u 
 
 >r) 
 
 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES
 
 THE PERSONAL RIGHTS SERIES. 
 
 Edited by J. H. LEVY. 
 
 No. I. 
 
 SHORT STUDIES 
 
 IN 
 
 ECONOMIC SUBJECTS
 
 'i£.
 
 SHORT STUDIES IN 
 
 ECONOMIC SUBJECTS 
 
 Y J. H. LEVY. 
 
 
 3 3 ■S 
 
 £on?on : 
 
 THE PERSONAL RIGHTS ASSOCIATION. 
 32, Charing Cross, S.W. 
 
 P. S. KING & SON. 
 Orchard House, Great Smith Street, Westminster, S.W. 
 
 1903-
 
 0CT.W2Q 
 
 .''^.OTlCAL3^^^' 
 
 ■7./ r; 
 
 „«»^ 
 
 • • " • 
 
 « • « 
 
 • «« • 
 
 • • f c 
 
 ^ t c < 
 
 < C t C 
 
 E < t t 1 < C 
 
 ' * 1 t * t I ' 

 
 OS 
 CD 
 
 <■£> 
 
 S 
 
 e 
 
 MO 
 llhl 
 
 I Sis 
 
 INTRODUCTION 
 
 TO THE 
 
 PERSONAL RIGHTS SERIES. 
 
 In these days, when politicians are promising 
 so many benefits from the extended action 
 of the State, when the spheres of the Cen- 
 tral and Local Governments, and their 
 relations to one another, are so ill-defined, 
 when Municipalities threaten to usurp the 
 whole field of industrial enterprise, and when 
 many regard even the science of Political 
 Economy as out of date, the Committee of 
 the Personal Rights Association have thought 
 it well to commence the issue of a series of 
 concise and cheap volumes dealing with the 
 most urgent problems in Economics, Ethics, 
 and Politics. Into the controversies of the 
 C3 rival political parties in the State it is not 
 3 proposed to enter ; but it is hoped that prin- 
 g ciples will be laid down and facts established 
 
 88t«)585
 
 vi Introduction to the 
 
 which will be recognised as important by all 
 lovers of justice and truth, under whatever 
 party banner they may range themselves. 
 
 Political power, in this country, was 
 formerly possessed, almost exclusively, by 
 the aristocracy. In 1832 it passed, to a large 
 extent, into the hands of the middle classes, 
 to whom were joined, in 1867, the wage- 
 earning men of the towns, and, in 1884, those 
 of the country districts also. The aristocracy, 
 being in a position of unchecked power, 
 naturally took care to feather their own nests, 
 and, aided by the State Church, were only 
 too ready to repress discussion and political 
 agitation. There was a tendency to regard 
 anything which familiarised men's minds 
 with anv other than the then existent state 
 of things as seditious, if not blasphemous. 
 
 When the capitalist classes became pos- 
 sessed of parliamentary powers in 1832, they 
 were generally in favour of the laws, then in 
 force, against free combination on the part 
 of working men ; and it was not till the poli- 
 tical enfranchisement of large numbers of 
 the manual labour classes had made their 
 political power seriously felt that Trades 
 Unions were legalised. Moreover, the em-
 
 Personal Rights Series. vii 
 
 ployer class were virtually responsible for the 
 passing of Factory Acts — involving large 
 powers of State inspection and interference 
 — by their neglect to apply the proper 
 remedies to the cruelty and oppression which 
 had grown up in the factory system. 
 
 Eighteen years have elapsed since the 
 agricultural labourers were enfranchised. No 
 class is now entirely shut out from represen- 
 tation in Parliament — save women. "All 
 sorts and conditions of men " have had the 
 matter in their hands. What have they 
 done with it ? To give but a single instance, 
 the Established Church is not only still es- 
 tablished, but the course of legislation on the 
 education question has enormously streng- 
 thened it. In a matter confessed to be of 
 vital importance to the future of the nation, 
 monopoly, with all its paralysing influence, 
 reigns triumphant. No one would dare to 
 enforce attendance at the State Church. 
 But, at the State School, not only is attend- 
 ance enforced, but parents are compelled 
 themselves to be the agents of it, even 
 though the only available school is one in 
 which their children will be brought under in- 
 fluences which they regard with detestation.
 
 viii Introduction to the 
 
 If this is how matters have gone in the 
 past what hope have we in the future ? Large 
 numbers of the wage-earning classes seem 
 to be in favour of sending to the House of 
 Commons special representatives pledged 
 to consider and favour the interests of 
 their own class, apart from those of the 
 community generally. Suppose — what at 
 the present moment seems unlikely, but 
 in the future might be possible — that 
 working men, who are a majority of 
 the voters, were persuaded by their leaders 
 to send to Parliament a majority of mem- 
 bers thus to represent only their own class. 
 We might, and in all probability should, find 
 ourselves again involved in all the old evils 
 of class legislation — evils many of which 
 still exist — instead of pursuing the true ideal 
 of legislation, so as to procure the largest 
 possible freedom for each member of the 
 community. 
 
 With this possibility in sight, and recog- 
 nising that the future of our country rests in 
 the hands of the wage-earning men who con- 
 stitute a majority of the voters, it is surely 
 important that those who look to Parlia- 
 ment to redress the admitted evils of our
 
 Personal Rights Series. ix 
 
 present social system, should clearly realise 
 what Parliament can do and what lies 
 beyond its power, and should be done — can 
 only be done — by the people themselves in 
 free and voluntary combination. It is with 
 the object of showing the limits of State 
 interference, which always involves compul- 
 sion of the individual, and of counteracting 
 the excessive faith which so many now have 
 in Salvation by the State — a number of 
 ordinary persons elected to office by the 
 majority — that the Personal Rights Asso- 
 ciation have thought it well to issue this 
 series of volumes. But it is hoped that, in 
 the course of this necessary negative work, 
 it will be shown in w4iat direction true 
 political salvation lies. 
 
 J. P. Thomasson, 
 President of the Personal Pig/its Association. 
 
 Woodside, Bolton, Lanes., 
 28th May, I go J.
 
 PREFATORY NOTE. 
 
 This little book is intended as an intro- 
 duction to the study of Economics. It is 
 hoped that it will give some indication of 
 what that science is, and induce some taste 
 for it. The opening lecture on " Wealth- 
 Knowledge," being an endeavour to in- 
 fluence conduct, necessarily makes appeal to 
 ethical considerations. But, apart from this, 
 and when once embarked on the work of 
 Economics, I have endeavoured rigidly to 
 maintain the scientific and economic stand- 
 point, and therefore to shut out all moral 
 and political considerations. Economists 
 will find at least three points of interest — 
 in my polemic against John Stuart Mill as 
 to the nature of Laws of Distribution, in 
 my doctrine of the Evanescence of Interest, 
 and in my contention that Economics is not 
 a Social Science. The detailed proof of 
 this last most important allegation I have 
 been obliged to leave for a further volume. 
 
 J. H. Levy. 
 
 Personal Rights Association, 
 32, Charing Cross, S.W.
 
 CONTENTS. 
 
 PAGE 
 
 WEALTH-KNOWLEDGE ; A PLEA FOR THE STLT)Y 
 
 OF ECONOMICS 1 
 
 DISTRIBUTION AS A BRANCH OF ECONOMICS ... 43 
 
 THE ECONOMICS OF LABOUR REMUNERATION ... 57 
 
 ECONOMIC CHATS: — 
 
 I. THE LAW OF DIMINISHING RETURN ... 78 
 
 IL THE LAW OF POPULATION 86 
 
 IIL INTEREST 98 
 
 IV. WHAT IS A POUND? 105
 
 We althXnowledge : 
 
 A PLEA FOR THE STUDY 
 OF ECONOMICS. 
 
 An accusation is frequently levelled against the 
 science of man, and especially against the branch 
 of it to which I am about to direct your attention, 
 that it is eminently unpractical — a sort of thing 
 which may do very well for Jupiter or Saturn, or 
 some other benighted planet remote from the 
 centre of light, but altogether unsuited to that every- 
 day world of ours in which " sweaters " and 
 Socialists, caucuses and company promoters, trades- 
 unions and " tied houses," Fair Traders and philan- 
 thropists live, move, and have their being. " The 
 questions," it is said, " which occupy the time and 
 attention of these ' mere theorists ' have no bearing 
 on the great interests of mankind. Humanity goes 
 on its way, undisturbed by the speculations of 
 men who always fancy they are wiser than their 
 fellows ; and, be the reply to the ethereal problems 
 about which they are so zealous yea or nay, 
 humanity goes on its way, no more affected by
 
 2 Wealth-Knowledge : 
 
 the result of their dehberations than by the erratic 
 course of some distant comet." " These wiseacres 
 too," it is urged, " are a constant source of annoy- 
 ance to the rest of mankind. They are always 
 finding out that something is wrong. Nothing is 
 sacred to these reckless innovators. If there is 
 any fact about which common-sense people have 
 made up their minds, these pundits are sure to 
 dispute it They are always unsettling our con- 
 victions, and making us feel uncomfortable. Even 
 if we go so far as to confess that we are uneasy, 
 and ask them what we are to do, we are told that 
 ihi pursuit of truth is not an easy matter — that if 
 we accept their conclusions, we shall be almost as 
 badly off as ever, unless we know the reasons for 
 accepting them. Instead of giving our brains plenty 
 of rest, as common-sense people do, and taking 
 for granted what everybody holds to be true, we 
 are to be perpetually bothered with weighing evi- 
 dence, and sifting arguments, and observing events, 
 and doing all sorts of troublesome and unprofitable 
 things. The fact is that these philosophers, from 
 Thales to Herbert Spencer, are a nuisance." 
 
 I do not believe this is an exaggerated state- 
 ment of the feelings of the mass of humanity 
 towards the pioneers of human knowledge. They 
 are nearly always unpopular. Philosophy is the 
 great solvent of superstition and custom-entrenched 
 error. Respectable people of the ordinary, quiet, 
 jog-trot type appreciate scholars, but are frightened 
 of thinkers; business people look upon them as
 
 A Plea for the Study of Economics. 3 
 
 dreamers who give their attention to matters which 
 have no appreciable effect on the next half-year's 
 dividend ; to mere pleasure-seekers they are 
 caviare on account of their seriousness ; and to 
 shallow people they are a riddle without intelligible 
 solution. But it is to these men, more than to any 
 others, that mankind owes such progress as it has 
 made. As Condorcet well remarks : " The sailor 
 who is preserved from shipwreck by the exact 
 observation of the longitude, owes his life to a 
 theory conceived two thousand years before, by 
 men of genius who had in view simply geometrical 
 speculations." Those epochs in which philosophic 
 thought was more than usually active, are the 
 oases in the desert of history. But the names 
 which render those periods illustrious are those of 
 men who were disliked and persecuted by their 
 contemporaries. And, though we abjure the sins 
 of our ancestors — an inexpensive kind of moral 
 investment which commends itself to those who are 
 anxious to bu}' their virtues, as well as their other 
 luxuries, in the cheapest market — it is, taking the 
 state of Europe generally into account, relatively 
 as risky now as it was two thousand years ago, 
 to attempt to be wiser or better than our contem- 
 poraries. 
 
 Human knowledge may be regarded as con- 
 sisting of four grand sections. The first of these 
 is knowledge mathematical, or the facts and laws 
 of quantity. The second is knowledge physical, 
 or the facts and laws of the material universe.
 
 4 Wealth-Knowledge : 
 
 The third is knowledge psychical, or the facts and 
 laws of consciousness. And the fourth is know- 
 ledge anthropological, or the facts and laws of the 
 relations of human beings (i) with the surrounding 
 world, and (2) with one another* Now philosophy 
 is the vanguard of science. It is always striving to 
 summarise and epitomise human knowledge, by 
 carrying farther and farther the process of 
 generalisation. It always occupies the most dis- 
 puted ground, which has not yet been brought 
 under the dominion of the intellect. In early times, 
 the philosophical pioneers of modern science were 
 very much engaged with what would now be 
 regarded as mathematical or physical speculations. 
 As time went on, the ground they won was taken 
 possession of by the main body of the army of 
 science, and the philosophic van concentrated its 
 attack on the domains of Mind and Man. The 
 world of Mmd is, I think I may say, passing slowly 
 under the sceptre of science ; and, with regard to 
 the province of Man, notwithstanding enormous 
 dithculties, much has been done. 
 
 But, unfortunately, not only do most persons, 
 even of what are called the educated classes, resent 
 what they consider the intrusion of the idea of 
 natural law into the sphere of human action — 
 when they realise what it means, which they fre- 
 
 * Contrary to the prevailing doctrine among economists, I hold 
 that economics belongs to the first of these sections, and, con- 
 sequently, that it is not a social science. This point will be 
 discussed in a later volume, under the title of " The Economics of 
 Robinson Crusoe."
 
 A Plea for the Study of Economics. 5 
 
 quently do not — but they know little or nothing 
 of what has been ascertained in the human sciences. 
 Familiarity with terms which are used to express 
 moral or economic relations breeds in them the 
 illusion that they have intuitive knowledge sulh- 
 cient to decide the knottiest questions of ethics or 
 economics. Moliere's Bourgeois Gentilhoinvie had 
 been unwittingly talking prose for forty years. 
 Most persons speak economics to the end of their 
 lives without being aware of it. They would not 
 undertake to cut off a man's leg without any 
 acquaintance with anatomy and surg^ery, or to pre- 
 dict the exact date of the next solar eclipse without 
 some knowledge of mathematics and astronomy ; 
 but they are quite ready, without the slightest 
 scientific preparation, to solve the most intricate 
 problems of wages, currency, and international trade 
 — problems which are far more difficult than the 
 prediction of an eclipse, and error in the solution 
 of which carries with it far more terrible conse- 
 quences, in human misery, than any mistake which 
 can be made in the amputation of a limb. Now 
 it is this unconscious ignorance which is- the great 
 barrier to progress. The whole life of the most 
 famous of the Greek philosophers was devoted to 
 breaking down this barrier. The incessant aim of 
 the Socratic dialectic was to unveil the ignorance of 
 those who deceived themselves by a false persua- 
 sion of knowledge. 
 
 The Science of Wealth, or Economics, as it is 
 now called, has shared the fate of the other anthro- 
 
 C
 
 6 Wealth-Knowledge : 
 
 pological sciences with reg^ard to this double 
 ignorance — the ignorance that one is ignorant 
 The desire for wealth — for coveted material ob- 
 jects which cannot be obtained without sacrifice 
 of some sort — is universal amongst mankind. It 
 has necessarily been made one of the chief objects 
 of human attainment; for food, clothing, habita- 
 tions and other of the material conditions of life 
 and comfort are net supplied spontaneously by 
 Nature. If they were so supplied at an early stage 
 of the existence of mankind, our numbers have 
 long outstripped this gratuitous provision. Given 
 this fact, and the low state of morality which has 
 hitherto obtained among mankind, and it is not 
 surprising to find that the pursuit of wealth has 
 been characterised by a reckless rapacity ; and, 
 to those who have made a study of politics, it will 
 cause no astonishment to find that governments — 
 which are, after all, made up of human beings, 
 frequently demoralised by power over others — have 
 been by no means exempt from this failing, though 
 it must be admitted that they have carried it on 
 with that respectability which attaches to whole- 
 sale transactions, and have punished the retailers 
 in the same trade with at least due severity. If 
 small shopkeepers have been found, with plebeian 
 improbity, to adulterate a few pounds of pepper, 
 monarchs have adulterated the coinage of a king- 
 dom ; and even republics have manifested a 
 yearning for " soft money." But greedy people 
 are usually shortsighted ; and very often, like the
 
 A Plea for the Study of Economics. 7 
 
 dog in the fable, let fall the substance in order to 
 catch at a shadow. This actually occurred in the 
 present instance, through a misconception of 
 the nature of wealth — a misconception which 
 dominated the whole of Europe up to a recent 
 period, and produced the most serious moral and 
 political effects. 
 
 The early employment of the precious metals 
 as instruments of exchange and measures of value, 
 gave rise to a series of associations which induced 
 the belief that money, or the gold and silver of 
 which it was made, alone constituted riches, or at 
 least were wealth m an especial and paramount 
 sense. All wealth being expressed in money, all 
 income and expenditure being reckoned as the 
 receipt or disbursement of money, all goods which 
 a person might possess being entered in the ac- 
 count, not in their own character, but as so much 
 money — money seemed to our ancestors the be-all 
 and end-all of riches. These associations having 
 once become formed, were soon embedded in the 
 language of every-day life ; and terms and phrases 
 so created, tended still further to strengthen the 
 impression to which they owed their origin. 
 
 This notion having once been adopted, it was 
 carried — not, perhaps to its. logical conclusion; any 
 attempt to do that would have led either to an 
 immediate recognition of its absurdity, or to its 
 speedy refutation by whati has been called the logic 
 of events. But it was applied in a way dear to the 
 so-called "practical man" of all ages — so as to
 
 8 Wealth-Knowledge .- 
 
 attain tlie maximum of mischief possible without 
 discrediting- a vicious principle. It is evident that, 
 if the precious metals alone are wealth, a nation 
 which has no mines of gx)ld or silver, can only 
 become rich b\' importing them from another 
 country ; and the nation which exports bullion 
 becomes poorer to the amount of that bullion, not- 
 witlistaiidino- that it ma\- have obtained in ex- 
 change for it ever so large a quantit\- of goods 
 useful to its people. This extraordinary idea per- 
 meated the whole of societ\'. and gave rise to laws 
 and customs which, viewed b\' the li^ht of modern 
 economic science, are so absurd that wo would 
 have some ditilcult}' in cc^nceiving the state of mind 
 to which they appeared otherwise, if the Bimetal- 
 lists did not furnish us occasionalh- with some 
 survi\-als — the onl\' sendee Ic the cause of econo- 
 mics with which I can credit them. 
 
 A ver}- quaint little book, published in the year 
 1 58 1, and as its title-page infonns us, "imprinted 
 at London in Fleet Street, near unto St. Dunstan's 
 Church. ■ contains a classification of artisans which 
 gives such a complete insight into the mode of 
 regarding wealth in those days, that I cannot do 
 better than quote it. The writer — a gentleman of 
 the Court of Queen Elizabeth — observes : " And 
 now because we are entered into communication 
 of Artiticers. I will make this division of them. 
 Some of them but convey money out of tlie Country, 
 some other that which they get the}- do expenei 
 again in the Countr}-. Of the first class I reckon
 
 A Plea for the Study of Economics. 9 
 
 all Mercers, Grocers, Vintners, Haberdashers, Milli- 
 ners, and such as do sell wares growing beyond 
 the sea, and do fetch out our treasure for the same, 
 which kind of, Artificers as I reckon them tolerable 
 yet not so necessary in a commonweal but they 
 might be best spared of all other. Yet if we had not 
 other Artificers to bring in as much treasure as 
 they do carry forth we should be great losers by 
 them. Of the second sort be these — Shoemakers, 
 Tailors, Carpenters, Masons, Tylers, Butchers, 
 Brewers, Bakers, and Victuallers of all sorts, which 
 like as they get their living m the Country, so they 
 spend it : but they bring no treasure to us. There- 
 fore we must cherish well the third sort. And 
 those be Clothiers, Tanners, Cappers, and Worsted 
 Makers only, that I know (which by their mysteries 
 and faculties) do bring in any treasure." 
 
 The author, you will see, divides people engaged 
 in business into three classes — those who import 
 goods for home consumption, those who make 
 goods for home consumption, and those who manu- 
 facture goods for foreign consumption. The first 
 he considers we lose by, as " they convey money 
 out of the country " ; the second he looks upon as 
 harmless, but no good, as they neither bring into 
 the country any money nor take any out ; the 
 third alone, who give their goods in exchange for 
 foreign gold, does he reckon as those whom we 
 ought to cherish as augmenters of the national 
 wealth. 
 
 One of the most conspicuous consequences of
 
 lo Wealth-Knowledge : 
 
 this theory — none the less a theory because the 
 theorisers would, no doubt, have called themselves 
 " practical men " and abjured all theory — is to be 
 found in the laws which were made and enforced 
 by various nations to prevent the export of the 
 precious metals. Cicero tells us that during the 
 time that he was Consul, the Roman Senate re- 
 peatedly declared in the most solemn manner 
 against the exportation of gold. The nations of 
 modern Europe have vied with one another in this 
 respect ; and, in our own country, the export of 
 bullion was prohibited for four hundred years. The 
 preamble to the 5 Rich. II., cap. 2, runs thus : " For 
 the great mischief which this realm suffereth and 
 long hath done, for that gold and silver are carried 
 out of the realm, so that in effect there is none 
 thereof left, which thing, if it longer should be 
 suffered, would shortly be the destruction of the 
 same realm, which God prohibit " ; and it is remark- 
 able that when, after repeated re-enactments, this 
 prohibition of the export of bullion was repealed, 
 it was done because, in the words of the statute, 
 I" it is found by experience that the species of 
 money and bullion are carried in greatest abund- 
 ance as to a common market, to such places as give 
 free liberty of exporting the same." After four 
 centuries of prohibition, the export of gold and 
 silver was permitted ; and for what purpose ? For 
 the very purpose that the prohibition itself was 
 intended to effect — " to keep in and increase the 
 current coins of this kingdom."
 
 A Plea for the Study of Economics, ii 
 
 Perhaps the most notable example of the fatal 
 effects of this doctrine is afforded by Spain. It 
 would be difficult to give an adequate idea of the 
 prospects of that country in the sixteenth century. 
 " So late as 1478," says Buckle, " Spain was still 
 broken up into independent and often hostile 
 states ; Granada was possessed by the Moham- 
 medans ; the throne of Castile was occupied by one 
 prince, the throne of Aragon by another. Before 
 the year 1590, not only were these fragments firmly 
 consolidated into one Kingdom, but acquisitions 
 were made abroad so rapidly as to endanger the 
 independence of Europe. The history of Spain, 
 during this period, is the history of one long anS 
 uninterrupted success. That country, recently 
 torn by civil wars, and distracted by hostile creeds, 
 was able in three generations to annex to her terri- 
 tory the whole of Portugal, Navarre, and Rousillon. 
 By diplomacy or force of arms,, she acquired Artois, 
 and Franche Comte and the Netherlands, also the 
 Milanese, Naples, Sicily, Sardinia, the Balearic 
 Islands, and the Canaries. One of her kings was 
 the Emperor of Germany ;- while his son influenced 
 the councils of England, whose queen he married. 
 The Turkish power, then one of the most formid- 
 able in the world, was broken and beaten back on 
 every side. The French monarchy was humbled. 
 French armies were constantly worsted ; Paris was 
 once in imminent jeopardy ; and a King of France, 
 after being defeated on the field, was taken captive, 
 and led prisoner to Madrid. Out of Europe, the
 
 12 Wealth-Knowledge : 
 
 deeds of Spain were equally wonderful. In America 
 the Spaniards became possessed of territories which 
 covered sixty degrees of latitude, and included both 
 the tropics. Besides Mexico, Central America, 
 Venezuela, New Granada, Peru, and Chili, they 
 conquered Cuba, San Domingo, and other islands. 
 In Africa they obtained Ceuta, Melilla, Oran, 
 Bougiah, and Tunis, and overawed the whole Coast 
 of Barbary. In Asia they had settlements on each 
 side of the Deccan ; they iield part of Malacca ; 
 and they established themselves in the spice 
 islands. Finally, by the conquest of the noble 
 Archipelago of the Philippines, they connected their 
 most distant acquisitions, and secured a communica- 
 tion between every part of that enormous empire 
 which girdled the world." 
 
 The same historian, speaking of the condition of 
 Spain at the end of the seventeenth century, tells 
 us that " the most powerful monarchy existing in 
 the world was depressed to the lowest point of 
 debasement, was insulted with impunity by foreign 
 nations, was reduced more than once to bankruptcy, 
 was stripped of her fairest possessions, was held up 
 to public opprobrium, was made a theme on which 
 schoolboys and moralists loved to declaim 
 respecting the uncertainty of human affairs, and 
 at length was exposed to the bitter humiliation 
 of seeing her territories mapped out and divided, 
 by a treaty in which she took no share, but the 
 provisions of which she was unable to resent." 
 
 We read history in vain if we merely acquaint our-
 
 A Plea for the Study of Economics. 13 
 
 selves with events such as these and do not trace 
 their causes. Those causes, though not entirely 
 economic, were in a great measure so. Charles 
 the Fifth was thoroughly saturated with the notion 
 of the supreme importance of the precious 
 metals. ■ Mexico and Peru having fallen into his 
 hands, with their mines of gold and silver, he did 
 all that an unscrupulous despot could do, to enrich 
 Spain at their expense. Never were laws made 
 with a greater disregard of the first principles of 
 justice and right — never did retribution more 
 speedily or more crushingly overwhelm the oppres- 
 sors. The Americans were forbidden to exchange 
 their gold and silver for the commodities of any 
 other nation than Spain. They were not allowed 
 to build ships, to establish manufactures, to grow 
 flax or hemp, or to cultivate the vine. They were 
 not even permitted to educate their children other- 
 wise than in Spain. Everything that a remorseless 
 ingenuity could suggest was done to drain the new 
 world of its gold and silver, and pour them into 
 Spain. At the same time the export of the pre- 
 cious metals from the latter country was prohibited, 
 under the penalty of death. 
 
 Now money has certain functions to perform, 
 which, though important, are strictly limited. It 
 is primarily an instrument of exchange, secondarily 
 a measure of value ; and both these functions are 
 seriously impaired by any rapid increase or decrease 
 of its quantity. Indeed, it is because the quantity 
 of gold in hand at any one time is very great in
 
 14 Wealth-Knowledge : 
 
 comparison with the yearly output that it has that 
 comparative stabiUty of value which constitutes its 
 supreme fitness for a money material. Each of 
 us becomes better off with the increase of his money, 
 because his command of purchasable commodities 
 and services is thus increased ; but to suppose that 
 a whole community would be made more pros- 
 perous by an augmentation of its exchange imple- 
 ments, is to fall into what logicians call a fallacy of 
 composition. 
 
 These considerations will help you to understand 
 how the economic policy of Charles the Fifth, 
 instead of tending to enrich the country which was 
 so unfortunate as to have him for a ruler, produced 
 the most deleterious effects. Persons whose in- 
 comes were fixed either by law or custom, found 
 their means very much straitened, without being 
 able to account for it. Trade became at first 
 embarrassed, and afterwards paralysed, by the 
 uncertainty in which it was enveloped. Industry, 
 which will never thrive unless those who work are 
 tolerably sure to enjoy the fruits of their labour, 
 languished. Anti-Semitism was carried to its 
 logical conclusion, by the driving out of both 
 branches of the Semitic family — Moors and Jews» 
 who constituted most valuable elements of the 
 population ; and the revival of slavery tended still 
 further to discredit industrialism, by affixing a 
 stigma to labour, as the portion of a degraded and 
 inferior race. 
 
 These influences gradually told on the Spanish
 
 A Plea for the Study of Economics. 15 
 
 character ; and produced that mixture of laziness 
 and pride which is characteristic of a society having 
 slavery for its basis. Manufactures were neglected, 
 agriculture decayed, and the whole energies of the 
 Spanish people were turned to the plunder of the 
 unfortunate Americans. These were at length 
 goaded into rebellion ; and, after a sanguinary 
 struggle, succeeded in throwing off the yoke of 
 their oppressors. 
 
 I can profess no commiseration for the Spanish 
 people in the crushing result of this attempt to build 
 up their prosperity on the plunder and debasement 
 of others ; but I am concerned here rather with 
 their economic blunder than their ethical miscon- 
 duct. And the sort of blundering of which I am 
 speaking was not confined to them. Our own 
 country, which owes its eminence, among other 
 causes, to the fact of its having been less an object 
 of paternal care on the parti of its Government than 
 other nations, has had its share of this kind of 
 legislation. A few centuries ago, our rulers used 
 to think that their powers were like those of an 
 elephant's trunk, which can tear up a tree or pick 
 up a needle ; and although this error — as I hold it 
 to be — is one of politics and not of economics, still 
 there can be no doubt that it was sustained, as 
 it is at the present day, by economic superstitions. 
 Nothing was too large, and nothing too small 
 for the statesmen of the pre-economic era. They 
 took divine worship under their care, and told the 
 people what price they should pay ^or their
 
 1 6 Wealth-Knowledge : 
 
 candles.* A statute of the reign of Edward the 
 Third, entitled, An Act concerning Diet and 
 Apparel.t commences by confirming the Great 
 Charter extorted from King John, and the supple- 
 mentary charters granted by subsequent monarchs ; 
 and immediately proceeds, from the settlement of 
 these matters of the highest constitutional import- 
 ance, to the regulation of the price of geese, pullets, 
 hens, and capons : the respect due to age being 
 shown by making fourpence each the legal charge 
 for old capons, while the price fixed for their juniors 
 was a penny lower. 
 
 From poultry to plums is a comparatively easy 
 leap. The next ordinance is one concerning 
 grocers ; and its preamble reads like a quotation 
 from the prospectus of the Licensed Victuallers' 
 Tea Association : — " For the great Mischiefs which 
 have happened as well to the King; as to the Great 
 Men and Commons, of that that the Merchants 
 called Grocers do ingross all Manner of Merchan- 
 dise vendible." It is then enacted that traders 
 shall deal in but one commodity ; and they are 
 ordered, under severe penalties, to dispose of all 
 their stock, except the one kmd of goods in which 
 they elect to deal in future, before a certain fixed 
 date. Manufacturers, too, are to make but one sort 
 of article. The silversmith is prohibited from gilding 
 his own wares, and the gilder from making them. 
 The Act then goes on to prescribe the clothing of 
 all the various classes in the community : " Grooms, 
 
 * II Henry VI , Cap. 12. t 37 Edw. III., Cap. 3.
 
 A Plea for the Study of Economics. 17 
 
 as well as Servants of Lords, as they of Mysteries 
 and Artificers," ..." People of Handicraft and 
 Yeomen " . . . " Esquires and all Manner of 
 Gentlemen " , . . " Merchants, Citizens, and Bur- 
 gesses," ..." Knights " . . . " Clerks, which have 
 degree in any Church, Cathedral, Collegial or 
 School, or Clerk of the King," ..." their Wives, 
 Daughters, and Children," — all are informed by this 
 wonderfully comprehensive statute how they are 
 to dress according to " their Estate and Degree." 
 The latter portion of this Act is so curious that I 
 give it to you verbatim : " That Carters, Plough- 
 men, Drivers of the Plough, Oxherds, Cowherds, 
 Shepherds, Swineherds, Dairymen, and all other 
 Keepers of Beasts, Threshers of Corn, and all 
 Manner of People of the Estate of a Groom at- 
 tending to Husbandry, and all other People that 
 have not Forty Shillings of Goods nor of Chattels, 
 shall not take nor wear no Manner of Cloth, but 
 Blanket and Russet of Twelve-pence the yard; 
 and shall wear the Girdles of Linen according to 
 their Estate ; and that they come to eat and drink 
 in the Manner as pertaineth to them and not exces- 
 sively." It seems to have been an object of great 
 care on the part of our rulers of former times, that 
 the common people should be free from the sin of 
 gluttony. 
 
 This is only a sample of the economic legislation 
 of that time. One statute of Edward the Fourth 
 regulates the length of boots, and enters so minutely 
 into the dress to be worn by our countrymen that it
 
 1 8 Wealth-Knowledge : 
 
 will scarcely bear quotation. A statute of Henry 
 the Eighth's reign first prohibits the importation 
 of foreign caps, and then fixes the price of English 
 ones, and the way in which they are to be made.* 
 One law gives minute directions for the packing of 
 iish,t another for the currying of leather. + One 
 of the first Acts of Queen Mary's reign prohibited 
 the wearing of silk nightcaps by men not having 
 i^200 in goods or £2.0 in annual income ; and an 
 Act of the previous reign regulated the way in which 
 beds and bolsters should be stuffed.§ The first 
 year of the rule of the monarch who disported him- 
 self on the Field of the Cloth of Gold was signahsed 
 by an Act whose preamble declares that " the great 
 and costly array and apparel used within this 
 realm, contrary to good statutes thereof made, hath 
 been the occasion of great impoverishing of divers 
 of the king's subjects." || This law seems to have 
 aroused the indignation of Adam Smith, who 
 says : " Great nations are never impoverished by 
 private, though they sometimes are by public 
 prodigality and misconduct. The whole, or almost 
 the whole public revenue is, in most countries, em- 
 ployed in maintaining unproductive hands. Such 
 are the people who compose a numerous and 
 splendid court, a great ecclesiastical establishment, 
 great fleets and armies, who in time of peace 
 produce nothing, and in time of war acquire nothing 
 
 * 3 Henry VIII., Cap. 15. t 5 Eliz., Cap. 8. 
 
 t 22 Edw. IV., Cap. 2. § 5 & 6 Edw. VI., Cap. 23. 
 
 II I Henry VIII., Cap. 14.
 
 A Plea for the Study of Economics. 19 
 
 which can compensate the expense of maintaining 
 them, even while the war lasts. Such people, as 
 they themselves produce nothing, are all maintained 
 by the produce oi other men's labour. ... It is 
 the highest impertinence and presumption ... in 
 kings and ministers to pretend to watch over the 
 economy of private people, and to restrain their 
 expense, either by sumptuary laws, or by pro- 
 hibiting the importation of foreign luxuries. They 
 are themselves always, and without any exception, 
 the greatest spendthrifts in the society. Let them 
 look well after their own expense, and they may 
 safely trust private people with theirs. If their own 
 extravacfance does not ruin the state, that of their 
 subjects never will."* 
 
 But the attention of the Government was not 
 only directed to the expenditure and mode of con- 
 sumption of the people. Their income and the 
 way in which it was earned were equally objects 
 of solicitude. Laws regulating wages cumber our 
 statute books. On one occasion, soon after the 
 battle of Crecy, when a plague, by Himinishing the 
 number of labourers, would naturally have raised 
 the rate of wages, a law was passed fixing it at 
 what it had been previous to the outbreak of the 
 pestilence, and enforcing labour at this price by 
 the penalty of forty days' imprisonment for the 
 first offence, the punishment being doubled at 
 every subsequent breach of the law. The labourers 
 were not even allowed to change their place of 
 
 * Wealth of Nations, Book II., Chap 3.
 
 20 Wealth-Knowledge : 
 
 abode, and seek employment elsewhere. From this 
 time, legal enactments determining the hire of 
 workmen continually occupied the attention of our 
 legislators. More than three centuries and a half 
 had elapsed when we find Parliament giving its 
 sanction to an " Act for Regulating Journeymen 
 Tailors."* All attempts on their part to get more 
 wages or reduce the hours of their labour were 
 declared to be illegal ; and any one of them con- 
 victed of these heinous crimes was sent to hard 
 labour in the house of correction for two calendar 
 months. The Act then defines their time for work, 
 and remuneration. They were to be paid not more 
 than two shillings per day during the spring, and 
 one shilling and eightpence per day during the 
 remaining nine months of the year ; and they were 
 to work from six o'clock in the morning till eight 
 at night. Employers were prohibited under a 
 penalty from giving better terras than those pre- 
 scribed. 
 
 The legal status of our working classes while 
 they were so fortunate as to get remunerative work 
 to do used to be terribly unjust. How the law 
 dealt with them when they could not obtain a 
 livelihood would form ample material for a lecture 
 in itself. They were alternately treated with a bUnd 
 ferocity of which it almost makes us shudder to 
 think, and an indulgence still more cruel in its re- 
 sults ; and' we do not seem to be at an end of these 
 oscillations. 
 
 * 7 Geo. I., Cap. 13.
 
 A Plea for the Study of Economics. 21 
 
 Before the accession of the Tudors, pauperism, 
 as an institution, was unknown to this country. The 
 land was held by a large number of small proprie- 
 tors, who cultivated their own farms and lived in 
 a state of much independence and comfort. The 
 battle of Barnet closed the long- struggle euphemis- 
 tically called the Wars of the Roses ; and the 
 rival factions, thus unfortunately relieved from the 
 congenial and comparatively innocuous exercise 
 of cutting each other's throats and beating 
 out each other's brains, turned their predatory 
 prowess to the driving of the peasantry of England 
 ofT the land. I cannot stay to recount the economic 
 history of that time, interesting as it is. After 
 unceasing but unequal strife, which may be con- 
 sidered to have been decided when the two Kets 
 were barbarously executed at Norwich in 1549, 
 two modem institutions which are closely related 
 were established — our English land system and our 
 Poor Law. 
 
 For the first time in our history, dependent 
 poverty was the unavoidable lot of large numbers 
 of the people. One Act after another was passed 
 to put down pauperism, but to no purpose. The 
 following is an abridgment of one enacted in the 
 first year of the reign of King Edward the Sixth : 
 " Forasmuch as Idleness and Vagabondry is the 
 mother and roote of all thefts, Robberies, and all 
 evil acts and other mischief. Be it therefore enacted 
 that whosoever, man or woman, being not Lame, 
 Impotent, or so aged or diseased with sickness that 
 
 D
 
 22 Wealth-Knowledge : 
 
 he or she cannot work, shall either like a serving 
 man wanting a master, or like a beggar Idly wander 
 by the highway's side or in Streets, and so do 
 continue for the space of three days ; And, if no 
 man otherwise will take them, do not offer them- 
 selves to work for meat and drink ; or, after they 
 be so taken to work for the space agreed betwixt 
 them and their masters, do leave their work out 
 of convenient time : That then every such person 
 shall be taken for a Vagabond to two of the next 
 Justices of the Peace, who shall immediately cause 
 the said loiterer to be marked with a hot Iron in 
 the breast the mark of V, and adjudge the same 
 person to such presentor, to be his Slave for the 
 space of two years, only giving the said Slave bread 
 and water or small drink and refuse of meat, the 
 said Slave to work by beating, chaining, or other- 
 wise in work and labour how" vile soever it be. And 
 if any manner of Slave appointed run away, the 
 same Justices shall cause such Slave to be marked 
 on the forehead or the ball of the cheek with a, 
 hot Iron with the sign of an S, and shall adjudge 
 the runaway to be the said Master's Slave for ever. 
 And if such Slave shall the second time run away, 
 That then every such running away to be adjudged 
 felony, and such runaway to be taken as a felon, 
 and condemned to suffer pains of death as other 
 felons."* 
 
 While such was the mode of regulating home 
 affairs in the " good old times," foreign trade was 
 * ist Edwd. VI., Cap. 3.
 
 A Plea for the Study of Economics. 23 
 
 subjected to such restrictions that if it had not been 
 for smuggling, it would have been altogether extin- 
 guished. It can be easily understood that, when all 
 the nations of Europe thought it their interest to 
 export, and against their interest to import — and 
 this notion is still very widely held — commerce 
 between them must come to a deadlock.* How 
 generally these views prevailed may be judged by 
 the fact that Voltaire, whom no one will accuse of 
 undue reverence for the past, lays it down as self- 
 evident that one nation cannot gain by commerce 
 save at the expense of another. Disputes and 
 intrigues having for their object the imposition of 
 the wares of one country upon another were 
 common, and frequently gave rise to the most costly 
 and ferocious struggles. The gold and silver with 
 which nations could not be mduced to part, for the 
 most useful products of foreign industry, were 
 freely lavished on cruel and exhausting wars, 
 having for their object the increase of the wealth 
 which they did more than anything else to destroy. 
 International trade being thus duly subjected to 
 *' law and order," wages fixed, manufactures regu- 
 lated, the people informed what they were to buy 
 and what they were to. sell — their eating and 
 drinking and clothing and sleeping being all taken 
 care of with paternal sohcitude, and — let me add — 
 enforced with parental authority, it mieht be thought 
 that the ordering of all these matters would have 
 exhausted the wisdom and ingenuity of the practi- 
 
 * See Blanqui's Histoire de V Economic Politique, Chap. XXVIII.
 
 24 Wealth-Knowledge .- 
 
 cal statesmen of those days. Such, however, was 
 not the fact. Still one more regulation I have to 
 mention, a theological prejudice this time adding 
 its weight to the side of economic error. 
 
 It is one of the most elementary propositions of 
 economic science that industry is limited by capital. 
 Before any productive operations of more than a 
 rudimentary kind can be taken in hand, a pre- 
 viously accumulated stock of the products of 
 former industry is necessary. No manufactures 
 can be started without materials and tools, and 
 necessaries, for the workmen. These materials and 
 tools and necessaries are not the produce of the 
 labour which they subserve, but that of fomier labour. 
 Capital, you will therefore see, is indispensably 
 necessary for the purposes of all production be- 
 yond the first rude beginning ; and any increase 
 of it is an additional facility for the increase of the 
 material prosperity of the country. Now a great 
 part of the accumulation of wealth that ordinarily 
 goes on is effected by persons who have sometimes 
 not the desire, and sometimes not the opportunity 
 and ability, to engage in industrial and commercial 
 pursuits. It will readily be seen that any system 
 by which the use of the savings of these persons 
 can be transferred to others whose sphere of indus- 
 try is constrained by lack of capital, must be a great 
 advantage to the community. But the savers are 
 not likely, so long as they do not prefer deferred 
 to present consumption, to part with their wealtli 
 without some advantage to themselves. The bor-
 
 A Plea for the Study of Economics. 25 
 
 rowers, too, can very well afford to forego a part 
 of the extra gains which otherwise they wouj3 
 never have made, in order to remunerate the lenders 
 for their risk and waiting. This is the foundation 
 of the system of credit which has grown to such 
 gigantic proportions in modern times. Immense 
 sums are now lent and borrowed daily, the rate 
 of interest being determined by supply and demand, 
 or — if you prefer that statement — by the utility 
 of the last increment of the loan fund. If the 
 demand for loans is in excess of the supply, the 
 would-be borrowers will compete for them, and the 
 rate of interest will be raised. If, on the other 
 hand, the supply of loans is greater than the demand 
 for them, the rate will be lowered by the competi- 
 tion of the would-be lenders. The rate always 
 tends to that point at which the loan supply is 
 equated to the demand, or to the point of " mar- 
 ginal utility." 
 
 The principles which I have just mentioned 
 were unknown a few centuries ago, and were not 
 apprehended in their full force even by Adam 
 Smith. They are unrecognised still by some per- 
 sons ; and, indeed, I may say that there is a distinct 
 reaction against them in some academic and 
 political circles. It is to Jeremy Bentham. we owe 
 the triumphant establishment of the defence of so- 
 called usury ; though, as Mr. Lecky has pointed 
 out, " On the whole, there is not much in Bentham 
 that was not anticipated by TurgoL"* The practice 
 * History of Rationalism, Vol. ii., p. 270.
 
 26 Wealth-Knowledge : 
 
 of lending money at interest was condemned as a 
 mortal sin by seventeen popes and twenty-eight 
 councils of the church ; and this condemnation was 
 not directed against those rates only which were 
 considered high or extortionate, but against any 
 consideration paid for the use of money. There was 
 much discussion whether Jews should be permitted 
 to lend at interest ; and the plea for exempting 
 them from the general prohibition was that, as St. 
 Thomas Aquinas said, " they were already so hope- 
 lessly damned that no crime could aggravate their 
 condition."* 
 
 In truth, rulers who wished to profit by the 
 usury they affected to condemn used the Jews as 
 sponges to suck up wealth which they afterwards 
 mercilessly squeezed from them. "The King of 
 England was wont to draw a considerable Revenue 
 from the Jews residing in this Realm. . . . He 
 would tallage the whole Community or Body of 
 them at Pleasure ; and make them answer the 
 Tallages for one another. If they made any De- 
 fault at the Atterminations or Days of Payment 
 prefixed to them, they were charged with great 
 Fines or Compositions for it. In Sum, the King 
 seemed to be absolute Lord of their Estates and 
 Effects, and of the Persons of them, their Wives 
 and Children. 'Tis true he let them enjoy their 
 Trade and bequests ; but they seemed to trade and 
 acquire for his Profit as well as their own : for at 
 one Time or other their Fortunes, or great part 
 
 * Ibid. p. 301.
 
 A Plea for the Study of Economics. 27 
 
 of them, came into his Coffers. ... By Traffic and 
 takmg of usuries and mortgages of the King's sub- 
 jects, they became very wealthy both in Money 
 and Land But as they fleeced the subjects of the 
 Realm, so the King fleeced them.'"* 
 
 The effect of the Usury Laws was to produce 
 the very di:;ease they were intended to cure. By 
 restricting the number of lenders, they diminished 
 the supply of loans, and thus raised the rate of 
 interest. The law, again, having to be evaded, the 
 lender had to be compensated for the extra risk 
 involved in ths, and to the stigma attaching to the 
 transaction ; end this further tended to raise the 
 price of the loai. The borrower had the misfortune 
 to be protectel by both Church and State ; and 
 he fared as people generally do who dej>end on 
 external and ccercive agencies for that guidance 
 and support whi:h they can get, and can get only, 
 by the cultivatbn of their own judgment and 
 foresight, and tie exertion of their own ener- 
 gies. 
 
 I have now gven you as complete a picture of 
 the state of the industrial world previous to the 
 rise of economics as the time at my disposal wiFl 
 allow. We hav( reviewed, too, that vanity and 
 presumption of givernments which makes them, 
 whatever may le their form, think they know 
 every man's busir^ss better than he knows it him- 
 self, and are justiied in forcing on him their con- 
 clusions. This system culminated, in France, in 
 
 * Madox's Hstory of the Exchequer, p. 221.
 
 28 Wealth-Knowledge : 
 
 the reign of Louis XIV. When, however, Colbert, 
 the great minister of that king, asked a deputation 
 of manufacturers what he could do to assist them, 
 they gave him a reply which may be freely trans- 
 lated into English : " The best thing you can do 
 for us is to mind your own business and leave us 
 to take care of ours." 
 
 On the death of Louis XIV., a great revulsion 
 took place in the sentiments of the French people 
 towards their rulers. Their attentioa v/as drawn 
 to the more Individualistic government of our own 
 country ; and the works of British authors were 
 studied with great avidity. This cr(?ss-fertilisation 
 of the French with the British intdlect produced 
 what was, perhaps, the greatest meital and moral 
 revolution in modern history. It is lhe fashion now 
 — especially among those who wist to emancipate 
 themselves from the constraint i)f principle — to 
 speak sneeringly of the eighteenti century. Jt 
 would be more profitable to consider how much of 
 the progress which has since beei made has been 
 due to the impetus given during tjat century ; and 
 how that impetus, which is now rearly spent, may 
 be renewed. i 
 
 But we are here concerned wit^ only one phase 
 of the thought of that time. It i to M. Ouesnay, 
 a physician of the court of Louis ^V, that we owe 
 the first systematic attempt to nise economics to 
 the rank of a science. By direaing the attention 
 of the great intellects of his da^i to the one class 
 of phenomena resulting from the pteraction of man
 
 A Plea for the Study of Economics. 2q 
 
 with his environment, the discovery of the general 
 truths of which was at once the most practicable 
 and the most urgent, he conferred a benefit on 
 humanity which it is difficult to over-estimate. His 
 school, the so-called Physiocrats or Economistes, 
 produced a great and lasting impression. It is not 
 sufficiently recognised how much Adam Smith, in 
 all probability, owed to them, and especially to the 
 illustrious Turgot, whose great work was published 
 five years before the Wealth of Nations. Du Pont 
 de Nemours, one of the ablest of the Physiocrats, 
 said of Smith's chef-d'oeuvre : " AH that there is 
 of truth in that estimable but unreadable book, in 
 two thick quarto volumes, is to be found in Turgot's 
 /defections on the Production and Distribution of 
 Wealth; all that Adam Smith has added to this is 
 lacking in precision and even in foundation."* This 
 is an absurd exaggeration, as Du Pont afterwards 
 recognised ; but, without doubt, " the influence of 
 Turgot and Ouesnay had probably more to do with 
 the opinions which were afterwards elaborated into 
 a systematic form in the Wealth of Natiotis, than 
 any of their other antecedents." t That Turgot 
 also owed something to his conversations with 
 Adam' Smith is a matter of which there can be very 
 little doubt. What it is necessary to insist on is 
 that there is no room in science for patriotic bias ; 
 and that we should be constantly on our guard 
 
 * Du Pont de Nemours et I'llcole physiocratique, par G. Schelle, 
 
 p. 159- 
 
 t Life of Adam Smith, by R. B. Ilaldane, M P., p. 32.
 
 30 Wealth-Knowledge : 
 
 against the prepossessions towards which the bar- 
 rier of our language disposes us.* 
 
 The most striking fault of the Physiocratic doc- 
 trine was the undue emphasis which it gave to 
 land as a factor of production. As all articles of 
 wealth are made of materials which are taken, 
 directly or indirectly, from the earth, the Physio- 
 crats inferred that land is the source of wealth. Of 
 all persons who are engaged in industrial pursuits, 
 agriculturists alone seemed to pay for use of 
 natural agents ; and Ouesnay thought that this was 
 a consequence of the superior productiveness of 
 agriculture — that the cultivation of the land alone 
 yields a surplus beyond the expenses of production. 
 In his Tableau Economique, published in the year 
 1 75 1, he divides society into three classes — agricul- 
 turists who live on the part of the produce of their 
 labour constituting their wages, landed proprietors 
 who live on the surplus produce of agriculture, and 
 manufacturers who live on wages paid to them by 
 the other two classes. 
 
 " The capital error of this system," Adam Smith 
 said, " seems to lie in its representing the class of 
 artificers, manufacturers, and merchants as altoge- 
 
 * M. Cherbuliez, of Geneva, in VxsPrkhdela, Science Economique, 
 speaks of " that English School to which the science is indebted for 
 nearly all the important theorems with which it has been enriched 
 since the commencement of the (19th) century;" and Wiihelm 
 Roscher, in his Geschichte der N ational-Oekonomik in Deutschland, 
 says : — " The unprejudiced historical comparison of all the chief 
 politico-economical literatures appears to me to give as result that 
 the English excels : " but, were they writing now, what would they 
 say about the last quarter of the nineteenth century ?
 
 A Plea for the Study of Economics. 31 
 
 ther barren and unproductive." This was, no doubt, 
 a capital error ; but the capital error of the school 
 was one which Smith shared ; for he went on to 
 say : " We should not call a marriage barren or 
 unproductive, though it produced only a son and 
 a daughter, to replace the father and mother, and 
 though it did not increase the number of the human 
 species, but only continued it as it was before. 
 Farmers and country labourers, indeed, over and 
 above the stock which maintains and employs them, 
 reproduce annually a neat produce, a free rent to 
 the landlord. As a marriage which affords three 
 children is certainly more productive than one 
 which affords onlv two, so the labour of farmers 
 and country labourers is certainly more productive 
 than that of merchants, artificers, and manufac- 
 turers."* This is a fallacy, consequent on a mis- 
 interpretation of the phenomenon of rent, adopted 
 from the Physiocrats ; for Smith's " neat produce " 
 is only Ouesnay's prodnit 7iet. 
 
 Adam Smith was not infalhble. The above was 
 not his only mistake. But how much do we owe 
 to his epoch-making work !t In it the emphasis 
 was removed from land to labour, as " the ultimate 
 price which is paid for every thing '' — the main 
 contribution that man can and must make towards 
 
 * Wealth of Nations, Book IV., Chap. IX. 
 
 t It is well to bear in mind that he was an cthicist as well as an 
 economist; that he wrote the Theory of the Moral Sentiments as 
 well as the Wealth of Nations ; and that the latter is to a large 
 extent ethical ; but we are here concerned only with his economics.
 
 32 Wealth-Knowledge : 
 
 the satisfaction of his material wants. Smith 
 showed that wealth consists, not only of gold and 
 silver, but of all things which man desires and can- 
 not obtain without trouble in practically unlimited 
 quantity. He explained the true functions of money 
 as a standard of value and a medium of exchange. 
 He unfolded the consequences of the division of 
 labour, and erected on an indestructible logical 
 foundation the doctrine of Free Trade. 
 
 Those who have not made a study of economics 
 can have no adequate notion of the importance of 
 the division of labour. Let us only think how much 
 would be produced, if each of us had to supply his 
 own wants — to grow his own food and cook it, to 
 make his own clothes, build his own habitation, and 
 do all else for himself that he might require. It 
 would be utterly impossible un3er such conditions 
 to rise above the savage state. Even among the 
 rudest people, labour is divided to some extent. 
 With us it is very minutely divided, and tends to 
 be still more so ; and, as each fresh division tends 
 to increase its productiveness — though in a 
 diminishing ratio — we are much more successful in 
 our industrial operations than people who work 
 harder, but whose labour is less differentiated. But 
 it is a condition of the division of labour, that there 
 must be freedom of exchange. No man would 
 confine his attention to the making of pins, for 
 example, if he were not at liberty to exchange them 
 for the articles of consumption that he desires. All 
 limitations of the market limit the division of labour,
 
 A Plea for the Study of Economics. 35 
 
 and thus tend to cripple the productive resources 
 of mankind. 
 
 Eig-ht years after the death of Adam Smith, there 
 appeared another great work, which laid bare the 
 ultimate cause of poverty. I refer to the Essay on 
 Population of the Rev. T. R. Malthus. No man 
 has been more persistently misrepresented than 
 Malthus ; and no man has had heaped on him more 
 undeserved abuse. Even Thomas Hood goes out 
 of his way — which assuredly was not that of econo- 
 mic reasoning — to write an Ode to Mr. Malthus, 
 in which he says : " If I understand the thing you 
 mean, We ought to import the Cholera Morbus'' 
 Well, he did not understand. What Malthus said 
 was, not that we should welcome disease, as a 
 means of keeping down our numbers ; but that, if 
 we do not keep those numbers in check ourselves, 
 by parental prudence, they xvill be kept in check 
 by poverty and its consequences, disease and crime. 
 
 The detractors of Malthus forget that he did not 
 invent the law of population : he only discovered it. 
 That law was in operation ages before he was bom. 
 A dire disease afflicted society, but the deepest- 
 lying source of it was unknown. He disclosed this 
 fountain of distress, and turned upon it the light 
 of science, with a view to discovering a remedy ; 
 and he is vilified as if he were the cause of the 
 misery which he did his best to cure. As I have 
 implied, the cause of this absurd injustice is a con- 
 fusion between invention and discovery. Har- 
 greaves invented the spinning-jenny ; and if that
 
 34 Wealth-Knowledge : 
 
 machine produced evil results, we might perhaps 
 blame him for perverted ingenuity. There was no 
 spinning-jenny before his time, and there never 
 would have been one if it had not been invented. 
 A man tortured with the thumb-screw might, with 
 some show of reason, blame its inventor ; but what 
 should we say of a person who, because a brick fell 
 on, his toe, cursed Sir Isaac Newton for finding out 
 the law of gravitation ? Should we not remind him 
 that Newton's discovery did not cause the brick to 
 fall, but merely explained why it fell ? And so with 
 the Essay on Population. The formulation of the 
 Malthusian Law is not the source of the problem 
 of poverty, but a most essential step towards its 
 solution. 
 
 Malthus does not occupy a high place as a 
 systematic economist ; indeed, he can scarcely be 
 said to take such rank at all. His sole contribution 
 to the building up of economic science was his re- 
 nowned and immortal Essay. Outside of that, his 
 merits as an economist are negative rather than posi- 
 tive. It would be better for his reputation had his 
 Principles of Political Economy and his minor 
 works never been written. He manifested that in- 
 capacity for deductive reasoning which was so con- 
 spicuous in Thorold Rogers and Chffe Leslie. 
 
 In marked contrast to him, in this respect, was the 
 author of the third great classical work of the 
 British school of economics — David Ricardo, whose 
 Principles of Political Economy and Taxation was 
 given to the world twenty years after the first pub-
 
 A Plea for the Study of Economics. 35 
 
 lication of the Essay on Population. Ricardo had 
 scarcely any literary education and not mucH 
 literary aptitude ; but he was immersed in economic 
 affairs, and he was a logical genius. He was fully 
 aware of the shortcomings of his style * and was 
 modest even to self-depreciation. " I am," he said 
 in a letter to Malthus, " but a poor master of lan- 
 guage," and again : " My speaking is like my 
 writing, too much compressed. I am too apt to 
 crowd a great deal of difficult matter into so short 
 a space as to be incomprehensible to the generality 
 of readers.'' This is quite true ; but v* hat an un- 
 common fault ! We have not usually to complain 
 of the superfluity of thought as compared with the 
 quantity of chatter or printer's ink. But the defect, 
 though a rare one, was 'a real one. Ricardo's ex- 
 treme terseness and his verbal inexactitude make 
 his book one of the most difficult to read. His 
 very perspicacity stood in the way of his exposition ; 
 for as Nassau W. Senior says : " His sagacity pre- 
 vented his making sufficient allowance for the 
 stupidity or carelessness of his readers ; and he was 
 too earnest a lover of truth to anticipate wilful mis- 
 construction."t 
 
 The labours of Adam Smith and Malthus had 
 done much to recast the thoughts of intellectual men 
 on some of the most interesting questions relating 
 to the production and distribution of Vv'ealth ; but 
 
 * See Dr. Hollander's Somi Unpuhlished Letters of Ricardo, 
 pp. 46-8, 86-7, etc. 
 
 t Political Economy, p. Ii8.
 
 36 Wealth-Knowledge : 
 
 — owing mainly to defects of method — economics 
 was still fragmentary, and flabby and indefinite in 
 outline. It had arrived only at the jelly fish, 
 or at most at the molluscous stage. Ricardo is 
 excellently described by John Stuart Mill as 
 having first put a backbone into the science. 
 The doctrines of rent, and profits, and interna- 
 tional exchange, and currency, were first estab- 
 lished by him with a clearness and concentration 
 seldom equalled. But it is not so much what 
 he did, as his manner of doing it, which, 
 to my mind, constitutes his chief merit. Ricardo's 
 work in economics is indestructible. The friction 
 of hostile criticisms (such as those oF Jean Baptiste 
 Say and Blanqui) has but burnished it and brought 
 out its splendour. 
 
 Professor Marshall, in his Essay on The Present 
 Position of Economics (1885), has somewhat weakly 
 admitted that English economists have a " tendency 
 to indulge in excessively abstract reasonings," and 
 pleaded that this " is chiefly due to the influence 
 of one masterful genius, who was not an English- 
 man (by race) and had very little in common with 
 the English tone of mind. The faults and virtues 
 of Ricardo's mind are traceable to his Semitic 
 origin ; no English economist has had a mind 
 similar to his." Now not only does this concede 
 the powerful influence of this " masterful genius " 
 over a race the characteristics of whose minds were 
 alien to his own, but Professor Marshall goes on 
 to say that Ricardo has added more to economic
 
 A Plea for the Study of Economics. 37 
 
 theory than anyone else, and that the work of 
 economics now requires " a constructive thinker of 
 calibre similar to Ricardo's." 
 
 As I have already said, Ricardo contributed the 
 backbone to economics ; but it must be acknow- 
 ledged that, to the popular mind, which is bent 
 less on truth for itself than on practical results, our 
 science at that time seemed nearly all backbone, 
 or bone of some sort. It was regarded as a mere 
 skeleton ; and like other skeletons, as somewhat 
 repulsive. The practical outlook it was supposed 
 to give was certainly such as to justify its being 
 called " the dismal science." It was John Stuart 
 Mill who did most to alter this ; but he did it at 
 very heavy cost. 
 
 It is impossible to^ understand Mill's contributions 
 to economics, or his works generally, without 
 recognising that there were, in reality, two John 
 Stuart Mills. One of them, the son of James Mill 
 and the disciple of Ricardo, was an Individualist, 
 an experientialist, a keen and unbending logician. 
 This man was my intellectual father. I owe more 
 to him than to any other thinker ; and, among 
 other things, he taught me too well to make possible 
 my acceptance of the doctrines of the other John 
 Stuart Mill, who married Mrs. Taylor, and was a 
 Sociahst and an emotionalist. 
 
 Now Mill himself has told us the source of the 
 inspiration of his Principles of Political Economy. 
 In his Autobiography (p. 246), speaking of his wife, 
 he says : " The purely scientific part of the- Political
 
 38 Wealth-Knowledge : 
 
 Economy I did not learn from her ; but it was 
 chiefly her influence that gave to the book that 
 general tone by which it is distinguished from all 
 previous expositions of Political Economy that had 
 any pretension to being scientific, and which has 
 made it so useful in conciliating minds which those 
 previous expositions had repelled. This tone con- 
 sisted chiefly in making the proper distinction 
 between the laws of the Production of Wealth, 
 which are real laws of nature, dependent on the 
 properties of objects, and the modes of its Distribu- 
 tion, which, subject to certain conditions, depend 
 on human will. The common run of political 
 economists confuse these two together, under the 
 designation of economic laws. . . ." 
 
 I have shown elsewhere* that, in this, 
 " the common run of political economists " were 
 right, and John Stuart T\Iill II. was wrong ; 
 and I have done so chiefly by quoting the 
 words of John Stuart Mill I. Indeed, the 
 antithesis set up between laws of nature and 
 the human v/ill, if it had any real foundation in fact, 
 would be fatal to economics as a science, which 
 deals throughout with human volitions, and involves 
 throughout the assumption that those volitions are 
 regular in their sequence, like other phenomena of 
 our universe. That this assumption is firmly based 
 on psychological facts no one has put forward witH 
 greater clearness and force than John Stuart Mill I.f 
 
 * See pp. 4.V!;6 of this book. 
 
 t See his Logic, Book VI., Chap. II., and his Examination of Sir 
 Wni. Hamilton's Fhibsofhy, Chap. XXVI.
 
 A Plea for the Study of Economics. 39 
 
 I cannot here give a critical estimate of what 
 John Stuart Mill did for economics. This I may 
 say, however — that I regard his Principles of Politi- 
 cal Economy as an overrated book ; that its plan 
 was retrogressive; that his renunciation of the 
 wage-fund theory made his economic system a ruin ; 
 and that the last essay in his Unsettled Questions 
 of Political Economy constitutes a far better title 
 to his position as an economist than any one thing 
 to be found in his more ambitious systematic work. 
 But I cannot here do full justice tO' Mill, or to his 
 much under-estimated father. Neither can I, on 
 the present occasion, tell how the science was 
 advanced by the most illustrious of his disciples, 
 Mr. Cairnes, in a work whose production, amid the 
 racking tortures of a cruel and fatal illness, I can- 
 not but regard as an act of heroism and devotion 
 to human interests, perhaps not less worthy of 
 admiration than anything which has been done on 
 a battlefield. 
 
 Mill's surrender of the wage-fund theory may be 
 said to have given the signal for the decay of his 
 influence as an economist, and the ushering in of 
 the inchoate period in economics, from which we 
 have scarcely yet escaped. Cairnes's attempt to 
 renovate and defend Mill's system was a failure. 
 The wage-fund theory was beyond repair, not be- 
 cause it was untrue, for it was a truism, but because 
 it was a sham explanation. And the same character 
 of attempting the impossible is to be found in 
 Cairnes's attempt to refute the " final utility " doc-
 
 40 Wealth-Knowledge : 
 
 trine. The theory o! " final utility " or " marginal 
 utility " is but a development of doctrine the germs 
 of which are to be found in Ricardo and Mill, and, 
 though both true and important in itself, is, in my 
 opinion, futile as a substitute for the causational 
 Ricardian analysis. 
 
 We have now msde a considerable part of our 
 way across the sea of troubles on which we were 
 launched by the necessary dissolution of Mill's pre- 
 dominant influence as an economist. Can it be 
 seen in what direction the land lies? As regards 
 method, I hesitate not to say that progress will be 
 on the lines laid down by Ricardo and adopted by 
 Mill and Cairnes. That method seems to me to 
 recognise all that is true in the opposite conten- 
 tions of the mathematical and historical schools. 
 To the former we may concede that it is the ten- 
 dency of economics, as of other sciences, to 
 become mathematical. But it is worse than useless 
 — it is delusive to attempt to discount this tendency. 
 We may concede, too, that the historical investiga- 
 tion of economics is likely to prove very fruitful — 
 principally, I would say, in suggesting and verifying 
 deductions. But that the historical can ever 
 supersede the deductive method is, I cannot help 
 thinking, a delusion. Some empirical laws may be 
 obtained by generalising the results of direct obser- 
 vation and historic research ; But these must be 
 of comparatively little value till logically afhliated 
 with laws deductively reached. The Austrian 
 school has made its success by acting along true 
 lines of method
 
 A Plea for the Study of Economics. 41 
 
 Economics has no doubt a future of endless 
 development before it. For the present, however, 
 our practical need is rather the distribution of the 
 economic truths we have than the production of 
 more — though the endeavour to do the latter 
 should never cease. We must become possessed 
 of more wealth-knowledge, and must act on it, 
 before we can become generally prosperous — before 
 want and overwork, with the disease and demoralisa- 
 tion which follow in their train, can be ejected 
 from our midst. Some, indeed, there are who still 
 call economics a " hard-hearted science," in utter 
 oblivion of the fact that science has no heart — 
 that it is not one of those false friends of whom 
 Cicero speaks — ad voliiptatem loqiientium omnia 
 nihil ad veritatem — that its object is not to say 
 things which are pleasant, but things which are 
 true. Pay no attention to the silly sentimentalists 
 who seem to think it necessary to shut one's eyes 
 in order to keep warm one's sympathies. Sir 
 James Macintosh said : " I have known Adam 
 Smith slightly, Ricardo well, and Malthus inti- 
 mately. Is it not something to say for a science 
 that its three greatest masters were about the 
 three best men I ever knew ? " 
 
 There is no science which we can less afford to 
 neglect. If we do not personally know the distance 
 of the earth from the sun, the age of the mega- 
 therium, or the properties of the conic sections — 
 though these matters are scientifically important — 
 no very serious consequences follow. But can we
 
 42 Wealth-Knowledge. 
 
 afford to be ignorant of the incidence of taxation, 
 the meaning- and merits of Free Trade, the deter- 
 mining conditions of wages, and interest, and rent, 
 the hmits of wealth production, the various pro- 
 blems connected with money, and credit, and 
 banking, and many other most important chapters 
 in economics? 
 
 We live in a world the laws of which are beyond 
 our power to alter. With these laws we must make 
 ourselves acquainted under the severest and most 
 certain penalties for ignorance or contumacy. 
 Nature never spares us on account of our want of 
 knowledge. The man who swallows arsenic in 
 ignorance of its properties, is killed as inevitably 
 as he who takes it knowing it to be poison. If we 
 would escape the chastisement of folly, we must learn 
 the laws of the material world, and the moral worlH 
 — of External Nature and of Man ; and those laws 
 then become the slaves of our will. The mariner 
 cannot alter the direction of the winds ; but Re 
 can so place his sails as to make them propel Him 
 in a direction different from their own and carry 
 him to the desired port. So can we, if we will, use 
 those currents of human feeling which, if left to 
 take their course unheeded and uncontrolled, would 
 drive us on the shoals of poverty, and dash us 
 against the rocks of despair, to waft us gently over 
 the sea of prosperity, and carry •«s^ -ftT Inampk to 
 the goal of our desires. ^^' ^ \j ^^jj _ ^ r^
 
 DISTRIBUTION AS A BRANCH OF 
 ECONOMICS. 
 
 A Paper read before the Natiotial Liberal Club 
 Political Economy Circle. 
 
 Our society has shown so decided a preference 
 for apphcations of economics to the political pro- 
 blems of the hour, that I feel almost like an aggres- 
 sor in asking your attention to a question of 
 economic theory, especially as the appeal I shall 
 make may sound to you very like a condemnation 
 of that comparative lack of interest in abstract 
 economics which I have recognised as a feature 
 of our Circle. My excuse must be that the distribu- 
 tion' of wealth is occupying quite an unprecedented 
 share of the attention, not only of the general 
 public, but of speculative thinkers ; and that, as 
 I am opposed both to the prevailing drift of thought, 
 and to the opinion which dispenses with that 
 onerous and pecuniarily unprofitable process, on 
 what is supposed to be the Economics of Distribu- 
 tion, the case which I shall endeavour to make 
 out will at least be a good butt for your criticisms. 
 Let me say, however, at the outset, that I am 
 not about to discuss the question at issue between 
 Socialists and Individualists. That question is, 
 no doubt, in one of its aspects,, a question of wealth
 
 44 Distribution as a 
 
 distribution, but not — in my sense of the terms, 
 at least — one of Distribution as a Branch of 
 Economics. Indeed, I hope to have with me the 
 more clear-headed both of systematic Socialists 
 and Individualists ; and expect to have against me 
 both the quasi-Individuahsts who distrust abstract 
 economics and tremble at the name of RicarHo, 
 and the empirical Socialists, the men of the judicious 
 mixture school, the " practical " men who seem to 
 derive policy from pollcx, and decide every ques- 
 tion " on its merits." 
 
 My chief aim is to mark out a clear issue on 
 one or two fundamental questions of economic 
 method — to take up a definite position on these 
 questions, and to see how far those who hold that 
 position to be untenable can prove it so by dis- 
 lodging me. My object is not to expound any 
 Laws of Distribution, but to state and demonstrate 
 what is the general nature of such laws, and their 
 likeness or unlikeness to Laws of Production. I 
 can best assert my position by criticising that of 
 John Stuart Mill on the same subject ; and my 
 argument will, in the main, teJ^e the form of a 
 polemic against his exposition of the general 
 character of Laws of Distribution in his Prin- 
 ciples of Political Economy. In this polemic, 
 I shall have Mill himself as a chief ally. 
 Indeed, I may go beyond this statement, and say 
 that I shall merely act as an auxiliary, almost an 
 armour bearer, to the Mill of the System of 
 Logic and the Unsettled Questions of Political
 
 Branch of Economics. 45 
 
 Economy, while he settles the question with the 
 Mill of the Principles of Political Economy. 
 
 The view one takes of Distribution as a Branch 
 of Economics is, of course, to a large extent, if 
 not entirely, dependent upon one's views of 
 economics ; and here I may say that the Mill of 
 the Unsettled Questions and the Logic leaves 
 little to be desired.* He states what he calls " the 
 vulgar notion of the nature and object of political 
 economy," and urges against it that " it seems liaBle 
 to the conclusive objection, that it confounds the 
 essentially distinct, though closely connected, ideas 
 of science and art. These two ideas differ from 
 one another as the understanding differs from the 
 will, or as the indicative mood in grammar differs 
 from the imperative. The one deals in facts, the 
 other in precepts. Science is a collection of 
 truths ; art a body of rules, or directions for 
 conduct. The language of science is, This is, 
 or This is not ; This does, or does not happen. 
 The language of art is, Do this ; Avoid this. Science 
 takes cognisance of a phenomenon, and endeavours 
 to discover its law ; art proposes to itself an end, 
 and looks out for means to effect it."t Mill goes 
 on to argue — irresistibly, as it seems to me — that 
 as pohtical economy is a science " it cannot be a 
 collection of practical rules," and urges against the 
 
 * To his statement that economics is a mental and social science 
 I cannot assent. I believe it to be neither. But I am not, at 
 present, concerned with this point. 
 
 t Utisettkd Questions, pp. 123-4.
 
 46 Distribution as a 
 
 assertion of his father and McCulloch — that 
 " Political Economy may be said to be to the State 
 what domestic economy is to a single family " — 
 that it " sends back the mind to the current loose 
 notion of Political Economy already disposed of. 
 Political Economy is really, and is stated in the 
 definition to be, a science : but domestic economy, 
 so far as it is capable of being reduced to principles, 
 is an art. It consists of rules, or maxims of pru- 
 dence, for keeping the family regularly supplied 
 with what its wants require, and securing, with any 
 given amount of means, the, greatest possible quan- 
 tity of physical comfort and enjoyment. Un- 
 doubtedly the beneficial result, the great practical 
 application of Political Economy, would be to 
 accomplish for a nation something like what the 
 most perfect domestic economy accomplishes for 
 a single household ; but, supposing this purpose 
 realised, there would be the same difference be- 
 tween the rules by which it might Be effected and 
 Political Economy, which there is between the 
 art of gunnery and the theory of projectiles, or 
 between the rules of mathematical land-surveying 
 and the science of trigonometry."* 
 
 It appears to me as clear as language can make 
 it that, according to Mill of the Unsettled Ques- 
 tions, economics being a science, its laws are 
 generalised statements of fact. The economist, 
 according to this view of his function, which I hold 
 to be the correct one, undertakes to formulate the 
 * Unsettled Questions, pp. 125-6.
 
 Branch of Economics. 47 
 
 permanent relations which exist between the pheno- 
 mena of wealth and the efforts of human beings 
 concerned in their production ; and here his busi- 
 ness ends. It is not for him to shake his finger at 
 us — to tell us wh'it we should do and the dreadful 
 consequences of disobedience. Nature, it is true, 
 may be personified ; the practical precepts which 
 you or I deduce from the permanent relations of 
 phenomena may be represented as her decrees : 
 and the evil consequences which we trace to non- 
 compliance with such imaginary decrees may be 
 regarded as the punishment of contumacy. But 
 all this is a mere fagon de parley. Apart from the 
 language of metaphor, the so-called laws of nature 
 are merely generalised facts, which it is impossible 
 to violate or to banish — " uniformities," tol use Mill's 
 own words, " which exist among natural pheno- 
 mena."* 
 
 The turning point in Mill is to be found in the 
 preface to his Principles of Political Economy. 
 In that he still states that " except on matters of 
 mere detail there are perhaps no practical questions, 
 even among those which approach nearest to the 
 character of purely economical questions, which 
 admit of being decided on economic premisses 
 alone." There can, then, be no Art of Economics. 
 There is, and can be, no body of practical rules 
 corresponding to the theorems ot Political Economy, 
 as there is an Art of Logic running pari passu with 
 Logical Science. But in the very same preface, 
 * Logic, Vol. i., p. 367.
 
 48 Distribution as a 
 
 Mill announces that " the design of the book is 
 different from that of any treatise on Political 
 Economy which has been produced in England 
 since the work of Adam Smith " ; that " the most 
 characteristic quality of that work, and the one 
 in which it most differs from some others which 
 have equalled and even surpassed it as mere exposi- 
 tions of the general principles of the subject, is 
 that it invariably associates the principles with their 
 applications " ; that " no attempt . . . has yet been 
 made to combine his practical mode of treating his 
 subject with the increased knowledge since 
 acquired of its theory " ; and that " the idea of the 
 writer of the present work " is to do this. In other 
 words, economics had been, from the time of Adam 
 Smith, differentiating in a scientific direction, from 
 the stage of heterogeneous and empirical art out 
 of which all science arises ; and it was Mill's object 
 to take it back to the Adam Smith stage of its 
 development. In that he was eminently successful ; 
 and the mischief of that success was never more 
 apparent than it is to-day. What Mill thus began 
 has culminated in the modern Cambridge school 
 of Professor Henry Sidgwick.* 
 
 It may be replied to this that Mill's art is avowedly 
 not based on economic premisses alone — that wider 
 considerations are introduced. If this ground be 
 taken, my ansv/er is that, though I have the re- 
 verse of sympathy with the muddle-headed objec- 
 tion to economics treated apart from practical 
 
 * Vide ante, pp. 37-8.
 
 Branch of Economics. 49 
 
 considerations of ethics, I conceive that there is 
 the strongest objection, both scientific and morai, 
 to a mode of treatment of the subject which is, 
 in the main, scientific, but which also assumes to be 
 practical, and in which ethical ideas are brought 
 in " by the way." Most of you, I suppose, have 
 heard of the little girl who was sent by her mother 
 to buy a quarter of a pound of cooked beef, with 
 the direction that it was to be cut with a hammy 
 knife. The result was, not to obtain ham and 
 beef at the price of the latter, but to get the beef 
 cut with what was, relatively to it, a dirty knife. 
 My contention is that such attempts as that of Mill 
 to give economics an ethical flavour at a cheap 
 rate, merely result in introducing into it what has 
 been euphemistically described as "matter in the 
 wrong place." Instead of economic problems being 
 solved apart from distractions and qualifications 
 which make any exact conclusions impossible, and 
 the results carried up to the court of ethics, there 
 to be weighed, with other truths which should 
 influence conduct, and assigned their proper worth 
 and place, we have a constant tendency to error in 
 our reasoning, through the change in the point of 
 view from that of theory to that of practice — from 
 that which is to that which ought to be, and vice 
 versa^ and a very grave probability that we may 
 mistake an economic exposition of things as they 
 are, sugared over with a thin coating of moral plati- 
 tude, for a vindication of the present condition of 
 society. Ethics is not only dirt when it is thus
 
 50 Distribution as a 
 
 brought in to play a subordinate part in an economic 
 treatise; but this subordination is an inversion of 
 the proper relation of economics to ethics. 
 
 My contention, then, is ihat the economist has 
 to deal with the distribution of wealth as the 
 botanist, and not the gardener, has to deal with the 
 distribution of plants. It is no part of his business 
 to say how wealth ought to be distributed What 
 he has to do is to say how it is distributed — 
 to fonnulate the permanent relations of wealth 
 distribution. It is as much out of place for him, 
 as an economist, to denounce this or that fact of 
 wealth distribution as unjust, as it would be for 
 a botanist to declaim against the unfairness of the 
 distribution of plants between the tropical and polar 
 regions. I expect here to be met with the objection 
 that, if sympathetic feeling does, as a matter of fact, 
 enter as an antecedent into wealth distribution, the 
 economist, by shutting it out, is garbling the facts 
 — that he is constructing an economic man who is 
 different from the natural man. This objection 
 would be ver}^ forcible if it were true ; 
 but it rests on a misunderstanding. The 
 economist does not shut out from consideration 
 moral feeling, in so far as it is an actual economic 
 factor. He will even calculate for you what would 
 be the result of its entering to a much larger extent 
 than it now does, or ever has done, into the 
 economic relations of mankind. But he insists 
 that the truth shall not be obscured by mixing up 
 that which is with that which ought to be, and
 
 Branch of Economics. 51 
 
 treating the result as a homogeneous whole. He 
 contends that the economic results of sympathy and 
 compassion should be recognised as such. 
 
 What the economist does is to insist that facts 
 shall be looked at straight in the face, and shall not 
 be regarded as other than they really are, for any 
 sentimental considerations, however worthy the 
 sentiments may be. As auditor of humanity's 
 accounts, he declines to pass a trumped-up balance- 
 sheet because people may call him harsh names, 
 and complain that he has made no allowance for 
 generosity, religion, etc. Either a person, in making 
 a bargain, obtains the best pecuniary terms for 
 himself, or he does not. If the latter, he — from 
 some motive other than economic gain — gives the 
 difference to the other party to the bargain ; and 
 the economist calls upon him to recognise the com- 
 pound nature of the transaction. A father, we may 
 suppose, lets to his son, for £-^0 per annum, a 
 house for which he could obtain ^^50. In 
 
 reckoning liis income, he puts this house down for 
 £^0. " No, Sir," says the economist, " you must 
 reckon the hire of that house as pf 50, and put i5"20 
 on the expenditure side of your account, as a yearly 
 gift to your son." The annual value of that house 
 for income tax, local rates, or other econom.ic pur- 
 poses, is properly £so; and any amount less than 
 this which its owner chooses to accept, nominally 
 as its rent, is quite irrelevant. A person, for pity s 
 sake, buys of a poor woman for sixpence some 
 stationery which he could have obtained, with
 
 52 Distribution as a 
 
 equal convenience to himself, for fourpence. 
 When he arrives at the office at which he 
 and his partner carr}^ on business, he deposits 
 his stationery and takes sixpence out of the 
 till. " Stop ! " says a friend informed with the 
 economic spirit ; " do you give alms as a firm ? " 
 " No," replies our purchaser ; " it is agreed between 
 my partner and myself that anything of that sort 
 shall be done by us as individuals." " Then put 
 back twopence of that money," says his friend ; 
 " you gave only fourpence for that stationery, the 
 remaining twopence was given out of commisera- 
 tion for the woman, and you are not justified in 
 charging your partner with half of it." 
 
 If the principle for which I am contending be 
 conceded — and it is really only one of accurate 
 book-keeping — it follows that economists, in 
 treating of distribution, may ignore all deviations 
 from strict bargaining on account of mixed motives, 
 or rather that they may insist that all such devia- 
 tions shall be entered in their true character. 
 Indeed, were this not so, economics would be the 
 delusive muddle which some academic economists 
 seem disposed to make it. There would be no 
 body of generalised truth ; but only tentative con- 
 clusions hedged round with hypotheses, or a 
 summing up of economic questions generally in the 
 sapient remark that there is a great deal to be 
 said on both sides. There could be no laws of 
 wages, interest, and rent. And here let me say 
 that the tripartite distribution of the produce — not
 
 Branch of Economics. 53 
 
 wealth g-enerally — into rent, interest, and wages, is 
 independent of hire or exchange. It is really a 
 classification of the produce according to- its accre- 
 tion from the greater productiveness of natural 
 agents, the use of capital, or mere labour ; and has 
 no necessary connexion with our social system, or 
 any social system. Were the British nation 
 organised on the Communistic plan, rent, profit and 
 wages would be still there, though they might all 
 be thrown into a common fund for equal sharing 
 among the members of the community. If Robinson 
 Crusoe found the best natural agents in his island 
 insufficient tO' satisfy his desires, and took into use 
 some of inferior quality, rent would accrue on the 
 better land. If he used capital, interest would 
 accrue. The natural remuneration of his mere 
 labour, in the produce, apart from the increments 
 of rent and interest, would be wages. It has not 
 been sufficiently obser\'ed that the Ricardian theory 
 of rent, by showing that rent is a natural surplus, 
 established it as an objective or physical, as dis- 
 tinguished from a social or catallactic, phenomenon ; 
 and the same impersonal method of dealing with the 
 phenomena ad mitsofextension to interest and wages. 
 To return to Mill, I would ask those who think 
 lightly of the logical peril of the blend against 
 which I have argued, to turn to his description of 
 Distribution as a Branch of Economics. In the 
 Preliminary Remarks to the Principles of Political 
 Economy, he says : " Unlike the laws of Produc- 
 tion, those of Distribution are partly of human 
 
 F
 
 54 Distribution as a 
 
 institution : since the manner in which wealth is 
 distributed in any given society, depends on the 
 statutes or usages therein obtaining." If anyone 
 wishes to understand the reason why the rebound 
 from Mill's authority on economics has been so 
 great, let him ponder well this astonishing sentence. 
 It would certainly be difficult to compress more 
 error into so small a compass. To show the ab- 
 surdity of this statement, I need do little more than 
 to quote Mill himself, and the same volume of Mill. 
 At the beginning of Book II. of the Principles^ he 
 expands this alleged dissimilarity of Production 
 and Distribution. Production is more than ever 
 rigid ; Distribution more than ever the reverse. 
 Not only " the laws," but also " the conditions of 
 the production of wealth, partake of the character 
 of physical truths. There is nothing optional or 
 arbitrary in them." On the other hand : " It is not 
 so with the Distribution of Wealth. That is a 
 matter of human institution solely." It depends, we 
 are told, " on the laws and customs of society. The 
 rules by which it is determined are what the 
 opinions and feelings of the ruling portion of the 
 community make them." 
 
 Now mark the following words from the com- 
 mencement of the very next paragraph, and 
 especially the last two sentences, which I have 
 italicised : — 
 
 " The opinions and feelings of mankind, doubt- 
 less, are not a matter of chance. They are conse- 
 quences of the fundamental laws of human nature,
 
 Branch of Economics. 55 
 
 combined with the existing state of knowledge and 
 experience, and the existing condition of social 
 institutions and intellectual and moral culture. But 
 the laws of the generation of human opinions are 
 not within our present subject They are part of 
 the general theory of human progress, a far larger 
 and more difficult subject than political economy. 
 We have here to consider, not the causes but the 
 consequences of the rules according to which wealth 
 may be distributed. Those, at least, are as little 
 arbitrary, and have as much the character of 
 physical laws, as the laws of production^ 
 
 If this means anything — and it appears to me 
 as clear as it is correct — it is that, though the con- 
 crete facts of distribution do' depend, i7iter alia, on 
 the civil laws and customs of society as they 
 operate in conformity with the natural\di\vs of the 
 Distribution of Wealth, it is these latter laws, or 
 uniformities of nature, that the economist under- 
 takes to formulate. 
 
 But what, then, does Mill mean when he says 
 that the Laws of Distribution are partly of human 
 origin ? He seems to have used the term " law " 
 ambiguously, so as to set up a contrast between 
 the Laws of Production and those of Distribution. 
 This does not rise above the level of a pun. It 
 is as if one were to say that rent is partly the sur- 
 plus produce of the better qualities of land an3 
 partly a breach caused by tearing. Unless the 
 word " laws " be" understood in two different senses, 
 it is not true that the Laws of Distribution are
 
 56 Distribution as a Branch of Economics. 
 
 partly of human origin ; and it is only by re- 
 stricting the use of the term, when applied to 
 Production, to one of these senses — that is, by 
 using it in a different sense from that in which it 
 is used in the other clause of the sentence — that 
 any such distinction between the Laws of Produc- 
 tion and those of Distribution as that against 
 which I am contending can be maintained. 
 
 Are Production and Distribution, then, as sub- 
 jects of economic science, in no way contrasted? 
 I think that such a contrast actually exists, and I 
 will endeavour, in a few words, to state its nature. 
 Economics is a science of causation — a truth whose 
 consequences are often not fully realised, especially 
 by the mathematical economists ; but, in its two 
 branches, the problem of cause and effect is usually 
 approached from opposite sides. In the one we 
 have given a certain quantity of wealth as existing 
 in a community, to determine how it is that this 
 is no more and no less. In this case we have to 
 reason from effect to cause. In the other Branch 
 of Economics, we have given to us a certain cause 
 to determine its distributive (and perhaps its pro- 
 ductive) effects. Here the reasoning is from cause 
 to effect. To this extent, the problem of Distribu- 
 tion as a Branch of Economics stands in antithesis 
 to that of Production ; but the notion that one of 
 them- is more than the other removed from the 
 sphere of natural law, or more within the domain 
 of human choice, is, so far as I can make out, 
 entirely devoid of logical foundation.
 
 THE ECONOMICS OF LABOUR 
 REMUNERATION. 
 
 A Lecture delivered at Bristol. 
 
 " Je n'impose rien ; je ne propose mcme rien j j'expose." — 
 
 Charles Dunoyer. 
 
 I PROPOSE to restrict what I have to say this 
 evening exclusively to the exposition of a portion 
 of the science which has been called dismal, and 
 which most persons seem to think deserving of 
 that name. If I may paraphrase the words of a 
 celebrated French economist,* I shall impose 
 nothing on you, and propose nothing to you, 
 but merely expose to your apprehension and 
 your judgment what, as a result of a third 
 of a century of study, I hold to be the teaching of 
 economics with regard to a subject which ought 
 to be of great interest to you, namely, the remunera- 
 tion of labour. 
 
 This method of proceeding will, no doubt, seem 
 to some persons a very cold-blooded one. Cool 
 it is ; but I should say, not cold-blooded, but cool- 
 headed. Be as wann, ladies and gentlemen — as 
 
 * See motto above.
 
 58 The Economics of 
 
 sympathetic as you like ; }'ou cannot be too much 
 so for me, so long as you restrict your warmth to 
 your heart, and do not let it mount to another organ 
 which it is very much better to keep cool, if one 
 wishes to distinguish between fact and fiction. Be 
 as soft-hearted as \-ou can ; but beware of allowinof 
 that softness to ascend to a region which will not 
 be improved by it. Love of our fellows is an 
 excellent guide to conduct ; but it is a snare when 
 substituted for accurate knowledge of the facts and 
 laws of our economic environment. 
 
 I intend, on the! present occasion, to keep strictly 
 to the economic standpoint, to trace the causes 
 which detennine the remuneration of labour, with- 
 out reference to the question of right or wrong. In 
 doing this I shall be doing my best to enable you 
 ultimatel}' to understand tlie question as one of 
 right far better than if I proceeded at once to the 
 ethical and political consideration of the problem 
 of wages. 
 
 I have no doubt you have heard that, some few 
 years ago, economics was banished to a remote 
 part of the solar system. (Laughter.) Do not 
 laugh at this. It is quite possible to banish a 
 science ; for science does not mean a body of laws 
 of nature, but tlie knowledge of those laws. We 
 cannot banish the law of gravitation, or the laws 
 of number summed up in the multiplication table ; 
 but we can banish physics and aritlimetic. We 
 cannot undo the truth that arsenic is poisonous ; 
 but we can ignore it — and take the consequences.
 
 Labour Remuneration. 59 
 
 The laws of nature, which were with us before we 
 discovered them, will be with us after we have 
 declined to recof^ise them. They did not come 
 at our bidding, and they will not g^o because we 
 dislike them or tell them to " be off." Whether 
 we like it or not, we are in their toils. As long 
 as we live, they will detemiine for us the limits of 
 the possible. They will set bounds to all our 
 achievements, and eventually to our lives. Do not 
 misunderstand me. I do not wish to beg the ques- 
 tion, at the outset, as to what are laws of nature. 
 All I wish to impress on you at this stage of my 
 argument is that if a given set of propositions do 
 formulate laws of nature, though we may shut our 
 eyes to the propositions, it is mere drivel to talk 
 about the banislmient of the laws. 
 
 Now, within the last few years, economics has 
 been under a shade in this country. Politicians 
 have chosen to regard it as something which has 
 served its purpose and may now be put aside. As 
 I have said, that may be done. But what is the 
 result? One result is that you have had at least 
 six millions sterling /^r «;//;?/ wadded to the burden 
 of the general taxpayer and transferred to the rent- 
 roll of the landowners of tliis country, under the 
 false plea of relieving the local taxpayer. This six 
 millions per annum capitalised amounts to 
 £"200,000,000, or about a quarter of the national 
 debt. From the very inception of this system of 
 subventions to local taxation, I wrote denouncing 
 it as a fiscal fraud ; but mv labour was useless.
 
 6o The Economics of 
 
 Economics was banished, and I spoke in an un- 
 known tongue. Recently, my friend Dr. W. A. 
 Hunter, M.P. for North Aberdeen, has written an 
 article in the Contemporary Review putting the 
 matter in a very clear light ; and he and several 
 other Members of Parliament have recently drawn 
 attention to it in a letter to the Chancellor of the 
 Exchequer, in which they propose that we should 
 retrace our steps. But the people, even now, do 
 not understand what has happened. How should 
 they? Economics has been banished, and it can- 
 not be brought back again, for a special occasion, 
 into the popular mode of thought. I give you this 
 as an example of the sort of thing which may happen 
 when you send economics on a tour to Jupiter or 
 Saturn. That science will go ; but you will have 
 to pay the traveUing expenses, and you will find 
 them very heavy. 
 
 Now the immediate subject of this evening's 
 lecture is the economics of labour remuneration. 1 
 am not going to say a single word about how labour 
 ought, or ought not, to be rewarded. My present 
 task is to lay down, as an economic foundation 
 of any moral or political judgments at which you 
 may arrive, the conditions upon which the remunera- 
 tion of labour depends. We can investigate the 
 causes of economic effects, and trace the effects 
 of economic causes, quite apart from any considera- 
 tion of what ought to be ; and I would like to point 
 out to you that, if you really wish to be guided 
 in your conduct by a thoroughly sound system of
 
 Labour Remuneration. 6i 
 
 morals — if you wish your political decisions to be 
 such as will redound to the highest happiness of 
 your fellow citizens and the human race, then, 
 believe me, you cannot be too careful in laying 
 for this moral edifice a sound foundation in 
 economics. Without that, all your good intentions 
 may go for nought, or may even aggravate the 
 evils which you seek to remedy. It is one of the 
 saddest reflections with which I am acquainted that, 
 if we have to search out the most monstrous 
 iniquities and miseries which have been inflicted on 
 mankind, we shall find they have been the work 
 of men with excellent intentions, and who strove 
 in the name of the most sacred causes, but who 
 either regarded science as an enemy or had not 
 yet attained to that knowledge of it which anyone 
 of moderate abilities may now easily get by taking 
 the requisite trouble. 
 
 In endeavouring to ascertain the laws of the 
 remuneration of labour, it is well to dismiss from the 
 mind, at starting, all notion of that remuneration 
 depending on hire by a capitalist. Let us first take 
 the case of men who have access to the raw material 
 of the globe and are working each for his own 
 support. Their remuneration will be the produce 
 they obtain. At the commencement of produc- 
 tion, we have simply the raw materials with which 
 nature furnishes us, on the one side, and what may 
 be called the raw labour of man, on the other. But 
 when we get a little farther on in economic develop- 
 ment, instead of a man working directly for the
 
 62 The Economics of 
 
 production of articles of consumption which are to 
 form the remuneration of his labour, we may find 
 him labouring for the production of some instru- 
 ment which he can afterwards apply so as to make 
 his labour more productive. Pay great attention to 
 him while he is doing this ; for, when the first man 
 did this, capital was born. 
 
 Now v/hat is the result of this action of the 
 creator of capital ? He has to wait longer for his 
 reward, but he gets a much larger one. The extra 
 remuneration, then, is not due to extra labour, but 
 to waiting. This waiting is the second part of the 
 price which man has to pay for produce, labour 
 being the first. We have, as Longfellow says, " to 
 labour and to wait." Technically that portion of the 
 produce which is the reward of labour is called 
 wages, and that part which is the result of waiting 
 is called interest. 
 
 But there is a third portion of the produce, which 
 accrues, not from labour and not from waiting, but 
 from the superiority of some natural agents over 
 others. Other things equal, men naturally prefer 
 the most productive natural agents which are 
 accessible to them ; and at first they make but 
 limited use of them. But after a time, when they 
 increase in numbers, and the demand for food and 
 other necessaries becomes greater, they are placed 
 on the horns of this dilemma — they must either 
 have recourse to worse natural agents or they must 
 more highly cultivate those at present brought into 
 use, with the result in either case that they get a
 
 Labour Remuneration. 63 
 
 smaller reward in proportion to their pains. And 
 as men continue to multiply, this process goes on, 
 and with it the produce-fund, which is the natural 
 reward of labour and waiting^, tends to be a con- 
 stantly diminishing- quantity in proportion to the 
 work and waiting which form its cost of production. 
 
 Now you will see that we are met with the 
 circumstance that this reward is not always the 
 same, and that its amount depends on whether 
 man's energies are used in combination with a more 
 or less productive natural agent. Strictly speaking 
 — and economists should always speak with rigid 
 accuracy — the surplus of produce which is obtained 
 by means of the better natural agents, over and 
 above what is obtained from the worse natural 
 agents, is not due to man, but to the greater pro- 
 ductiveness of a portion of external nature. This 
 surplus is, therefore, classed separately by 
 economists, and is called economic rent. 
 
 We have thus a tripartite division of the produce 
 into wages, interest, and rent, corresponding to the 
 agencies through which they accrue — labour, 
 waiting, and superior natural agents ; and I want 
 to draw your attention to the fact that this division 
 of the produce into three parts is not in any way 
 due to there being three separate classes of persons 
 to receive them, cr to any system of division of the 
 produce, but would exist under any conceivable 
 organisation of society. Wages, interest, and rent, 
 there will be so long as men engage in productive 
 occupations and the present order of nature exists.
 
 64 The Economics of 
 
 You may as well try to get rid of them as to make 
 seven groups of nine things each into sixty-four, or 
 to breed horses from humming-birds. 
 
 But what does this mean? As I have already 
 told you, it does not mean that there must neces- 
 sarily be separate classes of persons, whose in- 
 comes are derived, some from wages, some from 
 interest, and others from rent. There is no 
 economic necessity which I have been able to dis- 
 cover that rent should be a source of private in- 
 come. The globe which we inhabit was not made 
 by the landowners, or by their predecessors in 
 title; and its continuing to exist does not in the 
 least depend upon anybody's exertions or anybody's 
 privations. Into the history of how a large portion 
 of the earth's surface, especially in our own country, 
 has become private property, it is not my present 
 purpose to enter. I must content myself with saying 
 that it has not come about from any economic 
 need. Whether there are any moral or political 
 reasons sufficient to justify its maintenance, or, 
 if not, what should be done, are questions beyond 
 the scope of the present lecture. 
 
 Let us then, for the present, leave out of con- 
 sideration the portion of the produce which we have 
 called economic rent. In any case, whether it forms 
 a part of the private incomes of a small class of 
 landowners, or the benefit is equitably distributed 
 over the whole nation — as it might be, it does not 
 accrue from mere labour, but from the superiority 
 of some natural agents over others, and is, tliere-
 
 Labour Remuneration. 65 
 
 fore, not labour remuneration in the sense in which 
 I am using the term. We have thus left a produce- 
 fund to be divided betvveen labour and waiting-. 
 Upon the amount of this fund and the manner in 
 which it is divided will the remuneration of labour 
 depend. But, before we proceed to consider how 
 this distribution is made, there is" one caution which 
 I have to give you. It is the net produce, not the 
 gross produce, which is divided. It is evident that 
 such portion of the produce as is lost through in- 
 security is not available for distribution ; and any 
 payments which are made for security are really 
 losses through insecurity. All taxes, as well as 
 such a sum as will cover business losses and charges 
 of all kinds, must be deducted, before we have the 
 net produce-fund which is the reward of the only 
 onerous contributions man makes to the production 
 of wealth, namely labour and waiting. 
 
 In order to- make the matter clearer to you, I 
 will proceed by way of illustration. Suppose a 
 man has a bill to discount? Upon what will the 
 worth of the bill depend? Upon the amount for 
 which it is drawn, upon the date at which it is due, 
 upon the probability of. its being paid when due, 
 and upon the market rate of interest current at the 
 time at which it is discounted. Now you will find 
 that these circumstances have an exact parallel in 
 the case of the remuneration of labour. Wages 
 will principally depend on the total amount of pro- 
 duce, which corresponds to the amount for which 
 the bill is drawn. But they will also depend on the
 
 66 The Economics of 
 
 time which elapses between the commencement of 
 production and its consummation in consumption 
 upon the risks and charges incidental to the produc- 
 tion, and on the rate of interest prevalent at the 
 time. And all this, please bear in mind, is quite 
 independent of hiring, and would exist if hiring 
 had ceased to be. Be the economic organisation 
 of society what it may, the remuneration of 
 labour will be limited by its produce, after deduc- 
 tions for the losses which occur in the productive 
 process, the length of time over which that process 
 extends, and the estimation in which deferred re- 
 wards are held as compared with present ones — 
 which is measured by the rate of interest. 
 
 W^e are now in a position to understand better 
 the state of things which for the most part obtains 
 in our present society, in which the labourer usually 
 sells his labour. What the productive labourer 
 really does here is to sell his portion of the produce. 
 The person who buys his labour does not care for 
 it as labour, but onl}^ as a factor of production ; 
 and it is the produce which he buys, at a price 
 which he reckons to pay him interest for waiting, 
 insurance for risk, and wages for superintendence. 
 
 This being the case, what are the circumstances 
 which are conducive to labour receiving as large 
 remuneration as possible ? In the first place, it is 
 evident that, as labour is paid ultimately out of 
 produce, and can, in the long run, be no more than 
 a large share of it, anything which tends to 
 increase the produce tends also to increase
 
 Labour Remuneration. ^y 
 
 wages. It is in this way that Free Trade, by 
 tending to the production of each class of goods 
 by those persons and in that place in which it can 
 be produced at greatest advantage, favours the 
 higher remuneration of labour. It is the interest 
 of persons who live by the sale of their labour to 
 make it as productive as possible. 
 
 This may seem to some of you, as it seems to a 
 great number of persons, an astounding paradox. 
 It is undoubtedly in opposition of the most ultra 
 kind to populeu" notions on the subject. Protective 
 duties, opposition to piecework, enforced limitation 
 of the hours of labour, are all advocated, by the 
 majority of their supporters, on grounds which imply 
 that the road to economic prosperity lies tlirough 
 limitation of supply ; and every class of persons 
 strives to make the commodity or the service it 
 sells as scarce as possible with the view of increasing 
 its value. How then, you may ask, can it be true 
 that the high remmieration of labour depends on 
 exactly the opposite state of things? If I can 
 make this clear to you, I think I shall have done 
 much to dispel one of the worst economic fallacies 
 with which mankind is deluded at the present day. 
 
 Up to the present point I have not troubled you 
 with the question of value, simply because the whole 
 of what I have hitherto contended for is quite apart 
 from it And I hope you will see thel utter impossi- 
 bility of a large remuneration for labour generally 
 being possible when the produce-fund out of which 
 it is paid — for there is nothing else out of which
 
 68 The Economics of 
 
 to pay it — is restricted and lessened. The only 
 thing which I really have to explain to you on 
 this point is how it is that some persons may be 
 benefited by restriction of the output of their 
 labour. 
 
 As soon as a division of labour has arisen, and 
 some persons are employed on the production of 
 some commodities and some on the production of 
 others, the remuneration of each section of the 
 labouring- community will depend, not only on the 
 total produce, but on the purchasing power of its 
 share of the produce over the remainder. Let us 
 take the case of men engaged in making boots. 
 They are interested in the general produce-fund 
 being as large as possible. But they are not 
 interested in the same way in their own contribution 
 to that produce-fund. If their output of boots is in 
 excess of the demand, or is potentially so, the value 
 of boots and of bootmaking labour will tend to fall. 
 If, on the other hand, there is difficulty in turning 
 out the quantity of boots required, the value of 
 their labour will tend to rise. Any restrictions 
 which they can put on the supply of bootmaking 
 labour will be a source of gain to them, so long as 
 the scarcity-caused rise in the value of their pro- 
 duce is greater than will compensate for its diminu- 
 tion in quantity. But this gain will be purchased 
 at the expense of a more than equivalent loss on the 
 part of the consumers of boots. If not only the 
 bootmakers, but all other trades were to endeavour 
 to raise their remuneration in this way, the net
 
 Labour Remuneration. 69 
 
 result would be to lower the remuneration of labour 
 all round. The general produce-fund would be 
 lessened, and I suppose that you do not need to 
 be told that, in a division sum, when the divisor 
 remains the same, the lowering of the dividend re- 
 sults in the lowering of the quotient. All the 
 declamation in the world will never alter this fact. 
 I hope I have now sufficiently established and 
 illustrated the most important truth that wages are 
 limited by the produce of labour. But please to 
 bear in mind that it is not the mere increase of 
 the produce in which }'0U are interested, but the 
 increase of the produce per head. If the population 
 of these islands could be suddenly doubled, the 
 produce would be much greater ; but, if it would 
 not be double what it was, this increase would 
 leave you worse off than you were before. And there 
 can be no doubt that this is what would happen. 
 The fruitfulness of human labour is contingent on 
 circumstances relating to man himself and circum- 
 stances relating to external nature. But the cir- 
 cumstances relating to external nature are in a 
 great measure within the control of man. Natural 
 agents differ very much in fertility, from the soil 
 which " if you tickle it with a hoe it laughs with 
 a harvest" to the barren rock or arid desert from 
 which no amount of human labour could produce 
 anythmg worth taking into account. Now, if the 
 natural agents within our reach at a given time were 
 arranged in order of productiveness, it is evident 
 that, other things equal, the success of our produc- 
 
 G
 
 70 The Econoi.iics of 
 
 live efforts would depend on how far we would have 
 to travel, in our process of taking into use one 
 natural ag^ent after another, from the pole of fertility 
 towards the pole of sterility. The point to which 
 we had gone in this journey — called the margin of 
 cultivation or the margin of productive use — ^would 
 measure for us the possibility of the success of our 
 efforts in the creation of wealth, in so far as that 
 is dependent on external conditions. But the place 
 of this marginal point or marginal fine will depend 
 on our demand for the products of extractive indus- 
 try ; and, other things equal, this will depend upon 
 our numbers. At every increase of population, the 
 tendency is for the human tide to roll onward 
 towards the pole of sterility. 
 
 It is true that there is an offset to this. The 
 same concentration of population which has this 
 untoward result gives facility for the further divi- 
 sion of labour and large-scale production ; but tlie 
 advantage from this becomes less and less, while 
 the disadvantage resulting from the resort to in- 
 ferior soils, and worse natural agents generally, 
 becomes greater and greater. Within the last half- 
 century this has been masked for us owing to the 
 nKir\'ellous increase in the facilities of transport, 
 which have brought within our reach the produce of 
 large tracts of land in all quarters of the globe, 
 v/ith the special aptitudes of various climeSjjpegples, 
 etc. Luckily for us of the British lsles,;tne greatest 
 genius of economics, David Ricardo — not Richard 
 Cobden, as is commonly thought — succeeded in
 
 Labour Remuneration. 71 
 
 convincing Sir Robert Peel of the advantages of 
 Free Trade ; and that estimable statesman and his 
 disciples have struck down many of the fiscal bar- 
 riers to our exchange of products with other nations. 
 
 ERRATUn. 
 
 Page 70, third line from the bottom. / 
 Before "the greatest" insert "a nephew 
 of." 
 
 \/ 
 
 tiousness with which work is done, and the intelli- 
 gence with which it is directed, very much will 
 depend Any slackening of energy or care, any 
 neglect to develop the highest skill, any rules or 
 arrangements which induce men to produce less 
 than they would have otherwise produced, inevitabl}'' 
 tend to. lessen wages by lessening the produce out 
 of which they are paid. And the same may be 
 said of more directly moral shortcomings. The 
 cost of supervision and checking represents, for the
 
 70 The Economics of 
 
 live efforts would depend on how far we would have 
 
 to travel, in our process of taking into use one 
 
 natural ag^ent after another, from the pole of fertility 
 
 -.1 — f ^<.^,.-];^^ -pj^g point to which 
 
 IIIC VJlOdvJ Y tm,.„j^_ 
 
 ferior soils, and worse natural agents generally, 
 becomes greater and greater. Within the last half- 
 century this has been masked for us owing to the 
 marvellous increase in the facilities of transport, 
 v/liich have brought within our reach the produce of 
 large tracts of land in all quarters of the globe, 
 v/ith the special aptitudes of various clings, peeples, 
 etc. Luckily for us of the British Isles,;thegreatest 
 genius of economics, David Ricardo — not Richard 
 Cobden, as is commonly thought — succeeded in
 
 Labour Remuneration. 71 
 
 convincing Sir Robert Peel of the advantages of 
 Free Trade ; and that estimable statesman and his 
 disciples have struck down many of the fiscal bar- 
 riers to our exchange of products with other nations. 
 But let us not delude ourselves with our good 
 fortune. Any advantages such as these, gained by 
 access tO' the products of foreign lands, may put 
 us farther back from the pole of sterility ; but, with 
 the increase of our numbers, the march towards it 
 recommences. I do not say that other advantages 
 of a similar nature may not turn up in future. They 
 probably will. But if the growth of population go 
 on pari passu with these discoveries, this will largely 
 decrease, and perhaps nullify, the effect they woul3 
 otheAvise have had in augmenting the produce per 
 head, which is the most important factor of labour 
 remuneration. 
 
 Leaving then the question of productiveness in so 
 far as dependent on natural agents, let me next 
 ask your attention for a few minutes to its depen- 
 dence on man. Upon the energy and conscien- 
 tiousness with which work is done, and the intelli- 
 gence with which it is directed, very much will 
 depend. Any slackening of energy or care, any 
 neglect to develop the highest skill, any rules or 
 arrangements which induce men to produce less 
 than they would have otherwise produced, inevitably 
 tend to. lessen wages by lessening the produce out 
 of which they are paid. And the same may be 
 said of more directly moral shortcomings. The 
 cost of supervision and checking represents, for the
 
 72 The Economics of 
 
 economist, a large waste of human effort and conse- 
 quent lessening of its rewards. 
 
 I have now sufficiently described the circum- 
 stances on which the total amount of the produce- 
 fund depends. I will now endeavour to state to 
 you, as clearly as I canj the causes which determine 
 the total amount of charges on that fund, which 
 must be deducted before the fund goes to the 
 remuneration of labour. As you will easily see, 
 you are not only interested in the fund being as 
 large as possible, but in the charges being as small 
 as possible. Now what are these charges? In 
 the first place there is insurance, which is merely 
 the average of loss. Now this must come out of the 
 produce-fund, and it will not come out of the part 
 of it which goes to waiting, which is determined 
 apart from this, in a manner which 1 will presently 
 describe. Not only all losses by the accidental 
 destruction of produce, or failure in the productive 
 process, but all losses caused by the workmen 
 themselves, or charges imposed by or for them, 
 come, in the long run, out of their wages. The 
 loss incurred through a strike of workmen 
 may fall on a particular capitalist who is getting 
 no more than current profits ; as the loss caused 
 by the non-payment of a particular bill may 
 fall on the banker who discounted it. But, 
 just as the dishonouring of this bill will tend to 
 raise the rate of discount, which increased pay- 
 ment will have to be paid by the holders of bills, 
 and will diminish their present values, so the loss
 
 Labour Remuneration. 73 
 
 caused by a strike when it is anything more than 
 an attempt of labourers, by the withdrawal of their 
 services, to obtain the economic rate of wages, wifl 
 have to be paid in a similar way. The risk of 
 its recurrence will be discounted, and the amount 
 of this discount will be deducted, with other charges, 
 before the residue is available for wages. You may 
 not see this, as it may not take effect through a 
 lessening of the money wages of the labourers con- 
 cerned. A trained economist might possibly trace 
 it for you through the machinery of prices ; but, 
 even for him, it would not be an easy matter. 
 
 I now come to the question of interest. This, 
 as I have told you, is the reward of waiting, just 
 as wages are the reward of labour. Now in order 
 that the remuneration of labour may be as high as 
 possible, interest should be as low as possible. How 
 is this to be brought about ? In one way, and one 
 way only — by the increase of capital or, more 
 generally, of the investment supply, relatively to the 
 demand. The more capital is piled up, the better 
 it is for the wage earner ; for, other things equal, 
 the larger the supply of capital, the lower the rate 
 of interest. When there is more capital than can 
 find profitable employment at the current rate of 
 interest, capitalists will compete against one another 
 for a place in the field of investment, and interest 
 will declme while wages will rise. 1 believe there 
 is nothing to prevent interest going down to zero, 
 provided its accumulation be not discouraged. Lool^ 
 at what happened only a few years ago. A Royal
 
 74 The Economics of 
 
 Commission was appointed, in 1885, to investigate 
 the Depression of Trade and Industry. Now what 
 are the facts described in the report of that Com-- 
 mission ? What was it that constituted the " de- 
 pression " ? Was the total amount of the produce- 
 fund less than in former years ? No ; it was 
 greater than it ever had been. Then the produce 
 per head had decreased? No; just the reverse. 
 Then, perhaps, though our incomes had been 
 greater, we had outrun them by extravagance ? Not 
 so ; we had saved more than ever. Then what, 
 you may well ask, was the nature of the " depres- 
 sion " ? Now listen to the words of the Commis- 
 sioners : — " There can be no doubt that, of the 
 wealth annually created in the country, a smaller 
 proportion falls to the share of the employers of 
 labour than formerly. The view, therefore, which 
 we are disposed to adopt is that the aggregate 
 wealth of the country is bemg distributed differently, 
 and that a large part of the prevailing complaints 
 and the general sense of depression may be ac- 
 counted for by the changes which have taken place 
 in recent years in the apportionment and distribu- 
 tion of profits." If you look into this report, you 
 will find that the mode in which the distribution 
 turned in favour of the remuneration of labour and 
 adversely to profits was by a fall in the prices of 
 commodities, and not by a rise in money wages. 
 It all happened without any struggle on the part of 
 the workmen, merely by the competition of capi- 
 talists among themselves.
 
 Labour Remuneration. 75 
 
 There is one more explanation I have to make. 
 You may be under the impression, notwithstanding 
 what I have just said, that the capitahst may get 
 large remuneration, not as interest, but as wages 
 of administration. It is not, you may think, as a 
 lender of capital but as an exploiter of labour, that 
 the capitalist gets the best of the bargain. Let us 
 see how far this is true. Now that capitalists some- 
 times make large fortunes is quite evident ; but a 
 very considerable portion of this is insurance, that 
 is to say,' it is counterbalanced by equivalent losses. 
 To some extent all business is a lotteiy ; and, if 
 we wish our calculations to be accurate, we must 
 not concentrate our attention on the few big prizes 
 and ignore the blanks. Those big prizes which 
 are not to be accounted for in this way, are mostly 
 connected in some way or other with the land 
 monopoly or with personal ability. 
 
 Now with regard to what is paid for personal 
 ability, I cannot for a moment allow that this is 
 at the expense of labour. On the contrary, labour 
 gains by being exploited, and will gain more if it 
 do not kill the goose which lays the golden eggs. 
 What ability receives ability produces ; but it does 
 not obtain all that results from its exertion. Let 
 us suppose a hundred workmen each working and 
 obtaining a result equivalent to five shillmgs per 
 day. Someone with organising skill sees how, if 
 they worked under his direction, they could produce 
 eight shillings per day. In order to induce them to 
 be exploited by him, he offers them half the surplus
 
 76 The Economics of 
 
 produced by his captaincy. They thus have 6s. 6d. 
 per day and he £7 lOs. He is a rich man, but his 
 riches are not extracted from the workmen. On 
 the contrary, he has raised the remuneration of their 
 labour by nearly one-third. It does not, however, 
 follow that the labourers might not get still more 
 of the advantage from organising skill. If it were 
 relatively less scarce, it would be less highly paid ; 
 and what it lost in this way labour would gain. 
 Now it is the tendency under freedom for this sort 
 of abihty to grow, while there is also a tendency 
 to economise it by the increasing scale of produc- 
 tion. Labour, therefore, stands to win by leaving 
 it to quietly increase and multiply ; and of this 
 multiplication its high remuneration is one of the 
 chief factors. It is useless to attempt prematurely 
 to underpay business ability. Such attempts have 
 been one of the main causes of the failure of co- 
 operative production. 
 
 Respecting Socialistic endeavours to raise the 
 remuneration of labour, I have very little to say on 
 the present occasion, except that you would not get 
 rid of any of the economic laws to which I have 
 drawn your attention by the adoption of any 
 Socialistic or Anarchistic scheme. They would still 
 be with you. Wages would be there ; and they 
 would still be limited by the produce-fund and the 
 charges on it. This, however, leaves the case of 
 Socialism undecided. The battle of Socialism and 
 Individualism must be mainly fought out on ethical 
 ground. One thing, however, I may add : the
 
 Labour Remuneration. 77 
 
 notion that, under Socialism, competition would be 
 got rid of is an illusion. It would merely change its 
 form. Instead of industrial competition, whicH 
 might be as mild as that of the cricket field, you 
 would have political competition, which, when it 
 ran into all the concerns of daily life, would be a 
 terrible incubus. So far as I am able to judge, 
 the economic future which would result in the 
 largest remuneration and the most dignified posi- 
 tion for labour lies in the opposite direction to that 
 of Socialism ; but I cannot now pursue this subject 
 without transcending the bounds which I have set 
 to the present lecture.
 
 ECONOMIC CHATS. 
 
 L— THE LAW OF DIMINISHING 
 RETURN. 
 
 " We often meet after lunch, Leigh ; and our con- 
 versation is, perhaps, not as profitable as it might 
 be. Will you let me make use of the opporttmity 
 to cross-question you on economics? " 
 
 "With pleasure, Buckley; but you must keep 
 to the subject : no talking on things in general and 
 calling this economics." 
 
 " All right ; you shall keep me to the point. How 
 shall we begin ? " 
 
 " Suppose we commence with what John Stuart 
 Mill calls ' the most important proposition in 
 political economy.' "* 
 
 " With all my heart ; but is not this attempting 
 to get to the top of the ladder by a single leap ? " 
 
 " No ; importance does not imply difficulty. 
 Moreover, this Law of Diminishing Return lies very 
 near the threshold of our subject ; and I have a 
 brilliant idea. It wants two hours to lunch time. 
 We will have a little excursion, and make our old 
 friend John Bean teach it to us. He has taken a 
 
 * Principles of Political Economy, p. 109. — The references to this 
 book will be to the " People's Edition."
 
 Diminishing Return. 79 
 
 farm at Headtree ; and I propose to pay him a 
 visit and extract from iiim our first lesson in 
 economics." 
 
 " John Bean ! He knows no more about 
 economics than 1 know about . . ." 
 
 " It doesn't matter. The flowers probably do 
 not know much about honey ; but the bees manage 
 to gather it from them, nevertheless. Besides, I 
 have a mischievous delight in extorting- from a so- 
 called ' practical man,' who despises theory, the 
 statement and proof of a theory on which he has 
 been unconsciously acting." 
 
 The two friends went to the railway station, and 
 were just about to book for Headtree, when the 
 elder of them, a remarkably active-minded man of 
 over seventy years, caught sight of the object of 
 their quest among a crowd coming from the arrival 
 platform. 
 
 " Isn't that John Bean ? " said he, pointing. 
 
 "By all that's . . . Hullo! Bean." 
 
 The man thus unceremoniously addressed turned 
 round and ejaculated : 
 
 " This is a surprise. Who'd ha' thought of 
 meeting you, Leigh ? — and you, Buckley ? " 
 
 " You will be more surprised when you learn 
 what we came here for," said Buckley. " We were 
 going to Headtree to see you." 
 
 " Eh ! " said Bean, " I'm quite well." 
 
 " No doubt," said Leigh. " We can see that. But 
 we were not inquisitive about your health. We 
 w^nt to learn somethmg about your farm."
 
 So Economic Chats : 
 
 " Going into agriculture ? Take my advice. 
 Don't ; it's a losing game ! " 
 
 " Well, I won't inquire how much a year you pay 
 your landlord for the privilege of playing that losing 
 game, for that would be a side issue. No, my dear 
 Bean, we are bent on cultivating, our minds, not the 
 earth. But, for that very purpose, we are in want 
 of some information on the earth's cultivation, and 
 so we thought — or, rather, / thought — of applying 
 to you." 
 
 " You are quite welcome to anything I can tell 
 you. What crop have you in mind now ? " 
 
 " None that you would care about," said Leigh, 
 with a slight twinkle of the eyes. " But let that 
 pass. I want you to answer a few straight ques- 
 tions about your land." 
 
 " Go ahead." 
 
 " How much land have you ? " 
 
 " Over fifty acres. Let us see . . ." 
 
 " That is near enough. Is it all of one quality ? " 
 
 " Of coiirse not. About thirty acres is good 
 land — as good as you will find anywhere. Nearly 
 twenty acres is what I should call fair, but not 
 nearly so good as the otlier. And then I have two 
 or three acres which are worth just nothing." 
 
 " Very well ; let us say rouehly that there are 
 30 acres excellent, 20 fair, and, two worthless. Now 
 I suppose you reckon that you pay the bulk of 
 your rent on the 30 acres which we have agreed to 
 call excellent Is not that so? " 
 
 " Yes ; but I consider I pay som6 on the 20 acres
 
 Diminishing Return. 8r 
 
 of fair quality. For the two acres which are de- 
 cidedly bad I reckon to pay none. I make use 
 of some of it ; but I could not afford to pay rent 
 for land like that" 
 
 " No doubt : it has to be taken with the other 
 land because of its situation, but you could not 
 cultivate it at a profit and pay rent for it. Indeed, 
 as I understand you, it will not pay to till it, even 
 rent free ? " 
 
 Bean nodded assent ; and Leigh continued -. 
 " But if the demand for agricultural food-stuffs 
 were to go up, and their prices were to rise in con- 
 sequence, it might then pay to cultivate this bad 
 land?" 
 
 "Certainly, 'if."' 
 
 " In other words, as the prices of agricultural 
 produce go up, the quality of land which it pays 
 to cultivate goes down ; or, as we say, the margin 
 of cultivation is depressed. With each increment 
 of agricultural values, worse and worse land is 
 taken into cultivation." 
 
 " Yes, I can see that, though I never thought o! 
 it before." 
 
 " Now that is the very thing I want you to ex- 
 plain to me, Bean." 
 
 " Explain to you ! Why it's as plain as a hay- 
 stack. Haven't you said so yourself, Leigh? " 
 
 " The fact is, as you say, as plain as a haystack ; 
 but the explanation of that fact unfortunately is 
 not." 
 
 " Why can't you be content with the fact? " said
 
 82 Economic Chats : 
 
 Buckley. " There it is, and there's an end of 
 it." 
 
 "Aye! Aye! " chimed in Bean. 
 
 " No," said Leigh, " there's not an end of it. Why 
 do you take worse land into cultivation, that is what 
 I want to know, and what I shall get you to tell 
 me, Bean. I shall astonish you, before I am done, 
 in showing you what a profound economist you are 
 without knowing it." 
 
 " It's quite likely. I always thought I knew 
 more than you theoretic chaps, if anybody would 
 draw it out of me." 
 
 " That is just what one of these ' theoretic chaps ' 
 is in process of doing. Now, attention. You said 
 just now that some of the land you cultivate is 
 much better than some other land which you also 
 cultivate and for which you reckon that you pay 
 rent. What do you mean by this best land being 
 better than the other ? " 
 
 " Well, that's just like you Cockney fellows. We 
 know which is the best land by trying it I " 
 
 "No doubt, Bean. I can assure you I did not 
 suspect you of reaching it by any process of deduc- 
 tive reasoning. But if you had two ploughs, and 
 you considered that one was better than the other, 
 I suppose you would be able to point out to me 
 why you held it to be the preferable instrument — 
 that it cut the furrows better, or that it did its work 
 at less cost in labour, or that it would stand more 
 wear and tear, or some similar quality. Now, in 
 the same way, I want you to tell me why
 
 Diminishing Return. 83 
 
 you consider one acre of land better than 
 another." 
 
 " Because I know it's better. Why, man, it 
 yields a better crop. Isn't that sufficient ? " 
 
 " Quite. For a given expenditure on cultivation, 
 an acre of the better land yields a more valuable 
 crop — either better in quality or larger in quantity, 
 or both. Is that right, Bean ? " 
 
 " Of course it is. Who disjDutes it ? " 
 
 " Nobody, as far as I know. But there are many 
 indisputable truths which are not very clearly 
 realised, especially in their consequences. It fre- 
 quently happens that an economic law only ceases 
 to be a paradox when it becomes a truism. But 
 we must not pursue that, Bean. I have now the 
 crucial question to ask you — the question the 
 answer to which will give the information which 
 Buckley and I are in search of. You have told us 
 you have two qualities of land in cultivation, for 
 both of which you pay rent. You have told us that 
 30 acres of this land is much better than the other 
 20 acres, and that you mean by this that it yields. 
 per acre, a more valuable crop, for the same expense 
 of tillage. Now what I want to know is this : — 
 Why, under these circumstances, do you not devote 
 all your capital to the cultivation of the better land ? 
 Why do you pay rent for the use of land of inferior 
 quality, on which your return for a given amount 
 of expenditure is less, when you already have land 
 of superior quality, on which the return for a given 
 amount of expenditure would be greater? Why
 
 84 Economic Chats : 
 
 do you not devote all your capital to the better 
 land, and save the rent on the worse ? " 
 
 " Why don't I ? Because it wouldn't pay. That's 
 the long and the short of it." 
 
 " I am not disputing it. I do not doubt your 
 business sagacity. But you tell me that if you 
 removed a portion of your capital to land which 
 yields a larger return for expenditure, you would 
 lose by it. Is not that rather curious ? " 
 
 " It sounds very curious, I must confess," said 
 Buckley ; " but it is no use worrying Bean. Tell 
 us the way out of it." 
 
 " No ; I want Bean to tell us. But it is clear 
 that I must give him some help. Now I under- 
 stand you, Bean, that if you spent ;£"ioo on the 
 cultivation of a certain area of your best land and 
 the same sum on the same area of your worse 
 land, the return from the former would be greater 
 than the return from the latter ; but that if yo-a 
 spent the whole i^200 on the cultivation of your 
 best land you would not be so well off as by 
 spending £ioo on the one quality of land and 
 £ioo on the other." 
 
 " Yes, that is quite true." 
 
 " Then it is evident that the second ;^ioo applied 
 to the best land would not produce as great a return 
 as the first ;^ioo ; and ' in the same manner it can 
 be proved,' as Euclid would have said, that if you 
 spend a third ;^ioo on it, this would produce less 
 than the second. I suppose you will admit 
 that?"
 
 Diminishing Return. 85^ 
 
 " Ah ! " said Buckley, " I beg-in to see daylight 
 
 now." 
 
 " Don't interrupt. Is this true, Bean ? " 
 
 " Quite right ; but I don't see what is the use 
 of it when you know it." 
 
 " And I suppose," continued Leigh, without 
 noticing Bean's disparaging remark, " that this 
 diminishing return is true of all land cultivation ? " 
 
 " It is certainly true of all land that I know 
 anything about, or that I have ever heard of." 
 
 " Very well ; then I think we may venture on 
 calhng it a Law of Diminishing Return. Q.E.D. 
 But there is one more point, Bean, on which I want 
 information. I think it follows as a corollary from 
 this general truth — or law, as it is fashionable to 
 call it — that, at any given time, the values of agri- 
 cultural produce and the state of agricultural skill 
 being what they are, there is a height up to which it 
 is profitable to cultivate any piece of land, and 
 beyond which it is unprofitable to cultivate it ; and 
 that this point will be lower, the lower the quality 
 of the land in question, till at last we reach land 
 which, under the given circumstances, it will be 
 totally unprofitable to cultivate." 
 
 "Didn't I say that?" 
 
 " I am much obliged to you, Bean, for all the 
 valuable instruction you have given us ; but as I 
 see Buckley is getting anxious for his lunch, and 
 you have given him a sufficient dose of economics 
 for one occasion, I will express to you our joint 
 indebtedness, and wish you good day." 
 
 H
 
 86 Economic Chats 
 
 II.— THE LAW OF POPULATION. 
 
 "You promised, Leigh, to return to the subject 
 of the Law of Diminishing Return in our next con- 
 versation ; but here is my friend Mr. Philip Istinn, 
 who does not believe in economics, and who is 
 especially energetic against the Law of Population : 
 I wish you would speak to him on that subject." 
 
 " I am quite willing to oblige you, Buckley ; but 
 I would like to know more about your friend's point 
 of view." 
 
 " Well, you see I am a practical man," said Istinn. 
 " I don't care a jot about theories which will not 
 square with facts." 
 
 " Quite right," said L eigh ; " but be careful that 
 you are not misinterpreting the facts and that you 
 quite understand what is asserted by the theory ; 
 for a lapse in either direction will land you in error. 
 The Copernican theory of the revolution of the 
 earth round the sun was resisted as inconsistent 
 with the evidence of one's senses ; but the persons 
 who argued thus misunderstood the evidence : that 
 is all."" 
 
 "Ah! I know; but we are not talking about 
 astronomy. That is a science. What I assert is 
 that your so-called economics is all bosh, and that 
 the Law of Population is the worst bosh of the 
 lot" 
 
 " What do you understand by the Law of 
 Population ? "
 
 Population. 87 
 
 " Really there is no need to ask me that question. 
 You know as well as I that it asserts that human 
 beings increase faster than food." 
 
 " Pardon me ; I do not know that. Indeed, as 
 human beings cannot live without food, I do not 
 see how they can increase — except for the short 
 time that it takes tO' starve them — faster than their 
 food." 
 
 " That is just what / say ! " 
 
 " And you are quite correct ; but economics in 
 general and the Law of Population in particular 
 are unaffected by your statement." 
 
 " Well now, look here. Here is the Malthusian 
 of November, 1898. On the first page, I find it 
 stated that ' Malthus's dogma' is 'that man tends 
 to increase at a quicker ratio' than food supply.' Is 
 that true ? " 
 
 " It is not. Wheat and potatoes, herrings and 
 rabbits, pigs and sheep, tend to increase at a quicker 
 rate than man. But that is not to the point. The 
 tendency of human beings is to^ increase beyond the 
 limits of the actual, or indeed the possible, food 
 supply ; and, if that tendency is unchecked by 
 other causes, so that population presses against 
 these limits, it is no consolation to persons with 
 empty stomachs to tell them that the abstract 
 potentiality to increase of cereals and fish is enor- 
 mously greater than that of man." 
 
 " I do not see that people increase in this way. 
 Where have they ever done it, I should like to 
 know ? "
 
 88 Economic Chats : 
 
 " You might as well ask a physicist to give you 
 an example in experience of the First Law of 
 Motion. You do not deny, I suppose, that a body 
 once set in motion tends to move endlessly in a 
 straight line with undiminished velocity. But no 
 body has ever actually done this. It is just the 
 same with the Law of Population. That law is 
 a statement of a tendency which is never actually 
 realised, which is always checked in some way or 
 the other " 
 
 " But," interjected Mr. Istinn, " if it is always 
 checked, what need we care about this precious 
 ' tendency.' I like to be practical, I do." 
 
 " And still," replied Leigh, " you are taking up 
 the most unpractical attitude. Let me, however, 
 first remind you that you are going away from the 
 question ; for the point we are discussing at present 
 is, not the practical value of the Law' of Population, 
 but its truth. I will, however, cede this objection 
 for the moment, in order to point out to you that 
 it is the very fact that some of the most momentous 
 economic laws are laws of tendency only that makes 
 economics so important as a guide to conduct. It 
 is not the actual, but the contingent future — the 
 future contingent on human behaviour — ^which is 
 morally of consequence to us. The actual future 
 is as immutable by human conduct as the actual 
 past If the Law of Population itself were the 
 statement of an irresistible trend of human beings 
 to increase so far as the supply of food would let 
 them — and this is how it was at first regarded by
 
 Population. 8q 
 
 Malthus himself — the outlook would be terrible 
 indeed" 
 
 " That seems very plain to me," said Buckley. 
 "Don't you see it, Istinn? " 
 
 " No', I don't. If no instance of this law ever 
 takes place, where does Mr. Leigh or any other 
 economist get his evidence of it? " 
 
 " Mr. Buckley would not ask that question," said 
 Leigh, " for he has, during a large portion of a long 
 and active life, been teaching physical laws which 
 are not reached by specific experience. All heavy 
 bodies within a certain distance of the earth tend 
 to fall to the earth's centre ; but, if we know this, 
 it is not because we have ever observed that any 
 body has ever done so. The earth tends, at each 
 moment of its yearly cycle, to fall into the sun. I 
 need scarcely say that we did not learn that by our 
 planet having done so. The earth is also constantly 
 tending to move at a tangent to itsi orbit. It never 
 does so ; and our knowledge on the point could 
 not, therefore, have been obtained by direct obser- 
 vation of this tendency. As I have already said, 
 the First Law of Motion is an example of the same 
 kind of generalisation. Bodies in motion, within 
 our knowledge, do no^ persistently move with un- 
 diminished and unaccelerated velocity in a straight 
 line ; but every change in the direction and velocity 
 of their motion can be accounted for by counter- 
 acting causes — ' checks ' if you like to call them so. 
 That is the crucial point. In this way the tendency 
 to perpetual, steady, rectilinear motion of a moving
 
 go Economic Chats : 
 
 body is established as a residual law, by tHe 
 abstraction of the effects of the modifying causes. 
 The Law of Population is demonstrated in the same 
 way." 
 
 " This is taking the matter very much out of the 
 reach of the ordinary man," said Istinn, " but I should 
 like to hear how you prove the Law of Population 
 in that way." 
 
 " The ordinary man must be taught that his 
 tittle-tattle on economics is of no more worth than 
 his tittle-tattle on glossology, astronomy, or juris- 
 prudence. The Law of Population, as I have said, 
 is that human beings tend to multiply beyond the 
 actual means of subsistence. This law is true with 
 regard, not to man only, but to the whole animal 
 world. As Darwin says : — ' A struggle for exis- 
 tence inevitably follows from the high 7'ate at 7vhich 
 all organic beings tend to increase. Every being 
 which, during its natural lifetime, produces several 
 eggs or seeds, must suffer destruction during some 
 period of its life, and during some season or occa- 
 sional year ; otherwise, on the principle of geo- 
 metrical increase, its numbers would quickly 
 become so inordinately great that no country could 
 support the product. Hence, as more individuals 
 are produced than can possibly survive, there must, 
 in every case, be a struggle for existence, either 
 one individual with another of the same species, or 
 with the individuals of distinct species, or with the 
 physical conditions of life. It is the doctrine of 
 Malthus applied with manifold force to the whole
 
 Population. 91 
 
 animal and vegetable king-dom ; for, in this case ' 
 — that is, in the case of what we would call tlie 
 lower organisms — ' there can he no artificial in- 
 crease of food and no prudential restraint in 
 marriage.^ "* 
 
 " But this only applies to the brute creation." 
 " It applies to man, too, with the difference — 
 pointed out by Darwin — that man can artificially 
 increase his means of subsistence and can take 
 thought of parental responsibility. I am, however, 
 not concerned with it now in its most extended, 
 biological aspect, but in its human and economic 
 aspect. I shall therefore ask you to start, not with 
 the marvellous results of the fecundity of the lower 
 organisms, but with the comparatively low fertility 
 of man. Now, taking a very moderate estimate of 
 human fecundity — one, indeed, which is much 
 below the reality — we may say that man tends to 
 double in number at each generation. Bear in 
 mind that this is not intended to be a statement 
 of the ^c/wrt/increase at any time, but merely what 
 would result from abstract human fecundity in the 
 absence of all counteracting causes. If you take 
 into consideration that a woman's child-bearing 
 years are about thirty, I think you will see that — 
 were all obstacles removed — she would (taking one 
 woman with another, and allowing for cases of 
 infertility) at least bear a sufficient number of 
 children to double in number the representatives 
 of her husband and herself in the next generation. 
 
 * Origin of Species, p. 50. — The italics are mine. — J. H. L.
 
 93 Economic Chats : 
 
 This is really an understatement. Let us, 
 however, take) it at that. What would be the 
 result of this tendency? Starting from a 
 single human couple, and doubling at each genera- 
 tion, the hundredth generation would number 
 1,267,650,600,228,229,401,496,703,205,376 persons. 
 In order to bring this number more within the 
 range of our conception, Sir John Herschell cal- 
 culated that, reckoning for each of these persons 
 an average space of four feet high and one foot 
 square, they ' would form a vertical column, having 
 for its base the whole surface of the earth and sea, 
 spread out into a plane, and for its height, 3,674 
 times the sun's distance from the earth.' " 
 
 " What is the use of such calculations ? " asked 
 Istinn. " Such a result could never happen." 
 
 " Of course not," said Leigh, " but those who, for 
 this reason, attach no importance, or small impor- 
 tance, to these figures, simply show that they have 
 not learned the method of the concrete deductive 
 sciences. The force which is measured by these 
 figures, and is indeed understated by them, enor- 
 mous as they are, is at every moment of mankind's 
 history exerted to the full. It is producing its 
 quantum of effect, which is no more nullified by 
 intermixture with other effects than the law of 
 gravitation is nullified by the ascent of a rocket or 
 the flight of a cannon-ball. But that effect cannot 
 be seen in isolation by the naked eye of common 
 sense. It gets mixed with the effects of other 
 causes, and the telescope of analytical science is
 
 Population. 93 
 
 needed to resolve the nebula of every-day experi- 
 ence into the separate stars of which it is made 
 up. Just as the tendency formulated by the First 
 Law of Motion cannot become an actuality be- 
 cause of the distribution of matter and the Law of 
 Gravitation, so the tendency formulated by the Law 
 of Population cannot become an actuality because 
 men cannot live without food, and indeed I may say 
 without a place whereon to put the soles of their 
 feet. For this tendency of population to assume 
 proportions which have to be measured in such 
 units as the sun's distance from the earth, in order 
 to make them even approximately conceivable, 
 stands in marked contrast to man's home — a petty 
 planet, two-thirds of whose surface is water, and 
 a great part of the remainder unfit for human 
 habitation." 
 
 " Yes, that is all very fine," said Istinn, " but we 
 are a long way off from this earth being filled up 
 as yet, and suflicient for the day is the evil thereof. 
 When we find the world too small for us, there will 
 be quite time enough to study the Law of Popula- 
 tion in particular, and economics in e^neral." 
 
 " That is a natural objection," replied Leigh, 
 " and it is one which has often been made ; but it 
 involves a misunderstanding of the nature of the 
 barrier to the increase of population. That barrier 
 is not one which is not reached till all the void 
 places of the earth have been filled up. The 
 cardinal fact to be borne ;'n mind in this respect is 
 that land — using this term in its wide economic
 
 94 Economic Chats : 
 
 sense — is not uniform in quality. Let us suppose 
 that all the natural agents which make up the crust 
 of the earth were arranged in order of productive- 
 ness — the most productive at one end, the least 
 productive at the other. Men would naturally com- 
 mence to work at the pole of maximum productive- 
 ness ; but, as they increased in numbers, they 
 would be driven to take less and less produc- 
 tive natural agents into use. As the human tide 
 increased in volume, it would roll on towards the 
 pole of sterility. Other things equal, the average 
 produce per head would be less and less. Natural 
 agents, as I have already implied, vary in produc- 
 tiveness. Of those within our reach at any given 
 time, we tend to use the more productive, and to 
 bring the less productive into use only when this 
 is more advantageous than the application of fur- 
 ther labour to the more productive.* After a com- 
 paratively early stage in the use of a natural agent 
 — such as agricultural land — is reached, it is found 
 that doubhng the labour and waiting does not pro- 
 duce a double reward. The return to each succes- 
 sive dose of labour applied is less and less, till at 
 last a point is reached at which the return is prac- 
 tically nothing. This is the cause of resort to 
 inferior natural agents ; and, as the tide of popula- 
 tion swells, and the demand for food and other 
 materials drawn from the land grows, worse and 
 worse natural agents are brought into use, and the 
 productiveness of the sacrifices made by man, in 
 
 * See the first of these Economic Chats.
 
 Population. 95 
 
 so far as it depends on those natural agents, 
 becomes less and less." 
 
 " Why do you say ' in so far as it depends on 
 those natural agents ? ' " asked Buckley. 
 
 " Because it may happen, and has happened in 
 recent years, that the gain through invention and 
 discovery — including the bringing within our 
 reach new and fertile regions — has more than com- 
 pensated us for the loss through mcrease of popula- 
 tion. But this does not mean that this loss is not 
 a reality. If I were to lose my purse containing 
 £\o, and went home afterwards and found that 
 I had been left a legacy of i^20, I would be a net 
 gainer of ;^io on the two events ; but it would be 
 absurd to contend, because of this, that the loss 
 of my purse was no misfortune. A large part ol 
 the enomious economic advantages which would 
 naturally have accrued during the present century 
 has been used up — and, in the absence of wide- 
 spread parental prudence, always will be used up — 
 in merely counteracting the results of increase of 
 population. The latter has had its full effect, though 
 that effect is not seen in the concrete." 
 
 " A nice pickle we should be in," said Istinn, " if 
 we had not been as numerous as we are, in the 
 face of the hostility of the French, Germans, Rus- 
 sians, and the rest! " 
 
 " That is no answer to my contention. Let us 
 suppose that our present numbers are needed in 
 order to maintain our national existence against 
 foreign foes. If this be so, we may be obliged
 
 96 Economic Chats : 
 
 to accept the disadvantage which a rapid increase 
 involves ; but it in no way shows that such rapid 
 increase does not involve a disadvantage. More- 
 over, if all the children who died before the age 
 of puberty because of the poverty of their parents 
 had not been brought into existence, the next 
 generation would have been as numerous, and the 
 nation would be no weaker through not having 
 to keep these ineffectives. But I am really not 
 concerned with these practical applications of the 
 theory I have endeavoured to expound. It is agreed 
 between Buckley and me that we shall restrict our 
 conversations to economics." 
 
 " Is there no kind of economic set-off to' the Law 
 of Population ? " asked Buckley. 
 
 " Yes ; there is one kind of gain which may pro- 
 perly be put against the loss through growth of 
 population — the advantage given by density of 
 population in the division of labour. But the advan- 
 tage thus to be obtained grows less and less. The 
 most important benefits to be obtained by the 
 division of labour are acquired at an early stage ; 
 and, moreover, facility of transport, by making 
 distant markets accessible, has shorn density of 
 population of very much of the good it could in 
 this way produce." 
 
 " What about Socialism, and Teetotalism, and 
 Vegetarianism?" said Buckley. 
 
 " The notion," said Leigh, " that you can provide 
 for the unchecked increase of population by a re- 
 distribution of wealth or changes in food appears
 
 Population. 97 
 
 to me utterly chimerical. Those who propose to 
 do anything of this kind have utterly failed to 
 realise the meaning of the figures which I have 
 placed before you. Let me take an extreme sup- 
 position. A French chemist has lately expressed 
 the opinion that we shall soon be independent of 
 animal and vegetable food. The artificial produc- 
 tion of compounds hitherto supposed to be pro- 
 ducible by organic processes alone will, he thinks, 
 soon have attained such a height that we shall be 
 able to make our food direct from the mineral world. 
 Let us suppose this done, that it has also been 
 discovered how to transmute the various elements 
 which are useless as food in those which form its 
 main constituents, and that, in this way, the whole 
 earth could be turned into food.' I maintain that, 
 even on this hypothesis, the barrier would merely 
 have been put back — not removed, and that we 
 would not have provided for the unchecked growth 
 of population. Population must be checked. We 
 have no choice in this matter. But we have an 
 option as between the checks. These may be 
 classified as the death-producing, and the birth- 
 restricting. Nature has given us a reproductive 
 power far in excess of the possibility of life, and 
 still more of happy hfe, to our offspring. Shall we 
 bring children into existence, and let them be cut 
 down in numbers to the possibilities of life? Or 
 shall we use our foresight to prevent this struggle, 
 by Hmiting our parental responsibilities so that our 
 offspring may have the chance of a happy life?
 
 98 Economic Chats : 
 
 This is the alternative which lies before us ; and 
 it is one of the most momentous, for good or for 
 evil, which the circumstances ot our life on earth 
 have placed before the human race." 
 
 III.— INTEREST* 
 
 " I WISH you would say a few words, Leigh, in 
 explanation of the problem of interest." 
 
 " With all my heart ; but what problem of 
 interest is it which you wish me to solve for you ? " 
 
 " Well, what is the justification of interest ? " 
 
 " I cannot say." 
 
 "Eh!" 
 
 " Did we not agree that these conversations 
 should be restricted to economics ? " 
 
 " Yes." 
 
 " Well, economics has nothing to do with ques- 
 tions of justification." 
 
 " The bitterest enemies of that so-called science 
 never said a more damaging tiling against it." 
 
 " I quite agree with you ; but they are not very 
 sensible people; and, when they butt against 
 economics, I am very sorry for — ^well, not for 
 economics. I am speaking to you as an economist, 
 and as an economist I am not concerned with ques- 
 tions of right and wrong." 
 
 "Then you push aside questions of ethics?" 
 
 * The theory of interest here put foiward was first stated by me 
 infa paper read before the Zetetical Society on 22nd February, 1882.
 
 Interest. 99 
 
 " When solving economic problems — ^yes, just as 
 you would ignore the moral aspects of a mathe- 
 matical or a chemical problem. I turn up Tod- 
 hunter's Algebra and find this question : ' A 
 gentleman sends a lad into the market to buy a 
 shilling's worth of oranges. The lad having eaten 
 a couple, the gentleman pays at the rate of a penny 
 for fifteen more than the market price ; how many 
 did the gentleman get for his shilling ? ' Now if, 
 instead of solving this equation, you were to launch 
 out into a denunciation of the wickedness of the 
 boy, I am afraid you would have small chance of 
 becoming a Senior Wrangler. If this question were 
 put to you in an examination paper, you would not 
 occupy your thoughts and waste your time on this 
 urchin's lapse in morals, which you would rightly 
 regard as irrelevant, but would proceed to calculate 
 the arithmetical consequences of his act ; and if 
 anybody were to base on this neglect of moral 
 considerations a denunciation of mathematics, you 
 would probably consider a smile a sufhcient answer. 
 But when you come tO' economics, you neglect this 
 isolation of the phenomena with which you have 
 to deal — the primary condition of scientific treat- 
 ment ; and the result is endless confusion." 
 
 " Then what do you hold to be the economic 
 problem of interest ? " 
 
 " There are several ; but the one which lies 
 nearest to the ethical problem of the justitication 
 or condemnation of interest is that of its existence. 
 How does interest arise ? "
 
 100 Economic Chats : 
 
 "Well, how does it?" 
 
 " The problem resolves itself into this : How- 
 comes it that a given quantity of wealth to be 
 received at some future time is worth less than 
 the same quantity of wealth to be received at an 
 earlier time or actually in hand? The difference 
 in value between these two is interest. It is a 
 difference dependent on time only, and if time in 
 economics were a factor which might be neglected, 
 there would be no such thing as interest." 
 
 " Do you mean to say that when I pay interest 
 on a loan I pay for time onh' ? " 
 
 " The so-called interest you pay on a loan con- 
 sists in part of payment to your creditor for risk that 
 he will not be repaid, in part of remuneration for 
 his trouble in negotiating the business, keeping a 
 record, etc. Excluding these, which are really 
 insurance and wages, not interest, the amount you 
 pay is for time only ; but it is not for time in the 
 abstract. It is for time in connection with the use, 
 or at least the possession, of a definite quantity 
 of wealth. The Proudhon school may denounce 
 time as an abstraction, or as a subjective form of 
 thought, to their hearts' content. They could just 
 as well denounce as abstractions, colour, weight, 
 and every other attribute of material wealth. These 
 are abstractions when considered apart from th^ 
 things of which they are attributes. And it is the 
 same with time. As a generalisation of our ideas 
 of sequence, or as a form of thought, the economist 
 is not concemedf with it. But with time as a condi-
 
 Interest. ioi 
 
 tion of the production and ownership of wealth he 
 is very much concerned." 
 
 " I suppose, Leig-h, this is because it becomes a 
 concrete and practical matter?" 
 
 " Yes, from the point of view of economics." 
 
 " Then I wish you would put it for me in the 
 form of a concrete example." 
 
 " Certainly. You, Buckley, are over three score 
 and ten years old. Now suppose some g-ood friend 
 were to leave you £"5,000; it would make all the 
 difference to you whether this amount could be 
 obtained on demand or was given to you in the 
 form of a reversion which would ' fall in,' as the 
 phrase goes, thirty years hence." 
 
 " Ah ! It would be very little use to me thirty 
 years hence." 
 
 " And still the difference would be one of tinae 
 only. Now, in the earliest stages of man's existence 
 there was no demand for deferred consumption. 
 Men took no thought for the morrow. They lived, 
 as the phrase is, from hand to mouth ; and it proba- 
 bly took a considerable time, reckoning even in 
 the large units in which we reckon man's life on 
 earth, before sufficient advance was made to pro- 
 vide for tiding over the barren and inclement sea- 
 son of the year. Before this stage in human 
 development was reached, the yearly deluge swept 
 oft" men, and women, and children in their thou- 
 sands. At last the wisdom of saving for the winter 
 was recognised ; and, from that time, m.an has made 
 constant progress in providing for future consump- 
 
 I
 
 102 Economic Chats : 
 
 tion. Indirect methods of production have been 
 found more productive than direct ones ; and there 
 is a constantly increasing demand for capital — that 
 is, for produce which is devoted, not to the direct 
 satisfaction of human desires, but to the produc- 
 tion of further wealth. Again, men take thought 
 not only for the winter of the }'ear, but for the 
 winter of their lives — ^when the snows of advancing 
 age are on their brows and the rays of life's sun 
 become feebler and feebler. Men look even 
 farther than that. They save for consumption 
 which is to take place after their life's sands 
 have run out. It is not my purpose to speak of 
 this as a moral fact. I note it solely as an economic 
 one. The whole object of what I am now saying to 
 you is this — to point out that with man's advance in 
 the scale of being — his advance in intelligence, m 
 wisdom, in knowledge, in sympathy — there is a 
 constantly increasing demand for deferred con- 
 sumption." 
 
 " Yes ; I see that. The more people we can 
 get to live prudent lives, the greater will be that 
 demand." 
 
 " You are quite right, Buckley. But now I am 
 going to make a hypothetical statement on that 
 point. Suppose there is a demand for future con- 
 sumption rising from nothing to something very 
 great. Suppose there is a demand for present 
 consumption, over and above what certain persons 
 can satisfy from their own property, relatively very 
 great almost from the first, but growing- proper-
 
 Interest. 103 
 
 tionally small as time goes on. Now these two 
 suppositions, I believe, represent the truth on this 
 subject; and what results from them? In the 
 early stages, the surplus demand for present con- 
 sumption being relatively great, those who wish 
 their neighbours to forego this gratification will 
 have to offer a comparatively large inducement. 
 But as first the willingness and then the desire 
 to put off consumption grows, the necessity for this 
 inducement becomes less and less. The competi- 
 tion of those who wish to borrow becomes more 
 and more evenly balanced by the competition of 
 those who desire to lend. Interest falls ; and if, 
 as I believe, the demand for deferred consumption 
 will at last outstrip that for anticipated consump- 
 tion, we may look forward tO' a time when interest 
 will not merely disappear, but when it will become 
 negative." 
 
 " Isn't this very speculative ? " 
 
 " Not more so than many other scientific truths. 
 We ought not to forget that our conclusion is partly 
 based on a contingent premiss. But, so long as 
 we bear this in mind, we are quite safe. Our first 
 statement is that Interest exists only because the 
 demand for anticipated consumption exceeds that 
 for deferred consumption. This, at least, is categori- 
 cally true. Our next statement is that the demand 
 for deferred consumption tends to increase faster 
 than that for anticipated consumption. This is only 
 conditionally true. It is based on the assumption 
 that men will, more and more, learn to compete
 
 I04 Economic Chats : 
 
 only on the basis of a peaceful industrialism, and to 
 eschew the wasteful and brutal competition of mili- 
 tarism. Just so far as this is true will it be true 
 that Interest is evanescent." 
 
 " I think I see that now, Leigh ; but may I go 
 back to another part of your statement? You 
 analysed the so-called interest paid on a loan into 
 Interest proper, insurance, and wages. Has this 
 any bearing on the money-lending question?" 
 
 " It has. Persons measure the charges of a 
 money-lender as a rate per annum. Now this is 
 an accurate method of estimating only one of the 
 three elements of which those charges are made 
 up. The mere price of the loan, apart from risk 
 and trouble, is a quantity of two dimensions — 
 amount and time. But risk does not vary directly 
 with time ; and trouble does not vary directly 
 with either amount or time. It may be practically 
 as perilous to lend for a month as for a year ; an3 
 the trouble caused by a loan of ;£^ 1,000 may be 
 very little, if any, greater than that involved in a 
 loan of ;£^500. A rate per cent, per annum is, there- 
 fore, a delusive measure of the remuneration of a 
 money-lender."
 
 What is a Pound? 105 
 
 IV.— WHAT IS A POUND? 
 
 " When I was a young man, Leigh, there was much 
 talk about Sir Robert Peel's question — What is a 
 Pound? I could never understand what all the 
 fuss was about. Surely everybody knows what a 
 pound is." 
 
 "Do you?" 
 
 "Yes; I think so. If anybody gut Peel's ques- 
 tion to me, this is what I should do," said Buckley ; 
 and he took a sovereign out of his purse and showed 
 it to his friend. 
 
 " If anybody asked you — What is chalk ? — ^would 
 you consider you had answered him by showing 
 him a piece ? A billiard-marker might do that ; 
 but you would not You would explain its chemical 
 composition and its geological fonnation. But 
 when a similar question is put with regard to the 
 British standard coin, you reply like the billiard- 
 marker. All of which proves that you are a chemist 
 and a geologist, but not an economist" 
 
 "Well, how would you answer the question?" 
 
 " Let me first say a few words on the history 
 of the pound sterling. The pound, by weight of 
 silver (livrej, is said to have been introduced as a 
 monetary standard by Charlemagne, who divided 
 it into sols and defiiers : hence our ^ s. d. From 
 the Continent, these silver pennies (deniers) were 
 brought into this country by the merchants of the 
 lands near the Elbe, then called Eastphalia. These
 
 io6 Economic Chats : 
 
 traders 'were known in England by the name of 
 Easterlings ; and, their money being of the purest 
 quahty, easier ling, in Latin esterlingus, shortened 
 to sterling, became the name of pure or sterling 
 money.'* The monetary pound, in the time of our 
 Norman kings, was a pound of silver,t and the 
 pennyweight was the weight of a silver penny." 
 
 " Then private merchants supplied money ! " said 
 Buckley. 
 
 " Certainly ; but this did not last. The manu- 
 facture of money was taken up as one of the func- 
 tions of government ; and so ingrained has 
 become the habit of looking to the State for the 
 provision of money, that, notwithstanding the con- 
 stant failings and frauds of governments in this 
 matter, and the constant intrigues of political parties 
 to manipulate the currency for some sectional 
 interest, a man who — like Herbert Spencer or the 
 late Walter Bagehot — expresses any doubt as to 
 the wisdom of the State interfering in this matter, 
 is looked upon almost as a madman. When once 
 a State monopoly has been set up, the very possi- 
 bility of a different condition of things becomes 
 more and more difficult to conceive." 
 
 " But our Government did not debase the coin- 
 age," said Buckley. 
 
 " You are mistaken,'" said Leigh. " Henry VIII. 
 was an especial sinner in this respect. The pound 
 of silver was progressively coined into a larger and 
 
 * Max Miillei's Chips pom a Geriuan Workshop, Vol. iii., p. 123. 
 t The '1 owtr pouii;1. 5,400 grains, up to 18 Henry VIII. (1527) ; 
 the pound Troy since.
 
 What is a Pound? 107 
 
 larger number of shillings,* till, at the commence- 
 ment of the seventeenth century, the number had 
 risen from twenty to sixty-two : the 7noney pound 
 consisting of twenty shillings throughout these 
 changes. But it must be borne in mind that the 
 pound, as a weight, changed from 5,400 to 5,760 
 grains. Allowing for this, the simplest way of 
 putting the matter is to say that the same weight 
 of silver which, at the Conquest, was coined into 
 £1, was coined, in the 17th century, into £2 
 1 8s. i^d. Perhaps it may be as well to caution you 
 that the shilling as a coin was first struck in 1 504 ; 
 before that it was only what is called ' money of 
 account,' and was represented by twelve pennies." 
 
 " Is a pound Troy of silver still coined into sixty- 
 two shillings ? " 
 
 " No ; the shilling continued at that weight till 
 1 8 16, when it was still further reduced, on the 
 recommendation of the celebrated Lord Liverpool, 
 by sixty-six being coined from a pound of silver. 
 But this last reduction in weight of the silver coin 
 stands on quite a different footing from the pre- 
 ceding ones ; for, simultaneously with, the lessening 
 of the quantity of metal used in the fabrication of 
 the shilling, it was deposed from its position as 
 standard money. The Act of 18 16 (56 Geo. IIL, 
 ch. 58) established our present gold standard in 
 England, and declared silver coin legal tender up 
 to 40s. only. The metallic value of our present 
 
 * Excepting two fluctuations in the reigns of Edward VI. and 
 Mary respectively.
 
 io8 Economic Chats : 
 
 shillings, which contain slightly more than 87^ 
 grains of silver,* thirty-seven fortieths fine, is a 
 little more than 4d. at the present price of silver — 
 IS. I id. per ounce." 
 
 " This is all very puzzling, Leigh. You have 
 told me what the pound was, and how it was 
 gradually depreciated, till at last it was deposed. 
 But what is a pouna now ? " 
 
 " It is a piece of gold, stamped by government 
 authority, and guaranteed to be eleven-twelfths fine 
 and rather more than 123 grains in weight! The 
 British Mhit coins an ounce of gold, 22 carats fine, 
 into £3j^h = £} 173. io|d., which is thus said to 
 be ' the Mint price ' of gold per ounce. As the 
 minting of standard coin has been gratuitous since 
 1666 (18 Charles II., ch. 5), anyone may send to 
 the Mint 160 ounces of standard gold, and get it 
 made up without cost into 623 sovereigns : or, if 
 he prefers not to wait for the process of coining, 
 which takes about three weeks, he may get 622 
 sovereigns at once, for his gold, from the Bank 
 of England. The Bank is compelled to make this 
 purchase of standard gold, at £}, i /S. gd. per ounce, 
 under the fourth section of the Bank Charter Act 
 
 * The exact weight of the shilling is supposed to be 87*27272 
 grains ; but coins cannct be made so exact in weight as this implies, 
 and the " remedy " as it is called— that is the amount of divergence 
 from this norm which is allowed to the Mint — is slightly over a 
 third of a grain, 
 
 t The exact weight is defined as I23'27447 grains; but this, like 
 the weight of the shilling, is a " counsel of perfection." In practice, 
 the Mint issues sovereigns varying in weight from 1 23'074 grains 
 to 123*474 grains, the range of difference being two-fifths of a grain.
 
 What is a Pound? 109 
 
 of 1844. The difference of i|d. per ounce in the 
 Mint price and the Bank price of gold is the pay- 
 ment for the three weeks' waiting for the process 
 of coining." 
 
 " Then the value of gold is fixed by law ? Does 
 not this seem to give countenance to the contention 
 of the Bimetallists that the value of silver should 
 also be fixed by law ? " 
 
 " No. The fixing of the Mint price of standard 
 gold determines the weight of the sovereign, not 
 its value. All that it decides is, that the weight 
 of a sovereign shall be the same fraction of 480 
 grains as £1 is of £'^ 17s. loid. This is, of course, 
 a constant quantity. But its invariability does not 
 inean that the value of gold is invariable. That 
 is constantly changing. It varies with every varia- 
 tion in the value of other commodities. How can 
 the purchasing power of gold over other com- 
 modities remain unaltered, while the purchasing 
 power of those other commodities is in a state of 
 perpetual flux ? As well expect one end of a see- 
 saw to remain stationary while the other is going 
 up and down. Some persons confuse the price of 
 gold (the quantity of money for which it will ex- 
 change) with the value of gold (the quantity of 
 wealth in general for which it will exchange) ; and, 
 because the former — a purely quantitative relation 
 — is fixed, they infer that the latter — an economic 
 relation dependent on fluctuating economic causes 
 — is fixed also. It is easy to account for their falling 
 into this fallacy. The values of all other forms of
 
 no EcoNOxAiic Chats : 
 
 wealth are commonly reckoned by their prices ; 
 and when these prices do not vary, the values of 
 the goods are said to remain unchano-ed. If wheat 
 were 40s. per quarter yesterday and the same price 
 to-day, we would say that its value was unaltered ; 
 just as we would say that a person had not grown 
 within the last ^^velve months if his present height 
 were the same multiple of my foot rule as it was 
 a year ago. In the one case as in the other, the 
 invariability of the standard of measurement is 
 assumed. But suppose this were the very matter 
 in discussion. To appeal to the standard itself, 
 under such circumstances, would be an absurd 
 t^egging of ihe question. If the person we have 
 supposed to be measured were to assert that my 
 foot rule had shrunk, this would not be disposed 
 of by pointing to the divisions on it, and calling 
 attention to the fact that the number of inch spaces 
 on it was twelve, as it always had been. But this 
 is exactly what those do who appeal to the Mint 
 price of gold as proof that gold is fLxed in value by 
 Act of Parliament. They measure the value of 
 gold by gold ; and, because the relative value of 
 I23i grains and 480 grains is unaltered, they come 
 to the conclusion that the value of gold is ' stablished 
 that it cannot be moved.' The price of an ounce 
 of gold in sovereigns means the number of pieces 
 of gold 123I grains in weight, which is equivalent 
 to another piece of gold 480 grains in weicrht. This 
 relation is purely arithmetical and constant. No 
 power on earth could modify it. No variation in
 
 What is a Pound? hi 
 
 the value of gold would affect it. Were someone 
 to find out a method by which iron ore could be 
 reduced to gold with the same facility as it is now 
 reduced to iron, gold would be enormously depre- 
 ciated in value, but its Mint price would be abso- 
 lutely untouched by this revolution. ' 
 
 " You have given me a terrible dose this time, 
 Leigh, and have made no allowance for the fact 
 that my digestion is not what it used to be ; but I 
 think T can see that it is all right. But you have 
 not said much about the Bimetallists." 
 
 " Well, I do not want to discuss Bimetallism to- 
 day ; but you are quite right m your notion that 
 some of the most prominent of its advocates have 
 asserted that the value of gold is fixed by the Mint 
 price. M. Emile de Laveleye, late Professor of 
 Political Economy at the University of Liege, in 
 an article in advocacy of Bimetallism,* said that 
 money in England ' has a value fixed by the Mint, 
 which remains invariable. Gold is always £'^ i/s. 
 lod. per ounce.' And M. Henri Cernuschi, who 
 may be regarded as the chief apostle of Bimetallism, 
 went farther than this. He contended that no 
 money — including in this an inconvertible paper 
 currency — is ever depreciated. ' Whether good or 
 bad,' he said.t ' no money is ever, in its own 
 country, below par. The gold sovereign, the silver 
 rupee, the bimetallic franc, the assignat, the green- 
 back, the paper rouble, have always maintained their 
 
 * Fortnightly Reviexi, July, 1881. 
 t Bimetallism tn England and Abroad, p. ,^0.
 
 112 Economic Chats : 
 
 nominal value. This is because all money, whether 
 metallic or not, is necessarily forced currency. 
 Everybody must receive it without demur, and 
 without discount. If two moneys coexist, one 
 metallic and one paper, the metallic may be at a 
 premium above par. The gold guinea was at a 
 premium by the side of the paper pound sterling, 
 always at par. So with the gold dollar by the 
 side of the inconvertible greenback, always at par. 
 What of gold money and silver money circulating 
 together ? The rule is the same. Neither the gold 
 francs nor the silver francs were ever below par ; 
 but it sometimes happened that the one or the 
 other was at a premium." 
 
 "Ah! that is a convenient way of settling the 
 matter." 
 
 " Very convenient indeed ; for in the same way 
 it can be proved that nothing has ever fallen in 
 value. When the exchange ratio of twO' moneys 
 has varied, M. Cernuschi takes the value of that 
 which has fallen relatively to the other as par; 
 and, by thus measuring it by itself, proves, to his 
 own satisfaction and tliat of some not very wise 
 people, that it has remained immovable. I am 
 not concerned with this as an argument for Bimetal- 
 lism ; but the statements of Messrs. de Laveleye 
 and Cernuschi will illustrate for you the errors of 
 those who think that the value of money depends 
 on the mere arbitrary will of governments. 
 
 " There is one more question I have to ask you, 
 Leigh ; and then I will let you off for this time. I
 
 What is a Pound? 115 
 
 think you have assumed that the value of the 
 sovereign and its buUion value are identical. Is 
 this true? Does not the process of manufacture 
 into coin raise the value of the gold ? " 
 
 " No ; it does not. It is done for nothing- ; and 
 what can be had for nothing fetches nothing in the 
 market. Any person can send any quantity of gold 
 into the Mint and get it worked up into sovereigns 
 free of cost, so that the coining in itself does not 
 raise the value of the gold ; but, as I have explained^ 
 persons have to wait about three weeks for this 
 coining process to- be accomplished, or to pay the 
 Bank of England lid. per ounce for so waiting, 
 and therefore to this slight extent the sovereign 
 may be more valuable than its bullion. I say ' may 
 be ' because the demand for bar gold may send up 
 its price to any point between £^ 17s. gd. and £^ 
 17s. loid. And now I think I have said enough 
 for one occasion, on the question with which you 
 started our conversation ; and here I propose to. 
 leave it for the present"
 
 THE PERSONAL RIGHTS ASSOCIATION, 
 
 FOUNDED 14th MARCH. 1871. 
 OFFt CES:-3a, CKARINQ CROSS. LOND ON, S.W. 
 
 President:— Mr. JOHN p. THOMASSON. 
 Vice=Presidents : 
 
 Professor Steadjian Aldis. 
 Mr. W. L. Beurle. 
 Mrs. Josephine Butler. 
 Monsieur Yves Guyot, 
 Mr. Robert Hampson. 
 
 Mr. G. J. HOLYOAKE. 
 
 Mr. C H. UopwooD, K.C. 
 
 Mr. Alfred Miljstes, M.A. 
 Si^iior Ernesto Nathan, 
 Mrs. A. C. Scatcherd. 
 :Mr. H. C. Stephens. 
 Charles F.ell Taylor, M.D. 
 Mrs. P. A. Taylor. 
 Mr. William Tebb. 
 
 Mr. Walter McLaren. ' Mrs. John P. Thomasson. 
 
 Mr. Willi Asr Malleson. [ Ux. Henry Wilson, M.A. 
 
 Manager :— Mr. J. H. Levy. 
 
 Hon. Treasurer: — Mr. Henry Wilson, M.A. 
 
 Assistant Secretary :-Miss M. E. H. Colson. 
 
 Bankers : -Par r's Bank (Charing Cross Branch), Limited. 
 
 OBJECT OP THE ASSOCIATION. 
 
 The object of the Association is to uphold the principle of the 
 perfect eqiwlity of all persons before the law in the exercise and 
 enjoyment of their Individual Liberty and Personal Rights. 
 
 It h;is, throughout its existence' of over thirty-two years 
 consistently maintamed the principle of the equality of all cidzens 
 before the law. without regard to wealth, birth", sex, culture, 
 race, religious belief, or any other circnni.stjuice whatever save 
 the responsibilities which are implied in respect for the rights 
 of others. 
 
 It would maintain government just so far as. but no farther 
 than, is necessary for the maintenance of the largest freedom ; 
 and, in applying this, would have equal regard to the liberty 
 of all citizens. 
 
 It is equally opposed to the tyranny of the Few over the 
 Many and the tyranny of the Many over the Few — to the use of 
 all force in our intercourse Avith our fellows, men and women, 
 save that minimum which is required in order to maintain free- 
 dom at the maximum. 
 
 It disregards the empty catchwords of party, and desires to 
 unite justice-loving women and men in opposition to encroach- 
 ments on the domain of individual rights, from whatever quarter 
 these encroachments may come. 
 
 It watches over legislation and the administration of the laws 
 in order — so far as its means allow — to guard this prmciple. 
 
 Subscript rONS ar.d Donatioxs are eam'Mli/ requested, and should be made 
 payable to the Hon. Treasurer, JlR. He.nrv Wii.so.n, M.A. 
 
 •»* "Tnr.lsowiXiVKlA^T:," theorr/anoftke Asxociiitpm.mity be obtained nt 
 the offices of the Association, Price Id., or Is. Cd. per annum, posted. It is sentfne 
 to all Members of the Association.
 
 p. S. KING &. SON'S NEW BOOKS. 
 
 PARHAME^8T 
 
 Its Romance, Its Comedy, and Its Pathos. By Michael MACnONAGii, 
 Author of "The Book of Parliament," etc. Demy 8vo, 414 pp., 7/G net. 
 
 ELEtWEPJTS OF STATESTiCS 
 
 By AuTHCR L. BOWLEY, M.A., F.S.S., Appointed Teacher of Statistics 
 in the Vniversitij of London. .SECOND EDIIION. Demy 8vo, 356 pp., 
 numerous Diagrams, 10 6 net. 
 
 PROPUCTEON AND DESTRJByTEON 
 
 A History of the Tlieories of Production and Distribution in English 
 Political Economy from 1770-1848. By Edwin Cannan', M.A., LL.D., 
 Appointed Te"r,her of Economic Theory in the I'niversity of London; 
 Author of "The History of Local Rates in Rutland," etc. SECOND 
 EDITION, V.ITII TWO ADDITIONAL SECTIONS. Demy 8vo, 
 cloth, 448 pp., 10 6 net. 
 
 SELF-g^OVESiN8V5EMT BN CANADA 
 
 ANi> HOW IT WAS ACHIEVED: the Story of Lord Durham's 
 Report. By F. Bkadshaw, B.A., ^Senior Hulme Kxhibiiioner, Brase- 
 nose CoUerje, Oxford. Demy 8vo, 424 pp., 10 6 net. 
 
 C8ViL3SATBON JN C Of^GOLANP 
 
 A Story of International Wrong-doing. By II. R. Fox BOURXE. V.'ith 
 a Prefatory Note by the Right Hon. Sir Chakles W. Dilke, Bart., 
 M.P. Demy 8vo, 324 pp. with Map, 10, 6 net. 
 
 A KESTORY OF FACTORY LEGBSLATiOM 
 
 By B. L. HuTCHixs and A. Hariuso.n, B.A. (Lond.). With a Preface 
 by Sidney Webb. Demy 8vo, 384 pp., 10 6 net. 
 
 CAPE COLQg^Y FOR THE SETTLER 
 
 An Account of its Urban and Rural Industries, their Probable Future 
 Development and Extension. By A. R. E. BURTON, F.R.G.S., Editor 
 Iramvaal .lyrirMltural Magazine. Issued l>y Order of the Government 
 of Cape Colony. Demy 8vo, 356 pp., 26 Plates, 8 Maps, 2 6 net. 
 
 HOUSING BY VOLUNTARY ENTERPIliSE 
 
 Being an Examination of the Arguments concerning the Provisions of 
 Dwelling Hou.ses under Part III. of the Housing of the Working 
 Classes "Acts. By James Par.sons, Barrister-at-Law. Crown 8vo, 128 
 pp., 2,6 net. 
 
 !G & SON, '"'«;!,«yv*Tslli
 
 UNIVERSIT" 
 
 OPTMT/* TTT>T»*UY 
 
 \ 
 
 > ' 
 
 UNIVERSITY OF CALIFORNU 
 AT 
 
 LOS AKGELES 
 
 T ItTinni) M mtTCr
 
 HB 
 
 171.7 
 
 L57s 
 
 UC SOUTHERN REGIONAL LIBRARY FACILITY 
 
 ^1 
 
 P 
 
 AA 000 494 615