The Fallacy of Saving JOHN M.ROBERTSON. UNIVERSITY OF CALIFORNIA AT LOS ANGELES GIFT OF MR. RO v-nT UNTER THE FALLACY OF SAVING A STUD Y IN ECONOMICS THE FALLACY OF SAVING A Stnos in Economics BY JOHN M. ROBERTSON AUTHOR OF "MODERN HUMANISTS," "essays TOWARDS A CRITICAL METHOD,'" ETC 'Let us not confound the statement that human interests are at one with the state- ment that class interests are at one. The latter I believe to be as false as the former is true, and, moreover, to be one of those plausible optimist fallacies against which it especially behoves us in the present day to be on our guard." — C air ties LONDON SWAN SONNENSCHEIN & CO. NEW YORK : CHARLES SCRIBNER'S SONS 1892 V\C3r T2>ao ' to CO PREFACE. ■"•^■^^s - " DC v industry, and by production add further to the mountains of savings which, as it was, they were accumulating year by year. If they took the former course, we should have, according to the thesis, the phenomenon of a rapidly and continually increasing idle class in an always increasingly industrious com- IS THE FALLACY OF SAVING. raunity. If the latter, we should have the no less remarkable phenomenon of a community in which production was increasingly in excess of consumption, the majority always producing more and more, and, in the terms of the case, selling their products, while, on the same assumptions, the same majority avoided buying the Increased products. If, on the other hand, we took only the case of the working-classes, ignoring the confusion of the thesis, the same contradiction would arise. Smith's argu- ment had implied, as we have seen, a constant in- crease of these classes. But his doctrine of parsimony in that case must certainly appl} r to them, since it asserted the necessity of saving on the part of the majority, if the prosperity of the country were to he maintained. The majority of the workers, then, must save. Now, as we have said, saving, according to Smith, was to mean a refraining from the con- sumption of part of the produce. When upper-class people saved, this abstinence meant that what they did not cause to be consumed unproductively would be consumed productively by the workers. But now the workers were not wholly to consume even that lohich teas " saved" for them to consume, such abstin- ence being their only way of performing the necessary and profitable act of saving. At this stage of the exposition, if not earlier, the reader will perhaps be disposed to abandon the thread of the argument. That Smith consciously carried it thus far seems im- probable. If it could be carried farther, the concep- tion arrived at would be something like this : — That a wise proletariat would always abstain as far as smith's contradictions. 19 possible from consuming what it produced, because the more unconsumed products there were, the better it would be for trade. The reasonable presumption is, of course, that Smith never clearly saw what his proposition led to, an}* more than the truth which ought to be substi- tuted for it. In economics as in philosophy lie tended to evade fundamental issues, making optimistic assumptions where gaps had to be tilled. But his cautious common-sense was always supplying him with some saving lights ; and he does actually go on, in his chapter "Of the Accumulation of Capital," to contradict his doctrine as to the ruinousness of spend- ing, and the dependence of prosperity on parsimony. Such contradictions abound in his book. He con- tradicts himself on rent, on interest, and on money. Thus in this very chapter we have the statement that " the quantity of money .... must, in every coun- try, naturally increase as the value of the annual pro- duct increases;" although he had alleged only in the chapter before that the circulating gold and silver of Scotland had suffered a " great diminution " during a period in which the " annual produce of its land and labour" had " evidently been augmented." So now, after asserting that the spendthrift, as such, tends to ruin his country as well as himself, the economist not only concedes that "great nations" are never im- poverished by private "prodigality," but intimates that "some modes of expense, however, seem to con- tribute more to the growth of public opulence than others" Opulence is here understood as something different £rom capital, for the statement is that only 20 THE FALLACY OF SAVING. parsimony adds to capital, while the complete spend- ing of revenue neither increases nor diminishes capita], though it promotes "public opulence." The preferable form of expenditure, we now learn, is that which produces good houses, furniture, and works of art ; and of this expenditure we are told, further, that it " gives Tnaintenance to a greater number of people than that which is employed in the most profuse hos- pitality." Expenditure, then, may give maintenance to productive labour. The whole previous drift of the chapter had been to the effect that the expendi- ture of mere revenue counted for nothing in pro- moting industry, and that only the increase of capital by parsimony was of service ; and now it appears that what the frugal man does by his annual saving, other men do by their annual outlay. There is thus no final security even for the doctrine that the man who spends his capital is " diminishing the funds destined for the emplojnnent of productive labour," since his very expenditure may confessedly give rise to such employment, and those to whom his money passes may do the same without limit. So deeply rooted in Smith's mind, however, was the faith in parsimony, that while admitting that certain kinds of expenditure tended to " public- opulence,''' he goes on to point out that, after all, " the expense which is laid out in durable commodities is favourable not only to accumulation, but to frugality." That is to say, when once a man has laid out a good deal of money on durable things, he may stop short and begin to " save " without seeming to lack money ; whereas those who have spent mainly on sport and SMITH'S CONTRADICTIONS. 21 hospitality rarely have the "courage to reform, till ruin and bankruptcy oblige them." Having spent enough on building and furniture and books and pictures, then, the model man saves his money to put it in the bank. To what end? His durable pos- sessions, we were told, added to public opulence, because the more good houses and furniture are made, the cheaper and more accessible these become. But now he has ceased to call for the production of these things ; and yet now it is that the main gain is sup- posed to accrue. His money is banked, and is lent out to producers. In the terms of the case, these are not the producers of furniture, and books, and pic- tures, for he [i.e. the whole class of frugal men] having ceased to buy these articles, there is so far less and not more demand for them, and therefore there is no temptation to the producers to borrow money for the extension of their business. The producers who borrow must be others. Who are they ? Hypotheti- cally, the producers of articles for which there is an increasing demand. And what are these ? All over the field of consumption, in the terms of the hypo- thesis, there is frugality, each man spending as little as may be. The only increase in production, then, will be that positively enforced by the gradual in- crease of population — every year a little more corn, a few more houses, more clothes, more furniture ; but no more than can be helped. Thus, on Smith's own prescription, the increase "I production, if there were to be no waste, would be in n few branches of produc- tion only, and would be stiictly limited by the normal advance in population ; whereas his pre crip- 22 THE FALLACY OF SAVING. tion of parsimony was unqualified and unlimited, and implied on the face of it that there were no bounds to the possibility of employing saved money in pro- fitable production. He had laid down a general pro- position with no practical regard to its working out in detail : he had given society a quack's nostrum, with no other excuse than the good intentions which equally underlay so much of the economic and political quackery lie exposed. CHAPTER III. HOW THE FALLACY AROSE — TURGOT AND SMITH. The final refutation of any error, most men agree, is the showing not merely that it is an error but how it came to be made ; and in the case of Smith's doctrine of parsimony this is not difficult. He lived in an industrial society, with democratic tendencies, just at the time when the habit of investment was admitted to have formed a new and important social stratum. His own income, after his retirement to Kirkcaldy, came from investments ; and it is natural that the investor should wish to make out that in promoting his own interests he is promoting those of the com- munity. And not only was he the first to grapple comprehensively with the obscure and complicated economics of industry, but he had the current doctrine of parsimony recommended to him by those very Physiocrats who gave him his best scientific inspira- tion, and whose fundamental positivism bulks so much more largely in his book than his refutation of their formal fallacies. While the Physiocrats brushed aside the bullion delusion, and went straight enough to primary truth in insisting on the pre-eminent importance of the exploitation of the soil, they seem to have tacitly or expressly accepted the immemorial principle of individual money-saving, without making 23 24 THE FALLACY OF SAVING. any thorough inquiry as to what it was that, in in- dustrial societ} 7 ", was really saved by the owners of investments. Quesna}^, indeed, 1 has a curt caveat against "des epargnes steriles;" 2 but in this he merely condemns the locking-up of coin ; and on the other hand 3 he insists that rise in prices is increase of national wealth. And the lucid and sagacious Turgot, ably formulating the conclusions of his school, dis- tinctly identifies individual saving with the national accumulation of a mass of riches. In the very last section of his Reflexions sur la Formation et la Dis- tribution des Richesses he admits that, "en effet, presque toutes les epargnes ne se font qu'en argent," 4 which is more explicit than the language either of Smith or of the later Smithians ; but the problem thus acknowledged is simply dismissed with the state- ment that while " l'accroissement annuel des capitaux se fait en argent," 5 " tous les entrepreneurs n'en font d'autre usage que de le convertir sur le champ dans differentes natures d'effets sur lesquels roule leur entreprise ; ainsi, cette argent rentre dans la circula- tion, et la plus grand partie des capitaux n'existent qu'en effets de differentes natures, comme nous l'avons deja explique plus haut." c Here, in the final sentence 1 Maxime 21, Physiocrat ie, p. 17. - "Barren savings." 3 Max. 13. 4 "In fact, nearly all savings are made only in money." 5 " The annual increase of capitals is made in money." c " All traders make no other use of it than to convert it immediately into effects of different kinds, with which they carry on their business ; thus this money re-enters circulation ; and the greater part of capitals only exist as effects of different kinds, as we hive already explained above." TURCOT AND SMITH. 2; of the treatise, the doctrine of the previous part is suddenly and radically transformed ; and whereas we had been taught (§ 49) to think of a " reserve des -produits annuels, aceunmles pour former des capi- taux " x (which again was modified (§ GO) into " valeurs mobiliaires accumules," 2 but re-modified (§ 61) into " richesses mobiliaires accumulees " 3 ), we are now to understand that the process of saving is not really one of accumulation of products or riches at all, but the conversion of money into goods or plant by producers — i.e., saving is fresh production. The matter being thus dropped, the practical teaching of Turgot's treatise remains that of his 80th section, which is to the effect that " l'esprit d'economie dans une nation augmente sans cesse la somme des capitaux ; le luxe tend sans cesse a les de'truire" 4 — precisely the position taken up immediately afterwards by Smith. Thus led by his Physiocrat predecessors — whose faith he held on the points of free trade and the fallacy of the bullion principle — to endorse the popular faith in parsimony, Smith could not conceiv- ably have taken a more advanced view. The problem for his day was not that which we to-day term the industrial : the futility of saving as a basis of national prosperity could not be apparent in a society which had not yet tried free trade ; and the very confidence in liberty which inspired the protest against old restrictions excluded the tendency t<> 1 " Reserve of annual products accumulated to form capitals." - " Accumulated movable vah 3 ''Accumulated movable riches." 1 "The spirit of economy in a nation augments unceasingly the sum of capitals ; luxury tends unceasingly to destroy them.' 26 THE FALLACY OF SAVING. speculate on the difficulties that might arise when trade was free. To question the principle of parsi- mony and investment as a permanent provision for national growth would have been not merely to pro- pose reform, but to challenge the whole social system. As it was, Smith had the merit of analysing to some extent the facts of the case. It was something to have gone the length of the proposition that " that which is saved is consumed/' and that what money saving partly does is to determine how food should be consumed — whether employment should be given to footmen or to workmen. It was much better to have seen that, after all, " public opulence " is increased by an expenditure which, instead of simply multi- plying a proletariat labouring fur its elementary wants, secures durable and valuable products, and so tends to raise the general standards of culture and comfort. It would seem, after this, no great matter to have recognised that a policy of " public opulence " stood at least as well justified as one which amassed " capital." But the fact remains that Smith left his teaching divided against itself, condemning expendi- ture while admitting that it might promote public opulence, and urging non-consumption as tending to encourage production. What is finally to be said for him is that every publicist in the century had similarly failed to reach consistency in the face of the imbroglio of modern industry. Montesquieu alter- nately advocated luxury and frugality, freedom of trade and restriction ; 1 Voltaire now insisted that thu 1 Esprit des Lois, vii. 1-7 ; xx. 22. Cp. Blanqui, Histoire de VEconomie Politique, ch. 36. TURGOT AND SMITH. 27 outlay of the rich must always maintain the poor, and again desired the equalisation of fortunes j 1 and even Hume argues for protection as well as for free trade. 2 1 L' Homme aux Quarante Ecus; D-iscov/rs a VAcaddmie; Ddf&nse dxt Mmidain. 2 Essays on Balance of Trade and Jealousy of Trade. CHAPTER IV. THE FIRST CORRECTIONS — LAUDERDALE AND HIS CRITICS — MALTHUS, CHALMERS, SISMONDI — THE OPTIMISM OF M'CULLOCH. If Smith was excusable, however, for failure to see round the developing industrial problem before the French Revolution, the same can hardly be said for the economists who, coming one or two generations after him, failed not only to develop his argument but to profit by the criticism directly brought to bear upon it. In 1804 appeared the Earl of Lauderdale's Inquiry into the Nature and Origin of Public Wealth, which was in large part a criticism of Smith's doctrine of parsimony, but which also attacked his dogma of an invariable measure of value and his discrimination between productive and unproductive labour. On Lauderdale's own testi- mony x his arguments, especially as to parsimony, were much assailed in his own countiy, but were well received in France, Germany, Italy, and America ; and in 1819 he is found claiming that even at home his propositions " have gradually gained ground to such a degree that, in most recent publications, they are assumed as undisputed and uncontrovertible." To the reader of to-da} 7 this is puzzling ; for while 1 Second Ed. 1819. Introd. 2S LAUDERDALE S CRITICISM. 29 certainly Smith's confusions as to value were soon recognised, and his (Physiocratic) division between productive and unproductive work soon modified, it does not appear from the ordinary run of economic literature that his doctrine of parsimony was in any degree departed from by his more influential suc- cessors. Mill indeed asserts later 1 that " there is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is necessary to the employment of the poor ;" and he points to Sismondi, Malthus, and Chalmers, who had all argued that capital could be advantageously amassed only up to a certain point. But on the other hand, J. B. Say, James Mill, Ricardo, McCulloch, and Senior had all sided with Smith ; and these were the writers who substantially formed the orthodox English economics of the century, Malthus and Chalmers having little influence apart from the population cpuestion. Doubtless Lauderdale heard chiefly the talk of those who agreed with him ; and he would tend to have a good deal of not very valu- able support for a reason which probably told heavily against him in many quarters. This was his arguing against the proposed rapid reduction of the National Debt on the score that the resulting sudden appli- cation of millions of money to purposes of capital, and the withdrawal of so much revenue from ordinary consumption, would utterly disorganise industry. Nothing could be more certain; but Lauderdale, un- happily, never goes beyond the demonstration of the danger, and has the air of being well pleased to Bee 1 Prim iples of Political Economy^ B. I., ch. v, sec. .".. THE FALLACY OF SAVING. the National Debt subsist in full for ever. Such a point of view might be attractive to the idle classes, but could never be to the majority ; and Lauderdale's disappearance from notice is in all probability mainly due to his having thus ostensibly countered one of the most natural instincts of a democratic and com- mercial community. Nothing, however, could be more just than his whole criticism of Smith. He accepts Smith's view of capital, and assumes with him that the process of saving secures the application to productive purposes, in the shape largely of plant, of a quantity of food and energy which would otherwise be turned to con- sumption relatively unproductive. He then adroitly turns against the advocates of parsimony that very argument of analogy from individual practice on which they relied so much, only making the analogy genuine instead of spurious. An isolated individual catering for his own necessities, he points out, 1 would only waste his wealth and his energy if he turned to the form of capital more of his wealth than was needed to perform or supplant his necessary labour; and what was true for the isolated individual must be true for the total community. Lauderdale further lays his finger on the point which Smith had perceived at a late stage of his exposition, and which, as we have seen, reduced his teaching to final contradiction : "Parsimony does not augment opulence ; it only changes the direction in which the labour of a community is exerted ; and 1 Second Ed., p. 208. LAUDERDALE S CRITICISM. 3 I unless we adopt an opinion which, in economical reasoning, seems long to have been unconsciously cherished— that capital exclusively forms wealth — we cannot conceal from ourselves that if a society, by parsimony, increases its opulence in capital, it inevitably must diminish its wealth in articles produced for consumption/' 1 Nor did Lauderdale for a moment countenance the upside-down doctrine that it is the idle rich who " maintain " labour : he declared in terms of the Smithian sociology (p. 347) that " the real source of increasing wealth is alone to be found amongst farmers, manufacturers, merchants, whose habits open their eyes to farther means of supplanting the labour they perform or superintend;" 2 and he devotes an unanswerable chapter to refuting the assumption that the total of individual "riches" 3 (= nominal com- mand of wealth) served as a measure of the national wealth. But, whether it was that men would not believe that an earl could be a good economist, or that his opposition to the sinking-fund caused him to be ranked with those who called the National Debt a national blessing, Lauderdale's book passed out of notice in his own country, though his formula of the right contingencies of value i was quoted with ap- iPage 210. - In an earlier passage (p. L94) he puts it that " labour . . . is the great means of increasing wealth." He also points (p. 344) to " inequality of fortune" as the "principal impediment to the increase of public wealth," ami strongly condemns (p. 364) all interference with t radc. '■'' This distinction between "riches" ami "wealth - ' is of course arbitrary, and is not followed in this essay save in ex- pounding Lauderdale. 1 Worked out later, independently, in terms of the desires THE FALLACY OF SAVING. proved by Ricardo. 1 J. B. Say dismissed hiixi in a single flims}^ footnote, 2 summing up his thesis in the unintelligible proposition that " l'accumulation retire de la circulation des valev/rs qui seraient favorahles (I Vindustrie" B and refuting this by saying that " ni le capital productif, ni ses accroissements, ne sont retires de la circulation." 4 Evidently he had not read the book ; but his bogus refutation would settle the matter for France. Blanqui in his bibliography speaks of the Inquiry and the Earl's Considerations on the State of the Currency (1813) as works "encore estime aujourd'hui, surtout le dernier, meme apres les ecrits de Ricardo ; " 5 but McCulloch, who drew on his learning, does not criticise the Inquiry either in his Principles or in his Literature, merely insinua- of buyer and seller, by Professor Perry, as cited by Professor Price (Practical Political Economy, 2nd ed., p. 46). 1 Principles, ch. 30. It is probably needless to point out here the formal inefficiency of Ricardo's contention, as against the supply and demand formula of value, that the prices of freely produced commodities " will ultimately depend, not on the state of demand or supply, but on the increased or diminished cost of their production/' Obviously the antithesis is only verbal, and the proper statement is that cost of production ultimately regulates supply, price being still a function of supply and demand, just as where supply is determined by hazard or by a monopolist's choice. 2 Traite d'Econoniic Politique, 4ieme edit., i. 107. :; " Accumulation withdraws from circulation values which would be favourable to industry.'' i " Neither productive capital nor its augmentations are with- drawn from circulation." 5 " Still esteemed to-day, especially the latter, even after the writings of Ricardo/' BROUGHAM AND LAUDERDALE. ting that Brougham disposed of it in the Edinbi Revieiv ; and Lauderdale is not so much as named in Cossa's Guide to the Study of Political Economy, though Roscher and Bohm-Bawerk cite him with a frequency which testifies to some study. Professor Ingram, again, 1 alludes to him with approbation, but with his usual failure to discern the economic issue. Brougham's criticism 2 in all probability was a means of discrediting Lauderdale among English economists and Liberals generally, 3 though he not only left the Earl's central position untouched but stole some of his thunder. The critic actually adopted without acknow- ledgment Lauderdale's effective attack on Smith's dis- crimination of " productive " and " unproductive " labour, just as lie adopted without acknowledgment Say's rebuttal 4 of Smith's assumption (on the lines of the Physiocrats) that only in agriculture did Nature assist men's efforts. These refutations were likely to win acceptance for the article as a whole, put forward 1 History of Political Economy, p. 111. 2 Edinburgh Review, July, 1804. 8 I strongly suspect that Lauderdale's grossly adulatory dedi- cation of his book to the Prince of Wales did something to arouse distrust. 4 Traite d'JEconomie Politique, 4ieme ), it was put forward by Count di Verri last century, and later by Destutt de Tracy. And Lauderdale quotes (p. 109) a passage implying it from an anonymous writer (really Asgill) in L696. c 34 THE FALLACY OF SAVING. as they were in the reviewer's own person; and for many readers, no doubt, Lauderdale's book was dis- posed of by a critique whose strongest points were really derived from it. The book as a whole is de- preciated with every air of omniscient superiority that an early reviewer could assume. And yet the crit- icism expressly concedes the main argument of Lauderdale against Smith : — " If by accumulation our author means only too great ac- cumulation of stock (that is, a greater aggregation of capital by parsimony, than can be employed), we have only to deny the novelty or importance, not certainly to dispute the truth of hie doctrine." x But, as we have seen, the whole drift of Smith's argument had denied that there could be over- accumulation of capital ; and that was the prevailing view among his followers ; so that Brougham was de- preciating Lauderdale on a ground which his own party could not honestly take. For the rest, when he goes on to argue that the undue multiplication of " capital " by production would be just as bad as its multiplication by saving, because in the former case also it could not be " profitably employed," he falls into complete confusion. Lauderdale was actually arguing that there were necessary limits to the ac- cumulation of capital — that is, stock devoted to fresh production — and contending that what was wanted was not more capital but more consumption. In fine, Brougham's criticism, marked as it was by his usual hasty cleverness, as well as his usual egoism, was 1 Revieiv as cited, p. 373. MALTHUS'S CRITICISM. 35 merely that of a lawyer. It was thus at its best on questions of plain analogy, where it was not original, and became insignificant and evasive where the pro- blem became vital and practical. But that is just the sort of criticism that commonly serves to put down an innovating argument among partisans glad to have it dismissed. The argument of Malthus, again, would seem to have missed its mark for a similar reason. He too gives a forcible answer to Smith's prescription of parsimony. The rationale of the matter he sum- marises thus : — " National saving, considered as the means of increased pro- duction, is confined within much narrower limits than individual saving. While some individuals continue to spend, other indi- viduals may continue to save to a very great extent ; but the national saving, or the balance of produce above consumption, in reference to the whole mass of producers and consumers, must necessarily be limited by the amount which can be ad- vantageously employed in supplying the demand for produce ; and to create this demand there must be an adequate consump- tion either among the producers themselves, or other classes of consumers.' 1 1 And he passes an irresistible criticism on the incon- sistency of Smith in asserting, despite his dogma of parsimony, that " the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary.'' Smith's course, he points out, " is to found a doctrine upon the unlimited desire of mankind to consume ; then to suppose this desire limited in order to save 1 Principles of Political Economy, p. 4G7 : cp. 486. 36 THE FALLACY OF SAVING. capital, and thus completely alter the premises; and }-et still to maintain that the doctrine is true." But while this criticism was never met, Malthus, like Lauderdale, passed out of notice as an economist, presumably because he too lent himself to the cause of the idle classes. His opposition to the repeal of the corn laws, bottomed though it avowedly was on his established doctrine of population, would alone have gone far to discredit him in the eyes of the trad- ing classes ; but he had further the unhappy inspira- tion (1) to put his case in the proposition that the most incontestably " unproductive " classes actually promoted public wealth inasmuch as they were con- sumers ; (2) to argue for consumption by idlers rather than by workers ; and (3) to insist positively that the National Debt was a condition of public well- being. 1 Malthus saw further into the social problem 1 It is easy to see that it was not want of good feeling that made Malthus formulate his views so unluckily. He anxiously but vainly modified his more unfortunate statements. After ruinously arguing (p. 472) that a greatly increased consumption among the workers must greatly increase cost of production, and so diminish agriculture and commerce, and that therefore the idlers must do the extra consumption, he shifts his position and puts it (p. 489) that even if the workers might have the power to consume sufficiently, experience shows they have " not the will ; and it is to supply this will that a body of unproductive consumers is necessary." And he goes yet further. In the later redaction of his Essay (7th ed., p. 473) he even makes bold to declare that "it is the diffusion of luxury among the mass of the people, and not an excess of it in a few, that seems to me most advantageous both with regard to national wealth and national happiness. ;; And it is plainly the danger of dis- MALTHUS AND CHALMERS. 37 than the Free Traders ; but unfortunately, in his economics, he read it backwards. The question for him should have been : How could the sum of pro- duction be maintained while minimising the idle class ? He, however, read it simply thus : What would be the effect on production of annihilating the revenue of the idle class, or of causing them to invest their (nominal) capital otherwise than in State debt ? Giving the true answer to this, he went no further, and so figured as an advocate of national indebtedness, putting only a few lukewarm objections against his account of the benefits. Finally, as McCulloch was careful to point out, he was not optimistic about machinery ; and only in our own day has economic optimism on that and other matters been effectively discredited. And Chalmers, in his turn, frustrated himself in a similar fashion. Following Malthus in the main in general economics as he did on the population ques- tion, he worked out an independent refutation of the principle of parsimony ; and he did not fall into the snare of justifying the National Debt. On the con- trary, he advanced a telling economic argument for the payment of war debts out of revenue by extra taxation. But he must needs, on the other hand, not only champion primogeniture for the sake of the "moral and humanising effect " of a resident gentry, but propose 1 that the State should make a " liberal provision in all the branches of the public service " tress that makes him hesitate {PrmovpUs, \>. 485) even about the slow reduction of the Debt. On I'alil inil I'Jrintonaj, p. 1372. 245. 1 .. 38 THE FALLACY OF SAVING. whereby all younger sons should have places of a thousand a year ! " We should still have the State to support the younger branches ; yet not by the violation of its integrity, but by a more severe taxa- tion than our politicians of the present day [1832] have the courage to impose." Somehow the politicians of to-day are still more degenerate ; and the reverend gentleman's heroic politics have sunk his economics. One and all, the English opponents of the fallacy of parsimony had contrived to associate their argument with the doctrine that it was a good thing to multiply rich idlers ; Lauderdale seemingly doing it by mere reticence ; Mai thus and Chalmers doing it more or less of malice prepense. On the Continent, again, Sismondi's opposition to machinery seems to have had a similar effect in discrediting his opposition to the theory of parsimony. In view of the utter neglect of Sismondi's wisest and weightiest writing, it would in- deed be unwarrantable to assume that he would have been much more listened to had his practical prescrip- tion been different. Perhaps his impeachment of the life of blind competition was in those days too far wide of the average moral sense to make converts under any circumstances. Long before either Carlyle or Ruskin, and with more sanity and temperance than cither, he insisted in the name of political economy itself that man lived in society to secure his happiness and not to produce cotton and buttons at the lowest possible price. 1 Even in London, he pointed out, 2 the people had made for themselves public parks, and — 1 Nouveaux Priucipes d'Ecouumie Politique, 2e 6d.it., 1827, ii. 141. - lb., p. 140. SISMONDl'S CRITICISM. 39 "les habitants ont senti que l'air pur, la promenade, la jouis- sance des yeux, sont aussi des produits, et que la richesse qui donne de la saute" et du plaisir n'est pas infructueuse." x Misconceived and misrepresented by his friend Say, he thus 2 summed up his attitude towards industrial- ism: — " Seulement j'ai pretend u que la multiplication des produits dtait un bien quand elle etait demandee, payee, consommee ; qu'elle etait un mal au contraire quand n'etant point d^mand^e, tout l'espoir du producteur etait d'enlever un consommatewr aux produits cPune i/ndusbrie ricale." .... " La consequence de nos institutions, de notre legislation, ayant ete" de depouiller la classe travaillante de toutc propriete et de toute garantie, l'avait en meme temps pouss^e a un travail de~sordonne, qui n'etait point en rapport avec la demande ou avec les moyens d'acheter, et qui aggravait en consequence sa misere." 3 The general truth of this was later admitted by Mill, in his avowal that "hitherto it is questionable if all the mechanical inventions yet made have lightened 1 " The inhabitants have felt that pure air, free walking, the pleasure of the eyes, are also products, and that the riches which give health and pleasure are not unfruitful." - lb., p. 462. 3 "I have simply contended that the multiplication of pro- ducts was a good thing when they were demanded, paid for, consumed ; that, on the other hand, it was an evil when, not being demanded, the whole hope of the producer was to withdraw a consumer from the products of a rival industry." . . . " The upshot of our institutions, of our legislation, having been to despoil the working-class of all property and of all security, they were at the same time driven to reckleBS labour, which was not correlated with demand or the means of purchase, and which in consequence aggravated their misery." 40 Till: FALLACY OF SAVING. the day's toil of an}- human being - ." 1 But even Mill would not see the force of Sismondi's economic argu- ment against the optimistic positions ; and inasmuch as that went with an attitude of unscientific hostility to machinery, as well as with a perfectly scientific propaganda in favour of forms of consumption which machinery could not meet, Sismondi's lack of influence is partly intelligible, even apart from the general backwardness of sociology and the association of his doctrine with some of those of Conservatism. Enough that whereas the natural optimism of the Free Trade movement was alone sufficiently hostile to a scientific recognition of the possibilities of disaster under a free regimen; and whereas even the doctrine of Mai thus on population tended to be willingly ignored by the average Free Trader as soon as possible, despite its acceptance by his economists, the English writers who challenged optimism had further given fatal grounds for the belief that they were the friends of the old order and not of the new. Commercial opinion went with the optimists who were visibly democrats as well as Free Traders, and who endorsed the healthy moral instinct which formally, however illogicalry, condemned idle livingf. There was, indeed, an optimism in those days which had stomach for everything, bar protection; which was content alike with parsimony, luxury, pressure of population, and primogeniture. The robust McCulloch is the typical optimist of Laissez-faire. Defying Smith, he was not a whit afraid of spendthrifts : he endorsed Dudley North's decision that sumptuary 1 B. IA T ., ch. iv., sec. 2. m'culloch's optimism. 41 laws kept a country poor by checking ambition ; and he thought luxury a very good thing, as promoting production. 1 He also held that increase of labour de- pended on increase of saved capital ; 2 but then capital was " formed out of profit." 3 He disposed of the fear of insufficient saving by a Leibnitzian pre-ordained harmony : — " It has been wisely ordered that the principle which prompts to save and amass should be as powerful as it is advantageous."" 1 With Smith he decided that there would always be more saving than spending; 5 and, again with Smith, he also maintained on the contraiy 6 that nobody ever heard of a want of will to spend. Over-population he showed, with Bishop Sumner, 7 to be the basis of civilisation, even if it did reduce wages; 8 primogeni- ture promoted energy and benevolence ; 9 and even taxation, up to a certain point, 10 stimulated thrift and industry. Gluts, though certainly the results of mis- calculation, 11 were at the same time really caused by insufficient production 12 of the things which there was not a glut ; if there was too much of one thing, it only needed, as M. Say had shown, 13 more of other things to buy it up. Sic itur ad astra. Taken all round, McCulloch's optimism is a memorable pheno- menon. But it was to be superseded by an optimism a little more sympathetic, a little more discriminating, and, at the same time, a little more preposterous. 1 Principles, 2nd ed., pp. 515-523. 2 Pages 515-534. ° Page 185. 10 Pages 113-llt>. ■■ Page 11G. ■ Pages 225-230. ll Page 203. * Page 112. » Page 484. 1 - Page 185. 5 Pa<'e 535. •' Pages 259-260. 1:; Page 201. CHAPTER V. THE ARGUMENT OF J. S. MILL. I have said that the wish was father to the thought when Adam Smith urged that the man who saved money for investment could not fail to benefit his fellows. No other explanation can suffice for the strange energy of error which inspired John Mill's " Fundamental Propositions Respecting Capital." 1 In so far as that chapter is an explicit statement of the wage fund theory, he of course abandoned it later ; but no excision of a subsidiary doctrine can save from decomposition the deplorable tissue of fallacy which he thought fit to dub fundamental. The great defect of Mill's great quality of open-mindedness was always laxity of hold on the parts of a thesis ; a laxity which made possible to him strokes of self-contradiction not to be paralleled outside of the works of Mr. Ruskin. His father, on whose strength of conviction some think the son's catholicity an improvement, was in- capable of these astonishing self-stultifications — of saying in one section 2 that a socialistic adjustment of work to individual faculty is quite possible, and in the next that the supposition is " almost too chimerical to be reasoned against ; " of saying in the proem that the laws of distribution, unlike those of production, are 1 Principles, B. I., ch. v. - B. II., ch. i., sec. 3. 42 J. S. MILL S ARGUMENT. 43 " partly of human institution," and in the beginning of the second book that distribution is " a matter of human institution solely." These and other vacilla- tions have been exclaimed against by critics friendly enough to Mill ; but nobody, I think, has yet done full justice to the indescribable see-saw of the " Funda- mental Propositions." Nobody, perhaps, ever will ; there is nothing in non-theological literature to com- pare with it. The applications of the idea of capital are prepared for by the previous chapter on capital itself. In the first section of that we learn that " whatever things .... are destined to supply productive labour with .... requisites, are capital." Then we have the statement that a capitalist who has nothing but iron goods can, by a " mere change of the destination of those iron goods, cause labourers to be fed," — the meaning really being that with a portion of the pro- ceeds he can pay wages to extra workpeople. Here, too, we have the proposition that capital exists as such by virtue of the owner's intention to use it as capital, an admission that a nation's capital may fluctuate greatly from day to day ; which was al- ready a surrender of the wage-fund theory. Then we have the explanation that " all funds from which the possessor derives an income .... are to him equivalent to capital ; " but what is capital to him is not capital to the nation. And yet, after all, we have this illustration. A capitalist, A., lends on mortgage £10,000 ["property of the value of £10,000," is the desperate phrase by which the argument is sought to be bolstered up] to C, a spendthrift landlord, who -14 tin: fallacy of saving. lays it out on " equipages and entertainments," — the good old Smithian illustration. Then, when it is spent, A. is " as rich as before .... he has a lien on the land, which he could still sell for" his £10,000 ; but C. is £10,000 poorer, "and nobody is richer." This, though, the nominal command of that £10,000, which was all that A. parted with and all that C. lost, was, in the terms of the case, transferred to other people ! Of course nothing even of the " equipages " is left: all "unproductive" spending, doubtless, is " unproductive," but for these arguments you are farther to assume that the spending man is an or- ganism who makes a clean sweep of all he buys. In the " fundamental " chapter (§ 5) we definitely learn that not only his equipage but his furniture is invari- ably " destroyed without return." In the first section of that chapter we have the implicit proposition that when legislators by their laws contrive that any portion of the capital of the country be emploj^ed in a new industry, that capital " must have been withdrawn or withheld from some other " industry. This is one contradiction of the previous dictum that capital as such comes into existence when a man decides to use as capital what he might have spent as revenue. But the contradic- tion is promptly recontradicted in the second section, which assures us that not only can capital increase in productive power, but " increased returns " hold out an " additional temptation to the conversion of funds from an unproductive destination to a productive " — which is another denial of the wage-fund theoiy. Thus is economics made at once a terror to leuislator J. s. mill's argument. 45 who create new industries, and a comfort to civilians who want them. And yet the legislator in turn is informed that he may " lay on taxes and employ the amount productively " ! The reeling intelligence is, however, supported at this point by the quick adden- dum that the legislator may " do what is nearly equivalent" — he may tax income or expenditure and pay off some of the public debt ; in which case the amount paid off will be capital, necessarily to be in- vested — to produce the goods the investor could no longer afford to buy. The first Fundamental Proposition had been " that industry is limited by capital." In the second section it is explained that " we are not, however, to infer that it always reaches that limit. Capital may be tem- porarily unemployed, as in the case of unsold goods, or funds that have not yet found an investment. ' That is to say, in the case of the goods, lack of demand for the time limits industry. But this contradiction mustof necessity be contradicted, so in the third section we attain the conclusion that the "limit of wealth" [which please to read as = industry] "is never deficiency of consumers, but of producers and productive power. Every addition to capital" [including unsold goods or money that cannot find an investment] "gives to labour either additional employment or additional remuneration." And this how ? The goods remained unsold; yes; "but this is seeing only one half of the matter." "The whole of what was previously ex- pended in luxuries, by capitalists and landlords, is distributed among the existing labourers iti the form of additional wages" — that is to say, in employing 46 THE FALLACY OF SAVING. labourers to make unsaleable goods, which is so much more beneficent a process than encouraging the con- tinued employment of those who produce the " luxuries," now also unsaleable. And if you are not impressed, you must try and assume, as does Mill here, that luxuries are made by nobody. After this the fun grows fast and furious. The cause at stake being that of saving, it becomes a fundamental proposition that only by saving can you have capital. There arises the random hypothesis that without consuming less, nay, even while consum- ing more, you may produce still more; but "never- theless there is here an increase of saving in the scientific sense. Though there is more consume J, there is also more spared. There is a greater excess of production over consumption .... We must not allow T ourselves to be so much the slaves of words as to be unable to use the word saving in this sense." In fact, if you will, there had been no great difference of doctrine between Smith and Lauderdale. Two fundamentals being thus secured, we reach a third — that capital, though saved, is nevertheless consumed — the formula of Smith. And whereas that might be too difficult a conception to " the vulgar," whose eye follows all savings "into an imaginary strong-box," we have a further interesting demonstra tion that what is consumed is saved. As thus. The spending man, that suicidal materialist, effects " a consumption, that is to say, a destruction, of wines, equipages, and furniture." But while the destroyer has been implacably conducting his daily bonfire, " the saving person, during the whole time that the J. s. mill's argument. 47 destruction was going on, has had labourers at work repairing it ; who are ultimately found to have re- placed, with an increase, the equivalent of what has been consumed." The beneficent task of this estimable person is thus the production of fresh wines, equipages, and furniture, for the (so to speak) annihilist spend- thrift to destroy. But as it appears on reflection that from this point of view the moral merits of the spender and the saver are not sufficiently differentiated, the economist, candidly admitting that the pabulum of the spendthrift " could not in any case have been applied to the support of labour" (which contemns wines, shuns equipages, and distrusts furniture), pro- ceeds to explain that for a change we may produce something else. Since the wine, furniture, and equip- ages " continue to be produced as long as there are consumers for them, and are produced in increased quantity to meet an increased demand," why, it is the man who demands things who is really responsible for their being produced. On which comparatively commonplace proposition (which, as we shall see, is in flat contradiction to the fourth Fundamental Pro- position) there follow some remarks to the effect that structures not intended for productive purposes, such as Westminster Abbey, sometimes last very long, while it does not pay to make durable factories ; a truth set forth not so much to encourage saving, which rather runs to factories, as to show more fully that most things that are saved are consumed. It is after an interval of agreement, as to taxation, with the original but questionable Chalmers, that we reach Mill's fourth and last Fundamental Proposition 48 THE FALLACY OF SAVING. Concerning Capital, "which is, perhaps, of toner over- looked or misconceived than any of the foregoing.'' This proposition is that " Demand for commodities is not demand for labour." That is to say, " The de- mand for commodities determines in what particular branch of production the labour and capital shall be employed; it determines the direction of the labour; but not the more or less of the labour itself, or of the maintenance or payment of the labour. These depend on the amount of the capital or other funds directly devoted to the sustenance and remuneration of labour/' Now, we had previously agreed that there was such a thing as "additional temptation to the conversion of funds from an unproductive destination to a produc- tive " ; and it might be thought that a demand for more goods would constitute such a temptation ; but we have since changed all that. The task now r is to show that mere fresh demand can never extend in- dustry, since the human faculty of demand is a strictly limited quantity, though it can perhaps be expanded when saved capital creates supply. To be sure, there is an admission at the other end of the book 1 that " restoration of confidence " may revive trade from collapse ; but we are a long w r ay from that chapter at present ; and the creed of the moment is investment, not expenditure. If, then, you elect to demand one thing, you must go without another; and if, perad- venture, you used to save money and are now minded to spend it, you still do not call for fresh labour, but only turn labour from other things to do what you want. It w T ould follow on this that wdien, instead of 1 B. III. ch. xiv., sec. 4. J. S. -MILL'S ARGUMENT. 49 spending your money on products, you lend it to a manufacturer, there happens just the same thing — you cause labour to be drawn from one branch to another. But this altogether too simple equation would give no special moral encouragement to saving, so it becomes necessary to substitute for it an extended process of reasoning, in which, haply, things may come to look different. To begin with, then, let us suppose that there is a demand for velvet, but no capital to make it ; then no velvet will be made. So much for that. The pro- position is meaningless, but no matter. Let us sup pose next that there is plenty of capital but no demand, then, again, no velvet will be made. But in this case manufacturers and labourers will either produce some- thing that is in demand, " or if there be no other de- mand, they themselves have one, and can produce the things which they want for their own consumption " — velvet-makers and others having happily always this resource in dull times. " So that the employment afforded to labour does not depend on the purchasers, but on the capital." Q. E. D. ! At this stage it is thoughtfully admitted by Mill, that if a demand for a commodity suddenly ceases after it is produced, the' capital employed is lost. But wo are not to suppose that this is merely for lack of demand for the commodity. " The employment which [the capital] gave to labour is at an end, not because there is no longer a demand, but because there is no longer a capital." In other words, when you arc shivering, with coals and sticks in your grate which you have no means of lighting, the trouble is not that 50 THE FALLACY OF SAVING. you have no paper and matches, but that you have no fire. The student may here inconsiderately suggest that if demand set in anew it would create afresh that evanished capital — but — revenons a nos moutons. " This case does not test the principle. The proper test is to suppose that the change is gradual and fore- seen " — in fact, if you will have it so, it is perhaps better not to stop your velvet-buying all at once, lest by stopping demand you destroy capital and dis- employ labour. But that is not the point : the point is saving. A flood of light being thus already shed on the subject, we proceed to suppose the case of a consumer at the parting of the wa} 7 s, as it were, hesitating whether to hire bricklayers to build, or " excavators to dig artificial lakes," or simply to buy velvet and lace, obeying the fatal bias of the typical spender to these articles. On one side beams the voluptuous velvet (we do not dally over the lace) ; on the other beckons the tawny bricklayer, the more sophisticated lake- excavator being on second thoughts kept out of sight, so as not to complicate the problem. Now, observe the difference. If the consumer casts the fatal die for velvet, " he does not employ labourers ; but merely decides in what kind of work some other person shall employ them. The consumer does not with his own funds pay to the weavers and lacemakers their day's wages." Let there be no mistake about that. And now suppose after all that he had previously been in the " habit " of " hiring journeymen bricklayers," and see the fatal result ! He calls for velvet, but where is the capital to make it ? Alas ! all old dreams of fresh J. s. mill's argument. 5 1 savings notwithstanding, the capital can only come from those concerns which formerly provided food for the now forsaken bricklayers — such being the natural and inevitable course of commerce ! " There was capital in existence to do one of two things — to make the velvet, or to produce necessaries for the journey- men bricklayers, but not to do both." Here, perhaps, the inquiring mind pauses to raise this problem : If the capital of the bricklayers' provision-dealers is thus inevitably transferred to the making of velvet, what is to become next of the new velvet-makers, to feed whom there is no capital left, though they are earning wages ? And what if, after all, the bricklayers them- selves, taking a leaf from the book of their whilom grocers and bakers, went to work in the velvet-factory ? The fundamental exposition saith not — though to be sure we had heard that demand for commodities did transfer labour from one task to another. Rather we turn to this other pleasing hypothesis. Suppose the slave of velvet " resolves to discontinue that expense, and to employ the same annual sum in hiring bricklayers." Now observe the beneficent change. The velvet-manufacturer "sets at liberty " a portion of his capital — he naturally would ! — and whereas the reformed consumer is now employing bricklayers with one fund, the versatile manufacturer has a " second fund " free to employ more labour with. Your velvet-maker is thus ready for whatever may turn up. So " there is a new employment created for bricklayers, and a transfer of employment from velvet- makers to some other labourers, most probably those whu produce the food ami other things which the 52 T1IK FALLACY OF SAVING. bricklayers consume." To the harmonious adoption of this view, there are necessary only three concessions. You have (1) merely to assume, for peace" sake that no capital had ever been employed in producing fund for the velvet-makers ; (2) you are to blot the dis- missed velvet-makers from the book of your re- membrance; and (3) you are not to go back on old discussions and ask how the velvet-manufacturer contrives to " set free " the capital embodied in the velvet which he cannot sell. With these trifling adjustments, the argument for hiring bricklayers versus buying velvet is complete. As for the doctrine of saving and investment, that must for the present be left to shift for itself ; because there is the drawback that the mere investor does not pay wages with his own hands : he only enables other people to pay them as the merest velvet-buyer might do. That is to say, Mill's attempt to vindicate the principle of parsimony has ended in negating it. Smith counselled us to save money in order to invest, or produce goods for sale. Mill, carrying Smith's confu-ion further, ends by counselling us to spend directly in wages, on the score that only by such expenditure can we really " employ labour." The argument that " capital is the result of saving " comes to absolutely nothing, for the money saved to be ex- pended is no more capital than any other money spent in ordinary course. It is spent without profit. The statement that saving enriches, and spending im- poverishes, the individual along with the community, comes to nothing, for in the end it is sheer spending that is prescribed. j. s. mill's argument. 53 The upshot of this precious demonstration is worthy of the steps. Desiring to help the working-classes, you have hired them to make a house you do not wa nt, and which you are not to sell. You are not to sell it, for the reason for which you were not to buy it. " A demand delayed until the work is completed . . . contributes nothing to the demand for labour ; and that which is so expended is, in all its effects, so far as regards the employment of the labouring classes, a mere nullity." On that ground } 7 ou did not try to buy a house ready-made, or even to order one ; and would you then encourage anyone else to take the nugatory course which you avoided ? No : there is your house; there are the fed and clothed bricklayers; and if you would continue your beneficent course } t ou have only to set them building another useless house, or, perhaps, for a change, digging an artificial lake. That, too, must be made for no ulterior purpose. There was no outside demand for the house you have built ; if there had been, the bricklayers would have been employed by a builder, without your personal intervention. But " when there is no demand for houses, no houses will be made," so that you yourself had to make demand for the house you built, after all that argumentation about the futility of demand. Only, you were to take the work of hiring the men, instead of letting a master-builder hire them for you. And it is to this that the argument for savin" - and investment comes in the hands of the economist who professes most elaborately to establish it; the saving and investment are finally to consist in sinking capital in personally employing men to build houses 54 THE FALLACY OF SAVING. not destined for consumption. And the whole econo- mic upshot, as has been remarked by Mr. R. S. Moffat, is to indicate a preference for bricks over velvet. 1 Nor is this all. I have commented elsewhere 2 on the fashion in which Mill here keeps out of sight in his " Fundamental Propositions " what he elsewhere recognises 3 as a fundamental truth in social affairs — the impossibility of providing genuine labour or even food for all, unless there is a restraint on the number born. He does, indeed, put it i that on his plan workers may always be employed while there is " food to feed them ; " but he does not offer the least hint that the continuous employment of unskilled and slightly skilled labour would soon carry popula- tion to a point at which there would not be food to feed it. He puts forward his unhappy demonstration 1 Tlie Economy of Consumption : An Omitted Chapter in Political Economy, 1878, p. 90. This able writer, who has pro- duced one of the most oi'iginal books in recent English economics, an effective criticism of the parsimony fallacy in general, and Mill's fallacies in particular, illustrates afresh the strange fatality which pursues the opponents of the doctrine of universal saving. Like Malthus and Chalmers, if not like Lauderdale, he undoes his work by ranking himself on the side of privilege. He can smile at Chalmers' plan for endowing younger sons; but he himself arrives (p. 376) at the doctrine that landlords are at once neces- sary and advantageous, "that rent is inseparable from the duties of proprietorship; that it is the price paid for the performance of these duties; and that a rent is thus a part of the natural cost of production." In the face of this perversity I can but speculate as to whether I in turn part company somewhere with scientific politics and universal ethics. - Modern Humanists, p. 99. 3 B. II., ch. xii., sec. 2. 4 B. I., ch. v., sec. 3. J. s. mill's argument. 55 as if it were a real solution of the industrial problem, and only takes into account the population difficulty in another chapter, for the purpose of rebutting the demands of the Socialists who want State-provided employment for all. Individ ludly -provided employ- ment is represented as involving no such drawback. No doubt he tended to see things differently in his latter years, but there the old fallacy stands in his book, unretracted. Like Smith, he went on adding new views to old without reducing them to agree- ment ; and there is scarcely a proposition in his argu- ment on Saving that is not explicitly gainsaid by others, in the same chapter or later. Thus, after all his insistence on the destructiveness of the spend- thrift, he adds a footnote admitting that there is a " compensation, more or less ample," in the fact that spendthrifts " do not usually succeed in consuming all they spend" (sic); and this note ends with a refer- ence to " that part of the Fourth Book which treats of the limiting lyrinciple to the accitmidation of capitcd" — a principle which he has just been ex- pressly refusing to accept. The upshot is that the denial stands as part of the Fundamental Propositions, while the truth is recognised at the other end of the book; and even the glimpse of the rationale of spend- ing does not prevent a repetition of the dogma of parsimony in the same note. The confusion is hope- less CHAPTER VI THE DOCTRINE SINCE MILL. After the foregoing it matters little that Mill goes on to supply half-a-dozen more self-stultifications on points of detail, admitting now that to manufacturers " a falling off in the demand is a real loss ; " and that, after all, " an increased demand for a commodity does really .... often cause a greater employment to be given to labour by the same capital" These fresh collapses make the infirmity of the writer a little more abundantly manifest : they cannot heighten the ineptitude of the general argument. And yet that tissue of childish sophistry constitutes to this day the orthodox economic teaching on the subject. Mill's unquestionable good faith, with the contagion of optimism which had bewitched him, sufficed to blind men to the abject absurdity of his reasoning. I can- not agree with the late Professor Jevons that the economics of Ricardo is a substantially unsound system, which, by the help of Mill and his followers, has overridden a substantially sound economics set forth by Malthus and Senior ; but I am bound to de- clare that on this one question of saving fallacy has pushed aside science. 1 So far as economics has been 1 Jevons himself is on the wrong side. He laid down the doctrine of universal saving in the most absolute terms (Primer 56 MR. LESLIE STEPHEN. $7 studied among us, Mill lias been the leading authority down to the other day ; and the popular Fawcett is a recapitulation of Mill. Mr. Leslie Stephen has remarked that " Hitherto it may be roughly said that the advantages gained [from the study of political economy] have consisted rather in clearing away old errors than in discovering new truths — so far as these processes can be separated." l The latter words are suggestive of an imperfect appre- hension on the writer's part of the truth he seeks to expound ; and the suspicion here set up is more than justified when, a little farther on, we have from him this deliverance : — "Beneath the fallacy of the balance of trade and the identi- fication of money and wealth 2 lay another fallacy, apparently more transparent, and yet so obstinately persistent that its roots must clearly strike very deep in the minds of most observers. The fallacy is that which was made celebrated by Mandeville, and the complete confutation of which lies in the doctrine — so of Political Economy, pp. 45, 84-G) without once asking how all the savings could be profitably applied, though he put it for- ward (p. 133) as a reason why it was absurd for a nation to accumulate gold and silver that there is "a loss of interest upon their value." That is itself an old fallacy; but the doctrine might have set him reflecting upon the excessive accumulation of money-credits. In his Theory of Political Economy, however, he exhausted his powers over purely theoretic reforms withoul coming in sight of the practical fallacy of saving. In the Primer he appears to follow Cairnes. 1 History of English Thought in the Eighteenth Century, ii., 285. 2 Mr. .Stephen is not clear about the existence of this fallacy, even in the work quoted from (cp. pp. 287, 289); and in a later composition he almost denies that it ever existed (Fortnightly R new, -May, 1880, p. 689). THE FALLACY OF SAVING. rarely understood that its complete apprehension is, perhaps, the best test of a sound economist — that demand for com- modities is not demand for labour." x Of this doctrine, recognised to be so elusive, Mr. Stephen makes no exposition ; and we can only sur- mise that he adopted his conviction second-hand from his friend Fawcett, who had dutifully taken it from Mill, and who so far outwent his master that, like Cairnes, he declined to give up the wage-fund theory when Mill did, continuing to hold it in its crudest form, however, 2 while Cairnes reduced it to the " arithmetical truism presented as an economic law/' which might equally have evoked the derision of Marx. But an abler economist than Fawcett, the clear and careful Professor Sidgwick, takes the distressing course of avowing that Mill's doctrine of demand for commodities not being demand for labour " is, I believe, perfectly true when properly explained," 3 when, in point of fact, the " proper explanation '' in his own hands becomes either a truism or a quibble, as you may happen to regard it. He ends by "granting it to be substantially true that the consumers of luxuries do not ' demand labour ' in Mill's sense, i.e., do not supply the real wages of the labourers who 'pro- duce the luxuries " bought by that particular act of demand. And while on the one hand reducing the " truth " in Mill's laborious argument to this com- plexion, after stating that Mill's argument in support of his formula " appears to me to a great extent sound," 1 lb., p. 297. 2 Manual of Political Economy, B. II., ch. iv. 3 Principles of Political Economy, B. I., ch. v. Note at end. PROFESSOR MARSHALL. 59 he notes: "I think, however, that it is all in form unsatisfactory ;" and " I think that a part of the argu- ment — that which compares the effects of a purchase of luxuries in a shop with the employment of labourers to produce luxuries — is quite erroneously stated." What Professor Sidgwick here calls a part of the argument is really its essence. But even if he had exposed Mill's fallacy with that explicitness which his conscientiousness seems to make so difficult to him, it would avail little against the reigning cult. Mill's and Fawcett's are still the current manuals. The same comment is applicable to the latest and most magistral English treatment of Mill's Fundamental Propositions. In his ripely considered Principles of Economics, Professor A. Marshall puts forward a view of Mill's doctrine which, while apparently expressly framed to give the most reasonable sense to his Fundamental Propositions, ends by reducing them to nullity. Professor Marshall admits l that the state- ment that industry is limited by capital is " an awk- ward and unfortunate sentence ; " and in examining it later 2 he says that it "has been applied for many purposes," and that Mill himself " chiefly " used it to show that protective duties cannot increase the total employment of labour. Professor Marshall offers no further defence. " This first Fundamental Proposition of Mill's," he continues, "is closely connected with his fourth, viz., that Demand for commodities is not demand for labour, and (his again expresses his mean- ing badly." That is to say, Professor Marshall tries 1 Isted., p. 138 ; 2nd ed., p. 133. 2 1st ed., pp. 5G'J, 570 ; 2nd ed., pp. 575, 570. Go THE FALLACY OF SAVING. to find a better meaning for Mill's words than lie ostensibly meant to give them. It is thus suggested: " It will l»e found that in every instance in which he has chosen to illustrate the doctrine, his arguments imply, though he does not seem to be awewt of it, that the consumer when passing from purchasing commodities to hiring labour, postpones the date of his own consumption of the fruits of labour. It is this postponement, this waiting, that in Mill's illustrative instances really increases the capital ready to aid and support labour ; and therefore increases the effective demand for labour. And the same postponement would have resulted in the same benefit to labour if the purchaser had made no change in the mode of his expenditure." Here an attempt is made to minimise the absurdity of Mill's argument, yet even thus it is admittedly nugatory. I have only to add that Professor Mar- shall, in putting the best form on the fallacy, himself makes an unwarranted statement. He gives no proof for the assertion that the postponement of consump- tion of what is made "increases the effective demand for labour." He too, in turn, has forgotten the " vel- vet-makers," who in the terms of Mill's case will be either unemployed or half-employed when the em- ployer finds a falling-off in the demand for his pro- ducts. Thus Professor Marshall does not finally take note of the fundamental fallacy of all four of Mill's propositions ; and the doctrine of saving is left in command of the field. Every British student of economics is still shown the folly of the young noble- man who bought eighteen waistcoats to help trade, instead of lending money to the tailor to make un- saleable waistcoats, or lay in superfluous cloth. PROFESSOR CAIRNES. 6 1 And one of the most respected of English econo- mists since Mill, Professor Cairnes, who had the merit of repudiating the old laissez-faire optimism and dealing frankly with the political side of econo- mics in the light of his knowledge, has stood sted- fastly to the old faith on saving. "I take it to be a fundamental and indispensable condition of all progressive human society, that by some means or other a large aggregate capital available for its recpuirements should be provided. Without such a fund, accumulated from the 'products of past toil, division of labour and continuous industry are im- possible ; population cannot attain the degree of density in- dispensable to civilised existence ; nor can that amount of leisure from physical toil be secured for any considerable por- tion of the people which is required for the cultivation of science and literature." 1 Professor Cairnes, though here pointing to social arrangements which might obviously be set up on other lines than that of money-saving, could not con- ceive that the special process of " sacrifice " which he saw in " saving " might be enforced in a socialised •State by mere " benevolence and public spirit," and accordingly decided on that ground against Socialism. He was positive that " capital can only be created by saving," and accordingly declared : " If then the labourer is to emerge from his present position and become a sharer in the gains of capital, he must in the first instance learn to save." 2 That is to say, there may be universal saving, with gain all round — the old doctrine in its wildest form. It is nothing to 1 >s'o)//< Leading Prmciples <>f Politicoii /vo/km/m/, ed. L884, p. 271. - lb., p. 287. THE FALLACY OF SAVING. the purpose that Cairnes points to the money-claim wasted annually by the workers on drink ; for if that money were saved it would do nothing for the dis- tillers' and brewers' men thrown idle. Only fresh consumption could provide employment for them, and no provision is made in the argument for such fresh consumption. Cairnes, with all his sincerity and aspiration, was but helplessly repeating the old shibboleth, having done nothing to analyse afresh the special problem involved. He did, indeed, repudiate the notion that the idle rich class conferred a public benefit : — " It is important, on moral no less than on economic grounds, to insist upon this, that no public benefit of any kind arises from the existence of an idle rich class. The wealth accumulated by their ancestors and others on their behalf, where it is employed as capital, no doubt helps to sustain industry ; but what they consume in idleness and luxury is not capital, and helps to sus- tain nothing but their own unprofitable lives. By all means they must have their rents and interest, as it is written in the bond ; but let them take their proper place as drones in the hive, gorging at a feast to which they have contributed no- thing." 1 Here, however, the moral outburst counts for no- thing in view of the economic doctrine ; inasmuch as Cairnes goes on to insist that the only way to keep industry going is to reward the drones for their or their ancestors' act of saving, which he pronounces all-essential. Naturally, the average man pays little heed to a diatribe thus countervailed by its author's own admissions. Cairnes had, indeed, on his own 1 Page 35. PROFESSOR CAIRNES. 63 showing, no right to say that the idle rich " con- tributed nothing : " he expressly credited them with " sustaining industry " by their capital. His net pre- scription thus came to this, that in order to be wholly admirable, the capitalists had only to go on accumu- lating capital unceasingly while living as frugally as possible. It would, on his own principles, avail them no more to spend money on public objects than to spend it on private, since industry is only " sustained " by the productive employment of capital. Thus, Cairnes's economic advice to his generation, despite the entire wisdom of such a negative proposition as that quoted on our title-page, was finally futile, amounting to the old counsel to produce without con- suming, to sell without buying. As against Cairnes's fling at the idle rich, again, the other economists of the same succession have haloed the interest-drawing class with an earned or imputed sanctification in respect of the " abstinence " which bad to be practised to secure the creation of their capital to start with. And this, which is the older ethical sentiment, 1 is naturally the more popular with the interest-drawing class, who can meet Cairnes's attack 1 Professor Bbhm-Bawerk (Capital ami Interest, Smart's trans., B. IV., ch. i., p. 209), following Marx (Capital, I., ch. xxix., sec. 3), speaks of Senior as the founder of the abstinence theory. But, as Bbhm-Bawerk notes,it was put by Poulett Scrope (Principles of Pol. Ec, 1833, p. 140) before Senior published his treatise ; and it was explicitly laid down long before either by Petty, who described interest as "a reward tor forbearing the use of your own money for a term of time agreed upon ,; (Quan- tulumcumqiic, cited by Lauderdale, p. 152). No dcubt Senior gave the doctrine its currency. (Jp. Marx, B. I.,ch. ix., sec. 3, note. 64 THE FALLACY OF SAVING. with his own endorsement of the abstinence prin- ciple — a conception still so attractive that it finds favour with Professor Bohm-Bawerk, who, by way of confuting those who insist that a purely negative act can count for nothing as an aid to production, skil- fully cites in support 1 of it the very citation from Spinoza which Marx 2 employed to show that any act may be regarded as an abstinence from its contrary. Of course, the common interpretation of Senior is a trifle less sophisticated, at least in his native land. Here he has been one of the prophets of saving ; and if some, refusing to endorse Mill's applause, have re- jected this formula, even these have let the implied prescription for conduct go uncontradicted. In French and German economics, so far as I have seen, there has been on this point the same prepon- derance of Smithian dogma, though Rodbertus and others have called for modifications, lvoscher has, of course, contemplated the problem, but is character- istically inconclusive. He does indeed make an ex- plicit statement of the necessary limitation of capital. " It may be seen from the foregoing that the mere saving of capital, if the nation has to be really enriched thereby, has its limits ... As trade becomes more flourishing, smaller stores answer the same purpose. :; And no intelligent man can desire his productive capital increased except up to the limit that he expects a larger market for his enlarged production." i 1 Positive Theory, p. 123. - As last cited. '■' J So in English translation, made from 13th German ed. The passage is not in my copy of the original, 3rd ed., and it seems unfortunately put. 4 Principles of Political Economy, sec. 221, Lai or's trans. ROSCHER. 65 This, however, does not squarely put the point as to individual money-saving; nor is it definitely put in the following observations : " If a people were to save all that remained to them over and above their most urgent necessities, they would soon be obliged to seek a wider market in foreign countries ; but they would make no advance whatever in higher culture nor add anything to the gladness of life. On the other hand, if they would not save at all, they would be able to extend their enjoyments only at the expense of their capital and of their future. Yet these two extremes find their correctives in themselves." .... " The ideal of progress demands that the increased outlay with increased production should be made only for worthy objects, and chiefly by the rich, while the middle and lower classes should continue to make savings, and thus continue to wipe out differences of fortune.'' .... "That there is, at least, not too much (!) to be feared from the making of too great savings is shown by Hermann, St. Untcrsiich. 371 etseq. On the other hand, there is less wealth destroyed by spendthrifts than is generally supposed, for spendthrifts are most frequently cheated by men who make savings themselves (Mill i., 5, 5).'' 1 This somewhat bi-frontal performance is probably the most advanced practical teaching on the subject in German economics. Walcker 2 does indeed speak of capital with some alertness of perception : — " Die Begriffe Capital und Vermogen vcrhalten sich ahnlich wie die Begriffe Ertrag und Einkommen. Im Worte Vermogen liegt ein Hinweis auf den oder die Eigenthiimer einer Surarae (z. B. ein Haus und Werthpapiere) oder eines Organismus von wirthschaftlichen Giitern, wiihrend das Wort Capital etwas un- perBonliches enthalt. Es bczeichnet ein Vermogen oder eincn Vermogenstheil in seinen objectivcn Beziehungen zur Produc- 1 lh. and note. - Lehrbuch der Nationalb'konomie, L875, S. 8. THE FALLACY OF SAVING. tion, zum Umlauf and zur Conaumtion oVr Giiter. In derRegel gehl nur das Vermogen, aber nicht das Capital eines Versch- wenders oder Bankrotteura unter; das letztere geht meist in andere Hande iiber." 1 But a few pages farther on, 2 Dr. Walcker begins to make it intelligible how abstract conceptions of capital may be brought into discredit : — " Das Capital zerfallt, entssprechend seinem Begriff, in folgende Classen : Landgliter, Grundstiicke, Bcrgwerke, Bodenameliora- tionen, Bauwerke, Werkzeuge, Maschinen und Gerathe, Arbeits- und Nutzthiere (resp. Sclaven), Hanpt- und Hiilfsstoffe, Unterlialtsmittel, Handelsvorrathe, Geld, korperliche und geistige Arbeitskraft und imnviterielle Capitalien. Zu den letzteren gehoren der Staat, die Cultur eines Yolkes und stm ng genommi a auch ein gesundes Itirchliches Lebm, wenn es nichi unpassend ware, das JEwige unter erne okonomische vergangliche Kategorie srw Ziehen. " s 1 " The ideas capital and property relate together similarly with the ideas proceeds and income. In the word property is im- plied an allusion to the ownership of a total (e.g., a house and title-deeds), or an organism of domestic possessions, whereas the woi'd capital implies something impersonal. It indicates a property or a portion of property in its objective relation to production, to circulation, and to consumption of goods. As a rule, only the property and not the capital of a spendthrift or bankrupt is destroyed ; the latter mostly passes into other hands." 2 S. 14. 3 " Capital, corresponding to its idea, divides into the following classes : Landed estates, plots of ground, mines, soil-improve- ments, buildings, implements, machines and utensils, animals for labour and use (in a sense, slaves) ; principal and accessory materials, means of subsistence, stock-in-trade, money, corporal and mental labour-power, and immaterial capitals. To the WALCKER. 67 After this it is not \vh0ll3- disappointing to the believer in immaterial capital to find Dr. Walcker * making the orthodox declaration : — "Die alte Irrlehre, class die Reiclien, resp. die Regierungen Almosen geben, wenn sie verschwenden, spukt noch immer. Jede Luxusausgabe vernichtet ein Capital, welches, productiv ver- wandt, die Subsistenzmittel des Yolkes vermehrt hiitte." 2 Thus, within twenty pages of his statement that, as a rule, only the property (Vermdgen) but not the capital of a spendthrift or bankrupt is destroyed, the latter mostty passing into other hands, Dr. Walcker affirms, in flat self-contradiction, the old dogma that " every luxurious outlay annihilates a capital which, productively applied, would have increased the means of subsistence of the people." It is the old fatality. Especially piquant, in the circumstances, is the old specification of " luxurious outlay " as a cause of annihilation of capital. On the same principle, obvi- ously, every outlay whatever would do the same thing; and all expenditure, and accordingly all consumption, becomes an evil, to be minimised by the self-denial of the righteous, prepared thereto by " a sound spiritual (Icirchliches) life — if it were not improper to 1 >i ing the Eternal under a transient economic category.' latter belong the State, the culture of a people, and, strictly speaking, a soxvnd religious life, if it ire re nut im/impey in phuu the Eternal wilder a t/ra/nsitory economic category." 1 S. 37. " " The old error, that the rich, or rather the ruling classes, give bounty when they squander, is always cropping up. Every luxurious expenditure annihilates a capital, which, productively applied, would have increased the people's means <>f subsistence. TIIK FALLACY OF SAVING. Only a German can attain to quite such transcend- ent heights; but on the strictly economic line of the argument, Dr. Walcker is not unrivalled in France. One of the most widely-read manual-makers, M. Joseph Gamier, outdoes Smith in his denunciation of the prodigal and his praise of the saver, arguing explicitly that to spend is to annihilate labour, in terms which imply that all consumption is, at best, a necessary evil, while production is man's mission on earth : — " Toutes les fois qu'un capital se dissipe, il y a dans quelque coin du monde une quantite e'quivalente d'industrie, qui s' t'teint. Le prodigue qui perd un capital augmente la premiere annde le revenu de ses fournisseurs, souvent peu recommand- ables, mais il detruit pour les annees suivantes le salaire des hommes laborieux dont son revenu eut alimente le travail " — * would have alimented, that is, in employing them to make goods which it would in the nature of the case be prodigality to buy. And again : — " Pour apprecier les funestes efl'ets de la dissipation, il suffit de remarquer qu'une valeur epargnde devient une valeur capital dont la consummation se renouvelle sans cesse, tandis qu'une valeur dissipde ne se consomme qu' une fois"— - 1 "Every time that a capital is dissipated, there is in some corner of the world an equivalent quantity of industry which is extinguished. The prodigal who loses a capital increases for the first year the revenue of his caterers, often not very respectable, but he destroys for future years the wages of laborious men whose labour his revenue might have maintained." (Traite oVEconomie Politique, par Joseph Gamier, Gieme ddit. , sec. 843.) 2 " To appreciate the pernicious effects of expenditure, it GARNIER. 69 the thing saved being here envisaged as value, with- out any recognition that to multiply value is in no wa}' to feed labouring men. M. Gamier has, probably unintentionally, committed himself to one of the de- lusions of the Physiocrats. Helplessly led by McCulloch, M. Gamier goes on to recognise that luxury is after all a relative thing, and not to be condemned in the spirit of the old moralists ; and in this view reasons that outlay is to be decided on by each for himself, with a view to the highest kinds of enjoyment; but here the good gentleman pulls himself up to reiterate that " II ne faufc pas oublier que l'homme econome qui se borne au ndcessaire rend, de son cotd, des services a la societe par la formation d'un capital, d'un instrument de travail, de progres et d'emancipation physique et intellectuelle"— x that is to say, the thrifty man renders a service to society in consuming only the necessary and causing to be produced the unnecessary, which, we have just been told, it is economically injurious to the com- munity for the individual to buy. So that " pro- gress" is always an economic loss to the community. Similarly M. Droz inculcates saving in a paragraph in which he unconsciously specifies its bad effects : — suffices to remark that a saved value becomes a capital value of which the consumption renews itself without cessation, while a value expended is only consumed once." Id. ib. 1 " We must not forget that the thrifty man who limits him- self to necessaries renders, on his part, services to society by the formation of a capital, an instrument of labour, of progress, and of physical and moral emancipation." Id. sec. 818. 70 TIIK FALLACY OF SAVING. "II ne faut done point, dans des vues d'interct pour lc com- merce, de"clamer confcre la prevoyance et 1'cpargne. Cc qui paralyse surtout les capitaux, ce sont les circonstances oil, mecontens du present, inquiets de l'avenir, les homines in- dustrious suspendent leurs projets, et nieme craignent de preter leurs fonds a cuux qui sc montrent plus confians ou plus teme'raires. Alors les capitaux se resserrent, le travail languit, la souffrance devient generale." l That very paralysis of production here described is obviously a consequence of such saving as is being re- commended, inasmuch as producers will always pro- duce where there is market demand. Here it is not even pretended that industry is paralysed by lack of " capital ; " and } T et the advice to amass more capital is endorsed. Such is the drift of economic prescrip- tion in France as in England, the habit of saving be- ing indeed much more rooted and general in France than here. There must, I suppose, have been en- lightened protest against the delusion in France as there has been in England ; but it has counted for nothing, the only visible opposition being that im- plied in the socialistic movement, which does not specially attack the economic fallacy of saving. Nay, so thoroughly did the Smithian succession establish the optimistic dogma of the all-sufficiency of saving 1 -l We must not then, with a view to helping commerce, de- claim against foresight and saving. 'What chiefly paralyse capitals are the circumstances in which, discontented with the present, anxious for the future, business men suspend their projects, and even fear to lend their funds to those who show themselves bolder or more confident. Then capitals are locked up, trade languishes, hardship becomes general/' Economic Politique, par Joseph Di-oz, 1854, p. 49. JOURNALISM. 71 and investment, that when, a few years ago, a London alderman sought to make out that the Lord Mayor's banquet was " good for trade," the outcry against him was virtually universal. He was ridiculed, not for defending a gross and vulgar form of expenditure as distinguished from worthier forms, but for supposing that any kind of expenditure could help trade half as efficiently as would the act of putting the money iu the bank. Smith's saving clause about " public opu- lence " had disappeared from economic memory, and the argument was pure Bonamy Price — for the news- papers had not room for sophistry on the scale of Mill. Not only the middle-class press but professedly socialist economists 1 hurled at the friendless alder- man the information that if he or his colleagues had only put their money in the bank it would have gone to build railways — for it is always railways that are supposed to spring from accumulations. This was at a time when " money " was notorious!}' abundant and extremely cheap, and when promising concerns, such as brewery companies, could have sold their shares ten times over. If the dogma of investment can thus find an overwhelming majority of devoted adherents at a time when abundance of nominal capital and sluggishness of trade are equally obvious, it is not difficult to understand how it could be believed at times when interest was high and trade brisk. 1 One of these I understand to have since abandoned his position. CHAPTER VII. THE RATIONALE OF CAPITAL— THE FALLACIES — THE DOCTRINE THAT SUPPLY IS DEMAND— CAPITAL AND MISPRODUCTION. It is easy to see, however, that the vogue of the Saving fallacy has from the first depended on the mass of misconceptions set up by applying the word " capital " to the phenomena of money-saving while conceiving it in the old sense of saved products. We saw at the outset how profoundly this procedure con- fused and vitiated the reasoning of Turgot. But it has been just as potent for evil in orthodox economics since. Everywhere there is made the monstrous as- sumption that the money, or rather claim to money, saved annually represents a saving of products and means of production to that amount. In John Mill's lamentable argument about the bricklayers and the velvet- makers, we saw him speaking of capital as a motive-force transferable from one emplo3 7 ment to another totally different. " There was," he says at one juncture, " capital in existence to do one of two things — to make the velvet, or to produce necessaries for the bricklayers, but not to do both." He must have meant money-credit, or money-claim, which could be turned from manufactures to agriculture, or from velvet-making to tailoring and boot-making. 72 J. B. SAY AND JAMES MILL. 73 Even in that sense the statement is absurd, for the capital is, in the terms of the case, sunk in machinery, which must be unsaleable. But since the mere pa}*- ment of wages to the bricklayers would at once enable them to get necessaries, it clearly follows that the capital is merely claim on services, which can be transferred. Yet the same economist, in order to justify saving and vindicate the saver, must needs write in many other passages as if to save capital were to accumulate necessaries of industry, without which it must collapse. So, J. B. Say, even with his eye on matter and motion, speaks habitually of a " productive fund'' which " renews itself '; " and, de- claring capital to be one of the three agents of pro- duction, defined it as being at the same time an " accumulation of values." x James Mill, after decid- ing that " the instruments which aid labour, and the materials on which it is employed, are all that can be correctly included in the idea of capital," 2 goes on to lay it down that in this sense capital is " evidently a result of what is called saving"; when all that is evi- dent in the matter is that food capital is such a result — that is, primarily. If it be meant that all industrial actions result from saving because proceeding upon food, it might as well be said that they result from aii- or water, or health, or rationality. But James Mill 8 proceeds to declare in express terms that "the augmentation of capital is everywhere exactly in pro- 1 Traibd, i. !'!', 103, ii. 454. " Un capital n'est point la somme d'argent sous la forme do laquelle il est souvent prdte' ; rnais la ocdeur de cet argent" (ii. 4.")."}, 456 ; i. 97). 2 Elements of Political Economy, 3rd ed., p. 17. :i Page 20 M THE FALLACY OF SAVING. portion to the degree of saving; in fact, the amount of that augmentation, annually, is the same thingwith the amount of savings which are actually made." That is to say, the mass of machinery and tools made each year for productive purposes, added to the amount of raw material provided for manufacture, is identical with that year's savings. And as the econo- mist must have had in his view money or nominal savings, since he offers no discrimination, and must have known he would be so understood, we find him formally landed in the extraordinary hallucination that the net amount of annual saving, recorded by the bank totals, always equates exactly with a mass of tangible " saved " materials. We can only conclude that, like Smith, he did not realise his proposition conceptually at all, but was merely carrying on a verbal demonstration, which could only have continu- ous significance by a continual change in the values of his terms. As it stands, it is meaningless. Cer- tainly, James Mill has here made a bold and open attempt to settle the question of what it is that is saved by the thrifty, and to face the difficulty about the saving being made in money — the only frank attempt, almost, since Turgot. But it is a complete failure, and his successors manage no better. Ricardo, 1 in the same way, passes with no attempt at analysis from concrete capital to capital " employed in the payment of wages," and, later, 2 speaks without explanation of bankers " employing a large capital " in discounting bills. Yet he also speaks 3 of diminu- 1 Oh. i., sec. 4. - Ch. iv. :i Chs. ii. viii. Works, pp. 41, 87. bohm-bawerK. 75 tion of capital as diminishing the population and the amount of production clearly meaning diminution of food. He thus implicitly accepts Mill's doctrine. And that fantastic hypothesis is to this day found to be the basis of most economists' doctrine as to in- crease of capital. Professor Bohm-Bawerk notes that " not long ago Kleinwachter (Schonberg's Handbuch, 2nd ed., p. 210) could explain: 'common usage in political economy to-day considers it an essential characteristic of capital that it is a material means of production.' " x And Professor Bohm-Bawerk, despite his analytical method and his vigilance, lends himself to this virtual confusion of the facts of ordinary commerce — for it is a confusion to define " capital " as above without express exclusion of the common significance of money-credit. He does, it is true, make a formal division of capital into that used for pro- duction and that which yields interest, and he demurs to the refusal to call both forms capital. 2 But still he 1 Positive Theory of Capital, Eng. tr., B. I., ch. iv., p. 40, note. - " Of recent French writers on the subject," lie writes, " I ride (Principes d'Economie Politique, Paris, 1884) recognises the two varieties in the conception of capital with a clearness rare even in French literature, and distinguishes them as ' capitaux siinplement lucratifs,' and ' capitaux productifs.' ' Les premiers, 1 he says, ' sont ceux qui rapportent un revenu a une personne ; les seconds sont ceux cpii produisent une richesse nouvelle dans le pays ' (p. 148). His only failure is that he would recognise productive capitals alone as true capitals." (Positive Theory, as cited.) But this of M. Gide is simply a textual repetition of what was said by Droz as long ago as 1854 : "Les capitaux sont tou jours des produits amasses par L'epargne, mais ils a'ont pas tous la meine destination. Ceux qu'on emploie a cn'er de nouvelles richesse. sont les plus utiles p mrla socie^e*. D'autres /6 THE FALLACY OF SAVING. speaks of capital in the whole as " a group of pro- ducts which serve as means to the acquisition of goods "' x [ = wealth]. " Under this general concep- tion," he adds, " we shall put that of social capital as narrower conception." 2 And the reason for this de- finition is found to be substantially the Smithian tradition. " Without laying any particular weight on the fact that the his- torical origin of the word capital indicates a relation to an acquisition or a gain, and that our reading remains true to this, it preserves the double relation — the relation to acquisition of interest on the one side, and to production on the other — which was imported into the conception of capital by Adam Smith " [Professor Bohm-Bawerk himself shows, however, that the beginning was made by Turgot, who did it for the encouragement of saving], " and since his time has been adopted in scientific usage." 3 Now, we have seen that Smith's notion of capital, as set forth in connection with his fundamental doctrine of saving, was confused and fallacious to the last degree ; and it is impossible to see how there could be any gain to economics from adhering to his definition of capital, even if we guarded against his rapportent seulement un revenu a leurs possesseurs. . . . [Les capitaux qui] dounent un revenu et qui multiplient les richesses de la soci^te\ . . . sont les seuls vraiment prod/uctifs, on pourrait dire que les autres sont seulement lucratifs." (Economie Poli- tique, as cited, pp. 47, 48.) 1 There is some danger of misconception of Bohm-Bawerk's meaning at times in respect of the use desired to be given to the English word "goods" by his able translator Mr. Smart. See Mr. Smart's Introduction to the Theory of Value, p. 11. - Posit ice Theory, p. 38. :i lb., p. 3D. BOIIM-BAWERK. JJ confusions. But Professor Bohm-Bawcrk does not finally guard against them, for while formally dis- puting Smith's formula that capital is the result of saving, he only substitutes the formula that it is the result of production and saving; 1 he adheres to the doctrine that all capital is material ; and he explicitly sets his face against those who recognise how exten- sively the word means something else : — "Finally," he says, after discussing the various definitions, ' ' there remain those conceptions which see in capital not a complex of goods, but an abstract quantity hovering over goods, as it were; as, for instance, Kiihnast's 'sum of value,' or Macleod's ' circulating power.' I have, generally speaking, a very poor opinion of such idealisations of economic conceptions. They are usually cheap expedients for getting round difficulties." - I will not presume to charge against Professor Bohm- Bawerk the use of cheap expedients, but I do say that he himself is all the while evading a difficult}'. He ought to have grappled with Mr. Macleod's ex- position (I pass over Kiihnast), which he does not. Mr. Macleod is almost the only economist who has expressly recognised as matter of economics the dis- tinction between jus in rem and jus in persona m , concrete property and claim; and he is therefore the clearest in his declaration of the economic bearing of credit. He has laid down, too, the one truly 1 This is the old position of J. 13. Say, who differed formally from Turgot and Smith (Traite, i., 110-113), after say- ing with Smith that saving is the "only'' means of increasing capitals (p. 103), and that to save values is to turn them from a sterile to a reproductive consumption. 2 26., p. 08. /8 THE FALLACY OF SAVING. philosophical definition of capital: — "Any Economic Quantity used for the purpose of profit." 1 This definition, I confidently affirm, will survive Professor Bohm-Bawerk's, if only we substitute " gain " for " profit." It covers a multitude of economic facts which the Professor's definition does not, though he recognises them separately as facts. It goes back (which Professor Bohm-Bawerk's definition does not, though he says so) to the pre-Smithian sense of capital as that money-credit which yields a gain. The Professor has shown 2 that Turgot had partly fixed the material sense on capital before Smith; and it is not difficult to see historically how this came about. They were on the side of home production, but also on that of parsimony, and they gave the " capital" significance rather to the kind of property which was in their day beginning to yield the largest masses of profit, as in the hands of manufacturers, who gave capital the material form. At the end of last century, and in the first half of this, the largest gains were made by traders and manufacturers, and attention was fastened on their plant as the chief or " capital" means of acquiring wealth. In later years, competition has greatly lowered the profits of trade and manufacture, and the multiplication of invest- ments has, in general usage, distinctly tended to give the term capital a significance largely made up of mere money-credit or claim. 1 Economics for Beginners, p. 45. See also the valuable trea- tise on Capital in his Dictionary of Political Economy, where he traces the history of the idea. - Work cited, pp. 24-30. But on this see Macleod. BOHM-BAWERK. 79 And the practical necessity of a reformed definition is finally proved by the collapse of Bohm-Bawerk's own. The collapse takes place, according to pre- cedent, when he deals with the doctrine of saving. He argues, as we saw Cairnes did, that saving would be as necessary in a socialistic as in a competitive community. But his proof shows that what is needed is not at all saving in the normal sense of the term. "The method," he says, " would simply be to put a consider- able proportion of the national workers to very lengthy pro- cesses, whereby the making of capital, in the form of intermediate products, would be very great, and the amount of matured products in the future would be much increased.'' ] Quite so ; and thus is Cairnes answered. The social- istic State would make its "capital "— plant; and to call this process " saving," after recognising its nature, is to make a confusion of language doubly un- warrantable in view of Bohm-Bawerk's own excuse for his old-world definition of capital. In regard to present-day saving, however, he himself supplies the refutation of his definition of capital, and of his en- dorsement of the doctrine of saving. He admits that the undertakers or master-producers " do not decide at their pleasure" the direction which the national production takes ; " they follow impulses given by the l>ricrs of products, hi the last resort, therefore, it is not the undertakers who decide the direction of national production, but the consumers, tin; ' public.'" Nothing can be more explicit: here we are fully delivered from the hallucination of Mill. Hut note 1 Positive Theory, B. II., ch. v., pp. 113, i I I. SO THE FALLACY OF SAVING. how the difficulty as to general saving is finally evaded by Professor Bohm-Bawerk. He allows that a check of consumption causes loss and hardship, but argues that the demand for consumption-goods must not be so great as to take all the labour-power and leave none for replacing and extending plant. Therefore, so much (of what ?) must be " saved '' as will employ labour in doing this. Now, it is a matter of fact that in ordinary commerce the replacement of plant is an ordinary charge on a business, and is nor- mally met by the plant-owners themselves, leaving only extensions of plant to be met by outside " savings." In any case the replacement and exten- sion of plant is clearly a charge strictly limited by the state of consumption, and represents just that amount of " saving " or " capital-making " that is argued for by Lauderdale in opposition to Smiths doctrine of unlimited saving. Yet Bohm-Bawerk does not once put this explicitly. The necessary savings, he declares, 1 " will be spent in the increasing of capital," because — "An economically advanced people does not hoard, but puts out what it saves, in the purchase of valuable pa/per, in deposits in a bank or savings haul:, in loan securities, etc. In these ways the amount saved " (no limitation) " becomes part of productive credit ; it increases the purchasing power of producers for pro- ductive purposes ; it is thus the cause of an extra demand for means of production or intermediate products ; and this, in the last resort, induces those who have the regulation of under- takings to invest the productive powers at their disposal in these intermediate products." 1 Pa£?e 115. BQHM-BAWERK. 8 1 Here we have one of the abstract formulas before rejected. What is saved is here just purchasing power. Either this saving is capital or it is not. If not, Bbhm-Bawerk's argument collapses to insignifi- cance. If yes, his definition of capital has broken down. And this last is what really happens. As regards the general problem of individual saving, he has passed it by. It is clear that saving in excess of the purchasing power needed to cause the making of plant or intermediate goods enough for the industrial situation, can have no producing influence, there being only a given amount of demand for consump- tion products ; but Bohm-Bawerk does not say so. What he proves gives no economic countenance to the doctrine of general saving ; yet his general language has the air of giving such countenance, and he never undeceives Iffe readers. In view of the clear collapse of his definition of capital, we can only conclude that he had not seen what the problem really was. His further paragraphs * are perfectly irrelevant to it, as he simply proves over again that if the demand for consumption-goods were so great that all existing labour-power went to producing them, the stock of " capital," = plant and intermediate goods, would fall off with disastrous results. This obviously impossible conjuncture figures as a final implicit justification of the practice of money-saving in general. Old sensations revive whu*i we find Professor Bohm- Bawerk after this performance going on to explain with serious unction that in his foregoing exposition lie has "risked being tedious rather than being suspected 1 Pages 110, 117. 82 THE FALLACY OF SAVING. of sophistry." I will not accuse the Professor of sophistry save in the sense of paralogism. But I affirm that he docs substantially what Smith and Mill did in their turn — go astray over one of the greatest of the practical issues of European economics; and I can only offer the old explanation, that he was dominated by a desire to justify the prevailing social ideal and practice. Fortunately, he being the later and the closer reasoner, his argument contains the larger measure of sound statement, and the less measure of unsound. His practical fallacy is an implication rather than a statement; and he shows consciousness enough of his exigencies to make it likely that his exposition will yet be recast. In the next chapter he writes 1 with significant heat : — " If anyone is stupid enough to interpret the theory of saving as meaning that Jinislied capital in its form of concrete capital must be ' saved, ' he must submit to the retort that man cannot eat iron machines. But that is not at all the meaning of any thoughtful representative of the theory. What is maintained is only that, without saving, capital cannot be made or in- creased ; that saving is as indispensable a condition of the formation of capital as labour. And this is literally correct." What is here called stupid is the express doctrine of the apostolic succession of economists, who say that it is products that are " saved. ; ' Those who have said otherwise have been those who, like J. B. Say and Mr. Macleod, recognise capital as an abstract. And Bohm-Bawerk, as we saw, has himself explicitly defined capital as consisting in concretes, and has 1 Page 119. BOHM-BAWERK. 83 expressly depreciated other definitions as evasions of difficulties. Now he implicitly admits that capital may have a non-concrete form. Yet all the while he evades plainly answering the general question, — What is saved? His case of the socialistic community, how- ever, gives the simple answer. It is industrial motive or inducement (in our society, claim to ivealth or pur- chasing power) that is needed to make labour do any- thing, and " saving," properly so-called, is only our special blind competitionist form of accumulation of such power or motive, an accumulation always de- feating itself by misdirection. So that the doctrine of universal thrift is once more seen to be a futility, and the old definition of capital a stumbling-block, on the line of the latest economic analysis. And yet the ruck of the economists, as of the politicians, mostly adhere to the Smithian conception, vitiated as it is by the flagrant fallacies of its applica- tion. Knowing that the claims of investors in national debts are constantly reckoned as capital, they persist in talking of all capital as consisting in material things. On such a foundation, error is sure to arise. Even Mr. Macleod, who sees that rights are economic quantities, and as such, like other credit, may be capital, does not recognise the Fallacy of Saving as it pervades our economics. And if Mr. Macleod misses the practical or sociological upshot, the more orthodox economists do worse. Just as some assume all banked credits to be represented by actual money, despite the notoriety of the fact that they cannot be, so do others assume all credits to be represented by saved products 84 Tm: FALLACY OF SAVING. despite the obvious fact that they cannot be. Pro- fessor Sidgwick, rightly deciding (though he has since gone back on his perception) that " the greater part of the 'unequalled loan fund ' of Lombard Street can never emerge from the immaterial condition of bankers' liabilities," points out that " this obvious truth is overlooked, or even implicitly denied, not merely in all formal definitions of money, but in most of what is said and written about the functions of bankers. Mill, for instance, implies over and over again that the medium for exchange, which it is the business of bankers to collect from private individuals and lend to traders, consists altogether ot coined metal — or at least of coin and paper substitutes for coin made legal tender by Government. A similar implication is contained in much of Bagehot's language. And indeed 1 hardly know a single English writer on the subject, with the exception of Mr. Macleod, who does not continually present this view to his readers." 1 But if it be a serious blunder to conceive of all bank credits as being represented by money in the ordinaiy sense of the term, it is an immenseby more serious blunder to conceive of all such credits as being 1 re presented by saved goods. Says Mr. Macleod & " It is a very prevalent opinion, even among men of business, that real bills are essentially safe, because they arise out of real transactions, and always represent property. But .... we have seen that in the most legitimate course of business there will generally be two or three bills afloat arising out of the 1 Principles of Political Economy, 1883, pp. 236,237. Let the reader note how distinctly the admission made here conflicts with the teaching in the Elements of Politics, cited in our first chapter. MACLEOD. 85 transfers of any given goods ; so that, in the ordinary course of business, there will be twice as many bills afloat as there is pro- perty to which they refer.'' l What is true of bills is equally true of the mass of credits in general. The added ciphers of the bankers' books represent no addition of " saved products " to the store of such products available for the "mainten- ance of industry," but simply the metaphysical fact of so much general " claim to wealth," claim of which the validity is constantly fluctuating, being plainly de- pendent on the extent to which individual claims are at any moment sought to be realised, relatively to the state of production. It ought to need no demonstration that if the purchasing power of money is a fluctuant, much more so is the wealth-claiming power of credits, which are but claims to money. In our industrial system, services are rendered only for the reward of a lien over other services, and this lien is in the last resort represented by money. While, however, we wish to accumulate our claim on services in general, we cannot all accumulate it in money, and so it comes 1 The Theory of Credit, 1800, vol. ii., pt. i. p. 344. Mr. Sidgwick, in acknowledging his obligations to Mr. Macleod, adds: "1 must guard myself againsl being understood to approve of Mr. Macleod's general treatment of Economics." I regret that in making similar acknowledgments I must make the same qualification. In tin- passage I have quoted, Mr. Macleod lays his linger on a great delusion, profoundly affecting economic science ; further on (pp. 481-0) he does desperate battle against the mere verbal solecism of calling the National Debt a mortg on the property of the count iy instead of a charge mi its income. A reader is invited to suppose that these issues are of equal or similar practical important <■ 86 THE FALLACY OF SAVING. to be stored up in simple credits. Thus the nominal mass of saved capital represents simply claims to wealth or power to buy services, and, so far from the wealth being actually saved, it is in large part purely prospective, for the services which are to constitute it have not yet been rendered. As the National Debt burdens in advance the industry of the future, so does all saving of conventionally recognised claim to wealth constitute a lien over future labour. The recognition of these simple truths would rid economics of two correlative dogmas which stand in the way of all scientific reconstruction of the social system. The first is that, but for assiduous " saving " of claim to wealth, industry would collapse: the second, that multiplication of " saved " claim to wealth means increase of national wealth. I. The fear of decline of industry through defect of "capital," in the sense of bankers' liabilities, would be annihilated by the perception that " credit is capital " in precisely the sense in which " savings are capital." Professor Sidgwick's fear of the explicit makes him give only a half-confident exposition of this truth. Mill, he notes, " speaks contemptuously of an ' extension of credit being talked of .... as if credit actually were capital,' whereas it is only ' permission to use the capital of another person.' Now, in a certain rather strained way, we might say this of gold coin : its function is to ' permit ' or enable its owner to obtain and use other wealth. And it is only in this sense that Mill's statement is true of the credit or liabilities which a banker lends to his customers, whether in the foim of notes, or under the rather misleading name of ' deposits.' This credit, no doubt, is a com- SIDGWICK. 87 paratively fragile and perishable instrument for transferring wealth ; but that is no reason for ignoring the fact that, in a modern industrial community, it is the instrument mainly used for this important purpose." 1 All this should have been put as emphatically as it is . L0. This writer among other things made important correction Ricardo's doctrine of rent. 92 THE FALLACY OF SAVING. scarcity and monopoly of a commodity increase wealth," which is the exact reverse of Lauderdale's position. Lauderdale used " riches " to describe individual claim to wealth, and pointed out that the nominal adding together of individual riches did not represent real national wealth at all. Ricardo, of course, admits that scarcity of commodity would "enrich" the holders. He writes: — " Let water become scarce," saj T s Lord Lauderdale, " and be exclusively possessed by an individual, and you will increase his riches, because water will then have value ; and if wealth be the aggregate of individual riches, you will by the same means also increase wealth. You undoubtedly will increase the riches of this individual, but inasmuch as . . . all men give up a portion of their possessions for the sole purpose of supplying themselves with water, which they before had for nothing, they are poorer . . . and the proprietor of water is benefited precisely by the amount of their loss." Quite so. But inasmuch as the nominal values of the transferred possessions remain, the " total of indi- vidual riches," in Lauderdale's sense, has increased by the nominal value of the (unconsumed and prospective) water, though, in the terms of the case, the well-being of the majority has diminished. And if for a promptly consumed commodity like water, we substituted a fixed commodity like land, the case would be still clearer. The upshot is, as Ricardo puts it, that " value is not the measure of riches," when by " riches " you understand, not individual claim to wealth, which was Lauderdale's definition, but what Lauderdale called public wealth. He and Ricardo were at one, the opposed doctrine being that of the SAVINGS DEFINED. 93 Physiocrats, who, as before noted, counted a rise of prices as an addition to national wealth. And that very doctrine is subsumed in the estimates of national wealth which still pass current, and in the notion that " savings " are part of such wealth. The economic truth is accurately put by Ruskin in the formula that riches are " a power like that of electricity, acting only through inequalities or negations of itself. The force of the guinea you have in your pocket depends wholly on the default of a guinea in your neighbour's pocket." 1 And the final sociological truth is that " savings" in the last resort represent a power to ex- tort the labour of those who have been unable to " save," from having to toil for bare life from their childhood, or being ill-fitted for a life of struggle. Nor is this all. Not only does the system of sav- ing offer no special security for the continuance of industry, but it constitutes a visibly and peculiarly disastrous means of misdirecting human energy. Few economic hypotheses are more audacious than the orthodox assumption that invested " savings " are sure to be set to employing labour " productively." To begin with, everybody is quite well aware that much of the saved claim to wealth passes to borrow- ing States, who spend it on implements of slaughter which in a generation grow obsolete even at that; and to the mere buying of foreign land. But it is further notorious that of the annual savings of claim 1 Unto this Last, ]>. 40. Compare Coleridge: "Half the wealth of this country is purely artificial — existing only in and on the credit given to it by the integrity and honesty of the nation." Table Talk, March 'JOth, 1831. 94 THE FALLACY OF SAVING. to wealth an immense mass passes away, even on the bankers' books, in respect of futile undertakings for the production of certain forms of wealth. Mill, coming in his fourth book 1 to a question with which he ought to have grappled in connection with his so- called Fundamental Propositions, admits that there goes on a great waste of capital in periods of over- trading and speculation. Noticing the fact thus late in the day, he pronounces it " so simple and con- spicuous that some political economists, especially M. de Sismondi and Dr. Chalmers, have attended to it almost to the exclusion of all other " causes of hind- rance to the downward tendenc}^ of profits. But it is not merely in " periods " of over-trading that this loss goes on : the financial journalists chronicle an annual loss of many millions. And this loss takes place be- cause the kind of stimulus given by " saving " to pro- duction is so ill-related to the real needs of the com- munity, setting up as it so often does a speculation on increased demand when actual demand seems to be provided for. A regimen of consumption would not incur these disasters of the regimen of parsimony ; that is to say, it would not mean the gambling of producers for large hauls on which to subsist by way of investment. It is only right to admit that these annual mis- calculations of capitalists benefit the workers in re- spect that they really mean processes of consumption. " What is saved is consumed," as the orthodox formula has it. And this brings us to one more refutation of orthodoxy — of the doctrine, that is to say, that " the 1 Ch. iv., Of the Tendency of Profits to a Minimum. CONSUMPTION AND TRADE. 95 destruction of things is not good for trade." l Seeing that the same creed has all along contemplated the mere consumption (destruction) of saved capital as constituting the benefit derived by the workers from capital, we have here a mere dogmatic suicide. Orthodoxy is reduced once more to the Leibnitzian position that it is " good for trade " to consume at a certain rate (else all trade is a perpetuity of disaster), but not to consume any quicker ; and that ordinary commerce sets the right rate. " It is not good for trade," we are told, " to have dresses made of material which wears out quickly. For if people did not spend their means on buying new dresses, they would spend them on giving employment to labour in some other way.'' - Why, what does it matter to "trade'' whether I employ three men in making dimsy clothes or one in making strong clothes and two in making an orrery ? The orthodox position frequently resolves itself into denying that wanton destruction, e.g., the smashing of window-panes, is good for trade. 3 The argument is, that the money that has to be spent on mending the windows is withheld from the employment of labour 1 Mr. and Mrs. Marshall, Economics of Industry, p. 17. a Ibid. '■'• When the main part of this ossay was read to the Political Economy circle of the National Liberal Club, the main defence offered to the criticism on Mill was that his doctrine, " Demand for commodities is not demand for labour," really meant that mere destruction of property did not help to employ labour. Dut the impartial reader must see, first, that this is not at all Mill's drift, and, second, that the doctrine is economically idle. It is a part of the wages fund theory. 96 THE FALLACY OF SAVING. of other kinds. But that does not follow. Where the spender is one of the " saving " class, the pre- sumption is that he merely fails to " save " the money in question. Had he saved it, that amount of claim to wealth might have lain idle in the bank for weeks or months, or been borrowed by a gambler ; or it might have gone to employ labour in making gun- powder in Russia, or to employ or over-employ some labour at home. In the former cases it gave no im- pulse to production. In the latter case the invest- ment would come to the same thing with the spending labour in either case was employed, whether to make new panes not in demand or to put panes into sashes. The only difference would be that in the process of investment part of the claim was diverted to the maintenance of the banking class. Since " what is saved is consumed," the question comes to this, Which class is to do any given portion of the consuming ? In a community where the burdens of labour fell up- on all, the breaking of window-panes would be a waste of labour representing a common loss ; but in a community where one section has accumulated a mass of claim to future services, and is concerned to get for its transferred claim a perpetual tribute of new claim, those who have no accumulated claim are employed or unemployed just as their employers see chances of accumulating claim by production. And as employ- ment is clearly more abundant when consumption is abundant, and often dwindles while there is plenty of " saving's " seeking investment, it is clear that no stimulus to demand in one direction need necessarily check it in another, and that no drain on savings need THE worker's side. 97 necessarily check profitable production. Of course, in practice it does do so when the savers decide to consume still less ; but the fact that such abstinence checks production is the refutation of the doctrine that saving promotes production. The economic sophist cannot be allowed to employ both arguments alternately. What is clear is that the consumer, whether he saves or spends, is considering merely his own private interest, and not at all that of the com- munity. And why should the economist suddenly demand from the workman an other-regarding scrupulosity which he never suggests to the man who saves ? It is idle. A broken pane is a means of putting so much consumption in the way of the glazier. And as the problem for each labour class is just to do its share of consuming the " remuneratory capital " available, the glaziers must needs rejoice when the stress of a riot falls on windows and not on hats. The spectacle is, indeed, painful from the point of view of an enlightened humanism ; but that stand- point cannot be taken by the advocate of the principle of saving for productive investment. When the motive force of " saved " money capital is not being spent on pure futility, it is as often as not producing bad goods to undersell better. In commerce, under the regimen of parsimony, every producer seeks to produce as much as possible without consuming any more of the products that others are multiplying, much less calling for new products of a higher order which might divert labour from the abundant sorts. The Smithian economists insist that " general " ovcr- G 9S THE FALLACY OF SAVING. production is impossible, meaning really " universal " over-production. J. B. Say and Ricardo established the doctrine that, as goods exchange for goods, all supply is demand, and over-production is impossible x — a tenacious fallacy, consequent on the inveterate evasion of the plain fact that men want for their goods, not merely some other goods to consume, but further, some credit or abstract claim to future wealth, goods, or services. This all want as a surplus or bonus, and this surplus cannot be represented for all in present goods. On Say's theory, there could be no profit save what was immediately realised by extra consumption, and such consumption he deprecated. In Mill's hands, the sophism loses none of its out- rageousness. Proceeding complacently, like his pre- decessors, to refute those who pointed to the glaring evils of gluts, he triumphantly explains that if only other things were as freely produced there would be 1 Say, Traite, L. I. ch. xv., Des DebouchSs. Ricardo, Principles, ch. xxi. It is noteworthy, however, that Ricardo modified his first emphatic statement. In his first edition (p. 3G2) he writes : " Productions are always bought by productions or by services ; money is only the medium by which the exchange is effected. Hence the increased production being always accompanied by a correspondingly increased ability to get and consume, there is no possibility of over-production." The passage is thus cpuoted by Messrs. Mummery and Hobson, whose book is described in our next chapter. But in the second and later editions the second sentence disappears, and the argument simply goes on to the effect that "too much of a. particular commodity may be produced," but not of all commodities, which is an idle truism. J. B. Say also notes that the commodities required to buy others must be "of the right sort," which reduces the general doctrine to a quibble. OVER-PRODUCTION. 99 no gluts. And this comfort is offered to the thousands of producers who know that their products are often in excess of effective demand, in the face of the mathematical certainty that all other products cannot be so multiplied. Mill himself, in his worst manner, l points out that money is a commodity like another, and that a superfluity of that would mean rising prices, which would negate a glut. He might have added that land (to say nothing of credits) is a com- modity not producible in excess of demand. He is arguing that there will be no glut if everything is multiplied, when he knows everything cannot be. And while perpetrating this paralogism, and making the incredible assumption that his opponents were afraid of universal over-production, he writes of the " fatal misconception " which has " spread like a veil between them and the more difficult portions of the subject, not suffering one ray of light to penetrate." In Mill's case the optimistic doctrine is peculiarly preposterous, because, as we have seen, he had before laid it down that the only way in which capital couM keep industry always going, was by employing labour at first hand without profit. But if in Mill's case the capitalists had to ignore one chapter in order to deri\ e 1 B. III., ch. xiv. sec. 2. Sismondi (Etudes snr I'Economie Politigpte, 1837, i., 79 ; iii., 314) advanced the very fact of the im- possibility of exchanging I he same kind <>f goods ad mftnitum in a fixed population as a plain refutation of the sophism that all supply is demand. So Stirling (Philosophy of Trade, p. 55) pointed out in 1840, that "labour and the products of agri- culture cannot be increased in the same ratio or with the same facility as the products of manufacturing industry." TOO THE FALLACY OF SAVING. encouragement from another, they had a more single- minded support elsewhere. Ricardo explicitly set forth, 1 (and this proposition he did not recast) that " .Mr. Say has most satisfactorily shown that there is no amount of capital which may not be employed in a country, because demand is only limited by pro- duction." True, even Ricardo found Mr. Say im- perfectly sound in his own faith. " Is the following," he asks in a footnote, "quite consistent with Mr. Say's principle ? ' Hie more [that] disposable capitals are abundemt in proportion to the extent of employment for them, the more will the rate of interest on loans of capital fall' — (Traite ii., 108). If capital to any extent can be employed in a country, how can it be said to be abundant, compared with the extent of employment for it ? " How indeed ! And how could Ricardo leave the matter with that comment, knowing as he did that lendable "capital " did vary in abundance? By im- plication, he would have to answer that the under- takers had merely failed to employ capital as they might — a proposition disallowed by his whole habit of economic reasoning. The truth is, that Say's ex- pression was a fresh surrender of his doctrine that supply is demand, for if he repeated the sophism that what was wanted was production of a different sort of commodities, he had no way of explaining why these commodities were not produced when capital was admittedly available — no way, that is, save admitting that consumption-demand is the limit of each kind of production. Nor could Ricardo offer any other 1 As last cited. OVER-PRODUCTION. 10 1 explanation. But, committed like the rest to the gospel of saving and investment, he allowed the old doctrine of unlimited saving to stand in the teeth of the current refutations, and the undertakers held by the doctrine that chimed with their main inclinations — that is, if they thought of doctrine at all. Whether or not they study the economists, the pro- ducers of popular goods have chronically exemplified the fatal tendency of the " saving " ideal towards the stage of carrying the industrial head under the in- dustrial arm. Periodically do they find themselves outrunning demand ; and though there does now seem to be a tendency towards rational organisation, it must be hard for the capital-hunter to keep short of fatality while the regimen of parsimony subsists. Over-pro- duction is chronic ; and all the while, in the face of that kaleidoscopic principle that lie who supplies also demands, the over-producer (master and workman alike) is exhorted to sell as far as possible without buying, to " save " as much as possible of his wages, or the money or credit which he is paid for his goods, so as to cause that to be applied to — further production ! In that case, does not his capital buy plant or labour ? As for the goods produced, why, these must be left to the chances of trade. Thus are still more goods pro- duced without being consumed, and, in self-preserva- tion, inferior goods are produced to undersell the others, till at length nothing will serve but the dis- missal of workmen. 1 So that, at any one moment of 1 Doubtless the fall in prices benefits bhe workers before the collapse comes, just ,-is waste of capital in bad Bcheraes feeds them. Thus it turns out that the miscalculation of 102 THE FALLACY OF SAVING. commercial history, there is either over-production, crisis, or strategic check of production ; and all the while multitudes are perforce striving not to consume what they might, so that they may have something to fall back on in sickness or idleness. And all the more surely the idleness comes, and they do fall back on it. And thus life is narrowed and degraded, products made poorer, dwellings more paltry, so that the collective " comfort " of the industrial population is something immeasurably ignoble, like the pullulating of rabbits and mice. A great industrial city of to-day represents a povert} 7 -, in some of the main elements of pleasurable life, such as would have appalled a Greek or Roman : the 'public wealth of the greatest city in the industrial era is sordid penury compared with that of a city of antiquity. From the most enlightened commercial standpoint, which here coincides with the orthodox economic tradition, future development is to be merely a matter of multiplying the conditions of cheap existence. The forethoughtful trader, that is, sees that production of ordinary machine-made commodities is always out- running demand ; and puts his faith only in " new markets " for these same commodities, in Africa or elsewhere. Even Mill, after all his polemic about em- ploying bricklayers, and the impossibility of "general" the manufacturer, which Smith put on a level with the pro- digality of the spendthrift as tending to national impoverishment, is, like that, a cause of popular gain. The spendthrift's pur- chases, in many cases, go into the second-hand market at greatly reduced prices ; and he and the unlucky manufacturer have thus both promoted "public opulence," The trouble sets in when the manufacturer shuts up his factory. OVER-PRODUCTION. 103 gluts, conies at loug last 1 to this view, making no attempt to bring it into harmony with his optimism. He accepts as " substantially true " the proposition of Wakefield 2 that " production is limited not solely by the quantity of capital and of labour, but also by the extent of the ' field of employment ; ' " and then we have this commentary : — " The error which seems to me imputable to Mr. Wakefield is that of supposing his doctrines to be in contradiction to the prin- ciples of the best (!) school of preceding political economists, instead of being, as they really are, corollaries from these prin- ciples ; though corollaries which, perhaps, would not always have been admitted by tliosc political economists themselves." Such a vindication of the " preceding " economists needs no discussion. The point is that, just as his " fundamental " prescription for the employment of labour was an indefinite multiplication of work for work's sake, so his independent common-sense con- clusion is that we can only jog on by opening up new markets for the most facile products of labour. With all his genuine humane aspiration, he will in no wise see that the line of upward progress can only be through an ideal of increasing and refining consump- 1 B. IV., ch. iv., sec. 2. - Author of England and America (1834), and editor of an edition of Smith's Wealth of Nations. In the former he exposed ('pp. 74-89J somewhat diffusely, not only the prevailing fallacy as to unlimited accumulation of capital, but the glaring contra- diction between the doctrine of capital and wages and the actual state of things in America. In his edition of Smith (1835, ii., 387-390) he criticises the doctrine of parsimony, admitting that his views were suggested to him by passages of Chalmers, 104 TIIE FALLACY OF SAVING. tion all round. And what Mill would not see, the trader naturally will not. There is one last encouragement to the ideal of parsimony which should be noticed, by way of con- stating all the forces of the situation. In one way, or at one point, the saving system can be seen directly to add to national wealth — I say national wealth, ad- visedly. Mill notes l that in " old countries " the tendency to fall in profits " is stopped at the point which sends capital abroad." That is the beginning of the really public advantage. " Money " lent abroad must needs go in the form of home products, in mak- ing which the workers get permits to consume ; and for these products there comes back, in a certain num- ber of cases, an annual tribute of interest in the shape of foreign products, wdiich are thus cheapened to us in general. Of course foreign investments in English stocks and industries draw a tribute from us per contra, but the Board of Trade returns thus far show a surplus of imports over exports (whereat the blun- derers lament) ; and while the experts can give the true interpretation of this, the " saving " class are not likely to be discountenanced in their ideal by the con- sideration that the gain comes of a perpetual lien on the labour of alien poor. Thus is the economic fallacy buttressed. 2 1 B. IV., ch. v., sec. 1. 2 The argument is so used by Dr. Walcker (Lchrbuch, p. 37). He notes that " a rich Englishman may buy Russian railway preferences, and thereby promote the well-being of the English people with cheaper Russian corn." But he does not stay to ask what is the effect on the well-being of the Russian people. In the terms of the case, it must be to make corn dearer to them. CHAPTER VIII "THE PHYSIOLOGY OF INDUSTRY" — A CONFIRMATORY ARGUMENT. Since this essay was first written, there has appeared a treatise which so ably and effectively sets forth the same doctrine, that only the difference in my method of approach makes the publication of mine still advis- able. It is The Physiology of Industry, by Messrs. A. F. Mummery and J. A. Hobson. 1 " An Exposure of Certain Fallacies in Existing Theories of Economics " is the sub-title; and the fallacies exposed are in particu- lar those dealt with in the foregoing chapters. But Messrs. Mummery and Hobson have made their analysis, as it were, from the other end, taking the received doctrine and comparing it with the actual processes of industry, both abstractly and concretely, analysing rather these processes than the teaching which misrepresents them, and finally grounding their refutation on their exposition of the real processes of the industrial system in the concrete. It is the more satisfactory to me, and it will perhaps be the more noteworthy to the reader, that from the different lines of approach the conclusion as to the Fallacy of Saving is arrived at with equal emphasis in both cases. 1 London : John Murray. 1889. i°5 106 THE FALLACY OF SAVING. Messrs. Mummery and Hobson, without dwelling on the history of the doctrine of parsimony, attack it in John Mill's statement as I have done, but they give us the profit of a confirmatory argument by working consistently on those definitions of capital and saving which were set forth, but not consistently adhered to, by the older economists. They confute Mill and the later writers as Lauderdale confuted Smith. I can- not think that the use of this definition in a general discussion is the best way of enlightening the ingenu- ous student ; at all events, I have sought to impress on him that the old definitions of capital and saving do not quadrate with the facts and the speech of everyday affairs. But for the purpose of confutation, Messrs. Mummery and Hobson's method is irresist- ible. Capital they define, x after a survey of the diffi- culties and exigencies of the case, as " (1) Raw material and goods in their various stages of de- velopment, including shop-goods ; (2) plant and all machinery ; " and saving they define 2 as " the differ- ence between what is produced and what is con- sumed. The correct formula is as follows : production — consumption = savings." On these definitions the old doctrine can be tested with the utmost logical rigour. As the authors observe, 3 capital " has been described as ' the result of saving' by those who have not yet explained what saving means, and who after- wards appear to include in savings, the food which is not saved but consumed by labourers." Their own definition precludes confusion by clearly excluding 1 Page 34. - Paw 30. » Page 31. "THE PHYSIOLOGY OF INDUSTRY.' \0J the process of what commonly passes for saving, i.e., the " putting-by " of money or credits. And on tins basis it becomes instantly apparent that, as they put it, " A belief in the infinite possibility of saving implies a belief in the infinite increase of consump- tion," 1 precisely what the exhortation to saving- aims at limiting. Messrs. Mummery and Hobson here seize and expose the fallacy as I have sought to do in the opening examination of Smith ; noting in turn that Mill's doctrine of saving stultifies itself, inasmuch as "The new labourers have already got a stock of necessaries provided for them in the new wages fund, constantly maintained by a continuance of the former abstinence of the capitalists. The wealth, then, which the new labourers produce must either go to provide luxuries for themselves or for the old class of labourers, or it must provide luxuries for the capitalists, who will thus be obliged to revoke their vow of abstinence. To one or two, or all of these uses, it must be put, and in any case it will be unproductively consumed in the shape of luxuries." 2 In fine, we may put it that Mill's doctrine in practice would work out the artificial and gratuitous multiplication of the poorest sort of labourers, 3 which we know was certainly not his social ideal. And as to Mill's successors, Messrs. Mummery and Hobson, too, note 4 how, " strange to say, those who have most distinctly repudiated the wage fund theory have retained the theory of the possibility of infinite saving, which depended on it." On the general sur- vey of the broad relation of production to consump- tion, they themselves sum up 6 that "if increa <-'l 1 Page :J7. - Page 45. ;; Page 49. ' Page 46. B Page 61. IOS THE FALLACY OF SAVING. thrift or caution induces people to save more in the present, they must consent to consume more in the future." That is, of course, as regards ' : the produc- tion and consumption of the entire community;" 1 for, of course, as between individuals, the balancing consumption can be and is done by others than the savers in so far as it is finally done at all. Now comes the independent analysis of "the physiology of production," in which it appears that '• to the maker and the trader, goods, raw material, plant, etc., are valued exclusively for the more or less of purchasing power which they afford to their owners," and that, " from the point of view of the individual tradesman, all acts of sale and purchase are primarily exchanges of forms of this purchasing power." Thus, the price the baker gets for his bread keeps his capital intact when the bread is sold, the capital being merely in a constant alternation of forms ; and only the act of consumption extinguishes a portion of purchasing power and annihilates " a portion of the total stock of wealth of the com- munity." 2 (To be more strictly accurate, it should be put that the baker is always slightly increasing his purchasing power or capital in respect of his profit on sales, and that he may or may not con- tinuously extinguish the increase by his private consumption.) Two propositions are in this way established : — "Firstly, that an exercise of demand (for commodities) can - not diminish capital; secondly, that an exercise of demand, 1 Page 53. 2 Pages 60, 61. TITE RATIONALE OF TRADE. 1G9 though it consumes a portion of previously existent wealth and annihilates a portion of purchasing power, causes the production of an equivalent amount of new forms of wealth and pur- chasing power" — that is, in respect that the act of purchase passes back as a wave of impetus along the whole producing series to the first member of it, and causes fresh pro- duction. I have said that Messrs. Mummery and Hobson consistently apply the definition of capital as a set of concretes ; but it is not quite clear that they do so at this point. We are here in face of a constant transmutation of a concrete into an abstract, and vice versa ; and the act of consuming a portion of concrete stock (till then = capital) is balanced by setting in motion an abstract force, which is the only representative of the given amount of capital till the new stock is made. Is not capital then here some- thing else as well as what it was defined to be ? True, the authors have pointed out * that when half the machines in a factory are idle, or all are used only at half-time or half -pressure, " the real capital consists in half the machines, the other half being surplus or nominal capital;" and as they show (as di do 1 Pa^e 112. Il6 THE FALLACY OF SAVING. himself the largest portion of the useful saving." But when there is any constant quantity of economically superfluous saving, it is clear, cancelment is in the main (allowing for variations of luck) a process affect- ing all sums of savings proportionately, and he who has the largest total will always have the largest amount of effective claim. Thus the struggle must go from bad to worse, with no relief but that chroni- cally and partially supplied by the annihilation of masses of money-credit in desperate enterprises. Expanding consumption, then, is not enough : re- straint of population must go with it. And it is clear that expanding consumption, with or without restraint of population, involving, as it must, the surrender of the present means of self-preservation for the more or less successful in old age, will never be adopted as the general ideal until some common provision for old age is set on foot. In these conclusions, I think, Messrs. Mummery and Hobson must acquiesce. It is clearly not enough to say, as they do in one place, 1 that " if the community wishes to increase its capital, it must consent to in- crease its consumption," for there is always going on an increase in mass of consumption, and consequently in capital in their sense, by force of the mere increase of population. To the wider conclusion they are led by their demonstration of "the fundamental fallacy which underlies the economists' view of saving, the assumption that the interests of the com- munity must always be identical with the interests of its several members. The statement of Adam Smith, 'what is prudence 1 Page 112. CLASS INTERESTS. 117 in the conduct of a private family can scarce be folly in that of a great nation,' has been taken too generally for a gospel truth. This view, that a community means nothing more than the addition of a number of individual units, and that the interests of society can be ascertained by adding together the interests of individual members, has led to as grave errors in economics as in other branches of sociology." x These general conclusions, I submit, have now been proved, and no less the particular. For the rest, Messrs. Mummery and Hobson supply a close and cogent analysis of " Over-Production and Economic Checks," which will be found to confirm my own more summary statements on that head. Follow- ing out the principle of their first chapter, that the economics of consumption cannot without fallacy be separated from that of production, and that con- sumption is really only the closing act of production, 2 they have really justified their title of The Physiology of Industry, which would hardly have been done by 1 Page 106, citing Smith, B. IV., ch. ii., sec 1. It should be noted that Smith, who generally saw the sound as well as the unsound view of a case sooner or later, though he so often failed to make the proper cancelment, himself remarked in another passage that " the merchants knew perfectly well in what manner to enrich themselves. It was their business to know it. But to know in what manner it enriched the country was no part of their business" (B. IV., ch. i., McCulloch's ed., p. 189) ; and, still more explicitly, that " the interest of the dealers in any particular branch of trade or manufactures is always in some re- spect different from, and even opposite to, that of the public " (B. I., ch. xi., end). 2 A view wrought out also by Mr. R. S. Moffat in his Erenow 1/ nf Coiisiiiiijilioa, with much convincing illustration and great expository power. ITS THE FALLACY OF SAVING. Mr. Stirling bad he called his work, as he at first in- tended, The Physiology instead of The Philosophy of Trade. They complete the argument, finally, by a refutative chapter on " Scarcity of Gold as an Economic Factor," to which those readers may turn who feel that the arguments of the currency school call for detailed answer. I apprehend, however, that those who acquiesce in the present argument thus far will not demur to my leaving those arguments on one side. PART IL— THE PRACTICAL ISSUE. I. Already, perhaps, the reader, in accepting the argu- ment, has recoiled in despair from the vast vista of social reconstruction which it opens up as the only alternative to a long decline towards darkness. He may be moved to cry out with Mr. Lang, and with perhaps the better justification as having really tried to understand the case, that " the social problem is insoluble," and that after a few centuries we shall just " worry back to barbarism." There is a certain sombre fascination in this species of pessimism that especially captures the belletrist mind, even that mind which, in resentment of other austere philosophies, formulates for itself in the name of mythological science the doctrine of a divine " Father who is not far from anyone of us," 1 and is solaced under the pressure of the insoluble social problem by the spectacle of the "beautiful Church of England." But if the belletrist, who at least realises that there is a social problem, is thus impressed by it, we must con- fess that it will be hard to bring home to his public the falsity of the current economic gospel of saving. All the forces of egoism and optimism are on its side. As a matter of fact — and this is the real crux 1 Mr. Lang : Myth, Ritual, and Religion, i. 340. ug 120 THE FALLACY OF SAVING. of the case, remaining after all the economic fallacies are exposed — the average middle-class man has at present no way open to him but saving to provide for his old age ; that is, the minority must " save " in order to live one day on the labour of the majority. If the saver buys an annuity, his money seeks investment all the same. How make the middle-class multitude ever realise that this proceeding of theirs is a saving only of abstract purchasing power : how make them see, even with the fall of interest before their eyes, that the more people save, the nearer nullification will be their mutual claims ; that instead of being a means by which all can add to the common well-being and their own, it is only a process by which a saving min- ority can command the services of a non-saving majority? These, we have seen, are the facts. The increasing " savings " of the working-classes, we repeat once more, represent no saved or made property of any kind, but an abstract claim to wealth, which to seek at once to realise would be to prove the unreality of the wealth by immensely raising prices. It is practically a claim on services in general, and these services are only realisable in so far as alongside of the savers there remains a multitude which saves nothing or little. Let that multitude save also, and cancelment of claim begins to take place all round. But just as saving extends, cancelment of claim is proportionally going on, the result being that the more A saves the more B must save to get the better of him. Meantime, the cure prescribed for the workers is that they shall not onty be chary of consuming the goods which they live by producing, but equally ab- THE PRACTICAL ISSUE. T2I stain from consuming high-class goods, the production of which would call for labour of a higher class — labour which could not be superseded by machinery. And their saved money is consequently to be invested in the production of only the kinds of goods or ser- vices which, so far as parsimony prevails, must of necessity be forthcoming, and are for the most part only too easily multiplied. Thus their very savings do but go to facilitate the crises which throw them idle. The more they cause "capital" to abound, too, the more nearly impossible it becomes for them to be their own capitalists for productive purposes, since the sav- ings of the upper classes go the more to form over- whelming joint-stock concerns that blight smaller undertakings. Thus, on the one hand, we have the increasing class of idle rich, living on investments, and well-to-do jobbers, living by spurious commerce; and, on the other hand, the increasing class of toiling poor, who on all hands are taught to aim at investments likewise, but only here and there to limit their rate of increase and raise their standards of comfort, though only by these last courses can they, under any con- ceivable regimen, countervail the constant extension of labour-saving machinery, and make new labour in- dependent of the capital of the idlers. We are in such an impasse that even if the National Debt were rapidly paid off by way of removing a burden from industry, the result must needs be the throwing idle of many thousands, through the stinting of the consumption of fundholders left without investments, unless one of two courses were pursued. Either (a) the principle of parsimony must be generally abandoned, and the 122 THE FALLACY OF SAVING. majority must demand high-class goods or services which should be more or less providable by those who formerly provided nominally high-class goods or services for the f undholders ; or (b) the State or the municipalities must institute important public works (such as civic reconstruction, with good working-class houses, or comprehensive sewage-schemes), which should extensively employ and train inexpert labour. Indeed, it is clear that the contingency could not be met save by the action of both these general factors : the workers must consume if production is to be kept up. And, finally, restraint of propagation is an indis- pensable condition of the maintenance of the improved state of affairs. Now, is there any prospect at present, in the face of the faith in parsimony, that either, on the one hand, the State or the municipalities will institute the necessary" constructive works (which would of course have to be based on an extended taxation of rent and incomes), or that, on the other hand, the general public will recast its standards of life and insist on consuming and therefore producing more good things ? Is there, again, any prospect that the State or the municipalities will institute a system of provision for old age and sickness, not by a scheme of insurance fallaciously resting on blind investment, but on a system of calculated production of the things people need ? And, finally, is there any prospect that the people in general will effect that control of their rate of increase without which both of the other rearrange- ments would be futile ? As our sociology stands, the prospects are certainly PREVIOUS FAILURES. 1 23 not bright. Are they then blank ? If so, why, then we have been contemplating no mere corrigible fallacy of the reason, but a radical fallacy or flaw in human things — in life itself. And who outside the school of Mr. Lang can accept such a conclusion? It is certainly a clamping reflection that most of the economists who have been cited as seeing through the Fallacy of Saving have negatively or positively failed in their prescriptions for society. Lauderdale, in arguing down the sinking fund principle, had the air of vindicating the National Debt ; Sismondi attacked machinery ; Mr. Ruskin has done that and rather worse things ; Malthus confessedly approved the insti- tution of an idle rich class, and lost weight also by his defence of the Corn Laws, though in that his error was not absolute, seeing that he recognised the new trouble of rapidly multiplied population, to which the Free Traders shut their eyes. Chalmers, again, made a preposterous proposal for the special support of aristocrats ; and nearly all these economists in a way seemed to endorse the old notion that labour neces- sarily depends on the expenditure of the idle rich — a doctrine which Mr. Ruskin has on moral grounds gratuitously attacked as being that of the prevailing economists (who, as we have seen, did not hold it), and which was after all (inly a blundering version of the true doctrine of spending enforced by Mr. Ruskin himself. Later than Malthus and Chalmers, Mr. Moffat, who, like them, has assailed the Fallacy of Saving, has decided to credit the landlords with a moral right to economic rent as the just reward of their activities of superintendence. Nay, even Messrs. 124 TIIK FALLACY OF SAVING. Mummery and Hobson give one a shock of alarm by ottering as an ostensible encouragement to an Eight Hours Law, what amounts to a rcductio ad absurdiun of that scheme. This, I think, they must admit ; as I trust they will admit the other sociological con- siderations urged above in connection with their conclusions. Their treatment of the Eight Hours question brought upon them the keen thrust of Mr. Bradlaugh ; and I doubt not they will mend the crack in their armour. Any way, however, there arc apparently heavy odds against 1113 7 concluding with a sound practical solution where so many have either failed or stopped short. I can but try. II. An accomplished economistof the individualist school, hearing the gist of the foregoing argument read, gave it as his opinion that the destructive criticism was unanswerable, but that the constructive sug- gestions made in the last few pages were unsound. It was, I doubt not, the suggestion of State action that was in view in this objection, for my critic agreed with me as to the absolute necessity of restraint of population under any regimen. And I am bound to admit that while this necessity is not generally recog- nised, State action in the way of providing enrploy- ment must needs aggravate the industrial trouble by giving a special stimulus to population. Nay more, I admit that there are difficulties in the way of resort- ing to any fresh form of State employment while the State has not the power of interfering in some way THE NATIONAL DEBT. 125 with over-breeding, even if the necessity of restraint be brought home to the majority by voluntary pro- paganda such as is going on at present. A certain minority would for a time be reckless, and would add unfairly to the pressure on the community's labour- employing machinery, while profiting by the conscien- tiousness of others. The practical answer to this argument is twofold. To begin with, as I have sought to show elsewhere, 1 it is morally incumbent on the community to make an end of the social injustice that is worked by main- taining a National Debt, the interest on which means the support of the idle and comfortable classes by the poor and laborious. All interest on investments, of course, as we have seen in the foregoing analysis, means the same thing in the end ; but in the case of the National Debt the community is corporately or politically responsible, and has it in its power by direct and simple action — by the simple process of repayment — to put a stop sooner or later to this particular form of social parasitism. Now, if this moral perception be acted upon, as I think it must be, and the Debt be paid off out of special taxation as rapidly as possible, an acute industrial trouble would arise, unless specially guarded against, in respect of the intensified operation of the saving motive among the investors whose principal was paid down to them. In conformity with the conventional ideal which we have been contemplating — or, let us say, on the spur of the instinct of self-preservation — they will greatly restrict their consumption until they can find new 1 Mod&rix Humcwdists, Epilogue. 126 THE FALLACY OF SAVING. investments ; and, as we have seen, this must needs be a very difficult matter. The immediate result, then, will be a serious industrial depression, since fallin '--ott* in demand for commodities means falling- off in demand for labour. It has been objected to my previous exposition 1 that when the principal of the Debt is paid off, the taxation thereby remitted, on the score of abolished interest- pa} T ments, will suffice to provide for the extra con- sumption necessary. But this objection overlooks three essential points : (1) that in the terms of the case there had been extra taxation to provide for the payment of the principal, and that this taxation would, by parity of reasoning, act as a restrictive of consumption; (2) that the restriction would be immediate, while the remission of taxation would only be prospective ; and (3) that while the ideal of saving subsists, there is no security whatever that remission of taxation will bring about increased or raised consumption on the part of individuals. My proposition, then, holds good, that, given a rapid re- payment of the National Debt, in the absence of a general reform in the matter of consumption, which cannot reasonably be expected to take place quickly, nothing can avert ruinous industrial depression save the creation of a special demand for labour by the corporate action of the community. I can understand that a determined Individualist will face any amount of industrial calamity rather than sanction such a resort to the principle of State Socialism ; but I am bound to declare that, if the circumstances be admitted 1 Epilogue cited. STATE EMPLOYMENT. 1 27 to be as I say, such determined Individualism amounts to a fanaticism of a very deplorable kind. At best, the Individualist in such a case is purchasing what he regards as safety in the future at the cost of frightful misery in the present. That is to say, he does this if he assents to the demand that the National Debt shall be paid off as rapidly as possible. He has the alternative of leaving the National Debt as it is. In that case, he seems to me to identify his cause with an immense social injustice. Democratic In- dividualists, I submit, cannot take up such a position. On the other hand, if those who desire to abolish the injustice do not accept, along with the principle of State employment of labour, that of restriction of population, I can see nothing but new evil ahead. If they will accept the principle of restraint, I can conceive matters going substantially well, even with- out the legal enforcement of restraint, a thing difficult to arrange under any regimen, and plainly impossible in the present state of sociological thought. In view of the continuous fall in the birth-rate, along with an increase in the number of marriages (a clear result of the spread of Neo-Malthusian doctrine), I can conceive that public opinion and voluntary propaganda inh- ere long so far rationalise the general action that the recklessness of the few will not in itself be ruinous, and will serve to force on the discussion of the prin- ciple of legal interference. The more slowly that principle is adopted, the less risk is there of its being crudely or arbitrarily reduced to practice. But if the majority continue to set their fact's, as ;it present; against the very notion of restraint, or tolerate only 128 THE FALLACY OF SAVING. ascetic kinds of restraint which it would be idle to prescribe for general adoption, even if they were scientifically sound (which they are not), then there is no escape from an extension of the old trouble. Nothing short of prudence in procreation can ulti- mately save the proletariat from chronic hardship. And one can but hope that the increasing plainness of the dilemma will ere long bring about the enlighten- ment of the Liberal politicians who are as yet given over to helpless empiricism. Already there are signs that the enlightenment is in process. One Liberal leader 1 avows an uneasy wish that his party paid more heed to the population problem. But the chances are at present that this fundamental sociological prin- ciple will be forced on national attention in connection with a new form of political agitation, which bids fair to absorb within itself several others. I mean the demand for Old Aire Pensions. III. The rapid extension of the vogue of this proposal within the past year or two is one of the few satis- factory symptoms in industrial politics, from the scientific point of view. For a time it seemed as if the demand for an Eight Hours Law was going to absorb all the self- regarding political energy of the masses ; and the prospect looked sufficiently dark, because the very failure which must so speedily dis- credit such a measure as that would go to discredit 1 Mr. John Morley, in a speech to the Eighty Club in 1889. OLD AGE PENSIONS. 1 29 democratic schemes in general, and a period of inan- ition would follow that of miscalculation. But the Old Age Pension scheme has the advantage of appeal- ing to the mass of the workers, while being in no way opposed to sound economic principle. The Eight Hours Law would be an economic absurdity worthy of the Middle Ages ; a workers' pension scheme — as distinguished, that is, from a system of national in- surance — is economically sound. And already, in one form or another, it has been declared for by politicians of different parties ; on one side, for instance, by Mr. Chamberlain ; on the other side, and on sounder lines, by Dr. W. A. Hunter, whose sagacious advocacy is likely to count for much. But none of its advocates has yet pointed out the weighty economic advantages it may involve • on the contrary, several of its sup- porters are so far from seeing these that they regard them as imaginary drawbacks, against fear of which the public must be reassured. Mr. Sidney Webb and Mr. Charles Booth, for instance, expressly argue 1 that there is no danger of a pension scheme discouraging thrift ; the implication being that, with pensions, the workers will save more and not less — that is to say, will not solidify industry by consuming more and better products. But it will be the principal service a pension system can render, to encourage the workers to consume and not paral} r se production by restricting their demand. Evidently we must still justify the pension scheme on economic grounds ; and such justification is the more necessary because there 1 Mr. Webb in the Contempora/ry Review, -Inly, 1890, pp, 103-4 ; Mr. Booth in .-i paper whioh I have nol Been. 1 130 THE FALLACY OF SAVING. are still some publicists who oppose the pension prin- ciple all round. Of these the most prominent is Mr. C. S. Loch, Secretary of the London Charity Organisation Society. Mr. Loch, who has given much professional study to the phenomena of pauperism, is convinced that it is largely " created " by loose methods of poor-relief, and argues l that a national pension system would tend to manufacture it. In so far as the risk is alleged to arise in terms of the difficulty of escaping malinger- ing, even among persons over sixty, the point need not be disputed. Mr. Loch's conclusion is that "To establish an annuity system, and not to prohibit out-door relief to the able-bodied, or perhaps to all but those who require medical out-relief, would be to foster a hybrid pauperism, in part maintained by the rates, in part by imperial and local taxes." 2 So be it — barring only the point as to what es- sentially constitutes pauperism. Let it be provided that under an adequate pension system out-door re- lief to the able-bodied shall cease. But Mr. Loch's theory of pauperism calls for further examination. Looking at the problem from the standpoint of em- pirical ethics, he sees in it mainly an outcome of individual fault ; and, what is more, he supposes that the faults in question, as society is now organised, constitute a source of unrelieved individual burden to all who pay the taxes which relieve paupers. But 1 Old A'je Pensions and Pauperism (Sonnenschein & Co. 1892), piss' UK a Pae:e41. PAUPERISM. P,I that this is not so will be already clear to many who have followed the foregoing economic analysis. Mr. Loch cites 1 as typically or generally valid an enquiry which discriminates city pauperism as follows : — " Pauperism caused by old age or infirmity, without any dis- credit, explained nearly one-eighth of the pauperism of the town- ship ; pauperism by disease (not brought on by misconduct) or accidental injuries, involving inability to work, accounted for one-seventh; drunkenness explained 51 '24 per cent." Now, it of course never occurs to Mr. Loch that this latter section of pauperism represents anything but an infliction of loss on well-to-do ratepayers generally. He would take that view, presumably, of pauperism attributed to mere improvidence, apart from drunkenness : much more would he take it of drunkenness. And yet it is easy to show that, inas- much as we have seen the spenders tend to keep in- dustry going while the savers tend to paralyse it by checking consumption and market demand, the victims of improvidence have really sacrificed themselves (un knowingly, of course) to the advantage of the pro- vident. Had the whole population been alike bent on saving, the total saved would positively have beeD much less, inasmuch as (other tendencies remaining the same) industrial paralysis would have been reached sooner or oftener, profits would be less, in- terest much lower, and earnings smaller and more precarious. This, as the reader of the foregoing chapters has seen, is no idle paradox, but the strictest 1 Page M. 132 THE FALLACY OF SAVING. economic truth. It follows, then, that since the spendthrifts facilitate the accumulations of the savers, the pauper class, in so far as its members have been industrious but " unthrifty " workers, has all along been contributing to the general prosperity as far as it could, while the more fortunate savers have as such been doing the reverse. The savers, in short, have as such been living on the spenders. Of course they also have been to some extent spending ; and they may also have been industriously producing ; but in the nature of the case they got their accumu- lation of purchasing power from those who pa/rted ivith it, and their accumulations subsist only in so far as the majority has been willing to go on spending. To go back to Mr. Ruskin's words, their savings are valid in virtue of the defect of saving in others. Apply this to the case of the pauper class, and it will be seen that even the drunkards have been put- ting purchasing power in the hands of others. Of the "saved" capital or money- credit owned among the upper classes, enormous sums have come from the drink trade. I suppose that even among those who hold devoutly to the doctrine of saving there will be hesitation in applauding the brewers and distillers and publicans for their services in amassing capital. But in the light of economic analysis it becomes a peculiarly preposterous hypocris} 7 to speak of the top- ing pauper as typically a burden on society while the brewer and publican are treated as bearers of the burden. It will not be supposed, of course, that I deny the cumulative infelicity of expenditure on drink. PAUPERISM. 133 Clearly it not only yields the most transient satisfac- tions at best, but on the other hand actively negates well-being to the extent of three-fourths of the con- sumption. But the student has now realised that if all intoxicants were totally abstained from, industrial hardship could only be averted by the setting-up of fresh consumption, which would constitute demand for the labour thrown idle. And the temperance party must be reminded that it does not at all follow that the grain unconsumed by brewers and distillers would continue to be produced, and so lower food prices. That only is- produced for which there is market demand. Of course the reformed topers would consume more bread, but that would be all. We are now in a position to pass judgment on Mr. Loch's conception of pauperism, as bearing on his op- position to a pension system. He is wrong even in his implicit notion that improvidence annihilates pur- chasing power and lessens the total command of society over wealth and services. He is therefore doubly wrong in his proposition 1 that under a national pension system the present " pauper pensioner would become a pensioner-pauper," and that "pauper he would remain under both guises." That is to sa}-, Mr. Loch is wrong in implying as he unavoidably does that the man who works while he can, and then draws from the public treasury, lias deserve 1 ill of society. It cannot be too emphatically declared thai the true "paupers" arc those who, having done no work whatever, subsist on the interest "I' savings made by others. We have seen, indeed, that all 1 Page WT~ 134 THE FALLACY OF SAVING. subsistence on interest means in practice subsistence on others' industry ; but inasmuch as investment at interest is the principal means of providing for old age, those who thus secure themselves are only get- ting what, broadly speaking, they are entitled to — setting aside, that is, the question of just share. When, however, we deal with those who have in- herited money-capital, and, themselves able-bodied, live idly on its interest, the same defence does not hold. They consume services and render none ; and if any are to be socially and economically disparaged, it is the}^. I have no wish, indeed, to set up a dis- paragement which would in its turn operate unjustly, inasmuch as the idle livers on investments are actually doing the economic best open to them, in many cases, when they spend without accumulating further. But if we are to be considerate to these, let us be just to those workers who do unquestionably render service to the community before they idly con- sume services. Mr. Loch quotes former Poor Law Committee-men as pointing out that certain forms of poor relief are " premiums upon indolence and vice." If there be any meaning in words, our systems of land accumulation and free bequest of money-capital are premiums upon indolence and vice, fostering both in the highest degree ; yet it never occurs to the critics in question to say so. On the other hand, the relatively much smaller risk of promoting indolence and vice by a national pension system can be guarded against, and will be increasingly so in practice, by public interest inspiring public criticism. Mr. Loch's general objection to a national pension PENSIONS AND POPULATION. 1 35 system, then, breaks down alike morally and economi- cally, he having, indeed, no economic light on the subject at all. But there is a general objection which he might very well have made — that, namely, which has been above indicated in connecting the pension scheme with the population problem. The omission all round to raise the population difficulty is at least a proof of the falsity of the common assertion that that principle is usually employed as a means of rebutting proposals made in the interests of the people. I do not here employ it with any such pur- pose. Rather I bring it forward in the belief that fie growing acceptance of the pension principle will be the most effective means of bringing home the population principle to the general intelligence. Those who have hitherto refused to face it must then do so. Any measure of systematic State provision for the necessities of the people will constitute a clear national risk, unless at the same time the need for limitation of rate of increase is generally recognised. Of late years there has been an economic conspiracy of silence, or worse, on the subject ; and even enlightened writers like Professor Marshall and Professor Sidgwick either obscure the issue or deny the solution. In his latest work Professor Sidgwick makes the astonishing declaration that in the present state of civilisation he considers the increase of human life "in the world" as a good and not as an evil. l Since he at the same time admits that some day it is likely to be necessary to restrict population, he is committed, in the very act of encouraging increase, t<> the view that such increase 1 EU merits of Politics, p. 304. 136 THE FALLACY OF SAVING. tends to become a danger. That is to say, the position of civilisation is going to get worse and not better. Yet it lies on the face of the case that such wqrsen- ment can only appear under the guise of poverty and struggle for subsistence, phenomena which are glaringly apparent in the present state of civilisation, in which Professor Sidgwick thinks all increase of population is a good. The fact is, it appears, that Professor Sidgwick makes the ordinary empiric's confusion between gross and net increase of population. He has not realised that a restriction of gross increase of population is compatible with a continued net increase of popula- tion, in respect that of the fewer children born a larger proportion can subsist. This lesson is of the very essence of the Neo-Malthusian docti-ine. 1 But even if we consider the demand for a continued net increase of population, it is plain that it rests, even when put forward by a thinker like Professor Sidg- wick, on no scientific estimate of good and evil. The first condition of jsuch an estimate is a discrimination of the various lots into which human beings are born ; but Mr. Sidgwick makes no discrimination whatever. Thus can sociology still be written. IV. But, even assuming a recognition of the law of population, there is still our problem of consumption, which the advocates of State pensions leave wholly 1 See the author's pamphlet on Over-Population (Forder, Stonecutter Street). PENSIONS AND CONSUMPTION. 1 37 out of account, framing as they do a sociological pro- position without a study of the economic contingencies. With or without limitation of families, we saw, the principle of parsimony would lead to economic over- production of easily produced necessaries, and the principle of parsimony, unless discredited or effectively thwarted, would continue to operate widely even alongside of a State pension system. Even if pensions be withheld from all who have investments — and that is a point that must clearly be considered when we come to details — those who do the bulk of the present " saving " would continue to do so, and the kind of consumption possible to the pensioners, at the rates of pension thus far proposed, would certainly not per- mit of any great raising of the standard of consump- tion. So the industrial problem would still subsist, and we should soon be led up to the question of doles to the unemployed. Now, no State could enter on a system of doles to the unemployed without rapid demoralisation and no less rapid impoverishment. The causes which created the lack of employment would subsist under a system of doles. Rapidly perishable forms of wealth would be freely produced at demand, and still there would be idleness, unless among the classes with most purchasing power there arose an increasing demand for the higher and less easily producible forms of wealth — for artistic products, in short. And what present likeli- hood is there of these classes thus raising their standards of consumption while they have no other means than saving and investment of securing for 1 heir old age the measure of income that investments might T 38 THE FALLACY OF SAVING. yield them ? Plainly, the establishment of pensions for the workers is only one side of the process of recon- struction ; and we must try to ascertain how the rest of the process should go. First, we come back to the old principle, otherwise arrived at, 1 of a graduated income tax as a necessary means towards the payment of the National Debt. Here we have at once a means of rectifying plain political injustice and of checking under-consumption, provided, that is, that we specially tax idle income from investments. This is the course prescribed by political equity apart from economic sociology, and it entirely consists also with the economico-sociological prescription. But the taxation of incomes will at first necessarily tend to make those taxed spend less on consumption ; and here, as before, we are faced by the need for special employment of labour. Such employ- ment can only be supplied by public action ; and I can suggest no better lines of such action than genuine public works, such as corporate cultivation of waste or withheld lands ; the scientific utilisation of sew- age and consequent salvation of rivers ; the proper tunnelling of streets for sewage and lighting purposes, and the rebuilding of the worst parts of our cities, in- cluding in that the erection of good dwellings and noble public buildings. Thus far we shall provide for the employment of unskilled and partially skilled labour generally ; and if at the same time we establish a pension system for the workers, stipulating that there shall be propor- tional deduction where the pensioner has other sources 1 See Modem Humcuiists, Epilogue. GRADUAL PROGRESS. I 39 of income, we may take it that common consumption will be fairly safe. All this, be it observed, comes far short of the universal transformation demanded by the neck-or- nothing Socialists, who propose the nation- alisation of all means of production. That is a trans- formation which human nature cannot accomplish save by a prolonged course of gradual change : what we are here proposing is a set of social departures plainly required by the industrial and moral situation, and as plainly practicable. The reform of taxation, of course, goes upon a principle which equally prescribes the nationalisation, as is found feasible, of monopoly- sources of profit, such as railways, gas-works, water- works, and banks. Merely to nationalise these, and to secure the national utilisation of the land, will be hard enough work for some generations to come ; and it is needless here to anticipate the problems of further nationalisation of sources of profit which will arise when these have been grappled with. Suffice it to say that by all these means the sources of idle living may be gradually restricted without any harm to industry generally, and even without any violent hardship to the idle classes, which will be gradually eliminated. The practice of saving will be continued by the non- pensioned classes on their own behalf ; but when en lightened consumption is more and more generally recognised as the right economic and social course, there will be a decline in the desire to endow idle families — provided only that there are careers open which shall yield young people lair chances of living in return for services rendered to society. And here arises the question whether an extending 140 THE FALLACY OF SAVING. pension system (for I will assume that as the com- munity is found to prosper on the new lines, pensions will he raised to the workers generally) may alone be trusted to secure such raising of the standards of con- sumption as shall elicit in an ever-increasing degree the higher kinds of service, and not merely increase the run upon the lower. We have seen that machinery will always easily overtake the demand for most necessaries (though the limits of the food and fuel supplies, not to speak of room for houses and gardens, must always be less elastic) ; and that the true cure for over-supply of labour is primarily restraint of population, and secondarily demand for artistic products. Given the recognition of these principles, will the pension system, with its security of life, suffice to make them work ? Will the classes employed and pensioned by the State be safe to pro- vide as well among them for the maintenance of literature, art, and science, as society does at present ? I would answer that, without any such premature extension of public emplo}nnent as would be a social danger comparable to the present moral evil of a large class of idle rich, the public service will neces- sarily tend to provide more and more for the fostering of the higher standards of consumption alongside of the raising of the standards of the workers. The education sj'stem must clearly be improved, till the higher grades are relatively as fully available in the public interest as the lower. And as the official pension system is already in force in the public service generally, and is bound to be extended rather than dropped, it will come about that the great class THE ARTS AND SCIENCES. I4I engaged in all kinds of teaching, like the other classes of public servants (likely ere long to include, as before noted, the employees on the railway and gas and water systems), will be in a good position to consume the higher forms of literary and artistic service, leaving the supply of these services (as apart from public teaching) to the free operation of the present supply-forces. In this, as in commercial matters, there need be no fear of lack of supply, if there is demand. And on the lines specified, demand will, I think, be forthcoming. Indeed, it is safe to say that on such lines of evolution, demand for the higher intellectual services will be relatively much larger than it is at present. It is one of the darkest features of the present system that the ideals or standards of consumption on the intellectual side rise so slowly, nay, even seem at points to sink relatively to the material possibilities. So far from there being, as Cairncs implied, a danger that the more a State is socialised the greater will be the risk of a decline of the arts and sciences, it is inconceivable that any State more socialised than ours should in future provide worse for the advancement of these than we are doing at present. 1 Throughout all this argument, be it remembered, there is assumed the general practice of restraint of 1 The prospects of literature under a more socialised have, I think, been even under-estimated from a professedly social- ist point of view, while those of art and science have not been clearly enough set forth. Sue the articles <»n "Art and Litera- ture under Socialism '' in the New Revieio for January, L891, by Messrs. Morris & Salt. I42 THE FALLACY OF SAVING. births. Needless to say, this must hold good for the more cultured as well as for the less ; and this re- straint alone will serve to improve the situation for the " upper " (there will still in a sense be upper and lower, or more and less cultured) as well as for the " lower " classes. At present the pressure of the com- petitive saving system is much intensified by the high rate of increase among the middle-classes, for fathers naturally want to provide for their daughters, and to start their sons in life with " capital." When the English middle-classes learn the lesson of rational- ism in life, the ideal of endowed idleness will be the more easily superseded because the opportunities of worthy and refined employment will be proportionally much greater as the number of helpless middle-class scions of both sexes relatively falls off. Thus in time may be attained the complete euthanasia or elimina- tion of that grave social evil, the idle class ; the com- munity safeguarding otherwise, step by step, all the compensations which the existence of that class lias hitherto involved. Of course the complete elimination will mean the socialisation of all the present sources of interest on invested money-credit. V. But already we have gone, for scientific purposes, quite far enough in anticipation of future possibilities ; and our exposition must end on the strictly practi- cal plane of present day economics. The practical doctrine of this second part of our inquiry, over and above restraint of population, is summed up in (1) NATIONAL INSURANCE. 1 43 reform of taxation to the primary end of paying off the National Debt ; (2) public works, to employ the labour that tends to be thrown idle as a result of the liquidation of the Debt ; (3) a national system of pensions. The last point to be considered is the method of the pension system in the light of the economic principles before established. It speedily appears that the old idea of a National Insurance Fund is out of the question. Even apart from any perception of the general Fallacy of Saving, it is widely admitted that such a fund would be un- workable. It is hard enough for private Insurance Companies to go on investing their funds profitably, without the Government attempting to compete with them as an investor on a gigantic scale. But further, it is being widely recognised that the collection of premiums, or specific payments towards pensions, would be an enormously difficult matter ; and al- ready, alongside of the schemes which specify such charges and payments, there are others which frankly propose to make a national pension charge without exacting payments from individual workers. Such are the proposals of Mr. R. P. Hardy l and Dr. Hunter. 2 Here, however, there is a risk of such misconception as is set up by the phrase "free education." Indeed, there being a specific education-rate, the risk of mis- conception is greater. At the present moment, the working-classes pay, relatively to their mere money income, a very large proportion of the national taxa- 1 Pamphlet on Old Age Pensions (Knighl A ('■'., L891). - Articles in Weekly Dispatch, 144 THE FALLACY OF SAVING. tion, of which so great a mass goes to pay interest on national debt. Even if they were not thus taxed in respect of their consumption, they obviously contribute the great mass of the really useful services by which all incomes are built up ; but as a matter of fact they positively pay out of their wages a large part of the national revenue. A sound system of taxation would, remove much of their present burden, by making an end of the taxes on articles of food. But if a pension system can be established, it may be on many grounds expedient to impose a direct income-tax on the work- ing as on other classes. Such a tax would, represent their specific contribution to the national burdens, and would constitute by far the best quid pro quo as against their pensions. It would be a universal tax as against a universal obligation ; and it would be impos- sible even for empirics then to speak as if the workers drew pensions without doing anything to pay them. No doubt there would still be outcry on the part of the monied classes. 'So deeply rooted is the notion that labour subsists chiefly by the bounty of capitalists, that in the recent case of the Scotch railway strike Mr. Lang, strong in intuitive sociology, could come forward to satirise those who sympathised with the strikers, as being generous at the expense of the shareholders. It did not occur to Mr. Lang that to sympathise with the shareholders was to be generous at the expense of the men, whose lives were spent in earning dividends for the shareholders. But while Mr. Lang's view will of course be popular among shareholders, we may hope that even in that class there are now many who deriving their sociology CONCLUSION. 145 from other than belletrist sources, can see that it is industry which pays dividends, and not dividends that pay industry. That the workers would themselves readily acquiesce in such a course seems the more likely in view of the favour with which the Bismarckian system of national insurance is regarded by them in Germany, where the workmen's contribution is exacted through the em- ployer. That in itself seems a cumbrous and vexa- tious course under any circumstances, and would certainly not be easy of introduction in England. But inasmuch as the workers pay educational and other rates already, there need be little difficulty in charging them with a national rate, which it would be so clearly worth their while to pay, and which more- over ougdit to be a less burden than that which at o present presses on them in respect of the taxes on their food and their poor " luxuries." The great matter is that there shall be a general abandonment of the established delusion that the uni- versal saving of sums of money-credit, as an outcome of non-consumption of the products of industry, can ever lead to all-round well-being. And therefore it is that I have stipulated for the limitation of the pension in cases where the pensioner has an income from in- vested savings. It must be admitted, however, that this stipulation can hardly be insisted on so long as the pension paid is only a few shillings a week, as is at present proposed. The question, therefore, need not be politically argued on this line at present. It wid properly arise first in connection with those official pensions which are sufficient in themselves to 146 THE FALLACY OF SAVING. sustain life in comfort. These are as yet mainly re- stricted to the upper grades of the public service ; and to raise the principle in that direction will doubtless give much offence at the outset. But if there be any validity in the foregoing economic analysis, raised the question must be ere very long. And we may hope that the natural tendency to increase the small pensions first asked for will be a force which will necessitate the reconsideration of the received economic doctrine. Legislators will never agree to a national system of comfort-giving pensions while the theory of saving holds its ground. That theory rests, as we have seen, on unenlightened self-interest. But inasmuch as a system of comfort-giving pensions would coincide with the impulse of economically enlightened self- interest, it seems reasonable to conclude that, once established in a democratic State, it will be so de- veloped as to undermine or override the contrary policy, which will, besides, be scientifically discredited step for step with the successful working of the rational regimen of advancing consumption. THE END. Printed by Cowan 6° C#. , L united, Perth, INDEX. ->t<- Abstinence, Doctrine of, 63 Art and Industry, 113 Bagehot, 84 Beaulieu, M. eroy, 2 Bifield, 1 1 1 Bills, 84 Blanqui, 32 Bphm-Bawerk, 63, 64, 75-S3 Booth, C, 129 Bradlaugh, 124 Brougham, 33-35 Cairnes, Professor, 33, 5&> 61-64, 79, 141 Capital, Definitions of, 3, 8, 30, 43, 66, 72-91, 106, 109, in Waste of, 94 Chalmers, Dr., 5, 29, 37, 47, 54, 94, 103, 123 Class Interests, 116, 117 Coleridge, 93 Consumption, 90, 103, 106- 118, 136 Cossa, 33 Credit, 77, 83, 86 Depression in Trade, 112 Destutt de Tracy, 33 Droz, 69-70, 75 Fawcrtt, 57-58 France, Saving in, 70 Garnier, M. Joseph, 6S-9 Germany, Pensions in, 145 Gide, 75 Gluts, 41, 98-100, 113 Hardy, R. P., 143 Hermann, 65 Hume, 27 Hunter, Dr. W. A., 129, 143 Improvidence, 2 Insurance, National, 143 Investments, Foreign, 104 Rationale of, 133-4 JEVONS, 56, 57 Kuhnast, 77 Land Nationalisation, 139 Lang, A., 118, 144 Lauderdale, Earl of, 2S-38, 80, 91, 92 Loan Fund, 84 Loch, C. S., 130-5 M'CULLOCH, 29, 32, 33, 37, 40-41, 69 Macleod, 77-8, 82, 83-5, 87, 1 10 Maitland, E., 3-6. 148 INDEX. Malthus, 29, 33-37, 40 Markets, Extension of, 9 Marshall, Professor, 59-60,88-9, 95, 135 Marx, 58, 63, 64 Mill, J. S., 5, 16, 33, 42-57, 72-3,86-8,94,95,98-9, 102-4, 107 — ; James, 29, 33, 43, 73-4 Misproduction, 97 Moffat, R. S., 54, 117, 123 Montesquieu, 26 Morley, J., 128 Mummery and Hobson, 98, 105 National Debt, 5, 29, 37, 85, 121, 125-7, 138 North, Dudley, 41 Over-production, 41,98-101, 1 12 Parsimony (See Saving) Pauperism, 130-5 Pensions for Old Age, 114-116, 128-146 Physiocrats, 23, 25 Population Question, 90, 113- 115, 125-128, 135-6 Price, Professor Bonamy, 1 Production, Process of, 108 Profits and Saving, 2 QUESNAY, 24 " Realised Property," 4 Ricardo, 29, 32, 74, 91-2, 98, 100 Roscher, 64-5 Ruskin, 93, 123 Saving, Nature of, 7, 30, 35, 46, 72-4, 81, 85-90,93, 106, 115, 120 Saving, Doctrine of, 1, 12-23, 24, 46, 68-71, 79-90 Say, J. B., 29, 32, 33, 39, 41, 73, 77, 82, 98, 100 Scrope, Poulett, 63 Self-interest, Delusions of, 10 Senior, N. W., 29, 63 Sidgwick, Professor, 6-8, 5 8-9, 84-7, 135 Sismondi, 29, 38-40, 99, 123 Smart, W., 76 Smith, Adam, 12-26, 30-35, 41, 76, 77, 102, 116-117 Socialism, 61, 71, 79, 139, 141 Spencer, Herbert, 2 Spendthrift, Theories as to, 13- 22, 67-9, 131 Spending, Effects of, 17-21, 53, 60, 79> 89, 95, "3, 131 Spinoza, 64 State Employment, 122, 124 Stephen, Leslie, 57-8, 112 Stirling, P. J., 91, 99, 11S Sumner, Bishop, 41 Taxation, 138 Turgot, 24-25, 72, 76, 77, 78 Yerri, Count di, 33 Voltaire, 26 Wage-fund Theory, 5, 107 Wakefield, 103 Walcker, 65-67, 104 Wealth, Public, 17-21, 31, 91-3, 102 Webb, S., 129 Workers, Saving by, 15, 18, 121-2 Interest of, 95-7 Position of, 102, 114 SOCIAL SCIENCE SERIES SCARLET CLOTH, EACH 2s. (iff 1. Wort and Wages. Prof. J. E. Thorold ■Ro'-.t-.rs. " Nothing that Professor Rogers writes can fail to be of interest to thoughtful people." — Athtnanm. 2. 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"A concise but comprehensive volume."— Beho, 22. Our Destiny. Laurence Gbonlund. " A very vigorous little book, dealing with the influence of Socialism on morals and religion." — Daily Chronicle. 23. The Working-Class Movement In America. Dr. Edward and £. Marx Ave ling. " Will give a good idea of the condition of the working classes in America, and of the various organisations which they have formed." — Scots Leader. 24. Luxury. Prof. Emile de Laveleye. " An eloquent plea on moral and economical grounds for simplicity of life." — Academy. 25. The Land and the Labourers. Eev. C. W. Stubbs, M.A. "This admirable book should be circulated in every village in the country." — Manchester Guardian. 26. The Evolution of Property. Paul La* argue " Will prove interesting and profitable to all students of economic history." — Scotsman. 27. Crime and its Causes. W. Douglas Mobrisoji. " Can hardly fail to suggest to all readers several new and pregnant reflections on the subject." — Anti-Jacobin. 23. Principles of State Interference. D. G. Ritchie, M. A. " An interesting contribution to the controversy on the functions of the State."— Glasgow Herald. 29. German Socialism and F. Lassalle. W. H. Dawsoh. " As a biographical history of German Socialistic movements during this century it may be accepted as complete."— British Weekly. 80. The Purse and the Conscience. H. M. Thompson, B. A. (Cantab.). " Shows common sense and fairness in his arguments." — Scotsman. 81. Origin of Property in Land. Fcstel de Coulanges. Edited, with as Introductory Chapter on the English Manor, by Prof. W. J. Ashley, M.A. " His views are clearly stated, and are worth reading." — Saturday Review. 82. The English Republic W. J. Linton. Edited by Kineton Parses. " Characterised by that vigorous intellectuality which has marked his long life of literary and artistic activity."— Glasgow Herald. 33. The Co-Operative Movement. Beatrice Potter. " Without doubt the ablest and most philosophical analysis of the Co-Operative Movement which has yet been produced." — Speaker. 84. Neighbourhood Guilds. Dr. Stanton Coit. "A most suggestive little book to anyone interested in the social question." — Pali Mall Gazette. 85. Modern Humanists. J. M. Robertson. " Mr. Robertson's style is excellent — nay, even brilliant — and his purely literary criticisms bear the mark of much acumen." — Times. 36. Outlooks from the Hew Standpoint. E. Belfort Bax. "Mr. Bax is a very acute and accomplished student of history and economics.'' — Daily Chronicle. 87. Distributing Co-Operative Societies. Dr. Lcigi Pizzamiglio. Edited by F. J. Snell. " Dr. Pizzamiglio has gathered together and grouped a wide array of facts and statistics, and they speak for themselves."— Sptalier. 38. Collectivism and Socialism. By A. Nacquet. Edited by "W. Heaeord. " An admirable criticism by a well-known French politician of the New Socialism of Marx and Lassalle."— Daily Chronicle. SOCIAL SCIENCE SERIES— (Continued). 99, The London Programme. Sidney Webb, LL.B. " Brimful of excellent ideas."— Anti-Jacobin. 40. The Modern State. p AUL Leboy Beaulieu. "A most interesting book; well worth a piace in the library of every so-ial inquirer."— A". £. Economist. 41. The Condition of Labour. Henry George. " Written with striking ability, and sure to attract attention, — Newcastle ChrcmicU 42. The Revolutionary Spirit preceding the French Revolution. Felix Eocquain. With & Preface by Professor Huxley. ' The student of the French Revolution will find in it an excellent introduction to the study of that catastrophe."— Scotsman. 43. The Btudent'B Marx. Edward Avelino, D.Sc: "One of the most practically useful of any in the Series."— Glasgow Herald. 44. A Short History of Parliament. B. C. Skottowe. M.A. (Oxon.). " Deals very carefully and completely with this side of constitutional history."— Spectator. 45. Poverty : Its Genesis and Exodus. J. G. Godard. " He states the problems with great force and clearness "-N. B. Economist. 46. The Trade Policy of Imperial Federation. Maurice H. Hervey. "An interesting contribution to the discussion.'— Publishers' Circular. 47. The Dawn of Radicalism. J. Bowles Daly, LL.D. " Forms an admirable picture of an epoch more pregnant, perhaps, with political mstrnction than any other m the world's history "—Daily Telegraph 48. The Destitute Alien in Great Britain. Arnold White ; Montague Crackan- thorpe, Q.C. ; W. A. M'Arthur, M.P. ; W. H. Wilkins, &o. "Much valuable information concerning a burning question of the day."— Timet. 49. Illegitimacy and the Influence of Seasons on Conduct. Albert Leffingwell, M.D. We have not often seen a work based on statistics which is more continuously interesting."— Westminster Review. 50. Commercial Crises of the Nineteenth Century. H. M. Hyndhian. 'One of the beat and most permanently useful volumes of the Series."— Literary Opinion. 51. The State and Pensions in Old Age. J. A. Spender and Arthur Acland, M.P. " A careful and cautious examination of the question. "—Time*. 62. The Fallacy or Saving. John M. Eobertson. " A plea for the reorganisation of our social and industrial system 'Speaker. 63. The Irish Peasant. Anon. ' A real contribution to the Irish Problem by a close, patient and dispassionate Investigator."— Daily Chronicle. 54. The Eifect3 of Machinery on Wage3. Prof. J. S. Nicholson, D.So. " Ably reasoned, clearly stated, impartially written.'— Literary World. 65. The Social Horizon. Anon. 'A really admirable little book, bright, clear, and unconventional."— Dailu Chronicle. 56. Socialism, Utopian and Scientific. Frederick Engels. " The body of the book is still freBh and striking."— Daily Chronicle. 57. Land Nationalisation. A. E. Wallace. The most instructive and convincing of the popular works on the subject."— National Reformer. 58. The Ethic of Usury and Interest. Eev. W. Bltssard. "The work is marked by genuine ability."— North British AgritxdturatUU 59. The Emancipation of Women. Adele Ckepaz. " By far the most comprehensive, luminous, and penetrating work on this question that I have yet met with."— Extract from Mr. Gladstone's Preface. 80. The Eight Hours' Question. John M. Eobbktson. ..4 v "y cogent and sustained argument on what is at present the unpopular side. — Timet. 61. Drunkenness. George E. Wilson, M.B. " well written, carefully reasoned, free from cant, and full of sound mom."— National Observer. 62. The New Reformation. Eamsden Eatmfohth. "A striking presentation of the nascent religion, how best to real:;-.* th.j personal and social ideal."— Westminster Review. 63 The Agricultural Labourer. T. E. Kebbkw "A short nummary of his position, with appendices on wages, educution allot- ments, etc., etc." 64. Ferdinand Lassalle as a Social Reformer. E. BKUNBTai*. " A worthy addition to the Social Science series."— North British Bconn~ni*t 80CIAL SCIENCE SERIES— (Continued). 66. England'? Foreign Trade In XlXth Century. A. L. Bowley " Full of valuable information, caretully compiled."— Time*. 66. Theory and Policy of Labour Protection. Dr. Schaffle " An attempt to systematize a conservative programme of reform."— M an. Guard 67. History of Rochdale Pioneers. G. J. Holyoake " Brought down from 1844 to the Rochdale Congress of 1892."— Co-Op. Sews. 69. Rights of Women. M. Ostragorski "An admirable storehouse of precedents, conveniently arranged." — Daily Chron 69. Dwellings of the People. Locke Worthington. "A valuable contribution to one of the most pressing problems of the day." — Daily Chronicle. 70. Hoars, Wages, and Production. Dr. Brentano "Characterised by all Professor Brentano's clearness of style."— Economic RevUw 71. Rise of Modern Democracy. Ca. Borgeaud, "A very useful little volume, characterised by exact research." — Daily Chronicle. 72. Land Systems of Australasia. Wm. Epps, " Exceedingly valuable at the present time of depression and difficulty." — Scots. Mag. 73. The Tyranny of Socialism. T?es Guyot. Pref. by J. H. Levy. "M. Guyot is smart, lively, trenchant, and interesting." — Daily Chronicle. 74. Population and the Social System. Dr. Nith "A very valuable work of an Italian economist." — West. Bet. 75. The Labour Question. T. G. Spyers " Will be found extremely useful."— Times. 76. British Freewomen. C. C. Stopes. " The most complete study of the Women's Suffrage question."— English Worn. Rev 77. Suicide anb Insanity. Dr. J. K. Strahan. " An interestesting monograph dealing exhaustively with the subject."— Times. 78. A History of Tithes. Rev. H. W. Clarke " May be recommended to all who desire an accurate idea of the subject."—!). Chron 79. Three Months in a Workshop. P. Gohre, with Pref. by Prof. Ely " A vivid picture of the state, of mind of German workmen."— Manch. Guard. 80. Darwinism and Race Progress. Prof. J. B. Haycraft " An interesting subject treated in an attractive fashion." — Glasgow Herald. 81. Local Taxation and Finance. G. E. Blunden 82. Perils to British Trade. E. Burgis. 83. The Social Contract. J J. Rousseau. Edited by H. J. Tozes 84. Labour upon the Land. Edited by J. A. Hobson, M.A 85. Moral Pathology. Arthur E. Giles, M.D., B.Sc. 86. Parasitism, Organic and Social. Massart and Vandebvbldb. 87. Allotments and Small Holdings. J. L. Green. 88. Money and it3 Relations to Prices. L. L. Price. 89. Sober by Act of Parliament. F. A. Mackenzie. 90. Workers on their Industries. P. W. Galton. 91. Revolution and Counter-Revolution. Karl Mars. 92 Over-Production and Crises. K. Rodbertus. 93. Local Government and State Aid. S. J. Chapman. 94. Village Communities in India. B. H. Baden-Powell, M.A., CLE. 95. Anglo-American Trade. S. J. Chapman. 96. A Plain Examination of Socialism. Gust ate Simonson, MA., M.D. 97. Commercial Federation & Colonial Trade Policy. J. Davidson, M.A., Phil.D. DOUBLE VOLUMES, 3s. 6d. 1. Life of Robert Owen. Lloyd Jones. 2. The Impossibility of Social Democracy: a Second Part of " The Quintessence of Socialism ". Dr. A. Schaefle. 3. Condition of the Working Class in England in 1844. Frederick Engels. 4. The Principles of Social Economy. Yves Guyot. 5. Social Psace. G. von Schultze-Gaevernitz. 6. A Handbook of Socialism. W. D. P. Bliss. 7. Socialism: its Growth and Outcome. W. Morris and E. B. Bax. 8. Economic Foundations of Society. A. Loria. SWAN SONNENSCHEIN & CO., Lim., LONDON. NEW YORK: CHARLES SCRIBNER'S SONS. 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