribesman becomes the Ceile or Kyle, the vassal or 
 man of his chief, owing him not only rent but service 
 and homage." 
 
 Upon the very surface of this description it is 
 palpable that the chieftain gave up no enjoyment 
 when he hired out these cattle ; he doubtless kept 
 quite enough fully to feed himself with all his people, 
 and after that he wanted no more. The power and 
 place he gained by this quasi feudal use of tlicm 
 
220 Economic Shidies. 
 
 were the keenest kinds of pleasure then possible 
 to him. 
 
 " Cattle " fill so subordinate a place in English 
 industry that many English writers evidently never 
 think of them when they speak of capital; they have 
 in their minds the machines which they see ; and 
 they forget that once men bred capital more than 
 they made it. Yet not only are cattle and capital, 
 of course, etymologically the same word, but cattle 
 fill a very curious place in the history of the subject. 
 
 First, — They are a kind of capital at once co- 
 operative and remunerative ; they can be used either 
 to aid labour or to reward it ; they are both helps to 
 industry and means of pleasure. Their vital force is 
 the best of early machines, and their milk and their 
 flesh are the greatest of primitive luxuries. There 
 is scarcely anything which primitive labourers more 
 desire, and scarcely anything which helps them so 
 much. And it is very curious that the sort of capital 
 which first bore the name, and etymologically is the 
 beginning of all the rest, should be a link between, 
 and combine, the nature of two things, now so dis- 
 similar, that at first it hardly seems right that they 
 should have the same name, — the bread which the 
 labourer eats and for which he works, and the spindle 
 or the loom with which he works. 
 
 Secondly, — Cattle unquestionably, on account ci 
 this double desirability, are among the earliest forms 
 of money, probably the very earliest in which " large 
 transactions," as we should now speak, were settled. 
 It was the first, or among the first, of " wholesale " 
 moneys. 
 
The Growth of Capital. 221 
 
 In this way, though Enghsh Pohtical Economy 
 often neglects the use of cattle as capital, and though 
 some of its doctrines are inapplicable to " cattle " in 
 the primitive condition of industry, cattle have never- 
 theless been a main agent in creating the developed 
 state of industry in which English Political Economy 
 was thought out, and to which alone it is entirely 
 applicable. Cattle rendered possible primitive agri- 
 culture, which first kept men close together, and so 
 made the division of labour possible ; were the 
 beginning of " wages-paying capital " which that 
 *' division " first requires and then extends ; were 
 among the first things hired, and the first money. 
 We should be careful to watch in this single article 
 the transitions of industry, for the so doing may save 
 us from the greatest of all mistakes, that of riveting 
 as a universal form upon all societies axioms only 
 fitting societies like our own. 
 
 These illustrations might be multiplied almost 
 endlessly, but what have been given are enough to 
 prove that capital is created by any series of acts by 
 which men make, or bring into existence, useful 
 things, and that only some of these acts are ac- 
 companied by abstinence, while others are not. 
 
 Thirdly, — Neither is the loan of capital always 
 accompanied by abstinence ; it may or may not be 
 according to circumstances. 
 
 If, to simplify the matter, we look at the state of 
 things which is going on around us, we see that 
 capital augments in this way. People's incomes are 
 paid in money ; out of that money some is spent on 
 
222 Economic Studies. 
 
 necessary subsistence, some on temporary enjo3^ment, 
 and some on durable means of comfort ; the rest is 
 left in *' money," and this we call the saving, the new 
 "capital". The amount of it depends on three ele- 
 ments, first, and evidently, on the amount of the 
 income out of which the saving is to be made ; 
 secondly, on the degree in which future wants pre- 
 ponderate over present ones ; and lastly, on the 
 efficiency of saving, the success it obtains. 
 
 The first and greatest future want is what I may 
 call the ''old stocking" one, that is, the craving to 
 have some stock of money laid against the unknown 
 future. The strength of this craving differs much in 
 various races of men ; and, as a rule, the strong 
 races, used to prosperity, have much less of it than 
 the weak ones familiar with adversity. You will 
 find much more laid up in the cabin of an Irish 
 peasant than in the cottage of an English artisan, 
 though the latter has five times the greater means. 
 And this is natural, because the English artisan 
 believes, and probably believes with truth, that he is 
 sure to be able to earn money; whereas the Irish- 
 man's notions are based on a world where it has 
 often been impossible to earn a farthing, and in 
 which those ready to live even on potatoes could not 
 get potatoes to live on. Even in higher life very 
 considerable sums, for their circumstances, are often 
 saved by timid, weak people. I know a case in 
 which a sum of (I think) ;f 120 was made up for a 
 gentleman who had become incapacitated ; he enjoyed 
 it a few years, and when he died from ^^700 to ;f8oo 
 were found in his room. He always feared that his 
 
The Growth of Capital. 223 
 
 income, or part of it, might cease, and wanted to be 
 able to live if it did. Against all contingent evils 
 this ** stocking" fund is a resource, and against old 
 age, the most likely of those evils. The next 
 greatest — or probably an equally great — future want 
 is the desire to provide for the next generation. 
 People insure their lives who save in no other way. 
 There is probably no greater anxiety in the world 
 than the wish of parents to start children in the 
 same level of life in which they started themselves, 
 and few greater ambitions than to start them on a 
 higher level. Lastly, there is the desire to be rich, 
 especially in countries where wealth makes the man, 
 where it not only buys commodities, but where 
 without it some of the best unbought things — respect 
 and deference — are not easy to be had. I need not 
 enumerate the present wants which come into 
 collision with these, nor go into any detail as to 
 them. 
 
 But we must observe what is incessantl}^ forgotten, 
 that it is not a Spartan and ascetic state of societ}^ 
 which most generates saving. On the contrary, if a 
 whole society has few wants there is little motive for 
 saving. The reserve, the old stocking store of those 
 who want little, need only be small. Those who 
 want to start their children with little, need save 
 little ; those who reckon £"100 a year '' riches," need 
 not, and will not, deprive themselves of an3/thing to 
 obtain more ; a state of society which encourages 
 that feeling is not likely to be rich. Nothing is 
 commoner than to read homilies on luxury, because 
 it is a ''waste of money," and "bad for the poor". 
 
224 Economic Studies. 
 
 But without the multifarious accumulation of wants 
 which are called luxury, there would in such a state 
 of society be far less saving than there is. If you 
 look at the West-end of London with its myriad 
 comforts and splendours, it looks at first sight like a 
 mere apparatus for present enjoyment. And so far 
 as the present feelings of those who live there go, it 
 often is. Very many of the inhabitants are thinking 
 only of themselves. But there is no greater benefit 
 to the community for all that than this seemingly 
 thoughtless enjo3^ment. It is the bait by which the 
 fish is caught ; it is the attraction by which capital 
 is caught. To lead a bright life like that, at least 
 that their children may lead it or something like it, 
 many times as many as those who now live it, spare 
 and save. And if it be good for the poor that capital 
 should be saved, then the momentary luxury which 
 causes that saving, is good for the poor. The 
 analogy of animal life is reversed, for it is the butter- 
 fly which begins as the grub. 
 
 On the other side we must remember what, in 
 books of Political Economy, is sometimes forgotten, 
 that saving is not necessarily goo d. The capi tal^ 
 may come too dear. A clergyman who giv es, hjg 
 children a good education, does more really to in- 
 crease wealth, not to say anything of anything else, 
 than if he saved the money. The engineer, the 
 lawyer, the physician, are in their various ways 
 productive people ; and the nation would have been 
 poorer^ not richer, if their father had kept the money 
 which educated them, in order to leave them at his 
 death so much more. The same may not be so 
 
The Growth of Capital. 225 
 
 conspicuously true of the daughters, but it is as 
 much s^oTealTyr A good mother of a family causes 
 more wealth than half the men, for she trains from 
 the beginning boys to be fit for the world, and to 
 make wealth ; and if she fails at that beginning the 
 boys will be worse gold finders all their lives. 
 
 It must be observed, too, that there is an intel- 
 lectual element in the matter. Besides the two 
 kinds of wants, future and present, there is the 
 faculty of making the comparison. And the habits 
 of some people's lives fit them much more for this 
 than those of others. An actor who is concerned 
 with the momentary impression on passing audiences 
 has nothing to bring the future close to him at all. 
 An artisan has little more ; his daily work passes 
 with the day. But a capitalist in business has the 
 future for ever brought home to him. He has to 
 look into the future, perhaps a distant one, for the 
 profit on the goods which he buys, and to find in 
 the near future the money with which these goods 
 are to be paid for. The first thing in his mind is 
 a list of "acceptances" soon to be provided for; 
 the next is the balance-sheet to be made up some- 
 time hence. A banker, above all men, incessantly 
 lives in the future. He is, or ought to be, for ever 
 thinking how he should pay his deposits if he were 
 asked for them ; he must think daily how he will 
 find means for the current demands of every day. 
 He too has a balance-sheet to be looked to upon 
 the results of which he will have to live. A man 
 thus living in the future, has a greater disposition 
 to provide for it. And this is the one main reason 
 
 15 
 
226 Economic Studies. 
 
 why the man of business, of whatever species — the 
 manufacturer, the merchant, or the banker — will 
 save much more than any kind of person who lives 
 upon the fruits of a momentary skill or talent. 
 
 In many minds this feeling coalesces with the 
 " old stocking want " — that is to say, the desire to 
 provide for definite engagements, those engagements 
 being an incessant series, passes into and is blended 
 with the desire to provide for the unknown. The 
 pecuniar}' classes have a general feeling of "liability" 
 about their minds to which other classes are strangers. 
 And justly, because their risks, not only their known, 
 but their unknown ones, are greater. I once heard 
 a very experienced man lay down this principle : 
 ''A man of business," he said, "ought not to be 
 over cautious ; he ought to take what seem good 
 things in his trade pretty much as they come ; he 
 won't get any good by trying to see through a mill- 
 stone. But he ought to put all his caution into his 
 ' reserve fund ' ; he may depend on it he will be 
 ' done ' somehow before long, and probably when 
 he least thinks it ; he ought to heap up a great 
 fund in a shape in which he can use it, against the 
 day at which he wants it.'' It is the disposition so 
 generated, which is in a trading nation among the 
 strongest motives to save. 
 
 Besides these two factors in the growth of capital, 
 the amount of the income out of which saving has 
 to be made, and the disposition to sacrifice what is 
 present to what is future, there is, I have said, a 
 third, viz.y the efficiency of saving in creating capital. 
 There is a whole scale of various degrees of this 
 
The Growth of Capital, 227 
 
 efficiency in actual life. At the bottom is the brisk 
 peasant who puts away his money into an old stock- 
 ing, who has no means of employing it, who will 
 not trust any one else with it. Here, all that the 
 saving of £10 will produce is ^10 ; it is sure never 
 to get any more. At the top of the scale is the able 
 capitalist in a large and growing business ; every 
 penny he can put into it yields him a high profit, 
 because he gets an income from unusual ability, 
 unusual opportunity, as well as the common rate. 
 Such a man will almost always save more than 
 others, because he has a far greater reward per cent. 
 for saving it. The rate of profit depends on the 
 efficiency of industry. When more is made at less 
 cost, the profit is greater ; when less at greater, the 
 profit is less. I am not sure whether, to many 
 minds, this language will not present a difficulty. 
 I know it long did so to my own. I was conscious 
 of a haze about it. " It is stated," I said to myself, 
 " that there is ' more ' of something or other, but of 
 what is there more ? '' And I could not answer the 
 question very well. More " exchangeable value," 
 more " money's worth," were the natural answers, 
 but I was not satisfied that they were the complete 
 ones. We must analyse a little further. The 
 easiest case to analyse is the gold-mining, the 
 money-making business. If 10,000 sovereigns are 
 invested in gold-mining — in paying wages, in buying 
 machinery, and in accompanying expenses — and if 
 that produce per annum, gold, which can be made 
 into £11,000, this measures the rate of profit in the 
 country. If the efficiency of industry were less, so 
 
228 Economic Studies, 
 
 many additional sovereigns would not be produced ; 
 if more, a proportionately greater number would be 
 produced. In the profit of all trades there is the 
 same fundamental fact; an addition to the "ex- 
 changeable value " of the commodities of a country ; 
 but in the profit of the gold-mining business we can 
 see that fact most easily, because we can take the 
 capital before it is invested as so much gold, and it 
 comes back as that much, plus some more. In other 
 cases there is a change necessary into money; in 
 this case the profit palpably results from the mere 
 production. 
 
 We must observe, however, that this profit in the 
 gold-mining trade is only a measure of the general 
 rate of profit in the country, and of the general effici- 
 ency of industry which causes that rate ; it has no 
 peculiarity about it, except that which has been said. 
 If the profit in this trade were more than in any 
 other, capital would go thither, the production of gold 
 would augment, and prices, measured in gold, would 
 rise. This would raise the price of gold-mining 
 machinery, the rate of gold-miners' wages, and all the 
 incidental out-goings of the trade. And, as the 
 number of sovereigns which that "machinery" and 
 those "miners" could produce is not increased, the 
 profit in the trade will fall. And the reverse will 
 happen if that profit be less. A contrary series of 
 changes will make it rise. 
 
 In a country in which the productive arts are high, 
 other things being equal, profits will be high also. 
 If the outlay of the capitalist on all means of produc- 
 tion is the same, his remuneration will be greatest 
 
The Growth of Capital. 229 
 
 where most is produced. Suppose by a sudden 
 series of inventions the productive power of industry 
 were augmented in all trades ten per cent, (including 
 the gold-mining trade, so that we may be clear of all 
 questions as to money and price), the revenue of the 
 capitalist would be augmented by that ten per cent., 
 on condition of course of his outlay in all ways re- 
 maining the same, including that on wages ; and his 
 power of saving would be augmented equally. 
 
 Single sudden inventions which help in everything, 
 do not happen, but the general progress of the pro- 
 ductive arts in the last thirty years has been very 
 like it, as far as effects go. Almost everything has 
 been made more easily ; many things far more easily. 
 Even the growth of raw produce for sale has been 
 facilitated, if not as much as some other things, yet 
 still very much. Railways have made land which 
 was far from the market able to compete with that 
 near it. The daily subsistence of such a city as 
 London would have been excessively costly in the 
 pre-railway time, perhaps it would have been impos- 
 sible. The amount of things produced on purpose 
 to be exchanged now, as compared with fifty years 
 ago, is so much increased that our fathers would not 
 have comprehended it or believed it. The rise of 
 prices would have been enormous, if the same exten- 
 sion of productive power had not extended to the 
 money trades, to gold and silver. For many years 
 before 1S40 the production of these metals had been 
 excessively slow, and their value was rising. Mr. 
 Jevons thinks '' that prices had on the average fallen 
 between the years 1820 and 1844 in the ratio of 103 
 
230 Economic Studies. 
 
 to 6g, or by 33 per cent., whereas between 1844 ^^^ 
 1857 they rose in the ratio of 69 to 85, or by about 
 23 per cent.".^ Thus the effect of the great gold 
 discoveries consisted more in arresting the previous 
 continuous appreciation of the precious metals than in 
 causing a positive depreciation. Indeed, in 1863, 
 Mr. Jevons stated the depreciation of gold at the 
 very moderate amount of 13 to 16 per cent.^ 
 
 If the increase in the productive power of general 
 industry had come upon an age straitened as to 
 money-making industry, the fall of prices would have 
 been such as we have no example of, and the effects 
 would have been harassing and confusing. But 
 fortunately the production of gold and silver has been 
 even more facilitated than that of most other things. 
 There has been no such confusing fall of prices, as, 
 except for the new discoveries of gold in California 
 and Australia, there would have been. The effect of 
 the productiveness of industry has been greatly to 
 retard and almost to prevent the equally confusing 
 rise of prices, which would otherwise have happened. 
 The productive power of men of business has thus 
 been incalculably augmented, and with that their 
 saving power. 
 
 The second main source of capital in the present 
 day is the saving of men — of persons out of business. 
 Such persons not being able to make anything them- 
 selves must put such part of their income as they 
 wish to save into the hands of others, and far the 
 most important way in which they do this is by 
 
 ^Journal of the London Statistical Society, vol. xxviii., p. 315. 
 ^Serious Fall in the Value of Gold, etc., p. 30. 
 
The Growth of Capital. 231 
 
 lending. They lend it on interest, and what they 
 can save varies, other things being the same, with 
 that interest. What then will that amount be ? 
 This is determined as other market prices are de- 
 termined.^ 
 
 The most important factors in fixing it are the 
 amounts of money to be lent, and the amounts which 
 borrowers are willing to borrow upon such security as 
 the lenders are willing to accept. The most important 
 of these borrowers are men of business. These will 
 be most anxious to borrow money when the rate of 
 profit is high, and when, therefore, they can employ 
 it to the most advantage ; at such times they will 
 strain every nerve to obtain as much as possible. 
 But in the earlier states of industry they have great 
 difficulty in obtaining it. They have no security 
 which will satisfy those who wish to lend. In such 
 epochs, the only sort of " security," the only way in 
 which the borrower can make the lender sure of his 
 money, is by depositing w^ith him fixed property, or 
 at least giving him the control over it. He must 
 pledge movables, or transfer the indicia of ownership 
 over immovables. But in such a commercial civilisa- 
 tion as ours, there is an immense and very powerful 
 machinery for conducting the money of the ac- 
 cumulating class into the hands of the using class. 
 Bankers and bill-brokers form a class whose business 
 it is to know the credit of different persons, and to 
 say when and how far they singly, or together, can 
 be trusted. Millions are lent in this countr}^ upon 
 bills of exchange with only two signatures — that is 
 ^See Note A on Market Price at the end of the vokime. 
 
232 Economic Studies. 
 
 upon an order to pay money accepted by the person 
 to whom it is addressed, and which the person who 
 gives the order engages to pay if the other does not. 
 The money is, therefore, in fact, advanced on an 
 estimated probabihty that one or other of these two 
 persons will pay, of which the skilled advancing class 
 — the bankers and the bill-brokers — form their judg- 
 ment. We are so familiar with it that we forget 
 how marvellous it is. But probably our modern 
 civilisation, notwithstanding its railways, telegraphs, 
 and other like things, has nothing similar. That an 
 endless succession of slips of written promises should 
 be turned into money as readily as if they were 
 precious stones, would have seemed incredible in 
 commerce till very recent times. Our ancestors 
 would have understood that something like it might 
 happen with the promises of a few millionaires or 
 Governments, but they would have never thought it 
 possible that such an infinity of names could be 
 known, or promises estimated. And the wonder is 
 greater because they are not estimated equally ; the, 
 relative possibility of different "parties" not paying 
 is materially determined to the minutest gradations; 
 and a bill is done at 3I or 4 per cent, accordingly. 
 The intermediate dealers — the bill-brokers and 
 bankers — live upon this knowledge ; they gain if they 
 are right, and are ruined if they are often much 
 wrong ; and, therefore, they are right. Through 
 these expedients an immense tide of money flows into 
 commerce at most times, though occasionally they 
 are impaired, and it is impeded. 
 
 Our commercial civilisation also tends more and 
 
The Growth of Capital. 233 
 
 more to improve the means by which actual property 
 can be pledged. The indicia of ownership are made 
 more easily transferable. The English law of real 
 property does not bear a very good reputation, but 
 it is indisputable that in this respect it is more 
 advanced than any similar law in the world. In the 
 last century the Courts of Equity decided that the 
 deposit of title-deeds with, or even without, a written 
 memorandum was an adequate security for a loan. 
 And on this sort of "equitable" mortgage a very large 
 sum is lent for short periods, especially by country 
 bankers, who know the people to whom, and the 
 land on which, they are lending. Most individual 
 transactions of this sort are small, but the sum total 
 is very great. Dock and warehouse warrants for 
 goods deposited are also fruits and indications of a 
 highly improved commercial state. They, and all 
 similar means of pledging property, tend to augment 
 the borrowing power of men of business, and so to 
 raise the rate of interest. 
 
 Besides men of business, who borrow in order to 
 make, a large class of people borrow in order to hold. 
 The pride and pleasure of possessing property are so 
 great that people will veiy often pledge that property 
 in order to obtain it. A large part of the titles of our 
 richest landowners are mortgaged in this way to 
 ''insurance offices," who have much monev con- 
 stantly to lend. The arrangement suits both parties, 
 for no one knows of the loan ; as the insurance 
 office is permanent, the loan is rarely called in, and 
 thus the landowner gets the pomp of ownership, 
 while the office enjoys the perfection of a security. 
 
234 Economic Studies, 
 
 There is also a class of persons who borrow in 
 order to spend, that is, to spend the principal (for all 
 borrowers spend the interest, else they would not 
 want to borrow). In such countries as England, 
 where the producing and the preserving classes are 
 such large borrowers, the demand of spendthrifts has 
 but little influence on the rate of interest. It is 
 overpowered by the comparative greatness of other 
 demands. But in simpler states of society the 
 demand of the ''prodigal" fills a conspicuous place 
 in the money market, and in some of the books 
 which have come down to us from those early times 
 he seems the principal borrower that is thought of. 
 But the growth of civilisation, though diminishing 
 this species of spending borrowers, creates another 
 much more efficient species. Governments obtain a 
 vast credit, and borrow for war and other non- 
 productive purposes, such as in the early history of 
 mankind could never have been imagined. The loss 
 of France by individual "prodigals" will not, for ages, 
 be as great as her loss by the folly of the seven 
 months' war with Germany. This is, of course, so 
 much to be deducted from the capital of the country, 
 but nevertheless the sum so borrowed tends to raise 
 the rate of interest, and thus to augment the 
 means of future saving by those who wish to 
 save. 
 
 At the present day, therefore, the amount of 
 saving in a nation depends, as we have seen, on the 
 amount of the annual income out of which saving is 
 to be made. The disposition to save out of it 
 (varying in different classes), and the efficiency of 
 
The Growth of Capital. 235 
 
 saving in creating new capital, depend partly on 
 the rate of profit and partly on the rate of interest. 
 And from this saving arises the annual increment of 
 capital — the amount of yearly addition to it ; but 
 there is also a yearly decrement — an annual v^aste. 
 The amount of this depends in such a country as 
 England mainly on the amount of unsuccessfulness, 
 of absolute loss in business. Certain adventures not 
 only bring no profit, but never return the capital 
 spent on them. The liabilities of bankruptcy estates 
 in England, including liquidations and composi- 
 tions, but excluding public companies, in 1870 were 
 ;£*i7, 456,000 ; the apparent assets were ;£'5, 382,000 ; 
 the difference therefore, or ^12,074,000, was so 
 much pure loss. And there is much other loss in 
 business which does not figure here. 
 
 To this must be added the loss in such a country 
 and age as ours — usually loss by private prodigals 
 and by State follies. If we could only know the 
 amount of the diminutions and augmentations in 
 any nation, could deduct the one from the other, we 
 should know the increase of the capital during this 
 time by that nation. 
 
 We must be careful, however, to observe that our 
 account of the growth of capital is only applicable to 
 such times as ours— to times when the division of 
 labour has been carried out, and where almost every- 
 thing is produced by one man for sale to others. 
 The result of this is that every sale changes a man's 
 product into a form in which he has the choice of 
 saving or not saving it. The money which is the 
 proceed of the sale may either be spent on immediate 
 
236 Economic Studies, 
 
 enjoyment, or set aside in some way for the future. 
 The incomes of men are in an adult economic society 
 received in an optional medium. But in early 
 societies this is not so. Things not being produced 
 for sale are onl}^ what they are by nature ; there 
 is no choice in the way of using most of them ; 
 they are by their essential character either fit for 
 present use, or fit to be set apart for the future. 
 They are very rarely in the same degree fit for both. 
 Defoe illustrates this better than many graver 
 authors. 
 
 Our account of the growth of capital also assumes 
 that men can always find something to save in, that 
 a person who wants to provide for his future wants, 
 can do so if he will give up present ones. But this 
 is not true in early times at all. Most primitive 
 wants are for rapidly perishable things ; and it is of 
 no use to keep a store of those things. If you do, 
 you will be " keeping stale fish," you will have 
 sacrificed the present without obtaining the future ; 
 you will have that which was of use once, but now 
 is so no longer. " Food " is the greatest want of 
 early times. But most food — vegetable or animal — 
 will not of itself last long. It is of no use for a tribe 
 of hunters to set aside the game they kill. It is not 
 till the pastoral age has arrived that men have any 
 means of storing up the food they require. The 
 first "granaries" of men were, if the phrase be 
 allowed, "live granaries"; the flocks and herds 
 which walked the fields, and could be left, when not 
 wanted to be slaughtered, where they were. Clothes, 
 
The Growth of Capital. 237 
 
 the second great want of man, are always short-lived, 
 and it is not much use to store them up. There 
 was, in early times, no mode of supplying those 
 wants for the future ; men had to live from hand to 
 mouth. 
 
!38 
 
 COST OF PRODUCTION. 
 
 I. 
 
 Many persons are much puzzled by the phrase ex- 
 changeable value — not only outsiders and learners, 
 but even practical thinkers on the subject use it 
 awkwardly, and do not feel that the idea is vivid 
 in their minds. And, if we look at the matter 
 historically, it is very natural that this should be 
 so. No nation — no set of persons — who did not 
 possess a fixed and efficient money ever attained 
 the idea. Nations which only use barter know that 
 a certain amount of one or two common things 
 mostly exchanges for a certain amount of one or 
 two other things ; — but they have no conception of 
 the "value'' of one thing as against all other things. 
 This idea is only gained by the use of money as a 
 general common measure. By measuring all things 
 — not one — against one, men come to be able to 
 measure them against one another. " Price " — price 
 in money — is the foundation of the economic idea of 
 exchangeable value. But though it is the founda- 
 tion of that idea, it is not the whole of it. " Money" 
 is a commodity like any other, and it tends to fluc- 
 tuate in the ratios in which it exchanges with other 
 commodities, from chances affecting itself, just as 
 they do in relation to it. At any single moment 
 if you know the "prices'"' of all articles, you know 
 
Cost of Production. 239 
 
 their relative exchangeable value. But when you 
 come to compare one time with another — say, the 
 prices of to-day with those of this time last year — 
 you might be much puzzled, for possibly all might 
 have risen, or all might have fallen. And this 
 would have arisen not from anything which related 
 to the things measured, but from something affect- 
 ing the measuring instruments. What we mean by 
 exchangeable value in Political Economy is not 
 actual price, but perfect price, — the ratio in which 
 everything exchanges against all other things — 
 measured, not, as it is, by the intrinsically valuable 
 measure of money, but as it would be against a 
 similar measure which was invariable intrinsically. 
 
 We must bear in mind that on no two days, 
 indeed at no two minutes, are the rates at which 
 things exchange for one another at all the same. 
 The price list of the Stock Exchange varies from 
 hour to hour, and so do the prices in other markets. 
 General ''exchangeable value," which is the sum 
 total of price lists, is, therefore, incessantly altering. 
 The fact which it denotes is one of the greatest 
 complexity with which any science can have to deal, 
 and it is no wonder, therefore, that most imagina- 
 tions find it hard to get and keep a hold of it. 
 Incomparably the best way to aid them in this, is 
 to make an hypothesis, and to assume that money 
 is of invariable value. Of course this is an hypo- 
 thesis not coinciding with fact. On the contrary, 
 it leaves out a whole range of facts. But if we are 
 careful with it — if we remember what arc the omitted 
 facts, and make corrections for them if necessary — 
 
240 Economic Studies. 
 
 the hypothesis is of the greatest use. The figures 
 of price are, in this case, Hke the symbols of Algebra ; 
 they hedge-in the mind to a definite thought. 
 
 But as a matter of fact, in markets, though mone- 
 tary changes of price are incessant, yet general re- 
 lations are constant ; and in a former page we saw 
 that in relation to articles which human industry can 
 indefinitely multiply, and which it does so multiply 
 for the hope of profit, and within a "nation" in 
 the economic sense — that is, a group of producers 
 within which labour and capital freely circulate — 
 these constant relations are fixed by the "cost of 
 production ". What, then, is this cost accurately ? 
 It is in relation to this that we shall find the hypo- 
 thesis as to fixed value of money especially useful 
 All other modes of dealing with the subject are apt 
 to leave the mind of the reader somewhat dull and 
 stupid, and to make him, though convinced at each 
 step of the reasonings, not quite sure of the effect of 
 the whole. 
 
 This cost of production in a mature state of 
 industry and where there is a strict division of 
 persons into capitalists, artisans, and labourers, is 
 the cost at which it would " pay " a capitalist to 
 produce a given product, and the word " pay " means 
 that he must have his "outlay," the money he has 
 expended, returned to him, and that he must have, 
 over and above, so much, by way of profit — so 
 much " to the good," as we commonly speak — as 
 will induce him to make the production. Translated 
 into more abstract language, you can say that the 
 capitalist must be in possession, or have the means 
 
Cost of Production. 24I 
 
 of possessing himself, of certain articles, possessing 
 exchangeable value ; that those articles are parted 
 with, or destroyed in making the product, and that 
 he must have articles of equal exchangeable value 
 returned to him by the exchange of his product, 
 together with a profit. But though a most valuable 
 way of speaking for some purposes, for those of 
 common exposition, this abstract way is inferior 
 to the more concrete way. 
 
 A great deal of the indistinctness which often 
 hovers round the subject arises because those who 
 think of it do not enough trace the matter as it runs 
 through the mind of the capitalist. In our modern 
 production all depends on him. It is he who settles 
 what undertakings shall be embarked in, and what 
 not ; which things shall be made and which left 
 unmade. The price at which a thing can be bought 
 is the price at which the capitalist will undertake to 
 lay it down ; if you want to know why one thing 
 is cheap and another dear, you must analyse in each 
 case the calculations of the capitalist. 
 
 The first and most obvious thing which a capitalist 
 must do, is to pay his wages. Labour — the muscular 
 and mental force of man — is a main element in 
 almost all kinds of production, and the principal one 
 in many. But we must be careful not to imagine 
 that this labour which the capitalist purchases is one 
 thing. It is hardly even one kind of thing. The 
 labour of a ploughman is distinct from that of a 
 clerk; that of a clerk from that of an engine-driver; 
 that of an engine-driver from that of a cabinet- 
 maker, and so on without end. The difference 
 
 16 
 
242 Economic Studies, 
 
 between these various kinds of labour is in a great 
 degree the consequence of acquired habit. Each 
 man is trained in his department, and in it, there- 
 fore, he acquires a skill. These various kinds of 
 training go down to very low degrees — to the "navvy," 
 who just knows how to dig out plain earth, — and 
 runs up to the most accomplished artisan — the 
 maker of astronomical instruments (say) v/ho can 
 turn out work of the finest and most minute 
 accuracy, and to a great extent knows how he does 
 it, and how that accuracy is acquired. There is a 
 common coarse sort of human nature which can be 
 taken a certain way in any pursuit, but which will 
 not go very far ; and over and above that, there is 
 a finer element which can only be taken in one 
 direction, or some few directions for which it has 
 an affinity, and which is often accompanied by an 
 incompetence to go even the first step in many 
 others. Out of these natures specifically inclined 
 to it, each trade gets its best labourers. The capi- 
 talist in each line has to try the various sorts, if he 
 can get them, and to pay higher for the finer sorts. 
 I say, if he can get them, because a main key to the 
 reason why industries are distributed apparently so 
 capriciously over the face of the country, is to be 
 found in the power of being able to buy easily and 
 cheaply all the kinds of labour which each kind of 
 trade wants. In a place where a trade has long 
 been carried on, all these tend to accumulate ; a 
 family tradition carries them on from father to son, 
 and the whole mind of the place comes to be full of 
 it. The language of the district soon assumes that 
 
Cost of Production. 243 
 
 you know it, and those who do not are a kind of 
 aHens. " As water " in all cases " comes to the 
 river," so the place where a trade has long been 
 carried on tends to attract those who by nature 
 like that trade, and feel that they are fitted for it. 
 Thus commerce, which, being wholly of human 
 creation, one might have fancied to be very mutable, 
 is really a thing most conservative. It will stay in 
 a place for very many years which has given no 
 natural facility to it, — often which seems to have 
 interposed a difficulty. To get all the kinds of 
 skill suitable for a trade in their proper proportions 
 is a long task, requiring many years ; a new place 
 cannot have it for a long time, and an old place 
 for a long time will be superior in this cardinal 
 advantage. 
 
 One special kind of labour which almost every 
 capitalist must have more or less of, is what we call 
 his -' establishment " ; that is, his head men who 
 transmit his orders, or give them to his corresponding 
 clerks ; his book-keeping clerks, who keep what we 
 may call his " memory " ; and the result of their 
 labour shows what has become of his capital, and 
 whether he is getting or losing. In some trades, as 
 in banking, and some other distributive trades, this 
 kind of charge is one of the greatest ; and almost all 
 people in a very large way of business have a large 
 staff of confidential persons whom they know and 
 who know them, and who work together with an 
 efficiency, though often incessantly 'Miaving words," 
 which no casual gang suddenly collected can for an 
 instant compete with. 
 
244 Economic Studies. 
 
 Next, a capitalist must buy his " machines''. And 
 there is no reason to take up time and space with 
 saying how various and wonderful they are at the 
 present day. Everybody will remember that, without 
 its being said. What is much more to our present 
 purpose is to say that outlay on wages has a different 
 effect on the price of commodities from an outlay on 
 machinery. If ;£'ioo,ooo is laid out during the year 
 in wages, that sum must all be returned by the sale 
 of the articles produced in the year. But that is not 
 true of an outlay on machinery. On the contrary, 
 ;fioo,ooo laid out in machinery need not all come 
 back so soon. The machinery will last for years, — 
 and the capitalist does not want to have the first 
 outlay returned to him till the very end, when it is 
 quite worn out. Money spent on wages is a lump 
 sum, which the products of the year must return ; 
 money spent on machinery a sum repayable by 
 terminable annuity, extending over all the years the 
 machine lasts. Each cotton shirting must by its 
 sale recoup the capitalist for the wages spent in 
 making it ; but it need only return to him a small 
 fraction of the cost of the machinery by which it was 
 made, because that machinery will go on making 
 shirtings for many years, and it is the aggregate 
 which must make the return to the capitalist, and 
 not any one. 
 
 Machine-making, it is to be observed, is a trade 
 which especially tends to adhere to particular places, 
 because more than any other trade it requires the 
 easy and cheap supply of the exact kind of skilled 
 labour in the exact quantity in which it is wanted. 
 
Cost of Production. 245 
 
 And this you cannot have in a new place. A machine- 
 making factory which would thrive at Birmingham, 
 would starve at the Land's End. 
 
 Next, a capitalist must mend his machinery ; and 
 this is the most conservative force of all. The 
 number of subsidiary trades which any one great 
 manufacture requires merely to keep its plant going, 
 is very large, and in out-of-the-way spots no one of 
 them, of course, exists. They only grow round the 
 principal trade gradually, and as time goes on. And 
 many of them are subsidiary to several trades. The 
 place, therefore, which has longest had possession of 
 such trades has an incalculable advantage, as far as 
 this item is concerned. 
 
 Next, the capitalist, having bought his machinery, 
 must buy the power of moving that machinery. And 
 this is a point on which very many people have no 
 clear notions ; there is a difficulty in comprehending 
 the difference between the two, — a disposition to 
 confound force and wheels. In the old times of 
 watermills and windmills, I am inclined to think 
 that the distinction was clearer ; it was then patent 
 that the most elaborate machinery would not move 
 unless there was some external force to push it. But 
 the use of coal has rather mystified the matter. 
 People do not see the pushing power, and therefore 
 they do not believe that it exists. A steam-engine is 
 so large and complex a thing that people in general 
 have no real idea how it moves. The truth of course 
 is that the burning of the coal heats the water, that 
 the heating of the water causes it to expand, that 
 this expansion gives a " shove,'' and that all the rest 
 
246 Economic Studies. 
 
 of the machine only transmits and passes on that 
 "shove". You must have something like this to 
 start with — something that will produce a pressure, 
 or you cannot move your machinery at all. I have 
 known highly experienced men of business, however, 
 who are very far from clear about this. In discussion 
 as to the consequences of the extinction of our " coal," 
 nothing is more common than to hear it said : " Oh, 
 then we must adopt new forms of machinery ". You 
 might as well try by improving and educating the 
 mothers to continue a species without fathers. There 
 is a certain motive ''power" in nature which is as 
 essential as any matter to be moved. 
 
 This element in the cost of production tends quite 
 in the opposite way to the previous ones ; it tends 
 not to keep trade where it is, but to make it move. 
 The best coal mines, the best sources of power of all 
 kinds in each district, are soon appropriated and 
 used. The natural tendency of trade, as far as this 
 element in the cost of production guides it, would be 
 to move incessantly over the face of the world, 
 always touching the best sources of power only — the 
 quickest water-courses, the most exposed sites for 
 windmills, the best coal mines, — and never stopping 
 to exhaust the second-rate sources. 
 
 Next, the capitalist must buy the materials which 
 he is to work up with this power and this machinery. 
 And the effect of this item, too, is just like the last. 
 It tends to migration. The principal materials of 
 industry are the tissues of vegetables, the fleeces and 
 skins of animals, and the products of mines. And 
 commerce is for ever hunting out the places at which 
 
Cost of Prodtiction. 247 
 
 such animals can be reared, such vegetables grown, 
 and such minerals extracted. New places are con- 
 stantly being discovered where these can be done, 
 and manufactures, if not tied by the other items of 
 cost, would be for ever stimulated to move by this 
 one. Then the capitalist must rent the land on 
 which his factory is built, or on which his business 
 is carried on, and what the laws are by which this is 
 regulated we have seen. 
 
 Next, he must pay interest on as much of his 
 capital as he finds it convenient to borrow, and as 
 he can get the loan of. And this is a steady 
 cause operating in favour of old countries, because 
 capital has there accumulated and is cheap, where- 
 as in new countries it is still scarce and cannot be 
 borrowed, except at great cost, if at all. As com- 
 merce becomes involved and credit complex, more 
 and more of business tends to be carried on with 
 borrowed money ; and the comparative cheapness 
 of it in established places of industry is one of 
 the reasons why trades stay there as they do, — 
 why so many of them are stationary, and so few 
 migratory. 
 
 Lastly, in many cases, though not in all, the 
 capitalist must make known the goodness — or, at 
 least, must allege the goodness — of his work. Adver- 
 tising is a kind of outlay which to some extent is 
 essential in all trades, and it takes different forms. 
 A company which hires a showy shop front, a broker 
 who is for ever sending round trade circulars, are 
 really advertising just as much as dealers who insert 
 in the newspapers puffs of their articles; the end in 
 
248 Economic Studies. 
 
 all cases is to sell something, and in the long run the 
 buyer pays for it all. 
 
 I have been speaking as if all products were made 
 or manufactured. Common language has no apt 
 expressions for the general ideas of Political Economy. 
 There is no easy mode of describing all the processes 
 by which all sorts of articles are changed by men 
 from the state in which they are worth less, into that 
 in which they are worth more. The case of a manu- 
 facturer is the simplest case to the imagination, and 
 I have, therefore, taken it as the standard. Besides 
 it, there are the breeding of animals, the growth of 
 vegetables, and the extraction of minerals ; but any 
 one who has analysed the outlay of the capitalist in 
 manufactures will have no difficulty in doing so for 
 the others ; — nmtatis mutandis it all comes to the 
 same thing, though the words of describing it differ. 
 In all, the capitalist will have to pay wages ; to buy 
 co-operative instruments (animals included) ; to 
 obtain a site ; probably to borrow capital ; probably 
 to make known the value of his article. His outlay 
 will be on these ; and what he has over, after re- 
 placing these, is profit. The whole of business in 
 great commercial countries is that of a replacement, 
 with an addition of capital. As a rule, the capitalists 
 of a trade must have their capital returned to them 
 with the profit of the country, or they will not con- 
 tinue in that trade. 
 
 II. 
 
 One result of these truths is, I think, to clear up the 
 most abstruse discussion in which English Political 
 
Cost of Production. 249 
 
 Economy has recently been engaged — the discussion 
 which Mr. Cairnes raised against Mr. Mill on the 
 " cost of production ". And this result is just of the 
 kind which might be expected, for it is in the be- 
 ginning of arguments that their difficulties are hidden 
 and any one who will really go back to that begin- 
 ning will be sure to meet his reward. Let us look at 
 the matter a little carefully. 
 
 When any article, say a steam-engine, is in our 
 modern state of industry produced by a capitalist 
 maker, it is necessary to repay to that capitalist 
 maker all which he has expended upon it ; if it cost 
 ^500, and the current rate of profit be a 10 per cent, 
 rate, he must have ;^550. His capital must be 
 returned to him, and he must have the remunera- 
 tion for that capital for the risk of losing it, for the 
 trouble of managing it, and so on. But Mr. Mill 
 takes his analysis further. He analyses the cost of 
 production into the ''wages of labour," and the 
 " profits of capital," and after speaking of the former, 
 thus proceeds : " Thus far of labour, or wages, as an 
 element in cost of production. But in our analysis, 
 in the First Book, of the requisites of production we 
 found that there is another necessary element in it 
 besides labour. There is also capital ; and this 
 being the result of abstinence, the produce, or its 
 value, must be sufficient to remunerate, not only all 
 the labour required, but the abstinence of all the 
 persons by whom the remuneration of the different 
 classes of labourers was advanced. The return for 
 abstinence is profit. And profit, we have also seen, 
 is not exclusively the surplus remaining to the 
 
250 Economic Studies. 
 
 capitalist after he has been compensated for his 
 outlay, but forms, in most cases, no unimportant 
 part of the outlay itself. The flax-spinner, part of 
 whose expenses consists of the purchase of flax and of 
 machinery, has had to pay, in their price, not only 
 the wages of the labour by which the flax was grown 
 and the machinery made, but the profits of the 
 grower, the flax-dresser, the miner, the iron-founder, 
 and the machine-maker. All these profits, together 
 with those of the spinner himself, were again 
 advanced by the weaver, in the price of his material 
 — linen yarn ; and along with them the profits of a 
 fresh set of machine-makers, and of the miners and 
 ironworkers who supplied them with their metallic 
 material. All these advances form part of the cost 
 of production of linen. Profits, therefore, as well as 
 wages, enter mto the cost of production which 
 determines the value of the produce." 
 
 But this reasoning assumes that all capital comes 
 from " abstinence," whereas a great deal of it does 
 not. What the capitalist in this case really hires is 
 the use of the past plant of the world, whatever its 
 origin. Thus the steam-engine maker hires the use 
 of a whole series of tools and things, going back to 
 the first flint implements, and the first tamed animals. 
 In the first beginnings of that series — the link on 
 which it all hangs — there was no relinquishment of 
 any enjoyment. There was no such " abstaining," 
 as Mr. Mill supposes, and therefore Mr. Mill's 
 analysis fails. He takes us back into a hypothetical 
 history which he does not prove, and which he could 
 not prove, for it is not true. 
 
Cost of Production. 251 
 
 Further, Mr. Mill's analysis supposes the present 
 organisation of industry — that in which the capitalist 
 buys the force of the labourer and pays him wages — 
 to be the one which began at the beginning. Mr. 
 Mill says : " What the production of a thing costs 
 to its producer, or its series of producers, is the 
 labour expended in producing it. If we consider as 
 the producer the capitalist who makes the advances, 
 the word ' labour ' may be replaced by the word 
 'wages': what the produce costs to him, is the 
 wages which he has had to pay. At the first glance, 
 indeed, this seems to be only a part of his outlay, 
 since he has not only paid wages to labourers, but 
 has likewise provided them with tools, materials, and 
 perhaps buildings. These tools, materials, and build- 
 ings, however, were produced by labour and capital ; 
 and their value, like that of the article to the production 
 of which they are subservient, depends on cost of pro- 
 duction, which again is resolvable into labour. The 
 cost of production of broadcloth does not wholly con- 
 sist in the wages of weavers ; which alone are directly 
 paid by the cloth manufacturer. It consists also of 
 the wages of spinners and wool-combers, and, it may be 
 added, of shepherds, all of which the clothier has 
 paid for in the price of yarn. It consists, too, of the 
 wages of builders and brick-makers, which he has 
 reimbursed in the contract price of erecting his 
 factory. It partly consists of the wages of machine- 
 makers, iron-founders, and miners. And to these 
 must be added the wages of the carriers who trans- 
 ported any of the means and appliances of the pro- 
 duction to the place where they were to be used, 
 
252 Economic Studies. 
 
 and the product itself to the place where it is to be 
 sold." 
 
 This principle, as applied to existing societies, 
 may seem very obvious ; indeed, it is most commonly 
 assumed in popular discussions, both as being true 
 and as being the principle of English Political Eco- 
 nomy. But, nevertheless, most eminent Political 
 Economists refuse to regard it as ultimate, and try 
 to get behind it. And, no doubt, in one sense it is 
 not ultimate. There are processes acting on value 
 of which it does not take account. For example, 
 the wages of similar labour tend — though slowly — 
 to be equal in all employments, and it is contended 
 that you ought not to say that the exchange value of 
 an article has arrived at its " cost value " while the 
 wages paid in its production are greater or less than 
 those paid to similar labourers in other employments. 
 Again, the wages of dissimilar kinds of labour bear, 
 as a rule, some kind of proportion to one another 
 (though the exceptions to this rule are in all societies 
 many, and though some of them last for a very long 
 time), and it is said that we have not arrived at the 
 *' cost value " of any article until, in the case of that 
 article, the different species of labour are rewarded 
 in the same proportion that they are in the case of 
 other articles. And, no doubt, if we choose, we 
 may thus define "cost value"; we may say that it 
 is not realised till these conditions are satisfied. But 
 if we do, we must go further, and regard " cost 
 value" as an ideal limit, rather than as any actual 
 thing at all. In truth the conception of the universal 
 influence of the capitalist-employer is essentially 
 
Cost of Production. 253 
 
 modern. We have seen before that capital is scarce 
 in new countries, that it moves slowly, and that the 
 labourer and the capitalist are often one and the 
 same. There is no such separate outlay as Mr. 
 Mill's analysis presumes, and as our modern practice 
 exhibits. On a large scale no such thing is possible 
 till a good available money exists in which wages 
 can be paid ; and such a money did not begin till 
 the human race had been working and labouring for 
 many hundred years. 
 
 Mr. Mill's attempt to answer the question, "What 
 is the cost of production which determines value ? " 
 by saying that it is the sum of the wages of labour 
 and profits and abstinence since the beginning of 
 history, fails therefore at both its cardinal points — 
 for in the beginning of history there was much 
 capital yielding profit which did not come from ab- 
 stinence, and much labour which was not paid by 
 wages ; and this capital and this labour were the 
 seeds of all which now is, and must be reckoned in 
 the list of things that made it, if we add up those 
 things. 
 
 Nor do I think that Mr. Cairnes, most acute as he 
 is here, as always, at all mends the matter. He 
 says " that Mr. Mill was wrong in adding up past 
 wages and past profits so as to make a total ' cost 
 of production,' for that neither 'wages nor profits' 
 are properly part of that cost at all ". He tells us : 
 " Of all ideas within the range of economic specula- 
 tion, the two most profoundly opposed to each 
 other are cost and the reward of cost, — the sacrifice 
 incurred by man in productive industry, and the 
 
254 Economic Studies. 
 
 return made by nature to man upon that sacrifice. 
 All industrial progress consists in altering the pro- 
 portion between these two things ; in increasing the 
 remuneration in relation to the cost, or in diminishing 
 the cost in relation to the remuneration. Cost and 
 remuneration are thus economic antitheses of each 
 other ; so completely so, that a small cost and a 
 large remuneration are exactly equivalent expres- 
 sions. Now in the analysis of cost of production 
 which I have quoted, these two opposites are identi- 
 fied ; and cost, which is sacrifice, cost, which is 
 what man pays to Nature for her industrial rewards, 
 is said to consist of wages and profits, that is to say, 
 of what Nature yields to man in return for his 
 industrial sacrifices. The theory thus in its simple 
 statement confounds opposite facts and ideas, and 
 further examination will show that it involves con- 
 clusions no less perplexed, and in conflict with 
 doctrines the most received." 
 
 But the '' cost of production," in the sense in 
 which that cost determines market value, means the 
 *'cost" to the person who brings it to that market. 
 In England, at present, the capitalist pays the 
 wages, and he will not do it unless he earns the 
 profit. These pecuniary items are certainly ele- 
 ments in price, and ''exchangeable value" is only 
 an abstract word for a perfect price — a price which 
 would never alter by changes in the money medium 
 — and changes in which, accordingly, would show 
 accurately the changes in the buying power of 
 things. The pecuniary remuneration to the labourer, 
 and the pecuniary remuneration of the capitalist, 
 
Cost of Production. 255 
 
 seem to me to be essential ingredients in the per- 
 manent mone}^ price which is to pay them both, for 
 that price must permanently be such as will so pay 
 them, and so pay them adequately. 
 
 Again, I do not think that abstinence and labour, 
 or the rewards of them, are the sole elements in the 
 existing cost of production. There is a third, which 
 I call the hire of the present plant — of the existing 
 productive things in the world. Suppose that a 
 man goes into business with borrowed capital only, 
 he will have to pay the ''compensation" to absti- 
 nence, that is, the interest on capital to the man who 
 lends him the money, and he will have likewise to 
 hire labourers and pay them their wages. But 
 besides this, he will have to hire machines to make 
 his things. I say hire, not buy, for as far as the 
 *' cost of production " goes, this word gives more 
 readily the required idea. A capitalist who has 
 bought his machine gets back his money by an 
 annuity ; in the price of each bale of goods which he 
 sells he includes a fraction of that annuity. It is as 
 if he hired the machine and paid so much per bale 
 as a rent or royalty for using it. When he buys 
 the machine he commutes this royalty for a sum 
 down. But he must get it repaid him annually for 
 all that. And this repayment is so much to be 
 added to the interest which he pays on his bor- 
 rowed capital, and to what he pays in wages. It 
 is an outlay which is a compensation neither for 
 abstinence nor labour. 
 
 Cairnes would probably have said that as all the 
 machines so hired were produced once by abstinence 
 
256 Economic Studies. 
 
 and labour, the hire of them was really a compen- 
 sation to that past abstinence and labour. But 
 here historical investigation again helps us. We 
 have seen that the existing producing things of the 
 world are the growth of a long history — that they 
 are the product of many things, and that they 
 cannot be set down as the products of simple 
 abstinence and simple labour. If you resort to an 
 historical explanation, the first requirement is that 
 the history must be true. No hypothesis or set of 
 abstractions can help here. The appeal is to what 
 has happened in matter of fact, and what is said to 
 have thus happened never did so. And you cannot 
 even confine such reasoning to somewhat developed 
 states of society, for the very essence of this reason- 
 ing is to go back into the past and to assume that 
 the cause of economic production has been uniform 
 — has always been the product of the same two 
 stated agencies. 
 
 And not only are the real facts of the growth of 
 wealth thus inconsistent with the analysis which 
 both Mill and Cairnes give us of the "cost of pro- 
 duction," but they are still more inconsistent with 
 the analysis of that cost which was generally held 
 by the preceding generation of English Economists, 
 and which is constantly to be found in the writings 
 of Ricardo, though what seems to me to be a truer 
 view is, as I shall presently show, to be found there 
 also. This older analysis considers that "labour" 
 is the sole source of value, and that all things of 
 the same price have been produced by an equal 
 quantity of "labour". But this older theory is 
 
Cost of Production. 257 
 
 evidently more unlike the facts than either of the 
 newer ones. We have seen that these were not 
 true, because they assumed that two factors — labour 
 and abstinence — were the sole sources of wealth. 
 And a fortiori the older theory is untrue, for it 
 assumes that a single factor — labour — has alone 
 produced wealth. 
 
 III. 
 
 The difference which remains over in the hands 
 of the capitalist is his profit. And this is a most 
 essential element in the cost of production, for every- 
 thing in developed trade depends on him. Unless 
 he brings an article to market it will not be brought, 
 and he will not bring it unless he has enough to 
 repay him for what he does. And what he does is 
 the most intellectual part of wealth — production and 
 distribution. He is to the rest of the people so 
 engaged what the general is to the army. It is he 
 who settles what work operatives shall do, what sums 
 clerks shall add up, how the managing men shall be 
 employed. Not only does he save his capital and 
 does not eat it, not only does he risk his capital, but 
 he manipulates his capital. It is common to speak 
 of the intellectual part of profit as the "wages of 
 superintending wisdom ". You might as well call 
 whist superintending the cards. A man who plays 
 cards very ill, will probably "play" his capital just 
 as ill. The same kind of sagacity, the same observa- 
 tion, the same self-restraint are required in both. 
 But though this is required of the capitalist, it is not 
 all which is required. There is quite a different 
 
 17 
 
258 Economic Studies, 
 
 element besides. All business is in the nature of a 
 game more or less difficult ; and requires the same 
 sort of faculties, and the same kind of attention, as a 
 game. But in most trades a capitalist has to govern 
 others ; a large employer of labour has to govern 
 many men. He has not only to move his pawns, 
 but to rule his pawns. The pieces with which he 
 plays are of flesh and blood, and will not move unless 
 they like. He has to manage that they shall like. 
 And, unless he is paid for all this, the article will not 
 be made. 
 
 Ricardo was the first to give anything like this 
 analysis of the cost of production. We have seen 
 how imperfect, how confused, the analysis of Adam 
 Smith was. Nor was there any great step in the 
 matter made between his time and Ricardo's. The 
 subject was not accurately worked out. 
 
 The analysis of Ricardo was, undoubtedly, defective, 
 and he got himself into a difliculty of language which 
 perplexes his writings and puzzles half his readers. 
 Bentham said that he "confounded 'cost' and 
 ' value ' ". And, in fact, having satisfied himself that 
 things of equal cost of production will in the long run 
 exchange for one another, he came to speak of the 
 effect as if it were the cause, and of the cause as if it 
 were the effect. I do not think he actually confused 
 the two in thought, but he often seems to do so. 
 Not being a highly educated man, he had, as has been 
 said, a curious difficulty in the use of abstract lan- 
 guage. He is like a mathematician in whose work 
 there are a good many small inaccuracies, but whose 
 work is still in the main right. Of course such a 
 
Cost of Production. 259 
 
 mathematician is a very imperfect one ; the essence 
 of mathematics is accuracy. In the same way 
 Ricardo is a very imperfect abstract writer. The 
 essence of abstract writing is precision, and in his use 
 of abstract words he is defective in precision. Still 
 the fault is of words only. When you come to 
 examine the thought, you find that there was no 
 obscurity in it ; that it was perfectly clear in his 
 mind. 
 
 It is a much worse fault that he only incompletely 
 seized the notion that in an advanced state of society, 
 where the capitalist brings the labour and offers the 
 article for sale, the cost to the capitalist is that 
 which regulates the value. No doubt, as we have 
 seen, it is easy to imagine a simple society, where 
 the labourers all support themselves — a set of 
 hunters and weavers and fishers — where labour 
 migrated from employment to employment just as 
 one was better remunerated than another, and in 
 which labour being the sole cost of production (that 
 is to say, the labourers owning their own food and 
 using their own tools), it was this migration which 
 adjusted exchangeable value to cost. But there is 
 a much quicker adjustment when capital is movable, 
 and rapidly changes from employment to employ- 
 ment. What it costs the capitalist together with 
 his profit settles the value. It does so, though the 
 rate of wages for equal qualities of labour may be 
 higher in one trade than another. As long as that 
 is the case, the cost will be higher in the trade where 
 wages are higher; and, therefore, the article produced 
 will sell for more. In the end, labour will in most 
 
26o Economic Studies. 
 
 cases migrate from the badly paid to the well paid 
 emploj^ment, and then the labour in both will be 
 equally remunerated, and the price so far as it de- 
 pends on labour will be the same. But even before 
 this, the cost of production to the capitalist will 
 regulate the price just as much as it does afterwards. 
 Ricardo might, more than any one else, have been 
 expected to point this out, for he had an infinitely 
 better perception of the quickness with which capital 
 moves than any previous economist, and of the way 
 in which it moves. " Whilst every man is free to 
 employ his capital where he pleases, he will naturally 
 seek for it that employment which is most advan- 
 tageous ; he will naturally be dissatisfied with a 
 profit of 10 per cent., if by removing his capital he 
 can obtain a profit of 15 per cent. This restless 
 desire on the part of all the employers of stock, to 
 quit a less profitable for a more advantageous busi- 
 ness, has a strong tendency to equalise the rate of 
 profits of all, or to fix them in such proportions as 
 may, in the estimation of the parties, compensate for 
 any advantage which one may have, or may appear 
 to have, over the other. It is perhaps very difficult 
 to trace the steps by which this change is effected ; 
 it is probably effected by a manufacturer not ab- 
 solutely changing his employment, but only lessening 
 the quantity of capital he has in that employment. 
 In all rich countries, there is a number of men forming 
 what is called the moneyed class ; these men are 
 engaged in no trade, but live on the interest of their 
 money, which is employed in discounting bills, or in 
 loans to the more industrious part of the community. 
 
Cost of Production. 261 
 
 The bankers too employ a large capital on the same 
 objects. The capital so employed forms a circulating 
 capital of a large amount, and is emplo3^ed, in larger 
 or smaller proportions, by all the different trades of 
 a country. There is perhaps no manufacturer, how- 
 ever rich, who limits his business to the extent that 
 his own funds alone will allow ; he has always some 
 portion of this floating capital, increasing or diminish- 
 ing according to the activity of the demand for his 
 commodities. When the demand for silk increases, 
 and that for cloth diminishes, the clothier does not 
 remove with his capital to the silk trade, but he 
 dismisses some of his workmen, he discontinues his 
 demand for the loan from bankers and moneyed men ; 
 while the case of the silk manufacturer is the reverse : 
 he wishes to employ more workmen, and thus his 
 motive for borrowing is increased : he borrows more, 
 and thus capital is transferred from one employment 
 to another, without the necessity of a manufacturer 
 discontinuing his usual occupation. When we look 
 to the markets of a large town, and observe how 
 regularly they are supplied both with home and 
 foreign commodities, in the quantity in which they 
 are required, under all the circumstances of varying 
 demand, arising from the caprice of taste, or a change 
 in the amount of population, without often producing 
 either the effects of a glut from a too abundant supply, 
 or an enormously high price from the supply being 
 unequal to the demand, we must confess that the 
 principle which apportions capital to each trade in 
 the precise amount that it is required, is more active 
 than is generally supposed." 
 
:62 Economic Stiidl 
 
 tes. 
 
 From this passage it would have been expected 
 that Ricardo would have said that in the state of 
 industry with which he was here dealing, the cost of 
 production which determines the price was the out- 
 lay of the capitalist, plus his profit, and that he would 
 so have shown the subject in its true simplicity. But 
 though in many passages he approaches to this clear- 
 ness, though continually you seem to see the thought 
 in his mind, he never quite utters it. You can no- 
 where find it in words. The difficulty of applying to 
 real life the doctrine of cost of production, when other- 
 wise explained, comes out in the following passage. 
 "In speaking," says Ricardo, "however, of labour as 
 being the foundation of all value, and the relative 
 quantity of labour as almost exclusively determining 
 the relative value of commodities, I must not be 
 supposed to be inattentive to the different qualities of 
 labour, and the difficulty of comparing an hour's or a 
 day's labour, in one employment, with the same dura- 
 tion of labour in another. The estimation in which 
 different qualities of labour are held, comes soon to 
 be adjusted in the market with sufficient precision 
 for all practical purposes, and depends much on the 
 comparative skill of the labourer, and intensity of the 
 labour performed. The scale, when once formed, is 
 liable to little variation. If a day's labour of a work- 
 ing jeweller be more valuable than a day's labour of 
 a common labourer, it has long ago been adjusted, 
 and placed in its proper position in the scale of value.'' 
 
 And fifty years ago, when manufactures grew but 
 slowly, and when the arts were comparatively station- 
 ary, this mode of speaking may not have been wholly 
 
Cost of Production. 263 
 
 incorrect — at an}^ rate was not perfectly false. But 
 now-a-days the different skill used in different employ- 
 ments varies incessantly ; it tends to increase with 
 every improvement in quality ; it tends to diminish 
 with every improvement in machinery. Even be- 
 tween the same employment at different times it is 
 difficult to compare it, and between two different 
 employments it is impossible to compare it. In a 
 long time the circulation of labour from employment 
 to employment no doubt brings about a rough and 
 approximate equality. But this is only in a long 
 time; it is a gradual and most incalculable operation. 
 The cost of production would hardly, in any practical 
 sense, determine price at all, if it only determined 
 value after so many years and so irregularly. In fact, 
 capital travels far quicker than labour, and there is 
 some approximate equality between the products of 
 two equal and similarly circumstanced capitals ; and 
 " cost of production," when analysed properly, is a 
 prompt and effective regulator of '' value". 
 
 But though Ricardo did not see this, as it is easy 
 to see it now, he saw more clearly than many people 
 now do that a rise of wages does not entail a rise of 
 prices. As yet I can only deal with the case of a 
 money-mining country ; a country of gold and silver 
 mines; whether the fact that money — that the 
 precious metals — are obtained by foreign trade, does, 
 or does not, make a difference, will appear afterwards. 
 But in the money-mining country nothing can be 
 clearer. Nothing can change relative value except 
 that which alters relative cost of production ; what 
 acts equally on all commodities will alter the ex- 
 
264 Economic Studies. 
 
 changeable quality of none. If all equal capitals 
 were spent in wages equally — say, if one-half of every 
 jf 100 was always so spent in every trade, including 
 money-mining — a rise, say, of twenty per cent, would 
 not affect values at all. It would tell on gold-mining 
 as well as on every other kind of production. "Hats," 
 to take Ricardo's favourite article, would be produced 
 at twenty per cent, more cost, but then sovereigns 
 would be produced at twenty per cent, more cost 
 also. And, therefore, there would be no more reason 
 for raising the value of hats as against sovereigns 
 than the value of sovereigns as against hats. The 
 cause on one side is equal to the cause on the other. 
 
 This is at present curiously neglected in our 
 common discussions. So far from Political Economy 
 having advanced on this point since Ricardo's time, 
 it — at least, the common exposition of it — has re- 
 trograded. In the incessant discussions of late 
 years as to the effect of Trades Unions, it is per- 
 petually assumed that, if these Unions extended to 
 all employments, and if they produced a rise of 
 wages in them all, they would certainly and neces- 
 sarily produce a universal rise of prices. But the 
 slightest thought would have shown that this rise, at 
 least in a gold-mining country, would act on the 
 gold as well as on the commodities exchanged for 
 gold, and that the effect upon the one would counter- 
 balance the effect upon the other. 
 
 Ricardo's conception of the cost of production was 
 over-simplified ; it left out part of the truth, and, 
 consequently, gave an undue prominence to the other 
 parts. But the slightest comparison between it and 
 
Cost of Production. 265 
 
 the ideas of Adam Smith will show how great is the 
 advance which Political Economy has made hetween 
 the two writers. Ricardo's is a first approximation 
 to an exact science ; Adam Smith's is but a set of 
 popular conceptions — always sensible, but often dis- 
 cordant. 
 
 IV. 
 
 But it will be asked, if in each trading country the 
 trader must receive the rate of profit of the country, 
 — what is it which determines that rate of profit ? 
 And this is rather a long topic of inquiry. 
 
 For popular purposes, it is easy to say that the 
 profit of a capitalist in any undertaking is that which 
 remains after the cost of that undertaking has been 
 satisfied. The outlay must be repaid, and what 
 remains over is profit. But in an ordinary under- 
 taking, say, in making cotton twist, there is this 
 difficulty : a great deal of the outlay is upon machines 
 and raw material, which are the results of previous 
 undertakings, and which must in the long run be 
 valued at the outlay on these undertakings, plus the 
 profit at the rate of the time and country, and this 
 profit is exactly what we are in search of. The 
 common trade facts do not give us that which we 
 want to know in a sufficiently simple form. 
 
 Supposing one capitalist ordered the whole article 
 from the beginning; suppose the country was one in 
 which cotton was grown ; and suppose that the 
 capitalist who grew it made all the necessary 
 machines (including any preliminary ones necessary 
 to make them), it is evident that his outlay would be 
 
266 Economic Studies. 
 
 of one sort, wages only. He would have to deal 
 exclusively with labourers, for he would go himself 
 to the root of the matter, and would employ the 
 results of no previous capitals. His outlay would 
 then consist of wages only, and his profit would be 
 the amount remaining to him when that outlay was 
 recouped. He would sell his article, and his profit 
 would be the price, minus the wages paid. 
 
 This analogy represents the real facts much more 
 accurately than would at first sight appear. Sup- 
 posing the profits of all trades to be equal, it would 
 represent them exactly. The manufacture of a con- 
 sumable article is divided, say, into a hundred under- 
 takings by various capitalists. If any one of these 
 were — all things considered — more profitable than 
 the others, capital would leave those others, and 
 would collect in it. The natural tide of capital from 
 the less to the more remunerative enterprise makes 
 the profits in each part of an entire manufacture 
 equal — which is as much as to say that it makes the 
 entire manufacture just what it would have been had 
 one single capitalist ordered or managed the whole 
 of it from the very beginning to the very end. As 
 we have seen, this doctrine of the equality of profit 
 is but an approximation, but we have also seen that 
 it is a most useful approximation, and what are the 
 corrections to be made in using it. Subject to these 
 corrections, therefore, we can say that the profit on 
 an article — entirely made and manufactured in the 
 same country — is the price of the article minus the 
 wages spent on it. But we must reserve an inquiry 
 into the possible profit where foreign materials and 
 
Cost of Production, 267 
 
 machines are used, for there is no transfer hither 
 and thither of capitals between nations, and no con- 
 sequent equaHty in the returns on them. We can 
 only return to that case after examining the primitive 
 simple one, where everything is made in the same 
 country. 
 
 You say, I shall be told, that the profit is the 
 selling price, minus the outlay, but you do not tell 
 us what is the selling price. Nor can it be told 
 without seeing how money is obtained. The price 
 of a thing is the money for which it exchanges, and 
 you must consider the nature of it before you can 
 know what that price will be. 
 
 The money of commerce is composed of the 
 precious metals — gold and silver — say, for shortness, 
 gold, w^hich is a commodity like any other. It is 
 raised in the same way as iron, and according to the 
 same laws. The capitalist must have in it the same 
 profit that he has in other trades and no more. But 
 the difference between it and other trades is that there 
 is no need to sell the article. A capitalist raises so 
 much gold, after a certain outlay ; he can take that 
 gold to the Mint, and the difference between it and 
 the outlay is the profit. There is no haze about it ; 
 no difficult words such as price and value. It is a 
 definite physical quantity — 10,000 sovereigns were 
 expended on the mine, and 11,000 came out, making 
 a profit of 10 per cent. The standard rate of profit in 
 money-mining is the rate of profit in the least produc- 
 tive money mine that can keep itself at work. All 
 other profits compare themselves with that, for money 
 is the standard of comparison, the reckoning engine. 
 
268 Economic Studies. 
 
 Suppose it takes a third less labour and a third 
 less machines to produce an ounce of gold ; an ounce 
 of gold will exchange for one-third less of other 
 things ; its buying power will be that much less ; 
 corn, cotton, and all other things, will exchange for 
 so much more of it. 
 
 The money price of mining machinery will rise, 
 the outlay of money necessary to work mines will 
 augment, and the return to it, though greater in 
 quantity, will be identical in proportion — will be the 
 same rate per cent. The gold-mines which cannot 
 pay that profit will be disused, just as old worn-out 
 iron-mines are disused, and from the same cause — it 
 no longer pays to work them. There will, however, 
 be this difference, though the rate of profit in the 
 gold trade will be the same, in other respects the 
 trade will have changed. General prices will have 
 altered. 
 
 In consequence, more money will be necessary to 
 circulate the same commodities, — to do the same 
 business. The same moneyed capital in the gold trade 
 will produce the same number of sovereigns as before; 
 it will yield as much per cent. The change will be, 
 that the same " moneyed capital " will buy less labour 
 and fewer machines, and the number of sovereigns 
 that make the profit, though the same, will buy less 
 of other things. 
 
 At every particular value of a sovereign there are 
 a certain number of sovereigns required to carry on 
 the business of a country. If more than that number 
 is supplied, their value — their buying power — will 
 diminish, and the price of all other things measured 
 
Cost of Production. 269 
 
 against them will rise. The machinery and labour 
 by which sovereigns are made are a part of those 
 other things, and their price will rise too. The outlay 
 on the production of sovereigns will augment, and 
 there will be a discouragement to produce them. 
 The price in "sovereigns" of all other articles will 
 have risen, as well as the outlay on their production; 
 the apparent profit in producing them will, therefore, 
 be as before. But though the outlay on a given number 
 of sovereigns has risen, they are in no way better than 
 before. There will, therefore, be a diminution in the 
 production of sovereigns, and the number in circula- 
 tion will be reduced to that required at cost value to 
 conduct the trade of the country. 
 
 The money rate of wages is a case of " supply and 
 demand," using those words in the sense in which 
 they have been explained — that is, it is determined 
 by the amount of money which the owners of it wish 
 to expend in labour, by the eagerness with which 
 they want that labour, by the amount of labour in 
 the market which wishes to sell itself for money, and 
 by the eagerness with which the labourers desire that 
 money. This, as we have seen, is peculiarly a case 
 in which the market feelings of the two bodies of 
 exchangers are carefully to be considered. If the 
 labourers are in want, they must take whatever the 
 capitalists offer them ; if the capitalists are in want, 
 they must buy the labour on the cheapest terms they 
 can, but get it they must. And the capitalist is as 
 likely, perhaps, to be in want as the labourer. It is 
 true that the distress of the labourer is much more 
 
270 Economic Studies. 
 
 conspicuous, and that he advertises it ; he goes about 
 saying: "I am starving, and it is the tyranny of 
 capital which is killing me ". But it is also true 
 that the capitalist is in danger of ruin, and that he 
 conceals it. If he cannot complete contracts which 
 he has made, if he has to stay out of a return from 
 his business longer than he can afford, he is ruined. 
 But he will never say this, because it may injure his 
 credit and quicken the coming of the evil. He will 
 lie awake with anxiety till his hair turns prematurely 
 grey, and till deep lines of care form on his brow, but 
 will say nothing. And it is necessary to insist on 
 this now, because our current literature — some even 
 of our gravest economic literature — is dangerously 
 tainted with superficial sentiment. It speaks much 
 of the sufferings of the working men which are seen, 
 and little of those of the capitalist which are not seen. 
 But the capitalist, being a higher and more thinking 
 kind of man, is probably of more sensitive organisa- 
 tion than the labourer, and pecuniary anxiety is a 
 more racking thing than any physical kind of pain 
 short of extreme hunger. The mental feelings of the 
 capitalist must just as much be regarded as those of 
 the labourer in computing the rate at which the money 
 of the one will be exchanged for the labour by the other. 
 The real remuneration of the labourer is, of course, 
 not settled by this bargain. Money is of no use to 
 him any more than to others, except for what it will 
 fetch (indeed, as his wants are more immediate he 
 feels this truth more than most others), and of what 
 use it will be is settled by its purchasing power. 
 This is again but a new case of supply and demand 
 
Cost of Production. 271 
 
 in the full sense of those terms. If the labourer is 
 needy and has nothing beforehand, he will not be 
 able to make his money go so far ; he will be obliged 
 to take anything which the shop-keeper will give him. 
 At other times, he, like other people, may buy the 
 goods of a bankrupt, ''going at a sacrifice". He is 
 also at the mercy of the other causes which raise the 
 price of the articles on which he spends his money. 
 A short harvest will send up the price excessively by 
 diminishing the supply of food which the labourer 
 wants more than anything else in the world ; the 
 passage of an army through the district will just as 
 much effect this by introducing new mouths to be 
 fed, who take the food with paying for it or without. 
 The real remuneration of the labourer in commodities 
 is settled by one case of ordinary exchange against 
 money, just as the money price of that labour is 
 settled by another. 
 
 It has, indeed, been contended that there is some- 
 thing special in the article "labour" which affects 
 this matter. It is said that if " labour" is not sold 
 on a certain day — that is, if the labourer is idle — 
 that labour is lost in consequence, whereas " com- 
 modities " are permanent, and can be sold one day 
 as well as another. But many commodities are, as 
 we all know, very perishable, and are so without 
 changing the principle on which their price is 
 settled. And hiring a man and hiring a horse are 
 obviously acts of the same species. The laws 
 which settle monetary value arc the same in the 
 case of labour as in other cases. 
 
273 
 
 APPENDIX. 
 
 Note A — (to Page 139, Line 16, and to Page 231, Line 5). 
 
 The account of the market price given in the text, though 
 long, and though, I trust, complete enough for its purpose, is 
 not complete, and I should like to add to it a little. Political 
 Economy tends to become unreal if it stands aloof from even 
 the minuticd of trading transactions. 
 
 First, — It is assumed in the text that the person who pro- 
 poses to sell an article is possessed of it, is a "holder," as we 
 say in market language ; but nothing can be more untrue than 
 to imagine that this is always so in markets. Many persons 
 perpetually sell what they do not possess, and this great 
 change, as is natural, makes other changes. The buyer's 
 position is not, indeed, altered ; very probabl}' he neither cares 
 nor knows whether the person proposing to deal with him 
 does, or does not, possess the article ; he thinks only whether 
 the dealer will, or will not, be able to deliver it ; if he gets it 
 in time to satisfy the contract that is all which he cares for. 
 But the seller has a new point to think of; not holding the 
 article himself he must consider at what price he will be able 
 to obtain it. This is by no means in all cases an easy matter. 
 The Americans have invented a cant word for an organised 
 mode of obstructing it. A " corner," in their language, is a 
 gang of persons who, having heard that some one has need ot 
 a particular article, obtain possession of the whole supply of it 
 in the market, and will only sell it to him at an excessive 
 price. With the great articles of consumption this attempt 
 is futile, the supply of them is too large, and too much divided ; 
 but with articles held by few dealers in small quantities — 
 like many securities of minor importance on the Stock 
 Exchange — such a plan is always possible and often profit- 
 able ; and a person who sells what he has not got must 
 reckon on the risk of it. This is one considerable change 
 
 18 
 
274 Appendix. 
 
 from the circumstances of ordinary bargains, and another is 
 that no one makes a sale of this sort to obtain the means of 
 meeting a HabiHty. In common business it often happens 
 that a man must sell at a loss, because he has an " acceptance " 
 to pa}^ next day, and no other means of paying it. But selling 
 that which 5^ou do not possess, and which you must at once 
 buy and pay for elsewhere, is of little use in such a strait. It 
 may bring a percentage of profit, but the corpus of the capital 
 will not be available for the discharge of pre-existing liabilities ; 
 it will be immediately paid out as part of the transaction 
 which brought it in. 
 
 In this case, therefore, the first condition of the formula 
 must be modified, and the early part of it will run: — 
 
 *' A bargain will be struck when the seller thinks he cannot 
 obtain more from the buyer with whom he is dealing, or from 
 any other ; 
 
 " When he thinks he can himself obtain the article at a less 
 price, and is willing to take the trouble and incur the risk of 
 attempting to do so." 
 
 And the rest will stand as in the text. 
 
 Secondly, — There is a corresponding case in which the 
 buyer has not the money, at least not nearly the whole of it, 
 at the time he makes the bargain. In Stock Exchange trans- 
 actions this is exceedingly common. Many buyers cannot 
 pay for the securities they purchase except by mortgaging 
 those securities; many banks lend on them, taking a ten or a 
 twenty per cent, margin, as it may be. In the cotton and 
 other produce markets there are similar loans. The buyer 
 has only a fraction of the purchase-money himself, he borrows " 
 the rest on the goods which are the subject matter of the 
 transaction in order to complete it. In this case, naturally, 
 there are the two contrary peculiarities to the last ; the buyer 
 has to consider whether he thinks he will be able to borrow 
 the money, and whether the terms on which he will borrow it 
 are good enough to make the transaction worth his while. 
 There is, in this case, no fear of his being " cornered," at least 
 not in a large money market like the English ; the voluntary 
 operations of no gang, however powerful, would ever prevent 
 
Appendix. 275 
 
 the holder of good securities from obtaining money. But the 
 involuntary circumstances of all dealers may prevent him. In 
 a panic there may be no money to be obtained, and he may be 
 ruined by being unable to complete his contract. And at a less 
 excited moment scarcity of money may easily raise the rate of 
 interest to a point so high as to turn the profit he expects on 
 the transaction into a loss. In consequence, the second half 
 of the first condition must be changed into this : — 
 
 "When the buyer thinks he can borrow the requisite money, 
 and when he is sufficiently desirous of the article to make him 
 take the trouble and incur the risk of attempting to do so". 
 
 Till now, we have been speaking only of what are called 
 "legitimate" transactions — bargains, that is, which are in- 
 tended to be performed, and which mostly are performed. 
 But there is another great class of contracts which are not 
 intended to be performed according to their terms, and which 
 are not so performed. These are "time bargains," of which 
 there are some in most markets, but of which the Stock Ex- 
 change is the great seat. It is as common as anything here 
 that a man should buy ;^20,ooo, say, " Peruvians," for a few 
 days only, never intending to pay for them, and never intending 
 to take them. The seller on his side understands that they are 
 not meant either to be delivered, or to be paid for. The real 
 contract is different from the verbal one ; it is that on the day 
 on which the bargain, according to its terms, is to be per- 
 formed — the account day as it is called — the price of the bar- 
 gain is to be compared with the price of the day, and that the 
 buyer is to receive the difference, if the price of the day is the 
 greater, and to pay the difference if the price of the bargain — 
 the price at which he bought — is the greater. In plain English, 
 if the price rises between the time of the purchase and the 
 "settlement" the buyer is to have the difference; if it falls, 
 the seller is to have it. The bargain is, in fact, a bet disguised 
 as a sale. Each party is to win if the event he " backs " hap- 
 pens, and to lose if it does not. In this case the bargain will 
 be struck : — 
 
 "When the buyer thinks he cannot induce the seller to fix 
 a less price ; 
 
276 Appendix. 
 
 "When he thinks this price likely to be less than the price 
 on the future day of settlement ; 
 
 "When he thinks the chance of the difference he will re- 
 ceive, if his anticipation is right, worth the risk of that which 
 he must pay, if his anticipation is wrong; 
 
 " When the seller cannot induce the buyer to name a greater 
 price, and when he thinks just the contrary as to these com- 
 parative prices and their resulting difference." 
 
 The "bulls" are speculators of this kind, who buy; and the 
 "bears" speculators, who sell, but the object of both is to 
 gain the " difference " : the former being sanguine, and think- 
 ing the price will rise; and the latter being gloomy, and ex- 
 pecting it to fall. It curiously happens, I believe, that the 
 common outside public are almost always "bulls" — that is, 
 take a cheerful view ; and that it is the inside, or professional 
 operator, who expects things to go down. And, of course, the 
 sanguine people are those who lose ; the cool inside speculator 
 lives on the folly of the outside world. 
 
 Time bargains are, more than any others, influenced by 
 preceding bargains. When a stock is rising, many people will 
 rush to bet that it will rise more ; when it is sinking, not so 
 many people — but still many people — will be eager to bet that 
 it will fall further. People who wish to bet on one side or the 
 other naturally choose the side which is at the moment winning, 
 unless they have a reason to the contrary — and many of these 
 speculators seldom have much reason. In consequence, at- 
 tempts to rig the market are more successful in this kind of 
 business than in any other. A league of knowing speculators, 
 which can make the market rise a little, will be sure to be 
 imitated by a crowd of unknowing ones, and will be able to 
 make money at their cost. 
 
 Of course it is possible to pursue these transactions upon a 
 sound calculation. If a man has a real reason for thinking 
 that a stock will ultimately rise very much, he may succeed by 
 "time bargains" in it. But those who have a sound reason 
 for what they do, and those who gain by it, are few in com- 
 parison with those who have only fancies, and who lose. 
 
 There is, too. an obvious defect in the formula of the text. 
 
Appendix, 277 
 
 It treats "money," meaning all kinds of purchasing power, as 
 if they were the same. But in reality they are different. 
 " Cash " on delivery is better than a sale on credit, or than the 
 best bill at a long rate. The ready-money price of a thing is, 
 in consequence, always lower than the credit price ; — at least 
 it is so when the delivery of the article is equally immediate 
 in the two cases. On the Stock Exchange, in the " Consol" 
 market, for example, it is occasionally said that the "ready- 
 money" price is greater than the price for the " account" (the 
 account days are twice a month) ; but this only means that 
 the stock is very scarce, and that in consequence it is much 
 more convenient to deliver it a few days later than at once. 
 The payment and the delivery are in both cases identical. 
 Wherever there is a real sale on credit the price is always 
 higher than in a sale for cash, because the buyer loses the 
 use of the money for a time ; and the credit price is sometimes 
 much greater because the buyer may not be a man in much 
 repute ; and therefore, the seller may be disposed to ask a 
 high premium for placing confidence in him, and he may be 
 obliged to pay it. 
 
 The use of the formula given in the text will, however, lead 
 to no mistake on this ground, when we know how to construe 
 it. A credit price can at once be reduced to a cash price as 
 soon as we know the time for which it was given, and the 
 degree of trust reposed. 
 
 There are also two speculative difficulties which should be 
 cleared away. It is often said that we ought to include in the 
 term " supply," or whatever equivalent word we use, not 
 merely the supply which is really in the market, but that which 
 is coming to it — as it is phrased, the "prospective " supply, 
 as well as the " actual ". But I think that this would be a mis- 
 take. In the first place, it would be quite contrary to the 
 ordinary phraseology of the markets ; their language always 
 distinguishes that which is on the spot as the supply par 
 excellence. And it is always most unfortunate in an abstract 
 theory to use a word in one sense which those who are most 
 concerned with, and most practically skilled in, the subject of 
 that theory use in a different sense. The consequent puzzles 
 
278 Appendix. 
 
 are incessant and important. And in this case the language 
 of the market defines a vital distinction. There is a great 
 difference between that part of the supply of a commodity 
 which can, if its owners choose, be used to make good a con- 
 tract, and that part which from distance or incompleteness of 
 growth or make, cannot in physical possibility be so used. 
 The actual supply for the purpose of any bargain is that 
 with which the bargain can be performed ; this is what 
 ordinary dealers would say they dealt in. The coming supply, 
 near or distant, certain or uncertain, complete or incomplete, 
 influences the opinions of dealers and their wishes; it makes 
 them more or less anxious to keep or to sell the actual supply 
 but both in practical effect and in scientific conception the two 
 are distinct. 
 
 It is also asked whether, when we say that " supply " 
 influences price, we mean estimated supply or real supply. In 
 the formula of the text, I have not used the word supply for 
 fear of ambiguity, but have been careful to say " that I speak 
 of the actual quantity" of the article in the market. The 
 effect of this is very great, independently of the estimate of it, 
 because the dealers who hold it, especially those who hold 
 most of it, are in general somewhat anxious to be rid of it. 
 What each man holds, and what he has to sell, is a much more 
 vital thing to him than that which others hold ; a little addi- 
 tion to his own stock is apt to influence him much more than 
 a great increase to the stock in the hands of others. It is the 
 "actual supply " which is the first force in the market, because 
 each bit of it acts on the holder of that bit, and mostly guides 
 him more than anything else. 
 
 Of course, however, the " estimated " supply — the notion 
 every dealer has about the amount held by every other dealer — 
 also influences all transactions. It acts on the mental element, 
 — on opinion and on desire. According as it is less or more, 
 it makes the seller less or more likely to think the article is 
 likely to fall, and less or more anxious to dispose of it. But 
 the estimate of one man will differ from that of another, and 
 the effect on one will be counteracted by the effect on the other, 
 — and we must not confound the chance results of these varying 
 
Appendix. 279 
 
 opinions with the steady desire of each dealer to dispose of 
 his own article. In the language of the market, " supply " 
 means real supply, and in discussions about markets, it is 
 much the best to speak in the same way. 
 
 Note B — (to Page 208)4 
 
 After quoting Mr. Grote's judgment that Mill was unrivalled 
 in the power to compare opposite theories of the same 
 general facts, Mr. Bagehot, in the article we are quoting 
 from, which appeared in the Economist newspaper on the 
 17th May, 1873, thus proceeds : '* In Political Economy 
 there was an eminent field for John Stuart Mill's peculiar 
 powers of comparison. There is little which is absolutely 
 original in his great work ; and much of that little is not, we 
 think, of the highest value. The subject had been discussed 
 in detail by several minds of great acuteness and originality, 
 but no writer before Mill had ever surveyed it as a whole with 
 anything like equal ability ; no one had shown with the same 
 fulness the relation which the different parts of the science 
 bore to each other; still less had any one so well explained 
 the relation of this science to other sciences, and to knowledge 
 in general. Since Mill wrote, there is no excuse for a Political 
 Economist if his teaching is narrow-minded or pedantic ; 
 though, perhaps, from the isolated state of the science, there 
 may have been some before. Mill had another power, which 
 was almost of as much use to him for his special occupations, 
 as his power of writing, lie was a most acute and discerning 
 reader. The world hardly gave him credit for this gift before 
 the publication of his book on Sir William Hamilton. But 
 those who have read that book will understand what Mr. 
 Grote means when, in his essay on Mill in the WestmiiistL-r 
 Review^ he speaks of Mill's 'unrivalled microscope which 
 detects the minutest breach or incoherence in the tissue of his 
 philosophical reasoning'. And Mill used this great faculty 
 both good-naturedly and conscientiously — he ne\er ga\e 
 heedless pain to any writer, and never distorted any one's 
 meaning. 
 
28o Appendix. 
 
 "In Political Economy the writer of these lines has long 
 been in the habit of calling himself the last man of the ante- 
 Mill period. He was just old enough to have acquired a cer- 
 tain knowledge of Ricardo and the other principal writers on 
 Political Economy, before Mill's work was published; and 
 the effect of it has certainly been most remarkable. All 
 students since, begin with Mill and go back to all previous 
 writers fresh from the study of him. They see the whole 
 subject with Mill's eyes. They see in Ricardo and Adam 
 Smith what he told them to see, and it is not easy to induce 
 them to see anything else. Whether it has been altogether 
 good for Political Economy that a single writer should have so 
 monarchical an influence, may be argued, but no testimony 
 can be greater to the ability of that writer and his pre-emin- 
 ence over his contemporaries." 
 
 THE END. 
 
28l 
 
 INDEX. 
 
 A PRIORI method (abstract reasoning), importance of, urged, 17. 
 Abstinence from enjoyment a mode of increasing capital, 158, 159, 209, 
 
 217. 
 Advertisement essential in all trades, 247. 
 Agriculture most profitable occupation for capital, 167, 168. 
 Animals, domestication of, 212-215. 
 Aristocracies, rate of increase among, 121, 122. 
 Arnold, Matthew, quoted, 175, 
 Australian tribes — 
 
 Barter unknown among, 54, 55, 
 
 Feebleness of, iii, 112. 
 
 Transferable capital not found among, 75, 76. 
 
 Bacon, Lord, method of, criticised, 15. 
 
 Bank of England and current rate of discount, 141, 142. 
 
 "Bank restriction " of 1797, controversy as to effect of, 200, 201. 
 
 Banking — 
 
 Essential to modern industrial organisation, 151, 152. 
 
 System of, in England, 80, 81. 
 
 Typical problem in economics, 14, 15, 18, ig. 
 Bargains in commerce — 
 
 Loans for, 274. 
 
 Theory of, I34-I39- 
 
 "Time bargains," 275, 276. 
 Barter — 
 
 Difficulty of fully imagining, 132, 133. 
 
 Illustration of, 133, 134. 
 
 Unknown among savage tribes, 54, 55, 57, 58. 
 Batals (caste in Cashmere), 43. 
 "Bears," meaning of term, 276. 
 
 Bentham a member of the school of Philosophical Radicalism, 203. 
 Bills of Exchange, use of, in circulation ot capital, 59, 60, 152. 
 Borrowing, see Loans. 
 Prassey, Lord, contractor for Italian railways, 92, 
 
282 Index. 
 
 Buffalo dance of the Mandan Indians, 31-33. 
 " Bulls," meaning of term, 276. 
 Business — 
 
 Knowledge of, a modern development, 78, 79. 
 
 Losses in, 61, 62, 235. 
 
 Saving proclivities of those engaged in, 225, 226. 
 Buyer — 
 
 Borrowing by, to negotiate a bargain, 274, 275. 
 
 Good, characteristics of, 143, 144. 
 
 Cairnes, J. E., discussion between J. S. Mill and, on cost of production, 
 
 249; quoted on cost and remuneration, 253, 254; cited, 140. 
 Campbell, Sir George, quoted, 48, 49. 
 Capital — 
 
 Cattle as, 218-221. 
 
 Cheaper in an old country, 21. 
 
 Circulation of, by bills of exchange, 152. 
 
 Conditions determining growth of, in modern times, 222. 
 
 Difficulty of investment of, 83, 84. 
 
 English — 
 
 Kariy outlets for, gi, 92. 
 Pre-eminence of, 93. 
 
 Flow of, to profitable trades, 152. 
 
 German, growing accumulation of, 93. 
 
 Growth of, methods of, 209-217. 
 
 Large amount of circulating, employed, 260, 261. 
 
 Meaning of term, 64, 66, 67. 
 
 Mill quoted on profits of, 249, 250. 
 
 Money a provisional form of, 58, 59, 150, 151. 
 
 Need for, limiting colonisation, 115, 116. 
 
 Profits of, approximately equal in different trades, 54, 266. 
 
 Saving of, see Saving. 
 
 Speculative fund, as, a modern development, 82. 
 
 Transferability of, 54-94. 
 
 Use of, requiring specialisation of function in management, 77, 78. 
 
 Waste of, 235, 243. 
 Capitalists — 
 
 Dependence of, on their managers, 70. 
 
 Emplo}ers the motive power in modern production, 68-71, 147, 148, 
 241, 257, 258. 
 
 Pecuniary anxiety of, 269, 270. 
 
Index, 283 
 
 Carlyle, Thomas, quoted, ig6. 
 Case — methods of investigation — 
 
 "All-case" method, 14-ig. 
 
 " Single-case " method, ig. 
 Caste in India, 43-47. 
 Catallactics, science of, 131, 132. 
 Catlin, G., quoted, 31-33. 
 
 Cattle — as money, 79, 80; as capital, 218-221. 
 Chapman, W., quoted, 60. 
 
 Civilisation, character of, in primitive communities, 33-38, 52, 53, no, iii. 
 Cobden, Richard, quoted, 8. 
 Cohn, Gustav, quoted, 14, 15. 
 Colbert, J. B., misunderstood by his followers, 3. 
 Colebrooke, H. T., quoted, 46. 
 Colonies — 
 
 Capital required for creation of, 115, 116. 
 
 Life in, not suited to refined people, 116, 117. 
 
 Skilled labour in, small demand for, 117. 
 Commerce most fully developed in England, 7. 
 " Commerce of Imperceptibles," Jewish excellence in, igg, 200. 
 Cook, Captain, cited, 54. 
 Corn, prices of, 12. 
 
 Corn Laws, Ricardo's writings on, 201. 
 " Corner," meaning of term, 273. 
 
 Corporation laws obstructing movement of labour, 150. 
 Cost of Production, see Production, cost of. 
 
 Damaras, bargaining among, 57, 58. 
 
 Darwin, Charles, method of, in biology, 16, 17. 
 
 Defoe, quoted, 2og ; cited, 236. 
 
 De Morgan, quoted, 65. 
 
 Demosthenes, quoted, 80. 
 
 Discount, rates of, factors determining, 141, 142, 232. 
 
 Drew, F., quoted, 53. 
 
 Drunkenness a cause of decrease of population. 186, 187. 
 
 Economic laws applicable only in commercial countries, 22. 
 
 man, the, described, 6, 7, g7, 98. 
 
 Efficiency — 
 
 Improvement in, by study of Political Economy, 202. 
 Industry, of — 
 
 Increase in, of recent years, 229, 230. 
 Variations in, effect of, 227-230, 
 
284 Index. 
 
 Emigration, see Colonies. 
 
 " Employment," meaning of term, 68. 
 
 " Enumerative" or " All-case " method, 14-17. 
 
 Exchange, rarity of, in primitive times, 217 {see also Bargains). 
 
 Fawcett, Professor, cited, 56. 
 
 Feudal system, place of, in social development, 48, 49. 
 
 Flamstead, J., criticism by, of Newton's Principia, 17. 
 
 Foreign Loans Committee, report of, quoted, 10. 
 
 Franco-German indemnity, method of payment of, go, gi. 
 
 Free-trade unpopular out of England, 5. 
 
 French Revolution, effect of, on people's minds, 178. 
 
 Galton, Francis, quoted, on bargaining among savage nations, 57, 58 ; 
 on capital of savage nations, 144, 145 ; on city populations, 185- 
 187 ; on domestication of animals, 212-215 ; cited, iig, 185. 
 Godwin's perfect village, 177. 
 
 Gold and silver, variable value of, shown by Adam Smith, 157. 
 Gold-mining — 
 
 Illustration from, of effects of varying efficiency of industry, 227, 228, 
 
 Increased production from, 230. 
 
 Price of metal affected by discovery of mines, 157. 
 Government — 
 
 Hebrews, of, by Judges, 36, 37. 
 
 Primitive — 
 
 Basis of, in opinion, 37. 
 Rise of, 35. 
 
 Stable, necessary for circulation of labour and capital, 84, 85. 
 Great Britain — 
 
 Capitalist country, pre-eminence as, g3. 
 
 Loans from, to foreign nations, 13, 14. 
 
 Population in, rate of increase of, 115. 
 
 Trade in, condition of, after 1815, 202. 
 Greece, slavery in, 52. 
 
 Grote, James Mill's influence on, 203, 204; quoted, on J. S. Mill, 279. 
 Guilds, 83. 
 
 Hebrews, government of, by Judges, 36, 37 {see also Jews). 
 
 Hire- 
 Conditions necessary for, 218. 
 Machines, of, an element in the cost of production, 255. 
 
 Honduras Loan, M. Lefevre's operations in, 10, 11, 
 
Index. 285 
 
 Hume, Da\id, style of, criticised, 156; quoted, 163. 
 Hunter, Sir W., quoted, 43, 44. 
 
 '•Imperceptibles," Jewish excellence in commerce of, igg, 200. 
 India — 
 
 Population in, rate of increase of, at different periods, 115. 
 
 Social organisation of, 3S-40, 42-46. 
 Indians, North American — 
 
 Customs of, 31-33. 
 
 Feebleness of, iii, 112. 
 Inductive method of investigation, 14-17. 
 Industry — 
 
 Efficiency of, see under Efficiency. 
 
 Localisation of, 243. 
 
 Modern, highly organised, 148, 149. 
 Interest, effect of rise in rate of, 234. 
 Ireland — 
 
 Saving practised in, 222. 
 
 Stock-giving, custom of, in primitive times, 2ig. 
 
 Jevons, W. S., mathematical method of, in Political Economy men- 
 tioned, 20 ; quoted, on Lord Bacon, 15 ; on variation in prices, 
 229, 230 ; cited, 136, 137. 
 
 Jews, excellence of, in " commerce of imperceptibles," igg, 200 [see also 
 Hebrews). 
 
 Jurisprudence, English, not appreciated abroad, 4. 
 
 Knowledge, special and extensive, necessary for successful employment 
 of capital, 71, 77-79. 
 
 Labour — 
 
 Difficulty of comparing different kinds of, 263. 
 
 Division of, necessary to create trade, 54. 
 
 Exchangeable value of, according to Adam Smith, 159-161. 
 
 Main element in all kinds of production, 241. 
 
 Organisation of, advantage of, in ancient societies, 46. 
 
 Past, saving of, 158, 159. 
 
 Perishable nature of, among commodities, 271. 
 
 Price of — 
 
 Migration from badly paid to well paid emplojments, 259, 260. 
 Trade Union influence on, limits of, 140, 141. 
 Similar, ecjually remunerated, 252. 
 Skilled, the result of acquired habit, 241-243. 
 
286 Index. 
 
 Labour — {continued). 
 
 Standard of value, assumed by Adam Smith as, 157, 158. 
 
 Transferability of — 
 
 Conditions necessary for, 29-53, 72. 
 Forbidden by early societies, 38. 
 Obstructed by certain laws, 150. 
 
 Prevented by communal ownership, 41 ; by slavery, 49-52, 73, 74. 
 Retarded by want of stable government, 47, 48, 84, 85. 
 Land — 
 
 Communal ownership of, precluding transferability of labour, 41. 
 
 Fertility of, assumption of Political Economy with regard to, 113. 
 
 Limitation of, assumption of Political Economy with regard to, 108, 
 109, 112. 
 
 Plentiful in new countries, loS, log, iii, 112. 
 Land tenure, early forms of, 40, 41. 
 Law preceded by custom, 36, 37. 
 Lefevre's operations in the Honduras Loan, 10, 11. 
 Lewes, Sir G. C, quoted, 103. 
 Loan fund — 
 
 Development of, 80, 81. 
 
 Existence of international, 89. 
 
 Necessity of, for circulation of capital, 59-61, 80. 
 Loans [see also Money-lender and Speculative fund) — 
 
 Cheapness of, in established places of industry, 247. 
 
 Conditions necessary for, 218, 274. 
 
 Government, 234. 
 
 Securities for, 231-233. 
 
 Securities for, rare in early times, 73. 
 
 Spendthrifts, to, 234. 
 Localisation of industry, 243. 
 Lubbock, Sir John, quoted, 75, 76. 
 Luxury, economic effects of, 223 , 224. 
 Lyell, Sir Charles, method of, in geology, 16 ; quoted, 18. 
 
 McCuLLOCH, J. R., a follower of Ricardo, 24. 
 Machine-making, 244, 245. 
 Machinery — 
 
 Motive power for, necessary, 245, 246. 
 Outlay on, effect of, on price of commodities, 244. 
 Maine, Sir Henry, quoted, on hereditary employments in Indian villages, 
 38, 39 ; on outcasts of Indian villages, 45 ; on condition of Irish 
 society, 218, 219. 
 
Index. 287 
 
 Malesherbes, C. G. de L., cited, 3. 
 
 Malthus, David, friend and correspondent of Rousseau, 176. 
 
 , Robert — 
 
 Doctrine of, "An apparatus for destroying cheerfulness," 17S, 179. 
 Essay on Population by — 
 
 Change of views in the second edition of, 178, 179. 
 Genesis of, 177. 
 
 Questions provoked by first edition of, 178. 
 Scope of, 181. 
 General criticism of his theory of population, 192, 193. 
 Life and character of, 194 ; effect of early training, 176. 
 Protection to agriculture advocated by, 193. 
 
 Quoted, on Godwin's perfect village, 177 ; on third check to popula- 
 tion, 178. 
 Rent, theory of, 193, 194. 
 Work of, value of, 181, 191, 192, 194-196. 
 Manufacture of commodities a mode of increasing capital, 210-212. 
 Maoris — 
 
 Extinction of, 120. 
 Tribal ownership among, 41. 
 Market — 
 
 Meaning of, in the commercial sense, 136, 137. 
 Price — 
 
 Adam Smith's views on, 170, 171. 
 Determined by cost of production, 162-165. 
 Marriage a means of increasing capital, 216, 217. 
 Maudsley, Dr., cited, 121. 
 Mercantile theory in France epitomised, 3. 
 Mill, James — 
 
 Doctrines of, 205. 
 
 Ricardo, attitude towards, 24, 204. 
 
 Grote, influence by, 203, 204. 
 
 , John Stuart^ 
 
 Capital, criticism of his theory of, 250, 251. 
 Cost of production — 
 
 Criticism of his theory of, 252, 253. 
 Discussion with Cairnes on, 249. 
 Influence of writings of, 280. 
 Quoted on cost ot production, 249-252 ; cited, 94. 
 Work of, value and limitations of, 24-26, 279. 
 Mines, gold, see Gold-mining. 
 Mississippi valley a typical borrowing community, 91. 
 
288 Index. 
 
 Mobility of capital, sec Capital — transferability of. 
 
 of labour, see Labour — transferability of. 
 
 Mollien, F. N., quoted, 2, 128. 
 
 Money — 
 
 Benefit of introduction of, into bargains, 134, 
 Cattle as, 79, 80, 220. 
 Commodity, to be regarded as, 267, 
 Double function of, 154, 155. 
 Investment of, 61, 62. 
 Necessity of — 
 
 Calculation of profits in trade, for, 55, 56. 
 
 Capital, for holding, in suspense, 58, 150, 151 ; for transferring, 79, 
 80, 150. 
 Optional medium, considered as, 217, 235, 236. 
 Use of, as a general common measure, 238. 
 Value of — 
 
 Invariability of, assumed, 239, 240. 
 Variability of, actual, 268, 269. 
 Wages, real, not the same as money wages, 270. 
 Wealth, not synonymous with, 154, 155. 
 Money-lender, necessary trade of, in primitive communities, 72, 73. 
 Monopolies in primitive times regulated by fixing of prices, 87. 
 Mortgage, frequency of, 233. 
 Multiplication, " reserve power " of, 114, 115, 117, 118. 
 
 Napoleon, influenced by Adam Smith, 3 ; quoted, 44. 
 
 Nerve-power and reproductive power, connection between, 1 18-120, 184. 
 
 185. 
 New Zealand, see Maoris. 
 Newton, Sir Isaac, 16. 
 
 Optional medium, the form of modern product of industry, 217, 235, 236. 
 
 Pentateuch, quoted, 34. 
 
 Peschel, Oscar, quoted, 211, 212. 
 
 Philosophical Radicalism, doctrines held by school of, 203. 
 
 Pitt, quoted, 195. 
 
 Political Economists, theoretical, incapable managers of capital, 102. 
 
 Economy — 
 
 Abstract nature of, 97; founded by Ricardo, 197. 
 Adam Smith's notion ot, 125-127, 129. 
 Difficulties experienced by many readers of, 100-102. 
 Discussions regarding, between 1810 and 1840, 200-202. 
 
Index. 289 
 
 Political Economy — {continued). 
 English — 
 
 Assumptions of, 6-7 ; erroneous, regarding saving, 224. 
 
 Complexity of the problems of, 8-12, 18, ig. 
 
 Distrusted in England in 1879, 3, 4, 21-23, 96. 
 
 Eti'ect of, on life in England, i, 95. 
 
 Foreign countries — 
 Influence in, 2, 3. 
 Unpopularity in, reasons for, 5, 6. 
 
 Generalisations of, unwarranted, 209, 221. 
 
 Ideal of, not an ultimate one, 88, 8g. 
 
 Indian society, inapplicability to, 39. 
 
 Scope of, 26, 27. 
 
 Socialism, a basis for criticising, 26, 
 Four fundamental problems of, 131. 
 Investigation of — 
 
 Historical method, 20. 
 
 Inductive (enumerative) method, 14-17. 
 
 Mathematical method, 20. 
 
 Method required for, 12-14. 
 Land, assumptions in regard to, 108, 109, 112, 113. 
 Limits of, recognition of, necessary, 27. 
 Modern, cause of unpopularity of, 126. 
 Moral judgemnts in relation to, 27, loi, 102. 
 Physical science compared with, 4, 97, 98, 102, 103. 
 Population, growth of — 
 
 Assumptions in regard to, 114, 121, 181, 182. 
 
 Theory of, 179, 180, 182. 
 Ricardian, 197; not accepted abroad, 4. 
 Simple statement of the problems of, necessary, 98, 99. 
 Study of, industrial efficiency improved by, 202. 
 "System of tendencies," 100. 
 
 Theories of, applicable only to commercial nations, 106. 
 Typical problems of, 13-14. 
 
 Variations in meaning of the terms used in, 64-67. 
 Poor Laws — 
 
 Circulation of labour obstructed by, 150. 
 Old, pauperism increased by, 195. 
 Population — 
 
 Decrease of — 
 
 Defective families, due to, 188. 
 
 Drunkenness, due to, 186, 187. 
 
 19 
 
2 go Index. 
 
 Population — (contintied). 
 Increase of — 
 
 Adam Smith's views on, 183, 184. 
 
 Assumptions of Political Economy with regard to, 114, i2i> 181, 
 
 182. 
 Causes regulating, 114, 118-121, 182-igi. 
 Control of, 117, 118, 123, 124. 
 England, in, between 1861 and 1871, 29. 
 Food as affecting, 189. 
 Limits to, 182. 
 
 Material comfort conducive to, 190, 191. 
 Rapidity of, in new countries, 122, 123. 
 Rate of— 
 
 Diminution of, causes of, 185-187, 
 Great Britain, in, 115. 
 India, in, at different periods, 115. 
 Peasant proprietorship as affecting, 192. 
 Theory of, in Political Economy, 179, 180, 182. 
 Poverty of a nation, possible causes of, 99, 100. 
 Prices — 
 
 Artificial and natural, 11. 
 
 Cash and credit, 277. 
 
 Considerations governing, in bargains, 134-136. 
 
 Cost of production the ultimate determinant of, 162, 165. 
 
 Dependence of, on efficiency of industry, 228-230. 
 
 "Fixed," how maintained in primitive trade, 86, 87. 
 
 Machinery, outlay on, as affecting, 244. 
 
 •* Making" of, 10. 
 
 Money, in* the foundation of the economic idea of exchangeable value, 
 
 238, 239. 
 Rise of, not a necessary consequence of rise of wages, 263, 264. 
 Stock Exchange, on, influences affecting, 142. 
 Uniformity in, cause of, 144. 
 Variation of — 
 Cause of, 239. 
 
 Commercial crisis, during, 145. 
 Primitive communities — 
 
 Comparison of, with modern savages, 109, no. 
 Money-lender in, importance of, 71, 72. 
 Organisation of, 33-38, no, in. 
 Production — 
 
 Compensation, sufficient, the condition of continuance of, 146, 147. 
 
Index. 
 
 291 
 
 Production — {continued). 
 Cost of— 
 
 Adam Smith's analysis of, imperfect, 258. 
 
 Elements affecting, 241-248, 
 
 Ideal limit, cost value regarded as, 252. 
 
 Labour main element in, 241. 
 
 Localisation of industry affected by, 242-247, 
 
 Meaning of term, 240. 
 
 Mill's argument regarding, failure of, 250, 253. 
 
 Older theory of, inconsistent with facts, 256, 257, 
 
 Price, market, ultimately determined by, 162-165, 
 
 Ricardo's conception of, criticised, 258, 263-265. 
 
 Theories of, from Ricardo to Mill, 256. 
 
 Third element in, 255, 256. 
 
 Value regulated by, in a highly organised society, 259. 
 Productiveness of industry, see Efficiency. 
 Profit, difficulty in determining rate of, 265. 
 Profits — 
 
 Agriculture, in, Adam Smith's views with regard to, 167-169. 
 Cost of production, an element in, 249, 250. 
 Equality of, doctrine of, a useful approximation, 54, 266, 
 Money a necessary medium for calculation of, 55, 56. 
 Protection — 
 Evils of, 5. 
 Governing doctrine of the commercial world before Adam Smith, 128. 
 
 Race, cause of deterioration of, 186, 187. 
 Races, tendency of dispirited, to disappear, 120. 
 Railways, continental, made by English contractors, 91, 92. 
 Rent — 
 
 Adam Smith's idea with regard to, discussed, 163-167. 
 
 Land, of, not an element in the price of agricultural produce, 163-167 
 True theory of, put forward by Malthus, 193, 194. 
 Reproductive power — 
 
 Decreased by toil, 120, 184. 
 
 Nerve-power and, connection between, 11 8- 120, 184, 185, 
 *' Reserve power " of multiplication, 114, 115, 117, 118, 
 Ricardo — 
 
 Abstract language a difficulty to, 258. 
 
 Characteristics of, 208. 
 
 Contrasted with Adam Smith, 24. 
 
 Cost of production as analysed by, criticism of, 258, 259, 264, 265. 
 
292 index, 
 
 Ricardo — {continued). 
 
 Education, life and writings of, 197, 204-208. 
 
 International trade as conceived by, 94. 
 
 Jewish descent of, igg. 
 
 Parliamentary reform desired by, 207. 
 
 Political Economy of, 197 ; not understood abroad, 4. 
 
 Principles of Political Economy and Taxation by, the result of James 
 
 Mill's influence, 204. 
 Quoted — on migration of capital to foreign nations, 88; on rapid 
 circulation of capital, 260, 261 ; on different qualities of labour, 
 262. 
 Rogers, Thorold, quoted, 78, 79. 
 Rousseau, J. B., influence of, on David Malthus, 176. 
 Rural exodus (1861-1871), 29. 
 
 Sale, rarity of, in primitive times, 217, 218. 
 
 Savage tribes {see also Australians, Damaras, Indians, Maoris) — 
 
 Civilisation intolerable to, no. 
 
 Extinction of, causes of, 188, 189, 
 
 Feebleness of, in Australia and America, in, 112. 
 Saving — 
 
 Classes most prone to, 225, 226. 
 
 Efficiency of, various degrees of, 226-230. 
 
 E*vils of, 224. 
 
 Intellectual capacity involved in, 225. 
 
 Interest, at, see Loans. 
 
 Ireland, in, 222. 
 
 Old stocking method, 222, 223, 227. 
 
 Perishable commodities not adapted for, 236, 237. 
 
 Reasons conducing to, 223, 224. 
 Say, J. B,, quoted, 90. 
 Science — 
 
 Modern, relation of, to Political Economy, 4. 
 
 Physical, compared with Political Economy, 97, 98, 102, 103. 
 Scientific method of investigation, see Inductive method. 
 Securities, foreign, dealt with on the Stock Exchange, 89. 
 Seller — 
 
 Good, characteristics of, 143, 144. 
 
 " Holder " as distinct from, 273. 
 Senior, N., a follower of Ricardo, 24. 
 
 Silver and gold, variable value of, shown by Adam Smith, 157. 
 Slave-making and slave-breeding a means of increasing capital, 216. 
 
Index. 293 
 
 Slavery — 
 
 Basis of civilisation in early times, 52, 53. 
 Capitalistic and domestic, contrasted, 52, 53. 
 Early ideas vi'ith regard to, 49-52. 
 Industrially ineffective, 74. 
 Moral effects of, 52, 53. 
 Substitute for free labour, as, 50-52. 
 Transferability of labour hindered by, 49-52, 73, 74. 
 Slaves, national ownership of, proposed by Xenophon, 51, 52. 
 Smith, Adam — 
 
 Appreciation of writings of, I73-I75' 
 
 Compared with modern Political Economist, 125-127, 129. 
 
 Contrasted with Ricardo, 24. 
 
 Inaccuracy of, in expressing abstract ideas, 171. 
 
 Quoted on — 
 
 Agriculture, 167, 168. 
 Circulation of stock, 150. 
 Exchangeable value of labour, 159, 160. 
 Free-trade, opposition to, 129, 130. 
 Gold and silver, variable value of, 157, 158. 
 Market value, 170. 
 Population, 184. 
 Rent, 161-163. 
 
 Wealth and money, 154, 155. 
 Taxation, teaching with regard to, 85. 
 Value of writings of, 156, 157. 
 Socialism, English Political Economy a basis for contesting, 26. 
 Society, modern, survival of hereditary occupations in, 42. 
 Speculative fund {see also Loans) — 
 International, 91, 92. 
 
 Necessary for the circulation of capital, 61, 62, 82. 
 Spendthrifts, 234. 
 
 Statistics, place of, in Political Economy, 10. 
 Steuart, Sir James, quoted, on gain and loss by export, i, 2; on foreign 
 
 trade, 173, 174. 
 Stock Exchange — 
 
 Abstract nature of business on the, 19S, 199. 
 " Corner " on the, 273. 
 Influences affecting prices on the, 142. 
 Simplest of all markets, 11, 12. 
 "Time bargains" on the, 275. 
 Stocks, prices of, commented on, 11, 12. 
 
294 Index. 
 
 Subsistence, moral and physical minima of, 182, 190, 191, 
 Supply — 
 
 Actual and prospective, distinction between, 277. 
 Estimated, distinguished from real, 278. 
 "Supply and demand" — 
 
 Ambiguity of the phrase, 139, 140. 
 Value, not final regulators of, 146. 
 Wage rate as illustrating theory of, 269. 
 
 Taming of animals a means of increasing capital, 212-215. 
 
 Taxation, 85. 
 
 Terms used in Political Economy, variations in the meanings of, 64-66. 
 
 Thiers, L. A., opposed to the teaching of Political Economy, 96 ; quoted, 5. 
 
 Thornton, H., cited, 140. 
 
 •'Time bargains," 275, 276. 
 
 Torrens, Robert, a follower of Ricardo, 24, 
 
 Trade — 
 
 Division of labour a cause of, 54. 
 
 International, a difficult subject of inquiry, 94. 
 
 Localisation of, 243. 
 
 Traditions, 62, 63. 
 Trades — 
 
 Features common to all, 248. 
 
 Hereditary in Indian villages, 38, 39, 42, 43. 
 
 Necessity of, for circulation of capital, 76. 
 Trades Unions, influence of, on price of labour and of commodities, 140, 
 
 141, 264. 
 Turgot, A. R. J., disciples of, appreciation of Adam Smith by, 3. 
 
 Value — 
 
 Dependent on supply and demand, 146. 
 Exchangeable — 
 
 Adam Smith's conclusion with regard to, 159, 160. 
 
 Difficulty of the idea of, 56, 58, 238. 
 
 Economic idea of, founded on price in money, 238, 239. 
 
 Labour, of, discussed, 160, 163, 263. 
 
 Wages — 
 
 Payment of, out of capital, 75. 
 
 Rate of, how determined, 269, 270. 
 
 Real, not the same as money wages, 270. 
 
 Rise of, effect of, on prices, 263, 264. 
 
 Similar labour, of, tendency to equality of, 252. 
 
Index. 295 
 
 Wallace, A. R., cited, 120. 
 
 Walras, mathematical method of investigation pursued by, 20. 
 
 Wealth {see also Money) — 
 
 Chief motive in business, 104, 105, 
 
 Desire of men for, 107, no. 
 
 Meaning of, 107, 108, 131, 132. 
 
 Money not synonymous with, 154, 155. 
 
 Necessary for influence in the world, 105. 
 
 Potentialities of, 223. 
 
 Productive and unproductive, 107, 108. 
 Wealth of Nations f criticised, 172. 
 Women, economic value of, 225. 
 
 Xenophqn, quoted, 51, 52. 
 
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