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 
 
 <c The following essay is an expansion of one written 
 
 j*- several years ago, and recently read to the Political 
 
 -fc 
 * Economy Circle of the National Liberal Club. The 
 
 character of the criticism it then met with from some 
 
 ^ of the most competent members removed any hesita- 
 
 jD . . , 
 
 pO tion I might formerly have felt as to the chance of 
 
 my being right in an argument which will strike most 
 
 © 
 
 ,_ readers at first sight as a strange paradox, and which 
 
 IX. 
 
 83 runs counter not only to the standard authorities, but 
 to the views of many of the younger economists who 
 are supposed to have thrown off the old " orthodoxy." 
 The trained economists of the National Liberal Club, 
 to my thinking, did not really defend the received 
 economic doctrine of saving at all : they defended 
 
 45979
 
 vi PREFACE. 
 
 something else. And yet, while the received doctrine 
 stands thus naked to criticism, I find that when a 
 young economist presses the criticism he is made to 
 suffer for it by exclusion from educational posts which 
 are in the gift of adherents of the orthodox view. 
 Having personally nothing to fear in this way, I feel 
 the more bound to press the true doctrine, as I regard 
 it, on public attention. I would preface my exposi- 
 tion, however, with an appeal to the candour and 
 leniency alike of economic students and general 
 readers, in consideration of the difficulty which 
 attends all rectifications of abstract theory, and 
 efforts at new economic analysis in perhaps a special 
 degree. 
 
 As regards the practical solution propounded in the 
 Second Part, I wish it to be noted that it is evolved 
 as a strict economic solution of the problem led up to 
 in the First, and, though it coincides with some pro- 
 posals classified as Socialistic, is no a priori applica- 
 tion of any abstract theory of society, and does not 
 stand or fall with any such theory. In this connec-
 
 PREFACE Vl 1 
 
 tion I am glad to see that a widening hearing is being 
 won for the doctrine of a naturalist as distinguished 
 from an idealist treatment of social problems. This 
 doctrine has been admirably put by a recent essayist, 
 whose words I have as much pleasure in quoting as 
 in endorsing : 
 
 " The solution which remains to be considered, and which the 
 course of the argument has gradually brought into view, is the 
 doctrine of State-control or State-regulation of industry accord- 
 ing to the best ideas and knowledge attainable at the time. 
 This, in distinction from the others, may be called the political 
 solution. It is untouched by any of the arguments that have 
 been fatal to the rest. In essence, it is the doctrine that has 
 been instinctively acted upon both in ancient and modern 
 States. When a mistaken industrial policy was pursued in the 
 past, this was not because the State failed to recognise the limits 
 of its own general sphere of action, but because it was ignorant 
 of some particular law of economics. The remedy is not to 
 exclude as many industrial questions as possible from the sphere 
 of State-action, but to gain the most accurate knowledge of the 
 conditions of particular problems, and then to apply it both 
 negatively and positively, and not simply for the maintenance 
 of prosperity, but for the transformation of the industrial sys- 
 tem itself. This does not imply State-ownership of all capital, 
 which is the Socialistic solution, but it implies that no limit shall 
 be recognised to the action of the State upon industry except 
 the knowledge that action would be injurious to the Common- 
 wealth. Where there is doubt, there may be action or abstinence
 
 viii PREFACE. 
 
 from action, according to the probabilities of the case. At a 
 time like the present, when the industrial system is compara- 
 tively plastic, the bias ought to be in favour of action." 1 
 
 That may be taken as the political standpoint of the 
 following treatise. 
 
 1 Art. Politics and Industry, by Thomas Whittaker, in Mac- 
 miUan's Magazine for January, 1892.
 
 CONTENTS. 
 
 Chap. Page 
 
 PREFACE --- V 
 
 PART I.— THE FALLACY. 
 
 I. THE VOGUE OF THE FALLACY - - I 
 
 II. THE CONTRADICTIONS OF ADAM SMITH- - - 12 
 
 III. HOW THE FALLACY AROSE— TURGOT AND SMITH - 23 
 
 IV. THE FIRST CORRECTIONS— LAUDERDALE AND HIS 
 
 CRITICS — MALTHUS, CHALMERS, SISMONDI— THE 
 OPTIMISM OF M'CULLOCH ----- 28 
 V. THE ARGUMENT OF J. S. MILL - - - - 42 
 
 VI. THE DOCTRINE SINCE MILL 56 
 
 VII. THE RATIONALE OF CAPITAL— THE FALLACY— THE 
 DOCTRINE THAT SUPPLY IS DEMAND— CAPITAL 
 
 AND MISPRODUCTION 72 
 
 VIII. "THE PHYSIOLOGY OF INDUSTRY" — A CONFIRMA- 
 TORY ARGUMENT 105 
 
 PART II.— THE PRACTICAL ISSUE - - 119
 
 THE FALLACY OF SAVING. 
 
 PART L— THE FALLACY. 
 
 CHAPTER I. 
 
 THE VOGUE OF THE FALLACY. 
 
 Throughout the bulk of the literature of modern 
 political economy, down to recent years, there runs 
 the teaching, explicit or implicit, that the practice of 
 parsimony by all and sundry is the surest way to 
 prosperity not only for the savers singly but for the 
 community to which they belong. We have the 
 doctrine very plainly stated in the late Professor 
 Bonamy Price's Chapters on Practical Political 
 Economy : 
 
 " The man who saves, be he prince or peasant, is the bene- 
 factor of his country; for it is capital which bestows all neces- 
 saries an I all comforts, which rescues population from poverty, 
 which sustains and increases their numbers. Nothing can be 
 more fatal to the happiness of a people than to bring profit into 
 discredit." 1 
 
 1 Second Edition, p. 128.
 
 MM I \l .1. M \ I »l - WING. 
 
 Eere, it will be aoted, the economist expresses him- 
 as if all saving were made out of traders' profits ; 
 but it is not to be supposed, even if he had not made 
 his advice universal, that he wanted to restrict the 
 practice of saving to the profit-makers. He is re- 
 peating a standing- economic doctrine, which pro- 
 nounces all saving by individuals to be a public 
 benefit. 
 
 On all. fours with this view T , of course, is the opinion 
 that if only people in general would be " thrifty," in 
 the sense of " saving " a good deal of their weekly or 
 annual income, poverty would be sure to lessen pro- 
 portionately, or even disproportionately. This is im- 
 plied in Mr. Spencer's censure of the English masses 
 for their " improvidence ; " his idea being, not simply 
 that they tend to have more children than they can 
 support, but that by not saving some of their wages 
 all round they as a class throw away some of their 
 bread and butter. For it is assumed, as we shall see 
 in detail, by economists of most schools, that the pro- 
 cess of saving money means the accumulation of 
 wealth in the full sense of the term. Thus we find 
 M. Leroy Beaulieu, a leading French economist, in his 
 recent work on the State, remarking that "a few 
 moments of imprudence," on the part of a speculative 
 legatee, " may be enough to endanger, or even to 
 destroy, wealth which it has taken the labour and 
 pain of years, it may be of centuries, to amass." 1 M. 
 Beaulieu is here evidently thinking of mere money 
 accumulations, and the dispersal of such accumulations 
 
 1 The Modem State in Relation to Society and the Individual, 
 Eng. trans., p. 9.
 
 THE VOGUE OF THE FALLACY. 
 
 by bad speculations in stock. Yet even to the ordin- 
 ary unscientific citizen it must surely be clear enough, 
 on reflection, that all that happens is a passing of 
 " claim to wealth " from one hand to others, and that 
 there is no destruction of anything whatever. The 
 same reflection is set up by various passages in a 
 Utopistic novel — now perhaps forgotten, but display- 
 ing a considerable amount of freshness of thought, 
 with a good deal of old prejudice — which was pub- 
 lished some nineteen years ago. The novelist, not 
 content with endorsing the capitalistic form of society 
 as morally good, thus discourses on economics : — 
 
 " Capital is stored industry. As the coal-beds, to which England 
 owed its greatness until their approaching exhaustion " [the novel 
 is an anticipation of Looking Backward], " led to the discovery 
 of something more efficient, represented millions of years of 
 stored sun-power, so capital represents the accumulated toil of 
 
 And again, in a description of a public meeting in 
 the future Jerusalem, we have this : — 
 
 " On this platform sat the Committee and a large assemblage 
 of the principal members of the Stock Exchange, the heads of 
 all the great mercantile houses, and the governing chiefs of 
 the Jewish people. It was an assembly representative of the 
 world's wealth of accumulated industry and realised property." - 
 
 This is not the writing of a professed economist, 
 but we shall see that it is largely in harmony with 
 
 1 By and By : An Historical Romance of the Future, by 
 Edward Maitland, author of The Pilgrim and the Shrine, etc., 
 1873, vol. ii., p. 28. 
 
 2 lb., p. 186.
 
 llli: FALLACY OF SAVING. 
 
 the teaching of many professed economists ; and it 
 becomes seriously necessary to prove, though many 
 readers may sec it at once, that the "accumulated 
 industry" and "realised property" spoken of are 
 pure chimeras. "Realised propert} 7 " in this context, 
 if there is any meaning in words, should be tangible 
 property — lands, or goods, or bullion, or houses, or 
 cattle, or valuable objects — and not mere money- 
 title. No doubt it is customary to speak of a man as 
 "realising" his property when he sells it for money 
 and has the price standing at his credit in his bank 
 account ; and it is very suggestive of the gift of man- 
 kind for conventional fiction, that a treatment of pro- 
 perty which consists in getting instead of it the right to 
 have certain figures marked on a banker's book should 
 be called "realising," while the process of exchanging 
 that right for a house is not so described. But Mr. 
 Maitland's analogy about coal would be meaningless 
 if he did not signify by "realised property" something 
 else than the abstract money credit received for giv- 
 ing away concrete property. His words point to 
 genuine, useful property, as distinct from even con 
 or bullion. But in the nature of the case, such pro- 
 perty is not represented by the money wealth of 
 investors in general. It might be argued to exist in 
 the case of a railway company ; but even there the 
 main part of the real wealth is the land, which is in 
 no sense " accumulated industry," and the plant, which 
 is always wearing away instead of accumulating, and 
 represents at any given moment the product of a few 
 years' industry at most. Mr. Maitland had not 
 learned the lesson, accepted by John Mill from Dr. 

 
 THE VOGUE OF THE FALLACY. 5 
 
 Chalmers, that the greater part of the existing wealth 
 of any nation is produced within the current year, as 
 is seen in the case of the recuperation of a country 
 after a war. 1 That, however, is only part of the 
 blunder. The novelist shows that he knows of the 
 existence of National Debts, and implies that the 
 capital of his capitalists largely consists in such 
 securities. He is thus committed to saying that the 
 e'ght hundred millions of English debt, notoriously 
 owing for old loans spent in processes of destruction 
 of wealth and life, represent so much "accumulated 
 industry " and " realised property," as coal represents 
 stored sunlight, capable of yielding so much heat and 
 energy. This is tolerably absurd ; and yet, as we 
 shall see, it cannot be taken for granted that even 
 economists will admit as much. Many of them still 
 reason as if the National Debt represented so much 
 accumulated product of labour, so much actual 
 " wealth." 
 
 The novelist from whom I have quoted, agreeing 
 with the mass of the economists in his notion of 
 capital, if not in his way of expressing it, lays down 
 one proposition which, as it happens, coincides with 
 past economic teaching but not with present. "To 
 tax capital," he says in the passage first above quoted 
 from, "is to tax wages, which are paid out of capital." 
 Modern economists have abandoned this view. And yet 
 it is on the face of it distinctly more plausible, false as it 
 is, than the formulas about the "accumulated industry " 
 and "realised property" of investors' money-claims. 
 " Wages " are often " paid " out of " capital." Curiously, 
 
 1 Mill's Principles of Political Economy, B. [., Ch. v., Sec. 7.
 
 THE I A 1.1 \< V OF SAVING 
 
 the economists have abandoned the plausible error 
 without abandoning a correlative error which is hardly 
 at all plausible to plain common-sense. They have 
 all now given up the doctrine of a " wages fund," and 
 yet most of them continue to speak as if saved 
 "capital," that is, money-claim, were really a "fund," 
 the lessening of which would be a deprivation to the 
 community at large. Professor Sidgwick in his latest 
 work, a careful and thoughtful treatise on politics, 
 stys of a graduated income tax that " the serious objec- 
 tion to such a measure lies in the danger of economic 
 loss to the whole community caused by checking 
 accumulation or driving capital from the country. 1 
 This might be supposed to mean something different 
 from Mr. Maitland's doctrine that money capital is 
 "accumulated industry;" but Professor Sidgwick 
 goes on to show that he too really has such an idea. 
 He speaks again 2 still more explicitly of the motives 
 that urge men to " produce and accumulate wealth," 
 as if saving money from income meant the accumu- 
 lating of that which is produced ; and of the probable 
 " bad effect " 3 of a heavy tax on inheritances in 
 " diminishing the inducements of prospective testators 
 to industry and thrift," as if money thrift were as 
 truly productive, from the point of view of the 
 community, as industry. In taking up these posi- 
 tions, as we shall see later, Professor Sidgwick is 
 really retrograding from a much more rational 
 position reached by him in his previous treatise on 
 economics, so that it becomes more and more plainly 
 
 1 Tlie Element* of Politics, p. 173. - Page 176. 
 
 :i Page 177.
 
 THE VOGUE OF THE FALLACY. / 
 
 necessary to combat the delusion to which he now 
 gives countenance. 
 
 I do not anticipate, however, that the main diffi- 
 culty for most readers will be over this form of the 
 "saving" fallacy, taken singly. I apprehend that 
 many will readily acquiesce in my thesis that the 
 saving of money from income, and the accumulation of 
 credits, is merely a saving of claim to wealth ; that 
 such claim is not at all represented by actual wealth 
 of any sort at present prices ; that an attempt to 
 exchange the whole mass of money capital or bankers' 
 credits for actual property, movable or tangible, 
 would so immensely raise prices as to prove clearly 
 the abstract nature of the capital in question ; and 
 that instead of representing <; accumulated industry," 
 the mass of capital is rather a potentiality of pro- 
 ducing new wealth by setting in motion future 
 labour, an extremely different thing. These pro- 
 positions, I think, will recommend themselves to most 
 open-minded people who are not already hypnotised 
 by conventional doctrines. Such readers may even, 
 I imagine, be not unready to concede that, if the pro- 
 duction of new wealth is thus dependent on saved 
 money capital in the sense only that the proffer of 
 abstract or moral claim to wealth suffices to set 
 labour in motion, then labour may conceivabl}' be set 
 in motion to a much greater extent without the 
 intervention of saved claim-to-wealth at all. At 
 least, it seems pretty obvious that if all the members 
 of a small community agreed to help in production of 
 some sort, doing services all round as seemed best from 
 the common point of view, they might accumulate
 
 THE FALLACY OF SAVING. 
 
 durable results of industry, as well as produce a 
 sufficiency of the more perishable products, to an 
 indefinite extent, without any individual accumula- 
 tion of claim to the property and services of the 
 rest. 
 
 But just here the problem may easily be obscured 
 by the suggestion, offered afresh, that in a competitive 
 society like ours the claim-to-wealth of the capita isf 
 represents just that right to accumulated products 
 which in the imagined commune society would be 
 held to vest in each member equally. Though it 
 before seemed clear that the saved claim-to- wealth 
 was not a saved mass of products at all, it would now 
 seem less clear. And even if the ordinary economists 
 did not argue that saved money-claim was saved 
 products ; even if Professor Sidgwick should abandon 
 his plainly erroneous description of the process of 
 saving, he and the others might still perplex the 
 ingenuous student by using the old argument that in 
 our competitive society it is " capital " (in one sense) 
 that "feeds" and clothes and houses labour, and 
 "capital" (in another sense) that "employs" and 
 " pays " labour ; and that accordingly " capital " (in 
 yet another sense) must needs be saved in great 
 masses to keep our society going, and the more the 
 saved capital the better it must be for the workers. 
 And this is what I call the Fallacy of Saving. 
 
 How far the fallacy rests on or is fostered by 
 shifting definitions of capital, will appear in the 
 course of our examination of the reigning doctrines. 
 But it will be well at the outset to take note that 
 while the term " capital " has in practice tende 1 more
 
 THE VOGUE OF THE FALLACY. 
 
 and more to signify in particular not plant or goods, 
 but money-credit or claim on bankers' books, or claim 
 in the shape of debentures, most economists have con- 
 tinued to speak of it in argument as if it strictly 
 signified plant and stock in trade, while tacitly em- 
 ploying the term whenever convenient in the other 
 sense. It is not difficult to confute the "saving'' 
 doctrine in terms of the avowed definitions of capital, 
 especially in the case of the earlier economists ; but 
 when so confuted the maintainers of the doctrine 
 have only to shift their ground in order to open the 
 discussion afresh. We must accordingly hunt down 
 singly the different conceptions involved. 
 
 Equally necessary is it to go warily into the 
 other side of the fallacy, namely, the notion that by 
 abstaining as far as possible from consumption all 
 round, people will promote industry all round. Here 
 again it might seem as if the delusion were too gross 
 to have any wide acceptance. Industry is a matter 
 of supplying markets, and the employing class is 
 always speaking of the importance of finding new 
 markets. Not a few of our wars have been made at 
 their instigation, to the end of forcibly opening such 
 markets. And yet not only the "orthodox econo- 
 mists " but this very employing class habitually reason 
 on the assumption that industry depends for its 
 maintenance on abstinence from consumption, that 
 is, the restriction of the market demand for goods. 
 They do not merely recommend such abstinence to a 
 limited class as a means of providing for the future 
 by securing a claim over the majority: they urge it 
 on all, and habitually speak as if everybody might
 
 (O THE FALLACY OF SAVING. 
 
 restrict consumption without restricting the employ- 
 ment of labour; as if everybody might accumulate 
 claim over the services of everybody else, and so 
 secure all round the advantages that are enjoyed by 
 the few who at present accumulate claim over the 
 services of the many. This, I say, seems a sufficiently 
 flagrant delusion ; and yet there can be no question 
 about its vogue. Either the advocates of thrift realise 
 in their hearts that the principle can only advantage 
 the few as against the many, and are thus putting 
 forward as a panacea what they know cannot be a 
 panacea, or they are sincerely possessed b} 7 the delu- 
 sion I have specified. One comes, of course, to the 
 latter conclusion. That such a delusion should exist, 
 is unhappily only too easily explained. Like popular 
 delusions of all kinds, it rests primarily on an unen- 
 lightened self-interest. A man wants to " save " in 
 order to advantage himself ; and when he has gained 
 his advantage he naturally wants to lay on the less 
 fortunate the blame of their disadvantage. They 
 might all, he argues, do as he has done. In the same 
 way he instinctively wants to believe that in gaining 
 his advantage he has really been benefiting the rest — 
 that his saving, his non-consumption, has given them 
 emploj^ment and promoted trade generally. Thus it 
 comes that a doctrine almost nakedly absurd in a 
 plain statement becomes the creed of a whole class, 
 w r ho are able, of course, to fortify their creed by 
 obscuring the issues, which are numerous and, in de- 
 signing or misguided hands, complex. A doctrine 
 thus resting 1 on a strongly-felt self-interest must 
 obviously be hard to overthrow; and if the overthrow
 
 THE VOGUE OF THE FALLACY. IT 
 
 is to be accomplished at all, it must be by a systematic 
 attack all along the economic line. 
 
 I propose then, with a view to final demon- 
 stration, to go methodically over the ground, track- 
 ing the economic doctrine of Saving step by step 
 as closely as may be in the compass of an essay that 
 shall not be a " great evil." The different forms of the 
 fallacy, as I regard it, are always tending to merge 
 into one another as the argument is pushed against 
 one or another ; and only a close analysis can dispose 
 of the entire case. There are some, I hope, who will 
 not refuse to be at that amount of trouble to clear up 
 for themselves a problem which lies at the root of 
 the great sociological issues of our time. For this is 
 not an inquiry into the mere metaphysics of econo- 
 mics, like some very able and indeed intellectually 
 stimulating treatises of recent years, but a practical 
 inquiry in the strictest sense of the term. The fallacy 
 alleged and impugned is a fallacy not merely of 
 speculation but of conduct — a fallacy which must, I 
 think, be rectified in speculation before men will in 
 any numbers make up their minds to rectify it in 
 conduct, and which must be rectified in conduct before 
 our social system can to any satisfying extent be 
 soundly reconstructed.
 
 CHAPTELt II. 
 
 THE CONTRADICTIONS OF ADAM SMITH. 
 
 We are to examine, then, the standing economic 
 doctrine that "parsimony," or " thrift," or the "sav- 
 ing " of money out of income, conduces to the well- 
 being not only of him who practises it, but of the 
 entire community in an industrial country such as 
 ours. The common ground for this belief is suffi- 
 ciently obvious. It being clear that the individual 
 who " saves money " acquires an advantage over his 
 neighbours who do not, it is at least as natural to 
 prescribe the universal adoption of his plan as it once 
 was to assume that the nation with most gold and 
 silver was the wealthiest nation, seeing that the man 
 with most gold and silver was the wealthiest man. 
 And whereas the rise of modern industry set up 
 conditions that led men to look into and to challenge 
 the notion that much bullion made a country rich, 
 those very conditions at first tended to strengthen 
 the notion that " saving " on the part of individuals 
 really did tend to do so. In Adam Smith, who has 
 done most to establish the belief, the bullion fallacy 
 is rejected, and the doctrine of saving enforced, in the 
 same pages ; just as it was in Turgot, whom he so 
 closely followed in time. Smith saw that the accumu- 
 lation of savings in the hands of bankers in his own
 
 smith's contradictions. 13 
 
 country had, under certain conditions, promoted pro- 
 duction alike of food and manufactures; and, anxious 
 to justify the freeing of industry from ail restraints, 
 he argued that under a free system the natural 
 tendency of the majority to save money would in- 
 fallibly secure endless commercial prosperity. But 
 the argument, 1 in which the wish was father to the 
 thought, is the most superficial and inconsistent part 
 of the Wealth of Nations. 
 
 Smith had a healthy preference for industrious 
 people over idlers, and his advocacy of saving takes 
 to a large extent the shape of discrediting outlay 
 which maintains and multiplies " unproductive " 
 people, as superfluous domestic servants, rather than 
 productive artificers. The average spendthrift, he 
 notes, feeds horses and dogs, idle friends and half-idle 
 servants ; whereas saved money, put in the bank, 
 goes to employ labourers who create objects of value 
 in return for what they consume. Thus far, of course, 
 the statement is perfectly just, save in so far as (a) 
 the question of the desirableness of horses and dogs 
 as wealth is overlooked, (/;) the question of idle living 
 in general is evaded, and (c) the question is begged as 
 to the destination of the money put in the bank. It 
 does not seem to occur to Smith that it might be 
 borrowed by a spendthrift. There remains the 
 general truth that the action of the spendthrift tends 
 in part to turn activity, in the case of those he em- 
 ploys, in unproductive rather than in productive 
 
 1 B. II. ch. iii. 
 
 - Thus defined, the term, otherwise objectionable, may he 
 allowed currency in the present connection.
 
 14 Till". FALLACY OF SAVING. 
 
 directions; and that he who multiplies menials is 
 tending so far to limit useful industry. But even this 
 general truth is not studied in its relations to other 
 facts ; and it is obvious that if it be not proved that 
 the money put in the bank will secure the employ- 
 ment of labourers who would otherwise be unem- 
 ployed, the correlative facts of the case may be such 
 as to destroy the moral force even of the appeal 
 against employing menials. Let us examine further. 
 
 In taking it for granted that the money saved and 
 invested will of a certainty secure the employment of 
 labour, Smith was assuming that it is always pro- 
 fitable for producers to extend their production ; since 
 if this be not so, the money put in the bank will not 
 always be borrowed. Now, in order that it shall be 
 always profitable to extend production, we must ha\e 
 one of two conditions : either (1) a stationary or 
 nearly stationary population must be always increas- 
 ing its consumption, or (2) the population must itself 
 be constantly and rapidly increasing, so that the de- 
 mand for necessaries is always extending. But the 
 first of these alternatives is excluded by Smith's own 
 argument and precept. A constant increase of con- 
 sumption among a stationary population would mean 
 the reverse of that parsimony on which he declares 
 national prosperity to depend. He must therefore 
 look, for that increasing consumption which shall 
 make possible the continual increase of production, to 
 the simple increase in the numbers of the people. 
 That is to say, the proper and certain' destination of 
 saved capital is mainly the employment of labourers 
 in producing either such articles as frugal labourers
 
 SMITH S C< tNTRADICTIONS. 
 
 consume, or things which facilitate the production of 
 these. 
 
 Now, Smith had alleged not only that the majority, 
 at least of well-to-do people, practised saving, but that 
 the more they saved the more would industry extend, 
 because — and here the argument is curiously inverted 
 — the wants of mankind are insatiable. He was thus 
 virtually predicating, if anything, the possibility of an 
 indefinitely rapid increase of population within the 
 limits of biological possibility (which he knew to be 
 wide), conditional only on the assiduous " saving; of 
 money" by the majority. Tins very saving of money 
 or income, however, had been already defined by 
 Smith to be in reality a saving of products — an 
 abstinence from consumption — bringing it about that 
 the products abstained from were consumed by pro- 
 ductive people, employed by the lending of the money 
 saved. :< The consumption is the same, but the con- 
 sumers are different" — i.e., useful labourers instead of 
 domestics, when the saver was a member of the upper 
 classes. But when the majority are productive 
 labourers, who are to be the consumers of their 
 savings ? Apparently the class of the babe unborn. 
 
 Even in laying down his proposition, Smith reveals 
 the fallacy of his contrast between the spender and 
 the saver. The spender's " revenue, we shall suppose, 
 is paid him in money. Had he spent the whole, tin- 
 food, clothing, and lodging which the whole could 
 have purchased, would have been distributed among " 
 the "idle guests and menial servants." But by his 
 saving some as capital, " the food, clothing, and 
 lodging which may be purchased with it, are
 
 \6 THE FALLACY OF SAVING. 
 
 necessarily reserved" for the "labourers, manu- 
 facturers, and artificers/' Now, it is very clear that 
 in the latter case the process can only continue if the 
 things produced by the labourers are bought ; and in 
 the terms of Smith's doctrine there ought to be 
 nobody to buy them, save in so far as they represent 
 mere necessaries for the fresh members of the popu- 
 lation. But the spendthrift provides better than any- 
 body else for this mere consumption of necessaries, 
 since his guests and servants must eat and will waste 
 and he is thus actually facilitating for the saver the 
 process of profitable production. Further, if there be 
 a moral objection to his employing servants and feed- 
 ing idlers, the correction of his conduct would plainly 
 consist in his buying different services. "The con- 
 sumption is the same.'' Then, instead of saving, he 
 has only to buy chairs and tables and houses, nnd 
 the right people will be fed, inasmuch as the un- 
 employed menials will tend to drift into industry. 
 This line, we shall find, was later actually taken by 
 John Mill, without any perception that it is a sur- 
 render of the case for parsimony. 
 
 Yet again, Smith makes admissions which go to 
 prove that in the end the saving and the spending 
 will come to the same thing as regards capital : — 
 
 " The effects of misconduct are often the same as those of 
 prodigality. Every injudicious and unsuccessful project in 
 agriculture, mines, fisheries, trade, or manufactures, tends in 
 the same manner to diminish the funds destined for the main- 
 tenance of productive labour." 
 
 But if the precept of parsimony be generally acted
 
 smith's contradictions. 17 
 
 on, and the saved capital be yet used to emplo} r pro- 
 ductive labour, there must be unsuccess in many of 
 the projects, and those which succeed will do so by 
 ruining older ones. The excess of goods will not be 
 bought. The extension of capital could not go on as 
 proposed for a year unless the precept of parsimony 
 were disregarded. 
 
 As his unmethodical exposition goes on, Smith ap- 
 parently begins to perceive that a policy of general 
 parsimony would not work so well as he had at first 
 assumed, though his admission is made not by a 
 modification of his general statement, but by fresh 
 statements inconsistent with it. He had spoken 
 slightingly of the idle people ; but he had also 
 prescribed a policy which, on the face of the argument, 
 was to tend to multiply idle people. Were his advice 
 generally taken, with the results he had predicted, 
 saving would be carried on more strenuously than 
 ever; and as the assumed motive to saving was the 
 prospect of interest, the result in the terms of the 
 case would be an ever-increasing class of people who 
 lived on interest. Spending being discouraged, while 
 interest continued to come in, families would be 
 "endowed" in increasing numbers. Either these 
 would, in accordance with average tendency, live idly 
 011 their interest, or they would develop a new passion 
 \'<>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 <klit. i. 9, 13. The Traite 
 was published in 1803. Cairnes (Essays in Political Economy, 
 "Bastiat," p. 328) seems to credit Ricardo with originating the 
 argument. John Mill (B. I., ch. i. , sec. 2, note) thought it 
 originated with his father. But as J. B. Say and MoCulloch 
 have shown (Traite, i. 13 ; Principles, 2nd. ed., pp. 56, <ii">), 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 
 <y put gingerly. The function of gold coin is precisely, 
 and in no strained sense, to permit its holder to obtain 
 and use other wealth ; 2 and on the definition of 
 capital which Mill employed in common with his 
 predecessors, all money is simply permission or title 
 to use capital. Having seen this even partially, 
 Professor Sidgwick has " fallen from light " to Mill's 
 own level of error when in his later work, before 
 cited, he teaches that unchecked accumulation of 
 savings is necessary to the industrial well-being of the 
 whole community. It lies on the face of the argu- 
 ment before us that the power wanted is set up by 
 .simple extension of credit. And here is the whole 
 case in a nutshell: that whereas actual money = 
 " capital '' means power to get and move products, so 
 credit or recognised title to money means primarily 
 power to get and move money. In practice this latter 
 motion might actually take place, and to some extent 
 does take place, the circulating rate of money being 
 indefinitely capable of quickening; but since the 
 movement of coin can in many cases be dispensed 
 with, the movement of products which brings about 
 fresh production takes place in great measure on the 
 
 1 As cited, p. 239. 
 
 - This is expressly stated even by Mill, B. III., ch. vii., sec. 3. 
 Cp. Macleod, Economics for Beginners, p, 33.
 
 88 THE FALI^CV OF SAVING. 
 
 simple "permit" of credit, as represented by bankers' 
 liabilities. 
 
 But if " faith in the bank " can admit of the move- 
 ment of products and money, and thus of fresh 
 production, so, obviously, can mere mutual faith as 
 among producers. This is implicitly admitted by 
 economists, such as Mill and Professor Marshall, 1 who 
 maintain, with whatever ambiguity of meaning, that 
 all industry depends on capital, and that all capital is 
 saved. Professor Marshall, we have seen, deprecates 
 Mill's formula in his latest work; but in another 
 passage he still gives it a virtual endorsement in the 
 sense which it properly carries. Bowing, with his 
 usual candour, to the necessity for a widened defini- 
 tion of capital, he includes in individual capital " all 
 wealth or command over wealth which is lent out at 
 interest, whether in money or in any other form." 2 
 Yet he still states in a footnote 3 that "whatever 
 definition of capital we take, it will be found to be 
 true that a general increase of capital augments the 
 demand for labour and raises wages." He adds that 
 
 1 Mill's Principles, B. III., ch. xiv., sec. 4 ; Economics of In- 
 dustry, B. III., ch. i., sec. 4. Mill, in the passage cited, expressly 
 argues that a commercial crisis is the effect, not of over-produc- 
 tion, but of "an excess of speculative purchases." Yet he pre- 
 scribes new purchases as the cure. Mr. and Mrs. Marshall, 
 while affirming that all supply is demand, explain that " though 
 men have the power to purchase they may not choose to use it," 
 which by context means, if anything, that the error lies in 
 checking their production, which might go on multiplying for 
 ever. And still no word of consumption. 
 
 - 1st. ed., p. 127. 
 
 8 1st. ed., p. 133,
 
 MARSHALL. 89 
 
 " whatever definition we take, it is not true that all 
 kinds of capital act with equal force in this direction;" 
 but this leaves the fallacy unrectified. His pro- 
 position remains that increase either of saved claim 
 to wealth or of, say, machinery, generally tends to 
 increase the demand for labour and so to raise wages. 
 Now, it would be a mere quibble to say that increase 
 of machine plant augments the demand for labour in 
 respect that labour was needed to make the new 
 machinery, and yet only in that sense would the 
 proposition be valid. New machinery, once made, 
 can be employed only when there is demand for 
 what it will produce ; and saved money-claim will, 
 similarly, only be put to the employment of new 
 labour when there is supposed to be demand for what 
 it can do, or hope of underselling other labour, which 
 will be thrown idle. To demand we always return. 
 When again Professor and Mrs. Marshall write that 
 " The demand for labour in a disirict cannot in the 
 long run be increased by any device that docs not 
 lead to an increase of the supply of capital in it," 1 
 they are plainly right if they simply mean that 
 increased employment of labour means increased 
 consumption of food and tools, and so forth. But it 
 does not at all follow that there must also be an 
 increase of that nominal "saving" of money which, 
 in the exposition of Mr. and Mrs. Marshall, as in that 
 of "orthodox" economists in general, is sure to be 
 understood (whatever they may have meant) from 
 their repetition of the old formula about capital being 
 a result of saving. And the futility of that formula 
 
 Economics of Industry, p. 10.
 
 90 THE FALLACY OF SAVING. 
 
 in any case is now clear, when we recognise that mere 
 mutual trust as between producers will lead to the 
 creation of fresh capital in the concrete form of plant 
 and stock, which but for such mutual confidence 
 •would not have come into existence, the really 
 "saved" food-capital remaining in either case the 
 same. 
 
 But if, finally, industrial confidence means the move- 
 ment of products and the spontaneous creation of actual 
 capital = products, then the saving of "claim to wealth" 
 is no necessary part of the process of wealth-creation 
 even in a competitive community. And as industrial 
 confidence is notoriously commensurate with activity 
 of demand, the creation of wealth can obviously be 
 promoted by the substitution of an ideal of consump- 
 tion for an ideal of parsimony. 
 
 Here, however, it will be well to carry the exposi- 
 tion briefly to its sociological conclusions. These are 
 (a) that as consumption cannot be indefinitely in- 
 creased in quantity of each product for each individ- 
 ual, the ideal must be in the main one of rising quality 
 — the consumption of things and services which are 
 not mechanically facile of production ; and (b) that as 
 such raising of the standard of consumption is im- 
 possible among a blindly multiplying population, the 
 limiting of families is indispensable to the proposed 
 transformation. 
 
 II. The foregoing reasoning involves the rejection of 
 the doctrine that national wealth is to be measured by 
 the totals either of banked credit or of the values
 
 LAUDERDALE AND RICARDO. 9 1 
 
 which measure individual claim to wealth. I have 
 said that Lauderdale devoted an unanswerable chapter 
 to the refutation of this notion. He pointed out that 
 on the system of computation which began in the 
 seventeenth century and flourishes still, x national 
 wealth is actually estimated in terms of popular hard- 
 ship, since that increase in values which arises from 
 relative scarcity is included among the individual 
 riches which are totalled. He laid it down on the con- 
 trary that 
 
 "In proportion as the riches of individuals are increased by an 
 augmentation of the value of any commodity, the wealth of the 
 society is generally diminished ; and in proportion as the mass 
 of individual riches is diminished, by the diminution of the value 
 of any commodity, its opulence is greatly increased." a 
 
 This proposition has been denounced as a " melan- 
 choly paradox" by an able w r riter 3 in a passage which 
 goes on to praise the " masterly exposition " of Ei- 
 cardo's chapter on " Value and Riches," in which 
 Lauderdale's doctrine is actually embodied. Ricardo, 
 it is true, goes through the form of refuting Lauder- 
 dale on one contention : but he is really affirming the 
 same thing as Lauderdale does ; and if lie drew up his 
 own index, we are forced to conclude that he did not 
 realise what Lauderdale was driving at. The index 
 reference to Lauderdale runs: "his theory that the 
 
 1 Compare his citations from I'etty, King, Hooke, I'ullcmy, 
 a id Beeke, pp. 39, 40. 
 
 - Work cited, p. 4!». Cf. p. 57. 
 
 :J P. J. Stirling, The Philosophy of Trade, L846, ]>. 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<l Lauderdale), that there may easily be concrete 
 fixed capital of certain sorts in excess of the existing 
 needs of the whole community, it would follow that 
 whun "purchasing power" in the form of saved 
 credit is in excess of the industrial needs of the time 
 (which we have seen is constantly the case), such 
 excess is only nominal and not real capital. But that 
 
 1 Page 35.
 
 110 THE FALLACY OF SAVING. 
 
 does not alter the fact that just as the unused 
 machines still figure as capital in the owner's esti- 
 mate, so the superfluous saved money-credit figures 
 as capital. And though, as we have decided, the 
 superfluous saved money-credit would immensely 
 raise prices if it were all at once sought to be realised 
 in any or all of the existing forms of concrete wealth, 
 thus demonstrating its illusoriness, yet any one por- 
 tion of it still subsists as purchasing power, and it is 
 impossible to say what portions of it are " real " 
 capital and what are not. And this brings us back to 
 the question of what is realty the best definition of 
 capital. The question is not, it has been well said, 
 What is capital, but What is capital to be ? Messrs. 
 Mummery and Hobson write : — 
 
 "If we are unable to say whether a particular piece of wealth 
 which exists is or is not at the present time capital, it is absurd 
 to maintain that our term capital can be a useful part of our 
 economic nomenclature.'' 1 
 
 But is not the philosophic form of statement just 
 this, that a particular piece of wealth, or, in Mr. 
 Macleod's phrase, any economic quantity, is or is 
 not capital according as it stands or does not stand in 
 the " capital " or " principal '' relation to an industrial 
 or commercial process ? Defined in this way, capital 
 is as clearly specified as any concept whatever, and 
 we are at once delivered from all concrete confusion, 
 to the great gain of economic logic. The word will 
 cover, at need, alike concretes and abstracts, goods 
 and plant and credit and claim. And the only stipu- 
 
 1 Page 31.
 
 CAPITAL INFINITE. Ill 
 
 lation necessary to be made all round is that all 
 writers shall make an end of the pretence of adding 
 up "the capital of the country," and of the use of 
 language about " additions to the total capital of the 
 country," — verbal processes which were always prac- 
 tically absurd, and are now specifically so. Defined 
 as above — and this, I maintain, is the only philo- 
 sophic definition — general or national capital is an 
 infinity ; and if we are to total anything included in 
 it, it must be specifically, as plant, and stock, and 
 machine-power, and water-power, and acreage, and 
 productivity, and working hands. To add up credit 
 or claim is futile. And Messrs. Mummery and 
 Hobson, it seems to me, are finally committed to this 
 reasoning and this definition. They explicitly state 1 
 that " since the community, as a whole, can never con- 
 sume more 'subsistence, convenience, and amusements' 
 than it has actually produced, it is obvious that the 
 community [ = the whole industrial public, not the 
 nation as a receiver and spender through its political 
 executive] can never live beyond its income." But 
 the same line of analysis works out the conclusion 
 that the community as a whole can never live beyond 
 its capital, since as we have seen every act of effective 
 demand, involving a recognised claim, goes to set up 
 fresh production, and there is no necessary limit to 
 credit. And this truth, as it happens, was formulated 
 two hundred years ago, by one Dr. Bifield, cited by 
 Lauderdale. A person, says Bifield, can waste his 
 stock, " because his waste is finite : but the stock of 
 a nation is infinite, and can never be consumed ; for 
 1 Page 78.
 
 112 THE FALLACY OF SAVING. 
 
 what is infinite can neither receive addition by par- 
 simony, nor suffer diminution by prodigality." 1 This 
 was written in 1690. The 'mills of economics have 
 ground exceeding slow. 
 
 So much for theory. As to practice, Messrs. 
 Mummery and Hobson sum up dead against the 
 doctrine of parsimony. Treating Mill's worst formula 
 with the greatest consideration, they observe 2 that he 
 " rightly contended that the demand for shop goods 
 was not the demand for the labour which had pre- 
 viously produced them " (a pleasing truism which, I 
 suppose, expresses the elusive truth recognised in the 
 doctrine by Mr. Leslie Stephen); and they point out 
 that " it by no means follows that present demand for 
 shop goods is not the source of present demand for 
 labour," but that, on the contrary, " the use of natural 
 agents, capital, and labour, produces commodities, and 
 demand for these commodities is demand for the 
 [further] use of the requisites of production." 3 And 
 now comes the sociological conclusion 4 : — 
 
 ''The identification of depression in trade with insufficient 
 consumption or excessive thrift is, we venture to assert, un- 
 assailable. . . . This conclusion is of critical importance to the 
 community : it means neither more nor less than that the com- 
 munity could at once and permanently enjoy a larger income. It 
 means that the East End problem, with its concomitants of vice 
 and misery, is traced to its economic cause, and that this 
 economic cause is the most respectable and highly extolled 
 virtue of thrift." 
 
 1 A Discourse of Trade, by H. Bifield, M.D., printed 1690, 
 cited by Lauderdale, p. 222, note. 
 
 2 Pa<?e 92. 3 Pa^e 95. 4 Pa^e 99.
 
 THE CAUSES OF POVERTY. 113 
 
 Substantially as I am in agreement with this con- 
 clusion in its economics, I will take leave to suggest 
 certain qualifications which are necessary to make it 
 strictly accurate. First of all, it is necessary to keep 
 in view that the under-consumption which is specified 
 as the cause of trade depression must not be under- 
 stood as a regrettable under-consumption of the things 
 of which there is a glut. This brings us to the grain 
 of truth involved (unconsciously to them) in the old 
 optimists' maxim, that the cure for a glut was ex- 
 tended production of the things of which there is not 
 a glut. Not that the cure would or could operate as 
 they supposed. The one way, on their principles, to 
 cure a glut of boots and hats would be to consume 
 these wastefully in exchange against other things, 
 since mere increase of population, though thus en- 
 couraged by implication, could only after an interval 
 of time dispose of a present overplus. And the in- 
 crease of population, on the old lines of parsimony 
 and production, could mean ultimately nothing but 
 new and greater periodic gluts. The real cure, as 
 regards the labour-market, would be by way of ex- 
 tension of demand to objects not readily produced in 
 excess ; such as superior hand-made goods and pro- 
 ducts of art of all kinds. Here a glut is impossible, 
 provided only that the standard of taste goes on 
 rising with the many as it has done with the few. 
 Art is longer than life, and there lies the true philo- 
 sopher's stone of perpetual industry — the reaching 
 towards an end forever unattained. It is nut quantity 
 but hind of consumption, the setting up a continuous 
 demand which shall withdraw Labour from the fatally
 
 114 THE FALLACY OF SAVING. 
 
 easy fruitions of the mechanical manufacture of com- 
 mon necessaries, that will prevent chronic depression 
 of trade. And such ever-rising standard of demand, 
 it is obvious, is impossible without such a restraint of 
 the rate of increase of population as shall give scope 
 for the play of the higher and subtler needs without 
 fatal encroachment on the part of the simpler and 
 lower. These things Messrs. Mummery and Hobson 
 should have stated as sociologists, since it is their 
 aim and their merit to carry their economics into 
 sociology. 
 
 Secondly, they overstate the sociological, and there- 
 fore the economic, case for consumption when they 
 teach that simple increase of consumption may solve 
 the " East End problem." For one thing, large families 
 must always mean relative poverty under a wage- 
 earning system, and, if numerous, comparative poverty, 
 up to the revulsion point, in a socialistic system. For 
 another thing, it must not be forgotten (some im- 
 patient readers, it may be, have long ere this accused 
 us of forgetting) that old people cannot work to their 
 last day for their own support, and that under a 
 regimen of increased and increasing consumption, 
 while healthy wage-earners (barring over-population) 
 will certainly have a better income, there will be ne- 
 cessitated a new social machinery for supporting the 
 aged. At present the aged poor (such as can become 
 aged) go to the workhouse, or subsist painfully on 
 small club allowances, while the less poor subsist on 
 the fruits of their savings, that is, on the interest of 
 their accumulated money-claim on the services of 
 others. Now, it is idle to suppose that while the
 
 CONTINGENT ISSUES. 1 1 5 
 
 workhouse remains the only common provision for 
 old age, those capable of saving will abstain from 
 doing so. The instinct of self-preservation will 
 continue to assert itself; and either the battle 
 of saving will be intensified as more and more 
 persons accumulate claim, or there will ensue such 
 demoralisation of the wage-earning proletariat as 
 took place in the proletariat of ancient Rome, unless 
 a rational system of corporate action be developed. 
 One or other of these three courses our civilisation 
 must take ; because even the all-essential restraint of 
 population cannot alone secure that all who work 
 shall have a moiety of the comfort now enjoyed by 
 those who do not work at all, though it would 
 greatly modify the atrocity of the present scramble 
 for employment and the misery of the lower 
 strata. Even a controlled population acting on the 
 principle of parsimony will be one in which ma- 
 chinery will rapidly overtake the total demand for 
 necessaries, as it has already overtaken again and 
 again the effective demand, .so that even in such a 
 society there would be, barring organisation, chronic 
 industrial crises. A rising demand for the higher 
 products is as essential as control of procreation. 
 Moreover, the struggle of saving would grow more 
 and more internecine in a community in which re- 
 straint of population minimised the helpless mass, 
 and he who would live on his investments must save 
 more and more to outsave his competitors, in the 
 words of Messrs. Mummery and Hobson, 1 " Each is 
 competing against the other; each is seeking t<> 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
 
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