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 FREE EXCHANGE
 
 liiX Libris 
 C. K. OGDEN 
 
 FREE EXCHANGE 
 
 PAPERS ON POLITICAL AND ECONOMICAL SUBJECTS 
 INCLUDING CHAPTERS ON THE 
 
 LAW OF VALUE 
 
 AND 
 
 UNEARNED INCREMENT 
 
 BY THE LATE 
 
 RIGHT HONOURABLE SIR LOUIS MALLET, C.B. 
 
 EDITED BY BERNARD MALLET 
 
 " If, as an economist and a Liberal, I did not believe that the free operation of 
 natural economic laws tended to raise the condition of the masses and to bring about a 
 less unequal distribution of wealth, I should take very little interest in political economy 
 or in public affairs." Front a Letter 
 
 LONDON 
 
 KEGAN PAUL, TRENCH, TRUBNER & CO., Lx?. 
 1891
 
 (The rights of translation and of reproduction are reserved.)
 
 LIBRARY 
 UNIVERSITY OF 
 SANTA BA^ 
 
 INTRODUCTION. 
 
 I HAVE been led to think that the publication of this 
 volume, which contains all (except some letters to the 
 newspapers) that the late Sir Louis Mallet wrote for 
 the public, as well as some important but hitherto 
 unprinted work, would be welcomed by many besides 
 his personal and official friends, from the fact that 
 in it is to be found the sum and substance of the 
 teaching of the most original school of politics which 
 this country and century have produced the school 
 founded by Richard Cobden. 
 
 Many who are familiar only with the usual travesty 
 of Cobden's opinions may be surprised to find that the 
 policy inaugurated by that statesman was a carefully 
 thought out scheme, embracing every department of 
 the national life. It was, moreover, a policy of which 
 the guiding principles were so much in harmony 
 with modern social conditions in England, and with 
 economical laws founded upon the most durable of 
 human instincts, that so far from being, as we are 
 constantly assured, already obsolete, it has to a large 
 extent been accepted by common consent. 
 
 Those, on the other hand, who understand and
 
 VI INTRODUCTION. 
 
 appreciate Cobden's work, will perhaps be interested 
 in a statement by one of his most distinguished and 
 devoted followers of the ideas which animated the 
 leaders of the party a statement in many ways more 
 complete and comprehensive than is to be gathered 
 from anything hitherto published. 
 
 Before endeavouring to point out the consistency 
 and development of my father's opinions, as shown in 
 the various papers included in this volume, I may be 
 allowed to quote the judgment of one of his friends 
 as to how far he represented Cobden's own ideas. 
 
 " You are not only a Cobdenite pur sang, but, unless I am 
 much mistaken, you have realized more perfectly and com- 
 pletely than Cobden did himself the higher and more ideal 
 side of the Cobdenic creed. I have searched in vain through 
 Cobden's writings for much that I have heard you quote as 
 established Cobdenic doctrine, and I account for my failure 
 by a fact which I believe to be universally true about all the 
 faiths, great and small, that have shaken mankind, viz. that 
 the disciple is in many ways above his master. ... It is easy 
 to see how this happens in cases like that before us. You 
 were filled with a great enthusiasm and a personal admiration 
 and love for Cobden. You were constantly with him at one 
 of the most important periods of his life, and must have over 
 and over again discussed the great questions on which your 
 own mind had long been working, and respecting which your 
 own faith has since become definitively fixed. There must 
 have been the keenest sympathy between you, and the inter- 
 course must have been as great a delight to him as it was to 
 you. ... In such intercourse it is absurd to assign to the 
 disciple a passive part. What the disciple afterwards gives 
 out as the faith of the master is really a joint product of their 
 two minds, and their two individualities."
 
 INTRODUCTION. vil 
 
 I cannot omit his own answer : 
 
 "... There may be, no doubt, a certain amount of truth 
 in this view, but far less, I think, than you suppose. Cobden , 
 had no time to elaborate a system or trace all his opinions' 
 to their logical results, but he spent his life in talking and 
 writing letters, and those who habitually lived with him or } 
 who corresponded with him will, I think, bear me out in 
 saying that I have done little more than put into a connected 
 shape ideas which they have heard from him over and over 
 again. So much was this the case that, among the little set 
 of his intimate friends, there was a kind of freemasonry, 
 which, almost without discussion, ensured an extraordinary 
 degree of political sympathy on nearly all questions." 
 
 One of the commonest charges against the so- 
 called " Manchester school " is that, as a party of 
 capitalists, they were unmindful of, if not indeed 
 hostile to, the interests of the labouring classes. Of 
 any such charge as affecting the leaders of the move- 
 ment assuming as it does a necessary antagonism 
 between capital and labour the whole tenor of these 
 papers is a sufficient refutation if, indeed, such were 
 needed, in the face of the actual effects of the free 
 trade policy. But personal utterances are always 
 interesting, and the following words show how wide 
 of the mark in my father's case would have been any 
 suggestion of want of sympathy. 
 
 " I suppose that the first question which every one who 
 is placed above want asks himself, when he begins to specu- 
 late upon social questions, is, Why have I so much, and others 
 so little ? While the poor man asks, Why have I so little, 
 and others so much ? I say at once that a man who meddles
 
 V i i i I NT ROD UC TION. 
 
 in public affairs without having satisfied himself as to the 
 relation in which these two phenomena stand to each other 
 is a ' charlatan,' and is not entitled to have any share in the 
 work of statesmanship. 
 
 " Certainly, for my own part, I remember the torment of 
 this question, and, even as a boy, I could never rest until I 
 had found some solution of this terrible enigma which my 
 reason and conscience could accept. But it was only after 
 the weary round of thought and inquiry through every form 
 of social heresy that I reached solid ground at last in the free 
 trade creed, and with it a necessary belief in the gradual 
 emancipation of the millions, both materially and morally, 
 and, therefore, politically." 
 
 To the view of economical science here indicated, 
 upon which Sir Louis Mallet based his belief a belief 
 so remarkably justified by the history of the last fifty 
 years in free trade rather than in socialistic methods 
 in politics, I shall return later. I will first say a 
 few words on the foreign policy of the Manchester 
 school. 
 
 The accusations of those who find in the Cobdenic 
 policy an indifference to England's position as a great 
 power, are based on a conception of national duties 
 and responsibility so opposed to that held by free- 
 traders, and betray so inadequate a comprehension of 
 the real meaning and consequences of the repeal of 
 the corn laws, that it would be impossible to attempt 
 to answer them here. The answer can, moreover, be 
 easily gathered from many of the following papers. It 
 cannot, however, be denied that there were certain 
 exaggerations in the utterances of some members of 
 the party which have obscured the merit of their
 
 INTRODUCTION. IX 
 
 work, and laid them open to criticism. From " peace 
 at any price " opinions,* for instance, the following 
 passage sufficiently dissociates the writer : 
 
 " I entirely repudiate the method of laying down a hard- 
 and-fast rule in foreign policy. If one must formulate such 
 a policy at all, I should say that, as our knowledge and our 
 power and our interest in the affairs of other countries must 
 be limited, so also should our interference be limited to cases 
 in which these three elements are so combined as render it 
 not only a positive, but (at the same time) a relative duty. I 
 believe that, by a steady adherence to this rule, the chances of 
 war would be reduced to the ' minimum.' " 
 
 His general view is clearly stated in the essay 
 on Cobden, and in the letter to M. de Laveleye, 
 written during the <( Jingo" agitation of 1878; but I 
 may be allowed to quote the following extracts from 
 a private letter written about the same time, as they 
 still further explain his position : 
 
 " It puzzles me how an economist and a Liberal can fail to 
 see that the kind of way in which Europe has hitherto been 
 governed, in which the people have been the mere tools and 
 victims of governments and governing classes, is absolutely 
 incompatible with democracy and free trade, and that the 
 choice lies between two courses in deciding on the future 
 foreign policy of England. 
 
 " The first programme would be a return to a system of 
 
 * On another occasion he thus expressed himself on "peace at any price :" 
 " This is a foolish charge brought against those who denounce unnecessary or 
 unjust wars. Probably there are quite as few people, or fewer, who desire peace 
 at any price, as those who desire war at any price. But there is this difference : 
 .peace is a good in itself, and an end in itself; war is an evil, and can never be 
 desired by good men except as a means to peace."
 
 X INTRODUCTION. 
 
 foreign alliances, territorial extension, and the further subju- 
 gation of inferior races, which could only be successful if by 
 infinite skill and extraordinary luck, by swagger, audacity, 
 reckless expenditure, the sacrifice of all consistent principle, 
 and the abandonment of all liberal progress at home, we 
 threw back the moral and material condition of our people to 
 that which prevailed fifty years ago, i.e. the restoration of a 
 state of things which was not only a reproach and a scandal, 
 but an imminent peril to all our institutions ; for there can be 
 no greatness or security to any people unless they rest on the 
 material well-being of the population. 
 
 " The second course is not without risk either, but the 
 cause is so sacred and the aim so great, that to my mind 
 they would justify and glorify even failure, if fail we must. 
 This is, to cast in our lot broadly and heartily with the 
 interests of the people, by which I mean the working millions 
 of the human race, beginning with our own. It is upon them 
 that the real cost of wars invariably falls. It is all very well 
 for you or me to talk about sacrificing our lives and fortunes 
 for the sake of some notion about honour and prestige, which, 
 when analyzed, resolves itself into little more than a reflected 
 self-glorification ; but should we feel the same, should we 
 accept, without much deeper and closer examination, a pro- 
 posal which involved this sacrifice, if the result would be to 
 send our wives to the workhouse, and turn our children on 
 the streets ? and this is what it really means to vast numbers 
 of our countrymen." 
 
 And again 
 
 " From a purely national point of view, the one thing 
 which I feel most deeply and keenly is, that England, by a 
 rare combination of accidents, and by the efforts of some of 
 her greatest men, has achieved a unique position, and has a 
 chance of pulling through the grandest political experiment 
 that the world has seen. This chance will be imperilled and 
 probably lost if we get into another era of wars. We shall
 
 INTRODUCTION. xi 
 
 then merely add another page to the history of the great 
 empires which have risen and fallen in recorded time, in 
 which national greatness and supreme physical power were 
 the aim, and not the assertion of great principles." 
 
 From the comments on the subject in the paper 
 on the "National Income and Taxation," with its 
 grave and eloquent warnings as to the complacency 
 with which this country, regardless of the claims of 
 posterity, continues to accumulate Imperial respon- 
 sibilities, it will be seen that, in the opinion of the 
 author, England had in 1885 already thrown away 
 the chance of "associating her name in history with 
 the peaceful solution of social problems which affect the 
 permanent interests of humanity " a chance of which 
 he had spoken with hopefulness in 1880. Apathy as 
 to foreign policy has now taken the place of clamour, 
 and it cannot be denied that we are very far removed 
 from realizing any such conceptions as are here de- 
 scribed of international relations ; but it would not 
 be difficult to point to signs which seem to afford 
 the hope that, in this respect at any rate, Cobden's 
 teaching rnay be destined to future triumphs. 
 
 I have reprinted the pamphlet on the " National 
 Income and Taxation," which is important as a weighty 
 exposition of general policy, and as insisting on the 
 intimate connection between general and financial 
 policy ; and which is also noteworthy for an eco- 
 nomical discussion as to whether the interest on the 
 national debt should be estimated as forming part of 
 the national income. 
 
 b
 
 Xll INTRODUCTION. 
 
 Another good specimen of the kind of logical 
 reasoning in which the writer delighted, is the state- 
 ment of the " Theory of Bimetallism," which has 
 already been widely circulated and has never been 
 disproved. Sir Louis Mallet's well-known advocacy 
 of bimetallism is in itself an answer to the doubt 
 lately expressed by Mr. Gladstone as to whether an 
 instructed disciple of Cobden could be a bimetallist. 
 It would, indeed, be singular if the removal of one of 
 the obstacles to the healthy growth of international 
 trade the existence of different standards of value in 
 groups of countries with a large interchange of com- 
 modities had not been an object of special interest 
 to an adherent of Cobden's international principles. 
 
 I have obtained permission to reprint an official 
 memorandum, written in 1866 (the interest of which is 
 now, it is to be feared, mainly historical), on the policy 
 of commercial treaties a policy which, as recent 
 controversies have reminded us, was never frankly 
 accepted by the Liberal party. I regret the necessity 
 of passing over with so slight a mention the work of 
 some of my father's best years, but it is perhaps im- 
 possible to deal as yet with the large correspondence, 
 official and private, connected with the various Treaty 
 negotiations in which he was engaged, containing as 
 it does much of great interest and value to students 
 of commercial policy. 
 
 About the second part of the volume, consisting of 
 the chapters on the " Unearned Increment," something 
 more must be said. Sir Louis Mallet devoted much
 
 INTRODUCTION. Xlll 
 
 time, after his retirement from official life in 1883, to 
 thought and study on economical questions, which 
 finally took shape in an intention to write upon the 
 prevalent socialistic theories on the land question. 
 The work was unhappily interrupted as the event 
 proved for ever by the long and difficult labours 
 imposed upon him by his appointment to the Gold 
 and Silver Commission, and although the material was 
 ready, collected in many notes and essays, the final 
 task of arrangement, except in the case of one most 
 important chapter, that on " Value," was never accom- 
 plished. It is from these materials that the work 
 has been compiled. I am only too conscious that the 
 result is not a treatise which my father, who was most 
 critical about his own work, would have printed in its 
 present unexpanded form. It is to a large extent a 
 mosaic pieced together from various note-books, and 
 I can only claim that the argument is clear and logical, 
 and that the chapters indicate, in his own words, the 
 direction which the writer's speculations took. The 
 originality and importance of the considerations sug- 
 gested, and the imminence of the danger from erro- 
 neous or subversive teaching on this subject, will, I 
 hope, be considered to have justified my action in 
 preparing these chapters for publication. 
 
 The felicitous use made by socialist writers of 
 Mill's arguments upon the land question might have 
 been expected to awaken more doubt than it seems 
 to have done in the mind of the public as to the 
 soundness of his views, which have apparently
 
 XIV INTRODUCTION. 
 
 survived the damaging criticism of economists like 
 Professor Jevons and Mr. Macleod. From an early 
 period Sir Louis Mallet dissented from the assumptions 
 upon which Mill and his followers argued.* His 
 connection with Cobden probably first turned his at- 
 tention to Bastiat, and through him to Condillac and 
 his successors ; and his later studies led him definitely 
 to range himself with Jevons in his expression of the 
 opinion that the " only hope of attaining a true system 
 of economics is to fling aside once and for ever the 
 mazy and preposterous assumptions of the Ricardian 
 school ; " that " our English economists have been 
 living in a fool's paradise ; " and that " the truth is 
 with the French school." 
 
 It is characteristic of the actual condition, at all 
 events in England, of the science of Political Economy, 
 of which De Quincey wrote in 1844, that "anarchy 
 even as to its earliest principles is predominant in it," 
 and which Jevons, in 1879, described as a "shattered 
 science," that any one who desires to consider a 
 practical question like the proposal to nationalize the 
 land, should find it necessary first to criticize and 
 analyze the standard writers, and reconstruct or restate 
 for himself a theory of value. Nothing less than this 
 is the task of the chapter on "Value." 
 
 But it is unnecessary to say more upon a subject 
 which is discussed in the first chapter, on " The 
 Shattered Science." I will only add that the way in 
 
 * His suspicions had perhaps been aroused by the very lukewarm support 
 afforded to the free trade policy by Mill. See Appendix B. to Chapter II. of 
 the second part. See also p. 312 of the chapter on " Unearned Increment."
 
 IN TROD UC TION. X V 
 
 which the common economic errors on the land 
 question are there traced to their source, and the 
 application which is made in succeeding chapters of a 
 corrected theory of value to the fact of private property 
 in land, whether agricultural or urban, place on a- 
 scientific basis the opposition to schemes of ill-con- 
 sidered reform, and ought so far to be of practical 
 weight in present controversies. For, as the writer 
 said, " to many minds, and mine is among them, there 
 is something peculiarly repugnant in any conclusion 
 which fails to satisfy the requirements of sound theory 
 as well as of policy." 
 
 A point of considerable interest which is brought 
 out very clearly in this treatise as well as in the earlier 
 writings is the manner in which Sir Louis Mallet 
 developed the policy of Free Trade into something 
 very much wider than is commonly denoted by that 
 phrase. In his view it was something more im- 
 portant than a question of tariff reform ; * it was a 
 distinct bid for the solution of what is called the social 
 problem ; and he preferred to it the more comprehen- 
 sive expression " Free Exchange," which the French 
 economists have always used as "asserting in the 
 broadest sense the principle of private property, of 
 which free exchange is only an attribute." I have,, 
 therefore, adopted it as the title of the book. The 
 following note will help to show how wide a field of 
 
 * "You in England," as an American observer once said, "have the protec- 
 tive idea permeating the whole of your internal policy. You are only free traders 
 externally. I think the paternal or protective system does more mischief when 
 applied internally than when applied externally."
 
 XVI I NT ROD UCTION. 
 
 speculation and controversy is opened by the use of 
 this term : 
 
 " Free Trade, or Free Exchange, to use the better expres- 
 sion of the French economists, is a form of words in every 
 one's mouth, but it is one to which it may be doubted whether 
 many persons attach a very precise and definite meaning ; 
 while among those who have formed a clear conception of 
 the sense in which they understand it, there are probably 
 very few who would agree in its practical application. 
 
 " When men speak of a system or policy of Free Exchange, 
 do they mean it should apply to all exchanges, or only to 
 some ? Are all commodities and services everything, in short, 
 which is exchangeable between man and man material and 
 incorporeal to be freely exchanged, or only some things ? If 
 any limitations are to be placed on the exercise of a function 
 so essential as this appears to be to human progress, what 
 are they to be, and on what principle are they to be deter- 
 mined ? Ought a distinction to be made between products 
 and services upon which competition freely operates, and 
 those which are the subject of natural monopolies? Is free- 
 dom to prevail in the relations of capital and labour, as well 
 as in the exchange of commodities ? Is a distinction to be 
 observed between the products of past or present industry, 
 and those of the future ? Is credit to be restricted if labour 
 and capital are free ? Again, is Free Trade only a geogra- 
 phical or a political expression confined to the people of 
 particular countries at particular stages of progress, or is it 
 a universal international principle, and a bond of union 
 between all the nations of the earth ? " 
 
 Sir Louis Mallet would have been the last to 
 claim for the following scattered papers the dignity of 
 a system of political philosophy, or to describe the 
 teachings of Cobdenism as the " last word on human 
 society." But this volume will at least show how
 
 INTRODUCTION. xvii 
 
 study of economic conditions in relation to human 
 nature as it is led him to advocate, with a fervour 
 strengthened by his characteristic aversion to com- 
 promise in opinion, the widest extension of the prin- 
 ciples of free exchange and free competition. He 
 held that the incentives to production must continue 
 to be either competition or coercion, whatever the 
 forms of social or industrial organization which may be 
 destined to prevail ; and he did not share the belief 
 of some modern leaders of opinion, that another 
 system might be devised, by which men should be 
 induced to surrender their personal liberty in freely 
 exchanging their services, and be relieved of their 
 responsibility for providing for themselves and their 
 children, without their motives to exertion being 
 thereby impaired.* 
 
 It would, I need hardly say, be a mistake to 
 assume that the author was indisposed to recognize 
 any limitations on the absolute freedom of the relations 
 between labour and capital limitations such as those 
 imposed by the Factory Acts, and defensible on moral 
 and humane and indirectly even on economic grounds. 
 
 * He sometimes quoted a memorable passage from Sir Henry Maine's 
 " Popular Government," p. 52: "There are two sets of motives, and two only, 
 by which the great bulk of the materials of human subsistence and comfort have 
 hitherto been produced and reproduced. One has led to the cultivation of the 
 Northern States of the American Union from the Atlantic to the Pacific. The 
 other had a considerable share in bringing about the agricultural and industrial 
 progress of the Southern States, and in old days it produced the wonderful pros- 
 perity of Peru under the Incas. One system is economical competition ; the 
 other consists in the daily task, perhaps fairly and kindly allotted, but enforced 
 by the prison or the scourge. So far as we have any experience to teach us, we 
 are driven to the conclusion that every society of men must adopt one system or 
 the other, or it will pass through penury to starvation."
 
 XV111 INTRODUCTION. 
 
 He would not have denied that the better organization 
 of industry may in some instances be beneficially 
 assisted by statute law, giving effect to previously exist- 
 ing changes in public sentiment. Nor is there any- 
 thing in this book to discourage the philanthropic efforts 
 of society to deal with the " residuum," and raise it 
 if possible to the ranks of legitimate and self-support- 
 ing labour. But his general attitude was one of distrust 
 towards 'restrictive and protective legislation. In his 
 view, as is shewn in the chapter on " Unearned Incre- 
 ment," the interference of the State, now beginning to 
 be so loudly invoked on behalf of the labouring classes, 
 affords a parallel to the laws by which other classes 
 when possessed of political power have endeavoured 
 to secure exclusive privileges for themselves. Socialism, 
 corn laws, and protective tariffs all alike mean privilege 
 and compulsion. It was to freedom and equal rights 
 that he looked ' as the only means of ensuring the 
 supreme object of the largest possible production, an 
 increasing share of which, as the facts prove beyond 
 all controversy, go under such a system to labour. 
 But I cannot do better than quote here the words * 
 which my father has himself used in this connection: 
 
 " Wherever it is found that the accumulating wealth of a 
 country is not accompanied by a progressive augmentation of 
 that portion of the annual product which falls to the share of 
 the direct producers, or working classes, it is a sure sign that 
 the economic mechanism of the nation is disordered, and that 
 imperious social laws have been infringed. 
 
 * From a preface to a Cobden Club republication of a report on the revenues 
 of the United States of America by the Hon. David A. Wells. 1870.
 
 INTRODUCTION. XIX 
 
 " In one of the last letters which Bastiat wrote to Cobden, 
 he quotes the following remarkable passage from an essay by 
 M. de Fontenay : 
 
 "' Le capital est le signe caracte"ristique et la mesure du 
 progrh ; il en est le vthicule necessaire et unique. Sa mission 
 spfaiale est de servir de transition de la valeur a la gratuite". 
 Par consequent, an lieu de peser sur le prix naturel, son role 
 constant est de i'abaisser sans cesse? 
 
 " Upon this observation, Bastiat emphatically says that it 
 ' comprehends and resumes the most fruitful of the economic 
 phenomena ' which he had spent his life in investigating, and 
 adds 
 
 " ' En elle est le gage d'une reconciliation inevitable entre 
 les classes proprietaires et proletaires. Puisque ce point de 
 vue de 1'ordre social n'est pas tombe, puisqu'il a 6t& aperc^i 
 par d'autres qui 1'exposeront a tous les yeux mieux que je 
 ne pourrais faire, je n'ai pas tout a fait perdu mon temps, et 
 je puis chanter, avec un peu moins de repugnance, mon "Nunc 
 Dimittis" ' 
 
 " These words of the great economist cannot be too often 
 remembered and repeated. To enable capital to fulfil this 
 mission, to provide, as far as possible, that its growing accre- 
 tions shall act directly on the productive labour of the world 
 by removing all national and international restrictions on pro- 
 duction and exchange, and that the joint results of capital 
 and labour shall thus be distributed in more just proportions 
 between those whose services have contributed to them, is the 
 most urgent and the most important task to which the states- 
 men of all countries can address themselves. 
 
 " But the one indispensable condition of this result is inter- 
 national co-operation. No nation, however rich in resources, 
 or strong in political power, can ever accomplish the task, 
 unaided and alone. The causes which prevent the inter- 
 national circulation of capital are diminishing year by year. 
 It is essential that the causes which obstruct the free exchange 
 of the products of labour should equally disappear. The
 
 XX INTRODUCTION. 
 
 great law of the mutual dependence of nations is asserting its 
 claims to allegiance, and enforcing obedience under intolerable 
 penalties." 
 
 Sir Louis Mallet was discouraged in later years 
 by the apparent progress of tendencies opposed to all 
 the principles he had advocated tendencies which in 
 1869 an d l &73 he had foreseen and combated with 
 every hope of success. It is, indeed, becoming clear 
 that, if we are not, as Mr. Goldwin Smith anticipates,* 
 to witness the " renewed ascendency in fiscal " and 
 it may be added, in social "legislation of the blind 
 cupidity of the Dark Ages," the free trade battle will 
 have to be fought over again in presence of an elec- 
 torate very different from that appealed to by Peel 
 and Cobden. It is too often assumed that the free 
 trade bid for the solution of social problems has failed ; 
 and there is a tendency due to obvious causes to give 
 prominence to the worst features of our social system, 
 the circumstances attendant on local congestion in 
 the great cities, and to overlook the astonishing 
 record of the progress of the last half-century. Free- 
 traders are therefore compelled to repeat that this 
 record, which is attested by all economists and statis- 
 ticians, is one which may well be weighed against 
 socialistic counsels of perfection or of despair. As 
 Professor Marshall has stated it, " the average money 
 income of the people has more than doubled, while 
 the price of almost all important commodities except 
 
 * See his article in Macmillarfs Magazine for September, 1890, on the 
 American Tariff.
 
 INTRODUCTION. XXI 
 
 animal food and house-room has fallen by one-half, 
 or even further." Mr. Giffen has given it as his 
 opinion that the " poor have had almost all the benefit 
 of the great material advances of the last fifty years," 
 and has summed up the case by saying that what has 
 happened to the working classes in Great Britain " is 
 not so much what may be called an improvement, 
 as a revolution of the most remarkable description." 
 Finally, Mr. David A. Wells concludes a powerful 
 passage,* pointing out the reality of this advance, and 
 the difficulties in spite of which it has been made, by 
 asking if it is reasonable to expect that further progress 
 in this direction is to be arrested. 
 
 Surely " no " must be the answer, unless mis- 
 taken and reactionary ideals, against which the present 
 volume may in one aspect be considered a protest, gain 
 the upper hand in this country. That there is nothing 
 new in such fears, that complaints of the failure 
 of the free trade policy and " morbid cravings after 
 other agencies " were no less prevalent twenty years 
 ago, it is well to be reminded as we are by the ad- 
 mirable preface to the essay on Cobden ; but it is less 
 encouraging to observe that progress in sound opinion 
 
 * From " Recent Economic Changes." New York : 1889. Mr. Wells' argu- 
 ments, and, I may add, the considerations set forth by M. LeRoy-Beaulieu in his 
 "Repartition des Richesses," certainly cannot be met by mere imputations of 
 "shallow economic optimism." The well-known labours of Mr. Wells and Mr. 
 Atkinson are a standing proof that the free trade creed (to use that expression in 
 its widest sense) has a vigorous life in the United States, whatever may be the 
 case in this country. The statistical investigations of the last-named economist 
 (see, for instance, his work on the "Industrial Progress of the Nation," published 
 during the last few months) also illustrate and confirm in the most remarkable 
 way, by means of the new facts drawn from American experience, the conclusions 
 enforced in this volume. 
 
 X '
 
 XX11 INTRODUCTION. 
 
 and reform has not made it impossible to meet these 
 criticisms with the words which Sir Louis Mallet then 
 used, certainly in no spirit of complacent optimism. 
 
 " Before accusing Economic Science and Free Exchange, 
 I would ask whether, with our present laws as they affect our 
 land, our currency, our fiscal and colonial systems, our foreign 
 relations, and our military and naval administration, we may 
 not rather trace our failure in civilization to a systematic 
 and deliberate violation of their most imperious precepts? 
 whether the success of what is called practical statesmanship 
 is such as to justify its cynical contempt of principles ? and 
 whether it is wise to condemn and discredit as ineffectual a 
 policy which has never yet been tried." 
 
 It will be clear from the foregoing observations 
 that a more personal account of my father's life, such 
 as some of his friends may have looked for, does not 
 fall within the scope of this book.* The publication 
 of a volume dealing with the opinions with which his 
 name is associated seemed to me to be the most fitting 
 tribute I could pay to the memory of one whose great 
 characteristic was his whole-hearted devotion to public 
 interests. Inadequate such a record will doubtless 
 appear to those who remember the peculiar power and 
 charm of my father's conversation, still more to those 
 whose happiness and privilege it was to live in con- 
 stant and affectionate intercourse with him. But I 
 believe it would be impossible for any one to read 
 
 * It may at some future time seem possible and desirable to print a selection 
 from my father's letters, which certainly contain some of his most valuable and 
 interesting work, and I should be very grateful if any of his friends who may 
 possess letters would communicate with me. B. M.
 
 INTRODUCTION. XX111 
 
 these papers without gaining some idea of the qualities 
 of mind and character which so deeply impressed all 
 who were brought into contact with him, whether in 
 official or in private life. 
 
 BERNARD MALLET. 
 
 November, 1890.
 
 CONTENTS. 
 
 PART I. 
 
 PAGE 
 
 I. THE POLITICAL OPINIONS OF RICHARD COBDEN ... 3 
 
 II. THE POLICY OF COMMERCIAL TREATIES ... 72 
 
 III. FREE TRADE AND FREE ENTERPRISE ... ... 95 
 
 IV. NOTE ON STATE RAILWAYS... ... ... 104 
 
 V. EGYPT. A LETTER TO M. DE LAVELEYE ... 109 
 
 VI. RECIPROCITY. A LETTER TO MR. T. B. POTTER, M. P. 122 
 
 VII. A STATEMENT OF BIMETALLIC THEORY ... ... 150 
 
 VIII. THE NATIONAL INCOME AND TAXATION ... 154 
 
 PART II. 
 
 THE LAW OF VALUE AND THE THEORY OF 
 THE UNEARNED INCREMENT. 
 
 CHAPTER 
 
 I. THE SHATTERED SCIENCE ... ... ... 225 
 
 II. VALUE ... . . ... ... ... 245 
 
 III. NATURAL MONOPOLIES ... ... ... ... 272 
 
 IV. THE UNEARNED INCREMENT ... ... 298
 
 PART I.
 
 I. 
 
 THE POLITICAL OPINIONS OF 
 RICHARD COBDEN. 
 
 (PUBLISHED IN 1869.) 
 
 PREFACE. 
 
 THE following paper was written for the North British 
 Review in 1867, and has been reprinted, with a few 
 alterations, by permission of the editor, at the request 
 of the Committee of the Cobden Club. 
 
 I originally wrote it with reluctance, because I was 
 conscious of my inability to do justice to its subject, 
 but I thought that, as a contribution towards a better 
 understanding of Cobden's political character, it might 
 serve a useful purpose ; and in the same hope I have 
 consented to reprint it now. 
 
 I have done so the more readily, because it is 
 impossible not to feel that Cobden's principles are 
 even now constantly misrepresented ; and are, in some 
 directions, losing their hold on the public mind of 
 England. 
 
 Is it in ignorance, or in irony, that the charge of 
 aiming at nothing more than mere material prosperity
 
 4 FREE EXCHANGE. 
 
 is so often brought against the one statesman who 
 vindicated with a peculiar wisdom the morality of 
 Economic Science ; in other words, the veiled but 
 eternal harmony between material progress and the 
 highest civilization of our race ? 
 
 Is it in deeper ignorance, or in more subtle irony, 
 that one whose whole life was an unceasing protest 
 against a narrow and selfish patriotism, and who will 
 take his place in history as the " International Man," 
 has been identified with the policy which, under the 
 name of " non-intervention," confounds, in a coarse 
 and common condemnation, political meddling and 
 international co-operation ? 
 
 I have said that Cobden's principles are in some 
 directions losing their hold on the public mind. This 
 is especially the case with respect to what we call 
 " Free Trade ; " which, between its so-called friends 
 and its enemies, is drifting more and more into irre- 
 trievable confusion as a principle of imperial policy. 
 
 In its domestic aspect " Free Trade," or rather 
 " Free Exchange," has been forgotten in the chorus 
 of congratulation at the downfall of protection in its 
 grossest form ; and in our Foreign policy, while dis- 
 carding reciprocity of restrictions, we have failed 
 to appreciate the importance of the reciprocity of 
 freedom. 
 
 We have obtained enough Free Trade to enable 
 our upper and middle classes to acquire more wealth 
 than, with their present education, they can either 
 employ wisely or spend innocently ; and to stimu-
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 5 
 
 'late unproductive consumption in vulgar luxury and 
 wasteful charity ; but we have not obtained enough 
 Free Trade to feed and clothe and house our people, 
 or to inspire confidence in other countries, and to 
 establish those international relations without which 
 all hope of internal progress is a foolish and idle 
 dream. 
 
 It is painful to perceive the inferiority of the poli- 
 tical utterances of o.ur day on social and economic 
 questions, to those of the Anti-Corn-Law League, in 
 grasp of principles, in command of facts, and, above 
 all, in moral feeling. 
 
 The men who took part in the labours of the 
 League dwell naturally more on that which they have 
 done, than on that which we have to do ; and a 
 generation has succeeded to a large share in our 
 political life, which consults for the solution of our 
 social problems far other oracles than those which 
 inspired Cobden. 
 
 The sinister reaction set in motion by the Crimean 
 War, fostered by the wars in China, and culminating in 
 the Parliament of 1857, has gone far to neutralize the 
 impulse given to our productive forces by the partial 
 liberation of our trade, and left us with increased 
 wealth indeed, but with a distribution of it more 
 unequal and more unnatural than before, and with 
 a large population, whose chronic wretchedness and 
 degradation is a standing reproach to our civilization, 
 and a sullen protest against our laws. And while the 
 cry of suffering multitudes is the morning and the
 
 6 FREE EXCHANGE. 
 
 evening sacrifice of our proudest cities, our Govern- 
 ment and our people alike are calling on each other 
 helplessly in turn for a policy of deliverance. 
 
 Can we wonder, then, that those who have been 
 taught to believe that they are living under a Free 
 Trade dispensation, and who have never taken the 
 pains to compare the doctrines of its apostles with the 
 practice of our lawgivers, should accuse it of disastrous 
 failure ; and that while on one hand we are advised 
 to desist from further action till, by the free play of 
 consciousness, we have discovered an intelligible law 
 of things ; on the other, we are urged to tamper with 
 the laws, and assail the rights of labour and of pro- 
 perty, and to revive discarded systems which are only 
 innocent so long as they are impossible ? 
 
 But before accusing Economic Science and Free 
 Exchange, I would ask whether, with our present laws 
 as they affect our land, our currency, our, fiscal and 
 colonial systems, our foreign relations, and our military 
 and naval administration, we may not rather trace our 
 failure in civilization to a systematic and deliberate 
 violation of their most imperious precepts ? whether 
 the success of what is called practical statesmanship is 
 such as to justify its cynical contempt of principles ? 
 and whether it is wise to condemn and discredit as 
 ineffectual a policy which has never yet been tried ? 
 
 It is because I believe that the work of Govern- 
 ments lies in providing for the full and undisturbed 
 action of the forces of freedom, instead of interfering 
 themselves with their operation ; and that our social
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 7 
 
 disorders can only be remedied by pressing along the 
 lines of progress, laid for us by Cobden and the 
 League ; that I view with pain and fear the morbid 
 craving of our time after other agencies, in most of 
 which may be detected, disguise it as we may, the 
 germ of Communism, a fatal poison, tainting at their 
 common source two of the most sacred springs of 
 social life, personal liberty and personal responsibility. 
 
 L. M. 
 
 June, 1869.
 
 FREE EXCHANGE. 
 
 THE POLITICAL OPINIONS OF RICHARD 
 
 COBDEN. 
 
 THE time has not yet arrived for writing Cobden's life. 
 
 The great political struggles in which he engaged 
 are still too fresh in the memory of the present gene- 
 ration, to admit of a faithful record of his political 
 career, without including much which affects too 
 closely the characters of public men still on the scene, 
 or but recently removed from it ; and of the last great 
 achievement of his life, and his solitary official act, 
 the Commercial Treaty with France, it is impossible 
 yet to speak freely. 
 
 But it is on this account only the more important, 
 and especially at a time when upon the conduct and 
 intelligence of the Liberal party in this country it 
 depends, whether the years before us are to bring 
 with them a repetition of the inconsistencies and 
 hesitations which have too often deformed and 
 paralyzed our recent course, or are to be a fruitful 
 and brilliant period of rational and consistent progress, 
 that the policy of which Cobden was the foremost 
 representative, should at least be thoroughly under- 
 stood and widely known. 
 
 It is therefore with a peculiar satisfaction that we
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 9 
 
 hail the work * before us, and we trust that it may be 
 shortly followed by a republication of his principal 
 speeches, both in and out of Parliament, so far as 
 these can be collected, and if possible by a selection 
 of his letters, on the great practical questions of the 
 day. 
 
 In bringing together, in a connected form, these 
 political essays, written on various subjects, on different 
 occasions, and at wide intervals of time, but unsur- 
 passed in cogency of reasoning, and in their truthful 
 and temperate spirit, Mrs. Cobden has rendered a 
 great service both to her husband's memory and to 
 the rising generation of Englishmen. 
 
 Presented originally to the public in the ephemeral 
 form of pamphlets, thrown out in sharp opposition to 
 the prevailing passions and prejudices of the hour, 
 and systematically depreciated as they were by the 
 organs of public opinion which guide the majority of 
 our upper classes, we suspect that they are well-nigh 
 forgotten by the elder, and little known to the younger 
 men among us. Yet do these scattered records of 
 Mr. Cobden's thoughts contain a body of political 
 doctrine more original, more profound, and more con- 
 sistent, than is to be found in the spoken or written 
 utterances of any other English statesman of our time, 
 and we commend them to the earnest study and con- 
 sideration of all who aspire to exert an influence on 
 the future government of our country. 
 
 * ' ' The Political Writings of Richard Cobden," published by Ridgway (2 vols.), 
 which formed the subject of the article in the North British Review referred to 
 in the text.
 
 to FREE EXCHANGE. 
 
 Whatever may be thought of his political character, 
 it will be admitted that no man has made a deeper 
 impression on the policy of this country during the 
 last thirty years than Richard Cobden. 
 
 This will, we believe, be acknowledged by many of 
 his countrymen, who would be slow to allow that the 
 impression thus made had been for good, and who 
 still regard him with open aversion or concealed 
 suspicion, as one of the foremost and most powerful 
 advocates of changes in our system of government, 
 designed, as they believe and fear, to affect the security 
 of vested interests, which they have been in the habit 
 of identifying with the greatness and welfare of the 
 State. But it cannot, we think, be denied even now 
 that, in spite of the resistance of class interests, and of 
 the avowed or tacit opposition of the great political 
 parties, our national policy has been gravitating more 
 and more in the direction of his views, and that, so far 
 at least, whatever progress has been made in the 
 national prosperity has been principally due to the 
 steps which have been taken in fulfilment of his 
 principles. 
 
 The false judgment so commonly passed upon 
 this statesman is to be traced, we believe, in a great 
 measure to that which constitutes his great and his 
 distinguishing merit, viz. his steady adherence to 
 general principles, and his consequent freedom from 
 class and party views, and his indifference to the 
 popular clamour of the hour, which in turn brought 
 him into collision with all classes and with all parties,
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 11 
 
 and, on some memorable occasions, with the body of 
 the people themselves. 
 
 It is thus that he has been constantly charged 
 with narrowness, and with hostility to the institutions 
 of his country, too often confounded with its conser- 
 vative forces, and cherished as such by many who are 
 entitled to our respect, as well as by the ignorant and 
 selfish ; but it will be found that the charge is usually 
 brought on the part of some class whose special interests 
 he denounced or thwarted, or on the part of the nation 
 at large, when the assumed national interest has been 
 opposed to the larger interest of humanity. He has 
 been accused of want of patriotism and indifference 
 to the national honour and greatness, when, on the 
 contrary, a deeper examination of his views will show, 
 we think, that he was one of the few leading statesmen 
 of our time who have exhibited a real practical faith 
 in the future of England. 
 
 The public estimate, however, of this political 
 leader has undergone, and is undergoing, a very 
 .remarkable change ; and it is in the hope of aiding 
 in a better understanding of principles which, from 
 their soundness and close logical coherence, appear 
 to us to afford the only consistent and intelligible 
 ground for the policy of the Liberal party, that the 
 following pages are written. 
 
 Mr. Cobden's political character was the result of a 
 rare and fortunate combination of personal qualities 
 and of external circumstances. 
 
 Sprung from the agricultural class, and bred up (to
 
 12 FREE EXCHANGE. 
 
 use his own expression) "amidst the pastoral charms 
 of Southern England," imbued with so strong an 
 attachment to the pursuits of his forefathers, that, as 
 he says himself, in the volumes before us, " had we 
 the casting of the role of all the actors on this world's 
 stage, we do not think that we should suffer a cotton- 
 mill or manufactory to have a place in it ; " trained in 
 a large commercial house in London, and subsequently 
 conducting on his own account a print manufactory in 
 Lancashire, Mr. Cobden possessed the peculiar advan- 
 tage of a thorough acquaintance and sympathy with 
 the three great forms of industrial life in England. 
 Nor were the experiences of his public career less rich 
 and varied than those of his private life. 
 
 The first great political question in which he bore 
 a conspicuous part, the Anti-Corn Law agitation, and 
 his consequent connection with the powerful producing 
 class, which, by a fortunate coincidence of interest 
 with that of the people at large, originated and led 
 this great and successful struggle, gave him a thorough 
 insight into this important element of our body-politic, 
 in all its strength and in all its weakness ; his knowledge 
 of other countries the result of keen personal obser- 
 vation, and much travel both in Europe and America, 
 his intimate relations with some of their best and most 
 enlightened men, as well as with their leading poli- 
 ticians, and the moderating and restraining influences 
 of twenty years of Parliamentary life, during which he 
 conciliated the respect and esteem even of his strongest 
 opponents, combined with the entire absence in his
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 13 
 
 case of all sectarian influences and prejudices, gave 
 to his opinions a comprehensive and catholic character, 
 which is perhaps the rarest of all the attributes of 
 English statesmanship. 
 
 Mr. Cobden entered Parliament, not, as is the fate 
 of most of our public men, to support a party, to play 
 for office, or to educate himself for professional states- 
 manship, still less to gratify personal vanity or to 
 acquire social importance, but as the representative of 
 distinct principles, and of a great cause. 
 
 Mr. Cobden belonged to the school of political 
 thinkers who believe in the perfect harmony of moral 
 and economical laws, and that in proportion as these 
 are recognized, understood, and obeyed by nations, 
 will be their advance in all that constitutes civiliza- 
 tion. 
 
 He believed that the interests of the individual, the 
 interests of the nation, and the interests of all nations 
 are identical ; and that these several interests are all 
 in entire and necessary concordance with the highest 
 interests of morality. With this belief, an economic 
 truth acquired with him the dignity and vitality of a 
 moral law, and, instead of remaining a barren doctrine 
 of the intellect, became a living force, to move the 
 hearts and consciences of men. It is to a want of a 
 clear conception of this great harmony between the 
 moral and economic law, or to a disbelief in its 
 existence, that are to be traced some of the most 
 pernicious errors of modern times, and the lamentable 
 condition of Europe at the present moment.
 
 14 FREE EXCHANGE. 
 
 We believe that the main cause of the hopeless 
 failure of the great French Revolution, in the creation 
 and consolidation of free institutions in Europe, was 
 the absence, on the part of its leading spirits, of all 
 sound knowledge of the order of facts upon which 
 economic science rests, and the prevalence of false 
 ideas of government, derived from classical antiquity. 
 
 Rousseau, who exercised a greater influence in 
 bringing about the Revolution than any other man, 
 and after him Mirabeau and Robespierre, the two 
 great figures which represent and personify that 
 mighty upheaval of society, were all fundamentally 
 wrong in their conception of the right of property. 
 This, instead of regarding as a right preceding all 
 law, and lying at the root of all social existence, they 
 considered simply as a creation of the law, which 
 itself again derived its rights from a social compact, 
 opposed in many respects to the natural rights of 
 man. Society was thus made to rest upon the quick- 
 sand of human invention, instead of being fixed on 
 the rock of God's providence ; and law was made the 
 source, instead of the guardian, of personal liberty and 
 of private property. 
 
 Hence the disastrous shipwreck of a great cause, 
 the follies and the crimes, the wild theories, the 
 barren experiments, and the inevitable reaction. The 
 principle invoked, the State, was stronger than those 
 who appealed to it, and swallowed them up in a 
 military despotism. 
 
 This false direction of ideas survived the Restora-
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 15 
 
 tion, and when, after 1830, the intellect of France 
 again addressed itself to social questions, it was with 
 the same result. Saint Simon, Fourrier, Louis Blanc, 
 and Proudhon are there to attest the deep-rooted 
 perversion of thought which has hitherto made all 
 free government impossible in France, and brought 
 upon her again, for the second time, the stern hand of 
 a military ruler, who, wiser than his uncle, while set- 
 ting aside for a time other forms of liberty in France, 
 has had the sagacity to perceive that, by entering 
 upon even a partial and tentative course of material 
 reform, he could evoke forces which have hitherto 
 been strong enough to maintain him on his vantage- 
 ground, against all the political parties opposed to 
 him, dynastic and socialist, whose common hatred to 
 him has been rendered impotent by the only other 
 common bond between them, viz. their still deeper 
 hatred of some of the most sacred rights of the human 
 race the rights of labour and of property. And even 
 to this day what do we see ? In spite of the terrible 
 experience of nearly a hundred years of failure, French 
 so-called liberal leaders still ranged on the side of 
 industrial monopoly and commercial privilege, and 
 while clamouring for constitutional freedom, proving 
 in the same breath their incapacity for using it, by 
 denouncing that in which, at all events, the Emperor 
 is entitled to the sympathy of the friends of progress, 
 his commercial policy. Until the bourgeois class in 
 Europe has learnt that no country can be free until 
 the rights of its people are secured by free exchange,
 
 1 6 FREE EXCHANGE. 
 
 they will have to choose between the rival alternations 
 of autocratic and socialistic misrule.* 
 
 The great founder of the English school of political 
 economy, who had witnessed himself in France the dis- 
 orders which preceded the Revolution, and speculated 
 on their causes, viewed them from another side. He 
 instinctively perceived that, as all human society must 
 rest upon a material foundation, it was to the laws of 
 material progress that inquiry must be first directed, 
 and that, before and beneath all systems of govern- 
 ment and all schemes of public morality, there must 
 lie the science of the " wealth of nations." To the 
 investigation of this science Adam Smith devoted 
 those years of patient and conscientious thought, to 
 which we owe the treatise which has made his name 
 immortal, and which, in spite of much that has been 
 added and much that has been taken from it since, 
 remains as a great storehouse of knowledge to the 
 students of economic laws. 
 
 It is easy, however, to trace the habitual connection 
 in the mind of Smith, between the dry facts of science 
 and the great social laws which alone give them life 
 and meaning, and a belief in the steady natural gravi- 
 tation of all the interests of our race towards order 
 and moral progress. 
 
 The school of English economists who succeeded 
 him appear to us to have too much lost sight of this 
 
 * It is interesting to see, from the remarks in Part II. Chap. I., how the pro- 
 gress of events and of opinion in France and England caused the writer to change 
 his opinion as to the comparative social stability of the two countries. ED.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 17 
 
 necessary connection, and to have dwelt too exclusively j 
 on the phenomena of economic facts, as distinct andj 
 separate from their correlative moral consequences. L 
 To this cause, as well as to their partial and often 
 inaccurate observation of those phenomena, we 
 attribute the absence of adequate political results 
 which has attended their teaching, the repugnance 
 which their doctrines have too often excited in 
 generous and ardent natures, and the consequent 
 discredit of a science indispensable to the progress 
 and prosperity of nations, and destined, perhaps more 
 than any other branch of human knowledge, to recon- 
 cile the ways of God to man. 
 
 The mission of man in this world is to possess the 
 earth and subdue it, and for this purpose to summon 
 to his aid, and bring under his control, the external 
 forces of nature. This task, hard and ungrateful at 
 first, becomes lighter as it proceeds. Every natural 
 force successively subdued to man's uses adds to the 
 stock of gratuitous services which are the common 
 possession of the race, and when the rights of property 
 and labour are thoroughly established by universal 
 freedom, and the services of man have thus secured 
 their just remuneration, the inequalities which prevail 
 in the conditions of human life, so far as they are the 
 result of artificial, and not of natural, causes, will 
 diminish and disappear more and more, till even the 
 lowest classes in the social scale will be raised to a 
 level of well-being hitherto unknown and unimagined. 
 
 The first great law of humanity is labour. " By
 
 1 8 FREE EXCHANGE. 
 
 the sweat of thy brow shalt thou eat thy bread." 
 From this there is no escape. The burden will be 
 lightened, and reduced to a minimum, inconceivable 
 to us at present, as the forces of nature are brought by 
 science and industry more under the control of man ; 
 and it may be shifted, as it is, from the whole to a part 
 of society, but the law remains. 
 
 It is this law, then, the law of labour, which lies at 
 the root of all human life. Upon this foundation rests 
 the whole fabric of society, religion, morals, science, 
 art, literature all that adorns or exalts existence. 
 But if the law of labour is thus paramount and sove- 
 reign, it follows that its rights are sacred, and that 
 there can be no permanent security for any society in 
 which these are not protected. The rights of labour 
 involve and comprehend the right of personal liberty, 
 and the right of property. The first implies the free 
 use of each man's powers and faculties ; the second, 
 an inalienable title to the products of his labour, in use 
 or in exchange. 
 
 It is to the violation of the rights of labour and of 
 property, thus identified, in all the various forms of 
 human oppression and injustice, by force or by fraud, 
 in defiance of law or in the name of law, that is to be 
 traced the greatest part of the disorders and sufferings 
 which have desolated humanity, and the unnecessary 
 and unnatural inequalities in the conditions of men. 
 
 It is to the assertion of these rights, and to the 
 gradual ascendency of the opposing and equalizing 
 principles of justice and freedom, that the coming
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 19 
 
 generations alone can look for a future which shall be 
 better than the past. 
 
 " II n'y a que deux moyens," says Bastiat, " de se 
 procurer les choses n^cessaires a 1'embellissement, et 
 au perfectionnement de la vie, la production et la 
 spoliation." And again, " Propriete et spoliation, soeurs 
 nees du meme pere, Genie du Bien, et Genie du Mai, 
 Salut et Fleau de la Societe, Puissances qui se dis- 
 putent depuis le commencement, 1'empire et les de- 
 stinees du monde." 
 
 These truths are of comparatively recent acceptance 
 even in theory among us, and in practice still are far 
 indeed from being applied. Such, moreover, is the 
 confusion of thought, engendered by historical associa- 
 tion, political prejudice, and class interest, that many 
 of the forms of spoliation are hardly recognized 
 when disguised in the garb of a British institution, a 
 party principle, or a vested right ; in which artificial 
 costume they still impose on the credulity of many of 
 our countrymen. 
 
 It is true that war is generally admitted to be an 
 evil, and slavery to be a wrong ; that the Reformation 
 has dealt a heavy blow at theocracy, and Free Trade 
 at monopoly. 
 
 But the spirit of war is still fostered and stimulated, 
 by false ideas of national honour, patriotism, and 
 policy, and to the art of war we still devote our 
 mightiest efforts, and consecrate our costliest sacrifices. 
 The grosser forms of slavery have indeed disappeared, 
 but its taint is still to be traced in some of our
 
 20 FREE EXCHANGE. 
 
 institutions, and in our feeling towards subject races ; 
 while our Reformed Church, with its temporalities, 
 and its exclusive pretensions and privileges, is still 
 too often the enemy of the foundation of all freedom, 
 liberty of thought. 
 
 The last, and perhaps the most insidious, of the 
 leading forms of " spoliation," commercial monopoly, 
 though driven from its strongholds, and expelled from 
 our national creed, is still regarded by many among 
 us with secret favour, and by most of us rather as a 
 political error than as a moral wrong. 
 
 It was to a struggle with this last great evil that 
 Cobden devoted his life, and it is with the most deci- 
 sive victory ever achieved in this field of conflict that 
 his name and fame will be always identified ; but it is 
 significant and interesting to know that, in selecting his 
 work in life, it was to " Education," and not to " Free 
 Trade," that his thoughts were first directed. 
 
 Two reasons decided him to prefer the latter as 
 the object of his efforts : Firstly, his conviction 
 (referred to above) that the material prosperity of 
 nations is the only foundation of all progress, and that 
 if this were once secured the rest would follow. 
 Secondly, his consciousness that no direct attempt to 
 obtain a system of national education which deserved 
 the name, could lead to any clear result in the life of 
 his own generation, and that, measured with those at 
 his command, imposing as were the forces of resistance 
 arrayed against him on the question of Free Trade, 
 they were less formidable than those which would be
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 21 
 
 brought to bear against a measure which united in a 
 common hostility the Established and the Dissenting 
 Churches. 
 
 It was Cobden's fate or fortune to find himself, in 
 taking up the cause of Free Trade, in the presence of 
 one of the worst laws which the selfishness or folly of 
 Governments have ever imposed on the weakness or 
 ignorance of a people. 
 
 When the soil of a country is appropriated, the 
 only means whereby an increasing population can 
 limit the encroachments of the proprietors, is by work- 
 ing for foreign markets. Such a population has only 
 its labour to give in exchange for its requirements, and, 
 if this labour is constantly increasing, while the produce 
 of the soil is stationary, more of the first will steadily 
 and progressively be demanded, for less of the last. 
 
 This will be manifested by a fall of wages, which 
 is, as has been well observed, the greatest of misfortunes 
 when it is due to natural causes the greatest of crimes 
 when it is caused by the law. 
 
 The Corn Law was the ilcilng sequel to the French 
 war. The ruling classes in England had seized on 
 the reaction of feeling created by the excesses of the 
 French Revolution, to conceal the meaning of that 
 event, and to discredit the principles of popular 
 sovereignty which it asserted. They had before them 
 a people impoverished and degraded by the waste of 
 blood and treasure in which years of war had involved 
 their country ; and seeing the prospect before them, 
 which the peace had opened, of a fall in the prices of
 
 22 FREE EXCHANGE. 
 
 agricultural produce, under the beneficent operation 
 of the great laws of exchange, they resorted to the 
 device of prolonging by Act of Parliament the artificial 
 scarcity created by the war, and of thus preserving to 
 the landed interest the profits which had been gained 
 at the expense of the nation. 
 
 It is thus that, as the forces of progress are in- 
 variably found to act and react on each other, the 
 forces of resistance and of evil will ever be side by 
 side, and that as protection, which means the isolation 
 of nations, tends both by its direct and indirect effects 
 to war, so war again engenders and perpetuates the 
 spirit of protection. Free Trade, or, as Cobden called 
 it, the International Law of the Almighty, which 
 means the interdependence of nations, must bring 
 with it the surest guarantee of peace, and peace in- 
 evitably leads to freer and freer commercial inter- 
 course ; and therefore, while there is no sadder page 
 in the modern history of England than that which 
 records the adoption of this law by the British Par- 
 liament, there is, to our minds, none more bright with 
 the promise of future good than that on which was 
 written, after thirty years of unjust and unnecessary 
 suffering, its unconditional repeal. 
 
 But as the intellect and conscience of the country 
 had failed so long to recognize the widespread evils 
 of this pernicious law, and the fatal principles which 
 lay at its roots, so did they now most dimly and 
 imperfectly apprehend the scope and consequences of 
 its abolition.
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 23 
 
 It was called the repeal of a law ; admitted to be 
 the removal of an intolerable wrong ; but we doubt 
 whether in this country, except by a few gifted and 
 far-seeing leaders of this great campaign, it was fore- 
 seen that it was an act which involved, in its certain 
 results, a reversal of the whole policy of England. 
 
 This was, however, clear enough to enlightened 
 observers in other countries. By one of those rare 
 coincidences which sometimes exercise so powerful 
 an influence on human affairs, it happened, that while 
 Cobden in England was bringing to bear on the great 
 practical questions of his time and country the prin- 
 ciples of high morality and sound economy which 
 had been hitherto too little considered in connection 
 with each other, Frederic Bastiat was conceiving and 
 maturing in France the system of political philosophy 
 which has since been given to the world, and which 
 still remains the best and most complete exposition 
 of the views of which Cobden was the great repre- 
 sentative. 
 
 It appears to us that these two men were necessary 
 to each other. Without Cobden, Bastiat would have 
 lost the powerful stimulant of practical example, and 
 the wide range of facts which the movement in Eng- 
 land supplied, and from which he drew much of his 
 inspiration. Without Bastiat, Cobden's policy would 
 not have been elaborated into a system, and, beyond 
 his own immediate coadjutors and disciples, would 
 probably have been most imperfectly understood on 
 the Continent of Europe.
 
 24 FREE EXCHANGE. 
 
 More than this, who can say what may not have 
 been the effect on the minds of both these men, of 
 the interchange of thoughts and opinions which freely 
 passed between them ? 
 
 In his brilliant history of the Anti-Corn-Law 
 League, " Cobden et la Ligue," Bastiat thus describes 
 the movement of which England was the theatre 
 during that memorable struggle : 
 
 " I have endeavoured to state with all exactness the ques- 
 tion which is being agitated in England. I have described 
 the field of battle, the greatness of the interests which are 
 there being discussed, the opposing forces, and the con- 
 sequences of victory. I have shown, I believe, that though 
 the heat of the contest may seem to be concentrated on 
 questions of taxation, of custom-houses, of cereals, of sugar, 
 it is, in point of fact, a question between monopoly and liberty, 
 aristocracy and democracy a question of equality or in- 
 equality in the distribution of the general well-being. The 
 question at issue is to know whether legislative power and 
 political influence shall remain in the hands of the men of 
 rapine, or in those of the men of toil ; that is, whether they 
 shall continue to embroil the world in troubles and deeds of 
 violence, or sow the seeds of concord, of union, of justice, and 
 of peace. 
 
 " What would be thought of the historian who could 
 believe that armed Europe, at the beginning of this century, 
 performed, under the leadership of the most able generals, so 
 many feats of strategy for the sole purpose of determining 
 who should possess the narrow fields that were the scenes of 
 the battles of Austerlitz or of Wagram ? The fate of dynasties 
 and empires depended on those struggles. But the triumphs 
 of force may be ephemeral ; it is not so with the triumphs 
 of opinion. And when we see the whole of a great people, 
 whose influence on the world is undoubted, impregnate itself
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 25 
 
 with the doctrines of justice and truth ; when we see it repel 
 the false ideas of supremacy which have so long rendered it 
 dangerous to nations ; when we see it ready to seize the 
 political ascendant from the hands of a greedy and turbulent 
 oligarchy, let us beware of believing, even when its first 
 efforts seem to bear upon economic questions, that greater 
 and nobler interests are not engaged in the struggle. For if, 
 in the midst 'of many lessons of iniquity, many instances of 
 national perversity, England, this imperceptible point of our 
 globe, has seen so many great and useful ideas take root 
 upon her soil, if she was the cradle of the press, of trial by 
 jury, of a representative system, of the abolition of slavery, in 
 spite of the opposition of a powerful and pitiless oligarchy, 
 what may not the world expect from this same England 
 when all her moral, social, and political power shall have 
 passed, by a slow and difficult revolution, into the hands of 
 democracy a revolution peacefully accomplished in the 
 minds of men under the leadership of an association which 
 embraces in its bosom so many men whose high intellectual 
 power and unblemished character shed so much glory on 
 their country, and on the century in which they live ? Such 
 a revolution is no simple event, no accident, no catastrophe 
 due to an irresistible but evanescent enthusiasm. It is, if I 
 may use the expression, a slow social cataclysm, changing all 
 the conditions of life and of society, the sphere in which it 
 lives and breathes. It is justice possessing herself of power ; 
 good sense of authority. It is the general weal, the weal of 
 the people, of the masses, of the small and of the great, of the 
 strong and of the weak, becoming the law of political action. 
 It is the disappearance behind the scene of privilege, abuse, 
 and caste-feeling, not by a palace-revolution or a street-rising, 
 but by the progressive and general appreciation of the rights 
 and duties of man. In a word, it is the triumph of human 
 liberty ; it is the death of monopoly, that Proteus of a 
 thousand forms, now conqueror, now slave-owner ; at one 
 time lover of theocracy and feudalism, at another time assum-
 
 26 FREE EXCHANGE. 
 
 ing an industrial, a commercial, a financial, and even a 
 philanthropic shape. Whatever disguise it might borrow, it 
 could no longer bear the eye of public opinion, which has 
 learned to detect it under the scarlet uniform or under the 
 black gown, under the planter's jacket and the noble peer's 
 embroidered robe. Liberty for all ! for every man a just and 
 natural remuneration for his labour ! for every man a just and 
 natural avenue to equality in proportion to his energy, his 
 intelligence, his prudence, and his morality ! Free Trade with 
 all the world ! Peace with all the world ! No more subjuga- 
 tion of colonies, no more army, no more navy, than is necessary 
 for the maintenance of national independence ! A radical 
 distinction between that which is and that which is not the 
 mission of government and law ; political association reduced 
 to guarantee each man his liberty and safety against all 
 unjust aggressions, whether from without or from within ; 
 equal taxation, for the purpose of properly paying the men 
 charged with this mission, and not to serve as a mask under 
 the name of outlets for trade (debouches), for outward usurpa- 
 tion, and, under the name of protection, for the mutual robbery 
 of classes. Such is the real issue in England, though the 
 field of battle may be confined to a custom-house question. 
 But this question involves slavery in its modern form ; for as 
 Mr. Gibson, a member of the League, has said in Parliament, 
 4 To get possession of men that we may make them work for 
 j our own profit, or to take possession of the fruits of their 
 : labour, is equally and always slavery ; there is no difference 
 , but in the degree.' " 
 
 This passage, all due allowance made for the ten- 
 dency to brilliant generalization which Bastiat shared 
 with so many of his gifted countrymen, remains on 
 the whole a most powerful, condensed, and accurate 
 analysis of the great principles involved in the poli- 
 tical conflict then passing in England, and is a testi-
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 27 
 
 mony to the rare insight and sagacity of the writer. 
 It also affords a striking illustration of the power 
 which a clear and firm grasp of principles gives to the 
 political student, in guiding his speculations on the 
 most complicated problems which society presents. 
 
 The system of which the Corn Laws were the 
 corner-stone, traced to its source, rested on the prin- 
 ciple of spoliation, and on the foundation of force. 
 
 That which was inaugurated by the overthrow of 
 that law, rested on the principle of freedom, and on 
 the foundation of justice. 
 
 Monopoly of trade, involving, as it must, the vio- 
 lation of rights of property and of labour, both in the 
 internal and external) relations of a State, and imply- 
 ing, when carried to its logical consequences, national 
 isolation, contains within itself the germs of inevitable 
 stagnation and decay. To avoid these results, it is 
 necessary that a Government which maintains it 
 should resort to all the expedients of force and fraud, 
 to conquest, colonial aggrandizement, maritime 
 supremacy, foreign alliances, reciprocity treaties, and 
 communism in the shape of poor-laws, and should 
 perpetually appeal to the worst and most contemptible 
 passions of its people, to national pride, to false patriot- 
 ism, to jealousy, to fear, and to selfishness, in order to 
 keep alive its prestige and to conceal its rottenness. 
 
 We are far from imputing the marvellous skill 
 which the ruling classes in England displayed in the 
 use of these expedients to a conscious and deliberate 
 policy. We know that good and able men, and an
 
 28 FREE EXCHANGE. 
 
 honest though misguided patriotism, have been too 
 often the blind instruments of the retributive justice 
 which always avenges the violation of moral prin- 
 ciples ; but there was a point beyond which even 
 these expedients would not suffice to arrest the 
 national decay, and with a debt of ^800,000,000, an 
 impoverished starving people, the universal distrust, 
 and the avowed or concealed hostility of foreign 
 nations, who had imitated our policy too closely, 
 while growing communities of our own blood, with 
 boundless material resources and free institutions, 
 were outstripping us in the race of progress, and 
 making the future competition of force impossible, a 
 state of things had been engendered which called for 
 prompt and vigorous remedy. 
 
 To Cobden, and his colleagues of the League, 
 belongs the merit of having traced the disease to its 
 source, of having stayed the progress of the poison 
 which was slowly, but surely, undermining our national 
 greatness, and of changing the current of English policy. 
 
 Mr. Bright has recently told us the occasion, and 
 the manner, of Cobden's invitation to him to join him 
 in this beneficent work. 
 
 At a moment of severe domestic calamity, Cobden 
 called on him and said, " Do not allow this grief, 
 great as it is, to weigh you down too much. There 
 are at this moment, in thousands of homes of this 
 country, wives and children who are dying of hunger, 
 of hunger made by the laws ; if you will come along 
 with me, we will never rest until we have got rid of
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 29 
 
 the Corn Laws." The appeal was not made in vain, 
 and we know with what results. 
 
 By the repeal of the Corn Laws, the false idea of 
 isolated progress was for ever dispelled, our foreign 
 trade became a condition of our existence, and the great 
 law of international co-operation assumed its rightful 
 place as the animating principle of our future course. 
 
 But though the edifice of protection was shaken at 
 the base, and the fabric irrevocably doomed to de- 
 struction, the work was only begun ; the ideas which 
 the system had created had taken too deep root in 
 the minds of the governing classes, and the forces of 
 reaction were still too powerful, to allow of speedy or 
 logical progress. 
 
 The gradual breaking-up of the protective system 
 after the repeal of the Corn Laws was a work which 
 must in any case have proceeded, under the pressure 
 of the irresistible force of circumstances ; but we think 
 that justice has never been done to the Government 
 of Lord John Russell, and his colleagues Lord Grey 
 and Mr. Labouchere, in this respect. 
 
 The equalization of the Sugar Duties, the repeal 
 of the Navigation Laws, the reform of our " Colonial 
 System," were all accomplished by this Administra- 
 tion, and few indeed have been the Governments of 
 England which can point to such substantial services 
 as these in the cause of progress. This course of 
 useful domestic reform was, however, rudely inter- 
 rupted by one of those events which ought to teach 
 us the hopelessness of all permanent progress by
 
 30 FREE EXCHANGE. 
 
 isolated action, and the absolute necessity of always 
 considering our position as a member of the comity 
 of nations. The Crimean War brought once more 
 into life and activity all the elements of the national 
 character, the most opposed to the silent and bene- 
 ficent forces of moral and material progress, fatally 
 arrested the agencies of peace which the Anti-Corn- 
 Law League had set in motion, and has gone far to 
 deprive us of the fruits of the great reforms which 
 those agencies had effected. In looking back, it is 
 impossible not to feel how different might have been 
 our recent history, but for the mysterious dispensa- 
 tion, under which one great Minister died too soon, 
 while another ruled too long, and which removed 
 from us, at a time when his influence was too much 
 needed, the wise Prince who had, we believe, learned 
 to value Cobden, as Cobden had learned, we know, to 
 respect and appreciate him. 
 
 We all remember the long parliamentary duel 
 between Peel and Cobden, by which the great 
 struggle of the two contending principles of privilege 
 and freedom was brought to a final issue ; the impres- 
 sive advocacy and the imposing fallacies of the power- 
 ful Minister ; " the unadorned eloquence " and the 
 pitiless logic of the tribune of the people ; and some 
 of us remember how Cobden, as he watched night after 
 night his great antagonist, writhing under his unanswer- 
 able arguments, saw by the working of his face, long 
 before his public avowal, that reason and conscience 
 had done their work, and that the victory was won.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 31 
 
 But there was a moment when, unnerved by Drum- 
 mond's tragical death, and stung by the intention 
 which he attributed to Cobden of wishing to fasten 
 upon him individually the responsibility of further 
 resistance, he referred to some expressions in speeches 
 at conferences of the League, in a way which made a 
 deep impression at the time, and which Cobden could 
 not easily forget. He lived, indeed, to make a full 
 reparation, by the generous tribute which he paid to 
 Cobden's services, in his memorable speech on quitting 
 office for ever, in words which have often been repeated, 
 and which it is well again to repeat 
 
 " I said before, and I said truly, that, in proposing our 
 measures of commercial policy, I had no wish to deprive 
 others of the credit justly due to them. I must say with 
 reference to honourable gentlemen opposite, as I say with 
 reference to ourselves, that neither of us is the party which is 
 justly entitled to the credit of them. There has been a com- 
 bination of parties, generally opposed to each other, and that 
 combination, and the influence of Government, have led to 
 their ultimate success ; but the name which ought to be 
 associated with the success of those measures is not the name 
 of the noble lord, the organ of the party of which he is the 
 leader, nor is it mine. The name which ought to be, and 
 will be, associated with the success of those measures, is the 
 name of one who, acting, I believe, from pure and disinterested 
 motives, and with untiring energy, made appeals to our 
 reason, and has enforced those appeals with an eloquence 
 the more to be admired because it was unaffected and un- 
 adorned, the name which ought to be chiefly associated with 
 the success of those measures is the name of Richard Cobden." 
 
 It was, however, we believe, the fact that, in spite 
 of this public testimony, no private intercourse took
 
 32 FREE EXCHANGE. 
 
 place at that time between them, and that Peel retired 
 from office, with the execration of his party, and the 
 gratitude of his country, and Cobden entered on his 
 international work, in mutual silence. 
 
 But later, when Cobden had returned to the House 
 of Commons, and was standing one day behind the 
 Speaker's chair, Peel rose from his seat, and came 
 towards him, and said to him, holding out his hand, 
 " Mr. Cobden, the time has come, I think, for you and 
 me to be friends." 
 
 And still later, amidst the throng of anxious 
 inquirers, who, in those long days of June, besieged 
 Whitehall, and lingered round the doors of the dying 
 statesman, there was no sincerer sorrower than the 
 leader of the League. 
 
 The Royal Commission which, under Prince 
 Albert's auspices, organized the first great Exhibition, 
 had brought together at last, in a common and inter- 
 national work, the three men who seem to us to have 
 been eminently designed to co-operate for the public 
 good, and we cannot doubt that, if the lives of Prince 
 and Minister had been spared a few years longer, and 
 Peel had returned to office in 1852, he would have 
 received the cordial support of Cobden, either in or 
 out of office. But this was not to be; and in 1846, 
 on the occasion of the repeal, to make Cobden Minister 
 would have been an act of political justice and wisdom 
 for which the times were not ripe, while to accept the 
 subordinate office which was offered him, from men 
 who had so recently, and so reluctantly, espoused his
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 33 
 
 views on Free Trade, and who so imperfectly appre- 
 hended or accepted its ulterior consequences, would 
 have fatally compromised his future usefulness. 
 
 He knew that there were several necessary mea- 
 sures which the general intelligence of the Liberal 
 party would immediately force upon the Parliament, 
 and his work at this moment lay in another direction. 
 He had been the chief instrument in giving the death- 
 blow to a mighty monopoly, in redressing a grievous 
 wrong, and in giving food to suffering millions at 
 home. His services as an Englishman being thus far 
 accomplished, he entered upon his mission as an 
 " international man." 
 
 He knew, and had measured accurately, the ob- 
 stacles presented by the laws of other countries, often 
 the too faithful reflection of our own, to the fulfilment 
 of the grand aim of his life, the binding together of 
 the nations of the earth by the material bonds which 
 are the necessary and only preparation for their moral 
 union. These laws had raised around us innumerable 
 barriers to intercourse, and as many stumbling-blocks 
 in the way of peace. 
 
 In a tour through Europe, which often resembled a 
 triumphal progress, he was everywhere received with 
 interest and attention ; but the sudden recantation of 
 a policy, bound up with all the traditions of England, 
 was open to too much suspicion to inspire confidence, 
 and he was obliged to be content with sowing the 
 seeds of much which has since borne fruit, and with 
 inspiring new zeal and hope in the minds of the good 
 
 D
 
 34 FREE EXCHANGE. 
 
 and enlightened men who, in each centre which he 
 visited, were labouring in the cause. 
 
 No stronger proof can be afforded of the funda- 
 mental misconception of Cobden's political character 
 which has prevailed in England than the judgments 
 and criticisms which it was the custom to pass upon 
 him with reference to the class of questions to which 
 he addressed himself on his return to public life at 
 home. 
 
 It seems to have been expected that he would have 
 exclusively devoted himself to commercial questions, 
 and when it was found that he proceeded to attack 
 systematically our foreign policy, our system of govern- 
 ment in India, our national expenditure, our military 
 and naval administration, and our maritime laws, he 
 was accused of going beyond his province, and dis- 
 credited as an enthusiast incapable of dealing with the 
 great mysteries of statecraft. 
 
 Those who used this language either knew too well, 
 or not at all, that Cobden aimed at something very 
 different and very much deeper than mere commercial 
 reforms. 
 
 In each and all of these he took, as was natural, a 
 sincere and consistent interest, but he knew, unless 
 aided and consolidated by collateral measures, that, 
 incalculable as would be the results to the wealth and 
 prosperity of the country, they would not suffice to 
 raise the lower classes of this country from their con- 
 dition of moral and material degradation, and thus to 
 rescue England from the reproach of failure in the
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 35 
 
 highest ends of civilization, and to assure for her a 
 permanent place in the front rank of nations. 
 
 It was, therefore, that, instead of entangling himself 
 in the snares of office, and devoting his time to the 
 details of practical legislation, he undertook the harder 
 and more ungrateful, but far nobler office, of endea- 
 vouring to open the eyes of his countrymen to the 
 necessity under which they lay of preparing for fun- 
 damental changes in many of the essential principles 
 upon which our national policy had previously been 
 conducted, in its three great divisions, Foreign, 
 Colonial, and Domestic. 
 
 Cobden saw clearly that, unless our system of 
 government, in all its branches, were adapted to the 
 altered conditions of our national existence, not only 
 would our commercial reforms be shorn of their most 
 valuable and complete results in the elevation of the 
 masses of the people, but that we should also incur 
 the risk of very serious dangers. Nothing is so fatal 
 to success in the life of individuals or of nations as a 
 confusion of principles in action. 
 
 Under the system of monopoly, it was logical 
 enough to keep alive the chimsera of the balance 
 of power, to seek, in foreign alliances and artificial 
 combinations of force, the security which we could 
 not hope to derive from legitimate and natural causes. 
 In the government of our foreign possessions, it was 
 logical to annex provinces and extend our empire, 
 and by the display of force and the arts of diplomacy 
 to coerce and despoil ; and for both these purposes,
 
 36 FREE EXCHANGE. 
 
 it was necessary to maintain costly and imposing forces 
 by sea and land, and to cast on the people the burden 
 of a proportionate taxation. 
 
 By means such as these we might have prolonged, 
 for two or three generations, a false and hollow 
 supremacy, and warded off for a while the inevitable 
 doom which awaits all false principles. 
 
 But with a policy of free exchange, these things 
 are not only inconsistent, they are dangerous. 
 
 They are inconsistent, because a policy of Free 
 Trade rests on the principle that the interests of all 
 nations lie in union and not in opposition ; that 
 co-operation and not competition, international inter- 
 dependence and not national independence, are the 
 highest end and object of civilization, and that, therefore, 
 peace, and not war, is the natural and normal condition 
 of civilized communities in their relation to each other. 
 
 They are dangerous, because a country which is 
 unable to feed its own population without its foreign 
 trade, and of whose prosperity, and even existence, 
 peace is thus a necessary condition, cannot afford, 
 without tremendous risks, to encounter the hazards 
 of war with powerful enemies. If such a country 
 trusts to the law of force, by that law will it be judged, 
 and the result must be crushing failure, disaster, and 
 ultimate defeat. There were those who clearly fore- 
 saw and apprehended this, and deprecated the repeal 
 of the Corn Law accordingly, but who did not perceive 
 that the alternative was an inadequate supply of food 
 for a third of our population.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 37 
 
 From this point of view, the " balance of power " 
 can only be sought in the free development of the 
 natural forces, whether of morality, intelligence, or 
 material wealth, residing in the different countries of 
 the earth, and the balance will always be held (to 
 use the expression of William III., in his address to 
 Parliament, quoted by Mr. Cobden in his paper on 
 " Russia "), so far as any one State can pretend to do 
 so, by the country which, in proportion to its powers, 
 has economized its material resources to the highest 
 point, and acquired the highest degree of moral 
 ascendency by an honest and consistent allegiance to 
 the laws of morality in its domestic policy and in its 
 foreign relations. 
 
 The acquisition of colonies and territories, formerly 
 required to afford new fields for monopoly, and 
 defended on the plea that outlets were necessary for 
 our trade, while our ports were closed to our nearest 
 and richest neighbours, appeared in its true light as 
 a waste of national influence, and a costly and 
 useless perversion of national wealth, when all the 
 countries of the earth became our customers, and 
 England the metropolitan entrepot of the world. 
 
 Large standing armies and navies, with their neces- 
 sary accompaniment of heavy, and because heavy, 
 unequal, and indirect taxation, are only rational in coun- 
 tries which are constantly liable to war, and cannot 
 therefore be equally required under a system which 
 relies on moral influence and on international justice, 
 as under one which depends on force and monopoly.
 
 38 FREE EXCHANGE. 
 
 To summon into existence a principle, which in all 
 human relations shall assert the right of property, in 
 mind and in matter, in thought and in labour, and 
 to secure this right on its only true foundation the 
 universal rule of justice and freedom is to evoke 
 a force which is destined to root up and destroy the 
 seeds of discord and division among men ; to bind 
 up the nations of the earth in a vast federation of 
 interests ; and to bring the disorders and conflicting 
 passions of society under the domain of law. 
 
 To promote all the agencies through which this 
 force can act, and to repress all those which oppose 
 its progress and neutralize its operation, and for this 
 purpose to analyze and expose to view these several 
 agencies, both in their causes and in their effects, 
 eternally acting and reacting on each other, was the 
 task which Cobden set himself to accomplish. 
 
 It was inevitable, with these objects in view, that 
 Cobden was often obliged to raise discussion upon 
 questions which, to ordinary minds, appeared some- 
 what chimerical, and to propose measures which were 
 in the nature of things premature ; that he should 
 give to many the impression of wasting his strength 
 on matters which could not be brought to an immediate 
 practical issue, and in the agitation of which he could 
 not hope for direct success. 
 
 It will be found, however, that although there 
 often existed no possibility of realizing or applying his 
 projects at the time of their enunciation, these were 
 always themselves of an essentially practical character,
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 39 
 
 and inseparably connected with each other ; and that, 
 although presented as occasion served, from time to 
 time, and as the nature of his mission required, in 
 a fragmentary and separate form, they each and all 
 formed the component parts of a policy coherent and 
 complete, and destined, we trust, to a gradual but 
 ultimate fulfilment. 
 
 In characterizing this policy as complete, one 
 exception must be made. 
 
 There was one branch of the national economy on 
 which Cobden's views were not, at least, in his earlier 
 years, in accordance with what appears to us sound 
 scientific doctrine. We refer to the laws for the 
 regulation of a paper currency. 
 
 In his evidence before the Committee of the House 
 of Commons on Banks of Issue, 1840, he virtually 
 adheres to the main principle of the Bank Act of 1 844, 
 and advocates the limitation of all paper issues un- 
 represented by a corresponding amount of gold to a 
 fixed amount issuable on securities, This view arises, 
 we think, from an imperfect apprehension of the 
 nature and functions of credit, and of the law of 
 value. We cannot but think, therefore, that if Cobden 
 retained it in his later years it must be attributed 
 to the absorbing character of his practical labours, 
 which precluded the possibility of a deeper and more 
 scientific investigation of a subject confessedly among 
 the most complex problems in the range of economic 
 speculation. 
 
 The programme which Cobden appears to have
 
 40 FREE EXCHANGE. 
 
 set before him in the construction of a policy embraced 
 the following objects : 
 
 1. Complete freedom of trade throughout the 
 British Empire with all the world, exclusive for the 
 present (as a practical necessity) of restrictions indis- 
 pensably requisite for fiscal purposes. 
 
 2. The final and unqualified abandonment of a 
 policy of conquest and territorial aggrandizement in 
 every quarter of the world. 
 
 3. The adoption of the general principles of non- 
 intervention and arbitration in our foreign policy, 
 publicity in all the transactions of diplomacy, and the 
 renunciation of all ideas of national preponderance 
 and supremacy. 
 
 4. The reduction of military and naval forces by 
 international co-operation. 
 
 5. A large reduction of taxation. 
 
 6. A reform in the laws affecting land. 
 
 7. Freedom of the press from all taxes, happily 
 stigmatized by Mr. Milner Gibson as taxes on know- 
 ledge. 
 
 8. A reform of maritime law. 
 
 We do not include in this programme the two 
 great measures of National Education and Parlia- 
 mentary Reform, because, although essential to the 
 progress and security of government, and as such of 
 course enlisting Cobden's sympathy, they are, after all, 
 the means and not the end of good government ; and 
 we are disposed to think that he felt that his peculiar 
 powers could be more usefully devoted to the assertion
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 41 
 
 of the principles on which governments should be 
 conducted than to the construction of the machinery 
 out of which they should be elaborated. We will 
 endeavour to give briefly an outline of what appear to 
 have been Cobden's views on the leading divisions of 
 national policy which the foregoing programme was 
 designed to affect. We have said that the central 
 idea of the national policy represented by Cobden 
 was " Free Exchange " in the most comprehensive 
 meaning of that term as the necessary complement of 
 personal freedom, and the full assertion of the rights 
 of property and labour. The realization of this idea 
 logically involves all the consequences which Cobden 
 aimed at promoting by direct or indirect efforts. 
 
 foreign Policy. In the field of foreign policy these 
 consequences were immediate and obvious. The 
 principle of foreign policy under a system of monopoly 
 is national independence in other words, " isolation ; " 
 under that of free exchange it is international inter- 
 dependence. We have already observed upon the 
 bearing of this latter principle on the doctrine of the 
 balance of power, and pointed out the fundamental 
 difference between a policy which proceeds on prin- 
 ciples of international morality, and appeals to the 
 common interests of all nations of the earth, and one 
 which rests on ideas of national supremacy and rivalry. 
 But in the practical application of the Free Trade 
 foreign policy, there has been so much misunderstand- 
 ing of Cobden's views, and, as we think, so much 
 confusion of thought even among advanced Liberals,
 
 42 FREE EXCHANGE, 
 
 that a few further remarks may be useful. This 
 policy is ordinarily characterized by the name of non- 
 intervention. In some respects this designation has 
 been an unfortunate one. It has given colour to the 
 idea that what was desired was a blind and selfish 
 indifference to the affairs of other countries, and a 
 sort of moral isolation, as foreign to the principle of 
 international interdependence as it is impossible in 
 connection with increased material intercourse. 
 
 Cobden never, so far as we are aware, advanced or 
 held the opinion that wars other than those under- 
 taken for self-defence were in all cases wrong or 
 inexpedient. 
 
 The question, as we apprehend it, was with him 
 one of relative duties. It is clear that the duty and 
 wisdom of entering upon a war, even in defence of 
 the most righteous cause, must be measured by our 
 knowledge and by our power ; but, even where our 
 knowledge is complete and our power sufficient, it is 
 necessary that, in undertaking such a war, we should 
 be satisfied that, in doing so, we are not neglecting 
 and putting it out of our reach, to fulfil more sacred 
 and more imperative duties. 
 
 The cases are rare in the quarrels of other nations, 
 still rarer in their internal dissensions, in which our 
 knowledge of their causes and conditions, and our 
 power of enforcing the right, and assuring its success, 
 in any degree justifies us in armed interference the 
 last resort in the failure of human justice. 
 
 But even if these difficult conditions of our justi-
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 43 
 
 fication in such a war were satisfied, the cases must 
 be rare indeed in which, with a population of which 
 so large a part is barely receiving the means of decent 
 existence, and another part is supported by public 
 charity at the expense of the rest, and at a charge of 
 nearly ^10,000,000 per annum, this country would be 
 justified in imposing on our labouring classes (on 
 whom, be it remembered, the burden must chiefly fall) 
 the cost of obtaining for another people a degree of 
 freedom or a measure of justice which they have so 
 imperfectly secured for themselves. 
 
 Such a course is certainly not defensible unless the 
 people have a far larger share in the government of 
 their country than they possessed during Cobden's life 
 in England. 
 
 When we add to these considerations the singular 
 inaptitude of the governing classes of this country to 
 comprehend foreign affairs, the extraordinary errors 
 which are usually to be observed in their judgments 
 and opinions on foreign questions, and the dangerous 
 liability to abuse in the hands of any government, of 
 the doctrine of " Blood and Iron," even if it be some- 
 times invoked in a just cause, we shall, we think 
 (without asserting that it must be inflexibly enforced), 
 acknowledge the sober wisdom of Cobden's opinion, 
 that, for all practical purposes, at least for this gene- 
 ration, the principle of non-intervention should be 
 made, as far as general principles can be applied to 
 such questions, the rule of our foreign policy. 
 
 Let those who sneer at what they consider a sordid
 
 44 FREE EXCHANGE. 
 
 and ungenerous view, reflect on the history of the past, 
 and ask themselves what is to be the hope of humanity 
 if the motives which have hitherto regulated the policy 
 of our country are in future to determine the inter- 
 course of nations. 
 
 Let them look back upon the great French war, 
 not as it is interpreted by Cobden in his most in- 
 structive paper in the work before us, but read by the 
 light of those teachers of history who see in it a 
 proud record of England's glory and power in vin- 
 dicating the liberties of mankind, and satisfy their 
 conscience, if they can, of the righteousness of a 
 cause which required the aid of Holy Alliances, the 
 legions of despots, and a campaign which terminated 
 in the Congress of Vienna ; and which ended in the 
 suffocation of popular rights for half a century, the 
 enactment of the English Corn Law and all that it 
 represents, and a condition of Europe which even now 
 almost precludes the hope of real civilization. 
 
 Colonial Policy. There is no branch of the national 
 economy in which the neglect of Cobden's principles 
 has led to more glaring and lamentable results than 
 in that between the mother country and what are 
 called its " foreign possessions." The inability even 
 of the Government which was borne to power on the 
 shoulders of the Anti-Corn-Law League to appre- 
 hend the scope and importance of Free Trade is in 
 no direction more strikingly manifested than in the 
 colonial policy. 
 
 Would it not have been possible, when the right
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 45 
 
 of self-government was conferred upon our colonial 
 possessions, to have stipulated, as a necessary con- 
 dition, and as a great and fundamental rule of im- 
 perial policy, the complete absence of protection 
 throughout the dominions of the Crown ? 
 
 Instead of this, the most confused idea prevailed, 
 and still prevails, as to the limits of colonial self- 
 government in adopting a commercial policy, opposed 
 to the principles and interests of the mother country. 
 
 The colonies have been allowed to impose pro- 
 tective duties on British manufactures, and on those 
 of foreign countries ; but they are not allowed to 
 discriminate between the two. They are allowed to 
 protect : would they be allowed to prohibit ? for it 
 must be remembered that protection, so far as it 
 restricts a trade, is nothing more nor less than pro- 
 hibition to that extent ; and if not to prohibit, where 
 is the line to be drawn, at duties of 20, or 30, or 50, 
 or 100 per cent. ? 
 
 Again, the colonies are allowed to tax and restrict 
 our trade, but are compelled to give perfect freedom 
 to our ships, both in their foreign and coasting trades, 
 and then, as if to destroy and efface all trace and 
 remnant of principle in our policy, they are compelled 
 to admit foreign ships in their foreign trade, but 
 allowed to exclude them from their coasting trade 
 (thus violating the rule of equality between British 
 and foreign trade laid down with respect to goods), 
 but are not allowed to admit them to that trade on 
 less favourable terms than British ships : in other
 
 46 FREE EXCHANGE. 
 
 words, they are allowed to inflict the greater, but not 
 the less, injustice ! 
 
 Can any conceivable confusion be more hopelessly 
 confounded ? 
 
 Does self-government apply to trade and not to 
 shipping ? Does it apply to a coast trade and not 
 to a foreign trade ? And is it not out of place to talk 
 of self-government at all, as a principle, when every 
 Colonial Act must be sanctioned by the Crown 
 before it becomes law ? 
 
 The truth is that we have here another instance 
 of the evil effects of a displacement or dislocation of 
 responsibility. 
 
 It is clear that the right of absolute self-govern- 
 ment involves the corresponding duty of self-support 
 and self-defence ; and as the colonies are far from 
 having undertaken the latter, it is surely not too 
 much to call on them to admit such a degree of 
 interference with their self-government as imperial 
 interests require. 
 
 It is estimated that the military and naval expenses 
 borne for the colonies by the mother country amount 
 to .6,000,000 a year more than the revenue derived 
 from our sugar duties ! If such sacrifices as these 
 are imposed on the British taxpayer, has he not a 
 right to be allowed to trade on equal terms with his 
 colonial fellow-subjects ? Cobden never lost an op- 
 portunity of protesting against this last misappro- 
 priation of the money of the old country, and of 
 exposing the secret connection of this feature in our
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 47 
 
 policy, with the perpetuation of pretexts for increased 
 armaments. 
 
 But to return to our commercial policy. Has a 
 colonial Minister ever asked himself what is the 
 difference between entering into a compact with a 
 foreign Government for the regulation of international 
 trade, and entering into a similar compact with a 
 colonial Government ? Does the fact that the first 
 would probably be recorded in a treaty and the second 
 in an Act of Parliament affect the essence of the 
 agreement, and render the one a legitimate and the 
 other an illegitimate form of international action ? If 
 so, it would be better that our colonies should become 
 in reality, as well as in name, "foreign possessions," 
 so that we might then be allowed to treat with them. 
 
 It is painful to think of the contrast between our 
 present position and prospects as a nation, and that 
 which it might have presented, had the foundations 
 of our colonial empire been laid broad and deep in 
 commercial freedom. Is it yet too late ? Is no effort 
 yet possible towards such a consummation ? 
 
 Eastern Policy. The British rule in India was to 
 Cobden a subject of the deepest anxiety and appre- 
 hension. His paper in the present volumes entitled, 
 " How Wars are got up in India," is an honest and 
 indignant criticism upon an episode in our Indian his- 
 tory which has only too many parallels, and gives 
 expression to one of his strongest convictions, viz. the 
 retribution which one day awaits the lust of power 
 and of territorial aggrandizement, and the utter dis-
 
 48 FREE EXCHANGE. 
 
 regard of morality so often exhibited in our dealings 
 with the races of this great dependency. But in our 
 Eastern policy much progress has been made since 
 Cobden's time, and we have seen, we trust, the dawn 
 of a better day in the administration of Lord Lawrence 
 in India, and in the policy of Sir F. Bruce at Pekin. 
 
 Reduction of Military and Naval Expenditure. 
 The changes advocated by Cobden in our foreign 
 and colonial policy necessarily involved a large reduc- 
 tion in our military and naval establishments, and to 
 this object his most strenuous efforts were constantly 
 directed ; but here the difficulties which he had to 
 encounter were enormous, and the Crimean War and 
 its results throughout Europe have rendered all 
 attempts at reform in this branch of our national 
 economy hitherto unavailing. 
 
 In attacking our " Services " he not only had to 
 contend against powerful interests, connected with 
 almost all the families of the upper and middle 
 classes of the country, but also against many honest, 
 though mistaken, opinions, as to the causes of national 
 greatness and the sources of our power. It was the 
 widespread prevalence of such opinions, combined 
 with the selfish influence of the worst element in 
 British commerce, which led, on the occasion of the 
 Chinese War in 1857, to the rejection of Cobden by 
 the West Riding, and of Bright and Gibson by 
 Manchester. The class of ideas symbolized by the 
 " British Lion," the " Sceptre of Britannia," and the 
 " Civis Romanus," irrational and vulgar as they are,
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 49 
 
 have nevertheless a side which is not altogether 
 ignoble, and are of a nature which it requires more 
 than one generation to eradicate. 
 
 Cobden approached this question of reduction by 
 two different roads. He endeavoured to bring to 
 bear upon it international action, by arrangements 
 for a general limitation of armaments, in which, as 
 regards France, there appeared more than once some 
 possibility of success, and in which he was cordially 
 supported by Bastiat in the years succeeding the 
 repeal of the Corn Laws ; he also sought, by every 
 means in his power, to urge it on his countrymen, 
 by appeals to their good sense and self-respect. He 
 exposed, firstly, our policy ; and secondly, our adminis- 
 tration ; and showed, with irresistible arguments, that, 
 while the one was unsound, the other was extra- 
 vagant; and that thus the British people were con- 
 demned, not only to provide for what was useless and 
 even dangerous, but at the same time to pay an 
 excessive price for it. 
 
 He tells us in his article on Russia, vol. i. p. 
 
 309 
 
 " If that which constitutes cowardice in individuals, 
 
 viz. the taking excessive precautions against danger, 
 merits the same designation when practised by com- 
 munities, then England certainly must rank as the 
 greatest poltroon among nations." 
 
 It is incontestable that the extent of our precau- 
 tions against danger should be proportioned to the 
 degree of that danger, and it cannot, we think, be 
 
 E
 
 50 FREE EXCHANGE. 
 
 denied, even by those who are the most disposed to 
 connect the greatness and security of England with 
 the constant display of physical force, that as our 
 liability to war has diminished, our preparations for it 
 should also diminish ; and that it is as irrational to 
 devote to our " Services " in a period of " Free Trade," 
 colonial self-government, and non-intervention, the 
 sums which were wrung from our industry in an 
 epoch of monopoly, of colonial servitude, and of a 
 " spirited foreign policy," as it would be to pay the 
 same insurance on a healthy as on a diseased life. 
 
 For what are the causes (under her own control) 
 which render a country liable to war ? 
 
 They may, for present purposes, be classed under 
 the following heads : 
 
 1. The disposition to engage in wars of conquest 
 or aggression. 
 
 2. The necessity of maintaining, for the purpose 
 of repressing liberty at home, large standing armies, 
 which a Government may be compelled to employ in 
 foreign wars, either to gratify the military spirit 
 engendered by the existence of a powerful service, or 
 to divert public attention from domestic reforms. 
 
 3. The habitual violation of the rights of labour 
 and property in international relations, by prohibitive 
 and protective laws of trade. 
 
 4. The policy of providing outlets for trade, and 
 of introducing what are called the agencies of civiliza- 
 tion, by means of consuls and missionaries, supported 
 by gun-boats and breech-loaders.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 51 
 
 5. The pretension of holding the balance of power, 
 and of interfering, with this object, in the affairs of 
 other nations, with its result, the theory of armed 
 diplomacy, which aims, by a display of force, at 
 securing for a country what is assumed to be its due 
 influence in foreign affairs. 
 
 All these motives would be absolutely removed 
 under a system of government such as that which 
 Cobden advocated, and even now, they are, we believe, 
 very generally discredited, with the exception, per- 
 haps, of the last, which must, however, be so cut down 
 and modified in order to be a pretext for military 
 armaments, as to lose its general character, and to 
 require re-statement. The doctrine of the " balance of 
 power" is, we hope, consigned to the limbo of exploded 
 fallacies, with the "balance of trade," and we refer 
 any remaining believers in the balancing system to 
 the history and analysis of this phenomenon, in the 
 essay on Russia in the work before us, as we think 
 it cannot fail to dispel any lingering faith in this 
 delusion. 
 
 With the rejection of the doctrines of the " balance 
 of power," a fruitful source of dangerous meddling in 
 the affairs of foreign countries has been cut away. 
 There only remains, therefore, the limited form of 
 armed interference in foreign affairs to which we have 
 already adverted, and which it is still thought by 
 many among us, and even by a large section of the 
 Liberal party, we should be prepared to exert in 
 certain events, and for which, if the principle be
 
 52 FREE EXCHANGE. 
 
 admitted, some allowance must be made in estimating 
 the extent of our military and naval requirements. 
 
 We refer to the supposed duty of England to 
 resort to war in possible cases for the purpose of 
 defending the principles of free government or inter- 
 national law, or of protecting a foreign country from 
 wanton or unjust aggression. On this subject we 
 have already stated what we believe to have been 
 Cobden's view ; but, whatever margin may be left 
 for this consideration, it must be admitted by candid 
 reasoners, that the liability of the country to war 
 under a policy such as that of which the general 
 outlines have been traced, would be reduced within 
 narrow proportions. 
 
 Cobden was often blamed for not devoting more 
 time and labour to the task of minute resistance to 
 the " Estimates " in the House of Commons. This 
 was the result of his perfect conviction, after years 
 of experience and observation, that such a course was 
 absolutely useless, and that no private member, how- 
 ever able or courageous, could cope in detail with the 
 resources at the disposal of Government in evading 
 exposure and resisting reductions. He therefore 
 always insisted that the only course was to strike at 
 the root of the evil, by diminishing the revenue and 
 the expenditure in the gross. 
 
 Taxation. This brings us to our next topic, 
 which is inextricably bound up with the last, viz. 
 the reduction of the national expenditure, and the 
 consequent diminution of taxation, objects the im-
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 53 
 
 portance of which is becoming yearly more vital. 
 Cobden knew that no material reform in our finan- 
 cial system could be effected (for all that has been 
 hitherto done has been to shift the burden, and not 
 to diminish it) until our external policy was changed, 
 and hence his incessant efforts in this direction ; but 
 he also knew that the surest method of accomplishing 
 the latter object was to diminish the resources at 
 the disposal of Government for military and naval 
 purposes. 
 
 The first object in financial reform was, therefore, 
 in Cobden's opinion, the gradual remission of in- 
 direct taxation. 
 
 In a letter to the " Liverpool Association" he made 
 use of the remarkable expression that he considered 
 them to be the only body of men in the country 
 who appeared to have any faith in the future of 
 humanity. 
 
 His objections were threefold, and they are to our 
 mind conclusive : 
 
 " i. The dangerous facilities which they afford for 
 extravagant and excessive expenditure, by reason of their 
 imperceptibility in collection, and of the consequent readiness 
 of the people to submit to them, and also of the impossibility 
 of insuring a close and honest adaptation of the revenue to 
 the expenditure. 
 
 "2. Their interference with the great law of free ex- 
 change, one of the rights of property, and (so far as customs 
 duties are concerned) the violation of international equity 
 which they involve ; for it is obvious that the conditions of 
 international trade are essentially affected by taxes on 
 imports and exports, and it is impossible to apportion them
 
 54 FREE EXCHANGE. 
 
 so as to insure that each country shall pay neither more nor 
 less than its own due share. 
 
 " 3. The enhancement of the cost of the taxed article 
 to the consumer, over and above the amount of the tax." 
 
 The root of the evil may again be traced to the 
 infringement in the case of indirect taxes, of the great 
 law of " free exchange of services, freely debated." 
 A tax is nothing more than a service contributed to 
 the State by the people, in return for a corresponding 
 service rendered to the people by the State. The 
 great object, therefore, in imposing a tax should be 
 to connect it as closely as possible with the service 
 for which it is required, and to facilitate as far as 
 possible a close comparison between the two. The 
 superiority of a direct tax, like the income-tax and 
 the poor-rate, over taxes on consumption and on 
 trade, from this point of view, is apparent ; but such 
 is the distorted view of large classes in the country on 
 this subject, that they consider what we have charac- 
 terized as the great vice of indirect taxation, as its 
 chief and distinguishing merit, and that the supreme 
 art of government consists in extracting from the 
 pockets of the people, by a sort of " hocus pocus," 
 the largest possible amount of money without their 
 knowing it. 
 
 Do those who with so much naivete repeat this 
 argument whenever this question is discussed, ever 
 reflect, that to drug the taxpayer before he pays his 
 money will in no degree diminish the evil to a country, 
 of excessive taxation, and that ignorance and irrespon-
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 55 
 
 sibility are not the best securities for an efficient and 
 conscientious administration of our public affairs ? 
 
 If it be objected that indirect taxation is the only 
 method by which the masses of the people can be made 
 to contribute their share to the revenues of the State, 
 we reply, that if the condition of the masses of the 
 people in any country is such as to place them beyond 
 the reach of direct taxation, it is the surest proof that 
 the whole national economy is out of joint, and that, 
 in some form or other, resort will be had to " com- 
 munism." In England we have too clear and disastrous 
 evidence of this in our Poor Law system, and in our 
 reckless and prodigal almsgiving. In withholding 
 from our children the bread of justice, we have given 
 them the stone of enforced and sapless charity. 
 
 We hail, therefore, with pleasure the movement 
 which is beginning in Germany and Belgium, in favour 
 of a gradual abolition of all customs duties ; and are 
 convinced that there is none, perhaps, among all the 
 articles of the Liberal creed which, both in its direct 
 and indirect effects, contains the promise of so much 
 future good. 
 
 The fulfilment of this policy should, we think, be 
 rigorously exacted from every Liberal Government, 
 till no tax of customs or excise remain upon the 
 statute-book, save those on tobacco and spirits, which 
 our heritage of debt has placed it beyond the pale 
 of hope to remove by any scheme of practical and 
 proximate reform. 
 
 Land. Cobden held that the growingaccumulation,
 
 56 FREE EXCHANGE. 
 
 in the hands of fewer and fewer proprietors, of the soil 
 of the country, was a great political, social, and econo- 
 mical evil, and as this tendency is unquestionably 
 stimulated by the system of our government, and some 
 of our laws, which give it an artificial value, he foresaw 
 that one of the principal tasks of the generation which 
 succeeded him, must be to liberate the land from all 
 the unnecessary obstacles which impede its acquisition 
 and natural distribution, and to place it under the 
 undisturbed control of the economic law. 
 
 We cannot here attempt to enter upon a due 
 examination of the causes which in this country 
 neutralize and subvert this law in the case of landed 
 property, but the general principle involved may be 
 very shortly suggested. 
 
 The more abundant the supply of land in a country, 
 the cheaper, ctzteris paribus, will it be, the larger will 
 be the return to the capital and labour expended on it, 
 and the greater the profits to be divided between them. 
 
 It is obvious that laws which keep land out of the 
 market, laws of entail, laws of settlement, difficulties 
 of transfer, as well as a system of government which 
 gives to the possession of land an artificial value, for 
 social or political purposes, over and above its natural 
 commercial value, must have the inevitable effect of 
 restricting the quantity, of enhancing the price, and of 
 diminishing the product to be obtained. Land thus 
 acquires a monopoly price, small capitals are deterred 
 from this form of investment, competition is restricted, 
 production is diminished, and the condition of those
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 57 
 
 who live by the land, as well as of those who exchange 
 the produce of their labour for the produce of the 
 land, is necessarily impaired. 
 
 To illustrate our meaning by an extreme case : let 
 us suppose that the State were to connect with pro- 
 perty in land the highest titles and privileges, on the 
 condition that it was entirely diverted from all produc- 
 tive uses, and kept solely for purposes of ornament 
 and sport, and that the honours and advantages so 
 conferred were sufficiently tempting to induce many 
 persons to accept these conditions. It must follow 
 that the stock of available land in such a country 
 would be diminished to whatever extent it was so 
 appropriated, and its material resources proportionately 
 reduced. 
 
 In a less degree, who can deny that these causes 
 are operating among us, and are a source of incal- 
 culable loss and waste of the national wealth ? The 
 suggestion last year that our coal-beds would be ex- 
 hausted in one hundred years, almost startled Parlia- 
 ment from its propriety. Yet we acquiesce year 
 after year, without a murmur, in a curtailment of our 
 supply of land, and those who warn us of our danger 
 are denounced as the agents of revolution. 
 
 In his speech at Rochdale, in November, 1864, 
 which was his last public utterance, Cobden especially 
 left this task as a legacy to the younger men among 
 us, and told them that they could do more for their 
 country in liberating the land than had been achieved 
 for it in the liberation of its trade.
 
 58 FREE EXCHANGE. 
 
 Maritime Laws. On the question of " Maritime 
 law," it is well known that he advocated the largest 
 extension of the rights of neutrals, and the greatest 
 possible limitation of the rights of belligerents, as a 
 necessary and logical accompaniment of a Free Trade 
 policy. 
 
 His views on this subject will be seen from a letter 
 addressed to Mr. H. Ashworth, in 1862, in which he 
 recommends the following three reforms : 
 
 1. Exemption of private property from capture at 
 sea during war by armed vessels of every kind. 
 
 2. Blockades to be restricted to naval arsenals, and 
 to towns besieged at the same time by land, except 
 as regards contraband of war. 
 
 3. The merchant ships of neutrals on the high seas 
 to be inviolable to the visitation of alien Government 
 vessels in time of war as in time of peace. 
 
 In this letter he observes 
 
 " Free Trade, in the widest definition of the term, means 
 only the division of labour by which the productive powers of 
 the whole earth are brought into mutual co-operation. If 
 this scheme of universal independence is to be liable to sudden 
 dislocation whenever two Governments choose to go to war, it 
 converts a manufacturing industry such as ours into a lottery, 
 in which the lives and fortunes of multitudes of men are at 
 stake. I do not comprehend how any British statesman who 
 consults the interests of his country and understands the 
 revolution which Free Trade is effecting in the relations 
 of the world, can advocate the maintenance of commercial 
 blockades. If I shared their views I should shrink from pro- 
 moting the indefinite growth of a population whose means of 
 subsistence would be liable to be cut off at any moment by a
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 59 
 
 belligerent power, against whom we should have no right of 
 resistance, or even of complaint. 
 
 " It must be in mere irony that the advocates of such a 
 policy as this ask Of what use would our navy be in case of 
 war if commercial blockades were abolished ? Surely, for a 
 nation that has no access to the rest of the world but by sea, 
 and a large part of whose population is dependent for food on 
 foreign countries, the chief use of a navy should be to keep 
 open its communications, not to close them ! 
 
 " I will only add that I regard these changes as the 
 necessary corollary of the repeal of the Navigation Laws, the 
 abolition of the Corn Laws, and the abandonment of our 
 colonial monopoly. We have thrown away the sceptre of 
 force, to confide in the principles of freedom uncovenanted, 
 unconditional freedom. Under the new regime our national 
 fortunes have prospered beyond all precedent. During the 
 last fourteen years the increase in our commerce has exceeded 
 its entire growth during the previous thousand years of reliance 
 on force, cunning, and monopoly. This should encourage us 
 to go forward in the full faith that every fresh impediment 
 removed from the path of commerce, whether by sea or land, 
 and whether in peace or war, will augment our prosperity, at 
 the same time that it will promote the general interests of 
 humanity." 
 
 In most of the foregoing questions, Cobden, as we 
 have said, was contented to preach sound doctrine, 
 and to prepare the way for the ultimate adoption of 
 principles of policy and government, which in his time 
 he could not hope to see prevail. 
 
 But he was destined, before the close of his career, 
 once more to engage in a great practical work, and 
 to identify his name with an accomplished success, 
 scarcely inferior in its scope and results to the repeal 
 of the English Corn Law.
 
 . 
 
 60 FREE EXCHANGE. 
 
 This was the Commercial Treaty with France. 
 
 As the Corn Law was the great stronghold of 
 monopoly in England, so was the prohibitive system 
 in France the key-stone of protection in Europe, and 
 Cobden selected these accordingly, with the unerring 
 instinct of real statesmanship, as the first points for 
 attack, and fastened upon them with a tenacity and 
 resolution which insured success. 
 
 Fifteen years had elapsed since England had 
 renounced, in principle at least, the false system of 
 commercial monopoly, and, in Cobden's words quoted 
 above, " thrown away the sceptre of force, to confide 
 in freedom." 
 
 She had trusted to the teaching of her example, 
 and to the experience of her extraordinary success, 
 in leading the countries of Europe to answer to her 
 appeal for co-operation in liberating trade, and vin- 
 dicating the rights of labour; but she had met with 
 slight response. 
 
 Our conversion was perhaps too recent, our course 
 still too inconsistent, and our motives too much open 
 to suspicion, to make this surprising, and, so far as 
 France was concerned, we had unfortunately contrived 
 in all our reforms to retain in our tariff restrictions upon 
 the staple articles of French production, wine and silk. 
 
 The time had come when, unless some new impulse 
 could be given to international intercourse, the forces 
 of reaction might have again acquired the ascendency, 
 and European progress have been thrown back for 
 years.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 61 
 
 Our relations with France were those of chronic 
 distrust and rivalry. The cry of Perfide Albion in 
 France too often resounded in our ears ; and the 
 bugbear of French invasion was successively invoked 
 on this side of the Channel no less than three times in 
 the period we are considering. 
 
 This was a state of things fraught with danger. 
 Monopoly had borne as usual its deadly fruits, in 
 alienating two great nations destined by nature for the 
 closest relations of friendship and mutual dependence, 
 and in fostering in both the spirit of war. 
 
 It was under circumstances such as these that 
 Cobden set his hand to the great work of co-operation 
 which led to the Commercial Treaty. 
 
 Bastiat, who would have hailed with delight this 
 tardy reparation of the defects in our reformed com- 
 mercial system which he always deplored, was no 
 longer alive to aid the cause ; but tqone of the most 
 distinguished of modern French economists, Michel 
 Chevalier, is due, in concert with Cobden, the merit 
 of the scheme which the Governments of England 
 and France were induced to adopt, which has opened 
 to us the prospect of a new era of progress, in the 
 gradual union of the nations of Europe in a great 
 commercial confederation, and in laying the founda- 
 tions of a civilization, which may yet keep pace with 
 that now dawning on our race in the Anglo-Saxon 
 republics of the Western world. 
 
 It was pleasant to see how his old friends rallied 
 around him on this occasion, and how many, who had
 
 62 FREE EXCHANGE. 
 
 been often unable to comprehend or follow him in his 
 political career, rejoiced to see him once again in the 
 field, against his old enemy, Protection. But, on the 
 other hand, he was assailed by an influential class 
 among us with a bitter animosity, which all but made 
 his task impossible, and which revealed too clearly 
 the strength and vitality of the reactionary forces 
 still at work in our midst. 
 
 As Cobden saw in his beneficent work the hope of 
 a new era of peace, and of liberal progress in Europe, 
 as its certain fruit, so did his opponents instinctively 
 perceive that his success would carry with it the doom 
 of the traditions of hatred and of fear, which the 
 Governments of Europe had too often successfully 
 invoked, to plunge the people into wars of which they 
 are the invariable victims, and to keep alive the 
 rumours of wars, which have deprived them of the 
 solid fruits of peace. 
 
 So long as the political condition of Europe is such 
 as to render necessary or possible the large armaments, 
 which are a reproach to our age and boasted civilization, 
 while 4,000,000 men, in the flower of their age, are 
 taken from productive industry, and supported by the 
 labour of the rest of the population, no real and 
 permanent progress can be made in the emancipation 
 of the people, and in the establishment of free 
 institutions. 
 
 At the time of which we are speaking, even still 
 more than at present, all direct attempts to mitigate 
 this monster evil appeared hopeless ; and although
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 63 
 
 Cobden never ceased to urge, both in England and 
 France, the wisdom of a mutual understanding, with 
 a view to reduced armaments, he knew that the only 
 certain and available method of undermining this fatal 
 system, and preparing for its ultimate overthrow, was 
 to assist in every way the counter-agencies of peace. 
 
 It was in the consciousness that by breaking 
 down the barriers to commercial intercourse between 
 England and France, a greater impulse would be 
 given than by any other event to the forces of progress 
 in Europe, that the men who in both countries under- 
 took and completed this international work entered 
 upon their task. We have said that the time has not 
 arrived when it is possible to speak freely of this 
 episode in Cobden's life, but it is necessary to vindi- 
 cate his policy from charges, which, although forgotten 
 and overwhelmed in its extraordinary success, were 
 brought against it too commonly, and from quarters 
 whence it ought least to have been expected, at the 
 time. 
 
 In France he was reproached by many of his 
 earlier friends, whose sympathies were bound up with 
 the Orleanist or Republican regimes, and who viewed 
 with a natural aversion the Second Empire, for con- 
 tributing to a work which, if successful, might do more 
 than anything else to consolidate the Imperial reign. 
 He replied, that what the immediate effect might be 
 he neither knew nor cared, but that all the forces of 
 freedom were " solidaires," and that the ruler who 
 gave " Free Trade " to the nation, whether King,
 
 64 FREE EXCHANGE. 
 
 President, or Emperor, was doing that which, more 
 than anything else, would assure the future liberties 
 of France. 
 
 The same causes operated in many quarters to 
 make the Treaty unpopular in England ; but he was 
 also assailed in a more insidious form. He was 
 accused of having forgotten or forsaken the sound 
 doctrines of political economy, of which he had in 
 his earlier life been the uncompromising advocate, 
 and of having revived the discarded policy of " reci- 
 procity treaties." 
 
 It would perhaps be unnecessary to revert to this 
 charge, were it not that a suspicion of unsoundness 
 still lurks in many minds as to the principles of the 
 French, and subsequent, Treaties of Commerce. It 
 may be well, therefore, to say that, so far as this 
 charge was honest, and something more than a 
 convenient method of discrediting a measure which 
 it was desired to obstruct, it proceeded on a very 
 imperfect knowledge of the policy of the Treaty, and 
 on an erroneous and confused idea of the principles 
 of Free Trade itself. 
 
 The system of reciprocity treaties and tariff 
 
 bargains was one of the natural but most pernicious 
 
 developments of the doctrine of protection. The 
 
 most notorious of such treaties in our history is, 
 
 , perhaps, the famous Methuen Treaty, from the effects 
 
 ' of which we are still suffering in England, in the 
 
 ' shape of adulterated wine. These arrangements 
 
 aimed at the extension of the limits of monopoly, by
 
 THE POLITICAL OPINIONS OF RICHARD COBDEN. 65 
 
 securing for our products protection in a foreign 
 country, against the competition of all other countries, 
 and always proceeded on the supposed interest of the 
 producer, to the injury of the consumer. They were 
 logical, when it was believed or professed that the 
 reduction of a duty was a sacrifice on the part of the 
 country making it to the country in whose favour it 
 was made. From this point of view, it was natural, 
 in making such reductions, to demand what were 
 thought to be equivalent concessions from the country 
 with which we were treating, and the supreme art of 
 negotiation was held to consist in framing what had 
 the appearance of a " nicely adjusted balance of equi- 
 valents," but in which each country secretly desired, 
 and sought to obtain, the maximum of reductions from 
 the other, against the minimum of its own. 
 
 But from the Free Trade point of view, in which 
 all reductions of duties, at least so far as productive 
 duties are concerned, are an admitted and positive 
 gain to the country making them, it becomes absurd 
 and impossible to use them as the ground of a claim v 
 on a foreign country for compensating or equivalent 
 remissions. 
 
 The French Treaty had no affinity, except in form, 
 to treaties such as these. 
 
 Instead of a bargain in which each party sought to 
 give as little and to get as much as possible, it was a 
 great work of co-operation, in which the Governments 
 of England and of France were resolved, on both 
 sides, to remove, within the limits of their power, the 
 
 F
 
 66 FREE EXCHANGE. 
 
 artificial obstacles to their commercial intercourse 
 presented by fiscal and protective laws. 
 
 England had already spontaneously advanced much 
 further than France in this direction, and hence alone, 
 if for no other reason, all idea of " equivalent " con- 
 cessions was out of the question. She contributed her 
 share to the work, by sweeping from her tariff, with 
 some trifling exceptions, all trace and remnant of pro- 
 tection, and by reducing her fiscal duties upon wine 
 and brandy. 
 
 France, unable at one stroke to destroy the whole 
 fabric of monopoly, nevertheless made a deadly breach 
 in the edifice, by substituting moderate duties for 
 prohibition, in the case of the chief British exports. 
 
 If these reforms had been made exclusively in each 
 other's favour, they might have been justly open to 
 the charge of unsoundness, but they were made 
 equally for the commerce of all the world, on the 
 side of England immediately, on the side of France 
 prospectively, and thus, instead of reverting to a 
 system of monopoly, the prohibitive and differential 
 policy of France was annihilated, and the equal system 
 of England maintained and consolidated. 
 
 There were, however, two objections made to the 
 treaty of a more plausible kind, and which we will, 
 therefore, briefly notice : 
 
 First, that a work of this description need not 
 assume the form of a treaty, which tends to disguise 
 its real character, but should be left to the independent 
 legislation of each country.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 67 
 
 Secondly, that, although it might be well to abolish 
 protective duties by this method, it was impolitic to 
 fetter ourselves by treaty with respect to fiscal 
 duties. 
 
 As regards the first objection, it is sufficient to 
 reply, that at the time we are considering, for political 
 reasons, a treaty was the only form in which such a 
 measure could be carried in France ; but a more per- 
 manent justification is to be found in the fact that a 
 treaty is nothing more than an international statute- 
 law, and that, in a matter of international concern, it 
 is necessary that there should exist an international j**A 
 guarantee of permanence. Without such a security, 
 what would be the condition of trade ? 
 
 The second objection is more subtle, but has no 
 better foundation. A tax which, from whatever cause, 
 dries up an important source of national wealth, and 
 thus takes from the fund available for taxation more 
 than the amount gained by the revenue, is a bad 
 tax, and ought never, if possible, to be imposed or 
 maintained. 
 
 The tax on French wine and spirits had the effect 
 of restricting most injuriously one of the most im- 
 portant branches of our foreign trade, and would, if 
 maintained, have deprived us, by preventing the con- 
 clusion of the Treaty, of an addition of at least 
 ^20,000,000 sterling per annum, to the value of our 
 general exchanges with France. No wise legislation 
 could retain such a tax in the face of such conse- 
 quences. There is probably no other form of tax to
 
 68 FREE EXCHANGE. 
 
 which it would not have been preferable to resort, 
 rather than to maintain these obstacles to our trade 
 with France. 
 
 But the consequences of the Treaty with France 
 were not confined to that country and to England. 
 It was an act which, both by its moral effect and its 
 direct and necessary influence on the legislation of the 
 other Continental countries, has set on foot a move- 
 ment which grows from year to year, and will not 
 cease till all protective duties have been erased from 
 the commercial codes of Europe. 
 
 It was thus the rare privilege of the man who had 
 been the foremost in giving the death-blow to mono- 
 poly in England, to be also among the first to storm 
 the citadel of protection on the Continent, and to give 
 to the work which he commenced at home, a decisive 
 international impulse, destined to afford new securities 
 for the most sacred of human rights the right of 
 labour, and to add " new realms to the empire of 
 freedom." 
 
 Cobden had yet another success awaiting him, to 
 our mind the most signal triumph of his life. He lived 
 to see the great moral and economic laws, which he 
 had enforced through years of opposition and obloquy, 
 asserting their control over the forces of reaction, and 
 moulding our foreign policy. 
 
 It must have been with a superb and heartfelt 
 satisfaction that Cobden watched the conflict of public 
 opinion at the time of the Danish War. 
 
 The diplomatic intervention of the Government had
 
 THE POLITICAL OPTNIONS OF RICHARD COBDEN. 69 
 
 brought us to the verge of war, and made it more than 
 usually difficult to retreat. 
 
 The old instincts of the ruling classes of the nation 
 were thoroughly aroused, and, unless they had been 
 neutralized and overpowered by stronger and deeper 
 forces, we should, under a fancied idea of chivalry 
 and honour (if anything can deserve these names 
 which is opposed to reason and duty), have squandered 
 once more the hard-earned heritage of English labour, 
 in a war of which the causes and the merits were for 
 the most part unknown among us, and could never 
 have been made intelligible to the nation, and in which 
 our success, if possible, might have thrown back all 
 liberal progress for years, both in England and on the 
 Continent. 
 
 But it soon became manifest that a nobler and 
 larger morality had been gaining ground in the heart 
 of the nation, had at last found its expression in the 
 Councils of the State, and had enforced its control 
 over those who still believed that the mission of 
 England is to hold by force the balance of power in 
 Europe. 
 
 The memorable debate which decided the course of 
 our policy in this critical moment decided far greater 
 issues ; and the principle of " non-intervention," as it 
 has been explained above, the only hope for the 
 moral union of nations and the progress of freedom, 
 became the predominating rule of our foreign policy, 
 and, with different limitations and qualifications, a 
 cardinal point in the Liberal creed.
 
 7 o FREE EXCHANGE. 
 
 We must here close a hasty and imperfect sketch of 
 Cobden's political life and principles, in the hope that 
 the outline which we have traced may be filled up by 
 other hands. Our object will have been attained, if 
 we have succeeded in leading some of our readers to 
 suspect the erroneous and superficial nature of the 
 prevalent opinion of Cobden, in the upper ranks of 
 English society, and to believe that the verdict of 
 history will rather confirm the judgment of his humbler 
 countrymen, with whom his name has become a house- 
 hold word. 
 
 In reviewing the political programme given in the 
 preceding pages, we shall see that while much has 
 been done, far more remains to do ; and that, although 
 there is great cause for hope, there is also much ground 
 for fear. 
 
 Of all the dreams in which easy-going and half- 
 hearted politicians indulge, the idlest appears to be 
 that in which it is fondly imagined that the days of 
 party strife are over, and that no questions lie before 
 us, on which the majority of moderate and honest men 
 are not agreed. It is useless to shut our eyes to the 
 fact that, before the future greatness and prosperity of 
 our country can be assured, great issues must be raised, 
 and fierce political struggles traversed. We have a 
 firm and confident belief that the forces on the side of 
 progress are sufficient to achieve what is required for 
 this consummation, by peaceful and constitutional 
 reforms ; but the cause will not be won without 
 strenuous efforts.
 
 THE POLITICAL OPINIONS OF RICHARD COB DEN. 71 
 
 It will not be won without the aid of men who, in 
 the measure of their gifts, will bring to bear upon the 
 task the qualities of which in Cobden's life we have 
 such enduring proofs : pure morality, keen intelligence, 
 perfect disinterestedness, undaunted courage, indomi- 
 table tenacity of purpose, high patriotism, and an im- 
 movable faith in the predestined triumph of good 
 over evil. 
 
 That the principles of public morality which Cob- 
 den devoted his life to enforce will ultimately prevail 
 in the government of the world, we think that no one 
 V who believes in God or man can doubt. Whether it 
 be in store for our country first to achieve by their 
 adoption the last triumphs of civilization, and to hold 
 her place in the van of human progress, or whether to 
 other races, and to other communities, will be confided 
 this great mission, it is not for us to determine. 
 
 But those who trust that this may yet be England's 
 destiny, who, in spite of much which they deplore, 
 delight to look upon her past with pride, and her future 
 with hope, will ever revere the memory of Cobden, as 
 of one whose lifelong aim it was to lay the founda- 
 tions of her empire in her moral greatness, in the 
 supremacy of reason, and in the majesty of law, and 
 will feel with us that the "international man " was also, 
 and still more, an Englishman.
 
 72 FREE EXCHANGE. 
 
 II. 
 
 THE POLICY OF COMMERCIAL 
 TREATIES. 
 
 (AN OFFICIAL MEMORANDUM ON THE COMMERCIAL TREATY WITH 
 AUSTRIA, 1865, NOW PUBLISHED FOR THE FIRST TIME.) 
 
 THE policy of England under her Free Trade system 
 with respect to Commercial Treaties has been so 
 strangely misunderstood or misrepresented, and there 
 appears to exist in the public mind so much confusion 
 of thought upon the subject, that it is important upon 
 an occasion which has already revived a controversy 
 which ought never to have arisen, to record in a brief 
 outline the principles upon which it has proceeded, 
 and the results which it has achieved. 
 
 The conclusion of the Treaty with Austria is a 
 peculiarly suitable moment for such a review, as it is 
 the first successful application of that policy in a form 
 which leaves no room for cavil or doubt as to its 
 entire conformity with the so-called " Free Trade prin- 
 ciples " which have guided our commercial legislation 
 during recent years. 
 
 First, then, let us define what is commonly meant 
 by " Free Trade principles." 
 
 All that has ever been meant in this country by
 
 THE POLICY OF COMMERCIAL TREATIES. 73 
 
 " Free Trade," in connection with any question of prac- 
 tical legislation, is the liberation of trade from all pro- 
 tective duties. The term may some day mean a great 
 deal more ; but it is not among the opponents of 
 modern Commercial Treaties that we shall find the 
 advocates of its wider application. 
 
 The leading principle, then, of the recent commer- 
 cial policy of England is war against protection in 
 every form. 
 
 I propose to consider in what way this principle 
 has been infringed by the French or the Austrian 
 Treaty ; but it will first be necessary to recall the 
 course of legislation which preceded this last develop- 
 ment of the Free Trade movement. 
 
 Until the repeal of the Corn Laws in 1846, the 
 doctrine of protection, though damaged and under- 
 mined, still retained a firm hold on the minds of the 
 governing classes in that country. 
 
 There still prevailed an illogical idea that the con- 
 ditions of production ought to be artificially equalized, 
 and that the consumer ought to be made to support 
 the burden of industries which were supposed to be 
 unable to prosper without public subsidies ; in other 
 words, that the nation ought not to be allowed a free 
 exchange of its products precisely in those cases 
 where it would derive the greatest advantage from 
 such exchange. 
 
 It was not surprising that under this order of ideas 
 reductions of duty upon the produce of a foreign 
 country came to be regarded as national sacrifices,
 
 74 FREE EXCHANGE. 
 
 which entitled the country making them to correspond- 
 ing concessions, and hence the policy of tariff bargains, 
 which more or less will be found to have pervaded 
 the commercial negotiations of the period, and which 
 survived even so late as the Reciprocity Treaty be- 
 tween the United States and the British provinces of 
 North America. 
 
 It was probably owing to a perception of this 
 fallacy, and also in some degree to the gradual and 
 fragmentary introduction in this country of Free Trade 
 measures, that the British Government proceeded to 
 carry through these reforms, without any reference to 
 the legislation of foreign countries, and without any 
 attempt to obtain their co-operation in a common 
 effort to root out a form of human oppression, which, 
 though resting on cunning instead of force, and applied 
 to the produce of labour instead of to the person of 
 the labourer, is no less opposed to justice, and no less 
 a violation of the rights of property, than slavery itself. 
 
 Had it been possible at any one time, by adopting 
 in one great policy of commercial reform the measures 
 which were successively introduced, and by an appeal 
 to the conscience and interests of Europe, to obtain 
 simultaneously the removal of corresponding restric- 
 tions in the continental countries, it is difficult to see 
 on what grounds of principle or expediency such a 
 course could have been impugned. 
 
 It is one thing to make internal reforms which are 
 dictated by national interest and demanded by justice, 
 conditional on the co-operation of foreign countries ;
 
 THE POLICY OF COMMERCIAL TREATIES. 75 
 
 it is another to take the occasion of those reforms to 
 found an appeal to foreign countries resting upon in- 
 ternational equity, and grounded in reason, to make 
 common cause with you m a great work of freedom 
 and progress. 
 
 More than this, the two principles are not only 
 different, they are directly opposed to each other. 
 The first rests upon the fallacy that to liberate trade 
 without reciprocity is an evil ; the second, on the 
 incontestable truth that Free Trade in all countries is 
 better than in one alone. 
 
 But such a course was probably not possible, and 
 it may perhaps have been on the whole better that 
 England was left to work out her commercial salva- 
 tion in her own time, and in her own way. She was 
 enabled, moreover, the better to do this from her 
 comparative independence of European trade : the 
 great markets of America and of her Colonial posses- 
 sions being sufficient for many years to absorb her 
 productions. If she has thereby forfeited the power 
 of offering tariff reductions as material bribes to other 
 countries for commercial reforms, she has certainly 
 acquired the right of presenting herself in the councils 
 of Europe as the representative of a great principle. 
 
 It is this right which is questioned by the oppo- 
 nents of the recent commercial policy ; we shall here- 
 after examine upon what grounds. 
 
 But admitting that this course was not only the 
 best that was possible, but in itself the best, it must 
 not be forgotten (and I think it has been too much
 
 76 FREE EXCHANGE. 
 
 forgotten) that these national reforms, however fruit- 
 ful in good results, must not be regarded as constituting 
 a complete and fulfilled policy, but as the first act in 
 a great drama, in the playing out of which England is 
 deeply interested, both on moral and material grounds. 
 
 It is a law of nations no less than of individuals 
 that complete development cannot be attained alone. 
 England, of all countries, can ill afford to disregard 
 the policy of other countries on this vital question. 
 Her greatness, even her existence, depends upon her 
 foreign trade ; and to place that trade upon sound 
 foundations must be one of the most important of her 
 interests. 
 
 To prohibit trade is to violate one of the first 
 principles of international ethics it is a hostile act ; 
 a restriction * is a prohibition, to whatever extent it 
 operates ; and is, therefore, also a hostile act. 
 
 Thus England has not only the strongest motive, 
 but the clearest right, to protest against the protective 
 laws of foreign countries, from the injury which they 
 inflict on her trade, and the injustice which they cause 
 to her people. 
 
 The rapid progress of our industry and commerce 
 during recent years has led us to overlook, too much, 
 the magnitude of the injury which we sustain from the 
 hostile policy of foreign countries. 
 
 The full rewards of labour cannot be attained until 
 the right has been established for all, whether white or 
 
 * Of course this does not apply to duties imposed equally on native and 
 oreign goods for fiscal purposes.
 
 THE POLICY OF COMMERCIAL TREATIES. 77 
 
 black, to the produce of their own industry in use or 
 in exchange. 
 
 Bastiat has well said 
 
 " L'e'change est un droit naturel comme la propriete. 
 Tout citoyen qui a acquis ou cre"e un produit doit avoir 
 1'option ou de 1'appliquer immediatement a son usage ou de 
 le ce"der a quiconque, sur la surface du globe, consent a lui 
 donner en ^change 1'objet de ses de'sirs. Le priver de cette 
 faculte uniquement pour satisfaire aux convenances d'un 
 autre citoyen, c'est le"gitimer une spoliation, c'est blesser la 
 loi de justice." 
 
 To whatever extent British products are exchanged 
 against the products of countries where protection is 
 maintained, still more to whatever extent they are not 
 so exchanged in consequence of that protection, the 
 British consumer will bear the enhanced cost which is 
 the result of his being debarred from buying in the 
 cheapest market, It is true that in practice this effect 
 may be more or less neutralized by the operation of 
 the laws of international supply and demand ; but it 
 is nevertheless broadly and unquestionably true that 
 whatever impairs the producing power in a country 
 from which we draw our supplies is an injury to the 
 British consumer, whose interests always represent the 
 interests of the nation at large. 
 
 And it must not be forgotten that, while the 
 interests of British labour are thus injuriously affected 
 by restrictions on the exchange of its products, no 
 such restrictions are imposed on the transfer of British 
 capital to countries which exclude the products of 
 British industry, and that this capital is constantly
 
 7 8 FREE EXCHANGE. 
 
 diverted from its natural channel and withdrawn from 
 employment at home to suck profit out of these 
 monopolies, and help to retard their doom by supplying 
 foreign Governments with funds which they can no 
 longer raise from the impoverished resources of their 
 own people. 
 
 Unless, therefore, by the exchange of our products 
 we can extend the area of our production, and thus 
 neutralize the effects of our limited territorial resources, 
 the day will come when our people will follow our 
 capital, and we shall enter upon the period of our 
 decline. 
 
 Nor is it the destiny of the working classes alone 
 which is involved in the fulfilment of this policy. The 
 only economical justification of the right of property 
 in land in a country where the soil is limited as in 
 England, is in the perfect freedom of exchange with 
 countries where the soil is comparatively free. This 
 is shown, I think, conclusively in Bastiat's Essay, 
 " Proprietd et Spoliation," and indirectly proved, I 
 think, by the English economists Ricardo, McCulloch, 
 Senior, etc., in their theory of " Rent." 
 
 A direct connection is thus established between 
 the full development of the Free Trade policy and 
 the condition of the working classes of England, the 
 great problem of our time, which, unless solved, will 
 solve itself by the decay of England. 
 
 The only possible foundation of all progress, and 
 the only hope of the future of the human race, lie in 
 the material emancipation of the people. Free Trade
 
 THE POLICY OF COMMERCIAL TREATIES. 79 
 
 between all nations is certainly one of the most power- 
 ful of the agencies at the command of Governments 
 in this consummation, which is the only possible 
 foundation of all schemes and systems of social or 
 political improvement. 
 
 It was under the influence of these convictions 
 that those who both in France and England had 
 devoted their lives to the cause of Free Trade, set 
 themselves to the work which ended in the conclusion 
 of the Treaty of 1860. 
 
 It is not surprising that these measures should 
 have roused the hostility of that party in England 
 which has acquiesced in Free Trade as a political 
 necessity, but never accepted the principles from 
 which it springs or the consequences which must flow 
 from it. 
 
 It is not so easy to comprehend the fierce opposition 
 which they have met with from some professed Free- 
 Traders, still less the hesitating defence of them made 
 by some of their friends who have always assumed a 
 semi-apologetic tone in speaking of them. It is thus 
 that the French Treaty has been justified as an ex- 
 ceptional measure resting on grounds of general 
 political expediency rather than as the first step in a 
 great commercial policy. 
 
 That Treaty was denounced as a departure from 
 Free Trade principles as a return to an exploded 
 theory and as involving an unsound financial policy. 
 
 It is easy to show that it is open to none of these 
 objections, and that it can only so be considered by
 
 So FREE EXCHANGE. 
 
 those who have never taken the trouble to understand 
 the idea which inspired it, or the principles out of 
 which it grew both in England and France. 
 
 Those principles may be briefly stated. 
 
 The commercial intercourse of these two countries, 
 separated only by a few miles of sea, was so restricted 
 and hampered by perverse laws as to be a scandal to 
 our times, and a source of loss and danger. 
 
 The Governments of both countries resolved to 
 remove on both sides within the limits of their power 
 the obstacles to this intercourse. 
 
 That power was very different in the two countries, 
 England having advanced so much farther than France 
 in liberating her trade from protective laws ; hence 
 alone, if for no other reason, all idea of equivalent 
 concessions was out of the question. 
 
 England contributed her share to the work, by 
 sweeping from her tariff, with some trifling exceptions, 
 all trace and remnant of protection, and by binding 
 herself to reduce to moderate rates her fiscal duties 
 on two of the staple products of France wine and 
 brandy. 
 
 France, unable to destroy at one blow the whole 
 fabric of monopoly, nevertheless made a deadly breach 
 in the edifice, by substituting moderate duties for 
 prohibition on the chief English exports. 
 
 If these reforms had been made exclusively in 
 each other's favour, they might justly have been called 
 unsound, but they were made equally for all the 
 countries of the world ; on the side of England at
 
 THE POLICY OF COMMERCIAL TREATIES. 81 
 
 once, on the side of France prospectively ; and thus, 
 instead of reverting to a system of monopoly, the 
 differential policy of France was for ever destroyed, 
 and the equal system of England maintained and 
 consolidated. 
 
 If, then, without the sacrifice of a single Free Trade 
 principle, we were able to break up the prohibitory 
 and differential system of France, and obtained a large 
 increase of commercial freedom, by what law of Free 
 Trade can such a course be impugned, or by what true 
 Free-Trader regretted ? * 
 
 * In a speech in the House of Commons, on the I7th March, 1865, Mr. Lowe 
 attempted to show that as a Free-Trader he must disapprove this "new-fangled plan 
 of carrying into effect Free Trade principles." He said, " Are these Commercial 
 Treaties which we are now negotiating, teaching the nations around us the true 
 principles of political economy ? . . . Political economy says Lower your duties, 
 in order that you may get the productions of other countries as cheaply as possible, 
 i.e. for the sake of the consumer ; and it is sound doctrine. But what do we 
 virtually say when we negotiate a Commercial Treaty? We say, the end of 
 commerce is not what political economy would teach you, the obtaining of imports, 
 but the sending out of exports. The summum bonum is to send out as much as 
 possible." Vide " Hansard," vol. cxvii. p. 1861. 
 
 Does Mr. Lowe suppose that a merchant exports goods for the pleasure of 
 exporting ? Does not every export imply and involve an import and a profit on 
 the exchange ? Is it possible to increase your export trade profitably, without 
 increasing your imports ? Is not the science of political economy the science of 
 the laws of exchange ? Can a foreign country lower her import duties without 
 improving her conditions of exchange with other countries, and is not the British 
 consumer principally and vitally interested in the reduction of foreign tariffs? It 
 cannot be repeated too often, or insisted on too strongly, that this question is a 
 consumers question. The reduction of an import duty in a foreign country must 
 (cateris paribus} enable the countries with which it trades to exchange their pro- 
 ducts with it more advantageously, i.e. they obtain by an equal amount of labour 
 a larger result, and under a system of free competition increased cheapness must 
 be the consequence, and the consumer must be the ultimate and principal 
 gainer. 
 
 It is, of course, unnecessary to add that the language attributed by Mr. Lowe 
 to the British Government and its agents in these negotiations is directly opposed 
 to that which has been invariably used in addressing foreign Governments. The 
 prevailing argument has been, ' ' We want your produce for our consumption. We 
 
 G
 
 82 FREE EXCHANGE. 
 
 The fiscal objection remains to be considered. 
 It had been said that it is unsound financial policy to 
 tie your hands with regard to the amount of your fiscal 
 duties, such as wine and spirits, as you thus deprive 
 yourself of a resource which you may one day require. 
 
 The answer (and it is a conclusive one) is this : 
 
 A tax which from whatever cause dries up an 
 important source of national industry and wealth, and 
 thus takes from the fund which is available for taxation 
 far more than the amount gained by the revenue, is a 
 bad tax, and ought never, if possible, to be imposed or 
 maintained. 
 
 The tax on French wines and spirits had the effect 
 of restricting injuriously one of the largest branches 
 of our foreign trade, and would, if maintained, by 
 preventing the conclusion of the treaty, have deprived 
 us of an accession of something like ^20,000,000 per 
 annum to the value of our general exchanges with 
 
 cannot buy from you, unless you will take our produce in exchange." The object 
 in all cases being to remove all obstacles to a free exchange. 
 
 The fallacy into which Mr. Lowe has fallen will be best shown by an extreme 
 illustration, but which is nevertheless governed by precisely the same law as that 
 which he tries to explain. 
 
 Suppose that there are only two cauntries in the world, A and B, of which one, 
 A, prohibits the trade of the other, B. Mr. Lowe would say to B, political 
 economy teaches us to reduce our import duties for the benefit of our consumer. 
 B therefore reduces all her import duties on the produce of A, but finds that in 
 spite of the soundness of her doctrine she can import nothing from A, until A will 
 take her produce in exchange, and that the consumer in B is no better off than 
 before. This is the reductio ad absurdum. 
 
 " La grande loi e"conomique est celle-ci. 
 
 " Les services s'echangent contre les services. Do ut des, do ut facias, facio 
 ut des, facio ut facias ; fais ceci pour moi, et je ferai cela pour toi, c'est bien 
 trivial, bien vulgaire, ce n'en est par moins le commencement le milieu et la 
 fin de la Science." * 
 
 * Bastiat, " Sophismes Economiques," p. 407.
 
 THE POLICY OF COMMERCIAL TREATIES. 83 
 
 France. No wise legislation could advocate the 
 retention of such a tax in the face of such con- 
 sequences. There is probably no other form of tax 
 to which it would not have been preferable to resort 
 rather than to maintain these obstacles to our trade 
 with France. 
 
 Such are the principal objections : it remains to 
 consider the advantages of the policy which has been 
 pursued. 
 
 It is unnecessary now to allude to the direct 
 effects of the French Treaty. These are sufficiently 
 known and appreciated, at last, to require no further 
 reference. 
 
 It is not so generally known what have been the 
 indirect results upon the commercial progress of 
 Europe. 
 
 It is a common form of British self-complacency 
 to talk of the great effect on other countries of the 
 successful example of England's Free Trade policy, 
 but facts do not justify this boast. Twenty years 
 have elapsed since the repeal of the Corn Laws, and 
 until the French Treaty the protective Tariffs of 
 Europe had scarcely been touched ; our self-govern- 
 ing Colonies have all more or less adopted protective 
 Tariffs, and the United States of America have lost no 
 occasion of increasing the restrictions upon foreign 
 trade. The French Treaty has given an impulse 
 to Free Trade which it was impossible for England 
 alone to give. Those who are acquainted with the 
 public opinion of other countries on this question
 
 84 FREE EXCHANGE. 
 
 know that so long as England was the only great 
 country which had prospered under the modern 
 system, the example produced but little effect. It 
 was said that England had been enabled by a long 
 course of monopoly to bring her industries to such 
 a degree of strength, and to increase her productive 
 power to such a point, as to enable her to face all 
 competition, but that a similar course could only 
 be taken by other countries, when they had, by a 
 similar waste of their productive forces, increased 
 in like manner, by some unexplained and mysterious 
 process, their productive power. As soon as France, 
 however, the great stronghold of protection, had 
 renounced the error of her ways, and committed 
 herself to a course of progressive freedom, the moral 
 effect upon the Governments and upon the public 
 opinion of Europe was irresistible. But this was not all. 
 
 We have said that in France the differential 
 system was only abolished prospectively. This 
 course was advisedly taken to enable her, while 
 reforming her own system, to ensure the adoption 
 by other countries of similar measures ; and thus, by 
 the French Treaty, we secured the alliance and 
 co-operation of France in breaking down the whole 
 prohibitory laws of Europe. 
 
 Perhaps this policy of France may be censured by 
 some " doctrinaire " politicians as unsound. 
 
 I cannot think that any one who desires the sub- 
 stantial progress of Free Trade rather than the 
 assertion of a barren theory can share this view.
 
 THE POLICY OF COMMERCIAL TREATIES. 85 
 
 If, after reasonable efforts, other countries had 
 refused to reciprocate, it would doubtless have been 
 wiser on the part of France to adhere broadly to her 
 own reforms, and disregard the course taken by 
 others ; but it could not have been expected, with 
 the example of England before her eyes, that France, 
 whose foreign trade is far more dependent on 
 European markets than ours, could have entered 
 alone upon this experiment, until she had exhausted 
 every effort to obtain the simultaneous action of 
 other nations. And if, by postponing for a few years 
 the full development of her policy, she has been 
 able to secure the co-operation of every country in 
 Europe, it surely has been wise to wait. 
 
 But with this, whether right or wrong, England 
 has nothing to do, except to consider its effect upon 
 her own policy ; and certainly it has placed her in a 
 position of peculiar advantage. Without sacrificing 
 her own independent principle, she thus regained 
 the opportunity of obtaining all that France is able 
 to extort by the material bribe of her reformed 
 Tariff, and wherever commercial reforms are com- 
 menced, of asserting again her right to an equal 
 share in all their results, if, indeed, she cannot effect 
 even more than this by moulding them by her 
 influence, and by an appeal to the principles and 
 example of her policy, on a sounder and freer 
 model. 
 
 It has been questioned whether the continental 
 countries, if left to take their own course, might not
 
 86 FREE EXCHANGE. 
 
 have advanced more rapidly in the direction of Free 
 Trade. This view exhibits a profound ignorance 
 of these countries. The Governments always profess 
 Free Trade, but, except under the influence of 
 external pressure, would be often unable to set aside 
 the strong opposition of the protected classes. The 
 policy of France in withholding her Tariff affords a 
 motive which is irresistible even to these classes, 
 and thus strengthens the hand of the Governments 
 effectually in overcoming their interested opposition.* 
 
 Thus, in pursuance of her policy, France has 
 already in five years made in Europe alone Treaties 
 with Belgium, the Zollverein, Italy, Sweden and 
 Norway, and Switzerland, by which large reduc- 
 tions have been made in the Tariffs of all those 
 countries. 
 
 England has obtained an equal participation in all 
 these reductions by claiming where she had already 
 the right by Treaty, and by obtaining by negotiation, 
 
 * This view, moreover, entirely overlooks the influence of co-operation and 
 the friendly interchange of opinions and information, which are among the most 
 valuable results of these negotiations. People talk of the example of England's 
 progress and prosperity, but in most of the old countries of the Continent, without 
 free discussion and an independent press, the facts and principles which illustrate 
 and justify that progress and prosperity are most imperfectly known ; and many 
 laws and restrictions which impede trade and distort international relations have 
 their origin far more in ignorance than in deliberate design. 
 
 This form of criticism is one of the effects and evidences of the lamentable 
 want of the " international spirit" which is so general in this country. 
 
 In every civilized country there are to be found a certain number of men 
 penetrated with modern ideas, and anxious for liberal reforms. These men look 
 to England as the representative of commercial freedom ; and a public act, such 
 as a. Commercial Treaty, not only affords a rallying-point for all that is sound and 
 progressive in those countries, but, as it were, crystallizes and consolidates the 
 elements of public opinion, which are required to enable Governments to effect 
 a change of policy.
 
 THE POLICY OF COMMERCIAL TREATIES. 
 
 where such right did not exist, most favoured nation 
 treatment. 
 
 Confining ourselves to the effect of these changes 
 on the trade of England alone, these are the results. 
 Taking the special trade with Belgium, France, and 
 Italy (it is impossible to trace it with the Zollverein 
 and Switzerland)', the aggregate value exchanged 
 backwards and forwards is as follows : 
 
 
 
 Imports. 
 
 Exports. 
 
 
 
 
 
 
 
 FRANCE 
 
 ... 1860 
 
 17,774,000 
 
 12,701,000 
 
 
 1861 
 
 17,826,000 
 
 17,427,000 
 
 
 1862 
 
 21,675,000 
 
 21,765,000 
 
 
 1863 
 
 24,025,000 
 
 23,294,000 
 
 
 1864 
 
 25,640,000 
 
 23,825,000 
 
 BELGIUM 
 
 ... 1860 
 
 4,079,000 
 
 3,964,000 
 
 
 1861 
 
 3,817,000 
 
 4,914,000 
 
 
 1862 
 
 4,876,000 
 
 4,550,000 
 
 
 1863 
 
 5,174,000 
 
 5,059,000 
 
 
 1864 
 
 6,410,000 
 
 5,979,000 
 
 ITALY... 
 
 ... 1862 
 
 2,618,000 
 
 6,167,000 
 
 
 1863 
 
 2,358,000 
 
 7,338,000 
 
 
 1864 
 
 2,181,000 
 
 6,740,000 
 
 But as the indirect effects of this liberation of 
 trade are quite as remarkable as the direct results, it 
 is necessary to compare our European trade generally 
 with that which existed prior to the French Treaty. 
 
 This comparison gives the following result : 
 
 1860. 
 
 Imports 
 Exports 
 
 
 
 84,403,000 
 69,644,000 
 
 1864. 
 
 Imports ... 
 Exports ... 
 
 
 
 98,502,000 
 100,064,000 
 
 These results are sufficiently striking to show the 
 advantage which England has derived, both directly
 
 88 FREE EXCHANGE. 
 
 from the French Treaty, and indirectly through the 
 Treaties made by France with other countries ; but 
 great as they are, it has been felt, as said before, 
 by all those who are practically acquainted with the 
 nature of the continental Tariffs, and the prevalent 
 ideas on customs' legislation in most European coun- 
 tries, that if England could obtain no more than an 
 equal participation in all that France secured, far less 
 progress would be made in commercial reform, and far 
 less practical advantage be reaped by British trade, 
 than if she were admitted to co-operate in the recon- 
 struction of European Tariffs. 
 
 It is its assertion of this principle that gives a 
 peculiar value to the recent Treaty with Austria. 
 
 That Treaty may be generally described as a most 
 favoured nation Treaty so far as commerce is con- 
 cerned, accompanied by engagements on the part of 
 Austria to revise her Tariff upon British produce and 
 manufactures within the limits of certain maxima rates 
 of duty, taking English prices, to be fixed by a Mixed 
 Commission, as the basis of assessment, and to con- 
 clude a supplemental Treaty, for the purpose of 
 applying specific duties within those limits. 
 
 Independently of the great value of the principle 
 thus asserted, the practical advantages of this Treaty 
 were considerable. 
 
 i st. It provides that the Customs Legislation of 
 Austria shall be revised in co-operation with England, 
 i.e. that the external influence brought to bear on this 
 work shall be that of a country whose policy is that of
 
 THE POLICY OF COMMERCIAL TREATIES. 89 
 
 commercial freedom in the widest sense, and whose 
 experience enables her to supply the greatest range of 
 facts and arguments, rather than that of countries like 
 France or Prussia, who still cling to the form and 
 phraseology of Protection. 
 
 2nd. It annihilates the differential system in 
 Austria, which has heretofore given the Zollverein a 
 virtual monopoly of her markets for many articles of 
 produce. 
 
 3rd. It affixes certain limits to the amount of 
 possible protection, and ensures a more equal inci- 
 dence of duties than now exists, by an improved 
 classification. 
 
 The small Tariff changes on both sides provided 
 by the Protocol only require notice, because it may be 
 feared that from an erroneous estimate of the relative 
 value of the stipulations of the Treaty, these mutual 
 reductions may be taken to show that the Treaty is 
 after all a Tariff bargain. To dispose of this objection, 
 it is only necessary to refer to the primary object of 
 the negotiation, viz. the removal, wherever possible, 
 consistently with the principles or policy of either 
 country, of the obstacles to their mutual trade, and to 
 say, that these duties being on both sides of a nature 
 which enabled the two Governments to deal with them 
 at once, and as they all of them created obstacles 
 which it was for the interest of both to remove, this 
 Treaty presented the most suitable occasion for doing 
 so by common agreement. Certainly, on the principle 
 of " equivalent concessions," this Treaty, if a Tariff
 
 90 FREE EXCHANGE. 
 
 bargain, must be regarded as a great achievement, for 
 it secures a revision of the whole Customs Tariff of 
 Austria, in return for the abolition of duty on a few 
 Austrian staves, and the equalization of duty on 
 Hungarian wines in bottle and in wood ! 
 
 It has hitherto been supposed by many* that as 
 England had no further Tariff reductions to offer to 
 other countries, she was debarred from entering upon 
 the negotiation of Treaties involving the reduction 
 of foreign tariffs. 
 
 This idea proceeded unconsciously on the doctrine 
 that a reduction of a Tariff is a concession to a foreign 
 country, instead of being, as it is, a measure primarily 
 and principally dictated by national interest. 
 
 But, even from this point of view, the necessity 
 which was imposed on all the countries of Europe 
 of reforming their Tariffs, by the policy adopted 
 by France, opened the door to the action of English 
 diplomacy. 
 
 The language used to foreign countries has been 
 this : " You are obliged to reform your system in 
 order to entitle you to the French concessions and 
 save you from commercial isolation. It is far better 
 to perform this work with England, which has no 
 special objects to promote, and works in the general 
 interests of freedom, than by the method of Tariff 
 
 * It is curious to trace the lingering operation of the protective fallacy in this 
 objection. "You have nothing to give," it is said, "therefore you can ask 
 nothing." This argument was well met by Mr. Bonar at Vienna. When asked 
 what England would give in return for a reduction in the duty on herrings, he 
 said, " more herrings. "
 
 THE POLICY OF COMMERCIAL TREATIES. 91 
 
 bargains with France or other countries, to which 
 you can, if you please, proceed from a better diplo- 
 matic vantage-ground when you have a more liberal 
 foundation for your negotiations." You will then have 
 more to offer than they will have to give, and " you 
 may bring them down to your level." 
 
 The policy of the recent Treaties, however, rests 
 upon much broader foundations. 
 
 The Austrian Treaty has been negotiated on the 
 principle that a Tariff of Customs duties is a measure 
 of international taxation, and is therefore a proper 
 subject for international regulation. 
 
 It is impossible to impose taxes on commodities 
 on any rational principle without a knowledge of the 
 commodities to be taxed ; where these are, as they 
 must be in the case supposed, of foreign origin, a 
 correct foundation of facts can only be obtained by 
 the co-operation of foreign countries. 
 
 England and Austria, therefore, agree to co-operate 
 in framing a Tariff which, while on the one hand it 
 secures the national object of a certain measure of 
 protection (still unwisely thought necessary by Austria), 
 shall nevertheless attain this object in the manner 
 least injurious to English trade, and with such a 
 correct knowledge of the facts upon which it is 
 founded as to insure that no greater protection shall 
 be given than is really intended. 
 
 It is strange that in a country like England, which 
 did not hesitate to spend millions and resort to war 
 for the purpose of vindicating her right of trade with
 
 92 FREE EXCHANGE. 
 
 China and Japan, it should be thought unreasonable 
 in the case of European countries with restrictive and 
 prohibitory laws to hold such legislation as affording a 
 ground for remonstrance and a claim for co-operation 
 in reducing to a minimum the injury inflicted. 
 
 But it is said that we should not proceed by way 
 of Treaties, that each country should be left to act by 
 independent legislation. To this it may be answered, 
 Why not proceed by way of Treaty ? If you are in 
 earnest in your policy and have entire faith in its 
 wisdom, why object to bind yourself to it by an inter- 
 national contract ? Independently, however, of the 
 practical necessity of this mode of proceeding caused 
 by the policy of France, my answer is this : A Treaty 
 is nothing more than an international statute law, and 
 it is most important that in a matter of international 
 concern there should exist an international guarantee 
 that the policy adopted shall be maintained and placed 
 beyond the reach of reactionary influences. Where 
 would commerce be without a security ? 
 
 The argument often used, that it is inconsistent 
 with national dignity and independence to admit a 
 foreign country to interfere in the regulation of a 
 Tariff, of course falls to the ground when the inter- 
 national character of this kind of legislation is admitted. 
 But this argument, it may be observed, is never used 
 by those who really desire commercial reform ; it is 
 merely a device of the enemy to rouse the foolish 
 prejudices and passions of the country, and always 
 will be found to emanate from the Protectionist camp.
 
 THE POLICY OF COMMERCIAL TREATIES. 93 
 
 The Tariff which will be constructed in the spring 
 in co-operation with England will henceforth be the 
 Austrian Tariff, and will doubtless be gradually ex- 
 tended to all other countries by Treaties or otherwise. 
 
 Whatever, therefore, may be the direct and imme- 
 diate effects of the new Tariff upon British trade, and 
 it is not probable from a variety of causes, for some 
 years to come, that these will be very great, it cannot 
 be doubted that the foreign trade of Austria with the 
 countries near her frontiers the Zollverein, Italy, 
 Switzerland, and her Eastern neighbours will be 
 rapidly increased, that her consuming power will be 
 developed, and her resources proportionately aug- 
 mented. 
 
 Thus gradually will the rich territories and large 
 population of this great Empire be brought within 
 the ever-widening circle of commercial civilization, 
 and contribute their share to the commonwealth of 
 Europe. 
 
 If this be the result, it matters little to England 
 whether Austria's direct exchanges are made with 
 her or not. She is certain sooner or later to obtain 
 her full part in the general accession which will thus 
 be made to the productive forces of the world. 
 
 And it must be recollected that every fresh acces- 
 sion to this new alliance is a pledge for its future 
 extension. 
 
 Each new Treaty which is made has a double 
 operation. It not only opens the market of another 
 country to foreign industry, but it reacts on those
 
 94 FREE EXCHANGE. 
 
 already opened ; and by the universal introduction 
 of the most favoured nation principle, the indispen- 
 sable condition of all recent Treaties, each new point 
 gained in any one negotiation becomes a part of the 
 common law of Europe. 
 
 It is thus that the Austrian Treaty has obtained 
 for France an alteration in the English wine duties, 
 and Austria is at present engaged in obtaining for 
 England a relaxation of the French navigation laws. 
 
 It is now certain that in a few years in every 
 country in Europe prohibitions will have been replaced 
 by a system of moderate duties, and a great impulse 
 given to international trade throughout the Continent, 
 and it may reasonably be believed that the results of 
 these changes will lead, at no distant day, to complete 
 and general freedom from protective Tariffs. 
 
 With such a prospect in view of the present 
 generation, is it too sanguine a hope that the united 
 example of the old world may lead the Great American 
 Republic and the younger Anglo-Saxon communities 
 still unsevered from us in which the seed of this great 
 wrong is already sown, to turn aside from following in 
 the track of folly and injustice which marks the slow 
 progress of commercial freedom in Europe ; that 
 monopoly, like the still darker bondage of slavery, 
 may be proscribed by all civilized nations, and the 
 rights of labour universally secured by equal laws ?
 
 ( 95 ) 
 
 III. 
 
 FREE TRADE AND FREE ENTERPRISE. 
 
 (EXTRACT FROM PREFACE TO REPORT OF PROCEEDINGS AT THE DINNER 
 OF THE COBDEN CLUB, JUNE, 1873.) 
 
 MR. MILNER GIBSON'S remarks were directed to 
 another class of questions closely connected with the 
 Free Trade policy. Both he and all the speakers 
 who followed him adverted to the reactionary 
 tendency which appears to be increasing in this 
 country, to look to the State for the performance of 
 functions which have hitherto been left to private per- 
 sons and to private enterprise. Such are the theore- 
 tical proposals which have been made for the partial 
 or entire appropriation by Government of the rent of 
 land and of minerals, and the more practical schemes 
 for the State purchase of railways, docks, packet 
 services, and other industrial undertakings. Projects 
 of this description have long been only too familiar 
 to economists of other countries ; their only novelty 
 consists in their prevalence in England, and especially 
 at a time when the too-hasty critics of the Free Trade 
 policy are confronted with the significant fact of the 
 gradual emancipation of the classes, which it was 
 reproached with having failed in reaching. But it is
 
 96 FREE EXCHANGE. 
 
 well that such a tendency should be carefully watched 
 and resisted, by all who believe that it is dangerous 
 to the national economy, and to the progress of society. 
 
 The State has been well defined as "the great 
 fiction by means of which every one attempts to live 
 u at the expense of every one;" and it will be found 
 that, in the last analysis, all these proposals rest upon 
 the economic fallacy that the State, in substituting 
 itself for private or personal agencies, can evade or 
 control the inexorable law of supply and demand. 
 This it can never do, except on one condition, viz. 
 that, in superseding individual responsibility, it shall 
 at the same time suppress individual liberty ; for, after 
 all, the much-denounced law of competition is nothing 
 but the law of liberty, and the essential condition, as 
 it is the only permanent safeguard, of social order and 
 democratic progress. 
 
 But it is said that State interference is invoked for 
 the very reason that there is a class of cases to which 
 the rule of free competition cannot apply, and in which 
 to allow private property is to create partial mono- 
 polies. So far as this is true, and the effects of inter- 
 national competition render it much less true than is 
 generally assumed, it must be the result of limited 
 conditions of supply, which cannot be materially im- 
 proved, if, indeed, they would not be still further 
 limited, by State proprietorship. Whatever, then, 
 may be the evil of partial monopolies, it will certainly 
 not be removed by the creation in their place of the 
 absolute and far more dangerous monoply of the State.
 
 FREE TRADE AND FREE ENTERPRISE. 97 
 
 Private monoplies can always be controlled and regu- 
 lated by the power which creates or permits them, but 
 war or revolution can alone control the abuse of power 
 by the State itself. This would be so, even if the 
 State were only another name for the Government ; 
 but it must be observed that, just in proportion as the 
 representative system is extended, so will it be more 
 and more impossible for Parliament to control the acts 
 of an executive entrusted with vast and complex 
 administrations. 
 
 A minister of Land Revenue or of Public Works 
 may, indeed, be nominally responsible to Parliament ; 
 but it is notorious and self-evident that the real work 
 of such departments can only be performed by per- 
 manent officials, who are not responsible to Parliament, 
 nor in any practical sense to the minister, who must 
 always be completely at their mercy. It is a suspicious 
 fact that this call for State interference coincides with 
 a widely extended franchise and an ostensible advance 
 towards a more democratic system. Can it be an 
 unconscious attempt to escape from the consequences 
 of this policy, and recover for authority on the one 
 hand, what has been conceded on the other ? If so, 
 it is a grave political anachronism. The real remedy 
 for the drawbacks on Parliamentary Government is 
 not to extend its nominal duties and powers, while 
 virtually vesting them in an irresponsible executive, 
 but to contract more and more the functions of the 
 central power, and entrust the internal administration 
 of the country more and more to the local institutions, 
 
 H
 
 98 FREE EXCHANGE. 
 
 which are the life and soul of a free and self-governing 
 people. 
 
 It is impossible on this occasion to do more than 
 glance at a few of the forms in which the tendency to 
 which reference has been made has manifested itself; 
 but it will be seen that they all involve a dislocation 
 of the forces which, in a free society, regulate and 
 restrain each other, and thus ensure the harmonious 
 working of the body-politic. 
 
 To take the case of property in land. The function 
 of rent is to restrain the undue pressure of population 
 on the soil. Where the State, or, in other words, the 
 community at large, is the landlord, it must either (as 
 it ought in justice to do) exact competition rents from 
 the occupants or create a privileged class of tenants, 
 by which a particular portion of the population would 
 be favoured at the expense of the rest. 
 
 On the first hypothesis, not only would no benefit 
 accrue to the cultivator, but the constant accretions of 
 rent which would go in reduction of taxation, and to 
 the relief of the people at large, would directly tend 
 to aggravate the demand for land and the pressure of 
 the population on the soil. On the second, the effect 
 would be simply to create again those very private 
 rights of property in land which it was intended to 
 destroy. 
 
 How different is the solution offered by the Free 
 Trade policy? Instead of the futile attempt to 
 plant an indefinite and ever-increasing population in 
 a limited area, it would, on the one hand, remove
 
 FREE TRADE AND FREE ENTERPRISE. 99 
 
 all the artificial obstacles to the free acquisition and 
 natural distribution of property in land, and, on the 
 other, reassert and confirm private property in land, 
 on the logical grounds, that wherever land is limited, 
 so must its occupancy be ; that unless the State 
 undertakes to regulate the increase of population, its 
 limitation can only be enforced by the operation of 
 private ownership ; and that, while trade is free and 
 the products of labour can be exchanged for the 
 products of the soil of all the world, it is not 
 necessary to justice or to the welfare of a nation that 
 the land itself should be possessed by all its in- 
 habitants. 
 
 Free-Traders say to the people, " If you desire 
 to possess land and cannot afford to purchase it at 
 home, even when all distinctions between land and 
 personal property have been effaced, there is land 
 enough and to spare in other countries for you ; but 
 if you prefer to remain at home, you shall be able 
 to obtain the products of the soil in exchange for 
 your labour in all the markets of the world free from 
 all tax or tribute." 
 
 But it will be said that a system which enables 
 a large proportion of the population to possess the 
 soil in partial or absolute ownership, is essential to 
 secure its most profitable use, and the social and 
 political welfare of a nation. 
 
 By no one was this opinion more strongly held 
 than by Cobden, who regarded the present alienation 
 from the land of the body of the agricultural class
 
 loo FREE EXCHANGE. 
 
 as one of our greatest dangers. But how did he 
 propose to remedy the evil ? Not, certainly, by the 
 nationalization of the land, or by the appropriation 
 by the State of a fanciful unearned increment of rent, 
 but by liberating the land, as he would have liberated 
 trade, from all impediments to free exchange. 
 
 If it be urged, as it often is, that the conditions 
 of society in England at the present time, the 
 accumulated wealth of the upper classes, and the 
 keen competition for land, preclude the hope of any 
 effectual progress towards Cobden's ideal, by such 
 an orthodox reform as the assimilation of real and 
 personal property, Free-Traders may well reply that 
 they distrust this sweeping assertion, believing, on 
 the contrary, that by prudence and co-operation on 
 the part of the labouring class, in the face of a 
 decreasing ratio of supply to the demand for agricul- 
 tural labour, much may be accomplished ; in any 
 case, they may insist that this measure shall at 
 least be tried before, on the plea of State necessity, 
 recourse be had to such desperate expedients as the 
 regulation by Government of the terms on which the 
 land shall be held, and of the number of those who 
 live by it. 
 
 The policy of Free Trade is to expand and dis- 
 perse ; that of State proprietorship or Communism is 
 to contract and concentrate. The first is identified 
 with progress and civilization ; the second can only 
 culminate in stagnation or anarchy. 
 
 The case of coal affords a good illustration of the
 
 FREE TRADE AND FREE ENTERPRISE. 101 
 
 operation of the two conflicting principles. It is clear 
 that the real and paramount cause of the recent rise 
 of price has been nothing but excessive demand. 
 The only possible remedy is to check this demand 
 by a stern enhancement pf price. For this purpose 
 what agency can be so effectual as that of private 
 ownership ? What popular Government, in the face 
 of a fierce demand for an article of first necessity, 
 could resist the pressure which would be brought to 
 bear upon it to exert all its influence as proprietor 
 to keep down prices, and thereby aggravate the 
 evil until it became incurable ? But even if such 
 a Government were found, the increasing rentals 
 derived from the progressive rise in price must be 
 devoted to the remission of taxation ; and thus, by 
 relieving the people from pressure in another 
 direction, neutralize in proportion to such relief the 
 check upon consumption caused by the rise in price. 
 
 But it is to the question of the purchase of rail- 
 ways by the State that public attention has been of 
 late especially directed. It will be found that to this 
 proposal also, the economic objection which has been 
 stated equally applies. 
 
 Why is this measure urged upon us ? It can, of 
 course, only be urged on the assumption, that by 
 better administration, economy of management and 
 absence of competition, the supply of railroad ac- 
 commodation will be increased at the same or a 
 diminished cost to the public, and with a profit to 
 the State.
 
 102 FREE EXCHANGE. 
 
 Admitting for the sake of the argument this most 
 doubtful proposition, one of two consequences must 
 follow 
 
 Either the State will act on the commercial 
 principle, and charge the rates which yield the 
 largest profit, or it will not. 
 
 If it does, the profits will be devoted to the re- 
 duction of taxation, and the relief thus afforded will 
 not only tend to increase the demand for railway 
 accommodation, and thus increase the pressure on a 
 supply which is, on the assumption, limited, but it 
 will be directly given at the expense of that portion 
 of the community which requires railway service. If 
 it does not, which may be safely predicted, the effect 
 would be even more opposed to sound economy and 
 public policy, as it would, by artificially cheapening 
 the cost of transport, of which the supply is limited, 
 dangerously disturb the natural equilibrum of supply 
 and demand, and be tantamount to a subsidy paid 
 by the public at large to the trading and travelling 
 classes. 
 
 Mr. Goschen enforced Mr. Mjlner Gibson's ad- 
 monition in some observations which merit careful 
 attention, He reminded his hearers that, although in 
 the political struggles in which Cobden engaged he 
 possessed the advantage of having the masses on his 
 side, against the class interests which were opposed 
 to him, the time may come in England, as it has often 
 come elsewhere, when his followers must be prepared 
 to face the masses.
 
 FREE TRADE AND FREE ENTERPRISE. 103 
 
 This is an important truth, but it is not only in the 
 misdirected action of the masses that the danger lies. 
 The wage-receiving classes in this country require 
 less and less every year the intervention of the State, 
 to secure for them their fair share in the annual profits 
 of the nation ; and it maybe hoped that their practical 
 sense, and love of justice, will in the long run save 
 them, not only from Continental socialism, but also 
 from the errors and excesses which, by driving capital 
 abroad, and stimulating foreign competition, must 
 infallibly recoil upon themselves. 
 
 There is perhaps a still greater, because a more 
 insidious, danger, in the counsels of those short-sighted 
 politicians and impatient reformers, who have more 
 faith in the action of an irresponsible bureaucracy, and 
 in what they call " constructive economy," than in the 
 forces of freedom ; and who, abandoning the work 
 begun by Cobden and the League, in liberating 
 exchange from all that impedes the natural distribution 
 of wealth, would call upon Government to undertake 
 duties which it never can properly discharge, with 
 powers which it will assuredly abuse,
 
 104 FREE EXCHANGE. 
 
 IV. 
 
 NOTE ON STATE RAILWAYS. 
 
 [I have, by permission, printed this extract from an official memorandum written 
 at the India Office in 1882, as it explains at rather more length the position on 
 this subject taken in the preceding paper by Sir L. Mallet, and it is a good 
 instance of the way in which considerations of theory and of political economy, 
 so often regarded as speculations oisives, guided him in his practical work. 
 ED.] 
 
 I DO not know that the general argument in favour 
 of leaving the public works of a country in the hands 
 of private capitalists can be better stated than in the 
 words of Lord Macaulay in a review of " Southey's 
 Colloquies " 
 
 " There are two or three principles respecting public works 
 which, as an experience of vast extent proves, may be trusted 
 in almost every case. 
 
 " It scarcely ever happens that any private man or body 
 of men will invest property in a canal, a tunnel, or a bridge, 
 but from an expectation that the outlay will be profitable to 
 them. No work of this sort can be profitable to private 
 speculators unless the public be willing to pay for the use of 
 it. The public will not pay of their own accord for what 
 yields no profit or convenience to them. There is thus a 
 direct and obvious connection between the motive which 
 induces individuals to undertake such a work and the utility 
 of the work. 
 
 " Can we find any such connection in the case of a public 
 work executed by a Government ? If it is useful, are the
 
 NOTE ON STATE RAILWAYS. 105 
 
 individuals who rule the country richer ? If it is useless, are 
 they poorer? A public man may be solicitous for his credit. 
 But is he not likely to gain more credit by a useless display 
 of ostentatious architecture in a great town than by the best 
 road or the best canal in some remote province ? The fame 
 of public works is a much less certain test of their utility than 
 the amount of toll collected at them. In a corrupt age there 
 will be direct embezzlement. In the purest age there will be 
 abundance of jobbing. Never were the statesmen of any 
 country more sensitive to public opinion and more spotless in 
 pecuniary transactions than those who have of late governed 
 England. Yet we have only to look at the buildings recently 
 erected in London for a proof of our rule. In a bad age the 
 fate of the public is to be robbed outright. In a good age it 
 is merely to have the dearest and worst of everything. 
 
 " Buildings for State purposes, the State must erect. And 
 here we think that in general the State ought to stop. We 
 firmly believe that five hundred thousand pounds subscribed 
 by individuals for railroads or canals would produce more 
 advantage to the public than five millions voted by Parliament 
 for the same purpose. There are certain old saws about the 
 master's eye and about everybody's business, in which we 
 place very great faith." 
 
 This seems to me to be excellent sense, and a 
 closer examination of the subject will, I think, show 
 that the superior efficiency of private agencies in this 
 respect is the result of economical laws which cannot 
 be evaded, and which will assert their power whatever 
 may be done to evade them. 
 
 What is the reason urged for placing railway 
 enterprise in the hands of the State ? It is that as 
 railways are in their nature partial monopolies, it is 
 not right that private persons should reap the advantage 
 of them, but that the profits should be shared by the
 
 106 FREE EXCHANGE. 
 
 whole community. As a matter of abstract right or 
 justice, I entirely fail to see why the whole of any 
 particular community should reap this profit any more 
 than a particular set of capitalists. This is precisely 
 the same argument as that which is urged in support 
 of the nationalization of the land, and other com- 
 munistic theories, which I presume that those whom 
 I am addressing will agree with me in thinking 
 thoroughly unsound. 
 
 But I prefer to confine my remarks on this occasion 
 to the practical question, viz. : Is it for the advantage 
 of the community that what are called monopoly 
 profits (not always, I may observe, very clear and 
 definable) should be divided among the whole 
 community, instead of being appropriated by private 
 persons or bodies ? 
 
 In speaking of monopolies, sufficient care is not 
 always taken to distinguish between natural and 
 artificial monopolies. A natural monopoly is the 
 result of a limitation of supply caused by a law of 
 nature. This maybe a misfortune, but it is inevitable, 
 and the only way of meeting it is to allow it to exert 
 its power in limiting the demand. The land of a 
 particular country is in this class. If the population 
 of a purely agricultural country increases to a point at 
 which the land is insufficient to support it, people 
 must go elsewhere or die ; no system of tenant rights, 
 or peasant proprietaries, still less of State proprietor- 
 ship, can ever avert this, except by restraining the 
 growth of population. An artificial monopoly is the
 
 NOTE ON STATE RAILWAYS. 107 
 
 result of an artificial and arbitrary interference with 
 the natural law of free competition, and is as un- 
 necessary as it is unjust and mischievous. Wherever 
 the railways of a country are left, as in England and 
 America, to private enterprise, they are only mono- 
 polies in the former sense, viz. as the result of a 
 natural law the limitation of the land, the configura- 
 tion of the country, etc. which prevents the free 
 action of competition. This state of things justifies 
 certain interference on the part of the State, with a 
 view to the general convenience, but in a strictly 
 economic sense affords no hope of alleviation by any 
 process of State appropriation. On the contrary, the 
 effect of such appropriation can only be to add to the 
 evils of a natural monopoly those of an artificial 
 monopoly as well. 
 
 The public 'object in other words, the interest of 
 the community in a railway system, is that it should 
 afford the most efficient and the cheapest means of 
 transit. In private hands the rates and fares must, in 
 the long run, be governed by the inevitable conditions 
 of supply and demand. In the hands of the State one 
 of two things must happen. Either the commercial 
 principle will be adopted, and the rates will be fixed 
 with a view to obtain the largest profit, or it will not. 
 If it is, the profits will be devoted to the reduction of 
 taxation, and the relief thus afforded will tend to 
 increase the demand for railway accommodation, and 
 thus increase the pressure on a supply which is on the 
 assumption limited, thereby increasing its cost, in
 
 io8 FREE EXCHANGE. 
 
 which case it will be directly given at the expense of 
 that portion of the community which requires railway 
 service ; or if it is not, which may be safely predicted, 
 for the State will rarely be able to resist popular 
 demands for reduction of rates, the effect will be even 
 more opposed to sound economy, as it would, by 
 cheapening the cost of transport of which the supply 
 is limited, dangerously disturb the natural equilibrium 
 of supply and demand, and be tantamout to a subsidy 
 paid by the public at large to the trading and travelling 
 classes. 
 
 Whatever, then, may be the evil of the partial 
 natural monopolies of private enterprise, it will certainly 
 not be removed by the substitution of the absolute 
 and far more dangerous artificial monopoly of the 
 State. Private monopolies can be and are always 
 controlled and regulated by the power which permits 
 them, but it is far more difficult to prevent the abuse 
 of power by the State itself. 
 
 On economical grounds, therefore, I do not think 
 that railway profits constitute a safe or legitimate 
 source of public revenue.
 
 V. 
 EGYPT. 
 
 (A LETTER TO M. DE LAVELEYE.) 
 
 lOth March, 1878. 
 
 DEAR M. DE LAVELEYE, 
 
 I have read with extreme interest your 
 article in the Fortnightly Review for February on 
 " England and the War." With its general tenor I 
 have only to express my warm sympathy. It appears 
 to me very able, and conclusive as to the general 
 policy and duty of England on the so-called Eastern 
 Question. But there is one passage on page 164, in 
 which, after accepting Mr. Gladstone's propositions, 
 that we have nothing to fear from Russia in barring 
 the passage of the Suez Canal, and that we have 
 already so many responsibilities and vulnerable points 
 all over the world, that it would be folly, and even 
 madness, to increase their number, you nevertheless 
 impose upon us as a sacred duty the annexation of 
 Egypt! 
 
 I confess that I read this passage with very great 
 regret. The course which you advocate is pressed 
 upon us from so many different quarters both at home
 
 no FREE EXCHANGE. 
 
 and abroad bondholders, journalists, soldiers, adminis- 
 trators, and adventurers at home ; by Bismarck at 
 Berlin, by a powerful class in Paris, by Nubar, and 
 many others abroad it is a course so congenial to the 
 vulgar British instinct, and so favourable to the re- 
 actionary party now in the ascendant among us, that 
 I cannot undertake to say the thing may not be done. 
 But this I do say, and I say it with deliberation and 
 a strong assurance, that an occupation of Egypt would 
 be a turning-point in the history of England ; and 
 that whatever fate might then be in store for her, of 
 which I for one should augur ill, at least this is certain, 
 that she must renounce all hope of solving the deepest 
 problems of society and achieving the last triumphs of 
 a civilized policy. This crowning glory will be reserved 
 for a wiser people. 
 
 This, however, is only an opinion, whatever it may 
 be worth. I proceed to give you some of my reasons, 
 and I do so, because they are in a great degree the 
 result of an experience with which you are less familiar, 
 and which I venture, therefore, to think you may not 
 sufficiently have taken into your account. I refer to 
 considerations derived from my knowledge of the 
 character and effects of British rule in India. 
 
 I am glad to perceive that even you foresee that 
 the enterprise, to which you so cheerfully invite us, 
 involves the attempt to civilize the better part of 
 Africa by missionaries, breech-loaders, and brandy. 
 We may, therefore, at once assume that we both mean 
 the practical conquest and possession of a vast con-
 
 EGYPT. in 
 
 tinent by England in the course of the next half- 
 century. For my own part, I may say at once that 
 I have not a shadow of a doubt that, unless meanwhile 
 some decisive check be given to our national progress, 
 this will be the inevitable result. 
 
 From this point of view the experiences of our 
 Indian Empire become, in some of their aspects, 
 most important. Have you fully considered them 
 under the three following heads ? The effects of that 
 empire upon (i) our national character; (2) our foreign 
 relations ; (3) the people of India. 
 
 In Grant' Duff's closing chapter of his " Notes of 
 an Indian Journey," the advantages and disadvantages 
 of India to England were summed up with great fair- 
 ness and his usual ability. Although he takes a less 
 unfavourable view than I do of our balance-sheet, you \ 
 will recollect that even he admits that our national 
 energy and enterprise might have more profitably 
 expended itself in other fields, that our position as a 
 European power is distinctly weakened, and that our 
 hopes of leaving a permanent impression upon the 
 people or founding a durable empire in India are at 
 present of the vaguest and most speculative kind. 
 
 I must add to his picture some darker shadows, 
 which his political temperament has led him to omit, 
 and which the events of the last two years have 
 brought into repulsive prominence. I think it is a 
 serious evil that a not inconsiderable portion of our 
 educated class should receive their political training 
 and impressions in governing subject-races under
 
 H2 FREE EXCHANGE. 
 
 despotic institutions. This class forms an important 
 auxiliary to the " vested interests " of war, which pre- 
 sent one of the most formidable obstacles to moral 
 and material progress. Including India, we spend 
 annually on our military and naval services no less a 
 sum than ^45,000,000 sterling. Think for a moment 
 what this means, bearing in mind that there is hardly 
 a family in the upper and middle classes which does 
 not possess some interest, direct or indirect, in the 
 division of this spoil, and also the enormous political 
 power which its dispensation confers upon the 
 Government. 
 
 It is not in human nature that any body of men, 
 however patriotic, should look favourably on a policy 
 which, if realized, would destroy their raison d'etre, 
 and which, at every successive stage of its success, 
 diminishes their number and curtails their importance. 
 The possession of India not only enormously increases 
 and strengthens the military element in our body- 
 politic, but, as I have said before, perverts the political 
 instincts of almost all the civilian class which is con- 
 nected with its government. 
 
 Even where slavery in name does not exist, the 
 habitual contact of a privileged race with an alien and 
 subjugated people is alike degrading to both. The 
 waste of national power in our attempt to hold India 
 has been, I believe, incalculable. What might not we 
 have achieved in consolidating our institutions at home 
 and developing them in our colonial possessions with 
 half the effort made in the thankless task of governing
 
 EGYPT. 113 
 
 a people who hate us on principles which we do not 
 believe in a country where we cannot live ? 
 
 I believe that we do not know how much our 
 national progress is retarded, and our national con- 
 science obscured, by the presence amongst us of so 
 large and powerful a class, the whole current of whose 
 ideas is opposed to social and economic reforms. This 
 class, by the law of its being, is favourable to schemes 
 of Imperial ambition, to a reactionary foreign policy, 
 to personal government and to privilege, to a lavish 
 expenditure and to indirect taxation in a word, to 
 chauvinism and to socialism. 
 
 Thus we are constantly engaged in a task which 
 you in this very article most justly condemn, when 
 you say, " There can be nothing worse than to pursue 
 at once two inconsistent lines of conduct." We are 
 carrying on side by side an Imperial and a Democratic 
 policy : in one part of our dominions proclaiming self- 
 government and free institutions with the widest 
 popular suffrage ; in another maintaining our hold on 
 vast populations only by a powerful administrative 
 despotism supported by military force at once a great 
 Christian nation and the greatest Mahomedan power 
 in the world in England, so far secure in the strength 
 of a loyal and united people ; in India, trembling at 
 the mere whisper of a Russian pedlar in a native 
 bazaar ! 
 
 These are the conditions under which you invite us 
 to conquer and to govern Africa ! It is true that in a 
 former paper you considerately suggested that we might
 
 iU FREE EXCHANGE. 
 
 simultaneously abandon India. If this were possible, we 
 might at least have the advantage of a choice between 
 two evils. But, alas ! the duties and responsibilities of 
 empire, once assumed, cannot be thrown aside. If we 
 leave India, it will not be to take another continent 
 under our sway, but to confess our failure, to avow our 
 defeat, and to accept too late a humbler destiny. It is 
 not to the deserts of Africa nor to the plains of Hin- 
 dostan that the friends of freedom and the believers in 
 the future of the human race turn their wistful eyes. 
 " Westward the course of empire takes its way." 
 
 What are your reasons for urging on us so insane 
 a course? "Great nations, like great men, have a 
 mission to fulfil which they must accept as a duty. If 
 they refuse it, they are punished. It is not for nothing 
 that England has set the world the example of consti- 
 tutional liberty, has scattered over the four quarters of 
 the globe her swarms of Anglo-Saxon descent, and has 
 undertaken to govern two hundred millions of subjects. 
 Greatness has its obligations, honores onera. The 
 country which has done so much for the civilization 
 of the whole human race cannot satisfy herself with 
 growing rich, with heaping up gold in the hands of her 
 magnates, and slumbering on the pillows of contented 
 opulence. Instinctively the people will seek more 
 work, and if the cravings for action be not satisfied, it 
 will turn to discontent and unwise exertion. Whence 
 arises at this moment in England the secret disquiet, 
 the pugnacious disposition which nothing justifies in 
 the eyes of sensible and reflecting men ? Simply
 
 EGYPT. 115 
 
 because the people is experiencing an unsatisfied 
 desire of expansion. If the present war comes to an 
 end without further complications, by the acceptance 
 in whole or in part of the conditions imposed by 
 Russia, the bulk of the nation will thereupon experi- 
 ence a vague but deep sentiment of humiliation and 
 loss of consequence which may be in the future the 
 cause of actions very far from reasonable." 
 
 I can only understand these remarks by again con- 
 cluding that in writing them you had before you, in a 
 very imperfect manner, the real conditions of our rule 
 in India. 
 
 It can hardly be argued that because a country has 
 undertaken, with extraordinary audacity and at infinite 
 risk, to govern two hundred millions of subjects in 
 India, she is bound in honour and duty to take on 
 herself the task of governing another two hundred 
 millions in Africa. On the contrary, such a fact 
 affords the strongest possible reason for her not 
 doing so. 
 
 This reason acquires greatly increased strength 
 when it is recollected that so far as we have gone we 
 have certainly not succeeded in our government of 
 India, that all its greatest problems are yet unsolved, 
 and that there is hardly a statesman of mark among us 
 now who does not doubt whether it might not have 
 been better for England if the unscrupulous genius of 
 Hastings, and the daring rapacity of Clive, had been 
 foiled by a kinder fate. 
 
 And with this warning before us, can honour or
 
 ii6 FREE EXCHANGE. 
 
 duty be invoked to bid us embark in another and 
 perhaps more perilous adventure ? Rather should I 
 attribute such a course to the allurements of cupidity 
 and the morbid promptings of an uninstructed phi- 
 lanthropy. 
 
 It is true that in the conquest and so-called civiliza- 
 tion of Africa we should have a very different work 
 before us from that which we have found in India- 
 different, but not therefore less difficult in many of 
 its aspects clearly a task requiring even rougher and 
 more brutalizing agencies, involving on a gigantic scale 
 the ignoble conflict of the armed European with the 
 naked savage ; and as English troops are far too few 
 and too costly for such an enterprise, the employment 
 of Sikhs and Ghoorkas to shoot down African negroes, 
 while the duskier cohorts of Africa are retained to 
 stamp out the seeds of disaffection in the provinces of 
 India. 
 
 These are the imperial arts to which the policy you 
 advocate would compel us to resort ! These are the 
 exploits which, as the champions of constitutional 
 liberty and the interpreters of Providence, we are 
 called on to perform, that we may appease a craving 
 for action and a desire of expansion on the part of the 
 idlest and most ignorant of our people, or avert a 
 vague and irrational sentiment of humiliation at the 
 dearly bought successes of Russia, while millions of 
 acres unbroken by the plough and of forests untouched 
 by the axe are lying ready in our own possessions to 
 absorb ten times our present population in the peaceful
 
 EGYPT. 117 
 
 pursuits of a beneficent and fruitful industry. Let us at 
 least people our own solitudes and replenish the waste 
 corners of our own dominions, before we make our- 
 selves the missionaries of blood and plunder in the 
 heart of Africa. 
 
 But you say that we must not " be satisfied with 
 growing rich and heaping up gold and slumbering on 
 the pillows of contented opulence," and would urge us 
 to gird up our loins and begin again on a grander scale 
 the career of boundless territorial conquest which it 
 has been the earnest effort of all our wisest statesmen 
 during the last fifty years to restrain and abandon. 
 
 Was it thus to squander the heritage of our toil- 
 ing millions that Romilly and Horner, Hume and 
 Huskisson, Cobden and Bright, Peel and Gladstone, 
 have taught us a higher morality, liberated the springs 
 of our industry, and laid the lines of our financial 
 greatness ? 
 
 Is England to lead the way in transplanting to 
 another continent the miserable traditions and dis- 
 credited maxims of the past, to bring Africa into the 
 scale to trim a new balance of power, and there to 
 seek new battle-fields for the nations of Europe to 
 add to the bloody record of their own ? 
 
 It may be that the bankers and bondholders of 
 Paris may persuade a feeble Government to connive 
 for the time at a British occupation of Egypt ; but 
 with recovered resources can any man believe that 
 the old rivalry would not revive, and that the dying 
 embers of national hatred between France and
 
 n8 FREE EXCHANGE. 
 
 England would not glow once more into life in Egypt 
 and Algiers ? 
 
 The Italian people would soon follow suit in seek- 
 ing to found in Tunis another Carthage and thus it 
 is easy to see how Africa would soon become the 
 centre of a new system of intrigues, of conflicting 
 ambitions, of suspicions and jealousies, of wars and 
 conquests, aggravated by all the incidents of uncertain 
 boundaries, disputed native rights, and certain native 
 wrongs. 
 
 It was the boast of Canning that in holding out 
 the hand of fellowship to the young republics of 
 America, he had called a new world into existence 
 to redress the balance of the old. It is to be the 
 task of his degenerate successors to create another 
 world in order to reverse his work, to give a new 
 lease to despotic power and military government, 
 and to repeat in Africa the follies and the crimes of 
 Europe. 
 
 And what is the time chosen for this sinister 
 policy ? The interval which has elasped since the 
 peace of 1815 has been spent (with the inauspicious 
 exception of the Crimean War) in building up the 
 fabric of our national greatness by the diligent 
 prosecution of liberal reforms, in developing our 
 material resources, in probing social problems, and in 
 extending the principles of civil, religious, and com- 
 mercial liberty. Our insular position, our economical 
 conditions, our maritime supremacy, and our colonial 
 possessions have laid the foundations of a system of
 
 EGYPT. 119 
 
 our own, strong enough to stand aloof from the 
 alliances and political complications of Continental 
 Europe, and if true to ourselves to carry through the 
 greatest experiment in government which the world 
 has ever seen. 
 
 To raise the masses of our people to the level of 
 human beings, to force through by allowing the 
 unimpeded action of natural laws the just distribution 
 of wealth, to educate our people and bring them more 
 and more within the pale of responsible and self- 
 conscious citizenship, to co-operate with other nations 
 in the arts of peace, to undermine and neutralize the 
 reactionary forces of Europe by promoting all the 
 material agencies of civilization, and to send out 
 swarms of free men to found English institutions in 
 our foreign possessions, this is a work which is 
 worthy of a great ambition, and it is a work within 
 our reach. 
 
 But if, held back by the baser elements in our 
 national life, we turn our thoughts again to wars and 
 conquests, those who would lightly regard the loss 
 of moral greatness may yet pause in their enterprise, 
 lest they incur the deeper reproach of a political 
 blunder. 
 
 The architects of our present fortunes had other 
 ends in view. Their means were adapted to their 
 ends, and will not lend themselves to other uses. 
 The English Empire must in the last resort be 
 defended, as it has been won, by English hands. The 
 expedients of a handful of conquerors will not always
 
 120 FREE EXCHANGE. 
 
 suffice to hurl with effect half-willing legions of subject- 
 races against the soldier-citizens of Europe, and our 
 financial resources, great as they are for all legitimate 
 purposes, may one day break under the strain. It is 
 a significant fact that the whole cost of our army and 
 our navy in England (,30,000,000 sterling) is defrayed 
 by taxes upon intoxicating drinks ! This is a resource 
 which mainly depends on the degradation of our 
 people, of which it is by a fatal implication at once 
 the cause and the effect. For every shilling spent by 
 a drunken workman, the State takes eight from his 
 helpless wife and children, thus indirectly maintaining 
 a tax on decency and providence. 
 
 But the demands of a great military power cannot 
 be met without it, and we shall thus be placed in the 
 dilemma of renouncing all hope of the real emancipa- 
 tion of our working classes, or of submitting to 
 sacrifices which an educated nation with a wide 
 popular franchise may one day refuse to accept. 
 
 It is one thing to fight for national existence and 
 to avert a foreign yoke ; it is another to drain the 
 heart's blood of a people for a phantom empire, and 
 to dispute with Russia an imaginary claim to an 
 impossible universal dominion. The one thing is 
 a reality, the other an idea. We have seen the 
 incredible efforts made by England at the beginning 
 of the century when stirred by the fear of French 
 invasion, and the heroic stand made by France to 
 defend her soil from a German conquest. We have 
 also seen the first, accepting tardily, but readily
 
 EGYPT. 121 
 
 enough, when the real pressure came, the indepen- 
 dence of America ; and the second renouncing, 
 almost without a murmur, the military supremacy of 
 Europe. 
 
 With such issues before us, what shall we choose ? 
 Shall the final record of history be that England was 
 unequal to the greatness of her fortunes that, 
 tempted by a false ambition, she shrank in moral 
 cowardice from her half-finished work as the free 
 mother of free nations, and left it to other leaders, 
 in a better time, to guide a chosen people into the 
 promised land ?
 
 122 FREE EXCHANGE. 
 
 VI. 
 
 RECIPROCITY. 
 
 (A LETTER ADDRESSED TO MR. THOMAS BAYLEY POTTER, M.P., AS 
 CHAIRMAN OF THE COMMITTEE OF THE COHDEN CLUB.) 
 
 March ijth, 1879. 
 
 DEAR MR. POTTER, 
 
 I was asked last year by the Committee of 
 the Cobden Club to write a paper for them on the 
 subject of the recent cry for what has been known by 
 the name of " Reciprocity." 
 
 The constant pressure of other work has hitherto 
 prevented me from complying with this request but 
 I am bound to add that I have been deterred by 
 another cause. 
 
 Whenever I attempted to address myself to the 
 task, I was confronted with an insuperable difficulty. 
 
 In spite of much reading and a very sincere desire 
 to understand the objects and arguments of the advo- 
 cates of this new commercial policy, I have entirely 
 failed in finding any statement of their case, or any 
 programme of practical measures which will stand the 
 test of serious discussion. 
 
 So that whenever I approached my adversary, I 
 found him to be a man of straw.
 
 RECIPROCITY. 123 
 
 I wish, therefore, frankly to lay my difficulties 
 before the Committee ; and, unless they can help me 
 to a more distinct comprehension of the position which 
 I am asked to assail, to submit to them a proposal 
 which may, I hope, have the effect of eliciting the 
 desired information. 
 
 For the present I can only deal with the crude 
 opinions and proposals which have been put forward 
 from time to time in the public press and at public 
 meetings. 
 
 I take the following statement of the case on 
 the part of the " Modern Reciprocitarian " from a 
 pamphlet by Lord Bateman, entitled, " A Plea for 
 Limited Protection or for Reciprocity : " 
 
 " Granted that the theory of free and unrestricted com- 
 merce with all quarters of the universe is as bold as it is 
 magnificent ; granted that the idea, by whomsoever originated 
 (and advocated by no one more consistently than by our 
 good and wise Prince Consort), is both grand and glorious 
 in its conception ; granted that to give effect to it has been 
 the aim, as it has been the long-accepted policy, of successive 
 Governments ; it cannot be denied that the sting of 'want of 
 reciprocity ' has from the first checkmated our philanthropic 
 efforts, and obliged us now to confess, after thirty years of 
 trial, that in practice our Free Trade is at best but one-sided ; 
 and that, while we are opening our ports to the commerce 
 and manufactures of the world free and unrestricted, other 
 countries, without conferring upon us any reciprocal benefit, 
 are taking advantage, without scruple, of our magnanimous 
 but disastrous (because one-sided) liberality." 
 
 It is necessary here to point out that there is no 
 apparent connection of ideas between the statement of
 
 124 FREE EXCHANGE. 
 
 facts (even if they were correct) in this paragraph and 
 the conclusions at which it seems to point, viz. that 
 we are suffering not only from restrictions abroad, but 
 from freedom at home. 
 
 No one would, I presume, deny that the system 
 under which British trade is now carried on is not 
 one of Free Trade, nor that a complete system of free 
 trade is better than a one-sided Free Trade ; but if, as 
 is alleged, protection is only sought for the sake of 
 reciprocity, it is impossible to understand why a one- 
 sided Free Trade should not be better than no Free 
 Trade at all. 
 
 The mutual relaxation of restrictions is a mutual 
 advantage ; the mutual creation of restrictions is a 
 mutual injury. If one tariff is bad, two must be 
 worse. It matters nothing whether the barrier be 
 raised in one country or in another, the effect is 
 precisely the same. It would be as rational, if the 
 French railway from Boulogne to Paris doubled its 
 charges, for the South- Eastern to do the same by 
 way of reciprocity, as for the British custom-house 
 to raise the duties on French produce because France 
 raises them on ours. 
 
 It will be said, perhaps, that the railway tariff 
 affects the French exports as well as the British 
 imports, and that, therefore, the case is not parallel ; 
 but this is a fallacy. A moment's reflection will show 
 that the French tariff affects French exports as well 
 as British imports. If a French wine-grower is made 
 to pay a higher price for his Lancashire cloth, or,
 
 RECIPROCITY. 125 
 
 what is the same thing, gets less of it for a " barique " 
 of his wine, he will raise the price of his wine or give 
 less of it in exchange ; and his trade, as well as that 
 of the British manufacturer, will be burdened and 
 restricted by the tax. 
 
 To repeat this process at the English port would 
 simply double the burden on both the French and 
 the English trade. As Sir Robert Peel said long 
 ago, the only way of fighting hostile tariffs is by free 
 imports. 
 
 For what is reciprocity ? The essence of all trade 
 is and must be " reciprocity." Every transaction of 
 commerce by which one man voluntarily sells his 
 produce or property to another is an act of reciprocity, 
 and is complete in itself. The imposition of a duty 
 by one country on the produce or manufactures of 
 another only affects the transaction by rendering it 
 less profitable both to the seller and to the buyer ; 
 the variations of supply and demand will cause the 
 incidence of the tax to fall upon the seller and the 
 buyer, the producer and the consumer, in varying 
 degree ; but, in the long run, it will be equally shared 
 between them. 
 
 This may be put in a way which leaves no door 
 open for dispute or discussion. It must be admitted 
 that, in principle, the effect must be precisely the 
 same whatever the amount of the tax or the extent 
 of the restriction whether a duty of 10, 50, or 100 
 per cent, be imposed, there must be a point at which 
 a duty becomes a prohibition. What is true in this
 
 126 FREE EXCHANGE. 
 
 extreme is equally true at every point and at every 
 stage of the protective process. To whatever degree 
 a country protects its own productions, it protects 
 in precisely the same degree the productions of the 
 countries with which it trades ; for to whatever extent 
 it closes its ports on foreign commodities, it prevents 
 foreign countries from importing its own. 
 
 If this be true, and it cannot be otherwise, it 
 follows that the more nearly the tariffs of foreign 
 countries approach to the limits of prohibition, the 
 more will the British producer be protected in his own 
 market. 
 
 Those, therefore, who desire this kind of recipro- 
 city viz. the reciprocity of monopoly must rejoice 
 at every new restriction placed upon British trade 
 abroad, as necessarily involving increased protection 
 to British trade at home. 
 
 I am sometimes almost led to think, in reading the 
 speculations of those who are always raising the cry 
 of alarm at the importation of foreign goods, that they 
 are still under the influence of the exploded mercantile 
 theory of the Balance of Trade, according to which 
 the advantage of commerce to a country resides in 
 what it parts with and not in what it obtains in its 
 exports and not in its imports, the balance being 
 paid in money, which was supposed to be the only 
 wealth. 
 
 I am unwilling to believe in the survival of this 
 delusion ; but if it still prevails in any quarter, it is so 
 important to dispel it, that I am tempted to quote at
 
 RECIPROCITY. 127 
 
 some length the clearest exposition which I know of 
 the phenomena of international trade. 
 
 " All interchange is in substance and effect barter : he 
 who sells his productions for money, and with that money 
 buys other goods, really buys .those goods with his own pro- 
 duce. And so of nations : their trade is a mere exchange of 
 exports for imports ; and whether money is employed or not, 
 things are only in their permanent state when the exports 
 and imports exactly pay for each other. 
 
 " When this is the case, equal sums of money are due 
 from each country to the other ; the debts are settled by bills, 
 and there is no balance to be paid in the precious metals. 
 The trade is in a state like that which is called in mechanics 
 a condition of stable equilibrium." * 
 
 Mr. Mill goes on to show that a country which 
 wants more imports than its exports will pay for has 
 to pay the difference in money ; that by this trans- 
 mission of the precious metals the quantity of the 
 currency is diminished in such a country and increased 
 in the countries with which it trades ; that prices fall 
 in the former and rise in the latter ; and that the im- 
 ports are checked and the export trade stimulated until 
 the equilibrium of prices is restored, and the imports 
 and exports again balance each other. He adds 
 
 "The equation of international demand under a money 
 system, as under a barter system, is the law of international 
 trade. Every country exports and imports the very same 
 things in the very same quantity under the one system as 
 under the other. In a barter system the trade gravitates to 
 the point at which the sum of imports exactly exchanges for 
 the sum of exports ; in a money system it gravitates to the 
 point at which the sum of the imports and the sum of the 
 
 * Mill's " Principles of Pol. Econ.," cap. 21.
 
 128 FREE EXCHANGE. 
 
 exports exchange for the same quantity of money. And 
 since things which are equal to the same are equal to one 
 another, the imports and exports which are equal in money 
 price would, if money were not used, precisely exchange 
 for one another. ... In international as in ordinary domestic 
 interchanges, money is to commerce what oil is to machinery, 
 or railways to locomotion, a contrivance to diminish friction." 
 
 Some apology appears to be necessary for thus 
 reproducing a statement of doctrine which I always 
 have thought had been thoroughly understood and 
 accepted by all economists, but there would appear 
 to be a widespread belief among certain classes of 
 our countrymen that importing and exporting are two 
 totally distinct processes, with no necessary connection 
 between them ; and that to place our foreign trade 
 in a thoroughly satisfactory condition we should direct 
 all our efforts to exporting as much as possible, and 
 importing nothing in exchange. It cannot, therefore, 
 be too broadly stated, or too often insisted on, that the 
 two processes are as inseparably connected as the ebb 
 and flow of the tide that without imports there can 
 be no exports, and without exports there can be no 
 imports. 
 
 These two factors do not, of course, show the 
 whole extent of our commercial intercourse with 
 foreign countries ; but they are most important ele- 
 ments in it, and their relative value is more easily 
 calculated. We have heard of late a great deal too 
 much about the enormous excess of our imports over 
 our exports, as if this were necessarily a symptom of 
 unsound trade. There can be no greater fallacy.
 
 RECIPROCITY. 129 
 
 Even if the values of our imports and exports were 
 strictly accurate, which they are very far from being, 
 they would convey no correct idea of the real conditions 
 of our foreign trade, unless we could be presented with 
 a balance-sheet giving a Dr. and Cr. account of all the 
 items in our dealings with all the countries with which 
 we trade, including capital lent or borrowed, and the 
 interest thereon, both in the form of public loans and 
 private investments, and every particular of inter- 
 national indebtedness. 
 
 Without this knowledge it is of little use to talk 
 about our trade accounts ; but upon two points we 
 may feel an absolute certainty first, that we cannot 
 import without giving a quid pro quo ; and, second, 
 that whatever may be the balance, it is only in certain 
 cases, and within very moderate limits, that it is 
 cancelled by a bullion payment. 
 
 As has been shown above, a country which does 
 not produce the precious metals can never effect its 
 purchases in gold or silver, except in liquidation of 
 some comparatively trifling balance. And, as a 
 matter of fact, the imports of gold and silver bullion 
 into the United Kingdom have in recent years 
 exceeded the exports. In 1878 the excess amounted 
 to nearly six millions sterling, and the average 
 annual excess in the last five years has been nearly 
 five millions. 
 
 So far, then, from seeing anything disquieting in 
 what is called an " adverse balance of trade," it 
 appears to me to be a feature on which we have 
 
 K
 
 130 FREE EXCHANGE. 
 
 every reason to congratulate ourselves, showing, as it 
 does, that we are liquidating our debts in the least 
 inconvenient way to ourselves, i.e. by means of com- 
 modities which we can produce at less cost than other 
 people. 
 
 If foreign countries are content to accept ^50 
 worth of British goods in exchange for ^90 worth of 
 their own, are we to complain of their generosity ? 
 The preachers of the new gospel of reciprocity would 
 apparently answer in the affirmative. " Our policy," 
 they say, " is to induce foreign countries to take more 
 of our goods and give us less of theirs in return." If 
 this is what is meant by reciprocity, I fear it is not a 
 doctrine which is likely to be very popular either with 
 the producing or with the consuming classes in the 
 country ; but it would certainly be a better practical 
 illustration of what Lord Bateman calls " our mag- 
 nanimous but disastrous liberality " than a system of 
 Free Trade. 
 
 It may, then, be stated broadly that every English- 
 man who sells or buys in a foreign country, whatever 
 be the tariff of that country or the tariff of his own, 
 is already in the possession of complete reciprocity ; 
 and it must be apparent that the term "reciprocity," 
 if applicable to the object of which we have lately 
 heard so much, must be used in a different and much 
 less accurate sense. 
 
 This sense would not be far to seek were it not for 
 my second difficulty. 
 
 I might have supposed that a policy of reciprocity
 
 RECIPROCITY. 131 
 
 meant, in a rough-and-ready way, the policy of Mr. 
 Huskissonand his successors in negotiating what were 
 called " reciprocity treaties," by which two countries 
 mutually engaged to relax or remove restrictions on 
 each other's trade or navigation, and to extend to 
 each other " most favoured nation " treatment in a 
 conditional or unconditional form. 
 
 In a still more general sense viz. in that of a 
 simultaneous reduction of tariffs I might have sup- 
 posed that the commercial policy of Mr. Cobden's 
 Treaty with France in 1860 was in the minds of the 
 modern advocates of " reciprocity ; " but it was at 
 once apparent that their aims were very different from 
 those of Mr. Huskisson and Mr. Cobden. 
 
 The kind of reciprocity which Mr. Huskisson and 
 Mr. Cobden had in view, although their methods 
 were different in some essential respects, had this in 
 common, that they both recognized the vital impor- 
 tance, in the cause of Free Trade, of international 
 action. 
 
 Sir Robert Peel, probably very wisely, at the time 
 of his great reforms in our commercial system, re- 
 solved to proceed independently of the co-operation 
 of foreign countries, and trusted not unnaturally to the 
 effect of sound principles, and to the example of success 
 in provoking the reciprocity which he was at the time 
 unable or unwilling to invite. 
 
 I am very far from disputing the wisdom of the 
 course which was then pursued ; on the contrary, I 
 am quite disposed to think that it was the only course
 
 132 FREE EXCHANGE. 
 
 which it would at that time have been wise to take ; 
 but it became clear, after twenty years of trial, that 
 great as was its success, the policy of " masterly 
 inactivity " towards other countries had entirely failed 
 in securing their adhesion to the Free Trade cause, 
 and so far defeated the expectations of its authors. 
 
 It was under these circumstances that Mr. Cobden 
 was led to consider whether any means could be found 
 of giving a new impulse to tariff reform and international 
 progress. 
 
 It was impossible to revert to the discriminating 
 system and the conditional engagements of Mr. 
 Huskisson ; this would have been reaction, and not 
 progress : but there could be no deviation from the 
 strictest rules of sound economic policy, on the occa- 
 sion of a sweeping reform of our own Customs system, 
 in securing the co-operation of France with a view to 
 simultaneous reductions which were not intended to 
 be in favour of England and France alone, but to be 
 general in their application. 
 
 Unfortunately, the sound maxim of Sir Robert 
 Peel at the time of his reforms, that the best way of 
 fighting hostile tariffs was by free imports, developed, 
 by some strange process of reasoning in the minds of 
 certain English economists (to say nothing of poli- 
 ticians, from whom anything may be expected and 
 forgiven), into a notion which found ultimate expres- 
 sion in the maxim, " Take care of your imports, and 
 your exports will take care of themselves." 
 
 This school of English Chauvinism has always
 
 RECIPROCITY. 133 
 
 strenuously denounced and resisted all attempts to 
 secure the co-operation of foreign countries in estab- 
 lishing reciprocity of freedom, as if it were only less 
 objectionable than reciprocity in monopoly, and has 
 succeeded in doing two very mischievous things. 
 
 1. It has prevented the execution of a commercial 
 policy which had been eminently successful in pro- 
 moting freer trade on the continent of Europe, and 
 which, if completed as it might have been, would 
 have effectually barred the course of the present 
 reaction. 
 
 2. It is to a great degree responsible, if, indeed, 
 it has not directly caused, the present blind cry for 
 reciprocity. By discouraging and discrediting all 
 attempts to obtain reciprocity of free trade, and by 
 ignoring the incontestable truth that you cannot have 
 free trade without reciprocity, the still grosser error 
 has been generated in a section of the public mind 
 that it is better to have reciprocity without free trade. 
 The doctrine that half a trade is as good as a whole 
 trade has led, logically, to the opinion that no trade is 
 as good as half a trade. 
 
 But in their haste to find rest in a comfortable 
 abstract doctrine which should at once flatter the 
 national vanity by asserting our independence of other 
 countries, and save all further trouble, the advocates 
 of this rule of policy entirely overlooked their facts. 
 They forgot that, until the French Treaty, our tariff 
 was bristling with import duties, many of them pro- 
 tective, and that even now we draw a larger revenue
 
 134 FREE EXCHANGE. 
 
 from customs than any country in the world, except 
 the United States. They forgot that their own con- 
 dition was absent that, in the sense of admitting them 
 free, we do not take care of our imports. 
 
 I am very far from wishing in the slightest degree 
 to palliate the attempts which are now being made 
 by some foreign Governments and, I regret to add, 
 by Governments of our own possessions with even 
 less excuse to pursue still further a protective policy, 
 and to plunder their people at large for the benefit of 
 a privileged class. 
 
 On the contrary, I regard these attempts in the 
 present state of Europe as little less than criminal ; 
 and I foresee a day of heavy reckoning, when Socialism, 
 which is the direct offspring of Protection, claims its 
 inheritance, and demands a share for the many in the 
 dishonest gains of the few. 
 
 But if we were unable to raise even half our 
 present Customs' revenue without having recourse to 
 duties which were (as the phrase goes) incidentally 
 protective, and our choice lay between such duties and 
 direct taxation, I fear that there are some among us 
 whose virtue would hardly be equal to the strain. 
 
 In thanking God, then, that he is not as other men, 
 or even as this foreigner, the British Pharisee must 
 not be allowed to deceive himself by a phrase. So 
 long as we continue to raise half our revenue from 
 customs and excise, our fiscal system may be very 
 convenient, but our trade is not free. We may, if we 
 like, rejoice that our wretched climate enables us to
 
 RECIPROCITY. 135 
 
 levy millions on wine, tea, and tobacco without recourse 
 to excise duties and the risk of subsidized domestic 
 industries ; but no trade can be called free till all fiscal 
 impediments to its freedom are removed. 
 
 It is no consolation to the grower of wine in France 
 or of tobacco in America to be told, when he is trying 
 to promote a wider trade in these commodities, that 
 our duties are imposed " for revenue purposes only," 
 and are, therefore, above criticism. He very naturally 
 replies, "It is true you do not grow wine or tobacco, 
 but I do ; and, on the other hand, there are many 
 things which you do produce, and which I wish to 
 buy of you, but, to enable me to do so, you must 
 accept payment in the only coin which I have to offer 
 namely, my wine or my tobacco. The more you 
 take of these, the more shall I be able to take from 
 you in exchange." 
 
 The maxim of " free imports " has never yet been 
 tested, and never can be till our own tariff is purged. 
 
 This kind of reciprocity is, however, clearly not 
 the object of the present agitation, which aims at the 
 contraction and not at the expansion of our foreign 
 trade, and invites us, in spite of the teaching of our 
 wisest statesmen and of the conclusive evidence of our 
 own experience, to enter upon a course of retaliation 
 and a war of tariffs. 
 
 I must, therefore, ask those who are disposed to 
 listen to this appeal how they would set to work. 
 
 Reciprocity in their sense means, I suppose, that 
 we should treat other countries as they treat us, what-
 
 I 3 6 FREE EXCHANGE. 
 
 ever the effect upon ourselves i.e. that we should 
 apply to each foreign country a tariff of duties which 
 would correspond, as nearly as might be, with that 
 which it enforces against us. 
 
 Let us see where this would lead us. 
 
 Our imports may be divided broadly into three 
 classes. 
 
 1. Raw products or raw materials. 
 
 2. Manufactured and half-manufactured goods. 
 
 3. Articles of consumption, as food, drink, or to- 
 bacco, subdivided into (so-called) 
 
 a. Necessaries. 
 
 b. Luxuries. 
 
 The values of our imports in 1877 in each of these 
 classes were 
 
 1. Raw products or raw materials ... 130,041,052 
 
 2. Manufactured and half-manufactured 
 
 goods 49,089,241 
 
 3. Articles of Consumption 
 
 a. Necessaries ...140,954,110) 
 . Luxuries ... 36,371,041) 1 77>&SM* 
 Articles not classified ... ... 37>954,336 
 
 I presume that it can only be in respect of the 
 second of these three classes that any new scheme of 
 taxation could be proposed ; for it is improbable that 
 our manufacturing industries would desire to curtail 
 their supply of raw material, or that the people of 
 England will ever again submit to Corn Laws or 
 Sugar Duties, and return to their small loaf and dear 
 grocery, while our so-called luxuries, such as spirits,
 
 RECIPROCITY. 137 
 
 tobacco, wine, beer, tea, and coffee, are already so 
 heavily taxed that the less we say about them the 
 better. 
 
 It is, therefore, only with an eighth part of our 
 import trade that we are, at the most, free to deal, and 
 from this no inconsiderable deduction must, I presume, 
 be made, for I can hardly believe that our manufactur- 
 ing interest, as a whole, would desire duties on half- 
 manufactured goods, intended for further processes 
 which employ British capital and labour. 
 
 If, then, for the purpose of a policy of reciprocal 
 restriction, it were proposed to reimpose duties on 
 this small class of our imports, how could that purpose 
 be attained ? 
 
 Let us examine the sources of our supplies, and 
 see how far they correspond with the foreign countries 
 upon which we desire or are able to retailate by re- 
 strictions on their trade. And first on the list of 
 offenders stand the United States of America. 
 
 What manufactures do we import from them ? In 
 value less than ,2,000,000 sterling, of which more 
 than half consists of tanned and curried hides ! There 
 is little room for reciprocity here, for no one would 
 dream of taxing their raw cotton and bread-stuffs, and 
 we had better leave them to tan and curry their own 
 hides than attempt to do it for them. 
 
 Next in the illiberality of their tariffs come Russia 
 and the Peninsula. But here the case is even worse, 
 for we import no manufactured goods worthy of enu- 
 meration from any of them, while in the case of Spain
 
 138 FREE EXCHANGE. 
 
 and Portugal we already tax their wines not only 
 heavily, but in a way which, in practice, affects them 
 differentially, and derive from them a revenue infinitely 
 greater than that which they raise from our exports to 
 them. 
 
 Reciprocity here, therefore, would lead us in a con- 
 trary direction altogether from that which is desired. 
 
 But France, it will be said, which sends us every 
 year a value of .16,000,000 in silks and woollens, 
 shoes, and gloves, and "articles de Paris" and other 
 finished manufactures surely here at least we can do 
 to others as we do not wish them to do to us. No 
 doubt we could ; but to retaliate on a country which 
 as a rule taxes our imports about 20 per cent, or less, 
 while we leave untouched a country like the United 
 States, which taxes them double, may be good or bad 
 policy, but it is not reciprocity. 
 
 Nor could we give effect to such a policy without 
 a further gross departure from the principle of re- 
 ciprocity, by placing similar taxes on the manufactures 
 of Belgium, Holland, and Switzerland, the tariffs of 
 which are more liberal than those of France ; for in 
 these days of railroads and transit trades the anti- 
 quated machinery of differential duties and certificates 
 of origin could never be made effectual again. 
 
 And what applies to France applies still more to 
 Germany, whose trade must always largely pass 
 through Dutch and Belgian ports, as well as to Russia, 
 whose produce would always find its way through 
 Germany to the sea.
 
 RECIPROCITY. 139 
 
 It may also be as well to ask whether we might 
 not get the worst of it in a game at which two can 
 play, and whether we should not injure ourselves more 
 than we should injure France by a war of tariffs ? 
 
 The following table gives the total value of the 
 trade between France and England in 1859, the year 
 which preceded Mr. Cobden's treaty, and in 1877, the 
 last year for which the account is complete : 
 
 taSEuJSd Ilngd'om. E *P" S from the United <- into France " 
 
 1* >S59, ^6,870,85, {^^ ;;; *%*%} 9 ,&** 
 
 In 1877, 45,833,324 ( S rUiSh CXPOrtS *" ^ I4>233 'T ) 25,663,602 
 I Re-exports ... n, 430,360 ) 
 
 This table shows that in that part of our export 
 trade which consists of British produce and manu- 
 factures, the proportionate advance since 1859 has 
 more than kept pace with the progress of the total 
 importations from France, and we have seen that the 
 importations of manufactured goods from France do 
 not greatly exceed the amount of the British exports. 
 Any check which might be imposed on the French 
 trade in silks and woollens would be dearly bought 
 by the corresponding check which a return to the 
 policy of 1859 would place upon our export trade. 
 
 "Ex uno disce omnes ! " It would be tedious to 
 repeat a similar story with respect to other countries 
 on the continent of Europe. I append for reference a 
 list * showing the value of the manufactures which we 
 imported in 1877 from most of the countries with 
 which we trade, from which it will be seen that, even 
 
 * Appendix A, p. 148.
 
 HO FREE EXCHANGE. 
 
 if possible, a policy of retaliation would be utterly 
 futile. 
 
 Of India and China, which for commercial pur- 
 poses must be considered together, it is unneces- 
 sary to speak in connection with this subject, for 
 we levy on one of their products tea alone little 
 less than the whole amount of their joint Customs 
 Revenue ! 
 
 I turn to the British Colonies, and take the 
 Dominion of Canada and the Australian group as 
 the largest and most important of our customers. 
 
 What is the prospect for this kind of reciprocity 
 here ? We look in vain for a single item in the list 
 of their exports which we could afford to tax, what- 
 ever their treatment of our manufactures may be. 
 Canadian timber and Australian wool have become 
 the breath of our industrial life, and must be admitted 
 free. 
 
 Any attempt, then, at a discriminating reciprocity 
 of restrictions must be abandoned in despair ; not 
 only would it fail in giving effect to its essential 
 principle, but it would land us in inextricable con- 
 fusion. There is only one course left viz. that of 
 placing a general import duty of a " moderately " 
 protective character, say 10 per cent., upon all foreign 
 manufactures. 
 
 But this cannot be intended, for it would be a 
 simple return to a policy which we have already tried, 
 and which we have abandoned step by step from a 
 bitter experience of its disastrous results ; and I would
 
 RECIPROCITY. 141 
 
 ask what reason there is for supposing that such a 
 course would be more profitable in the future than it 
 has been in the past. 
 
 If any one wants a proof, let him look at the 
 history of our foreign trade, in that branch of it alone 
 (if he likes) which consists of British exports. 
 
 In 1829, soon after Mr. Huskisson's and 
 Mr. Poulett Thomson's reforms, the 
 declared value of the British and Irish 
 produce exported from the United 
 Kingdom was ... ... ... 35,842,000 
 
 In 1839 it was 53> 2 33,ooo 
 
 In 1849, just after the repeal of the Corn 
 
 Laws ... ... ... ... 63,596,000 
 
 In 1859, the year before the French 
 
 Treaty ... ... ... ... 130,411,000 
 
 In 1869, after nine years of the Treaty 
 system, and before the Franco-German 
 war ... ... ... ... 189,954,000 
 
 And in 1877 ... ... ... 199,000,000 
 
 After having risen in 1 872 to the astonish- 
 ing amount of ... ... ... 256,257,000 
 
 And even now, until quite recently, as Mr. Giffen 
 has shown, it is only the value and not the actual 
 quantity of the goods which has sensibly diminished. 
 
 Another equally good illustration of the immense 
 progress which our export trade has made is to be 
 found in the proportion of the above value per head 
 of population, which stood as follows : 
 
 In 1829 the value of our exports was i 10 6 per head. 
 In 1839 208,, 
 
 In 1849 2 5 ii
 
 142 FREE EXCHANGE. 
 
 In 1859 the value of our exports was 4 n 2 per head. 
 In 1869 627,, 
 
 In 1877 5 18 ii 
 
 I will adduce a few other proofs of the effect of the 
 Free Trade policy on the national prosperity. 
 
 The following are -the figures representing the 
 tonnage of the British merchant navy at various 
 periods : 
 
 British Empire. United Kingdom. 
 
 1840 3,311,000 2,724,000 
 
 1860 5,710,000 4,586,000 
 
 1870 7,149,000 5,617,000 
 
 1878 8,266,000 6,198,000 
 
 The consumption of the following imported and 
 excisable articles per head of the population was 
 
 1852 1877 
 
 Sugar, raw... ... 28-15 Ibs. 54'o6 Ibs. 
 
 Tea 2-00 ... 4-52 
 
 Tobacco ... ... i '04 ... i '49 
 
 Spirits ... ... no gals. .. 1*23 gals. 
 
 Malt 1-50 bush. ... 1-92 bush. 
 
 Mr. Caird, in his recent valuable work on the 
 landed interest, states that thirty years ago not more 
 than one-third of the people of England consumed 
 animal food more than once a week. Now nearly all 
 of them eat it in meat or cheese or butter once a day, 
 more than doubling the average consumption per 
 head. He adds that within the last twenty-five years 
 the capital value of the live-stock of the United King- 
 dom has risen from ^146, 000,000 to ^260,000,000 ; 
 and he puts the total gain to the agricultural interest
 
 RECIPROCITY. 143 
 
 landowners, farmers, and labourers in rent, farm 
 capital, and wages, at ^445,000,000 in the period 
 under review. 
 
 Agricultural wages have risen from qs. jd. to 
 14^. 6d. since 1850; and it is needless to add that the 
 wages of manufacturing labour have increased in a 
 similar manner. 
 
 Among collateral indications of the national pros- 
 perity, which has, at all events, coincided with the 
 adoption of our recent fiscal and commercial policy, 
 I may refer to the growth in the assessments of income 
 tax in Great Britain : 
 
 In 1843 they were 251,013,000 
 In 1875 535,708,000 
 
 To deposits in savings banks, which were 
 
 In 1840, 23,471,000, or ijs. gd. per head of population. 
 In 1876, 70,280,000, or 42 s. 6d. 
 
 And to the decrease in the percentage in pauperism to 
 the population, which was 
 
 In 1841 8'2 
 
 In 1876 3-1 
 
 And to other facts given in a recent interesting paper 
 on the strength of England in the Fortnightly Review, 
 by Mr. Farrer. 
 
 Can this be all ? or is there yet some undiscovered 
 policy which I have failed to divine ? 
 
 If not, and if further reciprocity of restrictions is 
 unattainable, I have yet one consolation for its advo- 
 cates. In a still more general sense, but in a sense
 
 144 FREE EXCHANGE. 
 
 very distinctly affecting the conditions of our foreign 
 trade, their policy is actually in force. 
 
 It will, no doubt, be a source of unmixed satis- 
 faction to them to find that our so-called "revenue 
 duties" cannot fail to produce results as injurious to 
 the exporting industries of the countries affected by 
 them as their protective duties cause to our own trade. 
 
 The ^20,000,000 which we annually raise in duties 
 on foreign goods may be roughly divided among our 
 different neighbours in the following proportions : 
 
 The United States of America . . . 6,000,000 
 
 India and China ... ... ... 3,500,000 
 
 France ... ... ... ... 1,500,000 
 
 Spain... ... ... ... ... 1,000,000 
 
 Germany ... ... ... ... 880,000 
 
 Portugal 450,000 
 
 Greece ... ... ... ... 320,000 
 
 Holland 150,000 
 
 Italy 80,000 
 
 British possessions ... ... ... 4,000,000 
 
 Other foreign countries ... ... 2,000,000 
 
 And of all these countries there is hardly one 
 which draws as large a revenue from the taxation of 
 British produce. To take only two examples, the 
 United States and France. The total value of British 
 produce exported to the former country in 1877 was 
 ,16,300,000; making allowance for the entry of a 
 certain amount of goods duty free, the average rate 
 levied can hardly be put higher than 30 per cent, 
 which would give a total revenue of about .5,000,000 ; 
 while in the case of France, the duties actually levied
 
 RECIPROCITY. 145 
 
 on British goods in the same year amounted to a little 
 over ,800,000. 
 
 What more could the most strenuous advocate of 
 a retaliatory policy desire ? 
 
 There is one ground upon which protective duties 
 have been urged which appears at first sight rather 
 more plausible than those which have been hitherto 
 discussed. I mean the claim set up by our manufac- 
 turers in compensation for restricted hours of labour 
 and exceptional taxation. It is said that if the 
 Legislature chooses to place disabilities on particular 
 industries, the country at large should bear the cost, 
 and not the particular industries. 
 
 Now, in the first place, any such disabilities as are 
 here in view are not imposed intentionally by the 
 Legislature. The assumption has always been that 
 cheap labour is not necessarily efficient labour, and 
 that a system which leads to the degradation of the 
 working class, and prevents them from attaining a 
 certain moral, intellectual, and physical standard, 
 directly impairs their productive energy. 
 
 But if it can be shown that any restrictions on 
 labour or any special disabilities really diminish the 
 efficiency of the industries which they affect, it should 
 be the object of our reformers to address themselves 
 to the very legitimate task of obtaining relief from 
 unwise or unjust laws, and not to extend their opera- 
 tion to the whole community. 
 
 For to what does the claim amount ? 
 
 Because the cost of production is increased in cer- 
 
 L
 
 1 46 FREE EXCHANGE. 
 
 tain industries by an undue interference with labour, 
 we are asked to raise the cost of living all round to 
 the whole community. 
 
 Because an injustice is done to a section of the 
 people, it is to be extended to all. To enter upon 
 such a course would be to move further in a vicious 
 circle, which could only end in the general impoverish- 
 ment of the nation. 
 
 If the aid of Government is sought to equalize 
 conditions of production at home and abroad, let it 
 at least be invoked to diminish our burdens and not 
 to add to them ! 
 
 But, after all, what a hollow cry this is about 
 foreign competition ! A country which exports her 
 manufactures to a value of ^150,000,000 per annum 
 to rival and neutral markets, is represented to us 
 as on the road to ruin, because she cannot succeed 
 in preventing the importation of ^50,000,000 worth of 
 foreign goods ! 
 
 I have now combated various imaginary proposi- 
 tions, but end as I began, without having discovered 
 one which accounts for the action and language of so 
 many of our countrymen on this matter of reciprocity. 
 
 Will you think me very uncharitable if I say that 
 an unworthy suspicion has sometimes crossed my 
 mind that the policy which we are called upon to 
 adopt might more fitly be called by another and a 
 less innocent name ? 
 
 Can it be that while the hands are Esau's hands, 
 the voice is the voice of Jacob, inviting us, in the
 
 RECIPROCITY. 147 
 
 name of reciprocity, to barter our Free Trade birthright 
 for a mess of Protectionist pottage ? 
 
 I prefer to believe that the fault is mine, and to 
 seek for further light. 
 
 The proposal, therefore, which I have to make to 
 the Committee is that they should offer a prize for the 
 best essay explaining the objects of this much-debated 
 policy, and the means by which it is proposed to carry 
 it into effect. 
 
 I shall await the result without impatience, but 
 not without curiosity, for the prize essayist must 
 at least succeed in proving that no bread is better 
 than half a loaf, and that because we cannot sell 
 in the dearest, we ought not to buy in the cheapest 
 market. 
 
 I am always, 
 
 Dear Mr. Potter, 
 Yours sincerely, 
 
 LOUIS MALLET.
 
 i 4 8 FREE EXCHANGE. 
 
 APPENDIX A. 
 
 IMPORTS OF MANUFACTURES INTO ENGLAND, 1877. 
 
 From Amount in Value, 
 
 Russia ... ... ... ... about 108,000 
 
 Sweden 1,083,000 
 
 Norway ... .., ... ... 39,ooo 
 
 Denmark ... ... ... ... 27,000 
 
 Germany 2,862,000 
 
 Holland 6,830,000 
 
 Belgium ... 5,312,000 
 
 France ... ... ... ... 16,060,400 
 
 Portugal 17,000 
 
 Spain ... ... ... ... 18,000 
 
 Italy 318,000 
 
 Austria 33,ooo 
 
 Turkey ... ... ... ... 1 1 2,000 
 
 Egypt ... 3,000 
 
 Persia 13,000 
 
 China 180,000 
 
 Japan ... 5,000 
 
 United States 1,843,000
 
 RECIPROCITY. 
 
 149 
 
 APPENDIX B. 
 
 Revenue derived by various countries from Customs 
 duties, according to the latest returns available : 
 
 United States 26,200,000 
 
 Great Britain ... ... ... ... 20,000,000 
 
 France 10,250,000 
 
 Germany 5,33O,ooo 
 
 Russia 5,300,000 
 
 Italy 4,240,000 
 
 British India ... ... ... ... 2,700,000 
 
 Austria ... ... ... ... ... 2,320,000 
 
 Portugal 1,850,000 
 
 Spain 1,600,000 
 
 Sweden : 1,200,000 
 
 Denmark ... ... ,.. ... 1,100,000 
 
 Belgium 865,000 
 
 Holland 385,000
 
 ISO FREE EXCHANGE. 
 
 VII. 
 
 A STATEMENT OF BIMETALLIC 
 THEORY. 
 
 i. IF the only demand for any two commodities 
 which are required for the same purposes, and serve 
 the same function, is subject to the condition that they 
 shall exchange in a fixed ratio, one to the other, so 
 long as the supply of both continues, they must 
 exchange in that ratio, or not at all. 
 
 2. Bimetallism is the application of this principle 
 to gold and silver when used as standard coins of the 
 realm. 
 
 3. Such gold and silver coins are only in demand 
 for the purposes of exchange, e.g. the purchase of other 
 commodities, the payment of labour, or the liberation 
 of debt. Both gold and silver coins equally serve for 
 any of these functions, and they are only available for 
 such purposes because Governments give them currency 
 as legal tender, and affix to them a stamp, which is 
 accepted as a guarantee of their being of a certain 
 weight and fineness. 
 
 4. If, therefore, all Governments agree to establish 
 and enforce a fixed ratio between gold and silver in
 
 A STATEMENT OF BIMETALLIC THEORY. 151 
 
 the form of coined money, such gold and silver coins, 
 if they exchange at all, must exchange in that ratio. 
 
 5. For if, with 15^ or any other number of ounces 
 of silver coins, the same exchanges can be made, or 
 the same debts discharged, as with one ounce of gold 
 coins, or vice versa, that metal will inevitably be pre- 
 ferred which can be obtained at the least cost. If, 
 therefore, the relative value of the two metals varies 
 from that ratio, a double process will be set in motion. 
 On the one hand, any addition to the metallic currency 
 will be made in the metal which can be obtained at 
 the least cost ; and on the other, the coins of the dearer 
 metal already in circulation will be melted down, until 
 the price of the bullion has reached the same level as 
 the coin. 
 
 6. This process could only terminate in one of two 
 ways. Either the increased demand for the cheaper, 
 and the lessened demand for the dearer metal, would 
 proceed until the latter has been driven and kept out 
 of circulation, thus escaping altogether from the control 
 of Governments, or the value of the first will rise and 
 that of the latter fall, until the equilibrium is restored, 
 i.e. until (in the case supposed) 152 oz. of silver coin 
 will exchange again, by the adjustment of supply and 
 demand, exactly for one ounce in gold coin. 
 
 7. The first is an extravagant hypothesis, for such 
 a result could only be brought about by the subversion 
 of all the conditions which have hitherto governed the 
 production of the precious metals, or by the adoption 
 of a ratio, such, for instance, as i to i, which would
 
 152 FREE EXCHANGE. 
 
 entirely defeat the purpose of a double standard, and 
 could therefore never be proposed by its advocates ; 
 but, even if admitted as a conceivable possibility, it 
 could not be urged by monometallists as an objection 
 to the adoption of bimetallism, as it would then directly 
 lead to the universal use of a monometallic standard in 
 the monetary systems of the world. 
 
 8. For it must be borne in mind that, under a 
 system of free mintage, the market price of gold and 
 silver bullion must always be the same as their mint 
 price, plus or minus the cost of coinage. 
 
 So long, therefore, as both gold and silver coins 
 are in circulation and therefore, ex hypothesi, neces- 
 sarily exchangeable in the ratio of 15^ to i, so long 
 must the relative value of the gold and silver bullion 
 be also in the ratio of 152 to i. 
 
 9. But the latter alternative is the only one, it is 
 urged, which deserves practical consideration, and, if 
 so, it appears to follow that the only possible diver- 
 gence from the fixed ratio in the value of the two 
 metals, so long as they are used as coin, would be 
 within the narrow limits of the cost of coinage and 
 melting, as well as of the charges of transport from 
 one market to another. 
 
 10. In reply to the objection that this theory rests 
 upon an inadmissible assumption, viz. an universal 
 agreement among nations, it is urged that, if universal 
 agreement is impossible, it is also unnecessary. All 
 that is needed for the success of the policy is that an 
 union shall be maintained on a sufficiently large scale
 
 A STATEMENT OF BIMETALLIC THEORY. 153 
 
 to neutralize the operation of the so-called " Gresham 
 law," and ensure the constant and certain presence of 
 both gold and silver in the currency, so that there 
 could be no cheaper or dearer metal. 
 
 ii. It can hardly be doubted that an union of the 
 four great States, England, France, including the Latin 
 Union, Germany, and the United States of America, 
 would more than suffice for such a purpose. But, if 
 this is questioned, it must, at least, be admitted that, 
 as such a combination would include all the important 
 States with a gold standard, no increase in the supply 
 of silver could drive out the gold coinage (for where 
 could it be driven ?) ; while, on the other hand, the 
 expulsion of silver by gold could only arise from such 
 an increase in the supply of the latter as would pro- 
 vide the union with a sufficient basis for a single gold 
 standard. The bimetallic system could, therefore, in 
 this case, only fail from causes which would obviate 
 the main practical evils of monometallism.
 
 154 FREE EXCHANGE. 
 
 VIII. 
 
 THE NATIONAL INCOME AND 
 TAXATION. 
 
 (PUBLISHED IN 1885.) 
 
 THERE are indications that before long the profound 
 apathy which has prevailed in this country during recent 
 years on the subject of finance and taxation, may be 
 succeeded by a reawakened interest, and receive some 
 degree of public attention. 
 
 The foreign policy of the last two Administrations 
 has culminated in an expenditure during the current 
 year of nearly ^100,000,000; and although, if peace 
 is preserved, it may be hoped that considerable reduc- 
 tions in this amount may be made in the future, it is 
 now clear that the average expenditure of recent years 
 will be permanently exceeded. 
 
 The politicians, however, who are most keenly 
 alive to the moods and dispositions of the electoral 
 body, do not appear to have found it desirable, or, 
 perhaps, possible, to sound the note of retrenchment 
 or economy. On the contrary, leading Liberal candi- 
 dates have, for the most part in their recent appeals 
 for popular favour, vied with their Tory rivals in
 
 THE NATIONAL INCOME AND TAXATION. 155 
 
 admitting the necessity of a large and liberal expendi- 
 ture for the purposes both of war and peace. So 
 great, indeed, has been the change in the sentiments 
 of the British people in this respect, that the temper 
 of mind for which the phrase " ignorant impatience of 
 taxation " was invented, has probably no meaning, and 
 has become unintelligible to the mind of the present 
 generation. 
 
 It must further be observed that this remarkable 
 change of opinion has coincided with an unprecedented 
 growth of the public burdens for the normal require- 
 ments of the country. At the period succeeding the 
 Repeal of the Corn Laws, when it was still possible 
 for Mr. Cobden to speak of an annual Imperial Budget 
 of ^50,000,000, the local taxes levied in rates did not 
 exceed, according to Mr. Porter, the sum of ,7,000,000, 
 making with the Imperial expenditure a total of 
 ^57,000,000. The expenditure of the country, both 
 Imperial and Local, at the present time, has reached 
 at least double that amount. 
 
 The general answer to criticisms of this description 
 is of course obvious enough. It is said, " Doubtless 
 our expenditure has doubled, but our population has 
 largely increased, and our resources have more than 
 doubled." 
 
 In 1841, prior to Sir R. Peel's financial reforms, 
 the population of the United Kingdom was 26,917,591. 
 It is now 36,000,000. 
 
 The value of British and Irish exports (the declared 
 value of other branches of our foreign trade was not
 
 156 FREE EXCHANGE. 
 
 recorded) was about 50,000,000. It is now (1883) 
 ^"239,799,473. 
 
 The estimated national income in 1843 was 
 ,5 1 5,000,000. It is now ,1,274,000,000. 
 
 An income tax of id. in the pound produced in 
 1843 ,772,166. It now produces ,1,990,000. 
 
 The national capital paying probate duty was in 
 1838 55,000,000. It is now 140,000,000. 
 
 The deposits in savings banks were, in 1831, 
 .13,719,000; in 1 88 1, .80,334,000 ; while the number 
 of depositors has advanced from 429,000 to 4,140,000. 
 
 The number of paupers in 1849 was in England 
 and Wales 934,000. It is now (1884) 774,310. It is 
 not always added that, while the number has de- 
 creased, the cost has risen from .5,039,703, in 1844-5, 
 to .8,353,292 in 1883 or from rather more than .5 
 to nearly 11 per head. 
 
 Wages in the leading industries have largely ad- 
 vanced, often doubled, in the same period. The 
 amount of the national debt has been reduced from 
 .835,676,000 in 1857, to .746,423,000 in 1884; and 
 so on to the end of the chapter. 
 
 These are interesting and consolatory facts ; but 
 they entirely fail to touch the point raised by the 
 reformers of Mr. Cobden's school. 
 
 Their argument was to this effect : The national 
 taxation is excessive. It is only caused by the burden 
 of a debt mainly incurred for past wars, and by the 
 burden of military establishments which, from our 
 point of view, are unnecessarily large, if the external
 
 THE NATIONAL INCOME AND TAXATION, 157 
 
 policy of the country were conducted on the principle 
 of non-intervention, and of avoiding further extensions 
 of empire. This scale of expenditure is not only, as 
 we think, unnecessary, but also dangerous, when your 
 industries are engaged in competition with the whole 
 world. Therefore, we hold that it ought not to be 
 increased except by such gradual and moderate addi- 
 tions as the requirements of a growing community 
 may render inevitable. 
 
 This argument may be right or wrong ; but it is 
 no answer to it to point to an increased population 
 and doubled resources as a justification of a doubled 
 expenditure. This is merely to leave things as they 
 were, and to prevent the increased wealth of the 
 country from bearing its natural fruit in a diminution 
 of the national burdens. 
 
 But whatever opinions are held on this question, it 
 is useful to see how the account stands. 
 
 The year 1843 must be taken as the starting-point 
 for the comparison, because it was the first year of the 
 income tax. The following data are given in round 
 numbers, representing the general facts of the period 
 under review : 
 
 Date. 
 
 (Population. 
 
 National 
 Income. 
 
 Taxation. 
 
 Amount 
 of Taxation 
 per head. 
 
 Ij! 
 
 Imperial. 
 
 Local. 
 
 Total. 
 
 1843 
 
 27,000,000 
 
 
 
 515,000,000 
 
 
 50,000,000 
 
 
 
 7,000,000 
 
 
 57,000,000 
 
 * d. 
 
 220 
 
 ii 
 
 1884 
 
 36,000,000 
 
 1,274,000,000 
 
 72.000,000 
 
 34,000,000 
 
 106,000,000 
 
 300 
 
 8 
 
 N.B. The gross public revenue of ^87,205,000 includes the receipt of the Post Office, Tele- 
 graph Service, Crown Lands, and other sources of revenue which are not of the nature of taxes.
 
 i$8 FREE EXCHANGE. 
 
 This is a satisfactory result in its general aspect, 
 but an examination of the items suggests less agreeable 
 reflections. 
 
 The diminution of the percentage of taxation on 
 income will be found to be entirely due to the im- 
 portant fact, that there has been no increase in the 
 charge for debt, which has thus remained a constant 
 quantity, while the national income has more than 
 doubled. The gain from this cause has been so great, 
 that it has more than counterbalanced the loss from 
 increased expenditure. 
 
 It must further be observed, that had it not been 
 for the process which has been in operation, by which 
 a part of the debt has been converted into terminable 
 annuities, and by which the capital, of the debt has been 
 reduced from ^835,676,254 in 1857, to ^746,423,964 
 in 1884, the annual charge for debt would have been 
 perceptibly reduced. This result is the more remark- 
 able when it is remembered that the period during 
 which this reduction has been effected has been one 
 of what are called minor wars of an almost chronic 
 nature. 
 
 Omitting the charge for debt, the results are as 
 follows : 
 
 Date. 
 
 Civil List and 
 Civil Charges. 
 
 Military and 
 Naval Charges. 
 
 Total. 
 
 
 
 
 
 
 
 
 1843 
 
 5,631,061 
 
 16,159,070 
 
 21,790,091 
 
 1884 
 
 18,731,582 
 
 28,909,107 
 
 47,640,689 
 
 Increase ... 
 
 13,100,521 
 
 12,750,037 
 
 25,850,598 
 
 The increase here shown is more than the whole
 
 THE NATIONAL INCOME AND TAXATION. 159 
 
 increase of revenue during the period derived from 
 taxation, and is only met by the extra receipts from 
 other sources, such as the Post Office, etc. 
 
 It is also more than in proportion to the increase 
 in the national income, large as this has been, if local 
 taxation be included. Here are the figures in round 
 numbers : 
 
 Date. Population. ldL^L 
 
 
 
 1843 ... 27,000,000 29,000,000 515,000,000 5-60 
 
 1884 ... 36,000,000 82,000,000 1,274,000,000 6-40 
 
 In Mr. Gladstone's speech on the national expen- 
 diture in the House of Commons, in April, 1883, in a 
 comparison which he makes between the years 1840 
 and 1882, he minimizes these results by deducting 
 certain items from the account in both periods, in 
 order, as he says, to arrive at a fairer conclusion. The 
 effect is to diminish considerably the apparent increase 
 in the latter year ; but with the exception of the 
 special war charges in 1882, these deductions do not 
 appear to affect the complexion of the case. They 
 are as follows : 
 
 1. The cost of collecting taxes. 
 
 2. The charges for the reduction of debt. 
 
 3. The grants in aid of local taxation. 
 
 The first is quite as much a part of the national 
 expenditure as the cost of the army. 
 
 The second may be wise or unwise, but is distinctly 
 part of the annual expenditure. 
 
 The third, unless it can be shown to be a transfer
 
 160 FREE EXCHANGE. 
 
 of local burdens to the nation at large, is equally an 
 addition to the total annual expenditure. 
 
 Still we shall be told that there is nothing in these 
 figures to excite alarm, especially when it is remembered 
 how large a part of the increased expenditure consists 
 of local taxation for professed objects of social improve- 
 ment, and we are assured in the " Radical programme " 
 " that taxation on equitable principles for objects which 
 the nation approves cannot be on too liberal a scale, 
 and that from this point of view a public opinion may 
 be created, in which taxes ought to be considered as 
 an investment for the general good, and should be 
 cheerfully and, in the main, easily borne." 
 
 If these ideas prevail, it cannot be expected that 
 there will be any strong popular feeling against the 
 amount of the national taxation, and public interest, so 
 far as it can be attracted to the subject, will rather be 
 directed to the distribution and incidence of taxation 
 than to its aggregate amount. 
 
 Even in this direction it may be doubted whether 
 more than a languid interest can be excited, so long as 
 the current of popular feeling is in favour of increased 
 expenditure. It is true that what is called " readjust- 
 ment of the incidence of taxation," which forms one 
 of the articles of the Radical programme, has been 
 accepted by Mr. Gladstone in his recent manifesto. 
 We are told, indeed, in the address to the Midlothian 
 electors, that the " balance of taxation as between 
 property and labour should be adjusted when occasion 
 offers with a scrupulousness which was unhappily too
 
 THE NATIONAL INCOME~ AND TAXATION. 161 
 
 little observed at the time when property had the 
 absolute command of parliamentary action." No one 
 can speak on such a subject with so much authority as 
 Mr. Gladstone ; but if this be so, we shall still find that 
 it is not so easy to " readjust with scrupulousness " 
 when taxes are being imposed, as it is when they are 
 remitted. 
 
 If, for instance, it should be discovered that the 
 rectification of the balance required the remission of 
 indirect taxes, such as those on tea and tobacco, which 
 press upon the poor, the adjustment might be made 
 either by reducing these or by augmenting the taxes 
 paid exclusively by property ; but while the first would 
 be the natural course if the public burdens were to be 
 diminished, the latter would alone be possible at a 
 time of increasing expenditure. It is needless to say 
 that to reduce taxes on the poor without raising them 
 on the rich, would benefit the first and would not injure 
 the last ; but to raise them on the rich without reliev- 
 ing the poor, would injure the former without benefit 
 to the latter. Such a prospect is not tempting to a 
 Chancellor of the Exchequer who desires popularity. 
 
 It may be added that the history of taxation in 
 this and in other countries affords no instance of 
 " scrupulousness of adjustment " combined with a 
 lavish and increasing expenditure. On the contrary, 
 it has usually been found that when Governments 
 attempt to raise a revenue which bears an undue 
 proportion to the earnings of the people, as in the 
 United States of America after the Civil War, and in 
 
 M
 
 1 62 FREE EXCHANGE. 
 
 France and Germany at the present time, the only 
 method is to get the money how and where they can, 
 not only by avoiding unpopular taxes, but also by 
 resorting to popular expedients, among which duties 
 upon foreign trade, into which the protective element 
 often largely enters, invariably find a place. 
 
 It is possible, however, that there will be some 
 popular feeling which may find expression in the new 
 House of Commons in favour of transferring to property 
 in some form or other a portion of the taxation now 
 falling on articles largely consumed by the working 
 classes. It becomes, therefore, important to inquire 
 what form such proposals may assume. 
 
 The truth is that the remission of the sugar duties 
 and the reduction of the duty on tea, have gone far to 
 knock the bottom out of the argument of those who 
 rest their advocacy of a further remission of indirect 
 taxation on any less comprehensive principle than that 
 of the radical objection to all indirect taxes, as mis- 
 chievous impediments to trade and grossly wasteful 
 in their collection ; and appeals to the British public on 
 these latter grounds have always failed in securing 
 popular support, owing to the widespread belief or 
 superstition that high taxation on spirits, beer, and 
 even tobacco, are desirable in the interests of morality. 
 
 Whether it may be possible, on the plea of the 
 undue pressure of taxation on the working class, to 
 create a public opinion strong enough to complete, at 
 all events, the freedom of the breakfast-table, it is not 
 easy to say ; but the first step is to show that such
 
 THE NATIONAL INCOME AND TAXATION. 163 
 
 undue pressure exists, and it is with a view of con- 
 tributing to this inquiry that the following remarks are 
 offered. 
 
 It is obvious that the data for all calculations as to 
 the " Incidence of Taxation " are of a very imperfect 
 kind. For this purpose it is necessary to ascertain 
 both the amount of the national income, and the share 
 of it which falls to the lot of the different classes of the 
 people whose interests it is desired to compare. 
 
 We have, therefore, first to ask, What is the 
 national income ? 
 
 There appear to be two methods by which it can 
 be computed. 
 
 These have been recently described and employed 
 by Mr. Edward Atkinson, of Boston, U.S., in his 
 valuable work on the " Distribution of Products," as 
 follows : 
 
 " Land, labour, and capital " (he says) " are the three 
 factors in production. By the co-operation of these forces 
 an annual product is made. The term annual fits the case, 
 because the year represents the course of the four seasons 
 and the succession of crops. A small part of each year's 
 annual product, commonly called 'quick' or 'active' capital, 
 must be carried over to start the next year's work, as a small 
 part of last year's product had been brought over to start 
 this year's work, one proportion balancing the other. The 
 fixed capital seldom exceeds in value two years' production. 
 It therefore follows that all profits, all wages, all taxes, in 
 fact, all consumption whereby existence is maintained, must 
 be substantially drawn from each year's product. But in 
 order that this product may be distributed and consumed 
 since no man, economically speaking, lives for himself alone
 
 164 FREE EXCHANGE. 
 
 the various products of the year must all be exchanged by 
 purchase and sale, and, therefore, must all be reduced to, and 
 measured in, terms of money, except that part of the annual 
 product which is consumed upon the farm by the farmer and 
 his family without being sold. With this exception, the whole 
 product of the year must be substantially converted into 
 terms of money. 
 
 " This remainder of the annual product, at whatever sum 
 of money it may be finally valued, when sold for the last 
 time and distributed for final consumption, constitutes the 
 value of the product converted into terms of money, from 
 which sum all money profits, all money wages, and all money 
 taxes must be derived. There can be no other source. . . . 
 
 " The total sum of money which represents the value of 
 all that is produced at its point of final consumption is and 
 must be, the final measure of that part of the annual product 
 which is bought and sold. 
 
 "On the other hand, by ascertaining what the total sum 
 of taxes, the sum of all wages, and the sum of all profits, 
 may be, we can again approximate to the total value of the 
 annual product. 
 
 " No absolute results can be reached by either method, 
 but approximate results can be fairly set off, one against the 
 other." 
 
 Mr. Atkinson accordingly proceeds in the first 
 instance to give us the best estimate he can make of 
 the total annual product of the United States, which 
 he puts at about 10,000,000,000 dollars (an estimate 
 confirmed by Mr. Nimmo, the Chief of the Bureau of 
 Statistics, at Washington) and then compares it with 
 the results of the estimate made in the Census Depart- 
 ment, of the amount of property assessed for taxation. 
 He thus obtains an approximate idea of the profits 
 and savings in the census year, and he arrives at an
 
 THE NATIONAL INCOME AND TAXATION. 165 
 
 estimate of the earnings of the nation, in the shape of 
 salaries and wages, by a careful analysis of the occu- 
 pations of all persons engaged in mental or manual 
 work, and of the rate of wages and salaries actually 
 paid. These data, together with the proceeds of 
 taxation, constitute, according to Mr. Atkinson, the 
 national income, and correspond with the aggregate 
 value of the annual product sufficiently to justify both 
 methods. 
 
 On this view of the subject it must be observed 
 that it does not appear how far due allowance has 
 been made for the addition to the value of the annual 
 national product caused by foreign trade.* Probably, 
 however, in the case of the United States, the question 
 is not of so much importance as to vitiate the general 
 result of the estimate, because the proportion of the 
 foreign to the home trade of the States is compara- 
 tively small. But in the case of the United Kingdom 
 this element would complicate the question. 
 
 There is another consideration to which it is neces- 
 sary to advert. The national income of the United 
 Kingdom is largely augmented by the sums annually 
 received in the shape of interest and dividends on 
 foreign loans and investments. These form no part 
 of the annual product, but are the interest on a portion 
 of that product in preceding years, which has been 
 saved instead of being consumed or invested in the 
 country. The interest or profits received on this 
 
 * Ricardo denies that any addition is made to value by foreign trade, but the 
 opinion is open to question.
 
 166 FREE EXCHANGE. 
 
 portion of the savings of the country are an addition 
 to the value of the annual product in succeeding years, 
 and in estimating the value of that product for a par- 
 ticular year, with a view of comparing it with the 
 national income, their amount should be added. 
 
 In this country the English capital in foreign 
 investments has been estimated in 1880 as from 
 ,1,500,000,000 to ,2,000,000,000 sterling, and the 
 interest and profits at about ; 100,000,000. 
 
 If the value of the annual product of the United 
 Kingdom could be ascertained, the latter sum would 
 have to be added, but no complete materials for an 
 official estimate of the aggregate results of English 
 industry exist, and statisticians have, therefore, had 
 recourse to the second method, but with an important 
 difference. 
 
 Two estimates of the national income have been 
 made in recent times, which have been generally 
 accepted as sufficiently accurate, to justify their use as 
 a foundation for discussions on questions affecting the 
 national progress, and the condition of the people, viz. 
 those of Mr. Dudley Baxter and of Mr. Leone Levi. 
 
 In both of them, one of the most important ele- 
 ments in the computation is supplied by the Returns 
 of the Assessments to the Income Tax, under the 
 several schedules. 
 
 But it seems doubtful whether, in the popular 
 acceptance of these estimates, it has been generally 
 understood that very conflicting opinions have been 
 held, and are apparently still held, by eminent econo-
 
 THE NATIONAL INCOME AND TAXATION. 167 
 
 mists, as to the principle upon which such estimates 
 should be made. 
 
 Mr. John Stuart Mill, in the preliminary remarks 
 to the " Principles of Political Economy," distinctly 
 denies that the National Debt forms a part of the 
 national wealth, or the interest upon it a part of the 
 national income. He says, at p. 9 
 
 " The position of fundowners, or owners of the public debt 
 of the country, is similar to that of mortgagees. They are 
 mortgagees on the general wealth of the country. The can- 
 celling of the debt would be no destruction of wealth, but a 
 transfer of it ; a wrongful abstraction of wealth from certain 
 members of the community for the profit of Government, or 
 of the taxpayers. Funded property, therefore, cannot be 
 counted as part of the national wealth. This is not always 
 borne in mind by the dealers in statistical calculations. For 
 example, in estimates of the gross income of the country, 
 founded on the proceeds of the income tax, income derived 
 from the funds is not always excluded, although the tax- 
 payers are assessed on their whole nominal income, without 
 being permitted to deduct from it the portion levied from 
 them in taxation to form the income of the fundholder. In 
 this calculation, therefore, one portion of the general income 
 of the country is counted twice over, and the aggregate amount 
 made to appear greater than it is by about ^30,000,000." 
 
 There can be no possible mistake as to Mr. Mill's 
 meaning. It is abundantly clear that he considered 
 that the income of the fundholders ought not to be 
 included in the estimate of the national income. But 
 if this view be accepted, it has been well argued by 
 Mr. Macleod that precisely on the same grounds other 
 portions of the national income ought to be excluded,
 
 1 68 FREE EXCHANGE. 
 
 e.g. the incomes of all persons paid by the State, civil 
 and military, as well as those of railroads and public 
 companies, indeed the incomes of all persons who are 
 not the original producers as well as the final con- 
 sumers of any portion of the national product. 
 
 Mr. Macleod gives us an instance which serves as 
 well as any other to illustrate his meaning the case 
 of a person with a large establishment of servants and 
 dependents. Such a person with an income, say, of 
 ,50,000 per annum, on which sum he pays income 
 tax, and which is justly considered as an item in the 
 income of the nation may pay ^2000 a year to an 
 agent, ^500 to a secretary, ^300 to a cook, and so 
 on. Each of these sums will justly be liable to income 
 tax, and be included in the account of the national 
 income ; and yet, if the principle asserted by Mr. Mill 
 be sound, the income of the original recipient, which 
 has already paid income tax, without any deduction, 
 for those portions destined to become the incomes of 
 the agent, secretary, and cook, will, to this extent, be 
 counted twice over in the calculation of the national 
 income, the truth being that (with the exception of 
 that part of the annual product which passes at once, 
 without being exchanged, into the consumption of the 
 original producer, as in the case of some farm produce) 
 "every man's income is paid," as Mr. Macleod 
 observes, " out of the income of some one else." 
 
 This view raises several curious questions. If 
 the National Debt is part of the national wealth, and 
 the interest on it part of the national income, might
 
 THE NATIONAL INCOME AND TAXATION. 169 
 
 it not be contended that the larger the debt, and the 
 higher the rate of interest, the greater would be the 
 national wealth, or the national income ? 
 
 This would be a startling conclusion ; but we will 
 give another instance. The cost of the army, navy, 
 and civil services is about ^48,000,000 per annum. 
 Is this sum part of the national income ? It is 
 certainly charged with income tax, and forms part of 
 the sum assessed to that impost. It is included in the 
 estimates of the national income. If it be rightly so 
 included, let us suppose that the salaries and pay of 
 all the servants of the State were doubled. Would 
 the national income be increased by such a measure 
 to that extent ? And could it be maintained that 
 the national wealth had been increased by such a 
 measure ? 
 
 This brings us to the core of the subject : the 
 answer seems to be, that as debt represents value 
 for service rendered, it ought to be included in any 
 estimate of national wealth, in the same way that the 
 value of the services rendered by the servants of the 
 State, or by any other class of the community, ought 
 to be so included. 
 
 In this sense, and as regards the creditors and the 
 servants of the State, the national wealth and income 
 would be augmented by an addition to the debt or to 
 the cost of the services. 
 
 But in estimating the effect of such augmentation 
 upon the sum of the national wealth or well-being, it 
 is necessary to consider the other side of the account,
 
 i;o FREE EXCHANGE. 
 
 and it will then become clear, that whatever addition 
 is made to the national wealth in one direction, a 
 corresponding reduction may take place in others 
 the question as to whether or not the aggregate 
 wealth of the community is increased by additions 
 to its debt, or to its services, turning entirely on the 
 balance of advantage or disadvantage which is the 
 result. 
 
 Mr. Sidgwick, in his work on the " Principles of 
 Political Economy " (book i. c. 3), discusses this 
 question at length with especial reference to the 
 argument of Mr. Macleod ; but 'his conclusions, 
 somewhat hesitating as they appear to be, are not 
 satisfactory. 
 
 Both he and Mr. Mill seem to have .missed the 
 point. 
 
 They ask, How can a country be richer because 
 one Englishman lends a portion of its wealth to 
 another ? But this is not the question. The question 
 is this. A. lends a portion of his wealth to B. B. 
 may either use this wealth productively or unpro- 
 ductively. Let us assume that he consumes it unpro- 
 ductively, and destroys it once for all. The country 
 is so much the poorer, and so is B., but A. is still 
 possessed of the debt due to him, consisting of the 
 right either to receive back the capital or the interest. 
 A., at least, is as rich as before ; his wealth remains, 
 and so far as it forms part of the national wealth, the 
 nation is as rich as before ; and this right, or debt due 
 to him, is a part of the national wealth, whether
 
 THE NATIONAL INCOME AND TAXATION. 171 
 
 regarded as capital or as income in the form of 
 interest. In any estimate of the national wealth, or 
 of the national income, this debt must, therefore, 
 certainly be included, and the interest on it is as 
 certainly a part of the national income. The loss of 
 wealth or income resulting to the nation from the 
 transaction will be found to consist in the diminution 
 of B.'s share of it, not in that of A. In the case 
 supposed, the country would be poorer and its income 
 less ; but the debt held by A., and the interest paid to 
 him, would none the less be part of the national wealth 
 and of the national income. 
 
 Let us take the other supposition, viz. that B. 
 employs the sum borrowed productively. Here it is 
 obvious that he might increase his own wealth without 
 diminishing that of A. ; and in any estimate of the 
 national wealth, or income, both those of A. and B. 
 would necessarily be included, and the country would 
 be the richer by the transaction ; that is, it is richer 
 because one Englishman has lent a portion of its 
 wealth to another. 
 
 In both cases the debt, and the interest on it, 
 constitute a part of the national wealth and income, 
 although in the first the country is the poorer, and in 
 the second the richer, by the transaction. In neither 
 is this portion of that wealth or income counted twice 
 over, as Mr. Mill asserts. 
 
 Here, then, we find the answer to the question, 
 Is England the richer for her National Debt ? 
 
 If the money borrowed and spent has been
 
 i?2 FREE EXCHANGE. 
 
 expended, whether in war or otherwise, so as to 
 render her richer than she would have been if it had 
 not been so spent it is idle to say that she would or 
 might have been richer still, in a case which is purely 
 imaginary viz. one in which the causes of such war, 
 or other expenditure, had been absent. If such war 
 or other objects of expenditure were unnecessary, use- 
 less, or unprofitable, then England would be the 
 poorer for them, but not in that portion of her wealth 
 held by the public creditor. This remains, and still 
 forms, part of her wealth. She will be poorer in that 
 part of her wealth held by the debtor, whose share in 
 the national wealth has been pro tanlo reduced, and 
 which cannot be, and is not, included in the estimate, 
 because it has altogether ceased to exist. England, 
 therefore, is either richer or poorer by reason of her 
 debt according as it has been incurred for purposes 
 which have made her richer or poorer than she would 
 have been without it. The mere fact of debt proves 
 absolutely nothing, and I altogether dissent from Mr. 
 Sidgwick in thinking that " the inference implied in 
 reckoning the funds as part of the country's wealth is, 
 that England, or a railway, is worth more, because it 
 has cost so much still less that it is worth more 
 because the money had to be borrowed." 
 
 The fallacious nature of Mr. Mill's view is 
 suggested by another consideration. It has been 
 observed that wherever, as in the United States 
 of America, the materials exist for such a calculation, 
 there are two methods of estimating the national
 
 THE NATIONAL INCOME AND TAXATION. 173 
 
 income. These, if correct, ought to lead to results 
 which approximately correspond, and one method 
 would thus afford the means of testing the other. 
 
 In the estimates given by Mr. Atkinson this 
 correspondence is remarkable. The results of both 
 methods are sufficiently alike to justify the pre- 
 sumption that both proceed upon a sound principle. 
 
 But it is essential to observe that this corre- 
 spondence is impossible if Mr. Mill's argument is 
 admitted. In the estimates of the national income 
 afforded by the second method, viz. that of ascertain- 
 ing, as far as may be, the actual money income and 
 earnings of the different classes of which the nation 
 is composed, Mr. Atkinson includes all money profits 
 and interest, all money wages, and all money taxes. 
 He says, at p. 29 
 
 " The total sum of money which represents the value 
 of all that is produced at its point of final consumption is, 
 and must be, the final measure of that part of the annual 
 product which is bought and sold. Therefore all profits, 
 wages, and taxes constitute a portion of this lump sum. In 
 order to ascertain what the rate of profit, the rate of taxation, 
 or the rate of wages may be, we must ascertain what this 
 lump sum is, and how it is divided. On the other hand, by 
 ascertaining the total sum of taxes, the sum of all wages, 
 and the sum of all profits, we can again approximate the 
 total value of the annual product." 
 
 Now it is evident that if the total money value 
 of the annual product is composed of profits, interest, 
 wages, and taxes, the sum of profits, interest, wages, 
 and taxes must constitute the total value of the annual
 
 174 FREE EXCHANGE. 
 
 product. The two modes of computation are only 
 two different methods of arriving at the same result. 
 
 But Mr. Mill excludes the interest on the National 
 Debt, which is the income of the fundholder, on the 
 grounds already stated ; and his argument equally 
 applies, as has been seen, to all taxes and to every- 
 thing which is of the nature of what Mr. Dudley 
 Baxter calls " a second-hand income," which, having 
 been paid by those whose incomes are already in- 
 cluded in the estimate, cannot, as it is urged, be again 
 separately specified, as in that case they would be 
 included twice. 
 
 This appears to be a fundamental error, and if 
 so, it is a fallacy so serious, that until it has been 
 thoroughly examined no profitable discussion as to 
 the incidence of national taxation is possible. 
 
 The error seems to be this : let us take the case 
 of a tax as an illustration. The sum paid by a tax- 
 payer as a tax constitutes no part of his income. It 
 is part of his expenditure. He does not receive it ; 
 he pays it. His income on which his income tax 
 is assessed does not consist of what he pays, but of 
 what he receives. In the case of a tax, whether 
 levied to pay the interest on public debt or to pay 
 the current expenses of the State, it is not the tax 
 which is included in the estimate of the taxpayer's 
 income, but the service received by him as an 
 equivalent for the tax. This is his income, and this 
 is properly included as part of the national income. 
 The income of the man with, e.g., ,50,000 a year
 
 THE NATIONAL INCOME AND TAXATION. 175 
 
 consists not in the money which he pays away, but 
 in whatever he receives in exchange for it. The 
 services of Government, his houses, his servants, his 
 equipages, his library, his meats and wines, his box 
 at the opera, his yacht, the expenses of his public life, 
 his pictures, his entertainments, his travels, and so on 
 these things constitute his wealth, and so far as 
 they are annually consumed, his income; and these 
 must be included in terms of money in any estimate 
 of the national wealth and income. 
 
 On the other hand, the taxes paid become the 
 income of those to whom they are paid the money 
 in which they are paid being merely an order, so to 
 speak, for so much of the annual product which may 
 either be consumed by the recipient, or again passed 
 on, in exchange for services rendered, to another 
 person, in which case another income is called into 
 existence. 
 
 In estimating the national income, therefore, by 
 the second method, it is necessary to include all 
 profits and interest (Schedule A, B, D), all interest 
 on debt (Schedule C), all salaries and pay of Govern- 
 ment servants, civil and military (Schedule E), and 
 all earnings in the form of salaries and wages not 
 paying income tax, comprehending the pay of soldiers, 
 sailors, and labourers of all kinds in the service of 
 Government. 
 
 It is obvious that unless we include all these 
 general incomes, the total national income cannot be 
 made to correspond with that which results from the
 
 1 7 6 FREE EXCHANGE. 
 
 use of the first method viz. that which consists of 
 the " total sum of money which represents the value 
 of all that is produced at its point of final consump- 
 tion." 
 
 This sum can only correspond with the sum of the 
 values of all the services for which it is exchanged. 
 
 On the one hand we have a total of the quantities 
 of the material products of the community food, 
 shelter, clothing, etc. 
 
 On the other, we have a total of the quantities of 
 all the services of every member of the community 
 entitled to a share in such products. 
 
 On what will the money value or price depend ? 
 On the relation between the total of the objects 
 (whether products or services) to be exchanged, and 
 the total of the instruments of exchange in the 
 different forms of money and credit. 
 
 An example may make this clearer. 
 
 Suppose a country, entirely self-contained (to give 
 the simplest case), with a population of one million, 
 which, by one year's work, produces a given quantity 
 of the bare requisites of human subsistence, but with 
 no surplus product whatever. Suppose further, to 
 avoid all complications from this cause, that this 
 society is provided with a sufficient currency on a 
 metallic basis (whether of one metal or of two rated 
 metals would in such a country be a matter of absolute 
 indifference) which always bore a constant relation to 
 the demands upon it, so that prices would not be 
 affected by relative changes in its volume.
 
 THE NATIONAL INCOME AND TAXATION. 177 
 
 Here the sum of the earnings will exactly correspond 
 with the sum of the annual product in terms of money. 
 
 An invention is now made, by which the produc- 
 tive power of labour is at once doubled. The same 
 population, with the same amount of labour, produces 
 double the quantity of everything, including currency. 
 
 In these circumstances, let us suppose, in the first 
 place, that the people in question consume in their 
 own persons this doubled produce. In this case the 
 value of the annual product in terms of money will be 
 double its previous amount. 
 
 In the second place, let us suppose that, instead 
 of consuming this surplus product themselves, the 
 population gradually add to their number 500,000 
 persons, who will be engaged in providing what are 
 called " non-productive " services such as lawyers, 
 clergy, doctors, public servants, authors, actors, and 
 opera-dancers. 
 
 Each of these persons will draw an income from 
 the community as an equivalent for the services which 
 they render, which will be ultimately expressed in the 
 final consumption of the surplus product, which is, by 
 our supposition, one-half of the whole. This exchange 
 of services will add to the general purchasing power 
 of the community in the proportion of one-third. In 
 this second case, therefore, the national income, and 
 the value of the annual product, owing to the creation 
 of new demands on the part of the community, will 
 have been increased threefold, instead of only twice, 
 as in the first case. 
 
 N
 
 1 7 8 FREE EXCHANGE. 
 
 This national income will thus have been composed 
 not only of the value of the products representing the 
 services of the producers, but also of the value of the 
 services rendered by the " non-producers." 
 
 But in both cases alike, the purchasing power of 
 the community, in terms of money, will be the sum of 
 the incomes of all the people ; and this will necessarily 
 be the same as the total value of the annual product 
 for which it is exchanged at the point of final con- 
 sumption, because the value in money is merely the 
 expression of the relation of the two exchangeable 
 quantities, always excepting (as before observed) that 
 part of the annual product which is neither bought nor 
 sold. 
 
 This is a long digression, but it has been necessary 
 to render the estimate of the national income, which 
 must be the foundation of all calculations as to the 
 incidence of taxation, something more than an illusion, 
 and to justify the criticism which it has been necessary 
 to make on Mr. Mill's theory, and the conclusions of 
 Mr. Dudley Baxter and Mr. Leone Levi. 
 
 Mr. Baxter, writing in 1867, gives the income of 
 the " Productive Classes" as ,479,000,000, that of the 
 "Auxiliary" as ^196,000,000, and that of the " Non- 
 Productive" as ,138,000,000, with a total national 
 income of ^814,000,000. And he adds, "The net 
 income of the United Kingdom the original earnings, 
 out of which the nation provides food, clothing, and 
 pays all taxes and expenses may be taken at from 
 ,^"5 00,000,000 to ^"600,000,000. The second-hand, or
 
 THE NATIONAL INCOME AND TAXATION. 179 
 
 dependent income, which is paid out of the original 
 earnings, and gives a deceptive magnitude to the 
 National Income Roll, is from ,200,000,000 to 
 ,210,000,000." 
 
 Mr. Leone Levi, writing in 1885, states that the 
 "income, apparently amounting to ,1,274,000,000, is 
 the gross income of the people, including much which 
 is a simple transfer from hand to hand. The net in- 
 come of the nation is probably less than 1,000,000,000 
 per annum." 
 
 But if there is any truth in the foregoing remarks, 
 the distinction here made between gross and net 
 income is altogether fallacious. What Mr. Baxter 
 calls the income of the Productive Classes is no more 
 the net income of the country than the income of an 
 opera-dancer. If an attempt be made to ascertain 
 what is really the net income of the country, it will be 
 found that it becomes necessary to whittle away one 
 item after another, until nothing is left but the savings, 
 that part of the income of the year which remains 
 after all the services of the community have been 
 remunerated, and which does not pass at once into 
 final consumption. 
 
 The income of the nation, then, is the aggregate 
 of the incomes of all its individual members, and this 
 should correspond, if Mr. Atkinson's view is correct, 
 with the value of the annual product both of labour 
 and exchange, plus the sum derived from foreign in- 
 vestments, in terms of money. 
 
 This is the gross income, and it is this which
 
 i8o FREE EXCHANGE. 
 
 apparently should serve as the basis for all calculations 
 as to the incidence of taxation upon the different 
 classes into which the nation is divided. 
 
 Adopting this principle (which, however, it must 
 be again observed, is at variance with the views of 
 the distinguished authorities to whom reference has 
 been made), the national income of the United King- 
 dom in 1883-4, the last for which the income tax 
 returns have been published, was .1,289,000,000, and 
 in 1882-3, ; i, 2 74,000, ooo. 
 
 Of this sum we have said that the joint amount of 
 Imperial and Local Taxation formed about 8 per cent. 
 
 It is a coincidence worthy of remark, that this per- 
 centage very nearly corresponds with that of the 
 National, State, County, and Municipal Taxation of 
 the United States of America, on the income of the 
 Union, which, according to Mr. Atkinson, amounted 
 in the last census year to 9,000,000,000 dollars (after 
 deducting domestic consumption), while the total taxa- 
 tion was 700,000,000 dollars. 
 
 But it must be remembered, that while, owing to 
 the gigantic efforts made by the United States to pay 
 off debt, the burden of taxation in the Union is steadily 
 and rapidly diminishing by the double process of an 
 increasing income and a diminishing taxation, there is 
 too much reason to fear that the taxation of the United 
 Kingdom will in future more than keep pace with the 
 growth of the national resources. 
 
 We have also seen the process by which our 
 statisticians have arrived at their conclusions as to the
 
 THE NATIONAL INCOME AND TAXATION. 181 
 
 distribution of the national income between different 
 classes. 
 
 The results are exhibited by Mr. Leone Levi in 
 the following table for 1882-3 
 
 INCOMES. 
 
 1882-3. 
 
 Percentage.] 
 
 I. Gross amount of property | 
 and profits assessed to > 
 
 .613,000,000 
 
 4770 
 
 income tax ) 
 
 
 
 2. Income of Middle and \ 
 Lower Classes / 
 3. Earnings of Working Classes 
 
 140,000,000 
 521,000,000 
 
 10 -90 
 41-40 
 
 1,274,000,000 
 
 lOO'OO 
 
 What is the incidence of the taxation of the United 
 Kingdom on these three classes ? 
 
 It is necessary to say at once that under our 
 present fiscal system no answer can be given to this 
 question which will represent the real facts. 
 
 If it were attempted, for instance, to raise the 
 whole revenue of the country by taxes on such articles 
 as beer, spirits, tea, and tobacco, it cannot be supposed 
 that the upper classes would contribute nothing more 
 than the amount of those taxes on the quantities of 
 such articles as they personally consumed ; nor, on the 
 other hand, if the whole revenue were raised by taxes 
 falling directly on the latter classes alone, that the 
 effect would not soon tell upon wages. 
 
 It seems only possible to ensure the final payment 
 of a tax by the person on whom it is intended that it 
 should fall, by imposing taxation in such a way as to 
 leave the relative position of producer and consumer,
 
 182 FREE EXCHANGE. 
 
 of capital and labour, unchanged. An income tax, 
 equally levied on every man's income and earnings, 
 would fulfil this condition. 
 
 But as attempts have recently been made by high 
 authorities, founded on Mr. Levi's figures, to show 
 that the working classes at present bear an undue 
 share of the national burdens, it may be useful, without 
 accepting them as adequate, or as resting on any solid 
 foundation of fact, to take them as a basis for discus- 
 sion, on the distinct understanding, however, that they 
 are only used as the chosen weapons of the assailants 
 of the existing fiscal system in a political controversy, 
 and with no kind of belief that they help us very much 
 in the discovery of truth. 
 
 In order to present as complete a view as possible, 
 let us then endeavour to form some approximate 
 estimate of the amount of taxation borne by each of 
 these classes respectively. We will begin with the 
 working class, as the most important for our purpose, 
 and in some respects the most easy to deal with. 
 
 Mr. Leone Levi gives the number of this class as 
 26,000,000, or 5,600,000 families. It will be convenient 
 to take the latter the family of 4*67 as the unit in 
 the following calculations. 
 
 We have 5,600,000 families with an annual income 
 of .521,000,000. What are the taxes which they 
 pay? 
 
 It would seem to be a very outside estimate if we 
 assume that this class pays its full share per head of 
 the indirect taxes (leaving out wine, which is, of course,
 
 THE NATIONAL INCOME AND TAXATION. 183 
 
 exclusively borne by the upper classes). On tea and 
 tobacco this certainly is very far from the truth ; and 
 if the average is restored by beer and spirits, it is 
 due to the excessive, and not to the necessary, use of 
 them. But, upon this assumption, the whole amount 
 of Imperial taxation which falls upon this class will be 
 about ^32,000,000. This practically corresponds with 
 the statement made by Mr. Gladstone in Midlothian 
 last year, that the working class contributes two-fifths 
 of the Imperial taxes, two-fifths of ^72,000,000, being 
 z l ,000,000. 
 
 This amount of taxation will be found to be at the 
 rate of about 6 per cent. The family income, as we 
 have seen, the unit of our calculation, is ^83, upon 
 which 6 per cent, is nearly ^5. 
 
 But the application of another and more practical 
 test leads to the opinion that this is an excessive 
 estimate. 
 
 It will probably be thought that for a working 
 man's family of 4*67 persons, an allowance of two 
 gallons of beer, two ounces of tobacco, and half a 
 pound of tea per week, will be sufficiently liberal (in 
 the case of the last, and, perhaps, the most essential 
 article, the allowance here made is nearly double the 
 average consumption). 
 
 The taxation on these quantities will be about ^3, 
 or on an income of ^83, hardly 4 per cent. 
 
 It can hardly be doubted that the higher estimate 
 is the result of the taxes on spirits, for which no 
 allowance has been made in the second estimate.
 
 1 84 FREE EXCHANGE. 
 
 To this must be added the share of local taxation 
 borne by the working class. 
 
 As it must be presumed that the statement was 
 made on the best official authority, the estimate given 
 by Mr. Gladstone in his address of November last to 
 the Midlothian electors may be accepted as approxi- 
 mately correct. 
 
 Mr. Gladstone stated that it was believed that 
 the working class, or labour, contributed to the local 
 taxation of the country in the proportion of one-fifth. 
 
 The amount of local taxation paid in rates was, in 
 1 88 1-2, ^34,000,000.* 
 
 A fifth part of this sum is ,6,800,000, which, upon 
 an income of ^521,000,000, is about \\ per cent. 
 
 If this be added to the percentage paid by this 
 class in Imperial taxes, it appears that the wage- 
 earning portion of the community contributes to the 
 national burdens, both Imperial and local, at the rate 
 of 7 per cent, on their income according to the first, 
 and at the rate of only 5 per cent, according to the 
 second, of the above two estimates. 
 
 It is less easy to arrive at any clear result in the 
 case of Mr. Leone Levi's second class, owing partly to 
 the difficulty of ascertaining the number of persons 
 who compose it. We know, however, that the income 
 of the family unit must be under ^150 per annum 
 (the income tax limit), and as this class probably 
 contains a smaller proportion of families than either 
 the upper or lower classes, we shall not be very far 
 
 * By the returns since published, it amounted in 1882-3 to nearly ^36,300,000 !
 
 THE NATIONAL INCOME AND TAXATION. 185 
 
 wrong in assuming 5,000,000 to be about their 
 number. 
 
 This would give a family income of 130, as 
 against .83, in the working class. 
 
 The taxation of this class consists of a share in 
 the Customs and Excise, probably some small propor- 
 tion of Stamps, which it is difficult to estimate but 
 for which a slight allowance should be made and 
 local taxes. 
 
 We will assume the share of the Customs and 
 Excise to be at the full rate per head, although this is 
 no doubt very excessive, and, in the absence of other 
 data, allow the same percentage on income for local 
 rates as in the upper class, which is obviously exces- 
 sive. If ,500,000 be added for Stamps (death duties, 
 etc.), the result will be 
 
 Indirect Taxes ... ... ... ... .6,000,000 
 
 Stamps 500,000 
 
 Local Taxation ... ... ... ... 5,000,000 
 
 11,500,000 
 
 This would show a rate of taxation on the income 
 of the second class (140,000,000) of about 8 per cent. ; 
 but it can hardly be doubted that this is too high an 
 estimate. 
 
 We now come to the upper or income tax paying 
 class, which will consist of the remaining 5,000,000 
 persons. This number, with an income of "6 1 3,000,000, 
 gives an average income of "122 per head, or of about 
 570 per family of 4/67 persons.
 
 1 86 FREE EXCHANGE. 
 
 This class will have to bear the following taxes : 
 
 1884. 
 
 Property and Income Tax .10,718,000 
 
 Taxes (Land and House) ... ... 2,875,000 
 
 Stamps, exclusive of Fees ... ... 11,000,000 
 
 Licences 2,000,000 
 
 Shares of Customs and Excise ... ... 6,000,000 
 
 Wine ... 1,250,000 
 
 Imperial Taxes ... ... ... ... 33,843,000 
 
 Local Taxes, probably under-estimated . . . 2 1,200,000 
 
 Total ... 55,043,000 
 
 This sum on an income of ,613,000,000 shows a 
 percentage of 9 per cent. 
 
 This rate of taxation on the upper classes may 
 appear to fail in its application to particular cases. 
 For instance, it is not probable that a man with the 
 average family income of the class (,570) will find 
 that he pays in taxes ^51 per annum, but this must 
 be taken as evidence of the large share of taxation 
 borne by property, both in the shape of death duties 
 and of local taxes, and probably also by those who 
 bear the charges on commercial transactions. 
 
 So far the results of our inquiry do not support 
 the view that the working classes bear an undue share 
 of the national burdens ; but we are here met by the 
 argument, which has recently been revived in con- 
 nection with this subject, that "equality of taxation 
 as a maxim of politics means equality of sacrifice," and 
 that the first of Adam Smith's well-known canons of
 
 THE NATIONAL INCOME AND TAXATION. 187 
 
 taxation, viz. that the subjects of every state should 
 contribute to the support of the government in pro- 
 portion to the revenue which they enjoy under its 
 protection, is not consistent with this maxim, for that 
 to take ^5 from a man with ^"100 a year imposes a 
 greater sacrifice on him than to take ,50 from a man 
 with ^1000. 
 
 If sacrifice is to be taken, instead of revenue, as a 
 basis of taxation, it will be seen at once that it opens 
 a wide and most unprofitable field of controversy. 
 Nor is it apparent why money, which is taken as the 
 measure of all other values, should be discarded as a 
 measure of sacrifice. 
 
 The theory will hardly bear the test of close 
 economical reasoning. Two men perform the same 
 amount of work in a given number of years, and earn 
 the same reward or revenue. The one spends all his 
 earnings year by year ; the other saves half of them. 
 At the end of the period the last has double the 
 income of the first. On the principle of equality of sacri- 
 fice, it is not apparent why one man should pay more 
 to the State than the other. They have both incurred 
 precisely the same sacrifices in earning the amount of 
 the tax ; but on Adam Smith's principle, which is that 
 every man should contribute in proportion to the 
 revenue which he enjoys under the protection of the 
 State, it becomes possible to tax the second man 
 double, which is accordingly done by levying a fixed 
 percentage on his income. The maxim of equality of 
 sacrifice would, if strictly applied, carry us in a direc-
 
 1 88 FREE EXCHANGE. 
 
 tion very different from that which its advocates 
 desire. It is forgotten that capital is merely accumu- 
 lated labour or its equivalent. 
 
 The idea appears to have its origin rather in the 
 region of sentiment than in that of reason ; and if it is 
 entertained, it becomes impossible to arrive at any 
 consistent or intelligible principle of action. Every 
 man will form his own notion of what equality of 
 sacrifice implies. It might be argued, with apparent 
 reason, that it would be a less sacrifice for a man with 
 ; 1 00,000 a year to pay .80,000 in taxes than for a 
 man with ,100 a year to pay 10, and yet the first 
 would pay at the rate of 80 per cent., while the other 
 would pay at the rate of 10 per cent. 
 
 No line or limit is possible. 
 
 It is probably from some consciousness of the 
 hopelessness of adjusting any scale of relative sacri- 
 fices that those who have put forward this proposal 
 have fallen back upon another principle, originally 
 suggested by Bentham, and adopted by Mr. Mill, 
 viz. that the " necessaries " of life should be exempted 
 from taxation, and that a certain minimum income, 
 supposed to be sufficient for this purpose, should be 
 left untaxed. 
 
 But this principle is scarcely less unsatisfactory 
 than that of equality of sacrifice. It is hardly less 
 difficult to find a measure of what is necessary than 
 a measure of relative sacrifice. It is obvious that 
 what is necessary for one man is quite different from 
 that which is necessary for another. The standard of
 
 THE NATIONAL INCOME AND TAXATION. 189 
 
 necessaries varies in every country, and is progres- 
 sively advancing with advancing civilization. It varies 
 from man to man, and from class to class, and it would 
 be a waste of time to discuss it. 
 
 Hence the proposal to cut short all debate by 
 fixing an arbitrary sum assumed " to be ordinarily 
 sufficient to provide" (in Mr. Mill's most elastic lan- 
 guage) " a moderately numerous labouring family with 
 the requisites of life and health, and with protection 
 against habitual bodily suffering, but not with any 
 indulgences," an arrangement which, as he justly adds, 
 " would constitute a reason, in addition to others which 
 might be stated, for maintaining indirect taxes on 
 articles of luxury consumed by the poor." 
 
 This is an unanswerable argument, but in using it 
 Mr. Mill appears entirely to have forgotten his principle 
 of " equality of sacrifice." 
 
 How can this principle be reconciled with such 
 taxes as those on spirits and tobacco, which impose no 
 sacrifice whatever on those who abstain from them 
 because they dislike them, and who thus escape all 
 contribution to ^25,000,000 of the national revenue ? 
 
 There is not even the pretext of making sacrifice 
 the measure of taxation, its amount being solely 
 dependent on a taste for articles which are a source of 
 pleasure to one man and of pain to another. There 
 is no possible principle on which such taxes as these 
 can be justified, except by those who regard them as 
 penalties on vicious indulgence. 
 
 But whatever may be said of Mr. Mill's incon-
 
 190 FREE EXCHANGE. 
 
 sistency on this point, his statement is unassailable 
 that " the immunity extended to the income required 
 for necessaries should depend on its being actually 
 expended for that purpose, and that the poor who, not 
 having more than enough for necessaries, divert any 
 part of it to indulgences, should, like other people, 
 contribute their quota out of those indulgences to the 
 expenses of the State." 
 
 It is, therefore, not a little remarkable, that in 
 reviving this proposal for the exemption from taxation 
 of the income required (as it is assumed) for the 
 necessaries of life, all reference should have been 
 omitted to the obvious and essential condition with 
 which Mr. Mill accompanied it. And yet it would 
 seem, from Mr. Chamberlain's remarks on the in- 
 cidence of taxation in his speech at Hull last August, 
 and also from the language of the Radical programme 
 on the same subject, that this point has been entirely 
 overlooked. 
 
 With the single exception of the duties on tea and 
 coffee, which only yield between four and five millions 
 a year, there is no article consumed by the poor the 
 consumption of which is not largely in excess, even on 
 the most indulgent estimate, of what is necessary to 
 provide " the requisites of life and health," and the 
 argument for exempting the necessaries of life from 
 taxation becomes curiously out of place when it is 
 applied to a system from which nearly all taxation on 
 the actual necessaries of life has been carefully and 
 anxiously excluded.
 
 THE NATIONAL INCOME AND TAXATION. 191 
 
 In the next place, however possible such a measure 
 might be, if the poor were taxed directly, how is it to 
 be applied in a country where four-fifths of the taxes 
 which they pay are levied on articles of consumption ? 
 It is possible that by reducing the tea duty from 6d. 
 to $d. per Ib. the revenue might be so increased by 
 increased consumption as to be more than doubled 
 in which case the rate of taxation would be still 
 heavier while by raising the tax to a prohibitory rate, 
 the poor would be relieved from paying anything in 
 money, the sacrifice exacted from them being the same 
 by diminished enjoyment. 
 
 Again, if we speak of necessaries, what can be 
 more necessary than good government, especially for 
 the poorer and more helpless classes ? It is to them 
 a vital question. Without the protection of govern- 
 ment they would infallibly be reduced to a state of 
 slavery. For a poor man, therefore, payment out of 
 his earnings for government is scarcely less necessary 
 than payment for the bread he eats. If it is said that 
 a man cannot live with less than ^"50 a year, minus 
 taxes, it is as easy to say that he cannot live on less 
 than ^55 a year plus taxes one limit is as good as 
 another. The whole question turns on what is to be 
 the standard of living. Sound fiscal principles enjoin 
 that this standard should be so fixed as to include 
 taxation. 
 
 It may seem unnecessary, after what has been said, 
 to follow this subject farther, but it may be as well to 
 examine from the point of view which has been taken
 
 192 FREE EXCHANGE. 
 
 figures given by Mr. Chamberlain in the speech to 
 which reference has already been made. 
 
 By omitting local taxation, which is more than a 
 third of the whole amount, Mr. Chamberlain arrived 
 at the conclusion, after deducting 12 per head from 
 the income of all classes for the " necessaries " of life, 
 that the working classes pay at the rate of 13^ per 
 cent, on their incomes, while the upper and middle 
 classes only pay 6 per cent., or less than half. 
 
 Mr. Chamberlain's classification is open to serious 
 objection, for he includes in the latter class all those 
 who, without being in the receipt of wages, are never- 
 theless below the income tax limit ; but taking his 
 basis for the purpose of argument, and adding the 
 local taxes in the proportions which have been already 
 given, we find, after the omission of the taxes on 
 spirits and tobacco, which, however legitimate and 
 useful in moderation, cannot be considered as in any 
 sense necessaries of life, leaving the whole of the 
 revenue from beer, much of which is probably drunk 
 in excess, and, above all, allowing to the working class 
 its full share per head of tea and coffee and beer, that 
 the incidence of taxation is, as nearly as possible, 9 
 per cent, on both of the two classes into which Mr. 
 Chamberlain divides the population, instead of being, 
 as he states, 13 and 6 per cent, respectively. It 
 should be added, that although the percentage of 
 taxation on working-class incomes which are below 
 the average, such as those of many agricultural 
 labourers, is necessarily higher, this class is especially 
 that which contributes nothing to the rates.
 
 THE NATIONAL INCOME AND TAXATION. 193 
 
 The plea, therefore, for a readjustment of taxation 
 on grounds of fiscal equity appears to be altogether 
 inadmissible, and the fabric of injustice falls to the 
 ground. 
 
 On a review of these facts it seems difficult for an 
 impartial person to resist the conclusion, after making 
 every allowance for their loose and general character, 
 and the fallacious nature of all averages, that, whatever 
 may have been the case in former times, " the exclusive 
 control by property of parliamentary action " has not 
 prevented successive finance ministers from gradually 
 relieving our fiscal system from all reproach, of being, 
 at least in intention, either unjust or oppressive to the 
 working classes, and that Mr. Gladstone's apologetic 
 language in the address to the Midlothian electors 
 last September was quite unnecessary and liable to 
 misconstruction. 
 
 There is doubtless one very important considera- 
 tion which must not be left out of sight. All indirect 
 taxes on articles of consumption take out of the pocket 
 of the consumer a much larger sum than ever reaches 
 the exchequer. This it is impossible to estimate, but 
 it cannot be doubted that the burden of all such taxes 
 is considerably greater than the revenue accounts 
 would lead us to suppose. 
 
 But in the present stage of popular intelligence 
 and morality, the substitution of direct taxes for those 
 now levied on beer, spirits, and tobacco, would probably 
 be in the highest degree unpopular with those who 
 pay them, and would have this serious drawback, that 
 
 o
 
 j 9 4 FREE EXCHANGE. 
 
 it would transfer a large part of their burden from the 
 intemperate and self-indulgent to the provident and 
 frugal. 
 
 The foregoing calculations have been necessary for 
 popular and controversial purposes. So long as public 
 men and politicians resort to the kind of arguments 
 which have been examined, they must be met with 
 their own weapons ; but, as has been already observed, 
 they are of little value from a scientific point of view. 
 
 Without going so far as some economists, in think- 
 ing that wherever taxes are first imposed they are so 
 diffused and distributed in the processes of exchange as 
 to render all elaborate attempts at a nice adjustment of 
 them a matter of comparative unimportance, it is unde- 
 niable that under no system of taxation can any class 
 escape a share of the burden, and, least of all, the most 
 helpless and improvident class. It is conceivable that if 
 a direct tax were imposed on the working classes they 
 might be unable to recover the whole of it by a rise in 
 the rate of wages. It is not easily conceivable that a 
 tax on capital would not be gradually diffused through- 
 out the community, and ultimately affect wages, and be 
 borne, in a large proportion, by the working class. 
 
 In the case of a country which was self-contained, 
 and had no external trade, there would be much to 
 recommend some self-acting system of taxation of this 
 description ; but with international intercourse, and 
 foreign competition, it would be impossible to rely on 
 its operation, and it becomes important, as far as pos- 
 sible, to impose the tax on the final consumer, and not
 
 THE NATIONAL INCOME AND TAXATION. 195 
 
 on the producer. Hence the unquestionable advantage 
 of direct taxation. 
 
 This brings us to the financial question, which 
 possesses the greatest practical interest at the present 
 time. What is to be the future of indirect taxa- 
 tion ? 
 
 Indications are not wanting that some Tory finan- 
 ciers would not be indisposed, if a sufficient popular 
 support could be obtained, to retrace the steps which 
 have been taken by the most enlightened statesmen of 
 both parties, from the days of Huskisson, in the libera- 
 tion of British trade ; but so far (divided as it is in 
 other directions) the Liberal party has presented an 
 unbroken front in hostility to any such designs. But 
 no minister of any political colour could look, in this 
 country, to protective duties as a fiscal resource, and 
 the question is, what is to be done with regard to the 
 articles of large popular consumption, such as tobacco, 
 spirits, and tea (from which we still derive a great part 
 of our revenue), and sugar, which, until lately, occupied 
 an important place in the same list ? 
 
 The augmentation, or reimposition, of taxes of this 
 description, into which the element of protection may 
 be said hardly to enter, can never, it is to be supposed, 
 be popular ; and in the present temper of public men, 
 and of political parties, it may be perhaps safely pre- 
 dicted that, except in the case of some great national 
 emergency, they will be very reluctantly resorted to ; 
 nor was the fate of the unhappy proposals, made by 
 the late and the present Governments last session,
 
 196 FREE EXCHANGE. 
 
 in this direction, of a nature to encourage their 
 renewal. 
 
 As regards the section of the Liberal party repre- 
 sented by the Radical programme, there can at least 
 be little doubt that, so far from resorting to such 
 measures, it is looking rather, while stoutly maintain- 
 ing the duties on drink, to the free breakfast-table and 
 freer tobacco. These are excellent objects, but in the 
 present state of our finances how are they to be 
 accomplished ? 
 
 It may be inferred from the language of the 
 Radical programme, that the writers imagine that some 
 readjustment of taxation can be effected by taxing 
 what they call the luxuries of the rich, such as cigars, 
 wine, and costly teas, at the same rate as the luxuries 
 of the poor common tobacco, beer and spirits, and 
 cheap tea. They are evidently unaware that the 
 cause of this difference is not the malignant influence 
 of property, paralysing the benevolent wishes of 
 governments, but partly the administrative difficulty, 
 which has been thought insuperable, of applying to 
 these articles ad valorem duties, and partly the fact 
 that the object of these taxes is not to act as a 
 sumptuary law, but to obtain money ; and that if cigars 
 and wine were taxed as heavily as common tobacco 
 and spirits, the revenue would rapidly dwindle to a 
 sum not worth collecting. In the case of tobacco the 
 question is complicated by the protective element, as 
 if the tax of 55. per Ib. were raised still higher, the 
 manufacture of a detestable article would be artificially
 
 THE NATIONAL INCOME AND TAXATION. 197 
 
 stimulated. Mr. Chamberlain speaks of a tax of 1400 
 per cent, on the poorest kind of tobacco, and of 5 per 
 cent, or 10 per cent, on the highest-priced cigars. 
 How can such taxes be equalized ? The highest- 
 priced cigars cost ^"10 per Ib. in retail. It would be 
 necessary to impose a duty of ^100 per Ib., at least, 
 on these, making the price of each cigar more than 
 i. What would be the consumption of these, and 
 what the revenue from them ? There is no way of 
 equalizing the tobacco tax on rich and poor but by 
 " levelling down." If the Radical reformers will pro- 
 pose a duty of 6d. or \d. per Ib. on tobacco, so as to 
 bring it nearer to the tax on cigars, they will establish 
 some claim to be the friends of the working class ; but 
 largely as such a measure would contribute to the 
 comfort and morality of the labourer, there is little 
 evidence to show that the tobacco duties are generally 
 unpopular. The smokers are a small minority of the 
 people, and although, no doubt, they constitute the 
 bulk of the electors, smoking is still regarded by many 
 almost, as a vicious indulgence, and is placed in the 
 same category with alcoholic drinks, and considered as 
 a fit subject for penal legislation. 
 
 The same argument is often used with regard to 
 wine and beer. Why, it is said, should the poor man 
 be taxed more heavily on his beer than the rich man 
 on his wine? The answer is twofold. In the first 
 place, the cheaper wines are already taxed far more 
 heavily than beer, and are, indeed, practically pro- 
 hibited. In the second place, there is no reason for
 
 198 FREE EXCHANGE, 
 
 taxing the rich man's wine, as there is not the slightest 
 difficulty in making him pay his full share of taxation 
 by other means. 
 
 It may be added that to raise the duties on wine 
 would only tend to diminish a trade which is already 
 dwindling. 
 
 It may, therefore, be confidently asserted, that no 
 transfer of burdens from the working classes to the 
 other classes of society can be effected by a readjust- 
 ment of the existing indirect taxes. 
 
 The only resource left, if it were true that the 
 former class bear an undue share of taxation, is to 
 remit part of the existing indirect taxes which specially 
 fall upon it, and to add an equivalent amount to the 
 taxation which exclusively falls upon other classes. 
 
 It may be interesting to see the broad results of 
 this form of readjustment. 
 
 Let us, therefore, adopt, for the sake of the 
 argument, Mr. Chamberlain's two main positions in 
 his speech at Hull : 
 
 1 . That on their taxable incomes the working class 
 
 pays 13!- per cent., and the upper and middle 
 classes 6 per cent, of imperial taxes. 
 
 2. That local taxation should not be considered in 
 
 estimating the incidence of taxation on the 
 two classes. 
 
 It will be found that, in order to restore the 
 equilibrium on both classes, it will be necessary, 
 on Mr. Chamberlain's premisses, to remit about 
 .12,000,000 of the indirect taxes, and add this
 
 THE NATIONAL INCOME AND TAXATION. 199 
 
 amount to the taxation now levied on the upper and 
 middle classes. 
 
 These are the figures on Mr. Chamberlain's 
 estimate : 
 
 
 Taxable 
 
 Present 
 
 Per 
 
 Future 
 
 Per 
 
 
 Income. 
 
 Taxation. 
 
 Cent. 
 
 Taxation. 
 
 Cent. 
 
 Upper and Middle 
 
 
 
 
 
 
 
 
 
 Classes 
 
 639,000,000 
 
 38,000,000 
 
 6 
 
 50,000,000 
 
 7'8o 
 
 Working Classes 
 
 203,000,000 
 
 27,000,000 
 
 13* 
 
 15,000,000 
 
 7'34 
 
 Such a measure would enable the Radical 
 Chancellor of the Exchequer to remit the whole of 
 the tea, coffee, and miscellaneous duties, and two- 
 thirds of the tobacco duties. In what form the 
 ^12,000,000 should be added to the taxes on the 
 upper and middle classes is a much more difficult 
 problem. The method indicated by Mr. Chamberlain 
 is some scheme of graduated taxation of taxation 
 which increases in proportion to the amount of the 
 property taxed. Mr. Chamberlain appears to think 
 that this might assume the form either of an income 
 tax, a death tax, or a house tax. 
 
 The principle of progressive taxation, which has 
 been a favourite idea with the schools of continental 
 socialism, is one which it is impossible to discuss 
 within the limits of this paper. Nor, indeed, is it 
 necessary. The question has been so thoroughly 
 dealt with in past controversies, that there is little 
 new to be said about it. Even Mr. Mill, who favours 
 some scheme of limiting inheritances, observes that
 
 200 FREE EXCHANGE. 
 
 such a tax, as applied to incomes, " is a tax on 
 industry and economy, and imposes a penalty on 
 people for having worker harder and saved more than 
 their neighbours. It is partial taxation, which is a 
 mild form of robbery." If the subject has not attracted 
 much attention on the part of English economists, it 
 is because, fortunately, this country has, until lately, 
 enjoyed a comparative immunity from the economic 
 heresies which have sometimes threatened the founda- 
 tions of society on the Continent ; but it is needless 
 to say that the system in question is altogether at 
 variance with the four rules of taxation laid down by 
 Adam Smith. 
 
 In some form or other, graduated taxation, in the 
 sense of unequal taxation, is inevitable in all highly 
 taxed countries, and exists in practice with us. The 
 income tax and the death duties are instances. But 
 there are solid objections to its adoption in a form so 
 liable to abuse as that of a progressive increase in the 
 percentage of taxation on income or on property. 
 The aim of governments should always be to encour- 
 age the motives which promote industry and economy ; 
 and there can be no more disastrous folly than to 
 regard wealth, as the commercial classes were regarded 
 in the Middle Ages, merely as a fit subject of fiscal 
 rapacity. 
 
 The precedents cited by Mr. Chamberlain in 
 favour of his proposals are of a very ominous kind. 
 He appeals to the example of Mr. Pitt at the height 
 of the French war, of the United States at the close
 
 THE NATIONAL INCOME AND TAXATION. 201 
 
 of their death-struggle with the South, and of Prince 
 Bismarck in still more recent times. It is something 
 new for English financiers to borrow their ideas of 
 taxation from the desperate expedients of the govern- 
 ments of countries wasted by war and the crushing 
 burdens of military expenditure. 
 
 But whether recourse be had to this, or to less 
 questionable means of readjusting taxation, the task 
 of imposing ^12,000,000 more on the class which 
 already pays the income tax (for it would be im- 
 possible to extract much more from the lower middle 
 class) will be found no easy one. 
 
 The situation is serious enough without these 
 exaggerations. 
 
 Fortunately, as we have seen, while so large a 
 part of the taxes paid by the working classes affect 
 articles which cannot be considered as necessaries 
 of life, there can be no pretext for the argument that 
 such a gigantic transference of existing burdens from 
 one class to another is required in the interests of 
 fiscal equity, or of policy ; but, nevertheless, they are 
 so full of anomalies, so unequal in their incidence on 
 individuals, and in some cases so exorbitant in amount, 
 and wasteful in collection, that it is impossible to 
 regard their permanence, as a part of our fiscal 
 system, with any degree of satisfaction. 
 
 Again, if the estimates of the national income 
 on which our calculations have proceeded are 
 approximately correct (and this, it must be re- 
 membered, entirely depends on the soundness of a
 
 202 FREE EXCHANGE. 
 
 view which is opposed to that of Mr. Mill, as well as 
 of Mr. Dudley Baxter and Mr. Leone . Levi), there 
 is not at present reason to fear that, as compared with 
 that of other countries, the taxation of the United 
 Kingdom is disproportionately large ; but it is indis- 
 putable that it is larger than it need be and than it 
 ought to be, and that its tendency to a progressive 
 increase, in the face of a falling trade and diminished 
 rentals, is a very serious danger. 
 
 The preceding calculations have been made on 
 the accounts of the year 1884, and it may safely be 
 predicted that when the financial confusion of the 
 present year has disappeared, and the normal budget 
 of the future emerges from it, we shall find that the 
 figures which have been taken are largely exceeded, 
 and that while some branches of revenue, owing to 
 the prevailing depression, have diminished or re- 
 mained stationary, the expenditure has considerably 
 increased. 
 
 With this prospect before us, and bearing in mind 
 the precarious nature of the foundations on which the 
 bulk of our taxation, as it affects five-sixths of our 
 population, at present rests, the time has surely arrived 
 when the financial policy of the country should receive 
 more attention than has of late years been given to it, 
 and not be wholly neglected by our younger politicians. 
 
 Let us, at least, look the facts fairly in the face. 
 Out of the ^72,000,000 which are annually taken 
 from the British taxpayer in imperial taxation alone, 
 ,36,000,000 are already paid by not more than one-
 
 THE NATIONAL INCOME AND TAXATION. 203 
 
 seventh of the people. If, as is possible, some attempt 
 is made in the present Parliament to give effect to the 
 first instalment of the Radical programme by abolish- 
 ing the duties on tea and coffee, it is not likely that 
 it will be accompanied by any proposal to supply their 
 place by taxes which fall directly on the class which 
 now principally pays them. The remission of the tea 
 duty would then mean an addition of something like 
 another ,4,000,000 to the .36,000,000 already reached. 
 The recent additions to the charges for the services, 
 and for national defence, together with the general 
 growth of expenditure since 1884, will probably be 
 found to have raised the total imperial outlay con- 
 siderably above the figures of ,72,000,000 taken for 
 that year. This increased charge will also have fallen 
 on the same small section of the people. Simultane- 
 ously with this steady growth of national liabilities and 
 of Imperial taxation on a limited class, the growth of 
 local burdens will proceed at a still more rapid rate, if 
 the future is to be measured by the past, and if the 
 cherished designs of what is called State Socialism 
 should be only partially realized. The last most 
 unhealthy symptom is to a great extent concealed by 
 the heavy borrowing on the part of local authorities, 
 for objects which could not have been attained if their 
 cost had been thrown upon the rates. More than 
 .50,000,000 have been raised by loan during the last 
 four years for local (municipal) purposes, and the 
 amount of local indebtedness of all kinds at the 
 present time is estimated at .160,000,000, the interest
 
 204 FREE EXCHANGE. 
 
 on which cannot be much less than ,6,000,000 per 
 annum. Three-fifths, at least, of this large and rapidly 
 increasing burden falls upon the same small class, 
 representing what Mr. Gladstone calls "property." 
 The growth of this branch of taxation may be seen 
 from the valuable work on "Local Taxation" by 
 Messrs. Wright and Hobhouse, which shows that 
 while, between the years 1867-8 and 1879-80, the 
 burden on the taxpayer only increased 9'6 per cent., 
 that of the ratepayer advanced 56*4 per cent. 
 
 Even if, therefore, the remission of the tax on tea, 
 on grounds of general policy, should be allowed to 
 pass without some such attempt, fiscal equity will cer- 
 tainly require (if the tobacco duties should ever be 
 reduced) that some form of direct taxation should be 
 substituted for them, which would provide for a reason- 
 able contribution from the working classes towards 
 the national revenues. 
 
 This is a question to which the financiers of the 
 rising generation cannot too soon direct their attention, 
 if the present scale of expenditure is to be maintained 
 and increased, for it is impossible to regard without 
 anxiety any one of the three resources, on which alone 
 reliance can now be placed, for any Imperial taxation 
 falling on at least 30,000,000 people. 
 
 It can hardly be doubted that a considerable part 
 of the beer, and certainly of the spirits, consumed at 
 present, is in excess of the legitimate requirements of 
 the population, and it is at least probable that, with 
 the advance of intelligence and morality, the revenue
 
 THE NATIONAL INCOME AND TAXATION. 205 
 
 derived from those sources may tend to decline, while, 
 for the reasons already given, a large reduction of the 
 tobacco duties is a reform on many grounds so desirable, 
 that if it ever became the subject of a popular demand 
 it might be difficult to resist it. This state of things 
 imparts an element of great insecurity to the finance 
 of the future. 
 
 No one but. the most determined optimist can 
 suppose that the growth of taxation, if continued at 
 its present rate, will not in a very few years outstrip 
 the growth of the national earnings, and that the 
 people of this country will not be subjected to a severe 
 strain. 
 
 This may be borne again, as it has been borne 
 before, during periods of public excitement, when 
 great efforts are required to sustain the national 
 honour or existence, or even for some temporary 
 object of national ambition ; but if such a state of 
 tension were to become the normal condition of 
 English life, and the people of this country were to be 
 perpetually liable to still further demands upon them, 
 for still heavier sacrifices, in the event of any of the 
 sudden emergencies to which they are now constantly 
 exposed, it could not fail to be a source of grave peril 
 to the stability of whatever form of government con- 
 ducts its administration. Democracies which cannot 
 secure the material prosperity of a people have no 
 better chance of permanence than other forms of 
 government. 
 
 One thing, at least, is certain. Whatever may be
 
 206 FREE EXCHANGE. 
 
 the effect on our political institutions, we shall not 
 solve the social problem, nor succeed in raising the 
 general condition of the people to any adequate 
 level. 
 
 It was a profound remark of Mountstuart Elphin- 
 stone, that "most mistakes in politics arise from the 
 ignorance of the plain maxim, that it is impossible for 
 the same thing to be and not to be." 
 
 In other words, it is impossible for a country with 
 a national debt of ^750,000,000, and a military and 
 naval expenditure of ^30,000,000, to secure for the 
 working class of its people the same standard of living, 
 as in countries with equal or greater natural resources, 
 and without war debts and war establishments. 
 
 Of all the dreams in which modern Radicals in- 
 dulge, there is none so idle as that any country, and 
 least of all an old and thickly peopled country such 
 as England, with a limited territory, can be a great 
 military power, rivalling in its schemes of aggrandize- 
 ment and influence the righting organizations of Europe, 
 subjugating and ruling, and aspiring to civilize, vast 
 continents of subject-races, and at the same time 
 accomplish the very different task requiring all its 
 energies, all its available wealth, and its highest ability 
 of " raising the condition of its people," and securing 
 to the children of toil their due share in the reward of 
 labour. 
 
 So long as England is content to form a part of a 
 political system, such as that which now prevails on 
 the continent of Europe, and which is little better than
 
 THE NATIONAL INCOME AND TAXATION. 207 
 
 an armed camp, all hope of effectual social progress 
 must be set aside. 
 
 This is clearly perceived by observers on the other 
 side of the Atlantic. 
 
 In his recent work on the " Distribution of Pro- 
 ducts," Mr. Atkinson, of Boston, writes (p. 73) 
 
 " In the grand competition of the world, which now turns 
 on a cent a bushel, or a quarter of a cent a yard, or a fraction 
 of a penny on a pound of iron or steel, no nation which bears 
 the burden of standing armies, like those of Germany, 
 France, Italy, Austria, and Russia, can hope to enter into 
 successful competition with England or the United States, 
 where the whole English-speaking people take advantage of 
 their position, and serve the nations of the world with goods 
 at low cost, in which all who have joined in the work have 
 made higher wages than can be earned in any of the countries 
 named. The commerce of the army-burdened nations with 
 others will be destroyed by their own restrictions. Nations 
 can only be ruined by their own burdens then what may 
 come ? Their own resources will not suffice to sustain their 
 armies, but with the burden of their armies upon them they 
 cannot engage in competition with England or America ; 
 their product will be small and insufficient, their wages very 
 low in their rate, barely capable of buying enough to sustain 
 life, if even for that, while their cost of production as a whole 
 must be very high. 
 
 " It is difficult to foresee the course of events. These 
 armies are as impossible to be disarmed, as they are incapable 
 of being sustained, without revolution and destructive war ? 
 What will be the end ? " 
 
 He adds the significant warning, "While other 
 nations prepare for war, we prepare for work." 
 
 There is this fatal and incurable weakness in the 
 scheme of financial reform of the modern Radicals.
 
 2o8 FREE EXCHANGE. 
 
 They assume that the class to which they incessantly 
 appeal may be reconciled to a progressively increasing 
 expenditure by a " readjustment " of taxation. 
 
 Doubtless the sum now raised from tea and tobacco 
 might be added to a revised income or property tax or 
 death tax on a graduated scale, and there might be 
 little difficulty in reconciling those who now pay the 
 one and would be altogether exempt from the other to 
 such a transfer of their burdens ; but if it is imagined 
 that a sum of ^70,000,000, on the very moderate 
 estimate already given, rapidly advancing year by 
 year, as it undoubtedly would (if half the measures 
 of " social co-operation," discussed so lightly by this 
 school of politicians, were adopted), to a much larger 
 sum, can be raised by any " adjustments " on what is 
 called the "property" of about 5,000,000 persons 
 without a disastrous recoil on the interests of the 
 working classes there can be no greater mistake. 
 
 Such a scale of taxation, however adjusted, would 
 infallibly retard the growth of the national wealth, and 
 place our commerce and industry at a further disad- 
 vantage, in competition with the increasing rivalry of 
 younger and freer communities, while if the naked 
 principle of graduation be introduced into our fiscal 
 system, its uncertainty and infinite liability to abuse 
 would dangerously impair the sense of security which 
 is essential to prosperous enterprise.* 
 
 * I am aware that Mr. Giffen, in his essay on ' ' The Reduction of the National 
 Debt," has expressed the opinion that an annual revenue of 220,000,000 might 
 be raised without diminishing our prosperity. I can only regret my entire 
 inability to agree with so eminent a statist and so able a writer.
 
 THE NATIONAL INCOME AND TAXATION. 209 
 
 It may be thought by some that the extraordinary 
 rapidity with which our wealth and resources have 
 increased during the last forty years will be continued 
 in the period now before us, but very little reflection 
 will show that there is no solid foundation for such an 
 opinion. 
 
 The concurrence of causes which led to those 
 extraordinary results is known to every one. The 
 adoption of the free trade policy at a time when our 
 manufacturing supremacy gave us an undisputed start 
 in the race of competition, the increased supplies of 
 gold between 1850-60, the rapid development of the 
 railway systems of the world, the substitution of 
 steam and iron for sails and wood, the invention of 
 the telegraph, the multiplication of the instruments 
 of credit all these causes combined to give to the 
 period in question an abnormal and exceptional 
 character. 
 
 Such a combination of propitious circumstances 
 can hardly occur again, and no sober estimate of our 
 future progress can proceed on such a conjecture. 
 
 Yet it is upon this slender and irrational hope that 
 all the speculations and all the programmes of politi- 
 cians of all parties are now founded. 
 
 It is not sufficiently remarked how new is the 
 growth of this temper of mind among our leading 
 statesmen. 
 
 In the budgets of Mr. Gladstone which preceded 
 1874, there is evidence that diminished expenditure 
 was ever present to his mind, as among the most 
 
 p
 
 210 FREE EXCHANGE. 
 
 important of his financial resources. His memorable 
 proposal in that year to abolish the income tax could 
 hardly* have sprung from anything but the opinion that 
 large remissions of taxation were then still possible, 
 and the first act of his successor, Sir Stafford Northcote 
 (now Lord Iddesleigh), by which the whole of the 
 sugar duties were swept away (a beneficent measure, 
 for which he has never received sufficient credit), 
 affords a no less striking proof of the entire absence of 
 any sort of belief that we were entering upon a course 
 of largely increasing expenditure. Both these minis- 
 ters, representing the two great official parties, evi- 
 dently at that time still shared the views of the free 
 trade school of financiers, that the time had come 
 when the people of this country might begin to reap 
 the fruits of their increased prosperity in a diminution 
 of their fiscal burdens. 
 
 Then came the " parting of the waters." 
 We had succeeded in obtaining a somewhat reluc- 
 tant neutrality in the American and Franco-German 
 wars ; but the reopening of the Eastern question in 
 1876 presented an irresistible temptation to enter 
 once more upon a policy of active intervention. What 
 followed is well known. A wave of " Imperialism " 
 passed over the land and swept all before it. The 
 cry of Russian aggression revived again the passions 
 and the fears, the prejudices and the jealousies, which 
 had been dormant since the Crimean war. Poets in 
 easy circumstances wrote of the " canker of peace," 
 and a country in which 26,000,000 people live on a
 
 THE NATIONAL INCOME AND TAXATION. 211 
 
 shilling a day was told that it was becoming rich and 
 selfish. The nobler elements of the national character 
 were invoked, and a successful effort made to extirpate, 
 once for all, the pernicious doctrine of "non-interven- 
 tion " as unworthy of English traditions. 
 
 It was forgotten that among them there are 
 traditions of generations decimated by pauperism and 
 crime, of unnecessary suffering and remediable wrong ; 
 and those who could not forget these aspects of the 
 nation's life were denounced as the mean and unmanly 
 advocates of " peace at any price." 
 
 So deeply had this spirit entered into the heart of 
 the articulate classes which control the course of policy , 
 that even the succeeding Government some of whose 
 members, at least, came into power partly on a sup- 
 posed reaction against it, after a brief lucid interval 
 thought itself compelled to yield to the popular 
 temper, and plunge still deeper into Imperial adven- 
 tures. 
 
 Under the influence of these generous emotions we 
 have renounced our insular advantages, and become a 
 continental power. We have undertaken to defend 
 the frontiers of Asia Minor and the northern limits of 
 Afghanistan. We have made ourselves "practically 
 responsible for the government and defence of Egypt. 
 We have entangled ourselves in infinite liabilities in 
 Southern Africa, and are preparing on the dark 
 continent an empire vaster far than any which we have 
 founded in Hindostan. We have annexed New 
 Guinea and Burmah, and sown the seeds of another
 
 212 FREE EXCHANGE. 
 
 British India in North Borneo ; we have resumed our 
 place in the political system of Europe, and identified 
 ourselves with its rivalries, its ambitions, its alliances, 
 its military aggressions, its social dangers, and the 
 economic convulsions with which it is threatened. 
 
 Probably no country, in so short a space of time, 
 has incurred prospective responsibilities of so grave a 
 nature, with such immense complacency. 
 
 All this has been done deliberately by both parties 
 in the State, and apparently with the general acqui- 
 escence of the people. It is not surprising, therefore, 
 that little has been heard of finance. 
 
 The day of payment has not yet arrived. We 
 have been drawing bills on futurity which it will take 
 some time to mature ; and meanwhile governments 
 will change, and, after all, future generations must deal 
 with their own problems. 
 
 The modern statecraft of " opportunism " scoffs at 
 the claims of posterity. 
 
 But can we count on so long a respite ? It seems 
 now to be a recognized part of our political creed that, 
 by some unhappy fatality, England is exposed to the 
 undying hostility of a great military power with irre- 
 concilable interests, with which no friendly relations 
 are possible, and whose frontier is rapidly becoming 
 conterminous with her own. Hence the constant 
 risk, and ultimate certainty, of an internecine war, 
 which may add fifty or a hundred millions to our debt, 
 throw the finances of India into desperate confusion, 
 and which, even if attended with the most brilliant
 
 THE NATIONAL INCOME AND TAXATION. 213 
 
 success, would leave us nearly where we were before 
 unless, indeed, saddled with still greater liabilities. 
 
 If this is the prospect before us, and these the 
 conditions of our future national life, there is no very 
 evident limit to the demands which may be made on 
 the national resources. Ireland, Egypt, and India 
 all have to be heavily reckoned with in future budgets ; 
 and the only chance of lightening the strain will be to 
 throw over internal reforms, and revert to a scale of 
 domestic expenditure more suitable to a country 
 struggling with financial difficulties. 
 
 At least, then, let us not delude the working classes 
 by dangling before their eyes the prospect of better 
 times and lightened taxation. Let us not deceive 
 ourselves or them, by thinking that we can at once 
 
 . fu*- 
 
 gratify an Imperial ambition, and raise the standard of * 
 life of our labouring population to the level of that fy*i* 
 enjoyed by other people of our own race, and speaking x 
 our own tongue. 
 
 It will be the standard of the past, and not of the 
 future, of the old, and not of the new world. 
 
 The men who laid the foundation of the Free Trade 
 policy shared no such illusions, They knew that in 
 the present state of continental Europe, no hope of 
 the healthy growth of free institutions, or of the 
 material prosperity of the people, could possibly exist ; 
 they thought that, being more than strong enough to 
 defend ourselves, our military efforts might be confined 
 to purposes of self-defence, and that by concentrating 
 our energies on the arts of peaceful progress, by
 
 214 FREE EXCHANGE. 
 
 husbanding our resources, by cultivating commercial 
 relations with all countries in an international spirit of 
 cordial co-operation, instead of insular self-complacency 
 above all, by identifying ourselves as far as possible 
 with communities whose objects are the same as our 
 own a combination might in time be formed which 
 might be strong enough to resist the contact of 
 barbarism, and withstand the possible rivalry of 
 decaying empires. They may, perhaps, be excused 
 if they also thought that, until some greater progress 
 had been made in the work of governing ourselves, 
 our inherited burden of governing remote and alien 
 races, whom we can neither conciliate nor comprehend, 
 was sufficient for our strength, without fresh additions. 
 
 In the light of recent history this political forecast 
 certainly seems strangely sanguine, but it was, at 
 least, consistent and logical, and it had its root in 
 sound reason and common sense. 
 
 But if the hopes of those who thought that it 
 might have been England's destiny to lead the way 
 towards this great deliverance can hardly now be 
 fulfilled, the progress of humanity will not be long 
 arrested by the default of a particular people, and it 
 may be, if the fatal seed of civil discord is not already 
 sown, that the children of our own race may still be 
 guided by other hands into the land of promise. 
 
 This, at least, is the vision of a not distant future, 
 even now discernible, as it is portrayed by one who is 
 no dreamer of dreams, but a cool interpreter of facts.* 
 
 * Address by E. Atkinson at Ann Arbour Meeting of American Association 
 for Advancement of Science, 1885.
 
 THE NATIONAL INCOME AND TAXATION. 215 
 
 " Venture, then, to imagine one hundred million English- 
 speaking people living in comfort and welfare on our national 
 domain, even then making use for the necessary purposes of 
 subsistence of only one acre in eight or ten of our whole area ; 
 free from national debt, paying their national taxes under a 
 well-devised and intelligent system, meeting their competitors 
 in the commerce of the world with vast quantities of every 
 kind of produce, and of manufactured articles which will have 
 been produced by the application of the best machinery to 
 the greatest natural resources to be found in any similar area 
 of the earth's surface. The working people will then, as they 
 do now, constitute more than ninety in every hundred of the 
 population, gaining a constantly increasing product with less 
 effort or labour in each decade as the decades pass. 
 
 " Can the standing armies of Europe be sustained when 
 the full economic effect and the moral influence of this nation 
 is thus exerted ? 
 
 " Of a truth the swords shall be beaten into ploughshares, 
 and the spears into pruning-hooks. 
 
 " In our far Southern land, upon the heights around 
 Chattanooga, were many ramparts before which thousands 
 rendered up their lives in order that liberty might be estab- 
 lished over all our domain. 
 
 "Even from death unto life sprang forth the new industry 
 of the new South ; those very ramparts are now the walls of 
 the reservoirs which supply the free men of that city with 
 living water. 
 
 " So may it be in all lands when men learn to serve each 
 other in beneficent commerce, and when all the nations of the 
 earth shall have become interdependent."
 
 PART II. 
 
 THE LAW OF VALUE AND THE THEORY 
 OF THE UNEARNED INCREMENT.
 
 CONTENTS. 
 
 CHAPTER I. 
 THE "SHATTERED SCIENCE." 
 
 PAGE 
 
 Difficulties of Free Traders in defending their views Want of fresh- 
 ness in their arguments Failure of Cobden's predictions 
 Principle of nationality Intellectual reaction against Free Trade 
 doctrines Traced to the narrow conception of that phrase 
 presented by the English economists Connection between the 
 principles of private property and free exchange recognized by 
 the French school (Bastiat) and " Manchesterthum," not by 
 Ricardo-Mill school In England the two movements, the 
 abstract scientific movement represented by the last two names, 
 and the practical movement represented by Cobden and Free- 
 traders, have never run upon parallel lines Yet they are often 
 confounded Distinction turns on the different conceptions of 
 value held by schools founded by Condillac and Adam Smith 
 respectively Ideas of the latter reproduced by Ricardo and 
 restated by J. S. Mill " Cost of Production" theory Many of 
 the most powerful arguments of the Socialists drawn from 
 this source Views of Mill and Condillac as to the importance 
 of conception of value Definitions of value by A. Smith, 
 Ricardo, Condillac Consequences of these differences seen in 
 various views taken by (i) Ricardian school, (2) Socialists, (3) 
 Free-traders, and (4) school of Mill and Cairnes, respecting 
 natural monopolies and land Reconstruction, not deletion, 
 required in English Political Economy Ideas of historical and 
 inductive school of Political Economy appear to be inconsistent 
 \vithmaintenanceoftheFreeTradesystem ... ... 225
 
 220 CONTENTS. 
 
 CHAPTER II. 
 
 VALUE. 
 
 PAGE 
 
 Charge against Ricardo-Mill school that they confound utility with 
 value, attributing to raw materials and natural forces inherent 
 value The plus-value due to the co-operation of nature became 
 therefore gratuitous gift of nature, whose appropriation, if not 
 condemned as it is by the Socialists, could only be justified on 
 ground of necessity English economists illogical in confin- 
 ing their view to case of land Confusion arose according to 
 Bastiat from idea that labour is cause of value ; but to explain 
 rent the Ricardo-Mill school were driven to adopt theory of two 
 or three different laws of value governing different classes of 
 commodities Limitation of Ricardo's inquiry to the class of 
 commodities upon which "competition operates without 
 restraint," and which is "governed by cost of production," 
 makes it of small practical importance Jevons' Preface gave 
 cost-theory its death-blow Demonstration that in the case of 
 all other commodities exchange value is not determined by cost 
 of production To what, then, is due the margin of difference 
 between cost and price? De Quincey on value and cost of 
 production Two elements indispensable to exchange value, 
 one affirmative and one negative Utility and Difficulty of 
 Attainment (U. and D.) Method of operation of the two 
 principles explained Conflict between pain and pleasure 
 Cost and reward of cost Ratio between U. and D. represents 
 maximum of U. and minimum of D. Object of economics is 
 "a satisfaire a nos besoins avec la moindre somme de travail 
 possible " But in usual case of exchange, viz. that of two 
 different commodities or services, there will be four causes of 
 value, two affirmative and two negative Illustration of shoe- 
 maker and hatter showing operation Value (final utility) 
 always in inverse ratio to utility (total utility) Exchange 
 value rises part passu with scarcity, or difficulty of attainment 
 " Cost of Production " theory an inversion of cause and effect 
 " Une chose ne vaut pas parcequ'elle coute mais elle coute 
 parcequ'elle vaut " Concluding remarks and definitions ... 245 
 
 APPENDIX A. 
 
 Difference between Ricardo and Bastiat alluded to at beginning of 
 
 chapter more fully explained ... ... ... ... 263
 
 CONTENTS. 221 
 
 APPENDIX B. 
 
 PAGE 
 
 Effect of Cost of Production theory on the attitude of the Ricardo- 
 
 M ill school towards Free Trade ... ..* ... ... 267 
 
 CHAPTER III. 
 
 NATURAL MONOPOLIES. 
 
 Statement of case against property in land Founded on distinc- 
 tions analyzed in last chapter Natural monopolies and arti- 
 ficial monopolies All property monopoly There can be no 
 property in that which is " gratuitous " Positions that land 
 is both limited and common to all are inconsistent Mill's 
 attack on private ownership of land quoted, and shown to be 
 based theoretically on the fundamental error of making labour 
 the cause of value Consequence of the error traced Position 
 of "Manchesterthum" stated Process described by which free 
 exchange of values and law of competition operate for the 
 benefit of society Distinction attempted to be drawn between 
 right of property in produce of labour, and right of property in 
 land declared to be unsound Capital and wages (as Jevons 
 showed) are under the same law as rent The farmer The 
 labourer Non-agricultural values Element of natural mono- 
 poly enters into all surplus profit, or, unearned increment in 
 all Instance,. Madame Patti and landlord Leading to the 
 second challenge made in Mill's attack, whether the institution 
 of private property in land can be shown to be " conducive to 
 the general interest" This to be considered in Chapter IV. ... 272 
 
 APPENDIX. 
 Mr. Herbert Spencer on Property in Land ... ... ... 294 
 
 CHAPTER IV. 
 
 THE UNEARNED INCREMENT. 
 
 The doctrine now to be dealt with exclusively in its relation to the 
 land Wherever population increases in a limited area, 
 exchange value of land against labour must become greater and 
 greater Appropriation by community would be an attempt to
 
 222 CONTENTS. 
 
 PACS 
 
 circumvent this law, but would be worse than useless, for it 
 would neutralize the process by which demand is adjusted to 
 supply Statement of argument in favour of the State Answer 
 suggested by illustrations What is rent? Ricardo's and De 
 Quincey's definitions Limitation of land, not its various 
 degrees of productiveness, the essential condition of rent 
 De Ouincey anticipated the use made by Socialists of the 
 theory in the unqualified form given it by Ricardo, that 
 rent arises from the progressive cultivation of inferior soils 
 But facts do not warrant these gloomy anticipations 
 Carey Counteracting agencies, agricultural improvements, 
 better means of communication, Free Trade, by which rent is 
 kept in check Ricardo's discussion altogether theoretic, not 
 founded upon actual facts If taken, however, as basis for 
 argument, how would appropriation of rent by State work ? 
 Table (Ricardo) showing how law of rent operates " Loi 
 d'airain " Unearned Increment theory assumes that this will 
 always operate If it does not, charges of Socialists fall to the 
 ground If it does, their proposals would only aggravate the 
 evil If supply cannot be increased, the only way of checking 
 progressive pauperization is to limit the demand Private 
 ownership does this by placing control of supply and demand 
 in the same hands If State becomes responsible for supply 
 by becoming landlord, it must also control demand and regulate 
 population This would involve the sacrifice of personal 
 freedom and personal responsibility Equilibrium between 
 demand and supply would therefore be destroyed Results of 
 collective ownership sketched If numbers of community 
 remain the same (which the law of population forbids), each 
 would have a slice of the unearned increment But the same 
 result might be attained as it is by the working classes if they 
 were capable of arresting their progressive increase General 
 bearings of the adoption of the theory Mill's omission to. 
 show how State proprietorship of land would benefit the people 
 Impossibility of vesting the ownership of land in the 
 community at large There cannot be collective property in 
 that which, in Mill's language, is common to all To vest it in 
 a government would insure inequality and injustice in distribu- 
 tion Appropriation of economic rent in relief of taxation con- 
 sidered This arrangement would benefit the richer at the 
 expense of the poorer members, and would also be a most 
 dangerous weapon to place in the hands of a government 
 Special taxation of ground rents Interference of this kind 
 with a mutual- monopoly is like the creation of artificial
 
 CONTENTS. 
 
 monopolies, a form of the doctrine of protection Proposals 
 such as these for dealing with the unearned increment 
 absolutely inconsistent with the policy of Free Trade, which 
 holds that all man can do in utilizing the gifts of nature, 
 limited as they are, is to expose them to the greatest possible 
 competition by freedom of exchange Protection and Socialism 
 mean privilege and compulsion, as opposed to equal rights 
 and freedom ... ... ... ... ... ... 298 
 
 APPENDIX A. 
 
 Tables exemplifying the fallacy of the theory of the Unearned 
 
 Increment ... ... ... ... ... ... 335 
 
 APPENDIX B. 
 Further illustration of the working of the theory ... ... 340 
 
 APPENDIX C. 
 
 The rate of wages Law of diminishing returns Mill's stationary 
 
 state ... ... ... ... ... ... .. 346 
 
 APPENDIX D. 
 Capital and labour ... ... ... ... ... ... 353
 
 CHAPTER I. 
 
 THE " SHATTERED SCIENCE." 
 
 THOSE who in recent years have been called upon to 
 take a part in the defence of the Free Trade policy (to 
 use that expression in its more special sense) against 
 the attacks of its avowed or disguised opponents in 
 this country, must often have felt the difficulty of 
 imparting to their advocacy the fire and freshness 
 which are required to rouse and stimulate public 
 opinion. It is hardly possible to kindle enthusiasm 
 by appeals to principles which most people have 
 accepted, and to facts with which every one is familiar. 
 As Mr. Bagehot has said, to the modern Englishman 
 Free Trade is an accepted axiom of tedious ortho- 
 doxy, and to many minds even a heresy or a paradox 
 is often less unattractive than a truth which has 
 become a commonplace. Then it too often happens 
 that when the well-worn arguments have been exhumed 
 and revived, and the old statistics brought down to 
 date and adapted to present purposes, nothing can 
 prevent a feeling of flatness and languor on the part 
 of the reader, only exceeded by the sense of weari- 
 ness which attends his attempts to discover in the 
 
 Q
 
 226 FREE EXCHANGE. 
 
 fallacies of the Fair Traders something more than the 
 exploded sophistries of Protection. 
 
 Free Traders have laboured under other disadvan- 
 tages. They have been constantly reminded of the 
 failure of the confident predictions by Mr. Cobden and 
 others as to the speedy adoption of the Free Trade 
 policy by other countries, which, although only partially 
 true (for no one acquainted with the facts can deny 
 or doubt that in Europe, at all events, considerable 
 progress has been made), has nevertheless produced a 
 certain feeling of discouragement, and contributed to 
 the natural disposition of every generation to think 
 itself wiser than its predecessor. 
 
 These are, however, transient and unimportant 
 phenomena, and afford no reason for apprehension as 
 to the maintenance of the Free Trade policy. 
 
 A more serious danger consists in the movement 
 during recent years in favour of the principle of 
 nationality, and in the check given to commercial and 
 fiscal reform by wars, and by military preparations on 
 a scale of unprecedented magnitude, with their inevi- 
 table accompaniment of heavy taxation and accumu- 
 lating debt. 
 
 In view, indeed, of the present condition of Europe, 
 the wonder rather is that a Free Trade policy should 
 have so far held its ground. 
 
 The essential principle of this policy is that the 
 world, and not the nation, should be the economic imit. 
 Its aim and tendency is to counteract distinctions of 
 race, climate, and institutions, by diffusing among the
 
 THE "SHATTERED SCIENCE." 227 
 
 different nations common material interests. It is a 
 policy of international union, concord, and peace, as 
 opposed to one of separation, rivalry, and war. 
 
 The whole current of popular sentiment during the 
 period which we are considering has been running in 
 the opposite direction both in Europe and America. 
 
 National unity, national greatness, obtained if 
 necessary by force, has been an object to which all 
 the claims of international intercourse and progress 
 have been unscrupulously sacrificed, and in justifying 
 the course which has been pursued, it has been 
 necessary to combat and depreciate ideas which 
 suggested that the interests of humanity, and espe- 
 cially those of the working classes, would be better 
 served by the co-operation of nations in the arts of 
 peace. 
 
 This cause is perhaps of itself sufficient to account 
 for the arrested progress of Free Trade, as well as 
 for the indifference, if not distaste, with which its 
 doctrines are so commonly regarded by the general 
 public ; but hardly for the kind of reaction, the existence 
 of which it is difficult to deny, against the intellectual 
 movement which brought about the Free Trade policy. 
 But I think it probable, especially with reference to this 
 last consideration, that while it is unnecessary to seek 
 for other causes for the partial prevalence of reactionary 
 ideas upon this question with the general public, deeper 
 and subtler agencies have been concurrently at work, 
 which have been slowly undermining the foundations 
 of the intellectual movement which brought about the
 
 22* FREE EXCHANGE. 
 
 Free Trade policy, and have lent their aid to the 
 formation and diffusion of a popular opinion favour- 
 able to arbitrary and artificial methods of social 
 regeneration. 
 
 I suspect that this cause will be found in the 
 radical difference which may be traced between the 
 conceptions of Free Trade held by the English school 
 of economists, who trace their descent from Adam 
 Smith, and that of Free Exchange as understood by the 
 French school from the time of Condillac. The former, 
 without any very logical inquiry, have confined their 
 meaning to the free exchange of the products of 
 industry or labour, while the latter have always con- 
 sidered free exchange as nothing more than one of 
 the incidents of private property. To their minds it 
 was idle to speak of the free exchange of the products 
 of labour, if the labour itself was not also free, and if 
 profits were to be subject to exceptional and arbitrary 
 taxation. It is at least remarkable that both in 
 England and Germany, in which the term " Free 
 Trade " is used to designate the policy, it may be 
 questioned whether the institution of private property 
 is even now so secure as in France, where the expres- 
 sion " Free Exchange " has been adopted ; and that 
 while Mill in England, who probably claimed to be 
 considered as a Free Trader, is the author of the 
 most serious attack yet made in this country upon 
 the institution of property, Thiers, who wrote one 
 of the best books in its defence (" La Propriete" "), was 
 the most uncompromising champion of Protection.
 
 THE "SHATTERED SCIENCE" 2:9 
 
 There is nothing more remarkable than the failure 
 of English economists of the Ricardo-Mill school to 
 recognize the connection between the principles of 
 private property and free exchange, which are in 
 fact one and the same, and it probably accounts for 
 the lukewarmness of some of them, and especially of 
 Mill, in the cause of free trade. 
 
 But the connection was always present to the mind 
 of Bastiat, who more than any English writer repre- 
 sents what is called in Germany " Manchesterthum." 
 In a letter to Mr. Wilson, the President of the Anti- 
 Corn Law League, he writes, in 1849, as follows : 
 
 " You have not been able to demonstrate the right of 
 exchange without discussing and consolidating, as you went 
 along, the right of property ; * and perhaps England owes to 
 your teaching that she is not at the present hour infested, 
 like the Continent, by the false communistic doctrines which, 
 as well as protection, are nothing but the negation in different 
 forms of the right of property. 
 
 "You have been unable to demonstrate the right of 
 exchange without throwing a vivid light on the attributions 
 of governments and the natural limits of law. These 
 attributions once understood and these limits fixed, the 
 
 * It 5s necessary here to remark, to put a stop decisively to all verbal cavils as to 
 the sense in which the words " right of exchange " and " right of property " are used, 
 that they are always used and intended precisely in the sense explained by Professor 
 Cairnes in a note to his essay on " Political Economy and Land " (leaving on one 
 side his distinction between landed property, and property in the products of industry 
 from which I absolutely dissent), to the following effect : " To guard against mis- 
 apprehension, it may be as well to state that I do not recognize in this argument 
 any ' natural right ' to property in anything, even in that which our hands have 
 just made. If it is right that it should belong to us, it is not, if we go to the root 
 of the matter, because we have made it (or, I should add, acquired it by exchange), 
 but because it is expedient that property so acquired should belong to him who 
 so acquires it. The distinction is all-important."
 
 230 FREE EXCHANGE. 
 
 governed will no longer expect from governments prosperity, 
 well-being, absolute happiness, but equal justice for all ; 
 while governments no longer dissipating the public wealth as 
 fast as it is formed, circumscribed in their sphere of action, 
 and no longer repressing individual energy, will themselves be 
 relieved of the immense responsibility which the chimerical 
 hopes of the people throw upon them, and will no longer be 
 driven from power at every inevitable deception." 
 
 Mr. Bagehot has told us that Adam Smith fulfilled 
 two functions. " On the one hand, he prepared the 
 way for, although he did not found, the abstract 
 science of Political Economy ; and, on the other, he 
 was the beginner of a great practical movement, and 
 thus became the legitimate progenitor of Ricardo and 
 Mill, as well as of Cobden and the Anti-Corn Law 
 League." 
 
 But it should have been added that the two 
 movements, the one in the department of abstract 
 thought, and the other in the practical world of politics, 
 have never run upon parallel lines. Nevertheless they 
 have been confounded by German economists in the 
 common designation of " Manchesterthum." No 
 clear idea can ever be formed as to the course of 
 economic speculation and opinion in the last fifty 
 years of the present century until these two move- 
 ments are carefully discriminated from each other, and 
 yet I have been unable to discover that this has 
 been done by any of the economists with whose works 
 I am acquainted except Bastiat. Even M. de Lave- 
 leye appears to have confounded them together ; and 
 Mr. Macleod and Jevons, although the distinction may
 
 THE "SHATTERED SCIENCE." 231 
 
 easily be gathered from their writings, have failed to 
 indicate it directly. 
 
 This distinction will be found to turn upon a 
 radically different conception of the causes which 
 determine the ratio of exchange in the case of natural 
 and of artificial monopolies respectively. 
 
 In order to comprehend the nature of this 
 divergence, it is necessary to go back to the works 
 of Condillac and Adam Smith, who have been justly 
 regarded as the founders of the French and English 
 schools respectively. In them we shall easily dis- 
 cover its germs. 
 
 But although to Adam Smith, from the want of 
 clearness and consistency in his language on the 
 subject of value, must be traced much of the con- 
 fusion which has since arisen, I think that Ricardo 
 must be held in the main responsible for the doctrine 
 which has led to the controversy which has unsettled 
 the foundations of the science. 
 
 It may even, I think, be doubted whether, rightly 
 interpreted, Adam Smith's view essentially differed 
 from that of Condillac. 
 
 But however this may be, it is unquestionable 
 that the doctrine of Ricardo derived much of its 
 authority from the assumed support of Adam Smith, 
 and that in spite of the contemporary protests of 
 Malthus, Bailey, Whately, and others, as well as of 
 the trenchant condemnation of Bentham, who dis- 
 missed Ricardo's work as a confusion between cost 
 and value, and notwithstanding the more recent
 
 232 FREE EXCHANGE. 
 
 criticisms of Macleod and Jevons, its acceptance by 
 Mill has made it the distinctive feature of the English 
 school of Political Economy. 
 
 I shall always consider this fact the most remark- 
 able instance in my experience of the influence of 
 authority. 
 
 The three great names in English Political Eco- 
 nomy, which has always been essentially insular in 
 character, are Adam Smith, Ricardo, and J. S. Mill. It 
 began with Smith, it was constructed into a science by 
 Ricardo, and after infinite discussions by James Mill, 
 Senior, Torrens, McCulloch, and others, was at last 
 presented in a form so attractive in literary style, and 
 so suitable for popular purposes, by John S. Mill, as 
 to have practically superseded all that had gone before, 
 and to have held its ground against all that has come 
 after. As Mr. Bagehot has told us, " to many students " 
 (he might have added, to the whole of the general 
 public) " his work is the Alpha and Omega of Political 
 Economy ; " and yet he adds, " taking his own treatise 
 as a standard, what he added 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 formulating the current 
 views of a certain world, than producing by original 
 thought from his own brain." 
 
 It is thus that the general conception of value, 
 formed by Smith, and reproduced in a more precise 
 and scientific form by Ricardo, was finally engrafted 
 in the work destined more than any other to mould
 
 THE "SHATTERED SCIENCE." 233 
 
 and stamp opinion, and that the so-called law of cost 
 of production has been ingrained in the minds of at 
 least two generations of Englishmen. 
 
 It would have seemed strange to Adam Smith, 
 who spoke of the "absurdity" of expecting the com- 
 plete freedom of trade in England, that his teaching 
 should have caused, more than anything else, the 
 adoption of Free Trade as the cardinal principle of 
 English commercial policy ; it would probably have 
 surprised Ricardo still more to have been told that 
 some of his doctrines would have been among the 
 most serious obstacles to its general acceptance. Yet, 
 although this has perhaps not been sufficiently recog- 
 nized in England, no one can have read the contro- 
 versies between the Free Traders and Socialists on 
 the Continent, without being convinced that Ricardo 
 and his followers have supplied the latter with their 
 most powerful arguments, and interposed the greatest 
 difficulties in the way of those who have endeavoured 
 to defend the theory of private property and free 
 exchange. Vidal, Considerarit, Proudhon, Karl Marx, 
 and Lassalle have drawn their deadliest weapons from 
 Ricardo's armoury ; and we have lately seen, from Mr. 
 Henry George's* constant appeals to his authority, 
 what was apparent enough to Ricardo's most ardent 
 disciple, De Quincey, even in 1844, f how readily his 
 doctrines lend themselves to attacks upon the social 
 order. 
 
 \* See also Mr. Shaw's treatment of the theory of rent and the law of diminish- 
 ing returns in*the recently published volume of " Fabian Essays." ED. 
 t Refer here to p. 309 of Chap. IV.
 
 231. FREE EXCHANGE. 
 
 What is Free Trade, or rather Free Exchange ? It 
 is the free exchange of values. " The question of 
 value," as has been well said, " is that into which every 
 problem of the science ultimately resolves itself. The 
 appeal comes back to that tribunal, and for that 
 tribunal no sufficent code of laws has been yet matured 
 which makes it equal to the calls upon its arbitration." 
 
 Its fundamental importance is admitted by all 
 writers of all schools, but there is a wide difference of 
 opinion as to the extent of its controlling operation, 
 as well as to the nature of the law itself. 
 
 By the writers of the French school and their 
 English representatives, Archbishop Whately and 
 Mr. Macleod, the operation of the law has been con- 
 sidered as co-extensive with the boundaries of the 
 science itself, and Political Economy has been called 
 " Catallactics," or the Science of Exchange. 
 
 Mr. Mill has formally expressed his dissent from 
 this view (" Principles," vol. i. p. 513) 
 
 " It is nevertheless evident that of the two great depart- 
 ments of Political Economy, the production of wealth and 
 its distribution, the consideration of value has to do with 
 the latter alone ; and with that only so far as competition, 
 and not usage or custom, is the distributing agency. The 
 conditions and laws of production would be the same as they 
 are, if the arrangements of society did not depend on ex- 
 change, or did not admit of it Even in the present system 
 of industrial life, in which employments are minutely sub- 
 divided, and all concerned in production depend for their 
 remuneration on the price of a particular commodity, ex- 
 change is not the fundamental law of the distribution of the 
 produce, no more than roads or carriages are the essential
 
 THE "SHATTERED SCIENCE." 235 
 
 laws of motion, but merely a part of the machinery for effect- 
 ing it. To confound these ideas, seems to me not only a 
 logical, but a practical blunder." 
 
 In opposition to this opinion of Mill, that value 
 is only called into existence by exchange, Condillac 
 asserts " Le Commerce et le Gouvernement," p. 20). 
 
 " II ne faudrait pas dire avec les ecrivains economistes 
 que [la valeur] consiste dans le rapport d'echange entre telle 
 chose et telle autre ; ce serait supposer avec eux 1'echange 
 avant la valeur ; ce qui renverserait 1'ordre des idees. En 
 effet, je ne ferais point d'echange avec vous, si je ne jugeais 
 pas que la chose que vous me cedez a une valeur. . . . Les 
 Ecrivains economistes, pour me servir d'un proverbe, ont done 
 mis la charrue avant les bceufs." 
 
 It may be doubted whether the logical blunder is 
 on the side of Condillac; but even Mill goes on to 
 say, in words which are hardly reconcilable with the 
 preceding sentence, that in an economic society 
 
 " the question, of value is fundamental. Almost every 
 speculation respecting the economical interests of a society 
 thus constituted implies some theory of value ; the smallest 
 error on that subject infects with corresponding error all our 
 other conclusions ; and anything vague or misty in our con- 
 ception of it creates confusion and uncertainty in everything 
 else." 
 
 Then follows what can only be called an astound- 
 ing passage (p. 515)- 
 
 " Happily there is nothing in the laws of value which 
 remains for the present, or any future, writer to clear up. The 
 theory of the subject is complete." 
 
 Who, in reading this sentence, could suppose that 
 not only had the two men, who have been called the
 
 236 FREE EXCHANGE. 
 
 founders of two different schools of Political Economy, 
 Adam Smith and Condillac, formed conceptions of the 
 law of exchange value essentially opposed to each 
 other, but that these two conceptions had divided the 
 world of science ever since, and that so far from there 
 being any agreement on this fundamental question, 
 Bastiat was engaged, at the very moment when it was 
 written, in refuting Ricardo, and that it was as true 
 then as it now is, after another forty years of ineffec- 
 tual controversy, that the state of the science can only 
 be described as one of complete anarchy. 
 
 I have said that the conceptions of the law which 
 governs exchange value, formed by Adam Smith and 
 Condillac respectively, were radically opposed. I will 
 give their own words. 
 
 Smith says ("Wealth of Nations," bk. v. ch. i.)- 
 
 " The value of any commodity to the person who possesses 
 it, and who means not to use or consume it himself, but to 
 exchange 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 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 something else, is the toil 
 and trouble which it can save to himself, and which it can 
 impose on other 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 exchange for what is
 
 THE "SHATTERED SCIENCE." 237 
 
 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 silver, but by 
 labour, that all the wealth of the world was originally pur- 
 chased ; 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." 
 
 There is a strange mixture of truth and error in 
 this statement ; but there can, I think, be little doubt 
 that the pervading conception is that labour is the 
 cause of value, and that the exchangeable value of 
 commodities is regulated by the quantity of labour 
 employed in their production. 
 
 Ricardo, in his comments on this famous passage, 
 observes (ch. i. sect, i) 
 
 " That this is really the foundation of the exchangeable 
 value of all things, excepting those which cannot be increased by 
 human industry, is a doctrine of the utmost importance in 
 Political Economy ; for from no source do so many errors, 
 and so much difference of opinion in that science proceed, as 
 from the vague ideas which are attached to the word ' value.' 
 
 " If the quantity of labour realized in commodities regulate 
 their exchangeable value, every increase of the quantity of 
 labour must augment the value of that commodity on which 
 it is exercised, as every diminution must lower it" 
 
 Let us now hear Condillac (" Le Commerce et le 
 Gouvernement," p. 14) * 
 
 "Une chose n'a pas une valeur parce qu'elle coute, mais 
 elle coute parce qu'elle a une valeur." 
 
 We have here two statements directly opposite to 
 
 * CEuvres Completes, tome iv.
 
 238 FREE EXCHANGE. 
 
 each other. The one is indeed the converse of the 
 other. 
 
 According to Adam Smith, labour is the cause of 
 value ; and according to Condillac, value is the cause of 
 labour. What was to Smith the cause, was to Con- 
 dillac the effect ; and what to Condillac was the effect, 
 was to Smith the cause. 
 
 We have still to inquire what, according to Con- 
 dillac, is the cause -of value labour or cost being 
 in his view the effect. This is his statement 
 (pp. 10, u):- 
 
 " On dit qu'une chose est utile lorsqu'elle sert a quelques- 
 uns de nos besoins, et qu'elle est inutile lorsqu'elle ne sert a 
 aucun, ou que nous n'en pouvons rien faire. Son utilite" est 
 done fondee sur le besoin que nous en avons. 
 
 " D'apres cette utilit nous 1'estimons plus ou moins : c'est 
 a dire que nous jugeons qu'elle est plus ou moins propre aux 
 usages auxquelles nous voulons 1'employer. Or cette estime 
 est ce que nous appelons valeur. Dire qu'une chose vaut, 
 c'est dire qu'elle est, ou que nous 1'estimons, bonne a quelque 
 usage. 
 
 " La valeur des choses est doncf0ttd& sur leur utility ou ce 
 qui revient encore au meme, sur 1'usage que nous en pouvons 
 faire. . . . 
 
 " Dans 1'abondance on sent moins le besoin . . . on le sent 
 davantage dans la raret ... or puisque la valeur est fonde'e 
 sur le besoin, il est naturel qu'un besoin plus send donne aux 
 choses une plus grande valeur, et vice versd. La valeur des 
 choses croit, done, dans la rarete", et diminue dans 1'abondance. 
 Elle peut meme dans 1'abondance, diminuer au point de 
 devenir nulle." 
 
 This will be seen to be nothing more nor less 
 than the doctrine of final utility as explained by
 
 THE "SHATTERED SCIENCE" 239 
 
 Jevons, which has re-emerged after a hundred years 
 of controversy. 
 
 A few words will indicate the bearing of the 
 differences between the different schools of Political 
 Economy on the subject-matter of these chapters. 
 We shall observe, in the chapter on Value, that 
 Ricardo and his followers divided commodities into two 
 classes the one in which competition was assumed 
 to operate freely, and the value of which was supposed 
 to be regulated by cost ; the other consisting of mono- 
 polies whether natural or artificial, the value of which 
 was determined by supply and demand, irrespective 
 of cost. From this point of view, it was inevitable 
 that whenever in the latter category the exchange 
 value exceeded the cost, the notion should arise that 
 the surplus value was " unearned," and was due to a 
 privilege possessed by the proprietor of exploiting the 
 gifts of nature, or, as Ricardo puts it in the case of 
 rent, that it is something paid to the landlord for the 
 " use of the original and indestructible powers of the 
 soil." 
 
 The idea has its origin in the radical error of this 
 school of economists, in attributing value to labour, 
 instead of attributing labour to value, and it will 
 accordingly be seen that it rests upon a totally false 
 foundation, the result of a most defective analysis 
 of "cost." Those who desire to satisfy themselves 
 on this point have only to read Jevons' remarkable 
 preface to the " Theory of Political Economy," in 
 which the error of the Ricardian school is conclusively
 
 240 FREE EXCHANGE. 
 
 shown. It need only be observed here that wages do 
 not enter into cost of production any more than rent ; 
 that both are the effect and not the cause of value, 
 and both are governed by precisely the same law. 
 
 But while regarding the so-called surplus value 
 derived from monopolies as a privilege, the Ricardian 
 school nevertheless held this privilege to be necessary 
 in the interests of society, and therefore to be sanc- 
 tioned by science. They therefore accepted the 
 principles of private property and free exchange as 
 applicable to both classes of commodities without 
 distinction. 
 
 Mill and his contemporaries have formally dis- 
 sented from this conclusion. 
 
 They split up commodities into three classes, i. 
 Absolute monopolies. 2. Those on which competition 
 freely operates. 3. Land. 
 
 The first they set aside as of no practical impor- 
 tance, and thus get rid of an inconvenient objection to 
 their theory. 
 
 The second they assume to include everything of 
 practical importance except land. 
 
 The third, land. 
 
 Here they observe that the cost of production 
 varies according to quality of soil, situation, etc., and 
 conclude that the difference between the cost on the 
 worse soil and the better is "unearned increment." 
 This surplus value they attribute not to nature, but 
 to the labour and efforts of the community at large. 
 They therefore condemn private property and free
 
 THE "SHATTERED SCIENCE." 241 
 
 exchange in the case of land, and decide in favour of 
 collective appropriation, in the name of science and on 
 the plea of social expediency. 
 
 This is a totally new departure in the history of 
 English Political Economy, which marks an adhesion 
 to the Socialist school and a renunciation of Free 
 Trade principles in the case of land on the part of 
 the disciples of Mill. 
 
 The problem for solution is how to deal with 
 natural monopolies, and in considering it the following 
 questions immediately arise : 
 
 1. What are natural monopolies ? 
 
 2. Can they possess and acquire value in exchange ? 
 
 3. If so, ought such value to be the subject of 
 private property and free exchange ? 
 
 These questions receive widely different answers 
 from the four different schools which are in presence. 
 
 (a) The Economists grouped round Ricardo hold 
 that all commodities are natural monopolies, upon 
 which from the nature of things competition cannot 
 freely operate ; that they can only acquire exchange 
 value by the human agency of appropriation ; that 
 such appropriation is unjust, but necessary to society, 
 and therefore to be sanctioned by science. 
 
 (6) The Socialist schools hold essentially that all 
 property is a natural monopoly ; that it is unjust, 
 and ought, in the interests of society and in the name 
 of science, to be disallowed. 
 
 (c) The Free Trade school (" Manchesterthum ") 
 holds with the Socialists that all property is mono- 
 
 R
 
 242 FREE EXCHANGE. 
 
 poly, as Jevons has said ; that it is just, that it is 
 essential to society and sanctioned by science, if 
 accompanied by its attribute, Free Exchange. 
 
 (d) The school of Mill and Cairnes distinguishes 
 land from other commodities, and agrees with the 
 Socialist schools in the treatment of land, while accept- 
 ing the view of the Ricardo school as regards all 
 commodities, on which, as they think, competition 
 operates without restraint. 
 
 In the presence of such vital differences of doctrine 
 as these, well may Jevons call Political Economy a 
 "shattered science." 
 
 I have so far spoken from the point of view of 
 those who agree with Jevons that it is not "deletion," 
 but reconstruction and reform, which is required in 
 English Political Economy ; who accept its methods, but 
 dispute some of its essential doctrines ; who complain, 
 not that it is too abstract, but that its abstract con- 
 ceptions are wrong, and who believe that the truth 
 lies rather with Condillac or Bastiat than with Adam 
 Smith and Ricardo. 
 
 Before passing to a more detailed consideration 
 of the theory of value, I may say a word upon 
 another school, composed of those who discard what 
 they describe as the deductive or a priori method 
 altogether, and seek to build up some comprehen- 
 sive science of sociology by inductive and empirical 
 methods. 
 
 No rational economist, indeed, pretends that the 
 " so-called " science covers the whole ground of human
 
 THE "SHATTERED SCIENCE." 243 
 
 life and motives. Very far from it. What is said, 
 and said, I think, with unanswered cogency, is this 
 that there are certain universal characteristics of 
 human nature, as human nature now exists, which 
 furnish data for certain deductions. That some 
 portion of the human race, and especially the least 
 civilized and least progressive, do not possess these 
 characteristics, does not affect the question, even if it 
 were proved. It is enough for the purpose that they 
 should be so general as to be universal among all 
 people deserving to be called civilized. 
 
 The most striking characteristics of the school I 
 have mentioned, which has drawn much of its inspira- 
 tion from Germany, appear to be the substitution of 
 the national for the cosmopolitan, or international idea ; 
 and of constraint, or State control, for individual action 
 and personal freedom. It is obvious that these prin- 
 ciples are in direct opposition to those on which the 
 Free Trade system is founded, and it was inevitable 
 that they should soon have been found in open hostility 
 to " Manchesterthum," or even to " Smithianismus," 
 names by which the doctrines of the League and of 
 Adam Smith and Ricardo have respectively been 
 designated by the German professors. 
 
 It cannot be doubted that the views of this school 
 have exercised a considerable influence upon many 
 minds in this country ably represented as it has been 
 by Mr. Cliffe Leslie and Professor Ingram but it 
 may be questioned whether they can ever be made 
 widely acceptable, in a popular sense, either to the
 
 244 FREE EXCHANGE. 
 
 practical nature of Englishmen or the logical faculty 
 of the French. However this may be, it is obvious 
 that they cannot coexist with the maintenance of a 
 Free Trade system, and that their acceptance would 
 involve a period of purely empirical legislation, and a 
 series of reactionary economical experiments, which 
 could not fail seriously to retard the progress of 
 civilization.
 
 245 
 
 CHAPTER II. 
 
 VALUE. 
 
 WHAT is the charge brought by certain economists 
 against Ricardo, Mill, and other writers who may be 
 classed as belonging to their school ? 
 
 According to Bastiat it is this : that they con- 
 found utility with value. They attribute to the raw 
 materials and forces of nature an inherent value, 
 independent of all human service or agency ; in other 
 words, they consider that whatever is the product of 
 the co-operation of man and nature, owes its value 
 partly to the former and partly to the latter. 
 
 From this view the natural inference flowed, that the 
 portion of value, or " plus-value " due to the co-opera- 
 tion of nature, was a gratuitous gift of nature, which, 
 according to some, such as Ricardo (and Adam Smith 
 before him), Buchanan, McCulloch, Scrope, Senior (to 
 these Bastiat adds the following French and Italian 
 writers Scialoja, Florez Estrada, J. B. Say, Blanqui, 
 J. Gamier), could only be justified as the subject of 
 private appropriation on the ground of necessity or 
 social expediency ; according to the Socialists, on con- 
 dition of compensation, in the form of " Le droit au
 
 246 FREE EXCHANGE. 
 
 travail ; " and which, according to the Communists, 
 ought not to be allowed as private property at all, 
 but to be regarded as the common inheritance and 
 common property of the community. It should, how- 
 ever, be observed that the English economists in 
 question have usually confined their view to the case 
 of the rent of land, while some of the most eminent 
 of the Socialist and Communist writers have with 
 more logic, or perhaps greater courage, extended the 
 scope of their inquiry to the share due to natural 
 agencies in other than agricultural industries, and 
 have passed a similar condemnation on the profits of 
 capital, and sometimes on the inequalities in the 
 wages of labour. 
 
 This confusion arose, according to Bastiat, from 
 the idea which pervades Adam Smith's writings, and 
 infects more or less those of the school which Ricardo 
 is said to have founded, that labour is the cause, or 
 the principal cause, of value, In considering the case 
 of land, the phenomenon of rent soon presented itself, 
 and it became impossible then not to admit that in 
 this case, at all events, one of the constituent parts of 
 the value of its products in the market went to the 
 proprietors of rent-paying soils, and not to the culti- 
 vator as wages or profits. These writers were there- 
 fore driven to adopt the theory formulated by Ricardo, 
 and repeated with some qualifications by Mill, that 
 there were two or even three different laws of value, 
 governing different classes of commodities, viz. 
 
 i. Commodities susceptible of indefinite multipli-
 
 VALUE. 247 
 
 cation, upon which competition operates without 
 restraint. 
 
 2. Commodities which can only be increased in 
 quantity at an increasing cost. 
 
 3. Commodities which cannot be increased at 
 all. 
 
 (Ricardo places the two first in one class and 
 subdivides it, but the result is the same.) 
 
 These classes are governed by different laws of 
 value. 
 
 1. With regard to the first (those which can be 
 increased at will by human labour without assignable 
 limit it is " cost of production which must ulti- 
 mately regulate price, and not (as has often been said) 
 the proportion between supply and demand." * (Then 
 follows the distinction between natural and market 
 price.) In this class minimum cost determines value. 
 
 2. With regard to the second class (those which 
 can be increased at will, but not by equal cost of 
 production), such as corn and minerals, the prices will 
 be regulated by the cost of obtaining the last quantity 
 produced, i.e. the quantity produced at the greatest 
 cost (Mill, bk. iii. ch. v. i). In this class maximum 
 cost determines value. 
 
 3. With regard to the third (absolute monopolies), 
 " their value is wholly independent of the quantity of 
 labour originally necessary to produce them," and is 
 exclusively governed by the law of Supply and 
 Demand. 
 
 * Ricardo's works by McCulloch, p. 232 ; cf. Mill, bk. iii. ch. iii.
 
 248 FREE EXCHANGE. 
 
 It is to be remarked that even here, on the thres- 
 hold of his inquiry, Ricardo stumbles, and his voice 
 has an uncertain sound. He probably felt, as every 
 one must, that there are very few articles of which it 
 can be said with certainty that they can be produced, 
 to any extent required, by human labour at an equal 
 cost of production ; and this thought betrays itself in 
 the passage which follows, in which he says (after 
 admitting that all monopolies are subject to the law of 
 supply and demand), " But the prices of commodities 
 which are subject to competition, and whose quantity 
 may be increased in any moderate degree, will ulti- 
 mately depend, not on the state of supply and demand, 
 but on the increased or diminished cost of produc- 
 tion " (p. 234). This is a very loose foundation on 
 which to erect a law which is to be the regulating 
 principle of a system of economics, and yet it is 
 to the class of commodities the value of which is, 
 according to Ricardo, governed by cost of production, 
 that his work is almost entirely confined (except as 
 regards his theory of rent), though, as Mr. Macleod has 
 observed, this " express limitation of his inquiry is 
 quite overlooked by some of his ardent disciples." 
 
 This limitation must always be kept in view in an 
 estimate of Ricardo's work ; for whether we agree or 
 not that cost of production is the law of value for 
 such a class of commodities as he describes, we should 
 certainly admit that in their case the value will coin- 
 cide with cost of production (if it is not determined by 
 it). But it is impossible not to feel that any general
 
 VALUE. 249 
 
 theory of value, which has exclusive reference to a 
 class of commodities so limited as to fall strictly 
 within Ricardo's limits, can only have the interest 
 attaching to an abstract question, and is of small 
 practical importance. This has been seen by most 
 economists of repute during recent years, and even 
 Bagehot and Cairnes, who still cling, in a fashion, to 
 the " Cost Theory," have so whittled away its applica- 
 bility and so contracted the sphere of its operation, that 
 there is really little left to dispute over of practical 
 importance for those who are unconvinced by Bastiat, 
 Macleod, and Jevons. The last of these, I think, gave 
 it a death-blow in his preface to the second edition 
 of his " Theory of Political Economy." 
 
 This narrows our inquiry for all are now agreed 
 that, as regards all commodities the supply of which 
 cannot be indefinitely increased at an equal cost, and 
 upon which competition does not operate with un- 
 restricted freedom, the law, or ratio, or as Mill 
 prefers, the equation, of supply and demand, and not 
 cost of production, will determine the exchange value 
 or ratio of exchange. I say this because it seems to 
 me that to include, as Ricardo does,* as a subdivision 
 of his second class, such articles as corn and minerals, 
 because their value is determined by the cost of the 
 last, or most costly portion produced, is a palpable 
 
 * I hardly think that this is the case as regards Ricardo, but the remark is 
 substantially true. Mill says (" Political Economy," pp. 557, 558), " The value of 
 an article (meaning natural value) is determined by the cost of that portion of the 
 supply which is produced and brought to market at the greatest expense," He is 
 here speaking of this class of commodities.
 
 250 
 
 FREE EXCHANGE. 
 
 
 blunder. Even Ricardo himself and Mill admit that 
 rent does not form part of cost, but that, on the con- 
 trary, cost is the cause and not the effect of rent. 
 Rent is the result of an enhancement in the price of 
 agricultural produce, or generally of land, which is 
 caused by the pressure of demand upon a limited 
 supply. It follows, irresistibly, that it is the ratio of 
 demand and supply which determines the cost of the 
 last, or most costly portion produced, and not the cost 
 which determines such_ value. 
 
 In other words, the admission of Mill and Ricardo, 
 that rent is the effect and not the cause of the price or 
 value of agricultural products, is fatal to their conten- 
 tion, that such price or value is determined by the 
 cost of production of that portion of the supply which 
 is " brought to market by the greatest expense." This 
 may be proved by a very simple test.* Suppose that 
 the price of corn on the best soil (A.) is 405. a quarter, 
 the pressure of demand on supply raises it to 45^. ; 
 but it will not pay to cultivate the next best soil (B.) 
 unless the price rises to 50^. per quarter. No additional 
 supply will therefore take place the price of corn will 
 remain at 45^., which does not represent the cost of 
 any of the corn in the market, and cannot therefore 
 be caused by the cost of its production. The cost of 
 production will still be 40^., but the value will be 455. 
 
 * It may perhaps be said in reply that although it may not pay to cultivate the 
 next best soil (although it is improbable that there would be so much difference 
 between the two soils), it will pay to expend more capital on soil A at 45^., and 
 that there can be no point at which no additional supply can take place. I do not 
 know how far this may be true in practice, but in theory the margin of a fraction 
 of a penny would be enough to prove the law.
 
 VALUE. 
 
 251 
 
 per quarter, and this value must be caused by the ratio 
 or equation of supply and demand.* 
 
 We then see that, even according to believers in 
 the Cost Theory, it is only to that class of commodities 
 which can be indefinitely multiplied, and upon which 
 competition operates without restraint, that it can 
 possibly apply. Those who have read Mill, Cairnes, 
 Bagehot, and Jevons (it is unnecessary to speak of 
 Mr. Macleod) will, I think, agree with me that this 
 class must be a very small one, even if it exist at all. 
 
 It follows that in the case of all other commodities 
 exchange value is not determined by cost of produc- 
 tion, and that things produced by equal quantities of 
 labour will not necessarily exchange for each other, 
 but that there may be, and often or generally even is 
 a certain margin of difference, more or less, great or 
 small, between cost and price, or cost of production 
 and exchange value which is due to what ? On the 
 
 * The absurdity of the theory that Cost of Production regulates value in the 
 case of land, which is the same thing as that of the products of the land, may be 
 shown by the following table, There are, of course, infinite gradations of soil 
 before that which pays no rent, and which is supposed to govern the whole series. 
 We will suppose that there are ten such grades. 
 
 Soil. 
 
 Cost. 
 
 Rent. 
 
 Value. 
 
 
 I 
 
 10 
 
 90 
 
 IOO 
 
 The value of all 
 
 2 
 
 20 
 
 80 
 
 IOO 
 
 \ the series in 
 
 3 
 
 30 
 
 70 
 
 IOO 
 
 this bracket is 
 
 4 
 
 40 
 
 60 
 
 IOO 
 
 governed by 
 
 5 
 
 50 
 
 50 
 
 IOO 
 
 " supply and 
 
 6 
 
 60 
 
 40 
 
 IOO 
 
 demand, "and 
 
 7 
 
 70 
 
 3 
 
 IOO 
 
 
 8 
 
 80 
 
 20 
 
 IOO 
 
 that of the 
 
 9 
 
 90 
 
 IO 
 
 IOO 
 
 
 10 
 
 IOO 
 
 Nil. 
 
 IOO 
 
 1 last by cost of 
 j production.
 
 252 FREE EXCHANGE. 
 
 answer to this question very important consequences 
 will be found to depend. 
 
 I think that the fallacy which lies at the root of all 
 the speculations of the advocates of the Cost of Pro- 
 duction Theory is revealed by De Quincey.* 
 
 Following Ricardo, he sees that Utility must be 
 an element of value. This he calls U., or affirma- 
 tive value, in contrast to D., or Difficulty of Attain- 
 ment, negative value. So far well ; but instead of 
 seeing that cost of production is merely one manifes- 
 tation or form of Difficulty of Attainment, which it un- 
 questionably is, he again runs off on the false scent laid 
 by Ricardo, and creates a new antithesis between Cost 
 Price (as he calls it) and Monopoly Price, or Scarcity 
 Price terms which he properly condemns, but which 
 he confounds by some extraordinary blunder with U., 
 or affirmative value, thus making Difficulty of Attain- 
 ment caused by scarcity identical with Utility (p. 51). 
 
 His explanation of this position on pp. 60, 61, is 
 one of the most extraordinary instances of the straits 
 to which a logician is reduced when he starts on false 
 premises which I ever recollect meeting with. 
 
 He says (p. 17) that there are two modes of value 
 in exchange: i. Intrinsic Utility; 2. Difficulty of At- 
 
 * " Logic of Political Economy," p. 60. The remark has been made to me 
 that the " treatment of De Quincey is more serious and respectful than modern 
 economists would approve." I may, therefore, say that Sir L. Mallet obviously 
 selected him for comment as being Ricardo's most ardent and brilliant champion 
 and interpreter. " The best defence," as he said, that can be made for Ricardo's 
 position " was probably that offered by De Quincey, always excepting his extra- 
 ordinary views on the subject of protection, which it is hardly conceivable that 
 Ricardo shared, arid which are absolutely irreconcilable with any possible justifica- 
 tion of economic rent." ED.
 
 VALUE. 253 
 
 tainment ; and that these two must concur. Leaving 
 aside the term " intrinsic," which is an absurdity, we 
 may agree so far, these two expressions corresponding 
 with Demand and Supply, Reward and Cost, and 
 being, as De Quincey well expresses it, affirmative and 
 negative value respectively. 
 
 The two modes of value are now quite apparent. 
 The one affirmative, which corresponds with Demand, 
 or Utility the cause of Demand, or, in other words, 
 with the reward of Cost ; this is called U. The other 
 negative, which is composed of two elements, accord- 
 ing to Ricardo labour and scarcity (these being really 
 the same), called D. At this stage (p. 44) De Quincey, 
 quite forgetting that he has included scarcity in D. 
 (Difficulty of Attainment), the negative form, as part of 
 the resistance to the possession of a commodity and to 
 the act of its reproduction (which it undeniably is), by 
 an extraordinary piece of legerdemain, actually makes 
 scarcity suddenly figure as the incident which brings 
 into play " the latent affirmative principle of utility, 
 which accordingly regulates the exchange value of all 
 articles on which competition does not freely operate." 
 
 I never saw so audacious a piece of " surreptitious 
 logic." 
 
 That what is loosely called Monopoly, or Scarcity 
 Value, by Ricardo, is just as much negative value, i.e. 
 resistance to man's efforts, as cost of production, 
 no one can for a moment deny, and to suppose that 
 the affirmative principle, Demand caused by Utility, 
 alone governs the exchange of monopolized articles,
 
 254 FREE EXCHANGE. 
 
 and not of articles subject to competition, is the height 
 of illogical absurdity. 
 
 It is satisfactory to find that De Quincey, the 
 fanatical champion of the Ricardian law, is "hoist by 
 his own petard." 
 
 May not the case be this : All are agreed that 
 Exchange Value must be composed of two elements 
 the one affirmative, which represents Utility ; the other 
 negative, which represents Difficulty of Attainment. 
 These De Quincey called the two modes of Exchange 
 Value, U. and D. 
 
 It is clear that neither of these alone can cause or 
 determine Exchange Value. 
 
 The utility of a thing, such as the air, may be in- 
 definitely great, but as if is attainable by all, without 
 cost or effort, it is absolutely without Value in 
 Exchange. 
 
 The difficulty of attainment may be the highest 
 possible, but unless the object possesses utility, it will 
 be without the smallest Exchange Value. 
 
 Therefore the two must co-exist and concur. Each 
 is equally indispensable to the common idea of Value 
 in Exchange. The one we call the positive or 
 affirmative principle, the other the negative. 
 
 How do these two principles, then, in concurrence 
 or opposition, operate in causing Exchange Value ? 
 
 This is the problem. The difficulty is one which 
 De Quincey's logical acumen detected, although he 
 failed in solving it. 
 
 It is that up to a certain point the two principles
 
 VALUE. 255 
 
 appear to operate in the same direction, and after this 
 has been reached, in opposition to each other. This 
 confusion arises from the double character of the kind 
 of Exchange Value, which is usually considered, viz. that 
 of two different commodities or services. The essence 
 of Exchange Value lies in the conflict between pain 
 and pleasure, cost and the reward of cost. In a state 
 of isolation a man who makes an effort to satisfy a 
 want effects an act of exchange. He exchanges his 
 labour for the object or satisfaction which it procures 
 him. Here there is no common action between 
 " Utility and Difficulty of Attainment." The two 
 principles which we may also call by the names 
 usually employed, Demand and Supply, are in direct 
 conflict. The man weighs the force of the two 
 motives in the scale the desire on the one hand and 
 the effort on the other and the utility of the trans- 
 action is measured by the excess of the first over the 
 second. It is the balance of satisfaction remaining 
 after making the effort. The ratio between U. and D. 
 will always represent the maximum of U. and the 
 minimum of D.* But where two or more men ex- 
 change commodities with each other, there are two 
 complete values, each composed of the affirmative 
 and negative conditions, which have to be measured 
 against each other. There are thus four causes of 
 value, two affirmative and two negative, which operate 
 
 * The value or final utility will be the equation of U. and D. The greater the 
 utility and the smaller the Difficulty of Attainment, the greater will be the utility 
 (total).
 
 256 FREE EXCHANGE. 
 
 in determining the exchange value of those com- 
 modities and services. How is the balance to be 
 struck ? 
 
 A. is a shoemaker, and B. a hatter. 
 
 A. wants a hat. He has two motives operating in 
 his mind, pleasure and pain ; (i) desire for the hat, and 
 (2) the trouble or cost of getting it ; an affirmative 
 and a negative motive. These he will compare, 
 weigh against each other, and decide on the balance. 
 The determining principle will be that of obtaining 
 the maximum of the first with the minimum of the 
 second to buy in the cheapest and to sell in the 
 dearest market. But what is the cheapest market ? 
 Here comes in cost of production. If the hatter wants 
 more than cost and ordinary profit, it is thought that 
 the shoemaker will make the hat himself. This is not 
 so, for this consideration leaves out of account the 
 effect of division of labour, which enables a hatter to 
 make a hat cheaper than a shoemaker can make one ; 
 but in this simple case it may be urged that if the 
 shoemaker made the hat, the hatter would be com- 
 pelled to make a pair of shoes, and then they would 
 both be, in this particular, again on a level. 
 
 I will therefore proceed on the extreme assump- 
 tion that the shoemaker would not give the hatter for 
 a hat more than it would cost him in labour to make 
 the hat himself. This is the measure of its final 
 utility to him. Beyond this point it is not useful, for 
 he can get another hat for the same or less labour. 
 Its affirmative value stops at this point, but it is not
 
 VALUE. 257 
 
 the less operative as far as it goes. Cost, which is 
 merely one form of negative value, can only fix the 
 limit of Difficulty of Attainment, which must neces- 
 sarily be the maximum limit of utility or the measure 
 of final utility. But it cannot fix the minimum of 
 utility or any degree of utility between maximum and 
 minimum. The concurrence of the affirmative element 
 of value is essential to exchange value, and it can 
 never therefore be exclusively regulated by cost or 
 one form of negative value alone. 
 
 We have merely to reverse the cases of the two 
 men, A. and B., to form a complete idea of the trans- 
 action, which may be thus summed up. 
 
 In striking the balance of motives, each undergoes 
 the same mental process, each is guided by the same 
 fundamental economic law of obtaining the greatest 
 result with the least effort. As Courcelle Seneuil says, 
 the object of economics is "a satisfaire a nos besoins 
 avec la moindre somme de travail possible." This 
 Jevons calls the best possible statement of the problem 
 of economics. Herein lies naturally the explanation 
 of the central principle of the science, the Law of 
 Value. 
 
 Each will therefore compare the minimum cost at 
 which he can buy with the maximum price at which 
 he can get. The first will represent the minimum of 
 the negative, and the second the maximum of the 
 affirmative. What will be the Exchange Value of the 
 hat and the shoes ? To the hatter the hat will represent 
 the minimum of cost, and the shoes the maximum of 
 
 s
 
 258 FREE EXCHANGE. 
 
 utility ; to the shoemaker the hat will represent the 
 maximum of utility (U.), and the shoes the minimum 
 of cost (D.). 
 
 From a subjective point of view the affirmative 
 and negative forms of the respective values are trans- 
 posed, but both elements are co-present and co-opera- 
 tive, as they always are and must be. It is an 
 extraordinary blunder on the part of so acute and 
 subtle a man as De Quincey not to have seen that 
 the fact of the coincidence of the two apparently con- 
 flicting forces (the affirmative and the negative) is the 
 result of the same principle operating on both. That 
 principle, or, to speak more correctly, that cause, is 
 scarcity. It is scarcity which causes final utility, and 
 it is scarcity which causes Difficulty of Attainment. 
 Value in exchange increases in direct ratio to scarcity, 
 and diminishes in direct ratio to abundance. Value in 
 exchange is therefore always in the inverse ratio of 
 total utility, or, more concisely, final utility is in in- 
 verse ratio to total utility. The conflict which De 
 Quincey observes is between utility in the sense of 
 total utility, or what Adam Smith calls value in use, 
 and value in exchange, which is final utility, and 
 which increases as total utility decreases, and in- 
 creases pari passu with Difficulty of Attainment. 
 When we speak of the two elements in modes of 
 Exchange Value Utility and Difficulty of Attain- 
 ment we use the term Utility in the sense of final 
 utility, as distinguished from total utility or value in use. 
 Utility in the former case is concrete utility for the
 
 VALUE. 259 
 
 purpose of exchange, not for the abstract purpose of 
 satisfying a want. The greater the value in exchange, or 
 final utility, the less the pleasure or reward. Exchange 
 Value is, in this form, in the inverse ratio of quantity 
 of utility. The greater the total utility, the less the 
 final utility. The same object may be worth anything 
 or nothing according as it is scarce or abundant. 
 Thus Exchange Value rises pari passu with scarcity, 
 or difficulty of attainment ; and when De Quincey 
 speaks of his two modes, he should have made it clear 
 that they are practically convertible terms. The final 
 utility of an object must always be identical with its 
 difficulty of attainment, and vice versa. If final utility 
 were greater than difficulty of attainment, supply 
 would increase and reduce final utility to the old level. 
 If it were less, supply would diminish until final utility 
 were raised. If difficulty of attainment were greater 
 than final utility, supply would cease until the reduced 
 amount had increased the final utility to an equa- 
 tion ; and if it were less, it would increase to the same 
 point. 
 
 It is vital to remember that the two causes of 
 Exchange Value, U. and D., are absolutely inter- 
 dependent. They must rise or fall together, always 
 in the same ratio. The truth is that they both arise 
 from scarcity, but the scarcity may be produced by an 
 increased demand or by a diminished supply. A 
 sovereign is worth a hat. If the supply of sovereigns 
 is doubled, the hat will be relatively scarce, and become 
 worth two sovereigns. If the supply of hats is less
 
 260 FREE EXCHANGE. 
 
 
 
 by half, the hat will be relatively scarce in the same 
 degree, and be worth still a sovereign ; in both cases 
 it will have doubled in exchange value, although from 
 opposite causes, and the effect on its exchange value 
 will be the same, because in both cases its final utility, 
 its difficulty of attainment, are, as they always must be, 
 in exact equation. 
 
 We see thus the absurdity of the doctrine that cost 
 of production can regulate exchange value, even where 
 competition operates freely. It is a complete con- 
 fusion and inversion of cause and effect. It is not 
 because things are made by the same quantity of 
 labour that they will exchange for each other. It is 
 because they exchange for each other that they are 
 made by the same quantity of labour. " Une chose 
 ne vaut pas parcequ'elle coute, mais elle coute parce- 
 qu'elle vaut" (Condillac). 
 
 Possessing utility, as Ricardo says, exchange 
 value (this he does not say) must depend, not on 
 cost, but on degree of utility or quantity of utility. As 
 this diminishes exchange value will rise, and it will 
 fall as quantity increases. 
 
 But scarcity may arise either from increased 
 demand (which is the affirmative cause of value), or 
 from decreased supply (which is the negative cause). 
 The effect on exchange value will be precisely the 
 same, whichever cause is in operation. 
 
 This (the exchange value) will always be at the 
 point of equation between supply and demand. 
 
 But it is asked, What is the cause of this equation ?
 
 VALUE. 261 
 
 Cairnes and others say, " It is all very well to talk 
 about relation between supply and demand regulating 
 value, but what is the cause of the relation ? There 
 must be an antecedent cause." 
 
 To this question the Ricardo-Mill school, of which 
 Cairnes is the most determined adherent, say in 
 reply, Where competition operates without restraint 
 (a purely abstract hypothesis), cost of production ; 
 where it does not, even they are compelled to fall back 
 on what Mill calls, I suppose by some accidental lapse 
 into logic, the " anterior law " of supply and demand. 
 This is a very lame answer, for it gives a wrong cause 
 in one case and none in the other. 
 
 Bastiat says, "Equivalence of services in both 
 cases." And he is undoubtedly right ; but the term 
 is liable to the criticism that it is perhaps not so precise 
 as it is possible to make it, although in defining what 
 is in its essence the most subtle and variable of all the 
 ideas which can be clothed in language, it is impos- 
 sible to avoid expressions which are sufficiently general 
 to cover a variety of different cases of value. 
 
 Jevons says, " Final utility." This is good, because 
 it really denotes cost of production, or rather difficulty i 
 of attainment (which includes the former as one of its I 
 forms), as well as utility. It therefore expresses in * 
 one term both affirmative and negative value, the 
 word " final " determining the negative limit, for if the 
 D. were greater than the U. or less, the utility would 
 not be final. 
 
 Perhaps a better definition might be Cost of At-
 
 262 FREE EXCHANGE. 
 
 tainment this also includes both the affirmative and 
 negative causes of value; or better still, as more 
 sharply in contradistinction to the one-sided and 
 erroneous term " Cost of Production," Cost of Con- 
 sumption.
 
 ( 263 ) 
 
 APPENDIX A. 
 
 RlCARDO AND BASTIAT. 
 
 BROADLY, I think it may be said that the difference 
 between Ricardo and Bastiat may be summed up as 
 follows : 
 
 That Ricardo and his school reluctantly admit (and only 
 specifically in the case of land) that a commodity can derive 
 exchange value, except from labour or human agency. 
 Wherever an extra value or plus value arises such as rent, 
 it is attributed by this school to nature. 
 
 Bastiat, on the other hand, refuses to allow that nature 
 can ever add anything to value. All that nature gives is 
 gratuitous, and all value is attributable to human agency, 
 which he calls " service ; " but he admits, with his adversaries, 
 that the value of land, " ou plutot du capital engage 1 dans le 
 sol, a deux ele'me'ns. Elle depend non seulment du travail qui 
 y a etc* consacre', mais encore de la puissance qui est dans la 
 societe de remunerer ce travail ; de la demande aussi bien que 
 de 1'offre." 
 
 I have described the difference between Ricardo and 
 Bastiat in a letter to M. de Laveleye as follows : 
 
 " Both admit that nature and man co-operate in the work 
 of production, but Ricardo adds that the value of the product 
 is due partly to man and partly to nature, while Bastiat 
 strenuously insists that it is due exclusively to man, that the 
 share of nature is gratuitous and remains gratuitous ' a 
 travers toutes les transactions humaines.' " 
 
 Ricardo's view justifies the charges of the socialists against 
 private property, for it admits that man can appropriate the
 
 264 FREE EXCHANGE, 
 
 forces of nature and obtain remuneration for them ; Bastiat 
 denies this with the greatest emphasis (" Harmonies Econo- 
 miques," p. 266). 
 
 "On a commence" par confondre I'utilit^ avec la Valeur 
 Puis comme la nature co-opere a la creation de Futilite", on en 
 a conclu qu'elle concourait a la creation de la valeur, et on a 
 dit : cette portion de valeur, n'etant le fruit de travail de 
 personne, appartient a tout le monde [that is to say, to no one, 
 for it would cease to exist]. Enfin, remarquant que la valeur 
 ne se cede jamais sans remuneration, on a ajoute : celui-la vole 
 qui se fait re"tribuer pour une valeur qui est de creation 
 naturelle, qui est ind^pendante de tout travail humain, qui est 
 inhe"rente aux choses, et qui est par destination providentielle, 
 une de leurs qualites intrinseques." 
 
 Bastiat's distinction between utility and value appears to 
 me incontestable, always remembering his distinction between 
 " utility's one"reuses " and " utilitds gratuites." 
 
 If nature were suddenly spontaneously to provide for man 
 all that he requires, utilities would be enormously increased, 
 while value would absolutely disappear and cease to exist. 
 
 The confusion in the minds of those who attack Bastiat 
 is, I think, in their conception of the gratuitousness of natural 
 gifts. What is meant by " gratuitous " ? Cairnes says that a 
 gratuitous gift of nature, limited in extent, was to Bastiat an 
 " inconceivable idea." Of course it was, and ought to be to 
 any one ; but why ? Because a gift of nature so limited can 
 only be a gift at all if it is given to a limited number. It 
 may be gratuitous to them, but it cannot be gratuitous to the 
 whole human race. 
 
 The only mode by which such gifts can be equitably 
 made available as far as possible, and to as large a number 
 of people as possible, is by the institution of private property. 
 In the case of land, the object is that its products should 
 be rendered as cheap, i.e. its utility rendered as great and 
 its value as little, as possible. It is only through the agency 
 of private property that the share contributed by nature to 
 the work of production (whatever it may be) is diffused and 
 distributed to as wide a circle as possible. It is this function,
 
 VALUE. 265 
 
 viz. the best distribution of the gifts of nature, the adaptation 
 of supply to demand, which constitutes the service rendered 
 by the proprietor, and it is the greatest which can be rendered 
 to society, for society would dissolve without it. 
 
 It is this service which receives and deserves remuneration. 
 It is not a question between A. and B. A. has as good or as 
 bad a right as B. It is a question between A. and the whole 
 human race. Does the possession of the land by A. increase 
 or diminish the share which falls to the lot of each member 
 of the human race ? The answer can hardly be doubtful. 
 Were it not for the existence of private property, the inherent 
 and intrinsic qualities of the soil might indeed be gratuitous 
 to all. They would also be worthless. 
 
 It is this function of distributing in the most equitable 
 manner, as far as they will go, the gifts of nature, the function 
 of adapting supply to demand by restraining the undue 
 pressure of the latter on the former, which constitutes the 
 value of the land or of the product of the land, over and 
 above cost (plus value), and not the co-operation of nature, 
 as is taught by the Ricardian school. It is this which con- 
 stitutes what Bastiat called a service on the part of the 
 proprietor of the soil, and it is perhaps the greatest service 
 which can be rendered to society. 
 
 It seems to me the superficial aspect which this service 
 bears has greatly contributed to obscure its real character. 
 The old economists who admit that the monopoly (as they 
 call it) is useful to society, nevertheless always disparage the 
 functions of the landlord or so-called monopolist. Say speaks 
 of this function as, a " fonction commode a la v^rite"," and 
 others speak in still more uncomplimentary terms. It is 
 forgotten that it is of no sort of consequence whatever to the 
 man or to the society receiving a service, whether or not the 
 man or class rendering it is remunerated in proportion to his 
 labour, or his sacrifices, or his merits of any kind. The only 
 important question for the recipient of a service, is whether 
 or not he can obtain what he requires more cheaply, or as 
 cheaply, i.e. with as little exertion or sacrifice on his part, 
 from any one else, or by any other arrangement of society.
 
 266 FREE EXCHANGE. 
 
 If not, then the service is worth the price he pays for it, and 
 it is his highest interest to maintain a social system which 
 gives him what he requires at the least possible cost. If one 
 man gets what he wants with the least possible effort on his 
 part, how can it possibly injure him that another man should 
 get what he wants with a still smaller effort ? 
 
 It is not the labour incurred, but the labour saved, which 
 concerns the recipient of a service.
 
 267 
 
 APPENDIX B. 
 
 COST OF PRODUCTION AND FREE TRADE. 
 
 FREE Traders consider that Free Trade means the free 
 exchange of values, and they include in this term all values 
 whatsoever, whether of articles subject to the freest compe- 
 tition, or of those which are the subject of monopoly, whether 
 natural or artificial. They claim this perfect freedom of ex- 
 change for all values on the ground that they are all derived 
 from one and the same source, viz. human service, and that 
 the free exchange of values is and must be the exchange of 
 equivalent services. 
 
 The English school, on the contrary, divide value into two 
 classes, and while accepting the doctrine of Free Trade in its 
 application to those values which can be indefinitely increased 
 in quantity (they do not always add, as Cairnes does, and as 
 they ought logically to do, at a uniform cost) by human 
 efforts, including, therefore, all those which are subject to 
 artificial monopoly, deny its application altogether to values 
 which are attributable to the effect of natural monopoly. 
 They do so upon this ground that the value of the first class 
 is caused by human labour or effort or sacrifice, and that the 
 value of the second is due not to man but to nature ; that it 
 is a gift of nature to the whole human race, and that it is 
 therefore a value which cannot be justly appropriated or 
 exchanged by an individual. 
 
 The vital importance of this divergence of opinion between 
 the two schools will become at once apparent, if we recall the 
 nature of the values which fall within the two divisions then 
 created by the English school. In the first will be found all 
 those which are governed by what is popularly called " cost
 
 268 FREE EXCHANGE. 
 
 of production," in the second all those which are governed by 
 demand and supply. 
 
 But there is a third class of value which consists of com- 
 modities which, although susceptible of practically indefinite 
 multiplication, cannot be produced in increasing quantities 
 at a uniform cost. The law of value, according to Mill, in 
 the case of those commodities, is the cost of production of 
 that portion of the supply which is obtained at the greatest 
 cost, and which, by reason of what Jevons calls the law of 
 indifference, must govern the value of the whole. 
 
 We have thus three categories which comprehend all that 
 can be made the subject of property or exchange. 
 
 1. Those commodities the value of which is governed by 
 " cost of production." 
 
 2. Those commodities the value of which is governed by 
 the cost of production of the most costly portion. 
 
 3. Those commodities which are governed by demand 
 and supply. 
 
 According to the Free Trade school the values which are 
 called into existence in each and all of these three classes are 
 derived from the same source, human service, and are proper 
 subjects of private property and free exchange. 
 
 According to the English school, those only of the first 
 class, and of that portion of the second class the value of 
 which is governed by "cost of production," can justly be 
 either appropriated or exchanged, except by the community 
 as a whole, in the name of the whole human race. 
 
 It is important to form a clear conception of the limita- 
 tions which this latter doctrine places on the operation of 
 Free Trade. It will be strictly confined to the sphere within 
 which it is possible to create artificial monopolies. Wherever 
 a natural monopoly exists, wherever any part of the value 
 possessed by any commodity is the result of a natural mono- 
 poly, such additional value is, according to the view of the 
 English school, an illegitimate subject of private appropria- 
 tion, and therefore of Free Exchange. It is what Mr. Mill 
 calls "an unearned increment;" it is something which no man 
 has made, which was intended as the inheritance of the whole
 
 VALUE. 269 
 
 human race, which whoever appropriates keeps others out 
 of its possession. 
 
 What, then, in this view is left to the operation of the law 
 of Free Exchange ? 
 
 In the first place, all foreign trade (and yet it is precisely 
 in connection with foreign trade that Free Trade is advo- 
 cated) must, in Mill's own showing, be excluded. In the 
 chapters on International Trade, in his " Principles," it is 
 clearly admitted that all values which are the subject of 
 international exchange are determined not by cost of pro- 
 duction, but by demand and supply, into which the element 
 of value due to natural monopoly constantly and largely 
 enters. 
 
 This opinion Mr. Bagehot shares. In his essay on Cost 
 of Production, on p. 184 of the "Economic Studies," he 
 confines its operation to " articles which human industry can 
 indefinitely multiply for the hope of profit and within a nation 
 in an economical sense^ i.e. a group of producers between 
 whom labour and capital freely circulate." 
 
 He then goes on to explain more fully what is a nation 
 in an economic sense, and proves conclusively that it often 
 means a single district such as Birmingham, owing to the 
 length of time required to bring together the different kinds 
 of skill in their proper proportions suitable for particular 
 trades. A new place, he says, cannot have this combina- 
 tion for a long time, and an old place for a long time will 
 be superior in this cardinal advantage. This is a conserva- 
 tive force ; but, on the other hand, motive power, wind, water, 
 coal, is an element of cost, which tends to make trade move 
 from one place to another. 
 
 But it is equally an element which gives one place a 
 partial monopoly, and causes " the unearned increment." It 
 equally interferes with and frustrates the so-called law of 
 cost of production. 
 
 He goes on to show that in facilities for obtaining the raw 
 material of industry, for borrowing capital, and advertising, 
 certain places have special advantages in other words, mo- 
 nopolies which still further limit the operation of the law of
 
 270 FREE EXCHANGE. 
 
 free competition, and render the law of cost of production 
 (if it be a law at all) little more than an abstraction. 
 
 If these limitations on what is called the law of cost are 
 admitted even by those who are the chosen representatives 
 of the English school, what becomes of a system of Free 
 Exchange which is confined to that of those commodities 
 which are covered by its operation ? Manifestly there is no 
 longer any ground for considering Free Trade, any more 
 than the law of cost, as anything but an abstraction. 
 
 And yet to show that Mr. Bagehot has in no way over- 
 stated the extreme narrowness of the area within which cost 
 of production or unlimited competition can possibly operate, 
 let us hear the view of another of the latest and most emi- 
 nent writers of the English school. Professor Cairnes, in his 
 work on "Some Leading Principles of Political Economy," 
 examines at much length the received theory of the law of 
 cost, and points out with much ingenuity the defective 
 nature of JVtill's statement of the doctrine. He urges with 
 abundant reason that "there are not within the range of 
 economic speculation two ideas more profoundly opposed 
 than those of cost and the reward of cost the sacrifice in- 
 curred by man in productive industry, and the return made 
 by nature to man upon that sacrifice ; that all industrial 
 progress consists in altering the proportion between these 
 two things in increasing the remuneration in' proportion to 
 the cost, and diminishing the cost in relation to the remune- 
 ration. Cost and remuneration are thus economic antitheses 
 to each other, so completely so that a small cost and a large 
 remuneration are exactly equivalent expressions " (" Leading 
 Principles," p. 49). 
 
 Having established, I think, this proposition with un- 
 answerable cogency, Professor Cairnes proceeds to reconstruct, 
 after his own fashion, the doctrine of the law of cost, which 
 in the received form he has thus completely demolished, but 
 in doing so he makes admissions which entirely confirm 
 Mr. Bagehot's views. 
 
 He says (p. 72), "What has appeared is a tendency in 
 commodities to exchange in proportion to their costs of pro-
 
 VALUE. 271 
 
 duction, only so far as there exists free competition among their 
 producers ; the exchange, therefore, would only take place in 
 proportion to cost, within the limits of the field of free 
 competition, and a commodity produced within this field, 
 but exchanged against one produced from beyond it, would 
 not in such case exchange in proportion to cost of production. 
 ... In order that this should happen, effective competition 
 should be established among producers over the whole field 
 of industry a condition which I need hardly say is very far 
 yet from being anywhere fulfilled. The true conception of 
 the law of cost is, then, not of a law governing universally 
 the values of any class of commodities, but that of one 
 governing the values of certain commodities in certain ex- 
 changes ; " that is to say, according to Professor Cairnes, in 
 exchanges between producers in the same competing groups 
 a conclusion identical with that of Mr. Bagehot.
 
 272 FREE EXCHANGE. 
 
 CHAPTER III. 
 
 NATURAL MONOPOLIES. 
 
 WITHOUT having recourse to Mill's Jacobinical de- 
 clamation (quoted by Cairnes with the rapt admira- 
 tion of a fervent disciple)^ the case against landed 
 property may be stated very clearly and simply. 
 It is this that the cost of the products of the soil, 
 owing to the progressive appeal to inferior qualities, 
 will always command a price determined by their 
 maximum cost of production ; i.e. that the price, for 
 instance, of corn will be that of the corn produced at 
 the highest cost ; whereas, owing to the effect of what 
 is assumed to be unlimited competition, the price of 
 all, or almost all, other commodities, such as manu- 
 factures, will be determined by the minimum cost of 
 production. In the case of land, therefore, the pro- 
 prietors of the soils which render at a cost less than 
 the maximum will gain the difference. To them the 
 return will not be determined by cost of production, 
 and this difference is the unearned increment. 
 
 The last chapter will have shown how much 
 foundation there is in the facts of value for these 
 distinctions. In the view of the Free Trade school, 
 monopoly is inevitable wherever exchange value arises ;
 
 NATURAL MONOPOLIES. 273 
 
 it enters alike into capital, wages, and rent ; and the 
 differences between rent and other kinds of value, 
 which the Ricardian school treated in such a manner 
 as to convey the impression that they constituted 
 differences in principle and in kind, are really merely 
 differences in degree, accidental or temporary, and not 
 such as to afford a foundation for special and ex- 
 ceptional legislation. 
 
 " There are some things," says Mill, " which, if 
 allowed to be articles of commerce at all, cannot be 
 prevented from being monopolized articles. . . . Now, 
 land is one of these natural monopolies." 
 
 It is very important, in view of the consequences 
 drawn from this fact, to determine in what sense the 
 term "natural monopoly" can properly be used, and 
 to show that the two positions taken by Mill and 
 Cairnes, viz. that land is both limited and common 
 to all, are inconsistent. 
 
 Bastiat observes (" Harmonies," p. 180), " Les per- 
 sonnes qui assimilent le monopole artificiel et ce qu'elles 
 appellent le monopole naturel parceque 1'un et 1'autre 
 ont cela de commun qu'ils accroissent la valeur du 
 travail, ces personnes, dis-je, sont bien aveugles et bien 
 superficielles." 
 
 I would add what appears to me to be the comple- 
 ment of this remark. Those who assimilate natural 
 monopolies (gifts of nature limited in quantity) to 
 those gifts of nature which are common to all man- 
 kind (if, indeed, there are any which are at all 
 times common) because they have this in common, 
 
 T
 
 274 FREE EXCHANGE, 
 
 that they are gifts of nature, are very blind and 
 superficial. 
 
 The first are not gratuitous in the sense in which 
 the second are, and the confusion which Cairnes and 
 Mill have fallen into on this subject has arisen from 
 the use of the word " gratuitous " to convey two 
 different meanings. It is nothing more than a verbal 
 quibble. 
 
 Gifts of nature limited in quantity cannot in the 
 nature of things be gratuitous to everybody. They 
 may be gratuitous to a certain number ; * but this is a 
 
 * A. on the sea-shore picks up a diamond, which he sells to B. for a large sum 
 of money. Bastiat says that the diamond is a gratuitous gift of nature, and is 
 gratuitous (for nature exacts nothing in return), the value in exchange being 
 derived not from nature, but from the human service rendered by A. to B, in 
 sparing him the trouble of finding the diamond, which it would have cost him 
 more to do. Cairnes says that the diamond is gratuitous to A. but not to B., and 
 that A. has no right to a value derived from a gratuitous gift of nature. 
 
 Both these views proceed from the mistaken notion that value can proceed from 
 anything but the combined though opposing elements of utility and difficulty of 
 attainment, and from the equally mistaken notion that anything which has both 
 of these qualities and thus has value can ever be gratuitous. Nothing can be 
 gratuitous or common to all for the purposes of common service of which the 
 supply does not exceed all possible demands, and in regard to which there can be 
 no difficulty of attainment or cost. Because a particular diamond is obtained 
 gratuitously by a particular man, to speak of it as a gratuitous gift of nature to 
 the whole human race is an abuse of language ; the question is not whether this 
 particular diamond is a gratuitous gift, but whether diamonds are gratuitous. It 
 might as well be said that if A. found a banknote in the street for which he could 
 not find an owner, that it was a gratuitous gift which ought not to be allowed to 
 acquire value in exchange. 
 
 It may, of course, be possible that a particular man may by a fortunate 
 accident acquire a diamond, and that to him it may be called a gratuitous gift ; 
 but the value of the diamond is determined in no sense by the effort of this 
 acquisition, but by the condition of demand and supply with respect to diamonds 
 in general. No one could be injured by paying this fortunate person the price 
 which it would cost to procure a similar diamond, and to attempt to eliminate 
 altogether the element of chance, or luck, or fortune, from human life is as futile 
 as it is unreasonable. 
 
 It is also necessary to guard against as grave an error, viz. the notion of 
 intrinsic value in anything. The diamond might be gratuitously acquired by A., 
 
 -t-t^ st*-* *
 
 NATURAL MONOPOLIES. 275 
 
 law of nature, not a social fact. It injures no one, 
 and nobody would benefit by the non-existence of 
 these gifts. The attempt to make them gratuitous by 
 making them common property (as Mill does in 
 dealing with the unearned increment) is a foolish and 
 delusive enterprise, which can only end by making 
 them valueless. 
 
 If, then, these are not gratuitous, in the sense of 
 being common, they constitute values, and values 
 constitute, or ought to constitute, property. 
 
 " Toute propriete est une valeur. Toute valeur 
 est une propriete ; ce qui n'a pas de valeur est gratuit. 
 Ce qui est gratuit est commun ; " because exchange is 
 an attribute of property. A man cannot exchange 
 what he does not possess. Nothing can therefore 
 have value in exchange which is not property. There 
 can be no property or value in that which is gra- 
 tuitous. Nothing can be gratuitous which possesses 
 both the necessary conditions of value, Utility and 
 Difficulty of Attainment. Therefore, so-called "gifts 
 of nature" which are both useful and limited in 
 extent can never be gratuitous at all. 
 
 But not only such gifts of nature. Nothing (i.e. 
 no " utility ") of which the supply is limited can ever 
 be gratuitous to the whole race. If all property is a 
 value, and that which is not a value is gratuitous, 
 and that which is gratuitous is common, that which 
 has a value cannot be common. If all property is 
 
 but it might also be absolutely worthless if he did not desire it, and he could not 
 exchange it for something else. It might in that case have no exchange value 
 whatever.
 
 276 FREE EXCHANGE. 
 
 monopoly, and also a value, all that has value must 
 be a monopoly ; ergo, land, if, as Mill says, it has 
 exchange value, cannot be common to all, or a gratui- 
 tous gift of nature to the whole human race. 
 
 Natural monopolies (or advantages, as they should 
 rather be called) can only be made more available to 
 society by increasing their supply. This can only be 
 done by recognizing them as values, i.e. as property. 
 It is only by passing through the stage of values that 
 they can become utilities. To make them common 
 by arbitrary and artificial methods, such as their 
 nationalization, is simply to destroy their value, and 
 thereby strike at the root of the motives, which are per- 
 petually operating to discover and utilize them. The 
 first course in benefiting the individual tends gradually 
 but surely to extend the benefits of gifts to the com- 
 munity at large in more or less degree ; the second 
 can only end in sacrificing the interests of both. 
 
 " Le monopole artificial est une spoliation veritable. II 
 produit des maux qui n'existeraient pas sans lui. II inflige 
 des privations a une portion considerable de la societ6, souvent 
 a 1'^gard des objets les plus necessaires. 
 
 " Les avantages naturels ne font aucun mal a I'humanit6. 
 Tout au plus pourrait on dire qu'ils constatent un mal pre- 
 existant et qui ne leur est point imputable. II est facheux 
 peut-etre que le tokay ne soit pas aussi abondant et a aussi 
 has prix que la piquette. Mais ce n'est pas la un fait social. 
 II nous a iii impose par la nature. II y a done entre 1'avan- 
 tage naturel et le monopole artificiel cette difference profonde: 
 1'un est la consequence d'une raret pre"-existant inevitable ; 
 1'autre est la cause d'une rarete factice, centre nature." 
 
 " Dans le premier cas ce n'est pas 1'absence de concurrence
 
 NATURAL MONOPOLIES. 277 
 
 qui fait la rarete", c'est la rarete" qui explique 1'absence de 
 concurrence. L'humanite serait puerile si elle se tourmentait 
 se reVolutionnait, parcequ'il n'y a dans le monde qu'une 
 Jenny Lind, un Clos Vougeot et un Regent. 
 
 "Dans le second cas c'est tout le contraire. Ce n'est pas 
 a cause d'une rarete providentielle que la concurrence est 
 impossible, mais c'est parceque la force a e"touffe la con- 
 currence qu'il s'est produit parmi les hommes une raret6 qui 
 ne devait pas etre." 
 
 If a natural monopoly is disallowed, the only effect 
 must be to create an artificial monopoly. 
 
 What are the grounds of abstract principle and 
 social justice on which Mr. Mill rests his claim on 
 behalf of the State ? These are stated with much 
 emphasis in an essay on " The Right of Property 
 in Land," published in his " Dissertations and Dis- 
 cussions " (vol. iv. p. 288).* He says 
 
 " Rights of property are of several kinds. There is the 
 
 * It will be seen from the following quotations (from " Dissertations and 
 Discussions," vol. iv.), which complete Mill's case against private property in 
 land, that the reasons he gives are inconsistent, as well as being contrary to the 
 facts as to the causes of value in exchange : 
 
 ''The land is the original inheritance of all mankind" (p. 243). "While 
 leaving the owner the full enjoyment of whatever value he adds to the land by his 
 own exertions and expenditure," there is no reason for "allowing him to appro- 
 priate an increase of value to which he has contributed nothing, but which accrues 
 to him from the'general growth of society ; that is to say, not from his own labour 
 or expenditure, but from that of other people of the community at large " (p. 244). 
 
 By the proposals of the Land Tenure Reform Association " the increase of 
 wealth which now flows into the coffers of private persons from the mere progress 
 of society, and not from their own merits or sacrifices, will be gradually and in an 
 increasing proportion diverted from them to the nation as a whole, from whose 
 collective exertions and sacrifices it really proceeds" (p. 244). 
 
 " Land and by land I mean the whole material of the earth, underground as 
 well as above not having been made by man, but being the gift of nature to the 
 whole human race " (p. 255). 
 
 "The land is not of man's creation ; and for a person to appropriate to himself 
 a mere gift of nature, not made to him in particular, but which belonged as much 
 to all others till he took possession of it, is, primd facie, an injustice to all the 
 rest " (p. 289). ED.
 
 278 FREE EXCHANGE. 
 
 property which a person has in things that he himself has 
 made ... in what one has received as a recompense for 
 making something for somebody else, or for doing any service 
 to somebody else, among which services must be reckoned 
 that of lending to him what one has made or honestly come 
 by. There is property in what has been freely given to one 
 ... by the person who made or honestly came by it. ... All 
 these are rights to things which are the produce of labour, etc. 
 
 " But there is another kind of property which does not 
 come under any of these descriptions, nor depend upon this 
 principle. This is the ownership which persons are allowed 
 to exercise over things not made by themselves, nor made at 
 all. Such is property in land. . . . The land is not of man's 
 creation ; and for a person to appropriate to himself a mere 
 gift of nature, not made to him in particular, but which belonged 
 as much to all others until he took possession of it, is, prima 
 facie, an injustice to all the rest." And further, "to make 
 such an institution just, it must be shown to be conducive to 
 the general interest, in which this disinherited portion of the 
 community has its part" 
 
 He then proceeds to argue that the institution 
 cannot be shown to be conducive to the general 
 interest, and passes sentence accordingly. 
 
 These remarks of Mr. Mill really go to the root of 
 the whole difference between the so-called English 
 school of economists (Ricardo and Mill) and the 
 Free Trade school represented by Bastiat, Macleod, 
 etc. They deserve, therefore, very careful examination. 
 
 It is enough, as a practical answer, to say that 
 those who defend private property in land are quite 
 willing to rest their case on the social expediency of 
 the institution. They fully accept the challenge that 
 it must be shown to be conducive to the general
 
 NATURAL MONOPOLIES. 279 
 
 interest, and they assert, in opposition to Mill, that it 
 is so conducive in the highest possible degree. I 
 shall endeavour to show this in the following chapter. 
 
 But although, for practical purposes, this argument 
 appears sufficient in reply to Mr. Mill's, it is necessary 
 to point out that he is quite as wrong on points of 
 theory and principles as on those of social expediency. 
 To many minds, and mine is among them, there is 
 something peculiarly repugnant in any conclusion which 
 fails to satisfy the requirements of sound theory as 
 well as of policy. 
 
 The fundamental error which pervades and vitiates 
 all Mr, Mill's speculations on this subject, is his con- 
 ception of the law of value. The fatal mistake of 
 making labour the cause of value crops up here again. 
 In the passage already quoted, he says, " All these 
 are rights to things which are the produce of labour" 
 evidently implying that it is because they are the pro- 
 duce of labour that they are proper subjects of property. 
 But it cannot be proclaimed too loudly that labour 
 neither causes nor determines value. That it does not 
 cause value hardly requires stating, and the sense in 
 which it alone could have been supposed to determine 
 value is so limited and so much of an abstraction, that 
 the hold which the doctrine has obtained on the minds 
 of eminent economists is surprising.* 
 
 * The truth appears to me to be this that in the case of all commodities there 
 is a constant tendency of value to cost of production ; this is the result of competi- 
 tion, which for ever tracks and undermines, if it cannot always destroy, monopolies. 
 In certain cases where competition operates without restraint, the value of com- 
 modities will therefore coincide with their cost pf production, or may be said, in 
 popular parlance, to be determined by it ; but this is really not the case. Cost
 
 28o 
 
 FREE EXCHANGE. 
 
 The practical result of the notion that "cost of 
 production " regulates or is the law of value in the 
 case of all commodities which, as it is said, human 
 industry can indefinitely multiply, and on which com- 
 petition operates without restraint (whatever these 
 may be), while " supply and demand " is the law of 
 value in the case of all commodities which are in any 
 degree the subject of monopoly, has been a fatal 
 stumbling-block in the progress of the science, and is 
 obviously the cause of the distinction made by Mill 
 between property in the produce of labour, and pro- 
 perty in that " which no man has made." When 
 once the idea that value is due to labour has taken 
 possession of the mind, it is difficult to avoid the feel- 
 ing that property which is due to causes independent 
 of the action of the proprietor, or at all events incom- 
 mensurate with it, is illegitimate ; and yet nothing can 
 be more false. It is clear that two men may devote 
 exactly the same amount of labour to the production of 
 a commodity, and that, from causes altogether beyond 
 their control, the result may be in the case of the firsT 
 of the greatest value, and in that of the second worth- 
 less. It is the demand (the consumer) who causes 
 the value, and in all social arrangements, in all legisla- 
 tion, it is to the consumer that exclusive regard should 
 
 of production is itself eternally fluctuating, according to the fluctuations in the 
 ratio of supply and demand. Indeed, what is cost of production except an 
 element of supply ? A diminished cost means an increased supply. 
 
 It may be said that if, after all, it is a question of logomachy, there cannot be 
 a very essential difference between the two principles ; but this is a mistake. It 
 is the idea that commodities are governed by different laws of value which has 
 led Mill and the Socialists to attack private property in land.
 
 NATURAL MONOPOLIES. 281 
 
 be had. The interest of the consumer is always that 
 of the community at large, and the only proper mean- 
 ing of the term " right of property " is the right to 
 whatever it is in the interest of society to recognize as 
 property. If by any scheme of socialism the general 
 welfare of the community could be raised to a higher 
 level than by the institution of private property and 
 free exchange, no one would have the right to claim 
 for his own advantage the benefit of those institutions, 
 for no one can have a right to injure his fellow- 
 creatures. But it is because the Free Trade school 
 believes that private property and free exchange are 
 infinitely more favourable to the general interest than 
 any system of collective property which has ever been 
 proposed, that they insist upon their recognition. 
 
 Contrary to Mr. Mill and to all other socialist 
 writers, " Manchesterthum " asserts that the distinc- 
 tion which he attempts to draw between right of 
 property in the produce of labour and right of pro- 
 perty in land, is false ; that it reposes upon the 
 erroneous idea that value is due to labour and to the 
 co-operation of nature ; that it is in the interest of 
 society that all values should be the subject of private 
 property those values which are under the control of 
 competition (as even Mill allows), and still more, not 
 less, than those which are the result to any degree of 
 natural monopoly ; for this very sufficient reason, that 
 a natural monopoly is the result of scarcity, and that 
 where supply is limited, it is necessary strictly to 
 limit the demand ; that this can best be done, and
 
 282 FREE EXCHANGE. 
 
 only be done effectually, by vesting their property in 
 individuals, who act as " forestallers and regrators," 
 and thereby perform to society an invaluable service.* 
 
 Let us observe the process by which the free 
 exchange of values and the law of competition operate 
 for the benefit of society. 
 
 Political Economy deals with man in a social state. 
 It is concerned to show by what arrangements com- 
 munities may secure the conditions most favourable 
 to the largest production and the best distribution of 
 wealth. Exchange is the main source of wealth ; with- 
 out it, it is clear that each person would only produce 
 what was necessary for his own wants ; there would 
 be no division of labour, no production on a large 
 scale, and no advance for society beyond the earliest 
 stage of civilization. But property must precede ex- 
 change hence the necessity of property ; and freedom 
 of exchange is the surest method of giving to it the 
 largest efficiency. Hence the two fundamental prin- 
 ciples of an economical society private property and 
 free exchange. But property in and exchange of 
 what ? Of values ? Value cannot exist without 
 exchange. As Bastiat says, " La valeur est le rapport 
 entre deux services ^changes." It may, indeed, be 
 said that the idea of value would exist in the mind of 
 Robinson Crusoe if he compared the results of his 
 labours with his desires ; but this is really a potential 
 exchange, an exchange in germ, and falls still within 
 Bastiat's definition. 
 
 * This point is worked out in the next chapter.
 
 NATURAL MONOPOLIES. 283 
 
 Man, then, in a social state, is incessantly occupied 
 in creating and discovering values for the purpose of 
 exchange. If these values are not recognized as 
 property they cannot be exchanged, and will certainly, 
 therefore, not be created. In order to stimulate to the 
 utmost the production of wealth (which is the general 
 name for values) it is essential that values, when 
 created, should be recognized as property, and made 
 freely exchangeable. Yes, says Mill, but there are 
 two kinds of value and of property ; property in 
 that which a man himself has made, and property in 
 that which no man has made. Is it desirable, i.e. 
 would it promote the production or distribution of 
 wealth, that the first kind alone should be recognized ? 
 Shall no value be recognized in property, to the crea- 
 tion of which natural forces have contributed ? The 
 answer is that natural forces do not any more than 
 human labour cause value.* 
 
 * Mill and Cairnes, and generally the school of so-called English economy, 
 has made fausse route altogether in their theory of value, and hence all the 
 confusion and error which infects modern speculations on property in land, and 
 threatens to inundate us with all kinds of experiments in the direction of State 
 socialism. Cairnes' extraordinary inability even to understand the essential dif- 
 ference between "labour" and "service," which Bastiat has so unanswerably 
 pointed out, is the best proof of what I say. 
 
 The moment that it is clearly apprehended that property in values of all 1 
 kinds, whether earned or unearned by the producer or possessor, is important 
 to society, not in the interest of the proprietor, but in that of the consumer 
 or public at large, all this " echafaudage " of dangerous folly falls to the 
 ground. 
 
 Nowhere has the law of value been more admirably presented in its true 
 outlines than in the magnificent parable of the labourers in the vineyard. They 
 received every man a penny, those who had worked only one hour and those 
 who had borne the heat and burden of the day. " Take that thine is, and go 
 thy way. Didst thou not agree with me for a penny ? Is thine eye evil, because 
 I am good ? And the first shall be last, and the last first : for many are called, but 
 
 Jfl^W*
 
 284 FREE EXCHANGE. 
 
 The difficulty which has led Mill and others 
 to deny the right of individuals to property in that 
 which they have not created, in what they call the 
 gratuitous gifts of nature, is caused by precisely the 
 same error as that which has led them to attribute 
 value to the results of labour. The value of a com- 
 modity, whether produced by man or nature, is not 
 due to human labour or to nature, but to the fact that 
 its possession satisfies a human want, and that men 
 are ready to give their labour or their property (from 
 whatever source derived) in order to obtain it. It is 
 the service for which they pay, and it is this which 
 causes and determines its value. 
 
 It is remarkable that Mill, with his trained intellect 
 and great capacity, had not sufficient subtlety of in- 
 telligence to perceive this. The question is not, What 
 did it cost the producer ? but, What is the article worth 
 to the consumer ? The question is not what it costs 
 you, but what labour it saves me. You say that part 
 of the value is caused by a gratuitous gift of nature 
 which an individual has no right to appropriate. Can 
 any arrangement be made by human law by which this 
 surplus value, this unearned increment, can be trans- 
 ferred from the individual to the public with any 
 advantage to the latter ? * 
 
 few are chosen." It would be well if the modern socialist would lay this divine 
 lesson to heart. 
 
 * This gift of nature, if it is so called, in no way causes the value of the 
 object, whatever it may be (say land of unusual fertility). The cause of its value 
 is that there is so great a demand for its produce, that the price rises to a point 
 which causes rent. It is the demand which causes value, not the fact that the 
 object has been made with or without labour.
 
 NATURAL MONOPOLIES. 285 
 
 If rent be appropriated by the State, will the con- 
 sumer get his food, or his clothing, or his lodging 
 cheaper ? If not if, on the contrary, these things 
 will be less cheap it is mere folly to complain of a 
 state of things which, in benefiting the general public, 
 benefits a particular class especially. If the poor are 
 poor because the rich are rich, there is just ground for 
 reform ; but if the poor would be poorer, if the rich 
 were not rich (which is the truth), no one except those 
 who are animated by a fanatical and unreasoning 
 passion for equality can desire to encroach upon a 
 fund which, in making the few rich, indirectly improves 
 the lot of all. 
 
 Mill and Cairnes, misled by their totally false con- 
 ception of " value," persist in speaking of natural 
 forces, gifts of nature if you like, which are local and 
 limited, as gratuitous ; Cairnes even goes so far as to 
 express surprise with the utmost nawetd that Bastiat 
 was unable to conceive a gift of nature limited in 
 extent and at the same time gratuitous. Bastiat was 
 far too good an economist not to see that a gift of 
 nature limited in extent might possess value,* and that 
 whatever possesses value cannot be gratuitous. _ 
 
 To call it so because it is gratuitous to the indivi- 
 - *- 1 i <-> 
 
 dual is a mere quibble. Nothing can make it gratui- 
 tous to_tlie__c^imniunity at large unless the supply be 
 unlimited, which is contrary to the supposition. The 
 
 * Although such value would not be caused either by the fact of its being a 
 gift of nature or by its being limited in extent. It might be both, and yet, if 
 there were no demand, or an insufficient demand, be worthless.
 
 286 FREE EXCHANGE. 
 
 only question is, Shall this value belong to the in- 
 dividual or to the State ? Bastiat contended, with a 
 logic which Mill and Cairnes would have done better to 
 imitate than to neglect, that this value would be more 
 useful to the community at large if distributed through 
 the individual than if so distributed by the State, and 
 for this reason, that it would prevent an undue 
 pressure of demand on a supply necessarily limited, 
 by the double process of checking the growth of 
 
 ^^^ i^ ^^MI^^MBW 
 
 population, and at the same time stimulating the dis- 
 covery and creation of new values. Value is opposed 
 to utility. As the sum of utilities increases, the sum 
 of values relatively diminishes. The constant aspira- 
 tion of society is to increase utilities and substitute 
 them for values (steam, electricity, etc., for human 
 labour or horse-power) ; but while this is the goal to 
 which human effort for ever unconsciously tends, and 
 must tend in the nature of things (for it is in obedi- 
 ence to the law that men will always try to satisfy 
 their wants with the least possible effort), it is impor- 
 tant to observe that the effort of every individual 
 is to create values in order to command a larger share 
 of the labour and services of others. Individual effort 
 is thus for ever working in an opposite direction to the 
 universal aspiration of society. The function of the 
 individual as a producer is to create as much value as 
 possible. If it were not so, there could be no sufficient 
 motive for his exertion, and in serving his own 
 immediate interests he promotes the ultimate interest 
 of society.
 
 NATURAL MONOPOLIES. 287 
 
 For, in a system of freedom, the individual is con- 
 stantly tracked in his efforts to create values and 
 benefit himself by the great law of competition, that 
 is, by the efforts of others to rival and share and 
 eclipse his profits. There is thus an unceasing process 
 by which values are reduced or destroyed, neutralizing, 
 in the interests of society, the efforts of the individual 
 to increase and create them in his own. All this process 
 State socialism would arrest and vitiate ; and thus, in 
 stupid impatience and false philanthropy, the beneficial 
 mechanism which controls and overrules in the com- 
 mon interest the isolated actions of the individual, is 
 thrown out of gear and paralyzed. 
 
 Professor Jevons has observed (preface, p. 55) that 
 capital, fixed and free, as well as wages, are under 
 the same law as rent. The element of natural 
 monopoly enters into both. 
 
 Much of the confusion which has attended this 
 subject has arisen from the peculiar form which the 
 present arrangement of landed property between 
 landlord, tenant, and labourer in England has taken. 
 Rent, in the sense in which the term is represented to 
 our minds, would not exist at all if every man 
 cultivated his own land. In such a case it is evident 
 that the portion of the produce which now constitutes 
 rent would be simply a part of the profits, and it 
 would be more difficult than ever to separate that 
 portion which could be considered as unearned incre- 
 ment. Yet the real net profit derived from land would 
 be precisely the same as at present. The relation of
 
 288 FREE EXCHANGE. 
 
 landlord and tenant would give place to a kind of 
 partnership, a sleeping and a managing partner, or 
 partners would probably divide the profits between 
 them in any proportion agreed upon, in precisely the 
 same way as is now done constantly in commercial 
 and manufacturing undertakings. In these last it 
 constantly happens that the man who has founded the 
 enterprise (corresponding with the man who first takes 
 up and settles on the land), when he discovers that the 
 profits are sufficient to yield more than he wants, 
 hands over to a partner or manager a certain share, 
 retaining only that portion which is due to the capital 
 which he leaves in the concern. If the partner have 
 no capital, he will of course have a smaller share in 
 the profits. In this case he would perhaps be rather 
 in the position of a paid manager, corresponding 
 with the bailiff or land agent in agriculture ; but if 
 he were a capitalist, as in the case of a tenant farmer, 
 he would get his share of profits upon his capital in 
 addition to whatever was necessary to remunerate his 
 labours of direction. The original founder, become 
 at last merely a ^sleeping partner, neither toils nor 
 spins, but draws a revenue from the joint property 
 precisely as the landlord draws a revenue from the soil. 
 I entertain much doubt whether if the land had 
 been divided in England as it is in France, and the 
 bulk of the proprietors had been themselves the 
 cultivators, we should ever have heard of the theory 
 of the " unearned increment ; " and yet it would have 
 existed quite as much in one case as in another, so
 
 NATURAL MONOPOLIES. 289 
 
 long as the produce of each property was greater than 
 the cost of its production. 
 
 When pressed home the arguments of Mill come 
 to this, that whenever the exchange value of any 
 article, or of anything which constitutes property, 
 exceeds its cost of production (including the market 
 rates of interest and profit), the excess value is " un- 
 earned increment." 
 
 "Economic rent," called by Mill "unearned 
 increment," is in fact nothing more nor less than the 
 monopoly profit derived either from land, capital, or 
 labour, over and above the present market rate of 
 profit. This is what the French call the " plus-value." 
 The distribution of the aggregate returns to any 
 employment -of labour and capital in short, to any 
 agency of man will take place according to the 
 conditions of demand and supply between these three 
 elements, or component parts of the return to their 
 joint operation, and will be determined in exchange of 
 each against the other. 
 
 This value will depend on the conditions of the 
 demand and supply of each. If land is abundant rela- 
 tively to the other two, rent will be low, profits and wages 
 high ; if capital is relatively abundant, profits will be 
 low, and rent and labour dear ; if labour is relatively 
 abundant, wages will be low, and rent and profits high. 
 
 There is nothing in this monopoly profit, when 
 derived from land, which differs from similar profits 
 derived from capital and labour applied to any other 
 purpose than the utilization of land. 
 
 u
 
 2jo FREE EXCHANGE. 
 
 Let us take the other two great Ricardian divisions 
 of industry with which the landlord shares the produce 
 of the soil, represented by the capitalist (the farmer) 
 and the labourer. The two first, the landlord and the 
 farmer, bring their capital into the concern ; the first is 
 the sleeping, and the second is the managing partner. 
 The produce is divided between them after paying 
 wages, in whatever proportion they agree upon ; and if 
 the landlord is allowed to appropriate too large a 
 share of the "unearned increment," it is the farmer's 
 fault. The latter calculates that he will be able to get 
 the market rate of interest, and profit from his capital ; 
 the former, the market rate of interest. If from any 
 causes the value of the produce is increased so as to 
 pay more than enough to provide this, the additional 
 value will go to the tenant during his lease and to the 
 landlord afterwards. This potential value is probably 
 taken into account both by landlord and tenant in 
 making their bargain. And the advantage will pro- 
 bably lie either with one or the other, according to 
 the conditions of the land-market at the time, i.e. 
 whether there are more landlords seeking farmers than 
 farmers seeking landlords, or vice versa. As regards 
 unearned increment, therefore, landlord and farmer 
 seem to be on the same footing. 
 
 Is the case different with the labourer ? It may 
 be said that the " loi d'airain " of Lassalle will always 
 prevent him from obtaining more than the means of 
 subsistence. But is this true ? Are there not causes 
 always in the long run operating on the labour market,
 
 i*ST" 
 
 NATURAL MONOPOLIES. 291 
 
 equally independent of human control, which tend to 
 raise as well as depress the price of labour ; and without 
 indulging in hypothesis removed from actual facts, 
 have we not seen that .price .increased by .money jjp 
 ger cent, in our time in England, by the movement 
 of the agricultural population towards the great cities, 
 and the comparative scarcity of hands in agricultural 
 districts ? What is this but the unearned increment ? 
 Is it due in any sense to the exertion, or foresight, or 
 abstinence of the labourer, and not to the general 
 progress of the community to which he belongs, quite 
 as much as the " unearned increment " of the landlord 
 or the tenant ? 
 
 So much for the " unearned increment " as between 
 the three recipients of the produce of the soil. How 
 far does it exist in non-agricultural values ? 
 
 As regards these, it is evident that certain 
 countries and certain localities, partly from natural 
 advantages and partly from propinquity to markets, 
 possess a partial monopoly. The pressure of demand 
 upon supply raises the price of the articles which they 
 produce to a point which leaves a margin varying in 
 degree (as in the case of land) between the smallest 
 price and the cost of production in the favoured 
 localities. There can only be one price in the same 
 market, and this surplus profit is quite as much 
 " unearned increment " as rent. 
 
 A final example will perhaps confirm the conclusion 
 at which we have arrived, that as an abstract question 
 the contention of Mr. Mill, Mr. Cairnes, Mr. George,
 
 292 FREE EXCHANGE. 
 
 and others that there is a distinction between land, for 
 example, and the products of man's labour, has no 
 foundation. 
 
 A man may possess 100,000 acres of land in 
 uninhabited country, but it will possess no value 
 whatever. 
 
 Madame Patti receives ^100 for singing a single 
 night at a private concert, but if there was no one to 
 attend the concert her voice would possess no value 
 whatever. 
 
 But the distinction between the two cases is said 
 to be that the first is the possession of an external 
 gift of nature, to which one man has as good a right as 
 another ; while the second is a personal possession, 
 which, if not allowed as property to Madame Patti, 
 cannot be acquired by any one else. 
 
 But the answer in both cases is the same. Society 
 owes nothing to the proprietor of the acres or to 
 Madame Patti irrespective of the services they render. 
 If the right of property is denied both, the first will 
 not occupy the land and Madame Patti will decline to 
 sing. The question, therefore, becomes, Is it in the 
 interest of society that the land should be occupied, 
 and that Madame Patti should be induced to sing ? 
 If it is, the further question arises, whether the 
 interests of society will be promoted by allowing 
 property in both the land and the voice. 
 
 To this second question, Mr. Mill, and those who 
 think with him, answer unhesitatingly, " No," in the 
 case of land ; " Yes," in the case of Madame Patti.
 
 NATURAL MONOPOLIES. 293 
 
 But I have now come back to the question whether 
 the institution of private property in land can be 
 shown to be conducive to the general interest. This 
 I purpose to consider in the following chapter.
 
 294 FREE EXCHANGE. 
 
 APPENDIX. 
 
 MR. HERBERT SPENCER ON PROPERTY IN LAND. 
 
 " BUT there is no reason to suspect that while private pos- 
 session of things produced by labour will grow even more 
 definite and sacred than at present, the inhabited area which 
 cannot be produced by labour will eventually be distinguished 
 as something which may not be privately possessed. 
 
 " As the individual, primitively owner of himself, partially 
 or wholly loses ownership of himself during the militant 
 rfgime, but gradually resumes it as the industrial regime 
 develops ; so, possibly, the comm^k^ial proprietorship of land, 
 partially or wholly merged in the ownership of dominant 
 men during evolution of the militant type, will be resumed 
 as the industrial type becomes fully evolved " (" Political 
 Institutions," ch. xv.). 
 
 It is extraordinary that Mr. Spencer in this passage should 
 have overlooked the essential difference between property in 
 land and property in men. It is no doubt within the com- 
 petence of society to determine what shall be the limits of 
 private property, but the important thing is to ascertain 
 the principles on which those limits are determined. Now 
 whatever principle may be right or wrong (and I suppose 
 that Mr. Spencer would concede that the interests of society 
 generally should be the object to be kept in view), there can 
 be no doubt that the principle which excludes property in 
 human beings is the same as that which includes property 
 in land, viz. the principle that the general interests of society 
 are promoted by freedom. It is unnecessary to say that 
 slavery is inconsistent with freedom ; but it is necessary to 
 insist on what is almost always forgotten by those who
 
 NATURAL MONOPOLIES. 295 
 
 declaim against private property in land, that this also is 
 an essential condition of freedom. Whoever holds the land 
 holds that which, being limited in extent, at least in every 
 particular community, imposes on the possessor the duty and 
 the necessity of restricting an undue pressure on the soil by 
 the increasing wants of the population. If the family is the 
 unit, this is effected by the personal responsibility of the 
 head and by the exercise of parental authority, as regards 
 the cultivating class ; and as regards the consumers of the 
 produce, or the community at large, by a gradual augmen- 
 tation of price and ultimately of rent. When the limits of 
 production have been reached, any additional population 
 must migrate to other lands, or perish, unless they can be 
 supported by charity. If they perish, the responsibility must 
 rest with those who call into life beings for whom there is no 
 means of support, and this is as it should be. 
 
 But the moment the unit is extended so as to include 
 a whole community, this personal responsibility, and with 
 it personal liberty, is destroyed. In a village in a primitive 
 society the evil is scarcely felt the conditions approximate 
 too closely to those of family life ; but in a large community, 
 to vest the property of the soil in the State, i.e. the Govern- 
 ment, centralized and removed from all personal contact with 
 individuals, is to throw' upon it the paramount obligation 
 either to regulate marriages, and, indeed, all sexual inter- 
 course, or to provide food for the people (so long as this 
 can be done) by progressive inroads upon the accumulated 
 capital of the country, or the annual " produit net " by which 
 it is maintained and increased. 
 
 The first course I cannot better describe than in the words 
 of Bastiat : " Ce serait creer le plus faillible, le plus universel, 
 le plus immediat, le plus inquisitorial, le plus insupportable, 
 le plus actuel, le plus intime, et disons fort heureusement, le 
 plus impossible, de tous les despotismes que jamais cervelle 
 de pacha ou de mufti ait pu concevoir." 
 
 The second course could only lead to the gradual pau- 
 perization and ultimate bankruptcy of the country which 
 had the folly to enter upon it.
 
 296 FREE EXCHANGE. 
 
 I have said that in determining the limit of private pro- 
 perty and its corollary free exchange, the general interests 
 of society should be the guide of legislation. I assume 
 further, because I suppose that the proposition will command 
 the assent of Mr. Spencer, that the general interests of society 
 would not be served by a mere increase, however large, 
 of the gross products of labour (although I must own to a 
 suspicion that this notion underlies most of the socialist 
 theories), but by such arrangements as tend to afford the 
 largest possible return to labour, over and above its cost ; in 
 short, that civilization depends on the increase of the net, and 
 not of the gross, products of human industry. 
 
 Applying this principle to the case before us, I believe 
 I may adduce the evidence of a sufficient experience to prove 
 that slavery, in the form of compulsory labour, is less pro- 
 ductive than free labour ; and if this be so, we may conclude, 
 even setting aside all considerations of morality and humanity, 
 that the general interests of society, so far as the productive- 
 ness of industry goes, will be better promoted by free labour, 
 private property in one's self, than by slavery, or private pro- 
 perty in others. And here I must observe that Mr. Spencer 
 appears to have fallen into some confusion of thought. He 
 begins by insisting on what he, in common ^with Mr. Mill 
 and other writers, conceive, to be a radical distinction between 
 property in land and property in the products of labour, and 
 by a very confident statement that " there is reason to suspect 
 that the private possession of things produced by labour will 
 grow even more definite and sacred than at present." He 
 then suggests an analogy between private property in human 
 beings and private property in land, and argues that as the 
 first has been abolished in civilized countries, the second will 
 share the same fate. But private property in human beings 
 has not been abolished ; it is the contrary process which has 
 taken place. The destruction of slavery asserted the right 
 of every man to private property in himself. What it did 
 was to prohibit the right of onejman to property in another. 
 It was simply the restitution of a right of private property 
 from a wrongful to a rightful owner. In order to render
 
 NATURAL MONOPOLIES. 297 
 
 Mr. Spencer's analogy applicable, the destruction of slavery 
 should have taken the form of transferring the right of 
 private ownership of men from individuals to the community, 
 which would indeed not have abolished slavery at all. It 
 was, in short, not the abolition of private ownership of men, 
 but the abolition of all ownership of men Hoy other men, 
 whether collective or private. A falser analogy than that 
 which Mr. Spencer has attempted to establish it is impossible 
 to conceive. 
 
 - 

 
 298 FREE EXCHANGE. 
 
 CHAPTER IV. 
 
 THE UNEARNED INCREMENT. 
 
 IT has been seen that the " unearned increment " is a 
 phrase by which Mill denoted value in exchange 
 derived from the possession of a natural monopoly ; 
 and that both Mill and Cairnes, as well as Mr. Henry 
 George, have endeavoured to draw a broad distinction 
 between land (by which is meant, according to Mill, 
 the " whole material of the earth, underground as well 
 as above ") and " things which are the products of 
 labour." 
 
 The distinction rests on the alleged ground that 
 land is "a thing which no man has made," and which 
 is " the inheritance of all mankind," or " a gift of 
 nature to the whole human race," while the products 
 of labour are the creation of men. 
 
 The fallacious character of this distinction has been 
 shown in preceding chapters, but even if it be admitted 
 for the sake of argument, or if it could be sustained, 
 the objection to the doctrine of the unearned increment 
 would remain the same, and it will now therefore be 
 convenient to confine the arguments strictly within this
 
 THE UNEARNED INCREMENT. 299 
 
 limit, and to deal exclusively with the doctrine in its 
 application to the land.* 
 
 The fallacy, as we have already seen, which lies at 
 the bottom of the theory, is the result of the old con- 
 fusion between value in exchange and value in use, the 
 distinction between which Adam Smith pointed out 
 long ago in the fourth chapter of the first book of the 
 " Wealth of Nations." 
 
 He observes that things which have the greatest 
 value in use have frequently little or no value in 
 exchange, and that things which have the greatest 
 value in exchange have often little or no value in use ; 
 
 * It is needless to remark that there can be no such thing as value (in ex- 
 change) without exchange, and that there can be no exchange without property 
 for men cannot exchange what they have not got. Wherever, therefore, private 
 property and free exchange cease to exist, value disappears, and with it the 
 science of Political Economy as it has been hitherto understood. Mill him- 
 self admitted that "value is the question into which every problem of the science 
 ultimately resolves itself." The Communists find no difficulty in accepting this 
 result, and look to some reorganization of society in which neither property, 
 exchange, nor value would exist, and in which the distribution of commodities 
 would be made by some arbitrary and despotic power among its members, instead 
 of by a self-acting process. Are the followers of Mill, Cairnes, Walker, etc., 
 prepared for this ? And yet I think it can be shown that it is involved in the 
 unearned increment theory. Here is a value, says Mill, which is not due to i 
 man's own exertions, and therefore unearned. But no value is due to any man's I 
 exertions. It is due solely to the presence of two elements in the object utility 
 and difficulty of attainment. All authorities agree in this, and Mill himself 
 admits it. No value, therefore, is earned; and if property is to be disallowed in all 
 unearned value, there can be no property, and no exchange, and no exchange 
 value, and the whole fabric falls at once to the ground. If any part of the value 
 of any commodity is held to be due to a man's exertions, and he is to be entitled 
 to nothing more, the argument of the Communists, that he is entitled to the same 
 reward for his exertions, whatever the exchange value may be, appears unanswer- 
 able. If it is desired to advance a single step in the examination of this problem, 
 we must get rid at once and for ever of the idea suggested by the phrase "un- / 
 earned increment. " That such a misleading and inapplicable phrase should have 
 been invented, or used by Mill, is no doubt both strange and deplorable; but j 
 as he himself avowed that his object was to excite the political passions of his I 
 audiences (see "Dissertations and Discussions," vol. iv. p. 283), it is not surprising ' 
 that he neglected to appeal to their reason.
 
 300 
 
 FREE EXCHANGE. 
 
 
 he should have added, to complete his thought, that 
 these two kinds of value are necessarily in inverse 
 ratio to each other. Mr. Jevons has described them 
 more accurately as total and final utility. 
 
 It requires little reflection to perceive that any- 
 thing, say land, of which the quantity is limited, must 
 become less valuable in use as the demand for it in 
 creases (one hundred acres of land must be more 
 useful to ten men than to one hundred), and it must 
 equally become more valuable in exchange., Divide " 
 the land into ten equal portions among ten men, and 
 leave them to deal with it as they please : it will 
 soon be seen that, as their numbers increase, the idle 
 and improvident will be bought out at ever-increasing 
 prices by the industrious and frugal. Forbid all ex- 
 change, in the vain hope of arresting this inevitable 
 result : still it will be found that each family, as it 
 increases from generation to generation, will have to 
 work harder for the same return until the point has 
 been reached when no additional -labour will enable 
 it to subsist. The exchange value of the land against 
 labour must become greater and greater. 
 
 This is a condition of human life whenever popula- 
 tion increases in a limited area, from which there is no 
 escape and no appeal. It is one of those laws which 
 men must obey, or perish.* 
 
 * Rent, say what we will, is in the nature of a storm-signal, warning a com- 
 munity that demand is pressing on supply, and that, unless either demand is 
 checked or supply increased, the condition of that community must progressively 
 become worse. 
 
 It is sometimes asked, Why, if this be so, is rent always highest in the richest 
 countries and cities ?
 
 THE UNEARNED INCREMENT. 391 
 
 The appropriation of the unearned increment by 
 the community at large would be an attempt to cir- 
 cumvent this inexorable law. It is thought that by 
 preventing private property in land a progressive rise 
 in its exchange value might be arrested as its value 
 in use diminishes. The attempt is futile, but it is also 
 mischievous, for it neutralizes the beneficent process 
 by which an undue pressure of demand upon supply 
 can best be averted. 
 
 The argument in favour of the appropriation by 
 the State of economic rent appears to be this : Land 
 and houses paying ground-rents are, ex hypothesi, 
 limited quantities, and therefore natural monopolies. 
 Is it just or expedient that certain members of a 
 community should be allowed the benefit of such 
 monopolies ? Is not the proper policy that of allow- 
 
 For the same reason that the common necessaries of life are always dearer in \ 
 such countries. . J. 
 
 That country is the richest in which the aggregate of values is largest, and 
 each particular value smallest ; e.g. in which the aggregate value of the wheat or A 
 iron is greatest, and their value per quarter or ton the lowest. | 
 
 Rent may be low from a large supply of land, or from a small demand for it. 
 Two countries may have exactly the same quantity of land of the same quality. 
 In one there may be no rent, in the other high rent. Which will be the richer? 
 Clearly the second ; but why ? Certainly not because rent is high in this respect 
 it will be the poorer but because, owing to the existence of a larger aggregate of 
 other values in the community, the supply of which has increased, while that of 
 land has not, the total wealth of the country is greater, although in respect of land 
 it is poorer. No country can be the richer because land and houses are dear on 
 the contrary, they must pro tanto be poorer ; but whenever land and houses are 
 dear, it is a proof that a country is rich in spite of this drawback, owing to the 
 greater efficiency of labour in the production of other values. An increase of 
 value is a sign of poverty, and increased aggregate of values is a sign of wealth. 
 
 Applying this principle to the case in point will the transfer of economic 
 rent from private proprietors to the community increase the value of land and 
 houses per acre or per house, or will it increase the aggregate values which go 
 to make up the wealth of the community ? There can be no doubt that the effect 
 would be to increase the first and diminish the second.
 
 302 FREE EXCHANGE. 
 
 ing the use of them to private persons on condition 
 of their paying rent to the community, whereby every 
 member of it would participate in the benefit, instead 
 of that benefit being appropriated by a limited number ? 
 
 The answer is this : If the appropriation of eco- 
 nomic rent by the community would be a benefit to 
 it, certainly the latter policy would be wise and right ; 
 but could it be so ? 
 
 An illustration will suggest the answer to be given 
 to this question. 
 
 Let us assume that a ship's crew of a hundred men 
 are cast on an uninhabited island with an area of ten 
 thousand acres. They divide the land between them 
 in equ'al shares, taking a hundred acres each. So far 
 nature's gift of the land has been acquired by no effort 
 beyond the trouble of appropriation, and may perhaps 
 be called gratuitous. Whatever small value it may 
 at that stage possess, probably the condition of the 
 proprietors would be infinitely worse than that of a 
 day labourer in a civilized country. 
 
 We will now suppose that another ship's company 
 ^ of a hundred men was cast upon the island. They will 
 find all the land appropriated, and unless they resort 
 to force, must either work for hire or subsist on charity. 
 We will assume that the first inhabitants are capable 
 of holding their own, and of dealing at their discretion 
 with the problem. How shoul^l they proceed in the 
 interests of the society ? The new-comers would say, 
 with Mill and Cairnes, to the proprietors of the soil, 
 " You have no right to claim a value which you have
 
 THE UNEARNED INCREMENT. 303 
 
 not earned by your own labour. The land of this 
 island is a thing which no man has made, which exists 
 in limited quantity, which was the original inheritance 
 of all mankind, and the appropriation of which 
 keeps others out of its possession. As one man only 
 can cultivate the same plot of land at a time, and you 
 are the first comers, you have a right to whatever 
 repays the actual cost of production ; but if there is 
 any surplus value, any economic rent, this is due not 
 to your labour, but to your appropriation of a natural 
 gift of God to the whole human race, and we demand 
 an equal share as the representatives for the time 
 being of collective humanity." 
 
 The original occupants would reply, " We know 
 and care nothing about abstract rights ; we think that 
 they would not stand the test of a close examination. 
 But we know this we are in possession of a certain 
 property, which we have acquired without either force 
 or fraud, and the conservation of which is indispensable 
 to the progress and civilization of our community. If 
 we admit you to a share in our surplus or net product, 
 without receiving from you any equivalent service in 
 return, not only shall we as a class be so much the 
 poorer, but the fund to which we look, and on which 
 we alone can rely for all that we require beyond a 
 bare subsistence and for accumulating capital, will at 
 once disappear. We and our children shall remain 
 as we began, little better than savages; and if the same 
 principle is applied, as it must be, to all future comers/ 
 whether by increase of population among ourselves or
 
 304 FREE EXCHANGE. 
 
 by fresh immigration, there will never be the slightest 
 hope of our emerging from that condition. If by any 
 services you can render us you can give us an equiva- 
 lent for the share which you demand, and thus add 
 to the total wealth of the community, we are quite 
 ready to exchange services freely with you ; more 
 than this we altogether decline to do. We will sup- 
 port you by charity till the next ship passes our way, 
 and then request you to seek some other place of rest, 
 where your presence may not be incompatible with the 
 well-being of others." 
 
 Who can deny the justice and wisdom of this 
 policy ? To do so would be to condemn the human 
 race to hopeless sterility in all that can be called 
 civilization. Societies of men would be nothing more 
 than aggregations of semi-savages, living always up 
 to the extreme margin of subsistence, and periodically 
 kept within necessary limits by famine and starvation. 
 
 Or take another case as an illustration. The 
 community of a hundred men- whom we have assumed 
 to have become possessors of the island, divide the 
 soil equally between them, each man taking a hundred 
 acres. After a few years fifty of these men, by skill, 
 industry, and frugality, have accumulated capital ; the 
 other fifty, by stupidity, idleness, and improvidence, 
 have been compelled to subsist by mortgaging their 
 land to their more prudent fellow-citizens, who after 
 a time become possessed of it altogether, while the 
 original proprietors, who equally participated in the 
 gratuitous gift of nature, are reduced to the state of
 
 THE UNEARNED INCREMENT. 305 
 
 day labourers, working for wages on the land they 
 previously possessed. 
 
 After a generation or two, their children would 
 present themselves to the descendants of the frugal 
 fifty who had become the proprietors of the whole 
 island, and also, with Mill and Cairnes in their hands, 
 would say, "The land is a thing which no man has 
 made, which exists in limited quantity, which was the 
 original inheritance of the whole race, the appropria- 
 tion of which keeps others out of its possession. To 
 all which it produces in the shape of surplus value 
 beyond the cost of production, to all economic rent, 
 we have the same right as you. We demand our 
 share in the name of the community, as representing 
 for the time collective humanity." 
 
 The landlords would reply, " We deny your right 
 altogether. Your fathers had their equal share of land 
 with us ; they sold it freely to us, receiving in exchange 
 full equivalent. Pay back the sums which they re- 
 ceived, with the accumulated value which the land 
 has acquired from the capital and labour we have 
 spent on it, and then we will discuss the question of 
 right ; but in any case, in the interests of the community, 
 we refuse to adopt a policy which, by absorbing all 
 the net product of the soil, will strike at the root of 
 all progressive civilization." 
 
 Again, who can deny the justice and the wisdom 
 of this rejoinder ? 
 
 Rent is a symptom of scarcity. It is the proof 
 of the limitation of available land. This is an evil, 
 
 X 
 
 Uyow) U- ffo
 
 306 FREE EXCHANGE. 
 
 caused by the pressure of the population on the soil, 
 of demand and supply. It is an unerring sign that 
 the former is in excess of the latter. 
 
 What is Mr. Mill's remedy for this evil of scarcity ? 
 To increase the supply or diminish the demand ? By 
 no means. It is, without adding to the supply, and 
 indeed while impairing the motives which might lead 
 to an increased supply, to increase the demand ; and 
 this remedy is proposed not by a novice or sciolist, 
 but by the most eminent economical authority of his 
 day, and a trained statesman. 
 
 What is rent ? 
 
 Ricardo, and with him substantially Mill, Cairnes, 
 and the school to which they belong, define it thus : 
 " Rent is that portion of the produce of the soil 
 which is paid to the landlord for the use of the 
 original and indestructible powers of the soil. It is 
 often," he says, "confounded with the interest and 
 profit of capital, and is applied to whatever is annually 
 paid by the farmer to the landlord." * 
 
 * This confusion is inevitable so long as one word is used to describe two 
 different things, but it is clear that the word "rent" is just as applicable to the 
 latter source of the landlord's income as to the former. Rent is the hire of land, 
 and in Greek the same word is used for the hire of land and the hire of a chattel. 
 
 The truth is that rent consists of two elements one which is due to the capital 
 expended on the land by the landlord as interest or profit, and the other to its 
 monopoly value. It is this last which Ricardo calls "rent," and which Mr. Mill 
 calls the "unearned increment," and the French economists "le plus value," or 
 "produit net." 
 
 Fontenay ("Revenu Foncier") contends that rent of land is in all cases 
 nothing else than interest and profit, whether this profit be monopoly profit or not. 
 He is so far right, that the same monopoly profit, plus value, or unearned incre- 
 ment, which it has pleased Ricardo to call rent, will be found, on a careful analysis, 
 in almost every other branch of industry and in wages (see Jevons, preface to 
 2nd edit, of "Theory of Political Economy "). 

 
 THE UNEARNED INCREMENT. 
 
 307 
 
 De Ouincey, Ricardo's most ardent disciple, im- 
 proves on Ricardo's definition thus : " Rent is that 
 portion of the produce from the soil (or from any agency 
 of production) which is paid to the landlord for the 
 use of its differential powers, as measured by com- 
 parison with those of similar agencies operating on 
 the same market." * 
 
 It will be seen that in all these statements of the 
 theory the whole question is made to turn upon the 
 existence of differences in the return of capital invested 
 in land, owing either to different qualities of soil, or 
 accessibility to the common market. 
 
 But this, although true as far as it goes, is a very 
 imperfect account of rent. If there were no differ- 
 ences whatever in the soil under cultivation, and if 
 every field was equally accessible to the common 
 market if, in short, the return to capital invested in 
 . the lands were precisely the same in every case rent 
 x i might still rise, as long as available land was limited 
 ; in extent. 
 
 It is the limitation of land, and not its various 
 
 degrees of productiveness, which is the essential con- 
 
 f 
 dition of economic rent. 
 
 Supposing that the area of available land under 
 cultivation is limited in extent, it is obvious that, even 
 if it were all of the same value, rent would arise if, 
 
 * Ricardo would probably say that there will always be some soil which will 
 repay the cost of cultivation, but nothing more ; and this I suppose is true, but 
 this explanation hardly applies, or applies much less to land used for other than 
 .agricultural purposes. Certainly ground values must often arise on building land 
 which are due to the pressure of demand on supply, irrespective of differences in 
 the nature or situation of the land.
 
 308 FREE EXCHANGE. 
 
 owing to its being a natural monopoly, the profit 
 arising from its cultivation exceeded that which could 
 be derived from other employment of capital. If, 
 under the actual conditions of supply and demand, 
 the profit to be derived from every part of the land 
 was 20 per cent, while the market rate of profit in 
 other employment of capital was only 10 per cent., 
 men would pay anything under 10 per cent, extra to 
 the owner of land for the use of it. 
 
 Ricardo's definition of rent, or rather his theory 
 of rent, about which so much has been said, is thus 
 defective and misleading. Rent would arise, or might 
 arise, if there were no graduation of soils (as De 
 Quincey expresses it), no difference in the qualities of 
 soil in the world. It is true that, as those differences 
 usually exist, wherever they do exist, and the worst 
 soil under cultivation pays no rent, rent will always 
 correspond with the differences in the cost of produc- 
 tion on the different soils, i.e. the measure of rent 
 will be the difference between the cost of production 
 (including freight and interest) on the worst soil under 
 cultivation, and that on all superior soils ; but this is a 
 different thing from saying, with De Quincey, that 
 " rent is that portion of the produce of the soil which 
 is paid to the landlord for the use of its differential 
 powers." 
 
 Now, the importance of these definitions is derived 
 from the deductions which are made from them. It is 
 not too much to say that in the unqualified form given 
 them by Ricardo they have been the foundation of all
 
 THE UNEARNED INCREMENT. 309 
 
 the most serious attacks made by the Socialists on ; 
 private property in land. 
 
 For if it be true that rent arises from the progres- 
 sive cultivation of inferior soils, as Ricardo appears to 
 hold, there seems little hope of anything but progres- 
 sive scarcity for the mass of the people (see table, 
 
 P- 3i3). 
 
 De Ouincey puts this very forcibly : 
 
 " The tendencies of a natural law like that of rent, or 
 rather," as he says, "the cause of rent, degraduation of soils" 
 (this, we have seen, is the effect, not the cause of rent) " these 
 tendencies it is always right to expose. . . . But it was not 
 right to keep studiously out of sight that eternal counter- 
 movement which tends by an equivalent agency to redress 
 the disturbed balance. . . . Our own social system seems to 
 harbour within itself the germ of our ruin. Either we must , 
 destroy rent, and that which causes rent, or rent will destroy i 
 us, unless in the one sole cause where this destroying agency 
 can be headed back uniformly as it touches the point oft 
 danger that point where it would enter into combination with 
 evil co-agencies." 
 
 Again 
 
 "And it happens (though certainly with no intentional 
 sanction from so upright a man as David Ricardo) that 
 in no instance has the policy of gloomy disorganizing 
 Jacobinism, fitfully reviving from age to age, received any 
 essential aid from science, excepting in this one painful 
 corollary from Ricardo's triad of chapters on rent, wages, 
 and profits. . . . 
 
 " Here is a man (they argue) not hostile to social institu- 
 tions, not thinking of them in connection with any question 
 of elementary justice, who reveals as a mere sequel, as an 
 
 .
 
 310 FREE EXCHANGE. 
 
 indirect consequence, as a collateral effect of one ordinary 
 arrangement of landed property, that it does and must 
 encroach steadily, by perpetual stages, upon other landed 
 claims through all varieties of kind and of degree. 
 
 " The evil (they allege) is in the nature of an eclipse ; it 
 travels by digits over the face of the planet. A shadow of 
 death steals gradually over the whole disc of what once had 
 offered a luminous field of promise. And that which was meant 
 for the auspicious guarantee of indefinite expansion to human 
 generations, viz. the indefinite expansibility of food and 
 clothing from the land, becomes the main counteraction to 
 these purposes of Providence, and the most injurious monu- 
 ment of social misarrangement The class of landlords, they 
 urge, is the merest realization of a scriptural idea, Unjust men 
 reaping where they have not soivn ! " (De Ouincey, " Logic of 
 Political Economy," pp. 190, 194). 
 
 But it will be observed that the whole of this 
 dismal superstructure of progressive misery and 
 injustice rests upon the assumption that every succes- 
 sive demand upon the land entails an increased cost 
 of production by a resort to inferior soils. It is well 
 known that Mr. Carey not only denies this, but has 
 adduced a very respectable body of evidence to prove 
 that historically, and as a matter of fact, the reverse is 
 the truth, viz. that the worst lands are and must be 
 cultivated first. Without going the whole length to 
 which Mr. Carey invites us, it is, I think, abundantly 
 clear that so far in the world's progress, and probably 
 for centuries to come, the two processes are at work 
 side by side : on the one hand, the process by which, as 
 population advances, the pressure on the soils compels 
 a resort to inferior lands or to a less profitable outlay
 
 THE UNEARNED INCREMENT. 311 
 
 on those already in cultivation, by which rent will 
 rise while profits and wages diminish the first 
 absolutely, the second in real value (see Ricardo's 
 table,* quoted by De Quincey, p. 186); and, on the 
 other hand, the process by which, whether from the 
 discovery of new and better soils, agricultural improve- 
 ments, mechanical or chemical, improved communications 
 with markets both national and foreign by the service 
 of locomotion, the increased efficiency of labour due to 
 the growth of capital, and the diminishing interest on 
 capital which occurs in most progressive communities, 
 and perhaps, above all, by the annihilation of the barriers 
 to international intercourse and free exchange caused by 
 barbarous tariffs, rent is perpetually checked, destroyed, 
 or diminished. Who can deny that this last process, 
 is continually operating, and so far with no symptom 
 of abatement, but, on the contrary, with a growing 
 force, and that until, if ever, the time arrives when the I 
 cultivable area of the world and the productive powers 
 of the soil have finally and irremediably reached their 
 extreme limit, it cannot cease to be generated by the 
 operation of the first process ? Every successive 
 rise in price, and therefore in rent, must directly 
 stimulate new and increased efforts to increase and 
 cheapen supply and clestroy rent!^* 
 
 Ricardo's theory depends entirely on the truth of 
 his premises, and his premises, although admirable in 
 an academical discussion, are altogether theoretic, and 
 have little foundation in the actual facts of the present 
 
 * Seep. 313.
 
 312 FREE EXCHANGE. 
 
 condition of the world. Whether he intended the 
 dissertation as anything more than an abstract argu- 
 ment may well be doubted, but it is not very creditable 
 to Mill and other subsequent writers that they have 
 not pointed out more clearly the nature and the limits 
 of his theory. Even De Ouincey, who saw these 
 clearly enough, although writing in 1844, two years 
 before the Repeal of the Corn Laws, and Mill, I 
 believe, shortly afterwards, never even referred to this 
 great economical factor in the problem of rent as it 
 affected the people of England, for whom they were 
 writing. 
 
 Ricardo's attitude on this question was perhaps 
 not surprising, although not honourable to him ; but 
 that during the heat of such a controversy two eminent 
 writers should have omitted all reference to the 
 bearing of the Corn Laws on the rent question in 
 England, is indeed surprising, more so perhaps in the 
 case of Mill than in that of De Quincey, who was a 
 keen party man on the Tory side, and doubtless 
 thought those laws a necessary institution for the 
 protection of what he called "our noblest class." 
 
 If, however, Ricardo's theory be accepted as a basis 
 of discussion, how would the appropriation of the rent 
 of land by the State operate ? 
 
 At p. 127 in the chapter on profits there is a 
 table, quoted by De Ouincey, which shows the 
 division of 180 quarters of corn at progressive stages 
 of price between rent, profits, and wages. From 
 this it appears that in wheat, i.e. in kind, rent
 
 THE UNEARNED INCREMENT. 
 
 313 
 
 will rise, while profits and wages will fall ; but the 
 table is incomplete and misleading.* It leaves the 
 impression that rent is swallowing up profits and 
 wages, and explains nothing. The truth is that the 
 reason why wages in kind diminish, is that there is 
 ks^j5/]iea.^_tp_divide, and " Ex nihilo nihil fit." It will 
 be found that wages receive exactly the same pro- 
 portion of the total produce at every stage, and that 
 if on a decreasing quantity they receive more, they 
 would soon absorb the whole, and there would be no 
 net product at all ; in other words, the whole produce 
 of the soil would be swallowed up in the cost of 
 cultivation. 
 
 The process appears to be this. It is obvious that 
 
 * 180 quarters of corn, which is divided in the following proportions between 
 landlords, farmers, and labourers, with the stated variations in the value of corn : 
 
 Price per Quarter. 
 
 Rent in Wheat. 
 
 Profit in Wheat. 
 
 Wages in Wheat. 
 
 Total. 
 
 s. d. 
 
 
 
 
 
 400 
 
 None 
 
 1 2O qrs. 
 
 60 qrs. ] 
 
 
 
 448 
 
 10 qrs. 
 
 1 1 1*7 qrs. 
 
 SB'S 
 
 
 
 4 10 o 
 
 20 ,, 
 
 io3 - 4 
 
 56-6 
 
 
 I So 
 
 4 16 o 
 
 3 
 
 95 
 
 55 
 
 
 
 5 2 10 
 
 40 
 
 867 
 
 53'3 M J 
 
 
 
 And underlie same circumstances, money, rent, wages, and profit, would be as 
 follows : 
 
 Price per Quarter. 
 
 Rent. 
 
 Profit. 
 
 Wages. 
 
 Total. 
 
 J. d. 
 
 s. d. 
 
 * 
 
 d. 
 
 
 
 *. 
 
 d. 
 
 400 
 
 None 
 
 480 o 
 
 
 
 240 
 
 720 o 
 
 o 
 
 448 
 
 42 7 6 
 
 473 o 
 
 o 
 
 247 
 
 762 o 
 
 o 
 
 4 10 o 
 
 90 o o 
 
 465 o 
 
 g 
 
 255 
 
 810 o 
 
 o 
 
 4 16 o 
 
 144 o o 
 
 456 o 
 
 o 
 
 264 
 
 864 o 
 
 o 
 
 5 2 10 
 
 205 13 4 
 
 445 15 
 
 O 
 
 274 
 
 925 13 
 
 4
 
 3U FREE EXCHANGE. 
 
 at a certain point profits will cease to be sufficient, 
 accumulation will cease, wages will be stationary, and 
 rent will absorb the whole produce of the land, after 
 paying wages; but out of this rent must come, of 
 course, the wages of the farmer, as well as those of 
 the labourer. It is only his profits, or the profits on 
 capital, which will cease. Neither landlord nor tenant 
 can therefore invest capital in the soil, and production 
 will cease to advance. This must arrest the progress 
 of population, which will therefore also be stationary, 
 and the produce of the soil will be divided between 
 landlord and labourer, the latter subsisting on the 
 minimum, and the bulk going to the landlord. Now, 
 if this prospect revolts any one, let him reflect that it 
 affords the only chance for the survival of civilization, 
 in the state of things supposed a state of things 
 happily (although neither Ricardo nor Mill have made 
 this clear) very far removed from actual fact. 
 
 Were it not for the operation of this law of rent in 
 such circumstances, no check would be placed on the 
 / growth of population, the whole produce of the soil 
 would be absorbed in the mere subsistence of the 
 labourer, and there would be no surplus whatever for 
 all the higher wants of society.* 
 
 It is necessary to insist here upon what is, I think, 
 sometimes overlooked in considering this question, viz. 
 that the " unearned increment " theory rests entirely 
 
 * I wish to draw particular attention to the demonstration of the statements 
 of the last two paragraphs contained in the appendix (A) to this chapter. Fear of 
 too much interrupting the argument has alone prevented me from inserting it in 
 the text. ED.
 
 THE UNEARNED INCREMENT. 
 
 315 
 
 for its justification upon the so-called " loi d'airain " of 
 Lassalle.* 
 
 * The so-called "loi d'airain" (jenes grausame eherne Gesetz) fathered by.: 
 Lassalle upon the English economists was stated as follows by Turgot : " En 
 tout genre de travail il doit arriver et il arrive en effet que le salaire de 1'ouvrier se / 
 borne a ce qui lui est necessaire pour lui procurer sa subsistence. " 
 
 M. LeRoy-Beaulieu ("Repartition des Richesses," p. 23) paraphrases this law 
 by saying that it teaches that man is impelled by his nature to an inordinate multi- 
 plication of his kind as soon as he has more than enough to maintain life. This 
 "law" would, as he justly observes, prevent all material progress ; but " since it 
 is proved that such progress has taken place, the law must necessarily be a 
 fiction, as it is not in accordance with the facts." Mr. Alkinson considers the > 
 "law" "an absolute fallacy, except in states overburdened tvith armies and 
 debts." 
 
 I need only refer to the above summary, pp. 310-311, of the causes which have 
 counteracted the working of the principles laid down by Malthus and Ricardo. 
 It may at once be admitted that they failed to take account of the facts, (i) that 
 there were and are vast tracts of cultivable and unoccupied land, to which men, 
 and from which products, are daily becoming more easily transferable ; (2) that 
 the higher the material condition, the less the population tends to increase ; (3) 
 and, most important of all, of the progress of invention and discoveiy in agri- 
 culture and manufactures. 
 
 If this "loi d'airain " is not true, the gravamen of the charge brought by the 
 socialists against the institution of private property falls to the ground, and their 
 remedies are not only injurious but also unnecessary. 
 
 If it is true, either wholly or in part and this is the question attacked in the 
 text how does socialism offer a remedy ? Does it not rather aggravate the evil ? 
 
 It is very important to note that the principle is not anywhere in the text 
 attacked as a theory. It is merely asserted that other opposing tendencies have at 
 certain periods and in certain circumstances kept it in check ; we need only look 
 at cases of local congestion, such as exist in parts of Ireland and Scotland, in 
 London, and other large cities, or in India, to see that they have not always 
 succeeded in doing so. The succeeding argument in the text is, therefore, very 
 far from having a merely abstract importance, even if it were applicable (as it is 
 not) only to the case of the acceptance of the truth of the law ED. 
 
 This seems to be the place for the following note : 
 
 " In the late Mr. W. Bagehot's 'Economic Studies,' p. 136, there is an article 
 on Malthus, of whom he speaks in very disparaging terms. There is, however, 
 one respect, at all events, in which he seems to me totally to misapprehend the 
 bearing of Malthus's 'Theory of Population.' 
 
 "In the first editions Malthus had, it seems, assumed that the only check to. 
 over-population were vice and misery ; but in the second edition he judiciously 
 added, ' the principle of self-restraint, moral or prudential.' 
 
 "On this Bagehot observes that by this admission Malthus has cut away 
 the ground of his whole argument. ' If there be this principle of virtuous self- 
 restraint, he no longer answers Godwin's dreams of perfectibility. If it be 
 
 ,
 
 316 FREE EXCHANGE. 
 
 The advocates of socialistic methods of dealing 
 with the unearned increment, of course, assume that 
 this law will invariably operate, and that the process 
 of the gradual absorption of the produce of the soil 
 to the point at which it will be stopped by the fall of 
 wages to the " minimum " of subsistence is in constant 
 progress. If this position be accepted, we may be told 
 that the laws of nature are unjust and oppressive ; but 
 we cannot be informed by what other method than the 
 creation of rents the whole produce of the soil will 
 not gradually be absorbed by the labourer. Without 
 the creation of rents the net produce, the fund out of 
 which all civilization springs, will progressively diminish 
 and ultimately disappear altogether, leaving nothing 
 but gross produce to be consumed under the operation 
 
 possible for a perfectly virtuous community to limit their numbers, they will 
 V perform that duty just as they perform others ; there is no infallible principle that 
 will break up the village community ; it can adjust its members to its food, and 
 may last for ever.' 
 
 " ' Thus,' he says, 'in its first form, the essay was conclusive in argument, but 
 based on untrue facts ; in the second form it was based on true facts, but incon- 
 clusive in argument.' 
 
 " Bagehot, as I have said, seems to me to miss Malthus's point. It may be 
 freely admitted that if a community were wise and virtuous, population would not 
 outstrip the means of subsistence ; but it nevertheless remains perfectly true (and 
 tins is the essential Malthusian doctrine) that as men individually are neither wise 
 nor virtuous as a rule, there are only two ways by which the necessary restraints 
 can be brought to bear upon them one by throwing upon the individual the full 
 responsibility of his actions, and suffering him to bear the penalty of improvi- 
 dence ; the other, by depriving him of the liberty of action in this department 
 altogether. The moral of Malthus's teaching I take to be, that if on the one 
 hand society undertakes to support those who cannot or do not support them- 
 selves, and on the other leaves them free to multiply ad libitum, the growth of 
 population will soon outstrip the means of subsistence. Malthus's second essay, 
 therefore, is not open to Bagehot's very superficial criticisms. It is both true in 
 fact and conclusive in argument. L. M., December, 1884." 
 
 The appendix to this chapter, on "The Rate of Wages," and " The Law of 
 Diminishing Returns," should be read in this connection. ED.
 
 THE UNEARNED INCREMENT. 
 
 of the " loi d'airain " by as many human beings as 
 the soil can be made to support in the lowest condi- 
 tion of human existence, which, it must be added, 
 will be found to be ultimately a much smaller number 
 than it now supports, in various degrees of comfort, 
 from the lowest to the very highest scale of refinement 
 and luxury.* 
 
 If, on the other hand, as is more probable, the 
 " loi d'airain " is repudiated as soon as it has served 
 its purpose in discrediting rent and capital, we have 
 a perfect right to deny its necessary operation now. 
 
 Accepting the truth of the law for the purpose of 
 the argument, we may now pursue the inquiry already 
 suggested, as to whether proposals like these, made by 
 the adherents of the theory we are considering, would 
 obviate or avert its operation, or whether, on the con- 
 trary, they would not aggravate it. 
 
 The question resolves itself into this. Supply 
 being limited, by what means can demand be limited 
 so as not to exceed the proportion which, in the in- 
 terests of society or of mankind, will ensure 
 
 * I suppose that, in discussing Political Economy, no one would deny that tin: 
 interests of society require the largest possible production of wealth ; but I greatly 
 doubt whether many would not be found who would dispute the proposition tha [ 
 net produce is the object of all civilization, and yet this I conceive to be the key- 
 note of the Free Trade doctrine. " Man, they say, not wealth, should be the fir.-t 
 object of your regard " (Toynbee). Better, if so, a thousand men earning a bar,- 
 subsistence with no leisure, no culture, no refinement, than five hundred ol 
 whom one hundred possessed all these advantages. I confess that I cannot argue 
 on this foundation. That mere numbers, the mere existence of a certain number i 
 of human beings, with nothing to give dignity or interest to life, should be an 
 object of paramount concern, seems to me so absurd that I cannot suppose that it 
 is seriously and consciously entertained ; but I believe that unconsciously there is 
 a great confusion of thought in connection with this question of gross and net 
 produce.
 
 318 FREE EXCHANGE. 
 
 maximum of well-being with the minimum of effort ? 
 Will the community at large receive a greater share 
 of these " natural gifts " (by the hypothesis there is 
 not enough for all) through the instrumentality of 
 private appropriation, or through that of State or 
 collective appropriation ? To these questions there 
 can be only one reply. The moment that a natural 
 gift acquires value in exchange, it is a sign that de- 
 mand is encroaching on supply that there is not 
 enough for all. As the supply cannot, ex hypothesi, 
 be increased, the only possible mode of checking pro- 
 gressive pauperization is to limit and check the 
 demand. Private appropriation at once supplies this 
 check by a progressive rise of price. Collective 
 appropriation, instead of checking it, directly stimu- 
 lates and aggravates the demand and makes things 
 worse than before, except on one condition. No Free 
 Trader would deny that if the State makes itself the 
 economic unit instead of the individual, it could per- 
 form the imperative task of adjusting supply and 
 demand as well as the individual ; but at what a cost ? 
 Only by the substitution of the most intolerable, the 
 most inquisitorial, the most impossible despotism, for 
 human freedom and personal responsibility. 
 
 For the purpose of adapting demand to supply, it 
 is indispensable that the control of the supply and the 
 demand should be in the same hands. Under the system 
 of private property and Free Exchange, every man is 
 in this position. He knows the precise limits of the 
 supply available to him in other words, his income
 
 THE UNEARNED INCREMENT. 319 
 
 and he can adapt his demand accordingly. If the 
 supply cannot be increased, he must either limit his 
 demand or accept a lower reward. He can control 
 his own destiny ; but no industry, no providence, no 
 self-denial on the part of the individual, could avail 
 to avert the social doom, if he were always exposed 
 to the idleness, the recklessness, and the selfishness of 
 a neighbour, over whom he had no control. 
 
 How, indeed, can the demand of the whole com- 
 munity be limited and regulated without the sacrifice 
 of personal freedom ? If the State makes itself respon- 
 sible for the supply, and become the land-holder and 
 the employer of labour, it must also assume the respon- 
 sibility of controlling the demand, and regulating the 
 number of the population. Unless this be done, 
 there can be no possible guarantee against universal 
 pauperization. 
 
 Every socialist theory which presents itself to the 
 world assumes that human nature, especially in the 
 least-educated class, is endowed with every virtue, 
 and always ignores the great truth which was very 
 simply stated by Emerson, that " man is as lazy as 
 he dares to be." 
 
 This difficulty does not appear to have been ever 
 fairly faced by the Collectivists. Collective control over 
 production and supply can be understood if the State 
 is to possess all the land and capital and all the instru- 
 ments of production ; but no suggestion has been made 
 to control the demand which does not involve the 
 sacrifice of personal freedom.
 
 320 FREE EXCHANGE. 
 
 Therefore it is that the equilibrium between de- 
 mand and supply would be destroyed. No external 
 authority, whether it be a government or a governing 
 body of any kind, can possibly gauge the strength of 
 individual desire or the amount of individual sacrifice 
 this can only be measured by each individual for 
 himself ; and thus it is essential that where alone power 
 resides, responsibility should also be placed. 
 
 But in case it may still be thought that this 
 obedience to the law of value, this equilibrium of 
 demand and supply is, after all, unnecessary, and that 
 society may exist without it, it may be well further 
 briefly to explain my meaning. All values are 
 utilities (utility being a condition of value), but all 
 utilities are not values. If those utilities which are 
 susceptible of value are allowed to be appropriated, 
 they will not be exchanged save for equivalent values, 
 and the equilibrium of supply and demand will be 
 maintained ; but if these utilities are given gratuitously 
 to the whole community, they will be substituted for 
 values, and add to demand without in any way in- 
 creasing supply. Society will be so much the poorer. 
 The truth is that gratuities are values, because they 
 are limited and difficult of attainment. And to treat 
 a value as a gratuity or utility is to live on your 
 capital, and must lead to bankruptcy. But why, it 
 will be said, should it make any difference whether 
 this utility which you call value is allowed (gratui- 
 tously, as we say) to such proprietors or to any 
 number of collective owners ?
 
 THE UNEARNED INCREMENT. 321 
 
 The difference appears to be this, and it is all- 
 important : if this utility or unearned increment or rent 
 remains in the hands of private proprietors (who for 
 the sake of the argument we may call the producers), 
 it cannot rise higher without a corresponding increase 
 in the purchasing power of the consumers, which will 
 maintain the equilibrium between demand and supply. 
 The increased purchasing power must in this case 
 be derived either from the increased productiveness 
 of existing labour, or from an additional number of 
 labourers, who have at least produced enough for their 
 subsistence, i.e. within the limit of cost of production. 
 Thus there will have been a distinct addition to the 
 aggregate wealth of the community in the first place 
 indicating increased comfort to the existing population ; 
 in the second, a larger population earning the means 
 of subsistence. 
 
 But if economic rent is taken from the private 
 proprietors and appropriated by the community at 
 large, the effect will be in the first place a transfer of 
 this part of the national wealth from the former to the 
 latter without any addition to it, thus not adding to 
 production, but causing a different distribution. 
 
 If it is treated as the collective property of the 
 whole community if, in short, the supply and the 
 demand are to be in the same hands they, the collec- 
 tive proprietors of the supply, must regulate the collec- 
 tive demand. How can this be done ? Ex hypotliesi, 
 the whole community will have a larger supply of 
 utilities than before, with no additional labour or 
 
 Y
 
 322 FREE EXCHANGE. 
 
 service. If their numbers remain the same, one of two 
 things will happen either they will work less, and 
 produce less, substituting this increment to their earn- 
 ings for a portion of their former earnings, in which 
 case they will be no better off than before, except in 
 leisure, and the community as a whole will have lost 
 the wealth before possessed by the private proprietary ; 
 or they will work as much as before, and have the 
 benefit of the unearned increment, in which case 
 the community as a whole will be neither richer nor 
 poorer, but the unearned increment will be diffused 
 among all its members instead of being confined to 
 some. 
 
 It might be thought that either of those alterna- 
 tives would be preferable to the result of private pro- 
 prietorship, as in the first case the producing class 
 would have more leisure, in the second more comfort,* 
 and every man would have, in addition to his earnings, 
 a slice of the " unearned increment." But will or can 
 the numbers remain the same ? This the law of 
 population inexorably forbids ; and with -an unlimited 
 demand and a limited supply, there is nothing possible 
 [but progressive pauperization. The unearned incre- 
 
 * Even these suppositions are doubtful. If the surplus products of the soil 
 were divided among the whole population there would be little accumulation of 
 capital, and the fund out of which alone non-agricultural values can be created 
 would be seriously impaired. It is from the accumulation of rent that manufac- 
 tures, industrial arts of all kinds, railroads, are rendered possible, and thus it 
 becomes possible to support a larger total population with a much higher average 
 of comfort and well-being. It is curious to reflect that if land had been unlimited, 
 the human race might have never advanced beyond the stage of a primitive civili- 
 zation. The best proof that rent is one of those evils which is the germ of a 
 higher good, is that it is often better to pay rent than to take up new land.
 
 THE UNEARNED INCREMENT. 323 
 
 ment would be substituted for wages, production 
 would continue below cost, until starvation-point was 
 reached, and the " loi d'airain " of Lassalle had 
 asserted itself. It is strange that the advocates of 
 this theory cannot see that if it is possible for the 
 community at large to limit its numbers, the working 
 classes have the remedy in their hands already ; 
 they could in a few years so force up the rate of 
 wages as to obtain possession of the whole of the 
 unearned increment, and leave nothing for the 
 landlord.* 
 
 So much for the economic objection to the un- 
 earned increment theory, and its logical application 
 in the nationalization of the land. It seems to me 
 insuperable. It has certainly never been faced by its 
 advocates. Those among them who are at once able 
 and candid have fully admitted that the doctrine of 
 communism or collectivity is not possible without re- 
 strictions on population. 
 
 * The point may be put in a different way. The question to answer is this 
 and I am not aware that Mr. Mill had made any attempt to answer it Would 
 the possession of the land by the State diminish by a fraction the cost of food, or 
 clothing, or lodging to the people? Certainly not, unless the rent taken over by 
 the State, in other words, handed over to the consumers, added nothing to the 
 demand. If this were to be so, no doubt the property of the rich might to this 
 extent be divided among the people, and while the class specially possessing 
 luxuries and refinements would disappear, there might be a less unequal diffusion 
 of wealth, and less misery. But if it were true, not only do Ricardo's theory of 
 wages and Lassalle's "loi d'airain" vanish into smoke, but also and this must 
 be insisted upon the remedy for whatever misery is caused by the present system 
 already exists, without any confiscation of existing property. If the masses are 
 capable of arresting their progressive increase at any particular point, why not 
 now ? It is not necessary that a man should have land ; what is necessary is that 
 we should have the means of procuring whatever land affords food, clothing, 
 and houses, etc. at the cheapest possible cost, and this, it is contended, under a 
 free trade system, is absolutely assured.
 
 324 FREE EXCHANGE. 
 
 Let us now briefly consider some general bearings 
 of the adoption of the theory. 
 
 It is most remarkable that Mill, in his essay on 
 " Land Tenure Reform," carefully and even ostenta- 
 tiously avoids all attempt to show in what way the 
 public at large, and the working-class in particular, 
 would benefit by the appropriation of the land, or of 
 the "unearned increment" in part or in whole. His 
 solitary contribution to this question is a remark that 
 such a measure would be a great relief to the tax- 
 payer ; but he entirely omits to add that the only effect 
 of relieving the tax-payer, by making him a present of 
 the rent of land, would be to increase his demand for 
 its products, or for the land itself, and thereby counter- 
 act by the rise of price all the advantages which he 
 might derive from remission of taxation. Nothing 
 can be more feeble and more superficial than Mill's 
 treatment of this question. There is no attempt 
 to show in what manner the state proprietorship of 
 land would benefit the people ; no statement even 
 (proof there could hardly be) that the cost of food and 
 clothing or lodging would be reduced in the smallest 
 degree. There is nothing but a reference to Oriental 
 countries in which this system prevails, with results 
 which are notoriously fatal to national progress, but 
 which Mill implies, contrary to all evidence, to 
 have been invaluable ; and much loose declamation 
 about abstract rights, without any reference to the 
 principle upon which those assumed rights repose. It 
 is difficult to conceive a less useful contribution to
 
 THE UNEARNED INCREMENT. 325 
 
 sound knowledge on a difficult and very important 
 question. 
 
 Why, it may be asked, if a thing belongs to nobody, 
 should it be given to everybody ? and how can it be 
 given to everybody when there is not enough for all ? 
 
 Property and commonalty are not only inconsistent, 
 they are antithetical ideas, and the phrase " nationaliza- 
 tion of land," or other instruments of production, in- 
 volves a very gross confusion of thought. 
 
 It is quite possible to vest the property of land in 
 a Government, but it is absolutely impossible to vest 
 it in the community at large. That which is common 
 to all cannot be appropriated by any one. There can 
 be no such thing as collective property in that which 
 is common to all. Mill's language, therefore, does 
 not admit of any rational construction. No scheme of 
 social reconstruction is possible on such a foundation 
 as he proposes. 
 
 It is quite competent to a society to vest the 
 property in the soil, e.g. in one individual or any body 
 called a Government, as in any larger number, but 
 they must not hug the delusion that in doing so they 
 are retaining it. They may, no doubt, retain a certain 
 control over the administration of it, under popular 
 institutions ; but to speak of a property administered 
 by a Government as the property of the people at 
 large is an absurdity. It is conceivable and even pro- 
 bable that nearly half the people of a country might at 
 any time object in the strongest manner to the dis- 
 tribution or disposal of this so-called property. And
 
 326 FREE EXCHANGE. 
 
 it is not only conceivable, but absolutely certain, that 
 its disposal would take the form of the gravest in- 
 equalities between members of the community. Some 
 would get infinitely less than others ; and why ? On 
 what principle is the distribution of this common pro- 
 perty to take place ? If it is to be distributed on the 
 principle of exchange of services with the different 
 members of the community, how is the value of the 
 service to be decided, except either by competition or 
 by the arbitrary discretion of the Government ? In 
 either case the recipients will not have any share in 
 the property of the community as property. 
 
 Practical proposals must, of course, be based, and 
 as a matter of fact, in the case of Mr. Henry George 
 and others, they have been based, on Mill's proposals 
 that this fund derived by the State from the partial 
 or total appropriation of economic rent should be 
 devoted to relieve taxation. These proposals in no 
 way attempt to recognize the equal claims of all its- 
 inhabitants to the rent of the land of a country, and 
 proceed simply on the principle that the appropriation 
 of the rent by the State instead of by the individual is 
 in the interest of the community as a whole. 
 
 I will assume that by the State Mill meant a 
 modern democratic Government, although his con- 
 stant reference to the Government of India* might 
 
 * Thus Mr. Mill, with whose name the theory is chiefly identified, and who 
 never succeeded in shaking off the tradition of Leadenhall Street, constantly refers 
 to the land revenue system of British India as deserving of imitation (cf. 
 " Dissertations and Discussions," vol. iv. p. 274). It is difficult for an economist 
 to understand Mr. Mill's predilection for this system ; the best that can be said 
 for it is that it is an inheritance of Oriental despotism, that the people are
 
 THE UNEARNED INCREMENT. 327 
 
 suggest something very different. It is, at all events, 
 only on this assumption that it is worth while to 
 
 accustomed to it, and that, in the hands of a British administration, the revenue 
 which it yields consists in, and has assumed the character far more of, a land- 
 tax unequal and arbitrary it is true, .both between the different occupiers and 
 the several provinces, than of economic rent, to which it does not even aspire 
 to approximate. On whatever grounds it may be defended, it is as far removed 
 as possible from any ideal system, and could riot be maintained in a free country 
 for a twelvemonth. But the essential question to consider is the appropriation 
 of economic rent, if it is to be transferred from private ownership to the com- 
 munity at large as the "inheritance of all mankind." There is no meaning 
 in the phrase unless it is understood as the equal inheritance of all mankind, or, 
 as Governments can only deal with their own people, of every member of each 
 particular community. This principle at once bars the application of such a fund 
 to the relief of taxation, which Mr. Mill indicates as the object to which it should 
 be devoted, unless the sole tax levied by the State was a poll-tax. If there is any 
 justice in the idea of taxation according to the means, however measured, of the 
 different members of a society, it would be very unjust to relieve the richer 
 members by giving them a larger share of a fund to which they have no more 
 right than the poorest of their fellow-creatures. The appropriation of the 
 "unearned increment," therefore, in relief of taxation is quite inconsistent with 
 the principle that it is the inheritance of all mankind, and the common 
 property of the whole community. The " unearned increment " cannot be 
 appropriated by its division among the community at large without disaster, 
 nor applied in relief of taxation without injustice. But there is a third mode, 
 which, although evidently not contemplated by Mr. Mill, is nevertheless one 
 which is sometimes urged with a certain plausibility. Why, it is asked, must it 
 be less in the interest of society that this fund should be appropriated by a Govern- 
 ment, and devoted to public objects for which taxation cannot or ought not to be 
 imposed, than by private persons who spend it for private purposes, often of a 
 useless and even mischievous nature? It may be admitted that, as a purely 
 economical question, it may be argued that so long as the fund in question is not 
 appropriated by the community at large, that is, vested in a government distinct 
 from the people, such as an Oriental despot, or an irresponsible oligarchy, the 
 only question would be whether by either of them the fund would be expended 
 more or less to the general social advantage than by private proprietors. This 
 condition is fulfilled in the exceptional case of the Government of British India, 
 and it is perhaps intelligible that, impressed with the importance of this resource 
 to an Anglo-Indian administration, with which the interests of the native popula- 
 tion are assumed to be identified, Mill and others should have favourably com- 
 pared the administrations of this fund by the Government with the mode in which 
 it might be spent by rajahs and zemindars. But even in India, it is probable 
 that there would be no more useful reform than the substitution of a well-devised 
 system of taxation for the present arbitrary and complicated methods of raising 
 the revenue from the land, while there can scarcely be two opinions as to its total 
 inapplicability to any self-governing community.
 
 328 FREE EXCHANGE. 
 
 examine his theory ; and it has this advantage, that it 
 lends itself more readily to our argument, by at once 
 cutting away all the considerations derived from the idea 
 of equal rights to the land as between all the members 
 of the community. The only way by which any such 
 claim as this could be satisfied would be by the equal 
 division of the rent of the land between all its citizens 
 a process which Mill directly repudiates by his 
 suggestion that this fund should go in relief of taxa- 
 tion. Now, it is at once apparent that if this were to 
 be its destination there need be no taxes at all, for the 
 rent of land and the ground rent of houses probably 
 exceeds the whole existing amount of taxation in the 
 United Kingdom, both general and local. The effect 
 of this substitution of rent for taxes would be to divide 
 the rent, not in equal shares between the members of 
 the community, but in shares proportional to their 
 present contributions to the taxes an arrangement 
 which would benefit the richer at the expense of the 
 poorer members. 
 
 From another point of view it is difficult to under- 
 stand how any sane politician could quietly contemplate 
 a system under which the whole or part of the revenues 
 of the State would be derived from sources independent 
 of taxation, or fail to see that the strongest motive to 
 economical and prudent administration would be thus 
 removed, and the door opened to every form of waste- 
 ful and dangerous expenditure both in home and 
 foreign policy, while, accompanied as it would be by 
 placing at the disposal of the Government of the day
 
 
 THE UNEARNED INCREMENT. 329 
 
 an ever-increasing army of paid agents and servants, j/> 
 the political liberties of the country would be at the 
 mercy of any party which obtained its mandate from 
 the ballot-box. Under such a system, the country 
 would soon become the prey of contending factions, 
 struggling to get possession of enormous prizes and 
 opportunities of unlimited plunder ; the flood-gates of 
 corruption would be unloosed, and after a period of 
 progressive disorder, society would seek a deliverer in 
 the first strong man who was prepared to play the 
 part of a modern Caesar, from whom political liberty 
 would have again to be gradually extorted by return- 
 ing to the only method by which it can be secured, by 
 once more placing it on the only sound foundation, 
 that of private property and free exchange. 
 
 These considerations are so obvious that it is 
 impossible to regard the loose language so constantly 
 used at the present time even by responsible politicians 
 on this subject with much apprehension. There may 
 be foolish experiments, which would be far better 
 prevented if possible, but they will work their own 
 cure. In the case of agricultural land there can be 
 little immediate danger, for the unearned increment 
 on which Mill casts his envious eyes has not only 
 ceased for the most part to exist, but has become an 
 i unearned decrement.* T But with urban land in the 
 
 * It is always assumed, and especially by Mill in the case of land ("Dis- 
 sertations and Discussions," vol. iv. pp. 263, 275), that the exchange value of 
 natural monopolies must increase ; but this is a very partial and incomplete opinion. 
 It is, of course, in the essence of their nature to increase in value whenever the 
 demand outstrips the supply, but taking the world as a whole (and political economy 
 is not only applicable to particular districts or towns in the United Kingdom), this
 
 33 FREE EXCHANGE. 
 
 great centres of population the process is still in 
 operation which has given rise to this economical 
 heresy, and special taxation of ground-rents seems to 
 have taken its place in the new radical or reactionary 
 programme. 
 
 It may be worth while to examine the remarkable 
 character of this last suggestion. The evil which it is 
 devised to remedy is the wretched nature of the house 
 accommodation for the poor in our large cities, and the 
 high rents which they are obliged to pay for it. The 
 cause of this is notorious* It is the limited space 
 available for building within a given area ; in other 
 words, the undue pressure of demand upon supply. 
 For such an evil there can be only one remedy, viz. to 
 increase the supply or to diminish the demand, or 
 both. If it is impossible adequately to increase the 
 supply,* there is nothing left but to diminish the 
 
 is by no means true. Population ebbs and flows, nations and races rise and fall, and 
 if long periods of time and a sufficient area are taken into account, it is probable 
 that on the average there is a tendency to a decrement and not to an increase in 
 the value of natural monopolies. There is a note of a most misleading character 
 in the essay of Professor Cairnes on "Land," in which he compares the case of 
 land to that of consols, entirely omitting the consideration that whereas in the 
 latter case the interest is fixed, in the case of land there is no security that it will 
 yield any interest at all. It may safely be assumed that in the long run, taking 
 into account all risks, the average return to an investment in land would be neither 
 more nor less than in any other solid security. Those who look only at the 
 enormous growth in the value of particular estates, either in this country or the 
 colonies, entirely forget the length of time which usually elapses before this 
 growth takes place, and the dead loss often incurred by a proprietor. If this is 
 considered, and also the effect of compound interest in doubling capital every 
 fifteen years, it will be found that an investment of ^10,000 in consols at com- 
 pound interest would in a hundred years yield on an average a larger return than 
 any similar investment in land, because in the latter case speculation and social 
 considerations often largely enter. 
 
 * M. LeRoy Beaulieu has pointed out how the improvement of means of
 
 THE UNEARNED INCREMENT. 331 
 
 demand. How is this to be done ? By improving 
 the accommodation and lowering the rents, by thus 
 stimulating instead of checking the influx of an exces- 
 sive population into the towns, and aggravating all the 
 consequences of overcrowded districts ! * 
 
 There is no greater folly than the notion of an 
 artificial interference with a natural monopoly. It is 
 quite as gross a violation of free trade principles as 
 the creation of an artificial ' monopoly. Both are 
 equally the offspring of the doctrine of protection, and 
 both are equally opposed to the well-being of the 
 community, and especially fatal to the class upon 
 which the ultimate burden of economic blundering 
 invariably falls. 
 
 In this case, if the working classes in the great 
 cities are to be housed below cost, the unearned 
 increment which now goes to swell the capital which 
 pays their labour will soon be absorbed in providing 
 for a larger and larger population until it disappears 
 altogether ; the rich and well-to-do will become fewer 
 and fewer, and there will be more poor than ever. 
 
 These are economic truisms upon which it is not 
 the object of the present paper to enlarge, but at a 
 time when from various causes of very unequal 
 interest the political landmarks of the older generation 
 are more and more disappearing, it is essential to 
 insist that there can be no possible compromise 
 between the socialistic doctrines of unearned increment, 
 
 locomotion may have an effect equivalent to increasing the supply, by enabling, 
 people to live at a greater distance from their work and from the centre. ED. 
 * See p. 337, Appendix A.
 
 332 FREE EXCHANGE. 
 
 U land nationalization, and special taxation of natural 
 monopolies, and the principles of free exchange. The 
 first may be all that their advocates claim for them, 
 wise and just and politic. But men must choose 
 between the two ; they cannot support or connive at 
 such measures as have been signalized, and at the 
 same time stand forward, when it is convenient to do 
 so, as the champions of Free Trade, without exposing 
 themselves to the charge either of stupidity or dis- 
 honesty. 
 
 It is, in short, necessary to point out that, whether 
 right or wrong, the theory on which these proposals 
 rest, viz. that of the so-called " Unearned Increment," 
 is absolutely inconsistent with the policy of Free 
 Trade, and that men must choose between the two ; 
 for they cannot co-exist. 
 
 It is a misfortune that the term " Free Trade" has 
 been adopted in English to designate this policy, 
 instead of the far more comprehensive and accurate 
 expression " Free Exchange," for it has led to its 
 \ being chiefly considered with reference to one only, 
 , and that not the most important of its aspects. Many 
 people think of it as a question of tariffs and protec- 
 tive duties, instead of recognizing it as the assertion 
 in the broadest sense of the principle of private 
 property, of which Free Exchange is only an attribute. 
 There can be no property without the right of Free 
 Exchange, and there can certainly be no Free Ex- 
 change without property ; for a man must possess some- 
 thing before he can exchange it for something else.
 
 THE UNEARNED INCREMENT. 333, 
 
 All property is monopoly. The two ideas are 
 inseparable. The only question is whether it is in 
 the interests of society that this inevitable monopoly 
 shall be kept within its natural limits by the com- 
 petition, or whether it should be guarded against the 
 effects of competition by artificial laws. 
 
 The Free Trade school hold that the limitation 
 and inequality of natural gifts and favours must be 
 accepted as a fact, and that all man can do in utilizing 
 them as far as they will go, is to expose them to the 
 greatest possible competition, which can only be done 
 by complete freedom of exchange. 
 
 It is against this principle of free competition that 
 in some form or other a perpetual resistance manifests 
 itself. Sometimes it takes the form and assumes the 
 name of Protection, sometimes of State Socialism in 
 varying degrees, sometimes of Communism, or Col- 
 lectivism. The forms and the names may differ ; they 
 are all the same. They all mean Privilege and 
 Compulsion instead of Equal Rights and Freedom. 
 
 They all aim at creating a privileged class at the 
 expense of the community at large.* Every class in 
 turn, when possessed of political power, has tried, and 
 usually with success, to secure such privileges for 
 itself, and it is not surprising that the working classes 
 should better the instruction given them by those who, 
 
 * The root of the evil is in both the same ; it is the result of considering the 
 producer instead of the consumer. The interest of the producer, whether landlord, 
 capitalist, or workman, is to make things dear ; the interest of the consumer is 
 always to make things cheap. The interest of the producer is always opposed to 
 that of society ; that of the consumer is always identical with the interests of 
 society (see pp. 266-7).
 
 334 FREE EXCHANGE. 
 
 with far less excuse, have helped themselves in their 
 turn out of the public purse by corn laws and pro- 
 tective tariffs. Fortunately, while partial protection to 
 sectional and limited classes is unjust and mischievous, 
 when it becomes general and assumes the form of 
 communism, it becomes ruinous, and thus more 
 speedily works its own cure. It is impossible to 
 protect everybody. 
 
 While, therefore, it is even more necessary in the 
 public interest that private property and free exchange 
 should be recognized in natural monopolies than in 
 cases where competition is supposed to operate 
 freely, the interference of the state is perhaps, in these 
 cases, less dangerous, because it is more futile.
 
 THE UNEARNED INCREMENT. 
 
 335 
 
 APPENDIX A. 
 
 TABLES SHOWING FALLACY OF THE THEORY OF THE 
 UNEARNED INCREMENT. 
 
 THE fallacious nature of the unearned increment theory will 
 be seen from the following figures, which are founded on the 
 table given by Ricardo, quoted by De Quincey (Ricardo's 
 chapter on " Profits ") : * 
 
 
 
 Number of 
 
 Quarters of 
 
 Quarters per 
 
 
 
 
 Men. 
 
 Wheat. 
 
 Man. 
 
 / 
 
 I 
 
 IO 
 
 180 
 
 18 
 
 Five different 1 
 
 2 
 
 10 
 
 170 
 
 17 
 
 qualities of / 
 
 3 
 
 IO 
 
 160 
 
 16 
 
 soil. j 
 
 4 
 
 10 
 
 150 
 
 15 
 
 V 
 
 5 
 
 IO 
 
 140 
 
 14 
 
 From this table it will be seen that every additional 10 men 
 are supposed to produce 10 quarters less wheat, owing to the 
 inferiority of soils successively forced into cultivation by 
 pressure of population ; but as it is necessary that even on 
 the lowest the cultivators should live, it is obvious that 140 
 quarters are enough to provide subsistence for 10 men, i.e. 
 14 quarters per man. 
 
 If this be so, 18 quarters, the quantity produced per man 
 on soil No. i, will be four quarters more than necessary to 
 support life ; 17 quarters on soil 2, three quarters more than 
 necessary ; and so on to the end of the series. This surplus 
 product is the result of the difference of soil between the 
 
 * Quoted above, p. 313.
 
 336 FREE EXCHANGE. 
 
 four first and the last, which only yields the cost of 
 subsistence of the cultivator. Mill calls this "unearned 
 increment." 
 
 If this remains in the hands of the cultivators of the first 
 four soils, it will constitute a fund, out of which they may 
 gradually provide for their higher wants ; e.g. they may 
 command the services of a schoolmaster, a doctor, a clergy- 
 man, artist, etc. 
 
 In varying degrees these services will be shared by 40 out 
 of the 50 men who are supposed to form the producing class 
 of the society. But Mill objects to this, and insists that 
 the 10 men who cultivate No. 5 for bare subsistence should 
 have an equal share. 
 
 Now, assuming the same order of degraduation of soils, let 
 us trace the effects of Mill's proposal. 
 
 We have by our supposition a total unearned increment of 
 IOO quarters of wheat 40 on the first soil, 30 on the second, 
 20 on the third, and 10 on the fourth. This, divided between 
 50 men, gives two quarters each. The cultivators, therefore, of 
 No. 5 obtain 160 quarters instead of 140 quarters, i.e. they 
 will have 20 quarters more than cost of subsistence. 
 
 But this will at once bring into the field 10 new men, who 
 will cultivate soil No. 6, yielding 1 30 quarters only. There will 
 then be 930 quarters to be divided between 60 men, or 15^ 
 quarters each. This is still i quarters each more than 
 enough, and 10 more men will be called into life to cultivate 
 soil No. 7, yielding 120 quarters. There will then be 1050 
 quarters for 70 men, or 1 5 quarters each ; but this is still more 
 than cost. Another 10 men will appear and attack soil 8, 
 yielding no quarters. There will then be 1160 quarters for 
 80 men, or 14^ quarters each ; but this is still too much. 
 Another 10 men will appear and attack soil No. 9, yielding 
 100 quarters. This will give a total of 1260 quarters for 90 
 men, or exactly 14 quarters each ; and here the process of 
 descent upon inferior soils will cease, the whole society will 
 subsist on the " minimum," all civilization will disappear, the 
 schoolmaster, etc., will emigrate, and Mr. Mill's ideal will be 
 attained.
 
 THE UNEARNED INCREMENT. 337 
 
 But there is another class of property in which it is 
 sometimes supposed that the unearned increment accrues in 
 a manner injurious to society. I refer to the case of house 
 property and ground-rents in large and populous centres. 
 Very strange and subversive doctrines have been preached 
 on this text by men whose positions lends a certain authority 
 to their utterances. 
 
 I think it can be shown that the same reasoning which 
 has led us to discard Mill's teaching on this head, in the 
 case of agricultural land, equally applies to land used for 
 building or for other purposes, factories, mines, and indeed to 
 every kind of commodity (to use the term by which economists 
 designate the subject-matter of exchange), of which the 
 quantity, being limited and unequal to the demand for it, can 
 give rise to the phenomenon of rent. 
 
 We have seen that, in the case of agricultural land, the 
 effect of the appropriation and distribution (in equal shares 
 between the members of the community) of the rent or un- 
 earned increment, is gradually to encroach upon the net 
 product or surplus value produced by the progress of society 
 on all but the last soil taken into cultivation, and ultimately 
 to absorb it altogether, so as to leave nothing more than gross 
 produce ; or, in other words, to cause a condition of things 
 in which the whole community are compelled to live on the 
 " minimum " product which will enable them to subsist in 
 working efficiency, and to impose an effectual barrier, finally, 
 against any further advance of population. 
 
 Precisely similar, though different in some of its accidents, 
 will be the effect of such a measure (appropriation of ground- 
 rents by the district or municipality) in the case of houses and 
 buildings in towns. If the surplus value yielded by the rentals 
 of town property were to be divided among the inhabitants 
 (and this is what its appropriation by the municipality theo- 
 retically comes to), the effective demand for house accommo- 
 dation would be to that extent increased, not by any addition to- 
 the wealth of the town, but because this surplus value would be 
 transferred from those who have already got houses to those 
 who have not, and who could not afford house accommodation, 
 
 z
 
 338 FREE EXCHANGE. 
 
 without this subsidy. This process of transference would not 
 be of long duration ; it could only end by the absorption of 
 the whole surplus value in providing house accommodation 
 for a larger population, and leaving nothing for the other 
 purposes to which it would previously have been applied, and 
 which are, in short, all the higher purposes of a progressive 
 civilization. Just as, in the case of agricultural land, we have 
 seen that the appropriation and division among the whole 
 society of the surplus or " unearned increment " would lead 
 directly and inevitably to the absorption of the whole produce 
 by the cost of subsistence of the population ; so, in the case 
 of towns, would a similar measure lead with equal certainty 
 to the absorption of the whole rental or surplus value pro- 
 duced by the progress of society on all but the houses 
 produced at the highest relative cost (i.e. the worst, in quality 
 or situation, or both) in providing the lowest kind of house 
 accommodation for all its members in the several classes into 
 which society divides itself. 
 
 It is desirable to trace the process in rather more detail. 
 
 We will assume that in a given township there are three 
 building blocks of different qualities, and in each three 
 classes of house ; that the houses on Nos. i and 2 pay rent, 
 those on the first more and those on the second less, and that 
 those on the third only repay their cost. If the rental of 
 the two first is divided equally between all the inhabitants, it 
 will be possible to build on a fourth block (4), on which it 
 would not pay to build, unless part of the cost was supplied 
 out of the rental of the more favoured houses ; and this pro- 
 cess would go on upon each of the three classes of houses, 
 until, as pauperization proceeded, the new houses built would 
 be more and more, and ultimately altogether, of the third or 
 lowest class, so that the society would consist of the largest 
 number of people whom it would be possible to provide with 
 house and accommodation at the lowest cost compatible with 
 the standard of comfort or decency of the lowest class of 
 the population. 
 
 The radical vice of this theory is that it leaves out of 
 account the inevitable effect of a progressive demand upon a
 
 THE UNEARNED INCREMENT. 339 
 
 decreasing quantity. The only foundation upon which it 
 rests, the primary and necessary assumption on which it 
 proceeds, is the limitation of supply. If land of equal fertility 
 and houses equally well placed were unlimited, there would 
 be no reason or pretext for the proposal ; indeed, there 
 could be no " unearned increment " at all. The fact that it 
 exists is an unerring sign of scarcity, i.e. that the demand 
 exceeds the supply. Now, wherever the demand exceeds 
 the supply by which I mean, of course, that it exceeds it 
 in the existing ratio of exchange, whatsoever that may be 
 either the ratio must be changed, or no exchange can take 
 place.
 
 340 FREE EXCHANGE.. 
 
 APPENDIX B.* 
 
 FURTHER AS TO THE WORKING OF THE THEORY. 
 
 HERE are certain natural monopolies, gifts of nature, or 
 instruments of production limited in extent, given to the 
 whole human race. How can they best be made available, 
 how can they be rendered most useful to the whole human 
 race ? 
 
 Mill would vest property in them in the collective com- 
 munity as the representative of the race, only allowing 
 to individuals the usufruct, to be obtained of course by free 
 competition. 
 
 Bastiat would vest such property in any individual who is 
 prepared to pay the market price for it. If at any time the 
 whole or a part of the national domain is in the hands of the 
 Government as trustee for the community, it should be sold 
 for what it will fetch to any one who wishes to buy it, and 
 thus acquire absolute ownership. 
 
 What will be the economic effect of these two systems 
 respectively ? 
 
 Under the .first, the equilibrium between demand and 
 supply will be destroyed. Under the second, it would be 
 maintained. 
 
 Under both we have to deal with a limited supply (this 
 is the essential condition of the problem) and an unlimited 
 demand ; but under the first, while nothing can be done to 
 
 * I print the following pages as an appendix because I have not been able to 
 incorporate them in the text, where they might perhaps more properly have stood. 
 They restate some of the positions of the last two chapters.
 
 THE UNEARNED INCREMENT. 341 
 
 increase the supply, the demand will be progressively in- 
 creased ; while under the second, the demand will also be kept 
 within strict limits by an increasing limitation of the supply. 
 
 Under Bastiat's system (which is the Free Trade system) 
 the economic mechanism is made to depend on the free 
 exchange of equivalent services. No man can acquire a value 
 without contributing an equivalent, and the community can 
 only gain by the exchange. 
 
 Under Mill's system a value is recognized to which men 
 have a right without giving any equivalent for it. Every 
 value so acquired, therefore, is a distinct loss to the com- 
 munity, and marks a constant progress towards increasing 
 pauperization. 
 
 This may be made clearer by an illustration. The case 
 of the private landlord is precisely analogous to that of the 
 forestaller or regrator, who figures in all the text-books of 
 Political Economy. In both cases the question is to adapt 
 the limited supply to an unlimited demand, or rather a 
 stationary supply to an increasing demand. 
 
 We will suppose that at a given time, in a particular 
 country and we need go no further than our own posses- 
 sions in India to find the actual event the food-supply of 
 the poor, is inadequate to the ordinary consumption of the 
 pauper, and cannot be increased. The only possible mode of 
 averting famine, or confining its area as much as possible, 
 is so to raise the price of the grain or other food as to compel 
 the people strictly to limit their consumption. If trade is 
 left perfectly free, this will be effected by the ordinary opera- 
 tion of the laws of supply and demand, which will ensure as 
 far as possible an adaptation of the stock of food to the 
 consumption of the population ; the available supply will 
 be husbanded to the greatest possible extent, and will be 
 administered in the most economical manner. 
 
 But if the whole of the money paid by the people for their 
 food were at once to be handed back to them again, after 
 deducting the sum necessary to repay the actual cost of pro- 
 duction and the profits of the dealers, the check on consump- 
 tion would at once be neutralized, and as it would go on
 
 342 FREE EXCHANGE. 
 
 undiminished, would very soon lead to the absorption of the 
 whole stock of food and the starvation of the people. 
 
 The effect would be precisely analogous if the State were 
 to receive, and hand back to the people of a country the rent 
 of land and houses. The natural check to the undue demand 
 afforded by the action of private owners would be removed, 
 no possible addition at a uniform cost could be made to the 
 supply, which is, by our supposition and from the fact of the 
 existence of rent, limited in amount, and the demand for 
 the products of the land, and therefore for inferior soils, would 
 be directly and dangerously stimulated. This may be put in 
 another and perhaps even a still more striking way. 
 
 The theory of the unearned increment assumes that 
 " economic rent " is due to the gift of nature, and is not a 
 value which can be legitimately appropriated by a private 
 person, but that it is the inheritance of all mankind, and 
 ought to be distributed among all the members of the 
 community, which for the time being represents the human 
 race. 
 
 How is this to be done ? It is impossible to make the 
 producer of whatever is grown on the favoured soils sell his 
 product at cost price, because this obliges him to sell below 
 the market rate, which must be that of the products of the 
 worst soil under cultivation. The law of indifference requires 
 that there cannot be two prices for the same thing in the 
 same market. 
 
 But in theory this is the process by which the advantage 
 of the unearned increment of the better soils might be diffused 
 among the whole community. The Government should make 
 a general assessment of the value at cost price, or rather, the 
 value of the products of each kind or quality of land, minus 
 "economic rent." It should, for instance, on the assumption 
 that with a population of 3000 there were three qualities of 
 land, the first producing 1000 quarters of wheat at 6os. a quarter 
 without rent, the second at 50^. a quarter and paying los. 
 rent on each quarter, and the third at 40^. a quarter and pay- 
 ing 2os. of rent per quarter. Add together the 3000 quarters 
 and divide the produce thus :
 
 THE UNEARNED INCREMENT. 343 
 
 1000 quarters of wheat at 6os. 3000 
 
 looo SQJ. = 2500 
 
 1000 ,, ,, 4OJ. = ,2000 
 
 3000 at average of 50.?. = ^7500 
 
 The 3000 quarters should then be sold in the market at 
 50^. per quarter, and the population would benefit by reduc- 
 tion of los. per quarter in the price of wheat, or from ^9000 
 to 7500. 
 
 What would be the effect of such a measure? Simply 
 this : the population would get their wheat at IDS. per quarter 
 below cost price. The exchange value of wheat and money, 
 determined by the cost of production on the worst soil 
 (maximum cost), which is the law admitted even by the 
 English school in this case, is one quarter of wheat = 605-. ; 
 i.e. this rate, or 3 per head (the population being 3000 in 
 number), is that which represents the standard of living by 
 the people. Unless this standard was raised, the reduction in 
 price to 2 los. per head would simply lead to an addition 
 of 500 people to the population, in which case there would 
 be 3500 people, and this would raise the price of wheat again 
 to 3 per quarter. 
 
 It must be borne in mind that we are supposing a case in 
 which the law of diminishing returns is in operation. With- 
 out this there can be no such thing as economic rent. If an 
 indefinite quantity of wheat can be raised at a uniform cost, 
 there can be no surplus value, or " unearned increment." In 
 these circumstances, i.e. under the operation of the " law of 
 diminishing returns," the reduction in price caused by the 
 measures which have been described would lead to an in- 
 creased demand for wheat This could only be obtained at an 
 increased cost, but it would now pay to produce wheat at 
 say 70^. a quarter, because although this would exceed the 
 cost of production on the worst soil previously under cultiva- 
 tion, viz. that at 6cxr., the difference would be made up by 
 the saving in wages on the price of food. For instance, the 
 grower of wheat at 70^. a quarter would receive from Govern- 
 ment 6os. as the cost price on the worst soil as his share of
 
 344 FREE EXCHANGE, 
 
 the unearned increment on the better soils. Thus it would 
 become worth while to grow under cost until the whole extra 
 profit of the " unearned increment," or economic rent, was 
 absorbed, when the difference between the two states of 
 society would be that in the first there was a certain net 
 product constituting a fund available for the higher purposes 
 of civilization, and in the second the whole product would be 
 gross, and would be entirely absorbed in providing the bare 
 necessaries of life for the population. 
 
 All this is merely to say in a great many words that a 
 limited supply cannot satisfy an unlimited demand ; that the 
 supply being in the nature of things, ex hypothesi, limited, the 
 only question is, how to limit the demand in the same pro- 
 portion. If this be not done, the surplus value, or unearned 
 increment, or economic rent (or "gratuitous gifts of nature 
 limited in quantity," as Cairnes calls them), will soon disappear 
 altogether, and the total product will be in exact correspond- 
 ence with the actual cost of production, the surplus value 
 being swallowed up in the minus value of that portion pro- 
 duced below cost. 
 
 There are only two possible ways in which the equilibrium 
 between demand and supply, which we have seen to be an 
 indispensable condition of civilization, can be maintained. 
 The first is by the institution of private property and free 
 exchange applied to all values ; the second by collective 
 property and regulated exchange. The first rests on the 
 principle of personal freedom ; the second on that of con- 
 straint. 
 
 Sir Henry Maine, in his " History of Early Institutions," 
 remarks, " I believe I state the inference suggested by all 
 human legal history, when I say that there can be no material 
 advance in civilization unless landed property is held by 
 groups at least as small as families." 
 
 Yet the second expedient is the one recommended by 
 Mill, persistently advocated by Cairnes, and apparently 
 accepted by most of the popular writers and speakers of the 
 present time who deal with this question. 
 
 The same high authority, Sir Henry Maine, in his last
 
 THE UNEARNED INCREMENT. 345 
 
 work on " Popular Government," comments on this tendency 
 in modern democracies (p. 37) : " There is, in fact, just enough 
 evidence to show that even now there is a marked antagonism 
 between democratic opinion and scientific truth as applied 
 to human societies. The central seat in all Political Economy 
 was from the first occupied by the theory of population. 
 This theory has now been generalized by Mr. Darwin and his 
 followers, and stated as the principle of the survival of the 
 fittest ; it has become the central truth of all biological science. 
 Yet it is evidently disliked by the multitude, and thrust into 
 the background by those whom the multitude permits to 
 lead it. It has long been intensely unpopular in France and 
 the continent of Europe ; and, among ourselves, proposals 
 for recognizing it through the relief of distress by emigration 
 are visibly being supplanted by schemes founded on the 
 assumption that, through legislative experiments on society, 
 a given space of land may always be made to support in 
 comfort the population which, from historical causes, has 
 come to be settled on it."
 
 346 FREE EXCHANGE. 
 
 APPENDIX C. 
 
 THE RATE OF WAGES LAW OF DIMINISHING RETURNS- 
 MILL'S STATIONARY STATE. 
 
 WHAT makes the rate of wages ? This is the question dis- 
 cussed by Mr. Edward Atkinson, of Boston, one of the 
 most eminent authorities in the United States on questions 
 of trade and economy, in a very interesting treatise, read 
 before the United Association at Montreal, in August, 1884.* 
 
 It is hardly necessary to observe that the question is one 
 of vital significance. If it be accepted as an axiom that the 
 aim of all governments should be the greatest happiness of 
 the greatest number, it follows, beyond all possibility of dis- 
 pute, that in modern societies the rate of wages is the test 
 and measure of its success. It is estimated that about 70 per 
 cent of the population of the United Kingdom belong to 
 what are called the working classes, of whom the largest pro- 
 portion are dependent on wages. In the United States the 
 percentage is, according to Mr. Atkinson, over 80 per cent. 
 Upon the rate of wages, by which, of course, is meant not 
 the mere money amount, but the quantity of food, clothing, 
 shelter, and other commodities which it commands, must 
 therefore depend the well-being or the misery of the vast 
 majority of the people. 
 
 What are the causes which tend to raise or to depress the 
 rate of wages ? If these can be discovered, it remains to ask, 
 What are the human institutions, what are the laws, what is 
 
 * Republished under the title of " The Distribution of Products." This work 
 has gone through four editions in the United States.
 
 THE UNEARNED INCREMENT. 347 
 
 the policy, which tends to promote or to retard the operation 
 of those causes? 
 
 The well-known wages fund theory, discarded by all, 
 was derived from the general notion that the rate of 
 wages depends upon the relation of labour to capital, with- 
 out any reference to the resulting product of these instruments 
 of production a notion which pervades most of the writings 
 of the earlier English economists, from Ricardo's memorable 
 chapters on " Profits and Wages " downwards ; but, to avoid 
 useless repetition, it will be enough to state the doctrine in 
 the language of Mill, who has been happily described by 
 Bagehot as the " Secretaire de la Redaction " of his school, 
 and who certainly presents it in its least unfavourable light. 
 
 "Wages depend mainly on the demand and supply of 
 labour, or, as it is often expressed, on the proportion between 
 population and capital. . . . 
 
 "There is, unfortunately, no mode of expressing by one 
 familiar term the aggregate of what may be called the wages 
 fund of a country, and as the wages of productive labour form 
 nearly the whole of that fund, it is usual to overlook the 
 smaller and less important part, and to say that wages 
 depend upon population and capital. It will be convenient 
 to employ this expression, remembering, however, to consider 
 it as elliptical, and not as a literal statement of the entire 
 truth. 
 
 "With these limitations of the terms, wages not only 
 depend on the relative amount of capital and population, but 
 cannot, under the rule of competition, be affected by anything 
 else. Wages (meaning, of course, the general rate) cannot 
 rise but by an increase of the aggregate funds employed in 
 hiring labourers, or a diminution in the number of competitors 
 for hire ; nor fall except either by a diminution of the funds 
 devoted to paying labour, or by an increase in the number of 
 labourers to be paid." * 
 
 The rate of wages is in no sense dependent on the rate of 
 profits, as Ricardo says, rising or falling inversely as the rise 
 or fall of the latter, but will depend 
 
 * Mill, "Principles," bk. ii. ch. ii. i.
 
 348 FREE EXCHANGE. 
 
 1. On the quantity of work to be done the demand. 
 
 2. On the quantity of productive force, combined capital 
 and labour, available to do it the supply. 
 
 The ratio between these two quantities will determine the 
 value of the product, and the value of the product consti- 
 tutes the fund to be divided between capital and labour. The 
 proportion falling to each will again depend on the ratio of 
 the capital and labour available. 
 
 It is a commonly received doctrine among economists 
 that in the industrial progress of society there are two con- 
 flicting tendencies always discernible the one towards a 
 diminished cost of production, an increased return to human 
 effort, i.e. towards cheapness and abundance ; the other 
 towards an increased cost of production, a proportionately 
 diminished return to capital and labour, i.e. towards dear- 
 ness or scarcity. 
 
 Everything which contributes to increase the power of man 
 over nature, all the agencies which augment the efficiency 
 of labour, tend necessarily in the first direction ; the counter- 
 acting tendency is the result of the pressure of population 
 upon the soil, which brings into play what Mr. Mill calls the 
 fundamental law, that increased labour in any given state of 
 agricultural progress is attended with a less than proportional 
 increase of produce. It is obvious that these tendencies are 
 not constant in their operation at all times and places, and 
 that their action is often suspended and occasionally even 
 reversed ; but the question is whether they are so apparent 
 in large spaces of terms as to constitute what are called 
 economic laws. 
 
 Some writers have gone so far as to assert as an inherent 
 law Mr. Senior among them that in manufacturing in- 
 dustry increased production takes place at a diminished cost, 
 and an equally inherent law of agricultural industry at an 
 increased cost. These have been called respectively the laws 
 of increasing and of diminishing returns. 
 
 It is significant that Mr. Mill, while accepting the latter, 
 denies the former, and doubts whether even in manufac- 
 tures increased cheapness follows increased production by
 
 THE UNEARNED INCREMENT. 349 
 
 anything amounting to a law. It is, he says, a probable 
 and usual, but not a necessary, consequence. 
 
 On the other hand, some eminent economists, such as 
 Bastiat and Carey, have suggested serious doubts whether 
 the tendency to a decreasing return in the case of agriculture 
 can be accepted as a law, except in a sense so abstract and 
 so remote from actual conditions as to be beyond the sphere 
 of practical speculation. 
 
 There is, then, a wide divergence of opinion upon a 
 question of vital importance ; for upon the issue it is not 
 too much to say that, so far as can be predicated from condi- 
 tions now known to us, the future of the human race must 
 depend. 
 
 It is not surprising, therefore, that the aspirations of those 
 who, on the one hand, have adopted the theory of progressive 
 scarcity, and those who, on the other, have been able to 
 believe in progressive abundance should have taken a very 
 different direction. In a world where there is not enough for 
 all, the superfluities of the rich .appear to be the only pro- 
 vision for the deficient necessaries of the poor, especially if it 
 be true that, as the rich grow richer, the poor grow poorer. 
 But in a world where there is not only enough but to spare for 
 all, and in which the rich cannot grow richer without making 
 the poor less poor, especially if it be true that the poor cannot 
 become less poor without making the rich richer, no attempt 
 to redress the balance is necessary, and indeed could only be 
 mischievous. 
 
 From these opposing views of the relations of man to- 
 nature, it is easy to trace the apparently hopeless conflict of 
 opinion as to the best mode of attempting the solution of 
 what is called the social problem whether this should be 
 sought in the principle of constraint or in that of freedom. 
 From the first view have naturally proceeded the various 
 schemes of socialism, from class protection to full-blown 
 communism ; from the second has been derived with greater 
 reason the policy of free exchange. 
 
 I say with greater reason, because even on the assumption 
 of those who take the darkest view of the limitations within
 
 35 
 
 FREE EXCHANGE. 
 
 Dur^' 
 
 which human progress is confined, it may be found that no 
 social arrangements have yet been proposed which afford so 
 good a prospect of averting the worst consequences of a 
 stationary state (see the whole tendency of the argument 
 in the chapter on "The Unearned Increment") as those 
 presented by freedom of exchange. 
 
 As an economist, Mill was not an original or powerful 
 thinker, and as his latent apologist, Mr. H. Sidgwick, admits, 
 he always manifests the " piety of a disciple " towards 
 Ricardo's teaching ; but it is still difficult to account, after the 
 extraordinary changes which had taken place before his eyes 
 in the economic conditions of the world, and especially in 
 those of England, for the very contracted view which he takes 
 of the possibilities of human progress. 
 
 (There is nothing in the whole range of economic literature 
 so depressing and so inadequate, in a treatise dealing with the 
 science of wealth, as Mill's chapter on " The Stationary State." 
 Having been unable to shake off the " mazy and preposterous 
 assumptions of the Ricardian school," and perpetually haunted 
 by the apprehension of the constantly impending approach of 
 the final term of industrial progress, he is compelled to con- 
 sole himself with the reflection that after all it may not be 
 desirable for wealth to increase beyond a certain point, and that 
 the solution of social problems is rather to be sought in some 
 fancied ideal state, in which the upper classes will be satisfied 
 with a moderate competence, and the working classes be led 
 so to restrain their numbers as to avoid an undue pressure 
 upon the means of subsistence. No better proof can be afforded 
 of the morbid habit of mind engendered by this vein of specu- 
 lation than the unworthy sneers in which he indulges at the 
 great nation, which by its strenuous efforts has extended 
 man's conquest over nature throughout a vast continent, and 
 placed at the disposal of the human race resources offer- 
 ing possibilities of progress which, for many generations at 
 all events, must render the gloomy forecasts of writers such as 
 Mill mere idle abstractions. But idle though they may be, 
 they are not innocuous. They are responsible to a great 
 degree for the false direction in which the minds of the pre-
 
 THE UNEARNED INCREMENT. 
 
 351 
 
 sent generation have of late been moving. They have diverted 
 interest and energy from the agencies of international pro- 
 gress. They have overturned confidence in the great principles 
 of private property and free exchange, and given a new 
 impetus to schemes of social regeneration by false and artifi- 
 cial methods. They have brought into an unnatural and 
 sinister alliance the teachings of the English universities, and 
 of Proudhon and Karl Marx. 
 
 Very different has been the conception of the destiny of 
 the human race formed by those economists who regard the 
 so-called law of diminishing returns as entirely local and 
 temporary at the present stage of industrial progress, and 
 believe that for as long a period of time as it is rational to 
 take into account, the countervailing tendency will cause an 
 ever-increasing proportionate return to human effort. It is 
 observed by the adherents of this school that the "law of 
 diminishing returns " rests on certain assumptions which are, 
 to say the least, doubtful. 
 
 Who can say that the cultivable area of the world is a 
 , fixed quantity,* or set a limit to the progress of invention and 
 discovery in agriculture and in manufacture ? Who can 
 affirm, in view of physiological and social facts already 
 becoming apparent, that the human race is destined by an 
 inexorable law to multiply indefinitely, and for ever keep 
 pace with or outstrip the possibilities of increased production ? 
 
 So far from accepting Mill's statement that society in ad- 
 vanced communities is perpetually on the verge of the stationary 
 state, they believe that, in view of the innumerable agencies in 
 active or latent operation which tend to increase production 
 and facilitate exchanges, the advance of knowledge, the 
 discoveries of science, the enormous economies which might 
 be effected by improved commercial relations of countries 
 politically distinct, the internationalization, so to speak, of 
 
 * "Land itself," says, for instance, Mr. Atkinson ("Industrial Progress of 
 the Nation, 1890," p. 157), " may be exhausted when treated as a mine ; it may 
 be maintained when worked as a laboratory. Its potential in the increase of 
 fertility and production, when used as a tool or instrument for diverting nitrogen 
 and carbon from the atmosphere and converting these elements into food for man 
 and beast, is as yet an unknown quantity" ED.
 
 352 FREE EXCHANGE. 
 
 industrial forces that period, if it is ever reached, is so- 
 remote as to be beyond the range of rational speculation and 
 the domain of practical politics. 
 
 In this connection the investigations of Mr. Atkinson are 
 very important and suggestive.
 
 THE UNEARNED INCREMENT. 353 
 
 APPENDIX D. 
 CAPITAL AND LABOUR. 
 
 IN Bastiat's " Harmonies Economiques" the following passage 
 occurs, thus translated by Mr. Atkinson : " In proportion to 
 the increase of capital, the absolute share of the totaj product 
 falling to the capitalist is augmented, but his relative share 
 is diminished ; while, on the contrary, the share of the 
 labourer is increased both relatively and absolutely." * 
 
 This proposition, which if true is of vital and fundamental 
 importance, Mr. Atkinson, "whose conclusions have," as he 
 says, "been based almost wholly upon facts and deductions 
 from business experiences rather than from books," entirely 
 confirms. 
 
 He repeats it in the following form : 
 
 1. In all the arts, including agriculture, to which modern 
 machinery and improved tools have been applied, a less 
 number of persons compass a constantly increasing product 
 in ratio to the time which they devote to the work. 
 
 2. In proportion to the increase of the product, and to the 
 efficiency of the capital applied thereto, this lessening number 
 of persons have received decade by decade higher rates of 
 wages in money, or in what money will buy. They earn for 
 themselves a constantly increasing share of an increasing pro- 
 duct, or its equivalent in money. 
 
 3. 'As a necessary result of this increasing efficiency of 
 both capital and labour, the joint product is served to the 
 
 * This position is still further illustrated and supported by Mr. Atkinson and 
 Mr. Wells in their recently published works mentioned in the Introduction. ED. 
 
 2 A
 
 354 FREE EXCHANGE. 
 
 consumers at constantly increasing prices, or at less cost to 
 them. 
 
 4. As capital itself increases in efficiency, its value in 
 ratio to the product of capital and labour becomes less. 
 Capital, therefore, is forced to be satisfied with a lessening 
 share of an increasing product. Of course capital includes 
 credit. 
 
 This view seems to be correct. The increased efficiency 
 of capital must be the same thing as an increase of capital. 
 If .1000 can be made to do the same work as 2000, it is 
 the same thing as if 2000 were substituted for 1000* 
 Now, without going beyond Mill's definition of capital, viz. 
 that it is " whatever of the produce of the country is devoted 
 to production," it is evident that, as he says, " every addition 
 to capital gives to labour eitJier additional employment or 
 additional remuneration. In either case labour must gain." 
 But Mill, as usual, is not exhaustive. He might have added 
 that every addition to capital gives additional employment 
 and additional remuneration in many cases. Let us, then, 
 suppose that the efficiency of capital is doubled by improved 
 processes. This is the same thing as a double capital. There 
 is no reason why this should increase the share of profits 
 earned by capital, or the interest paid on it on the contrary, 
 it would probably diminish both ; the supply being double, 
 the gain must therefore fall to labour. On the other hand, 
 let us suppose that the efficiency of labour is double. This 
 means that every man produces twice as much as before. 
 Here it is clear that labour would also gain. In any case, 
 therefore, the tendency of progress must be to increase the 
 share of labour in the total product, as stated by Bastiat and 
 Atkinson. 
 
 Of course this tendency may be neutralized by an increase 
 in the working population more than equivalent to the 
 
 * N.B. There is, however, this difference. An addition of ^1000 to the 
 capital of ^1000 would no doubt be the same thing as the doubled efficiency of 
 ;iooo, but it is improbable that any large addition to the capital of a country 
 could find employment without bringing into play the law of "diminishing 
 returns," whereas the double efficiency of existing capital would imply that the 
 converse process was in operation.
 
 THE UNEARNED INCREMENT. 355 
 
 increase of capital. If population outstrips capital, it is im- 
 possible to provide for increasing remuneration under any 
 system ; but the argument is that, other things being equal, 
 the tendency must be in the direction of an increased share 
 to labour in the total product. It must be assumed that, 
 whatever may be the case with capital, population will 
 advance in a certain ratio ; and if this be so, every extra 
 addition to capital will tend to increase the share of labour. 
 
 This supposition, be it observed, meets the case of 
 " diminishing returns " should this phenomenon present itself, 
 for the pressure of population on the means of subsistence 
 will be the same, whether capital increases or not ; but, as 
 Bastiat points out (" Harmonies Economiques : Capital"), the 
 operation of the law of diminishing returns is energetically 
 balanced by an opposite tendency, viz. the constant progress 
 in industrial arts, which, by ameliorating the processes of 
 labour, perpetually diminishes the value and remuneration of 
 fixed capital, and transfers to the domain of utility, which is 
 the common property of all, that which was before a value 
 only to be obtained by an equivalent human effort. This 
 law is one of immense importance and is often overlooked, 
 especially in estimating the value of land. For instance, the 
 purchaser of a piece of land worth ^1000 in one year (1870) 
 may lay out 1000 in fixed instruments, buildings, machines, 
 etc., and calculate on getting 3 per cent, on his ^2000. In 
 another year (1880) the cost of these instruments may have 
 been reduced by, say, 500 ; and, other things being the same, 
 this would have the effect of diminishing his rent so as to 
 reduce it to an amount which would only pay 3 per cent, on 
 1500. 
 
 I think, therefore, that the proposition of Bastiat, adopted 
 by Atkinson, may be accepted as true, as a condition of 
 normal progress. Certainly, if it is questioned on theoretic 
 grounds, it may well be retorted that if the historical or in- 
 ductive method be applied, the confirmation is complete ; for 
 no one can deny that profits and interest are lower in all 
 countries where capital abounds than in those where it is 
 scarce. The actual facts of life, therefore, absolutely justify
 
 356 FREE EXCHANGE. 
 
 the position taken up, and make it clear that the one thing 
 needful in the interest of labour is the greatest possible in- 
 crease of capital. If this is once admitted, all the socialistic 
 schemes with which we are afflicted must suffer an ignomi- 
 nious collapse. 
 
 THE END. 
 
 PRINTED BY WILLIAM CLOWES AND SONS, LIMITED, LONDON AND BECCLES.
 
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